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
