Costa Rica receives positive economic ratings

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    Lic Giovanna Barrantes,

    Fitch Ratings, an international economic ratings service, has given Costa Rica a thumbs up for its financial climate.

    The firm has upgraded Costa Rica’s foreign currency IDR to ‘BB+’ from ‘BB’; upgraded its country ceiling to ‘BBB-‘ from ‘BB+’; and affirmed its local currency IDR at ‘BB+.’

    In addition, Fitch has labeled Costa Rica’s Rating Outlook as “stable.”

    Fitch said the upgrade reflects Costa Rica’s better than expected economic performance during the global credit crisis and its steadily improving macroeconomic stability, which has been aided by lower inflation and higher international liquidity, as well as the country’s relatively modest external indebtedness.

    Some long-standing economic policies are also paying off and keeping the country healthy at a time when other nations, particularly in Central and South America, are not faring well, the Fitch report said, adding that Costa Rica’s positive ratings are helped by its comparatively high per capita GDP, favorable social indicators, political stability and strong governance indicators.

    “Costa Rica has been able to manage balance of payments pressures despite its vulnerability to high commodity prices, structural current account deficit and limited exchange rate flexibility, reflecting its improved shock-absorption capacity,” said Fitch director Erich Arispe.

    “Moreover, continued accumulation of international reserves, lower dollarization and close relations with multilateral institutions reduce Costa Rica’s external vulnerabilities.”

    Costa Rica has been one of the leaders among its peers through the global recession, with its macroeconomic performance improving as the country has continued to stage an economic recovery since late-2009. The report said Costa Rican growth could remain above four per cent during the forecast period.

    The inflation rate in Costa Rica has not only stabilized, but decreased as past double-digit inflation rates have dropped to single-digits in the last two years. That is expected to continue during the forecast period barring a significant increase in commodity prices.

    Fiscal deficits have worsened since 2009, with Costa Rica’s central government debt burden rising to an estimated 30% of GDP at the end of 2010, but that level is lower than the ‘BBB/’BB’ medians at 35 per cent and 40 per cent, respectively.

    “In Fitch’s view, fiscal consolidation and a sustained reduction in government indebtedness in the pre-2008 period provided some space to relax the fiscal stance in response to the global credit crisis without undermining investor confidence,” the report said.

    “Moreover, the steady development of local markets and improvement in currency composition of government debt supports Costa Rica’s fiscal financing flexibility.

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