IMF Executive Board Concludes 2026 Article IV Consultation and Mid-Term Review Under the Flexible Credit Line Arrangement with Costa Rica

Washington, DC: On May 29, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation[1] and the mid-term review under the Flexible Credit Line (FCL) arrangement with Costa Rica, which was approved on June 2, 2025 (see PR25/173). The authorities have consented to the publication of the Staff Report prepared for this consultation.[2]

Costa Rica continues to withstand well the effects of external shocks as it now faces new uncertainties linked to the Middle East war. Real GDP growth reached 4.6 percent in 2025, supported by robust goods exports, notably from the free trade zones. International reserves have risen to record levels, bolstered by a narrowing of the current account deficit and solid FDI inflows. However, inflation has been persistently low, with eleven consecutive months of deflation and nearly three years being below the central bank’s 3 percent target. The primary surplus fell to 0.9 percent of GDP in 2025, and central government debt rose to 60.4 percent of GDP by end-2025, but this was partly due to an accumulation of cash buffers to meet debt repayments.

The medium-term outlook for Costa Rica remains favorable, but risks are titled to the downside. Growth is projected to moderate to 3.6 percent in 2026, as headwinds from higher oil prices and tariffs more-than-offset rising investment and strong export performance. Inflation is expected to return to the BCCR’s 2–4 percent tolerance band within the next eight quarters but would fall again after the oil shock dissipates. Inflation risks are tilted to the upside in the near term, but the downward trend in inflation expectations risks lower-than-target inflation becoming entrenched. Downside risks to growth stem mainly from an escalation in geopolitical tensions, greater protectionism and trade disruptions, a disorderly AI-led market correction, tighter global financial conditions, and worsening domestic crime. On the upside, new trade agreements could boost investment, exports and growth. Nonetheless, the global shock from the Middle East war represents the latest wave of external uncertainty, but with ample buffers and some policy space, Costa Rica looks well placed to contend with its economic impact.

Following the Executive Board's discussion, Mr. Bo Li, Deputy Managing Director and Acting Chair, issued the following statement:

“Costa Rica continues to weather well the effects of external shocks, with growth remaining strong in 2025, underpinned by a robust export performance. Growth is expected to moderate in 2026, due to headwinds stemming from the war in the Middle East, notwithstanding still-strong export growth and rising investment. While inflation is projected to pick up in the near term and converge toward the tolerance range, it could fall again after the oil shock dissipates. In this context, Costa Rica’s policy priorities include creating fiscal space for higher productive spending while keeping debt on a downward trajectory, bringing inflation and inflation expectations back to target in a sustained way, and advancing reforms to unlock untapped potential, increase competitiveness, boost medium-term growth, and ensure climate resilience.

“Costa Rica continues to meet the qualification criteria for the Flexible Credit Line arrangement, supported by its very strong economic fundamentals and institutional policy frameworks, and the authorities are firmly committed to maintaining their track record of implementing very strong macroeconomic policies. The authorities intend to continue to treat the arrangement as precautionary and, in line with their state-contingent exit strategy, consider the current access level to remain appropriate in light of elevated external risks and heightened global uncertainty.”

Executive Board Assessment[3]

Executive Directors commended Costa Rica’s very strong economic fundamentals and institutional policy frameworks, which have allowed the economy to withstand external shocks, and welcomed the progress on enhancing climate resilience. Directors noted that ample buffers, including access to the Flexible Credit Line (FCL), position Costa Rica well to manage spillovers from the war in the Middle East. They underscored the importance of continued prudent macroeconomic policies and structural reforms to ensure inclusive and resilient growth.

Directors commended the authorities’ fiscal discipline and encouraged continued commitment to the fiscal rule and rebuilding buffers. They underscored the importance of revenue-enhancing reforms, including tax expenditure rationalization, to create space for priority expenditure on capital investment, education, security, healthcare, and targeted social transfers. Directors also recommended reforms to ensure the financial sustainability of the pension and healthcare systems. They welcomed efforts to improve debt management and reduce borrowing costs.

Directors agreed on the need for cautious and data-dependent monetary policy and considered that a pause in monetary easing is warranted to assess the impact of the war in the Middle East on global commodity prices. They emphasized that the authorities should stand ready to lower the policy rate to ensure that inflation and inflation expectations remain anchored at the BCCR’s target. Directors encouraged efforts to strengthen monetary policy transmission and underscored the importance of enhancing central bank autonomy and governance to reinforce policy credibility and effectiveness. They also highlighted the need for exchange rate flexibility and to limit foreign exchange intervention to addressing disorderly market conditions, given adequate reserves.

Directors welcomed that systemic financial stability risks remain contained. They stressed the need to fully implement risk-based and consolidated supervision to strengthen financial oversight and to approve the new bank resolution and deposit insurance framework to enhance crisis management. Adopting a clear regulatory framework for fintech firms and digital assets would support financial inclusion and increase competition.

Directors called for supply-side reforms to boost medium-term growth. They underscored the need for policies to increase labor force participation, particularly for women, address skills mismatches, and reduce informality. Measures to close infrastructure gaps, remove regulatory bottlenecks, leverage AI, and tackle rising crime are also important.

Directors agreed that Costa Rica continues to meet the qualification criteria for the FCL, given its very strong economic fundamentals and institutional policy frameworks and its sustained track record of implementing very strong policies. They noted the authorities’ intention to continue treating the arrangement as precautionary. Directors considered that maintaining the current level of access is appropriate and acknowledged the authorities’ state-contingent exit strategy.

Costa Rica: Selected Economic and Financial Indicators

[1] Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.

[2] Under the IMF's Articles of Agreement, publication of documents that pertain to member countries is voluntary and requires the member consent. The staff report will be shortly published on the www.imf.org/costarica page.  

[3] At the conclusion of the discussion, the Managing Director, as Chair of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here: http://www.IMF.org/external/np/sec/misc/qualifiers.htm.