Uruguay taps debt markets despite growth stalling to mediocre pace

Uruguay is testing international debt markets amid mixed signals about its growth trajectory, and the confluence of those two developments lays bare the central tension defining the country's economic moment: a financial position solid enough to tap external capital, but activity momentum that is deteriorating precisely when fresh impetus is most needed.

According to El Observador, the Uruguayan government has begun engaging international investors on a potential sovereign debt issuance in external markets, a move that comes as the country boasts the lowest country risk in Latin America and retains its investment grade rating with stable outlooks. DBRS, according to reports circulated this week, has highlighted Uruguay's resilience to external shocks, though it flagged a persistent fiscal deficit and growth it described as "mediocre." That same word could sum up the picture emerging from the most recent activity data.

The central bank reported that the economy grew just 0.4% in the second quarter, a sharp slowdown from the 0.8% recorded in the first quarter and well below the expectations of the Ministry of Economy and Finance. Additional new data, according to El Observador, "suggest" the deceleration was even more pronounced than the official figure captures, with contractions in industry, construction, and commerce reinforcing signs of weakening. The leading index published by Ceres (Centro de Estudios de la Realidad Económica y Social), which anticipates the activity trend, contracted again in recent months following a brief recovery of just two consecutive months of growth in the first half. Minister Gabriel Oddone himself told Parliament that "there is a fairly high probability that we will revise our 2026 growth forecast downward," while consultancy CPA Ferrere projects expansion of just 1% for that year, well below the official target.

The divide between public perception and that of the business community deepens the political diagnosis. Recent polls show that half of Uruguayans consider the country's economic situation to be poor, in sharp contrast with the optimism displayed by investors and business leaders who anticipate stability in 2026. The gap is more than anecdotal: it reflects a model that generates macroeconomic credibility abroad while failing to translate into a sense of well-being at home, a phenomenon that several economists consulted by El Observador attribute to structural growth paralysis and to the so-called "bottlenecks" holding back productivity.

Against that backdrop, the government's decision to leave prices of super 95 gasoline, diesel, and LPG unchanged for September carries a dual reading. It avoids adding inflationary pressure at a moment of consumption vulnerability, but it also constrains ANCAP's room to adjust in an environment of uncertain international oil prices. Meanwhile, UTE, the state electricity company, reported profits of USD 193 million and has already transferred USD 70 million to the general treasury — a meaningful fiscal injection in a year when the Autonomous Fiscal Council publicly warned Parliament about an "overestimation" of MEF revenue projections in the annual budget review (Rendición de Cuentas).

The closure of the Montecon international arbitration before ICSID — the port operator's shareholders irrevocably withdrew their claim against Uruguay — removes a source of legal uncertainty hanging over the logistics sector, particularly sensitive given the Port of Montevideo's role as a regional hub. The episode also reinforces the narrative of legal stability that Uruguay projects to investors, just as it explores the debt market.

The most significant external endorsement comes from CAF, the Latin American development bank, which doubled its committed portfolio with Uruguay to USD 2 billion and will convene the region's economy ministers in Montevideo — an event that positions the country as an institutional reference point at a time when the region faces adverse external winds. Economist Miguel Kiguel, quoted by El Observador, noted that "the priority remains keeping the dollar from moving too much," underscoring the centrality of the exchange rate to Uruguayan competitiveness — a concern that weighs especially on the agricultural sector, whose ARU president warned that the country is at "a breaking point."

What to watch in the coming weeks: the international market's response to the potential sovereign debt issuance — and in what currency and tenor it is structured — the publication of the Ceres leading index data for July and August, which will confirm or refute the depth of the second-quarter slowdown, and progress on the competitiveness bill announced by Oddone, which includes reforms to the investment regime and whose legislative approval will largely determine the growth ceiling Uruguay can reach in 2027.