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Fitch revises Uruguay's outlook to negative on declining public finances

Fitch Ratings revised its outlook on Uruguay to negative from stable, citing the country's persistent fiscal deficits and its high and rising debt burden.

Uruguay's public finances have started to deteriorate again this year after improving in 2017 due to adjustment measures, said Fitch, which affirmed Uruguay's long-term, foreign-currency issuer default rating at BBB-.

The rating agency said Uruguay's central government deficit is forecast to widen to 3.1% of GDP in 2018 and 3.6% in 2019, from 3.0% in 2017. The public sector deficit is also expected to increase instead of falling toward the 2.8% government target for next year.

Uruguay's general government debt, which includes a large stock of foreign-currency debt, is also projected to climb to 62.7% of GDP in 2018 from 57.7% in 2017, and increase further in the following years, Fitch said.

"Fitch believes a clearer fiscal consolidation strategy could emerge after general elections in late 2019, but that it will be challenged by limited appetite for further tax hikes and a highly rigid spending profile," the debt watcher said.

Fitch noted that Uruguay's fiscal deficits and debt burden are eroding its policy flexibility to confront shocks at a time of tightening global financing conditions and regional economic headwinds.

Uruguay's economy is forecast to expand at slower rates of 2.0% in 2018 and 1.5% in 2019, following 2.7% real GDP growth in 2017, according to Fitch, which cited headwinds such as a slowdown in real wage growth and weak consumer confidence.