Costa Rica

Costa Rica pension funds see November dip

Bnamericas Published: Wednesday, February 13, 2019
Costa Rica pension funds see November dip

All six Costa Rican pension funds saw a dip in monthly returns on investments in November, particularly BAC SJ Pensiones and CCSS OPC, and despite some recovery in December and January, the outlook for the funds is unclear.

The downturn resulted in losses registered on worker account statements for the month, according to local news outlet El Financiero Costa Rica, which noted that the nation's fiscal woes contributed to the valuation of fixed-rate assets held by the funds, coming along with a spike in global market volatility in November.

The following table draws on pension regulator (Supen) data as reported in El Financiero.

The returns were less negative in December, though CCSS OPC and Popular Pensiones both saw losses in the month; however, by January, all funds returned to positive territory.

Pension funds in Peru, Chile and Mexico also saw losses last year on account of factors such as the uncertainty over US-China trade negotiations.

Change in the winds

November was marked locally by massive protests against a proposed fiscal reform law, which ultimately passed in early December. Though protesters saw the tax overhaul as onerous, ratings agencies adopted a "too-little, too-late" stance with the bill's passage, as Fitch, Moody's and S&P all issued downgrades of the sovereign credit rating in December and January.

That said, the passage of the fiscal reform package offered a boost to investor confidence and removed some uncertainty, causing adjustments in bond prices.

The paper reported Hermes Alvarado, manager of operator BN Vital, as saying that when the market has a correction in prices like the one that happened at the end of the year, the prices overreact and lower more than necessary, so, once the fall stops, they tend to rise until they reach the levels that the market considers as correct.

Looking ahead, interest rates look to be continuing the volatility seen in the last half of 2018, casting doubts on market movements.

In the absence of external financing expected by the government by the end of 2019, the pressure for resources in the local market would be constant, the rates would tend to rise and generate losses in the portfolios managed by the operators, continued El Financiero.

The pressure on portfolios will depend to a large extent on the financing needs and competition for resources from financial institutions, the government and the rest of issuers.

Pension burden

With the fiscal debate settled for now, reforms to the pension system now seem a potential legislative priority ahead.

A recent report from Moody's on ageing and pension obligations in Latin America, reported that Uruguay, Chile and Costa Rica have the highest elderly dependency ratios (the proportion of adults aged 65 and over to those under 65) by 2030, with Costa Rica having a ratio of 15% by 2020 and 23% by 2030.

The study also showed that government pension spending, as a percentage of GDP, would grow in Costa Rica from 2.8% in 2017 to 5.0% in 2030.

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