Research Update: Costa Rica 'B' Sovereign Ratings Affirmed; Outlook Remains Negative

Given the hit to both domestic demand and tourism from the COVID-19 pandemic, we estimate Costa Rica's real GDP contracted by about 4.5%, its general government deficit rose toward 8% of GDP, and its net general government debt reached 64% of GDP last year. Costa Rica's government negotiated an Extended Fund Facility (EFF) with the IMF in early 2021 to provide an additional policy anchor for fiscal correction after the pandemic and to secure official funding to supplement local market financing. We therefore affirmed our 'B' long- and short-term foreign and local currency sovereign credit ratings on Costa Rica. The negative outlook indicates the risk of a downgrade should the Costa Rican Legislative Assembly fail to approve the EFF or

...- Given the hit to both domestic demand and tourism from the COVID-19 pandemic, we estimate Costa Rica's real GDP contracted by about 4.5%, its general government deficit rose toward 8% of GDP, and its net general government debt reached 64% of GDP last year. - Costa Rica's government negotiated an Extended Fund Facility (EFF) with the IMF in early 2021 to provide an additional policy anchor for fiscal correction after the pandemic and to secure official funding to supplement local market financing. - We therefore affirmed our 'B' long- and short-term foreign and local currency sovereign credit ratings on Costa Rica. - The negative outlook indicates the risk of a downgrade should the Costa Rican Legislative Assembly fail to approve the EFF or other policy measures under debate, generating stressed local market conditions that complicate financing for the government or signal a weakened commitment to sound public finances....

Research Update