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.
In Costa Rica the 1.7% increase in revenues accumulated up to May was not enough to offset the 8% increase in total expenses.
From a statement issued by the Ministry of Finance:
June 21, 2018.The growth of 1.7% in total income accumulated up to May 2018, is insufficient to offset the variation of 8.1% of total expenses, 48% of which is due to the increase in interest.This behavior generated a primary deficit (difference between current income and total expenditure excluding amortization and interest) in the central government of 1.2% of GDP and a financial deficit of 2.6% of GDP, exceeding the figures observed in the same period in 2017 (1% and 2.2% respectively).
At the end of the first four months of the year, the Central Government's financial deficit reached 1.9% of GDP, explained by the almost 8% growth in accumulated expenses.
In a statement the Ministry of Finance reported that "... At the end of the first four months of the year, the Central Government's financial deficit reached ¢670,560.0 million, representing 1.9% of GDP, a percentage higher than that presented in the same period in 2017 (1.8%).In this period total accumulated revenues showed growth of 3.8% with respect to the same months in 2017, while accumulated expenses increased by 7.6%.
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.
At the end of the first month of the year, total expenses grew by 7.8%, while tax revenues increased by almost 9%.
From a statement issued by the Ministry of Finance:
At the end of the first month of 2018, the deficit was 0.6% of production and the primary deficit (income and interest-free expenditure) stood at 0.4% of GDP.
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.
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.
The difficulties the government faces while trying to solve the serious fiscal problem that affects Costa Rica is already generating strong upward pressure on interest rates, both in local currency and in dollars.
EDITORIAL
If a private company faces liquidity problems for several months, does it borrow every month to pay salaries and other current expenses?The answer is no. It adjusts its operating expenses, reduces its return and tries to operate as efficiently as possible, trying to generate the highest income with the lowest possible expense structure.
Up to November 2017, the accumulated interest balance reached 2.8% of GDP, compared to 2.4% of GDP the same time last year.
From a statement issued by the Ministry of Finance:
Interest continues to rise and has become the main item that is putting pressure on the fiscal deficit.As of November 2016, the accumulated balance of interest amounted to 2.4% of GDP, while in the same month of this year, the sum reached 2.8% of GDP. This directly affects the financial deficit, which went from 4.7% in November 2016 to 5% in November 2017.A smaller increase was observed in the primary deficit, which excludes interest, which went from 2.0% to 2.2% in the same period.
The financial deficit up to October 2017 reached 4.6% of GDP, above the 3.9% registered at October 2016.
From a statement issued by the Ministry of Finance:
The fiscal results up to October show the urgent need to have an integral tax reform (via income and expenses), that allows for sustainability in state finances, as well as guaranteeing its operation.Therefore, in order to provide a structural solution to the fiscal problem and reverse the trend of these results, the Government recently presented a new Project for Strengthening Public Finances, which seeks to bring political positions closer to reaching a consensus that will allow for an agreement to be made to clean up the Central Government's economic situation.
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.
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.
Between May 2016 and May this year the primary deficit went from 0.9% of GDP to 1%, while the financial deficit increased from 1.9% to 2.1% in the same period.
From a statement issued by the Ministry of Finance:
The primary deficit and the fiscal deficit, which had been similar between 2016 and 2017, show a slight deterioration in May of this year which should draw the attention of all social sectors. The primary deficit went from 0.9% of GDP to 1% from May 2016 to May 2017; While the fiscal deficit went from 1.9% to 2.1% in the same period.
At the end of April, the Central Government's fiscal deficit stood at 1.7% of GDP, and total expenses grew mainly due to an increase in capital expenditure.
From a statement issued by the Ministry of Finance:
The fiscal results as of April 2017 show stable behavior in
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.
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