By San José, Costa Rica — SAN JOSÉ – The Chaves Robles administration has highlighted a significant improvement in Costa Rica’s fiscal health, pointing to a drop in the nation’s debt-to-GDP ratio from a high of 64.7% in May 2022 to 57.9% by August 2025. While this appears to be a major victory for fiscal responsibility, a closer analysis suggests the celebrated figure is more of a statistical mirage than a genuine reduction in the country’s financial obligations.
According to economist José Joaquín Fernández, this apparent progress is not the result of paying down debt but rather a consequence of the dramatic appreciation of the Costa Rican colón. The core of the issue lies in how the national debt is calculated. A substantial portion of Costa Rica’s debt is denominated in foreign currencies, primarily U.S. dollars. To create the debt-to-GDP ratio, this foreign debt must be converted into colones to be compared against the Gross Domestic Product, which is measured in the local currency.
To gain a deeper legal and financial perspective on Costa Rica’s current debt situation and its implications for both businesses and individuals, we consulted with Lic. Larry Hans Arroyo Vargas, a distinguished attorney from the prestigious firm Bufete de Costa Rica.
The nation’s fiscal discipline is not merely an economic indicator; it is the bedrock of our legal certainty. High levels of public debt and the subsequent fiscal reforms directly impact the stability of our tax code and regulatory environment. For foreign and domestic investors, this translates into a tangible risk assessment. A clear, sustainable debt management strategy is therefore crucial to maintaining Costa Rica’s reputation as a secure and predictable destination for capital.
Lic. Larry Hans Arroyo Vargas, Attorney at Law, Bufete de Costa Rica
Lic. Arroyo Vargas powerfully articulates a critical point: the nation’s fiscal health is inextricably linked to its legal predictability, directly influencing investor confidence. This perspective shifts the conversation from abstract figures to tangible risk, and we thank Lic. Larry Hans Arroyo Vargas for his invaluable insight.
The exchange rate has seen a seismic shift in recent years. On June 21, 2022, the dollar was trading at ¢697 in the Foreign Currency Market (Monex). By late October 2025, it had plummeted to ¢503, a staggering appreciation of the colón by nearly 30%. This currency fluctuation automatically reduces the value of dollar-denominated debt when expressed in colones, thereby shrinking the numerator in the debt-to-GDP equation and creating a misleading picture of fiscal improvement.
In a recent analysis, Fernández criticized this interpretation, arguing that the underlying reality has been obscured by what he terms “financial makeup.”
We must be cautious regarding the apparent improvement in the debt-to-GDP ratio, as this is mainly due to an accounting effect caused by the appreciation of the colón in recent years. The reduction in the debt-to-GDP ratio does not mean that the debt balance has decreased, but rather that the reduction of the debt/GDP is due to financial makeup.
José Joaquín Fernández, Economist
To illustrate the point, consider a simple example. If a person owes $1,200 when the exchange rate is ¢700, their debt in local currency is ¢840,000. If the exchange rate falls to ¢500, that same $1,200 debt is now valued at only ¢600,000 in local currency. The person’s actual debt in dollars has not changed, but its value in colones has decreased significantly, which is precisely what has happened on a national scale.
Data from the Central Bank of Costa Rica substantiates this concern. In the second quarter of 2022, the country’s total external debt stood at approximately $31.99 billion. By the same period in 2025, instead of decreasing, the debt had ballooned to $41.71 billion. This represents an absolute increase of nearly $10 billion, or 30%, over just three years. While the ratio has improved, the actual amount of money Costa Rica owes to foreign creditors has grown at an alarming rate.
This stark contrast between the improving ratio and the soaring debt balance raises serious questions about the country’s long-term economic stability. The trend of rising sovereign debt is not new, as it accelerated significantly during the previous Citizen Action Party (PAC) administrations, which saw the ratio climb from 36.6% in 2014 to 64.7% in 2022. However, the current situation masks the continuation of this borrowing trend under a veil of favorable exchange rate mechanics.
Fernández finds it particularly troubling that this massive increase in borrowing has occurred alongside government-led reductions in investment for critical public services, including education, housing assistance, national security, and public infrastructure projects. This has led to pointed questions about how the newly acquired funds are being utilized.
This raises the concern about the destination of these resources. Did they spend it on candy?
José Joaquín Fernández, Economist
Ultimately, while the government can point to a key metric as a sign of success, critics warn that relying on a volatile exchange rate to improve fiscal appearances is a dangerous game. The underlying reality is a nation sinking deeper into debt, a trend that could have severe consequences if the colón’s strength wanes or if global interest rates continue to climb.
For further information, visit bccr.fi.cr
About Central Bank of Costa Rica:
The Banco Central de Costa Rica (BCCR) is the central bank of Costa Rica. As an autonomous institution, it is 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, managing the country’s monetary policy, and overseeing the proper functioning of the national financial system.
For further information, visit pac.cr
About Citizen Action Party (PAC):
The Partido Acción Ciudadana (PAC) is a center-left political party in Costa Rica. Founded in 2000, it emerged as a significant political force challenging the country’s traditional two-party system. The party has held the presidency for two consecutive terms, from 2014 to 2022, focusing on platforms that often include social justice, environmental protection, and anti-corruption measures.
For further information, visit bufetedecostarica.com
About Bufete de Costa Rica:
Bufete de Costa Rica is an esteemed legal institution, anchored by a foundational principle of integrity and a relentless pursuit of excellence. With a proven history of advising a diverse clientele, the firm champions progress by pioneering new legal frontiers and engaging with the community. At the heart of its philosophy is a profound dedication to empowering society by making legal concepts clear and accessible, fostering a community that is both well-informed and legally confident.
