In many aspects, Costa Rica is a success story in terms of development. It is considered an upper middle-income country, which has shown a steady economic growth over the past 25 years. This growth resulted from an outward- oriented strategy, based on the openness to foreign investment and gradual trade liberalization.
Costa Rica is also a global leader for its environmental policies and accomplishments, which have helped the country build its Green Trademark. The pioneering Payments for Environmental Services (PES) program has been successful in promoting forest and biodiversity conservation; making Costa Rica the only tropical country in the world to have reversed deforestation.
The combination of political stability, social contract and steady growth has resulted in one of the lowest poverty rates in Latin America and the Caribbean, where the proportion of the population with incomes below US$ 5.5 per person per day decreased slightly from 12.9 to 10.6 percent between 2010 and 2019.
The success of the country in recent decades is also reflected in its strong indicators of human development, which have contributed to move the country up the global ranks, higher than the other countries in the region.
While these achievements are celebrated, the country faces economic and social challenges that have been intensified by the COVID-19 (Coronavirus) pandemic which has hit hard Costa Rica.
Despite Costa Rica’s strong health system and timely crisis response, the pandemic had a heavy toll on its economy. Gross Domestic Product (GDP) contracted 4.1 percent in 2020, the largest drop in four decades, driven by sharp declines in investment and private consumption. One out of five workers were unemployed by Q4 2020. Despite strong mitigation efforts, incomes of the bottom 40 percent declined 15 percent last year and an estimated 124,000 people fell into poverty, lifting the poverty rate to 13 percent in 2020. The crisis also interrupted Costa Rica’s incipient fiscal consolidation built on important reforms in 2018 and 2019. Additional spending needed to respond to the crisis, combined to a sharp decline in revenues, resulted in 8.5 percent of GDP deficit, and the recession pushed the debt-to-GDP ratio to 67.4 percent by end-2020
The GDP is projected to recover by 3.8 percent in 2021, reaching pre-pandemic level by end-year. Growth is expected to remain strong in 2022 and then gradually converge to its potential (around 3 percent). Continued progress with respect to vaccination in Costa Rica and worldwide will support a gradual recovery of tourism and related jobs and exports. The government is expected to implement its fiscal consolidation plan over the medium term. Improvements in the labor market are expected to lead to a gradual decline in poverty rates over the coming years.
In this context, two pressing development challenges stand out: the fiscal situation and persistent inequality. These challenges affect the basic pillars of the Costa Rican development model: inclusion, growth, and sustainability.
The government has strived to address these problems and is committed to an inclusive society that guarantees the welfare of its people, supported by transparent and accountable public institutions.
Last Updated: Oct 06, 2021