Uruguay must work on a long-term strategy for reform in order to sustain the economic expansion of the past decade, according to a recent assessment by the Organisation for Economic Cooperation and Development (OECD). Uruguayan poverty and unemployment have significantly contracted since the country's 2002 banking crisis, yet income inequality remains high compared to other countries in the region.
Following an average real growth rate of 5.2% over the five years to 2013, the Latin American country faces economic 'bottlenecks' as a result of structural changes made to accommodate the rapid expansion. OECD identified scarcity of labour and human capital as the greatest obstacles for Uruguay’s future economic and social prospects. Infrastructure and financing constraints are also seen as inhibiting factors to growth. Additionally, its 2013 current account deficit of 5.6% leaves the country vulnerable to external shocks given the international financial system’s continued fragility.
The OECD review emphasised that Uruguay should seek a balance between macroeconomic stability and long-term goals, while taking policy actions to advance social development and “capitalise on [its] positive economic momentum”. Government decision-making should target broadening the supply of necessary skills in the near term and improving access to financing for new businesses in order to maintain competitiveness in the longer term.
On the fiscal front, OECD suggested that “higher future expenditures can be financed through more tax revenue” to protect social programmes from the repercussions of a negative external economic shock. The country assessment concluded that Uruguay has built the necessary institutional foundations in order to “widen policy-making horizons beyond short-term goals” and thus achieve sustainable and more “equitable” growth.