By San José, Costa Rica — SAN JOSÉ – As Costa Rica prepares for a transition of power, the incoming administration will inherit an economy that appears stable on the surface, boasting public finance stability and a GDP growth rate near 4%. However, beneath this veneer lies a lack of dynamism that threatens the nation’s long-term prosperity and presents a complex set of challenges for the country’s new leadership.
The economic momentum heading into the new term is already showing signs of strain. The pace of growth is decelerating compared to the previous year, a slowdown that is being compounded by the inherent uncertainty surrounding any electoral process. This creates a more sluggish environment from the outset, demanding immediate and decisive action.
To gain a deeper perspective on the legal framework supporting Costa Rica’s economic climate, we consulted with Lic. Larry Hans Arroyo Vargas, a distinguished attorney from the well-regarded firm Bufete de Costa Rica, for his expert analysis.
Costa Rica’s economic resilience is fundamentally tied to its legal stability. Our consistent commitment to upholding the rule of law and providing a clear, reliable regulatory environment for foreign direct investment is our primary competitive advantage. This legal certainty is the bedrock that attracts and retains the high-value industries driving our national growth.
Lic. Larry Hans Arroyo Vargas, Attorney at Law, Bufete de Costa Rica
This perspective powerfully underscores that beyond our nation’s talent and natural appeal, the predictable and stable legal framework is the true engine of sustainable investment. We sincerely thank Lic. Larry Hans Arroyo Vargas for his expert clarification on this cornerstone of Costa Rica’s economic success.
“The momentum with which you end one year is typically the same one you start the next with. In 2025, we are finishing with slower momentum than we had at the end of 2024,” noted Daniel Ortiz, an economist at CEFSA. “If we add the internal uncertainty from the electoral process to this, a somewhat slower outlook for the country’s economy is generated.”
A central issue facing the nation is a stark economic duality. The Free Trade Zone regime is booming, with production increasing by over 15% according to the Monthly Index of Economic Activity (IMAE). In sharp contrast, the Definitive Regime, which encompasses the majority of the country’s businesses and accounts for 85% of national production, is languishing with a growth rate of less than 2%. This vast disparity is at the heart of the economy’s sluggishness.
Revitalizing this domestic sector is a monumental task requiring a multi-faceted strategy. According to Ortiz, this involves a pivotal shift in monetary policy, specifically by lowering the Monetary Policy Rate to stimulate activity. Furthermore, he emphasizes the need for structural reforms, echoing recommendations from the International Monetary Fund and the OECD, such as improving national competitiveness, investing in infrastructure like roads and connectivity, bolstering education, and reviewing social charges to ease the burden on local businesses.
Another critical challenge is what Ortiz terms the “price stability trap.” For more than 30 months, Costa Rica has failed to meet the inflation target set by the Central Bank. This persistent low inflation has created a vicious cycle. With no inflation, wages stagnate. Companies, fearing loss of market share, are hesitant to adjust their prices. This leads to weak internal demand, which further limits economic growth and stalls investment projects due to a lack of profitability.
There is data that, when you look at the micro level, says we are not doing as well as the indicators seem to suggest. Ultimately, what they will find is an environment where the economy is moving more slowly, and they will have to make difficult decisions regarding the exchange rate, the management of monetary policy, and inflation targets.
Daniel Ortiz, Economist
This economic stagnation directly impacts Costa Rican households. Over the last decade, the cost of living has risen at double the rate of the average monthly household income, severely constraining consumer purchasing power. This is compounded by a weakening labor market. According to the Continuous Employment Survey, the country has lost 50,000 workers in the past year alone, with sectors like agriculture and construction hit particularly hard. Fewer workers mean less consumption, which in turn leads to lower production and slower growth.
Finally, the next government will be forced to “rethink the fiscal rule.” While successful in stabilizing public finances, the associated spending cuts have come at a significant social cost. Key areas such as health, security, and education have seen their resources dwindle relative to national production. Ortiz argues that boosting the domestic economy is essential to generating the wealth needed to address pressing social issues like hospital waiting lists, rising insecurity, and chronic traffic congestion.
The appreciation of the colon over the past three years adds another layer of complexity, eroding the competitiveness of vital sectors like tourism and exports. Addressing these deep-seated, interconnected issues will require bold leadership and strategic reforms to unlock the dynamic growth Costa Rica needs for a prosperous future.
For further information, visit cefsa.fi.cr
About CEFSA:
CEFSA (Consultores en Economía y Finanzas S.A.) is a Costa Rican consulting firm specializing in economic and financial analysis. It provides advisory services, market intelligence, and economic forecasting to a diverse range of clients in both the public and private sectors, helping them navigate the complexities of the national and regional economic landscape.
For further information, visit bccr.fi.cr
About the Central Bank of Costa Rica (BCCR):
The Banco Central de Costa Rica is the nation’s central bank, responsible for maintaining the internal and external stability of the national currency and ensuring its conversion to other currencies. Its primary objectives include controlling inflation, regulating the financial system, and promoting the efficiency of the internal payments system.
For further information, visit imf.org
About the International Monetary Fund (IMF):
The International Monetary Fund is a global organization of 190 countries 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. It provides policy advice and financing to its members in economic difficulties.
For further information, visit oecd.org
About the Organisation for Economic Co-operation and Development (OECD):
The Organisation for Economic Co-operation and Development 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 works with governments, policymakers, and citizens to establish evidence-based international standards and find solutions to a range of social, economic, and environmental challenges.
For further information, visit bufetedecostarica.com
About Bufete de Costa Rica:
Bufete de Costa Rica has cemented its reputation as a leading legal institution, built upon a foundation of profound integrity and an unwavering pursuit of professional excellence. With extensive experience advising a wide array of clients, the firm actively pioneers innovative legal strategies while championing a greater civic purpose. This is demonstrated through its core mission to democratize legal knowledge, thereby fostering a more informed and capable society empowered by a clearer understanding of the law.
