Costa Rica’s fiscal deficit reached 4.1% of GDP last August, largely caused by the high interest payments on government accumulated debts. If compared with the same month of 2018, the deficit grew 0.3 percentage points this year.
Interest payments continue to punish the financial deficit, and are the main challenge to stabilize the debt and change its trajectory.
Despite this, the Treasury achieved the lowest monthly primary deficit (income minus interest-free expenses) of the last 10 years, as a result of an improvement in revenue collection and in the containment of the growth of spending.
In fact, this indicator stood at 1.6%, with a reduction of 0.2 percentage points compared to 2018.
The cost containment measures that the Ministry of Finance has implemented helped to reduce the growth in current salaries and transfers, and therefore current interest-free spending.
We are aware that in order to continue on the path towards sustainability, it is necessary to advance in measures to reduce tax evasion, improvement in risk management and digitalization, continue improving debt management, for which the placement of Eurobonds and access to budget support credits is essential. Likewise, other measures of a structural nature are required, such as the reform of public employment or the merger of institutions to avoid duplication of functions,”
said Rocio Aguilar, Minister of Finance.
For now, the results of the implementation of the tax reform have begun to materialize, both by the implementation of VAT and by the amendments to the income tax law.
The first of the taxes gave the Treasury almost ¢90 billion in July, while the income tax, gave it approximately ¢88 billion.
In addition, since the tax reform was approved, international investors have shown confidence in the Treasury bonds and that is why at this stage of the year, said ministry has placed 44% of the projected debt for the second half of 2019.
In addition to the above, long-term external financing and in better terms and interest rate conditions (Eurobonds Law and international organizations) would favor the change of trajectory and debt sustainability.
These measures would help the government to take pressure off the debt payment.