Chile’s government is facing mounting scrutiny over President José Antonio Kast’s flagship economic reform package after JP Morgan warned that the plan’s success relies heavily on uncertain long-term growth assumptions, while its fiscal costs would be felt almost immediately.

In a report led by chief Southern Cone economist Diego Pereira, the bank said the administration was attempting a difficult balancing act: reviving investment and economic expansion without undermining the fiscal discipline that has long supported Chile’s standing among international investors.

The package combines lower corporate taxation, deregulation and faster investment approvals as part of a broader reconstruction and growth agenda promoted by Kast’s government. JP Morgan described the strategy as one of the most ambitious pro-growth shifts in Chilean economic policy in years, though it cautioned that the reform structure remains heavily exposed to execution risks.

A central measure within the proposal would gradually reduce Chile’s corporate tax rate from 27% to 23% between 2027 and 2029. According to the bank, the permanent fiscal impact of the cut could reach 0.44% of GDP, while the expected gains from stronger investment and productivity may take more than a decade to fully emerge, even under favourable conditions.

Despite the warning, the bank backed the rationale behind the tax reduction, arguing that Chile’s corporate burden remains above the OECD average and may be limiting foreign investment and capital formation.

JP Morgan was more supportive of the government’s regulatory overhaul, particularly reforms targeting Chile’s lengthy environmental permitting system. The report said measures aimed at accelerating approvals and reducing administrative hurdles could materially improve investment execution timelines.

However, the bank also noted that proposed limits on environmental injunctions could become politically contentious by weakening safeguards and increasing social opposition to large-scale projects.

The report outlined three fiscal scenarios tied to growth performance. Under the most optimistic case, the reform could bring fiscal accounts close to balance within five to six years. In a mid-range scenario, however, the package would continue weighing on public finances for nearly a decade. Under the weakest growth assumptions, the reform would permanently widen Chile’s fiscal deficit.

JP Morgan added that Chile’s public debt is already approaching what it described as a prudent ceiling of 45% of GDP, increasing pressure on the government to ensure the promised growth materialises.

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