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Costa Rica’s Credit Rating Raised By Fitch

The credit rating agency Fitch has revised their outlook on Costa Rica’s financial condition. In announcing the change Fitch stated the following:

The revision of Costa Rica’s outlook to stable from negative reflects the significantly better-than-expected improvements in the fiscal position and economic activity following the 2020 pandemic-related shock.

Fitch’s fiscal expectations have improved following a robust 2021 supported by strong revenue performance adherence to a spending cap, while recent passage of the Public Employment Reform supports compliance with the three-year USD1.8 billion IMF Extended Fund Facility (EFF) approved in March 2021.

Fitch expects the better fiscal position, improved domestic borrowing costs and the ongoing economic recovery will be sufficient to place debt/GDP on gradual downward path and that this will continue under the new administration to be led by the winner of April’s second round of the presidential election.

The improved credit rating will allow Costa Rica to borrow on the international market at lower rates and refinance existing debt.

The legislative assembly approved in early March the Public Employment Law.

The law took several attempts over the past four years. The government estimates savings of 0.7% of GDP per year in reduced central government wages during the first years of implementation. The public service unions had opposed the law but it finally passed in its current forms by an overwhelming majority.

Nonetheless the credit rating agency also went to say:

Costa Rica’s ‘B’ rating reflects weaknesses in public finances and political gridlock that has prevented timely passage of reforms addressing these issues and constrained the government’s external financing capacity.

It also went on to warn that Costa Rica’s 100% dependence on fuel imports could impact the economy if prices continue to rise substantially.

Given current events in Ukraine and their effect on world oil markets it would appear that prices on almost everything will continue to rise.

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