Moody’s upgrades Costa Rica to investment grade

(Reuters) – Moody’s Investors Service on Thursday raised Costa Rica’s credit ratings to investment-grade status, saying the country proved it is able to manage external shocks while avoiding a balance-of-payment crisis

The ratings agency upgraded Costa Rica’s government bond rating to Baa3 from Ba1. The outlook on the new rating is stable.

According to Moody’s, the ratio of Costa Rica’s public debt to gross domestic product fell to around 43% last year, from levels above 60% a few years ago. A similar improvement has been seen in other government debt metrics, suggesting a considerably improved ability to service debt obligations.

Moody’s anticipates that over the next couple of years, a reversal of the recent fiscal deterioration will lead to further debt consolidation. Given that the expenditure increase observed in recent years has a permanent component, a tax reform or other revenue-enhancing measures will be necessary.

Additionally, Costa Rica’s ability to navigate through the global crisis relatively unscathed revealed an increased credit resilience, Moody’s said. The economy experienced only a brief and shallow recession last year and is now recovering. Significant capital outflows and pressure on the nation’s currency during the crisis didn’t compromise the nation’s external position, and in Moody’s view, the episode was an important stress test.