Montevideo: An International Monetary Fund (IMF) mission, led
by Mr. Raphael Espinoza, visited Montevideo during September 14-24 for the 2026 Article IV consultation. At the end of the visit, the mission issued the following statement
Recent Developments
While growth in Uruguay has moderated, the economy has demonstrated its resilience, supported by strong institutions and credible policy frameworks. With a local drought affecting agricultural production since Q3:2025, growth has slowed down and averaged 1.8 percent in 2025. Much like other countries in the region, the economy is also facing external headwinds in 2026, coming from the oil and fertilizers price shocks and global uncertainty. Growth has been supported by strong private consumption, driven by real wage gains amid declining inflation and peso appreciation. The labor market is performing well, with unemployment at historically low levels and a decrease in informality. The current account deficit was small in 2025, at 0.5 percent of GDP, but the goods trade balance has deteriorated in H1:2026. International reserves are ample, at 11¼ months of imports at end-August 2026. In line with the target established in the five-year budget law, the deficit of the central government including social security (CG-BPS) was 3.7 percent of GDP in 2025 (4.1 percent of GDP excluding one-off pension revenues), up from 3.1 percent in 2024. Uruguay continues to benefit from a favorable market access, underpinned by investment-grade credit ratings and sovereign spreads that are the lowest in the region and near historical lows.
Inflation has remained within the tolerance range for virtually all of the past three years, supported by a proactive monetary policy. Inflation declined steadily throughout 2025 and fell below the 4.5 percent inflation target of the BCU, driven by the global weakness of the dollar, tight monetary policy, and the slowing economy. This led the central bank to initiate a monetary easing cycle in July 2025. Inflation was 4.6 percent in August, having converged to the target thanks to the lower policy rate as well as because of higher fuel prices, which are being aligned progressively with international prices (at limited fiscal costs). Expectations have remained well anchored around the target.
In its second year in office, the government continues to emphasize the importance of macroeconomic stability and inclusive growth. The updated 2026 budget preserves the fiscal consolidation objectives of the five-year budget, and the government is advancing reforms to boost growth, create more and better jobs, and reduce poverty.
Outlook and Risks
While growth in 2026 is projected at 1.3 percent due to the effect of last year’s drought on agricultural production, the rest of the economy is growing around potential. Growth is then projected to reach 2.4 percent in 2027 as the output gap narrows. Inflation is projected to stabilize at the 4½ percent target at end-2026 and in 2027, accompanied by a gradual increase of the policy rate to a neutral level. The current account deficit is projected at 0.9 percent of GDP in 2026, in line with fundamentals.
Macroeconomic risks are tilted to the downside. Downside risks originate from the external environment, including tighter global financial conditions and oil price shocks, although Uruguay’s high share of renewable electricity production mitigates this vulnerability. Weather-related shocks including El Niño pose risks to agriculture. Ample liquidity buffers and favorable borrowing conditions limit near-term risks. Systemic risks remain contained, owing to the low credit-to-GDP ratio, liquid and well-capitalized banks, and a limited sovereign-banking nexus. Upside risks include high agricultural revenues, new opportunities to access markets and attract investments, also thanks to the EU-Mercosur agreement, and strong effects of reforms.
Macroeconomic policies
The policy mix should focus on:
(i) preserving structural fiscal consolidation objectives;
(ii) maintaining a reactive monetary policy to continue anchoring inflation expectations; and
(iii) implementing reforms to strengthen policy transmission channels and to boost potential growth.
Fiscal Policy
The fiscal deficits in 2026 and in 2027 are expected to remain in line with the objectives of the five-year budget. With fiscal outturns through July 2026 broadly in line with plans, the deficit of the CG-BPS is projected at 4.1 percent of GDP, unchanged from the 2025 deficit when excluding one-off pension revenues. In the context of a negative output gap of 1½ percent of GDP in 2026, the authorities’ decision to maintain the objectives of the medium-term budget is commendable. The planned adjustment is expected to improve the primary balance of the CG–BPS from -1.6 percent of GDP in 2026 to -0.1 percent of GDP in 2029. It is based on measures to strengthen tax administration, the implementation of the global minimum tax, and the rationalization of tax expenditures. While these measures are supported by IFIs technical assistance, publishing detailed information on the estimation of their yields would improve further the credibility of the adjustment path.
Under the baseline, the NFPS debt-to-GDP ratio is projected to remain broadly stable in the medium term. There are risks to the adjustment, stemming from the macroeconomic and international tax environment, implementation delays, and spending pressures. Further efforts to bring the CG-BPS primary balance to ½ percent of GDP by 2029 would help bring the debt-to-GDP ratio on a steady downward path in the medium term and generate additional buffers. Options include reducing tax expenditures, moderating the wage bill, and improving public spending efficiency. Undertaking spending reviews in areas of large outlays such as health and education would help improve efficiency and strengthen the use of performance information in budget decision-making.
The recent reforms of the fiscal framework are welcome and effective operationalization of the correction mechanism will strengthen policy credibility and foster debt sustainability. The correction mechanisms of the new fiscal rule have been operationalized in a decree published in June 2026. Strong debt management, including progressive de-dollarization, is mitigating rollover, interest rate, and exchange rate risks. Uruguay is a pioneer in climate finance, which has allowed it to widen its investor basis and secure innovative multilateral institutions’ financing. The BPS’s actuarial analysis of the proposed early retirement reform indicates it would have negligible effects on sustainability, while the proposed change in the Solidarity Supplement indexation would reduce fiscal risks. The authorities have a roadmap to improve fiscal transparency, supported by IMF technical assistance.
Monetary Policy
Monetary policy has been appropriately reactive and predictable and has anchored well inflation expectations. The monetary policy stance has been suitably accommodative so far. The central bank should maintain its reactive decision-making, being ready to adjust the policy rate as it monitors factors relevant to inflation developments. The strong commitment of the BCU to the inflation target, agile central bank communication, and alignment of the budget and government wage guidelines with the target have helped anchor expectations, even after oil prices jumped at the start of the conflict in the Middle East. The exchange rate should continue to act as a shock absorber, with FX interventions limited to disorderly market conditions.
Strengthening de jure central bank independence and BCU financial autonomy would consolidate improvements in the monetary framework. To align de jure central bank independence with international best practices, BCU Board members should be appointed for fixed terms not overlapping with the electoral cycle. Reviews of the IT framework and the inflation target should be conducted on a regular, pre-announced, and well-communicated schedule. In line with international best practices, reviews should also be periodic but infrequent, analytically rigorous, and highly transparent, with changes to the framework or the target only when structural developments justify them, and with a high threshold for change.
