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Uruguay expanded 6% in 2011 and fiscal deficit dropped to 0.8% of GDP

Tuesday, January 24th 2012 - 04:05 UTC
Full article 3 comments
Minister Lorenzo said the lower cost of energy was decisive for the budget performance Minister Lorenzo said the lower cost of energy was decisive for the budget performance

Finance Minister Fernando Lorenzo said that Uruguay’s economy in 2011 expanded an estimated 6%, the ninth year running of sustained growth, and the budget fiscal deficit was 0.8% of GDP.

Lorenzo made the announcements following the first full cabinet meeting of the year headed by President Jose Mujica.

The minister said that the 6% should be confirmed in coming days when the final data is analyzed and anticipated that this year growth should be in the range of 4.0%. However, most private estimates average 6.3% for 2011 and 4.5% for 2012. In 2010 the Uruguayan economy expanded 8.5% and in 2009, 2.6%.

“Our preliminary figures are showing that the 2011 fiscal deficit will be 0.8% of GDP, considerably less than the 1.6% originally estimated in the budget “, which represents 360 million dollars said Lorenzo.

The minister attributed the better performance to three main factors: cost of energy was far less that programmed in the budget because of abundant rainfall and hydro power; improved tax and social contribution revenue and finally government managed public utility companies addressed their costs by increasing service rates.

The increase of power, fuel, communications and drinking water rates averaged 6% (annual consumer inflation in 2011 was 8.6%).

The Central bank has also helped with the numbers by increasing the basic interest rate from 8% to 8.75%, which means a stronger Peso with imports cheaper helping to contain inflationary prices in the short term. However a stronger Peso hampers exports and, all other factors remaining equal, is negative for competitiveness.

Lorenzo also indicated that Uruguay’s debt payments for the next four years are significantly moderate because of a recent long term restructuring.

“Hopefully this year the credit rating agencies will grant Uruguay the long due investment grade. This is a priority objective for the government. We believe, as we have said repeatedly, that Uruguay has all the correct indexes, fiscally and financially to be acknowledged by the rating agencies” pointed out Lorenzo.

He added that the recovery of “investment grade for our sovereign debt should be announced this year, sooner than later”.
 

Categories: Economy, Politics, Uruguay.

Top Comments

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  • laceja

    “... and finally government managed public utility companies addressed their costs by increasing service rates.”

    Now, that just makes no sense whatsoever! You do not contain costs, by raising your rates. You can only “address costs” by, “reducing” costs, not raising the rates you charge.

    Jan 24th, 2012 - 02:36 pm 0
  • ChrisR

    1 laceja
    You beat me to it!

    This is why Uruguay has got a massive fiscal drag on the economy. Try reading the Antel report: it nearly made me cry. The senior management think they are doing a good job by defending inroads into the market by commercial organisations (Movistar, etc).

    These people have no concept of running a modern business.

    If the government really wanted to get the country moving FINANCIALLY they would get rid of half of the government service employees (not teachers or police) and train them into productive people to work for industry. This would halve the govt. wage bill (obviously) and probably increase the REAL tax take by 25% (I need govt figures to be sure). To encourage new investment the govt would have to offer incentives for start-ups by subsidising workers wages for the first 12 months or so, but after that the new tax take would more than make up for them.

    Who pays for the tax paid for by govt. employees?

    If you do not know and you DO NOT work for the govt.: IT IS YOU!!!

    Jan 24th, 2012 - 07:02 pm 0
  • laceja

    ChrisR, you are definitely right on! I do like one thing about the tax system in Uruguay. If you start a company, that derives all its revenue from outside of Uruguay, it is tax free. Now, if they would just offer some encouragement for training new employees for that business, they would really have something.

    Jan 24th, 2012 - 09:26 pm 0
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