In Costa Rica, a good part of the population is significantly indebted, since it is estimated that two out of every five consumers dedicate 38% or more of their monthly income to debt repayment.
The Office of the Financial Consumer (OFC) conducted during November 2020, the first survey of "Indebtedness of Costa Rican households", for which 1,200 people from all over the country, aged between 18 and 65 years old, were interviewed.
Treasury authorities announced that plans for this year are to negotiate with the Legislative Assembly for approval to issue debt in the international market, and if approved, the issuance would take place in 2021.
Last year the executive branch's plans were to issue $6 billion in Eurobonds, but the Legislative Assembly approved the issuance of only $1.5 billion, arguing that the amount proposed at the beginning was too high.
In recent months, the credit portfolio of public and private banks in Costa Rica has been growing at a slower rate, partly because of high levels of indebtedness of the population.
According to figures from the Central Bank of Costa Rica, between October 2018 and March 2019 the year-on-year growth of credit has generally slowed, since the increase in the portfolio of private banks fell from 14% to 12%, in public banks the decline was from 1.37% to 0.75%, and in the case of other financial intermediaries the decline was from 8.86% to 6.97%.
Consistent with the behavior of recent years, up to October 2018 the number of credit cards circulating in Costa Rica totaled 2.98 million, 14% more than in the same month of 2017.
From the report of the Ministry of Economy, Industry and Commerce (MEIC):
The last quarterly study of credit and debit cards, as of October 31, 2018, conducted by the Ministry of Economy, Industry and Commerce (MEIC), through the Directorate of Economic and Market Research, determined that in nine years, the number of credit cards in the country increased 125%, representing a total of 2,984,769 plastics in circulation of which 1,976,522 are holders and 1,008,247 are additional plastics, i.e. linked to a cardholder.
Because of fiscal uncertainty, in the first months of 2018, banks operating in the country reduced by 16% the amount invested in public debt securities in the local market.
Against the backdrop of doubts about the future of public finances in Costa Rica, it was reported that from January to September, 14 local public and private banks invested $3.190 million in government bonds.
In Costa Rica, the balance of credit card debt increased 14.6% in the last year, measured as of July 2018, rising from $1.880 million in July 2017 to $2.155 million in the same month of this year.
The Ministry of Economy, Industry and Commerce (MEIC), reported that according to the latest study of the credit card market, compiled by the Directorate of Economic and Market Research, Costa Ricans increased their debt balance by ₡166 billion ($275 million) in one year, representing a 14.6% growth.
Fitch Ratings reported that the country is under observation and for now maintains the rating at BB, awaiting what happens with the fiscal reform and the payment of government debt at the end of the year.
Fitch Ratings, a U.S. risk rating agency, reported on November 15th that Costa Rica would be close to a sovereign rating downgrade because of the country's public finances situation.
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 "...
Explained in part by doubts about the economic future in the short term, in Costa Rica credit granted to companies and individuals went from growing at an annual rate of 8% in January to 4% in June of this year.
According to figures from the Central Bank of Costa Rica, in the first six months of the year credit to the private sector has reported a clear downward trend, since in January the amount registered amounted to $34.072 billion and the increase compared to the same month in 2017 was 7.9%.
The number of cards in circulation grew by 13% between January 2017 and the same month in 2018, while the balance of debt on credit cards increased by 14% in the same period.
According to a quarterly study on credit and debit cards for 2018, with a cut off point of January 31, on average each person has two credit cards and three debit cards.
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.
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
The rise of interest rates in US is one of the reasons behind the lower demand for Costa Rican debt bonds, which are perceived as riskier because they are not investment grade.
When US interest rates began to fall, international investors sought riskier options and performances, such as external debt bonds rated below investment grade in countries such as Costa Rica.
Chinese Loans in Latin America are concentrated in countries that have difficulty getting finance from institutions such as the World Bank and the IDB.
An article in Espectadornegocios.com discusses "The risks of Latin America taking loans from China", outlining the characteristics of Chinese finance, its favorable aspects in relation to credit institutions in the West, and the constraints imposed for them to be granted.
The entity is preparing, for the March 18, to place corporate debt at a 2 year term and a net rate of 5.25%, via auction on the National Stock Exchange.
From a statement issued by FCCA Investment Banking:
On Wednesday March 18 Banco Lafise Costa Rica a member of the prestigious Lafise Group with operations in Central America and the Caribbean, will auction on the National Stock Exchange 10-year bonds for $10 million, at a 5.25% rate, quarterly risk rating (SCR AA-) and (PCR AA).