To avoid further pressure on local interest rates, the Ministry of Finance will be considering issuing US$1 billion a year in the international market over the next four years.
Representatives from the Ministry of Finance confirmed that they are preparing an application to the Legislative Assembly to issue US$4 billion in debt securities in the international market.
Rocio Aguilar, Minister of Finance, explained to Bloomberg that ” … the Government has the objective of selling US$1 billion of Eurobonds annually over a period of four years. This transcended on Thursday afternoon when the aforementioned news agency published it in a note. “What we are thinking about is an umbrella authorization that covers several years. If we continue to use only the local market, we will continue to put pressure on local interest rates.'”
“… For international market analyst Douglas Montero, there is an appetite for emissions from Costa Rica in the foreign market. “In the case of Costa Rica, of course, there will be appetite, Costa Rica’s bonds are still traded, after the downgrades (reductions in ratings), after everyone knows that there is a fiscal deficit, that there are problems, that the reform is not being approved and that it will have to pass through legislative approval’.”
For the union of exporters, the announcement by the Ministry of Finance comes at a bad time. In a statement they said: “… From CADEXCO we were concerned to see the announcement made by the Ministry of Finance on Thursday to make a new issue of $4 billion over the next four years. For the export sector this announcement is surprising and worrying because, with the sole effect of announcing it, expectations of appreciation of the colon have been generated, negatively affecting the competitiveness of our exports.”
“… If this project is approved, we would be faced with an artificial excess supply of dollars that could lead to the colon appreciating, subtracting value from the income of the exporters. We believe that it is not appropriate for a sector that is generating employment and that contributes to Costa Rica’s economic growth, to have its performance negatively affected by this type of action.”
Costa Rica’s economy grew at a rate of 2.8% in April of this year and it moves away from the 3% average that had maintained in the last eight years.
For these reasons, Aguilar explained that it is necessary to go out to international markets to look for fresh resources to finance the obligations of the State after the approval of the fiscal reform, the Ley de Fortalecimiento de las Finanzas Públicas (Law Strengthening Public Finance) in the Legislative Assembly (Costa Rica’s Congress).
The last time the Legislative Assembly approved an indebtedness plan in international markets was in 2012, when it also placed US$4 million in four issues of US$1 billion per year.
The last issuance of these Eurobonds was placed in 2015 and since then the Government opted for internal indebtedness to obtain resources and finance its obligations. However, the growing fiscal deficit and the reduction in the growth rate of the economy make it increasingly difficult to obtain resources in the local market.
Costa Rica’s fiscal deficit will reach 7.1% of the Gross Domestic Product (GDP) at the end of 2018 and 7.9% at the end of next year, according to the projections of the Banco Central de Costa Rica(BCCR) – the Central Bank.
Source (in Spanish): El Financiero