IMF Executive Board Approves a 36-month US$ 1.778 Billion Extended Arrangement under the Extended Fund Facility for Costa Rica and Concludes 2021 Article IV Consultation
IMF News, March 1, 2021
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- Published: March 1, 2021
Program approval and financing
- The Executive Board approved a 36-month extended arrangement under the Extended Fund Facility (EFF) for Costa Rica with access equivalent to SDR 1.23749 billion (335 percent of quota, equivalent to US$1.778 billion).
- The Board’s approval allows for an immediate disbursement equivalent to US$296.5 million.
- The EFF arrangement follows Fund emergency support to Costa Rica in April 2020 (100 percent of quota, equivalent to US$521.7 million).
- The arrangement is expected to catalyze additional bilateral and multilateral financial support.
- The Executive Board also concluded the 2021 Article IV consultation with Costa Rica.
Economic outlook and effects of the pandemic
- The pandemic has hit the economy hard, exacerbating pre-existing vulnerabilities and undermining expected yields from the 2018 fiscal reform.
- The recovery is expected to be protracted.
- The Costa Rican economy is projected to grow by 2.6 percent in 2021.
- Risks to the outlook remain elevated given the uncertainty surrounding the pandemic.
Program objectives and policy pillars
- The IMF-supported program aims to:
- support the recovery;
- secure macroeconomic stability; and
- advance the authorities’ home-grown reform agenda.
- The authorities’ policy efforts under the program will be anchored by three key pillars:
- (i) gradually implementing equitable fiscal reforms to ensure debt sustainability, while protecting the most vulnerable;
- (ii) maintaining monetary and financial stability, while continuing to strengthen the central bank’s operational autonomy and governance and addressing structural financial vulnerabilities; and
- (iii) advancing key structural reforms to promote inclusive, green, and sustainable growth.
Key policy commitments and recommendations (from Mr. Mitsuhiro Furusawa, Deputy Managing Director, and Acting Chair)
- Fiscal policy and social protection:
- Authorities are committed to achieving a primary surplus by 2023 to place debt on a downward path.
- Continue to secure adequate pandemic-related spending for 2021 and critical social and capital spending over the medium term to support growth.
- Continued strengthening of social assistance programs and implementation of reforms envisaged under the Public Employment Bill to improve the equity and efficiency of government spending.
- Other fiscal structural reforms will support the authorities’ fiscal strategy and mitigate fiscal risks.
- Monetary and financial stability:
- The monetary policy stance remains appropriately accommodative.
- Other monetary and financial sector measures have been transparent and well-targeted, providing timely support.
- Greater development of the foreign exchange market will support effective risk management and increased intermediation in local currency.
- Stepped-up monitoring and supervision will help ensure adequate bank capitalization.
- Continue strengthening the central bank’s operational autonomy and governance and address structural financial vulnerabilities.
- Structural and macro‑structural reforms:
- Implementation of an ambitious macro‑structural agenda, including promoting innovation and digitalization and fostering greater female labor force participation, to help lift potential growth and address inequality.
- Costa Rica’s role in tackling climate change remains a key pillar: ongoing efforts on climate change mitigation and adaptation can generate new jobs and support sustainable and inclusive growth.
Additional context
- The IMF noted that the authorities’ prompt response and well-established universal healthcare system have helped avoid a deeper crisis.
- The EFF builds on a broad-based dialogue and the 2018 fiscal reform.
IMF Press Release No. 21/53, March 1, 2021