Costa Rica: Post Financing Assessment-Press Release; and Staff Report

This paper discusses Costa Rica’s Post Financing Assessment. Growth has exceeded 4 percent so far in 2024 and is expected to moderate to 3 1/2 percent in 2025. Costa Rica successfully completed its Extended Fund Facility and Resilience and Sustainability arrangements in June. Growth remains robust, inflation continues to converge to the central bank’s target from below, and international reserves are ample. Discussions centered on further enhancing economic and climate resilience, capitalizing on Costa Rica’s economic fundamentals and institutions, and sustaining the policy track record that has been demonstrated over the past several years. Fiscal consolidation should be anchored on reducing spending in nonpriority areas and bolstering revenues while allowing for some increase in social spending. The fiscal stance should be centered on adhering to the fiscal rule and medium-term fiscal framework. The recent intervention and resolution of two small, nonbank financial institutions underscores the importance of the authorities’ plans to strengthen the frameworks for bank resolution and deposit insurance. Progress in a range of supply side areas will be important to raise potential growth and mitigate the effects of climate change.