Uruguay: Staff Report for the 2018 Article IV Consultation

International Monetary Fund. Western Hemisphere Dept.

doi:10.5089/9781484399880.002.A002

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Uruguay: Staff Report for the 2018 Article IV Consultation

Author: International Monetary Fund. Western Hemisphere Dept.

Publication Date:: 22 Feb 2019

eISBN:: 9781484399880

Language:: English

Keywords:: ISCR; CR; center; Uruguay; bank assets; consumer price index; asset; public-sector asset-liability management; Uruguay's case; growth outlook; merchandise export; Uruguay's growth; Uruguay's export; Uruguay's exposure; liability positions vis-à-vis nonresident; Public sector; Inflation; Fiscal stance; Global; market share; transmission mechanism; research agenda; goods export; gross investment

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January 29, 2019

Abstract

January 29, 2019

Key Issues

Context. Uruguay has preserved macroeconomic stability in the wake of the turbulence in the region thanks to prudent policies and the accumulation of buffers over the years. The Uruguay peso depreciated since April, but the bond spreads have remained stable. Inflation rose above the 7-percent ceiling—due to the drought and the impact of the peso depreciation. The current budget postponed the achievement of the 2.5-percent of GDP deficit target by one year, to 2020, past the mandate of the current government. While an appropriate counter-cyclical response, additional measures will be needed to achieve the target.

Policy recommendations. 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. Given global trends, a flexible exchange rate is a key shock absorber and interventions should be limited to addressing disorderly market conditions. Facing low investment and declining employment, structural reforms are needed to ensure continued income convergence to advanced country levels. These reforms could include further measures to improve educational outcomes, strengthen the business environment and competitiveness, close infrastructure gaps, and address fiscal challenges from aging and already high social security spending, as well as measures to improve fiscal and monetary frameworks.

Past advice. The authorities and 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.

Approved By

Patricia Alonso-Gamo (WHD) and Vikram Haksar (SPR)

Discussions took place in Montevideo during November 28–December 12, 2018. The staff team comprised S. Pelin Berkmen (head), Dmitry Gershenson, Carlos Goncalves, Jorge Restrepo, and Jose Torres (all WHD). Patricia Alonso-Gamo (WHD) joined the concluding meetings, and David Vogel (OED) participated in key meetings. Yehenew Endegnanew (SPR) contributed to the preparatory work, and Luis Omar Herrera Prada and Dan Pan (WHD) provided research assistance. Staff met with Minister of Finance Astori, Minister of Labor Murro, Minister of Transport Rossi, Director of Office of Planning and Budget García, Central Bank President Graña, other senior government officials, as well as representatives of public enterprises, the private sector, unions, civil society, and opposition.

CONTEXT: RESILIENCE IN THE FACE OF MARKET TURMOIL
RECENT DEVELOPMENTS
OUTLOOK AND RISKS
POLICY DISCUSSIONS
A. Maintaining Fiscal Sustainability
B. Lowering Inflation
C. Maintaining Financial Sector Stability and Enhancing Intermediation
D. Enhancing Inclusive Growth and Competitiveness
STAFF APPRAISAL
BOXES
1. Cincuentones Transaction
2. Exchange Rate Intervention in Uruguay
3. Population Aging and Pensions in Uruguay
4. Pilot for Central Bank Digital Currency (E-Peso)
5. Real Exchange Rate and Sectoral Competitiveness
FIGURES
1. Real Activity
2. Inflation
3. External Accounts
4. Monetary Policy
5. Fiscal Developments
6. Global and Argentina Spillovers
7. Credit and Banking
8. Structural Issues
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 (DSA)
III. External Debt Sustainability Analysis

Context: Resilience in the Face of Market Turmoil

1. Uruguay’s economy remains resilient, reflecting its strong institutions, prudent policies, and large buffers. In a deteriorating external environment, Uruguay has successfully differentiated itself from its neighbors, thanks to progress in export market diversification, a prudent and coordinated public-sector asset-liability management, pre-financing of sizeable external financing needs, lower banking sector vulnerabilities, and ample reserves. As a result, public sector borrowing costs have remained subdued despite significant depreciation pressures, and, although growth has slowed, it remains positive.

2. Maintaining this resilience and differentiated status is a priority in the more turbulent regional and global context. Uruguay is well positioned to weather the worsening external environment. Nevertheless, maintaining its resilience will hinge on the credibility of economic policies. This calls for actions to strengthen the fiscal and monetary anchors by putting debt on a firm downward trajectory and reducing inflation to within the target band. Over the medium term, the authorities should use Uruguay’s institutional advantages to improve the fiscal and monetary policy frameworks and implement further structural reforms to support growth and safeguard the social gains of the past decade. Policies should be targeted to improve low investment, address declining employment, and strengthen educational outcomes.

Recent Developments

3. After a strong 2017, growth has moderated. Economic activity grew by 2.3 percent in the first three quarters of the year, after expanding by 2.7 percent in 2017 (Figure 1). While consumption has continued to support domestic demand, private investment has remained sluggish and net exports turned negative. On the production side, manufacturing activity has remained weak, excluding the impact of the reopening of the oil refinery. Furthermore, a severe drought in the first quarter led to lower yields of summer crops (particularly soybeans). Labor market outcomes are weak, with unemployment fluctuating between 7 and 9 percent.

4. Inflation has risen above the target range, partly reflecting temporary factors (Figure 2). In 2017, inflation fell to 6.6 percent, ending up within the central bank’s 3-to-7-percent target range for the first time since 2010, due to earlier monetary policy tightening and peso appreciation. However, it has exceeded the target since May 2018 and currently stands at 8 percent reflecting the impact of drought and peso depreciation. With the reduction in monetary indicative references since July, short and medium-term rates have gradually increased but real rates remain lower than the guidance offered by neutral rates (while they can increase further as monetary policy works through its lags) (Figure 4). At the same time, medium-term inflation expectations are somewhat above the target range.

5. Fiscal deficit reduction has stalled, and the time to reach the target of 2.5 percent of GDP has been extended to 2020 (Figure 5). In 2017, the overall public sector deficit (which includes the central bank interest payments) was 3.5 percent of GDP, an improvement of 0.3 percentage points relative to 2016. The current budget envisages a deficit of 3.3 percent of GDP in 2018 (up from a previous objective of 2.9 percent of GDP) and 2.8 percent of GDP in 2019 (up from 2.5 percent of GDP). If these objectives and the new 2020 target were met, public debt would decline gradually.¹ Although the 12-month rolling fiscal deficit stood at 2.7 percent of GDP in November 2018, it amounted to 3.8 percent of GDP excluding the effects of transactions related to cincuentones (see Box 1), suggesting that attainment of the 2018 objective, which does not include these transactions, is difficult.

Public Sector Overall Balance (percent of GDP) ^1/

^{^1/}Excluding transfers from cincuentones.

^{^2/}Data through November 2018.

Public Sector Overall Balance (percent of GDP) ^1/

		2015	2016	2017	2018 prel. ^2/
Public sector		-3.6	-3.8	-3.5	-3.7
	central government	5.0	4.6	5.7	5.8
	social security	-7.8	-8.3	-8.7	-8.8
	non-financial public corporations	0.6	0.3	0.0	-0.1
	local governments	0.1	0.1	0.1	0.2
	public insurance company	-0.1	0.3	0.2	0.3
	central bank	-1.4	-0.8	-0.8	-1.1
Memo items:
spending non-financial public sector		28.8	29.9	30.0	30.1
	of which: current spending	26.5	27.4	27.9	27.9

^{^1/}Excluding transfers from cincuentones.

^{^2/}Data through November 2018.

Public Sector Overall Balance (percent of GDP) ^1/

		2015	2016	2017	2018 prel. ^2/
Public sector		-3.6	-3.8	-3.5	-3.7
	central government	5.0	4.6	5.7	5.8
	social security	-7.8	-8.3	-8.7	-8.8
	non-financial public corporations	0.6	0.3	0.0	-0.1
	local governments	0.1	0.1	0.1	0.2
	public insurance company	-0.1	0.3	0.2	0.3
	central bank	-1.4	-0.8	-0.8	-1.1
Memo items:
spending non-financial public sector		28.8	29.9	30.0	30.1
	of which: current spending	26.5	27.4	27.9	27.9

^{^1/}Excluding transfers from cincuentones.

^{^2/}Data through November 2018.

6. The current account has weakened (Figure 3). The current account has posted surpluses in 2016 and 2017—although recent revisions reduced them—reflecting the record tourism inflows from Argentina, a slowdown in imports associated with weak investment, and a lower oil import bill. The surplus has now turned to deficit (0.4 percent of GDP in the first three quarters of 2018 compared with a yearly surplus of 0.7 percent of GDP in 2017) because of negative investment income, higher oil prices, lower exports to neighboring countries facing difficulties (such as Argentina and Brazil), and lower agricultural exports due to the drought.

^{Box 1.}

Cincuentones Transactions

A new law compensates persons affected by the creation of the mixed pension system. Law 16.173 of 1996 required workers to continue paying a basic contribution to the public system, but persons younger than forty years old and with income beyond a certain threshold, were also required to contribute to the newly introduced individually-funded accounts. Past contributions of workers who were forced to affiliate to the new private pillar were not recognized (as this would have created a fiscal problem). These persons have started to retire and, due to the lower years of contributions, their replacement rates are significantly lower than of those who remained in the public system only. To redress the situation, Law 19.590 (approved at end-2017) allows affiliates (both workers and retirees older than 50 years in April 2016, the so-called “cincuentones”) to revoke their participation and bring their accrued contributions to the public system.

Transactions related to cincuentoneswill improve the fiscal deficit in the near term but are estimatedto weaken the government balance sheet after 5 years. In October 2018, the public pension system received a transfer of about 1 percent of GDP in the context of the aforementioned cincuentones transactions. These funds are recorded as revenue, consistent with IMF methodology, and thus lower the fiscal deficit. Moreover, this will also lower the stock of public debt but not significantly alter the public financing needs, as the additional revenues were placed in a trust fund ring-fenced for 6 years. Transfers will continue over the next three years, leading to further reductions in the fiscal deficit. These transactions were transparently recorded and communicated by the authorities in the relevant sections of fiscal accounts, and the authorities are presently calculating the resulting changes in the expected pension contributions and expenditures. Authorities estimate that after 5 years this operation will weaken the government’s balance sheet since the additional pension liabilities will exceed the additional revenues and that the burden on the public pension system from this operation will be about 4 percent of GDP (in net present value terms over the next 30 years).

7. Capital inflows, also affected by the inclusion of the merchanting activities, have been volatile. More recently, the high-frequency data point to portfolio outflows as seen in many emerging markets. The authorities ably took advantage of favorable financing conditions through mid-2018 by issuing bonds in global markets at long maturities.

8. The peso has depreciated by about 13 percent since April, and official foreign exchange reserves have declined. In response to depreciation pressures, the central bank started to intervene in August. Overall, gross reserves declined from $17.9 billion to $15.6 billion, but at about 26 percent of GDP they remain substantially above prudential norms. About $0.5 billion of this decline reflects repurchases of central bank paper to accommodate a portfolio reallocation by pension funds, in response to non-resident capital outflows, to avoid undue exchange rate volatility (Box 2).

^{Box 2.}

Exchange Rate Intervention in Uruguay

Uruguay has intervened in the foreign exchange (FX) market actively since the country moved to a floating exchange rate regime in 2002. In addition to a small wholesale exchange rate market (about 12 percent of GDP), there is a small exchange forward market (about 3 percent of GDP). The central bank has been mainly intervening in the spot market, but it also performs operations in the forward market. In addition to direct market interventions, the central bank accommodates the foreign currency needs of the government (including large state-owned-enterprises) and portfolio shifts of large domestic institutional investors to avoid undue exchange rate volatility in a small FX market (with average daily turnover of about US$25 million). This leads to changes in reserves that overstate the size of direct interventions by the central bank, which is a common phenomenon in the region and in countries with small FX markets. ¹

While the peso has moved broadly in line with global trends, the central bank has been intervening in response to recent large portfolio and capital flow shifts. In 2017, non-resident portfolio inflows and portfolio shifts by domestic pension funds led to upward pressure on the exchange rate. The central bank accommodated these shifts by buying foreign currency in return for central bank paper (sterilized intervention). As a result, both reserves and the volume of outstanding central bank paper increased. With the reversal of capital flows since May 2018, the peso came under depreciation pressure. While the central bank initially let the exchange rate adjust, it started to intervene in late August/early September (mostly in the spot market) as the pressures intensified—the disorderly market conditions index indicates heightened pressures for many countries in the region during that period. At the same time, pension funds decided to step in, in response to non-resident capital outflows, and shifted their portfolios to longer term local currency bonds. To accommodate this shift, the central bank performed a repurchase operation to buy back some of the outstanding central bank paper (with the option of settling in either local currency or U.S. dollars). This resulted in repurchase of the central bank paper (in return of foreign exchange) amounting US$0.5 billion. Overall, gross reserves declined from $17.2 billion in August to $15.6 billion in December.

^1/ See Werner, A. Chamon, M., Hofman, D., Magud, N., “Foreign Exchange Interventions in Inflation Targeters in Latin America,” forthcoming; and Endegnanew, Y., “Effectiveness of Foreign Exchange Intervention in Uruguay,” Selected Issues Paper, forthcoming.

Outlook and Risks

9. Uruguay’s economy has been decoupling from regional trends (Figure 6). Uruguay’s business cycle is less correlated with Argentina than in the past, with smaller direct financial sector linkages and China rising as a key trading partner. Nevertheless, both Argentina and Brazil remain important counterparts, and bilateral trade flows are sensitive to exchange rate movements.

10. The near-term outlook has worsened but remains stable relative to its neighbors. Growth is expected to moderate further to 2.1 percent in 2018 and 1.9 percent in 2019. This reflects (i) a slowdown in consumption due to peso depreciation against the U.S. dollar, and to lower confidence and real wages; and (ii) a weakening of tourism revenue and goods exports in the first half of 2019—due to the expected contraction in Argentina and to the appreciation of Uruguay’s currency against its regional partners. At the same time, the expected rebound of agriculture from this year’s drought will support growth and exports. Further, private investment, after contracting for four years in a row, is expected to gradually recover. In subsequent years, the economy is expected to grow slightly above potential, gradually closing the output gap. The current account is expected to register a deficit of 0.6 percent of GDP in 2018.

11. In 2019, inflation is expected to moderate but, at 7.5 percent, remain above the central bank’s ceiling of the target range, established by the Macroeconomic Policy Coordination Committee. As the pass-through of the depreciation and the impact of the drought wear off, interest rates increase following the recent reductions in monetary indicative references, and the output gap widens, inflation is expected to gradually decline. Many of the ongoing multi-year wage negotiations are closing in line with the guidelines—which continue to eschew indexation and will put nominal wage increases on a declining path—thereby help anchor nontradable prices and temper inflation inertia. However, with medium-term inflation expectations above target, inflation beyond 2019 is projected to stay at 7 percent, the upper limit of the central bank’s target range.

12. Staff assesses that the external position is broadly consistent with fundamentals and desirable policy settings (Annex I). Staff estimates that the projected 2018 current account balance—adjusted for the cyclical position and bilateral trade with Argentina—is at its estimated norm. The peso appreciated in real effective terms, by about 5 percent since December 2017, also reflecting about 40-percent appreciation against Argentina. In this context, the EBA-Lite REER model points to an 8 percent overvaluation.

Risk Assessment Matrix

Sources of Risk	Likelihood	Impact if Realized	Policy Response
Further slowdown in growth in neighboring economies.	High	Medium (↓) A further slowdown of growth in Argentina and Brazil would adversely affect exports, tourism, and FDI.	Maintain flexible exchange rate. Continue efforts to diversify trade.
Sharp tightening of global financial conditions.	High	Medium/High (↓) Normalization of U.S. monetary policy could increase borrowing costs for Uruguayan public and private sectors. A sustained decline in risk appetite for emerging market assets could potentially trigger capital outflows.	Maintain flexible exchange rate. Maintain solid macroeconomic fundamentals, including by maintaining monetary and fiscal anchors. Use liquidity buffers if necessary.
Rising protectionism and retreat from multilateralism.	High	Low/Medium (↓) Further rounds of sustained trade actions could reduce cross-border trade flows, contribute to negative risks to investment and growth, and trigger market volatility.	Maintain flexible exchange rate. Continue efforts to diversify trade.
Significant slowdown in China.	Low/Medium	Medium (↓) As the country receiving the largest share of Uruguay’s goods exports, a slowdown in China could materially affect export volumes. Global commodity prices could also suffer.	Use exchange rate as a shock absorber. Pass-through declines in oil import prices to households.
Insufficient public and private investment, as completing the planned fiscal consolidation while boosting capital spending could prove challenging.	Medium	Medium (↓) Insufficient investment could reduce Uruguay’s potential growth.	Create fiscal space by rationalizing current expenditure. Continue efforts to further improve access to finance, business environment, human capital, and diversification.
Sizeable deviations from baseline energy prices.	Medium	Low/Medium Higher oil prices would raise import and fiscal costs.	Use the oil price hedges. Pass through oil price changes to households over the medium term.
Cyber-attacks.	Medium	Medium (↓) Given the current low level of Fintech activity, financial sector stability threats are limited, but confidence effects could be important.	Continue efforts to increase cyber-security.
Large infrastructure projects.	High	High (↑) The realization of the planned paper pulp plant by UPM and other PPP projects, partly financed by FDI, could provide a major lift to investment.	Save additional tax revenues to build fiscal buffers and finance the associated public investment. Monitor fiscal risks stemming from PPPs.

Risk Assessment Matrix

Sources of Risk	Likelihood	Impact if Realized	Policy Response
Further slowdown in growth in neighboring economies.	High	Medium (↓) A further slowdown of growth in Argentina and Brazil would adversely affect exports, tourism, and FDI.	Maintain flexible exchange rate. Continue efforts to diversify trade.
Sharp tightening of global financial conditions.	High	Medium/High (↓) Normalization of U.S. monetary policy could increase borrowing costs for Uruguayan public and private sectors. A sustained decline in risk appetite for emerging market assets could potentially trigger capital outflows.	Maintain flexible exchange rate. Maintain solid macroeconomic fundamentals, including by maintaining monetary and fiscal anchors. Use liquidity buffers if necessary.
Rising protectionism and retreat from multilateralism.	High	Low/Medium (↓) Further rounds of sustained trade actions could reduce cross-border trade flows, contribute to negative risks to investment and growth, and trigger market volatility.	Maintain flexible exchange rate. Continue efforts to diversify trade.
Significant slowdown in China.	Low/Medium	Medium (↓) As the country receiving the largest share of Uruguay’s goods exports, a slowdown in China could materially affect export volumes. Global commodity prices could also suffer.	Use exchange rate as a shock absorber. Pass-through declines in oil import prices to households.
Insufficient public and private investment, as completing the planned fiscal consolidation while boosting capital spending could prove challenging.	Medium	Medium (↓) Insufficient investment could reduce Uruguay’s potential growth.	Create fiscal space by rationalizing current expenditure. Continue efforts to further improve access to finance, business environment, human capital, and diversification.
Sizeable deviations from baseline energy prices.	Medium	Low/Medium Higher oil prices would raise import and fiscal costs.	Use the oil price hedges. Pass through oil price changes to households over the medium term.
Cyber-attacks.	Medium	Medium (↓) Given the current low level of Fintech activity, financial sector stability threats are limited, but confidence effects could be important.	Continue efforts to increase cyber-security.
Large infrastructure projects.	High	High (↑) The realization of the planned paper pulp plant by UPM and other PPP projects, partly financed by FDI, could provide a major lift to investment.	Save additional tax revenues to build fiscal buffers and finance the associated public investment. Monitor fiscal risks stemming from PPPs.

13. There are both sizeable downside and upside risks to the outlook, given the more difficult external environment and large infrastructure projects (see the Risk Assessment Matrix). An abrupt tightening in global financial conditions, caused by a sharp increase in international risk premia coupled with a further strengthening of the U.S. dollar, could have negative repercussions for Uruguay’s economy. A further slowdown in trading partners could also worsen the growth outlook. At the same time, prudent macroeconomic policies and strong institutions have improved Uruguay’s ability to withstand regional shocks, and plans for the construction of a large cellulose plant, an associated railway system, and other infrastructure projects are a major upside risk. Over the medium-term, low investment and declining employment, if not reversed, could lower potential growth.

14. The authorities were broadly in agreement with staff’s views. They expected the unfavorable external environment to moderate GDP growth in 2018 and 2019, with a pick-up in investment (also supported by tax incentives introduced in 2018) leading to a more robust recovery in the outer years. The authorities saw the inflation falling to within the target range in 2019, partly driven by a successful round of wage negotiations. Overall, they stressed that Uruguay—with a flexible exchange rate and ample financial buffers—was well positioned to manage external shocks.

Policy Discussions

A. Maintaining Fiscal Sustainability

15. Excluding the impact of the transfers related to cincuentones, the authorities’ overall fiscal deficit target of 2.5 percent of GDP will be difficult to reach by 2020 without additional measures.² The current budget’s relaxation is an appropriate counter-cyclical measure, and if these targets are met, debt would decline gradually. Staff projects, however, an overall public-sector deficit (without the cincuentones transfers) of 3.7 percent of GDP in 2018. In 2019 and 2020, the deficit is projected to decline by 0.2 percentage points per year due to a reduction in sterilization costs and lower current expenditures in line with the results of the ongoing wage negotiations. Thereafter, the deficit (without cincuentones) is projected to remain at 3.3 percent of GDP in the absence of additional measures.

Public Sector Overall Balance (percent of GDP) ^1/

^{^1/}Excluding transfers from cincuentones.

Public Sector Overall Balance (percent of GDP) ^1/

	2017	2018	2019	2020
2017 Budget	-3.5	-2.9	-2.5	-2.5
2018 Budget	-3.5	-3.3	-2.8	-2.5
Staff Baseline	-3.5	-3.7	-3.5	-3.3
*with cincuentones	-3.5	-2.5	-2.4	-2.3

^{^1/}Excluding transfers from cincuentones.

Public Sector Overall Balance (percent of GDP) ^1/

	2017	2018	2019	2020
2017 Budget	-3.5	-2.9	-2.5	-2.5
2018 Budget	-3.5	-3.3	-2.8	-2.5
Staff Baseline	-3.5	-3.7	-3.5	-3.3
*with cincuentones	-3.5	-2.5	-2.4	-2.3

^{^1/}Excluding transfers from cincuentones.

16. While next year’s gross financing needs are manageable, Uruguay should remain vigilant in the context of increasing global financial market volatility (Annex II). Under the baseline scenario, debt of the non-financial public sector is projected to reach 54 percent of GDP in 2018 and to stabilize at 53 percent thereafter.³ Large financing needs for 2019 are expected be to comfortably met in the context of coordinated public-sector asset-liability management, stable local currency funding from domestic institutional base (particularly after this year’s introduction of wage-indexed bonds), the authorities’ pre-financing policy, and sufficient buffers (in the form of nonfinancial-public-sector liquid assets and contingent credit lines).⁴ The debt level are below the relevant benchmarks but remain elevated. Uruguay’s sovereign risk spreads were not affected by the recent exchange rate volatility episodes, but the fiscal position has worsened since then and, historically, Uruguay has been sensitive to tightening global market conditions. In addition, despite recent improvements, the share of debt in foreign currency held by non¬residents remains relatively high, leaving debt vulnerable to exchange rate pressures. As a result, Uruguay’s fiscal space—the room for discretionary fiscal policy without endangering the debt sustainability—is at risk.

17. To maintain credibility and contain fiscal risks, the authorities need to introduce measures to put public debt on a firm downward path. Delivering on the budgetary targets would reduce debt of the non-financial public sector to 49 percent of GDP in 5 years and would lower it to the average level of 2012–14 (about 44 percent of GDP) in 10 years. However, this would require 0.8 percentage points of GDP in measures until 2020 (a total adjustment of 1.2 percent of GDP) during a period of an economic slowdown and elections, which could be hard to achieve. In this context, the authorities should introduce measures of at least 0.3 percent of GDP in 2019 (amounting to a 0.5 percent-of-GDP of total adjustment in 2019), which would help put debt on a downward path, thereby reinforcing commitment to fiscal sustainability. Beyond 2019, bringing debt to 2012–14 levels in a 5-year period would require additional adjustments (of about 0.6 percent of GDP annually).

18. Fiscal adjustment should come from reducing the elevated level of current expenditures. This would allow to contain the impact of fiscal adjustment on growth.⁵ In addition, the utility tariffs should be adjusted in line with the cost structure and investment needs of public enterprises. In the medium term, further improvements in the efficiency of social spending will also be required to create space for the needed increase in capital spending.

19. Looking ahead, introducing a medium-term fiscal framework supported by a binding fiscal rule would help engrain fiscal anchor and sustainability. Under the current approach, each government outlines budgetary priorities for a fixed duration of its five-year term, leading to a lack of continuity and attendant uncertainty towards the end of the period, as the budgetary horizon shrinks. A medium-term fiscal framework would help strengthen multi-year fiscal discipline and achieve policy objectives with a more efficient use of limited resources. Even though the existing fiscal rule limits the annual increase in net debt, it has not been binding due to the use of escape clauses. An enhanced fiscal rule could include further safeguards that limit the frequent use of escape clauses, focus on the nonfinancial public-sector balance to avoid volatility associated with the liquidity management operations of the central bank, and be anchored on a medium-term debt objective.

20. Other medium-term fiscal priorities include addressing growing pension spending and maintaining the financial health of public enterprises. First, pension spending is high by regional standards, reflecting an aging society, the welcome almost universal coverage, and constitutionally mandated wage indexation. Reforms are needed to provide adequate pensions and maintain coverage for future generations, while ensuring the sustainability of the system (Box 3). Second, continued improvements in the management and profitability of public enterprises— an important component of the economy—are essential to strengthening the country’s fiscal position. In this context, ongoing efforts to enhance the governance structure, risk-management practices, and the monitoring of their performance in a more consolidated manner are welcome.

21. The authorities reaffirmed their commitment to fiscal sustainability and concurred with the need to enhance the governance of SOEs and improve the existing fiscal rule. They are working on possible measures to improve the fiscal outlook and achieve the 2.5-percent deficit (excluding cincuentones) targeted in 2020. The authorities were in agreement with staff’s assessment on the need to improve the governance of SOEs and noted that they would propose legislation to professionalize the boards of public companies and limit the revolving door between SOEs and the private sector. The authorities emphasized the importance of flexibility for the fiscal rules but agreed that there was a need to establish tighter definitions of what constitutes an acceptable trigger for an escape clause. They also concurred with the need for a comprehensive reform of the social security system and highlighted the growing consensus on the need for such reforms.

^{Box 3.}

Population Aging and Pensions in Uruguay¹

Uruguay’s public pension system has been a pillar of its modern welfare state. The system is one of the oldest in Latin America. The solidarity pillar evolved into a mixed system in 1996. In addition, there are separate special regimes, for banking employees, university professionals, public notaries, the military and the police. The system also includes a noncontributory elderly and disability pensions. Workers’ contributions only partially finance the system. With almost universal coverage, the system has supported social cohesion.

At the same time, public pension expenditures are high compared to other countries. Uruguay has one of the oldest populations in Latin America. Together with the relatively high coverage, public pension expenditures as a share of GDP are higher (about 11 percent of GDP at end 2018) than in many other emerging and Latin American countries (of which about 3 corresponds to the special regimes). More broadly, Uruguay’s social spending amounts to 25 percent of GDP—with 6.5 percent on health and 5 percent on education.

Population aging is expected to raise pension and more broadly age-related spending over the coming decades, weighing on fiscal sustainability in the long term. Focusing on solidarity and defined benefit pillars, Uruguay’s pension spending (as a share of GDP) will exceed that of advanced economies by 2065. Spending increases of the special regimes and transactions related to “cincuentones” (Box 1) will further add to the medium-term spending pressures, which will limit critical spending in other areas (e.g. infrastructure) and weigh on fiscal sustainability in the absence of reforms.

Pension reform is needed to perpetuate achievements in living standards and ensure fiscal sustainability. In addition to the shift into a mixed system in 1996, reforms were undertaken for the police and military schemes in 2008 and 2018 respectively, but the fiscal impact of these reforms is limited. In the presence of population aging, additional reforms are needed to provide adequate pensions and maintain coverage for future generations, while ensuring the sustainability of the system. Such reform should encompass a comprehensive review of the entire system and an informed social dialogue. Early action will help smooth the transition to a revised system and reduce costs compared to a delayed response when aging pressures become more acute. Reforms will also be necessary to counter rising health care costs.

¹ This box is based on two earlier studies on pensions. For a detailed analysis of the pension system and regional comparison please see IMF Country Report No. 17/29 and SDN 18/05.

B. Lowering Inflation

22. Bringing inflation close to the middle of the central bank’s 3-to-7 percent target range is important to anchor expectations. With medium-term inflation expectations above the target range, a further depreciation of the peso in the presence of remaining widespread indexation could render convergence to the target range more difficult. After the most recent reduction in the monetary indicative references at end-December, nominal interest rates have remained broadly constant at around 8 percent for the 1-month rate and at around 10 percent for the 1-year rate. As the monetary policy works through its lags, monetary indicative references should continue to be adjusted until the short- and medium-term real rates increase further to within the range of estimated real neutral rates (2–3 percent as of 2018Q4), and medium-term inflation expectations (currently at 7.5 percent) move towards the middle of the target range (5 percent).

23. In a longer-term perspective, the central bank is encouraged to further strengthen its monetary policy framework. Conducting monetary policy is challenging in the presence of a high dollarization, low credit-to-GDP ratios, and remaining wage indexation. Short-term interest rates remain volatile (due to movements in money demand), inflation expectations track actual inflation, and, in the past, inflation has persistently remained above the target range. In this context, further improvements could focus on strategies, instruments, and communication practices to enhance the commitment to achieve targets, thereby better anchoring inflation expectations. Ongoing discussions at the central bank on further enhancing communication strategies and reducing dollarization could be part of a review.

24. The exchange rate should remain the key shock absorber. Given global trends and potentially weaker capital flows to emerging markets, the peso should continue to adjust in line with fundamentals. Interventions should be reserved for addressing disorderly market conditions, and reserve buffers should be kept above or in line with prudential norms.⁶

25. The authorities reaffirmed their commitment to bringing inflation to within the central bank’s target range. They noted an important role played by one-off factors (drought and peso depreciation) in pushing inflation outside the range and, looking forward, stressed the moderating influence of the new round of wage agreements on inflation and inflation expectations. Accordingly, the authorities considered the monetary policy stance to be adequate and the level of real interest rates– appropriate. In particular, they were mindful of the growth impact and excessive capital inflows in case interest rates become too high. Finally, the authorities confirmed the importance of maintaining a flexible exchange rate while avoiding its undue volatility.

C. Maintaining Financial Sector Stability and Enhancing Intermediation

26. The financial sector has fared well, but authorities should continue monitoring the quality of banks’ assets closely (Figure 7). Despite the regional market turmoil, the financial sector has remained resilient, reflecting limited linkages to Argentina and enhanced supervision since the 2002 crisis. With the improvements in regulatory capital to risk-weighted assets ratio and bank profits, the banking sector has comfortable buffers. Given exchange rate volatility and high dollarization, supervision should continue to closely monitor banks’ exposures. In addition, the share of nonperforming loans has risen, and, while still manageable, needs to be monitored. In this regard, the recent adoption of the regulations on net stable funding ratio—requiring that the liquidity profiles of banks’ assets and liabilities be aligned—is welcome.

27. The authorities are trying to boost financial inclusion, including by leveraging advances in financial sector technology (Fintech). Extensive dollarization and market segmentation limit bank credit and make it expensive, especially in the peso market (Figure 4). To improve financial inclusion, the authorities have been implementing measures that aim at promoting electronic transactions and competition in the banking sector (under the 2014 Financial Inclusion Law). Since the introduction of the Law, low-income households and small and micro enterprises have access to free bank accounts and debit cards. Even though peer-to-peer lending remains small, the authorities have introduced regulation in this area aimed at protecting consumers and guarding against money laundering. More broadly, the authorities’ efforts to improve financial inclusion, innovation, and intermediation, while limiting risks—including a successful e-peso pilot—are welcome (Box 4).

28. The authorities stressed that the financial system is stable and profitable. While agreeing that NPLs call for monitoring, they noted that the increase in NPLs has largely been due to the drought and the economic slowdown and that the banks have right safeguards and sufficient buffers in place to address this issue. The authorities welcomed the development of Fintech as long as their concerns regarding consumer protection and preventing money laundering were addressed.

D. Enhancing Inclusive Growth and Competitiveness

29. Building on Uruguay’s institutional strength, reaching the goal of continued income convergence to advanced economy levels needs further action. Uruguay has been one of the most stable countries in the region, with low income inequality and poverty (Figure 8). However, facing low investment and declining employment, there is consensus across the political spectrum that further efforts are needed to ensure continued income convergence. These could include creating fiscal space to close infrastructure gaps and reforming the education sector to enhance human capital. In addition, private investment can be supported by improving access to finance and the business environment. Furthermore, a more flexible labor market and real wage increases aligned with productivity increases would both ensure employment resilience to changes in business conditions and support private investment. These policies will also help enhance Uruguay’s competitiveness.

^{Box 4.}

Pilot for Central Bank Digital Currency (E-Peso)

The Central Bank of Uruguay implemented a successful pilot program on Central Bank Digital Currency (CBDC). E-peso is a legal tender digital currency issued by the central bank. It is an electronic money and does not use distributed ledger technology. The pilot program was used to test the technical aspects and run for 6 months (November 2017-April 2018), with limited bill issuance ($20 million for 10000 mobile users) and size per person ($30,000 per wallet and $200,000 for registered businesses). E-peso was mainly used for payment transactions in registered stores and businesses, and peer-to-peer transfers. The system used instantaneous settlement and run through mobile line (no internet connection was needed). E-peso was anonyms but traceable, with unique bills preventing double spending and falsification.

E-peso is expected to reduce transaction costs, encourage financial innovation, and increase financial inclusion. The world is increasingly digitalized which provides both opportunities and challenges. The central bank of Uruguay is one of the pioneers in world in taking a proactive approach in evaluating the case for the CBDC (IMF SDN No. 18/08, 2018). In this context, the central bank aims at reducing transaction costs of cash (estimated at 0.6 percent of GDP), improve financial innovation by creating a supportive regulatory environment and infrastructure, and fostering financial inclusion by reaching out to nonbanked segments of the society through mobile networks.

Further analysis is needed to analyze the impact on monetary policy transmission, the banking system, and dollarization. The consequences of the introduction of the CBDC on payment systems, financial intermediation, the conduct of monetary policy, and financial integrity will hinge on its design and on country-specific characteristics. In this context, the central bank’s research agenda will focus on analyzing implications of Fintech on payment systems and traditional banking systems. Broader considerations could include the following. First, e-peso has the potential to enhance the transmission mechanism as it provides a more systematic and transparent information on money demand in real time (given Uruguay’s monetary targeting framework). Second, as the banks did not participate in the pilot, it is difficult to analyze the impact on the banking system. To the extent that e-Peso encourages innovation and competition, in the new equilibrium, interest rates could decline, improving financial intermediation and inclusion. At the same time, if e-peso becomes a substitute for bank deposits, it can lead to an increase in the funding costs of the banks, leading to an increase in the equilibrium interest rates. Third, improved information can help improve financial integrity by preventing tax evasion and money laundry. Finally, the impact on dollarization and exchange rate channels are likely to be minor as the demand for domestic and foreign assets are determined by other fundamental/external factors such as credibility and global financial conditions.

30. Uruguay has successfully diversified its export products and destinations and raised its global market share in many products. However, some manufacturing sectors lost market share and are sensitive to exchange rate movements (Box 5). Therefore, continued efforts are needed to improve competitiveness, to further diversify export products (including towards non-commodity sectors to limit exposure to commodity price swings and supply shocks), and to improve market access through multilateral and bilateral free trade agreements.

31. The authorities are continuing appropriate efforts to improve data. In 2017, the Banco Central de Uruguay released a new version of Balance of Payments and International Investment Position data, in line with the principles of the sixth edition of the Balance of Payments Manual. The authorities are also updating the base year of the national accounts series and aim to implement the 2008 System of National Accounts in 2020. The authorities could also consider updating the national account weights every 5 years or switching from a fixed-base year to chain-linking in line with international best practices.

32. The authorities agreed that infrastructure investment and structural reforms were needed to achieve their developmental objectives. They highlighted low investment and declining employment as key issues to tackle. In this context, they pointed to several projects, including the railway, being financed through public-private partnerships. They also noted the importance of ensuring that the education system produces graduates able to tackle the challenges of the technology-driven labor market. In addition, the authorities stressed the need for Uruguay to expand access to global markets by way of mutually beneficial trade agreements.

^{Box 5.}

Real Exchange Rate and Sectoral Competitiveness¹

Maintaining sectoral competitiveness is important for supporting growth in the medium-term. In recent years, the share of exports in GDP remained broadly the same, and the country was able to export to new markets. At the same time, the real effective exchange rate has appreciated, and the composition of exports shifted towards primary sectors at the expense of manufacturing products. To better understand the sectoral trends and analyze the impact of the real exchange rate changes on sectoral exports, the detailed product data from the United Nations Commodity Trade Statistics Database (Comtrade) are used.

Across the product space, Uruguay both gained and lost global market shares. Aggregating the products by sectoral groups shows that while the market share of agricultural raw materials and food products has increased, textiles posted declines. Looking at the individual products that posted the largest market share gains and losses, while Uruguay has gained global market share in some primary sectors (such as soybeans), it has lost its share in sectors such as textile and leather products.

Uruguay’s manufacturing exports are sensitive to the changes in REER, while exports of commodities and primary activities are not.² Additionally, textiles are not found to respond to changes in REER, suggesting that other factors might have been behind the significant loss of market share for that product group. The results are confirmed for four different measures of REER and for two different sectoral aggregations. These results suggest that, keeping other factors constant, a sustained real effective appreciation could reduce manufacturing exports more than exports by other sectors.

¹ Based on Gershenson, D., Goncalves, C., and L. Herrera Prada, “Real Exchange Rate and Sectoral Competitiveness in Uruguay,” Selected Issues Paper, forthcoming.² To estimate relevant elasticities, we model the change in global market shares (a proxy for competitiveness) as a function of the change in REER.

Staff Appraisal

33. Uruguay weathered the turbulence of 2018 well. Over the previous decade and a half, prudent macroeconomic policies combined with diversification of export markets, significant progress in improving banking sector stability, and astute management of assets and liabilities of the public sector allowed the country to reduce vulnerabilities and accumulate sizeable buffers. As a result, Uruguay emerged from the regional market turmoil relatively unscathed, with positive GDP growth and stable borrowing costs. Staff assesses that the external position is broadly consistent with fundamentals and desirable policy settings.

34. Maintaining Uruguay’s differentiated status in the region will be key. While the postponement of the fiscal deficit target of 2.5 percent of GDP from 2019 to 2020 is appropriate in the face of the worsening outlook, the new target lies beyond the mandate of the current government and is not accompanied by adequate fiscal measures to achieve it, particularly given the optimistic growth assumptions based on the economic outlook in mid-2018.⁷ Introducing additional measures of at least 0.3 percent of GDP in 2019 would be an important step in reinforcing Uruguay’s commitment to fiscal sustainability. Over a longer horizon, developing a medium-term fiscal framework that focuses on the nonfinancial public sector and is supported by a binding fiscal rule will be a vital part of that effort. In this context, the new government (following the 2019 elections) will have the challenging task of reducing the elevated level of current expenditure while further improving its efficiency, continuing with the fiscal adjustment to put debt on firm downward path, and ensuring viability of the country’s well-developed pension system.

35. Keeping inflation close to the center of the target range is important to create buffers against temporary shocks and to anchor inflation expectations. In Uruguay, a high degree of dollarization, limited banking intermediation, and the remaining wage indexation render the monetary policy transmission mechanism weak. Still, monetary policy should ensure that inflation expectations (presently at around 7.5 percent) and inflation are at the center of the central bank’s 3-to-7-percent target range. In a longer-term perspective, a better anchoring of inflation expectations will help create monetary policy space to implement counter-cyclical policies more effectively. In this context, the central bank can further strengthen the monetary policy framework with a view of enhancing its commitment to keeping inflation within the range. The authorities deserve full credit for their effort to expand the reach of the financial system while ensuring that it remains resilient in the face of regional shocks.

36. Uruguay is well positioned to leverage its institutional strength to enhance inclusive growth and competitiveness. To ensure continued income convergence to advanced country levels, reforms are needed to increase investment, employment and labor force participation, and improve overall business environment and educational outcomes. Even though Uruguay’s overall external position is assessed to be broadly consistent with fundamentals, further efforts are needed—in the context of moving the country to a higher growth trajectory—to maintain competitiveness and market access, particularly in the presence of sustained real appreciation.

37. Staff proposes that the next Article IV consultation with Uruguay take place on the standard 12-month cycle.

Table 1.

Uruguay: Selected Financial Soundness Indicators

Sources: Banco Central del Uruguay, IMF Global Financial Stability Report, and Fund staff calculations.

^{^1/}Latest available data November, unless otherwise specified.

^{^2/}For 2018 data as of Feburary.

^{^3/}For 2018 data as of the third quarter.

^{^4/}Foreign currency bank credit to borrowers without natural hedges as a share of total bank loans to the private sector. For 2018, data as of the second quarter.

^{^5/}Liquid assets with maturity up to 30 days in percent of total liabilities.

Table 1.

Uruguay: Selected Financial Soundness Indicators

			2011	2012	2013	2014	2015	2016	2017	2018 ^1/
Currency composition
	Dollar loans in percent of total loans		58.5	57.9	59.6	59.0	60.5	57.1	54.7	53.6
		Loan dollarization (constant exchange rate, January 2013) ^2/	52.9	52.3	51.4	49.6	44.9	43.3	40.9	40.6
	Dollar deposits in percent of total deposits		71.9	71.9	73.5	76.8	80.0	76.4	72.6	74.5
		Deposit dollarization (constant exchange rate, January 2013) ^2/	67.2	67.4	67.2	68.4	68.6	66.7	62.9	53.2
Credit cycle
	Private sector credit in percent of GDP ^3/		19.8	21.6	22.6	24.7	26.9	27.7	25.3	26.0
	Private sector average credit growth in percent		24.0	16.3	17.3	8.8	1.5	1.9	2.7	0.6
Bank soundness
	Regulatory capital in percent of risk-weighted assets		13.7	12.8	11.7	11.8	11.3	12.5	13.2	14.9
	Asset quality
		Non-performing loans in percent of total loans	1.3	1.5	1.3	1.5	2.1	3.6	4.0	4.0
		Specific loan-loss provisions in percent of non-performing loans	71.1	69.0	56.2	65.2	63.1	56.6	59.4	54.1
		Implicit exchange rate risk ^4/	29.0	33.0	33.1	31.7	30.0	29.5	27.2	27.4
	Profitability
		Return on assets	0.8	1.0	1.6	0.9	1.0	0.2	1.0	2.0
		Return on equity	7.9	12.6	19.7	11.4	11.8	2.6	11.9	19.7
		Operating costs in percent of gross income	83.4	81.0	83.1	86.0	86.0	80.5	68.3	79.7
	Liquidity
		Liquidity ratio ^5/	47.8	52.6	52.6	54.8	56.0	53.0	50.4	75.0
		Non-resident deposits in percent of total deposits	14.6	15.2	15.0	14.7	15.8	12.0	9.7	9.7
		Deposits/Loans ratio in national currency ^2/	1.0	1.1	1.0	0.9	0.8	0.8	0.9	0.9
		Deposits/Loans ratio in foreign currency ^2/	2.2	2.3	2.0	2.0	2.0	2.4	2.4	2.5

Sources: Banco Central del Uruguay, IMF Global Financial Stability Report, and Fund staff calculations.

^{^1/}Latest available data November, unless otherwise specified.

^{^2/}For 2018 data as of Feburary.

^{^3/}For 2018 data as of the third quarter.

^{^4/}Foreign currency bank credit to borrowers without natural hedges as a share of total bank loans to the private sector. For 2018, data as of the second quarter.

^{^5/}Liquid assets with maturity up to 30 days in percent of total liabilities.

Table 1.

Uruguay: Selected Financial Soundness Indicators

			2011	2012	2013	2014	2015	2016	2017	2018 ^1/
Currency composition
	Dollar loans in percent of total loans		58.5	57.9	59.6	59.0	60.5	57.1	54.7	53.6
		Loan dollarization (constant exchange rate, January 2013) ^2/	52.9	52.3	51.4	49.6	44.9	43.3	40.9	40.6
	Dollar deposits in percent of total deposits		71.9	71.9	73.5	76.8	80.0	76.4	72.6	74.5
		Deposit dollarization (constant exchange rate, January 2013) ^2/	67.2	67.4	67.2	68.4	68.6	66.7	62.9	53.2
Credit cycle
	Private sector credit in percent of GDP ^3/		19.8	21.6	22.6	24.7	26.9	27.7	25.3	26.0
	Private sector average credit growth in percent		24.0	16.3	17.3	8.8	1.5	1.9	2.7	0.6
Bank soundness
	Regulatory capital in percent of risk-weighted assets		13.7	12.8	11.7	11.8	11.3	12.5	13.2	14.9
	Asset quality
		Non-performing loans in percent of total loans	1.3	1.5	1.3	1.5	2.1	3.6	4.0	4.0
		Specific loan-loss provisions in percent of non-performing loans	71.1	69.0	56.2	65.2	63.1	56.6	59.4	54.1
		Implicit exchange rate risk ^4/	29.0	33.0	33.1	31.7	30.0	29.5	27.2	27.4
	Profitability
		Return on assets	0.8	1.0	1.6	0.9	1.0	0.2	1.0	2.0
		Return on equity	7.9	12.6	19.7	11.4	11.8	2.6	11.9	19.7
		Operating costs in percent of gross income	83.4	81.0	83.1	86.0	86.0	80.5	68.3	79.7
	Liquidity
		Liquidity ratio ^5/	47.8	52.6	52.6	54.8	56.0	53.0	50.4	75.0
		Non-resident deposits in percent of total deposits	14.6	15.2	15.0	14.7	15.8	12.0	9.7	9.7
		Deposits/Loans ratio in national currency ^2/	1.0	1.1	1.0	0.9	0.8	0.8	0.9	0.9
		Deposits/Loans ratio in foreign currency ^2/	2.2	2.3	2.0	2.0	2.0	2.4	2.4	2.5

Sources: Banco Central del Uruguay, IMF Global Financial Stability Report, and Fund staff calculations.

^{^1/}Latest available data November, unless otherwise specified.

^{^2/}For 2018 data as of Feburary.

^{^3/}For 2018 data as of the third quarter.

^{^4/}Foreign currency bank credit to borrowers without natural hedges as a share of total bank loans to the private sector. For 2018, data as of the second quarter.

^{^5/}Liquid assets with maturity up to 30 days in percent of total liabilities.

Table 2.

Uruguay: Selected Economic Indicators

Sources: Banco Central del Uruguay, Ministerio de Economia y Finanzas, Instituto Nacional de Estadistica, and Fund staff calculations.

^{^1/}Percent change of end-of-year data on one year ago.

^{^2/}Includes bank and non-bank credit.

^{^3/}Non-financial public sector excluding local governments.

^{^4/}Total public sector. Includes the non-financial public sector, local governments, Banco Central del Uruguay, and Banco de Seguros del Estado.

^{^5/}Total public sector. Includes the non-financial public sector, local governments, Banco Central del Uruguay, and Banco de Seguros del Estado. Excludes cincuentones and transfers from the Energy Stabilization Fund.

^{^6/}Gross debt of the public sector minus liquid financial assets of the public sector. Liquid financial assets are calculated by deducting from total public sector assets the part of central bank reserves held as a counterpart to required reserves on foreign currency deposits.

Table 2.

Uruguay: Selected Economic Indicators

								Projections
			2013	2014	2015	2016	2017	2018	2019	2020	2021	2022	2023
Output, prices, and employment
Real GDP (percent change)			4.6	3.2	0.4	1.7	2.7	2.1	1.9	3.0	3.0	3.0	3.0
GDP (US$ billions)			57.5	57.2	53.3	52.7	59.2	60.2	60.1	63.4	66.9	70.5	74.5
Unemployment (in percent, eop)			6.5	6.6	7.5	7.9	7.9	8.3	8.7	8.4	7.8	7.6	7.4
Output gap (percent of potential output)			3.3	2.7	0.2	-0.9	-0.8	-0.9	-1.5	-1.2	-0.8	-0.4	-0.1
CPI inflation (in percent, average)			8.6	8.9	8.7	9.6	6.2	7.6	7.5	7.2	7.2	7.0	7.0
CPI inflation (in percent, end of period))			8.5	8.3	9.4	8.1	6.6	7.8	7.5	7.0	7.0	7.0	7.0
Exchange rate (UY$/US$, average)			20.5	23.2	27.3	30.2	28.7	30.7	…	…	…	…	…
Real effective exchange rate (percent change, eop)			7.7	-2.9	1.0	-5.8	5.7	…	…	…	…	…	…
			(Percent change, unless otherwise specified)
Monetary and banking indicators ^1/
Base money			12.9	1.4	7.2	9.7	3.6	…	…	…	…	…	…
Broader M1 (M1 plus savings deposits)			15.0	3.7	5.6	8.4	15.2	…	…	…	…	…	…
M2			13.7	6.4	9.0	14.4	13.4	…	…	…	…	…	…
Growth of credit to households (in real UY$)			9.9	4.7	6.3	-0.5	2.5	…	…	…	…	…	…
Growth of credit to firms (in US$)			16.2	6.8	2.8	1.5	-4.2	…	…	…	…	…	…
Bank assets (in percent of GDP)			60.8	63.6	72.5	65.5	61.6	…	…	…	…	…	…
Private credit (in percent of GDP) ^2/			26.0	27.1	30.2	28.1	26.3	…	…	…	…	…	…
			(Percent of GDP, unless otherwise specified)
Public sector indicators
Revenue ^3/			29.5	29.1	29.0	29.3	29.9	31.2	31.0	30.7	30.0	29.9	29.7
	of which: cincuentones transactions		0.0	0.0	0.0	0.0	0.0	1.2	1.1	1.0	0.4	0.2	0.0
Non-interest expenditure ^3/			29.1	29.5	28.8	29.9	30.0	30.1	29.9	29.7	29.7	29.7	29.7
	Wage bill		4.9	5.0	5.0	5.1	5.2	5.2	5.1	5.1	5.1	5.1	5.1
Primary balance ^4/			0.4	-0.6	0.0	-0.5	-0.2	1.2	1.1	0.9	0.2	0.1	-0.1
	Primary balance excluding cincuentones transactions		0.4	-0.6	0.0	-0.5	-0.2	0.0	0.0	-0.1	-0.2	-0.1	-0.1
Structural primary balance ^5/			-0.9	-1.4	-0.6	-0.7	-0.6	-0.1	0.4	0.2	0.0	0.2	-0.1
Interest ^4/			2.7	2.8	3.6	3.3	3.3	3.7	3.5	3.2	3.1	3.2	3.2
Overall balance ^4/			-2.3	-3.5	-3.6	-3.8	-3.5	-2.5	-2.4	-2.3	-2.9	-3.1	-3.3
		Overall balance excluding cincuentones transactions	-2.3	-3.5	-3.6	-3.8	-3.5	-3.7	-3.5	-3.3	-3.3	-3.3	-3.3
Gross non-financial public sector debt			43.3	44.8	52.6	51.2	51.8	54.2	54.2	53.3	53.1	53.1	53.0
Gross public sector debt			60.2	61.4	64.6	61.6	65.8	69.6	70.6	70.0	70.2	70.4	70.4
Public sector debt net of liquid financial assets ^6/			34.4	35.9	39.7	42.5	43.4	47.7	48.9	48.4	48.4	48.6	48.7
Public sector debt net of total assets			24.2	22.9	25.8	29.9	32.4	35.9	37.3	37.4	37.7	38.1	38.4
External indicators
Merchandise exports, fob (US$ millions)			13,277	13,769	11,145	10,380	10,779	11,556	12,000	12,723	13,517	14,350	15,298
Merchandise imports, fob (US$ millions)			12,199	11,783	9,838	8,463	8,671	9,108	9,120	9,919	10,875	11,768	12,750
Terms of trade (percent change)			0.2	2.6	1.8	2.3	-1.1	-2.7	1.1	1.0	0.8	1.0	0.7
Current account balance			-3.6	-3.2	-0.9	0.6	0.7	-0.6	-0.6	-1.0	-1.3	-1.6	-1.8
Foreign direct investment			-4.8	-4.4	-1.6	2.1	3.7	0.3	-0.5	-0.6	-0.8	-1.0	-1.2
Total external debt + non-resident deposits			69.0	74.9	89.5	74.4	68.1	67.8	70.2	70.7	71.2	71.5	72.3
	Of which: External public debt		31.9	33.7	37.1	31.6	30.4	32.3	32.4	32.8	33.4	33.8	34.6
External debt service (in percent of exports of g&s)			16.6	16.8	30.2	25.7	24.4	20.5	21.7	22.6	22.7	22.7	22.8
Gross official reserves (US$ millions)			16,279	17,574	15,637	13,473	15,939	15,551	15,891	16,521	17,455	18,405	19,355
	In months of imports of goods and services		11	13	13	14	16	15	15	14	14	14	13
	In percent of:
	Short-term external (STE) debt		181.8	187.2	173.2	194.6	245.6	234.5	240.2	237.5	238.8	239.8	239.7
	STE debt plus banks’ non-resident deposits		277.9	227.6	220.4	216.6	320.8	294.5	295.2	288.4	289.3	287.7	283.0

Sources: Banco Central del Uruguay, Ministerio de Economia y Finanzas, Instituto Nacional de Estadistica, and Fund staff calculations.

^{^1/}Percent change of end-of-year data on one year ago.

^{^2/}Includes bank and non-bank credit.

^{^3/}Non-financial public sector excluding local governments.

^{^4/}Total public sector. Includes the non-financial public sector, local governments, Banco Central del Uruguay, and Banco de Seguros del Estado.

Table 2.

Uruguay: Selected Economic Indicators

								Projections
			2013	2014	2015	2016	2017	2018	2019	2020	2021	2022	2023
Output, prices, and employment
Real GDP (percent change)			4.6	3.2	0.4	1.7	2.7	2.1	1.9	3.0	3.0	3.0	3.0
GDP (US$ billions)			57.5	57.2	53.3	52.7	59.2	60.2	60.1	63.4	66.9	70.5	74.5
Unemployment (in percent, eop)			6.5	6.6	7.5	7.9	7.9	8.3	8.7	8.4	7.8	7.6	7.4
Output gap (percent of potential output)			3.3	2.7	0.2	-0.9	-0.8	-0.9	-1.5	-1.2	-0.8	-0.4	-0.1
CPI inflation (in percent, average)			8.6	8.9	8.7	9.6	6.2	7.6	7.5	7.2	7.2	7.0	7.0
CPI inflation (in percent, end of period))			8.5	8.3	9.4	8.1	6.6	7.8	7.5	7.0	7.0	7.0	7.0
Exchange rate (UY$/US$, average)			20.5	23.2	27.3	30.2	28.7	30.7	…	…	…	…	…
Real effective exchange rate (percent change, eop)			7.7	-2.9	1.0	-5.8	5.7	…	…	…	…	…	…
			(Percent change, unless otherwise specified)
Monetary and banking indicators ^1/
Base money			12.9	1.4	7.2	9.7	3.6	…	…	…	…	…	…
Broader M1 (M1 plus savings deposits)			15.0	3.7	5.6	8.4	15.2	…	…	…	…	…	…
M2			13.7	6.4	9.0	14.4	13.4	…	…	…	…	…	…
Growth of credit to households (in real UY$)			9.9	4.7	6.3	-0.5	2.5	…	…	…	…	…	…
Growth of credit to firms (in US$)			16.2	6.8	2.8	1.5	-4.2	…	…	…	…	…	…
Bank assets (in percent of GDP)			60.8	63.6	72.5	65.5	61.6	…	…	…	…	…	…
Private credit (in percent of GDP) ^2/			26.0	27.1	30.2	28.1	26.3	…	…	…	…	…	…
			(Percent of GDP, unless otherwise specified)
Public sector indicators
Revenue ^3/			29.5	29.1	29.0	29.3	29.9	31.2	31.0	30.7	30.0	29.9	29.7
	of which: cincuentones transactions		0.0	0.0	0.0	0.0	0.0	1.2	1.1	1.0	0.4	0.2	0.0
Non-interest expenditure ^3/			29.1	29.5	28.8	29.9	30.0	30.1	29.9	29.7	29.7	29.7	29.7
	Wage bill		4.9	5.0	5.0	5.1	5.2	5.2	5.1	5.1	5.1	5.1	5.1
Primary balance ^4/			0.4	-0.6	0.0	-0.5	-0.2	1.2	1.1	0.9	0.2	0.1	-0.1
	Primary balance excluding cincuentones transactions		0.4	-0.6	0.0	-0.5	-0.2	0.0	0.0	-0.1	-0.2	-0.1	-0.1
Structural primary balance ^5/			-0.9	-1.4	-0.6	-0.7	-0.6	-0.1	0.4	0.2	0.0	0.2	-0.1
Interest ^4/			2.7	2.8	3.6	3.3	3.3	3.7	3.5	3.2	3.1	3.2	3.2
Overall balance ^4/			-2.3	-3.5	-3.6	-3.8	-3.5	-2.5	-2.4	-2.3	-2.9	-3.1	-3.3
		Overall balance excluding cincuentones transactions	-2.3	-3.5	-3.6	-3.8	-3.5	-3.7	-3.5	-3.3	-3.3	-3.3	-3.3
Gross non-financial public sector debt			43.3	44.8	52.6	51.2	51.8	54.2	54.2	53.3	53.1	53.1	53.0
Gross public sector debt			60.2	61.4	64.6	61.6	65.8	69.6	70.6	70.0	70.2	70.4	70.4
Public sector debt net of liquid financial assets ^6/			34.4	35.9	39.7	42.5	43.4	47.7	48.9	48.4	48.4	48.6	48.7
Public sector debt net of total assets			24.2	22.9	25.8	29.9	32.4	35.9	37.3	37.4	37.7	38.1	38.4
External indicators
Merchandise exports, fob (US$ millions)			13,277	13,769	11,145	10,380	10,779	11,556	12,000	12,723	13,517	14,350	15,298
Merchandise imports, fob (US$ millions)			12,199	11,783	9,838	8,463	8,671	9,108	9,120	9,919	10,875	11,768	12,750
Terms of trade (percent change)			0.2	2.6	1.8	2.3	-1.1	-2.7	1.1	1.0	0.8	1.0	0.7
Current account balance			-3.6	-3.2	-0.9	0.6	0.7	-0.6	-0.6	-1.0	-1.3	-1.6	-1.8
Foreign direct investment			-4.8	-4.4	-1.6	2.1	3.7	0.3	-0.5	-0.6	-0.8	-1.0	-1.2
Total external debt + non-resident deposits			69.0	74.9	89.5	74.4	68.1	67.8	70.2	70.7	71.2	71.5	72.3
	Of which: External public debt		31.9	33.7	37.1	31.6	30.4	32.3	32.4	32.8	33.4	33.8	34.6
External debt service (in percent of exports of g&s)			16.6	16.8	30.2	25.7	24.4	20.5	21.7	22.6	22.7	22.7	22.8
Gross official reserves (US$ millions)			16,279	17,574	15,637	13,473	15,939	15,551	15,891	16,521	17,455	18,405	19,355
	In months of imports of goods and services		11	13	13	14	16	15	15	14	14	14	13
	In percent of:
	Short-term external (STE) debt		181.8	187.2	173.2	194.6	245.6	234.5	240.2	237.5	238.8	239.8	239.7
	STE debt plus banks’ non-resident deposits		277.9	227.6	220.4	216.6	320.8	294.5	295.2	288.4	289.3	287.7	283.0

Sources: Banco Central del Uruguay, Ministerio de Economia y Finanzas, Instituto Nacional de Estadistica, and Fund staff calculations.

^{^1/}Percent change of end-of-year data on one year ago.

^{^2/}Includes bank and non-bank credit.

^{^3/}Non-financial public sector excluding local governments.

^{^4/}Total public sector. Includes the non-financial public sector, local governments, Banco Central del Uruguay, and Banco de Seguros del Estado.

Table 3.

Uruguay: Balance of Payments and External Sector Indicators

Sources: Banco Central del Uruguay and Fund staff calculations and projections.

Table 3.

Uruguay: Balance of Payments and External Sector Indicators

									Projections
				2013	2014	2015	2016	2017	2018	2019	2020	2021	2022	2023
				(In millions of U.S. dollars, unless otherwise indicated)
Balance of Payments
Current account				-2,089	-1,815	-488	324	423	-389	-359	-633	-838	-1,126	-1,308
	Trade balance			1,077	1,986	1,306	1,916	2,108	2,448	2,880	2,804	2,642	2,582	2,548
		Exports of goods		13,277	13,769	11,145	10,380	10,779	11,556	12,000	12,723	13,517	14,350	15,298
		Imports of goods		12,199	11,783	9,838	8,463	8,671	9,108	9,120	9,919	10,875	11,768	12,750
			Of which: Fuel products	2,055	1,722	1,031	736	1,036	1,460	1,349	1,438	1,531	1,639	1,758
			Of which: Non-fuel products	10,145	10,061	8,808	7,727	7,635	7,648	7,771	8,481	9,344	10,129	10,992
	Services balance			-266	-367	412	819	1,483	1,133	641	648	820	832	933
		Exports, f.o.b.		4,823	4,617	4,486	4,156	5,080	4,879	4,218	4,511	4,827	5,073	5,428
		Imports, f.o.b.		5,089	4,983	4,073	3,337	3,596	3,745	3,577	3,864	4,007	4,241	4,496
	Income balance			-2,899	-3,431	-2,209	-2,412	-3,167	-3,970	-3,879	-4,085	-4,300	-4,540	-4,788
Financial and capital account balance				-987	-1,567	-576	-230	1,697	-379	-348	-622	-827	-1,114	-1,296
	Foreign direct investment			-2,790	-2,512	-827	1,116	2,205	200	-300	-405	-527	-684	-890
	Portfolio investment			-1,766	-347	987	2,036	-1,896	0	180	180	180	180	180
	Financial derivatives and other investments (net)			383	-95	767	-1,210	-1,067	-484	-573	-1,032	-1,421	-1,566	-1,542
Change in reserve assets				2,981	1,372	-1,677	-2,189	2,449	-100	340	630	935	950	950
Net errors and omissions				692	219	-438	-588	1,263	-274	0	0	0	0	0
Reserve Adequacy and External Indicators
Gross official reserves (stock)				16,279	17,574	15,637	13,473	15,939	15,839	16,179	16,809	17,743	18,693	19,643
	In months of imports of goods and services			11.3	12.6	13.5	13.7	15.6	14.8	15.3	14.6	14.3	14.0	13.7
	In percent of short-term debt			181.8	187.2	173.2	194.6	245.6	238.8	244.6	241.6	242.7	243.5	243.3
				(As percent of GDP)
Balance of Payments
Current account				-3.6	-3.2	-0.9	0.6	0.7	-0.6	-0.6	-1.0	-1.3	-1.6	-1.8
Trade balance				1.9	3.5	2.5	3.6	3.6	4.1	4.8	4.4	4.0	3.7	3.4
	Exports of goods			23.1	24.1	20.9	19.7	18.2	19.2	20.0	20.1	20.2	20.4	20.5
	Imports of goods			-21.2	-20.6	-18.5	-16.1	-14.7	-15.1	-15.2	-15.7	-16.3	-16.7	-17.1
		Of which: Fuel products		3.6	3.0	1.9	1.4	1.8	2.4	2.2	2.3	2.3	2.3	2.4
		Of which: Non-fuel products		17.6	17.6	16.5	14.7	12.9	12.7	12.9	13.4	14.0	14.4	14.8
Services balance				-0.5	-0.6	0.8	1.6	2.5	1.9	1.1	1.0	1.2	1.2	1.3
	Exports			8.4	8.1	8.4	7.9	8.6	8.1	7.0	7.1	7.2	7.2	7.3
	Imports			8.8	8.7	7.6	6.3	6.1	6.2	5.9	6.1	6.0	6.0	6.0
Income balance				-5.0	-6.0	-4.1	-4.6	-5.4	-6.6	-6.5	-6.4	-6.4	-6.4	-6.4
Financial and capital account balance				-1.7	-2.7	-1.1	-0.4	2.9	-0.6	-0.6	-1.0	-1.2	-1.6	-1.7
	Foreign direct investment			-4.8	-4.4	-1.6	2.1	3.7	0.3	-0.5	-0.6	-0.8	-1.0	-1.2
	Portfolio investment			-3.1	-0.6	1.9	3.9	-3.2	0.0	0.3	0.3	0.3	0.3	0.2
	Financial derivatives and other investments (net)			0.7	-0.2	1.4	-2.3	-1.8	-0.8	-1.0	-1.6	-2.1	-2.2	-2.1
Reserve assets				5.2	2.4	-3.1	-4.2	4.1	-0.2	0.6	1.0	1.4	1.3	1.3
Total external debt				66.2	72.0	82.1	75.9	69.6	67.9	70.2	70.7	71.3	71.5	72.2
	Of which: Short-term debt (residual maturity)			15.6	16.4	16.9	13.1	11.0	11.0	11.0	11.0	10.9	10.9	10.8
	Of which: External public debt			31.9	33.7	37.1	31.6	30.4	32.4	32.4	32.8	33.5	33.8	34.6
				(As percent of annual exports of goods and services)
External Debt
Total external debt (including non-resident deposits)				210.5	224.0	279.8	275.0	259.5	248.5	260.3	259.9	259.9	259.6	259.6
Debt service				16.6	16.8	30.2	25.7	24.4	20.6	21.7	22.6	22.7	22.7	22.7
	Of which: Interest payments			5.9	6.2	7.8	8.2	7.6	7.3	7.3	7.2	7.1	7.1	7.1
				(Annual percent changes)
External Trade
Exports of goods in US$				1.7	3.7	-19.1	-6.9	3.8	7.2	3.8	6.0	6.2	6.2	6.6
Imports of goods in US$				-4.3	-3.4	-16.5	-14.0	2.5	5.0	0.1	8.8	9.6	8.2	8.3
Export prices in US$				-2.0	0.6	-9.4	-4.2	3.4	3.2	1.6	0.8	1.3	0.8	0.7
Import prices in US$				-2.1	-2.0	-11.1	-6.4	4.6	6.1	0.6	-0.1	0.5	-0.1	0.0
Terms of trade for goods				0.2	2.6	1.8	2.3	-1.1	-2.7	1.1	1.0	0.8	1.0	0.7
Export volume (goods and non-factor services)				4.4	4.2	-10.6	-3.5	0.2	4.9	3.6	3.5	5.4	5.6	6.0
Import volume (goods and non-factor services)				-1.7	-0.5	-6.0	-8.7	-2.5	-0.7	1.9	8.5	9.6	8.4	8.5
Export volume (goods)				4.4	4.2	-10.6	-3.5	0.2	4.9	3.6	3.5	5.4	5.6	6.0
Import volume (goods)				-1.7	-0.5	-6.0	-8.7	-2.5	-0.7	1.9	8.5	9.6	8.4	8.5
	Of which: Non-fuel products			15.2	2.8	-7.2	-8.2	3.2	-3.0	-5.9	8.8	10.1	8.6	8.7
	Of which: Fuel products			-27.3	-9.4	13.4	-15.3	14.2	8.5	7.5	7.0	7.2	7.2	6.8

Sources: Banco Central del Uruguay and Fund staff calculations and projections.

Table 3.

Uruguay: Balance of Payments and External Sector Indicators

									Projections
				2013	2014	2015	2016	2017	2018	2019	2020	2021	2022	2023
				(In millions of U.S. dollars, unless otherwise indicated)
Balance of Payments
Current account				-2,089	-1,815	-488	324	423	-389	-359	-633	-838	-1,126	-1,308
	Trade balance			1,077	1,986	1,306	1,916	2,108	2,448	2,880	2,804	2,642	2,582	2,548
		Exports of goods		13,277	13,769	11,145	10,380	10,779	11,556	12,000	12,723	13,517	14,350	15,298
		Imports of goods		12,199	11,783	9,838	8,463	8,671	9,108	9,120	9,919	10,875	11,768	12,750
			Of which: Fuel products	2,055	1,722	1,031	736	1,036	1,460	1,349	1,438	1,531	1,639	1,758
			Of which: Non-fuel products	10,145	10,061	8,808	7,727	7,635	7,648	7,771	8,481	9,344	10,129	10,992
	Services balance			-266	-367	412	819	1,483	1,133	641	648	820	832	933
		Exports, f.o.b.		4,823	4,617	4,486	4,156	5,080	4,879	4,218	4,511	4,827	5,073	5,428
		Imports, f.o.b.		5,089	4,983	4,073	3,337	3,596	3,745	3,577	3,864	4,007	4,241	4,496
	Income balance			-2,899	-3,431	-2,209	-2,412	-3,167	-3,970	-3,879	-4,085	-4,300	-4,540	-4,788
Financial and capital account balance				-987	-1,567	-576	-230	1,697	-379	-348	-622	-827	-1,114	-1,296
	Foreign direct investment			-2,790	-2,512	-827	1,116	2,205	200	-300	-405	-527	-684	-890
	Portfolio investment			-1,766	-347	987	2,036	-1,896	0	180	180	180	180	180
	Financial derivatives and other investments (net)			383	-95	767	-1,210	-1,067	-484	-573	-1,032	-1,421	-1,566	-1,542
Change in reserve assets				2,981	1,372	-1,677	-2,189	2,449	-100	340	630	935	950	950
Net errors and omissions				692	219	-438	-588	1,263	-274	0	0	0	0	0
Reserve Adequacy and External Indicators
Gross official reserves (stock)				16,279	17,574	15,637	13,473	15,939	15,839	16,179	16,809	17,743	18,693	19,643
	In months of imports of goods and services			11.3	12.6	13.5	13.7	15.6	14.8	15.3	14.6	14.3	14.0	13.7
	In percent of short-term debt			181.8	187.2	173.2	194.6	245.6	238.8	244.6	241.6	242.7	243.5	243.3
				(As percent of GDP)
Balance of Payments
Current account				-3.6	-3.2	-0.9	0.6	0.7	-0.6	-0.6	-1.0	-1.3	-1.6	-1.8
Trade balance				1.9	3.5	2.5	3.6	3.6	4.1	4.8	4.4	4.0	3.7	3.4
	Exports of goods			23.1	24.1	20.9	19.7	18.2	19.2	20.0	20.1	20.2	20.4	20.5
	Imports of goods			-21.2	-20.6	-18.5	-16.1	-14.7	-15.1	-15.2	-15.7	-16.3	-16.7	-17.1
		Of which: Fuel products		3.6	3.0	1.9	1.4	1.8	2.4	2.2	2.3	2.3	2.3	2.4
		Of which: Non-fuel products		17.6	17.6	16.5	14.7	12.9	12.7	12.9	13.4	14.0	14.4	14.8
Services balance				-0.5	-0.6	0.8	1.6	2.5	1.9	1.1	1.0	1.2	1.2	1.3
	Exports			8.4	8.1	8.4	7.9	8.6	8.1	7.0	7.1	7.2	7.2	7.3
	Imports			8.8	8.7	7.6	6.3	6.1	6.2	5.9	6.1	6.0	6.0	6.0
Income balance				-5.0	-6.0	-4.1	-4.6	-5.4	-6.6	-6.5	-6.4	-6.4	-6.4	-6.4
Financial and capital account balance				-1.7	-2.7	-1.1	-0.4	2.9	-0.6	-0.6	-1.0	-1.2	-1.6	-1.7
	Foreign direct investment			-4.8	-4.4	-1.6	2.1	3.7	0.3	-0.5	-0.6	-0.8	-1.0	-1.2
	Portfolio investment			-3.1	-0.6	1.9	3.9	-3.2	0.0	0.3	0.3	0.3	0.3	0.2
	Financial derivatives and other investments (net)			0.7	-0.2	1.4	-2.3	-1.8	-0.8	-1.0	-1.6	-2.1	-2.2	-2.1
Reserve assets				5.2	2.4	-3.1	-4.2	4.1	-0.2	0.6	1.0	1.4	1.3	1.3
Total external debt				66.2	72.0	82.1	75.9	69.6	67.9	70.2	70.7	71.3	71.5	72.2
	Of which: Short-term debt (residual maturity)			15.6	16.4	16.9	13.1	11.0	11.0	11.0	11.0	10.9	10.9	10.8
	Of which: External public debt			31.9	33.7	37.1	31.6	30.4	32.4	32.4	32.8	33.5	33.8	34.6
				(As percent of annual exports of goods and services)
External Debt
Total external debt (including non-resident deposits)				210.5	224.0	279.8	275.0	259.5	248.5	260.3	259.9	259.9	259.6	259.6
Debt service				16.6	16.8	30.2	25.7	24.4	20.6	21.7	22.6	22.7	22.7	22.7
	Of which: Interest payments			5.9	6.2	7.8	8.2	7.6	7.3	7.3	7.2	7.1	7.1	7.1
				(Annual percent changes)
External Trade
Exports of goods in US$				1.7	3.7	-19.1	-6.9	3.8	7.2	3.8	6.0	6.2	6.2	6.6
Imports of goods in US$				-4.3	-3.4	-16.5	-14.0	2.5	5.0	0.1	8.8	9.6	8.2	8.3
Export prices in US$				-2.0	0.6	-9.4	-4.2	3.4	3.2	1.6	0.8	1.3	0.8	0.7
Import prices in US$				-2.1	-2.0	-11.1	-6.4	4.6	6.1	0.6	-0.1	0.5	-0.1	0.0
Terms of trade for goods				0.2	2.6	1.8	2.3	-1.1	-2.7	1.1	1.0	0.8	1.0	0.7
Export volume (goods and non-factor services)				4.4	4.2	-10.6	-3.5	0.2	4.9	3.6	3.5	5.4	5.6	6.0
Import volume (goods and non-factor services)				-1.7	-0.5	-6.0	-8.7	-2.5	-0.7	1.9	8.5	9.6	8.4	8.5
Export volume (goods)				4.4	4.2	-10.6	-3.5	0.2	4.9	3.6	3.5	5.4	5.6	6.0
Import volume (goods)				-1.7	-0.5	-6.0	-8.7	-2.5	-0.7	1.9	8.5	9.6	8.4	8.5
	Of which: Non-fuel products			15.2	2.8	-7.2	-8.2	3.2	-3.0	-5.9	8.8	10.1	8.6	8.7
	Of which: Fuel products			-27.3	-9.4	13.4	-15.3	14.2	8.5	7.5	7.0	7.2	7.2	6.8

Sources: Banco Central del Uruguay and Fund staff calculations and projections.

Table 4.

Uruguay: Main Fiscal Aggregates

Sources: Ministerio de Economia y Finanzas, Banco Central del Uruguay, and Fund staff calculations.

^{^1/}Banco de Prevision Social (BPS).

^{^2/}Non-financial public enterprises (NFPE).

^{^3/}Banco de Seguros del Estado (BSE).

^{^4/}Banco Central del Uruguay (BCU).

Table 4.

Uruguay: Main Fiscal Aggregates

										Projections
					2013	2014	2015	2016	2017	2018	2019	2020	2021	2022	2023
					(In billions of pesos, unless otherwise indicated)
I. Primary balance of the non-financial public sector (A+B+C)					5	-7.3	1.1	-7.1	-2.4	22.8	23.1	21.4	7.0	4.6	-0.8
	A. Primary balance of central government, BPS and NFPE ^1/^2/				4	-4.7	3.2	-9.0	-1.7	19.3	21.7	20.3	6.3	3.8	-1.7
		Revenues			347	387	422	465	508	576	623	681	736	809	889
			Taxes		222	244	263	299	335	365	397	440	487	538	596
			Non tax		21	22	23	24	26	32	35	39	43	47	52
			Social security		86	101	109	118	131	162	174	191	197	212	229
				of which: cincuentones transactions	0	0	0	0	0	22	22	22	10	5	0
			NFPE operating balance ^2/		18	20	27	24	16	16	16	11	9	12	12
		Primary expenditures			343	392	419	474	509	556	601	660	730	805	890
			Current		303	349	385	436	474	515	556	610	675	745	823
			Capital		40	43	34	39	35	41	45	50	55	61	67
	B. Primary balance of local governments				-0.8	-2.0	1.8	1.2	1.2	2.8	0.8	0.7	0.5	0.5	0.6
	C. Primary balance of BSE ^3/				1.8	-0.6	-4.0	0.6	-2.0	0.7	0.6	0.4	0.2	0.3	0.3
II. Primary balance of the BCU ^4/					-0.8	-1.0	-1.4	-1.5	-1.3	-1.4	-2.0	-2.2	-2.5	-2.7	-3.0
III. Primary balance of the public sector (I+II)					4.6	-8.2	-0.3	-8.6	-3.7	21.4	21.1	19.2	4.6	1.9	-3.8
IV. Interest					32	38	52	52	56	68	69	70	76	86	95
	of which: BCU ^4/				4	7	18	10	12	19	16	13	13	17	19
V. Overall balance of the public sector (III+IV)					-27.4	-46.1	-52.1	-61.1	-59.5	-46.1	-48.3	-51.1	-71.1	-83.9	-98.7
	overall balance excluding cincuentones transactions				-27.4	-46.1	-52.1	-61.1	-59.5	-68.1	-70.4	-73.4	-80.8	-89.0	-98.2
					(In percent of GDP, unless otherwise indicated)
I. Primary balance of the non-financial public sector (A+B+C)					0.5	-0.5	0.1	-0.4	-0.1	1.2	1.2	1.0	0.3	0.2	0.0
	A. Primary balance of central government, BPS and NFPE ^1/^2/				0.4	-0.3	0.2	-0.6	-0.1	1.0	1.1	0.9	0.3	0.1	-0.1
		Revenues			29.5	29.1	29.0	29.3	29.9	31.2	31.0	30.7	30.0	29.9	29.7
			Taxes		18.9	18.4	18.1	18.8	19.7	19.8	19.8	19.8	19.8	19.9	19.9
			Non tax		1.8	1.6	1.6	1.5	1.5	1.7	1.7	1.7	1.7	1.7	1.7
			Social security		7.3	7.6	7.5	7.5	7.7	8.8	8.7	8.6	8.0	7.8	7.6
				of which: cincuentones transactions	0.0	0.0	0.0	0.0	0.0	1.2	1.1	1.0	0.4	0.2	0.0
			NFPE operating balance ^2/		1.5	1.5	1.8	1.5	0.9	0.9	0.8	0.5	0.4	0.4	0.4
		Primary expenditures			29.1	29.5	28.8	29.9	30.0	30.1	29.9	29.7	29.7	29.7	29.7
			Current		25.7	26.2	26.5	27.4	27.9	27.9	27.7	27.5	27.5	27.5	27.5
			Capital		3.4	3.2	2.3	2.4	2.1	2.2	2.2	2.2	2.2	2.2	2.2
	B. Primary balance of local governments				-0.1	-0.2	0.1	0.1	0.1	0.2	0.0	0.0	0.0	0.0	0.0
	C. Primary balance of BSE ^3/				0.2	0.0	-0.3	0.0	-0.1	0.0	0.0	0.0	0.0	0.0	0.0
II. Primary balance of BCU ^4/					-0.1	-0.1	-0.1	-0.1	-0.1	-0.1	-0.1	-0.1	-0.1	-0.1	-0.1
III. Primary balance of the public sector (I+II)					0.4	-0.6	0.0	-0.5	-0.2	1.2	1.1	0.9	0.2	0.1	-0.1
IV. Interest					2.7	2.8	3.6	3.3	3.3	3.7	3.5	3.2	3.1	3.2	3.2
	Of which: BCU ^4/				0.4	0.6	1.3	0.7	0.7	1.0	0.8	0.6	0.5	0.6	0.6
V. Overall balance of the public sector (III+IV)					-2.3	-3.5	-3.6	-3.8	-3.5	-2.5	-2.4	-2.3	-2.9	-3.1	-3.3
	Overall balance excluding cincuentones transactions				-2.3	-3.5	-3.6	-3.8	-3.5	-3.7	-3.5	-3.3	-3.3	-3.3	-3.3
Memorandum Items:
	Real revenues growth (in percent)				11.3	1.9	0.1	2.7	4.8	6.4	1.4	1.8	0.8	2.6	2.3
	Real primary spending growth (in percent)				6.1	5.7	1.1	1.3	3.9	0.8	0.6	2.4	3.1	3.2	3.4
	GDP (in billions of pesos)				1,178	1,331	1,456	1,589	1,697	1,846	2,008	2,220	2,453	2,707	2,994

Sources: Ministerio de Economia y Finanzas, Banco Central del Uruguay, and Fund staff calculations.

^{^1/}Banco de Prevision Social (BPS).

^{^2/}Non-financial public enterprises (NFPE).

^{^3/}Banco de Seguros del Estado (BSE).

^{^4/}Banco Central del Uruguay (BCU).

Table 4.

Uruguay: Main Fiscal Aggregates

								Projections
			2013	2014	2015	2016	2017	2018	2019	2020	2021	2022	2023
			(In billions of pesos, unless otherwise indicated)
I. Primary balance of the non-financial public sector (A+B+C)			5	-7.3	1.1	-7.1	-2.4	22.8	23.1	21.4	7.0	4.6	-0.8
	A. Primary balance of central government, BPS and NFPE ^1/^2/		4	-4.7	3.2	-9.0	-1.7	19.3	21.7	20.3	6.3	3.8	-1.7
		Revenues	347	387	422	465	508	576	623	681	736	809	889

Abstract

Contents

Key Issues

Contents

Context: Resilience in the Face of Market Turmoil

Recent Developments

Outlook and Risks

Policy Discussions

A. Maintaining Fiscal Sustainability

B. Lowering Inflation

C. Maintaining Financial Sector Stability and Enhancing Intermediation

D. Enhancing Inclusive Growth and Competitiveness

Staff Appraisal

Topics

Countries

Series

About

Resources

Abstract

Contents

Key Issues

Contents

Context: Resilience in the Face of Market Turmoil

Recent Developments

Outlook and Risks

Policy Discussions

A. Maintaining Fiscal Sustainability

B. Lowering Inflation

C. Maintaining Financial Sector Stability and Enhancing Intermediation

D. Enhancing Inclusive Growth and Competitiveness

Staff Appraisal