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Published
Thursday, February 20, 2020
AmCham calls upon government to cut spending By the A.M. Costa Rica staff The North American Costa Rican Chamber of Commerce, AmCham, called on the government Wednesday to take measures to significantly cut public spending, due to the fiscal deficit. The deficit has been reported to be close to 7% of gross domestic product, and this was one reason that the Moody's Investors Service lowered the country's bond rating. "Since the implementation of the Law on Strengthening Public Finance, companies and citizens have made an effort to pay more taxes and increase tax revenues," said Gisela Sánchez, president of AmCham. " We believe that it is necessary for the government to assume its commitment to cut current spending in the same way. ” The Chamber urged the government to implement four urgent measures: - Apply the fiscal rule based on the executed budget, as dictated by the Comptroller General of the Republic, resulting in a reduction in government spending. - Convene a vote by the deputies of the Legislative Assembly, bill No. 573 to give the authentic interpretation of the law. This will clarify the process to reduce the spending on all public institutions. - Present the Public Employment Law, which would reduce the expenditure on public employee payrolls. - Promote the state reform plan, to make public institutions more efficient.  Last week, Rodrigo Chaves-Robles, minister of Finance outlined to lawmakers a broad plan to reduce the deficit, improve the economy and generate more jobs. According to Chaves, the plan includes a program to improve government finances four ways: reduction of tax evasion, reduction of public spending, reducing the government debt and making extra payments on current government debt. The presentation of the plan follows the recent announcement that the deficit last year was 6.96% of gross domestic product. According to Chaves, this level of deficit is mainly because of interest payments on debt amount to 28.33% of total government revenues. The government expects to reduce the deficit to 5.1% of gross domestic product this year. According to Chaves, the plan to improve government finances includes using a fund of approximately $3.94 billion, the sum of public institutions surpluses, to reduce the deficit. Another action will be the reduction of tax evasion. To achieve that goal, technological improvements will be made on the platforms of the Ministry of Finance to improve tax collection systems, said Chaves. These improvements will cost $160 million, which will be financed with a loan from the World Bank. He also specified these actions: - A review of tax exemptions granted institutions will be carried out to avoid extra ones. - The profits of state banks and other public institutions will be used to pay off part of the government debt and interest payments. - The government will ask the legislature to approve $4.5 billion in bonds at lower rates to reduce the payment of interest by $62 million per year. - The government will also request another loan from international banks for $1.4 billion, to reduce the payment of interest on government debt by about $76 million. - To reduce government spending, the plan will merge some public organizations. - The government will present the legislature a bill, known as the Public Employment Law, to regulate the salaries of public employees. - The government will freeze for at least two years the hiring of employees who are already receiving a pension from the government, except teachers or police officers. - The government will seek to reduce the rental of buildings for the use of public institutions. - The government will sell the International Bank of Costa Rica, which is currently owned by public banks, and it is located in Panamá. With this sale, the government expects to make an extra payment on its debt. - The government will sell or give a concession to a private investor to operate the National Liquor Factory. This state-owned company currently generates losses for the state, said the government in its statement. - Officials will seek to strengthen the National Production Council. It is a public institution in charge of the protection of small and medium agricultural operations. According to Chaves, on March 1 an additional set of measures will be announced to reduce government debt by at least 1 percent of gross domestic product. "This series of actions would generate a better financial environment and therefore more attraction of companies to the country, directly improving the generation of jobs for Costa Ricans," said the government in its statement. Gross domestic product is defined as the sum of all transactions of goods and services. The gross domestic product for Costa Rica is estimated at from $70 to $80 billion for 2020. The annual deficit is the difference between government spending and government income each year. That amount is covered by the country borrowing money that increases an already large national deficit. That is why payment of interest on the debt is so high. Moody's Investors Service downgraded the government of Costa Rica's long-term issuer and senior unsecured bond ratings to B2 from B1 and changed its rating outlook to stable from negative. According to Moody’s the key drivers for the downgrade were as follows: 1. High fiscal deficits leading to an upward trend in debt metrics which will remain above rating peers; and, 2. Recurring funding challenges resulting from relatively large borrowing requirements that introduce risks to Costa Rica's credit profile. The stable outlook on the B2 rating reflects Moody's view that funding and liquidity pressures will remain contained even as debt metrics continue to rise, it said. ------------------------ Should the government authorities speed the process to reduce the annual deficit? We would like to know your thoughts on this story. Send your comments to news@amcostarica.com |
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