URUGUAY

Uruguay is a presidential unitary state with division of powers and three levels of elective government: national, departmental, and municipal. The president is vested with the executive power and is both the head of government and the head of state. Legislative power is vested in a bicameral General Assembly, comprised of the Chamber of Representatives and the Chamber of Senators. The president is elected every five years by popular vote, while members of the General Assembly are elected every five years by proportional representation to ensure the presence of at least two members by department. Judicial power is vested in the courts, of which the Supreme Court is the highest court.

The beginning of the decentralisation process dates back to 1935, with the enactment of the Organic Municipal Act No. 9 515 (Ley Orgánica Municipal). Decentralisation is embedded in the 1967 Constitution (Section XVI), which acknowledges the existence of local authorities, although they are not explicitly deemed as municipalities. The Constitution has been amended on several occasions: 1989, 1994, 1996 and 2004. In particular, the 1996 Constitutional Reform defined a series of political reforms towards decentralisation, amongst which the creation of the Sectoral Commission on Decentralisation and the Congress of Mayors, as well as the definition of departmental and municipal matters may be highlighted. A second set of interventions was carried out since 1990 with the decentralising initiative and new mechanisms for citizen participation in the department of Montevideo.

Important steps towards decentralisation were taken in 2009 with the approval of the Law No. 18 567 on Political Decentralisation and Citizen Participation, which established municipalities as local governments yet subject to the hierarchy of the head of department (intendente). In July 2010, the first local governments were elected at the same time that the Law No. 18 719 gave rise to the Incentive Fund for Municipal Management (Fondo de Incentivo a la Gestión de los Municipios). In 2014, Law No. 19 272 was introduced, replacing Law No. 18 567 and establishing municipal councils as fully decentralised government bodies. However, the approval in 2015 of National Budget Law No. 19 355 entailed the return to the hierarchical system initially contemplated in Law No. 18 567. The last departmental and municipal elections were held in September 2020

TERRITORIAL ORGANISATION
MUNICIPAL LEVEL	INTERMEDIATE LEVEL	REGIONAL LEVEL	TOTAL NUMBER OF SNGs (2021)
125 municipalities (municipios)		19 departments (departamentos)
Average municipal size: 27 790 inhabitants
125		19	144

OVERALL DESCRIPTION: Uruguay is divided into 19 departments and 125 municipalities. Slightly over 20% of the country’s territory is municipalised, including 75% of total population. Three departments have their territory completely municipalised: Canelones, Maldonado and Montevideo. The three departments include 41% of all municipalities. Territories which are not municipalised remain under the management of the departmental government to which they belong.

REGIONAL LEVEL: The 19 departments constitute the regional level of subnational government in Uruguay. All departments comprise the departmental council (junta departamental), with judicial and legislative functions, and the mayor (intendente), who holds executive and administrative functions. The Constitution sets out the basic responsibilities attributed to departments and leaves the determination of the rest of legislative and control responsibilities to ordinary law.

40% of the population of Uruguay is concentrated in the department of Montevideo and over 50% in the metropolitan area, which includes cities in the departments of Canelones and San José. This makes it one of the largest urban agglomerations in Latin America as a proportion of the country's population.

MUNICIPAL LEVEL

89 municipalities were initially created after the implementation of Law No. 18 567, a number that has increased to 125 to date. The Law establishes that municipalities may be created in territories of 2 000 inhabitants or more, although departmental governments were also granted by the Law the capacity to create municipalities in territories of less than 2 000 inhabitants – a capacity they retained until 2013.

In 2010, the initial 89 municipalities were created in all territories with over 5 000 inhabitants. In 2013, departmental governments created 12 new municipalities and in 2015, following that year’s municipal elections, 11 new municipalities were created in territories with a population of over 2 000. A further 13 new municipalities were created in 2017 and 2018, bringing the current number to 125.

The municipalities are governed by a local council made up of five members, whose chairperson is known as alcalde (mayor) and the other four members are known as concejales (councilors). They are elected by direct vote at the same time as the departmental authorities.

HORIZONTAL COOPERATION: According to the provisions of the Constitution, a Departmental Congress (Congreso de Intendentes) has been formally established in 1997. This Congress provides a space for the intendentes to discuss common issues and develop unified policy positions, especially vis-à-vis the national government. However, this capacity rarely translates into concrete collaboration between departments at the territorial level.

In 2013, the Departmental Congress approved the creation of a National Municipal Plenary (Plenario Nacional de Municipios) with the aim of promoting cooperation between municipalities. This Plenary, which brings together the 125 municipalities of the country, is led by a multi-party executive council (Mesa permanente del plenario de municipios) composed of nine elected mayors. Like the departmental congress, it is mainly a space for exchanges and debates between municipalities, with little impact on operational collaboration.

The responsibilities of departmental governments are mainly defined by the Municipal Organic Law, adopted in 1935 and, more recently, by Art. 13 of the aforementioned Law No. 19 272 on Political Decentralisation and Citizen Participation. The law excludes from the local government’s sphere public security service and all constitutional provisions that directly define powers of both national bodies and deconcentrated entities or services. Recent reforms have led to the assignment of new responsibilities to departments in the areas of land management, social policies, health, education and agriculture.

Municipalities are accountable to their department on an annual basis; collaborate in the collection of departmental income; assist public agencies in territorial management and collaborate in national public policies in agreement with the departmental government and the executive. There are several fields in which local government’s competences are not clearly defined, but local authorities can manifest institutional interest and contribute to programming and policy-making (Art. 13 of Law No. 19 272).

Main responsibility sectors and sub-sectors
SECTORS AND SUB-SECTORS	Regional level	Municipal level
1. General public services (administration)	Internal administration	Internal administration
2. Public order and safety
3. Economic affairs / transports	Transit and roads; Road management; Departmental and urban transport;Promote the development of agriculture, livestock, industry and trade	Road network; Traffic signs and traffic control; Conforming measuresfor the development of livestock, industry or tourism in coordinationwith the Departments; Opinion, proposal and assistancein the management of local development projects;Collaborate in guidelines on fairs and markets
4. Environment protection	Protection of the environment and sustainable developmentof natural resources; Waste collection	Environmental protection; Environmental education programs;Maintenance of green areas; Rainwater management; Urgent measuresin collaboration with the National Government on accidents, fires,floods and other natural disasters; Collection and final disposal of wastethat is assigned by the department
5. Housing and community amenities	Construction and housing (part of its execution and regulation); Territorial andurban planning; Street cleaning; Public lighting; Sanitation; Cemeteries	Maintenance of public works; Improvement of goods and buildings;Public lighting; Street cleaning; Public spaces; Cemeteries
6. Health	Public hygiene and health	Zonal programs in health and hygiene
7. Culture & Recreation	Libraries; Museums; Exhibitions; Nurseries; Theatre; Music;Sports; Gardens; Zoos; Planetariums	Social and cultural programs, attending to the proposalsof other social bodies
8. Education
9. Social Welfare	Activities and policies for specific population groups (women, children,young people, the elderly and people with disabilities)

Scope of fiscal data: departmental and municipal governments

Ministry of Finance and TerritorioUruguay Observatory

Availability of fiscal data: Medium

Quality/reliability of fiscal data: Medium

GENERAL INTRODUCTION: Finance provisions regarding departments are found in the Constitution, in particular in articles 214, 273, 275 and 298. Departments are financed through own revenue or transfers from the national government or other agencies. Most of the departments’ own resources come from taxes and fees. The Constitution gives the departmental legislative body the possibility of creating specific taxes and fees. Law No. 19 272 directly regulates municipal finance, establishing that municipalities may only manage financial resources, not create them. The Law also sets out that departments must plan in their budget an allocation for municipalities.

Subnational government expenditure by economic classification
2020	Dollars PPP / inhabitant	% GDP	% general government	% subnational government
Total expenditure	729	3.2%	12.3%	100.0%
Inc. current expenditure	616	2.7%	11.0%	84.5%
Compensation of employees	347	1.5%	18.0%	47.7%
Intermediate consumption	187	0.8%	-	25.7%
Social expenditure	-	-	-	-
Subsidies and current transfers	39	0.2%	3.0%	5.4%
Financial charges	20	0.1%	3.0%	2.8%
Others	22	0.1%	34.4%	3.0%
Incl. capital expenditure	113	0.5%	33.7%	15.5%
Capital transfers	-	-	-	-
Direct investment (or GFCF)	113	0.5%	33.7%	15.5%

EXPENDITURE: Total subnational government expenditure represents 3.2% of GDP and 12.3% of general government expenditure. Current expenditure represents the main part of subnational government expenditure (84.5%) in 2020 compared to 15.5% dedicated to capital expenditure. With 47.7% of the total amount of current spending, wages and salaries represent the largest part of current expenditure, followed by spending on goods and services (intermediate consumption) with 25.7%.

DIRECT INVESTMENT: In 2020, subnational government investment represented 33.7% of total public investment and 0.5% of GDP. While subnational government direct investment has increased steadily between 2006 and 2016, the share of subnational government capital expenditure in total expenditure has remained stable at around 15% over the last four years.

As part of its policy to support investment in infrastructure, the central government has defined a public works plan 2015-2019 that has opened up opportunities to establish public-private partnerships (PPPs). PPPs are regulated by Law 18.786 adopted in 2011 and Decrees 17/012, 280/012, and 251/015.

According to this regulatory framework, PPP contracts can be initiated by a public entity interested in undertaking the project, including decentralised service-providers (telecommunications, ports, energy, housing, etc.), autonomous bodies (central bank, universities, railways, etc.) and departmental governments. PPPs can only be implemented in Uruguay when a prior analysis has determined that no other form of procurement is better suited to achieve the public policy objectives. In addition, the regulatory framework explicitly prohibits PPPs in the water and irrigation sectors and limits them to specific projects when they are related to education, health and security.

Subnational government expenditure by functional classification
2020	Dollars PPP / inhabitant	% GDP	% general government	% subnational government
Total expenditure by economic function	729	3.2%	-	100.0%
1. General public services	265	1.2%	11.5%	36.3%
2. Defence	-	-	-	-
3. Security and public order	15	0.1%	3.2%	2.0%
4. Economic affairs/transports	188	0.8%	40.9%	25.7%
5. Environmental protection	45	0.2%	53.5%	6.1%
6. Housing and community amenities	145	0.6%	66.9%	19.9%
7. Health	1	0.0%	0.2%	0.1%
8. Recreation, culture and religion	44	0.2%	64.2%	6.0%
9. Education	1	0.0%	0.1%	0.1%
10. Social protection	26	0.1%	1.5%	3.6%

Subnational government expenditure is mainly allocated to the provision of public services, which accounts for 36.3% of total expenditure, followed by economic affairs and housing and community amenities, which represent 25.7% and 19.9% respectively. In 2020, environmental protection accounts for 6.1% of subnational expenditure, a decrease compared to 2016 (11.4 %) while financial resources spent on recreation, culture and religion have remained nearly stable (6.1% compared to 6.8%). On the other hand, defence and security, as well as health and education are expenditures exclusively made at the national level.

Subnational government revenue by category
2020	Dollars PPP / inhabitant	% GDP	% general government	% subnational government
Total revenue	716	3.1%	13.6%	100.0%
Tax revenue	346	1.5%	4.0%	48.3%
Grants and subsidies	188	0.8%	-	26.2%
Tariffs and fees	95	0.4%	-	13.2%
Income from assets	33	0.2%	-	4.7%
Other revenues	54	0.2%	-	7.5%

OVERALL DESCRIPTION: In 2020 subnational government revenues account for 3.1% of the GDP and 13.6% of total public revenue. Tax revenues and grants and subsidies account for 48.3% and 26.2% of subnational government revenues respectively. Grants and subsidies consist of general grants from central government based on constitutional provisions and laws, and earmarked transfers to specific sectors mainly from the Office of Planning and Budget (OPP) and line ministries.

Only departments have the power to levy taxes, municipalities do not. Municipalities’ resources come from transfers from three sources: 1) budgetary allocations that the departmental governments provide in the corresponding five-year budgetary programmes for the municipalities; 2) resources allocated by the national budget to the Municipal Management Incentive Fund (FIGM); and 3) donations or legacies.

TAX REVENUE: The national government sets the tax rates for most subnational taxes. The Constitution provides for three main taxes to be collected at the departmental level: the real estate fee (rural, urban and suburban), which taxes building property according to cadastral value; a ‘wheeled-vehicle’ license for all owners of a motor vehicle; and a tax on the sale and slaughter of cattle (impuestos a remates y ventas de semovientes). Departments set the rates of the urban and suburban property tax whereas the national government is in charge of setting the rural property tax rates. Since 2011, a unified single system for collection of vehicle revenues (SUCIVE) has been established, standardising tax amounts across all departments. The national government is in charge of managing and operating the system. Other taxes collected at the local level include public lighting and commercial and industrial activities.

GRANTS AND SUBSIDIES: Total transfers from the central government to subnational governments amount to 0.8% of GDP and represent 26.2% of subnational revenue in 2020.

Law No. 18 355 establishes that 3.33% of the National Budget is directed to departmental governments. The Interior Development Fund (FDI) is an alternative, project-based financing source created in 2015 by Law No. 19 337. Remaining transfers to departments come from subsidies for public lighting, roads and the Subnational Development and Management Programme (PDGS). Funds are also granted for patent unification and the Law on Auctions and Livestock, which are paid by the central government on behalf of the department. (Law No.19 272).

In addition, the central government allocates specific funds to municipalities through the Municipal Management Incentive Fund created by Law No.19 272.

OTHER REVENUE:In 2020, tariffs and fees correspond to 13.2% of subnational government revenue, an increase of more than 5 percentage points compared to 2016 (8%). By order of amount collected, the fees include transit services, sanitation, administration, urban planning, safety, cemeteries and related services, and other sources.

Property income collected by departments includes allowances, prices, fines and surcharges and the output of commercial and industrial activities. Property income amounts to 4.7% of total subnational revenue in 2020, down from 10.3% in 2016.

Subnational government fiscal rules and debt
2020	Dollars PPP / inh.	% GDP	% general government debt	% SNG debt	% SNG financial debt
Total outstanding debt	1	0.01%	0.1%	100.0%	-
Financial debt	1	0.01%	0.1%	100.0%	100.0%
Currency and deposits	-	-	-	-	-
Bonds / debt securities	-	-	-	-	-
Loans	-	-	-	-	-
Insurance pensions	-	-	-	-	-
Other accounts payable	-	-	-	-	-

FISCAL RULES: According to article 301 of the Constitution, departmental governments may borrow funds subject to the approval of the departmental council. Moreover, the Constitution also establishes that loan accumulation requires parliamentary approval and backup guarantees from the national government.

In 2016, the approval of Law No. 17 947 established the legal framework for setting an annual national ceiling for debt contraction.

DEBT: The table shows the departmental governments’ borrowing, which reflects the debt contracted by departments with banks and providers. In 2020, subnational governments’ total outstanding debt accounts for 0.01% of GDP, a sharp decrease from 2016.

TERRITORIAL MANAGEMENT OF THE CRISIS: The new central government administration had to deal with the health crisis only two weeks after coming to power. The government’s strategy focused on voluntary confinement of the population in conjunction with the restriction of activities in areas such as education, entertainment, trade, and borders, which significantly reduced mobility, at least in the first months of the pandemic. In December 2020, when the number of infections began to grow exponentially, the parliament approved a law that reinterprets article 38 of the constitution, which refers to the right to peaceful assembly. The law empowers the police – in coordination with the health authorities and local administrations – to dissolve public meetings that do not respect the government’s social distancing measures for a period of 60 days.

On 13 March 2020, the government declared a “state of health emergency,” which does not legally restrict the operation of government institutions or the practice of civil liberties. The measures taken by the executive and legislative branches followed the usual procedures. During March, the president signed some 15 decrees restricting public and business activities.

The subnational elections, scheduled for May 10, 2020, had to be suspended due to the emergency of the coronavirus pandemic. A law voted by all parties in parliament gave the Electoral Tribunal the power to postpone these elections that were eventually held on 27 September, 2020 under strict health security protocols.

EMERGENCY MEASURES TO COPE WITH THE CRISIS AT THE DIFFERENT LEVELS OF GOVERNMENT: In response to the COVID-19 pandemic, the central government ensured the availability of resources to deal with the emergency, through measures to reduce public spending and reallocate resources to finance the temporary response to the health crisis. In this regard, the Executive issued Decree 133/020 on 24 April 2020, regulating Law No. 19 874, created the COVID-19 Solidarity Fund to finance and assist all government activities aimed at protecting the population in the context of the national health emergency. The Solidarity Fund was allotted the total revenue collected through the COVID-19 health emergency tax (a tax applied for three months to the salaries of the heads of the three branches of the state and the senior government bureaucracy); a percentage of the earnings generated by the National Development Corporation (CND) and the Banco de la República Oriental del Uruguay (BROU); as well as concessional loans from multilateral organisations (the Inter-American Development Bank transferred USD 400 million and maintained a line open for USD 1 billion).

The Solidarity Fund coordinated aid to protect the population in terms of health measures (prevention, mitigation, treatment, and rehabilitation), as well as measures to support the most vulnerable, the productive sector and employment. This included the payment of social benefits in case of unemployment and illness, and subsidies and tax forbearance in case of employment reduction. In 2021, this also included tax forbearance in support of MSMEs. As of February 2021, the COVID-19 Solidarity Fund had spent USD 700 million since the start of the pandemic (1% of GDP), with a further USD 550 million provided to cover loans under the National Guarantee System.

Other measures were taken to mitigate the impact of the pandemic on the income of people living in structural economic vulnerability. The central government temporarily increased the cash transfers received by beneficiaries of the Equity Plan Family Assistance (AFAM-PE) programme and the Tarjeta Uruguay Social, a food card for low-income households. In addition, the central government launched the Emergency Food Basket programme for the unemployed and informal workers not covered by existing social assistance programmes, who receive transfers via an electronic wallet. Access to unemployment insurance was made more flexible and a partial unemployment insurance was created to help workers in companies whose activities were reduced. Access to the National Health Care Fund was temporarily expanded for laid-off workers. As of 2021, MSMEs were provided with significant financial guarantees from the government, tax exemptions and concessional loans.

IMPACTS OF THE CRISIS ON SUBNATIONAL GOVERNMENT FINANCE: The slowdown of economic activities due to the pandemic has had a significant impact on the economic and social situation of the country. It has led to a drop in tax revenues and an increase in public expenditure at the various levels of government. Nevertheless, the lack of information does not allow for a precise assessment of the effects on subnational governments’ finances.

ECONOMIC AND SOCIAL STIMULUS PLANS: In March 2021, the government announced an extension of some of the emergency measure adopted in March 2020 as part of the government’s emergency package, including an extension of credit guarantees, unemployment insurance and tax relief for small businesses; an increase in support to the most vulnerable; and an extension of investment incentives. In April 2021, the government announced plans to spend USD 900 million (1.6% of GDP) on COVID-19-related measures during 2021. It also complemented existing measures with a six-month suspension of social security contributions for SMEs in sectors most affected by the pandemic (e.g. tourism, hotels, restaurants etc.).