June 18, 2020 / 5:51 PM / a month ago

Moody's raises concern about speed of Chile's debt ramp-up

SANTIAGO, June 18 (Reuters) - Ratings agency Moody’s on Thursday expressed concern about the rate of increase in Chile’s debt levels, following a series of emergency packages announced by the country to counter the impact of the coronavirus pandemic.

The ratings agency had estimated that Chile’s debt would reach 40% of gross domestic product by 2024.

But it revised the 40% debt projection, saying it could be reached next year after the government announced a fresh, two-year, $12 billion citizen support and economic stimulus package at the weekend.

“We were thinking that the debt was going to continue its gradual increase, and now that it is going to be much more abrupt,” said Ariane Ortiz-Bollin, a Moody’s analyst, during an agency webinar.

“That rhythm is a concern from a credit point of view, not necessarily the level at which it is reaching but the rate at which the debt is increasing.”

She said that the government’s commitment to establish a disbursements ceiling and a fixed duration for its emergency plan was a good sign.

Moody’s expects the Chilean economy to contract around 4.6% this year, an increase on its previous -2.5% assessment, and has warned of lingering, significant downside risks.

Ortiz-Bollin said the agency still projects recovery to begin in the third quarter but tail off in the last three months of 2020.

Chile’s finance minister, Ignacio Briones, on Sunday described Chile’s growing debt as a “backpack” that would be passed down to future generations.

“To ensure it is comfortable, we need fiscal responsibility, credible fiscal consolidation, and the ability to grow economically,” he said. (Reporting by Fabian Cambero, writing by Aislinn Laing; Editing by Steve Orlofsky)

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