Fitch Ratings - New York - 11 Mar 2022: Fitch Ratings has affirmed Costa Rica's Long-Term (LT) Foreign Currency (FC) and Local Currency Issuer Default Ratings (IDR) at 'B' and revised the Rating Outlook to Stable from Negative.
A full list of rating actions is at the end of this rating action commentary.
Revised Rating Outlook to Stable: The revision of Costa Rica's Outlook to Stable from Negative reflects the significantly better-than-expected improvements in the fiscal position and economic activity following the 2020 pandemic-related shock. Fitch's fiscal expectations have improved following a robust 2021 outturn, supported by strong revenue performance adherence to a spending cap, while recent passage of the Public Employment Reform supports compliance with the three-year USD1.8 billion IMF Extended Fund Facility (EFF) approved in March 2021.
Fitch expects the better fiscal position, improved domestic borrowing costs and the ongoing economic recovery will be sufficient to place debt/GDP on gradual downward path, and that this will continue under the new administration to be led by the winner of April's second round of the presidential election. The sharp rise in oil prices poses risks to Costa Rica as an energy importer, as foreign reserves have been declining over the past three years.
Improved Fiscal Position: The 2021 primary deficit of 0.3% of GDP was 3.1 percentage points lower than 2020, and far below the EFF target of -1.7%. Revenues...
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