It’s déjà vu all over again for Costa Rica’s investment rating.
Fitch Ratings announced that the company was holding steady on its junk bond rating for Costa Rica, according to a news release from the company on Wednesday. Costa Rica has a BB+ credit rating with a negative outlook, one step below investment grade.
Along with maintaining its rating for Costa Rica’s public debt with a negative outlook, Fitch echoed the same concerns that have plagued Costa Rica’s investment status for years now, including a yawning deficit and uncertain support for fiscal reform from a fractured Legislative Assembly. Last year, Fitch downgraded Costa Rica’s outlook from “stable” to “negative.”
“The Negative Outlook reflects adverse public debt dynamics, driven by large fiscal deficits, and legislative gridlock preventing progress on reforms to correct fiscal imbalances in a timely manner,” Fitch’s report said.
Fitch also had a lower GDP growth forecast for the next two years than the Central Bank’s estimates. Fitch said it believed the Costa Rican economy would recover from its 2.8 percent GDP growth in 2015 to 3.6 percent in 2016 and 4 percent in 2017. The Costa Rican Central Bank forecast GDP growth of 4.2 percent in 2016 and 4.5 percent in 2017.
Fitch had positive things to say about the efforts of President Luis Guillermo Solís’ administration to control spending and improve tax collection along with benefits from low gas prices and continued demand from the United States for Costa Rican exports and services.
Vice President and Finance Minister Helio Fallas called the news a “red light” warning for Costa Rica. “We as a country need to hurry up and approve the implementation of the measures already proposed with the goal of improving income, spending and the quality [of that spending],” Fallas said in a statement from Casa Presidencial.
If not, “the next step is another downgrade,” he added.