The World Bank In Costa Rica

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 stable growth has resulted in one of the lowest poverty rates in Latin America and the Caribbean, where the proportion of the population living below the World Bank’s upper middle-income line (US$6.85 per person per day in 2017 Purchasing Power Parity - PPP) decreased from 15.6 to 13.7 % 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. However, two key challenges persisted.

Poverty rates are particularly high among vulnerable groups such as Afro-descendants, Indigenous populations, and migrants. The global pandemic deepened these challenges, with the poverty rate (2017 PPP) increasing from 13.7 % in 2019 to 19.9 % in 2020. In 2023, as labor market conditions improved and real household per-capita labor income recovered, poverty declined to 12.7 % below pre-pandemic levels. 

After moderating to 4.6 % in 2022, growth surpassed expectations, reaching 5.1 % in 2023, bolstered by robust domestic and external demand. Inflationary pressures subsided in the first half of 2023. Amid global uncertainty and a slowdown in key trading partners, the projection is 3.9 % in 2024, and then growth is expected to moderate to 3.7 % in 2025 and 2026. 

Costa Rica's high susceptibility to external shocks, such as global inflationary pressures, dampened global growth, and tightening financial conditions, could pose challenges. Climate vulnerabilities, exacerbated by phenomena like El Niño, compound these uncertainties and could disproportionately impact the poor. Additionally, recent surges in migration and perceived criminality could increase expenditure demands, potentially impeding the pace of fiscal consolidation.

Addressing Costa Rica's twin challenges of inclusivity and fiscal management is crucial. Growth would need to become more inclusive across the labor force and territory, and fiscal policies should continue to support creditworthiness. Improving revenue mobilization and spending efficiency, especially in social and infrastructure sectors, is essential to reduce poverty and inequality.

Last Updated: Apr 03, 2024

The Country Partnership Framework (CPF) established by the World Bank (WB) and the Government of Costa Rica continues to foster a close partnership based on mutual learning and knowledge sharing in support of the country’s overall growth and development objectives.

The current CPF features a highly selective program that is organized around two strategic pillars:

• Reducing constraints to productive inclusion.
• Bolstering fiscal, social, and environmental resilience and sustainability.

Taking these themes into consideration, the WB is working to support the Government’s efforts to increase the efficiency of its fiscal management mechanisms, while strengthening its institutional capacity and manage its natural assets effectively, within the framework of addressing the impacts of climate change. 

Preparations for a new CPF, which will build on these efforts and reflect the analytical underpinnings of the Systematic Country Diagnostic Update (June 2023), are currently underway for the 2024-2028 period. The new CPF, which will be discussed at the WB Board of Directors on April 30, 2024, will focus on promoting broad-based, inclusive economic growth; reinforcing and preserving human capital in key sectors like healthcare, education, and social protection; and enhancing resilience to natural and social shocks and the effects of climate change. All while supporting a transition to a climate-smart economy. 

These efforts are underpinned by two cross cutting themes that guide the overall strategy’s implementation. They refer specifically to the aims of strengthening institutions, and to enhancing equity and inclusion across all the various WB interventions. This approach takes into consideration Costa Rica’s evolution as an upper middle income and OECD member country. 

As of early April 2024, the active portfolio in Costa Rica includes six operations totaling USD 1301.7 million in net commitments. It includes 4 investment projects (USD 641.7 million) and 2 development policy loans for budgetary support (USD 660 million).

Following the COVID-19 pandemic, the implementation of the Fiscal Management Improvement Project (USD 156.64 million), known as “Hacienda Digital”, which supports tax compliance and overall expenditure management capabilities, highlights how the WB has worked in partnership with Costa Rica’s authorities to strengthen the State’s capacity to respond to key challenges and consolidate recovery efforts and set the basis for sustainable growth. 

The second “Fiscal and Decarbonization Management Development Policy Loan (DPL),” totaling USD 300 million, was approved by the WB in June 2021. This operation was designed to support the Government’s program to protect people’s income and jobs from the impact of COVID-19. It looked to benefiting the sustainability of small and medium enterprises (SMEs), reinforcing the fiscal framework in the aftermath of this health crisis, and laying out the foundations for a strong post pandemic recovery by promoting green growth and low-carbon development. A third in the series of these DPL loans builds on these efforts to support Costa Rica's fiscal and decarbonization management and was approved in June 2023 totaling USD 500 million.

Two instruments aim to strengthen fiscal, social, and physical resilience against disaster and climate risks in policymaking at the sectoral and territorial levels:

• A second Disaster Risk Management Development Policy Loan with a Catastrophe Deferred Drawdown Option (Cat DDO), approved in March 2023, aiming to enhance the Government’s capacity to manage disaster risks resulting from the occurrence of natural and health-related hazards and the impacts of climate change. 
• The Climate Resilient Recovery & Territorial Development project, approved in March 2024, will work to increase access to disaster and climate-resilient infrastructure and services in selected regions while working closely to strengthen a broad level of engagement with community stakeholders. 

Costa Rica has also benefited since December 2020 from the Emission Reductions Payment Agreements with a commitment of up to USD 60 million to purchase verified reductions of 12 million tons of CO2 emissions through its emission reduction (ER) program. The Forest Carbon Partnership Facility (FCPF) already paid Costa Rica USD 16.4 million for reducing 3.28 million tons of carbon emissions during 2018 and 2019. The agreements cover the purchase of measured, reported, and verified ERs associated to reduced deforestation and forest degradation (known as REDD+), the enhancement of forest carbon stocks at the national level. The distribution of ER payments goes in accordance with an agreed Benefit Sharing Plan. 

Environmental, climate change, and disaster risk interventions have also been supported through trust funds, such as the Partnership for Carbon Market Readiness (PMR), the Nationally Determined Contribution Just-in-Time (NDC JIT), the Forest Carbon Partnership Facility, the Global Partnership for Sustainable and Resilient Landscapes (ProGreen), and the Global Facility for Disaster Reduction and Recovery (GFDRR).

In addition to these efforts, support was provided to enforce a Sustainability Protocol at the Reventazón Hydroelectric Plant of the Costa Rican Institute of Electricity, an international example that highlights how it can be possible to develop hydroelectric projects while applying the industry’s best environmental and social practices.

Regarding energy and transportation electrification, the World Bank is supporting the initiative to transition towards an energy model that optimizes the use of renewable resources. The aim is to decarbonize top emitting sectors, such as transport, through the progressive electrification and diversification of the energy matrix, in an environment that promotes greater regional integration and the opening of international energy markets.

Last Updated: Apr 03, 2024

For the benefit of the Costa Rican population, through the Program for Results project "Strengthening Universal Health Insurance", the availability and quality of the universal health insurance system, as well as the institutional efficiency of the Costa Rican Social Security Fund (CCSS), were improved. Under the project, objectives such as the reduction of waiting lists and improvements in the treatment of chronic diseases were met. For example, the goal of 43 percent of patients with type II diabetes identified and with optimal clinical control was exceeded. Improvements in colorectal cancer screening also exceeded the goal of 40 percent of the target population. In addition, expectations were exceeded in the percentage of surgeries performed on an outpatient basis (46 %). One of the greatest achievements is in the expected percentage of the total number of primary health care units equipped with the Unique Digital Health Record (90.10 % achieved). The successful implementation of a pilot of integrated health care networks is another one of the attainments of the project.

A series of five informative notes, prepared in collaboration with the CCSS, analyses the factors that drove the success of the project "Strengthening Universal Health Insurance.” It describes how challenges were tackled and key lessons learned during the design and implementation, as well as their transformative actions. The series provides a practical guide to other countries interested in implementing similar programs and can be accessed here.

Disaster Risk Management (DRM) programs have further improved Costa Rica’s preparedness to respond to disasters through risk reduction and prevention programs. The regulatory and institutional DRM framework was strengthened with the introduction of a legal framework that requires all new public investments to follow DRM best practices and include a hazards assessment. This enhanced capacity of Costa Rica to implement its DRM program was supported by the WBG’s Catastrophe Deferred Drawdown Option (CAT DDO), which provides a source of immediate liquidity in case of disasters.

In December 2020, Emission Reductions Purchase Agreements for US$60 million were signed. In August 2022, Costa Rica became the first country in Latin America and the Caribbean to receive payments from the Forest Carbon Partnership Facility (FCPF), receiving $16.4 million for reducing 3.28 million tons of carbon emissions during 2018 and 2019.

Through the Higher Education Project, Costa Rica’s public higher education system has benefitted from an improvement in access and quality. Enrollment in undergraduate programs has reached the target of more than 102,000 students, and in graduate programs, more than 7,000. The total number of officially accredited programs in the four participating universities has also surpassed the target of 106. In the area of infrastructure, more than thirty construction projects have been completed, including new schools and university buildings, research laboratories and dormitories. The benefits for the indigenous population also stand out, with the number of indigenous students enrolled in the four universities doubling between 2014 and 2017.

The World Bank also conducts research and analysis in Costa Rica. In recent years, a Poverty and Inequality Assessment stands out, which contributed to understanding the factors that explain the stagnation of the poverty rate and the increase in inequality in a context of economic growth. The report provides high-level policy recommendations, which have made it possible to prioritize areas for dialogue with the government and other actors in the country.

Other analytical work has included a case study entitled “Primary Health Care Achievements and Challenges within the Framework of the Social Health Insurance,” research series on green and inclusive growth, the working paper “A Behavioral Approach to Water Conservation,” and a gender landscape paper showcasing key indicators helpful for monitoring gender equality and designing effective policy interventions.

Last Updated: Apr 03, 2024