During 2018, Costa Rica faced an international environment characterized by the normalization of monetary policy in the United States and Europe, high volatility in international financial markets, an increase in the price of oil and political tensions between the United States and China, as well as in Nicaragua.
Internally, the level of inflation remained within the target range (2%), the exchange rate was devalued (6.9%), the fiscal deficit closed around 6%, the level of debt increased, and the production slowed down.
With a view to 2019, one of the ways to boost the economy is through an increase in the Government’s Capital Expenditure in ports, highways, and roads, according to Luis Diego Herrera, an economic analyst at the stock exchange firm Acobo. He explained that investment in public infrastructure helps to counteract the brake on spending in the private sector.
The money to build is already approved through loans with international organizations that are only waiting to be executed, so they can be used to make more investment in infrastructure,”
said Herrera.
He added that, in a situation such as the one currently experienced by the country, it is important not to reduce capital expenditure, since such spending improves the competitiveness of the economy as a whole and generates positive externalities.
Data accumulated to November 2018, this item shows a fall of 13.77% in the income and expenditure accounts of the Central Government, but it should be the opposite.
In addition, the analyst commented that
in the short term we do not see a very dynamic Costa Rican economy. The country still has to carry out fiscal reforms to reduce spending, consumption via credit will not show the previous levels and the world economy will have a moderate growth.”
On the other hand, Herrera believes that a concern for this year is that it is already reaching a cap on the debt capacity, which together with the uncertainty, has seen a slowdown in the country’s production, just as indicated by the Central Bank (BCCR) in its report Evolution of Real GDP and Balance of Payments in the III Quarter of 2018.
For the analyst, the situation of indebtedness is worrisome because it limits people’s ability to pay, part of their monthly income could be earmarked for the payment of debt, which reduces their ability to acquire goods and services or respond to an emergency.
The high level of indebtedness, according to the analyst, is explained by the low interest rates in dollars in the economy in recent years, the stability of the exchange rate, which caused many people to acquire credits in dollars without being having an income in dollars, and the easy access that people have to credit cards. However, this context has been changing in recent months, resulting in increases in interest rates in dollars and colones, as well as a rise in the exchange rate.
For 2019 Acobo expects this upward trend in the exchange rate and interest rates to continue, given the need for resources from the government as well as a greater private demand for credit. In addition to these, the economic analyst expects that inflation in the country will be reduced thanks to lower oil prices and lower domestic demand, which does not jeopardize compliance with the Central Bank’s inflation target, around 3%.