S&P Raises Chile’s Credit Rating as Economy Stabilizes

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S&P Global has upgraded Chile’s credit rating from “negative” to “stable,” citing the country’s reduced government spending and a slowdown in borrowing.

One key indicator of Chile’s improving financial health is the recent performance of its credit default swaps (CDS). Over the past few months, the cost of Chile’s CDS has been steadily declining, signaling increased investor confidence in the country’s ability to repay its debt.

According to S&P, Chile’s CDS levels have now fallen below those of several regional peers, including Peru and Panama.

Chile had previously seen two downgrades from S&P since 2017, driven by concerns over rising fiscal pressures and growing debt. However, the ratings agency now believes that the ongoing fiscal consolidation could downsize the debt burden.

“We think the government’s commitment to fiscal consolidation will stabilize its debt ratios in the coming years,” S&P noted in its report.

Despite the improved outlook, analysts warn that Chile must continue to exercise fiscal restraint even as it aims to return its economy to pre-pandemic growth levels. S&P cautioned that the rating could be revised downward again if Chile resorts to heavy borrowing from foreign creditors or faces economic challenges that make external financing unavoidable.

Chile’s debt burden has risen significantly over the past decade, reaching 41% of GDP as of December 2023. The country’s GDP contracted by 0.6% in the second quarter of 2023 compared to the previous quarter, but S&P projects an average annual growth rate of 2.4% for the period from 2024 to 2027.

Chile’s economy remains heavily dependent on copper mining. If global demand for copper rises and the country can expand its production capacity, it could see a significant boost in economic growth.

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