IMF Staff Country Reports

This Selected Issues paper explores fiscal consolidation measures that could generate the savings needed to lower debt. In Uruguay, the 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. 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.