LatinNews Regional Monitor: Caribbean & Central America - 15 February 2018

COSTA RICA | Widening fiscal deficit. Costa Rica’s finance ministry last month revealed that the country’s fiscal deficit reached 6.2% of GDP in 2017, up from 5.3% in 2016. While President Luis Guillermo Solís sent down a tax reform proposal in August 2015, which has since been amended, the opposition-led unicameral national legislature has persistently refused to approve it. Also in January, Fitch Ratings downgraded its ratings outlooks to negative from stable and affirmed Costa Rica’s Long-Term Foreign and Local Currency Issuer Default Rating (IDRs) at ‘BB’. Fitch provided as grounds for its decision the fact that “Costa Rica’s diminished flexibility to finance its rising budget deficits and public debt burden, as well as persistent institutional gridlock preventing progress on reforms to correct the fiscal imbalance”. The ratings agency also highlights that, after shrinking in 2016 for the first time in five years to 5.2% of GDP, the central government’s budget deficit increased to an estimated 5.9% in 2017. Fitch adds that it expects these trends to continue in 2018 and for the deficit to rise to 6.2% of GDP due to the fact that inertial spending pressures coupled with a cyclical slowdown in revenues largely negated the marginal improvements in tax collection and cost containment achieved in 2015-2016. The press release goes on to note that assuming no significant consolidation measures in 2018, the general government deficit (i.e. including the social security fund surplus) is forecast to reach 5.2% of GDP in 2018, above the ‘BB’ median of 3.4%.”

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