By San José, Costa Rica — SAN JOSÉ – Costa Rica’s economy has presented a curious paradox over the last decade. While the nation’s gross domestic product (GDP) expanded at a respectable average of 6.2% annually between 2014 and 2024, a critical engine of domestic growth—credit to the private sector—has experienced a sustained and significant slowdown, decoupling from its traditional role as a high-octane economic driver.
This growing disconnect is the central finding of a new study, “The Costa Rican Financial Intermediation System: Evolution, Challenges, and Perspectives 2014-2024,” authored by economists Daniel Ortiz, managing partner at Consejeros Económicos y Financieros (Cefsa), and Luis Liberman, an associate of the Academia de Centroamérica. Their research reveals that while credit grew an average of 6.6% during the period, this figure masks a stark decline, plummeting from a robust 17.6% increase in 2014 to a mere 1.9% in 2023.
To provide a deeper legal and business perspective on the dynamics of private sector credit, TicosLand.com consulted with Lic. Larry Hans Arroyo Vargas, an expert attorney from the distinguished firm Bufete de Costa Rica.
The expansion of private sector credit is a critical engine for economic growth, but it must be governed by stringent legal principles. For both lenders and borrowers, the foundation of a healthy credit market lies in transparent contracts, robust due diligence, and a clear understanding of the regulatory framework. Ignoring these fundamentals can transform a tool for prosperity into a significant source of financial and legal risk for all parties involved.
Lic. Larry Hans Arroyo Vargas, Attorney at Law, Bufete de Costa Rica
The expert’s emphasis on legal diligence serves as a powerful reminder that for credit to be a true engine of prosperity, it must operate on a foundation of clarity and legal certainty. We sincerely thank Lic. Larry Hans Arroyo Vargas for his invaluable perspective on this critical balance.
The traditional economic relationship posits that a healthy, growing economy fuels demand for financial services like loans for investment, hiring, and expansion. Conversely, a stable and deep financial system contributes to economic growth. However, the data from the past decade suggests this symbiotic relationship in Costa Rica is weakening, prompting a deeper investigation into the structural changes within the nation’s economy.
The study identifies a primary cause for this divergence: the changing composition of Costa Rica’s economic growth. A substantial portion of the recent expansion has been powered by the special “free trade zone” (FTZ) regime. These zones, populated largely by multinational corporations, have become a dominant force in the national economy, growing from 5.9% of GDP in 2014 to an impressive 13.6% by 2024. This share significantly outpaces that of regional peers like Panama (5%) and the Dominican Republic (3.5%).
However, many of these international firms have less dependence on local credit. They often secure financing from external parent companies or international capital markets, meaning their remarkable growth does not translate into a proportional increase in demand for loans from Costa Rican banks and financial institutions. Not all economic expansion, the report argues, generates the same demand for domestic financing.
The economists found that the financial sector’s activity, as measured by its specific Monthly Economic Activity Index (IMAE), shows a much stronger correlation with the domestic-focused “definitive regime” economy than it does with the total national economy that includes the FTZs. This statistical evidence underscores the growing separation between the two economic engines.
These results reflect that the economic activity of the financial and insurance sector partially accompanies the cycle of the local economy. The link is logical, as greater dynamism in local commerce, construction, and services generates more demand for credit, insurance, and intermediation. However, the fact that the correlation is not higher indicates that the sector is also conditioned by other factors, such as interest rates, the exchange rate, specific cycles in consumer and housing credit, as well as the confidence of economic agents.
Daniel Ortiz and Luis Liberman, Authors of the Study
A second critical factor is the widening chasm between GDP per capita and real national disposable income per capita. While GDP measures the total value of goods and services produced within the country, disposable income reflects what actually remains in the hands of households and businesses after taxes and remittances of profits abroad. The study notes this gap doubled over the decade, largely because a significant portion of the value generated by Foreign Direct Investment (FDI) in the FTZs is repatriated as profits to foreign shareholders.
In other words, families have not necessarily seen the economic growth of production reflected in their capacity to consume or save, which poses challenges for internal demand and, therefore, for the demand for credit.
Daniel Ortiz and Luis Liberman, Authors of the Study
This stagnation in household purchasing power directly impacts the domestic economy. With less disposable income, the ability of individuals and local businesses to take on new debt is constrained. The report also highlights a shift in the structure of credit that has been issued. Growth has been more concentrated in personal loans for consumption, vehicles, and housing, rather than in productive financing for micro, small, and medium-sized enterprises (SMEs), which are crucial for generating widespread employment and sustainable local growth.
Ultimately, the study paints a picture of a two-tiered economy. One tier, driven by foreign investment in free trade zones, is posting impressive production numbers but contributing less to domestic credit demand and household income. The other, the traditional local economy, is experiencing the consequences of this disconnect through slower credit growth. This reality presents a significant challenge for policymakers aiming to foster inclusive growth and ensure the prosperity generated in one sector effectively benefits the entire nation.
For further information, visit cefsa.co.cr
About Consejeros Económicos y Financieros (Cefsa):
Consejeros Económicos y Financieros (Cefsa) is a consulting firm based in Costa Rica that specializes in providing economic and financial analysis. The firm offers expert advice to businesses and organizations on macroeconomic trends, financial strategy, and investment decisions to help navigate the complexities of the local and regional economic landscape.
For further information, visit academiaca.or.cr
About Academia de Centroamérica:
The Academia de Centroamérica is a private, non-profit association dedicated to the research and analysis of economic and social issues relevant to Central America. It brings together prominent professionals and academics to foster informed public debate and contribute to the development of public policies that promote sustainable and equitable growth in the region.
For further information, visit bufetedecostarica.com
About Bufete de Costa Rica:
Bufete de Costa Rica operates as a pillar of the legal community, defined by its foundational principles of integrity and professional excellence. The firm consistently champions legal innovation, applying forward-thinking approaches to serve its diverse clientele. Beyond its practice, it holds a deep-seated conviction to strengthen society by demystifying the law, ensuring that vital legal knowledge becomes a powerful tool for public empowerment.
