The 1.3% that falls short and the investment that withdraws: numbers that do not lie about the real cost of the tax burden
BBVA Research data for Uruguay is unequivocal. The Gross Domestic Product will grow by only 1.3% in 2026, following an estimated 1.8% for 2025, and will barely recover to 1.8% in 2027. Investment, measured as annual variation, will drop from a growth of 4.3% in 2025 to a contraction of 4.6% in 2026, only to rebound by 1.4% the following year. The overall fiscal result will remain deeply negative: –4.8% of GDP in 2025, –4.7% in 2026, and –4.6% in 2027. These are not isolated forecasts. They are the quantitative expression of a balance that prioritizes present spending at the expense of future capital.
Let’s start by breaking down the growth. A GDP that advances by 1.3% means, in practical terms, that the production of goods and services in the country barely exceeds the rate of population growth and the wear and tear of existing capital. The long-term growth potential has already been revised down to 2.1%. When the economy expands below that threshold for consecutive years, real per capita income stagnates or declines in relative terms. Private consumption, projected at 1.5% for 2026, sustains short-term activity but does not generate the productive capacity that only investment can provide. Exports help, but do not compensate for the lack of accumulation of physical and technological capital.
The 4.6% drop in investment is the most revealing figure. Gross fixed capital formation currently represents around 14% of GDP, compared to a Latin American average of about 17%, and far from the 19% of Chile, 20% of Paraguay, or higher figures in economies that have managed to raise their productivity. A contraction of that magnitude implies less machinery, less private infrastructure, less software, and fewer processing plants. Capital is not an abstract stock: it is the set of goods that allows for producing more with the same human effort. When that stock decreases or grows at an insufficient rate, labor productivity stagnates. Unemployment is projected at 7.5% by the end of 2026 and tends to 7.9% in 2027. Youth unemployment hovers around 24%. These numbers are not coincidental: they reflect the lower demand for labor generated by an economy that does not invest.
Why is investment retracting in a country that prides itself on macroeconomic stability? The answer lies in the incentives. The official tax burden is around 27.4% of GDP according to the latest OECD measurements for Latin America and the Caribbean, clearly above the regional average of 21.3%. However, that figure significantly underestimates the actual extraction of resources from the private sector. It does not include the extra costs of monopolized public service rates—electricity from UTE, water from OSE, fuels—nor municipal taxes, parafiscal contributions, stamps, inspection fees, regulatory compliance costs, or the other burdens that function as de facto taxes. When all these elements are added, the effective burden borne by businesses and families is substantially higher. Each additional point reduces the expected net return of any investment project. An investor compares the return after all these costs with the opportunity cost of capital. When the state and its companies absorb an increasing portion of the surplus, many projects that would be profitable in a lower burden environment cease to be so. Capital flees to more competitive jurisdictions or simply does not form.
The persistent fiscal deficit exacerbates the problem. A 4.7% GDP imbalance means that the state systematically spends more than it collects. The difference is financed with debt. By the end of 2025, the gross debt of the central government stood at around 60.5% of GDP and the net at 56.5%, according to official figures from the Ministry of Economy and Finance. Other broader measurements raise the total public sector stock to nearly 66% or even above. Each point of deficit adds to the debt stock. Each additional peso of debt generates interest that must be paid with future taxes or new issuance. The servicing of that debt directly competes with private spending on investment. It is the classic crowding-out effect: the state absorbs savings that would otherwise have financed machinery, research, or expansion of productive capacity.
Here appears the fundamental distinction between the visible and the invisible. The visible is public employment, transfers, and deficit-financed works. The invisible is the plant that is not built, the software that is not developed, the entrepreneur who decides not to risk capital because the net return, after formal tax burden, public rates, and regulatory uncertainty, does not compensate for the risk. Capital does not multiply by decree. It accumulates when agents perceive that they will be able to keep a sufficient portion of the fruits of their effort. When that perception erodes, investment falls. The numbers for 2026 simply quantify that erosion.
The rigidity of public spending deepens the trap. With a structural deficit close to 4% of GDP as the official target and an even more negative effective result, consolidation depends almost exclusively on containing spending. But spending has inflexible components: salaries, pensions, debt interest. In the absence of genuine cuts or vigorous growth that raises the tax base, the only residual path is additional tax burden—formal or through rates—or postponing the adjustment through more borrowing. Both options raise the “country cost.” Unit labor costs in dollars, complex regulations, and slow administrative processes add to the tax burden and rates, completing the picture of disincentives.
International comparisons confirm the diagnosis. While Uruguay invests 14% of its output, economies that have achieved sustained growth rates allocate significantly larger proportions. Capital is not a luxury: it is the multiplier of productivity. Without it, even an educated workforce produces less value per hour worked. Controlled inflation around 4.5% and access to international financing are real achievements, but insufficient when the capital accumulation rate remains depressed. Price stability prevents the monetary destruction of capital, but does not generate new capital formation on its own.
The Mercosur-European Union agreement and green hydrogen projects appear as possible catalysts. However, their impact depends on whether the general incentive environment does not nullify them. A large-scale project can temporarily boost investment, but if the formal tax burden, public service rates, and other regulatory costs remain high, the rest of the productive fabric will continue to operate with insufficient accumulation rates. Potential growth does not rise with a handful of isolated megaprojects; it rises when thousands of decentralized investment decisions become generally profitable.
BBVA Research numbers are not a moral verdict. They are the empirical measurement of a simple mechanism: when the state absorbs an increasing proportion of the product through taxes, rates, and debt, the private sector has fewer resources to expand productive capacity. The result is mediocre growth, contracting investment, and persistent unemployment. The 1.3% of 2026 and the –4.6% of investment are not statistical anomalies. They are the predictable consequence of a regime that prioritizes the present consumption of the state over the capital formation that sustains the future consumption of all society. As long as that incentive structure is not modified, forecasts will continue to describe an economy that walks but does not accelerate.
