Press Release No. 23/130

IMF Reaches Staff-Level Agreement with Costa Rica on the Fourth Review of the Extended Fund Facility and the First Assessment of the Resilience and Sustainability Facility Arrangement

April 28, 2023

• The Costa Rican authorities and IMF staff reached a staff-level agreement on the completion of the fourth review of the authorities’ reform program supported by the IMF’s Extended Fund Facility (EFF) and the first assessment of reform measures under the Resilience and Sustainability Facility (RSF) Arrangement. The IMF’s Executive Board will consider the review in the coming months.
• The Costa Rican authorities continue to move forward with their comprehensive economic reform program. Performance under the program has been strong, and all quantitative targets have been met. There was broad agreement that the overall policy stance should remain focused on durably bringing inflation back to target and keeping public debt on a firm downward path. This would help protect the poor—who are worst affected by high inflation—and could be achieved while still expanding targeted support for the most vulnerable.
• Reforms are being pursued to make the tax system fairer and more efficient, to strengthen social protection, to reduce labor market informality, and to empower women. The authorities are also pressing ahead with an ambitious agenda to green the economy.

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.”