March 10, 2026Costa Rica: Staff Concluding Statement of the 2026 Article IV Mission

March 10, 2026

A Concluding Statement describes the preliminary findings of IMF staff at the end of an official staff visit (or 'mission'), in most cases to a member country. Missions are undertaken as part of regular (usually annual) consultations under Article IV of the IMF's Articles of Agreement, in the context of a request to use IMF resources (borrow from the IMF), as part of discussions of staff monitored programs, or as part of other staff monitoring of economic developments.

San José: An International Monetary Fund (IMF) staff team, led by Mr. Varapat Chensavasdijai, visited San José during February 25-March 9, 2026 for the 2026 Article IV consultation. At the conclusion of the mission, Mr. Chensavasdijai issued the following statement:

Growth momentum continues to be strong. Real GDP growth was estimated at 4.6 percent in 2025, driven by robust goods exports, notably from the free trade zones. Growth is projected to slow to 3.8 percent in 2026, as the effects of tariffs and the closure of several key businesses operating in the free trade zones more-than-offset rising investment and strong export performance. The current account deficit narrowed to 0.7 percent of GDP in 2025, while strong FDI flows helped to bolster international reserves.

Risks to the outlook are tilted to the downside and stem mainly from heightened global uncertainty. Rising geopolitical tensions, protectionism and trade disruptions, elevated policy uncertainty, and higher interest rates could fuel commodity price volatility, slow export growth and FDI flows, raise external borrowing costs, and ultimately dampen growth prospects. Domestically, worsening crime could weigh heavily on tourism, investment, and consumption demand. On the upside, new trade agreements could boost investment, exports and growth.

Inflation remains persistently low and below the BCCR's 3 percent target. Headline inflation fell to -2.7 percent (y/y) in February 2026, marking the tenth consecutive month of deflation and 34 months below the BCCR's 2-4 percent tolerance range, mainly due to lower prices of food, fuel, and most services and the colón appreciation. Core inflation dropped to 0 percent (y/y) and one-year-ahead inflation expectations have declined to historical lows. There are also downside risks to inflation stemming from weakening demand although the potential for higher commodity prices (particularly for oil) could push inflation up.

Further monetary easing is needed to support a return of inflation and inflation expectations to target. With the real policy rate now further above IMF staff estimates of the neutral level, additional rate cuts would support domestic demand and prevent inflation and inflation expectations getting stuck below the central bank's target range. Continued efforts to reduce dollarization and market frictions and modernize central bank communications would strengthen monetary policy transmission. Given adequate international reserves, further reserve accumulation is unnecessary, and central bank foreign exchange intervention should be limited to episodes of disorderly market conditions.

Preserving credibility of the inflation targeting (IT) framework is essential to maintaining well-anchored inflation expectations and effective monetary policy transmission. The BCCR's ongoing review of the IT framework should continue to be supported by robust analytical foundations with clear communication on the economic rationales for all decisions reached, and informed by international experience and public consultations with the central bank's main stakeholders. In addition, passing legislation to strengthen the BCCR's governance, transparency, and accountability, and to institutionalize its de facto autonomy, would be an important step toward reinforcing the credibility and effectiveness of monetary policy.

Systemic financial stability risks are contained with comfortable capital and liquidity buffers. Risk-based supervision (RBS) is largely in place, reflecting important progress in strengthening financial sector oversight and fostering a more risk-focused supervisory culture. Further embedding RBS in supervisory practice-particularly in areas such as operational resilience and cybersecurity risks-alongside deeper, data-driven engagement with financial institutions, would help preserve resilience amid evolving risks. Swift approval of the new bank resolution and deposit insurance framework would enhance crisis management and depositor protection. Reinforcing macroprudential tools would mitigate pockets of potential vulnerability (e.g., in ). Adopting a clear regulatory framework for fintech firms and digital assets in line with international best practices would further capitalize recent gains in financial inclusion and innovation and increase competition, while enhancing consumer protection and reducing financial stability risks.

Reforms to the defined-contribution pension funds would improve their rates of return. Gradually relaxing the current regulatory limits on pension funds' foreign investments would help to diversify pension funds' assets, supported by ongoing efforts to deepen the FX market. Legislative proposals that permit early withdrawals from the pension system should be avoided, given the potential adverse macroeconomic and financial effects.

Fiscal policy is expected to be constrained by the parameters under the fiscal rule. The fiscal rule has been instrumental in ensuring fiscal discipline, while improvements in tax administration and technological enhancements have already started to bear fruit. Further, full implementation of the Public Employment Law is expected to contain growth in non-interest expenditure over time. Fiscal space has, though, been diminished by policy changes that have eroded the tax base. With central government debt above 60 percent of GDP in 2025, in part due to the accumulation of cash buffers to meet upcoming debt repayments in the first quarter of 2026, both current and capital expenditure growth are expected to be constrained in 2027.

There is a need for revenue-enhancing tax policy changes and debt management reforms. A tax reform that reduces tax expenditures, introduces a single rate for corporate income, increases the progressivity of the personal income tax, and implements the feebate scheme based on vehicle emissions could raise revenue to support higher productive spending on capital investment, education, security, healthcare, and targeted social transfers. Passing the constitutional reform to permit external debt issuance by the executive branch within the overall borrowing limit approved by the Legislative Assembly during the budget process would improve debt management and help to reduce borrowing costs.

Comprehensive reforms to the Caja Costarricense de Seguro Social (CCSS) are necessary to ensure the financial sustainability of the social security system and address fiscal risks. The reserves of the Régimen de Invalidez, Vejez y Muerte (IVM) pension system and the Seguro de Enfermedad y Maternidad, (SEM) health insurance scheme are insufficient to meet the long-term demands placed on the system by demographic pressures and high operational costs. Parametric reforms, which avoid significant increases in already-high social contribution and payroll tax rates, would address the actuarial imbalance in the pension system. Investments in primary care, improvements in preventive services, and measures to reduce healthcare costs would strengthen the SEM's financial sustainability. Efforts are needed to resolve the CCSS' claims on the central government. Clarifying the scope and nature of benefits and services financed by the central government and the legal framework governing these arrangements would improve transparency and help avoid such disputes in the future. Advances in implementation of International Public Sector Accounting Standards (IPSAS) within the CCSS represent an important step to make further progress on resolving the claims on the central government.

Supply-side reforms to remove structural bottlenecks could unlock untapped potential and lift medium-term growth. Increasing female labor participation will require efforts to alleviate the child and elderly care burden. Better targeting the dual vocational education and training program to market needs will help reduce skills gaps. Investments in law enforcement, improvements in inter-agency cooperation, and the expansion of programs to divert young people from criminal activities could reduce the homicide rate and mitigate the impacts on tourism and private consumption and investment. Approval of the proposed public-private partnership law would allow for better prioritization, selection, structuring, and monitoring of infrastructure projects and support higher private investment to close infrastructure gaps, including in transportation and logistics capacity. This would also accelerate export growth and diversification beyond the free trade zones. Finding opportunities to create closer R&D linkages between domestic firms and multinational corporations and continuing to remove regulatory bottlenecks would raise productivity. Finally, there is scope to build on Costa Rica's relative strength in artificial intelligence (AI) preparedness to expand AI use across the public and private sector and further improve competitiveness.

The IMF team would like to thank the authorities and other counterparts in Costa Rica for their warm hospitality and the constructive discussions during the mission.

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