Press Release No. 24/112

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

April 12, 2024

• The Costa Rican authorities and IMF staff reached a staff-level agreement on the completion of the sixth review of the authorities’ reform program supported by the IMF’s Extended Fund Facility (EFF) and the third review under the Resilience and Sustainability Facility (RSF) Arrangement. The IMF’s Executive Board will consider these final reviews under the respective arrangements in the coming months.
• The Costa Rican authorities continue to perform strongly under their homegrown economic reform program. All performance criteria have been met and the authorities are loosening monetary policy to help inflation rise toward the Central Bank’s target. A bill to improve bank resolution and deposit insurance and the creation of a social assistance single window for IMAS’s social programs are among key recent reforms. The authorities have completed all the RSF reform measures targeted under this review.
• Having strengthened their policy frameworks and track record, the authorities agreed that it is critical to entrench the impressive performance of the past three years supported by the Fund and for reform momentum to continue.

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 1-12, 2024, for the sixth review of the economic reform program supported by the Extended Fund Facility (EFF) and the third assessment of reform measures under the Resilience and Sustainability (RSF) arrangement. Subject to approval by the IMF Executive Board, the completion of the sixth review under the EFF will make available SDR 206.23 million (approximately US$ 270 million), while the completion of programmed reform measures under the RSF will make available SDR 184.70 million (approximately US$ 240 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 sixth review under the EFF and the third review under the RSF. The agreement is subject to approval by the IMF Executive Board. The completion of the review will mark the successful conclusion of an ambitious, multi-year, multi-dimensional reform program supported by IMF resources.

“IMF staff expect real GDP growth to remain robust at 4 percent this year. Headline inflation has been rising, albeit unevenly, and staff projects it will reach the lower end of the Central Bank of Costa Rica (BCCR)’s tolerance range (2-4 percent) around the end of this year.

“The Central Bank has demonstrated a successful track record of data-dependent, forward-looking policymaking. Having appropriately started easing monetary policy as soon as inflationary pressures receded, the BCCR should continue its prudent return to a neutral monetary policy stance in the coming months. The exchange rate should be allowed to move flexibly in response to market conditions and with FX reserves at comfortable levels, Central Bank intervention in the FX market should be limited to responding to disorderly market conditions. The authorities remain committed to institutionalizing the BCCR’s autonomy as well as clarifying its mandate and decision-making processes.

“The supervisory authorities have proactively enhanced their toolkits to strengthen financial sector resilience. Approval of the recently submitted bill to amend the bank resolution and deposit insurance framework would help strengthen the financial safety net including by improving the promptness and efficiency of the resolution process.

“The end-2023 fiscal targets under the program were met with a comfortable margin, the authorities are expected to increase the primary balance this year, and debt is on track to fall below 60 percent of GDP by end-2025. Fiscal consolidation through spending restraint continues to appropriately prioritize debt reduction, the reduction of interest payments, and the creation of space for additional social spending. However, capital spending unfortunately continues to be under executed. Adherence to the fiscal rule and maintenance of its broad spending coverage reinforce credibility in fiscal policy’s track record. A structural reform of the income tax would make the system more equitable and efficient. However, legislative reforms that erode revenues should be avoided. Following significant progress and considerable effort, it is critical for the public employment bill to be fully implemented by all institutions covered by the law.

“Robust growth has supported wage increases and job creation particularly in the formal sector. Formal employment will be promoted by reduced social security contributions for more part time workers, a strengthened childcare network, and the implementation of the education roadmap. Poverty has decreased but is still high, which underscores the importance of ongoing improvements to the social safety net.

“In support of their ambitious climate change adaptation and mitigation agenda, the authorities completed all the reform measures foreseen for this review under the RSF arrangement, as was the case for both previous RSF reviews. The authorities are committed to building on these reform measures with the support of more private and official climate financing. With IDB support, the authorities are strengthening the legal and regulatory framework for public-private partnerships in Costa Rica, which is an important step toward the establishment of a Project Preparation Facility. 

“The EFF arrangement has supported reforms that have solidified economic fundamentals, strengthened institutional frameworks, and built a track record of good policies. With the arrangements coming to an end in July, the IMF will continue a close engagement to support Costa Rica’s reform efforts including through regular surveillance activities and capacity development.

“The IMF team is grateful to the Costa Rican authorities and other counterparts for the productive discussions and hospitality during the mission.”