As a result of the corruption case in Costa Rica involving a shareholder of Constructora MECO, Fitch Ratings downgraded the company's long-term national rating to "A-(pan)" from "AA-(pan)", and at the same time placed it on Negative Watch.
On the morning of June 14, 2021, some 700 agents of the Judicial Investigation Agency (OIJ) and the Public Prosecutor's Office (prosecutors) raided 21 homes, Casa Presidencial, Ministry of Public Works and Transportation (MOPT), National Viability Council (Conavi) and Public Transportation Council (CTP).
For Fitch, the delay in vaccination campaigns constitutes a latent risk of a prolonged pandemic, which would delay the recovery of the region's economies and would cause negative pressures on the risk ratings to be issued in the coming months.
Fitch Ratings issued a bulletin for Mexico, Central America and the Caribbean on May 25, in which it warned that given the deep economic contractions in the region and the moderate recovery outlook, there are threats of negative rating pressures.
The rating agency decided to maintain at "B" the long-term and short-term local and foreign currency sovereign credit rating, with a negative outlook indicating the risk of a downgrade in case the Assembly does not approve an Extended Fund Facility or other policy measures.
In the current scenario, covering the government's large financing needs may require resorting to the central bank or other non-conventional financing, highlights the rating agency's analysis.
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.
The rating agency decided to keep the long-term issuer's note at B2, but changed the risk outlook from stable to negative, arguing that there are greater risks to the country's financing due to increased borrowing requirements.
The affirmation of Costa Rica's B2 rating takes into account the sovereign's levels of wealth above its peers and its dynamic economy.
For Moody's, the Costa Rican government's response to the Covid-19 crisis will put negative pressure on the country's fiscal profile.
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.
Arguing that the high fiscal deficit is still on an upward trend, the rating agency downgraded the long-term and senior unsecured government bond issuer's note from B1 to B2.
Fiscal deficits averaging more than 6% of GDP since 2015 have led to higher public debt/GDP than its 'B'-rated peers, the rating agency said.
From Moody's statement:
New York, February 10, 2020. Moody's Investors Service, ("Moody's") has today downgraded the Government of Costa Rica's long-term issuer and senior unsecured bond ratings to B2 from B1 and changed its rating outlook to stable from negative.
Fitch Ratings kept in B+ with a negative outlook, the sovereign debt rating, arguing that "the weaknesses in public finances are reflected and the political stagnation has prevented the timely approval of reforms that address these problems."
The new fiscal rule has not been approved, and the Congressional authorization requirement for foreign loans periodically restricts Costa Rica's financial flexibility, is another of the risk qualifier's arguments.
The governments of Costa Rica and Nicaragua will face greater challenges in obtaining financing in external markets, because of the lowering of their risk ratings by international agencies.
Arguing that Costa Rica reflects consistently large fiscal deficits, short-term financing needs because of a strong repayment schedule and budget financing constraints, Fitch Ratings reported on January 15 that the country's long-term foreign currency issuer default rating was downgraded from BB to B+.
Standard and Poor's announced that it downgraded Costa Rican bonds from BB- to B+, adding to Moody's downgrade in early December.
Standard and Poor's (S&P) reported that the decision was made because the country's fiscal situation could generate a continuous increase in the general government's net debt burden.
“If the recent tax reform is not effectively implemented, and if additional fiscal measures are implemented if necessary, a continuous increase in the net debt burden of the general government could be generated, which will contribute to higher interest expenditures," explains the S&P report."
The rating agency reduced the long-term and senior unsecured bond issuer ratings of the Costa Rican government from Ba2 to Ba1 and changed the outlook to negative.
According to Moody's, among the main factors behind the decline is the continued and projected worsening of debt metrics in the back of large deficits despite fiscal consolidation efforts.
Moody's downgraded the long-term issuer ratings and the Costa Rican government's unsecured bonds.
Yesterday the risk rating agency reported that expectations of a continued decline in fiscal indicators and evidence of increased financing needs are some of the reasons behind the decision to revise the country's debt rating.
Rocio Aguilar, Finance Minister, explained to Crhoy.com that Moody's warning is "...
In the view of Moody's, Fitch and S & P, the latest projections of public debt and fiscal deficit by the Central Bank of Costa Rica, further worsen the outlook for the debt rating.
Last week the Central Bank of Costa Rica (BCCR) released a report in which it explained that for this year it is expected that the public debt with respect to the Gross Domestic Product (GDP) will reach 53.8%, and by 2019 this indicator will reach 58.4%.
Lack of fiscal reform continues to erode Costa Rica's public finances, constraining its long-term growth prospects and highlighting its vulnerability to external shocks.
The government is preparing a bill for the Assembly to authorize a debt issue on the international market next year.
The Ministry of Finance is considering raising money abroad in order to avoid pushing interest rates up in the local market.If the Legislative Assembly approves the bill, the government will turn to the international market to raise the 1.2 trillion colones that it needs to pay for domestic debt securities due next year.