## 1uryea2025001-source-pdf - 4.5 percent. ## Source details **Canonical URL:** [1uryea2025001-source-pdf - 4.5 percent.](https://www.imf.org/-/media/files/publications/cr/2025/english/1uryea2025001-source-pdf.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2025/english/1uryea2025001-source-pdf.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2025/english/1uryea2025001-source-pdf.pdf.json) --- ### Key findings and context - Uruguay’s economy grew at 3.1 percent in 2024. - Growth drivers in 2024: rebound in agricultural production after a severe drought, increased cellulose production, electricity (hydroelectric), commerce, accommodation and food services, and strong tourism flows early in 2025. - Output gap nearly closed; unemployment ticked down to 7.0 percent as of August 2025. - CPI inflation fell to 4.2 percent in August/September 2025, below the central bank target; inflation expectations declined. - The central bank started easing monetary policy in July 2025, with two consecutive rate cuts of 25 bps in July and August 2025 after a pause in May. - The fiscal deficit of the central government, including social security, increased to 3.2 percent of GDP in 2024, triggering activation of the fiscal rule’s escape clause. - A new administration took office in March 2025 with an agenda to balance inclusive growth and macroeconomic stability. ### Outlook and projections - Real GDP growth: - projected 2.5 percent in 2025. - projected 2.4 percent in 2026. - converging to potential growth rate of 2.2 percent from 2027 onwards. - Inflation: - projected to converge around the central bank target of 4.5 percent. - CPI inflation (end of period): 2024: 5.5; 2025 (proj): 4.0; 2026 (proj): 4.5. - Current account and external: - current account balance (table): -0.8 (2024), -1.4 (2025), -1.5 (2026). - current account expected to widen slightly to 1.7 percent of GDP in the medium term (text). - gross official reserves: US$ 17.4 billion (2024), projected 19.5 (2025), 19.7 (2026). - reserves in months of imports: 10.9 (2024), 11.7 (2025), 11.1 (2026). - Risks: - Macroeconomic risks broadly balanced; sensitivity to commodity price movements, global financial conditions, regional developments. - Short-term global downside scenario: growth could slow to around 1.2 percent in 2025 (Scenario A in Box 1.1 of the April 2025 WEO). - Strengths: - Ample liquidity buffers, long debt maturities, favorable borrowing conditions, and increasing share of domestic debt issuance limit near-term fiscal risks. ### Executive Board assessment and policy recommendations - General: - Directors highlighted resilience to external shocks and welcomed upgrades to fiscal and monetary policy frameworks. - Stressed sustaining reform momentum to boost sustainable and inclusive growth. - Fiscal policy: - Welcomed authorities’ five-year budget plan to reduce the deficit and stabilize debt in the medium term. - Noted fiscal deficit expected to increase in 2025 due to fiscal inertia; emphasized steadfast implementation of the fiscal rule. - Urged sustained fiscal consolidation to place debt-to-GDP on a steady downward path, including considering additional fiscal efforts. - Welcomed proposed enhancements to the fiscal rule and the fiscal council. - Monetary policy: - Concurred that monetary policy stance has been appropriately tight; encouraged maintaining this stance until inflation expectations and inflationary pressures have firmly converged to target. - Welcomed improvements in the central bank’s monetary policy framework and communication strategy; encouraged strengthening de jure central bank independence. - Agreed exchange rate should act as shock absorber; FX interventions should be limited to disorderly market conditions; welcomed renewed de-dollarization efforts. - Financial sector and supervision: - Banking sector remains sound, well capitalized, and profitable. - Welcomed commitment to strengthen regulatory and supervisory frameworks and implement the 2022 FSAP recommendations. - Recommended further strengthening AML/CFT effectiveness in line with FATF standards. - Encouraged developing peso capital markets. - Structural reforms: - Recommended reforms to revitalize growth and boost productivity: enhance educational outcomes, bolster human capital, improve competitiveness by streamlining business regulations, facilitate trade, and remove regulatory bottlenecks. - Welcomed government proposal for wage negotiations aimed at boosting low incomes while contributing to deindexation efforts. - Encouraged reforms to increase labor force participation, facilitate integration of migrants, and continue efforts to improve climate resilience. - Noted Uruguay’s AI readiness as an area of interest. ### Recent developments and selected statistics - Economic activity: growth at 2.8 percent y/y in H1:2025, mainly supported by manufacturing. - Unemployment (aggregate series): - 2022: 7.9 percent - 2023: 8.3 percent - 2024: 8.2 percent - 2025 (proj): 7.9 percent - 2026 (proj): 8.0 percent - Youth unemployment: 23.2 percent as of August 2025. - Inflation path (end of period CPI): - 2021: 8.0 - 2022: 8.3 - 2023: 5.1 - 2024: 5.5 - 2025 (proj): 4.0 - 2026 (proj): 4.5 - Monetary indicators: - monetary policy rate (end of period): 2021: 5.8; 2022: 11.3; 2023: 9.0; 2024: 8.8; policy rate reported at 8.75 percent in another section. - one-year ahead inflation expectations: 4.7 percent. - real interest rate: around 4 percent — above the real neutral rate (estimated at 2.5 percent). - Banking sector (selected, 2024/2025): - profitability about 3.7 percent of assets (2024); 2.5 percent of assets and 21 percent of equity (June 2025). - non-performing loans 1.5 percent of total loans (2024); 1.8 percent (Q2 2025). - NPL coverage ratio 234 percent (2024). - dollarization: 70 percent for liabilities (2024: 69.4), around 53 percent for loans (2024: 53.0). - External and trade (selected): - Merchandise exports, fob (US$ billions): 17.7 (2022), 15.2 (2023), 16.3 (2024), projected 16.9 (2025), 18.1 (2026). - Merchandise imports, fob (US$ billions): 13.4 (2022), 12.9 (2023), 13.0 (2024), projected 13.3 (2025), 14.0 (2026). - Terms of trade (percent change): -1.7 (2022), 0.1 (2023), 0.4 (2024), 2.1 (2025), 2.3 (2026). - Total external debt + non-resident deposits (percent of GDP): 78.1 (2022), 64.6 (2023), 55.8 (2024), projected 57.7 (2025), 57.8 (2026). - External public debt (percent of GDP): 29.4 (2022), 29.6 (2023), 31.4 (2024), projected 31.6 (2025), 32.7 (2026). - External debt service (in percent of exports of g&s): 54.2 (2022), 53.4 (2023), 49.0 (2024), projected 49.6 (2025), 33.6 (2026). - Selected country statistics (2024 unless noted): - GDP (2024) in trillions of pesos: 3.3. - GDP (2024) in billions USD: 81.0. - GDP per capita (2024), U.S. dollars: 23,186. - Population (2023) in millions: 3.5. - Poverty rate (2024): 17.3. - Gini coefficient (2023): 40.9. - Literacy rate (2022): 99.0. - Main products and exports: Cellulose, beef, soybeans. - Key export markets: China, Brazil, US, EU. ### Fiscal stance, outturns, and medium-term fiscal outlook - 2024 fiscal outturns and composition: - NFPS deficit (including cincuentones): 3.2 percent of GDP in 2024, 0.1 ppt larger than in 2023. - Stronger-than-anticipated disinflation in 2023–2024 reduced tax revenues by 0.9 percentage points compared to 2023 projections. - Real spending rose by 4.7 percent in 2024; pensions and wages increased by 5.4 and 4.2 percent in real terms respectively. - Increased SOE contributions (led by BROU) partially offset shortfall. - Escape clause of the fiscal rule’s net indebtedness ceiling activated in December 2024 to accommodate a deviation of 0.4 ppt of GDP; the ceiling was increased by US$690 million. - Debt, market access, and financing (2024): - Gross NFPS debt rose by 4.7 percent of GDP in 2024, to 68.7 percent of GDP. - Valuation effects from a weakening peso in 2024 were a main driver of the debt increase. - Market issuances in 2024 included: global bonds in local currency (UYU) and inflation-linked units (UI), a long-term USD bond maturing in 2060, and a multi-tranche Samurai bond totaling US$308 million. - Uruguay secured over US$844 million in loan disbursements from multilateral institutions including the World Bank and CAF. - Fiscal outlook and budget: - Central government-BPS deficit for 2025, excluding cuarentones, projected to increase to 4.1 percent of GDP, 0.9 ppt above the 2024 deficit. - Drivers of 2025 deficit: postponement of expenditures and unpaid obligations from 2024 (0.4 ppt of GDP), advance tax payments by SOEs in 2024 that should have been received in 2025 (0.1 ppt of GDP), additional spending commitments from the previous government (0.7 ppt of GDP), and a 6 percent rise in public wages decided in January 2025. - New five-year budget law expected to reduce the deficit and stabilize debt in the medium term. - Measures to improve structural primary balance: modernize tax administration, curb tax fraud, implement the global minimum tax, rationalize certain taxes, align tax regimes for international online retailers and capital income gains. - These measures would improve the structural primary balance of the central government-BPS from -1.5 percent of GDP in 2026 to 0.1 percent of GDP in 2029. - Under the baseline, NFPS primary balance expected to reach 0.4 percent of GDP in 2029 and NFPS debt-to-GDP projected to remain stable in the medium term. - Fiscal indicators (selected): - Revenue CG-BPS (percent of GDP): 27.3 (2022), 27.4 (2023), 28.2 (2024), projected 28.8 (2025), 28.6 (2026). - Primary expenditure CG-BPS (percent of GDP): 28.0 (2022), 28.4 (2023), 28.9 (2024), projected 29.9 (2025), 30.2 (2026). - Primary balance NFPS (percent of GDP): -0.5 (2022), -1.0 (2023), -1.0 (2024), projected -1.0 (2025), -1.5 (2026). - Overall balance CG-BPS (percent of GDP): -3.0 (2022), -3.2 (2023), -3.2 (2024), projected -3.7 (2025), -4.0 (2026). - Gross debt NFPS (percent of GDP): 59.9 (2022), 64.0 (2023), 68.7 (2024), projected 66.6 (2025), 68.3 (2026). - Net debt CG-BPS (authorities' definition, percent of GDP): 52.4 (2022), 54.5 (2023), 58.0 (2024), projected 57.7 (2025), 60.4 (2026). - Note: interest NFPS shows 2.0 (2022), 2.1 (2023), 2.3 (2024), 2.3 (2025), -3.8 (2026) — as presented in the table. ### Public debt dynamics and baseline projections (selected from Table 4) - Public debt (percent of GDP): - Actual 2024: 68.7. - 2025: 66.6. - 2026: 68.3. - 2027: 68.9. - 2028: 69.2. - 2029: 68.9. - 2030: 68.6. - 2034: 65.6. - Change in public debt: - 2024: 4.7. - 2025: -2.1. - 2026: 1.6. - 2027: 0.7. - 2034: -0.9. - Gross financing needs (percent of GDP): - 2024: 6.2. - 2025: 6.6. - 2026: 6.6. - 2027: 6.4. - 2030: 7.6. - 2034: 6.5. - Debt service (percent of GDP): - 2024: 5.2. - 2025: 5.6. - 2026: 5.1. - 2029: 6.9. - 2030: 8.0. ### External position, NIIP, and capital flows - NIIP (2024, percent of GDP): - NIIP: –19.1. - Gross Assets: 94.3. - Debt Assets: 65.0. - Gross Liab.: 113.4. - Debt Liab.: 31.7. - Current account (percent of GDP): - 2021: -2.4. - 2022: -3.5. - 2023: -3.0. - 2024: -0.8. - 2025 (proj): -1.4. - 2026 (proj): -1.5. - Capital and financial accounts (2024): - Net financial account inflows: 0.8 percent of GDP. - Net FDI outflows: 3.2 percent of GDP in 2024 (reversal from 3.9 percent of GDP inflows in 2023). - Reversal driven by a write-off of FDI loans of around US$4.5 billion (5.6 percent of GDP). - Net inflows of portfolio and other investments totaled 5.3 percent of GDP. - Reserve accumulation: 1.4 percent of GDP. - Exchange rate and FX policy: - Uruguay has a floating exchange rate. - No spot and forward FX interventions in 2024 and 2025 to date. - Policy advice: continue allowing exchange rate to act as shock absorber; FX interventions limited to disorderly conditions. ### Structural priorities and policy issues for implementation - Fiscal framework: - Implement five-year budget to improve structural primary balance by 1.6 percent of GDP over the next 4 years (as projected in the budget draft law). - Strengthen fiscal framework: enhance fiscal rule and fiscal council, and ensure steadfast implementation of fiscal rule. - Monetary and financial: - Continue prudent monetary policy until inflation expectations and inflationary pressures converge to target; strengthen de jure central bank independence. - Advance regulatory and supervisory reforms in banking; implement 2022 FSAP recommendations; strengthen AML/CFT effectiveness. - Develop peso capital markets and continue de-dollarization efforts. - Structural reforms to raise productivity: - Improve education outcomes and human capital; modernize curricula; strengthen teacher training; extend pedagogical time; encourage secondary school completion. - Streamline business regulation, facilitate trade, remove regulatory bottlenecks, and enhance competition policy. - Increase labor force participation, facilitate integration of migrants, and improve climate resilience. - Leverage AI readiness: close digital gaps, integrate AI-driven innovation into education and industry equitably and ethically, train the next generation, and support workers at risk. - Labor market and wages: - Government’s wage negotiation guidelines: wage indexation based on expected inflation with income differentiation; correction clauses based on core inflation; three salary bands with the first band covering wages below $U 38,950 and nearly 30 percent of workers. - Recommendation: monitor potential employment effects for the young and low-skilled. ### Annex I — Maximum Debt Capacity (selected) - Methodological results (NFPS gross debt unless noted): - MAPB method: debt limit estimates between 60 and 100 percent of GDP. - Jiang et al. (2024) method: debt limit range for Uruguay’s NPFS between 81 and 113 percent of GDP, with an average estimate around 95 percent. - Authors' combined assessment: estimated range of prudential debt levels (NFPS) suggested: 55-80 percent of GDP. - Policy guidance: - Establish a transparent debt-to-GDP anchor; five-year budget proposes net debt anchor of 65 percent of GDP for CG-BPS (75 percent gross NPFS). - Adopt cautious approach given methodological dispersion and shock tails; calibrate safety margins reflecting lower FX exposure and higher reserves. ### Labor market, immigration, and social issues (selected) - Labor market: - Employment rate: 59.8 percent (increase of 0.7 percentage points compared to August 2024). - Activity rate: 64.4 percent. - Unemployment declined to 7.0 percent, down from 8.4 percent a year earlier. - Distributional concerns: women and youth disproportionately affected; youth unemployment 23.2 percent (Aug 2025). - Immigration and integration: - Mobility agreement for Mercosur nationals; decree N° 138/024 created residence by rootedness categories; regularization decree in May 2024 for nearly 24,000 immigrants. - Migrants tend to be highly educated and concentrated in higher-skilled occupations; integration barriers include accreditation and recognition of foreign qualifications. - Demographic scenarios: 0 net migration baseline; Scenario 1: +5 thousand; Scenario 2: -5 thousand; Scenario 3: +6.2 thousand. - Policy: alleviate accreditation bottlenecks, support skills validation to address labor shortages and enhance productivity. ### Financial sector reforms and FSAP follow-up (selected) - Macroprudential and supervision: - Macroprudential Policy Committee created October 2024. - Countercyclical Capital Buffer (CCyB) set at 0.75 percent since January 2025, planned increase to 1 percent in July 2026. - First phase of Basel III Pillar II roadmap to be operationalized through a regulatory proposal in 2025. - De-dollarization and capital markets: - BCU developing comprehensive strategy; SSF issued Circular 2461 adjusting capital requirements to promote de-dollarization. - Recommendations to develop peso capital markets and improve access to peso credit for SMEs. - AML/CFT: - BCU approved National Strategy for Combating Money Laundering in July 2025. - SENACLAFT published update of PEP List in February 2025. - Continued efforts required to address remaining recommendations from GAFILAT’s 2019 Mutual Evaluation Report. ### Data adequacy and dissemination (Annex IX, as of September 22, 2025) - Data Adequacy Assessment Rating: B. - Median Rating: B. - Sector-level highlights: - National Accounts: Coverage BBBBB; Consistency AB; Frequency and Timeliness AAAAA. - Prices: Coverage BBBBB; Consistency A; Frequency and Timeliness AAAAA. - External Sector Statistics: Coverage BB; Consistency B; Frequency and Timeliness B. - Government Finance Statistics: Coverage BBBB; Consistency A; Frequency and Timeliness A. - Monetary and Financial Statistics: Consistency C; Frequency and Timeliness C. - Inter-sectoral Consistency: Median Rating D. - Key data gaps and corrective actions: - Need to rebase national accounts (multi-year process underway). - Improve granularity of export data and service exports by country. - Improve accounting for indexed debt instruments in government finance statistics. - FSAP recommendations: improve MSME data in private credit bureaus and unify movable asset registries. - Exchange rate in the official market: UY$39.872 per U.S. dollar (as of September 22, 2025). *IMF staff report: Uruguay—Staff Report for the 2025 Article IV Consultation (October 30, 2025).* ### 4.5 percent. ### 1uryea2025001-source-pdf - 4.5 percent. ### Key findings and context - Uruguay’s economy grew at 3.1 percent in 2024. - Growth drivers in 2024: rebound in agricultural production after a severe drought, increased cellulose production, electricity (hydroelectric), commerce, accommodation and food services, and strong tourism flows early in 2025. - Output gap nearly closed; unemployment ticked down to 7.0 percent as of August 2025. - CPI inflation fell to 4.2 percent in August/September 2025, below the central bank target; inflation expectations declined. - The central bank started easing monetary policy in July 2025, with two consecutive rate cuts of 25 bps in July and August 2025 after a pause in May. - The fiscal deficit of the central government, including social security, increased to 3.2 percent of GDP in 2024, triggering activation of the fiscal rule’s escape clause. - A new administration took office in March 2025 with an agenda to balance inclusive growth and macroeconomic stability. ### Outlook and projections - Real GDP growth: projected 2.5 percent in 2025 and 2.4 percent in 2026. - Inflation: projected to converge around the central bank target of 4.5 percent. - Current account: expected to widen slightly to 1.7 percent of GDP in the medium term (text) and table shows current account balance: -0.8 (2024), -1.4 (2025), -1.5 (2026). - Macroeconomic risks described as broadly balanced; economy sensitive to commodity price movements, global financial conditions, and regional developments. - Ample liquidity buffers, long debt maturities, favorable borrowing conditions, and increasing share of domestic debt issuance limit near-term fiscal risks. ### Executive Board assessment and policy recommendations - Directors highlighted resilience of Uruguay’s economy to external shocks, supported by sound macroeconomic policies. - Welcomed upgrades to fiscal and monetary policy frameworks; stressed sustaining reform momentum to boost sustainable and inclusive growth. - Fiscal policy - Welcomed authorities’ five-year budget plan to reduce the deficit and stabilize debt in the medium term. - Noted fiscal deficit expected to increase in 2025 due to fiscal inertia; emphasized importance of steadfast implementation of the fiscal rule. - Urged sustained fiscal consolidation to place debt-to-GDP on a steady downward path, including considering additional fiscal efforts. - Welcomed proposed enhancements to the fiscal rule and the fiscal council, in line with previous IMF recommendations. - Monetary policy - Concurred that monetary policy stance has been appropriately tight; encouraged maintaining this stance until inflation expectations and inflationary pressures have firmly converged to target. - Welcomed improvement in the central bank’s monetary policy framework and communication strategy; encouraged strengthening de jure central bank independence to bolster credibility. - Agreed exchange rate should act as shock absorber; FX interventions should be limited to disorderly market conditions; welcomed renewed de-dollarization efforts. - Financial sector and supervision - Noted banking sector remains sound, well capitalized, and profitable. - Welcomed commitment to strengthen regulatory and supervisory frameworks and implement the 2022 FSAP recommendations. - Recommended further strengthening AML/CFT effectiveness in line with FATF standards. - Encouraged developing peso capital markets. - Structural reforms - Recommended structural reforms to revitalize growth and boost productivity: enhance educational outcomes, bolster human capital, improve competitiveness by streamlining business regulations, facilitating trade, and removing regulatory bottlenecks. - Welcomed government proposal for wage negotiations aimed at boosting low incomes while contributing to deindexation efforts. - Encouraged reforms to increase labor force participation, facilitate integration of migrants, and continue efforts to improve climate resilience. - Noted Uruguay’s AI readiness as an area of interest. ### Recent developments (selected) - Economic activity: growth at 2.8 percent y/y in H1:2025, mainly supported by manufacturing. - Unemployment: 7.9 percent (2022), 8.3 percent (2023), 8.2 percent (2024), projected 7.9 percent (2025), 8.0 percent (2026) (table). - Youth unemployment: 23.2 percent as of August 2025. - Inflation path: CPI inflation 8.3 (2022), 5.1 (2023), 5.5 (2024), projected 4.0 (2025), 4.5 (2026) (table shows end of period CPI inflation series). - Monetary indicators (selected): monetary policy rate (end of period) 11.3 (2022), 9.0 (2023), 8.8 (2024). - Banking sector: profitability about 3.7 percent of assets; non-performing loans 1.5 percent of total loans; NPL coverage ratio 234 percent; dollarization: 70 percent for liabilities, around 53 percent for loans. - Exchange and external: current account balance -0.8 percent of GDP (2024); gross official reserves US$ 17.4 billion (2024) and projected 19.5 (2025), 19.7 (2026); reserves in months of imports 10.9 (2024), 11.7 (2025), 11.1 (2026). ### Fiscal stance and debt indicators (selected figures) - Revenue CG-BPS: 27.3 (2022), 27.4 (2023), 28.2 (2024), projected 28.8 (2025), 28.6 (2026) (percent of GDP). - Primary expenditure CG-BPS: 28.0 (2022), 28.4 (2023), 28.9 (2024), projected 29.9 (2025), 30.2 (2026) (percent of GDP). - Primary balance NFPS: -0.5 (2022), -1.0 (2023), -1.0 (2024), projected -1.0 (2025), -1.5 (2026) (percent of GDP). - Overall balance CG-BPS: -3.0 (2022), -3.2 (2023), -3.2 (2024), projected -3.7 (2025), -4.0 (2026) (percent of GDP). - Gross debt NFPS: 59.9 (2022), 64.0 (2023), 68.7 (2024), projected 66.6 (2025), 68.3 (2026) (percent of GDP). - Net debt CG-BPS (authorities' definition): 52.4 (2022), 54.5 (2023), 58.0 (2024), projected 57.7 (2025), 60.4 (2026) (percent of GDP). - Note: interest NFPS shows 2.0 (2022), 2.1 (2023), 2.3 (2024), 2.3 (2025), -3.8 (2026) — as presented in the table. ### External sector (selected) - Merchandise exports, fob (US$ billions): 17.7 (2022), 15.2 (2023), 16.3 (2024), projected 16.9 (2025), 18.1 (2026). - Merchandise imports, fob (US$ billions): 13.4 (2022), 12.9 (2023), 13.0 (2024), projected 13.3 (2025), 14.0 (2026). - Terms of trade (percent change): -1.7 (2022), 0.1 (2023), 0.4 (2024), 2.1 (2025), 2.3 (2026). - Total external debt + non-resident deposits (percent of GDP): 78.1 (2022), 64.6 (2023), 55.8 (2024), projected 57.7 (2025), 57.8 (2026). - External public debt (percent of GDP): 29.4 (2022), 29.6 (2023), 31.4 (2024), projected 31.6 (2025), 32.7 (2026). - External debt service (in percent of exports of g&s): 54.2 (2022), 53.4 (2023), 49.0 (2024), projected 49.6 (2025), 33.6 (2026). ### Structural priorities and policy issues highlighted for implementation - Implement five-year budget to improve structural primary balance by 1.6 percent of GDP over the next 4 years (as projected in the budget draft law). - Strengthen fiscal framework: enhance fiscal rule and fiscal council, and ensure steadfast implementation of fiscal rule. - Continue prudent monetary policy until inflation expectations and inflationary pressures converge to target; strengthen de jure central bank independence. - Advance regulatory and supervisory reforms in banking; implement 2022 FSAP recommendations; strengthen AML/CFT effectiveness. - Develop peso capital markets and continue de-dollarization efforts. - Adopt structural reforms to raise productivity: education outcomes, human capital, streamline business regulations, facilitate trade, remove regulatory bottlenecks, encourage labor force participation, integrate migrants, and improve climate resilience. - Wage negotiation proposal intended to boost low incomes while contributing to deindexation efforts. ### Selected country statistics (2024 unless otherwise noted) - GDP (2024) in trillions of pesos: 3.3 - GDP (2024) in billions USD: 81.0 - GDP per capita (2024), U.S. dollars: 23,186 - Population (2023) in millions: 3.5 - Poverty rate (2024): 17.3 - Gini coefficient (2023): 40.9 - Literacy rate (2022): 99.0 - Main products and exports: Cellulose, beef, soybeans - Key export markets: China, Brazil, US, EU - Quota (in millions of SDRs): 429.1 and In % of total: 0.09 (as presented in the table) *IMF staff report: Uruguay—Staff Report for the 2025 Article IV Consultation (October 30, 2025).* ### 3.2 percent of GDP, a 0.2 ppt increase compared to ### 1uryea2025001-source-pdf - 3.2 percent of GDP, a 0.2 ppt increase compared to ### Fiscal outturns and composition (2024) - The deficit for the non-financial public sector (NFPS), including cincuentones, was 3.2 percent of GDP in 2024, 0.1 ppt larger than in 2023. - Stronger-than-anticipated disinflation in 2023–2024 reduced tax revenues by 0.9 percentage points compared to 2023 projections. - Real spending rose by 4.7 percent in 2024, driven by pension and wage increases of 5.4 and 4.2 percent in real terms respectively. - Increased contributions from SOEs—led by record earnings from BROU—partially offset the shortfall. - The escape clause of the fiscal rule’s net indebtedness ceiling was activated in December 2024 to accommodate a deviation of 0.4 ppt of GDP; the ceiling was increased by US$690 million. ### Debt, market access, and financing (2024) - Gross NFPS debt rose by 4.7 percent of GDP in 2024, to 68.7 percent of GDP. - Valuation effects from a weakening peso in 2024 were a main driver of the debt increase. - Market issuances in 2024 included: global bonds in local currency (UYU) and inflation-linked units (UI), a long-term USD bond maturing in 2060, and a multi-tranche Samurai bond totaling US$308 million. - Uruguay secured over US$844 million in loan disbursements from multilateral institutions including the World Bank and CAF. - The Third Annual Report on the performance of Uruguay's Sovereign Sustainability-Linked Bond (SSLB) was published in May 2025. ### External position and capital flows (2024–2025) - Uruguay’s 2024 external position was broadly in line with the level implied by medium-term fundamentals and desirable policies. - The current account (CA) deficit narrowed to -0.8 percent of GDP in 2024. - From the savings-investment balance perspective: - Private sector investment fell by 1.9 percent of GDP in 2024, compared to 2023. - National savings rose by 0.5 percent of GDP, causing an improvement in the current account by 2.4 percent of GDP. - The financial account registered net FDI outflows of 3.2 percent of GDP in 2024, a reversal from the 3.9 percent of GDP of net FDI inflows seen in 2023, owing to a write-off of FDI loans related to funds in transit, partially offset by an increase in portfolio investment. - The peso depreciation seen throughout the second half of 2024 has partially reversed in 2025, driven by tighter domestic monetary policy, positive domestic news, and a global weakening of the US dollar. ### Outlook and projections (2025–medium term) - Real GDP growth expectations: - 2.5 percent in 2025. - 2.5 percent in 2025 (repeated in text). - 2.4 percent in 2026. - Converging to potential growth rate of 2.2 percent from 2027 onwards. - Inflation is projected to decline towards the BCU target of 4.5 percent, accompanied by a gradual easing of monetary policy. - The current account deficit is expected to widen slightly to 1.4 percent of GDP in 2025, before gradually reaching its estimated norm of 1.7 percent of GDP. - In a short-term global downside scenario (Scenario A in Box 1.1 of the April 2025 WEO), growth in Uruguay could slow to around 1.2 percent in 2025. ### Risks (macroeconomic, fiscal, external, systemic) - Macroeconomic risks are broadly balanced. - Downside risks: - International environment: trade policy and commodity price shocks, regional uncertainty. - Weather-related shocks affecting agricultural output. - Fiscal and external position risks are assessed as low: - Near-term fiscal risks limited by an increasing share of domestic debt issuances, ample liquidity buffers, long debt maturities, and favorable borrowing conditions. - About two thirds of the country's external liabilities are comprised of FDI. - Stock of inward FDI for non-financial corporates estimated at 44.5 percent of GDP in 2024. - Systemic risks contained due to low credit-to-GDP ratio, liquid and well-capitalized banks, and a limited sovereign-banking nexus; dollarization raises FX credit and liquidity risks, mitigated by low household indebtedness, moderate and mostly hedged corporate debt, and ample FX reserves. - Upside risks: strong agricultural harvests, favorable commodity prices, new trade agreements (including the EU-Mercosur FTA), and stronger-than-expected effects of structural reforms. ### Authorities’ views - Authorities largely agreed with the outlook and the balance of risks, expecting growth to moderate compared to 2024 and inflation to consolidate at the target. - Authorities highlighted additional upside risks from their structural reform agenda, new trade agreements and opportunities for trade and investment diversion, while remaining vigilant to global and regional developments. ### Fiscal policy outlook and recommendations - The central government-BPS deficit for 2025, excluding cuarentones, is projected to increase to 4.1 percent of GDP, 0.9 ppt above the 2024 deficit. - Reported drivers: postponement of expenditures and unpaid obligations from 2024 (0.4 ppt of GDP), advance tax payments by SOEs in 2024 that should have been received in 2025 (0.1 ppt of GDP), and additional spending commitments from the previous government (0.7 ppt of GDP). - A 6 percent rise in public wages decided in January 2025 adds to expenditure rigidities. - The new five-year budget law is expected to reduce the deficit and stabilize debt in the medium term: - Measures include modernizing and improving tax administration, curbing tax fraud, implementing the global minimum tax, rationalizing certain taxes, and better aligning tax regimes for international online retailers and capital income gains. - These measures would improve the structural primary balance of the central government-BPS from -1.5 percent of GDP in 2026 to 0.1 percent of GDP in 2029. - Under the baseline, the NFPS primary balance is expected to reach 0.4 percent of GDP in 2029 and the NFPS debt-to-GDP ratio is projected to remain stable in the medium term. - Risks to planned fiscal adjustment include the macroeconomic and international tax environment, implementation delays, and spending pressures. - Further efforts recommended to reduce debt include raising the CG-BPS primary balance progressively to around ½ percent of GDP by 2029; options include reducing tax incentives, moderating the wage bill, and improving the efficiency of spending. ### Fiscal framework reform (Box 3) — enhancements and governance - The proposed reform of the fiscal framework aims to: - Better anchor the fiscal rule on a debt objective (prudential net debt level for the central-government-BPS equal to 65 percent of GDP). - Improve the measurement of structural fiscal results. - Strengthen the Fiscal Council and Council of Experts, including greater autonomy and an expanded mandate. - Include corrective mechanisms for slippages and clearer criteria for extraordinary revenues and expenditures. - Methodological improvements: updated procedures for estimating structural balance, potential output and the output gap; all methodologies to be documented and made publicly available. - The enhanced framework will include additional limits to safeguards and escape mechanisms, requiring the Fiscal Council’s non-binding opinion for activation. - Adequate operationalization and meeting fiscal rule targets are emphasized as important to reap reputational benefits. - The ongoing social dialogue on social protection and social security is expected to lead to proposals by April 2026; reforms should be consistent with ensuring sustainability of social spending. *Source: INTERNATIONAL MONETARY FUND.* ### 19. The appointment of the first BCU ### 19. The appointment of the first BCU ### Central bank independence and inflation targeting - The appointment of the first BCU president without political affiliation marks a step forward in central bank de facto independence. - The new BCU president has announced a commitment to take inflation towards the target (4.5 percent). - Enhanced central bank communication and coordination with the new five-year budget and the government’s guidelines for collective bargaining are key elements in the disinflation strategy. - Authorities’ view: The authorities highlighted that low and stable inflation was achieved even though the exchange rate was volatile and growth sustained, attributing this to improved credibility from strengthening BCU independence and improving communication. The BCU intends to allow the exchange rate to act as a shock absorber and limit FX interventions to periods of disorderly market conditions. ### Monetary policy stance and transmission - Policy rate: 8.75 percent. - One-year ahead inflation expectations: 4.7 percent. - Real interest rate: around 4 percent — above the real neutral rate (estimated at 2.5 percent). - Assessment: The stance has been appropriately contractionary; recent declines in policy rates were justified by lower inflation and inflation expectations. - Policy decisions have been consistent with estimated Taylor rules, providing predictability and credibility. - Communication recommendation: Further emphasizing in public communications that the inflation target is 4.5 percent with a tolerance range should continue to help anchor expectations. - Primary transmission channels in Uruguay: reactions of inflation expectations and of the exchange rate to changes in the policy rate. The banking channel is relatively weak due to the low credit-to-GDP ratio. ### Monetary framework and communication improvements - Recent BCU actions: - Stopped intervening in the FX market. - Introduced the monetary policy rate (overnight interbank rate) as its primary operational objective. - Reduced the tolerance range from 3-7 percent to 3-6 percent and emphasized the mid-point as the primary target. - Doubled the number of monetary policy committee meetings (COPOM). - Published minutes of meetings, held press conferences, and used social media to communicate decisions. - Recommendation: To sustain monetary policy credibility, the exchange rate should continue being a shock absorber, with foreign exchange interventions only used to respond to disorderly market conditions. - Institutional recommendation: Align de jure central bank independence with regional peers by making BCU Board appointments follow best international practices, including appointments for fixed terms not overlapping with the electoral cycle. ### Credit, de-dollarization, and the credit channel (Box 4) - Bank credit developments: - Bank credit in Uruguay has increased by approximately 10 percent of GDP since 2010. - Expansion driven primarily by credit denominated in pesos and by greater lending to corporations. - Although credit exceeds its estimated long-term trend, the credit gap remains moderate, below 2 percent of GDP. - Credit penetration remains relatively low compared to peers; access to credit limited for some households and smaller firms. - Empirical evidence on transmission: - A 1 ppt reduction in the policy rate would increase bank credit in pesos by only about 0.15 pct or less than 0.05 pct of total credit, indicating modest transmission of monetary policy to credit conditions. - Lower regulatory capital requirements are associated with higher credit growth, but the effect is much smaller. - Increases in the policy rate do not have a statistically significant effect on peso-denominated deposits, whereas dollar-denominated deposits decline in response to a higher Fed Funds Rate. - Methodology note: Empirical estimates use Dynamic panel GMM regression (Arellano-Bond estimator) using bank-level monthly data from January 2013 to April 2025; the 1-month URY government bonds rate and the Wu-Xia Shadow Federal Funds Rate are used for certain periods; robust standard errors; significance indicated by *** and ** at 1% and 5%. ### Financial sector policies and supervision - Authorities’ ongoing commitments: - Strengthen the regulatory and supervisory framework and implement recent FSAP recommendations. - The Superintendency of Financial Services (SSF) should continue strengthening its risk-based supervisory framework, particularly by advancing stress-testing capabilities. - Reforms to expand the regulatory perimeter and regulate virtual asset service providers are underway. - Institutional developments and timelines: - Macroprudential Policy Committee created in October 2024; will reinforce the macroprudential framework which already includes tools such as the Countercyclical Capital Buffer (CCyB). - CCyB implemented by the BCU in June 2020; set at 0.75 percent since January 2025, with a planned increase to 1 percent in July 2026. - First phase of the Basel III Pillar II roadmap set to be operationalized through a regulatory proposal in 2025. - Planned 2025 initiatives to improve data management and reporting within the financial supervision system. - AML/CFT progress and remaining work: - BCU approved the new National Strategy for Combating Money Laundering in July, 2025. - BCU launched public consultations on proposed crowdfunding regulations; additional regulations expected in late 2025. - SENACLAFT published the latest update of the Politically Exposed Persons (PEP) List in February 2025. - New BCU regulations for virtual asset service providers expected to be finalized in 2025. - Uruguay has progressed on GAFILAT’s 2019 Mutual Evaluation Report recommendations, including the 2023 update of the National Risk Assessment (NRA) and the creation of a Special Prosecutor’s Office for ML/TF, but continued efforts are needed. ### Structural reforms to boost growth and competitiveness - Context: After a period of high growth, convergence with advanced economies stalled a decade ago; Uruguay needs to intensify its reform agenda. - Education: - Firms identify an inadequately educated workforce as the third biggest obstacle to growth (World Bank Enterprise Survey, 2024). - Secondary school dropout rate: 40 percent. - Reading, mathematics, and science skills are low for a high proportion of students. - Suggested actions: modernize curricula, adapt technical careers to labor market demand, strengthen teacher training, extend pedagogical time, and encourage secondary school completion. - Innovation and AI: - Uruguay is emerging as a regional innovation hub, leveraging strong digital infrastructure and a thriving startup ecosystem; Uruguay Innovation Hub launched in 2023. - Uruguay is a regional leader in AI preparedness; around 40 percent of workers are exposed to AI. - Distributional effects: young and administrative-occupation workers could face negative consequences; 40–60-year-olds and managerial/professional occupations could benefit due to complementarity with AI. - Policy focus: close digital gaps, integrate AI-driven innovation into education and industry equitably and ethically, train the next generation, and support workers at risk. - Trade, competition, and business regulation: - If enacted, the Mercosur–European Union agreement would present new opportunities to increase exports and attract investment. - Trade facilitation, reduction of non-tariff barriers, red tape, and logistics costs are avenues to improve competitiveness. - Announced measures to simplify trade procedures and redesign incentives for investment are important first steps to attract FDI and boost trade. - Substantial entry barriers and regulatory bottlenecks hinder business dynamism; government is streamlining procedures through digitalization and simplified registration, licensing, and taxation. - Recommendation: Enhance competition policy by strengthening capacity of competition authorities to address market concentration in key sectors. - State-owned enterprises and public investment: - SOEs are key providers of essential inputs and major contributors to public investment, which is lagging compared to advanced economies. - New administration reforms incentives to better align wages with productivity; efficient resource allocation and cost-reflective pricing are important. - Access to credit and capital markets: - Limited access to credit in local currency and modestly developed capital markets hinder financial sector contribution to growth and limit monetary policy effectiveness. - Recommendations: improve access to credit for creditworthy firms, particularly underserved SMEs, while maintaining prudent lending standards; implement regulatory reforms to facilitate a level playing field. - BCU reforms to develop local capital markets aim to support financial de-dollarization and increase financial system resilience. *Content unit: 1uryea2025001-source-pdf - 19. The appointment of the first BCU* ### 28. Uruguay’s labor market faces key challenges, including limited flexibility and an aging ### Uruguay’s labor market faces key challenges, including limited flexibility and an aging population ### Labor market institutions and reforms - Labor market institutions have contributed to relatively low inequality and stability and have allowed coordinated mechanisms to navigate crises. - Firms perceive hiring and wage-setting practices as restrictive (Annex II). - Introducing measures that help account for firm heterogeneity, such as facilitated opt-outs (‘descuelgue’), would: - strengthen competitiveness, - contribute to a more efficient labor allocation, - potentially dynamize employment opportunities. - The authorities noted that accounting for productivity and firm heterogeneity in labor market practices would support flexibility but highlighted implementation challenges in the context of imperfect information and complex negotiation dynamics. ### Wage negotiation guidelines (XI Round) - The government’s guidelines for the new round of wage negotiations introduce differentiated salary bands adjustments aimed to boost low incomes and contribute to deindexation. - Two key innovations in the 2025-2026 government’s guidelines (Text Table 2): - (i) wage indexation based on expected inflation, with income level differentiation to protect lower wages; - (ii) correction clauses that are based on core inflation, to stabilize inflation dynamics. - Three salary bands have been defined; the first one – for wages below $U 38,950 – covers nearly 30 percent of workers, who would receive the most significant increases. - Design features and implications: - Proposed biennial adjustments are based on expected inflation. - Two annual correction clauses (correctivos) would be based on past core and headline inflation. - The clauses’ thresholds remain above last years’ average core inflation, and under current disinflationary trends, they are less likely to be activated. - To bolster disinflation, downward adjustments could also be considered if core inflation prints below the tolerance range. - Recommendation: - Given high unemployment rates for vulnerable populations, monitor potential employment effects for the young and low-skilled. ### Population aging, labor force participation, and immigration - Population aging poses risks to growth and sustainability, highlighting the value of policies that encourage labor force participation and facilitate the integration of migrants. - Closing the labor force participation gender gap to match that of the top 10 percent countries over the next 30 years would result in an additional annual growth of 0.2 percentage points. - Immigration is a natural option to counterbalance the slowdown of native workforce growth. - Policy bottleneck and recommendation: - Alleviating bottlenecks in the accreditation system of professional qualifications and skills validation could mitigate skill mismatches, better address labor market shortages and enhance productivity, allowing the country to further benefit from immigrants’ arrival and successful labor market integration. ### Security and organized crime - Tackling insecurity is a priority of the new administration. - Although Uruguay is one of the safest countries in Latin America, recent trends show that crime and organized crime can affect countries even with strong state capacity and robust institutions. - Crime imposes significant public, private and human capital costs and undermines economic capacity. - Recommendation: - International cooperation and initiatives that identify local vulnerabilities and the competitive advantages attractive to illegal markets will be key to curb organized crime (Annex IV). - Authorities’ actions: - The customs administration is strengthening its ability to tackle trafficking, updating its technology, improving access to information and coordination with police, and this has already resulted in a higher number of seizures. - Authorities have prioritized insecurity, reflected in a substantial increase in resources and plans to improve information sharing to fight organized crime. ### Authorities’ views on policy agenda - Authorities broadly agreed with staff views and stressed that the measures recently announced are expected to boost competitiveness and growth. - They highlighted: - new measures to cut red tape; - their innovation and digital transformation agenda; - plans to address school dropout rates by increasing the number of secondary school scholarships from 14,000 to 70,000, along with extending pedagogical time through additional teaching hours, workshops, and meals. - On inflation and wages: - The authorities emphasized that the process of modifying price and wage formation to reduce inflation inertia is being carried out gradually and cautiously, to avoid altering relative prices and to preserve workers’ purchasing power. ### Past Fund advice and staff appraisal — macroeconomic overview and policy implications - Past Fund advice and alignment: - Proposed improvements to the fiscal rule and Fiscal Council align with previous Fund advice. - The new wage negotiation guidelines will contribute to wage deindexation, in line with previous Fund advice. - Appointment of the first BCU president without political affiliation and the absence of FX interventions reinforce the credibility of the BCU. - 2024 macro developments: - In 2024, Uruguay’s economy rebounded strongly, mainly driven by agricultural exports. - With the output gap nearly closed, the unemployment rate has ticked down while inflation has stayed within the tolerance range for more than two years. - The fiscal deficit increased in 2024, necessitating the activation of the fiscal rule’s escape clause. - Fiscal and debt outlook: - The proposed five-year budget intends to reduce the deficit and stabilize debt in the medium term. - The new budget envisages a permanent rise in social spending and investment, to be financed through a gradual increase in revenues. - The debt level is expected to increase and converge below a new prudential debt anchor, but further efforts would be recommended to put the debt-to -GDP ratio on a steady downward path. - Staff and authorities agree on the need to continue maintaining fiscal prudence to preserve market access, low sovereign spreads, and social cohesion. - Monetary and financial sector policy: - The appointment of the first BCU president without political affiliation marks a step forward in central bank de facto independence. - Emphasizing that the inflation target is at the mid-point of the tolerance range should continue to help anchor expectations. - The BCU started to revamp its de-dollarization strategy to improve monetary policy transmission and strengthen the financial sector; enhancing de jure central bank independence would further improve credibility and support policy continuity. - The banking system is well capitalized, highly liquid and profitable with FX risks contained. - Authorities remain committed to strengthening the regulatory, supervisory and macroprudential frameworks. - Expansion of the regulatory perimeter, regulation of virtual asset service providers, and further improvements to the AML/CFT framework will help reduce financial vulnerabilities. - Structural reform priorities: - Ambitious reforms are key to boosting Uruguay’s potential, given gaps in infrastructure, trade facilitation, entry barriers and regulatory bottlenecks, market concentration, human capital, and access to credit. - Closing digital gaps, strengthening innovation and promoting equitable and ethical integration of AI-driven innovation into education and industry could help boost growth. - The recent guidelines for wage negotiation are aligned with inflation objectives and contribute to de-indexation whilst supporting lower-income workers. *International Monetary Fund staff report excerpts* ### 40. Staff recommends that the next Article IV consultation take place on the standard ### 1uryea2025001-source-pdf - 40. Staff recommends that the next Article IV consultation take place on the standard ### Real activity: recovery after drought - 2024: Economy recovered from one of the worst droughts in the last hundred years aided by rainfall that restored crop production. - Strong soybean and cellulose production dynamized agricultural and manufacturing sectors, resulting in a boost of net exports. - Agricultural production rebounded strongly, supporting export volumes. - Real GDP growth (annual series in Table 1 and Table 2): - 2021: 5.8 - 2022: 4.5 - 2023: 0.7 - 2024: 3.1 - 2025 (projection): 2.5 - 2026 (projection): 2.4 - GDP (US$ billions): - 2021: 60.7 - 2022: 70.6 - 2023: 78.0 - 2024: 81.0 - 2025 (proj): 85.0 - 2026 (proj): 90.6 - Output gap (percent of potential output): - 2021: -1.7 - 2022: -0.4 - 2023: -1.3 - 2024: -1.0 - 2025: -0.8 - 2026: -0.5 ### Labor market: dynamic recovery, informality above pre-drought levels - Employment rates improved for men and women; youth employment has slightly recovered. - Hours worked have stabilized while real wages have recovered to pre-pandemic levels and benefited from lower inflation. - Employment change (cumulative since Aug 2020, NSA) series shown for Aug-2020 through Aug-2025. - Change in employment by age (2019-24) displayed; aggregate unemployment (percent, pa): - 2021: 9.4 - 2022: 7.9 - 2023: 8.3 - 2024: 8.2 - 2025 (proj): 7.9 - 2026 (proj): 8.0 - Labor force participation (percent, Table 2 projections): - 2021: 61.4 - 2022: 61.9 - 2023 onward: 63.4–64.4 (steady at 64.4 by 2026–2030) ### Inflation: converging to BCU target but non-tradable prices stickier - 2025: Inflation converging around the BCU target; non-tradable inflation proved stickier. - Factors contributing to disinflation: global weakening of the dollar and peso appreciation, and lower fuel prices. - Inflation expectations eased further, gradually converging to the BCU’s tolerance range. - CPI inflation (end of period): - 2021: 8.0 - 2022: 8.3 - 2023: 5.1 - 2024: 5.5 - 2025 (proj): 4.0 - 2026 (proj): 4.5 - CPI inflation (average) projections 2025–2030: 4.7 (2025), 4.5 (2026–2030 steady at 4.5) - Inflation expectations (12-month ahead) series shown with target and breakeven measures. ### External accounts: current account narrowed in 2024; exports supported by cellulose and beef - Current account balance (percent of GDP): - 2021: -2.4 - 2022: -3.5 - 2023: -3.0 - 2024: -0.8 - 2025 (proj): -1.4 - 2026 (proj): -1.5 - Trade balance and goods exports: - Merchandise exports, f.o.b. (US$ billions): - 2021: 15.9 - 2022: 17.7 - 2023: 15.2 - 2024: 16.3 - 2025 (proj): 16.9 - 2026 (proj): 18.1 - Merchandise imports, f.o.b. (US$ billions): - 2021: 11.2 - 2022: 13.4 - 2023: 12.9 - 2024: 13.0 - 2025 (proj): 13.3 - 2026 (proj): 14.0 - Record cellulose exports, recovery of soybean exports, and solid beef exports bolstered the goods balance despite lower soybean prices. - Gross official reserves (US$ billions): - 2021: 17.0 - 2022: 15.1 - 2023: 16.2 - 2024: 17.4 - 2025 (proj): 19.5 - 2026 (proj): 19.7 - Financial flows: FDI flows reversed in 2024 and portfolio investment increased, reducing liabilities incurred in 2024. - Total external debt + non-resident deposits (percent of GDP): - 2021: 83.8 - 2022: 78.1 - 2023: 64.6 - 2024: 55.8 - 2025 (proj): 57.7 - 2026 (proj): 57.7 ### Fiscal sector: debt increased to pandemic-like levels; deficit widened despite higher SOE balances - Public debt increased while the deficit widened; revenues rose primarily from state-owned enterprises and non-tax sources, while expenditures increased particularly in pensions and transfers. - Selected fiscal indicators (percent of GDP, Table 1 and Table 4): - Revenues (NFPS): 27.4 (2021), 27.3 (2022), 27.4 (2023), 28.2 (2024), 28.8 (2025), 28.6 (2026) - Primary expenditures (NFPS): 28.2 (2021), 28.0 (2022), 28.4 (2023), 28.9 (2024), 29.9 (2025), 30.2 (2026) - Primary balance NFPS (A-B+C+D): - 2021: -0.6 - 2022: -0.5 - 2023: -1.0 - 2024: -1.0 - 2025 (proj): -1.0 - 2026 (proj): -1.5 - Overall balance NFPS: - 2021: -2.6 - 2022: -2.5 - 2023: -3.1 - 2024: -3.2 - 2025 (proj): -3.3 - 2026 (proj): -3.8 - Gross debt NFPS (percent of GDP): - 2021: 64.1 - 2022: 59.9 - 2023: 64.0 - 2024: 68.7 - 2025 (proj): 66.6 - 2026 (proj): 68.3 - Domestic interest rates declined recently, driven by decreasing spreads which remained at historically low levels. - Government USD bond yields and spreads series shown; USD-10Y yield and WA Spread (bps) referenced. ### Monetary policy: easing cycle started but real rates remain above neutral - After raising rates towards the end of the year, the central bank started an easing cycle while keeping short-term real interest rates above the neutral rate. - No spot and forward FX interventions in 2024 and 2025 to date. - Real interest rate series and monetary policy instrument transition depicted; policy rate and 1 month rate series shown (Aug-19 to Aug-25 charted). - Average peso interest rates and borrowing costs remain elevated with a small uptick in local currency rates while US dollar rates remain steady. - Monetary policy rate (end of period, Table 1): - 2021: 5.8 - 2022: 11.3 - 2023: 9.0 - 2024: 8.8 ### Credit and banking: profitability improved, capital buffers adequate, high dollarization - Uruguayan banks improved profitability supported by higher interest rates; capital buffers remained adequate and high for state-owned banks. - Non-performing loans and provisioning remained stable. - Dollarization remains high, especially for deposits. - Share of credit by sector (foreign currency, as of end-November 2024): - Agriculture: 34 - Manufacturing: 20 - Commerce: 19 - Services: 18 - Construction: 5 - Households: 4 - Key banking ratios (Table 6, 2024): - Regulatory capital to risk-weighted assets: 17.2 (2024) - Non-performing loans in percent of total loans: 1.5 (2024) - Specific loan-loss provisions in percent of non-performing loans: 234.5 (2024) - Return on assets: 3.7 (2024) - Liquid assets to total assets: 52.0 (2024) - Foreign-currency-denominated loans to total loans: 53.0 (2024) - Foreign-currency-denominated liabilities to total liabilities: 69.4 (2024) - Banking system size and private credit: - Bank assets (percent of GDP in Table 1): 75.0 (2021), 67.6 (2022), 63.2 (2023) - Private credit (percent of GDP): 26.7 (2021), 26.6 (2022), 28.6 (2023), 31.1 (2024) ### Key macroeconomic and social indicators - GDP (2024) in trillions of pesos: 3.3 - GDP (2024) in billions of USD: 81.0 - GDP per capita (2024), U.S. dollars: 23,186 - Population (2023) in millions: 3.5 - Poverty rate (2024): 17.3 - Gini coefficient (2023): 40.9 - Main products and exports: Cellulose, beef, soybeans - Key export markets: China, Brazil, US, EU - Literacy rate (2022): 99.0 *Canonical source: https://www.imf.org/-/media/files/publications/cr/2025/english/1uryea2025001-source-pdf.pdf* ### Annex I. Maximum Debt Capacity in Uruguay ### Annex I. Maximum Debt Capacity in Uruguay ### Background and motivation - The 2020 Uruguayan fiscal rule framework strengthened fiscal discipline but "lacked a fiscal anchor directly linked to the ultimate objective of debt sustainability." - The new administration's five-year budget (submitted to parliament in August 2025) considers a net debt anchor of 65 percent of GDP for the CG-BPS, equivalent to 75 percent of GDP for the NPFS coverage on a gross basis. - A prudential debt anchor is defined as a level that minimizes the likelihood of exceeding the debt limit over a specific time frame; formally, a prudential debt anchor = debt limit − "safety margin". ### Methodologies for estimating debt limits - Empirical debt‑distress threshold models: - Literature finds thresholds (for emerging markets) near 70 percent of GDP that substantially increase the likelihood of debt distress or negatively affect growth (Caner et al., 2010; Chudik et al., 2017). - Maximum Achievable Primary Balance (MAPB) method: - Uses the debt-stabilizing primary balance formula: D/Y = PPB* / (r − g), where PPB* is the highest achievable primary balance and r − g is the real interest rate minus growth. - Reflects political and economic constraints on raising revenue and cutting expenditures. - Fiscal space / optimal fiscal reaction refinements: - Ostry et al. (2010) incorporate an optimum fiscal reaction function capturing the limit to how much governments can increase primary surpluses as debt rises. - Jiang et al. (2024) framework: - Continuous-time stochastic model with default option and convenience yield; closed-form debt-carrying capacity: D/Y = τN − γ / (r + ε + λ − δ − g) - τN = optimum tax rate; γ = government spending ratio; r = risk-free rate; ε = debt surge arrival rate; λ = risk premium on GDP volatility; δ = convenience yield; g = GDP growth. ### Empirical estimates for Uruguay (NFPS gross debt coverage unless otherwise noted) - MAPB method (inputs and intuition): - Historical observed primary surpluses in the 2000s close to 3.5 percent of GDP. - Real interest rates under stress ranging from 6 to 7 percent. - Growth rate near estimated potential of 2.2 percent. - Result: debt limit estimates between 60 and 100 percent of GDP (Figure A1). - Jiang et al. (2024) method: - Stated illustrative parameter set includes: r = 0.9 percent; g = 2.5 percent; λ = 1.9 percent (among other parameters). - Result: debt limit range for Uruguay’s NPFS between 81 and 113 percent of GDP, with an average estimate around 95 percent. - Authors' combined assessment: - Estimated range of prudential debt levels (NFPS coverage) suggested by authors: 55-80 percent of GDP. - Prior studies and comparisons: - Sbrancia (2023) estimates debt limit at 70 percent of GDP (NFPS perimeter). - Cantisani (2024) places debt limit at 84 percent of GDP (Central Government‑BPS). - Under a ten-year horizon and a 5 percent tolerance level, corresponding prudential debt levels reported in prior work would be around 51 percent of GDP (for a 70 percent limit) and 75 percent of GDP (for an 84 percent limit). ### Uncertainty, shocks, and distribution of future debt trajectories - Historical shock evidence (2001 onward): - Using full historical sample including the 2002‑5 crisis, the 90th percentile of the debt-to-GDP ratio is around 40 percent of GDP above the baseline at a 5-year horizon. - The 2002‑5 crisis included a dramatic exchange rate devaluation and banks’ recapitalization cost around 17 percent of GDP. - Adjusted historical scenario (excluding 2002‑5 crisis): - If the 2002‑5 crisis is excluded from the historical sample, the width of the upper half of the debt distribution falls to around 25 percentage points of GDP. - Changes in macro-financial structure that reduce probability of large FX-related debt jumps: - International reserves currently at 11½ months of imports. - Share of FX‑denominated debt reduced from 95 percent of debt (25 years ago) to 49 percent of debt. - Banking sector described as "very well capitalized and highly liquid." - Downward pressures on debt-carrying capacity: - Rising global interest rates increase borrowing costs and debt service burdens. - Heightened geopolitical risks and global uncertainty can raise risk premia and reduce market access. - More frequent and correlated shocks (e.g., climate events, commodity price swings) could further strain fiscal buffers. ### Policy implications and prudential guidance - Establish a transparent and credible debt-to-GDP anchor to strengthen fiscal discipline and enhance policy predictability. - The five-year budget's proposed net debt anchor of 65 percent of GDP for CG-BPS (75 percent gross NPFS) aligns with the need for a clear anchor. - Adopt a cautious approach given substantial uncertainty in debt-limit estimates: - Recognize wide methodological dispersion: MAPB implies 60–100 percent; Jiang et al. implies 81–113 percent (average ~95 percent); combined prudent anchor range suggested: 55–80 percent. - Account for shock tails and structural change when setting safety margins: - Use stress scenarios that reflect lower FX exposure and larger international reserves compared with past crises to calibrate realistic safety margins. - Consider evolving external conditions: - Monitor global interest rate trajectories, risk premia, and frequency of correlated shocks; adjust prudential anchors if systemic risks materialize. *Source: Annex I. Maximum Debt Capacity in Uruguay.* ### 4. Uruguay has flexible immigration ### 4. Uruguay has flexible immigration ### Immigration policy framework and recent regularization efforts - Nationals from Mercosur countries can obtain temporary or permanent residence via the mobility agreement with their national identification. The certificate enables immigrants to request a Uruguayan ID. - The application requires a national identity document or passport, proof of a clean criminal record in countries where a person resided for more than six months in the past five years, and a vaccination certificate. - In May 2024 the Ministry of Interior signed a decree aimed at regularizing the situation of nearly 24,000 immigrants who lacked legal status. - The decree N° 138/024 created the figure of residence by rootedness under three categories: (i) labor or self-employment, (ii) family, and (iii) training. The first two provide permanent residence while the third one provides renewable temporary residence. - The Refugee Commission (CORE) has recently granted the first refugee status recognitions under the prima facie mechanism for Venezuelan citizens, which could benefit around 3,500 Venezuelan seeking for refugee status. - Between 2013 and 2022, initial residence requests more than doubled. Residency status enables formal participation in the labor market. - Employers are required to register immigrant workers in the social security using a Uruguayan ID or a national one for Mercosur nationals; non-Mercosur members can temporarily use their passports once they have started a residence request. ### Demographic scenarios and migration projections (as presented) - Population projection (0 net migration). - Scenario 1: Positive Net Migration (+5 thousand). - Scenario 2: Negative net migration (-5 thousand). - Scenario 3: High positive net migration (+6.2 thousand). ### Migrant characteristics and labor market outcomes - Education and occupations: - Migrants appear to be highly educated and are likely to participate in high-skilled occupations. - Immigrant workers have a high concentration in higher-skilled occupations including managerial positions, professionals, technicians and associate professionals. - Education by origin group (from 2023 Census) shows distribution across incomplete tertiary, complete tertiary, tertiary (non-college), technical courses, secondary, and below secondary. - Labor force participation and unemployment: - Labor force participation of migrants in Uruguay is generally high. - On average, labor force participation is higher for low-skilled migrants who are also slightly more likely to be unemployed than natives (0.4 percentage point difference). - The foreign-native unemployment gap is negative in Uruguay (foreign-born unemployment lower than natives overall). - High-skilled migrants are, on average, more likely to be unemployed than natives: unemployment among 18-64 year olds is 2.8 percentage points higher for high-skilled migrants than for their native counterparts. - Age and selection: - Differences in labor force participation partly reflect migrants’ younger age profile and potentially self-selection in the migration decision. - Caution is advised interpreting higher participation because in emerging markets lower-skilled workers can be more likely to be absorbed into the informal sector. ### Integration barriers and policy implications - Higher-skilled workers face integration barriers due to foreign certification validation processes, licensing, legal requirements, and language barriers, increasing risk of skill mismatches and occupational downgrading. - Uruguay has benefitted from a larger supply of IT professionals, a highly demanded occupation, but professionals in sectors requiring formal certifications (e.g., health sector) face integration barriers because of costs and long waiting times for degree recognition. - Addressing accreditation and skills validation bottlenecks would: - Mitigate skill mismatches and downgrading. - Help address labor market shortages. - Enhance productivity and allow the country to benefit more from immigrants’ arrival and integration. - Policy complements: - Recently announced initiatives to attract qualified foreign talent to work in the scientific-technological sector through tax incentives could be supported by easing accreditation and recognition processes. ### Conclusion: role of immigration for demographic and fiscal challenges - With fertility at record lows, immigration has emerged as a potential option to sustain Uruguay’s workforce and moderate the risk of population decline. - Appropriate integration policies and regularization efforts, combined with alleviating bottlenecks in accreditation of professional qualifications and skills validation, could support labor market shortages, enhance productivity, and improve fiscal sustainability by sustaining the workforce. *Source: INE and IMF staff calculations; IMF chapter content provided.* ### 23.1 percent of GDP and has seen a progressive trend reduction. ### 23.1 percent of GDP and has seen a progressive trend reduction. ### Net International Investment Position (NIIP) - 2024 (% GDP) NIIP: –19.1 - 2024 (% GDP) Gross Assets: 94.3 - 2024 (% GDP) Debt Assets: 65.0 - 2024 (% GDP) Gross Liab.: 113.4 - 2024 (% GDP) Debt Liab.: 31.7 - Assessment: - Uruguay’s NIIP is negative but liabilities are mainly FDI and sovereign risk spreads are low, creating favorable conditions. - Over the medium term, as real GDP growth converges to its potential and the current account stabilizes around its norm, the NIIP is projected to hover around 20.5 percent of GDP (average 2027-2030). - Vulnerabilities: financial dollarization, the share of public foreign-currency debt, and heightened global uncertainty. - Uruguay’s strong institutional framework and prudent macroeconomic management should motivate steady FDI flows. ### Current Account (CA) - 2024 (% GDP) CA: –0.8 - Background: - The CA deficit reached -0.8 percent of GDP in 2024, higher by 2.3 percentage points compared to 2023. - Trade balance shifted from 3.6 to 5.2 percent of GDP between 2023 and 2024. - Three main contributors to trade balance improvement: - Resurgence in agricultural exports, particularly soybeans following the previous year’s drought. - Significant increase in cellulose exports driven by enhanced production capacity and, to a lesser extent, higher prices. - Reduction in services imports, especially outbound tourism. - Continued reduction in the primary balance deficit: 6.2 percent of GDP in 2024. - 2024 CA deficit was the lowest since 2020. - Substantial price differentials with Argentina in 2023 reversed in 2024, supporting tourism revenues particularly at the beginning of 2025. - CA outlook: - Expected to widen slightly to 1.4 percent of GDP in 2025 as cellulose production reaches full capacity and increased demand drives higher imports. - Over the medium term, the CA deficit is expected to gradually converge to 1.7 percent of GDP. - Assessment (EBA and staff metrics, 2024): - Cycl. Adj. CA: –1.1 - EBA Norm: –1.7 - EBA Gap: 0.6 - Staff Adj.: 0.0 - Staff Gap: 0.6 - The EBA model estimates a cyclically adjusted balance of -1.1 percent of GDP and a cyclically adjusted CA norm of –1.7 percent of GDP in 2024, implying an EBA model CA gap of 0.6 percent of GDP (range 0.2 to 1.0 percent of GDP). ### Real Exchange Rate (REER) - Background: - In 2024, the peso depreciated on average 3.6 percent between 2023 and 2024 (from 38.8 Uruguayan pesos per U.S. dollar to 40.2 on average). - Despite the USD depreciation, the REER appreciated by one percent in 2024 (a cumulative appreciation of 18.4 percent since 2021) due to nominal appreciation against other key trading partners, most notably Brazil and Argentina. - The peso depreciation through the second half of 2024 (USD/UYU ended the year at 44.1) partially reversed in 2025 as appreciation pressure on the peso stemmed from weakening of the USD and tighter domestic monetary policy. - Assessment: - IMF staff CA gap for 2024 implies a REER gap of -3.3 percent (applying a semi-elasticity of 0.19). - The EBA REER level and index models estimate an overvaluation of 29.1 percent and of 14.8 percent, respectively, in 2024. - IMF staff’s overall assessment, based on the CA gap, is a REER gap in the range of -5.4 to -1.1 percent. ### Capital and Financial Accounts: Flows and Policy Measures - Background (2024 flows): - Net financial account inflows: 0.8 percent of GDP (lower than 2023: 3.0 percent of GDP). - Outflow of net FDI: 3.2 percent of GDP in 2024, a reversal from net FDI inflows of 3.9 percent of GDP in 2023. - Reversal driven by a write-off of FDI loans of around US$4.5 billion (5.6 percent of GDP). - Partially offset by increases in portfolio investment sourced from reinvestment of profits and capital contributions. - Net inflows of portfolio and other investments totaled 5.3 percent of GDP. - Reserve accumulation: 1.4 percent of GDP. - Assessment: - Positive steps: lengthening sovereign debt maturity, high share of fixed-rate debt, increasing share of debt issued in local currency — reduce exposure to FX depreciation and refinancing risks. - Risks to capital flow reversals are limited as external liabilities are mostly comprised of FDI (around two-thirds). - Banking sector maintains ample liquidity buffers. - Central government precautionary credit lines with multilaterals provide financial backstop. ### FX Intervention and Reserves Level - Background: - Uruguay has a floating exchange rate. - Since 2020 enhancement of the monetary policy framework, the short-term interest rate is the main policy instrument and the exchange rate has been allowed to act as shock absorber. - In 2024, the central bank did not conduct FX interventions in spot or forward markets. - Reserves remained high at US$17.4 billion in 2024. - Assessment: - Reserves are adequate relative to various criteria, including the IMF’s reserve adequacy metric (around 170 percent as of the end of 2024). - Reserves serve as insurance against external shocks. - Policy advice: exchange rate should continue to act as a shock absorber; FX interventions should be limited to responding to disorderly FX market conditions. ### Risk Assessment Matrix — Selected Risks and Policy Advice - Escalating Trade Measures and Prolonged Uncertainty - Likelihood: High - Impact: Medium - Horizon: ST - Policy advice: Implement structural reforms, allow sectoral reallocation, strengthen business climate, strengthen communication and forward guidance, allow exchange rate to adjust. - Financial Market Volatility and Correction - Likelihood: High - Impact: Medium - Horizon: ST - Policy advice: Allow exchange rate to act as shock absorber; use FX intervention only to address disorderly market conditions; enhance monetary policy framework and communication; support de-dollarization efforts. - Commodity Price Volatility - Likelihood: High - Impact: Medium - Horizon: ST - Policy advice: Prudent monetary policy to anchor inflation expectations; fiscal policy neutral overall with targeted assistance to low-income households. - New Trade Agreements - Likelihood: Low - Impact: Medium - Horizon: ST, MT - Policy advice: Execute planned structural reforms to enhance growth prospects. - Climate Change - Likelihood: Medium - Impact: High - Horizon: ST, MT - Policy advice: Continue implementing climate mitigation and adaptation strategies. - Labor Supply Gaps - Likelihood: Medium - Impact: Medium - Horizon: MT, LT - Policy advice: Build on flexible immigration policies and regularization efforts; enhance education; promote policies to close labor force participation gender gap. - Unfavorable economic shocks with insufficient fiscal adjustment - Likelihood: Low - Impact: Medium - Horizon: ST, MT - Policy advice: Recalibrate plans to introduce a credible adjustment plan with concrete measures to regain macroeconomic stability. - Delayed progress in structural reforms or reversal of macro stability - Likelihood: Medium - Impact: Medium - Horizon: ST, MT - Policy advice: Implement envisaged structural reforms (education, labor market, business environment, SOEs). ### Sovereign Risk and Debt Sustainability Framework (SRDSF) - Key findings: - Uruguay has a low risk of sovereign stress, with sustainable debt levels. - Access to readily available and large financial reserves and emergency central government credit lines with multilaterals act as strong safeguards against sudden external shocks. - Public debt is projected to remain broadly stable over the forecast horizon. - Further consolidation efforts recommended to bring the debt-to-GDP ratio on a steady downward path in the medium term. - Possible consolidation options: reducing tax incentives, moderating the wage bill, improving the efficiency of spending. - Accounting and drivers of debt dynamics: - Fiscal perimeter: non-financial public sector (NFPS), covering the CG, Banco de Prevision Social (BPS), local governments, state-owned enterprises and Banco de Seguros del Estado (BSE). - Most debt is issued by the CG. - Residual factors have been the main driver of debt increases, largely reflecting indexation and foreign exchange valuation effects. - Heavy reliance on financing instruments indexed to inflation or nominal wage growth increases principal automatically as those indicators rise; GFSM 1986 manual does not provide clear guidance on accounting for indexed instruments, leading to classification issues. - Residuals also include several non-marketable bonds issued by the CG to recapitalize the BCU. - DSA summary assessment: - Overall final assessment: Low risk of sovereign stress. - Near term: Medium term: Low; Moderate in some metrics. - Medium-term vulnerabilities are moderate due to a relatively large proportion of public debt denominated in foreign currency and a large share of holdings by non-residents. - The debt increase in 2024 was mainly due to temporary valuation effects from sharp exchange rate depreciation of the peso versus the U.S. dollar, driven by uncertainty around the pension referendum. - Substantial peso appreciation in the first half of 2025 has partly reverted those valuation effects. - Wage and pension increases expected to moderate as they align with the budget and 2023 pension reform. - Staff expects authorities to continue prioritizing reducing the share of FX debt and smoothing amortization profiles while extending maturities to minimize risks. - Long-term risks: Moderate, reflecting spending rigidities and a relatively high tax burden; 2023 pension reform expected to help stabilize pension spending in the long term. *Source: IMF staff estimates and assessments contained in the provided chapter/section.* ### 5. Debt consolidation across sectors: ### 5. Debt consolidation across sectors ### Public debt coverage and recording - Perimeter: nonfinancial public sector (NFPS) covers the central government, Banco de Prevision Social (BPS), local governments, state-owned enterprises and Banco de Seguros del Estado (BSE). - Most debt is issued by the central government (CG). - Debt-to-GDP ratio: measured as the stock of debt at the end of each year in Uruguayan pesos divided by GDP in Uruguayan pesos. - No outstanding arrears are incorporated in the debt series. - Valuation and recording notes: references to nominal value, face value, market value, accrual vs. cash basis, and non-consolidated vs. consolidated reporting are provided; stock of arrears could be used as a proxy in absence of accrual data on other accounts payable. - Intra-government holdings reporting: entries for CG, state govt., local govt., nonfin. pub. corp., central bank, other public financial corp. noted in table headers. ### Composition of public debt (perimeter: NFPS) — key dimensions (text & chart annotations) - Currency composition: Foreign currency, Local currency, Local-linked. Chart projection labeled through 2030 with years 2015–2029 shown. - Holders: External private creditors, External official creditors, Domestic other creditors, Domestic commercial banks, Domestic central bank. - Governing law (2024): Domestic law, Foreign law ex. multilateral, Multilateral. - Instruments: Marketable debt, Nonmarketable debt. - Maturities: ≤ 1 year, 1-5 years, > 5 years. Residual maturity: 12. years (as printed: "Residual maturity: 12. years"). - Text note: "The composition of public debt by currency and maturities is expected to remain fairly stable." ### Baseline scenario (Table 4) — public debt and fiscal dynamics (in percent of GDP unless indicated otherwise) - Public debt (actual and projections): - Actual 2024: 68.7 - 2025: 66.6 - 2026: 68.3 - 2027: 68.9 - 2028: 69.2 - 2029: 68.9 - 2030: 68.6 - 2031: 68.0 - 2032: 67.3 - 2033: 66.5 - 2034: 65.6 - Change in public debt: - 2024: 4.7 - 2025: -2.1 - 2026: 1.6 - 2027: 0.7 - 2028: 0.3 - 2029: -0.3 - 2030: -0.3 - 2031: -0.5 - 2032: -0.7 - 2033: -0.8 - 2034: -0.9 - Contribution of identified flows: - 2024: -0.1 - 2025: -0.2 - 2026: 0.2 - 2027: -0.2 - 2028: -0.8 - 2029: -1.3 - 2030: -1.3 - 2031: -1.5 - 2032: -1.6 - 2033: -1.7 - 2034: -1.7 - Primary deficit: - 2024: 1.0 - 2025: 1.0 - 2026: 1.5 - 2027: 0.9 - 2028: 0.3 - 2029: -0.4 - 2030: -0.4 - 2031: -0.5 - 2032: -0.7 - 2033: -0.8 - 2034: -1.0 - Noninterest revenues: - 2024: 28.2 - 2025: 28.8 - 2026: 28.6 - 2027: 29.2 - 2028 onwards: 29.7, 30.0, 30.1, 30.1, 30.1, 30.1, 30.1 - Noninterest expenditures: - 2024: 29.1 - 2025: 29.8 - 2026: 30.1 - 2027: 30.1 - 2028: 30.0 - 2029: 29.7 - 2030: 29.8 - 2031: 29.5 - 2032: 29.4 - 2033: 29.3 - 2034: 29.2 - Automatic debt dynamics: - 2024: -1.3 - 2025: -2.0 - 2026: -1.6 - 2027: -1.4 - 2028: -1.5 - 2029: -1.3 - 2030: -1.4 - 2031: -1.3 - 2032: -1.3 - 2033: -1.3 - 2034: -1.2 - Real interest rate and relative inflation: - 2024: 0.2 - 2025: -0.4 - 2026: 0.0 - 2027: 0.1 - 2028: 0.1 - 2029: 0.2 - 2030: 0.1 - 2031: 0.2 - 2032: 0.2 - 2033: 0.2 - 2034: 0.2 - Real interest rate: - 2024: -0.3 - 2025: -1.2 - 2026: -0.8 - 2027: -0.8 - 2028: -0.8 - 2029: -0.7 - 2030: -0.8 - 2031: -0.8 - 2032: -0.7 - 2033: -0.7 - 2034: -0.7 - Relative inflation: - 2024: 0.5 - 2025: 0.8 - 2026: 0.8 - 2027: 0.9 - 2028: 0.8 - 2029: 0.9 - 2030: 0.9 - 2031: 0.9 - 2032: 0.9 - 2033: 0.9 - 2034: 0.9 - Real growth rate: - 2024: -1.9 - 2025: -1.7 - 2026 onward shown as -1.5, -1.6, -1.5, -1.5, -1.5, -1.5, -1.5, -1.5, -1.4 (note formatting in source shows a split: "Real growth rate-1.9-1.7- 1.5-1.6-1.5-1.5-1.5-1.5-1.5-1.5-1.4") - Other identified flows / Other transactions: - 2024: 0.2 - 2025: 0.8 - 2026: 0.2 - 2027: 0.4 - 2028–2034: 0.4 each year - Contingent liabilities: 0.0 for 2024–2034 (printed as 0.00 across projection period) - (minus) Interest Revenues: 0.0 for 2024–2034 - Contribution of residual: - 2024: 4.8 - 2025: -1.9 - 2026: 1.5 - 2027: 0.9 - 2028: 1.1 - 2029: 1.0 - 2030: 0.9 - 2031: 0.9 - 2032: 0.9 - 2033: 0.9 - 2034: 0.8 - Gross financing needs: - 2024: 6.2 - 2025: 6.6 - 2026: 6.6 - 2027: 6.4 - 2028: 6.3 - 2029: 6.5 - 2030: 7.6 - 2031: 6.4 - 2032: 6.3 - 2033: 6.8 - 2034: 6.5 - Of which: debt service: - 2024: 5.2 - 2025: 5.6 - 2026: 5.1 - 2027: 5.5 - 2028: 6.0 - 2029: 6.9 - 2030: 8.0 - 2031: 7.0 - 2032: 7.1 - 2033: 7.6 - 2034: 7.5 - Debt service by currency: - Local currency: 2024: 1.1; 2025: 1.0; 2026: 1.0; 2027: 0.9; 2028: 1.1; 2029: 1.1; 2030: 1.9; 2031: 1.2; 2032: 1.3; 2033: 1.4; 2034: 1.7 - Foreign currency: 2024: 2.4; 2025: 2.4; 2026: 2.2; 2027: 2.4; 2028: 2.1; 2029: 2.1; 2030: 2.3; 2031: 2.1; 2032: 1.9; 2033: 1.8; 2034: 1.8 - Memo: - Real GDP growth (percent): 2024: 3.1; 2025: 2.5; 2026: 2.4; 2027: 2.3; 2028: 2.3; 2029: 2.2; 2030–2034: 2.2 (2034 shown as 2.2) - Inflation (GDP deflator; percent): 2024: 4.3; 2025: 5.5; 2026: 5.0; 2027: 5.0; 2028: 5.0; 2029: 5.0; 2030: 5.1; 2031: 5.1; 2032: 5.1; 2033: 5.1; 2034: 5.1 - Nominal GDP growth (percent): 2024: 7.5; 2025: 8.1; 2026: 7.5; 2027: 7.4; 2028: 7.4; 2029: 7.4; 2030: 7.5; 2031: 7.5; 2032: 7.5; 2033: 7.5; 2034: 7.5 - Effective interest rate (percent): 2024: 3.8; 2025: 3.6; 2026: 3.7; 2027: 3.8; 2028: 3.8; 2029: 3.9; 2030: 3.9; 2031: 3.9; 2032: 3.9; 2033: 4.0; 2034: 4.0 - Narrative summary from source: - "Public debt is projected to remain broadly stable over the forecast horizon." - "Following a strong rebound in 2024, economic growth is expected to moderate in 2025 and gradually converge to its potential in the medium term." - "The fiscal deficit is expected to increase in 20205 due to fiscal inertia." (text contains "20205" as in source) - "However, the new five-year budget law is expected to reduce the deficit and stabilize debt in the medium term." - "The residual incorporates the effect of changes in the value of indexed-debt and for that reason is non-zero during the projection period." ### Realism of baseline assumptions (Table 5) — assessment highlights - Realism charts: assumptions behind projections are "in line with history and balanced." - Large residual in debt decomposition incorporates impact of adjustments to the principal of linked-bonds. - Forecast track-record: "broadly neutral with no large biases." - Interest rate assumption: reflects expected path for US rates while spreads on FX debt remain constant. - Peso debt assumption: staff assume spreads would decline with inflation during the projection period. - Comparator group: Emerging Markets, Commodity Exporter, Surveillance. - Laubach rule note: "The Laubach (2009) rule is a linear rule assuming bond spreads increase by about 4 bps in response to a 1 ppt increase in the projected debt-to-GDP ratio." (footnote content preserved) ### Medium-term risk analysis (Table 6) — indicators and signals - Debt fanchart module: - Fanchart width (percent of GDP): 65.8 1.0 (printed as "65.81.0") - Probability of debt non-stabilization (percent): 11.2 0.1 (printed as "11.20.1") - Terminal debt-to-GDP x institutions index: 27.00.6 (printed as "27.00.6") - Debt fanchart index (DFI): 1.6 - Risk signal: Moderate (footnote: signal low if DFI < 1.13; high if DFI > 2.08) - Gross financing needs (GFN) module: - Average baseline GFN (percent of GDP): 6.7 2.3 (printed as "6.72.3") - Initial banks' claims on the general govt (pct bank assets): 5.3 1.7 (printed as "5.31.7") - Change in banks' claims in stress (pct banks' assets): 8.9 3.0 (printed as "8.93.0") - GFN financeability index (GFI): 7.0 - Risk signal: Low (footnote: signal low if GFI < 7.6; high if DFI > 17.9) - Medium-term index and final assessment: - Debt fanchart index 1.6; GFN financeability index 7.0; medium-term index aggregated (value shown in table) - Final assessment: (Risk signal printed as) 5/ (presentation in source) - "Prob. of missed crisis, 2025-2030, if stress not predicted: 9.1 pct." - "Prob. of false alarms, 2025-2030, if stress predicted: 42.0 pct." - Narrative summary from source: - "The medium-term analysis indicates that debt-related risks remain moderate." - "The probability of debt not stabilizing, though not negligible, is estimated at around 10 percent." - "Gross financing needs are projected to remain relatively stable, even under stress scenarios, with only a modest increase toward the end of the forecast horizon." - "Two of the three mechanical risk signals are assessed as low." - Source: "IMF staff estimates and projections." (printed in table) ### Long-term risk analysis — large amortizations and demographics (Tables 7–8) — key notes - Long-term projections present scenarios for: - GFN-to-GDP ratio and Amortization-to-GDP ratio under medium-term extrapolation, historical average assumptions, and long-run projection. - Charts include "Baseline with t+5", "Baseline with t+5 and DSPB", "Historical 10-year average". - Demographics and health channels: - Long-run projections for GFN-to-GDP ratio and Total Public Debt-to-GDP Ratio under "Health (Demographics)" and "Health (Demographics + ECG)" compared with baseline extension of fifth projection year. - Overall risk indication: charts and labels indicate long-term risk trajectories; specific numeric series shown in charts in the source. ### FSAP recommendations (Annex VIII) — key recommendations and implementation updates (selection) - Macroprudential policy, systemic risk analysis and de-dollarization - 1) Develop a comprehensive macroprudential framework: assign mandate, strengthen powers for data collection and implementation of tools. - Update: In progress. BCU prepared and published a macroprudential framework ("Documento marco de la política macroprudencial"). Resolution R.N°:D-302-2024 on October 10, 2024, formally established a Macroprudential Policy Committee. A proposal introduced to strengthen governance and decision-making effectiveness. - Agencies: MEF, BCU, SSF, COPAB. Time: ST - 2) Close data gaps to enable comprehensive risk analysis of system-wide FX liquidity risk, climate risks and risks in the non-financial sectors. - Update: In progress. SSF developed a roadmap; solvency stress testing work begun; PD series developed for corporate sector; new models planned; LGD methodology report ongoing. Physical risk stress test related to climate change designed using NGFS scenarios; policy report to be presented to Macroprudencial Committee. - Agencies: BCU, MOE, SSF. Time: ST - 3) Incorporate enhanced solvency stress tests into risk-based supervision, including for calibration of Pillar 2 capital add-ons and restrictions on dividend distribution for banks that fail the tests. - Update: In progress. SSF started enhancing stress testing and Pillar 2 capital requirements after IMF technical assistance; definition of triggers for additional capital requirement remains to be carefully defined. - Agencies: BCU, SSF. Time: ST - 4) Continue progress on de-dollarization by strengthening the monetary policy framework and developing peso capital markets. - Update: In progress. BCU developing a comprehensive strategy to reduce role of U.S. dollar and strengthen peso usage. SSF issued Circular 2461 increasing capital requirement from 125% to 150% for dollar-denominated loans to sectors with income in pesos, and reducing it from 125% to 100% for loans to sectors with income in foreign currency. Monetary policy reforms since 2020: inflation target lowered to 3-6%, adopted interest rate as instrument, improved transparency (monetary policy report, minutes, communique), doubled frequency of meetings, and changes in Executive-CB interactions. Inflation has remained on target for 27 consecutive months; inflation expectations within tolerance band and converging toward target. - Agencies: MEF, BCU, SSF. Time: I - Banking supervision and regulation (selected entries) - 5) Increase and protect SSF’s operational autonomy and provide budgetary autonomy. - Update: Pending. BCU considered decentralization; budget matters and functional organization remain with the Board due to constitutional provisions. - Agencies: MEF, BCU. Time: I - 6) Establish a fixed mandate for the Directors of the BCU and define justified causes for dismissal of BCU Directors and of the Superintendent. - Update: Pending; requires constitutional reform (special regime of autonomous entities). - Agencies: MEF, BCU. Time: MT - 7) Increase resources, including to strengthen work on credit risk reviews. - Update: Pending. BCU developing five-year strategic plan that will include resource allocation considerations. - Agencies: MEF, BCU, SSF. Time: ST - 8) Redesign the "Impuesto al Patrimonio" (wealth tax) for banks. - Update: Pending. To be evaluated by new government authorities. - Agency: MEF. Time: ST - 9) Expand early intervention powers over SOBs and strengthen SOBs’ governance. - Update: Not incorporated into policy agenda; constitutional constraints noted. - Agency: MEF. Time: ST - 10) Expand the prudential consolidation perimeter. - Update: Pending. BCU proposed amendments to Articles 1 and 2 of Law No. (text truncated in source). - Agency: SSF. Time: ST *Source: IMF staff estimates, projections, and annex material in the provided chapter.* ### 17.613 of December 27, 2002, regarding prudential regulation and supervision of ### 17.613 of December 27, 2002, regarding prudential regulation and supervision of ### Crisis Management, Resolution and Safety Nets - 12 Fully include SOBs in the resolution framework and redefine the government’s role in funding resolution. - Update: No action has been taken on this recommendation for the reasons stated during the exchange with the IMF officials in charge of the FSAP. - Agencies: MEF - Time: ST - 13 Design an effective ELA framework. - Update: In progress. A legal proposal was made to art. 34 of the BCU ́s Organic Charter regarding the central bank’s role as lender of last resort, expanding the possibility of conducting operations with a wider range of eligible securities. - Agencies: BCU, MEF - Time: I - 14 Strengthen COPAB’s operational independence and expand its resolution tools. - Update: In progress. COPAB is working on some of the observations received. The purpose is to promote regulatory changes that allow the expansion of its functions and the tools available for resolution. The necessary changes in its structure will be linked to the new functions and tasks. - Agencies: MEF, COPAB - Time: ST - 15 Introduce a Recovery and Resolution Planning framework. - Update: In progress. On June 2024, Circular No. 2458 was issued, introducing Article 582.8, which requires domestic systemic banks to provide information about their recovery process, including options to restore financial stability during times of severe stress. Additionally, Communication No. 2024/164 was released, outlining the guidelines institutions should follow when preparing this information. It is being incorporated into the supervision process (EMG and procedures). - Agencies: SSF, COPAB - Time: I ### Prudential Regulation and Supervision (Pillar 2 / Capital) - 11 Develop Pillar 2-type of supervisory expectations on capital levels. - Update: In progress. After concluding the IMF technical assistance on operationalizing Pillar II capital requirements, the SSF developed a roadmap, the first stage of which is currently underway. A regulatory draft was issued addressing additional capital requirements, taking into account the supervisory review, credit risk concentration, structural interest rate risk, and stress test results. - Agencies: SSF ST ### Financial Integrity - 16 Ensure availability of accurate and current beneficial ownership information on companies and trusts, including by increasing the resources of supporting authorities, and strengthen AML/CFT supervision for higher risk sectors. - Update: In progress. The National Strategy for Combating Money Laundering, Terrorism Financing, and Proliferation Financing was just approved. This strategy includes a detailed action plan that sets out 22 objectives, along with their corresponding targets and concrete actions to be implemented to mitigate the risks identified across different areas. - Agencies: SSF, SENACLAFT, UIAF, AIN - Time: ST ### Financial Development Issues - 17 Improve BROU’s corporate governance practices, operational autonomy and encourage the gradual increase of its domestic lending portfolio to creditworthy firms based on robust and sound solvency, profitability and risk analysis criteria. - Update: The authorities agree that the BROU could play a more important role in the Uruguayan financial sector, but this must be done through independent management decisions of the institution as an Autonomous Entity in the commercial sphere of the State (art. 185 of the Constitution) and without compromising its solvency, profitability and good risk management practices. - Agencies: MEF, BCU - Time: MT - 18 Increase the role of SoEs in the capital markets. - Update: No action has been taken on this recommendation - Agencies: MEF, BCU - Time: ST - 19 Continue adapting capital markets regulations to the size and capacity of Uruguayan companies. - Update: In progress. The increased flexibility is consistent with the authorities' ongoing work to adapt the regulatory framework. The SSF has issued several regulations including Circular 2405, which amended the simplified public offering regulation; and Circular N° 2.469 concerning the reopening for Securities Issuances when the pending subscription amount has not been paid. In addition, other regulations were reviewed in 2025 such as crowdfunding and closed investment fund. The Board has recently proposed amendments to its Organic Charter and the Securities Market Law, granting the Central Bank authority to regulate financial operations based on economic substance, ensuring oversight of activities with expected returns, and clarifying securities must be “easily transferable,” ensuring legal certainty and defining the regulatory scope for the Superintendency of Financial Services. Further analysis is ongoing as part of the strategic planning for the next five years. - Agencies: MEF, BCU - Time: I - 20 Strengthen monitoring, regulatory and supervisory frameworks for new Fintech entrants, ensure a level playing field and fast-track implementation of full range of open banking services and expand to open finance and open data. - Update: In progress. In 2024, an innovation strategy was developed by a cross-functional working group. Regarding open finance, the conceptual framework has been created and published, and two draft laws have been prepared but not yet approved by the Board. These efforts are currently being shaped within the framework of strategic thinking for 2030. - Agencies: BCU, SSF, CC - Time: MT - 21 Improve the quality of MSME data available in private credit bureaus and credit registry and unify movable asset and pledges registries to support asset-based finance. - Update: In progress. In 2024, the SSF began registering credit-granting entities (EOCs); so far, 10 entities—mainly unions—have been registered. These entities are expected to provide more information on loans and borrowers, although this is not yet in place. Data on company size has been submitted to the Credit Risk Registry (CRC) since June 2025, but it has not yet been processed. Additionally, the BCU is including initiatives in its 2030 strategic plan to promote lending and investment in the local currency for MiPyMes. - Agencies: MOED, TA - Time: ST *Source: 1uryea2025001-source-pdf* ### Annex IX. Data Issues Annex ### Annex IX. Data Issues Annex ### Data Adequacy Assessment (As of September 22, 2025) - Overall Questionnaire Results (heatmap top-line): BBBBBAB - Median Rating: B - Data Adequacy Assessment Rating 1/: B - Data Quality Characteristics — Granularity 3/: B - Sector-level brief ratings (matrix style from table header): - National Accounts: Coverage BBBBB; Consistency AB; Frequency and Timeliness AAAAA - Prices: Coverage BBBBB; Consistency A; Frequency and Timeliness AAAAA - Government Finance Statistics: Coverage BBBB; Consistency A; Frequency and Timeliness A - External Sector Statistics: Coverage BB; Consistency B; Frequency and Timeliness B - Monetary and Financial Statistics: Coverage (not explicitly shown in snippet); Consistency C; Frequency and Timeliness C - Inter-sectoral Consistency: Median Rating D (as indicated in the matrix rows) - Staff judgment: "Data provision has some shortcomings but is broadly adequate for surveillance." ### Rationale for Staff Assessment — Key Findings - National accounts: - The 2016 base national accounts statistics are "not as detailed as before." - Historical numbers (pre-2016) using the updated base are not available. - Quarterly data on the decomposition of fixed capital formation (into public and private) is no longer available. - Investment by sector is unavailable. - External sector: - Need for more granular export data, including product level data and detailed information on service exports by country. - Government finance statistics: - Increases in the principal of indexed debt instruments are not captured in the real interest component. - This reflects the use of the GFSM 1986 manual, which "does not provide clear guidance on how to account for indexed instruments." - Financial sector and systemic risk measurement: - Closing financial data gaps is "key in building more reliable measures for credit risk analysis (i.e., probability of default, loss given default) and for assessing system-wide FX liquidity and concentration risks." - MSME and collateral registries: - FSAP recommended improving the quality of MSME data in private credit bureaus and the credit registry. - FSAP recommended unifying movable asset and pledges registries to support asset-based finance. - Informal economy: - Information on the informal economy is lacking. - Overall: "The data provided to the Fund have some shortcomings that somewhat hamper surveillance" and "the data provided to the Fund have serious shortcomings that significantly hamper surveillance" are both noted as descriptive labels in the annex; staff conclude broadly adequate for surveillance despite shortcomings. ### Changes Since Last Article IV Consultation - Publication of the 2023 Census results has led to revised population estimates. - Due to a change in methodology by the National Statistics Agency (INE), poverty rate estimates have been revised. - Authorities have begun a multi-year process to rebase their national accounts statistics. ### Corrective Actions and Capacity Development Priorities - Authorities: starting a multi-year process to rebase national accounts statistics. - FSAP recommendations to: - Improve the quality of MSME data in private credit bureaus and the credit registry. - Unify movable asset and pledges registries to support asset-based finance. - Closing financial data gaps to enhance credit risk analysis and FX liquidity/concentration risk assessment. - Enhance granularity of data across sectors (national accounts, external sector, government finance). ### Data Standards and Dissemination - Uruguay subscribes to the Special Data Dissemination Standard (SDDS) since February 2004 and publishes data on its National Summary Data Page. - The latest SDDS Annual Observance Report is available on the Dissemination Standards Bulletin Board. - Table of Common Indicators Required for Surveillance (as of September 22, 2025): - Exchange rate in the official market: UY$39.872 per U.S. dollar (as of September 22, 2025). - Frequency/timeliness labels shown in table (examples preserved as in source): DDD, DDMM1W1M, DDMM2W2W, DDMM1M1M, MMMM2W2W, MMMM1M1M, DDD........., MMMM1MNLT 5D, MMAA2Q12M, MMMM1M3M, QQQQ1Q1Q, QQQ NL T 1Q, MMMM8W8W, QQQQ1Q3M, QQQQ1Q1Q, QQQQ1Q1Q. - Reserve/Base Money; Broad Money; Central Bank Balance Sheet; Consolidated Balance Sheet of the Banking System; Interest Rates; Consumer Price Index; Revenue, Expenditure, Balance and Composition of Financing — General Government and Central Government; International Investment Position; Stocks of Central Government and Central Government-Guaranteed Debt; External Current Account Balance; Exports and Imports of Goods and Services; GDP/GNP; Gross External Debt — are included in the indicators table for dissemination and staff monitoring. - Notes on definitions and frequency: includes clarifications such as reserve assets pledged or encumbered; market-based and officially determined interest rates; foreign/domestic bank/nonbank financing; general government composition; encouraged/required frequencies ("D", "W", "M", "Q", "A", "SA", "I", "NA", "NLT"). ### Use of Data in Article IV Consultations - "Staff do not use any data and/or estimates in the staff report in lieu of official statistics available to staff." - "Other data gaps. Uruguay’s provision of data pertaining to climate change, income and gender inequality and digitalization does not constitute a data gap." ### Fund Relations and Technical Assistance Highlights (selected items and dates) - Membership: Joined March 11, 1946; Article VIII. - Quota: 429.10 SDR Million (100.00 percent of quota). - IMF's Holdings of Currency (Holdings Rate): 317.44 (73.98 percent). - Reserve Tranche Position: 111.67 (26.02 percent). - SDR Department: - Net cumulative allocation: 704.53 SDR Million (100.00 percent). - Holdings: 636.02 (90.28 percent). - Latest financial arrangements (historical record): - Stand-By Apr 01, 2002–Mar 31, 2005: Amount Approved 1,988.50; Amount Drawn 1,988.50. - Stand-By Jun 08, 2005–Dec 27, 2006: Amount Approved 766.25; Amount Drawn 263.59. - Stand-By May 31, 2000–Mar 31, 2002: Amount Approved 150.00; Amount Drawn 150.00. - Overdue Obligations and Projected Payments (Charges/Interest): 2025: 0.50; 2026: 1.99; 2027: 1.99; 2028: 1.99; 2029: 1.99. Total row mirrors these amounts. - Exchange rate arrangement: De jure and de facto classified as floating; Uruguay accepted obligations of Article VIII Sections 2, 3 and 4. - Article IV consultation cycle: standard 12-month; Executive Board concluded 2024 Article IV Consultation and endorsed staff appraisal without a meeting (IMF Country Report No. 24/215). Staff discussions for the 2025 Article IV consultation took place September 8—September 19, 2025. - FSAP/FSSA chronology: - FSSA considered by Executive Board on December 16, 2022 (report not published); factual statement published January 23, 2023. - Previous FSSA considered June 28, 2006 (Country Report No. 06/187). FSAP Update 2012; FSSA published May 31, 2013 (Country Report No. 13/152). - ROSC modules and data module ROSC: fiscal transparency (March 5, 2001), data dissemination practices (October 18, 2001), AML/CFT (December 12, 2006, Country Report No. 06/435), data module ROSC published February 11, 2014. - Selected recent technical assistance (DPT) and STA/MCM highlights (dates preserved exactly as listed): - ICD General Macroeconomic Analysis April 2022 - FAD Inflation impact on spending April 2024 - Public Financial Management November 2018 - Revenue Administration (Follow-up) November 2017 - Treasury Management August 2014 - MCM Operationalizing Pillar 2 capital requirements November 2024 - Enhancing bottom-up stress tests in the context of Pillar 2 May 2024 - Strengthening the Stress Testing Framework December 2023 - Strengthening the Cyber Resilience of Financial Market Infrastructures June 2023 - Strengthening Monetary Policy Communications November 2021 - Central Bank Transparency Review September 2021 - STA Monetary and Financial Statistics February 2020 - Balance of Payments and International Investment Position Statistics April and October 2015 - Data ROSC reassessment August 2012 *Annex IX. Data Issues Annex — Uruguay staff report (as of September 22, 2025).* ### 59.8 percent; an increase of 0.7 percentage points compared to August 2024. Meanwhile, the activity rate ### 1uryea2025001-source-pdf ### Labor Market - Employment rate: 59.8 percent; an increase of 0.7 percentage points compared to August 2024. - Activity rate: reached 64.4 percent, which is considered relatively high. - Unemployment rate: declined to 7.0 percent, down from 8.4 percent a year earlier. - Distributional concerns: significant disparities remain across gender and age groups, with women and youth disproportionately affected. - Policy response: new authorities are redesigning incentive structures to encourage companies to hire individuals from these highly impacted populations. ### Wage Negotiation Guidelines (2025–2026) - Strategic objective: align wage dynamics with the inflation target and broader macroeconomic objectives. - Innovations introduced: - (i) Wage indexation based on expected inflation, with differentiation by income level to safeguard lower wages. - (ii) Correction clauses linked to core inflation, aimed at stabilizing inflation dynamics. - Operational note: given the existence of a tolerance range, activating the correction clause is highly unlikely in the current context. - Context: previous rounds focused on restoring real wages in the aftermath of the pandemic. ### Fiscal Policy and Debt Management - 2024 fiscal outcome: Central Government’s fiscal deficit (CG-BPS) reached 3.3 percent of GDP. - Fiscal consolidation plan: included in the five-year budget to reduce the deficit by 1.5 percentage points of GDP, aiming to achieve a primary surplus of 0.1 percent of GDP in the structural fiscal balance by 2029. - Adjustment composition: - Half of additional revenue expected from newly proposed taxes, including implementation of the global minimum corporate tax rate and rationalization of selected tax instruments; this portion is legally mandated and will take effect at the beginning of the government's term. - Remaining half supported by a modernized and more efficient tax administration, with technical assistance from the IMF, and enhanced anti-fraud enforcement mechanisms. - Expenditure stance: public expenditure will be maintained at a broadly constant share of GDP. - Expenditure controls: Office of Planning and Budget (OPP) to implement strict and consistent controls over expenditure execution, disbursing funds only upon achievement of predefined objectives and improving incentive structures to better align wages with productivity. - Fiscal rule reform proposal: submission to Parliament as part of the five-year budget to adopt a dual fiscal rule and strengthen external technical bodies. - Dual rule: medium-term anchor based on net public debt with short-term operational targets. - External bodies: Fiscal Advisory Council (CFA) to transition from consultative entity to an autonomous institution. - Debt Sustainability: Debt Sustainability Analysis (DSA) finds Uruguay faces a low risk of sovereign stress and maintains sustainable debt levels; proposed fiscal trajectory designed to keep public debt below the 65 percent of GDP anchor. ### Monetary Policy and Inflation - Inflation path: remained within the BCU’s tolerance range for over two years and on target for the past four months. - 2025 developments: sustained downward trend, driven by global weakening of the U.S. dollar and declining inflation expectations. - Inflation rate: fell to 4.25 percent in September 2025, slightly below the BCU’s official target of 4.5 percent. - Monetary stance: remains contractionary, aiming to keep inflation close to the target, reduce disparities between inflation in tradable and non-tradable goods, and reinforce convergence of expectations. - Inflation expectations: reached 4.6 percent by September 2025. - Policy action: BCU started easing cycle in July and is transitioning toward a neutral stance; process anchored in commitment to 4.5 percent inflation goal, supported by still contractionary policy, enhanced BCU communication, and government guidelines for collective bargaining. ### External Sector - Reserve assets: USD 18.52 billion (about 22 percent of GDP) as of September 2025. - Current account: deficit stood at 1.0 percent of GDP for the 12 months ending in June 2025—0.6 percentage points lower than same period of previous year—driven by rebound in economic activity after the 2023 climate-related disruption. - Adverse scenario requirement: even under a highly adverse scenario, the BCU would have required USD 16.05 billion as of May 2025. - Exchange rate regime: flexible regime aligned with a sustainable current account position, supporting macroeconomic stability and shock absorption. ### Financial Sector - Banking sector metrics (as of June 2025): - Profitability: 2.5 percent of assets and 21 percent of equity. - Non-performing loan rate: 1.8 percent (closed second quarter of 2025), approaching historical low of 1.5 percent. - Solvency: averaging nearly twice the regulatory minimum. - Resilience: stress tests by the Superintendency of Financial Services (SSF) indicate system can withstand a severe recession while maintaining adequate capital buffers. - Liquidity: conditions remain highly favorable. - De-dollarization strategy: - Three pillars: make peso-denominated intermediation more attractive; address shortage of appealing, low-risk peso investment instruments (especially for households and small businesses); encourage banks to expand lending in local currency. - SSF action: issued a circular in 2024 to adjust capital requirements to promote de-dollarization and develop a stronger domestic currency market. - AML/CFT: - BCU approved a new National Strategy for Combating Money Laundering in July 2025. - Uruguayan Senate granted preliminary approval to amendments to the AML/CFT law to reinforce SENACLAFT and expand financial oversight mechanisms. ### Structural Reforms - Reform agenda: ambitious microeconomic reforms to streamline and digitalize administrative procedures and modernize fiscal incentive framework. - Initial progress: July reforms to simplify foreign trade processes aimed at eliminating paperwork for 75 percent of foreign trade documentation. - Institutional changes: - Creation announced of the National Directorate for Investment Incentives (DINAII), preliminarily approved by the House of Representatives, to strengthen investment incentive policies and institutional coordination. - Digitalization: upgrade of Foreign Trade Single Window (VUCE) and Investment Single Window (VUI) to improve functionality and scope; integration of artificial intelligence expected to support deregulation and paperless administration. - Fiscal incentive review: authorities, with IMF collaboration, moving forward to secure Technical Assistance to support reform. ### Institutional and Environmental Governance - Governance indicators: - Freedom House score: 96 out of 100 in 2025. - Transparency International ranking: 13th globally in the 2024 Corruption Perceptions Index. - Heritage Foundation: 29th position in economic freedom in 2025. - Environmental performance: - Energy matrix: over 98 percent of electricity generated from low-carbon sources between September 2024 and August 2025. - Innovation: first country to issue a sovereign bond with a step-up/step-down coupon structure linked to environmental performance based on its Paris Agreement commitments. - Outcome: strong institutions and environmental stewardship underpin Uruguay’s position as the country with the lowest sovereign spread in the region. ### Conclusion - Macroeconomic resilience: Uruguay remained steadfast despite multiple adverse external shocks, including regional and global economic pressures and climate-related events. - Main challenge: significant domestic fiscal challenges ahead. - Authorities’ commitment: fully committed to addressing fiscal challenges while improving welfare, particularly for the most vulnerable. - Strengths supporting optimism: strong institutional frameworks, broad political consensus on critical issues, robust financial buffers, and a longstanding reputation for honoring commitments. *Source: IMF staff report content provided in the supplied PDF excerpt.* --- _Source: https://www.imf.org/-/media/files/publications/cr/2025/english/1uryea2025001-source-pdf.pdf_