S&P Turns Bullish On Costa Rican Debt

August 1, 2008

Citing the Costa Rican government’s declining debt burden, Standard & Poor’s global credit ratings services raised its outlook on Costa Rican government debt to positive from stable, according to S&P.

Credit ratings measure the risk of default of particular debt issuers, in this case, the Costa Rican government. Other things being equal, the lower the risk an issuer will default on its debt obligations, the lower the interest rate it will need to pay to borrow from markets.

A positive outlook implies economic conditions are improving.

S&P affirmed its BB/B foreign currency and BB+/B local currency sovereign credit ratings for Costa Rica. The ratings agency affirmed the BB+ long-term debt rating on Costa Rica’s foreign currency senior unsecured debt reflecting both default and recovery prospects. These ratings imply Costa Rican debt is “speculative/somewhat speculative” and that an investment in Costa Rican debt is among the safest investments in investment-grade debt.

According to S&P, buoyant tax revenues and continued good GDP growth have contributed to a decline in gross general government debt to an expected 32 percent of GDP at the end of 2008, compared with 41 percent in 2006. By comparison, U.S. government debt represents about two-thirds of U.S. GDP.

S&P also noted that the ongoing improvement in Costa Rica’s fiscal and debt profile, combined with more exchange rate flexibility and a more effective monetary policy, could potentially improve creditworthiness.

 

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