The Organization for Economic Co-operation and Development (OECD) made a strong call to the country, due to the little progress made in the reform of current sales and income taxes.
Costa Rica is playing with fire … without reforms the country’s fiscal situation would become a threat … it is urgent to sanitize public accounts. Costa Rica has much to lose if the reforms that are currently in Congress are not approved,”
said Álvaro S. Pereira, director of the Organization’s Economics Department.
Pereira arrived last Tuesday to announce the technical score of this analysis to the members of the Finance Committee of the Legislative Assembly, the heads of the different political parties represented in the Assembly and the Costa Rican Union of Chambers And Associations of the Private Business Sector (UCCAEP).
During his presentation, the OECD representative explained that high public debt affects business investment and that the high and growing fiscal deficit entails stricter financial conditions as investors request a high risk premium to maintain public debt.
According to the technical note issued by the OECD, a weak fiscal position limits the ability to respond to external shocks and natural disasters. In addition, Costa Rica is a small open economy and, as such, more vulnerable. This means that the country has little room for maneuver to deal with the consequences of external macroeconomic shocks or natural disasters.
The Director of the Economics Department of OECD, who previously served as Minister of Economy and Employment in Portugal, stressed that if Costa Rica maintains its fiscal conditions, increased debt service payments will divert resources from investment in education, health, infrastructure and security.
That organization believes that measures are needed to reduce the budget deficit by 3% of GDP so that debt stabilizes.