IMF Staff Country Reports

The 2024 Article IV Consultation discusses that in 2023, Uruguay confronted the impact of a once-in-a-century severe drought and external headwinds, but the economy remained resilient, owing to the authorities’ sound macroeconomic policies, the country’s political stability, and strong institutions. While economic growth decelerated in 2023, employment rose, and inflation fell within the target range. As inflationary pressures cooled off, the Banco Central del Uruguay started lowering its monetary policy rate in April 2023, while maintaining a contractionary stance. The economy is expected to strongly rebound in 2024, underpinned by the recovery of agricultural exports, increased cellulose production, easing of financial conditions and robust private consumption. Main risks are broadly balanced. Overall fiscal and external risks are low. The post-drought growth momentum creates opportunities for reinvigorating fiscal consolidation efforts. The crafting of the next five-year budget law opens an opportunity to recalibrate the fiscal rule targets to place debt on a downward path. Refinements to the fiscal rule would help consolidate recent credibility gains. Monetary policy should remain contractionary to ensure that inflation and inflation expectations stay within the target range in a sustained manner. Structural reforms are key to unlock potential growth, create policy space to preserve the country’s safety net and social cohesion, and support favorable sovereign debt ratings.