Costa Rica "will strengthen its fiscal sustainability by controlling expenditure and modernizing the tax system with a $350 million loan approved by the Inter-American Development Bank (IDB)."
During the controversy generated by the implementation of the fiscal reform in Costa Rica, the approval of a $350 million credit was announced to "support the country in the implementation of its fiscal reform program."
The financial deficit of the Central Government at the end of last year was equivalent to 6% of the Gross Domestic Product, 1.2% less than originally expected.
According to the authorities, the fiscal deficit as a proportion of GDP was lower than expected because of the measures taken in terms of collection, expenditure containment and efficiency, and the approval of the Law to Strengthen Public Finances.
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.
Since 1999 Costa Rica has been included in the list of nations considered tax havens by the South American country.
From a statement issued by the Ministry of Finance:
COSTA RICA TAKEN OFF BRAZIL'S LIST OF TAX HAVENS
The Federal Revenue Secretariat of Brazil (Receita Federal do Brasil or RFB) has removed Costa Rica from the list of countries with favored taxation, known as tax havens.
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.
In Costa Rica, interest payments rose from 1.5% to 1.7% of GDP, and this increase accounts for 32% of the increase in total spending up to August, which went from 11.8% to 12.1% of GDP.
From a statement issued by the Ministry of Finance:
At the end of the second quarter of the year, the central government's income and expenditure figures showed a significant slowdown in the payment of wages, which changed from 3.4% in August last year to 2.6% in same period this year. When comparing this item as a percentage of GDP, a decrease of 4.5% to 4.3% can be seen.
The tax burden grew from 13.4% in 2013 to 14% in 2016, both due to the delayed effect of the tax reforms in Honduras and Nicaragua, as well as better management on the part of tax entities in Guatemala and Panama.
From the Regional Economic Report (IER) 2016-2017: Opportunities and challenges for Central America, by the SIECA:
The fiscal deficit closed the first half of the year at 2.4% of GDP, up from 2.2% of GDP in June 2016, mainly due to an increase in the financial cost of debt.
From a statement issued by the Ministry of Finance:
At the end of the first half of 2017, the primary deficit (difference between income and interest-free expenses) remained similar to the previous year, at 0.9% of GDP.
In 2016, the ratio between total expenditure of central governments of the countries of the region and GDP remained almost unchanged from the previous year, going from 18.3% to 18.6%.
From the report "Macroeconomic Profiles: 8th edition", from the Central American Institute of Fiscal Studies (Icefi):
The Central American Institute for Fiscal Studies (Icefi) presented its most recent edition of the Macro-Fiscal Profiles of Central America, which contains an analysis of the fiscal situation of Central America and each of the countries of the region, at the end of fiscal year 2016, as well as the main lines contained in the budgets approved for 2017.The publication includes in this opportunity a revision to the main indicators related to the fulfillment of the Sustainable Development Objectives 2030 -ODS 2030- and raises the urgent need to make progress in a new fiscal agenda that allows the effective attention of these commitments in the short term.
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.
As of February total expenditures recorded a slowdown of 1%, having increased by 6.8% compared to the 7.8% increase in the same period in 2016.
From a statement issued by the Ministry of Finance:
The First Vice President and the Minister of Finance, Fallas Helio, presented this week the tax figures at the end of February 2017, which show that both the primary deficit (total revenue less noninterest expense) as well as the financial deficit maintain the same behavior seen in February last year, 0.8% of GDP and 1% of GDP respectively.
The ICEFI points to a "chronic political inability to achieve comprehensive fiscal agreement" which is jeopardizing the sustainability of the state in the medium and long term.
From a statement issued by the Central Institute for Fiscal Studies (Icefi):
The Central American Institute for Fiscal Studies -Icefi- assessed Costa Rica's budget for 2017, and as a result believes that if the prospects for medium and long term fiscal insufficiency are maintained, there is a serious risk of losing the social achievements of this Central American nation and accumulating fiscal deficits and public debt that could jeopardize the sustainability of the state in the medium and long term.Finally, he reiterated the need for a comprehensive fiscal agreement to ensure economic growth and social welfare in the country.
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:
From 2014 to 2015 the size of central governments remained constant at an average 18.5% of gross domestic product (GDP).
From the introduction of the report: "Macrofiscal Profiles: 6th Edition" by the Central American Institute for Fiscal Studies (Icefi):
2015 proved to be a period of low tax advance for the Central American region. On average, the size of central governments remained constant compared to 2014, at 18.5% of gross domestic product (GDP). However, not all nations maintained this trend in the same way. While the governments of Nicaragua, Costa Rica and El Salvador, some of the largest fiscally in the region, continued to increase their participation in the economy, reporting increases of 1.5, 0.7 and 0.7% of GDP, respectively, the Government of Guatemala - one of the smallest in the world became even smaller, being reduced by 1.2% of GDP. For its part, the Government of Honduras reported a small decrease of 0.2% of GDP, fully converged with its policy of fiscal austerity, while that of Panama had a transient contraction of 1.4%, reflecting a reorganization established by the new administration and that, according to the plans for 2016, will be reversed in full.
The European Bank for Reconstruction and Development has announced that due to a breach of international standards on exchange of tax information it will no longer grant loans to the country.
The International Finance Corporation (IFC) also announced the impossibility of lending to Costa Rican companies, pointing to the same reason as cited by the EBRD.