IMF Executive Board Concludes 2021 Article IV Consultation with Uruguay
IMF News, December 2, 2021
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- Published: December 2, 2021
Economic outlook and recovery
- Growth is expected to reach 3.4 percent in 2021 and 3.2 in 2022.
- After contracting by 5.9 percent in 2020, economic activity is gaining strength following a fast vaccination campaign that allowed for the reopening of contact-intensive sectors.
- Elevated commodity prices are supporting a broad-based recovery.
- Inflation is projected at 7.2 for end 2021 and 5.8 for end 2022.
- Inflation expectations remain above the target range, although they have been gradually converging to the upper band of the range.
- The pandemic amplified pre-existing structural weaknesses, including high youth unemployment, skill mismatch, and loss of schooling that added to pre-pandemic erosion of human capital.
Fiscal stance, financing, and debt outlook
- The fiscal balance of the non-financial public sector (NFPS), excluding ‘cincuentones’, is projected to improve from -4.5 percent of GDP in 2021 to -3.4 in 2022, while targeted fiscal support remains in place.
- Near-term fiscal risks are limited: financing needs are moderate, liquidity buffers are adequate, and market access remains at favorable terms, reflecting investment grade status.
- The authorities’ envisaged consolidation plan is expected to stabilize debt around 70 percent of GDP over the medium term.
- The report notes temporary proceeds from the pension reform (cincuentones) are projected to end in 2022.
Monetary policy and financial sector
- Monetary policy remains accommodative and is gradually tightening in response to inflationary pressures and the economic recovery.
- The banking sector is well capitalized and financial risks remain contained, including because the overall exposure of the financial system to sectors most affected by the pandemic is low.
- Directors agreed that, as the economy recovers and uncertainty dissipates, support measures (accommodative monetary policy and temporary regulatory forbearance) should be phased out.
- Monetary policy should focus on strengthening credibility by firmly steering inflation and inflation expectations towards the target as the economy recovers.
- Durably lowering inflation is key to reducing dollarization, developing domestic capital markets, and bolstering financial intermediation and investment.
- Efforts to enhance the Central Bank’s independence, accountability and transparency should continue.
Executive Board assessment and policy recommendations
- Directors commended the authorities’ effective policy response to the pandemic and Uruguay’s successful vaccination campaign.
- Near-term policies should continue to support the recovery with targeted measures while shifting towards fiscal consolidation and debt reduction as the recovery takes hold.
- Continued well-targeted fiscal measures to support employment and the most vulnerable were welcomed.
- The introduction of the new fiscal rule would improve fiscal discipline; Directors encouraged authorities to consider refinements to further strengthen the fiscal framework.
- The authorities’ resolve to reform the pension system was described as commendable for fiscal sustainability and inter-generational equity.
- Directors encouraged structural reforms to address pandemic legacies and boost medium-term growth:
- Support young and low-skilled workers through active labor market policies, retraining and education reform to bolster human capital accumulation.
- Address labor market rigidities and accelerate reforms of state-owned enterprises to improve efficiency, reduce costs of doing business, and boost investment and growth.
- Invest in green energy, digitalization and infrastructure to sustain strong growth over the medium to long term.
Selected economic indicators (projections and historicals)
- Real GDP (percent change): 0.4 (2019); -5.9 (2020); 3.4 (2021); 3.2 (2022); 2.7 (2023)
- Unemployment (in percent, eop): 8.9 (2019); 10.4 (2020); 10.2 (2021); 9.0 (2022); 8.5 (2023)
- CPI inflation (in percent, end of period)): 8.8 (2019); 9.4 (2020); 7.2 (2021); 5.8 (2022); 5.0 (2023)
- M2 (percent change of end-of-year data on one year ago): 6.3 (2019); 17.2 (2020)
- Bank assets (in percent of GDP): 65.8 (2019); 76.9 (2020)
- Private credit (in percent of GDP) 2/: 25.7 (2019); 27.8 (2020)
- Revenue NFPS (percent of GDP): 28.3 (2019); 28.0 (2020); 27.4 (2021); 27.5 (2022); 27.7 (2023)
- Revenue excluding cincuentones transactions (percent of GDP): 27.2 (2019); 27.1 (2020)
- Primary expenditure NFPS (percent of GDP): 28.8 (2019); 30.2 (2020); 29.4 (2021); 28.6 (2022); 27.8 (2023)
- Primary balance NFPS (percent of GDP): -0.5 (2019); -2.1 (2020); -1.8 (2021); -1.0 (2022); 0.1 (2023)
- Overall balance NFPS (percent of GDP): -2.9 (2019); -4.7 (2020); -4.1 (2021); -3.4 (2022); -2.5 (2023)
- Gross debt NFPS (percent of GDP): 60.5 (2019); 68.1 (2020); 67.3 (2021); 68.5 (2022); 69.7 (2023)
- Gross debt PS (percent of GDP): 64.3 (2019); 74.9 (2020); 81.1 (2021); 82.3 (2022); 83.2 (2023)
- Net debt NFPS (percent of GDP): 51.2 (2019); 57.8 (2020); 57.2 (2021); 58.5 (2022); 59.8 (2023)
- PS debt net of liquid financial assets (percent of GDP): 39.9 (2019); 47.5 (2020); 52.2 (2021); 54.3 (2022); 55.9 (2023)
- PS debt net of total financial assets (percent of GDP): 32.3 (2019); 36.8 (2020); 41.2 (2021); 43.9 (2022); 45.5 (2023)
- Merchandise exports, fob (US$ billions): 11.7 (2019); 9.9 (2020); 13.0 (2021); 14.6 (2022); 16.0 (2023)
- Merchandise imports, fob (US$ billions): 8.7 (2019); 7.8 (2020); 9.8 (2021); 10.9 (2022); 11.5 (2023)
- Terms of trade (percent change): 3.8 (2019); 7.4 (2020); 3.3 (2021); 1.8 (2022); 0.2 (2023)
- Total external debt + non-resident deposits (percent of GDP): 74.1 (2019); 88.0 (2020); 85.9 (2021); 85.2 (2022); 86.3 (2023)
- External debt service (in percent of exports of g&s): 59.0 (2019); 75.1 (2020); 67.7 (2021); 57.7 (2022); 55.6 (2023)
- Gross official reserves (US$ billions): 14.5 (2019); 16.2 (2020); 17.0 (2021); 17.2 (2022); 17.4 (2023)
- In months of imports of goods and services: 13.1 (2019); 15.1 (2020); 13.7 (2021)
- Short-term external (STE) debt (percent of reserves): 227 (2019); 250 (2020); 298 (2021); 289 (2022); 285 (2023)
- STE debt plus banks' non-resident deposits (percent of reserves): 278 (2019); 266 (2020); 263 (2021); 254 (2022); 246 (2023)
Source: IMF Communications Department press release, December 2, 2021.