Chile to improve social equity and fiscal sustainability with IDB support

Chile will improve social equity and strengthen its public spending sustainability with a $500 million loan approved by the Inter-American Development Bank (IDB).

This is the second loan of a series of two operations under the programmatic policy-based loans modality. The series began in 2020 and was agreed upon with the Government of Chile to support structural measures aimed at improving social equity and fiscal sustainability in the context of the COVID-19 pandemic.

In terms of social equity, this second loan will finance measures to improve the incomes of vulnerable people and support the sustainability of the pension system and access to low-cost medications. The project will support payments to the Emergency Family Income System, which potentially could benefit 3.7 million low-income households and protect the incomes of 1.6 million middle class homes.

It will also strengthen the labor intermediation system to boost employment opportunities through the implementation of an online career counseling system and the creation of new services for workers and companies within the National Job Exchange.    

With respect to medications, the program will finance measures to boost pharmacy supplies, improve oversight, and encourage the implementation of a nationwide electronic prescription system to promote the prescription and dispensing of bioequivalents. An estimated 1.5 million people from 440,000 households are likely to benefit from these actions.

Regarding fiscal sustainability, the IDB loan will support reforms to improve the technical and allocative efficiency of public spending and the quality of the budget formulation process. In particular, this second operation will support measures to modernize the public procurement system (ChileCompra) and strengthen public spending transparency, monitoring, assessment and accountability.

Better public spending is expected to primarily benefit vulnerable sectors of society. Through improved spending evaluation programs, it will allow the government to reallocate $2.27 billion in the budget to priority spending programs and generate savings in public management that can be redirected to social assistance and health programs.  

This operation continues the support for the reforms started under the first programmatic loan, which financed actions to protect the incomes of vulnerable persons, reform the basic solidarity pension system, reduce the price of medications through coordinated procurement, and strengthen public spending oversight.

The IDB’s $500 million loan is for a 13.5-year term, with a 4-year period of grace and interest rate based on LIBOR.