The World Bank In Uruguay

Uruguay stands out in Latin America for being an egalitarian society and for its high income per capita, low level of inequality and poverty and the almost complete absence of extreme poverty. In relative terms, its middle class is the largest in America and represents more than 60% of its population.

Uruguay's economy grew by 4.4% in 2021, after a 6.1% drop the previous year due to the COVID-19 pandemic. For 2022, it is expected to grow 4.8%, driven mainly by the opening of borders to foreign tourism last summer and an increase in agricultural production. For 2023, a growth of 2.7% is expected. This slowdown will be driven by lower growth in main Mercosur partners, the global economic slowdown, the tightening of monetary policy and the completion of extraordinary investments related to a new US$3 billion pulp mill, in addition to complementary public works.

The strong economic advances that Uruguay has made, particularly since the crisis in 2002, together with the solid social contract that characterizes it, support the path towards poverty reduction and the promotion of shared prosperity. The country has been strongly committed to social protection affairs. Historically, inclusive social policies have focused on expanding the coverage of programs. In this sense, around 90% of the population over 65 is covered by the pension system, representing one of the highest figures in Latin America and the Caribbean, along with Argentina and Brazil.

Today, there are structural constraints that may affect progress towards sustainable development goals. On the one hand, the country is going through an advanced phase of the demographic transition and is in the process of reforming its social security system, which currently generates large fiscal costs. On the other hand, Uruguay faces challenges regarding women inclusion into economic activities and the transformation of education and labor institutions in terms of taking advantage of technological changes and promoting investment in infrastructure and integration in global value chains. Finally, despite the fact that the Uruguayan poverty incidence remains relatively low compared to the region, there are significant inequalities in terms of age, sex, region and origin, which could have deepened with the pandemic.

Strong institutional performance in other areas, such as trust in government, low corruption, a consensus-based political approach, and a strong commitment to strengthening institutional arrangements gives the country a firm foundation on which to continue renewing its social contract and establish policies to face current limitations.

Last Updated: Oct 03, 2022

The World Bank Group (WBG) has backed Uruguay’s development process for more than 60 years through different instruments, including loans, insurance, donations, technical assistance and knowledge exchange.

Uruguay is included in the countries of highest income among WBG active borrowers, and it demands, in particular, the following:

• The development of finance services and innovative knowledge to provide solutions based on the WBG’s experience in other countries.
• The use of integrated services with the participation of the World Bank, the International Finance Corporation (IFC) and the Multilateral Investment Guarantee Agency (MIGA).
• The publication of Uruguayan development experiences in web sites where the WBG can serve as a platform for the dissemination of successful reforms.

Similarly, the WBG has a great interest in continuing work with a client such as Uruguay in order to:

• Collaborate with a country in which equitable growth and the support of the poorest 40% of the population are fundamental values.
• Join efforts and search for innovative development solutions to assist the country and create positive externalities in knowledge that can be used by other WBG clients in Latin America and other regions.

Currently, the World Bank has active operations in Uruguay for a total of USD 127.5 million dollars in the sectors of education, agriculture, and e- government.

Last Updated: Oct 03, 2022

Since 2010, more than US$1 billion have been approved in loans aimed at financing investments in infrastructure, agriculture, environment and institutional strengthening, as well as to increase the Government’s capacity to protect the most vulnerable sectors of the population from external economic shocks through contingent financing. Moreover, the World Bank has provided analytical and technical support.

Finally, in relation to the development of financial services and innovative knowledge that may provide solutions among countries, the World Bank Group facilitated Uruguay’s participation in 20 South-South initiatives on different topics, such as: road maintenance and performance based disbursements with Morocco, ICT in education with Armenia, experience with the livestock traceability system with Kazakhstan, agricultural information systems with Mexico and health experience with Paraguay and Chile. In addition, Uruguay received delegations from Kyrgyzstan (who were interested in improving the information systems in their national electricity company), Zimbabwe/Botswana (for budget issues) Nicaragua (in order to improve statistical capability of the country) and Costa Rica (in order to share the experience on water management). Moreover, representatives from the private sector of Uganda came to Uruguay, sponsored by the IFC.

The following are some of the results of the World Bank and Uruguay’s work:

• Climate Insurance: Various countries (not only from the region) have approached the World Bank in search of a similar solution to the one implemented with the Uruguayan government. In December 2013, the World Bank signed an agreement with the energy company (UTE), in which the former provided a hedge for 18 months in order to deal with the combined risks of drought and high oil prices. This transaction was designed to help the company compensate for any financial loss that may occur when the lack of rain reduces the volume of water in the reservoirs that supplies the electricity plants, forcing the company to resort to thermal generation, which has a higher cost and requires the importation of alternative fuels. This was the major transaction of this type in the market (US$ 450 million) and it was the first time that a hedging transaction on commodities was made between an emerging country and the World Bank.
• Responsible Production Project. Since 2005, the World Bank has strived to encourage small and medium sized Uruguayan producers to adopt economically and environmentally sustainable production systems and to work with technical improvements in soil management, water and biological diversity in order to contribute to the long-term sustainability of agricultural production in the country. This was done by orienting financial resources and technical assistance to individual producers or groups, interested in carrying out projects in their properties. The project financed 5,300 property sub-projects throughout the country, 86% of which belonged to small producers. Approximately, 28,000 people benefited directly, while 600 technicians were trained in sustainable development and comprehensive natural resource management. Additionally, the project managed to coordinate the work of more than 160 institutions.

Last Updated: Oct 03, 2022