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Moody’s issues warning to Costa Rica about increasing debt

September 24, 2013

PARIS – Ratings agency Moody’s lowered its outlook on Costa Rica to negative this week, citing worries about the country’s high fiscal deficit and its difficulty passing legislation to limit the increase in debt burden.

“The government debt burden remains lower than average for its rating peers, but has increased in recent years,” stated Moody’s Investors Service.

The agency estimates that by the end of 2013 the debt will increase to 37 percent of gross domestic product, a much higher figure than the 25 percent registered in 2008.

The public accounts deficit increased from 1 percent in the 2004-2008 period to 4.4 percent in 2009-2013, added the report, which also highlighted that “after several failed attempts, [President] Laura Chinchilla’s administration’s main goal was to pass a fiscal reform before the next administration takes office in May 2014.”

Costa Rica’s rating stands at Baa3, the lowest investment-grade rating. “It is supported by a relatively well-diversified economic base, whose main sectors are high-value-added manufacturing, transportation, communication and tourism. […] The country is poorer and smaller than the median but growing faster,” the agency stated.

Moody’s report says further structural fiscal progress, particularly involving increased tax revenues, “undoubtedly will lead to improvements in the country’s solvency grade,” but it also warned that the agency will not hesitate to reduce the country’s rating if public accounts maintain a downward trend.

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