QCOSTARICA (4-Traders.com) Fitch Ratings has affirmed Costa Rica’s Long-term foreign- and local-currency IDRs at ‘BB+’. The Rating Outlook is Negative.
The issue ratings on Costa Rica’s senior unsecured foreign- and local-currency bonds have been affirmed at ‘BB+’. The Short-term foreign-currency IDR has been affirmed at ‘B’ and the Country Ceiling at ‘BBB-‘.
Costa Rica’s ratings are underpinned by its strong structural features relative to peers in terms of high per-capita income, social development indicators and governance, as well as the continued success of its economic model centered around high value-added service and manufacturing activities, which are boosted by strong foreign direct investment inflows. Costa Rica also benefits from favorable U.S. demand growth and low oil prices.
The Negative Outlook reflects adverse public debt dynamics, driven by large fiscal deficits, and legislative gridlock preventing progress on reforms to correct fiscal imbalances in a timely manner.
The central government deficit inched upward to an estimated 5.9% of GDP in 2015, driven by higher interest costs as efforts to improve tax collections and contain salaries and discretionary spending helped arrest growth in the primary deficit. The 2016 budget envisions a higher deficit of 6.9% of GDP, although budget under-execution could bring it closer to 6%. A growing interest bill and rigid spending commitments on salaries and legally-protected social transfers will maintain pressure on public finances.