Fitch Ratings has affirmed Costa Rica’s Long-term foreign and local currency Issuer Default Ratings (IDRs) at BB+. Fitch has also affirmed the Short-term foreign currency rating at B and the country ceiling of BBB-.
The rating firm said the outlook for Costa Rica was stable.
The affirmation of Costa Rica’s ratings is supported by the country’s institutional stability and strong social indicators that have facilitated large foreign direct investment inflows, thereby contributing to steady growth, high per capita income and better financing of the country’s large current account deficits, the firm said.
The ratings are constrained by the lack of political consensus to address high structural fiscal deficits that result in negative debt dynamics, and by limited monetary and exchange rate policy flexibility, it said, adding:
Costa Rica’s diversified value-added export-based economy should continue to be resilient in the face of sluggish global growth. Costa Rica’s economy is estimated to have expanded 5.1 percent in 2012, outperforming the 4 percent median of BB peers amid a fragile global economy. Fitch said it expects the economy to expand an average of 4 percent over the next two years. Risks stem from renewed weakness in the U.S. economy, the country’s main export destination and source of investment flows.
Pressures on domestic interest rates stemming from hefty fiscal needs could exacerbate already large portfolio inflows, thereby increasing challenges for the monetary and exchange rate policy, the firm added.