IMF Executive Board Concludes 2025 Article IV Consultation with Costa Rica
May 13, 2025
Washington, DC: The Executive Board of the International Monetary Fund (IMF) completed the Article IV Consultation for Costa Rica on May 12, 2025. [1]
Costa Rica has achieved remarkable economic progress due to its very strong fundamentals, policies, and policy frameworks. GDP growth has averaged above 5 percent per year since 2021, inflation is rising toward the Banco Central de Costa Rica’s (BCCR) target of 3 percent, public debt has fallen steadily to below 60 percent of GDP, international reserves are at comfortable levels, and systemic financial stability risks are contained.
Such factors are expected to support robust growth going forward notwithstanding external headwinds. This year, growth is expected to moderate to around potential (3½ percent) and the current account deficit is expected to increase slightly to 1.8 percent of GDP, while the primary surplus is expected to rise to 1¼ percent of GDP as fiscal consolidation continues. Inflation is expected to return to the BCCR’s target in 2026.
Risks to the growth outlook have tilted to the downside while those for inflation are balanced. Weaker external demand, tighter global financial conditions, and increased policy uncertainty could reduce Costa Rica’s exports, foreign direct investment (FDI) inflows, and economic activity, but the country’s strategic location, high-value exports and economic diversification could drive continued strong growth momentum. Upside risks to inflation include strong credit growth and supply-side disruptions, but there are also downside risks, especially if inflation expectations soften.
Executive Board Assessment[2]
Executive Directors commended Costa Rica’s remarkable economic progress based on its very strong fundamentals, policies, and policy frameworks. Directors welcomed the authorities’ very strong implementation of macroeconomic policies, wide‑ranging reforms in the process of becoming an OECD member, the successful completion of IMF‑supported programs, and a strategic focus on exports and economic diversification. They praised the authorities’ commitment to continued prudent policies and structural reforms to maintain resilience amid heightened external uncertainty.
Directors welcomed the sustained decline of public debt. They stressed that the medium‑term fiscal consolidation is appropriately paced but will require spending to be kept below the ceiling permitted by the fiscal rule. Directors concurred that tax reforms should aim to increase equity, efficiency, and the revenue‑to‑GDP ratio. They stressed the importance of full implementation of the public employment law by all public institutions without delay. The disputed claim by the social security system should also be resolved comprehensively, including by clarifying the central government budget’s responsibility, coupled with improvements in the registries of beneficiaries and the system’s governance and accountability. Directors also supported reforms to debt management to increase flexibility in issuing external debt.
Directors commended BCCR’s forward‑looking data‑dependent approach to monetary policy, which has proven effective. They concurred that there is scope to cut the policy rate if the convergence of inflation to the BCCR’s target weakens in the coming months. They also underscored the importance of passing legislation to further improve the BCCR’s governance, transparency, and accountability, and to institutionalize its de facto autonomy. Directors recommended that the exchange rate should be allowed to flexibly adjust to market conditions, limiting foreign exchange intervention to addressing market volatility.
Directors stressed that indicators of financial soundness remain comfortable, yet the resolution of small non‑bank financial institutions last year highlights the importance of a very strong supervisory and crisis management framework. They underscored the importance of passing the proposed amendments to the bank resolution and deposit insurance law. Directors also called for close monitoring of risks related to the rise in FX lending.
Directors welcomed the authorities’ efforts to advance supply‑side reforms to help sustain Costa Rica’s impressive economic performance. Reducing skills mismatches, enhancing infrastructure quality, and implementing legislation on public‑private partnerships would further strengthen potential growth. Better integrating climate considerations into public investment decisions will make infrastructure more resilient against natural disasters.
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Costa Rica: Selected Economic Indicators
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[1] Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board .
[2] At the conclusion of the discussion, the Managing Director, as Chair of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here: http://www.IMF.org/external/np/sec/misc/qualifiers.htm .
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