Chile

Chile’s financing risks have eased moderately as fiscal consolidation progresses and external conditions stabilize. The fiscal deficit is projected to narrow to 1.0% of GDP in 2026, with public debt stabilizing near 40%, well below most emerging market peers. Foreign direct investment remains robust, particularly in mining and renewables, supporting external accounts. However, the financial sector remains sensitive to global volatility and risk premiums, reflecting diminished local financial depth after pandemic-era pension withdrawals and increased reliance on foreign investors. While credit conditions have improved, the banking sector is closely monitoring asset quality amid sluggish recovery in retail and construction. Corporate insolvencies remain contained and below pre-pandemic levels, with retail and construction sectors most exposed. After a +5% increase in 2025, we forecast a partial recovery this year bringing the number back to 2024 levels (-4%). The government is implementing a Consolidated Debt Registry in 2026 to strengthen credit risk management and financial supervision. Overall, Chile’s financing risks are mitigated by prudent fiscal management and strong institutions, but external shocks, sectoral vulnerabilities and business interruption events, such as protests disrupting production, logistics or storage, could still trigger localized stress or higher insolvency rates.

Chile’s political landscape in 2026 is defined by polarization and shifting alliances following another political transition. Public frustration with crime, migration and uneven economic outcomes have led to the victory of a radically different majority in December. While the shift could boost business confidence and accelerate deregulation, legislative fragmentation and fiscal constraints will likely limit the scope of policy changes. Governance challenges persist, with gridlock complicating the passage of key reforms in taxation, pensions and state involvement in the production of critical raw materials, such as lithium. Social cohesion remains fragile as inequality and labor market disparities fuel discontent. Internationally, Chile’s trade ties are robust, but disputes over water resources with neighbors and the government’s expanded role in the mining sector pose potential risks to cross-border investment, contract stability and contingent liabilities. Overall institutional credibility has boded well with different majorities in recent years, but navigating social demands and maintaining investor confidence will remain central to Chile’s political risk profile.