Costa Rica: Political and Fiscal Uncertainty Take Its Toll

Standard & Poor's downgraded the foreign debt rating from B+ to B with a negative outlook, arguing that there is uncertainty due to the lack of flexibility of the Alvarado administration in implementing fiscal policy in the country.

Wednesday, June 10, 2020

The negative perspective in the new risk note, anticipates that there is a possibility that in the next 12 months the rating will be degraded again, if the authorities adopt policies that damage the country's financial profile.

Check out the "System for monitoring markets and economic situation in Central American countries" of CentralAmericaData. reviews that "... S&P Global points out that poor policy formulation could weaken the sustainability of growth and weaken public finances. It also stresses that the country's large financing needs and potentially poor debt management decisions could also lead to a downgrade."

According to the article, the agency said in a statement that the downgrade will take place "... if Costa Rica's political leadership cannot demonstrate a more concerted, coherent and timely way to take corrective fiscal action that will curb the potential argument of liquidity pressures and growing sovereign financing needs."

In this context of the spread of covid-19, Moody's also decided to downgrade the debt outlook, as in early June it announced that it changed the risk outlook from stable to negative, arguing that there are greater risks to the country's financing from increased borrowing requirements.

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Nicaragua: Risk Rating Continues So Far

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Standard & Poor's warned that if in the coming months the political environment worsens or access to local and external financing deteriorates again, the debt note could suffer further deterioration.

In November 2018, the agency reduced from B to B the rating of Nicaragua's foreign currency debt with a negative outlook, arguing that the country's fiscal and financial profiles have weakened at that time.

Costa Rica Ends 2018 with Another Downgrade

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Standard and Poor's announced that it downgraded Costa Rican bonds from BB- to B+, adding to Moody's downgrade in early December.

Standard and Poor's (S&P) reported that the decision was made because the country's fiscal situation could generate a continuous increase in the general government's net debt burden.

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Arguing a moderate fiscal deficit, low level of public debt and an improvement in the country's external position, Standard & Poor´s kept the country's credit risk rating at BB-.

From the press release of the Banco de Guatemala:

October 31, 2018. The risk rating agency Standard & Poor’s (S&P) confirmed the rating of credit risk for Guatemala in BB- and maintained the stable outlook on Monday, October 29th.

Nicaragua's Debt Rating Downgraded

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S & P has downgraded the debt rating from B + to B, arguing that the escalation of the internal conflict has weakened governance, and the rating could be reduced again in the next 12 months if the violence continues to rise.

From a press release by Standard & Poor´s: