Download Fiscal Responsibility and Macroeconomic Performance

Fiscal Responsibility and
Macroeconomic Performance:
The Case of Chile
Ministry of
Finance
Juan A. Correa
Head of Research Department
October 2013
Responsible Fiscal Policy is Good for Growth
• Fiscal discipline decrease sovereign risk
• Increasing inflows of foreign capital and decreasing
outflows of local capital
• Improving debt position to face international crises
• Allowing sectoral long-term strategies => improving
the quality of government expenditure
2
Per Capita GDP has Tripled since the mid-80s
(GDP per capita, PPP, 2012 US$)
20000
18,419
18000
16000
14000
12000
10000
8000
6,309
6000
4000
Source: Central Bank of Chile and IMF
2012
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
0
2011
2000
Fixed Capital Investment
(Fixed Capital Investment Rate, % of GDP, constant prices)
30
26.8
25
20
15
10
5
Source: Central Bank of Chile
2012
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
1974
1972
1970
1968
1966
1964
1962
1960
0
4
Source: INE
5.5
May -Jul
Mar - May
Jan - Mar 2013
Nov - Jan
Sep - Nov
Jul - Sep
May -Jul
Mar - May
Jan - Mar 2012
Nov - Jan
Sep - Nov
Jul - Sep
May -Jul
Mar - May
Jan - Mar 2011
Nov - Jan
Sep - Nov
Jul - Sep
May -Jul
Mar - May
Jan - Mar 2010
Unemployment Rate
(mobile quarters, %)
9.5
9.0
8.5
8.0
7.5
7.0
6.5
6.0
5.7
5.0
Inflation is at World Levels
(% change dec/dec)
30
25
20
15
10
5
0
-5
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
Source: INE
Poverty Reduction
(% of the population)
50
45
45.1
40
38.6
35
32.6
30
27.5
25
23.2
21.7
20.6
20
18.7
13.7
15
15.1
14.4
10
1987
Source: MIDEPLAN
1990
1992
1994
1996
1998
2000
2003
2006
2009
2011
Extreme Poverty Reduction
(% of the population)
20
18
17.4
16
14
12.9
12
10
8.8
7.6
8
5.8
6
5.6
5.7
4.7
4
3.2
3.7
2.8
2
0
1987
Source: MIDEPLAN
1990
1992
1994
1996
1998
2000
2003
2006
2009
2011
The Chilean Fiscal Rule and its Determinants
•Launched in 2001, set in Law in 2006
•Small and open economy with flexible exchange rate =>
Monetary Policy Matters
•Smooth government spending:
•Save during economic booms, when extraordinary revenues
are received
•Disave in downturns, when fiscal revenue drops
•Result: fiscal surplus in good years and deficit in downturns
The Structural Fiscal Rule: Determinants
•Main government income sources => mining and no
mining sectors
•Two independent experts committee:
•Long term GDP growth committee
•Y = A Kα L1-α
•6 years projections for inputs
•We calculate structural non mining income, given the elasticity of
GDP to non mining income
•Long term copper price committee
•6 years projections for copper price and 4 years projections for
molybdenum price
•We calculate structural private mining firms contribution via taxes
and royalty and Codelco contribution
The Structural Fiscal Rule: Determinants
•During booms => resources are invested in the
Economic Stabilization Found and the Reserve Pension
Found
•During downturns => liquidation of assets
• Recent modifications:
•Fiscal Council supervising the fiscal rule methodology
Fiscal Rule and SFs: Lower Volatility of GDP Growth
(average of four-quarter trailing standard deviation of GDP growth)
3.5
3
2.5
2
1.5
1
0.5
0
1981-1990
Source: Central Bank of Chile
1991-2000
2001-2012
Sovereign Funds
(billion dollars, december)
25.0
22.9
22.7
2.5
20.0
7.1
7.2
15.0
15.4
15.7
2012
2013 (july)
2013 (f)
5.9
15.0
4.4
3.8
3.4
10.0
20.2
11.3
5.0
12.7
13.2
2010
2011
0.0
2008
2009
FEES
Source: MF-Chile
FRP
Public Debt Burden: A Comparison
(2012, % of GDP)
180
156.9 155.4
160
140
117.4
120
103.2
100
81.9
80
84.1
111.6
102.3
103.2
87.9
71.9
57.2
60
38.0
40
20
90.2
84.2
123.8 127.0
11.9
10.1
2.5
0
-6.7
-20
-17.6
-40
Estonia
Chile
Sweden Germany
*Chile: Central Government
Source: Eurostat, IMF and DIPRES
Spain
France
Gross
Net
United
States
Ireland Portugal
Italy
Greece
2012 - 10 Year Sovereign Bond Issuance
(Yield,%)
%
11.0
10.0
9.0
8.0
7.0
6.0
5.0
4.0
3,89%
3,35%
3.0
2,38%
2.0
Source: Ministry of Finance
2011
2002
1990
1970
1930
1929
1928
1926
1924
1921
1911
1909
1896
1893
1887
1873
1866
1822
1.0
Fiscal Responsibility and
Macroeconomic Performance:
The Case of Chile
Ministry of
Finance