Fiscal instability puts social welfare at risk

ICEFI points out that the country’s situation must be addressed as a matter of fiscal sufficiency and not just public debt sustainability, as has been understood by the authorities.

By Leonel Ibarra –

Costa Rica’s economy, one of the most dynamic in the Central American region, has lost its growth rate, among other things due to the loss of fiscal momentum, the low level of investment as a result of the reduction in foreign investment in the country and the loss of international competitiveness in recent years; points to a report prepared by the Central American Institute for Fiscal Studies (ICEFI) on the challenges of the new government.

The report indicates that the country continues to be considered an economy with a high level of human development and upper middle income. However, in recent years, the achievements in terms of social welfare “have been put at risk for the fiscal instabilitywhich has been manifested by growing public debt and fiscal deficit produced primarily by a low tax effort and increasing public spending.

ICEFI considers that the Government of Costa Rica continues with its fiscal ordering effort, however, to achieve these results, the model, in its passive estimation, suggests a decrease in public spending of 2.3% of the Gross Domestic Product in the period 2022-2027, coming mainly from the salary contraction and the payment of interest on the debt at 1.6% and 0.8% of GDP, respectively.

“Costa Rica’s problem must be addressed as a matter of fiscal sufficiency and not just debt sustainability, as has been understood by the country’s authorities,” the document states.

Can read: Costa Rica and Italy will fight against tax evasion

Thus, it is not just a matter of ensuring that the fiscal figures produce a reduction in the fiscal deficit and the amount of public debtbut also that the resources available from the State continue to be at appropriate levels to meet the growing needs of the country’s inhabitants.

“As such, even when the regulation and ordering of public spending is appropriate, all reconditioning should come from a process of reengineering that establishes the possibilities of achieving the same or greater results with a lower or similar level of public resources”, is indicated in the ICEFI report.

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