Costa Rica: More Debt to Control Spending?

Costa Rica "will strengthen its fiscal sustainability by controlling expenditure and modernizing the tax system with a $350 million loan approved by the Inter-American Development Bank (IDB)."

Wednesday, July 3, 2019

During the controversy generated by the implementation of the fiscal reform in Costa Rica, the approval of a $350 million credit was announced to "support the country in the implementation of its fiscal reform program."

You may be interested in “Does Costa Rica Need More Fiscal Measures?

From the IDB press release:

The resources will be used to support the country in the implementation of its tax reform program aimed at improving efficiency in public expenditure management (employment and administrative reform), the effectiveness of the macrofiscal institutional framework and increase the country’s tax system management. Regarding the modernization of the design and management of the tax system, it is related to the tax reform approved, which involves the creation of a Value Added Tax (VAT) that includes services and greater progressivity in the income tax and the start-up of the electronic invoice for large taxpayers.

Costa Rica will strengthen its fiscal sustainability by controlling expenditure and modernizing the tax system with a $350 million loan approved by the Inter-American Development Bank (IDB). This is the first of two operations under the programmatic policy-based loan modality.

The objective of the project is to approve legal instruments of fiscal policy and management that reinforce sustainability and efficiency, both on the expenditure side and on the revenue side. This will include the approval of a fiscal rule (Law on Strengthening of Public Finances) to control spending and a proposal for the design of an Independent Fiscal Council.

The resources will be used to support the country in the implementation of its tax reform program aimed at improving efficiency in public expenditure management (employment and administrative reform), the effectiveness of the macrofiscal institutional framework and increase the country’s tax system management.

Regarding the modernization of the design and management of the tax system, it is related to the tax reform approved, which involves the creation of a Value Added Tax (VAT) that includes services and greater progressivity in the income tax and the start-up of the electronic invoice for large taxpayers. In the area of public expenditure management, a draft Public Employment Law, spending control measures and the designation of the Ministry of National Planning and Economic Policy as the governing and coordinating body for administrative reform will be submitted to the Legislative Assembly.

The project is expected to have a medium-term impact of an estimated yield of 3.8 percent of GDP for the year 2023, integrated by 1.7 percent for higher tax revenues, and savings by streamlining the current expenditure of 2.1 percent, contributing to the improvement of the Central Government's primary balance on GDP that is estimated to go from -2.3 percent of GDP in 2018 to +0.6 percent in 2023.

The IDB loan, for $350 million, has a repayment period of 20 years, a five-and-a-half-year grace period and an interest rate based on LIBOR.



More on this topic

Costa Rica Keeps Getting into Debt

October 2019

The Legislative Assembly approved a $35 million loan from the Inter-American Development Bank to "support the country in the implementation of its fiscal reform program.”

At the beginning of July, in the midst of the controversy generated by the recent implementation of fiscal reform in Costa Rica, the approval of a credit to strengthen fiscal sustainability was announced.

Costa Rica: State Debt Keeps Growing

May 2019

The Andean Development Corporation approved a $500 million loan for the government, which will be used to "cover the needs contemplated in the 2019 Regular Budget."

The terms of the loan are at 6 months plus a margin of 1.85% at an annual Libor rate of 18 years from the effective date of the loan agreement.

Costa Rican Government Keeps Going into Debt

April 2019

The Andean Development Corporation approved a $500 million loan to the government of Costa Rica, which will be used to "achieve fiscal sustainability in the short and medium term.”

The Andean Development Corporation (CAF) reported that these resources will be used to obtain the benefits generated by the implementation of the Law to Strengthen Public Finances and Costa Rica's access to international markets.

Panama: $ 200 Million to Improve Fiscal Management

December 2010

The IDB loan will support the implementation and framework of a modern fiscal policy based on international practices.

The IDB loan will support the implementation and framework of a modern fiscal policy based on international practices.

Panama will reform its tax laws and improve public management expenditures with a loan of U.S. $ 200 million approved by the Inter-American Development Bank (IDB).

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