Ratings agency Fitch Ratings downgraded Costa Rica from ‘BB’ to ‘B+’ on Tuesday and assigned it “a negative outlook”. This is the third rating agency that downgrades Costa Rica. Moody’s and Standard and Poor’s did it too.
The reduction, according to the agency, reflects a persistent fiscal deficit and short-term financing needs due to a strong amortization schedule and budget financing restrictions.
The new administration successfully approved a fiscal reform at the end of December to address fiscal imbalances. However, the limited short-term performance of the reform will keep the fiscal deficit higher than its peers and the debt burden on a relatively steep upward trend,”
reported Fitch.
The negative outlook, on the other hand, reflects risks related to uncertainty about government financing in a climate of high interest rates and shorter debt maturities.
Fitch projects that central government fiscal deficits will remain higher than those of its peers in the coming years, above 6% of GDP by 2020. These deficits would lead to the burden of central government debt above 65% of GDP in 2023.
In addition, the rating agency points out that the lack of authorization from Congress for the issuance of external bonds led the government to borrow heavily from the local market for shorter terms, which resulted in an abrupt amortization program.