Friday 27 January 2023

Moody’s: Costa Rica’s credit profile matches its current rating

The agency issued a statement in which it highlights the strengths of the country, but also the institutional obstacles that have slowed down fiscal consolidation

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27 January 2023 - At The Banks - BCCR

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QCOSTARICA – Moody’s credit rating agency issued a statement Tuesday afternoon indicating that Costa Rica’s credit profile is consistent with the current rating.

For illustrative purposes

“Costa Rica’s credit profile (B2 issuer rating) reflects the country’s ‘baa3’ economic strength based on a small, diversified economy with a long history of stable growth and moderate wealth levels,” the rating agency said.

Its governance also stands out, reflecting solid results in measures to control corruption and the rule of law.

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Moody’s explains that it completed the periodic review of a group of issuers (a portfolio), including Costa Rica, and may include related ratings; however, it indicates that the review did not involve a rating committee and that the publication does not announce a credit rating action and is not an indication of whether or not a credit rating action is likely in the near future.

“Credit ratings and/or outlook status cannot be changed in a portfolio review and therefore are not affected by this announcement,” the agency clarified.

In the statement, the rating agency highlights as negative factors the institutional obstacles that have slowed down fiscal consolidation efforts, a high debt burden reinforced by large fiscal deficits and susceptibility to risk events, which reflects the government’s weak liquidity position. the increase in gross financing needs and limited financing options.

Moody’s lowered Costa Rica’s credit rating last February from B1 to B2 and in June it passed Costa Rica’s risk rating to negative from stable outlook from stable.

Finance Minister Elian Villegas, interpreted that the communication indicates that the rating is maintained.

“In the language of the rating agency, basically what it is saying is that, at this time, it simply leaves the rating as it was,” Villegas said.

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Melvin Garita, general manager of BN Valores, explained that this communication is a practice implemented by the agency so that the market is aware of an eventual change.

“The evolution of the titles in the next days should be a clearer signal of the market expectations regarding what Moody’s finally reveals,” he added.

Also on Tuesday, the British multinational investment bank and financial services company, Barclays, reported that it sees possible that Costa Rica and the International Monetary Fund (IMF) reach a financing agreement in the first quarter of 2021 and that the Government begins to show signs of progress on the possibility of achieving a consensus on a financial adjustment program in the coming weeks.

Minister Villegas indicated that, as indicated by the Comptroller General, the tax collection will not fall by the amount that had been initially estimated, but by 50% of what was expected.

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In addition, he explained, the country’s economic reactivation is underway, which is reflected in a recovery in employment and tourism, along with the control of public spending.

Villegas insisted that all of these situations are what Moody’s has taken into consideration to leaving the rating the same.

“What we would expect is that all this, added to the effort that the Legislative Assembly can make to support the Government’s policy of lowering the average interest rate by incorporating multilateral credits into the Government’s loan portfolio, are circumstances that will support an improvement in that qualification,” said Villegas.

Currently, a loan of US$250 million dollars from the Inter-American Development Bank (IDB), to finance the Government budget in 2021, is at risk.

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