The crisis caused by the Covid-19 outbreak is causing a negative effect on the public health of the countries. This requires putting in place measures to prevent massive contagion. Unfortunately, the necessary sanitary measures directly harm the economy and people’s jobs.
Before the pandemic, Costa Rica’s public finances were improving. During the first quarter of 2020, the Ministry of Finance registered the lowest primary deficit in a decade (0.12% of Gross Domestic Product -GDP-), a reduction in current spending without interest (0.27% of GDP) and a significant increase in tax collection (0.33% of GDP). Had this trend continued, the 2020 primary deficit would have closed at -1.3%, and the financial deficit at -6.2% of GDP.
Unfortunately, the pandemic is disrupting this trend, and we now estimate the second-largest decline in economic growth in Costa Rica in 70 years. The data recently released by the Central Bank projects that the growth of the Gross Domestic Product for 2020 will be -3.57%. This projection implies that, in the event that the Government had not responded with fiscal policy to the crisis, the primary deficit would be -4.1% of GDP and the financial deficit of -9.3%. But, due to the extraordinary expenses to meet the emergency, the primary deficit would increase to -4.8% and the financial deficit to -10% of GDP.
Within the framework of fiscal responsibility, the Ministry of Finance has developed income and expenditure policies that ensure that the primary deficit is not greater than -3.4% of GDP and a financial deficit is not greater than -8.6%. Furthermore, we estimate that public debt will reach 67% of GDP by the end of 2020.
The Ministry of Finance will cover all its gross financing needs this year with a robust and responsible plan, which includes the internal market and international organizations. Now, the financing that we require in the national financial market for the rest of the year is less than we had planned before the crisis, since we do not want to squeeze the private sector, this would allow them to access the resources available in Costa Rica and it will not put pressure on local interest rates.
Instead, the Ministry of Finance has negotiated a significant increase in financing with international organizations including the International Monetary Fund, the World Bank, the Inter-American Development Bank and the CAF. These agencies lend at very favorable rates and terms compared to any other government financing option.
The Minister of Finance said that: “attending to the families, companies and institutions of the country is essential to guarantee social welfare. The policies that we have put in place, and those that we will continue to propose, ensure the fiscal sustainability of the country and a robust rebirth of the economy once we overcome this crisis together. ”
The Ministry of Finance will continue working to guarantee that the Government complies with the payment of all the commitments: financing of social programs, payment of the debt, payment of the payroll, payment to suppliers, strengthening of institutions and public investment.