LatinNews Daily - 14 March 2022

In brief: Fitch revises up Costa Rica’s outlook

*International credit ratings agency Fitch has revised up Costa Rica’s outlook to stable from negative. Fitch said that this reflects “the better-than-expected improvements in the fiscal position and economic activity” following the 2020 coronavirus (Covid-19) pandemic-related shock which caused Costa Rica’s GDP to shrink 4.1% in 2020. Fitch said that its fiscal expectations have improved following “a robust 2021 outturn” (the credit ratings agency estimates real GDP grew 7.6% in 2021), supported by strong revenue performance adherence to a spending cap. It also cites the recent approval of a public employment bill in line with the three-year US$1.76bn International Monetary Fund (IMF) Extended Fund Facility (EFF) approved last year. The government estimates savings of 0.7% of GDP per year in reduced central government wages during the first years of implementation of the law, which would introduce a single pay scale and eliminate other salary components. According to Fitch, Costa Rica’s 2021 primary deficit of 0.3% of GDP was 3.1 percentage points lower than 2020, and far below the EFF target of -1.7%. The total deficit reached 5.0% in 2021 from 8.0% in 2020. Fitch expects the government will reach a 0.4% of GDP primary surplus in 2022, beating the -0.3% EFF target and that the overall deficit will narrow to 4.5%.

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