A consultancy of the Inter-American Development Bank (IDB) works in the Directorate of Economic Policy of the Ministry of Economy and Finance (MEF) at the request of the portfolio headed by Azucena Arbeleche And, among the recommendations that have already been delivered, those that aim to improve the fiscal rule, one of the most important mechanisms of the current economic management of the government. The “political timing” of the elections and the change of administration, key for experts.
Within the framework of the Annual Economic Conference of the Central Bank of Uruguay (BCU), Herman Gonzálezone of the consultants of the IDB working in the direction of MEF in charge of Marcela Bension, He acknowledged that “Uruguay has made very important progress” with the incorporation of the fiscal rule from the Urgent Consideration Law (LUC) of 2020; which “has allowed us to make a fiscal policy most predictable in the last four years.”
However, “there is room to continue strengthening” this institutional framework “on top of what already exists,” the specialist stressed, as reported by the weekly Búsqueda.
In this sense, the consultancy of the IDB recommended, among other things, that the fiscal outcome targets be defined at the beginning of the government for the entire period; that escape clauses for shocks be incorporated that are “transitory” and “clear”, and are accompanied by correction mechanisms; that the process of preparing projections be strengthened, taking into account the “risk scenarios”; and that the debt level “prudent”.
In this regard, the economist Ana Fostel, member of the Fiscal Advisory Council (FAC) —which has often pointed to the same limitations or points of improvement around the fiscal rule and its application—, considered that the timing is important, given that there is one year left for the elaboration of a new one. Budget Lawso “this is the time to leave improvements” in the new fiscal institutionality. He also stressed the need for an “autonomous and independent” advisory body with its own budget.
Gonzalez also referred to the “political timing” to propose the necessary reforms regarding the fiscal rule, in relation to the change of government that will take place in 2025: “We must take advantage of that opportunity,” said the consultant of the IDB, for whom the CFA should also have paid advisors and a management that lasts beyond the government periods.
Among other recommendations, the analyst noted that the body should also have a budget own —in agreement with what Fostel pointed out—, as well as a person in charge of communication. He also suggested that the council should “ideally” attend the meeting twice a year. Parliament to, for example, warn about the “risks” on the fiscal front. All of that could be part of what he called a “autonomous fiscal council law 2.0”.
Criticism of fiscal management and the MEF’s response
In her speech, the director of Economic Policy of the MEF, Marcela Bensión regretted what she described as “a certain lack of knowledge” on the part of some analysts regarding the fiscal rule —which is “a road under construction”—, in reference to the criticism the government received after it announced a projected failure to meet fiscal targets for the first time in four years.
“From this side we are left with a bitter taste” due to the “shallowness” of the discussions that took place a few weeks ago with the presentation of the 2023 Accountability Reportwhen “fiscal deviations are sometimes confused” and “no reference is made to the structural or the decrease in inflation” as a “structural process that must be internalized,” he reproached, in this regard.
“Sometimes people talk about the fiscal results halfway through the year,” which “does not mean anything for the purposes of the MEF,” as it is guided by goals for the entire year, he insisted, and claimed that “we need to delve a little deeper into the fiscal analysis” to understand the actions of the authorities.
Source: Ambito
