COVID-19 Sends Costa Rica Into Recession - Emerging Market Views

COVID-19 Sends Costa Rica Into Recession

Moody’s Investors Service this month changed the outlook on the Government of Costa Rica’s ratings to negative from stable.

In addition, the agency has affirmed the country’s B2 long-term issuer and senior unsecured bond ratings. The negative outlook reflects Costa Rica‘s “increased funding risks due to higher borrowing requirements resulting from pandemic-related economic and fiscal shocks,” Moody’s said in a published statement.

Taking into account the sovereign’s “higher-than-peer’s wealth levels and its dynamic economy” the rating, Moody’s noted, takes into account Costa Rica and how it “benefits from comparatively strong institutional governance indicators.”

Acting on the expectation of the country’s expected impact on the country’s budget deficits coupled with the related increased risk of funding pressures resulting from the coronavirus shock, Moody’s notes it considers this shock as a “social risk under its ESG framework.”

The COVID-19 pandemic has led to a sharp recession in Costa Rica and higher fiscal deficits which will require increased borrowing from the government both this year and in 2021. For 2020 the government will rely “heavily on funding from official sources,” but next year’s borrowing will require the country to turn to international “markets, where spreads today remain prohibitively high,” the agency said.

Costa Rica is experiencing its third recession in over half a century. Moody’s now expects the 2020 fiscal deficit to reach 9.7 percent of GDP and further expects the deficit to fall only moderately in 2021 to 8.4 percent of GDP.