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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From a statement issued by Standard & Poor's:

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