Costa Rica: Juggling to Alleviate Fiscal Deficit

Refinancing loans and selling debt to China are part of the measures the government intends to implement in order to try to control the growing fiscal deficit without putting pressure on interest rates.

Wednesday, October 21, 2015

At the same time as announcing a reduction in the policy rate to encourage a decline in the interest rates of banks and financial institutions, the government is seeking other alternatives to avoid upward pressure in their search for resources to finance a growing fiscal deficit.

The possibilities of raising funds in the international market without paying high yields become more reduced when there are delays in reducing public spending and tax reforms projects remain dormant in the Assembly.

Among the alternatives the government is considering is "... the sale of debt to China without congressional approval, to issue short-term bonds and raise more funds in dollars."

Nacion.com reports that "... It also considering the option of a $500 million credit line with the Inter-American Development Bank (IDB). However, these resources are dependent on representatives approving the conversion of the sales tax into value added tax (VAT), explained Helio Fallas, chief of the Treasury. "

"... Juan Carlos Quiros, director of Public Credit, confirmed that they are negotiating with China to sell domestic debt bonds. The entire emission would be bought by the Asian country. 'We will be fully transparent in this process and over the conditions agreed. China will even give us all of the brokerage houses that it operates here so that they can choose with whom to make the purchase. '"



More on this topic

Costa Rica Expects to Issue More External Debt

July 2017

The government is preparing a bill for the Assembly to authorize a debt issue on the international market next year.

The Ministry of Finance is considering raising money abroad in order to avoid pushing interest rates up in the local market. If the Legislative Assembly approves the bill, the government will turn to the international market to raise the 1.2 trillion colones that it needs to pay for domestic debt securities due next year.

Interest Rates Rise Forecasted in Costa Rica

January 2016

An announcement from Moody's confirms the limited room for maneuver left to the country when obtaining external financing, compromising access to credit for the private sector.

Costa Rica has received a new warning over a possible lack of access to funds in the international market with which to alleviate its growing fiscal deficit.

China Says No to Costa Rican Bonds

January 2016

The Chinese government has announced that it will not buy bonds worth $1 billion offered by Costa Rica, seriously delimiting the leeway that the Solis administration has to manage its growing fiscal deficit.

The lack of political conditions to implement greater controls on government spending and to gain approval for a fiscal package which would tidy up state finances is preventing multilateral lenders such as the World Bank or the IMF from lending money to Costa Rica, meaning that, after the elimination of the option to sell bonds to the Chinese government, Costa Rica will have to resort to the domestic market for funds, which will inevitably push up the cost of money for all sectors, including production.

Costa Rica Could Issue Bonds worth $4 billion

May 2012

The annual amount cannot exceed $1 billion in order to avoid the placement of debt in a single issue.

The Economic Affairs Committee of the Legislative Assembly gave its approval to a motion that seeks to double the maximum amount of foreign bonds that the Government may sell, going from $2 billion to $4 billion, said Rep. Patricia Perez, president of the commission.

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