By: The International Monetary Fund
March 2, 2021
The IMF Executive Board approved today a 36-month US$1.778 billion arrangement under the Extended Fund Facility (EFF) to help support Costa Rica’s recovery and stabilize its economy.
The home-grown program supported by the IMF focuses on implementing equitable fiscal reforms to ensure debt sustainability, while protecting the most vulnerable.
Looking ahead, the government’s reform agenda is designed to help promote inclusive and sustainable growth, including through innovative digitalization, climate-change mitigation and resilience building.
The Executive Board of the International Monetary Fund (IMF) approved today a 36-month extended arrangement under the Extended Fund Facility (EFF) for Costa Rica, with access equivalent to SDR 1.23749 billion (335 percent of quota, equivalent to US$1.778 billion). The Board’s approval allows for an immediate disbursement equivalent to US$296.5 million. The EFF arrangement follows Fund emergency support to Costa Rica in April 2020 (100 percent of quota, equivalent to US$521.7 million). The arrangement is expected to catalyze additional bilateral and multilateral financial support.
The Executive Board also concluded the 2021 Article IV consultation[1] with Costa Rica on the same day.
Costa Rica has made important strides in recent years in its fiscal and structural reform agenda as part of the OECD accession process. However, the pandemic has hit the economy hard and exacerbated pre-existing vulnerabilities, undermining the expected yields from the ambitious fiscal reform launched in late 2018 and generating a sizable financing gap. While the authorities’ prompt response and well-established universal healthcare system have helped avoid a deeper crisis, the recovery is expected to be protracted, with the Costa Rican economy projected to grow by 2.6 percent in 2021. Moreover, risks to the outlook remain elevated given the uncertainty surrounding the pandemic.
In addition to supporting the recovery, the IMF-supported program aims at securing macroeconomic stability and advancing the authorities’ home-grown reform agenda. The authorities’ policy efforts under the program will be anchored by three key pillars: (i) gradually implementing equitable fiscal reforms to ensure debt sustainability, while protecting the most vulnerable ; (ii) maintaining monetary and financial stability, while continuing to strengthen the central bank’s operational autonomy and governance and addressing structural financial vulnerabilities; and (iii) advancing key structural reforms to promote inclusive, green, and sustainable growth.
Following the Executive Board discussion on Costa Rica, Mr. Mitsuhiro Furusawa, Deputy Managing Director, and Acting Chair, issued the following statement:
“The Costa Rican authorities have responded promptly to the COVID-19 shock, helping avoid a deeper crisis. However, the socio-economic impact of the pandemic has been sizable, weakening its fiscal position and generating a large financing gap.
“Against this backdrop, the IMF’s Extended Fund Facility will support the authorities’ home-grown program aimed at securing macroeconomic stability, supporting a gradual recovery, and advancing the reform agenda.
“Building on a broad-based dialogue and the 2018 fiscal reform, the authorities are committed to achieving a primary surplus by 2023 to place debt on a downward path, while continuing to secure adequate pandemic-related spending for 2021 and critical social and capital spending over the medium term to support growth. Continued strengthening of social assistance programs and implementation of the reforms envisaged under the ambitious Public Employment Bill will also be critical to improve the equity and efficiency of government spending. Other fiscal structural reforms will support the authorities’ fiscal strategy and mitigate fiscal risks.
“The monetary policy stance remains appropriately accommodative, while other monetary and financial sector measures have been transparent and well-targeted, providing timely support. Going forward, greater development of the foreign exchange market will support effective risk management and increased intermediation in local currency, while stepped-up monitoring and supervision will help ensure adequate bank capitalization.
“Implementation of the authorities’ ambitious macro‑structural agenda, including by promoting innovation and digitalization and fostering greater female labor force participation, will help lift potential growth, address inequality, and deliver broad-based improvements in living standards that benefit all Costa Ricans.
“Costa Rica’s pioneer role in tackling climate change remains a key pillar of the authorities’ macro-structural agenda. Ongoing efforts on climate change mitigation and adaptation can generate important opportunities for new jobs as well as sustainable and inclusive growth.”
[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.