Moody's said Oct. 18 that it placed the Government of Costa Rica's Ba2 long-term issuer ratings and the Ba2 senior unsecured bond ratings on review for downgrade.
The agency cited its reservations about the government's ability to implement an effective fiscal consolidation plan and revert negative fiscal trends.
The country's long-term and short-term country ceilings, however, are not affected.
The rating agency expects the country's 2018 fiscal deficit to end at 7.2% of GDP, compared to 4% of GDP in 2011. High deficits are raising government debt levels which are expected to reach 54% of GDP in 2018, up from 30% of GDP in 2011. Moody's also expects a fiscal deficit close to 8% of GDP and government debt close to 60% of GDP in 2019, if fiscal reforms are not implemented.
Moody's said increased government reliance on domestic market funding has increased local interest rates. The government's annual funding needs are likely to remain above 14% of GDP in 2018-19, compared to 11% of GDP in the previous five years.
Given a review for downgrade, a rating upgrade is unlikely. However, Moody's said it would stabilize the outlook at the current rating level if the government adopts measures that combine increased tax revenue and spending cuts to reverse the negative trend in government debt indicators.
But persistent increases in debt metrics would lead to a negative ratings action and a lack of fiscal reform could result in a multi-notch downgrade, Moody's said.