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S&P downgrades Costa Rica on weakening public finances, policy uncertainty

S&P Global Ratings lowered Costa Rica's long-term foreign- and local-currency sovereign credit ratings to B from B+, citing the continuing deterioration of its public finances amid an expected economic slump due to the coronavirus pandemic.

The rating agency expects the country's general government deficit to widen to 9% of GDP in 2020 and remain little changed in 2021. Net general government debt is forecast to surpass 70% of GDP in 2022.

The downgrade also came amid "mixed signals" from President Carlos Alvarado's administration on whether fiscal adjustment plans would ever be implemented, S&P Global Ratings noted. In May, the government lost its finance minister for the second time in less than a year, raising policy uncertainty and reflecting tensions within the administration over the scope and pace of the planned fiscal changes, the rating agency added.

"In our view, these events reinforce questions about the administration's commitment to fiscal consolidation after the pandemic," S&P said.

S&P Global Ratings expects Costa Rica's real GDP to contract 3.6% in 2020 as the pandemic weighs on domestic demand, tourism and goods exports. The economy is projected to rebound in 2021 with growth of 3.3%, followed by an expansion of 3% in 2022-2023.

The ratings outlook on Costa Rica is negative, indicating the risk of a downgrade over the next 12 months if the government fails to show its commitment to implementing corrective fiscal actions, according to S&P Global Ratings.

This S&P Global Market Intelligence news article may contain information about credit ratings issued by S&P Global Ratings. Descriptions in this news article were not prepared by S&P Global Ratings.