After the multi-sector dialogue in Costa Rica was concluded, the main risk qualifiers agree that because the agreements signed to reduce the deficit are not enough, the government should execute its fiscal policies in a timely manner.
Although Costa Rica's fiscal situation was already precarious before the health and economic crisis that led to the covid-19 outbreak began, the scenario started to worsen since March of this year.
After the Alvarado administration agreed to backtrack on the proposal to negotiate a $1.75 billion loan with the IMF, it is predicted that next year the government will depend on domestic debt to finance its expenditures.
Standard & Poor's downgraded the foreign debt rating from B+ to B with a negative outlook, arguing that there is uncertainty due to the lack of flexibility of the Alvarado administration in implementing fiscal policy in the country.
The negative perspective in the new risk note, anticipates that there is a possibility that in the next 12 months the rating will be degraded again, if the authorities adopt policies that damage the country's financial profile.
The governments of Costa Rica and Nicaragua will face greater challenges in obtaining financing in external markets, because of the lowering of their risk ratings by international agencies.
Arguing that Costa Rica reflects consistently large fiscal deficits, short-term financing needs because of a strong repayment schedule and budget financing constraints, Fitch Ratings reported on January 15 that the country's long-term foreign currency issuer default rating was downgraded from BB to B+.
Standard and Poor's announced that it downgraded Costa Rican bonds from BB- to B+, adding to Moody's downgrade in early December.
Standard and Poor's (S&P) reported that the decision was made because the country's fiscal situation could generate a continuous increase in the general government's net debt burden.
In the view of Moody's, Fitch and S & P, the latest projections of public debt and fiscal deficit by the Central Bank of Costa Rica, further worsen the outlook for the debt rating.
Last week the Central Bank of Costa Rica (BCCR) released a report in which it explained that for this year it is expected that the public debt with respect to the Gross Domestic Product (GDP) will reach 53.8%, and by 2019 this indicator will reach 58.4%.
Standard & Poor's cites persistent difficulties in approving a fiscal reform in the short term, given the political fragmentation that exists in the Legislature.
Analyst Joydeep Mukherji said "... two previous governments have tried to make a fiscal reform and failed and that the government of Luis Guillermo Solis has had difficultyconvincing the Legislative Assembly ...".
In the same report Standard & Poor's has unified the risk ratings for both local and foreign currency, at grade BB, due to adjustments in methodology.
Standard & Poor's has rated Costa Rica’s foreign currency as grades BB / B , based on the economic growth and political stability in the country, despite its high fiscal deficit, rising external debt, and a political stalemate that is preventing legislative approval of the tax reform bill under discussion.
While in Europe ratings go down and in Latin American they go up, the opinion of the agencies is starting to be looked at with different eyes.
A decade ago debt issued by European countries benefited from mostly high grades and attractive ratings, which helped them maintain high prices and low yields.
This situation now appears to have reversed, and today it is the Latin American countries that rating agencies look upon favorably, while countries such as Portugal and Greece are seeing debt ratings fall to speculative levels.
Quarterly Report by the Executive Secretary of the Central American Monetary Council, June 2009.
General Situation
During the first months of the year, there has been a deterioration in some economic indicators like foreign investment, remittances and external trade.
The profits of banks in the region will be affected by the global economic crisis, according to a report published last Wednesday by American rating agency, Standard & Poors.
The firm says that most of the banks in Central America and the Caribbean have had a stable performance, despite increased inflation, scarcity of liquidity in the international markets and restrictive monetary policies by Central Banks.
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