Chile’s Treasury Outlines Second Year of Heavy Borrowing

(Bloomberg) -- Chile’s government plans a second year of heavy borrowing on local and international markets in 2022 to finance social spending, even as the impact of the pandemic wanes.

The Treasury plans to sells $20 billion in debt this year, up from the $19 billion planned for 2021, according to a statement from the Finance Ministry. Of those bonds, $3.45 billion will be used to amortize debt, down from about $6.3 billion last year. About $6 billion will be sold in foreign currency, unchanged from 2021. 

“The financing plan is in line with the 2022 budget,” said Andres Perez, an economist at Banco Itau in Chile and former head of international finance at the Finance Ministry. “Having said that, these are large amounts to emit in the local market. It will be a challenge to complete them if political uncertainty persists and there are more early pension withdrawals.”

Given the pressure on the market, the government plans to increase sales of longer bonds in pesos among international investors. Of the longer-term local-currency notes, it will issue $4 billion via book-building processes in global markets, up from $3 billion last year.

The government will also cut down on short-term local-currency bill sales to $3 billion from $4 billion last year, with the rest in medium or longer term local notes. 

The Chilean peso strengthened after the announcement, gaining as much as 1.1% to 813.94 per dollar before ceding gains and trading at 821.23.

Public spending leaped about 32% last year, primarily due to emergency outlays to counter the pandemic, with a public deficit of about 8.3% of gross domestic product, according to the government’s third-quarter public finances report. For this year, the government has said it expects to cut spending by 23% and lower the deficit to 2.8% of GDP.

The government of outgoing President Sebastian Pinera has presented a bill to create a guaranteed universal pension for more than 90% of the population, at a cost of about 0.95% of GDP. Its financing is currently being discussed by Congress.

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