Costa Rica: Keep debt in mind

5 min

Last Sunday, left of center candidate Carlos Alvarado Quesada defied expectations by comfortably winning the vote in the runoff of the presidential election. Costa Rica is one of Latin America’s most vibrant economies, growing above +3% annually in the last four years (+3.3% in 2017 after +4% in 2016 in non-seasonally adjusted terms). External vulnerabilities are limited as the current account deficit has stabilized at around -4% of GDP and is largely financed through foreign direct investment. However, mounting fiscal deficit worries have led rating agencies to downgrade the country four times in the past five years. The fiscal deficit exceeded -6% of GDP in 2017 and public debt has risen rapidly; it is expected to surpass the 50% of GDP mark this year, up from 38.3% in 2014. Alvarado has pledged to reduce the fiscal deficit to -3% of GDP during his term. But broad-based fiscal reforms remain unlikely as Alvarado’s party only holds 10 out of 57 seats in congress.