## IMF Executive Board Concludes 2024 Article IV Consultation with Uruguay _IMF News, July 11, 2024_ ## Source details **Canonical URL:** [IMF Executive Board Concludes 2024 Article IV Consultation with Uruguay](https://www.imf.org/en/news/articles/2024/07/11/pr24265-uruguay-imf-exec-board-concludes-2024-art-iv-consult) ## Other formats - [Markdown version](/en/news/articles/2024/07/11/pr24265-uruguay-imf-exec-board-concludes-2024-art-iv-consult/index.md) - [Structured JSON version](/en/news/articles/2024/07/11/pr24265-uruguay-imf-exec-board-concludes-2024-art-iv-consult/index.json) - [Bundle manifest](/en/news/articles/2024/07/11/pr24265-uruguay-imf-exec-board-concludes-2024-art-iv-consult/bundle-manifest.json) ## Bibliographic details - Published: July 11, 2024 --- ### Recent developments and 2023 performance - Uruguay faced a once-in-a-century severe drought and external headwinds in 2023 but showed resilience due to sound macroeconomic policies, political stability, and strong institutions. - From October 2022 to April 2023, rainfall was about 47 percent below historical averages, affecting key agricultural areas. - Real GDP growth slowed to 0.4 percent in 2023. - Employment rose by 37,000 to 1.7 million in 2023. - The unemployment rate continued to hover around 8 percent. - Inflation fell within the target range in mid-2023, reaching its lowest level in the last eighteen years. - The financial sector remained resilient; the banking system is described as well capitalized, highly liquid, and profitable. ### Monetary policy and inflation - The Banco Central del Uruguay (BCU) began an easing cycle in April 2023 as inflationary pressures cooled. - The Monetary Policy Committee of the BCU gradually lowered the monetary policy rate from 11.5 percent at the start of 2023 to 8.5 percent in April 2024. - At the end of 2023, authorities reaffirmed that the BCU inflation target is the center of the target band (4.5 percent). - Executive Board view: - Monetary policy should remain contractionary to ensure that inflation and inflation expectations stay within the target range in a sustained manner. - Sustained monetary policy vigilance is crucial to build credibility and support de-dollarization by delivering low and stable inflation rates. - Authorities should continue emphasizing that the inflation target is the mid-point of the target band (4.5 percent) in their public communications. - Enhancing de jure central bank independence would further improve credibility and support policy continuity. ### Fiscal outcomes and assessment - The deficit and debt outcomes were consistent with the targets of the fiscal rule in 2023. - Adherence to the fiscal rule for four consecutive years helped stabilize the debt-to-GDP ratio under a sequence of negative shocks. - The pension system reform approved in May 2023 is expected to stabilize spending over the medium-term. - The projected NFPS deficit, excluding cincuentones, is 3.1 percent of GDP in 2024. - Executive Board recommendations: - Further efforts are needed to ensure a sustained downward path for the debt-to-GDP ratio over the medium term. - Rebuilding fiscal buffers over the medium term requires lower targets for the structural balance and net indebtedness pillars of the fiscal rule. - Refinements to the fiscal framework would help consolidate recent credibility gains. ### Economic outlook and risks - Growth projections: - Growth rate of 3.4 percent in 2024. - Growth rate of 3 percent in 2025. - Drivers of the 2024 rebound: - Recovery of agricultural exports. - Increased cellulose production. - Easing of financial conditions. - Robust private consumption as real wages recover and the price differential with Argentina normalizes. - Inflation outlook: - Inflation is projected to pick up in the second half of 2024 but stay within the target range, following gradual easing of monetary policy and robust wage growth. - Risks: - Downside risks: worsening of external financial conditions, deterioration of international geopolitical tensions, potential for further extreme climate events. - Upside risks: higher-than-expected agricultural export prices or lower fuel import prices. ### Financial sector resilience and supervision - The banking system is well capitalized, highly liquid, and profitable. - Amid higher international interest rates and a more stable exchange rate, profitability increased. - Despite the economic slowdown and agricultural sector losses in 2023, non-performing loans remained low with adequate loan loss provisions. - Executive Board recommendations and notes: - The SSF should continue upgrading its risk-based supervision framework, enhancing stress-testing and closing data gaps, in line with past FSAP recommendations. - Operationalizing the Pillar II capital add-ons will help address the adverse effect on capital buffers from the bank wealth tax. ### Structural reforms, productivity, and climate adaptation - The current administration (in office since 2020) implemented an upgrade of fiscal and monetary frameworks and advanced decisive structural reforms. - Reforms noted: - Pension reform approved in May 2023. - Ongoing implementation of an education reform. - Executive Board advice: - Consolidating recent gains should be the priority to preserve macroeconomic policy space to confront risks and support long-term growth. - Continuing structural reforms is key to unlocking potential growth; education reform implementation is critical to provide needed human capital over the medium term. - Deepening global integration should focus on trade facilitation, addressing non-tariff barriers and red tape, and reducing logistics costs. - Reducing backward-looking indexation and introducing more sectoral differentiation in wage negotiations would support disinflation and competitiveness. - Climate-related advice: enhance water resource management, promote sustainability, and increase resilience to droughts given recurrent fiscal interventions and output losses in agriculture. - Uruguay has been highlighted as being at the forefront of climate finance innovation. *Press Release No. 24/265 — IMF, July 11, 2024.* --- ## References - [https://www.imf.org/-/media/images/imf/bios/imfboard.jpg](https://www.imf.org/-/media/images/imf/bios/imfboard.jpg) - [The Executive Board](https://www.imf.org/external/np/sec/memdir/eds.aspx) - [Uruguay and the IMF](http://www.imf.org/external/country/URY/index.htm) - [IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance) - [Press Releases](https://www.imf.org/en/news/searchnews) - [PRESS CENTER](http://presscenter.imf.org/) - [https://www.imf.org/en/home](https://www.imf.org/en/home) _Source: https://www.imf.org/en/news/articles/2024/07/11/pr24265-uruguay-imf-exec-board-concludes-2024-art-iv-consult_