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 defense and strengthening of the rule of law requires, as a starting point, enabling sound public finances. The rest is verbal pyrotechnics." Otton Solis.
EDITORIAL
Costa Rica is subject to a rare political situation, where the founder of the party in power and his first deputy, defends rationality as a tool of governance and for managing public finances, in the face of voluntarism in the matter on the part of the Executive, which adds more risk to the serious threat of the fiscal deficit inherited from previous governments, presenting a budget that increases state expenditures by 14%.
The lack of long-term solutions for reducing the fiscal deficit and improving the structure of public spending threaten the investment grade rating given by Moody's in 2010.
Economist and former president of the Central Bank, Francisco de Paula Gutiérrez, warned that "... 'On the issue of the deficit we are kicking the ball forward believing we have an infinite amount of time. We are spending very unwisely.'"
While the "owners" of the "business" of the State of Costa Rica -public employees - are raising their salaries by at least 4%, their "workers" - the private sector - , were given an increase of 2.35%.
EDITORIAL
As if they lived on Mars, two senior level officials in the government of Costa Rica, the Deputy Ministers of Finance and Labor stated that there will not be any problem with adjusting the salaries of state officials at a percentage that will offset previous inflation - 4.14% - arguing that the increased expense "falls within the available budget."
Replacing Sales Tax with VAT, applying a system of global income and maintaining exemptions in free zones are part of the projects being prepared by the government.
With the three projects he plans to introduce in the Legislature, the Executive leader intends to increase total tax revenue to 2% of GDP in two years and completely eliminate the primary deficit, which at the end of 2013 was 2.8% of GDP.
In January 2014, current account expenditure increased by almost 8% compared to January 2013, with the category of Remuneration up 11%.
The monthly figures from the Central Government Revenues, Expenditures and Financing report published by the Ministry of Finance of Costa Rica, shows that the increase in total revenues in January 2014 was almost 11%, which meant a reduction in the fiscal deficit financial compared to GDP of 0.7%.
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 Government is considering issuing a total of $1.8 billion in the first six months of this year."
The Central Bank has lowered its inflation forecast to 4% for 2014 and projects increases in interest rates in colones and dollars.
From a Communiqué from the Central Bank of Costa Rica:
The Board of the Central Bank of Costa Rica, in Article 4 of the 5633-2014 session of January 29, 2014 approved the 2014-15 macroeconomic program.
This program is intended to inform the public on the performance of key macroeconomic variables during 2013, as well as the goals, policy measures, assumptions and projections for the next two years, consistent with the priorities and subsidiaries assigned in Article 2 of the Organic Law (Law 7558).
Fitch Ratings has affirmed its rating at BB + but points to the fiscal deficit as a credit weakness.
The rating agency Fitch Ratings announced that it will keep the BB + rating for Costa Rica, maintaining the stable outlook. However, it noted that the high budget deficit represents a weakness for the country.
"Costa Rica's ratings are supported by its political stability and strong indicators of human development and governance in relation to its peers," said a statement from the ratings agency.
From January to November 2013, the fiscal deficit reached $2.270 billion, 4.6% of the national production, 25% more than that accumulated up to November 2012.
Market Pulse Blog Aldesa:
Costa Rica: How much does the government borrow per day?
Every day operations made by the Government, and therefore by all Costa Ricans, add up to an additional ₡1.796 million of new debt.
With the exception of Nicaragua, fiscal deficits are growing in the rest of the isthmus, along with public debt.
From the editorial of Central America's Fiscal Lens No. 6:
Central America faces an economic slowdown during 2013: on the isthmus, all countries project growth rates which are lower than last year. The degree of openness of these small open economies makes them susceptible to changes in the international context.
The Central American Institute for Fiscal Studies has highlighted the unsustainability of the fiscal deficit in Costa Rica, El Salvador, Guatemala and Honduras.
Pensalibre.com reports that "... according to the results of a report by the Central Institute for Fiscal Studies (Icefi) submitted yesterday ... Guatemala, El Salvador, Honduras and Costa Rica find themselves with in unsustainable scenarios regarding public debt in the next few years. "
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