Economic recovery may prove vulnerable in Uruguay

Significance

President Tabare Vazquez’s government will face a congressional debate over the 2018-20 budget marked by the high fiscal deficit. Although ratings agencies are showing confidence by renewing Uruguay’s investment grade rating, this will only be maintained if an austere budget is approved -- at a time when the government has lost its lower house majority.

Impacts

• The government faces unsatisfied demands from various sectors which cannot readily be addressed without increased investment and spending.
• This in turn would undermine the fiscal position, which has been improved by an adjustment that still did not resolve underlying issues.
• Some improvement in growth will give the government a degree of breathing space.