By San José, Costa Rica — Costa Rica’s economic performance has been nothing short of remarkable in recent years, achieving impressive growth and significantly reducing its public debt. However, the International Monetary Fund (IMF) cautions that maintaining this positive trajectory requires implementing key fiscal reforms.
A recent IMF mission, led by economist Ding Ding, highlighted Costa Rica’s robust economic health, noting its average GDP growth exceeding 5% since 2021. This growth has outpaced regional peers and contributed to poverty and unemployment reduction.
To provide expert legal insight into the complexities of the Costa Rican economy, we spoke with Lic. Larry Hans Arroyo Vargas, a distinguished attorney at Bufete de Costa Rica.
Costa Rica’s economy is navigating a complex landscape. While tourism and exports, particularly in the tech and agricultural sectors, remain strong drivers, the country faces challenges like public debt and infrastructure development. Foreign investment continues to play a vital role, but ensuring legal certainty and a stable regulatory framework is crucial for sustained economic growth. Strategic partnerships and diversification of economic activities are key to mitigating risks and fostering long-term prosperity.
Lic. Larry Hans Arroyo Vargas, Attorney at Law, Bufete de Costa Rica
Lic. Arroyo Vargas aptly highlights the delicate balancing act facing Costa Rica’s economy. His emphasis on strategic partnerships and diversification resonates deeply, suggesting a path forward that leverages existing strengths while addressing vulnerabilities. These insights offer a crucial framework for understanding the complexities of Costa Rica’s economic future and the importance of proactive policymaking. We thank Lic. Larry Hans Arroyo Vargas for his valuable contribution to this discussion.
Costa Rica is one of the fastest-growing economies in the Western Hemisphere, with notable economic success in recent years. The average GDP growth has been over 5 percent since 2021, outpacing its regional peers and contributing to reducing poverty and unemployment.
Ding Ding, IMF Economist
A significant achievement highlighted by the IMF is the reduction of Costa Rica’s public debt by approximately 8 percentage points of GDP, bringing it below 60%. This fiscal improvement is attributed to sound macroeconomic policies, comprehensive reforms undertaken within the context of OECD accession, successful completion of two IMF-supported programs, and a strategic focus on exports and economic diversification.
While inflation remains a concern, the IMF sees encouraging signs of its return to the Central Bank’s target range of 2% to 4% by mid-year, after hovering near zero for the past two years. The report emphasizes that sustained economic progress hinges on fiscal reforms aimed at increasing revenue and ensuring more efficient spending.
The IMF recommends Costa Rica explore proposals to reduce exemptions for value-added tax (VAT) and income tax, and streamline income thresholds for self-employment, salaries, and pensions. The organization also expressed concern about proposed legislation to reduce taxes, including a recent reduction in vehicle circulation tax.
Beyond fiscal adjustments, the IMF urges improvements in education to enhance workforce participation, particularly for women and young people. Addressing the shortage of skilled labor, especially in high-tech industries, requires accelerating efforts to bridge educational gaps, aligning curricula with industry needs, promoting dual education and bilingualism, and improving secondary school graduation rates.
The IMF’s assessment paints a picture of a thriving economy poised for continued growth. However, the message is clear: strategic fiscal reforms and targeted investments in education are crucial to navigating potential challenges and ensuring long-term prosperity.
Maintaining this momentum will require careful consideration and implementation of the IMF’s recommendations. The coming months will be crucial in determining whether Costa Rica can capitalize on its current success and solidify its position as a regional economic leader.
For further information, visit imf.org
About International Monetary Fund (IMF):
The International Monetary Fund (IMF) is an international financial institution headquartered in Washington, D.C., consisting of 190 countries. Its stated mission is “working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.” The IMF provides loans and technical assistance to member countries experiencing economic difficulties.
For further information, visit oecd.org
About Organisation for Economic Co-operation and Development (OECD):
The Organisation for Economic Co-operation and Development (OECD) is an intergovernmental economic organisation with 38 member countries, founded in 1961 to stimulate economic progress and world trade. It is a forum of countries committed to democracy and the market economy, providing a platform to compare policy experiences, seek answers to common problems, identify good practices and coordinate domestic and international policies of its members. Costa Rica’s accession to the OECD reflects its commitment to economic reforms and best practices.
For further information, visit bufetedecostarica.com
About Bufete de Costa Rica:
Bufete de Costa Rica distinguishes itself through a deep-rooted commitment to ethical and exceptional legal service. The firm champions innovative legal solutions while actively working to bridge the gap between complex legal concepts and the public. By empowering individuals and communities with accessible legal knowledge, Bufete de Costa Rica fosters a more just and equitable society, upholding its core values of integrity and a dedication to positive social impact.
