Central Bank of Costa Rica's expansionary stance remains appropriate: IMF

An IMF mission led by Ms. Manuela Goretti held virtual meetings during September 22 - October 6 on the first review of Costa Rica's economic program supported by a three-year arrangement under the Extended Fund Facility (EFF). Discussions will continue in coming weeks.

Ms. Goretti said, "The mission made significant progress toward a staff-level agreement for the first review of the EFF-supported program. Discussions will continue in following weeks, including during the Annual Meetings of the IMF and WB.

"The authorities' proactive response to the pandemic and positive external developments are supporting a robust economic recovery. With strong export growth and a vigorous vaccination campaign, the outlook has improved and real GDP is now projected to grow by 4.7 percent in 2021, compared to 2.6 percent at the time of the EFF request. All of the endJuly program targets were comfortably met in part due to a strong revenue performance, prudent spending, and improving market conditions.

"The authorities are on track to meet their fiscal goals under the program, buttressed by a balanced mix of expenditure rationalization-in line with the fiscal rule-and equitable revenue mobilization. Priority was given to supporting the most vulnerable and the response to the pandemic. The additional revenue measures under discussion in the Legislative Assembly are essential to keeping the authorities' program on track to achieve a primary surplus target of 1 percent of GDP by 2023 and ensure public debt-GDP is firmly put on a downward path. Legislative approval of the ambitious Public Employment Bill will be critical to strengthen the equity and efficiency of government spending.

"Monetary policy has been data-dependent and forward-looking, ensuring low and stable inflation. The Central Bank of Costa Rica's (BCCR) expansionary stance remains appropriate, given the still-subdued inflation outlook, and further monetary support to the economy could be warranted in the coming months. Continued exchange rate flexibility and fostering the development of the foreign exchange market will help facilitate effective risk management. The mission welcomed ongoing steps to further enhance the BCCR's operational autonomy and governance, proactive supervisory efforts to strengthen financial oversight, and the gradual unwinding of emergency regulatory measures that were introduced to counter the impact of COVID.

"As part of its ambitious macro-structural reform agenda, Costa Rica is pressing ahead with commendable efforts to mitigate the disproportionate impact of the pandemic on the most vulnerable, by promoting greater formalization and supporting female labor force participation. Costa Rica's ambitious policy plans to transition to a low-carbon economy, generating new economic and job opportunities, are particularly commendable.