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Costa Rica announces cuts in public spending in the face of pandemic crisis

July 13, 2020

The President of Costa Rica, Carlos Alvarado, announced Sunday a sharp cut in public spending as part of the actions to overcome the crisis caused by the COVID-19 pandemic.

The cut will be equivalent to 1% of gross domestic product (GDP), Alvarado said on national radio and television, in which he outlined a road map to deal with the economic impact of the crisis.

The cuts will be presented Monday to the Legislative Assembly (parliament), along with an extraordinary budget, by the Minister of Finance, Elián Villegas.

“It will be the largest cut in public spending in our history,” said the president, who explained that it will include all sectors but won’t affect social programs or large investments in public works.

Alvarado indicated that the government negotiated credits with international financial organizations under favorable conditions, which will allow the government to refinance high-interest debts and alleviate public finances.

Costa Rica accumulated until the end of 2019 a fiscal deficit of 6.96% of GDP, which could reach 9.7% of GDP for this year as a result of the pandemic, according to the Ministry of Finance.

The ministry also projected that public debt will reach 68.8% of GDP this year.

Alvarado assured that with the cut in expenses and the negotiated credits, economic stability will be guaranteed through the end of 2020.

In the following years, economic stability will depend on the legislative approval of a $504 million loan with the International Monetary Fund (IMF), Alvarado argued.

With this loan, the government will be able to negotiate a “stand by” agreement with the IMF, which according to Alvarado is “essential to maintain the country’s economic stability in the coming years.”

Among the possibilities for 2021 is a “solidarity tax” on Costa Rica’s wealthiest, Alvarado said.

Costa Rica, with 5 million inhabitants, has experienced in the last three weeks its highest increase in known cases of COVID-19. On Sunday, the Health Ministry reported 7,596 cumulative infections and 30 deaths.

The government applied new restrictive measures beginning Saturday to prevent the mobilization of people in the areas of greatest contagion.

Watch President Alvarado’s entire address below:

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