Uruguay: Staff Concluding Statement of the 2025 Article IV Mission
IMF News, September 19, 2025
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Bibliographic details
- Published: September 19, 2025
Mission overview and context
- Mission leader: Mr. Raphael Espinoza; visit: September 8-19, 2025.
- Key recent developments:
- Agriculture: Following a severe drought in 2023, agricultural production expanded significantly in 2024, sustaining growth around potential and contributing to narrowing the current account deficit to -1 percent of GDP.
- Exchange rates and tourism: Substantial real appreciation of the Argentinian’s currency in 2024 contributed to improving the external position and fueled inbound tourism in early 2025.
- Labor market: With the output gap closing, the unemployment rate ticked down, and real wages are growing in line with productivity.
- Fiscal: The fiscal deficit of the central government including social security (CG-BPS) increased in 2024 to 3.2 percent of GDP, necessitating activation of the fiscal rule’s escape clause.
- Reserves: International reserves are ample and reached a level equivalent to 11½ months of imports at end-August 2025.
- Inflation and monetary policy: Inflation fell to 4.2 percent in August 2025, below the BCU target, after the BCU raised its policy rate three times in response to a peso depreciation at end-2024 and later cut rates in July and August 2025 as inflation declined.
- External and market access: Uruguay maintains favorable access to financial markets, supported by investment-grade credit ratings and sovereign spreads that are currently at historic lows and are the lowest in the region.
- Political context: A new administration took over in March 2025 with an agenda balancing inclusive growth and macroeconomic stability; new government guidelines for the regular round of wage negotiations were issued in July 2025.
Outlook and risks
- Growth projections:
- 2025: 2.5 percent
- 2026: 2.4 percent
- Inflation outlook:
- Projected to consolidate around the target of 4.5 percent, enabling gradual easing of monetary policy conditional on domestic context and inflation expectations.
- Current account:
- Expected to widen slightly to 1.7 percent of GDP in the medium term.
- Risk assessment:
- Downside risks: international trade policy and commodity price shocks, regional uncertainty, climate shocks.
- Mitigants: ample liquidity buffers, long debt maturities, favorable borrowing conditions, increasing share of domestic debt issuances.
- Financial system risks: contained due to low credit-to-GDP ratio, liquid and well-capitalized banks, ample FX reserves and a limited sovereign-banking nexus.
- Upside risks: strong agricultural harvests, favorable commodity prices, new trade agreements, access to new markets and investments, stronger-than-expected structural reform effects.
Stability and growth policies
Fiscal policy — findings and recommendations
- Near-term dynamics:
- CG-BPS deficit projected to increase to 4.1 percent of GDP in 2025 (3.7 including cuarentones), 0.9 percentage points above the 2024 deficit.
- Increase attributed mainly to postponed expenditures from 2024, advance tax payments, and recent spending commitments.
- Fiscal stance described as mildly pro-cyclical in 2025 amid a nearly closed output gap.
- Medium-term plan and projections:
- Proposed five-year budget aims to reduce the deficit and stabilize debt below the new prudential debt anchor.
- Structural primary balance pathway: improve from -1.5 percent of GDP in 2025 and 2026 to 0.1 percent of GDP in 2029.
- Net debt: stabilize below the prudential debt anchor at around 63 percent of GDP, up from 58 percent of GDP in 2024.
- Risks to the plan:
- Macroeconomic and international tax environment, implementation delays, and spending pressures.
- Recommended further actions:
- Raise the CG-BPS primary balance progressively to around ½ percent of GDP by 2029.
- Policy options include reducing tax incentives, moderating the wage bill, and improving the efficiency of spending.
- Fiscal framework reform:
- Support for proposed enhancements: binding fiscal rule targets anchored to a prudential net debt/GDP ratio, corrective mechanisms for slippages, greater autonomy and expanded mandate for the Fiscal Council.
- Importance of adequate operationalization and meeting fiscal rule targets to secure reputational benefits.
- Ongoing social dialogue expected to yield social protection/social security proposals by April 2026; ensure proposals are consistent with sustainability of social spending.
Monetary policy — findings and recommendations
- Institutional development:
- Appointment of the first BCU president without political affiliation noted as advancing de facto central bank independence.
- Strategy and stance:
- Commitment to bring inflation to the target of 4.5 percent underpinned by contractionary monetary policy, enhanced central bank communication, and support from budget and collective bargaining guidelines.
- Monetary policy stance described as appropriately contractionary; real interest rate is above the real neutral rate given lower inflation expectations.
- Recent declines in the policy rate justified by declining inflation and inflation expectations.
- Communication and framework:
- Continue emphasizing that the inflation target is 4.5 percent with a tolerance range to anchor expectations.
- Exchange rate: should continue serving as a shock absorber; FX interventions limited to disorderly market conditions.
- De-dollarization and independence:
- BCU began revamping its de-dollarization strategy; first legislative proposal focuses on increasing competition in the deposit market in local currency.
- To align de jure independence with regional peers, Board appointments should follow best international practices, including fixed terms not overlapping with the electoral cycle.
Financial sector — findings and recommendations
- System soundness:
- Banking system: well capitalized, highly liquid and profitable.
- Capital ratios: almost twice the minimum regulatory requirement.
- Private credit: 31 percent of GDP, although it has increased by 10 percent of GDP since 2010.
- Housing-related financial stability risks: low.
- Risks and mitigants:
- Dollarization heightens FX credit and liquidity risks, mitigated by low household indebtedness, moderate and mostly hedged corporate debt, and ample FX reserves.
- Regulatory and supervisory agenda:
- Authorities committed to strengthening regulation and supervision; regulation of digital asset services providers has improved and the regulatory perimeter has expanded.
- Superintendency of Financial Services (SSF) should continue implementing its roadmap to strengthen the risk-based supervisory framework.
- Planned initiatives aim at improving data management and reporting within financial supervision.
- Macroprudential Policy Committee should be leveraged to strengthen the macroprudential framework.
- New National Strategy for Combating Money Laundering and ongoing regulatory efforts expected to enhance the AML/CFT framework’s effectiveness and alignment with FATF standards.
- Financial development and policy recommendations:
- Greater access to credit in local currency and de-dollarization would support growth and contribute to macroeconomic stability.
- Improve access to credit for creditworthy firms—particularly SMEs—while maintaining prudent lending standards and regulatory reforms to foster a level playing field.
Structural policies — findings and recommendations
- Growth potential and reform priorities:
- Structural reforms are key to boosting economic potential after a period of slow growth.
- Identified gaps: infrastructure, trade facilitation, entry barriers and regulatory bottlenecks, market concentration, human capital, and access to credit.
- Government measures announced: cut red tape, open new export markets, modernize institutions and fiscal incentives for investment, export promotion, and innovation; allocate more resources to human capital, attract foreign talent, and tackle insecurity.
- Specific recommendations:
- Intensify reforms: simplify business creation, licensing and taxation; enhance competition policy; improve education quality and reduce school dropouts.
- Reform incentive frameworks in SOEs to better align wages with productivity; ensure efficient allocation of resources and cost-reflective pricing in SOEs.
- Develop financial mechanisms for climate change adaptation.
- Technology and labor market:
- Uruguay gaining regional recognition in innovation and Artificial Intelligence (AI); recommended actions include closing digital gaps and promoting equitable and ethical AI integration into education and industry.
- Support programs for workers at risk from AI disruption.
- Labor market challenges and policy directions:
- Challenges: limited flexibility, high youth unemployment, and an aging population.
- While institutions have contributed to stability and relatively low inequality, firms perceive hiring and wage-setting practices as restrictive.
- Recommendations: introduce measures to account for firm heterogeneity in hiring and wage-setting, monitor employment effects of new wage agreements for the young and low-skilled, encourage labor force participation, and facilitate integration of migrants.
Closing
- The IMF team thanked the Uruguayan authorities for their hospitality and collaboration during the Article IV mission to Montevideo between September 8-19, 2025.
IMF staff concluding statement, September 19, 2025.