“Costa Rica’s economy is growing at its estimated trend rate of about 4.25 percent,” said economists at the International Monetary Fund.

Their recently released report also summarized the situation as follows:

“The colón has been depreciating moderately since mid-2016, while reserves have declined despite the narrowing in the current account deficit…inflation is returning to desired levels … Financial conditions are now broadly neutral, having gradually eased in 2016, the financial system appears sound, and credit growth continues to be consistent with healthy financial deepening and macroeconomic trends.”

The report also noted with caution that, “The fiscal deficit remains high and public debt continues to rise rapidly despite the authorities’ deepened consolidation efforts in 2016. Recent advances in fiscal consolidation have been partly reversed and political consensus on a comprehensive fiscal package remains elusive.”

On June 14, 2017 the Executive Board of the International Monetary Fund (IMF) concluded bilateral discussions and consultation with Costa Rica to collect economic and financial information, and discuss with officials the country’s economic developments and policies.

Because a fiscal package is unlikely to be passed due to the upcoming presidential elections next year, the IMF predicted that the country’s economic activity would ease slightly, while inflation would revert to the target range.

In 2017, growth is anticipated to slow slightly to 4 percent, driven by weaker terms-of-trade and more stringent financial conditions and persistently high public sector financial needs, combined with rising international rates, said the IMF report.

“Potential growth will also decelerate because rising interest rates weigh on private investment. Key downside risks relate to persistently high fiscal deficits and rising public debt, the heavy dollarization of bank assets and liabilities, and a less favorable external environment, including tighter-than-expected global financial conditions, a retreat in cross-border integration, and weaker-than-projected global growth,” concluded the study.

The fund’s report recommended curtailing expenses and finding new sources of revenue given the current scenario: “It is important to administratively contain expenditure and mobilize revenue to minimize the short-term deterioration from recent constitutional court rulings expanding revenue earmarking.”

The report said a comprehensive reform strategy was needed “to achieve long-term fiscal sustainability.”

This includes “broadening the bases of the VAT and income tax as well as hikes in their rates … and also public employment and fiscal responsibility laws, would be important.”

The IMF also added that, “Structural reforms are required to maintain the country’s competitive position. Addressing weaknesses in transport infrastructure, education expenditure efficiency, and taking steps to support financial deepening would be critical to help accelerate potential growth and make it more inclusive. The successful implementation of environmental policies has buttressed the economy’s structural transformation towards higher growth services. The authorities also need to build on this by providing a legal and regulatory environment that stimulates those sectors that are more resilient to climate change.”