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Costa Rica: Interest Rates Rise Due to Fiscal Deficit of 5.4%

Interest rates usually rise when there is pressure exerted by the Government raising money in colones to finance its deficit.

Thursday, January 23, 2014

2013 ended with a deficit of 5.4%, a level not seen since 1995 and one which could lead to an increase in interest rates.

"... Income tax collections grew by only 9%, affected by the slow growth in receipts from General Sales Tax. (...) Expenses increased by 14%, spurred on by the increased debt burden and the government payroll. "

"Given that the Treasury can only resort to external financing of $1 billion per year, it must compete even more in 2014 with the private sector for the local currency."

Fernando Rodríguez, ex-assessor for the Finance Ministry said: "After having finished the previous year with a record low level of inflation, the fiscal deficit is the main risk to rising inflation in the coming months."

Source: Nacion.com