Caribbean & Central America - February 2017 (ISSN 1741-4458)

Costa Rica’s President Luis Guillermo Solís admitted defeat in early February. Solís said that, just like his predecessor Laura Chinchilla (2010-2014) before him, he would fail to push through the fiscal reform proposed by his government in August 2015 to shore up the country’s finances. The fiscal deficit amounted to 5.2% of GDP in 2016, but despite the repeated warnings of successive heads of state, legislators in the politically fragmented congress have refused to approve a meaningful tax reform, calling for greater government austerity instead when it comes to public spending.

The markets reacted negatively to the news. On 9 February, Moody’s Investors Service downgraded Costa Rica’s government bond rating to Ba2 from Ba1, and maintained its negative outlook. Moody’s cited the high fiscal deficit and the government’s rising debt, which it predicted would reach “almost 50% of GDP this year”, nearly twice the level of 2008.