The position of the Constitutional Chamber regarding the bill to Strengthen Public Finances (file 20.580) gave the economy a respite, since it reduced the uncertainty in families and companies.
However, pressures on the foreign exchange market and interest rates will continue in the coming months due to the high financing required by the Ministry of Finance to be able to meet its obligations.
This was the conclusion of the Economic and Social Observatory of the National University, an entity that analyzed recent movements in the exchange rate.
According to the researchers of the Observatory, pressures on the foreign exchange market will continue in the coming months, as the tax reform will take effect until the second semester of 2019 (at least regarding the first tax revenues received), and most taxes would begin to be collected in 2020. This would make the fiscal deficit and public debt continue to grow.
Likewise, in case they get the approval to issue external debt (which requires 38 votes in the Legislative Assembly) it would take five to seven months to materialize (after the law is approved and published), so the deficit would continue to be financed in the domestic market and, therefore, the upward pressures on interest rates and the exchange rate would continue.
However, if foreign currency comes in due to the issuance of external debt, there are two possible scenarios:
a) the Ministry of Finance changes dollars to colones to pay the needs in local currency, pressing the exchange rate downwards or,
b) the Central Bank buys those dollars to recover the reserves lost throughout this year and the exchange rate will not be altered.
In addition, the Observatory believes that it is very likely that the Federal Reserve of the United States (FED) will continue with the gradual process of raising its reference rate, which could translate into additional pressure on the behavior of the exchange rate, in case the adjustments in domestic interest rates are not made in a timely manner.
Thus, the approval of the file 20.580 gives a break to the economy, but there is still much to achieve stability in the State’s finances.
It is expected that volatility in the exchange rate will continue in the coming weeks, with a pause in December, as a consequence of a seasonal effect of the “colonization” of resources for the payment of taxes and bonuses, but with an upward trend.