- Uruguay Must Strengthen Fiscal Buffers as External Risks Intensify—IMF
Uruguay’s strong institutions, ample international reserves and credible economic policies are helping the country withstand drought, higher oil prices and mounting global uncertainty, but the economy’s weak long-term growth rate risks preventing it from closing the income gap with advanced countries, the International Monetary Fund has said.
An IMF mission led by Raphael Espinoza projected that Uruguay’s economy would expand by only 1.3% in 2026 as the effects of a prolonged drought weigh on agricultural production.
Growth is expected to recover to 2.4% in 2027 as agricultural output improves and the negative output gap narrows.
The Fund’s assessment, issued at the end of its 2026 Article IV consultation in Montevideo, presents Uruguay as one of Latin America’s more resilient economies. But it also identifies a persistent structural weakness: since 2016, annual economic growth has averaged only 1.2%, a rate the IMF described as insufficient to support convergence towards advanced-economy income levels.
“While growth in Uruguay has moderated, the economy has demonstrated its resilience, supported by strong institutions and credible policy frameworks,” the IMF mission said.
The statement reflects a broader tension in Uruguay’s economic outlook. The country has secured low inflation, favourable access to international capital markets and a stable banking system. Yet its ageing population, low productivity growth, education gaps and comparatively shallow domestic financial markets continue to restrain its long-term potential.
Economic growth averaged 1.8% in 2025 after a local drought began affecting agricultural production during the third quarter.
The weakness has continued into 2026, compounded by higher oil and fertiliser prices and uncertainty in the global economy.
Outside agriculture, however, the economy is expanding at around its potential rate. Private consumption has been supported by rising real wages, lower inflation and an appreciation of the Uruguayan peso.
Labour-market conditions have also remained favourable, with unemployment near historically low levels and informality declining.
Uruguay recorded a current-account deficit of 0.5% of gross domestic product in 2025, although the merchandise trade balance weakened during the first half of 2026. The IMF expects the current-account deficit to widen moderately to 0.9% of GDP this year, broadly in line with the country’s economic fundamentals.
The external position remains protected by sizeable buffers. International reserves covered approximately 11¼ months of imports at the end of August—well above the level generally regarded as adequate for managing external shocks.
Uruguay also continues to benefit from investment-grade sovereign credit ratings and borrowing costs that are among the lowest in Latin America.
The IMF said the country’s “ample liquidity buffers and favourable borrowing conditions limit near-term risks”, even as tighter global financial conditions and oil-price shocks threaten the outlook.
Inflation stood at 4.6% in August, close to the Central Bank of Uruguay’s 4.5% target.
Price growth had declined steadily through 2025, supported by tight monetary policy, a weaker US dollar and slower domestic activity. This allowed the central bank to begin reducing interest rates in July 2025.
The easing cycle, combined with adjustments to domestic fuel prices, has helped inflation return towards target without destabilising expectations.
“Monetary policy has been appropriately reactive and predictable and has anchored well inflation expectations,” the IMF said.
The Fund described the current monetary stance as suitably accommodative but urged the central bank to retain the flexibility to adjust its policy rate as risks evolve.
Inflation is expected to stabilise at 4.5% at the end of 2026 and remain around that level in 2027. The policy rate is projected to rise gradually towards a neutral level as the economy recovers.
The IMF also advised the authorities to continue allowing the exchange rate to absorb external shocks, with foreign-exchange intervention limited to periods of disorderly market conditions.
It called for stronger legal and financial independence for the central bank, recommending that board members be appointed for fixed terms that do not overlap with the political electoral cycle.
Regular reviews of the inflation-targeting framework should be announced in advance, conducted infrequently and supported by rigorous analysis, the Fund added.
Uruguay’s central government and social-security deficit reached 3.7% of GDP in 2025. Excluding one-off pension revenues, however, the deficit was 4.1%, compared with 3.1% in 2024.
The IMF expects the deficit to remain at 4.1% of GDP in 2026, consistent with the objectives contained in the government’s five-year budget.
With Uruguay operating below full economic capacity, the Fund praised the government for maintaining its medium-term fiscal targets rather than pursuing a sharper adjustment that could further weaken demand.
The planned consolidation is expected to improve the central government’s primary balance, including social security, from a deficit of 1.6% of GDP in 2026 to a deficit of 0.1% by 2029.
The strategy rests on stronger tax administration, implementation of the global minimum corporate tax and the rationalisation of tax exemptions.
The IMF nevertheless called for greater transparency around the expected revenue from these measures.
“Publishing detailed information on the estimation of their yields would improve further the credibility of the adjustment path,” the mission said.
The Fund warned that implementation delays, expenditure pressures and uncertainty surrounding the international tax environment could derail the fiscal programme.
It urged the government to consider additional measures capable of producing a primary surplus of 0.5% of GDP by 2029. These could include reducing tax expenditures, moderating the public-sector wage bill and improving spending efficiency.
Spending reviews in health and education would help ensure that substantial public expenditure produces measurable results.
Uruguay’s non-financial public-sector debt ratio is expected to remain broadly stable over the medium term. Progressive de-dollarisation and active debt management are reducing the government’s exposure to refinancing, interest-rate and exchange-rate risks.
The IMF described Uruguay’s banking system as well capitalised, highly liquid and profitable.
Bank capital ratios are almost twice the minimum regulatory requirement, while non-performing loans remain low and are supported by adequate provisions.
Credit denominated in pesos grew by about 9% in real terms in the year to August, reflecting lower interest rates and reforms intended to deepen financial intermediation.
The state-owned Banco de la República Oriental del Uruguay has also expanded financing for sustainable and green investments, which now account for about 10% of its corporate credit portfolio.
Dollarisation remains a potential source of foreign-exchange credit and liquidity risk. The IMF said these vulnerabilities were mitigated by low household indebtedness, relatively well-hedged companies and the strong foreign-currency liquidity positions of banks and the central bank.
Measures to reduce dollarisation—including lower reserve requirements on peso deposits and reduced remuneration on dollar reserves—were welcomed.
“Over time, low and stable inflation will remain the most important driver of de-dollarisation,” the Fund said.
The central message from the Article IV mission is that Uruguay has built considerable economic resilience, but stability alone will not generate the productivity improvements needed for faster growth.
Demographic pressures are expected to reduce labour-force growth, while weaknesses in secondary-school completion and mathematics performance continue to limit human-capital development.
The IMF urged the government to increase female labour-force participation, attract skilled migrants, improve recognition of foreign qualifications and strengthen training for vulnerable workers.
It also welcomed the draft Competitiveness Law, which seeks to facilitate trade, strengthen competition, reduce red tape and attract investment.
Reforms of state-owned enterprises and banks—including better alignment between wages and productivity, improved allocation of resources and cost-reflective pricing—could reduce production costs and support private investment.
The Fund also identified the EU-Mercosur agreement, stronger agricultural revenues and new investment opportunities as potential sources of upside growth.
Uruguay has earned credibility through predictable monetary policy, responsible debt management and strong institutions. Its next challenge is more difficult: converting that credibility into higher productivity, broader investment and economic growth strong enough to improve living standards over the long term.
