Moody's Downgrades Costa Rica's Debt Rating

In line with warnings from other ratings agencies regarding the serious fiscal problem and the lack of political will to solve it, Moody's has downgraded its rating from Ba1 to Ba2 with a negative outlook.

Friday, February 10, 2017

New York, February 09, 2017 -- Moody's Investors Service has today downgraded Costa Rica's government bond rating by one notch to Ba2 from Ba1, and maintained the negative outlook on the rating.
The key driver behind the downgrade to Ba2 is the continued weakening of Costa Rica's fiscal profile, reflected in its rising government debt burden and persistently high fiscal deficit, which was 5.2% of GDP in 2016.

The continued negative outlook on Costa Rica's credit rating reflects Moody's expectation that a lack of political consensus to implement measures to reduce the fiscal deficit will result in further pressure on the government's debt ratios. The adverse macro-economic consequences of fiscal deterioration could increase susceptibility to event risk.

Concurrently, Moody's has today also changed the long-term foreign-currency bond ceiling to Baa3 from Baa2, while the short-term foreign-currency bond ceiling remains unchanged at P-3. The long-term foreign-currency deposit ceiling was changed to Ba3 from Ba2, while the short-term foreign-currency deposit ceiling remains at NP. The long-term local-currency bond and deposit ceilings were changed to Baa1 from A3.

The key driver informing Moody's decision to downgrade Costa Rica's credit rating to Ba2 is the government's rising debt, which the rating agency expects will reach almost 50% of GDP this year. This higher debt burden increases the portion of revenues that are absorbed by debt-servicing requirements, reducing fiscal flexibility. Moreover, it raises the government's exposure to potential exchange rate and interest rate shocks.

See entire statement 

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