Spending Cuts In Store

Costa Rica's public debt burden rose to 42.3% of GDP in 2009, up 2.9 percentage points on the previous year. Although considerably lower than the 60% of GDP level reached in 2004, the increase is nonetheless likely to put pressure on new President Laura Chinchilla to reverse the spending hikes seen in recent years. However, with the Costa Rican economy forecast to contract by a further 1.2% in 2010, we caution that any moves to reduce spending on public services will likely be deeply unpopular, and could quickly begin to weigh on the president's approval ratings.

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