Thursday, 16 July 2020

Fitch Downgrades Costa Rica to ‘B’; Outlook Negative

Fitch Ratings has downgraded Costa Rica’s Long-Term Foreign-Currency Issuer Default Rating (IDR) to ‘B’ from ‘B+’. The Outlook is Negative.

The downgrade of Costa Rica’s Long-Term Foreign-Currency (LT FC) IDR to ‘B’ reflects increased risks of near-term financing stress due to widening fiscal deficits, a steep amortization schedule and borrowing constraints, against a background of economic contraction caused by the effects of the coronavirus pandemic.

The ongoing health crisis comes at a time when Costa Rica’s fiscal space is limited and rapidly narrowing, raising risks to post-crisis debt sustainability. The interest bill is climbing rapidly, and the debt burden is on a relatively steep upward trajectory.

Fitch gave Costa Rica’s ratings a negative outlook due to “uncertain prospects” for economic growth and borrowing costs after the outbreak, it said in the report.

- paying the bills -

This year, Costa Rica will rely on loans from multilateral agencies to finance the budget. Looking ahead, however, the government could face higher funding costs in the international and domestic capital markets, Fitch said.

The rating agency expects GDP in Costa Rica to fall 4% in 2020 as containment measures against the coronavirus outbreak lead to lower demand and higher unemployment.

Domestic demand was already on the decline, thanks to high unemployment and weak private credit growth, but external demand is expected to fall as tourism comes to a halt and exports decrease.

But the economy will likely rebound and grow 2.6% in 2021, although a prolonged downturn in tourism could impact a recovery, Fitch said.

Before the coronavirus outbreak, Costa Rica issued US$1.5 billion in 11-year bonds in November last year to ease financing pressures for the first quarter this year.

- paying the bills -

Now the country plans to borrow up to US$3.18 billion from multilateral lenders in 2020, equal to 5.2% of GDP. Other than a US$500 million loan from the South American development bank, the government needs legislative approval to take out loans from the Inter-American Development Bank (IDB), the Central American Bank for Economic Integration (CABEI) and the IMF, according to Fitch.

“Failure to secure these external loans would lead to a fiscal financing gap, given prohibitive external market borrowing costs and limited domestic market size,” Fitch said.

 

Q Costa Rica
Q Costa Rica
Reports by QCR staff

Related Articles

Is McDonald’s In Latin America In Trouble? Fitch Downgrades Arcos Dorados to ‘BB’; Outlook Revised to Negative

Fitch Ratings has downgraded Arcos Dorados Holdings Inc.'s, McDonald’s largest franchisee...

Insurance in Central America: Optimism at the End of 2019

Except for Nicaragua, which projects a decline in revenues, Fitch Ratings...

MOST READ

McDonald’s donates ¢20 million in food to law enforcement officers

More than 5,000 police officers will benefit from the donation of ¢20 million colones in food by Arcos Dorados, the company that operates...

Costa Rica will resume phase 2 of reopening at GAM on Monday; resumption of flights on deck for August 1

(QCOSTARICA) The Greater Metropolitan Area (GAM) will return, next Monday, July 20, to phase 2 of the reopening process that allows the operation of...

“Hammer” time, Costa Rica’s GAM under ‘orange’ alert

(QCOSTARICA) The number of COVD-19 infections in the last few days has been staggering, 1,359 new cases in just three days, resulting in the...

Costa Rica adds 26th death associated with covid-19

(QCOSTARICA) An 89-year-old woman, a resident in the province of San José, died this morning, Friday, July 10, with COVID-19. With this death, Costa...

COVID-19 Costa Rica: 504 new cases, deaths reach 40

(QCOSTARICA) This Wednesday, July 15, the Ministry of Health reported 504 new cases of COVID-19 infections in Costa Rica, the second highest number so...

COVID-19 In Costa Rica: Two new deaths and 446 infections

(QCOSTARICA) The Ministry of Health reported this Tuesday, July 14, 446 new cases in the last 24 hours, reaching an accumulated 8,482 positive cases...

Let's Keep This Going!

To be updated with all the latest news and information about Costa Rica and Latin America.