He State in Uruguay spends more than 20,000 million dollars per year, according to official figures. This includes from retirements to the wages of state employees, going through the various transfers to multiple state agencies, investments, etc. If you add the debt interest payment and the departmental authorities, the total spending figure is higher than 30% of GDP.
Remembering this is relevant because the government of Luis Lacalle Pou has proposed that in the next Accountability It will emphasize mental health and addictions, with an annual investment of US$20 million for various programs. It is a huge figure, which hopefully gives the expected results, in a distressing issue for many people and families. But it is a small figure compared to the total cost mentioned.
It is not necessary to deceive yourself: State spending is particularly rigid and most of the items are already committed: retirements, salaries, general operating expenses, are almost immovable. That is why it is so difficult to make “budget space” for new emerging needs, and many times the State ends up running behind challenges, even the most urgent ones. What happens to the current water crisis is a compelling example.
In the face of a new Accountability, once again an intense discussion will be opened on various demands for greater spending (the University, for example, wants a significant budget increase). And while it is possible that there could be significant changes in some areas, they will be movements in the margin, not in the large components of spending. Besides, the fiscal situation is not for great generosity.
Rising fiscal deficit
The new Accountability is the last for this period of government in which aggregate expenses can be established, but it comes at a time when the economy is affected by the drought and the situation in Argentinawhich hits the trade. In addition, Uruguay is suffering notorious problems of competitivenessdue to the fall of dollar (consequence of the anti-inflationary policy).
Thus, collection is falling, but spending continues long, inertial. What’s more: given the salary recovery policy, spending on salaries and pensions is rising in real terms. To all this we must add the decision to lower taxes, which will imply resigning income of US$150 million per year (although part of that could “return” due to more consumption).
From all this results a increase in overall fiscal deficit, which went from 3.2% annually at the end of 2022 to the current 3.6% in the rolling year to March. Primary income fell from 26.1 to 25.8% of GDP, mainly due to the lower tax collection (DGI). Meanwhile, primary discharges rose from 26.9 to 27.1%.
Thus, it is difficult for the government to meet its goal of closing the year with a deficit of 2.6% of GDP. It is true that the current fiscal rule imposes certain limits in terms of structural fiscal result, contemplating temporary setbacks such as the ones that are notoriously present this year. but of all modes the fiscal trajectory is uncomfortableespecially for an economic management that has made macroeconomic balances a central objective of its management.
Uruguay has a solid financial position and the market recognizes it as such, with country risk at historical lows. But we must not rest on our laurels: debt has increased appreciably, especially due to the large deficit generated by the pandemic. After a significant reduction in 2021 and 2022, the red color of the State accounts is rising and turning on a yellow light.