Costa Rica: Economic Outline

Economic Indicators

Costa Rica is classified as an upper middle-income country, having demonstrated consistent economic growth over the last 25 years. This growth has been driven by an outward-focused approach, emphasizing openness to foreign investment and progressive trade liberalization. Following a moderation to 4.6% in 2022, growth exceeded expectations, reaching 5.1% in 2023, driven by strong domestic and external demand. Inflationary pressures eased in the first half of 2023. However, amid global uncertainties and a slowdown in key trading partners, the growth projection for 2024 is 3.9%, with further moderation expected to 3.7% in both 2025 and 2026 (World Bank).

The budget deficit had decreased over the preceding two years, aligning with the IMF-agreed program. However, it rose in 2023 due to heightened debt servicing (5.1% of GDP - Coface). It is expected to revert to its previous trend in 2024 as the government pursues fiscal consolidation. The enactment of the public employment reform passed in 2022 will facilitate reduced public spending, saving an average of 1% of GDP annually over the initial five years of implementation. Despite this, the primary surplus, excluding interest, is anticipated to surpass the IMF-defined target (1.3% of GDP) in both 2023 and 2024. Public debt, with 28% external and 38% denominated in USD, will continue on a downward trajectory. The IMF estimated it at around 63% in 2023, with a reduction to nearly 61% by 2025. According to the latest governmental figures, the general inflation recorded a cumulative variation (from January to December 2023) of -1.77%. The IMF expects inflation to gradually pick up to 1.9% this year and 3% in 2025. Costa Rica's susceptibility to external shocks, including global inflationary pressures and tightening financial conditions, presents challenges. Climate vulnerabilities, exacerbated by phenomena like El Niño, compound these uncertainties and may disproportionately affect the impoverished. Moreover, recent increases in migration and perceived criminality could elevate expenditure demands, potentially hindering fiscal consolidation efforts. Costa Rica still faces many challenges, such as unsustainable public accounts, a lack of a skilled workforce, high income inequalities, and dependency on the United States (both economically and financially). However, the country is a global leader for its environmental policies and accomplishments.

Thanks to the establishment of a welfare state 60 years ago, the country has managed to greatly reduce poverty and has some of the best social indicators in its region. Although the poverty rate is low, it increased due to the COVID-19 pandemic. Poverty rates remain notably elevated among vulnerable demographics including Afro-descendants, Indigenous populations, and migrants. The onset of the global pandemic exacerbated these disparities, with the poverty rate (2017 PPP) escalating from 13.7% in 2019 to 19.9% in 2020. However, by 2023, as labor market conditions ameliorated and real household per-capita labor income rebounded, poverty subsided to 12.7% below pre-pandemic levels. Unemployment is the government’s main economic concern, and even though rates aren't particularly high (8.5% in 2023 as per the World Bank), almost half of those who are employed work informally.

Monetary Indicators	2016	2017	2018	2019	2020
Costa Rican Colon (CRC) - Average Annual Exchange Rate For 1 GBP	735.50	730.39	769.78	734.13	749.87

Source: World Bank - Latest available data.

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Latest Update: May 2024