IMF Staff Completes Virtual Visit to Costa Rica and Reaches Staff-Level Agreement

F.P. Report

Washington, DC: An International Monetary Fund (IMF) mission led by Ms. Manuela Goretti held virtual meetings with the Costa Rican authorities during February 22-March 3, 2022. The mission was a continuation of discussions held in October 2021. At the end of the virtual visit, Ms. Goretti issued the following statement:

“The IMF team reached agreement at the staff level with the Costa Rican authorities on the policy measures necessary to complete the first and second reviews under the economic reform program supported by the three-year Extended Fund Facility (EFF) arrangement. The IMF’s Executive Board is expected to consider the case in the coming weeks.

“The authorities have made important progress under their economic program. The end-December 2021 targets were comfortably met. The Legislative Assembly approved the Public Employment Bill, representing an important step forward to improve the equity and efficiency of the public administration. Significant actions have also been taken to strengthen social safety nets and improve tax compliance.

“A proactive response to the pandemic, including a vigorous vaccination campaign, and sustained export performance have supported a robust recovery in Costa Rica. Nonetheless, the threat of new COVID variants as well as higher global commodity prices and tighter global financial conditions, including from rising geo-political tensions, pose downside risks to Costa Rica’s economic outlook.

“The fiscal position has been bolstered by revenue mobilization efforts, improved tax administration, and prudent spending under the fiscal rule even as more resources have been allocated to support the vulnerable and respond to the pandemic. Nevertheless, further efforts are needed to improve the tax system to make it more equitable, supporting a balanced reduction of the fiscal deficit and ensuring a more sustainable path for public debt over the medium term.

“The Central Bank of Costa Rica’s (BCCR) ongoing withdrawal of monetary accommodation is warranted given the rise in inflation and in inflationary risks. In the current uncertain external environment, BCCR’s data-dependent and forward-looking approach to monetary policy, focused on ensuring low and stable inflation as its primary objective, will be even more critical. Continued clear and transparent communication and exchange rate flexibility will support these efforts. Ongoing steps to enhance the central bank law will further underscore the BCCR’s operational autonomy and governance.

“The financial system has shown resilience throughout the pandemic due to a supportive monetary policy as well as a proactive approach to monitoring risks, running stress tests, and updating contingency plans. Basel III requirements are being phased in a systematic way, giving banks adequate time to adjust to the new regime. Additional efforts to enhance the crisis management framework and incentivize de-dollarization will further benefit the financial system.

“The pandemic has brought inequality challenges to the forefront. Ongoing efforts to support the most vulnerable, incentivize formal employment, pursue women’s economic empowerment, increase digitalization, and transition to a lower carbon economic model will be instrumental to achieving an inclusive and green economy that creates high quality jobs for all Costa Ricans.

“The IMF team is grateful to the Costa Rican authorities and other interlocutors for the candid and constructive discussions.”