Ministry of Finance releases its projection for the next 5 years. With expectations of strong deficit reduction.

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For the first time, the Ministry of Finance published on April 27, 2021 the report “Medium Term Fiscal Framework (MFMD) for the years 2021-2025”, in which the income, expenses and financing needs for this five-year period are projected. .

Fiscal policy for these years seeks to give sustainability to the country’s public finances in the shortest possible time. Therefore, a fiscal adjustment must be generated capable of creating the conditions that allow stopping the upward trend of Central Government debt and reducing it in the coming years.

Actions resulting from this fiscal policy will improve public finances in all areas. The Central Government’s fiscal deficit improved by 4.4 percentage points (pp) between 2020 and 2023, going from 8.7% to 4.3% of GDP, while the debt would stabilize at 76.0% with respect to GDP in 2023, to begin to descend from this period. On the other hand, financing needs would be reduced by 1.8 p.p. of GDP, from 13.0% in 2020 to 11.2% of GDP in 2023.

To achieve these goals, adjustments must be made to improve the primary balance in a comprehensive manner. Measures that allow a containment and sustained reduction of spending, and others that generate fresh resources for the Public Treasury, must be applied. At the same time, it is necessary to attend to the financing needs of the Central Government in the medium and long term, as well as to improve the quality of public spending, with an emphasis on social and capital spending.

As part of this strategy, on the expenditure side, measures will be implemented to contain and reduce it, in strict compliance with the fiscal rule, as established by current legislation. Regarding tax revenues, measures will be promoted to increase the current tax burden.

The foregoing will be complemented with a long-term financing strategy to reduce the interest rate of the public debt, through improvements in debt management in the local public debt market, which will be complemented with the approval of support loans. budget by multilateral organizations. The reduction of the interest rate is expected to serve to free up internal resources, in support of the economic reactivation process.

“The actions in fiscal policy that are adopted in the medium-term horizon defined in this document will be necessary so that the stability of public finances and the sustainability of the debt, generate the environment required for Costa Rica to continue on the path of growth and well-being for its population. In this way, the implementation of the fiscal adjustment plan, validated by the approval of the Expanded Service of the Fund (SAF) by the Board of the International Monetary Fund, is fundamental in the search for macroeconomic stability and for the promotion of economic activities. carried out by the public and private sectors ”, explained Elian Villegas, Minister of Finance.

The Hierarch explained that these estimates are subject to a series of fiscal risks that must be monitored, and that may arise from macroeconomic shocks or from the materialization of contingent liabilities. Among the fiscal risks are those of debt, lawsuits against the State, pension regimes, natural disasters and those of a macroeconomic nature.

The Medium-Term Fiscal Framework 2021-2025 is available at www.hacienda.go.cr, section “Sustainability of Public Finances” (https://www.hacienda.go.cr/content/12870-sostenibilidad-de-las -finanzas-publicas) and its preparation was guided by the International Monetary Fund through Technical Assistance.

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