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Mario Pessoa, Andrew Okello, Artur Swistak, Muyangwa Muyangwa, Virginia Alonso-Albarran, and Vincent de Paul Koukpaizan
The value-added tax (VAT) has the potential to generate significant government revenue. Despite its intrinsic self-enforcement capacity, many tax administrations find it challenging to refund excess input credits, which is critical to a well-functioning VAT system. Improperly functioning VAT refund practices can have profound implications for fiscal policy and management, including inaccurate deficit measurement, spending overruns, poor budget credibility, impaired treasury operations, and arrears accumulation.This note addresses the following issues: (1) What are VAT refunds and why should they be managed properly? (2) What practices should be put in place (in tax policy, tax administration, budget and treasury management, debt, and fiscal statistics) to help manage key aspects of VAT refunds? For a refund mechanism to be credible, the tax administration must ensure that it is equipped with the strategies, processes, and abilities needed to identify VAT refund fraud. It must also be prepared to act quickly to combat such fraud/schemes.
International Monetary Fund. Western Hemisphere Dept.
This 2019 Article IV Consultation with Uruguay highlights that the country enjoys political stability, strong governance and institutions, and a high degree of social cohesion. Following a decade and a half of robust growth, the country boasts high per capita income, low levels of poverty and inequality, and a resilient financial sector. More recently, in a context of a volatile region and global uncertainties, challenges have emerged. The political and economic landscapes—with the post-election mandate and a growth boost due to large private and infrastructure investments—present an opportunity to address these challenges and preserve the social compact for future generations. The authorities are expected to use the opportunity to reduce debt and bring inflation toward the mid-point of the target range, to rebuild buffers and manage sizable risks. In addition, the authorities should leverage Uruguay’s institutional advantages to further improve the fiscal and inflation targeting frameworks and implement structural reforms, in order to raise potential growth and safeguard the achievements of the past decade.
International Monetary Fund. Western Hemisphere Dept.
This Selected Issues paper analyzes the sectoral trends and the impact of the real effective exchange rate (REER) changes on sectoral exports using the detailed product data from the United Nations’ Commodity Trade Statistics Database (Comtrade). This paper focuses on Uruguay’s product- and sector-specific global export market shares. It also estimates the sensitivity of these market shares to real effective exchange rate by using the product data from the Comtrade database and building on the work presented in IMF (2017). The paper estimates the elasticities of product market shares with respect to real exchange rates for Uruguay only. Rather than using time dummies to isolate the potential impact of the time trend, the lagged value of the change in shares as an additional independent variable has been added. The paper concludes that Uruguay’s manufacturing exports are sensitive to the changes in REER, and, accordingly, that productivity-enhancing measures to promote competitiveness would be beneficial.
International Monetary Fund. Western Hemisphere Dept.
This Article IV Consultation highlights that Uruguay has preserved macroeconomic stability in the wake of the turbulence in the region due to prudent policies and the accumulation of buffers over the years. With the worsening outlook and less friendly external environment, in the near term, policies should focus on maintaining resilience. In this context, additional efforts are needed to put debt on a firm downward trajectory and reduce inflation to within the target band. The IMF staff assesses that the external position is broadly consistent with fundamentals and desirable policy settings. The authorities and IMF staff have remained in broad agreement on the macroeconomic policy objectives, including maintaining public debt on a sustainable trajectory, keeping inflation low, and allowing exchange rate to adjust in line with fundamentals. Fiscal adjustment, however, has not proceeded as quickly as had been originally expected, and inflation has proven difficult to contain within the authorities’ target range.
International Monetary Fund. Western Hemisphere Dept.
This 2017 Article IV Consultation highlights that the fiscal adjustment in Uruguay is on track. Fiscal policy has been countercyclical in 2017, with higher income tax receipts partly offset by rising pension and health care costs. The overall deficit is estimated to decline to 3.3 percent of GDP, and the government continues to be able to access international financial markets on favorable terms, including through global nominal-peso bonds. Financial flows have remained volatile, and local and nonresident investor interest in the peso has been strong overall. The current account balance has been improving and is now in surplus, estimated to approach 2 percent of GDP in 2017.
International Monetary Fund. Western Hemisphere Dept.
This 2016 Article IV Consultation highlights that Uruguay is demonstrating resilience in the face of recessions in its large neighbors. The economic slowdown has bottomed out in 2016 and there are signs that the economy is on an incipient recovery path. Financial stability risks are limited. Nonperforming loans remain relatively low, at 3.5 percent of total loans, while provisions are high. Real growth is estimated at 1.2 percent in 2016 and projected to reach 1.4 percent in 2017, as the external environment strengthens, together with private consumption.