Outlook
The IMF has cut its economic forecast for Latin America
to 2.7% from 3.0% for 2013; Costa Rica’s slowing economic
activity also reflected this slowdown with its growth rate being
revised to 3.0% from 4.0%. The slowdown in the EU and
United States has been the major cause of this slowdown and
resulted in the country’s falling export growth. Government
continues to push for diversification of its trading partners
and has developed newer markets to countries such as
China, Malaysia, Sweden and Ecuador but the United States
remains the major trading partner purchasing over 40% of
Costa Rica’s exports. The volatile political landscape of the
United States resulting in the national shutdown as well as
the cut of the fiscal stimulus will have aftershocks on Costa
Rica’s economy. Foreign direct investment will continue as
international companies continue to invest in manufacturing
and growing services sectors in the country and this will
continue to provide cover for the current account deficit.
However as evidenced by the recent outlook downgrade
by Moody’s, the rising debt burden needs to be addressed
promptly. Moody’s lowered Costa Rica’s outlook from Stable
to Negative in September 2013. The ratings firm cited the
continued increase in the country’s main debt metrics since
2009 and the difficulty in passing legislation to reduce high
fiscal deficits and limiting the increase in debt burden.
Finance Minister Edgar Avales presented a budget of
USD12.8 billion for 2013(7.7% higher than in 2012) with
57% of proposed expenditures being covered by current
revenue and 43% financed by medium to long-term debt in
September. The major allocation in the budget (47.4%) will
go to social spending such as education, social protection,
health, housing, recreation and culture. Th