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.
However, inclusive growth indicators have already shown signs of exhaustion even before the COVID-19 pandemic. GDP growth decreased from 4.6% in 2013 to 0.5% in 2018 and to 0.4% in 2019, the lowest level since 2002. The process of poverty reduction −which decreased from 32.5% to 7.9% between 2006 and 2017− had stagnated, and it even showed incipient growth (8.8% in 2019).
Due to the pandemic, Uruguay's GDP contracted 6.1%, the first annual drop since the 2002 crisis (-7.7%), with negative growth rates in almost all sectors of activity. Although cushioned by the country's social protection system and containment measures introduced in response to the pandemic, the national poverty rate increased from 8.8% in 2019 to 11.6% in 2020. The economy recovered 4.4 % in 2021 despite the higher prevalence of COVID-19 in the country, driven by an early and effective vaccination campaign. In step with the increase in economic activity, poverty fell to 10.6% in 2021.
The pandemic also highlighted the strengths of the country. Uruguay was one of the best prepared countries in the region to make the transition to distance education, based on a national comprehensive online learning platform. The content adapted for teachers, students, and families, as well as the wide access to the Internet and devices allowed more than 75% of the students and 84% of the teachers to stay connected to the platform when schools were closed. Uruguay was the first country in the region to gradually reopen schools.
Similarly, the existence of a broad social protection network, a strong health system with universal coverage, as well as comparatively positive levels of labor formality and social welfare, put Uruguay in a relatively advantageous position to timely, effectively, and continuously respond to the pandemic at a lower cost than other countries. In addition, the effective containment during the initial stages of the pandemic allowed a fast and broad reopening of the economy, which contributed to the reduction of the negative effects of the health shock, despite the fact that the country suffered a strong wave of infections in the first half of 2021. More recently, the fast and effective vaccination campaign was also crucial to maintain the ongoing economic reactivation, particularly in the activities most affected by social distancing measures.
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: Apr 05, 2022
