Chile contemplates a second year of heavy indebtedness

Chile’s government plans a second year of heavy borrowing in local and international markets in 2022 to finance social spending, even as the impact of the pandemic recedes.

The country’s Treasury plans to sell $20 billion in debt this year, compared to the $19 billion forecast for 2021, according to a statement from the Ministry of Finance.

Of those bonds, $3.45 billion will be used to pay down debt, up from $6.3 billion last year. Around US$ 6,000 million in foreign currency will be sold, an amount similar to that of 2021.

“The financing plan is consistent with what is contemplated in the 2022 budget law“, He said Andres Perez, economist at Banco Itaú Chile and former coordinator of International Finance at the Ministry of Finance. “That said, they are high amounts to be issued in the local market. It will be challenging to comply if political uncertainty and risks of new retirement savings withdrawals persist.”.

Faced with market pressure, the government plans to increase sales of longer-term peso bonds among international investors. Of longer-dated local currency notes, it will issue $4 billion under the book construction modality in global markets, up from $3 billion last year.

The government will also cut sales of short-term local currency bills to $3bn from $4bn last year, with the rest in medium- or long-term local notes.

The Chilean peso strengthened after the announcement and rose as much as 1.1% to 813.94 per dollar before pulling back to trade at 821.23.

Public spending soared around 32% last year, mainly due to emergency spending to counter the pandemic, with a public deficit of around 8.3% of gross domestic product, according to the Government’s Third Quarter Public Finance Report. .

For this year, the government has said it expects to cut spending by 23% and lower the deficit to 2.8% of GDP.

The government of the outgoing president, Sebastián Piñera, has presented a bill to create a guaranteed universal pension for more than 90% of the population, at a cost of around 0.95% of GDP. Currently, its financing is being discussed by Congress.