Costa Rica gov’t admits liquidity problems

December 15, 2017

Latin News

On 14 December, Costa Rica’s finance minister, Helio Fallas, admitted that difficulties in accessing finance had prevented the leftist Partido Acción Ciudadana (PAC) government led by President Luis Guillermo Solís from paying out C$80bn (US$141m) in salaries.

Significance: The remarks by Fallas were in response to concerns raised by workers' unions such as the teachers’ union Asociación Nacional de Educadores (Ande) and the national teachers' pension fund (Jupema) which claimed that their members have not received their salaries and pensions. Fallas’s acknowledgment of liquidity difficulties echoes remarks made back in August by President Solís who said that the government is facing “difficulties to pay for its obligations and guarantee the provision of essential services”. This all points to the continued difficult fiscal situation stemming from the perennial failure of the opposition in the national legislature (where the PAC has just 13 seats) to approve a tax reform proposal that Solís sent down to the legislature in August 2015 and has since amended.

Those expressing concern included Gilberto Cascante, Ande’s president, who pointed out that usually the finance ministry begins making the payments on the 13th day of each month, with midnight on the 14th the deadline. He said that some Ande members had not been paid.
Costa Rica’s fiscal deficit was 5.2% of GDP in 2016 (albeit down from 5.4% in 2014) – the year President Solís began his four-year term. The most recent figures from the finance ministry (released on 21 November) showed that the deficit to October was 4.6% of GDP (compared with 3.9% of GDP in the same period in 2016).
The rising deficit, which remains a key electoral concern ahead of February 2018 general election, has attracted concern from international credit ratings agencies. Earlier this year, Moody’s Investors Service and Fitch Ratings downgraded the country. Moody’s cited as the key driver “the continued weakening of Costa Rica’s fiscal profile, reflected in its rising government debt burden and persistently high fiscal deficit”.
In July 2017, Alvaro Pereira, the director of Country Studies at the Organisation for Economic Co-operation and Development (OECD)’s Economics Department, warned that Costa Rica was “playing with fire”, adding that without reforms the country’s fiscal situation could pose a “threat” to its economy.

Looking Ahead: The latest concerns about the fiscal deficit come as the most recent report from the United Nations Economic Commission for Latin America and the Caribbean (Eclac) released yesterday forecasts that Costa Rica’s GDP will grow by 3.9% in 2017. This is above the 3.3% average for Central America and third only to Panama (5.3%) and Nicaragua (4.9%). It is in line with Honduras which is also forecast to grow by 3.9%.

Contributor Biography

Latin American Newsletters (LatinNews) was founded in London in 1967 to provide expert political, economic, and security analysis on Latin America and the Caribbean. For nearly 50 years, it has been acknowledged as the foremost authority on the region.

Tags: costa rica, investment, investors, latam, latin america, liquidity, macroeconomy
Posted in LatAm, Macro Economics, Macro Economics