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LATIN AMERICA | 20-02-2019 13:20

IMF recommends additional measures to decrease Uruguay's deficit

The executive directors of the IMF praised President Tabaré Vázquez’s commitment to fiscal sustainability, but "encouraged Uruguayan authorities to introduce measures to put public debt on a downward trajectory."

The International Monetary Fund (IMF) recommended that Uruguay take additional measures to lower the country’s fiscal deficit and reign in public spending in a report released Tuesday.

The executive directors of the monetary institution praised President Tabaré Vázquez’s commitment to fiscal sustainability, but "encouraged Uruguayan authorities to introduce measures to put public debt on a downward trajectory."

The report, prepared after a mission to Uruguay in December 2018, said fiscal deficit reduction has been stagnant in the country. The Fund’s Article IV mandates the periodic review of the multilateral organisation’s members.

Recent Fund assessments say it will be "difficult" for Uruguay to meet its goal to reduce the fiscal deficit to 2.5 percent of the Gross Domestic Product (GDP) by 2020.

"The 12-month fiscal deficit stood at 3.8 percent of GDP in November 2018 (excluding the impact of a large transaction related to transfers of pension assets, known as the '50-year effect'), suggesting that the goal of 2018 (3.3 percent of GDP) and the 2020 goal (of 2.5 percent) will be difficult difficult,” the report said.

Adjustment efforts should decrease current spending and improve efficiency to increase capital spending, he said.

"Reforming the pension system and other state enterprises should be top priority," the board of directors stressed.

The IMF also highlighted Uruguay's "success" in resisting regional shocks, thanks to what it called "prudent" macroeconomic policies.

"Despite the turmoil in the regional market, the financial sector has remained resilient, reflecting limited links with Argentina and improved supervision since the 2002 crisis," the Fund said, underscoring Uruguay's "progress" in diversifying export markets.

The Fund also recognised the country’s achievements in poverty reduction, but warned that growth has slowed to 2.1 percent and there are significant risks due to the difficulties of the external environment and large planned infrastructure projects.

The Fund also warned of the impact of low investment and decline in employment. It drew attention to the country’s increased inflation, falling above the central bank’s current target range at about 8 percent.

The IMF concluded that reforms in Uruguay should focus on further increasing public investment and employment, increasing competition across business sectors, and improving the education system.

-TIMES/AFP

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