Costa Rica’s debt plans will illuminate LatAm risk appetite
The country needs to raise up to $4.5 billion in the international markets this year – and it won’t be easy.
Costa Rica’s public debt officials may soon find themselves looking fondly back to a golden age of access to the international debt capital markets.
It was time when the country’s deals were met with huge international appetite, it could issue $1.5 billion in fresh debt, launched with no new issue premium thanks to $7.6 billion in orders – and then the bonds would promptly trade up in secondary.
That was all the way back in November.
Things can change quickly. First, Moody’s downgraded the country to B2 on Monday and, by doing so, threw a harsh light on the terrible state of the public finances.
Costa Rica’s fiscal problems are long-standing, but the lead banks on the November deal – Citi and HSBC – were able to put a gloss on the fiscal weakness by pointing to a new value-added tax, the establishment of a fiscal rule and some added flexibility to public sector wages and mandatory spending.
However, the downgrade takes the legs out from any lingering optimism that these reforms would be sufficient: the spiralling cost of debt – combined with the quickly rising stock of debt – is more than outweighing any positive effect of the fiscal reform.