Costa Rica Economy is winning but is still struggling under weight of public debt

Costa Rica economy and GDP growth rate are seeing better management as government struggles to navigate the Global Economic Crisis.

Costa Rica’s domestic and foreign debt has been growing rapidly. To date, the debt represents 49.7% with respect to domestic industry.

According to the Comptroller General of the Republic (CGR), 2011 internal and external obligations of the public sector, including the financial sector, amounted to ¢ 10,301,396 million, reflecting a greater relative weight in relation to gross domestic product (GDP) .

Furthermore, of the 19 loans in execution, for a total of $ 1,577,999,718.84 the country has disbursed $ 654,404,825.03, with $ 923,594,893.81 in reserve.

The comptroller does see physical and financial progress, however, but some problems have come to light. There were management problems, government contracting and environmental factors that have caused problems over the past year.

Despite criticism, Treasury borrowing through loans as a mechanism argues that it is “cheaper” and notes that although the projects not running do not represent an additional expense because the country pays the interest on the debt on the amounts disbursed.

With the growth of the debt, the Treasury raised point of the effects of the economic crisis, and high growth in public spending, which have led to higher financing needs and pressures on government debt management.
Moreover, during the previous year a decrease debt product, Eurobond payment and amortization of liabilities of the Central Bank of Costa Rica, did not reverse offset actual increases that occurred in the domestic debt that finance the Government’s needs.

Such behavior prompted both government debt, plus the rest of the public sector – including the financial sector – representing ¢ 10,301,396 million reflecting a real growth of 12.1%, higher than the variation in 2009 and 2010, and 7, 9 percentage points higher than the growth shown by GDP.

To this growing debt, you must add the $ 4,000 million that will put the country at international level – can place up to $ 1,000 million per year – and the progressive of domestic borrowing during the 2012, has allowed the running costs.

However, given the non-approval of tax reform, the Ministry of Finance, took as plan “B” the placement of Eurobonds. Analysts have argued that there are structural solutions the country needs and that the only thing the government did was “buying time”.

Another reflection of growing debt is the national budget, where 43% of the 6.4 billion that the government planned for 2013 will be financed with debt.

Read the full story on The Costa Rica News (TCRN)San Jose Costa Rica