The budget presented by the Salvadoran government for next year will be 23% higher than in 2018 and increases to $1.613 million the gap to be financed.
The Salvadoran Foundation for Economic and Social Development (Fusades) reported that the draft National General Budget 2019 (PP2019) totals US$6,733.2 million, an increase of US$1,265.7 million (23.1%) over the voted budget 2018 and is equivalent to 24.9% of the gross domestic product (GDP) 1.
The decline in tax collection, the government's short-term commitments and the possibility of a reduction in the credit rating are factors that worsen Costa Rica's fiscal situation.
According to figures from the Finance Ministry, during the first nine months of this year the tax collection of the Costa Rican government had a slight increase of 1% over the same period last year.
Moody's downgraded the long-term issuer ratings and the Costa Rican government's unsecured bonds.
Yesterday the risk rating agency reported that expectations of a continued decline in fiscal indicators and evidence of increased financing needs are some of the reasons behind the decision to revise the country's debt rating.
Rocio Aguilar, Finance Minister, explained to Crhoy.com that Moody's warning is "...
The business sector welcomes the progress achieved with the tax reform approval in the first debate, but notes that it does not fully solve the financial problems facing the government.
In the debate last Friday, the representatives approved the file number 20.580, known as the tax reform law. The approval was optimistically received by the Costa Rican Union of Chambers and Associations of Private Business Sector (Uccaep).
The impact of the strike, the uncertainty of the fiscal situation and the increased risk perception by investors and consumers, explain much of the depreciation that the Colon is suffering against the dollar in Costa Rica.
Figures from the Central Bank of Costa Rica (BCCR) suggest that between September 27th and October 5th the exchange rate in the wholesale market Monex registered a significant upward trend, which is reflected in the increase from ¢570.75 to ¢591.25 per dollar, equivalent to a depreciation of 3.59%.
The Central Bank explained that the short-term loan of almost $870 million to the Ministry of Finance will have no impact on inflation.
From a statement issued by the Central Bank of Costa Rica:
September 25, 2018.In accordance with what is authorized by Costa Rican legislation, the Board of Directors of the Central Bank of Costa Rica (BCCR) agreed, on Tuesday, September 25, 2018, to the acquisition of Treasury Notes, issuedby the Ministry of Finance, for an amount of ¢498,858.8 million.
The deterioration of public finances and the inability of the Alvarado administration to end the blockades set up by trade unionists are again drawing the attention of rating agencies and the international market, who foresee a complicated economic future for Costa Rica.
According to the risk rating agency Moody's, the demonstrations by public sector unions are increasingly complicating the path towards a much-needed reform of public finances, which would take its first steps with the approval of the bill that is being discussed in the Legislative Assembly.
The increase in domestic debt with terms of less than one year and the growing rise in interest rates are some of the threats that Costa Rica's public finances continue to face.
According to the 2017 Annual Report by the General Comptroller of the Republic, between 2016 and 2017 the percentage of domestic debt with a term of less than one year increased from 15% to 18%, the variable rate rose from 12% to 20%, and the interest rate in dollars grew from 19% to 24%.
"Public debt in terms of simple average for the Central American region will continue growing, reaching 43.1% of GDP in 2018, after having registered 42.5% in 2017."
The Central American Institute of Fiscal Studies (Icefi) estimates that for the current year the size of public expenditure of the Central Government in relation to the respective Gross Domestic Product of each country will be 21.4% in Costa Rica, 20.4% in El Salvador, 20% in Honduras, 18.4% in Nicaragua, 17.6% in Panama and 12.1% in Guatemala.
Like lemmings running towards a cliff, Costa Rica repeats the kind of actions that underscore the definition of a society incapable of stopping on the road to a terminal crisis.
Food companies in Costa Rica say that eliminating VAT from the basic basket in the tax reform proposal would create an incentive for imported foods, over and above local production.
The Costa Rican Chamber of the Food Industry (Cacia) reacted to the decision of the deputies to exempt VAT of 1% and 2% on the products of the basic basket in the Bill of Strengthening of Public Finances, which is being discussed in the Assembly.
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.
The cost of not making decisions about the serious fiscal problem affecting Costa Rica "is incommensurable and has the potential to affect not only the economic but also the social and democratic order of the country."
This is the emphatic and clear position of the Comptroller General of the Republic of Costa Rica regarding the serious and risky situation in which the public finances of the country find themselves.Furthermore, as is well mentioned in the report "Fiscal and Budgetary Evolution I semester 2018", published recently by the institution, if decisions related to solving problems of short-term liquidity and modifying the structure of public expenditure to the medium and long term continue to be delayed, the cost to the country will be much more than just economic.
Businessmen in Costa Rica recognize the importance of the fiscal reform needed by the country, but they are calling on the Alvarado administration to pay attention to equally complex problems, such as unemployment and high production costs.
The business sector has taken stock of the first 100 days of the government of Carlos Alvarado, and in a discussion outlined the urgent challenges facing the country, such as how to achieve economic reactivation, advancing a proposed teleworking law, promoting dual training and investing in improving road infrastructure.
The new tax reform proposal presented by the Ministry of Finance of Costa Rica includes the creation of a global income system to impose and collect a tax on the profits of companies and individuals.
Taxing all of the profits of natural and legal persons, including those currently paid separately by the identity code income method, is the principal new feature of the new tax reform plan presented by the Ministry of Finance.