Fiscal Sustainability and Vulnerability in a Small Open Economy : The Uruguayan Experience

Rial and Vicente argue that in the case of a small emerging economy facing recurrent shocks of significant magnitude, the analysis of fiscal sustainability cannot be based on the dynamics of the debt level only. The structure of debt by currency, interest rate, maturity, type of instrument, etc. is most important. Using indicators that quantify and evaluate the risks related to the debt structure, they show that in Uruguay, in spite of the low levels of debt-to-GDP ratio observed at the beginning of the 1990s, vulnerability to shocks in debt determinants was very high even at that time. They also note that, for the future, an increase in the share of domestic currency denominated debt would be necessary to ensure debt sustainability