American credit rating agency Moody’s announced it has “placed the Government of Costa Rica’s BA2 long-term issuer ratings and the Ba2 senior unsecured bond ratings on review for downgrade.

Back in 2017, Moody’s had already downgraded Costa Rica’s government bond rating from BA1 to BA2, maintaining the negative outlook of the rating and pointing as the key driver behind the downgrade “the continued weakening of Costa Rica’s fiscal profile, reflected in its rising government debt burden and persistently high fiscal deficit”.

The review for a new downgrade occurs just a few weeks after Moody’s had published its analysis in relation to the negotiations of the Costa Rican Government with the labor unions regarding the fiscal plan and stated that “even though dialogue is positive, the current social unrest is negative for Costa Rica since it complicates fiscal consolidation efforts”,

Moody’s highlighted the importance of the approval of the fiscal plan “to achieve the stability that is fundamental to improve the credit quality of Costa Rica”.

In this occasion, the two key drivers listed for the downgrade review include:

“Prospects of continuing worsening of fiscal and government debt indicators, coupled with evidence of increasing funding pressures“, and

“Reservations about the government’s ability to implement an effective fiscal consolidation plan and revert negative fiscal trends”.

Now, during this review period the Moody’s will analyze the financial situation of the country, the likelihood of the fiscal reform getting approved as well as other factors that will help them “determine the credit risks associated to restricted market access”.

Related article: https://news.co.cr/moodys-warns-costa-rica-of-importance-on-approving-fiscal-reform/76137/