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Uruguay's Pension Reform Supports Long-Term Sustainability of Public Finances

This commentary discusses the recent passage of pension reform in Uruguay. President Lacalle Pou signed the reform bill into law on May 3 after approval in Congress along party lines. Key measures of the reform include raising the retirement age, increasing the number of years workers need to contribute, and harmonizing pension regimes across different professions. Pension reform — even though it was watered down from the initial proposal — represents the next step in the government’s objective to strengthen the sustainability of Uruguay's public finances.

Key highlights include:
• Uruguay's ageing population is set to put upward pressure on pension spending over time.
• Passage of pension reform in Uruguay will improve fiscal sustainability, though recent changes to accommodate the government's coalition partners have watered down the fiscal savings.
• Pension reform will likely be the last big legislative push of this government, given the electoral calendar and tensions within the coalition.

“We view passage of the pension reform positively, even though the cost savings may not be evident for years or decades,” said Yolanda Ngo, Assistant Vice President in the Global Sovereign Ratings Group. “This reform, coupled with the administration’s fiscal consolidation efforts, have put Uruguay's public finances in a better place to manage fiscal challenges over the medium term.”