Chile: Technical Assistance Report-Fiscal Considerations in Managing Stabilization Funds

International Monetary Fund

No 2023/249, IMF Staff Country Reports from International Monetary Fund

Abstract: This technical assistance report on Chile highlights fiscal considerations in managing stabilization funds. Chile’s strong fiscal framework has served the country well. Cross-country experience shows that an adequate buffer in stabilization fund can facilitate governments’ response to shocks. Rebuilding fiscal buffers in a holistic framework can help Chile better manage tail risks. The quantitative models suggest that keeping debt well below the current prudent ceiling on central government gross debt at 45 percent of gross domestic product is appropriate. The government can reduce public debt to give space for future borrowing in adverse times or accumulate liquid assets to rebuild fiscal buffers. Fiscal efforts to achieve a broadly balanced fiscal position are an important way to rebuild buffers. The government should avoid borrowing more debt at high interest rates to save assets in the stabilization fund. Overall, the pace of building buffers should be tailored to economic conditions.

Keywords: IMF's Fiscal Affairs Department; Tail risk; public treasury; Mexico budget revenues stabilization fund; support fund; size of stabilization funds; Fiscal risks; Fiscal stance; Natural disasters; Global (search for similar items in EconPapers)
Pages: 57
Date: 2023-07-07
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