Uruguay: Selected Issues

IMF Staff Country Reports, May 23, 2023

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Uruguay: Selected Issues

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Bibliographic details

• Published: May 23, 2023
• Series: IMF Staff Country Reports
• DOI: https://doi.org/10.5089/9798400244346.002

Fiscal outlook and risks

• The paper explores fiscal consolidation measures that could generate the savings needed to lower debt.
• Authorities’ policies, together with a favorable macroeconomic environment, have led to a decline of the public debt-to-gross domestic product ratio to pre-pandemic levels.
• Short-term risks are low, and debt is sustainable, yet a sequence of unfavorable shocks such as a prolonged increase in international interest rates and a growth slowdown could lead to further increases in debt.
• The associated primary balances that would be needed to reach a certain debt level would depend on the assumed transition time.

Analysis of revenue and spending structure

• Recent initiatives to focus value-added tax (VAT) exemptions and to reduce rates to recipients of social programs are steps in the right direction to reduce tax expenditures and the regressivity of the tax.
• An analysis of the structure of revenues and spending suggests possible measures to reduce the fiscal deficit.
• A reduction of energy subsidies and a full implementation of targeted VAT would increase the efficiency of spending and lead to non-negligible savings.

Key findings and implications

• Fiscal consolidation is feasible through targeted measures on tax expenditures and subsidies.
• The timing (transition time) of consolidation matters for the primary balance path required to achieve debt targets.
• Policy actions that both increase efficiency and reduce regressivity (targeted VAT, narrowing VAT exemptions) are highlighted as priorities.

Policy recommendations (implicit from analysis)

• Focus VAT exemptions to limit tax expenditures.
• Reduce VAT rates for recipients of social programs rather than broad-based exemptions.
• Implement targeted VAT fully.
• Reduce energy subsidies to improve spending efficiency and generate savings.

Content in this bundle

• Uruguay: Selected Issues; IMF Country Report No. 23/179; April 26, 2023
  • Uruguay: Selected Issues; IMF Country Report No. 23/179; April 26, 2023 (Markdown version)
  • Uruguay: Selected Issues; IMF Country Report No. 23/179; April 26, 2023 (PDF)