Budgeting in Chile

Chile may be a new OECD member country, but in the realm of public financial management and fiscal policy it has a few things to teach many existing OECD members. The OECD Journal on Budgeting has just published a review of Chilean budgeting practice prepared by an OECD mission comprised of myself and two OECD staff members (Ian Hawkesworth, mission leader; and Oscar Huerta Melchior). Two of the areas we focus on are performance budgeting and medium-term budgeting.

Chile has been a pioneer in the development of performance indicators and program evaluation, and in efforts to systematically link this information to budget decision-making. It has had significant success in these areas, but like many other countries believes that there is significant scope to increase the use of this performance information during budget preparation. In this context, we consider in the review steps that should be taken to tailor evaluation more specifically to budgeting uses, and the need to develop the spending review system capable of taking evaluation results and turning them into concrete options for budgetary savings. These are areas of budgeting reform upon which many other OECD countries are focusing present time.

Chile’s success in developing a more medium-term (and long-term) budgetary focus through the application of clear fiscal rules is well known, and has been enhanced over the years with the refinement of its fiscal rules framework. In budget preparation, Chile has for some years clearly distinguished between baseline expenditure and new policy expenditure, and presents medium-term projections of baseline expenditure in a key budget information document. This document also shows the level of aggregate expenditure which is compatible with the fiscal rule (i.e. the aggregate expenditure ceiling) and the difference between this ceiling and baseline expenditure – i.e. the fiscal space. This transparent presentation of the medium-term budgeting prospects places Chile ahead of many other OECD countries. At the same time, however, Chile is working actively to improve the quality of the baseline expenditure projections (the “forward estimates”, as they are called elsewhere), which it recognizes as crucial to improving the quality of its medium-term budgeting framework.

Chile has a well founded reputation as a well-managed country and, more specifically, as a beacon of fiscal responsibility in Latin America. The committal doubt that the country will see further impressive progress in public financial management reform in the years to come.

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