QCOSTARICA (Reuters) Fitch Ratings has revised the Rating Outlook on Costa Rica’s Long-term foreign and local currency Issuer Default Ratings (IDRs) to Negative from Stable and affirmed the IDRs at ‘BB+’.
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-‘.
The revision of the Outlook to Negative reflects the following: Costa Rica’s high structural fiscal deficits, slower economic growth and difficulties in implementing tax reforms over the last decade have led to worsening debt dynamics.
The sovereign maintains access to debt markets and multilateral credit lines. However, financing conditions are deteriorating due to the lower absorption capacity of the domestic public sector investor base and the rising pressure on international interest rates. The budget deficit widened for the fifth consecutive year in 2013-2014, climbing to an estimated 5.6% of GDP, the weakest outturn since 1980.
This reflects a structural deterioration in public finances.
Fiscal revenue is among the lowest among rating peers owing to weak compliance and a generalized system of incentives and tax exemptions. Spending rigidity has worsened since 2008 due to increases in public sector payroll and social transfers.
Interest payments to revenue exceeded 17% in 2014, more than double the ‘BB’ median of 7%. Fitch expects fiscal deficits to remain elevated at 6% of GDP in 2015-2016 in the absence of material progress on tax-enhancing measures.
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