Entries for 'Costa Rica'

Costa Rica’s current account deficit remains manageable, and the external funding outlook is favorable. The real exchange rate has depreciated, favoring external adjustment. However, inflation pressure has intensified, and global bond issuance remains a challenge amid political resistance.

Activity has rebounded faster than expected, spurred by exports and remittances. Vaccination rollout has accelerated in several countries, aiding th...

Partial fiscal consolidation is underway following extraordinarily large deficits in 2020. Revenue has increased above pre-pandemic levels amid the ongoing growth recovery, but withdrawal of fiscal stimulus has been uneven. Fiscal pressure remains high given the debt buildup and deep social needs. 

Costa Rica has secured an IMF Extended Fund Facility agreement, as COVID-19 has intensified ongoing fiscal woes. However, significant reform progress seems challenging ahead of the February 2022 elections, and higher interest rates would exacerbate the already-demanding adjustment. 

Frontier LatAm countries have bounced back following a sharp decline in 2020, but disparities in the recovery remain. Guatemala has already surpassed pre-COVID-19 GDP levels, while Panama continues to face challenges. Fiscal accounts have been severely affected, worsening public financing woes. 

We project a real GDP contraction of 7.5% in 2020 and a modest rebound in 2021. Tourism remains depressed, but remittances have surpassed pre-COVID-19 levels. SLV, JAM, and PAN are set to endure the steepest recessions, while GTM should contract the least due to its stable macroeconomic framework. 

The BoP correction has been remarkable amid activity collapse and exchange rate flexibility. Current account adjustment helped protect reserves desp...

COVID-19 has exacerbated Costa Rica’s external and fiscal imbalances. We project a widening of the current account deficit driven by the services sector. Further IMF funding would be needed to cover a potential external financing gap. External risk remains tied to substantial fiscal vulnerability. 

Exchange rate flexibility has eased the adjustment to COVID-19 in most large countries. However, “fear of floating” is still high across Central America and the Caribbean. While local market financing is increasing, countries have largely had to borrow in hard currency to help withstand the shock.

COVID-19 has widened fiscal deficits and spurred needs for additional funding. As a result, QE-type measures have gained impetus amid disinflationary pressure. While countries with sounder institutions can take more aggressive steps, we expect QE to remain modest barring a resurgence of instability. 

COVID-19 has increased external funding challenges despite moderate borrowing needs. Notwithstanding oil price relief, collapsing remittances and tourism will weigh on current account receipts. While some countries have tapped global debt markets, uncertainty over financing sources remains. 

COVID-19 has affected Latin America through multiple channels. Pre-existing challenges and increased exposure put the region in a difficult position. We project a deep recession this year amid a sudden stop in capital flows and limited policy space. 

 

Despite some fiscal consolidation, public finances are fragile. If fully implemented, the fiscal rule would imply a sizable adjustment. Nonetheless, gross public financing needs will likely remain high this year and next. 

Current account deficits in Frontier LatAm are wide by EM standards, largely due to energy trade imbalances, but lower oil prices since 2014 have helped ease financing gaps. Despite global headwinds and regional tensions, we project CA deficits to stay contained in 2019-20, broadly financed by FDI. 

Current account deficits in Frontier LatAm remain wide and are largely dependent on remittances and oil prices. While high FDI helps cover external financing needs, debt buildups have been significant in some countries, increasing external vulnerability amid limited buffers.

We project solid growth and contained inflation this year and next. Main risks to the outlook are linked to external conditions as domestic policies have generally improved. While progress has been made to address longstanding challenges, major structural weaknesses remain.