The "Trump effect", added to the upward pressure caused by inflation in US interest rates, explains the upward trend in the performance of Costa Rican bonds and the fall in their price.
A resumption of the upward trend seen in debt securities traded on the international market could make it difficult for the government access external financing, in a context in which most bonds from emerging market countries are experiencing the same situation.If the government decides to resort to financing in the international market, the cost of doing so would be higher if bond yields continue to rise.
The financial deficit accumulated up to August 2016 stands at 2.9% of GDP, slightly below the 3.6% recorded in the same period in 2015.
From a statement issued by the Ministry of Finance:
A reduction of ¢157,082 million in the financial deficit (revenues minus expenses), and a difference of seven percentage points between increased income and expenses, were the main fiscal figures of the Central Government recorded at the end of the second quarter of this year.
The accumulated financial deficit in July 2016 stood at 2.6% of GDP, slightly below the value at which it stood in the same month in 2015.
From a statement issued by the Ministry of Finance:
A reduction of ¢134,410 million in the financial deficit (revenues minus expenses), equivalent to more than half of GDP, and a difference of 7.3 percentage points between increased income and expenses, were the fiscal figures recorded for Central Government up to July this year.
The countries facing the greatest risk of fiscal unsustainability within three years are El Salvador and Honduras, followed by Costa Rica and with less risk, Nicaragua and Panama.
From the "EconomicOutlook"section of the V Report on the State of the Region 2016:
Low interest rates in the international market have favored Costa Rican sovereign debt bonds which are yielding better dividends.
Higher rates paid out by Costa Rican bonds with their associated risk level, coupled with an international context of low interest rates, has led to increased demand for foreign debt bonds, which "... have appreciated between 14% and 30%" so far this year.
In the remainder of the year the government plans to issue $1,115 million in the local market, and launch a new type of debt instrument to encourage investment in longer maturities.
From a statement issued by the Ministry of Finance:
The Ministry of Finance announced this afternoon the financial measure it is planning consisting of a gross placement of ¢960,000 million for the second half of the year, of which 37.5% has already been raised.
The weight of interest from debts as a share of GDP went from 1.3% to 1.4% between June 2015 and December 2016.
From a statement issued by the Ministry of Finance:
A reduction of ¢121,358 million in the financial deficit (revenues minus expenses), was recorded in fiscal figures from the Central Government at the end of the first half of this year.
The Solis administration has restructured its debts in order to postpone for three years the payment of $842 million for domestic debt titles.
Although the government of Luis Guillermo Solís calls it "the best period in debt swaps in the history of the Ministry of Finance", the decision to redeem debt securities maturing between September 2016 and December 2017 for securities with maturities of more than three years, helps improve the maturity profile, but in reality it is "kicking down the line" a serious cash flow problem that needs to be resolved urgently.
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.
The Ministry of Finance will issue $1,725 million in the local market in the first half of 2016, 48% more than it issued in the same period in 2015.
From a statement issued by the Ministry of Finance in Costa Rica:
The Ministry of Finance, together with the Central Bank of Costa Rica, presented to entities in the financial and stock market in the country, the plan for Internal Issues in the first half of this year.
Noting the political system's inability to agree on fiscal issues, Standard & Poor's has downgraded, from BB to BB-, the rating for the country's long-term debt, giving it a negative outlook.
Costa Rica Long-Term Ratings Lowered To 'BB-' On Continued Fiscal Deterioration; Outlook Is Negative
25 Feb 2016
Source: Standardandpoors.com
OVERVIEW
The combination of growing spending pressures and lack of tax reform has weakened Costa Rica's public finances and raised its vulnerability to
An announcement from Moody's confirms the limited room for maneuver left to the country when obtaining external financing, compromising access to credit for the private sector.
Costa Rica has received a new warning over a possible lack of access to funds in the international market with which to alleviate its growing fiscal deficit. After China's decision not to buy $1 billion in bonds , the rating agency Moody's anticipates a rise in interest rates in the country and a deterioration of credit and growth.
On January 14, the Ministry of Finance will turn to the local market to place an issue in colones which matures in September 2033 and has a fixed rate of 8.51%.
The Ministry of Finance intends to sell a surprisingly high amount using the electronic platform on Thursday 14 January. The issue is called Title Deed Issue Fixed Rate in Colones G210933.
Information sent by the Ministry of Finance states that they will use the rule of "first come, first served" on all applications received during the reception period for the issue. The maximum amount which can be allocated per investor applying the above rule will be 1% (it can not exceed 1%). Offers at or below the maximum percentage which can be allocated per investor will be allocated immediately.
The Chinese government has announced that it will not buy bonds worth $1 billion offered by Costa Rica, seriously delimiting the leeway that the Solis administration has to manage its growing fiscal deficit.
The lack of political conditions to implement greater controls on government spending and to gain approval for a fiscal package which would tidy up state finances is preventing multilateral lenders such as the World Bank or the IMF from lending money to Costa Rica, meaning that, after the elimination of the option to sell bonds to the Chinese government, Costa Rica will have to resort to the domestic market for funds, which will inevitably push up the cost of money for all sectors, including production.
For the first time in nine years, the Federal Reserve has raised the benchmark interest rate, by 0.25%, starting off a process of a gradual adjustment which will make credit more expensive.
After seven years of interest rates at historical lows, signs of recovery in the US economy have led the Federal Reserve to announce the first upward adjustment in the federal funds rate, the main reference rate for structuring interest rates in the United States and around the world.
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