He Fiscal Advisory Council (CFA) of the Ministry of Economy and Finance (MEF) presented the “Report on the calculation of the Structural Fiscal Result at the end of 2023” in Uruguay, the self-prepared document on the economic results presented by the government last week, and assured that the calculation of the RFE of the Central Government-BPS “was adjusted to the current methodology.” However, he put on the table different challenges that the current tax regime will face in 2024, the first electoral year since its implementation.
In a press conference attended by Ámbito, the honorary members Alfonso Capurro, Ana Fostel and Jorge Roldós, made a series of considerations not only about the 2023 fiscal results — which they valued positively in terms of “compliance with the tax rule for the fourth consecutive year in its three pillars”—; but also about the short and medium term challenges in matters of fiscal institutionality.
With a welcome to the public for Roldós, who joined the Council in November of last year – within the framework of the annual renewal of a CFA member – and a thank you to the economist Aldo Lema, former member and “an important part of what this report is and of recent years,” Capurro began by talking about the “important contribution of this entire new fiscal framework” based on compliance with the three pillars of the rule.
“It demonstrates the commitment of the fiscal policy with compliance with the new institutionality,” he highlighted, also reviewing the numbers presented by the head of the MEF, Azucena Arbeleche, last week.
Another point highlighted by the economist CPA Ferrere was that, despite the presence of several “negative shocks” such as drought, Argentine instability and lower-than-expected inflation – which affected tax collection – the position of the Structural Fiscal Result was better than in previous years in which counterproductive factors for the national economy were also experienced.
“Uruguay must follow this path and, in the medium term, give a result that is consistent with the debt sustainability and converge to an equilibrium with primary surplus and a structural deficit closer to 2%,” Capurro considered, ensuring that “there is still a way to go in the medium term.”
Adjusted goals and the dilemma between change and deviation, the challenges 2024
Beyond the positive points and evaluations made by the CFA – for example, and in addition to the good results of 2023, Roldós particularly highlighted the path taken in achieving a countercyclical fiscal policy management or acyclical based on the structural approach adopted in the fiscal rule—; Economists also emphasized the challenges that this relatively new institutionality will have to face.
The first and most immediate is that the fiscal goals set for 2024 are “demanding”, even with the change announced by the MEF regarding the Accountability June 2023, which went from an RFE of 2.6% of the Gross Domestic Product (GDP) to one of 2.9%. “We are going to be playing very close to the edges of the three pillars, and it poses risks of non-compliance or deviation in some of them,” said Capurro, in his part of the presentation.
Likewise, he stated that the collection of the General Tax Directorate (DGI) —after a year as atypical as 2023—brings uncertainty regarding its behavior; which, in turn, is accompanied by the possibility that an improvement in collection or reductions in one-time expenses may be interpreted as structural improvements when, in reality, they will be cyclical —so they should not be considered as greater room for maneuver for fiscal policy.
The economic consequences of the improvements in employment and real wages They can also become a risk: the floor for spending growth is at least 1.7%, so prudential criteria when executing budget items will be essential for compliance with the fiscal rule. Above all, in a context in which international uncertainty is still high.
However, the very change of fiscal goals —regardless of whether the argument put forward by the MEF relevant—was indicated as a risk element for fiscal institutions or, at least, that could be evaluated to continue contributing to the credibility and transparency of the achievements in this matter.
For the members of the CFA, the situation presents a trade off either dilemma between changing the original goal at the risk of undermining the credibility of the results or risking “ex post deviations”. The call for attention with the aim of continuing to improve the fiscal rule does not come at a bad time, especially if one takes into account the recent criticism that the government received after the presentation of the official numbers, among which the senator and pre-candidate of the Frente Amplio, Mario Bergara, He accused Arbeleche of constantly “running the goal” so that “the ball goes in.”
In that sense, the economists pointed out the possibility of proposing “hard and demanding goals that operate as fiscal policy anchor, but that accepts the occurrence of deviations due to external shocks” as, for example, would have happened last year, “and has mechanisms to explain deviations and convergence of goals.” “The current fiscal framework does not distinguish between what are projections and what are goals, it removes room for maneuver to be able to make this problem transparent. Is a opportunity for improvement detected by the CFA,” Capurro explained.
For a strengthening of the fiscal framework going forward
The challenges were also pointed out as opportunities to continue improving a relatively new fiscal regime that, this year, will face the “tendency or incentive to spend more in election years,” as Roldós pointed out.
In line with the idea of “continuing fiscal institutions with a long-term view,” Ana Fostel highlighted some milestones for 2023 and others that are on track for 2024. In the first sense, he highlighted the launch of Fislac, a tool developed by Bank Inter-American Development Bank (IDB) aimed at strengthening fiscal frameworks in Latin America and? Uruguay already using within the scope of the MEF.
This tool is key for what could be an important event this year: the preparation of a Roadmap to strengthen the fiscal framework of Uruguay. This project has already been launched by the portfolio led by Arbeleche, and will incorporate lessons learned in its implementation stage and international trends on the matter. The idea is that it is a “document that evaluates and outlines in a very clear light how we move forward,” Fostel noted.
Source: Ambito
