Costa Rica’s Central Bank announced on Wednesday that the International Monetary Fund (IMF) has approved $508 Million in emergency financing for Costa Rica to help alleviate the impact of the coronavirus, COVID-19 pandemic. The five-year loan was granted through the IMF’s Rapid Financing Instrument, and carries a spread of 150 basis points over the IMF’s special drawing rights (SDRs), equal to an interest rate of 1.55% per year. Costa Rica requested the loan on April 16-17, when an IMF delegation visited the country.
The President of the Central Bank, Rodrigo Cubero, and the Minister of Finance, Elian Villegas, sent a letter to the Managing Director of the IMF to request the start of negotiations towards a financial agreement for the loan. They wrote, “The agreement would provide a policy anchor for our fiscal consolidation plans for a period necessary to achieve a primary surplus and place debt on a clear downward trajectory. This, in turn, is necessary to ensure vigorous economic recovery from the pandemic and a greater trajectory of economic growth in the medium term.”
It is predicted that Costa Rica’s Gross Domestic Product (GDP) will decrease by 5% this year as a result of the pandemic, but in all likelihood the crisis will lead to a fiscal deficit of more than 9% of GDP, with the Central Bank’s debt reaching a staggering 70% of GDP. The original request by Costa Rica to the IMF was for $1.750 Billion , for a three-year period. The funding is needed to support essential COVID-19 related spending and relief measures targeted to the most affected sectors and vulnerable populations.
Minister Villegas explained, “This medium-term agreement with the IMF will provide important resources to the Central Government under favorable conditions and allow access to additional financial resources from other international financial organizations.” With Costa Rica’s economic situation worsening monthly, while the virus gains strength, it is very likely that Costa Rica will indeed need to look for other sources of outside financial help. There are not many financial resources available in the world right now. According to the IMF’s Managing Director, Kristina Georgieva, the Rapid Financing Instrument has received over 100 requests from their members, with developing countries (like Costa Rica) needing at least $2.5 Trillion dollars to manage the COVID-19 impact.
According to Moody’s Investors, Costa Rica’s fiscal deficit for 2020 will be at 8.1%, while the level of public debt will stand at 66% of the country’s GDP. Before the pandemic hit in March, Costa Rica had launched a plan to reduce the national debt, but the coronavirus pandemic has had a devastating effect on these plans for the economy. Businesses throughout the country are wondering how they will stay open, and many have already closed with Costa Rica at a staggering 24%+ unemployment rate.
Another challenge to Costa Rica’s economic recovery may very well be how they position themselves in line for a COVID vaccine, when and if one becomes available. Costa Rica is a tiny country shouldering giant challenges. We can only hope they will manage to survive, their Pura Vida spirit still intact, and their citizens healthy and back at work.
The new slogan of the Ministry of Health is “Costa Rica Works and Takes Care of Itself”, Costa Rica Trabaja y se Cuida. They will also need great reserves of strength and good administration.
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