Costa Rica Business News – Fitch Ratings changed its outlook on Costa Rica to negative from stable, citing a widening fiscal deficit and sluggish growth in the $50 billion economy as the government struggles to get tax legislation moving in Congress.
The decision comes after Costa Rica’s fiscal deficit widened for the fifth consecutive year, reaching 5.6 percent of gross domestic product, while tax revenue remains among the lowest compared to similarly-rated peers, Fitch said in a report today. The country’s BB+ rating puts it in the same category as Portugal and Hungary.
“Failure to implement a primary fiscal deficit reduction” and a “marked deterioration in the business or political environment” could trigger a negative rating action, Fitch said.
After his predecessor was unable to win support for deficit-fighting measures, President Luis Guillermo Solis took office in May saying he would address the issue. He has since delayed presenting a proposal to congress to turn a 13 percent sales tax into a value-added tax and raise income taxes. The proposal may go to the legislature in March, La Nacion reported, citing Finance Minister Helio Fallas.
Fallas said today that Fitch’s decision to maintain its BB+ rating “reflects the confidence by international analysts in the fiscal policies” of the government. He said the change in Fitch’s outlook shows the urgency of approving tax changes.
Solis is seeking to bolster growth after some of the country’s biggest foreign investors, including Intel Corp. and Bank of America Corp., decided last year to limit operations in the country, firing 3,000 workers.
The yield on Costa Rica’s dollar bonds maturing in 2023 rose 1 basis point, or 0.01 percentage point, to 5.36 percent. That’s down from 5.71 percent a year ago.
By Michael McDonald, Bloomberg