The high level of financing and the economic slowdown explain the increase in the fiscal deficit of the central government, which at the end of July reached 3.3% of GDP, the highest in the last six years.
The decrease in tax revenues, due to a slowdown in economic activity, added to the high level of government debt, explained the strong rebound in the fiscal deficit in the first half of the year.Of the total deficit, about two thirds correspond to interest.
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.
Between today and February 14 the Ministry of Finance in Costa Rica will go to the local market with the goal of issuing $290 million, at a rate of 7% and maturing in 2019.
In its constant search for fresh resources to meet the interest payments on its growing debt as well as its current expenses, during the next few days the Ministry of Finance will return to the market to try to raise $290 million, through the issue of government debt bonds.
The government's financial deficit rose from 3.4% of GDP in September 2016 to 4% in the same month this year, explained by an increase in the financial cost of debt and an increase in capital expenditure.
From a statement issued by the Ministry of Finance:
At the end of September, the central government's revenue and expenditure figures reflect the need for comprehensive fiscal reform (via income and expenditure), which will make it possible to sustain the state's finances, as well as stability and continuity of social achievements which the country achieved throughout its history.
Tax revenues went from a rate of change of 7% in March 2016, to a rate of 8.5% in the same month of this year.
From a statement issued by the Ministry of Finance:
Authorities at the Treasury announced the performance of the central government's fiscal figures at the end of the first quarter of the year, which indicate how tax revenues continue to show good results, going from a rate of change of 7% in March 2016 to 8.5% in the same period this year.
In line with warnings from other ratings agencies regarding the serious fiscal problem and the lack of political will to solve it, Moody's has downgraded its rating from Ba1 to Ba2 with a negative outlook.
New York, February 09, 2017 -- Moody's Investors Service has today downgraded Costa Rica's government bond rating by one notch to Ba2 from Ba1, and maintained the negative outlook on the rating.
The favorable conditions in the global economy allowed the country to grow by 4.25% in 2016, and administrative efforts to reduce the fiscal deficit were noted, however they will not prevent the debt /GDP ratio from growing.
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. Moreover, the document says, the fiscal deficit continues to grow and even increased during the first quarter of 2015. "
After the optimism over the lukewarm reduction in the continuous increases in the primary deficit of the government of Costa Rica, comes the harsh reality of the growing amounts for interest payments on the debt, which continues to increase.
The Ministry of Finance has announced that this year they plan to increase their borrowing in the domestic market by 46%.
The Ministry of Finance announced that for the first six months of this year, they plan to increase their borrowing in the domestic market by 46% compared to the same period in 2013 .
The Central American Institute for Fiscal Studies has concluded that only the public debts of Panama and Nicaragua, using official data, are sustainable in the medium term.
The main theme of the fifth edition of the 'Lente Fiscal Centroamericano' (Central American Fiscal Lens) is an analysis of debt sustainability in Central America, which depends greatly on interest payments on debt, economic growth, inflation, revaluation and management of the fiscal deficit.
In a worst case scenario, debt could climb to 50% of GDP within 2 years.
According to economist Thelmo Vargas, a partner at the consulting firm Ecoanálisis, the forecast is of a base scenario in which interest rates are 5%, the economy grows at a rate of 4% and a primary deficit of 3% is registered for production.
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