April 29, 2020
PRESS OFFICER: Raphael Anspach
Phone: +1 202 623-7100Email: MEDIA@IMF.org
Washington, DC – The Executive Board of the International Monetary Fund (IMF) approved Costa Rica’s request for emergency financial assistance under the Rapid Financing Instrument (RFI) equivalent to SDR 369.4 million (100 percent of quota, or about US$504 million at today’s exchange rate), to support essential COVID-19-related health spending and relief measures targeted to the most affected sectors and vulnerable populations, while catalyzing additional funding from other development partners. The RFI will help the country meet the urgent balance of payments need stemming from the COVID-19 pandemic.
Costa Rica has taken extensive and important measures to contain the pandemic since early-March—including mandatory quarantines, closures of schools, public offices, and most public spaces, reduced work hours in private sector, travel restrictions, and construction of a specialized hospital for Covid-19 treatment. These necessary containment measures, coupled with the global economic downturn, are expected to take a major toll on the economy in the short term and cause a temporary deterioration in the country’s fiscal and external positions. It is estimated that the pandemic opened a balance of payments gap of about US$1.6 billion.
To mitigate the economic impact of the pandemic, the government is appropriately implementing a temporary relaxation of spending limits under the Law on Strengthening of Public Finances. The authorities have also announced a package of fiscal measures targeted to protect the most affected economic sectors and populations. The IMF financing will help provide much-needed resources to address essential pandemic-related expenditure and support efforts to maintain social cohesion during the crisis. The authorities have maintained an accommodative monetary policy stance and a flexible exchange rate and provide liquidity into the markets, as needed.
Following the Executive Board’s discussion of Costa Rica, Mr. Mitsuhiro Furusawa, Deputy Managing Director and Acting Chair, issued the following statement:
“The COVID-19 pandemic has severely impacted Costa Rica with its large exposure to trade, tourism, and foreign direct investment. The global economic slowdown and the necessary containment measures have impacted growth and fiscal accounts and created an urgent balance of payments need. The IMF’s emergency financing under the Rapid Financing Instrument will help support urgently needed public health and social spending measures, while addressing the balance of payments need. It will also catalyze support from other multilateral agencies, which will be critical to addressing the remaining financing needs.
“The authorities have taken timely, well-targeted measures to mitigate the adverse effects of the pandemic. They introduced extensive containment measures, which have helped flatten the infection curve. To mitigate the economic and social impact of the crisis, they adopted a temporary moratorium on tax payments, social transfers to protect the most vulnerable, and monetary and regulatory measures to ease credit and liquidity conditions.
“The important and immediate medical, social, and economic needs prompted by the crisis will require higher fiscal spending and consequently a deterioration in the fiscal position in 2020, including through a temporary activation of the emergency escape clause in the fiscal rule. It will be imperative to return to the fiscal consolidation path, anchored by the 2018-fiscal reform, and reapply the fiscal rule from 2021 once the health crisis dissipates. Accompanying the rule with additional income and expenditure measures over 2021-24, along with asset sales, would be important to put debt on a sustained downward path.
“To facilitate the recovery and counter future shocks, the authorities should maintain accommodative monetary policy and exchange rate flexibility and safeguard the stability of the financial system. Implementing a wide range of structural reforms underpinned by OECD accession would boost Costa Rica’s competitiveness and resilience to future shocks.”
