📋 Tender Overview
The invocation of the clause is derived from the substantial changes in relative prices that occurred in the Uruguayan economy during 2023 and 2024. These determined a strong decrease in tax revenues with the consequent increase in net indebtedness, even though nominal spending remained in line with what was foreseen within the framework of the fiscal rule implemented by this administration in 2020. This clause was previously invoked in 2021 and 2023 , for reasons of health and climate emergencies, respectively.
The decision to activate the safeguard clause was communicated to the Fiscal Advisory Council at a meeting on December 13, at which detailed information was provided on the reasons for doing so, which is made available to the general public.
Law No. 19,924 incorporated a new regulatory framework for the authorization of national public debt, for the purposes of the provisions of paragraph 6 of article 85 of the Constitution of the Republic.
Article 699 of the aforementioned law establishes the following: “ In the event of serious economic slowdowns, substantial changes in relative prices, emergency situations or national-scale disasters, the annual maximum referred to in article 696 may be increased by up to 30% (thirty percent), reporting to the General Assembly of the Legislative Branch and without altering the limit set for the following year. The authorities of the Ministry of Economy and Finance, representing the Central Government, must appear before the General Assembly within a period of no more than thirty calendar days after the safeguard clause has been invoked, in order to report the reasons for activating this clause. ” [i]
On the other hand, Article 587 of Law No. 20,212 , of November 6, 2023 (Accountability and Balance of Budget Execution. Fiscal Year 2022), authorized the Central Government to incur a maximum amount of net debt for fiscal year 2024 equivalent to US$ 2,300,000,000 (two billion three hundred million United States dollars).
In recent years, the fall in international commodity prices and the strong price distortion with respect to Argentina determined a substantial change in relative prices in the Uruguayan economy, particularly between tradable and non-tradable prices and between retail prices and the GDP deflator. This change resulted in a reduction in inflation rates in the country, greater than that already foreseen in the 2022 Accountability Project, presented by the Executive Branch to Parliament in June 2023 .
Although the reduction in inflation figures contributed to economic growth and increased the purchasing power of households, it also led to a decrease in the Central Government's nominal tax revenues in 2024, compared to what was foreseen in the 2022 Accountability Project, when the budgetary credits and the net debt ceiling of the Central Government for the current year were set.
According to recent estimates by the MEF, this loss of income amounts to 0.7% of GDP, equivalent to US$ 600,000,000.
As a result, the latest MEF measurement of accumulated net debt as of November 2024 is slightly below the limit of US$ 2,300,000,000. However, at the end of 2024, a net debt figure higher than this limit is expected. This result would occur even though nominal spending has remained in line with what was foreseen within the framework of the fiscal rule implemented by this administration in 2020, which is included in the attached presentation.
The possibility that the net debt of the Central Government would be greater than the legal limit proposed by the Executive Branch to Parliament in June 2023 was warned by MEF last June, on the occasion of the presentation of the 2023 Accountability Bill. In section 10.3.1. of the Statement of Reasons, it was stated that “considering that the DGI's net collection has been evolving below what was expected in the first five months of the year, this constitutes a source of potential deviation on the side of tax revenues, with respect to the current programming”. Along the same lines, in said bill and in the subsequent appearance before Parliament, it was reported that the first two pillars of the fiscal rule would not be achieved for the reasons stated above.
The power provided for in the aforementioned article 699 allows the extension of the legal limit on net debt for 2024 up to the equivalent of US$ 2,990,000,000 (two billion nine hundred and ninety million United States dollars).
This measure does not alter, in any way, the sustainability of public finances for the coming years, as presented by the current administration in the 2023 Accountability Report, under the assumptions of economic growth in line with its potential level, its correlation in tax revenues, in the same magnitude, and that, likewise, real primary public spending continues to grow moderately, as averaged in the current administration.
