A former Mexican finance minster who now heads an international organization has reaffirmed that the country needs to take stronger action to reduce the national deficit.
He is Angel Gurria, who heads the Organisation for Economic Co-operation and Development. Costa Rican officials have been working through at least three administrations to become a member of the organization, which some call the rich nations club. There now are 34 member nations, mostly First World.
Gurria was visiting after his organization issued a detailed, 141-page economic assessment of the country.
Both he and the assessment said that the country has to reduce its fiscal deficit 2 percent in 2016 and 2017 and an additional 1.5 percent later. The deficit now is inching toward 6 percent of gross domestic product.
He also said that the country should approve the proposed fiscal reforms, fight tax evasion and eliminate tax exonerations that do not have a justification.
“The Costa Rican economy is gradually recovering from the global economic crisis, and is now expected to grow faster than most of the other countries in Latin America, as well as most of those in the OECD,” Gurría said in a prepared statement from the organization.
The organization quoted him as saying that putting the house in order will require raising more tax revenues, restraining public spending while improving its efficiency and ensuring that public finances are managed in an effective manner.
The organization’s assessment, which is on its Web site, suggests that Costa Rica take immediate steps toward the consolidation of public finances, through programmed cuts to the government deficit over the coming three
years. Swift implementation of the proposed
tax reform, combating tax evasion, eliminating tax exemptions and curbing growth in public spending will be critical, it said. Introduction of a medium-term fiscal framework, with a clear and verifiable expenditure rule, is also recommended, it added.
Vice President Helio Fallas, who also is minister of finance, said that the government would come forth with a verified expenditure rule by the end of the month.
Reforms for bringing about a stronger economy go hand-in-hand with efforts to make Costa Rica a more inclusive society, notably for informal workers and women, according to the assessment. Improving the quality of education and enhancing the effectiveness of cash transfers in reducing poverty would expand opportunities and share prosperity more widely, it said.
Gurria and the assessment basically said what everyone knows should be done. But the problem is political. President Luis Guillermo Solís has already warned of social unrest with budget cuts. And the president’s political party does not control the legislature, so there is some resistance to the executive branch’s proposals.