By the A.M. Costa Rica staff
The latest report gathered from the International Monetary Fund gave some cautiously average and lukewarm reviews of the state of financing and economy within Costa Rica.
Among the group’s findings summarized in 19 points, the officials found that the colon had depreciated moderately and the central bank’s reserves continued to decline in spite of narrowing the current deficit. The findings anticipate that the colon will continue to depreciate bit by bit while the reserves will lose about $300 million more. This comes after already seeing a $260 million decline last year, according to IMF data.
Meanwhile, the fiscal deficit remained elevated for this year while the state’s debt to gross domestic product, or GDP, ballooned to over 45 percent as well. The potential gains from new legislation passed by the Asemblea Legislativa will be largely offset by court mandates earmarking increased expenditures on social welfare programs and education, the report gloomily predicts.
The IMF said that the risks involved were an unlikely passage of a fiscal program necessary to lift the country out of its situation due to domestic politics. It cautioned that a strengthening of the dollar, a weak budgetary situation, a bank reliance on foreign funding an high credit dollarization mar the country’s progress due to normal fiscal health.
“With no additional policy action, the primary deficit would return to almost 3 percent of GDP over the medium term,” the IMF said.
“The overall deficit would rise to 8 percent of GDP owing to a mounting interest bill and constitutionally-mandated education spending. Public debt would reach 65 percent of GDP by 2022, steadily growing thereafter.”
To that end, the organization recommended fiscal austerity measures and cuts to spending that are unlikely to occur and so much so that even the official findings advance the notion of at least finding a mixed policy procedure that would cater to cultural conditions.
The IMF praised the measures of increasing the income tax as well as the value-added sales tax but cautions that those alone are not enough and a change in the pensions as well as incomes of persons are necessary also.
In short, the situation is stable for the moment but also lukewarm in terms of current fiscal health.
“Costa Rica ranks better than most of Latin American countries in international competitiveness comparisons, but it should not be complacent. Enhancing transport infrastructure and public expenditure efficiency, especially in education, and competition policies should accelerate potential growth and foster inclusiveness,” the report concludes.