High Debt Limits Public Investment

The proportion of public debt to GDP is about to reach 60%, the maximum limit allowed by law, which will force the government to restrict capital spending in the coming years, in order to avoid further deterioration of public finances.

Monday, August 5, 2019

The Treasury authorities indicated that at the end of 2019 the country's public debt will represent 59% of production, adverse scenario for investment, because according to the fiscal rule, when the proportion reaches 60% will affect capital spending, since the government must begin to contain expenditures.

Rocío Aguilar, Finance Minister, explained to Nacion.com that "... In 60% we already begin to have limitation in capital investment. Not to exceed that threshold we have to remain very disciplined in spending, but above all we have to see how we lower more the interest rate.”

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Martha Acosta, General Comptroller of the Republic, said that "... The rule regulates current spending, only in the most burdensome debt scenario would capital spending be limited, when the debt exceeds 60%, which we are already at the doors."

If capital spending is reduced, which includes the development of road works, construction of schools and investment in other productive infrastructure, it is expected that in the coming years it will be more difficult to maintain high levels of economic growth, which would simultaneously cause tax revenues to fall.

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More on this topic

Government Urged to Extend Debt

November 2018

At the end of 2018, the Costa Rican government needs about $1.5 billion to pay salaries, transfers and debts to state creditors.

According to Rocio Aguilar, head of the Treasury Department, there is currently just over half of the resources needed, which totaled $3 billion.

Warnings Over Panama's Increased Public Spending

October 2014

Economists recommend fiscal discipline in order to better address the economic environment in the coming years and avoid the credit risk being raised due to increased borrowing.

The recent bond issue of state debt by $1250 million on the international market and the consequent increase in total public debt should be a wake up call for the government, which should be able to maintain an adequate balance in the relationship between debt and Panama's Gross Domestic Product.

Future of Panama's Risk Rating

October 2014

Fitch Ratings highlighted as a recurrent weakness of the Panamanian fiscal policy the inability to limit the growth of debt as a percentage of GDP.

From the statement by Fitch Ratings:

Fitch Ratings-London-03 October 2014: The Panamanian government's request to raise the 2014 non-financial public sector deficit ceiling highlights the persistent use of waivers of the country's Social and Fiscal Responsibility Law (LRSF), Fitch Ratings says. This is a recurring weakness in the country's fiscal framework as fiscal consolidation becomes more important in maintaining favourable debt dynamics. However, Panama's ratings continue to be supported by the country's relatively healthy growth rates and macroeconomic stability, its growing economic diversification and the decline in government indebtedness over recent years.

Sustainability of Public Debt in Central America

June 2013

The Central American Institute for Fiscal Studies has concluded that only the public debts of Panama and Nicaragua, using official data, are sustainable in the medium term.

The main theme of the fifth edition of the 'Lente Fiscal Centroamericano' (Central American Fiscal Lens) is an analysis of debt sustainability in Central America, which depends greatly on interest payments on debt, economic growth, inflation, revaluation and management of the fiscal deficit.

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