Protesters run from tear gas outside the Presidential House in San Jose, Costa Rica, in October. The government had planned to raise taxes to reach a credit agreement with the International Monetary Fund. (Ezequiel Becerra/AFP/Getty Images)
SAN JOSE, Costa Rica — Costa Rica built Latin America’s model society, enacting universal health care and spending its way to one of the Western Hemisphere’s highest literacy rates. Now, it’s reeling from the financially crushing side effects of the coronavirus, as cratering revenue and crisis spending force a reckoning over a massive pile of government debt.
The pandemic is hurtling heavily leveraged nations into an economic danger zone, threatening to bankrupt the worst-affected. Costa Rica, a country known for zip-lining tourists and American retirees, is scrambling to stave off a full-blown debt crisis, imposing emergency cuts and proposing harsher measures that touched off rare violent protests last fall. To keep the lights on, a progressive, eco-friendly nation is weighing desperate solutions — including open-pit gold mining, even oceanic fracking.
“Costa Rica is facing a social crisis,” said Ana Rosa Ruiz, an economist at the Costa Rican Technological Institute.
Around the globe, the pandemic is racking up a mind-blowing bill: trillions of dollars in lost tax revenue, ramped-up spending and new borrowing set to burden the next generation with record levels of debt. In the direst cases — low- and middle-income countries, mostly in Africa and Latin America, that are already saddled with backbreaking debt — covering the rising costs is transforming into a high-stakes test of national solvency.
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Analysts call it a “debt tsunami”: National accounts are sinking into the red at a record pace.
“I consider the risk to be very high of an emerging-market debt crisis where a lot of countries run into problems at once,” said Harvard economist Kenneth Rogoff, former chief economist at the International Monetary Fund. “This is going to be a rocky road.”
'A big crack in the ice'
By the end of 2020, total government debt worldwide was projected to soar by $9 trillion and top 103 percent of global GDP, according to the Institute of International Finance — a historic jump of more than 10 percentage points in just one year. Countries have maxed out their figurative credit cards to buy medical equipment, set up field hospitals, deploy health-care workers and source vaccines, even as pandemic-related recessions have caused tax revenue to plunge and aid for the unemployed to spike. Countries that rely on tourism, which has ground to a virtual halt, or commodities like oil that have sunk in price have felt the sting most keenly.
Protesters gather outside Costa Rica’s congress in San Jose in November. (Ezequiel Becerra/AFP/Getty Images)
The United States has run up debt at a pace not seen since World War II. But the world’s wealthy nations are better able to cope with growing debt than their poorer counterparts.
Angola, in contrast, effectively shut out of global markets, is racing to strike a deal with the Chinese, but even that might not be enough to prevent a painful debt crisis. Sri Lanka, locked in recession, needs to make $4 billion in debt payments this year with only $6 billion in the bank. Brazil’s debt, worsened by a yawning budget deficit, has surged to a crippling 95 percent of GDP — raising alarm over the medium-term ability of the Latin American giant to stay afloat.
Gross debt of the country
as a percentage of GDP
50%
75%
100%
200%
Debt is greater
than GDP.
Debt is at least
twice GDP.
Country (S&P Sovereign Risk Indicator)
Debt-to-GDP ratio
AMERICAS
CAN
United States (AA+)
131.7%
USA
MEX
GTM
JAM
HTI
DOM
SLV
HND
NIC
Costa Rica (B)
70.5%
CRI
TTO
PAN
COL
Brazil (BB-)
101.4%
VEN
ECU
PER
BOL
BRA
PRY
URY
CHL
ARG
EUROPE
NOR
SWE
FIN
EST
IRL
DNK
LVA
GBR
NLD
DEU
POL
LTU
BLR
FRA
BEL
CHE
CZE
SVK
UKR
PRT
ESP
SVN
AUT
HUN
ROU
ITA
HRV
BIH
SRB
BGR
ALB
MKD
GRC
AFRICA
MAR
DZA
TUN
LBY
EGY
MRT
GMB
SEN
MLI
NER
SDN
GNB
SLE
BFA
TCD
SSD
ERI
DJI
GIN
LBR
GHA
TGO
BEN
CAF
ETH
CIV
NGA
CMR
COD
UGA
KEN
GNQ
COG
BDI
RWA
TZA
AGO
GAB
MWI
MOZ
Angola (CCC+)
120.3%
ZMB
BWA
ZWE
MDG
Zambia (SD)
120%
NAM
SWZ
LSO
ZAF
ASIA
RUS
KAZ
MNG
KOR
ARM
GEO
UZB
KGZ
CHN
JPN
IRQ
AZE
TKM
TJK
IRN
PAK
AFG
BGD
MMR
IND
NPL
LAO
VNM
THA
KHM
LKA
MYS
PHL
Sri Lanka (CCC+)
98.3%
SGP
Note: Countries with fewer than 1 million people
are not shown.
Source: World Economic Outlook (October 2020),
International Monetary Fund and Standard&Poor’s
Global Ratings.
Gross debt of the country
as a percentage of GDP
50%
75%
100%
200%
Debt is greater
than GDP.
Debt is at least
twice GDP.
Country (S&P Sovereign Risk Indicator)
Debt-to-GDP ratio
AMERICAS
CAN
United States (AA+)
131.7%
USA
MEX
GTM
JAM
HTI
DOM
SLV
HND
NIC
Costa Rica (B)
70.5%
CRI
PAN
COL
TTO
VEN
ECU
Brazil (BB-)
101.4%
PER
BOL
BRA
PRY
URY
CHL
ARG
EUROPE
NOR
SWE
FIN
EST
IRL
GBR
DNK
LVA
NLD
DEU
POL
LTU
BLR
FRA
BEL
CHE
CZE
SVK
UKR
PRT
ESP
SVN
AUT
HUN
ROU
ITA
HRV
BIH
SRB
BGR
ALB
MKD
GRC
AFRICA
MAR
DZA
TUN
LBY
EGY
MRT
GMB
SEN
MLI
NER
SDN
GNB
SLE
BFA
TCD
SSD
ERI
DJI
GIN
LBR
GHA
TGO
BEN
CAF
ETH
CIV
NGA
CMR
COD
UGA
KEN
GNQ
COG
BDI
RWA
TZA
Angola (CCC+)
120.3%
AGO
GAB
MWI
MOZ
ZMB
BWA
ZWE
Zambia (SD)
120%
NAM
SWZ
LSO
MDG
ZAF
ASIA
RUS
KAZ
MNG
ARM
GEO
UZB
KGZ
CHN
KOR
JPN
IRQ
AZE
TKM
TJK
IRN
PAK
AFG
BGD
MMR
IND
NPL
LAO
VNM
THA
KHM
LKA
MYS
PHL
Sri Lanka (CCC+)
98.3%
SGP
Note: Countries with fewer than 1 million people are not
shown.
Source: World Economic Outlook (October 2020), International
Monetary Fund and Standard & Poor’s Global Ratings.
Gross debt of the country as a percentage of GDP
50%
75%
100%
200%
Debt is greater
than GDP.
Debt is at least
twice GDP.
Country (S&P Sovereign Risk Indicator)
Debt-to-GDP ratio
AMERICAS
CAN
United States (AA+)
131.7%
USA
MEX
GTM
JAM
HTI
DOM
SLV
HND
NIC
Costa Rica (B)
70.5%
CRI
PAN
COL
TTO
VEN
ECU
Brazil (BB-)
101.4%
PER
BOL
BRA
PRY
URY
CHL
ARG
EUROPE
NOR
SWE
FIN
EST
IRL
GBR
DNK
LVA
NLD
DEU
POL
LTU
BLR
FRA
BEL
CHE
CZE
SVK
UKR
PRT
ESP
SVN
AUT
HUN
ROU
ITA
HRV
BIH
SRB
BGR
ALB
MKD
GRC
AFRICA
MAR
DZA
TUN
LBY
EGY
MRT
GMB
SEN
MLI
NER
SDN
GNB
SLE
BFA
TCD
SSD
ERI
DJI
GIN
LBR
GHA
TGO
BEN
CAF
ETH
CIV
NGA
CMR
COD
UGA
KEN
GNQ
COG
BDI
RWA
TZA
Angola (CCC+)
120.3%
AGO
GAB
MWI
MOZ
Zambia (SD)
120%
ZMB
BWA
ZWE
NAM
SWZ
LSO
MDG
MUS
ZAF
ASIA
RUS
KAZ
MNG
ARM
GEO
UZB
KGZ
CHN
KOR
JPN
IRQ
AZE
TKM
TJK
IRN
PAK
AFG
BGD
MMR
IND
NPL
LAO
VNM
THA
KHM
LKA
MYS
PHL
Sri Lanka (CCC+)
98.3%
SGP
Note: Countries with fewer than 1 million people are not shown.
Source: World Economic Outlook (October 2020), International Monetary Fund and
Standard & Poor’s Global Ratings.
Country (S&P Sovereign Risk Indicator)
Debt-to-GDP ratio
CAN
NOR
SWE
FIN
United States (AA+)
131.7%
USA
EST
IRL
MEX
GBR
DNK
LVA
GTM
JAM
HTI
DOM
NLD
DEU
POL
LTU
BLR
SLV
HND
FRA
BEL
CHE
CZE
SVK
UKR
MDA
RUS
KAZ
MNG
NIC
PRT
ESP
SVN
AUT
HUN
ROU
ARM
GEO
UZB
KGZ
CHN
KOR
JPN
ITA
Costa Rica (B)
70.5%
CRI
HRV
BIH
SRB
BGR
IRQ
AZE
TKM
TJK
PAN
ALB
MKD
JOR
IRN
PAK
AFG
BGD
MMR
COL
TTO
GRC
IND
NPL
LAO
VNM
TUR
LBN
SAU
BHR
KWT
VEN
ECU
ISR
QAT
ARE
THA
KHM
Brazil (BB-)
101.4%
PER
BOL
BRA
MAR
DZA
TUN
LBY
EGY
YEM
OMN
LKA
MYS
PHL
Sri Lanka (CCC+)
98.3%
PRY
URY
MRT
GMB
SEN
MLI
NER
SDN
SGP
CHL
GNB
SLE
BFA
TCD
SSD
ERI
DJI
ARG
GIN
LBR
GHA
TGO
BEN
CAF
ETH
IDN
TLS
CIV
NGA
CMR
COD
UGA
KEN
GNQ
COG
BDI
RWA
TZA
Angola (CCC+)
120.3%
Gross debt of the country
as a percentage of GDP
AGO
GAB
MWI
MOZ
Zambia (SD)
120%
ZMB
BWA
ZWE
PNG
MUS
NAM
SWZ
LSO
MDG
50%
75%
100%
200%
ZAF
AUS
Debt is greater
than GDP.
Debt is at least
twice GDP.
NZL
Note: Countries with fewer than 1 million people are not shown.
Source: World Economic Outlook (October 2020), International Monetary Fund and Standard & Poor’s Global Ratings.
Country (S&P Sovereign Risk Indicator)
Debt-to-GDP ratio
CAN
NOR
SWE
FIN
United States (AA+)
131.7%
USA
EST
IRL
MEX
GBR
DNK
LVA
GTM
JAM
HTI
DOM
NLD
DEU
POL
LTU
BLR
SLV
HND
FRA
BEL
CHE
CZE
SVK
UKR
MDA
RUS
KAZ
MNG
NIC
PRT
ESP
SVN
AUT
HUN
ROU
ARM
GEO
UZB
KGZ
CHN
KOR
JPN
ITA
Costa Rica (B)
70.5%
CRI
HRV
BIH
SRB
BGR
IRQ
AZE
TKM
TJK
PAN
ALB
MKD
JOR
IRN
PAK
AFG
BGD
MMR
COL
TTO
GRC
IND
NPL
LAO
VNM
TUR
LBN
SAU
BHR
KWT
VEN
ECU
ISR
QAT
ARE
THA
KHM
Brazil (BB-)
101.4%
PER
BOL
BRA
MAR
DZA
TUN
LBY
EGY
YEM
OMN
LKA
MYS
PHL
Sri Lanka (CCC+)
98.3%
PRY
URY
MRT
GMB
SEN
MLI
NER
SDN
SGP
CHL
GNB
SLE
BFA
TCD
SSD
ERI
DJI
ARG
GIN
LBR
GHA
TGO
BEN
CAF
ETH
IDN
CIV
NGA
CMR
COD
UGA
KEN
TLS
GNQ
COG
BDI
RWA
TZA
Angola (CCC+)
120.3%
AGO
GAB
MWI
MOZ
Gross debt of the country as
a percentage of GDP
Zambia (SD)
120%
ZMB
BWA
ZWE
PNG
NAM
SWZ
LSO
MDG
MUS
50%
75%
100%
200%
ZAF
AUS
Debt is greater
than GDP.
Debt is at least
twice GDP.
NZL
Note: Countries with fewer than 1 million people are not shown.
Source: World Economic Outlook (October 2020), International Monetary Fund and Standard & Poor’s Global Ratings.
The IMF and the World Bank have sought to aid the most vulnerable states, and the world’s wealthiest nations endorsed a plan in October to extend a suspension of debt payments owed to them by the poorest. In November, those nations additionally agreed to jointly work toward some form of debt relief for the poorest nations that seek it from them, and also encouraged private lenders to follow suit.
But analysts say that may not be enough. Thirty-eight low-income countries are either in debt distress, according to the IMF, or at high risk of falling into it. Unless private creditors and wealthy nations step up and agree to concessions or outright debt forgiveness, the pandemic’s fiscal shock could hurl some of those, as well as highly leveraged middle-income countries such as Costa Rica, toward catastrophic national bankruptcies.
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Analysts argue that the need for stimulus to keep economies running during this historically challenging period still outweighs the need to balance budgets. Even the IMF, the global guardian of fiscal rectitude, is telling countries that now is not the time to scrimp, lest they jeopardize still-fragile economic recoveries.
Yet even if a repeat of the cascading financial crises seen in Latin America and Asia in the 1980 and 1990s is avoided, the debt surge threatens to linger as a millstone around the necks of nations for years. It will compromise their ability to fight the first global increase in extreme poverty since the 1990s, and to invest in infrastructure projects, education and innovation down the line.
“You could think of it as a big crack in the ice,” said Sonja Gibbs, managing director of global policy issues at the Institute of International Finance. “Suddenly you’re in danger of a number of countries falling off the edge.”
'There is no part of my life not affected'
Zambia, once a shining example of Africa’s economic renaissance, is now the Ghost of Crises Future for debt-burdened countries slammed by the pandemic.
Debt-to-GDP ratio since 2000
U.S.
Costa Rica
Brazil
100%
50%
0%
2000
2020
Zambia benefited from the Heavily Indebted
Poor Countries (HIPC) debt relief initiative in
2005 but has borrowed heavily since 2012
and defaulted on a portion of its debt in
November.
Zambia benefited from the Heavily Indebted
Poor Countries (HIPC) debt-relief initiative in
2005 but has borrowed heavily since 2012
and defaulted on a portion of its debt in
November.
Angola
Zambia
Sri Lanka
Angola
Zambia
100%
50%
0%
2000
2020
GDP per capita
U.S.
Costa Rica
Brazil
$63,051.4
$11,629.01
$6,450.45
Sri Lanka
Angola
Zambia
$3,697.89
$2,021.31
$1,001.44
Source: World Economic Outlook (October 2020),
International Monetary Fund.
Debt-to-GDP ratio since 2000
U.S.
Costa Rica
Brazil
100%
50%
0%
2000
2020
Zambia benefited from the Heavily Indebted Poor
Countries (HIPC) debt relief initiative in 2005 but
has borrowed heavily since 2012 and defaulted
on a portion of its debt in November.
Zambia benefited from the Heavily Indebted Poor
Countries debt-relief initiative in 2005 but has
borrowed heavily since 2012 and defaulted
on part of its debt in November.
Angola
Zambia
Sri Lanka
Angola
Zambia
100%
50%
0%
2000
2020
GDP per capita
U.S.
Costa Rica
Brazil
$63,051.4
$11,629.01
$6,450.45
Sri Lanka
Angola
Zambia
$3,697.89
$2,021.31
$1,001.44
Source: World Economic Outlook (October 2020), International
Monetary Fund.
Zambia benefited from the Heavily Indebted Poor Countries (HIPC) initiative in 2005 but
has borrowed heavily since 2012 and defaulted on a portion of its debt in November.
Zambia benefited from the Heavily Indebted Poor Countries initiative in 2005 but
has borrowed heavily since 2012 and defaulted on part of its debt in November.
Debt-to-GDP ratio since 2000
Angola
Zambia
U.S.
Costa Rica
Brazil
Sri Lanka
Angola
Zambia
100%
50%
0%
2000
2020
GDP per capita
U.S.
Costa Rica
Brazil
Sri Lanka
Angola
Zambia
$63,051.40
$11,629.01
$6,450.45
$3,697.89
$2,021.31
$1,001.44
Source: World Economic Outlook (October 2020), International Monetary Fund.
Zambia benefited from the Heavily Indebted Poor Countries debt-relief initiative in 2005
but has borrowed heavily since 2012 and defaulted on part of its debt in November.
Debt-to-GDP ratio since 2000
Angola
Zambia
U.S.
Costa Rica
Brazil
Sri Lanka
Angola
Zambia
100%
50%
0%
2000
2020
GDP per capita
$63,051.40
$11,629.01
$6,450.45
$3,697.89
$2,021.31
$1,001.44
U.S.
Costa Rica
Brazil
Sri Lanka
Angola
Zambia
Source: World Economic Outlook (October 2020), International Monetary Fund.
2020 forecast Debt-to-GDP ratio
Gross debt of the country as a percentage of GDP.
CAN
NOR
SWE
FIN
United States (AA+)
131.7%
USA
EST
MEX
DNK
LVA
GTM
JAM
HTI
DOM
IRL
GBR
NLD
DEU
POL
LTU
BLR
RUS
SLV
HND
FRA
BEL
CHE
CZE
SVK
UKR
MDA
KAZ
MNG
NIC
PRT
ESP
SVN
AUT
HUN
ROU
TUR
ARM
GEO
UZB
KGZ
CHN
JPN
Costa Rica (B)
70.5%
CRI
ITA
HRV
BIH
SRB
BGR
JOR
IRQ
AZE
TKM
TJK
KOR
PAN
MKD
KWT
IRN
PAK
AFG
BGD
MMR
COL
VEN
TTO
ALB
GRC
LBN
SAU
BHR
IND
NPL
LAO
VNM
Brazil (BB-)
101.4%
ECU
BOL
BRA
ISR
QAT
ARE
THA
KHM
PER
PRY
URY
MAR
DZA
TUN
LBY
EGY
YEM
OMN
LKA
MYS
PHL
Sri Lanka (CCC+)
98.3%
CHL
MRT
GMB
SEN
MLI
NER
SDN
ARG
GNB
SLE
BFA
TCD
SSD
ERI
DJI
SGP
IDN
GIN
LBR
GHA
TGO
BEN
CAF
ETH
TLS
CIV
NGA
CMR
COD
UGA
KEN
GNQ
COG
BDI
RWA
TZA
Angola (CCC+)
120.3%
Country (S&P Sovereign Risk Indicator)
Debt-to-GDP-ratio
AGO
GAB
MWI
MOZ
PNG
Debt is greater
than GDP
Zambia (SD)
120%
ZMB
BWA
ZWE
100%
NAM
SWZ
LSO
MDG
AUS
50%
ZAF
MUS
0%
NZL
Countries below 1 million population are not shown in the cartogram.
The sub-Saharan nation fell into default in November, a result of its high reliance on foreign debt; a pandemic blow to the price of copper, its main commodity; and one of its worst droughts in 40 years. The country is now printing money to survive, forcing a devaluation of the kwacha and creating spiraling inflation that’s spreading misery at the worst possible time.
At the government’s Cancer Diseases Hospital in Lusaka, the capital, doctors say the price of imported drug treatments have doubled. A third of the country’s workers have lost wages, according to a household survey in July; 39 percent were skipping a meal, and 67 percent were worried about not having enough food.
Sakala Zulu, a 26-year-old teacher from eastern Zambia, said staples such as eggs and sugar now cost 60 percent more than just three months ago, making it harder to feed his six children. The cost of transport for the 12-mile commute to and from work has risen by 20 percent.
“Right now, I feel there is no part of my life not affected,” Zulu said.
Volunteers help distribute bags of cornmeal in Simumbwe, Zambia, in January 2020. (Guillem Sartorio/AFP/Getty Images)
Zambia is seeking to restructure its debt, but private creditors have shown little willingness to budge. A move to renegotiate substantial loans from China has been cloaked in secrecy.
As things stand, more than half of government spending this year is earmarked for servicing debt alone — leaving little for social programs, health or education.
“What you see now on the ground is reduced spending on key social sectors,” said Ishmael Zulu of the advocacy group CUTS International. “With the high levels of poverty in Zambia, there are many people that are heavily reliant on government programs. These programs are suffering at the cost of increased debt levels. Hospitals that are in small districts and the far-flung areas of the country are suffering at the cost of increased debt servicing.”
From zip-lining tourists to tear-gassed protesters
Half a world away, Costa Rica is scrambling to avoid a similar fate.
When the pandemic hit, tourism, the country’s economic lifeblood, dried up and unemployment skyrocketed to more than 24 percent, draining state coffers of health-care contributions just as the government was struggling to respond to the coronavirus. A tax break for hard-hit businesses and financial aid to out-of-work Costa Ricans dug the fiscal hole deeper.
The ensuing cash crunch forced hard decisions, including emergency cuts. At El Jardín elementary school in northern Costa Rica, Principal Elizabeth Mejía says the operating budget was slashed in half. Teachers are buying their own printers, ink cartridges and paper to distribute assignments to students. Mejía said she’s been told by the government to hold fundraisers to cover maintenance: “They tell us if we need to fix something, that we should go sell tamales.”
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In the years after the Great Recession of 2008, Costa Rica ran up deficits and debt to sustain expansive state payrolls and progressive policies. Two years ago, the government attempted what economists describe as a fiscal Band-Aid: a new value-added tax and limits on salary increases for state workers.
Those measures paled in comparison with the proposal last year, when the government of President Carlos Alvarado Quesada, seeking to boost its bid for a $1.75 billion IMF bailout, sought broad tax increases in the middle of the pandemic.
Protesters hit the streets, blocking intersections nationwide, clashing with police and slowing commerce in a country that had only recently come out of lockdown.
“People don’t have money to pay their debts,” said Gerardo Zúñiga, an activist who joined the protests with a mask on his face and a rosary around his neck. “Businesses don’t have money to pay for supplies, their employees, their permits and all the social contributions.
“We understand that there has to be some agreement with the IMF, but what we don’t agree with are items where the most vulnerable people are harmed.”
A worker disinfects the Reverend Francisco Smith School in San Jose in March after a teacher was diagnosed with covid-19. (Ezequiel Becerra/AFP/Getty Images)
The government backed off that proposal and is now in talks with the opposition, unions, civic activists and industrial groups to find a more palatable solution. But to avoid a painful default like the one the country suffered in 1981, when runaway inflation and spikes in poverty sparked a lost decade, something’s got to give.
With tourism not expected to recover fully for years, politicians and businesses are pushing sources of revenue that run afoul of Costa Rica’s renowned environmentalism. They include open-pit gold mining — effectively an ecological trade-off for what supporters estimate would be 6,500 direct and indirect jobs and a $9.52 billion jolt for the economy.
In August, lawmakers pushed another controversial option: opening Costa Rican lands and shorelines to fracking and oil drilling.
“Our marine territory is 10 times larger than our landmass and we know little about its riches,” lawmaker Patricia Villegas said during a congressional debate. “We have sources of energy that we exploit like hydroelectric, wind, geothermal and solar, but we haven’t wanted to discuss the possibility of taking advantage of gas and oil. Costa Rica is sitting on a gold mine.”
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In a country that pledged to rely entirely on renewable energy by 2030, the debt debate is pitting the country’s economic future against cherished environmental ideals. Activists, and the government, say any boost in oil and natural gas exploration runs counter to everything the country has worked for. The nation, they say, must find other ways.
“We’ve launched a decarbonization plan to the world, and those things are fundamental to us as a nation, not just cosmetic,” said Elián Villegas, Costa Rica’s finance minister. “I find those solutions to be very distant from the essence of being Costa Rican.”
Graphics by Adrian Blanco.
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