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IMF Country Report No. 18/23
URUGUAY
2017 ARTICLE IV CONSULTATION—PRESS RELEASE; STAFF REPORT; AND STATEMENT BY THE EXECUTIVE DIRECTOR FOR URUGUAY
January 2018
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. In the context of the 2017 Article IV consultation with Uruguay, the following documents have been released and are included in this package:
A Press Release summarizing the views of the Executive Board as expressed during its January 22, 2018 consideration of the staff report that concluded the Article IV consultation with Uruguay.
The Staff Report prepared by a staff team of the IMF for the Executive Board’s consideration on January 22, 2018, following discussions that ended on December 7, 2017, with the officials of Uruguay on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on December 20, 2017.
An Informational Annex prepared by the IMF staff.
A Statement by the Executive Director for Uruguay.
The documents listed below have been or will be separately released.
Selected Issues
The IMF’s transparency policy allows for the deletion of market-sensitive information and premature disclosure of the authorities’ policy intentions in published staff reports and other documents.
Copies of this report are available to the public from
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© 2018 International Monetary Fund
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URUGUAY
STAFF REPORT FOR THE 2017 ARTICLE IV CONSULTATION
December 20, 2017
Key Issues
Context. 2017 has been a good year for Uruguay. GDP growth picked up and the unemployment rate stabilized. A relatively tight monetary policy stance and an appreciating exchange rate contributed to a notable decline in inflation since mid-2017, bringing it within the central bank’s target range for the first time in seven years. The current account has been improving and is now in surplus, while the government has reduced its fiscal deficit and continued to be able to access international markets on favorable terms.
Main Policy Recommendations
As expected demand pressures materialize, some monetary tightening would be appropriate in order to lower inflation toward the middle of the central bank’s target range.
Improving monetary policy transmission will require (i) fostering de-dollarization; (ii) taking steps to strengthen the policy signal; (iii) moderating nominal wage increases going forward.
Exchange rate flexibility should remain an important means of stabilization in the face of shocks.
Improved macroeconomic performance and steadfast implementation of the spending allocations should allow the authorities to reach their 2.5-percent of GDP fiscal deficit objective already in 2018. Spending should be reoriented toward investments in infrastructure.
To address medium-term growth bottlenecks, structural reforms should focus on encouraging investment, improving labor market flexibility, enhancing education, and facilitating economic integration with countries in the region and elsewhere.
Past advice. The authorities and staff have remained in broad agreement on the macroeconomic policy objectives, including implementation of the fiscal consolidation package, steadfast pursuit of disinflation (through tight monetary stance and lower wage indexation), and the necessity of structural reforms. Both monetary policy and the overall fiscal stance have been in line with staff advice. Structural reforms and a reorientation of the budget to support capital spending, however, have not progressed as recommended by staff.
Approved By
Patricia Alonso-Gamo (WHD) and Vikram Haksar (SPR)
Discussions took place in Montevideo during November 27–December 7, 2017. The staff team comprised Jan Kees Martijn (head), Yehenew Endegnanew, Dmitry Gershenson, and Galen Sher (all WHD). Diva Singh and Frederik Toscani (both WHD) contributed to the preparatory work, and Jose Luis Saboin (WHD) provided research assistance. Staff met with Minister Astori, Minister Murro, Central Bank President Bergara, other senior government officials, as well as representatives of public enterprises, the private sector, unions, and civil society.
Contents
CONTEXT
RECENT DEVELOPMENTS
OUTLOOK AND RISKS
POLICY DISCUSSIONS
A. Keeping Inflation Low
B. A Flexible Exchange Rate
C. Reconciling Fiscal Consolidation and Investment Support
D. A More Functional Financial Sector
E. Structural Issues
STAFF APPRAISAL
BOXES
1. The Impact of Exchange Rate Movements on Consumption
2. Options for Supporting De-Dollarization in Uruguay
3. Sources of Growth in Uruguay
FIGURES
1. Real Activity and Inflation
2. External Accounts
3. Fiscal Developments and Projections
4. Monetary Policy
5. Credit and Banking
6. Yield Differentials
TABLES
1. Selected Financial Soundness Indicators
2. Selected Economic Indicators
3. Balance of Payments and External Sector Indicators
4. Main Fiscal Aggregates
5. Public Sector Debt and Assets
6. Statement of Operations of the Central Government
7. Central Government Stock Positions
8. Monetary Survey
9. Medium-Term Macroeconomic Framework
ANNEXES
I. External Sector Assessment
II. Public Sector Debt Sustainability Analysis
III. External Debt Sustainability Analysis
IV. The Revised BOP
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URUGUAY
STAFF REPORT FOR THE 2017 ARTICLE IV CONSULTATION—INFORMATIONAL ANNEX
December 20, 2017
Prepared By
The Western Hemisphere Department (in consultation with other departments)
Contents
FUND RELATIONS
RELATIONS WITH THE WORLD BANK UNDER JMAP
RELATIONS WITH THE INTER-AMERICAN DEVELOPMENT BANK
STATISTICAL ISSUES
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Press Release No. 18/32
FOR IMMEDIATE RELEASE
January 31, 2018
International Monetary Fund
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