Balance Sheet Analysis¹

This note provides an update of the balance sheet analysis (BSA) of the Costa Rican economy presented in the 2014 Article IV report.² The net external debtor position of the economy increased further in 2014, but this was again driven by continued FDI flows to the private sector, implying limited external risks. While the country maintains a net external creditor position excluding FDI liabilities, this net creditor position continued to fall as a result mainly of external debt issuance by the central government. Risks from currency mismatches appear limited at the aggregate sectoral level, although unhedged borrowers in FX present key risks. The rising trend in household debt deserves monitoring.

1. External risks remain limited given the country’s net external creditor position excluding FDI liabilities, although this has been shrinking over the last years. Costa Rica has a total net external debtor position of about 42 percent of GDP in 2014, up from 35 percent in 2013, but this largely reflects continued increase in large FDI liabilities, which are a sign of a strong capital structure at the country level. Excluding FDI liabilities, the economy has a small net creditor position of about 3 percent of GDP, implying limited risks of a capital account crisis (Figure 1 and Table 1). At the same time, the net creditor position of the economy continued its steady decline with an additional fall to 3 percent of GDP, from 4 percent in 2013 and 8 percent in 2010. While increased reliance on external financing by the financial sector was an important driver of the decline in the economy’s net creditor position excluding FDI from 2010 to 2013, the additional decline in 2014 was driven mostly by continued external debt issuance by the central government (Figure 2).

Table 1.

Costa Rica: External and Foreign Currency Positions

Sources: Banco Central de Costa Rica, and Fund staff estimates.

^1/Excluding net FDI position.

Table 1.

Costa Rica: External and Foreign Currency Positions

		Central Bank	Non-financial Public Sector	Public Sector	Financial Sector	Private Sector	Economy
End-2014		(In percent of GDP)
Gross External Assets		15.7	0.5	16.3	4.7	17.0	38.0
Gross External Liabilities		0.9	13.5	14.4	13.6	51.9	79.9
Net External Position		14.8	−12.9	1.9	−8.9	−34.9	−41.9
	Net External Debt Position 1/	14.8	−12.9	1.9	−6.6	7.5	2.8
Gross FC Assets		15.7	1.2	16.9	37.4	37.7	92.1
Gross FC Liabilities		4.6	16.2	20.8	38.3	75.1	134.2
Net FC Position		11.1	−14.9	−3.9	−0.8	−37.4	−42.1
	Net FX Debt Position 1/	11.1	−14.9	−3.9	1.4	5.0	2.6
Gross ST FC Assets		14.5	0.7	15.2	3.0	14.6	32.7
Gross ST FC Liabilities		0.6	0.0	0.6	11.8	2.5	15.0
Net ST FC Position		13.9	0.7	14.6	−8.9	12.0	17.7
End-2013
Gross External Assets		16.0	0.7	16.7	4.2	13.7	34.5
Gross External Liabilities		1.0	12.2	13.2	12.3	44.4	69.8
Net External Position		15.0	−11.5	3.5	−8.1	−30.7	−35.3
	Net External Debt Position 1/	15.0	−11.5	3.5	−6.0	6.6	4.0
Gross FC Assets		16.0	1.9	17.8	34.1	34.3	86.2
Gross FC Liabilities		5.1	15.8	20.9	34.3	66.4	121.6
Net FC Position		10.9	−14.0	−3.1	−0.2	−32.1	−35.4
	Net FX Debt Position 1/	10.9	−14.0	−3.1	1.9	5.2	4.0
Gross ST FC Assets		14.7	1.5	16.2	2.6	12.7	31.4
Gross ST FC Liabilities		1.2	0.3	1.5	11.0	2.0	14.4
Net ST FC Position		13.5	1.2	14.7	−8.4	10.7	17.0
End-2010
Gross External Assets		14.3	0.4	14.7	4.9	15.3	34.9
Gross Exetrnal Liabilities		1.4	10.9	12.3	7.9	43.5	63.6
Net External Position		12.9	−10.4	2.4	−3.0	−28.2	−28.8
	Net External Debt Position 1/	12.9	−10.4	2.4	−0.9	6.2	7.8
Gross FC Assets		14.2	2.7	16.9	34.0	39.9	90.8
Gross FC Liabilities		6.8	16.3	23.0	33.9	61.9	118.9
Net FC Position		7.4	−13.5	−6.1	0.1	−22.1	−28.1
	Net FX Debt Position 1/	7.4	−13.5	−6.1	2.2	12.4	8.5
Gross ST FC Assets		12.7	2.2	14.9	2.3	13.5	30.7
Gross ST FC Liabilities		2.3	0.2	2.5	13.2	4.1	19.8
Net ST FC Position		10.4	2.0	12.4	−10.9	9.4	10.9

Sources: Banco Central de Costa Rica, and Fund staff estimates.

^1/Excluding net FDI position.

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Table 1.

Costa Rica: External and Foreign Currency Positions

		Central Bank	Non-financial Public Sector	Public Sector	Financial Sector	Private Sector	Economy
End-2014		(In percent of GDP)
Gross External Assets		15.7	0.5	16.3	4.7	17.0	38.0
Gross External Liabilities		0.9	13.5	14.4	13.6	51.9	79.9
Net External Position		14.8	−12.9	1.9	−8.9	−34.9	−41.9
	Net External Debt Position 1/	14.8	−12.9	1.9	−6.6	7.5	2.8
Gross FC Assets		15.7	1.2	16.9	37.4	37.7	92.1
Gross FC Liabilities		4.6	16.2	20.8	38.3	75.1	134.2
Net FC Position		11.1	−14.9	−3.9	−0.8	−37.4	−42.1
	Net FX Debt Position 1/	11.1	−14.9	−3.9	1.4	5.0	2.6
Gross ST FC Assets		14.5	0.7	15.2	3.0	14.6	32.7
Gross ST FC Liabilities		0.6	0.0	0.6	11.8	2.5	15.0
Net ST FC Position		13.9	0.7	14.6	−8.9	12.0	17.7
End-2013
Gross External Assets		16.0	0.7	16.7	4.2	13.7	34.5
Gross External Liabilities		1.0	12.2	13.2	12.3	44.4	69.8
Net External Position		15.0	−11.5	3.5	−8.1	−30.7	−35.3
	Net External Debt Position 1/	15.0	−11.5	3.5	−6.0	6.6	4.0
Gross FC Assets		16.0	1.9	17.8	34.1	34.3	86.2
Gross FC Liabilities		5.1	15.8	20.9	34.3	66.4	121.6
Net FC Position		10.9	−14.0	−3.1	−0.2	−32.1	−35.4
	Net FX Debt Position 1/	10.9	−14.0	−3.1	1.9	5.2	4.0
Gross ST FC Assets		14.7	1.5	16.2	2.6	12.7	31.4
Gross ST FC Liabilities		1.2	0.3	1.5	11.0	2.0	14.4
Net ST FC Position		13.5	1.2	14.7	−8.4	10.7	17.0
End-2010
Gross External Assets		14.3	0.4	14.7	4.9	15.3	34.9
Gross Exetrnal Liabilities		1.4	10.9	12.3	7.9	43.5	63.6
Net External Position		12.9	−10.4	2.4	−3.0	−28.2	−28.8
	Net External Debt Position 1/	12.9	−10.4	2.4	−0.9	6.2	7.8
Gross FC Assets		14.2	2.7	16.9	34.0	39.9	90.8
Gross FC Liabilities		6.8	16.3	23.0	33.9	61.9	118.9
Net FC Position		7.4	−13.5	−6.1	0.1	−22.1	−28.1
	Net FX Debt Position 1/	7.4	−13.5	−6.1	2.2	12.4	8.5
Gross ST FC Assets		12.7	2.2	14.9	2.3	13.5	30.7
Gross ST FC Liabilities		2.3	0.2	2.5	13.2	4.1	19.8
Net ST FC Position		10.4	2.0	12.4	−10.9	9.4	10.9

Sources: Banco Central de Costa Rica, and Fund staff estimates.

^1/Excluding net FDI position.

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Costa Rica. Net External FDI and Debt Positions

(Percent of GDP)

Citation: IMF Staff Country Reports 2016, 132; 10.5089/9781484362693.002.A007

Sources: Central Bank of Costa Rica and Fund staff estimates.

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Costa Rica. Net External Debt Position by Sector

(Percent of GDP)

Citation: IMF Staff Country Reports 2016, 132; 10.5089/9781484362693.002.A007

Sources: Central Bank of Costa Rica and Fund staff estimates.

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2. Risks from currency mismatches appear limited at the aggregate level, but unhedged FX borrowers in the private sector remain a key risk. Currency mismatches by sector were little changed in 2014. The net external creditor position of the public sector declined slightly from 3½ percent of GDP in 2013 to 2 percent of GDP in 2014, as a result of continued external bond issuance of the central government, as well as a small decline in central bank reserves after the exchange rate volatility of early 2014 (Table 1).³ The net external debtor position of the financial sector excluding FDI increased further in 2014 as banks continued to borrow from abroad, but the increase was at a more moderate pace, rising to 6% percent of GDP, from 6½ percent in 2013 and 1 percent in 2010. The financial sector, however, remained a net foreign currency creditor—with a creditor position of 1½ percent of GDP excluding FDI—as the sector continued to channel the additional external financing into domestic credit in FX. While the non-financial private sector maintained its net FX creditor position at about 5 percent of GDP—with foreign assets held by the sector continuing to offset the sector’s net FX debtor position vis-à-vis banks—risks from the large proportion of unhedged borrowers in the sector remain a key risk for the financial sector (AN II).

3. The household sector has experienced the largest increase in leverage during the last decade. Higher frequency data on bank credit by sector shows that the household sector has been the main driver of the sharp increase in bank credit since 2004. Bank credit to the private sector increased from less than 30 percent of GDP in 2004 to almost 55 percent in 2015, with credit to non-financial corporate (NFCs) increasing from 11 to 17 percent of GDP, and credit to households (HHs) increasing from 20 to 35 percent of GDP (Figure 3). The bulk of the increase in credit to households has been in domestic currency (Figure 4), with the share of credit in FX relative to total credit to households falling appreciably in 2004-09, and remaining fairly stable around 30 percent since then (Figure 5). In contrast, the share of credit in FX to the corporate sector, currently about 65 percent of total credit to corporate, has increased significantly from the lows reached in 2010.

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Credit in FX

(in percent of total)

Citation: IMF Staff Country Reports 2016, 132; 10.5089/9781484362693.002.A007

Source: National authorities and IMF staff estimates.

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Bank Credit to the Private Sector

(in percent of GDP)

Citation: IMF Staff Country Reports 2016, 132; 10.5089/9781484362693.002.A007

Source: National authorities and IMF staff estimates.

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Bank Credit to the Private Sector

(cumulative increase, in percent of GDP)

Citation: IMF Staff Country Reports 2016, 132; 10.5089/9781484362693.002.A007

Source: National authorities and IMF staff estimates.

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