The agency has maintained its BB + rating with a negative outlook but again warned about the high fiscal deficit and the difficulties the country faces in passing a tax reform bill.
From a statement issued by Fitch Ratings:
Fitch Ratings-New York-20 January 2016: Fitch Ratings has affirmed Costa Rica's Long-term foreign- and local-currency IDRs at 'BB+'.
The rise of interest rates in US is one of the reasons behind the lower demand for Costa Rican debt bonds, which are perceived as riskier because they are not investment grade.
When US interest rates began to fall, international investors sought riskier options and performances, such as external debt bonds rated below investment grade in countries such as Costa Rica.
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.
In the latest update to its emerging market index the entity changed its view of the relative weight of Costa Rican bonds from "Marketweight" to "Underweight".
An article in Elfinancierocr.com notes that "... The opinion of JP Morgan in making this move is centered around the fiscal deterioration suffered by Costa Rica and they argue that this has been sustained and that there is little chance that this trend will be reversed.
Fitch, Moody's and Standard & Poor's are once again warning of the need to generate more revenue and cut public spending in order to avoid "negative consequences for ratings."
On average agencies provide a period of 12-18 months for the fiscal deficit and public debt to stabilize, while clarifying that "... the presentation of tax reforms is not enough to ensure a good perspective for the country.
The agency has maintained the rating for sovereign bonds at "BB" but warned of the risks to which the economy is exposed if not a tax reform does not take shape.
From a statement issued by Standard & Poor's:
Standard & Poor 's Ratings Services has affirmed its' BB / B' rating on long- and short-term foreign and local currency sovereign bonds of the Republic of Costa Rica.
Standard & Poor's has warned of the risk of default in the next two years and reduced the rating for the sovereign debt of Venezuela, the principal debtor of the Colon Free Zone.
From a statement issued by Standard & Poor's:
OVERVIEW
The Venezuelan government's failure to take timely corrective actions to address growing economic distortions has contributed to economic deterioration and shortages of foreign exchange.
Despite being reduced compared to 2013, the IMF insists that the fiscal deficit remains a thorn in its side for preventing the economy from reaching its full potential.
From a statement issued by the International Monetary Fund (IMF):
January 30, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation1 with Costa Rica.
Fitch Ratings has revised from "stable" to "negative" its perspective for international long-term ratings of the private bank BAC San José and the state banks Banco Nacional, Banco Popular, Banco Internacional and Banco de Costa Rica.
From a statement issued by Fitch Ratings:
Fitch Ratings has revised the Outlook for international long-term ratings of four Costa Rican banks and a Panamanian subsidiary from Stable to Negative, after having revised the Perspective for Costa Rica's sovereign rating from stable to negative :
In a clear warning signal, the ratings agency has changed the outlook for Costa Rica's sovereign debt from stable to negative, arguing that there is a lack of measures to reduce the fiscal deficit.
From a statement issued by Fitch Ratings:
Fitch Ratings-New York-22 January 2015: Fitch Ratings has revised the Rating Outlook on Costa Rica's Long-term foreign and local currency Issuer Default Ratings (IDRs) to Negative from Stable and affirmed the IDRs at 'BB+'. The issue ratings on Costa Rica's senior unsecured foreign and local currency bonds have been affirmed at 'BB+'. The Short-term foreign currency IDR has been affirmed at 'B' and the Country Ceiling at 'BBB-'.
Slow growth is projected in El Salvador, very good performance in Nicaragua, stability in Panama, more competition in Guatemala and moderate growth in Costa Rica.
From a report by Fitch Ratings entitled "2015 Perspectives: Central American Banks":
Costa Rica:
Fitch Ratings has revised the outlook for the sector from positive to stable, because the agency does not anticipate substantial improvements in respect to the previous year.
Although they have recovered the upward trend seen before Moody's withdrew the investment grade rating, they still have not returned to the pre-announcement levels.
Prices of Costa Rican debt securities increased between 1.2% and 4.5% on the international market, with those with a maturity of 2043 registering the highest increase, "... which ended up being traded at a price of 83% on 17 September, registering 87.5% on 27 October.
Moody's has removed the country's rating of "investment grade", citing the increase in public spending and political inability to implement fiscal reform.
From a statement by Moody's:
New York, September 16, 2014 -- Moody's Investors Service has today downgraded Costa Rica's government bond rating to Ba1 from Baa3. Moody's has also changed the outlook to stable from negative.
The risk premium demanded by investors for the Costa Rican international bond due in 2023 rose from 2.10% to 2.56% between June and September 2014.
Investors could be moving towards a degradation of the sovereign rating of the country, a possibility already suggested by Fitch rating agency.
An article on Nacion.com reports that "... Since last June, the extra rate of return that foreign savers demand for Costa Rican Government's securities in respect to United States Treasuries (so-called risk premium or margin) has gone. "
The draft state budget for 2015 contains imbalances that will deepen the deficit, taking it to a record 6.7% of GDP.
The persistence of high fiscal deficit, a faster deterioration than expected in the dynamics of public debt, which was already high, and increasing funding restrictions could put pressure on the sovereign rating of 'BB +' and its perspective, which so far is stable.