S&P Cuts Costa Rica on policy uncertainty

• S&P Global on Tuesday cut its sovereign long-term foreign currency credit rating on Costa Rica by one notch to B from B+ citing a deeper than expected economic contraction as a result of the COVID-19 pandemic and what it describes as "mixed signals" from government over structural fiscal reforms.
• In late May, then Finance Minister Rodrigo Chaves stepped down after only six months on the job. Press reports at the time said he did so over differences on state spending priorities with President Carlos Alvarado, who had asked for his resignation. Alvarado signed legislation that exempted local governments from complying with portions of the fiscal reform law that passed in 2018.
• The firm now expects Costa Rica's general government deficit to rise to 9% of gross domestic product this year and remain little changed in 2021. Elections in February 2022 likely slow an fiscal adjustments until then while net general government debt-to-GDP is seen rising above 70% in 2022 and interest to revenue to average 20% over the next three years, S&P said.
• S&P said it expects GDP to contract 3.6% this year due to the spending to fight the pandemic and the drop in tourism receipts. That is slightly worse than the forecast from the World Bank, released on Monday, which sees Costa Rica's economy shrinking by 3.3% this year before rebounding with 3.0% growth in 2021.

(Source:  Latinfinance)