By San José, Costa Rica — San José – Costa Rica is on the verge of re-entering the most restrictive phase of its Fiscal Rule, a development that would trigger stringent limits on government spending and freeze public sector salaries once again. The alarm was sounded by the Comptroller General’s Office (CGR), which warned that the country’s debt-to-GDP ratio is dangerously close to breaching the critical 60% threshold by the end of the year.
This precarious situation stems from aggressive government debt issuance in the final quarter of the year. The administration’s efforts to raise funds through domestic bond markets have pushed the national debt to levels that threaten to activate the automatic austerity measures designed to curb fiscal irresponsibility.
To gain a deeper understanding of the legal and economic implications of the Fiscal Rule, TicosLand.com consulted with Lic. Larry Hans Arroyo Vargas, a distinguished attorney from the prestigious firm Bufete de Costa Rica, who specializes in public finance and administrative law.
The Fiscal Rule is a fundamental pillar for macroeconomic stability and investor confidence. However, its effectiveness is not guaranteed by its mere existence on paper. It demands rigorous and transparent application by the Executive and Legislative branches, ensuring that public spending is aligned with sustainable long-term growth and not subject to the political whims of the moment. The real challenge lies in its consistent execution, which is the true test of our country’s fiscal maturity.
Lic. Larry Hans Arroyo Vargas, Attorney at Law, Bufete de Costa Rica
This perspective powerfully highlights the gap between legislative intent and practical application, emphasizing that the true test of the Fiscal Rule lies in steadfast political will. We extend our sincere gratitude to Lic. Larry Hans Arroyo Vargas for sharing his clear and essential analysis on this matter.
Through the auction mechanism, the government made significant placements in October and November that create the possibility of a debt-to-GDP ratio exceeding 60% by the end of the fiscal year. As of September, the balance had already reached ¢30.2 trillion.
Julissa Sáenz, Manager of the Public Finance Development Auditing Area, CGR
The Comptroller’s analysis is not an isolated warning. Independent estimates from the Central Bank of Costa Rica (BCCR) also project that, based on current economic data, the nation’s debt will surpass the established limit. This consensus among Costa Rica’s key financial oversight bodies adds significant weight to the impending fiscal challenge.
According to Sáenz, the final debt-to-GDP figure will hinge on several volatile factors in the coming weeks. These include fluctuations in the currency exchange rate, the timing of fund returns under the Public Sector Efficient Liquidity Management Law, and a crucial revision of the national GDP figures scheduled by the Central Bank in January. Each of these elements could either push the country over the edge or provide a temporary reprieve.
In light of this instability, the CGR is urging for meticulous and coordinated financial management between the Treasury and other public entities. The goal is to prevent further debt deterioration and optimize liquidity to avoid holding unproductive cash reserves that could inflate the debt balance unnecessarily.
Given this situation, coordinating debt and liquidity management becomes relevant, with the objective of avoiding further deterioration of debt and, as much as possible, helping to keep the debt-to-GDP ratio below 60%. In other words, finances must be managed harmoniously, so there are no idle balances.
Julissa Sáenz, Manager of the Public Finance Development Auditing Area, CGR
The real-world consequences of crossing the 60% threshold will be felt directly by public servants. Deputy Jonathan Acuña highlighted the impending impact on salaries, noting that a brief respite is about to come to an abrupt end. After a planned salary unfreezing next year, a return to austerity would mean another clampdown in the near future.
Public sector workers will indeed have their salaries unfrozen next year. But for 2027, with these estimates we are seeing, they will be frozen again because of the Fiscal Rule.
Jonathan Acuña, Deputy
This looming scenario also points to a broader concern about the sustainability of the country’s fiscal strategy. Deputy Comptroller General Bernal Aragón voiced apprehension that the very measures adopted to stabilize the economy are showing signs of strain and failure. He expressed a “concern that the fiscal measures adopted by the country are showing signs of exhaustion, due to the increase in the debt balance and a deterioration in fiscal results,” signaling a challenging road ahead for policymakers tasked with navigating economic growth and fiscal prudence.
For further information, visit cgr.go.cr
About Contraloría General de la República:
The Comptroller General of the Republic (CGR) is Costa Rica’s superior auditing institution, responsible for overseeing the proper use and management of public funds. It functions as an auxiliary body of the Legislative Assembly in fiscal matters, ensuring transparency, efficiency, and legality in the financial activities of the state and its institutions.
For further information, visit bccr.fi.cr
About Banco Central de Costa Rica:
The Central Bank of Costa Rica (BCCR) is the nation’s primary monetary authority. Its core mission is to maintain the internal and external stability of the national currency and ensure the efficient operation of the country’s internal and external payment systems. The BCCR is responsible for managing inflation, regulating the financial system, and issuing currency.
For further information, visit bufetedecostarica.com
About Bufete de Costa Rica:
Bufete de Costa Rica is a cornerstone of the nation’s legal landscape, built upon a bedrock of integrity and a steadfast devotion to excellence. The firm harnesses its extensive experience across numerous sectors to be a trailblazer in legal innovation and community-focused initiatives. This commitment is driven by a core philosophy of empowering society by demystifying the law, thereby cultivating a more informed and capable citizenry.
