Risk-rating agency Moody’s announced the reduction of Costa Rica’s risk rating. This is the second entity to do so this year, because Fitch was the first one to criticize the deterioration of the country’s public finances.
This is extremely worrying, although it is not surprising. We have been insistently warning against the lack of decision of the Legislative Assembly to advance the modernization of taxes on value added and on income,
declared Fernando Rodríguez, interim minister of Finance.
Costa Rica receives a reduction in the risk rating because of the tax projects non-approval, which have been sent to the legislators since August 2015.
According to Rodríguez, since the moment that Costa Rica started to record higher fiscal deficits in 2010, successive administrations have intended, without success, to pass legislations to reduce deficits. During that period, almost none of the proposed laws was enacted as one, which is the result of political differences in the Legislative Assembly. Therefore , Moody’s believes that high deficits are likely to continue to increase the burden of public debt.
To the official, a downgrade means that the country becomes more risky for investors and that this may bring adjustments in the exchange rate and interest rates.
In addition, the minister explained that the increase in interest rates could hinder investment for companies, which would have an effect on growth and the level of employment:
That is why we have said, on several occasions, that the reform we have proposed brings benefits to the country and that it should be done as soon as possible,
Faced with this situation, the Tax Office called on legislators to advance in the reading and approval of the plan proposed in recent weeks, with the aim of reforming the country’s main taxes prior to the 2018 election campaign.