NextFin News - Chile’s newly installed government has accused its predecessor of a massive fiscal miscalculation, claiming that central government gross debt projections for the next five years were underestimated by $10.5 billion. The allegation, which has ignited a fierce political battle in Santiago, threatens to complicate the right-wing administration's plans to implement a sweeping austerity program.
Finance Minister Jorge Quiroz, presenting the first-quarter Public Finance Report on Monday, revealed that structural inconsistencies and calculation errors in the previous administration's formulas would push Chile's public debt to 46.3% of GDP by 2030. This projection exceeds the country's self-imposed prudent ceiling of 45%. The revised figures also raised the projected 2026 budget deficit to 2.4% of GDP, up from the previous estimate of 1.9%, warning that the gap could widen to 2.9% without immediate corrective measures. Quiroz, an academic and consultant who took office on March 11, has ordered an internal investigation into the discrepancies.
The accusations have drawn a sharp response from the outgoing left-wing administration. Former Finance Minister Nicolás Grau, who managed the treasury under Gabriel Boric until the transition of power in March, rejected the claims of mathematical errors. Grau argued that the $10.5 billion discrepancy is the result of differing macroeconomic assumptions, particularly regarding exchange rate fluctuations, rather than accounting mistakes. He accused the new administration of rushing to judgment and failing to account for the fiscal impact of its own proposed legislative reforms.
This fiscal dispute arrives at a critical juncture for President José Antonio Kast, who won the presidency on a platform of aggressive fiscal consolidation. Kast has pledged to slash public spending by $6 billion over his term—representing roughly 7% of projected expenditure—to stabilize public finances after three consecutive years of missed deficit targets. The structural deficit reached 2.8% of GDP in 2025, continuing a trend of revenue underperformance that has frustrated local policymakers.
Independent analysts suggest that the new administration's fiscal targets will be difficult to achieve. Fitch Ratings noted in a recent assessment that Kast’s plans to swiftly rein in government finances will be complicated by the wider deficit and persistent spending pressures, particularly in security and infrastructure. Delivering on campaign commitments to combat organized crime and expand prison capacity will require significant funding, which may offset savings from administrative cuts.
Furthermore, the political path to implementing these cuts remains steep. Andrés Pérez, chief Latin America economist at Banco Itaú, has pointed out that any spending cuts exceeding one percentage point of GDP require congressional approval, a process that is likely to be slowed and diluted in a highly divided legislature. Sergio Lehmann, chief economist at BCI, also observed that the initial spending cuts outlined by the ministry are still far from sufficient to reach the government's medium-term targets.
Despite the domestic political friction, international markets continue to view Chile as a highly stable credit. The country's Emerging Markets Bond Index spread stands at 90 basis points, significantly lower than regional peers such as Brazil at 230 basis points and Colombia at 210 basis points. Whether the Kast administration can maintain this premium will depend on its ability to navigate the legislative gridlock and resolve the growing dispute over the nation's balance sheet.
Explore more exclusive insights at nextfin.ai.
