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Costa Rica Government Finances on Life Support

Both the World Bank and the International Monetary Fund have urged Costa Rica to modify its macroeconomic policy to fight growing unemployment and to stimulate production.   The unemployment rate in Costa Rica has been rising and is currently estimated at around 10.4%.

When the United States dropped interest rates to address its own crisis the result was that capital flowed into Costa Rica where interest rates were higher.   As the U.S. begins to phase down its quantitative easement policy and if interest rates rise in the United States it could signal a flow of capital out of Costa Rica towards the United States.  Currently because of the large influx of Dollars int he Costa Rica economy about 40% of the Costa Rican economy is dolarized.  

The goverrnment has also done a poor job at managing debt.  The public debt of Costa Rica is growing.  According to respected local economists the public debt could grow from the current amount of 38.7% of GDP to 50% of GDP by 2015

The government currently requires borrowing money to finance 49% of its budget.   

With the country entering into election mode for 2014 and without a consensus in the Costa Rican Congress to govern and engage in true problem solving could mean that Costa Rica is in for a bumpy ride in 2014.  

 

 

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