Although the Legislative Assembly approved the issuance of $1.5 billion of debt in the international market, Fitch Ratings believes that in the coming years there could be renewed uncertainty about the sources of financing for the Costa Rican government.
Up to August, the external and internal public debt amounted to $18.463 billion, equivalent to 23.4% of the country's Gross Domestic Product.
According to figures from the Ministry of Public Finance, in the last nine years the debt to GDP ratio has slightly varied, between 23.3% and 24.8%.
Regarding the country's indebtedness level, Abelardo Medina, senior economist at the Central American Institute of Fiscal Studies, said to Dca.gob.gt that "... It is interesting to note that, although Guatemala reports the lowest level of debt in the region and one of the lowest in the world, the evaluation given by risk rating agencies does not reach investment level. This is a product of political instability but, especially, it is due to the limited size of its fiscal revenues."
After recognizing the serious liquidity problems faced, the government has announced it will borrow another $1 billion for a hearty lunch that others will pay for tomorrow.
The $1 billion that the Central Bank of Costa Rica (BCCR) has been negotiating since May with the Latin American Reserve Fund (FLAR) to strengthen its reserves will arrive in October of this year, according to the BCCR authorities.
The borrowing plan presented by the Treasury for the first half of the year includes an issue of debt securities in the local market for up to $1.8 billion, mostly at a fixed rate.
From a statement issued by the Ministry of Finance:
The Ministry of Finance and the Central Bank of Costa Rica (BCCR) today presented their debt issuance plans for the coming months.
The financial deficit accumulated up to August 2016 stands at 2.9% of GDP, slightly below the 3.6% recorded in the same period in 2015.
From a statement issued by the Ministry of Finance:
A reduction of ¢157,082 million in the financial deficit (revenues minus expenses), and a difference of seven percentage points between increased income and expenses, were the main fiscal figures of the Central Government recorded at the end of the second quarter of this year.
The accumulated financial deficit in July 2016 stood at 2.6% of GDP, slightly below the value at which it stood in the same month in 2015.
From a statement issued by the Ministry of Finance:
A reduction of ¢134,410 million in the financial deficit (revenues minus expenses), equivalent to more than half of GDP, and a difference of 7.3 percentage points between increased income and expenses, were the fiscal figures recorded for Central Government up to July this year.
The institution is once again emphasizing more efficient public spending and making cuts before a fiscal adjustment comes into force, in a form that is "draconian and with emergency measures".
Making cuts and improving efficiency in public spending is once again the main recommendation of the International Monetary Fund. In education alone, an area into which almost 8% of GDP goes, there is ample room for improvement.
In the view of Fusades the state budget for next year is inconsistent, overestimating tax revenues and authorizing an unnecessary amount of indebtness.
From a report by the Salvadoran Foundation for Economic Development
The PP2016 presented to the Legislature raises the same issues that were previously mentioned in various publications, repeating the continued lack of fiscal discipline. The deficiencies are:
Fitch notes that the relatively favorable external environment will not be enough for Central American countries to improve their credit ratings, which could remain stable despite fiscal problems.
From the press release by Fitch Ratings:
Fitch Ratings-New York-22 October 2015: External tailwinds are unlikely to lead to a significant uplift in Central America's creditworthiness, says Fitch Ratings in a new special report.
Refinancing loans and selling debt to China are part of the measures the government intends to implement in order to try to control the growing fiscal deficit without putting pressure on interest rates.
At the same time as announcing a reduction in the policy rate to encourage a decline in the interest rates of banks and financial institutions, the government is seeking other alternatives to avoid upward pressure in their search for resources to finance a growing fiscal deficit.
With the exception of improvements in Nicaragua and Honduras, in the rest of the Central American countries problems in public finances range from latent in Panama and already serious in Guatemala, to critical in Costa Rica and El Salvador.
From the report "Macrofiscal Profiles: 4th Edition" by the Central American Institute for Fiscal Studies (Icefi):
The ENADE 2015 survey reveals that 90% of Salvadoran entrepreneurs believe that the country has regressed in its competitiveness compared to other countries in the region.
In the view of the private sector, among the factors that have caused a loss of competitiveness for El Salvador are the high levels of crime, political and economic instability, constant changes to laws, lack of competitive infrastructure, and increased taxes.
"The Salvadoran economy continues to stagnate in a cycle of low growth and uncontrollable public debt, while economic and social policies focus on short-term relief, driving away employment opportunities."
From a statement by the Salvadoran Foundation for Economic and Social Development (FUSADES):
The Salvadoran economy continues to stagnate in a cycle of low growth and uncontrollable public debt; while economic and social policies focus on short-term relief, driving employment opportunities away.
Instead of cutting back on spending, the State has once again called on the Legislature to approve borrowing another $900 million, which will bring total debt to a record of nearly $17 billion.
Currently it is estimated that GDP is around $25 billion, meaning that state debt represents 68% of national production, excluding interest payments.
The economist Claudio de Rosa, told Elsalvador.com that "...
The need to borrow every month in order to pay current account expenses is the main cause of the continuing increase in the central government's debt to GDP ratio.
At the end of 2014, total public debt, which includes the Central Bank of Costa Rica and other public sector entities represented 58.6% of all production. Rodrigo Bolaños, president of the Central Bank, said that "...