San José, Costa Rica:
An International Monetary Fund (IMF) team led by Mr. Ding Ding held virtual
and in-person meetings with the Costa Rican authorities during April 17-28,
2023, for the fourth review of the economic reform program supported by the
Extended Fund Facility (EFF) and the first assessment of reform measures
under the Resilience and Sustainability (RSF) arrangement. Subject to
approval by the IMF Executive Board, the completion of the fourth review
under the EFF will make available SDR 206.23 million (approximately US$ 277.8 million), while the completion of
programmed reform measures under the RSF will make available SDR 184.70
million (approximately US$ 248.8 million).
At the conclusion of the mission, Mr. Ding issued the following statement:
“The Costa Rican authorities and IMF staff have reached a staff-level
agreement on the completion of the fourth review under the EFF and the
first review under the RSF. The agreement is subject to approval by the IMF
Executive Board, contingent on the implementation of a prior action by the
authorities linked to implementing the public employment law.
“Real GDP growth is expected to moderate to 3.0 percent this year. Headline
inflation has been on a steady downward path and is projected to be within
the Central Bank of Costa Rica (BCCR)’s tolerance range around the target
later this year. Core inflation is also declining but at a slower pace.
“The BCCR’s data-dependent, forward-looking approach, supported by clear
and transparent communications, has helped anchor inflation expectations
around the target. The BCCR has taken steps to rebuild international
reserves and is allowing the exchange rate to be determined by market
conditions. The authorities also plan to implement changes to deepen
liquidity in the foreign currency market, while remaining committed to
strengthening the BCCR’s autonomy, governance, and operational framework.
“It is important for the supervisory authorities to continue monitoring
proactively the financial system to anticipate potential sources of stress,
including from a growth slowdown or tighter financial conditions. The
planned legal amendments on the bank resolution and deposit insurance
framework will help strengthen the financial safety net.
“The end-2022 fiscal targets under the program were met with a comfortable
margin and the authorities are on track to exceed their end-2023 target for
the primary balance. There is scope to modify the fiscal rule by redefining
the institutional coverage while preserving fiscal discipline. Draft
legislation considered by the authorities will help make the tax system
more progressive, equitable, efficient, and friendly to the environment.
“The implementation of the public employment bill will make the current
fragmented public salary system more equitable and efficient. Substantial
progress has been made but full implementation of the legislation is taking
longer than expected. The authorities see this reform as critical and have
committed to produce a single wage spine for at least one quarter of job
positions in the executive branch of government by end-May, in line with
the authorities’ timeline for full implementation of the public employment
bill.
“Improvements are underway to the targeting, coverage, timeliness, and
efficiency of social programs by improving the digital registry of social
benefit recipients and introducing a new single window for social
assistance benefits. Steps are also being taken to incentivize formal
employment, support female labor force participation, and improve the
business climate.
“The authorities are pressing ahead with their ambitious agenda to green
the economy and have completed all the reform measures foreseen for this
review under the RSF arrangement. The authorities are also intensifying
their efforts to attract climate financing from both official lenders and
from the private sector.
“The IMF team is grateful to the Costa Rican authorities and other
counterparts for the productive discussions and hospitality during the
mission.”