Moody’s downgraded Costa Rica’s rating one-notch from an investment-grade Ba1 to speculative-grade Baa 3. Moody’s cited the persistently high fiscal deficit, which it forecast would reach 5.8% of GDP this year and 6% in 2015, up from 4.5% of GDP in 2009, which it said had “materially worsened” Costa Rica’s debt burden. It noted that government debt-to-GDP is expected to rise to 40% this year, compared with just 25% in 2008.
In the wake of the negative report, the government has opened preliminary discussions with the disparate political parties in the 57-seat legislative assembly about the need to approve a government bill to convert a selective 13% sales tax into a much more comprehensive 13% VAT rate, clamping down on tax evasion in the process and generating an additional US$555m in annual revenue. Solís said that the existing exemptions in the areas of health and education would be preserved.
Solís said his government would send a bill to this effect to the legislative assembly before the end of the year. The government claims that tax evasion equates to 13.8% of GDP, which if true eclipses the tax take which was only 13.1% of GDP in 2013.
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