Chile is the highest-rated country in Latin America. That reputation is now facing a slow, steady test.
Debt has doubled over the past decade.
Fitch has cut Chile's rating twice in that time, mostly because liabilities kept climbing, and the trend has not turned around.
The 45% mark is the upper limit of what Chile's own government calls a prudent range.
Crossing it wouldn't automatically drop the rating, since Chile is still the region's top-rated country. But Fitch would see it as a clear warning sign.
Todd Martinez, who co-heads Fitch's sovereign ratings, called that budget the first important signal.
Here's what he's looking for. If Chile's real growth potential is around 2.2%, then real spending growth probably needs to be well below that number.
Martinez said spending growth would need to slow sharply to avoid a possible downgrade before Kast's term ends.
That's a hard ask. Congress passed a tax-cut package about a month before Fitch's August 7, 2026 report.
The government is counting on that package to do the heavy lifting.
The plan pairs tax cuts with red-tape removal and faster investment permits.
The administration expects it to push GDP growth to 3.7% next year. It also expects to keep debt below the 45% line.
Get the free Always Be Buying eBook and learn the simple system for building wealth on any income
Chile's own budget office forecasts the package will lower public income for at least five years.
"Chile, to stabilize its debt and attend its social needs, is a country that's going to probably need to gradually increase its tax burden," Martinez said.
Not an easy message for a government that just made taxes cheaper.
The other problem is where the cuts land. Martinez said the second-quarter reductions were mainly in capital investment.
Official numbers show that spending fell 12.7% in June compared with a year earlier.
He warned that this approach won't work if the economy is supposed to grow faster.
Lawmakers also have a history of protecting health, education, and security budgets, sometimes asking for more money rather than less.
"There's not many kinds of obvious candidates in terms of the budget to achieve major savings," he said.
The government and Fitch are not even looking at the same economy. Chile wants growth around 4%.
Fitch's medium-term view sits at 2% to 2.5%.
The near-term numbers are moving too. Fitch will likely lower its 2026 growth forecast to near 1% from 1.6%.
Its 2027 forecast may climb above the current 2.9%, but that has more to do with statistical base effects and a modest mining rebound than with the reforms working.
Martinez said there's possible upside in the tax reform, the red-tape reduction, and public-works concessions. He wants to see evidence before putting it in the numbers.
Chile isn't just another emerging market. It's the steady one.
Fitch still views Chile's fiscal and macroeconomic framework as far stronger than Brazil's, Colombia's, or Argentina's.
The agency also doesn't see debt pressure forcing the central bank to finance government spending over fighting inflation.
That's the reassuring part. The less reassuring part is that Fitch could act on a slow rise in debt alone, without waiting for a crisis.
In Martinez's view, the room for additional debt without rating consequences is getting smaller.
Martinez warned, "Chile does have fiscal space, but it has less fiscal space for debt to keep rising before it means something for our rating."
If the budget pushes the hard choices to next year, the debt keeps climbing and the rating pressure builds. The next few months will show which way the story goes.
Download the free Always Be Buying eBook and start putting your money to work today