The Other Side of the Fiscal Crisis

The cost of not making decisions about the serious fiscal problem affecting Costa Rica "is incommensurable and has the potential to affect not only the economic but also the social and democratic order of the country."

Friday, August 10, 2018

This is the emphatic and clear position of the Comptroller General of the Republic of Costa Rica regarding the serious and risky situation in which the public finances of the country find themselves. Furthermore, as is well mentioned in the report "Fiscal and Budgetary Evolution I semester 2018", published recently by the institution, if decisions related to solving problems of short-term liquidity and modifying the structure of public expenditure to the medium and long term continue to be delayed, the cost to the country will be much more than just economic.

From the presentation of the report "Fiscal and Budgetary Evolution I semester 2018": 

In just 10 years, the Public Treasury went from a surplus situation to a financial deficit that dangerously skims the critical values of the eighties and is even estimated to surpass them: in 2017 the Central Government's financial deficit stood at 6.2 % of GDP, and for 2018 and 2019 the BCCR projects it at 7.2% and 7.5% of GDP, respectively, a deep deterioration. 

The longer that is spent without making the adjustment, the greater and more expensive the consequences for society will be. Little by little the country has been adding elements that make it riskier and more vulnerable.  The macroeconomic conditions are changing and they are becoming less favorable. In the revision of the Macroeconomic Program 2018-2019 the BCCR adjusted downwards the projections of growth of 4.1% estimated in July 2017, to 3.2% (real GDP) for 2018 due to the behavior of domestic demand; In addition, there is strong upward pressure on interest rates -product of the Central Bank's high liquidity requirements and observed increases in Federal Reserve rates-, as well as risks of depreciation and inflation in light of adjustments to external interest rates and risk of greater effect from imported inflation in the absence of a structural solution for public finances. Externally, the BCCR has identified downside risks in relation to lower global growth (external demand) and the price of raw materials. In short: the macroeconomic conjuncture is less favorable, considering internal and external risks.

Read full report (in Spanish).

More on this topic

El Salvador's Debt Rating Downgraded Again

February 2017

In line with recent warnings issued by other credit rating agencies regarding the country's bleak fiscal outlook, Fitch has reduced the debt rating from B + to B, and changed the outlook to negative.

From a press release issued by Fitch Ratings:

Fitch Ratings-New York-01 February 2017: Fitch Ratings has downgraded El Salvador's Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) to 'B' from 'B+'.

Costa Rica's Fiscal and Political Sickness

October 2016

The ICEFI points to a "chronic political inability to achieve comprehensive fiscal agreement" which is jeopardizing the sustainability of the state in the medium and long term.

From a statement issued by the Central Institute for Fiscal Studies (Icefi):

Growing Fiscal Risks in Central America

August 2016

The countries facing the greatest risk of fiscal unsustainability within three years are El Salvador and Honduras, followed by Costa Rica and with less risk, Nicaragua and Panama.

From the  "Economic Outlook" section of the V Report on the State of the Region 2016:

Guatemala's Fiscal Fragility

August 2013

The International Monetary Fund is warning that adjustments are needed in order to increase tax revenues and reduce the state's fiscal deficit.

They note that "... the tax reform passed in 2012, which came into effect on January 1 this year, broadens the tax base and gives the government more tools to enforce fiscal and supervisory controls and eliminates tax exemptions and reduces corporate tax rates," noted an article in

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