OECD Economic Survey : Chile

 The sources indicate that Chile’s economy has largely resolved the macroeconomic imbalances built during the pandemic, returning to trend growth with inflation on a rapid downward path. However, fiscal space is limited, and long-term spending pressures from population ageing and the green and digital transitions necessitate a focus on fiscal sustainability and increased revenue.

Macroeconomic Outlook and Monetary Policy

• Economic Growth: GDP growth moderated to 0.3% in 2023 but is projected to recover to 2.4% in 2024, 2.3% in 2025, and 2.1% in 2026. This recovery is supported by recovering real wages and the easing of monetary policy.
• Inflation Control: Headline inflation fell from a peak of 14.1% in August 2022 to 4.2% in November 2024. Inflation expectations remain firmly anchored at the central bank’s 3% target, allowing for a gradual, data-driven easing of the policy rate, which reached 5.0% in December 2024.
• External Accounts: The current account deficit narrowed to 3.4% of GDP in 2023, financed primarily by net foreign direct investment and government debt issuance.

Fiscal Policy and Sustainability

• Fiscal Consolidation: The government is committed to fiscal responsibility, having implemented a significant adjustment in 2022 that resulted in a 1.1% surplus. Plans for 2024-2026 project a gradual consolidation, targeting a headline deficit of just 0.3% of GDP by 2026.
• Strengthened Framework: In 2024, Chile reinforced its fiscal rule by adopting a dual-target system. This includes the traditional structural balance target and a new prudent gross debt ceiling of 45% of GDP to better contain debt growth.
• Sovereign Wealth Funds: While the Economic and Social Stabilisation Fund (ESSF) provided a crucial buffer during the pandemic, its assets dropped from 5.2% of GDP in 2018 to 1.9% in 2023. The sources recommend a gradual replenishment of these funds.

Tax Reform and Revenue Mobilization

The sources emphasize that Chile’s current tax-to-GDP ratio of 21% is insufficient to meet increasing social and investment demands.

• Pact for Growth: This agenda pledges to increase permanent spending only if structural revenue increases. It aims to raise revenues by 2.1% of GDP by 2028 through measures like the recently approved Tax Compliance Law (targeting 1.5% of GDP) and efficiency gains.
• Proposed Reforms: A comprehensive tax reform is recommended to increase progressivity by raising more from personal income taxes, which currently apply to only 20% of formal workers. Conversely, the sources support lowering the corporate tax rate from 27% to 25% to spur investment.
• Resource Revenues: Chile is leveraging its natural wealth, with a new mining royalty expected to raise 0.45% of GDP annually. The fiscal rule was also adjusted in 2023 to ensure that windfall gains from lithium lease contracts are saved rather than used for permanent spending.

Structural Challenges

• Pension Reform: This remains a priority to address low replacement rates and old-age poverty. The proposed reform involves increasing employer contributions by 6% and raising the minimum guaranteed universal pension.
• Financial Market Depth: The capital market was structurally weakened by extraordinary pension withdrawals of roughly 20% of GDP during the pandemic. Future policy must avoid further withdrawals to preserve the financial system's capacity to absorb shocks.

In the context of the OECD Economic Survey: Chile 2025, fostering gender equality in the labour market is identified as a critical lever for boosting the country's potential growth and alleviating the demographic pressures of an ageing population. While gender inequalities have declined, significant gaps persist in participation, earnings, and pension benefits.

Current State of Labour Participation

Chile's female labour force participation rate reached 60.5% in 2023, a recovery from pandemic lows, but it remains significantly below the male participation rate of 77.6% and below the OECD average. These disparities are most pronounced among older cohorts; for instance, the participation gap for women aged 55–65 is 35 percentage points compared to 21 points for those aged 25–54.

The sources emphasize that closing these gender gaps is not just a matter of equity but of economic necessity. Fully closing participation and hours-worked gaps by 2060 could increase Chile's potential GDP per capita by more than 0.25 points annually.

Key Barriers to Women’s Participation

Women in Chile continue to face structural barriers that hinder their full-time integration into the workforce:

• Uneven Care Responsibilities: Women perform between 2.2 and 2.8 times as much unpaid domestic and care work as men. 35% of women outside the labour market cite domestic and care responsibilities as their primary reason for not seeking employment, compared to only 3.7% of men.
• The "Sala Cuna" Rule: Current regulations mandate that firms with more than 20 female employees provide childcare. This has inadvertently created a disincentive for firms to hire women beyond that threshold and has negatively impacted women’s salaries in larger companies.
• Motherhood Penalty: Maternal employment rates in Chile (60%) are much lower than the OECD average (71%), particularly for mothers with young children. Childbirth often leads to career breaks that result in significant long-term earnings shortfalls and lower job quality.

Earnings and Pension Gaps

The cumulative effect of these barriers results in substantial financial disparities:

• Wage Gap: The median wage gap for full-time employees is 15.4%, higher than the OECD average of 11.5%. This is exacerbated by occupational segregation, where women are concentrated in lower-paying service sectors.
• Pension Gap: Women’s pension benefits are 29% lower than men’s. This is due to lower wages, shorter contribution periods, a lower legal retirement age (60 for women vs. 65 for men), and longer life expectancy.

Skills and the Green/Digital Transition

A major challenge for future equality is the STEM gap. Only 10% of women entering tertiary education in Chile choose STEM programmes, one of the lowest rates in the OECD, compared to 47% of men. This disparity limits women's ability to benefit from high-paying roles in the digital and green transitions.

Policy Recommendations and Recent Reforms

The government has introduced several initiatives to address these issues:

• Sala Cuna para Chile Bill: A proposed reform to expand childcare to all formal workers regardless of firm size, co-financed by employer and government contributions.
• STEM Initiatives: The "Más Mujeres Científicas" policy offers additional university slots specifically for women in STEM careers.
• Leadership and Pay: New bills aim to mandate 40% gender quotas on corporate boards and require large firms to disclose gender wage gaps and establish equity plans.
• Work-Life Balance: Recent modifications to the Labour Code have reduced the work week from 45 to 40 hours and introduced teleworking rights for caregivers of children under 14.

According to the sources, Chile’s ability to accelerate productivity and boost its long-term growth potential depends heavily on its success in digitalisation and innovation. While the country has achieved high connectivity rates compared to its regional peers, it continues to lag behind the OECD average in digital skills, R&D investment, and the adoption of advanced digital tools among small firms.

Digital Infrastructure and Connectivity

Chile has made significant progress in digital infrastructure, with fibre optic connections representing roughly 69% of fixed broadband, well above the OECD average. Mobile broadband penetration and international cable installations have also expanded, positioning the country as a regional data centre hub. However, significant barriers to entry remain in the telecommunications sector due to cumbersome concession regulations. Furthermore, a digital divide persists: internet access is lower in rural areas and among low-income households compared to urban and high-income groups.

The Digital Skills Gap

A major structural barrier is the shortage of high-skilled workers for the digital transition. The sources highlight several critical skill deficiencies:

• Foundational Skills: PISA results show that literacy and numeracy skills among Chilean students are low.
• Adult Proficiency: Only 11.7% of adults in Chile are proficient in problem-solving in technology-rich environments, compared to the OECD average of 32.3%.
• ICT Shortages: There is a significant deficit of ICT professionals, with demand for cybersecurity specialists growing 10 times faster than other professions in 2022.
• Gender Disparities: Female enrollment in tertiary STEM programs is just 10%, one of the lowest rates in the OECD.

Innovation and R&D

Chile’s investment in innovation remains a weakness. Gross R&D expenditure is only 0.3% of GDP, far below the OECD average of 2.1%. Business spending on R&D is particularly low, and collaboration between firms and universities is limited. The sources note that public support for innovation is currently complex and fragmented, with overlapping objectives across different government agencies.

Adoption in the Private and Public Sectors

Digital diffusion is uneven across the economy:

• SMEs: Small and medium-sized enterprises lag significantly behind large firms in digital maturity and training. While programs like Digitaliza tu Pyme exist, they often focus on basic rather than advanced digital skills.
• FinTech: Chile has a thriving FinTech ecosystem, and the 2023 FinTech Law provides a much-needed regulatory framework to promote competition and financial inclusion.
• Digital Government: While 89% of government procedures are digitalised, public information systems remain fragmented. A unified public sector data strategy is needed to improve interoperability and service delivery.

Emerging Technologies and Security

• Artificial Intelligence: Chile updated its National AI Strategy in 2024, focusing on ethical deployment, state capacity, and talent development. AI use is rising rapidly in large firms and the public sector.
• Cybersecurity: In response to rising cyberattacks, Chile approved a new Law on Cybersecurity and Critical Information Infrastructure in 2023 to regulate essential services and enhance national digital security.

The sources characterize Chile’s green transition as a dual challenge: the country must meet ambitious decarbonization targets while simultaneously leveraging its unique natural resources to foster economic growth. Chile has a legally binding commitment to reach net-zero greenhouse gas (GHG) emissions by 2050, with emissions projected to peak in 2025. However, the sources warn that current efforts may be insufficient to meet 2030 targets, necessitating faster emissions reductions in the energy and transport sectors.

Clean Energy and Green Hydrogen

A centerpiece of Chile’s strategy is the shift toward renewable energy and the development of a green hydrogen industry.

• Renewable Energy: Solar and wind generation grew from 1% to 31% of total electricity in a decade. The government aims for 80% renewable electricity by 2030 and 100% by 2050. A major hurdle is the lack of transmission lines to move power from renewable-rich zones to demand centers, which results in wasted energy.
• Green Hydrogen: This industry is expected to contribute 21% of total GHG reductions by 2050. While Chile has significant cost advantages, the sources note that realizing this potential requires massive investment (estimated at $75 billion to reach 2030 goals), improved port infrastructure, and streamlined permitting.

Critical Minerals: Lithium and Copper

Chile’s vast reserves of lithium and copper are essential for the global energy transition, particularly for electrification and batteries.

• Production Advantage: Chile holds the world's largest share of known lithium reserves and has the lowest production costs globally.
• Environmental Trade-offs: Lithium extraction is highly water-intensive and occurs in extremely dry regions. The sources emphasize that increasing production must be balanced with protecting water availability and biodiversity in fragile Andean salt flats.
• State Participation: The National Lithium Strategy foresees significant state participation through partnerships between private firms and state-owned companies like Codelco.

Fiscal and Regulatory Reforms

To achieve these goals, the sources recommend several economic and policy shifts:

• Carbon Pricing: The current carbon tax of $5 per tonne of CO2 is considered too low to significantly alter behavior, especially compared to the government's estimated social cost of carbon ($63.4).
• Fossil Fuel Subsidies: The sources advocate for phasing out tax expenditures that support fossil fuels, such as the lower excise tax for diesel compared to gasoline.
• Permitting Reform: Lengthy and complex permitting processes—sometimes exceeding legal timeframes—are a major barrier to green investment. The proposed Sectoral Authorisations bill aims to cut approval times by one-third.

Climate Adaptation and Resilience

As one of the countries most vulnerable to climate change, Chile faces rising threats from wildfires, droughts, and floods.

• Wildfire Management: Wildfires threaten a large share of the population and jeopardize the "carbon sink" capacity of forests needed for net-zero goals.
• Infrastructure and Insurance: The sources call for increased investment in resilient infrastructure and higher take-up of home insurance, which remains low among vulnerable populations.

The "Just Transition" and Workforce

The green transition will lead to labor market shifts, particularly as coal-fired plants are phased out.

• Skill Gaps: There is a significant shortage of technicians and ICT professionals needed for the green and digital transitions.
• Support for Workers: A Just Transition strategy is being implemented to assist communities affected by coal-plant closures through reskilling programs and local economic diversification.