Fitch backs Uruguay's rating but warns: stability without growth is not enough.

Fitch Ratings this week affirmed Uruguay's investment-grade rating, but did so alongside warnings that neatly capture the central dilemma facing the country's economy: growth is too slow, public debt continues to climb, and fiscal room is narrowing at precisely the moment when President Yamandú Orsi's administration needs to demonstrate it can reactivate an economy that has gone several quarters without finding genuine traction.

Fitch's affirmation is not a surprise in itself — Uruguay has held investment grade since 2012 and has defended it with institutional discipline across various political cycles — but the combination of that endorsement with explicit warnings about weak growth and rising debt turns the announcement into an uncomfortable diagnosis rather than a clean bill of health. The agency's message lands in a context where the hard data are difficult to ignore: according to Banco Central figures, the economy contracted 0.8% in the second quarter and fell another 0.2% in the third quarter, hit in part by the drought's impact on the agricultural sector, which at its worst recorded a 22% decline. While the first quarter of 2026 showed a rebound of 0.8%, analysts surveyed by El Observador have again trimmed their projections for the current year, with firms such as CPA Ferrere estimating growth of barely 1%, well below the official target. Economy Minister Gabriel Oddone himself acknowledged before the Senate that there is "a fairly high probability" of revising the 2026 projections downward.

What makes this situation particularly difficult to manage is that the stagnation in activity coexists with an uncommon paradox: employment and real private-sector wages are growing above the level of economic activity, inflation stands at seven-decade lows, and the financial system, according to the Financial Stability Committee's assessment, is "well prepared to absorb hypothetical adverse scenarios." In other words, Uruguay has stability but lacks dynamism, and that distinction has become the axis of the economic debate. The IMF, which projects 1.3% growth for 2026, has been no less direct: its managing director praised Uruguayan resilience but called for greater fiscal effort and warned that stability alone is not enough. DBRS has used the term "mediocre growth." Local economists, convened by El Observador, agreed that Uruguay is expensive and grows little, and called for structural changes to improve productivity.

In response, the Economy Ministry has rolled out an agenda of measures aimed at tackling the competitiveness problem on several fronts simultaneously. Reductions in costs and red tape to facilitate foreign trade were announced, a competitiveness bill began its passage through the Chamber of Deputies, and the government issued regulations for the global minimum tax caps — in line with the OECD standard — with the aim of protecting multinationals based in Uruguay under fiscal stability clauses. In parallel, the ministry drew strong investor demand for a new issuance of nominal peso-denominated bonds, doubling the amount placed against offers that exceeded 9.7 billion pesos: a sign that the local market retains appetite for Uruguayan sovereign debt in domestic currency, reinforcing the de-dollarization process the government has been pushing. The Banco Central also presented a draft bill to create an open finance system, in line with global regulatory trends.

Political tension around economic policymaking became visible when President Orsi publicly clarified that economic policy "is ultimately always in the hands of the president," in a direct response to Minister Oddone. Markets read the clarification as a signal that frictions within the government over the pace and direction of reforms are real. From the Senate, the Frente Amplio formally backed the economic team's management following the parliamentary interpellation, but the opposition criticized the MEF for changes to the Fonasa refund — which were not announced in the budget — calling them "a stab at confidence." The World Bank approved $300 million in financing to promote private investment and employment, while the IDB raised its financing program for the country to record levels.

The scenario projected going forward remains demanding. The government anticipates an economic reactivation in a global environment it describes as "challenging and uncertain," and Minister Oddone has insisted that the economy "is slowly beginning a path of recovery." But the leading indicators from the Centro de Estudios de la Realidad Económica y Social (Ceres) show mixed signals: the index posted two months of moderate growth in the first half, then fell again, and the start of 2026 was described as an opening "without firm signs of recovery." What investors and multilateral organizations will be watching in the coming months is whether the competitiveness package manages to translate into real activity, whether the fiscal deficit — which closed 2024 at around 4.7% of GDP — begins to ease with the fiscal rule reform included in the budget, and whether Uruguay can turn its reputation for stability into the fuel for a growth cycle that, for now, remains the outstanding task.