Costa Rica: S&P Confirms Risk Rating

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.

Friday, March 26, 2021

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.

Check out the "System for monitoring markets and the economic situation in Central American countries", prepared by CentralAmericaData.

From the Standard & Poor's report:

New York (S&P Global Ratings) March 25, 2021, S&P Global Ratings affirmed its 'B' long-term foreign and local currency sovereign credit ratings on Costa Rica. The outlook remains negative. At the same time, we affirmed our 'B' short-term sovereign credit ratings. The transfer and convertibility assessment remains 'BB-

The negative outlook indicates the possibility of a downgrade over the coming six to 12 months should Costa Rica fail to advance its strategy for corrective fiscal actions, such as those under the proposed EFF or public employment law, that would strengthen its financial metrics after the pandemic, or should setbacks to the improved local market financing conditions seen thus far in 2021 arise.

Stressed local market conditions would likely imply additional risk for debt management, given the sovereign's record of challenges in securing congressional approval for external financing, be it from capital markets or official creditors. In this scenario, covering the government's large funding needs may require recourse to the central bank or other unconventional financing. This in turn could result in S&P Global Ratings viewing the country's institutional framework and ability to support public finances less favorably--despite widespread checks and balances and a solid democratic tradition--and lead us to lower the ratings.

Conversely, we could revise the outlook to stable over the same period if the government and congress advance concrete measures to anchor fiscal policy after the pandemic. At the moment, the government has articulated this strategy under the EFF proposal and the public employment law under debate. Such steps, along with the post-pandemic economic recovery, could support investor confidence, sustain fluid access to local market and official borrowing as well as foreign direct investment (FDI), and reduce the country's external vulnerability.

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More on this topic

Costa Rica: Political and Fiscal Uncertainty Take Its Toll

June 2020

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.

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.

Nicaragua: Risk Rating Continues So Far

November 2019

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

December 2018

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.

S&P Confirms Nicaragua's Debt Rating

February 2018

Standard & Poor's has maintained the rating of B+ for long-term sovereign debt, arguing that economic growth is stable and the burden of public debt remains moderate.

From a statement issued by Standard & Poor's:

On Feb. 16, 2018, S&P Global Ratings affirmed its 'B+' long-term local and foreign currency sovereign credit ratings on the Republic of Nicaragua.

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