The ratings on the Republic of Costa Rica are constrained by: Fiscal inflexibility. A narrow tax base has forced the government to curtail spending in recent years to contain the fiscal deficit. Spending restraint, combined with recently buoyant GDP growth that has boosted fiscal revenue, should maintain budgetary stability in the near term. However, strong political pressure to reverse spending cuts in infrastructure and to provide more public services (especially education) could weaken Costa Rica's fiscal position in the coming years, absent tax reform; Monetary inflexibility. The quasi-fiscal losses of the central bank, which could again exceed 1% of GDP in 2006, weaken the effectiveness of monetary policy and contribute to high inflation (which could reach 11% in 2006); and
