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Costa Rica’s deficit hits 5.4 percent of GDP with no sign of shrinking

January 23, 2014

Finance Minister Edgar Ayales announced Wednesday that Costa Rica’s deficit reached 5.4 percent of gross domestic product at the end of 2013, 1 percent higher than during 2012.

The increase pushed Costa Rica’s deficit to its largest in at least 10 years, roughly $2.7 billion, based on figures reported by the 2012 State of the Nation report and the Finance Ministry.

Ayales said that without fiscal reform in the coming year, Costa Rica’s deficit could “easily” exceed 6 percent of GDP.

The finance minister noted that since 2009 Costa Rica has only been able to collect tax revenues equal to roughly 13 percent of GDP, far less, he argued, than is needed to fund the government.

“Education alone is already 7 percent of GDP,” Ayales said, referring to the constitutional requirement for education spending, “That leaves just 6 percent for health care, security, housing” and other government services.

Public sector spending has grown at an average rate of 9.4 percent during the last three years.

Government interest payments rose to an amount equivalent to 0.5 percent of GDP during 2013 over 2012, according to the Finance Ministry presentation, more than any other segment of government spending.

As explained by Ayales, the increasing debt increases the amount of interest owed, thereby compounding the overall deficit problem.

The minister said that the country’s growing deficit is largely the result of automatic salary increases within the public sector. Several presidential candidates, including Otto Guevara of the Libertarian Movement Party, and Luis Guillermo Solís of the Citizen Action Party, have criticized such across-the-board salary increases within public institutions, such as the Costa Rican Social Security System.

Ayales said that a more rigorous tax system was needed to capture taxes due, and fight tax evasion, legal loopholes and contraband that have left the government coffers low.

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