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Moody's Downgrades Costa Rica For Tardy Fiscal Reforms

by Mike Godfrey, Tax-News.com, Washington

19 September 2014


True to its word, Moody's Investors Service on September 16, 2014, downgraded Costa Rica's government bond rating to Ba1 from Baa3 due to delays to its fiscal consolidation program.

Several attempts in recent years to address Costa Rica's growing fiscal deficit and debt have not brought these levels lower, Moody's said. The new Solis administration, which took office in May of this year, has indicated it will only gradually introduce fiscal consolidation. Earlier this month Fitch Ratings warned that it would downgrade the country's credit rating if it failed to rein in its fiscal deficit.

As a consequence of inaction, Moody's expects that the current large fiscal deficits and increasing debt burden are likely to continue for the next few years.

The fiscal deficit has averaged 4.5 percent of gross domestic product (GDP) since 2009, largely driven by spending growth, and is expected to reach 5.8 percent of GDP in 2014, and 6 percent of GDP next year.

The credit rating agency noted that, for the past few administrations, the Government's weak position in Congress has delayed approval of legislation because of the need to forge ad hoc alliances. Consequently, efforts to approve significant fiscal reforms have been impeded.

TAGS: tax | gross domestic product (GDP) | legislation | Costa Rica | tax reform | Invest

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