CABEI signed a memorandum of understanding with other Central American organizations to strengthen the development of the regional public debt market.
The agreement was signed by the Central American Bank for Economic Integration (CABEI), the Executive Secretariat of the Council of Finance Ministers of Central America, Panama and the Dominican Republic (SECOSEFIN), the Executive Secretariat of the Central American Monetary Council (SECMA) and the Association of Central American Stock Exchanges (BOLCEN).
The rating agency decided to maintain at "B" the long-term and short-term local and foreign currency sovereign credit rating, with a negative outlook indicating the risk of a downgrade in case the Assembly does not approve an Extended Fund Facility or other policy measures.
In the current scenario, covering the government's large financing needs may require resorting to the central bank or other non-conventional financing, highlights the rating agency's analysis.
In addition to the $1,750 million that the government is seeking to obtain through the loan it is negotiating with the IMF, during the four years between 2022 and 2025 the country plans to place $4,000 million in foreign debt bonds.
During February 8 and 9, the Ministry of Finance was able to renegotiate close to $130 million corresponding to maturities of domestic debt securities for the years 2021 and 2022.
This is the first exchange of domestic debt in colones to take place in 2021. In this session, the Ministry of Finance managed to renegotiate debt bonds for ¢79,814 million, equivalent to close to $130 million.
During the auction held on February 1, 2021, the placement of domestic debt securities in local currency amounted to the equivalent of $210 million and in dollars to $115 million.
Through this mechanism, ¢129,667 million ($210.5 million) in Domestic Debt Securities Fixed Rate Colones and Sovereign Adjustable Real Domestic Debt Securities were allocated, informed the Ministry of Finance.
Given the agreement reached by the Alvarado administration and the IMF for Costa Rica to access a $1.75 billion loan, the business sector is calling for a reduction in public spending and for detailed information on the scope of the agreement signed by both parties.
In an attempt to ease the fiscal and economic crisis the country is going through, last year the Alvarado administration began negotiations to access a loan for $1.75 billion to be requested from the International Monetary Fund (IMF).
After the multi-sector dialogue in Costa Rica was concluded, the main risk qualifiers agree that because the agreements signed to reduce the deficit are not enough, the government should execute its fiscal policies in a timely manner.
Although Costa Rica's fiscal situation was already precarious before the health and economic crisis that led to the covid-19 outbreak began, the scenario started to worsen since March of this year.
Arguing that due to the pandemic the current revenues of the General Government have been significantly reduced, Standard and Poor's downgraded Panama's sovereign rating from BBB+ to BBB.
The increase in total debt interest payments as a proportion of the General Government's current revenues is another factor that the rating agency considered when lowering Panama's rating.
Through a competitive auction of domestic debt securities denominated in Colones, on November 9 the Costa Rican government issued the equivalent of $106 million in the primary market maturing in 2024, $81 million in 2026 and $27 million in 2031.
With this allocation the Treasury reached 80.6% of the maximum amount of issuance for ¢1.8 billion, announced last August 25, during the presentation of the debt plan for the second half of the year, the authorities informed.
The Costa Rican government is facing a complex scenario, since by not achieving consensus to access international loans, it will be forced to seek domestic funding sources, which would put pressure on the exchange rate and interest rates to rise.
The economic crisis that the country is going through due to the outbreak of covid-19 ended up sharpening the country's fiscal situation.
After the Alvarado administration agreed to backtrack on the proposal to negotiate a $1.75 billion loan with the IMF, it is predicted that next year the government will depend on domestic debt to finance its expenditures.
Although the Alvarado administration reversed the initial proposal to ask the IMF for $1.75 billion in financing and called for an inter-sectoral dialogue, Costa Rica is semi-paralyzed by the blockades that are taking place on various roads in the country.
The Central American Bank for Economic Integration approved a line of credit for the country to finance works to expand coverage, energy efficiency and resilience to climate change.
The funds will be used to finance part of the Development Policy Operations Program (OPD) to support the country in implementing the General Law on the Electricity Industry (LGIE).
On July 8, the Salvadoran government issued $1 billion in bonds on the international market at a 9.5% interest rate with a maturity date of 2052.
The resources collected through this international issue are part of the $3 billion debt issuance authorized by the government and will be used to finance the health and economic crisis resulting from the spread of the Covid-19.
The rating agency decided to keep the long-term issuer's note at B2, but changed the risk outlook from stable to negative, arguing that there are greater risks to the country's financing due to increased borrowing requirements.
The affirmation of Costa Rica's B2 rating takes into account the sovereign's levels of wealth above its peers and its dynamic economy.