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.
Facing a second round of elections scheduled for April 1, private sector unions are calling on the two candidates to present their economic proposals for reducing the uncertainty that currently weighs heavily on the business climate.
A solution to the fiscal problem, and options for reducing the cost of energy and other production costs that are affecting the country's competitiveness is what Costa Rican businessmen are asking of the candidates who will face a second round of elections on April 1.
Fitch Ratings has changed the outlook from stable to negative, due to "diminished flexibility to finance its rising budget deficits and public debt burden, as well as persistent institutional gridlock preventing progress on reforms to correct the fiscal imbalance."
EDITORIAL
Costa Rica is running out of time.The decision taken by Fitch Ratings to reduce from the outlook for the sovereign debt rating from stable to negative reflects a serious problem that the country faces and shows us that, in the not very long term, the rating agency could lower this rating, currently in the BB category.
According to Moody's, the plan to reduce expenses announced by President Solís will not be enough to solve the illiquidity problem being faced, nor to avoid a rise in local interest rates.
The plan to cut costs that are not mandatory in the budget, such as the suspension of public purchases that have not yet started to be implemented, will not be enough to avoid the impact of the fiscal deficit on local interest rates.This is the opinion of the rating agency Moody's, regarding the cost cutting plan announced by President Solis to address the fiscal problem that is affecting the country.
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.
The Central Bank insists on the risk posed by credit growth in dollars and the non-approval of structural measures to address the deterioration of public finances.
From the report on "Commentary on the national economy - May 30, 2016" by the Central Bank of Costa Rica: In accordance with the provisions of the Organic Law, the Board of the Central Bank of Costa Rica meets once a month to analyze the internal and external macroeconomic situation of the country. Not limited to only this, these discussions provide the elements needed to adopt ¿ monetary policy measures. The discussion for the month of May was held in session 5722-2016 on the 18th, in which the Board decided to keep the monetary policy rate at 1.75%. The external environment highlighted two elements. On the one hand, slow growth in advanced economies, which has had an influence on variation rates worldwide being still moderate; on the other, the upward trend in international prices of raw materials in the last three months.
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. Figliuoli Lorenzo, head of the mission that visited the country said at a news conference that in this category "... better results are obtained in countries where less than half this amount is spent, such as Chile, or much less than countries that spend the same as Costa Rica, like Finland ".
The organization has once again supported the initiative that the Costa Rican government has control over the register of shareholders of companies classified as large taxpayers.
"The state must have in its hands information on the shareholders of companies and where dividends go to. In a democracy like this it is very difficult to understand how, who and why people can oppose the state having that information, " said the secretary general of the Organisation for Economic Co-operation and Development (OECD) Angel Gurria to Nacion.com.
An immediate fiscal adjustment is needed in order to avoid the risk of a possible closure of credit to the country in the international market, which would force an abrupt adjustment.
The warning from the head of the mission at the International Monetary Fund (IMF), Lorenzo Figliuoli, has its origin in the government's fiscal deficit, which this year will reach 5.9% of GDP, while increasing public sector debt reaches 60.4% of production.
Very dark is the future of a country where the rulers do not lift their gaze beyond the few years of the mandate conferred on them by citizens.
EDITORIAL
The president of Costa Rica prefers short-term actions to address the fiscal crisis, while leaving open the tap of privileged public wages by which the future of the nation drowns through.
"The ongoing economic recovery in the United States and persistence of relatively low oil prices will provide favorable tailwinds to the region.Because of supply constraints, the region is expected to maintain a moderate pace of growth in coming years."
From the press release by IMF:
Central bank governors, finance ministers, and banking superintendents of Central America, Panama, and the Dominican Republic, and senior IMF officials met in El Salvador on July 23-24 to review the economic outlook for the region and strategies to strengthen policy frameworks and raise inclusive growth. The regional conference saw the participation of the President of El Salvador, Salvador Sánchez-Cerén; Governor of the Bank of México, Agustín Carstens; Director of the Netherlands Bureau of Economic Policy Analysis, Laura van Geest; and former Finance Minister of Perú, Luis Carranza.
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.
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-'.
Although the product has remained steady in its level of potential, the country's economic prospects are not as promising due to the weakening of economic fundamentals.
From a statement issued by the International Monetary Fund (IMF):
This note summarizes preliminary findings and recommendations of the IMF staff mission that visited Costa Rica during October 28–November 11 to conduct the 2014 Article IV consultation.
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 .
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