IMF Executive Board Concludes 2013 Article IV Consultation with Uruguay

Press Release No. 13/461
November 20, 2013

On November 13, 2013, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation1 with Uruguay.

Uruguay has experienced a decade of strong and inclusive expansion since its 2002 crisis, resulting in an impressive rise in Uruguayan living standards. Key drivers of this performance included important institutional reforms, large foreign direct investment (FDI) projects attracted by Uruguay’s stable macroeconomic environment and business-friendly investment climate, and favorable external conditions. The result has been a strong rise in employment, real wages, and consumption. Poverty rates have declined sharply.

Growth has moderated to a more sustainable pace since 2012, mostly owing to weaker external demand. Real GDP growth is projected at 4 percent in 2013 and 3.5 percent in 2014. Fiscal policy loosened in 2012 and is set to remain slightly expansionary in 2013. Annual inflation, at 9.0 percent in September, remains outside the current target range (4–6 percent). The Uruguayan peso appreciated against the backdrop of swelling capital inflows in the year to May 2013. In June 2013, the authorities announced a new reserve requirement on foreign purchases of Treasury notes to discourage further portfolio inflows and tightened the monetary policy stance significantly. Since then, portfolio inflows appear to have come to a stop and the Uruguayan peso has depreciated against the U.S. dollar, also reflecting a tightening in global financial conditions following the U.S. Federal Reserve’s signal of a prospective tapering of its asset purchases.

The outlook for the Uruguayan economy is solid, but risks and challenges remain. The economy is exposed to the risk of inward spillovers from external developments and risks from domestic wage and cost pressures. Uruguay’s financial vulnerabilities are modest, and the government has reduced debt vulnerabilities significantly and built important financial buffers. Still, above-target inflation and the desirability of reducing further the net debt of the public sector constrain the policy space. The longer-term policy priority is to sustain high growth rates for productivity, and human and physical capital investment.

Executive Board Assessment2

Executive Directors commended Uruguay’s strong economic performance and success in reducing poverty over the past decade. Directors noted that the outlook for the economy remains solid, but there are risks stemming from domestic factors and the uncertain external environment. They agreed that policies going forward should be geared towards preserving the gains made so far by facilitating a smooth landing in the near term, and boosting potential growth in the medium term, while lowering inflation and safeguarding competitiveness.

Directors supported the recent tightening of the monetary policy stance in view of the above target and rising inflation. They took note of the change in the operational target for monetary policy and encouraged the authorities to enhance their communication of the targeted policy stance. It will also be important to monitor the effectiveness of the new framework in delivering the inflation targets. While Directors considered the broadening of capital flow management measures to be useful given Uruguay’s macroeconomic situation, they generally underscored that such measures should be temporary.

Directors agreed that prudent wage growth would help in lowering inflation, curbing the risk of overheating, and safeguarding competitiveness. They stressed that reducing the use of backward-indexation in wage contracts would make employment more resilient against adverse shocks. Directors welcomed the authorities’ recent guidelines for the design of non-indexed wages and encouraged them to promote these guidelines.

Directors considered that a tighter fiscal policy stance would be better aligned with the goal of reducing inflation and further decreasing net public debt. In this context, they emphasized the desirability to reduce the overall deficit, exploring both revenue and expenditure options, while protecting priority social and infrastructure spending.

Directors underscored that maintaining solid and stable growth will require additional financial and structural reforms. They commended the progress made in implementation of the 2012 FSAP and looked forward to implementation of the envisaged financial sector reform agenda, including further steps relating to financial deepening. Priority should also be given to boosting public infrastructure and raising the efficiency of labor markets, while ensuring appropriate protection for workers.

Uruguay: Selected Economic Indicators, 2009-15



    Prel. Projection


2009 2010 2011 2012 2013 2014 2015


(Annual percent change, unless otherwise indicated)

Real GDP

2.2 8.9 6.5 3.9 4.0 3.5 3.3

Real consumption

-0.9 12.0 8.3 6.4 5.9 4.3 4.1

Real investment

-5.7 13.3 5.5 19.4 8.3 -4.3 3.6









CPI inflation (average)

7.1 6.7 8.1 8.1 8.5 8.0 7.5

Terms of trade

6.6 -3.1 0.0 6.3 1.5 0.1 2.2


(In percent of GDP)

Public sector finances








Total revenues

29.0 29.8 29.0 28.5 29.8 29.7 29.9

Non-interest expenditure

28.2 28.5 27.2 28.7 29.2 29.5 29.3

Primary balance

1.2 1.6 2.0 -0.2 0.8 0.3 0.6

Overall balance

-1.7 -1.5 -0.9 -2.8 -2.2 -2.5 -2.1

Gross public sector debt

66.1 61.6 60.0 59.6 58.6 58.9 58.4

Outstanding external debt

46.5 37.2 32.4 35.5 32.1 32.0 32.3

Of which: Public external debt

37.8 34.0 32.0 31.9 30.3 30.1 30.4


(Annual percent change, unless otherwise indicated)

Money and credit 1/








Base money (eop)

6.5 16.2 17.3 26.7 15.7 ... ...


12.2 28.9 18.8 9.1 1.2 ... ...


15.0 30.3 22.0 12.3 4.6 ... ...


-2.6 22.1 18.0 10.0 16.4 ... ...

Growth of credit to households (in real UY$)

-20.5 15.8 2.1 7.3 8.0 ... ...

Growth of credit to firms (in US$)

3.4 18.8 26.5 17.5 18.3 ... ...


(In percent of GDP, unless otherwise specified)

Balance of payments








Current account balance

-1.3 -1.9 -3.0 -5.4 -4.9 -3.7 -3.1

Merchandise exports, fob

21.1 20.7 20.0 19.8 18.4 19.4 19.3

Merchandise imports, fob

22.8 22.0 23.1 24.6 20.4 20.8 20.7

Services, income and transfers (net)

0.4 -0.5 0.1 -0.6 -2.9 -2.3 -1.7

Capital and financial account

3.9 2.7 9.0 12.9 8.9 5.1 4.5

Foreign direct investment

5.1 5.9 5.4 5.6 5.3 4.5 4.4
  • Overall balance of payments (in millions of U.S. dollars)

1588.3 -360.8 2564.4 3287.0 2267.0 844.0 873.0

Gross official reserves (in millions of U.S. dollars) 2/

8039.8 7655.3 10301.9 13604.4 15871.4 16715.4 17588.4

In percent of short-term debt

159.2 139.0 212.6 214.9 246.1 229.5 232.6
  • In percent of short-term debt and non-resident deposits

89.9 80.9 126.2 140.0 129.1 127.3 131.2
  • External debt service (percent of exports of goods and services)

23.9 29.9 21.5 15.2 27.8 18.8 15.5

Sources: Banco Central del Uruguay, Ministerio de Economia y Finanzas, Instituto Nacional de Estadistica, and IMF Staff calculations.

1/ Percent change of end-of-year data on one year ago. For 2013, latest available data.

2/ Includes reserves buildup through reserve requirements of resident financial institutions.

1 Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.

2 At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here:


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