📋 Tender Overview
The Executive Board of the International Monetary Fund (IMF) completed today the fifth review of Costa Rica’s economic reform program supported by the IMF’s extended arrangement under the Extended Fund Facility (EFF). Completion of this review makes available SDR 206.23 million (about US$ 276 million), bringing total disbursements under the arrangement to SDR 1.03115 billion (about US$ 1.4 billion). The Executive Board also completed the second review under Costa Rica’s Resilience and Sustainability Facility (RSF) arrangement. The completion of this assessment makes available SDR 184.7 (about US$ 247 million) associated with this review and again makes available another SDR 184.7 million, which the authorities did not request be disbursed within the required 30-day window following the first review. The Executive Board also concluded the 2023 Article IV consultation with Costa Rica.
Costa Rica’s three-year extended arrangement under the EFF was approved on March 1, 2021, in the amount of SDR 1.23749 billion (335 percent of quota in the IMF or about US$1.8 billion at the time of approval of the arrangement, see Press Release No. 21/53) and was extended by five months on March 25, 2022 (see Press Release No. 22/91).
Costa Rica’s RSF arrangement was approved on November 14, 2022, in the amount of SDR 554.1 million (150 percent of quota in the IMF or about US$ 725 million at the time of approval of the arrangement, see Press Release No. 22/382). Its duration coincides with the period remaining under the EFF – disbursements under the RSF being contingent on the conclusion of relevant reviews under the EFF and implementation of scheduled reform measures. The Costa Rican Legislative Assembly’s Ratification of the RSF, which occurred on October 17, 2023, will enable the authorities to request disbursements made available by completion of assessments.
Real GDP growth is expected to reach around 5 percent this year, supported by buoyant exports and recovering domestic demand. Growth is expected to moderate to 3½ percent in 2024, which is broadly in line with the medium-term potential growth rate. Headline inflation has been negative as global commodity prices fell and a stronger currency helped to reduce goods prices. Inflation is expected to rise back within the Central Bank of Costa Rica (BCCR)’s tolerance band by mid-2024. The value of the colón has stabilized near its historical average in real effective terms and international reserves buffers are strong. Banking sector capital and liquidity metrics are comfortable and provisioning is adequate, although dollarization remains high. The ratio of gross debt-to-GDP has continued to decline despite the government’s efforts to build up liquidity buffers. Staff projects a primary surplus of 1.5 percent of GDP this year and of around 2 percent of GDP over the medium term.
Following the Executive Board’s discussion on Costa Rica, Mr. Bo Li, Deputy Managing Director and Acting Chair of the Board, issued the following statement:
“Costa Rica is reaping the benefits from its home-grown reform program. Strong implementation of the Fund-supported programs has enabled the country to restore confidence in the strength of its policy frameworks, withstand multiple external shocks, push forward key reforms, and achieve robust growth. Fiscal outturns have exceeded expectations, and the institutional framework for fiscal policy has been particularly valuable in achieving these results. Monetary policy has demonstrated its ability to react to inflation shocks and anchor expectations and reserves are adequate.
“The central bank should return to a neutral stance by mid-2024 and the exchange rate allowed to respond flexibly to market conditions. The BCCR has appropriately lowered the policy rate and should continue to do so to ensure that inflation converges decisively to the target. A more flexible exchange rate and greater transparency in central bank FX operations would allow monetary policy to have its full effect on activity and inflation and would incentivize the deepening of the FX market. Further institutional and technical reforms should be targeted at improving the functioning of the FX market and strengthening market participants’ ability to manage currency risks.
“The authorities should continue pursuing improvements to the central bank’s governance and autonomy. While the central bank is conducting monetary policy in an independent manner, these practices should be institutionalized through legislation. It is critical that the central bank’s autonomy and other areas of improvements recommended in the 2020 Safeguards Assessment that remain unaddressed be followed up in a steadfast manner.
“Ongoing spending restraint is expected to continue to reduce the debt and interest burden and should be continued. Passage of the income and value added tax bills would improve the equity and efficiency of the tax system and raise revenues that have been eroded in recent reforms. Broadening the CIT base and abolishing income tax exemptions would further these objectives, reduce debt faster, and create more space for spending to improve public services. The implementation of the public employment bill by the executive branch marks an important milestone.
“There are ongoing efforts to make productivity gains more broad-based and to green the economy. The authorities should deepen their efforts to boost female labor force participation and integrate migrants into the formal labor market as part of their package of reforms to make growth more equitable. Efforts to increase digital connectivity, reduce electricity costs, and improve educational outcomes will boost productivity throughout the economy.
