Risk rating firm Moody’s downgraded the rates of the Costa Rican government bonds from Ba2 to B1 on Wednesday, and gave it a negative outlook.
According to the company, the decision is justified in the continuous and projected worsening of the fiscal deficit, in spite of the efforts of fiscal consolidation and the growth in indebtedness to face the debt.
The negative outlook was assigned because Moody’s believes that fiscal consolidation efforts have significant implementation risks that could exacerbate the country’s debt challenges. Moody’s expects Costa Rica’s ongoing fiscal consolidation efforts to be insufficient to reduce its high fiscal deficits.
As a result, the debt indicators will continue to increase in the coming years and will remain well above the countries with BA ratings,”
said the agency in a statement.
The ability to repay debt is also getting worse, as interest payments will consume almost a quarter of government revenues in 2018, compared to less than 15% in 2010,”
added the report.
The agency estimates that reducing the fiscal deficit will take time and the total impact of the reform will have to wait until 2022.