The High Fiscal Cost of Anti-Covid-19 Measures

For Moody's, the Costa Rican government's response to the Covid-19 crisis will put negative pressure on the country's fiscal profile.

Wednesday, March 25, 2020

According to the rating agency's analysis, the measures include a three-month moratorium on tax payments, a gradual reduction in corporate social benefit contributions and extended credit lines for the companies most affected by the economic recession. Although there are no official estimates of the size of the fiscal stimulus, it comes while the country's credit profile is already under pressure.

On March 19, Costa Rica's Legislative Assembly unanimously approved a fiscal incentive package to mitigate the negative economic effects of the coronavirus. The government's policy response will mitigate the effects of the economic recession, but put negative pressure on the sovereign's fiscal profile, explained Moody's.

The document explains that "... Costa Rica is in the midst of a fiscal consolidation program to reduce its debt burden, which more than doubled to 58% of GDP in 2019 from 24% in 2008. Most importantly the corrective fiscal measures included in the government's fiscal consolidation efforts have been extended over time with most of the deficit reduction based on limiting the growth of current expenditures. We expect that full implementation will meet with public opposition as additional savings will require reductions in the government's wage bill and social transfers, which will be particularly difficult in the midst of the economic recession caused by the coronavirus."

Covid-19: How do the outlook for businesses in Costa Rica change?

We prepared for our clients the report "Information System: Covid-19 and business forecasts" which helps companies to measure the impact that the crisis will have on their activity in the coming months.

Click here to request access to this report.

More on this topic

Negative Outlook for Panama's Debt

October 2020

Based on the argument that there is no significant fiscal consolidation and sustained economic recovery, the rating agency decided to downgrade the government's long-term issuer rating perspective from stable to negative.

Although the outlook was modified, Moody's decided to maintain the long-term issuer and senior unsecured debt ratings at Baa1.

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.

Guatemalan Debt Rating Confirmed

June 2018

Citing a long history of fiscal and monetary policy characterized by prudent management, the rating agency Moody's maintained the country's credit risk rating in Ba1.

From a statement issued by the Bank of Guatemala:

June 2018. Moody's Investors Service maintains the credit risk rating for Guatemala at Ba1 with a stable outlook.  

Moody's Downgrades Costa Rica's Debt Rating

February 2017

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.

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.