It’s déjà vu all over again for Costa Rica’s investment rating.
Fitch Ratings announced that the company was holding steady on its junk bond rating for Costa Rica, according to a news release from the company on Tuesday. Costa Rica has a B credit rating with a negative outlook, below investment grade.
Along with maintaining its rating for Costa Rica’s public debt with a negative outlook, Fitch echoed the same concerns that have plagued Costa Rica’s investment status for years, including weaknesses in public finances and political gridlock.
“The Negative Outlook reflects downside risks to fiscal consolidation and debt stabilization due to political uncertainty amidst a long-standing inability to reach consensus on how to address the fiscal imbalances created by high fiscal deficits, rising interest payments and a steep amortization schedule,” Fitch’s report says.
The credit-rating agency believes Costa Rica can meet its commitments for a loan from the International Monetary Fund (IMF), but it warned fractured political support remains a significant risk.
“Costa Rica has a track record of congressional fragmentation that has restricted the government’s external financing capacity and delayed needed fiscal measures,” the analysis reads.
Exacerbated by the pandemic, Costa Rica’s central government fiscal deficit reached 8.1% of GDP in 2020. This occurred despite the country meeting planned spending cuts, which Fitch calls a “signal of initial progress in addressing the fiscal imbalance.” It foresees further debt reduction over the coming years.
“Fitch projects that the central government’s fiscal deficit will decline to 7.1% of GDP in 2021 and 6.2% in 2022 as the government complies with the fiscal consolidation outlined by the IMF program,” the report explains.
The credit-rating agency says “strict compliance with the IMF program” would help Costa Rica obtain future financing and alleviate debt sustainability concerns.
