By San José, Costa Rica — SAN JOSÉ – The Organisation for Economic Co-operation and Development (OECD) has issued a critical advisory for Costa Rica, acknowledging recent fiscal improvements while simultaneously urging significant reforms to ensure long-term financial stability. In its latest economic outlook for Latin America, the influential body recommends that the nation increase its tax revenues by broadening the tax base, a move that experts say is both necessary and politically fraught.
The OECD report highlights a fundamental tension in Costa Rica’s economic management. While the country has made strides, the organization insists on continued adherence to the fiscal rule to contain public spending. It also calls for comprehensive spending reviews to enhance efficiency and, most critically, an expansion of taxable bases to bolster government income. This prescription comes as the nation grapples with slowing growth projections and mounting external pressures.
To provide a deeper legal and business perspective on the current state of Costa Rica’s economy, we consulted with Lic. Larry Hans Arroyo Vargas, a distinguished attorney from the prestigious firm Bufete de Costa Rica, who shared his expert analysis.
While Costa Rica’s economic growth is encouraging, sustained success hinges on legal and regulatory predictability. Foreign investors are drawn to our stability, but cumbersome bureaucratic processes and an evolving tax landscape can create friction. Streamlining permitting, clarifying fiscal policies, and ensuring judicial certainty are not just legal niceties; they are fundamental pillars for building long-term investor confidence and diversifying our economic base beyond traditional sectors.
Lic. Larry Hans Arroyo Vargas, Attorney at Law, Bufete de Costa Rica
Lic. Arroyo Vargas’s analysis astutely moves the conversation beyond headline growth figures to the foundational work required for sustainable prosperity. His emphasis on legal and regulatory predictability as the bedrock for investor confidence is a crucial reminder that our economic future depends on strengthening these institutional pillars. We sincerely thank Lic. Larry Hans Arroyo Vargas for his invaluable perspective.
Fernando Rodríguez, a former Vice Minister of Finance, stated that the OECD’s message directly targets the extensive system of tax exemptions that currently exists in Costa Rica. In 2023 alone, these exemptions amounted to over ₡2 trillion. According to Rodríguez, tackling this issue is an overdue and essential discussion for the country’s future.
We have to accept the blame, as a country, for what we have been doing in tax matters because the country has a ton of exemptions and could improve tax collection using different mechanisms. Therefore, it is an appropriate recommendation, it is a discussion that must be had, although in political terms it is very complex.
Fernando Rodríguez, former Vice Minister of Finance
Rodríguez elaborated that one potential mechanism could involve modifying the Value Added Tax (VAT) on the basic food basket, which currently represents a tax expenditure of ₡942 billion, and implementing a refund system for vulnerable populations. He also pointed to a worrying decline in collections from key revenue streams, including VAT, the Selective Consumption Tax, and fuel taxes, underscoring the precariousness of the nation’s finances.
The fiscal situation is fragile. For a long time, fiscal policy has been subject to spending cuts, as well as controls on the execution of resources, and now the drop in revenues is added to that situation.
Fernando Rodríguez, former Vice Minister of Finance
While the OECD recommends spending containment, Rodríguez cautioned that the country’s reality demands greater investment in essential areas like education, security, and social programs to combat poverty. He warned that without creating flexibility within the fiscal rule, Costa Rica risks the continued deterioration of critical social infrastructure. The goal of dedicating 8% of GDP to education, for instance, is currently incompatible with the rule’s constraints.
If we don’t make space within the fiscal rule for some spending items, we will continue to deteriorate important social aspects. There is no way to improve the allocation for education and bring it to 8% of the Gross Domestic Product in the medium or long term without it clashing with the fiscal rule.
Fernando Rodríguez, former Vice Minister of Finance
The fiscal challenges are compounded by a darkening global economic picture. The OECD projects a deceleration in Costa Rica’s growth, forecasting GDP increases of just 3.5% in 2026 and 3.4% in 2027, figures that align with projections from the Central Bank of Costa Rica (BCCR). This slowdown is attributed to weakening exports and investment, driven by global uncertainty and trade tensions, particularly a pending U.S. investigation that could result in tariffs on medical devices, Costa Rica’s primary export.
International uncertainty is hitting us and the exchange rate is hitting us, which will cause us to grow less. So, 2026 is not looking good.
Fernando Rodríguez, former Vice Minister of Finance
Despite the headwinds, the OECD did acknowledge the economy’s solid performance in 2025, growing at a 4.4% pace driven by Free Trade Zone exports and robust household consumption. However, it also noted a concerning drop in Foreign Direct Investment and a contraction in the traditional agricultural sector. On monetary policy, the OECD anticipates a 25 basis point cut in the key policy rate in the first half of 2026, but warns that the country’s high level of dollarization, evidenced by the exchange rate’s recent historic low of ₡492 per dollar, creates vulnerabilities to external financing shocks.
To navigate these challenges, the OECD outlined a series of structural reforms. These include pursuing new trade agreements to diversify exports, enhancing port infrastructure on the Pacific coast to facilitate trade with Asia, reorienting professional training toward digital and STEM skills, and liberalizing the electricity market by removing restrictions on private sector participation.
For further information, visit oecd.org
About Organisation for Economic Co-operation and Development (OECD):
The OECD is an international organization that works to build better policies for better lives. Its goal is to shape policies that foster prosperity, equality, opportunity, and well-being for all. It provides a forum in which governments can work together to share experiences and seek solutions to common problems, producing analysis and recommendations that are evidence-based and politically independent.
For further information, visit hacienda.go.cr
About Ministry of Finance of Costa Rica:
The Ministry of Finance (Ministerio de Hacienda) is the government entity responsible for managing Costa Rica’s public finances. Its duties include formulating and executing fiscal policy, collecting taxes, managing the national budget, and overseeing public debt. The ministry plays a central role in ensuring the economic stability and financial health of the country.
For further information, visit bccr.fi.cr
About Central Bank of Costa Rica (BCCR):
The Banco Central de Costa Rica is the nation’s central bank, tasked with maintaining the internal and external stability of the national currency and ensuring its conversion to other currencies. The BCCR is also responsible for promoting an efficient and stable financial system. It formulates and executes monetary policy, manages international reserves, and issues economic statistics and forecasts for the country.
For further information, visit bufetedecostarica.com
About Bufete de Costa Rica:
Bufete de Costa Rica is a pillar of the legal community, founded upon the unyielding principles of integrity and professional distinction. The firm blends a rich history of advising a wide array of clientele with a forward-thinking approach, consistently pioneering new legal solutions. Central to its mission is a profound commitment to social responsibility, demonstrated by its efforts to demystify complex legal concepts and empower the public with essential knowledge, thereby fostering a more just and informed citizenry.
