Seleccionar idioma ▼ Costa Rica Sign up for e­mail alerts go to first move back one Displaying article 2 of 2 articles June 26th 2015 Sovereign risk Costa Rica: sovereign risk Rating July 2015 BB Rodrigo Aguilera (lead analyst); Robert Wood (analyst). Published 10 July 2015, 2100 GMT. This sovereign rating is issued by The Economist Intelligence Unit credit rating agency, registered in accordance with Regulation (EC) No 1060/2009 of 16 September 2009, on credit rating agencies, as amended, and is issued pursuant to such regulation. icon Download the numbers in Excel Current assessment Costa Rica’s underlying sovereign risk score has improved since The Economist Intelligence Unit's last report, but its BB rating remains weighed down by a large (and growing) public­sector deficit, financial strains in the social security system and a failure to pass a comprehensive tax reform. The deficit reached 5.7% of GDP in 2014, and in January­May it widened slightly compared with the same period of 2014, to 2.3% of GDP, from 2.2%. This is as a result of spending having risen by 10.2% year on year, whereas revenue increased by just 7.9%. Much of this increase in spending can be explained by less productive current spending, notably on the wage bill and interest payments. In line with higher deficits, there has also been a rise in the debt stock, to 56.1% of GDP currently. Over the past few years the debt stock has risen, following the annual issuance of four separate US$1bn Eurobonds (the latest in March 2015), which have taken advantage of attractive external interest rates, in order to reduce the domestic crowding­out effect of heavy borrowing. But the government is unlikely to get legislative approval to issue more. In terms of structure, 54.6% of central government debt at end­2014 had a maturity of over five years, with just 15.9% due in 2015. A large share (71.2%) of central government debt is denominated at a fixed rate or at zero­coupon, but a total of 36.3% of the debt stock is in foreign currency—a moderate exchange­rate risk. Positive factors The success of four Eurobond issues since 2012 (albeit with increasing coupons) has highlighted the sovereign’s ability to access global debt markets, but this partly reflects abundant liquidity, which is gradually being reined in. Negative factors Interest payments consume 19.4% of government revenue, which is well above the regional median (8.2%). A lack of urgency in pursuing a fiscal reform by the government is a cause for concern. Furthermore, it lacks the political capital to push such reform through owing to legislative obstruction, worsening fiscal and debt dynamics. Rating outlook The fiscal deficit will remain high in 2015­16, above the 5% of GDP mark, and a lack of progress on a comprehensive fiscal reform will weigh on the rating owing to the already­high levels of the public debt stock (which will reach almost 60% in 2015). In addition, although the approved 2015 budget envisages a record deficit of 6.7% of GDP, we expect some consolidation measures to bring this figure down. We assume that sufficient resources will be available to meet Costa Rica's borrowing requirement over the next 12 months (aided by the March Eurobond issue), before tighter US monetary policy makes the terms on further debt more onerous. Previous article Next article Overview
