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.

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