## 1criea2025002-print-pdf ## Source details **Canonical URL:** [1criea2025002-print-pdf](https://www.imf.org/-/media/files/publications/cr/2025/english/1criea2025002-print-pdf.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2025/english/1criea2025002-print-pdf.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2025/english/1criea2025002-print-pdf.pdf.json) --- ### EXECUTIVE SUMMARY — Context and Recent Developments - Policy and structural reforms since 2015 have spurred growth, reduced public debt, and supported OECD accession in 2021. - Key outcomes, 2021–2024: - Annual real GDP growth averaged 5 percent. - Public debt fell by 8 percentage points of GDP. - Poverty fell by 20 percent. - Costa Rica is an upper middle income country with democratic stability, good governance, freedom of expression, and rule of law. - Past IMF engagement: RFI in 2020, EFF in 2021, RSF in 2022. - Authorities’ near-term commitments and political calendar: - Continue lowering debt, further strengthen central bank autonomy and governance, address supply-side bottlenecks, and improve legal framework for financial supervision and crisis management. - Legislative and Presidential elections in early 2026; new administration in May 2026. - External risks have increased: - World Uncertainty Index has risen to levels above those of the COVID-19 pandemic. - Downside risks include escalation of trade conflicts, slower growth in major trading partners (notably the U.S.), and tighter global financial conditions. - Materialization of these risks could reduce demand for goods and services, dent FDI inflows, and increase external borrowing costs. ### OUTLOOK AND POLICY STANCE - Growth and inflation projections and indicators: - GDP growth slowed to 4.3 percent in 2024. - Baseline projection: GDP growth slows towards 3.4 percent this year and remains around potential (of 3½ percent) over the medium term. - Inflation was about 1.2 percent in March; inflation expectations within BCCR target range of 2–4 percent. - Inflation is expected to return to the BCCR’s target of 3 percent in 2026. - Current account deficit expected to rise to 1.8 percent of GDP. - Monetary policy and reserves: - Broadly neutral monetary policy stance appropriate; room to cut policy rate further if convergence to target weakens. - Once inflation returns firmly to target, BCCR should remain vigilant to manage upside and downside risks. - International reserves at a comfortable level; further accumulation unnecessary. - FX intervention should be limited to large shocks and market dysfunction; development of FX derivatives markets recommended. - Fiscal policy and public debt: - Authorities prioritize further reduction in public debt. - Temporary factors reduced the headline primary surplus to 1.1 percent of GDP in 2024; expected to rise to 1.3 percent this year as temporary factors unwind. - Public sector wage restraint expected to bring the primary surplus to 1.7 percent over the medium term while allowing increased public investment aided by a new public investment law. - A comprehensive, revenue-increasing tax reform would expand fiscal space for capital spending and social assistance and improve equity and efficiency. - Legislative Assembly should approve proposals to grant the executive more flexibility in issuing external debt. - The disputed claim by the social security system should be resolved with governance improvements and registries of beneficiaries. - Financial soundness and supervision: - Indicators of financial soundness remain good. - Amendments to bank resolution and deposit insurance law are being pursued to strengthen supervisory and resolution powers. - Smooth resolution of two small non-bank financial institutions in 2024 highlights framework effectiveness. - Supply-side reform priorities: - Boost graduation rates and align curricula with workforce needs. - Enhance infrastructure quality and maintenance. - Advance resilience to natural disasters and catalyze climate finance. - Reduce regulatory bottlenecks and expand PPPs; implement a one-stop window to facilitate business creation. ### ROLE OF THE FLEXIBLE CREDIT LINE (FCL) ARRANGEMENT - Authorities’ request: - Two-year FCL Arrangement in the amount of about SDR 1.1082 billion (300 percent of quota). - Intended to be treated as precautionary. - Requested access equivalent to almost US$1.5 billion (authorities’ description). - Staff assessment: - Staff assesses that Costa Rica meets the qualification criteria for an FCL and supports the authorities’ request. - Access considerations: - Authorities would consider requesting reduced access in the future, risks permitting. - Requested access level is at the bottom of the range of FCL and Exceptional Access Arrangements approved since 2023. ### EVOLUTION OF EXTERNAL RISKS AND EXPOSURES - Market indicators and global conditions: - EM VIX indicates an increase in risks since the start of the year. - U.S. 10-year Treasury yield benchmark has stayed high; bond market volatility increased. - April 2025 Global Financial Stability Report’s capital flows-at-risk analysis indicates increased likelihood of capital outflows from emerging markets. - Costa Rica’s external financing and vulnerabilities: - Gross fiscal financing needs are around 7½ percent of GDP in the short term and decline over the medium term. - Robust external financing structure anchored by consistently strong FDI inflows. - Sovereign spreads declined steadily until global market shifts in March and early April; local currency yields have fallen as monetary policy normalized. - Sovereign risk and debt sustainability assessment continues to show risks to be low. - Specific vulnerabilities: - The U.S. purchases half of Costa Rica’s exports and accounts for two-thirds of inward FDI—exposure to U.S. demand and financing conditions. - Higher oil prices would be an important negative terms of trade shock despite predominantly renewable electricity generation. - Capital inflows, including asset allocation by local pension funds, could be affected by heightened risk aversion and tighter global financial conditions. - External sector indicators (selected): - Goods and service exports by destination: USA 51 percent, Central America 14 percent, Other 35 percent (Millions of USD, 2019-2023). - FDI capital expenditure inflows by source, 2019-2024: USA 67 percent, Central America 2 percent, Other 31 percent. ### EXTERNAL ECONOMIC STRESS INDEX (EESI) — Box 1 (construction and scenarios) - Construction: - Composite weighted sum of standardized deviations of external proxies from their means (data 2001-2024). - Lower index values indicate higher stress. - Main external risks captured: - Economic downturn in trading partners (especially the United States). - Rising commodity prices, particularly energy import costs. - Tightening of global financial conditions and higher uncertainty affecting net external financing. - Proxies and weights: - U.S. GDP growth weight +0.59. - Oil price level weight -0.04. - U.S. 10-Year Treasury Yield weight -0.18. - World Uncertainty Index (WUI) weight -0.18. - Baseline and downside scenario: - Baseline assumes gradual return of WUI to end-2024 level, slower U.S. GDP growth, and slightly lower interest rates; EESI expected to remain elevated and gradually return to average. - Downside scenario assumes U.S. rates almost 100 bps above baseline by end-2026, U.S. GDP level 2¼ percent lower in 2026, WUI at three standard deviations above baseline, and a US$20 rise in oil price — resulting in an increase in external stress. ### ASSESSMENT OF QUALIFICATION FOR FCL (Annex summary) - Core elements for FCL qualification: - (a) Very strong economic fundamentals and institutional policy frameworks. - (b) Implementation and sustained track record of very strong policies. - (c) Commitment to maintaining such policies in the future. - Positive Article IV consultation assessment is required. - Staff findings: - Costa Rica demonstrates very strong fundamentals, institutional frameworks, and a sustained track record of policy implementation. - Examples: Sustainable external position assessed as “Stronger” in 2021, 2023, and 2025 Article IV Consultations; capital account dominated by private flows: 54 percent (share of private flows in capital flows >50 percent on average over last 3 years). ### ACCESS LEVEL, FINANCING PROJECTIONS, AND ILLUSTRATIVE ADVERSE SCENARIO (Box 2 and related tables) - Requested access and justification: - Requested access: SDR 1.1082 billion (300 percent of quota); intended precautionary use. - Staff view: requested access would mitigate potential balance of payments risks and be sufficient in an adverse scenario given reserves and access to multilateral/regional financing. - Illustrative adverse scenario (2025) impacts: - Current account deficit would rise by about US$2.2 billion (about 2 percent of GDP). - Net financial flows would fall by US$5.7 billion (about 5½ percent of GDP): - About a US$1.3 billion (about 1 percent of GDP) decline in net FDI. - Lower external borrowing by private and public sector; capital outflows by domestic pension funds incorporated. - Reserve use would meet about 70 percent of additional external financing needs. - Reserves fall by US$4.7 billion instead of baseline increase of US$0.75 billion. - Use of FLAR (assumed US$1 billion) and IMF resources would allow reserves to remain above 80 percent of the ARA metric. - Financing gap remainder after FLAR: almost US$1.5 billion consistent with requested access. - Selected financing projections (figures presented as in source): - Gross financing requirements: 9,924; 11,275; 13,473; contribution to gap 2,197; 11,342; 13,796; contribution to gap 2,454. - Current account deficit: 1,291; 1,826; 4,024; contribution to gap 2,197; 2,076; 4,530; contribution to gap 2,454. - Exports of goods and services (4% decline in value): -36,770; -37,644; -36,138; contribution 1,506; -40,256; -38,646; contribution 1,610. - Oil imports (US$ 20 rise): 2,287; 2,315; 3,006; contribution 692; 2,631; 3,475; contribution 844. - Gross reserves ( − = increase): -920; -751; 4,705; -5,456; -860; 4,941; -5,801. - Financing gap (remainder and SDR conversion): Remainder 1,472; 1,471; in SDRs: 1,108; 1,108; % quota: 300; 300. - Memorandum items (selected): - Gross international reserves: 14,181; 14,932; 9,476; 15,792; 9,991. - As percent of ARA metric (float): 140; 141; 89; 136; 86. - Reserve drawdown as share of total gap (percent): 69; 70. ### CAPACITY TO REPAY, FUND OBLIGATIONS, AND ENTERPRISE RISKS - Staff assessment: - No major enterprise risks from the FCL proposal relative to the status quo; approving FCL would present opportunities and low-to-moderate financial risks to the Fund. - Capacity to repay (selected metrics and outcomes): - If full FCL disbursed, outstanding GRA credit to the Fund would rise to a peak of 635 percent of quota in 2025 with an additional credit from the RST of 150 percent of quota. - In the adverse scenario with full disbursement, outstanding credit would peak at 4.1 percent of GDP (about half the median for comparable cases) and 40.8 percent of international reserves in 2025. - Obligations to the Fund would peak in 2029 at 2.2 percent of exports (about one-third of the median), and 8.1 percent of total external debt service (one-third of the median) in the adverse scenario. - Obligations as a share of quota (230.7 percent in 2029) and as a share of central government revenue (5.9 percent in 2029) are in the top quartile of all GRA access cases, but overall judgment: obligations remain manageable. - Fund financial and concentration impacts: - Approval of the proposed FCL (SDR 1.1082 billion) will decrease the Forward Commitment Capacity (FCC) by 0.7 percent. - With full drawing, Costa Rica’s GRA credit would represent about 2.6 percent of the Fund’s total GRA credit outstanding and about 9 percent of the Fund’s current precautionary balances. ### FISCAL, DEBT, AND MACROPROJECTIONS (selected projections and indicators) - Table highlights (selected series as presented): - Real GDP (annual percent change): 7.9; 4.6; 5.1; 4.0; 4.3; 3.5; 3.4; 3.4; 3.5; 3.5; 3.5; 3.5. - Consumer prices (period average): 1.7; 8.3; 0.5; -0.4; -0.4; 1.6; 2.2; 3.0; 3.0; 3.0; 3.0; 3.0. - Gross international reserves (millions of U.S. dollars): 6,921; 8,724; 13,261; 14,441; 14,181; 15,174; 14,932; 15,792; 16,485; 17,301; 18,026; 18,869. - Central government overall balance (percent of GDP): -5.1; -2.8; -3.3; -3.7; -3.8; -3.2; -3.2; -2.8; -2.5; -2.3; -2.0; -1.7. - Central government debt (percent of GDP): 67.6; 63.0; 61.1; 61.1; 59.8; 60.8; 59.7; 59.0; 57.9; 56.7; 55.3; 53.7. - Balance of payments and external financing (selected): - Current Account (millions of U.S. dollars): -2,063; -2,272; -1,239; -1,776; -1,291; -1,892; -1,826; -2,076; -1,843; -1,889; -2,055; -2,143. - Foreign direct investment, net (millions): -3,146; -3,060; -3,701; -4,124; -4,275; -4,371; -4,240; -4,293; -4,704; -5,305; -5,718; -6,206. - Gross external financing needs (millions): -9,336; -11,985; -8,937; -13,903; -15,528; -15,876; -17,134; -18,502; -20,666; -22,213. ### SOVEREIGN RISK AND DEBT SUSTAINABILITY ASSESSMENT (Annex I summary) - Overall risk assessment: Low (near term: not published where disbursing arrangements exist; medium term: Low; long term: Low). - Sustainability assessment: Sustainable with high probability. - Baseline public debt path (Percent of GDP): - Actual 2024: 59.8 - 2025: 59.7 - 2026: 59.0 - 2027: 57.9 - 2028: 56.7 - 2029: 55.3 - 2030: 53.7 - 2032: 50.7 - 2034: 47.8 - Gross financing needs and debt dynamics: - Gross financing needs: 9.4 (2024); projected to decline towards mid-6 percent range over the medium term. - Identified drivers: primary deficits, interest-growth dynamics, real interest rate contributions. - Contingent liabilities and scenario testing: - Contingent liabilities tests (including disputed 8.5 percent of GDP claim by the CCSS) postpone but do not derail debt reduction. - Climate adaptation and mitigation scenarios have relatively small effects on debt given assumptions presented. - Debt coverage and disclosure: - Coverage: central government (consolidated GG debt reported 46% of GDP; consolidated public sector debt 57% in 2023). - External debt and creditor composition (selected 2024 figures): - Total public debt (US$): 57,373.8 (60.2% of GDP). - External debt (US$): 15,283.1 (16.0% of GDP). - Multilateral creditors total (US$): 7,128.0 (7.5% of GDP); IMF: 2,518.3 (2.6% of GDP). - Domestic debt (US$): 42,090.7 (44.1% of GDP). - Contingent liabilities (US$): 9,491.0 (10.0% of GDP). ### EXTERNAL DEBT SUSTAINABILITY ASSESSMENT (Annex II summary) - Recent trends: - External debt fell from 50.7 percent of GDP in 2022 to 42 percent in 2024. - External debt assessed as sustainable with high probability. - Baseline external debt (percent of GDP, selected years): - 2024: 42.0 - 2025: 42.1 - 2026: 43.3 - 2027: 44.0 - 2028: 44.4 - 2030: 44.7 - Stress test outcomes: - Combined shock: external debt increases to about 48 percent of GDP in the medium term. - A 30 percent currency depreciation scenario raises external debt to about 66 percent of GDP (one-time real depreciation of 30 percent in 2026). - Adverse scenario financing implications: - Nominal GDP growth in 2025: -1.5 percent (adverse) vs 7.6 percent (baseline). - Current account deficit widens to about 4.3 percent of GDP in 2025 under the adverse scenario. - International reserves would fall by US$4.7 billion to US$9.5 billion, covering around 70 percent of external financing needs. - To cover remaining US$2.5 billion gap in 2025, authorities expected to draw full FCL (about US$1.5 billion) and FLAR (about US$1 billion). ### STAFF APPRAISAL, SAFEGUARDS, AND RECOMMENDATIONS - Staff appraisal (summary): - The two-year FCL arrangement would signal the quality of the country’s very strong policies and institutional frameworks. - An FCL would provide valuable insurance against a range of external risks, complementing existing insurance through reserves and regional reserve pooling. - Costa Rica meets all nine qualification criteria for the FCL; scope remains to further strengthen financial supervision/crisis management and enshrine central bank independence into law. - Safeguards and institutional reforms: - BCCR has implemented most 2020 safeguards recommendations and committed to completing remaining measures via legal reforms: - A bill to improve BCCR transparency, accountability, and institutionalize autonomy. - A separate constitutional amendment to enshrine BCCR autonomy. - Safeguards procedures for this FCL request will be conducted based on review of recent external audit results and discussions with BCCR’s external auditors. - If FCL resources are used for budget support, authorities will update a framework agreement between the BCCR and the government to clarify responsibilities for timely servicing of related Fund obligations. - Staff recommendation: - Staff supports approval of a two-year precautionary FCL arrangement with access of 300 percent of quota (SDR 1.1082 billion). _Italic source: IMF staff, May 16, 2025; IMF staff calculations and estimates as presented in the provided PDF content._ ### EXECUTIVE SUMMARY ### EXECUTIVE SUMMARY ### Context and Recent Developments - Policy and structural reforms since 2015 have spurred growth, reduced public debt, and supported OECD accession in 2021. - Key outcomes, 2021–2024: - Annual real GDP growth averaged 5 percent. - Public debt fell by 8 percentage points of GDP. - Poverty fell by 20 percent. - Costa Rica is an upper middle income country with democratic stability, good governance, freedom of expression, and rule of law. - Past IMF engagement: RFI in 2020, EFF in 2021, RSF in 2022. - Authorities’ commitments and near-term political calendar: - Continued lowering of debt, further strengthening central bank autonomy and governance, addressing supply-side bottlenecks, and improving legal framework for financial supervision and crisis management. - Legislative and Presidential elections in early 2026; new administration in May 2026. - External risks have increased: - World Uncertainty Index has risen to levels above those of the COVID-19 pandemic. - Downside risks include escalation of trade conflicts, slower growth in major trading partners (notably the U.S.), and tighter global financial conditions. - Materialization of these risks could reduce demand for goods and services, dent FDI inflows, and increase external borrowing costs. ### Outlook and Policies - Growth and inflation projections: - GDP growth slowed to 4.3 percent in 2024. - Baseline projection: GDP growth slows towards 3.4 percent this year and remains around potential (of 3½ percent) over the medium term. - Inflation was about 1.2 percent in March; inflation expectations within BCCR target range of 2–4 percent. - Inflation is expected to return to the BCCR’s target of 3 percent in 2026. - Current account deficit expected to rise to 1.8 percent of GDP. - Monetary policy and reserves: - Broadly neutral monetary policy stance is appropriate. - If convergence of inflation to target weakens, there is room to cut the policy rate further. - Once inflation returns firmly to target, BCCR should remain vigilant to manage upside and downside risks. - International reserves are at a comfortable level; further accumulation is unnecessary. - FX intervention should be limited to large shocks and market dysfunction; development of FX derivatives markets recommended. - Financial soundness and supervision: - Indicators of financial soundness remain good. - Amendments to bank resolution and deposit insurance law are being pursued to strengthen supervisory and resolution powers. - Smooth resolution of two small non-bank financial institutions last year highlights framework effectiveness. - Fiscal policy and public debt: - Authorities prioritize further reduction in public debt. - Temporary factors reduced the headline primary surplus to 1.1 percent of GDP in 2024; expected to rise to 1.3 percent this year as temporary factors unwind. - Public sector wage restraint expected to bring the primary surplus to 1.7 percent over the medium term while allowing increased public investment aided by a new public investment law. - A comprehensive, revenue-increasing tax reform would expand fiscal space for capital spending and social assistance and improve equity and efficiency of the tax system. - Legislative Assembly should approve proposals to grant the executive more flexibility in issuing external debt. - The disputed claim by the social security system should be resolved with governance improvements and registries of beneficiaries. - Supply-side reforms recommended to sustain performance: - Boost graduation rates and align curricula with workforce needs. - Enhance infrastructure quality and maintenance. - Advance resilience to natural disasters and catalyze climate finance. - Reduce regulatory bottlenecks and expand PPPs; implement a one-stop window to facilitate business creation. ### Role of the Flexible Credit Line (FCL) Arrangement - Authorities’ request: - Requested a two-year FCL Arrangement in the amount of about SDR 1.1082 billion (300 percent of quota). - The FCL is intended to be treated as precautionary. - The requested access level is appropriate given elevated external risks and Costa Rica’s capacity to repay the Fund. - Authorities would consider requesting reduced access in the future, risks permitting. - Staff assessment: - Staff assesses that Costa Rica meets the qualification criteria for an FCL and supports the authorities’ request. - Access amount context: - Requested access equivalent to almost US$1.5 billion (as described by the authorities). A. Evolution of External Risks and Exposures - Market indicators and global conditions: - EM VIX indicates an increase in risks since the start of the year. - U.S. 10-year Treasury yield benchmark has stayed high; bond market volatility has increased. - April 2025 Global Financial Stability Report’s capital flows-at-risk analysis indicates increased likelihood of capital outflows from emerging markets. - Costa Rica’s external financing and vulnerabilities: - Gross fiscal financing needs are around 7½ percent of GDP in the short term and decline over the medium term. - Robust external financing structure anchored by consistently strong FDI inflows. - Sovereign spreads declined steadily until global market shifts in March and early April; local currency yields have fallen as monetary policy normalized. - Sovereign risk and debt sustainability assessment continues to show risks to be low (Annex I). - Specific vulnerabilities: - The U.S. purchases half of Costa Rica’s exports and accounts for two-thirds of inward FDI—exposure to U.S. demand and financing conditions. - Higher oil prices would be an important negative terms of trade shock despite Costa Rica’s predominantly renewable electricity generation. - Capital inflows, including asset allocation by local pension funds, could be affected by heightened risk aversion and tighter global financial conditions. - External sector indicators highlighted: - Goods and service exports by destination: USA 51 percent, Central America 14 percent, Other 35 percent (Millions of USD, 2019-2023). - FDI capital expenditure inflows by source, 2019-2024: USA 67 percent, Central America 2 percent, Other 31 percent. - Oil imports (Percent of GDP) series provided. - Pension outflows series provided (Millions USD). Box 1 — External Economic Stress Index (EESI) - Purpose and construction: - EESI is a composite indicator of changes in the external environment for Costa Rica. - Based on: (i) main external risks; (ii) selection of proxy variables; (iii) choice of weights. - Calculated as weighted sum of standardized deviations of external proxies from their means (data from 2001-2024). - Lower index values indicate higher stress. - Main external risks captured: - Economic downturn in trading partners (especially the United States) reducing exports and FDI. - Rising commodity prices, particularly energy import costs. - Tightening of global financial conditions and higher uncertainty affecting net external financing. - Proxies and weights: - U.S. GDP growth proxies external demand: weight +0.59 (based on goods and services export share). - Oil price level proxies energy import costs: weight -0.04. - U.S. 10-Year Treasury Yield proxies global financial conditions: weight -0.18. - World Uncertainty Index (WUI) proxies global sentiment: weight -0.18. - EESI history and baseline: - Sharp increase in stress at COVID-19 outbreak in 2020; reversal in 2021. - In 2022, rising U.S. rates increased stress; late-2024 external stress rose above historical average driven by WUI spike in early 2025. - Baseline assumes gradual return of WUI to end-2024 level, slower U.S. GDP growth than recent past, and slightly lower interest rates; EESI expected to remain elevated and gradually return to average. - EESI downside scenario assumptions: - U.S. interest rates do not decrease from current levels; by end-2026 they are almost 100 bps above the baseline (consistent with Scenario A in April 2025 WEO). - Frontloaded shock to U.S. GDP: GDP level 2¼ percent lower than baseline in 2026. - WUI stays constant at high March levels, reaching three standard deviations above baseline. - US$20 (almost one standard deviation) rise in the oil price. - Result: increase in external stress instead of return toward average stress. B. Assessment of Qualification - Core assessment elements for FCL qualification: - (a) Very strong economic fundamentals and institutional policy frameworks. - (b) Implementation and sustained track record of very strong policies. - (c) Commitment to maintaining such policies in the future. - Positive assessment in the most recent Article IV consultations is required. - Staff assesses nine specific qualification criteria related to (a) and (b). - Staff findings: - Costa Rica continues to demonstrate very strong economic fundamentals and institutional policy frameworks and a sustained track record of implementing very strong policies. - Qualification criteria evidence (examples cited in summary table): - Sustainable external position: “Stronger” in 2021, 2023, and 2025 Article IV Consultations (EBA assessment at least “moderately weaker” is the standard). - Capital account dominated by private flows: 54 percent (share of private flows in capital flows >50 percent on average over last 3 years). *Source: IMF staff, May 16, 2025.* ### 3. Track record of steady sovereign access to ### 3. Track record of steady sovereign access to international capital markets at favorable terms ### Sovereign access and issuance record - Public-sector bonds issued / loans disbursed in international markets in at least 3 of the last 5 years; cumulative amount >50 percent of quota. - 4 issuance years in 2020-2024 amounting to 1,170 percent of quota. - Costa Rica’s public sector issued sovereign debt in 4 out of the past 5 calendar years (2020-2024). - The Central Government (CG) issued external debt in 2021, 2022 and 2023. - State-owned Banco Nacional issued a blue bond in 2024. - Issuances are equivalent to 11.7 times Costa Rica’s quota (Eurobond issuances alone were worth 6 times the quota). - Eurobond examples: March 2023, a 10-year Eurobond with a US$1.5 billion face value issued with a yield of 6.55 percent; November 2023, a 30-year Eurobond with a US$1.5 billion face value issued at a discount with a yield of 7.75 percent. - Market access observations: - Staff’s assessment: Costa Rica did not lose market access at any point in the last 12 months. - Further Eurobond issuances are expected this year. - There has been consistent strong market appetite for Costa Rican debt and EMBIG spreads declined consistently to about 200 basis points (¶12). - Despite a rapid rise in sovereign credit ratings, they are currently two notches below an investment grade rating. ### Reserve position and coverage metrics - Comfortable reserve position criterion: reserves >100 percent of ARA metric on average over three years and not below 80 in any year. - ARA average: 98. - External financing needs average: 123. - Always above 80. - Reserve coverage indicators, 2022-2025 (Percent of Metric) reported values: - ARA (float): 106, 144, 140, 141 for 2022, 2023, 2024, 2025 (forecast) respectively. - ARA (not float): 7, 19, 59, 29, 2, 92 (note: table formatting in source; preserve listed numbers). - 3 Months' Imports: 123, 174, 177, 169. - Broad Money (M4): 123, 155, 144, 145. - External Financing Needs: 90, 140, 138, 142. - Short-term Debt: 117, 161, 157, 172. - Mechanical ARA assessment: average of 98 percent based on the M4 measure of broad money, used by authorities and staff in the Article IV Consultation (classification floating in 2022, non-floating in 2023 and 2024). - Other contributors to reserve assessment: - Access to the Latin American Reserve Fund (about 10 percent of end-2024 reserves). - Macroprudential measures that reduce banks’ potential short-term FX funding needs. - Considerable weight of foreign direct investment in external financing. - Coverage is adequate even after netting out IMF loans. - Staff advice during the 2025 Article IV Consultation: limit further reserve accumulation in favor of further exchange rate flexibility during periods of appreciation pressure. ### External position and capital flows - Staff assessment of external position: stronger than medium-term fundamentals and desirable policies in 2024; 2023 and 2021 consultations had “stronger” assessments. - Gross external debt: 42 percent of GDP in 2024 and expected to stabilize below pre-pandemic levels. - Non-interest current account surplus: 0.9 percent of GDP in 2024. - Net international investment position: -40 percent of GDP at end-2024, compared to -44 percent at end-2023. - Capital account dominated by private flows: - For 2022-2024, 54 percent of gross inflows and outflows were private-sector flows. - Private share exceeded 60 percent in 2022 and 2024. - In 2023, private share was 39 percent because of significant reserve accumulation, which accounted for 28 percent of total flows (three-quarters of public flows). - Private share of IIP liabilities: over 80 percent at end-2024 (due to the dominance of foreign direct investment). - Private share of assets: over 55 percent. ### Fiscal framework and public debt sustainability - Sound public finances criterion: debt sustainable with high probability. - Sustainable with high probability in 2022, 2023, 2024, 2025. - Borderline in 2021 using previous framework. - Fiscal performance and reforms: - 2018 fiscal reform increased taxes, boosted revenues with compliance measures, and established a fiscal rule for spending. - Primary surplus averaged 1.6 percent of GDP in 2022-2024. - High interest burdens kept overall deficits sizable at 3.3 percent of GDP. - Authorities actions: landmark public employment reform; established a medium-term debt strategy; unified debt management functions in a single office; improved medium-term fiscal framework depth and coverage; centralized/digitalized social assistance cash transfers; established a single window for social assistance; made public investment management reforms. - Financing and risks: - Financing expected from official external sources, domestic debt, and Eurobonds. - Risks mitigated by available financing, a fiscal rule that responds to the debt ratio, and authorities' track record in corrective action. - Debt Sustainability Assessments in Article IVs and program reviews assess debt to be sustainable with high probability and overall risk of debt distress is low. - Debt has been assessed as sustainable with high probability in all applications of the new SRDSF template since 2022; early 2021 MAC DSF template yielded a borderline assessment. ### Monetary policy, inflation, and exchange rate framework - Low and stable inflation criterion: inflation in single digits in the last 5 years. - Minimum -0.4 (2024). - Maximum 8.3 (2022). - 2021-2024 average annual inflation varied from -0.4 percent in 2024 to 8.3 percent in 2022, meeting the quantitative component of this criterion. - Central Bank actions and framework: - Decisive early loosening at the start of COVID-19; one of the first central banks to tighten in response to the global inflation surge; among the first to loosen as inflation fell. - First country in Latin America to lower the policy rate below that of the U.S. Federal Reserve. - Actions and communication helped anchor inflation expectations amid multiple large external shocks and exchange rate swings. - Central Bank scores very highly in indices of de jure independence. - Broad-based public support for central bank independence even with current legislative framework. - FX market and macroprudential measures: - Efforts underway to improve FX market functioning and liquidity. - Macroprudential measures actively used to mitigate potential vulnerabilities from balance sheet FX mismatches. ### Financial system soundness and supervision - Sound financial system criterion: capital adequacy above regulatory minimum; no significant solvency risks or recapitalization needs. - Risk-adjusted capital ratio: minimum 16.5 (end-2021) and maximum 19.1 (end-2024) – above regulatory minimum. - No significant solvency risks or recapitalization needs. - 2025 Article IV staff assessment: systemic financial stability risks contained. - Capital adequacy ratio averaged almost 18 percent since end-2020; December 2024 value 19.1 percent. - Stress tests indicate banking system sufficient capital under severely stressed scenario. - Liquidity metrics comfortable, NPLs low, system profitable. - No apparent systemic stability risks in nonbanks. - Effective financial sector supervision: - No substantial concerns regarding supervisory framework. - Progress since 2018 FSSR and 2020 OECD accession review; 2021 EFF included structural benchmark to strengthen bank resolution framework; 2022 World Bank FSAP noted need for further strengthening. - Reforms implemented: strengthened regulatory stress testing tools, credit monitoring, liquidity risk assessments; extended supervision to non-regulated entities; supervision explicitly risk-based; legislation submitted to align bank resolution and deposit insurance with international best practice. - Two nonbank financial institutions were satisfactorily resolved during 2024 using the supervisory and resolution frameworks introduced in 2020. - 2023 and 2025 Article IV consultations did not raise substantial concerns on financial supervision. - Costa Rica is not on FATF grey list; no outstanding AML/CFT recommendations warranting further attention. - Ongoing efforts to strengthen AML/CFT supervision: preparing legislation to enhance regulatory sanctions for banks and a bill to implement a risk-based framework for oversight of virtual asset service providers. ### Data transparency and institutional strength - Data transparency and integrity criterion: an SDDS subscriber or satisfactory progress towards SDDS. - SDDS subscriber since before 2020. - Costa Rica complies with the Special Data Dissemination Standards since 2019. - Data timely and of good quality with strong institutional protections to data integrity. - Institutional robustness: - Strong institutional policy frameworks; exemplary policy response to recent shocks. - Fiscal institutions ensured consistent debt reduction; fiscal rule escape clause invoked during COVID-19 pandemic. - Institutional resilience demonstrated in response to a 2022 cyberattack. - Scores well on governance indicators; mature democracy; independent judiciary; history of smooth political transitions and policy continuity. - No substantive weaknesses in AML/CFT, fiscal, financial, or regulatory policies. - Staff considers Costa Rica’s ability to respond to shocks not hampered by governance and corruption vulnerabilities. - Policy continuity: - Demonstrated across administrations; previous administration implemented fiscal reform and negotiated the EFF; current administration completed the EFF and negotiated the RSF. - Broad recognition across political spectrum that engagement with the Fund supports sustained economic performance. - IMF Executive Board commended Costa Rica’s economic progress during the 2025 Article IV Consultation; 2023 Article IV and subsequent reviews similarly positive. ### Access considerations and illustrative adverse scenario (Box 2) - Staff view: requested access would mitigate potential balance of payments risks and be sufficient in an adverse scenario given reserves and access to multilateral/regional financing. - Adverse scenario illustrative impacts (2025): - Current account deficit would rise by about US$2.2 billion (about 2 percent of GDP) due to slower external demand and higher oil import prices. - Net financial flows would fall by US$5.7 billion (about 5½ percent of GDP). - About a US$1.3 billion (about 1 percent of GDP) decline in net FDI. - Lower external borrowing by private and public sector; capital outflows by domestic pension funds incorporated. - Reserve use in adverse scenario: - Reserve use would meet about 70 percent of the additional external financing needs. - Reserves fall by US$4.7 billion instead of baseline increase of US$0.75 billion. - Use of FLAR and IMF resources would allow reserves to remain above 80 percent of the ARA metric. - Illustrative scenario details: - April 2025 WEO Scenario A: multiple shocks, global GDP effect about 2 percent relative to baseline by 2026; oil price rise assumed (US$20 dollar rise in FOB price). - Current account: exports fall by 4 percent due to trading partners’ GDP decline; exports would still be above preceding 3-year average. - Foreign Direct Investment: 30 percent decline in FDI relative to baseline. - Debt disbursements: medium and long-term debt issuance assumed 35 percent lower than baseline (US$1.5 billion gap); short-term debt disbursements decline 30 percent. - Portfolio investment: assumed additional outflow of US$500 million from pension funds. - Reserve drawdown in illustrative scenario: US$5.5 billion or about 70 percent of financing gap; resulting reserve coverage 89 percent of the ARA metric and 90 percent of external financing needs. - Financing gap: authorities use some FLAR access (US$1 billion assumed); remaining financing gap of almost US$1.5 billion consistent with requested level of access. - Box 2 conclusion: access of about SDR 1.1 billion would provide adequate insurance against plausible risks. *Source: IMF staff report material from 2025 Article IV Consultation (Costa Rica).* ### 30. The level of access requested for this arrangement is appropriate given recent ### 30. The level of access requested for this arrangement is appropriate given recent increases in global uncertainty. ### Access level and justification - The authorities are aware the access is state-dependent and relies on other criteria (such as capacity to repay). - If the authorities were to request and qualify for a follow-up arrangement in the future and external risks were to decline, the authorities would consider requesting reduced access. - The requested access level is at the bottom of the range of FCL and Exceptional Access Arrangements approved since 2023. - The authorities plan to treat the access as precautionary. ### Financing projections and shock scenarios (selected figures preserved exactly as in source) - Size of shock scenarios: Baseline and Adverse columns presented with contributions to the gap. - Gross financing requirements: 9,924; 11,275; 13,473; contribution to gap 2,197; 11,342; 13,796; contribution to gap 2,454. - Current account deficit: 1,291; 1,826; 4,024; contribution to gap 2,197; 2,076; 4,530; contribution to gap 2,454. - Exports of goods and services (4% decline in value): -36,770; -37,644; -36,138; contribution 1,506; -40,256; -38,646; contribution 1,610. - Imports of goods and services: 30,459; 32,063; 32,754; contribution 692; 35,375; 36,219; contribution 844. - Oil imports (US$ 20 rise in oil price): 2,287; 2,315; 3,006; contribution 692; 2,631; 3,475; contribution 844. - Income deficit: 7,602; 7,408; 7,408; contribution 0; 6,957; 6,957; contribution 0. - Debt amortization: 8,633; 9,449; 9,449; contribution 0; 9,266; 9,266; contribution 0. - Medium and long term debt: 2,839; 3,215; 3,215; contribution 0; 2,456; 2,456; contribution 0. - Public sector: 1,623; 1,865; 1,865; contribution 0; 990; 990; contribution 0. - Private sector: 1,216; 1,350; 1,350; contribution 0; 1,466; 1,466; contribution 0. - Short-term debt: 5,794; 6,234; 6,234; contribution 0; 6,810; 6,810; contribution 0. - Public sector: 100; 100; 100; 0; 100; 100; 0. - Private sector: 5,694; 6,134; 6,134; 0; 6,710; 6,710; 0. - Available financing: 9,924; 11,275; 11,001; contribution 274; 11,342; 11,325; contribution 17. - Foreign direct investment (net) (30% decline in net inflows): 4,275; 4,240; 296; 81; 1,272; 4,293; 3,005; 1,288. - Short-term debt disbursements: 5,794; 6,234; 4,364; 1,870; 6,810; 4,767; 2,043. - Public sector 30% decline: 100; 100; 70; 30; 100; 70; 30. - Private sector 30% decline: 5,694; 6,134; 429; 41; 6,710; 4,697; 2,013. - Medium- and long-term debt disbursements: 4,975; 5,966; 3,878; 2,088; 5,677; 3,690; 1,987. - Public sector 35% decline: 1,549; 3,295; 214; 21; 1,153; 2,482; 1,613; 869. - Private sector 35% decline: 3,426; 2,671; 173; 69; 3,195; 2,077; 1,118. - Other capital flows (net): -4,200; -4,413; -491; 350; 0; -6,298; -679; 850; 0. - Of which outward portfolio investment (US$ 500 million increase): -3,137; -2,981; -3,481; 500; -2,969; -3,469; 500. - Gross reserves ( − = increase): -920; -751; 4,705; -5,456; -860; 4,941; -5,801. - Financing gap: 2,472; 2,471. - Of which other sources (e.g., FLAR): 1,000; 1,000. - Remainder: 1,472; 1,471. - in SDRs: 1,108; 1,108. - % quota: 300; 300. Memorandum Items - Gross international reserves: 14,181; 14,932; 9,476; 15,792; 9,991. - As percent of ARA metric (float): 140; 141; 89; 136; 86. - As precent of External Financing Needs: 138; 142; 90; 135; 86. - Reserve drawdown as share of total gap (percent): 69; 70. - Reserve change compared to previous year (percent): 75; -336; -30. Projections (selected) - 2025 / 2026: FCL access examples (Percent of Quota) - COSTA RICA: 300 - Colombia (2024): 300 - Mexico (2023): 300 - Morocco (2025): 386 - Chile (2024): 600 - Exceptional Access - Ecuador (2024): 430 - Argentina (2025): 479 ### Enterprise risks, safeguards, and capacity to repay - Staff assesses no major enterprise risks from the FCL proposal, compared to maintaining the status quo; risks considered include financial, strategic, business, and reputational risks. FCL approval would also present opportunities. - Capacity to repay is adequate despite Costa Rica’s outstanding credit to the Fund. - In the event of an FCL disbursement of all available access, outstanding GRA credit to the Fund would rise to a peak of 635 percent of quota in 2025 with an additional credit from the RST of 150 percent of quota. - In the adverse scenario consistent with such a disbursement (Figure 2), outstanding credit would peak at 4.1 percent of GDP (about half the median for FCL and exceptional access cases since 2008) and 40.8 percent of international reserves (around the median for such cases) in 2025. - Obligations to the Fund would peak in 2029 at 2.2 percent of exports (about one-third of the median), and 8.1 percent of total external debt service (one-third of the median) in the adverse scenario. - Although the indicators are generally low in comparison with other FCL and exceptional access cases, obligations as a share of quota (230.7 percent in 2029) and as a share of central government revenue (5.9 percent in 2029) are in the top quartile of all GRA access cases. - Summary judgment: obligations to the Fund would remain manageable at the proposed FCL access level. - Financial risk assessment: - Granting access would entail low liquidity and moderate credit risks. - If Costa Rica were to withdraw the full amount in a single drawing, this amount would represent about 1 percent of GRA credit outstanding, bringing Costa Rica’s share of GRA credit outstanding to 2.6 percent. - Mitigating factors: scheduled repurchases of outstanding credit; adequate capacity to repay; authorities’ intention to treat the arrangement as precautionary; strength of the economy and size of policy buffers; track record of very strong policies. - Strategic and reputational risks of not granting the FCL: - Precautionary arrangements contribute to the Global Financial Safety Net; not granting FCL access would present a strategic risk to the membership regarding the objective and availability of precautionary arrangements. - Costa Rica would be the first member to move from an Upper Credit Tranche arrangement requested with actual BOP needs to an FCL within a year, but nothing in Fund policies or procedures rules out such a transition. - Not meeting the needs of a member by granting access to an FCL during a time of exceptionally high global uncertainty when qualification criteria have been met would introduce business risks and reputational risks of being perceived as not evenhanded or inconsistent with established policies and procedures. ### Safeguards and institutional reforms - The authorities are progressing towards full implementation of safeguards recommendations. - An update safeguards assessment was conducted in 2020. The BCCR has implemented most of the recommendations and is committed to implementing the remaining recommendations through the needed legal reforms: - A bill to improve the BCCR’s transparency and accountability and to institutionalize its autonomy. - A separate constitutional amendment to enshrine BCCR autonomy, which would also allow the BCCR to implement governance reforms through internal regulations. - Safeguards procedures for this FCL request will be conducted based on a review of the most recent external audit results and discussions with the BCCR’s external auditors. Once completed, the results will be reported to the Board in the next staff report for Costa Rica. - Should FCL resources be used for budget support, the authorities will update a framework agreement between the BCCR and the government to clarify their responsibilities for timely servicing of related financial obligations to the Fund. ### Staff appraisal (summary) - The two-year FCL arrangement would act as a very clear signal of the quality of the country’s very strong policies and institutional frameworks. - An FCL would provide valuable insurance against a range of external risks, complementing existing insurance through the country’s comfortable level of international reserves and its access to regional reserve pooling arrangements. - The authorities see the FCL signal as an important complement to their other efforts to achieve investment grade status. - Costa Rica meets all the qualification criteria for such an arrangement; during the 2025 Article IV Consultation, the IMF Executive Board recognized Costa Rica’s very strong fundamentals, policies, and policy frameworks. - All nine qualification criteria are met. However, there is scope to further strengthen financial supervision and crisis management as well as enshrine central bank independence into law. The authorities continue to pursue legislation in both these areas. *Source: IMF staff calculations.* ### 38. The level of requested access of 300 percent of quota and the authorities’ intention to ### 1criea2025002-print-pdf - 38. The level of requested access of 300 percent of quota and the authorities’ intention to ### Access decision and justification - Staff supports the authorities’ request for a two-year FCL arrangement with access of 300 percent of quota. - The level of requested access of 300 percent of quota and the authorities’ intention to treat the arrangement as precautionary are appropriate. - Access above 200 percent of quota is justified by the recent increase in external risks. - The level of access under the proposed arrangement (SDR 1.1082 billion) would have manageable effects on Fund finances (see staff supplement). - Upon approval of the arrangement, Costa Rica’s Post-Financing Assessment would automatically terminate. - In the event that global risks decline in the future, the authorities would consider requesting reduced access. ### Adverse scenario outcomes and reserve coverage - In an adverse scenario, the drawdown of international reserves would leave reserve coverage above 80 percent (assuming the FCL is fully drawn). - Figures compare baseline and adverse scenarios for nominal GDP, gross international reserves (in US$ billion), government revenues (USD Billion), current account deficit (Percent of GDP), exports of goods and services (USD Billion), and external debt service (USD Billion) across horizons including 2024–2045. - Figure 1 shows probability density comparisons of the adverse scenario for Costa Rica (CRI, marked in blue) relative to previous FCL/PCL/PLL arrangements; the adverse scenario effect is for the first year of crisis. ### Capacity to repay and Fund obligations (baseline and adverse scenarios) - Capacity to repay the Fund would remain adequate even in an adverse scenario. - Table highlights (Capacity to Repay Indicators Under the Baseline Scenario): - Fund obligations based on existing credit principal and GRA/RSF breakdown include principal values such as 184.7, 138.5, 51.6, 103.1, 171.9, 206.2 (millions of SDRs) across 2024–2030 and beyond. - Charges and interest (baseline) include values such as 85.173, 73.071, 71.567, 67.661, 61.854, 54.847, 47.339, 32.927, 29.924, 24.822, 20.218, 15.713, 13.511, 11.39, 9.16, 4.62, 2.72, 2.2 (in SDR millions) across projection years. - Total obligations based on existing and prospective credit (millions of SDRs) include values such as 269.8, 212.6, 124.7, 172.3, 235.2, 262.4, 254.7, 246.9, 188.4, 131.7, 87.4, 78.3, 76.1, 73.8, 71.5, 69.2, 67.0, 64.7, 62.4, 60.2, 30.4, 2.3 (by year). - Percent of quota under baseline: 73.0, 57.5, 33.7, 46.6, 63.7, 71.0, 68.9, 66.8, 51.0, 35.6, 23.7, 21.2, 20.6, 20.0, 19.4, 18.7, 18.1, 17.5, 16.9, 16.3, 8.2, 0.6. - Outstanding IMF credit based on existing and prospective drawings (Millions of SDRs): 1,930.1; 1,791.6; 1,740.0; 1,636.9; 1,465.0; 1,258.8; 1,052.5; 846.3; 691.6; 588.5; 526.4; 471.0; 415.6; 360.2; 304.8; 249.3; 193.9; 138.5; 83.1; 27.7; 0.0. - Net use of IMF credit (millions of SDRs): 1,930.1; -138.5; -51.6; -103.1; -171.9; -206.2; -206.2; -206.2; -154.7; -103.1; -62.1; -55.4; -55.4; -55.4; -55.4; -55.4; -55.4; -55.4; -55.4; -55.4; -27.7; 0.0. - Memorandum items: Exports of goods and services (millions of U.S. dollars) series beginning 36,770; 37,644; 40,256; 44,277; 48,503; 53,388; 56,538; 59,790; 63,202; 66,787; 70,550; 74,498; 78,633; 82,962; 87,488; 92,213; 97,144; 102,284; 107,640; 113,219; 119,027; 125,074. Gross international reserves (millions of U.S. dollars) series beginning 14,181; 14,932; 15,792; 16,485; 17,301; 18,026; 18,751; 19,476; 20,201; 20,926; 21,651; 22,376; 23,101; 23,826; 24,551; 25,276; 26,001; 26,726; 27,451; 28,176; 28,901. - Table highlights (Capacity to Repay Indicators Under the Adverse Scenario): - Fund obligations and charges under the adverse scenario include higher and frontloaded obligations and charges, with sample figures for charges and interest such as 85.1; 67.2; 70.9; 67.1; 61.4; 54.5; 47.1; 39.7; 33.0; 28.0; 25.0; 22.6; 20.5; 18.2; 16.1; 13.9; 11.7; 9.5; 7.3; 5.1; 3.2; 2.8; 2.8; 2.8; 2.8 (by year). - Total obligations based on existing and prospective credit under the adverse scenario (Millions of SDRs) include values such as 269.8; 233.9; 190.3; 240.6; 577.6; 852.4; 536.7; 246.0; 187.7; 131.2; 87.1; 78.0; 75.9; 73.7; 71.5; 69.3; 67.1; 64.9; 62.7; 60.5; 30.5; 0.9; 2.8; 2.8; 2.8 (series as shown). - Percent of quota under adverse scenario: 73.0; 63.3; 51.5; 65.1; 56.3; 230.7; 145.3; 66.5; 50.8; 35.5; 23.6; 21.1; 20.5; 19.9; 19.3; 18.8; 18.2; 17.6; 17.0; 16.4; 8.4; 0.7; 0.7; 0.7; 0.7. - Outstanding IMF credit based on existing and prospective drawings (Millions of SDRs) under adverse scenario: 1,930.1; 2,899.8; 2,848.2; 2,745.1; 2,296.2; 1,535.8; 1,052.5; 846.3; 691.6; 588.5; 526.4; 471.0; 415.6; 360.2; 304.8; 249.3; 193.9; 138.5; 83.1; 27.7; 0.0. - Components of outstanding IMF credit include EFF, FCL (e.g., FCL ...1,108.2; 1,108.2; 1,108.2; 831.2; 277.1 in specified years), RSF, RFI, and others as detailed in the tables. - Memorandum items under adverse scenario: Exports of goods and services (millions of U.S. dollars) series beginning 36,770; 36,138; 38,646; 43,391; 48,261; 53,361; 59,470; 62,889; 66,479; 70,249; 74,208; 78,360; 82,710; 87,263; 92,023; 96,994; 102,180; 107,586; 113,220; 119,088; 125,198; 131,558; 138,177; 145,066; 152,236; 159,698. Gross international reserves (millions of U.S. dollars) series beginning 14,181; 9,476; 10,021; 12,034; 13,495; 14,962; 16,604; 17,839; 19,115; 20,434; 21,794; 23,082; 23,924; 24,767; 25,609; 26,452; 27,295; 28,137; 28,980; 29,822; 30,665; 31,508; 32,350; 33,193; 34,035; 34,878. ### Projections and fiscal/external context (selected indicators from tables) - Table 1 selected projections (annual percentage change and percent of GDP): - Real GDP: 7.9, 4.6, 5.1, 4.0, 4.3, 3.5, 3.4, 3.4, 3.5, 3.5, 3.5, 3.5 (series by year). - Consumer prices (period average): 1.7, 8.3, 0.5, -0.4, -0.4, 1.6, 2.2, 3.0, 3.0, 3.0, 3.0, 3.0. - Gross international reserves (millions of U.S. dollars): 6,921; 8,724; 13,261; 14,441; 14,181; 15,174; 14,932; 15,792; 16,485; 17,301; 18,026; 18,869. - Central government overall balance (percent of GDP): -5.1; -2.8; -3.3; -3.7; -3.8; -3.2; -3.2; -2.8; -2.5; -2.3; -2.0; -1.7. - Central government debt (percent of GDP): 67.6; 63.0; 61.1; 61.1; 59.8; 60.8; 59.7; 59.0; 57.9; 56.7; 55.3; 53.7. - Table 2 (Central Government Balance, in billions of colones and percent of GDP) provides detailed revenue, expenditure, financing, and debt series, including: - Revenue (billions of colones): 6,326; 7,341; 7,182; 7,367; 7,410; 7,814; 7,910; 8,443; 9,024; 9,634; 10,294; 11,001. - Expenditure (billions of colones): 8,377; 8,598; 8,712; 9,200; 9,268; 9,464; 9,597; 10,021; 10,509; 11,074; 11,632; 12,267. - Central government debt (billions of colones): 27,272; 28,224; 28,762; 29,988; 29,348; 31,713; 31,207; 32,930; 34,526; 36,114; 37,603; 39,025. - Table 3 (Balance of Payments, in millions of U.S. dollars and percent of GDP) provides series including: - Current Account (millions of U.S. dollars): -2,063; -2,272; -1,239; -1,776; -1,291; -1,892; -1,826; -2,076; -1,843; -1,889; -2,055; -2,143. - Foreign direct investment, net (millions): -3,146; -3,060; -3,701; -4,124; -4,275; -4,371; -4,240; -4,293; -4,704; -5,305; -5,718; -6,206. - Gross international reserves (with RSF, millions of U.S. dollars): 6,921; 8,724; 13,261; 14,441; 14,181; 15,174; 14,932; 15,792; 16,485; 17,301; 18,026; 18,869. - Table 4 (Gross External Financing Needs and Sources, in millions of U.S. dollars) highlights: - Gross external financing needs (millions): -9,336; -11,985; -8,937; -13,903; -15,528; -15,876; -17,134; -18,502; -20,666; -22,213. - Direct investment, net (millions): 3,146; 3,060; 3,701; 4,275; 4,240; 4,293; 4,704; 5,305; 5,718; 6,206. - Borrowing (millions): 4,754; 9,131; 9,329; 9,272; 10,619; 11,325; 12,303; 13,572; 15,291; 16,844. - Use of IMF credit (millions): 294; 554; 275; 1,039; -184; -69; -138; -231; -277; -278. - Table 5 (Monetary Survey) and Table 6 (Financial Soundness Indicators) present banking system liquidity, credit, and capitalization indicators, including: - Broad money (levels and percent changes): broad money series include 21,779; 21,266; 22,324; 24,263; 25,174; 26,147; 26,393; 28,390 (millions, with percent changes such as 8.8; -2.4; 5.0; 8.7; 12.8; 7.8; 4.8; 7.6). - Credit to the private sector (percent change): 3.7; 3.3; 1.9; 6.5; 6.2; 6.7; 6.4; 6.5. - Risk-adjusted capital ratio (percent): 16.7; 17.5; 16.8; 16.5; 17.7; 18.6; 19.1 (by year). - Nonperforming loans to total loans (percent): 2.1; 2.4; 2.5; 2.3; 2.1; 2.0; 2.1. _Italic source: IMF staff calculations and estimates as presented in the provided PDF content._ ### Annex I. Sovereign Risk and Debt Sustainability Assessment ### Annex I. Sovereign Risk and Debt Sustainability Assessment ### Risk assessment summary - Overall: Low - Near term: 1/ (not published in some cases; note on applicability) - Medium term: Low - Long term: Low - Fanchart: Moderate - GFN: Moderate - Stress test: (indicated) - Mechanical signal: low for a third year albeit sensitive to changes in the assumptions. - Final assessment: Informed by mechanical signals and scenarios that postpone debt reduction and generate higher financing needs; these higher financing needs could be comfortably met from domestic sources and regional partners. - Sustainability assessment 2/: Sustainable with high probability Notes (as presented in the source): - 1/ The near-term assessment is not applicable in cases where there is a disbursing IMF arrangement. In surveillance-only cases or in cases with precautionary IMF arrangements, the near-term assessment is performed but not published. - 2/ A debt sustainability assessment is optional for surveillance-only cases and mandatory in cases where there is a Fund arrangement. The mechanical signal of the debt sustainability assessment is deleted before publication. In surveillance-only cases or cases with IMF arrangements with normal access, the qualifier indicating probability of sustainable debt ("with high probability" or "but not with high probability") is deleted before publication. ### DSA summary assessment — projections and key metrics - Under the baseline, public debt is assessed to remain sustainable with high probability. - Public debt projections: - Projected to decline further below 60 percent of GDP in the short run. - Projected to reach 50 percent of GDP well within 10 years. - Gross financing needs: - Estimated at about 7.5 percent of GDP this year and expected to decline. - Financing composition: - Expected to come from official external sources, domestic debt, and Eurobonds. - Mitigating factors: - Available financing - A fiscal rule that responds to the debt ratio - The authorities' track record in taking corrective action - Coverage limitation: - Broader coverage beyond the central government would aid a more comprehensive assessment. - Long-term risks: - Climate-related long-term debt risks are limited. - Debt risks from aging include an alternative baseline of slower GDP growth as well as scenarios illustrating pension and healthcare pressures in the absence of further reforms. ### Debt coverage and disclosures - Chosen coverage for the DSA: central government - 1a. If central government, are non-central government entities insignificant? Yes - Subsectors captured in the baseline — Inclusion: - 1 Budgetary central government: Yes - 2 Extra budgetary funds (EBFs): No - 3 Social security funds (SSFs): No - 4 State governments: No - 5 Local governments: No - 6 Public nonfinancial corporations: No - 7 Central bank: No - 8 Other public financial corporations: No - Instrument coverage: (tabulated in source) - Accounting principles: (tabulated in source) - Debt consolidation across sectors: (color-code and holder/issuer matrix in source) ### Key numeric disclosures and comments on coverage - Basis of recording / Valuation of debt stock: <0.1% of GDP - Reporting on Intra-Government Debt Holdings: - Nonfin. pub. corp.: <0.3% of GDP - GG: expected n.a - State govt.: <0.2% of GDP - Local govt.: 5.5% of GDP - Commentary excerpt: - Coverage is of the central government due to data timeliness and quality concerns for the broader public sector. - General government consolidated debt is lower than that for the central government alone partly on account of social security fund holdings of government securities. - The authorities are improving data timeliness, quality, and coverage including by adopting GFSM2014 standards and accrual methods to the general government. - Consolidated GG debt reported in source: 46% of GDP *Source: Fund staff.* ### 2023. Consolidated PS debt 57%. ### 2023. Consolidated PS debt 57%. ### Public debt structure indicators - Perimeter shown is central government. - Currency & deposits (CPS): 6.5% of GDP. - Residual maturity: 8.3 years. - Debt by currency projection (Percent of GDP): timeline markers shown for 2015–2033 with series for Foreign currency and Local currency (figures visual). - Public debt by holder (Percent of GDP): categories shown include External private creditors, External official creditors, Domestic other creditors, Domestic commercial banks (visual series for 2015–2021 and 2023). - Public debt by governing law, 2024 (percent): categories shown include Domestic law, Foreign law ex. multilateral, Multilateral (visual). - Debt by instruments (Percent of GDP): Marketable debt vs Nonmarketable debt (visual). - Debt by maturity (Percent of GDP): categories ≤ 1 year, 1-5 years, > 5 years (visual). Commentary: - Consistent with the Medium-term Debt Strategy, the authorities are expected to continue to benefit from multilateral funding in the short term. - The authorities returned to the Eurobond market in 2023 and have conditional legislative approval for further issuance. ### Baseline scenario (Figure 4) — key projections and contributions - Public debt (Percent of GDP) actual and projected: - Actual 2024: 59.8 - 2025: 59.7 - 2026: 59.0 - 2027: 57.9 - 2028: 56.7 - 2029: 55.3 - 2030: 53.7 - 2031: 52.2 - 2032: 50.7 - 2033: 49.3 - 2034: 47.8 - Change in public debt (Percent of GDP) series: - 2024: -1.4 - 2025: -0.1 - 2026: -0.7 - 2027: -1.1 - 2028: -1.2 - 2029: -1.4 - 2030: -1.6 - 2031: -1.5 - 2032: -1.5 - 2033: -1.5 - 2034: -1.4 - Contribution of identified flows (Percent of GDP): series shows -1.7, 0.1, -0.6, -1.0, -1.1, -1.3, -1.5, -1.5, -1.5, -1.4, -1.4 (annual sequence corresponding to projection horizon). - Primary deficit (Percent of GDP) series: - 2024: -1.1 - 2025: -1.3 - 2026: -1.5 - 2027: -1.6 - 2028: -1.6 - 2029: -1.7 - 2030: -1.7 - 2031: -1.7 - 2032: -1.7 - 2033: -1.6 - Noninterest revenues (Percent of GDP): 15.1 reported repeatedly across projections. - Noninterest expenditures (Percent of GDP): 14.0, 13.8, 13.7, 13.6, 13.6, 13.5, 13.5, 13.5, 13.5, 13.5. - Automatic debt dynamics (Percent of GDP) series: 1.1, 1.2, 0.8, 0.5, 0.4, 0.3, 0.1, 0.2, 0.2, 0.2. - Real interest rate and relative inflation contributions (Percent of GDP) series: 4.3, 3.1, 2.8, 2.5, 2.4, 2.2, 2.0, 2.0, 1.9, 1.8, 1.8. - Real interest rate (percent) series: 4.8, 2.9, 2.5, 2.3, 2.1, 2.0, 1.8, 1.7, 1.7, 1.6, 1.6. - Relative inflation series: -0.5, 0.2, 0.3, 0.3, 0.2, 0.2, 0.2, 0.2, 0.2, 0.2. - Real growth rate (percent) series: -2.5, -2.0, -2.0, -2.0, -2.0, -1.9, -1.9, -1.7, -1.7, -1.6, -1.5. - Other identified flows series: -1.7, 0.2, 0.1, 0.1, 0.1, 0.1, 0.0, 0.0, 0.0, 0.0. - Contingent liabilities: 0.0 across projections. - (minus) Interest Revenues: 0.0 across projections. - Other transactions series: -1.7, 0.2, 0.1, 0.1, 0.1, 0.0, 0.0, 0.0, 0.0. - Contribution of residual: -0.3, 0.0, 0.0, 0.0, 0.0, 0.0, 0.0, 0.0, 0.0, 0.0. - Gross financing needs (Percent of GDP) series: - 2024: 9.4 - 2025: 7.7 - 2026: 7.3 - 2027: 6.2 - 2028: 6.8 - 2029: 7.0 - 2030: 6.7 - 2031: 6.7 - 2032: 6.1 - 2033: 5.7 - 2034: 6.5 - Of which debt service (Percent of GDP) series: - 2024: 10.5 - 2025: 9.1 - 2026: 8.8 - 2027: 7.8 - 2028: 8.3 - 2029: 8.7 - 2030: 8.3 - 2031: 7.8 - 2032: 7.3 - 2033: 8.2 - 2034: 8.4 - Local currency debt service (Percent of GDP): 7.4, 5.9, 6.3, 5.2, 6.5, 5.9, 6.3, 6.0, 5.4, 6.2, 6.4. - Foreign currency debt service (Percent of GDP): 3.1, 3.2, 2.5, 2.6, 1.8, 2.7, 2.1, 1.8, 1.9, 2.0, 2.0. Memo: - Real GDP growth (percent) series: 4.3, 3.4, 3.4, 3.5, 3.5, 3.5, 3.5, 3.4, 3.3, 3.3, 3.2. - Inflation (GDP deflator; percent) series: 0.0, 3.0, 3.0, 3.2, 3.2, 3.1, 3.2, 3.2, 3.2, 3.2. - Nominal GDP growth (percent) series: 4.4, 6.5, 6.7, 6.8, 6.8, 6.8, 6.8, 6.6, 6.6, 6.5, 6.5. - Effective interest rate (percent) series: 8.3, 8.1, 7.7, 7.7, 7.3, 7.1, 6.8, 6.6, 6.6, 6.5, 6.5. Commentary: - Fiscal consolidation, a stronger currency, and strong GDP growth have significantly reduced debt since 2021. - In 2024, debt reduction was driven by use of cash buffers (1% of GDP) and centralization of cash holdings in the Treasury Single Account (0.7%), which reduced financing needs. - Looking ahead, a reduction in debt is expected to be supported by lower interest payments and a rising primary balance. - In the short run, a moderate rise in cash balances is assumed. - Although further centralization of cash balances, which would reduce debt, is likely, the projections prudently exclude this dynamic. ### Medium-term risk assessment (Figure 5) — indicators and outcomes - Debt fanchart module: - Fanchart width (percent of GDP): 49.1 0.7 (percent of GDP). - Probability of debt non-stabilization (percent): 7.5 0.1. - Terminal debt-to-GDP x2: 7.6 0.6. - Debt fanchart index (DFI): 1.37. - Risk signal: 3/Moderate. - Gross Financing Needs (Percent of GDP) module: - Average baseline GFN (percent of GDP): 7.0 2.4. - Initial Banks' claims on the gen. govt (pct bank assets): 9.9 3.2. - Change in banks' claims in stress (pct banks' assets): 7.9 2.6. - GFN financeability index (GFI): 8.2. - Risk signal: 4/Moderate. - Medium-term index components and values: - Debt fanchart index: 1.4 - GFN finaceability index: 8.2 - Medium-term index: presented visually; final assessment: Prob. of missed crisis, 2025-2030, if stress not predicted: 9.1 pct. - Prob. of false alarms, 2025-2030, if stress predicted: 45.5 pct. - Contingent liability test: - Extreme scenario: central government becomes liable for the entire 8.5 percent of GDP disputed claim by the CCSS and pays this evenly over each of four years starting in 2026. - Result: Shock would postpone further debt reduction but not increase GFNs as much as the default stress scenario. - Natural disaster shock: - Fiscal cost: 2.3 percent of GDP and a 0.7 percent of GDP reduction (contextual note in figure). Commentary: - The MTI has declined and remains slightly below the low-risk threshold. - The fanchart estimates risks, including those from forecast uncertainty, to be moderate. - The GFN module indicates lower risks than for comparators. ### Realism of baseline assumptions (Figure 6) - Forecast track record and comparator group: Emerging Markets, Non-Commodity Exporter, Program. - Realism analysis finds no major concerns. - Drivers and expectations: - Improvement in the primary balance is underpinned by implementation track record and the MTFF. - The spread is expected to be lower than before due to large use of more favorable multilateral financing sources and less pressure on local markets. - A lower share of multilateral finance is expected to increase the spread over the medium term. - GDP growth projections are in line with recent averages, implied fiscal multipliers, and potential growth estimates. - Laubach (2009) rule note: assumed bond spreads increase by about 4 bps in response to a 1 ppt increase in the projected debt-to-GDP ratio (context for implied spread). ### Long-term risk assessment: Large amortization including custom scenario (Figure 7) - Key long-term assumption snapshots: - Variable — 2030 | 2034 to 2038 average | Custom Scenario - Real GDP growth: 3.5% | 3.2% | 2.9% - Primary Balance-to-GDP ratio: 1.7% | 1.5% | 1.3% - Real depreciation: -2.3% | -2.3% | -2.3% - Inflation (GDP deflator): 3.2% | 3.2% | 3.2% - Interpretation: - Staff's baseline (custom scenario) has a primary balance averaging 1.3 percent of GDP over the long term. - GDP growth slows, mainly due to a declining labor force, to about 2.5 percent in 2050 (textual projection). - Declining debt and GFN paths and overall risk indication are consistent with a low overall long-term risk. ### Demographics: Pensions (Figure 8) - Pension financing results (illustrative effects): - Permanent adjustment needed in the pension system to keep pension assets positive for: 30 years | 50 years | Until 2100 (visual markers). - Permanent adjustment magnitudes shown: 1.1%, 2.7%, 4.3% (pp of GDP per year). - Commentary: - Modelled demographic pressures run down assets by 2036 (in line with the MTFF but sooner than a new actuarial study), generating fiscal pressures and debt risks. - Results are not forecasts but illustrate the need for parametric changes. - Indexation to inflation instead of wages and linking retirement age to life expectancy could reduce costs by 2 percent of GDP by 2050. ### Demographics: Health (Figure 9) — summary - Healthcare modules estimate aging-driven fiscal pressures using CCSS spending data. - Scenario: higher spending per capita by 0.6 percent per year suggests contingent fiscal pressures that could prevent sustained declines in debt. ### Climate change: Adaptation (Figure 10) - Standardized climate adaptation costs added: - 0.3 percent of GDP in 2030-2034 and 0.1 percent of GDP in the long term. - Effect: - These adaptations have a small effect on debt and financing needs under the assumption that investment cancels any negative impact of climate change on growth. ### Climate change: Mitigation (Figure 11) - Customized mitigation scenario based on National Decarbonization Plan: - Costing: 0.3 percent of GDP per year for a decade. - Fuel revenue losses: a permanent 0.1 percent of GDP per year. - Effect: - Small effect on GFN-to-GDP Ratio and Total Public Debt-to-GDP Ratio relative to baseline. ### Decomposition of public debt and debt service by creditor, 2024-2026 (Table 1) — selected figures - Total public debt (end of period, US$) 2024: 57,373.8 (100.0% of total; 60.2% of GDP). - Debt service (In US$) memo lines present 2024, 2025, 2026 debt service columns (visual table). - External debt (US$): 15,283.1 (26.6% of total debt; 16.0% of GDP). - Multilateral creditors total (US$): 7,128.0 (12.4% of total; 7.5% of GDP). - IMF: 2,518.3 (4.4% of total; 2.6% of GDP). - World Bank: 1,504.8 (2.6% of total; 1.6% of GDP). - ADB/AfDB/IADB: 1,921.4 (3.3% of total; 2.0% of GDP). - Other Multilaterals: 1,183.4 (2.1% of total; 1.2% of GDP). - Bonds (external) (US$): 7,500.0 (13.1% of total; 7.9% of GDP). - Domestic debt (US$): 42,090.7 (73.4% of total; 44.1% of GDP). - Held by residents, total: 41,857.9 (73.0% of total; 43.9% of GDP). - Held by non-residents, total: 232.8 (0.4% of total; 0.2% of GDP). - T-Bills / Bonds (domestic) listed: 42,004.2 (73.2% of total; 44.0% of GDP). - Loans (domestic): 86.6 (0.2% of total; 0.1% of GDP). - Contingent liabilities (US$): 9,491.0 (16.5% of total; 10.0% of GDP). - Public guarantees: 844.8 (1.5% of total; 0.9% of GDP). - Other explicit contingent liabilities: 8,646.3 (15.1% of total; 9.1% of GDP). - Nominal GDP (US$): 95,365.0 (100.0% reference) with projections shown visually for 2024–2026: 95,365.0 | 102,590.6 | 108,600.1. Notes (selected from table footnotes): - Debt service figures reflect budgetary execution, which is not forecast beyond the current year at the creditor level. - Multilateral creditors classification described as institutions with more than one official shareholder and may not align with other IMF policies. - Collateralized debt definitions and distinctions (related vs unrelated) provided. - Includes other one-off guarantees and other explicit contingent liabilities not elsewhere classified. *Source: IMF staff estimates and projections (figures and tables reproduced from the chapter).* ### Annex II . External Debt Sustainability Assessment ### Annex II . External Debt Sustainability Assessment ### Recent trends and assessment - External debt fell from 50.7 percent of GDP in 2022 to 42 percent in 2024, driven by a higher current account balance, robust economic growth, and an appreciation of the domestic currency. - External debt is assessed to be sustainable with high probability under the Sovereign Risk and Debt Sustainability Framework. - Costa Rica has shown very strong debt management and an excellent track-record of meeting its financial obligations. ### Baseline projections and key statistics - External debt is expected to stabilize at around 44.5 percent of GDP in the medium term, which would still be below the pre-pandemic baseline. - Baseline: External debt (selected years, in percent of GDP) - 2020: 49.6 - 2021: 48.6 - 2022: 50.7 - 2023: 43.3 - 2024: 42.0 - 2025: 42.1 - 2026: 43.3 - 2027: 44.0 - 2028: 44.4 - 2029: 44.6 - 2030: 44.7 - Change in external debt (selected years) - 2020: 1.8 - 2021: -1.0 - 2022: 2.1 - 2023: -7.4 - 2024: -1.4 - 2025: 0.2 - 2026: 1.2 - 2027: 0.7 - 2028: 0.4 - 2029: 0.3 - 2030: 0.0 - Identified external debt-creating flows (4+8+9) (selected years) - 2020: -0.1 - 2021: -3.8 - 2022: -4.3 - 2023: -13.2 - 2024: -7.3 - 2025: -3.9 - 2026: -3.6 - 2027: -4.1 - 2028: -4.4 - 2029: -4.4 - 2030: -4.5 - Gross external financing need (in billions of US dollars) - 2020: 5.5 - 2021: 7.2 - 2022: 7.0 - 2023: 8.7 - 2024: 9.6 - 2025: 10.8 - 2026: 10.8 - 2027: 11.4 - 2028: 12.6 - 2029: 14.4 - 2030: 15.8 - External debt-to-exports ratio (in percent) (selected years) - 2020: 154.8 - 2021: 133.7 - 2022: 119.5 - 2023: 111.3 - 2024: 108.8 - 2025: 114.8 - 2026: 116.7 - 2027: 114.4 - 2028: 111.7 - 2029: 108.2 - 2030: 102.9 ### Scenario outcomes and stress tests - In the scenarios for growth, current account, and combined shocks, external debt increases to about 47-48 percent of GDP in the medium term. - In the unlikely scenario of a 30 percent currency depreciation, external debt increases to about 66 percent of GDP. - Figure summary (selected scenario averages, external debt in percent of GDP): - Historical (ten-year average): 54 - Baseline: 45 (presented in figures) - Interest rate shock: 45.4 (figure), Baseline 44.6 (figure) - Growth shock: 47 (figure), Baseline 45 (figure) - Non-interest current account shock: 47 (figure), Baseline 45 (figure) - Combined shock: 48 (figure), Baseline 45 (figure) - Real depreciation shock (one-time real depreciation of 30 percent in 2026): 66 (figure), Baseline 45 (figure) ### Adverse scenario and implications for external financing - The adverse scenario considers weaker trading partner growth, commodity price uncertainty, and tighter financial conditions that slow global economic activity and worsen Costa Rica’s external position. - Under the adverse scenario: - Nominal GDP growth in 2025: -1.5 percent (compared with 7.6 percent in the baseline for 2025). - Current account deficit widens from about 1.4 percent of GDP in 2024 to about 4.3 percent of GDP in 2025 and 3.2 percent of GDP in 2026. - International reserves would fall by US$ 4.7 billion to US$ 9.5 billion, covering around 70 percent of the external financing needs, while still remaining close to 90 percent of the ARA metric (float). - To cover the remaining US$ 2.5 billion financing gap under the adverse scenario in 2025, authorities are expected to draw the full amount of the proposed FCL arrangement (about US$ 1.5 billion) and from the Latin American Reserve Fund (FLAR, for about US$ 1 billion). - Adverse scenario: Total external debt (in percent of GDP) (selected years) - 2023: 43.3 - 2024: 42.0 - 2025: 48.1 - 2026: 48.6 - 2027: 47.8 - 2028: 46.4 - 2029: 44.6 - 2030: 44.2 - Under the adverse scenario, public external debt (in percent of GDP) (selected years) - 2023: 20.0 - 2024: 18.1 - 2025: 20.7 - 2026: 20.8 - 2027: 19.6 - 2028: 17.7 - 2029: 15.3 - 2030: 13.9 ### Key macroeconomic assumptions underlying the baseline projections - Real GDP growth (in percent) (selected years) - 2020: -4.3 - 2021: 7.9 - 2022: 4.6 - 2023: 5.1 - 2024: 4.3 - 2025–2030 (each year): 3.5 - GDP deflator in US dollars (change in percent) (selected years) - 2020: 1.2 - 2021: -3.5 - 2022: 2.0 - 2023: 18.9 - 2024: 5.7 - 2025: 2.9 - 2026: 6.2 - 2027: 4.0 - 2028: 2.3 - 2029: 2.4 - 2030: 2.5 - Nominal external interest rate (in percent) (selected years) - 2020: 3.4 - 2021: 3.2 - 2022: 4.3 - 2023: 5.2 - 2024: 5.6 - 2025: 3.8 - 2026: 0.9 - 2027: 4.1 - 2028: 4.1 - 2029: 4.2 - 2030: 4.1 - Growth of exports (US dollar terms, in percent) (selected years) - 2020: -12.2 - 2021: 18.2 - 2022: 24.5 - 2023: 14.6 - 2024: 9.2 - 2025: 8.7 - 2026: 9.8 - 2027: 2.4 - 2028: 6.9 - 2029: 10.0 - 2030: 9.5 - Growth of imports (US dollar terms, in percent) (selected years) - 2020: -13.6 - 2021: 25.2 - 2022: 23.5 - 2023: 4.9 - 2024: 7.2 - 2025: 6.3 - 2026: 11.4 - 2027: 5.3 - 2028: 10.3 - 2029: 9.6 - 2030: 10.1 - Current account balance, excluding interest payments (in percent of GDP) (selected years) - 2020: 0.7 - 2021: -1.7 - 2022: -1.3 - 2023: 0.7 - 2024: 0.9 - 2025: -0.7 - 2026: 1.2 - 2027: -0.2 - 2028: -0.3 - 2029: 0.1 - 2030: 0.2 ### Policy implications and Fund financing context - The proposed two-year FCL arrangement would be in the amount of SDR 1.1082 billion (300 percent of quota, equivalent to about US$ 1.46 billion). - The authorities intend to treat the FCL arrangement as precautionary; staff’s baseline projection envisages no purchase. - The full amount of access would be available throughout the arrangement period, in one or multiple purchases. - In the adverse scenario analyzed, authorities are expected to draw the full amount of the proposed FCL arrangement (about US$ 1.5 billion) to cover part of a US$ 2.5 billion financing gap in 2025, with the remainder covered by the Latin American Reserve Fund (FLAR, about US$ 1 billion). *Source: Annex II . External Debt Sustainability Assessment, IMF staff estimates and Costa Rican authorities.* ### 8. If the full amount available under the proposed FCL arrangement were purchased in a ### 8. If the full amount available under the proposed FCL arrangement were purchased in a downside scenario, Costa Rica’s capacity to repay would remain adequate ### Adverse scenario projections - Assumes full drawing of the FCL in June 2025. - External debt: - External debt is projected to peak at 48.6 percent of GDP in 2026. - Public external debt is projected to peak at 20.8 percent of GDP in 2026. - Outstanding Fund credit (GRA and RST): - GRA credit outstanding would reach 3.3 percent of GDP at its peak in 2025. - GRA credit at peak in 2025 is equivalent to 33 percent of gross international reserves and 16.1 percent of total public external debt. - Total outstanding Fund credit (GRA and RST) would reach 4.1 percent of GDP at its peak in 2025, equivalent to 40.8 percent of gross international reserves and 19.9 percent of total public external debt. - Relative comparisons: - Costa Rica’s overall external debt-to-GDP and public external debt-to-GDP ratios at the time of approval would be below the median of previously approved exceptional access cases and FCL arrangements. - Peak total Fund exposure relative to GDP and total external debt would remain below the median of recent exceptional access and FCL arrangements; peak Fund exposure relative to gross international reserves would slightly exceed the median of the same program sample. ### Projected Fund credit levels, quota metrics, and charges (assuming full drawing) - GRA credit outstanding: - Would reach about 635 percent of quota in 2025. - About 621 percent of quota in 2026. - About 593 percent of quota in 2027. - 472 percent of quota in 2028. - Total credit outstanding (GRA and RST): - 785 percent of quota in 2026. - Continue to decline until reaching zero in 2044. - Payments of GRA charges (if fully drawn in 2025): - 22.1 percent of quota in 2025. - 30.9 percent of quota in 2026. - 30.5 percent of quota in 2027. - 28.1 percent of quota in 2028. - Peak projected obligations to the Fund under the adverse scenario: - Peak in 2029 at about SDR 0.85 billion. - Equivalent to 0.9 percent of GDP, 2.2 percent of exports of goods and services, 7.7 percent of international reserves, and 5.9 percent of central government revenue. - Projected obligations decline to more moderate levels by 2033. - Peak debt service to the Fund as shares: - Peak debt service to the Fund as a share of exports of goods and services and as share of total external debt service would be significantly lower than the median of recent exceptional access cases. ### Fund liquidity and concentration impacts - Forward Commitment Capacity (FCC): - Current FCC (As of April 22, 2025): 162,013 (SDR millions). - FCC on approval (current FCC minus access under proposed FCL plus remaining access under current FCL): 160,905 (SDR millions). - Change in percent: -0.7. - Approval of the proposed FCL (SDR 1.1082 billion) will decrease the FCC by 0.7 percent. - Fund exposure to Costa Rica (as of April 30, 2025; with full drawing by end-2025): - GRA exposure as of April 30, 2025 before drawing: SDR 1,330 million, around 360 percent of quota. - If fully drawn, GRA Fund credit to Costa Rica would reach SDR 2,346 million or 635 percent of quota by end-2025. - Total Fund exposure (GRA and RST) as of April 30, 2025 before drawing: SDR 1,884 million, around 510 percent of quota. - If fully drawn, total Fund credit to Costa Rica would reach SDR 2,900 million or 785 percent of quota by end-2025. - Relative GRA credit concentration and precautionary balances: - With full drawing, Costa Rica’s GRA credit outstanding would represent about 2.6 percent of the Fund’s total GRA credit outstanding as of April 22, 2025 (compared to about 1.4 percent without drawing). - Costa Rica would become the seventh largest GRA borrower among current arrangements (twelfth without the FCL drawing). - Concentration of Fund credit in the top five users would decline modestly from 78.1 percent to about 77.2 percent of total GRA credit outstanding. - Potential GRA exposure to Costa Rica would amount to 9 percent of the Fund’s current precautionary balances. - Regional and instrument concentration: - Western Hemisphere share of GRA credit and undrawn balances currently: about 62.5 percent; with proposed FCL would edge up to about 62.8 percent. - Commitments under FCL arrangements as of April 22, 2025: SDR 46.8 billion, about 47.2 percent of total GRA commitments. - With proposed FCL for Costa Rica, share of FCL commitments in total would rise to about 47.8 percent. ### Capacity-to-repay metrics, prudential measures, and risk assessment - Capacity-to-repay indicators note: - Total external debt from 2024 onwards is marginally lower under the adverse scenario than under the baseline because the adverse scenario assumes more limited market access, resulting in significantly lower rollover rates of both the public and private sectors in 2024 than in the baseline. - Costa Rica is expected to fully repay its RFI by end 2025. - Capacity to Repay metrics account for Fund credit and obligations under all current and past arrangements—including a previous EFF with credit still outstanding, the RSF, and the proposed FCL (assumed fully drawn under the adverse scenario). - Prudential measures (assuming full FCL drawing): - Fund credit to Costa Rica in percent of total GRA credit outstanding: 2.6. - Fund credit to Costa Rica in percent of current precautionary balances: 9.0. - Fund credit outstanding to five largest debtors in percent of total GRA credit outstanding, before approval: 78.1; including Costa Rica’s assumed full drawing: 77.2. - Current precautionary balances (As of January 31, 2025): 26,970 (SDR millions). - Total FCL commitments, including proposed FCL arrangement: 47,896 (SDR millions). - Quota of FTP members with actual and proposed FCLs, in percent of total quota of FTP members: 2.7 (As of 4/22/25). - Assessment: - The proposed FCL arrangement would have a manageable impact on the Fund’s overall liquidity position, reducing it marginally. - The approval of an FCL arrangement in the amount of SDR 1.1082 billion, which the authorities intend for precautionary use, will decrease the FCC by 0.7 percent. - Fund’s overall liquidity position is expected to remain adequate after approval, but close monitoring is warranted given elevated risks to global growth and financial stability. - Staff considers the proposed FCL arrangement carries moderate credit risks to the Fund. - If fully drawn, the arrangement would increase Costa Rica’s GRA credit outstanding to 2.6 percent of total Fund GRA credit outstanding and make Costa Rica the seventh largest GRA borrower among current arrangements, with a credit exposure accounting for 9 percent of the current level of precautionary balances. - Risk mitigants cited: - Costa Rica plans to treat the FCL arrangement as precautionary. - Even if fully drawn, Costa Rica’s capacity to repay the Fund would remain adequate (Table 3). - Costa Rica has very strong policy frameworks and a sustained track record of implementing very strong policies, including during the recently completed Extended Fund Facility program. - Authorities plan to implement additional reforms and to closely cooperate with the Fund. - A review to confirm continued qualification for the FCL instrument will be conducted 12 months after the approval of the arrangement. *Source: IMF staff report content provided in the content unit.* ### Annex I. History of IMF Arrangements with Costa Rica ### Annex I. History of IMF Arrangements with Costa Rica ### Recent IMF engagement and financing facilities - 2020: Rapid Financing Instrument (RFI) with a disbursement of SDR 369 million (equivalent to 100 percent of its quota). - 2021: Extended Fund Facility (EFF) arrangement—approved amount SDR 1,237 million (335 percent of quota); the authorities drew the complete approved amount. The program was successfully completed in June 2024. - 2022: Resilience and Sustainability Facility (RSF) arrangement of SDR 554 million (150 percent of quota). The arrangement was completed in June 2024 and all resources were disbursed. - Collective impact: These programs supported successive administrations in extending a track record of economic reforms, while reinforcing macroeconomic fundamentals and institutional capacity. ### Historical Stand-By Arrangements and crisis support - Early 1990s: Three consecutive Stand-By Arrangements—in 1991, 1993, and 1995—to support stabilization, fiscal consolidation, inflation control, and structural reforms including trade liberalization and financial sector development. - 2009: 15-month Stand-By Arrangement amounting to SDR 492 million (about 300 percent of quota) provided in the context of the Global Financial Crisis. The authorities treated the SBA as precautionary and did not draw on the available resources; the arrangement served as a policy anchor to preserve fiscal and financial stability and sustain investor confidence. ### IMF financial arrangements, 1990–2025 (table entries as presented) - Source: Finance Department. 1/ As of 22 April, 2025 - 1991 Stand-By Arrangement 8-Apr-91 30-Sep-92 3440 260 - 1993 Stand-By Arrangement 19-Apr-93 18-Feb-94 2118 00 - 1995 Stand-By Arrangement 29-Nov-95 28-Feb-97 5244 00 - 2009 Stand-By Arrangement 11-Apr-09 10-Jul-10 4923 0000 - 2020 Rapid Financing Instrument 29-Apr-20 15-Sep-20 3691 0036992 - 2021 Extended Fund Facility 1-Mar-21 18-Jun-24 1237 33512371237 - 2022 Resilience and Sustainability Facility 14-Nov-22 18-Jun-24 5541 5054554 - Amount of New Arrangement ### Statement of authorities: key policy positions, rationale, and request - Appreciation and acknowledgements: - Authorities thank staff for close and constructive engagement on the FCL request and express appreciation to departing Mission Chief, Mr. Ding, his team, and Mr. Chensavasdijai for onboarding. - Authorities thank Management for their support. - Assessment of recent policy track record: - The report recognizes Costa Rica’s remarkable reform track record, including becoming a member of the OECD and two successfully completed IMF-supported programs. - Authorities highlight historically low poverty and unemployment rates, continued efforts to safeguard debt sustainability, a public debt-to-GDP ratio on a firm downward trend, and proactive monetary policy to contain inflation pressures. - Vulnerabilities and rationale for precautionary support: - Costa Rica is a small and open economy highly vulnerable to external shocks (sudden increases in commodity prices—mainly oil; highly restrictive external financial conditions; drastic drops in external demand) with direct adverse implications for the balance of payments. - Given its precautionary nature, the FCL allows for proactive risk management from a favorable position, aiming to mitigate adverse effects from potential external shocks, help build buffers, and maintain confidence in the economy. - Request specifics: - The authorities requested a two-year FCL with access to Costa Rica’s 300 percent of quota, or SDR 1.1082 billion. - The authorities intend to treat the FCL arrangement as precautionary support for existing financial buffers. - Qualification and commitments: - Costa Rica meets all the qualification criteria for the FCL. All nine qualification criteria are met. - Authorities commit to continue the ongoing reform agenda to further enhance economic stability and resilience and ensure inclusive growth; effort extends beyond BCCR and Ministry of Finance to the entire government. - Medium-term reform strategy complemented by short-term policy adjustments is emphasized as essential. - Institutional and fiscal commitments: - BCCR will continue efforts to strengthen autonomy, governance, and operational framework via legislative proposals already in Congress to improve governance, transparency, accountability, and to institutionalize the central bank’s de facto autonomy. - Fiscal authorities will maintain efforts to safeguard debt sustainability following the medium-term fiscal framework, MTFF, to ensure the debt-to-GDP ratio remains on a clear downward path. - Access level justification and scenarios: - The requested access level of 300 percent of quota is appropriate: it responds to an assessment of external risks while considering buffers built in recent years. - Access above 200 percent of quota is justified by the recent increase in external risks. - In an adverse scenario (as stated by staff), the drawdown of international reserves would leave reserve coverage above 80 percent (assuming the FCL is fully drawn). - Capacity to repay the Fund would remain adequate even in an adverse scenario. - If global risks decline, the authorities would consider requesting reduced access. - Policy framework to be maintained: - Authorities remain committed to operative inflation targeting with a flexible exchange rate, an adequate level of international reserves, sound fiscal policy anchored by a fiscal rule and MTFF, and robust regulation and supervision of the financial system. - Strategic view of IMF engagement: - In a more challenging and volatile international environment, the authorities consider the Fund’s precautionary toolkit increasingly important and view the FCL as reinforcing market confidence in Costa Rica’s policy framework. *Annex I. History of IMF Arrangements with Costa Rica* --- _Source: https://www.imf.org/-/media/files/publications/cr/2025/english/1criea2025002-print-pdf.pdf_