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Monday, September 26, 2022

Costa Rica closes 2020 with large fiscal deficit, though better than expected

Costa Rica closed 2020 with a fiscal deficit of 8.3% of GDP, the highest in recent decades although lower than the official projection, the government announced Monday.

Finance Minister Elian Villegas indicated that an effort to contain expenses allowed the deficit to be almost one percentage point lower than the 9.2% of GDP projected by the Central Bank.

“As a representative of the Executive Branch, I appreciate the commitment of political, social and economic actors in Costa Rican society, without whose contribution it would have been impossible to achieve the fiscal results that we present today,” Villegas said in a videoconference.

The figure was released at a time when the country is negotiating an agreement with the International Monetary Fund (IMF) that the government says would provide the required financing to balance its accounts. This agreement would force the country to adopt adjustment measures to eliminate the large fiscal deficit.

Costa Rica closed 2019 with a fiscal shortfall of just over 6% of GDP, after in 2018 it put into effect a plan that included new taxes to contain the gap.

However, the Covid-19 pandemic hurt those efforts by increasing public expenditures to address the health and social emergency, while the closure of the economy reduced state revenues.

The last time the country recorded a fiscal deficit of this magnitude was in 1981, when it reached 9.1% of GDP.

The government also announced that the primary deficit, which excludes debt service, reached 3.5% of GDP, below the 4% projected by the Central Bank.

Central government debt reached 69.7% of GDP, slightly below the initial forecast of 70.1%.

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