Press Release No. 14/575

Press Release: Statement at the End of an IMF Mission to Uruguay

December 12, 2014

An International Monetary Fund (IMF) staff team led by Oya Celasun visited Uruguay from December 1-12, 2014 to conduct the country’s annual Article IV Consultation. The mission met with senior officials, academics, and representatives of the private sector and civil society. At the end of the visit, Ms. Celasun made the following statement:

“Following a decade of strong and inclusive growth, Uruguay’s economy is cooling off gradually. We project growth at about 3 percent in 2014 and 2.5 in 2015, with both external and domestic demand decelerating. While Uruguay’s economy has weathered the regional slowdown quite well so far and growth has remained robust, inflation persists above the central bank’s target and the fiscal and current account deficits have widened.

“Although near term risks to the outlook seem manageable given Uruguay’s strong liquidity cushions, a less supportive external environment calls for maintaining a long-term vision in conducting macroeconomic management. Acting now to fortify the economy’s fundamentals would help cement Uruguay’s attractiveness as an FDI destination and bolster longer-term growth prospects. The aftermath of the elections is an auspicious time to enact key reforms.

“Bringing inflation to the mid-point of the central bank’s target range remains a key priority. The mission recommends a comprehensive disinflation effort that includes maintaining a tight monetary policy stance, a strategy to reduce the backward indexation of wages, and steps to strengthen the central bank’s influence on inflation expectations through forward-looking communication. Enhancing central bank autonomy would also be beneficial.

“In order to maintain net public debt on a declining path, the mission recommends tightening the fiscal balance by at least 2.5 percent of GDP over the next five years. The improvement in the fiscal position could come from a mix of expenditure restraint and revenue enhancing-measures.

“Deepening the financial system and making it more inclusive also remains a key objective. The authorities have taken important steps in this area. Vigilant supervision of the financial system remains essential given the unsettled external environment.

“In order to continue deepening Uruguay’s social gains through the medium-term, policy makers will need to enact supply-enhancing reforms in several areas. The mission welcomes the commitment of the incoming government to boost investments in infrastructure and human capital, and support an innovation-friendly business environment.”