Uruguay Five-Year Budget Juggles Spending Promises, Deficit Cuts

  • Govt sees primary deficits turning to surpluses in 2018
  • Govt plans to cut fiscal deficit to 2.5 percent of GDP by '19

Uruguay’s government has submitted a five-year budget to Congress that seeks to boost spending on social programs and infrastructure, while cutting the deficit without raising taxes.

“We have a found a way to reconcile the fulfillment of these priorities with the country’s fiscal reality, which has to be taken into account with a lot of caution,” Finance Minister Danilo Astori told reporters Monday night.

President Tabare Vazquez, who started his second term Mar. 1, faces a more somber economic outlook than when he first took office in 2005. Record foreign investment and high prices for Uruguay’s farm exports fueled a decade of growth exceeding 5 percent a year. Now, with top trade partners Brazil and China struggling, the government foresees annual growth of about 2.7 percent from 2015 to 2019.

The growth forecasts that underpin tax revenue estimates in the budget are probably too optimistic, said Ignacio Munyo, an economist at the University of Montevideo’s business school.

“We are in a trap with serious risks of entering a period of stagflation,” Munyo said in a telephone interview from Montevideo. “If we subtract growth from the pulp mill that started operating last year we almost aren’t growing.”

A sluggish economy and years of tight monetary policy haven’t tamed inflation, which rose to a one-year high of 9.02 percent in July as the slide in the peso stoked consumer prices.

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