Journal Issue

Costa Rica: Staff Report for the 2016 Article IV Consultation–Informational Annex

International Monetary Fund. Western Hemisphere Dept.
Published Date:
May 2016
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Fund Relations

(As of February 29, 2016)

Membership Status: Joined: January 8, 1946

General Resources Account:

SDR Million% Quota
Fund holdings of currency298.0780.69
Reserve Tranche Position71.3419.31

SDR Department:

SDR Million% Allocation
Net cumulative allocation156.53100.00

Outstanding Purchases and Loans:


Latest Financial Arrangements:

TypeDate of




(SDR Million)
Amount Drawn

(SDR Million)

Projected Payments to Fund

(SDR Million; based on existing use of resources and present holdings of SDRs):


Exchange Rate Arrangement. Costa Rica’s de jure current exchange rate arrangement classification is “managed float,” (previously classified as a crawling band arrangement) while the de facto current exchange rate arrangement is classified as “stabilized.” The former was established on February 2, 2015. The central bank committed to allow the exchange rate to be freely determined by foreign currency supply and demand, but reserved the right to participate in the market in order to meet its own foreign currency requirements and those of the nonbank public sector and, at its discretion, to prevent sharp fluctuations in the exchange rate. In 2015, the exchange rate deviated less than 1 percent from its mean value against the U.S. dollar, mostly because the Central Bank maintained significant active role in exchange rate management to avert excessive volatility in light of the large financial dollarization of the financial system. Costa Rica maintains an exchange system free of restrictions on the making of payments and transfers for current international transactions.

Article IV Consultation. The last Article IV consultation was concluded on January 31, 2015 (Country Report No. 15/29).

FSAP participation and ROSCs. The FSAP took place in 2001, and was updated in 2008. A data ROSC took place in 2001 with a reassessment in 2009. A fiscal ROSC took place in 2006.

Technical Assistance.
DepartmentTime of DeliveryPurpose
STA, CAPTAC-DRNovember 2014Quarterly national accounts
Real SectorJanuary 2015Source data – quarterly construction survey
February 2015Quarterly national accounts
March 2015Financial account – flow of funds table
May 2015Quarterly national accounts
May 2015National accounts – projections with I-O tables indices
July 2015National accounts – source data (survey and directories)
August 2015Quarterly national accounts
August 2015Annual national accounts (agriculture)
December 2015Quarterly national accounts
External SectorFebruary 2015Balance of payments statistics and IIP
March 2015Topics of the financial account
August 2015Balance of payments statistics – external debt
September 2015Balance of payments and IIP statistics
MCM, CAPTAC-DRNovember 2014Macroeconomic analysis and projection
November 2014Capacity building of the division of financial stability
January 2015Building a model to analyze regional policy transmission mechanisms
January 2015Implementation of risk-based securities supervision
March 2015Improve operational framework of exchange rate policy
March 2015Minimum capital requirements for market risk
April 2015Implementation of risk-based securities supervision
April 2015Corporate governance
April 2015Capital market risk
April 2015Development model dynamic stochastic general equilibrium
May 2015Monetary and exchange rate policy
July 2015Capacity building of regional convergence analysis
July 2015Corporate governance follow-up
August 2015Bank supervision & regulations
August 2015Regulation of liquidity risk
September 2015Capacity building for financial stability analysis
September 2015Regulation and supervision of credit risk
October 2015Interest rates behavior and financial sector demand for medium-term government
November 2015Banking supervision
November 2015Regulation and supervision of credit risk
January 2016Accounting standardization
January 2016Improve capabilities for analyzing financial stability/stress testing
February 2016Macroprudential
February 2016Capacity building projection and macroeconomic analysis of BCCR
March 2016Strengthening capacities for macroeconomic analysis-Central American
March 2016Regulation and supervision of credit risk
March 2016Corporate governance – review of draft rules and laws
FAD, CAPTAC-DRNovember 2014Customs administration
January 2015Tax Administration
February 2015Tax Administration
February 2015Public financial management
February 2015Customs administration
April 2015Customs administration
April 2015Tax administration
June 2015Paper “Grado de madurez”
June 2015Customs administration
August 2015Custom administration
August 2015Strengthening the integral IVA credit
October 2015Management indicators
October 2015Customs administration
November 2015Improvement of mass audit implementation
February 2016Customs administration
March 2016Information crossed
March 2016Matrix risk construction
LEGSeptember 2014Formulate a National AML/CFT Strategy
November 2014Formulate a National AML/CFT Strategy
December 2014Formulate a National AML/CFT Strategy
March 2015Formulate a National AML/CFT Strategy
May 2015Formulate a National AML/CFT Strategy
July 2015Formulate a National AML/CFT Strategy
September 2015Deposit Insurance Scheme and Banking Resolution

Resident Representative: Mario Garza (based in Guatemala) is the regional resident representative for Central America, Panama and the Dominican Republic.

Past Fund Staff Recommendations and Implementation

2014 Article IV Staff RecommendationImplementation
Fiscal Policy
• Fiscal adjustment of 3¾ percent of GDP is needed to stabilize the debt-to-GDP ratio over the medium term below levels which are shown to pose risks for macro stability in emerging markets. In the longer-term, parametric adjustments would also be needed to remedy the actuarial imbalance of the pension system.

• Start fiscal adjustment in 2015 as a first critical step to reduce the sustainability gap, while also mitigating risks of higher inflation, widening external imbalances and possible adverse financial market reactions.
• In 2015, the new administration that came into power in mid-2014 presented tax and expenditure reform proposals to Congress that could yield about 2% percent of GDP, although none of the measures have yet obtained Congressional approval. The administration has also identified administratively-determined expenditure cuts that would yield the additional 1 percent of GDP needed to fully close the sustainability gap. The authorities have also started to take measures to remedy the actuarial imbalance of the pensions system, including the elimination of the early retirement option, and are considering raising minimum contributions and gradually raising contribution rates over the medium term.

• The new administration has maintained a broadly unchanged non-interest deficit, with efforts to restrain spending and reduce tax evasion preventing a budgeted deterioration in the primary balance of more than ½ percent of GDP in 2014-15.
Monetary and Foreign Exchange Policy
• Stand ready to raise rates if inflation does not decline to the target range once pass-through from exchange rate depreciation in the first half of 2014 is completed.

• Allow more XR flexibility to help establish inflation as the undisputed monetary anchor, as well as to discourage dollarization. Take advantage of current absence of pressures on the exchange rate to abandon the XR band. Continued FX intervention to reduce volatility and strengthen the NIR position can be warranted as long as inflation target is not jeopardized. Improve transparency of the FX-intervention-rule.
• Inflation declined sharply to -1¼ percent toward the end of 2015, from almost 6 percent a year earlier, driven by low oil prices. The authorities reacted by adopting an appropriately accommodative stance with policy rate cuts of 350 basis points to 1¾ percent. The central bank took advantage of the fall in inflation to lower the target range to 2-4 percent, in line with average inflation of trading partners.

• The authorities removed the XR band in early 2015 in line with Fund advice, while maintaining their FX intervention policy, including an undisclosed rule to dampen volatility and a general policy of preventing excessive deviations from fundamentals.

• A lower current account deficit from lower oil prices, continued Eurobond issuance, resilient FDI, and increase net foreign bank liabilities resulted in strong reserve accumulation during 2015, in line with the authorities’ FX purchase program, while the exchange rate remained stable.
Financial Sector
• Implementation of the 2008 FSAP recommendations should be accelerated.

• The authorities should strive to introduce risk-based supervision and improve supervision of cross-border financial operations. Existing capital quality should be firmed up and liquidity and capital requirements increased in line with Basel III standards.

• Reduce vulnerabilities stemming from currency mismatches in the private sector and high bank net foreign liabilities.
• Progress on introducing FSAP recommendations has been mixed. Critical legislation to enhance consolidated supervision and strengthen bank resolution remains to be approved.

• Measures have been enacted to move towards full implementation of risk-based supervision. Basel III Liquidity Coverage Ratio was introduced in 2015.

• Capital risk-weightings on FX loans to unhedged borrowers have been increased, and reserve requirements were extended to medium- and long-term foreign bank borrowing (in addition to the existing requirement on short-term foreign borrowing). Additional measures are currently under consideration, including: (i) stricter provisioning on FX loans to unhedged borrowers and household debt with income-to-debt service ratios above 30 percent; (ii) counter-cyclical provisioning; and (iii) higher risk-weightings for household mortgages with high loan-to-value and income-to-debt service ratios.

Relations with the World Bank and Bank-Fund Collaboration Under the Joint Management Action Plan (JMAP)

1. The IMF’s Costa Rica team led by Mr. Figliuoli (mission chief) has met on various occasions with the World Bank’s Costa Rica team led by Mr. Calvo-Gonzalez (lead economist and PREM sector leader) to discuss macroeconomic challenges, identify macro-critical structural reforms, and coordinate the two teams’ work.

2. The teams agreed that Costa Rica’s main macroeconomic challenges are to safeguard fiscal sustainability, increase the effectiveness of monetary policy, maintain financial sector stability and enhance competitiveness.

3. Based on the shared assessment of macroeconomic challenges, the teams identified four structural reform areas as macro-critical:

  • Fiscal consolidation. The fiscal consolidation strategy should comprise both revenue and expenditure components, with a slant towards revenue enhancement. The adjustment plan laid out by the authorities is appropriate, but full implementation is critical. Key elements include raising revenues through fiscal reforms already submitted to Congress that adequately focus on broadening the base for the VAT, increasing VAT rates and marginal income tax rates on high earners, with an additional sizeable contribution from mostly administratively-determined measures aimed at gradually reducing expenditures as a share of GDP.

  • Monetary policy framework. The transition to inflation targeting and greater exchange rate flexibility should be accelerated in order to lock in low inflation achieved in recently years.

  • Financial sector stability. Progress has been made in adopting risk-based financial supervision. Looking ahead, approval of legislation on consolidated supervision, deposit insurance and banking resolution will be critical to bring the regulatory framework up to international best practices.

  • Productivity. The country is making progress in addressing issues of universal coverage and quality in secondary education, and is seeking to develop its scientific and technological capabilities, which would help maintain Costa Rica’s growth of knowledge-intensive exports. There is also strong commitment to improving the business environment and removing burdensome red tape. Given the sizable investments required to upgrade infrastructure and the tight fiscal situation, the government is seeking to create the institutional conditions to engage the private sector in financing, construction and management of infrastructure projects (public-private partnerships), though these will require vigilance to avoid undue contingent liabilities.

4. The teams agreed the following division of labor:

  • Fiscal consolidation. The IMF (the Fund) will continue to provide policy recommendations on macro-fiscal issues, including the overall strategy of fiscal consolidation and the tax reform. The World Bank (the Bank) will seek opportunities to provide technical assistance to support the use of public-private partnerships as a vehicle to finance key infrastructure projects. The government also requested assistance to improve financial management, service delivery, and sustainability of its social security system.

  • Monetary policy framework. The Fund will continue to provide policy recommendations regarding the transition to inflation targeting and a more flexible exchange rate regime.

  • Financial sector stability. The Bank and the Fund will cooperate as necessary in assisting the country in implementing the FSAP recommendations. The authorities have requested an FSAP update for next fiscal year.

  • Productivity. The Bank will continue to provide policy recommendations in key areas. In terms of lending, the government is being supported by a project in higher education (approved in September 2012), a catastrophe draw down deferred option (approved in March 2009) and a health operation (approved in March 2016). The government has also requested technical assistance from IFC Advisory services to improve the investment climate.

5. The teams have the following requests for information from their counterparts:

  • The Fund team requests to be kept informed of progress in the above macro-critical structural reform areas. Timing: when milestones are reached (and at least semi-annually).

  • The Bank team requests to be kept informed of the Fund’s assessments of macroeconomic policies and prospects. Timing: when milestones are reached (and at least semi-annually).

6. The table below lists the teams’ separate and joint work programs for 2015.

Table 1.World Bank and IMF Planned Activities in Macro-Critical Structural Reform Areas
TitleProductsProvisional Timing of MissionsExpected Delivery Date
World Bank Work ProgramGood Practices in Development Finance

Fiscal Management in Central America AAA (P151829)
May 2016Completed (final delivery March 2016)

Final delivery

December 2016
IMF Work ProgramStaff visit

Regional Conference

Technical assistance:

National Accounts and Price Statistics

Monetary and FX Operations

Banking Supervision and Regulation

Fiscal Revenue and Expenditure Management
November, 2016 November, 2016

November, 2016 November, 2016

7. The attached table summarizes the financial relations between Costa Rica and the World Bank (in million U.S. dollars).

Table 2.Costa Rica and the World Bank: Financial Relations
Project NameTotal loanUndisbursed through FY16Projected disbursements in FY17
Higher Education Improvement Project200171.510
Catastrophe Deferred Draw Down Option65310
Strengthening Universal Health Insurance4204200

Relations with the Inter-American Development Bank

1. Recent activities. The IBD′s loan portfolio in Costa Rica has 11 sovereign guaranteed operations in execution and two programs pending ratification, with an approved amount of US$ 2.046,18 million. The available amount for disbursements is US$ 1.312,15 million (64% of the approved), and is concentrated in the areas of Transportation (44,5%), Energy (34,2%), Education (8,2%) and Reform and Modernization of the State (6,5 %). The average age of the operations is 2.1 years. Disbursements of sovereign guaranteed operations during 2016 are expected to reach around US$146,9 million, concentrated in the areas of Transportation (27.4%), Energy (26,2%) and Reform and Modernization of the State (23,8%).

2. Future plans. During 2016, the IDB expects to implement the 2015-2018 Country Strategy for Costa Rica, focused on the areas of Infrastructure and Logistics, Innovation and Competitiveness, Energy, Education and Public Finances. In 2016 the IDB expects to approve two Sovereign Guarantee loans for a total amount of US$140 million on Integrated urban consolidation and the Cantonal road network.

Loan Disbursements (Sovereign Guaranteed Operations)(In millions of U.S. dollars)
Interest and charges11.811.410.39.39.610.212.819.7
Net cash flow−18.2−0.36231.084165.7120.470.2

Projections (February 2016)

Projections (February 2016)

Lending Program for 2016 (tentative)(In millions of U.S. dollars)
Integrated Urban Consolidation – Bonos Comunales50
Cantonal Road Network Program90
Sovereign Guaranteed Operations (as of February 29, 2015)(In millions of U.S. dollars)
Loans in execution2.046,2734,0146.901.312,15
Sustainable Development of the Binational Watershed Rio Sixaola9,229,220,00,0
Tourism Program in Protected Areas19,011,367.647,64
First Electric Power Sector Development Program 2008-2011250,0232,5417.4617,46
First Road Infrastructure Program300,0286,6713.3213,32
Cantonal Road Network Program60,025,8615.0034,14
Water and Sanitation Program73,05,076.2367,93
Violence Prevention and Social Inclusion Promotion Program132,441,9335.0090,51
Innovation and Human Capital for Competitiveness Program35,09,018.5025,99
Power Sector Development Program 2012–16 (Reventazon Hydroelectric Project)250,097,2321.00152,77
Education Infrastructure Construction and Equipment Program167,5215,1310.75152,39
Infrastructure Transport Program4500,012.00450
Border Integration Program of Costa Rica*1000,00,0100
First Renewable Energy, Transmission and Distribution of Electricity Program*2000,00,0200
Nonreimbursable Technical Cooperations19,69,70,09,9

Pending ratification

Pending ratification

Statistical Issues

(As of April, 2016)

General: Data provision is broadly adequate for surveillance. The quality of macroeconomic data has continued to improve in recent years. This was confirmed by a reassessment of the Data Module Report on the Observance of Standards and Codes (ROSC) that was published in February 2010. Further statistical improvements are being pursued, including in the real, monetary, fiscal and balance of payments sectors. The Central Bank, the Ministry of Finance, and the National Institute of Statistics and Census make data available to the public through regular official publications on their websites (,, and

National accounts: National accounts are compiled generally in accordance with the System of National Accounts 2008 (SNA 2008). The Central Bank disseminated the annual national accounts data for the years 2012-2015, with 2012 as the new base year of the system. The full transition including release of the rebased historical data is scheduled for completion by September 2016. Estimation of real estate housing including owner-occupied housing has been improved: the housing stock of the base year (2012) has been estimated at the most detailed level according to the 2011 Census, at national, provincial, canton and district level. To calculate subsequent years, the rental item of the CPI is used as the price indicator, and the volume is extrapolated from the statistics of houses built with residential purposes obtained from the construction industry. Accounting depreciation is used instead of estimating consumption of fixed capital. In the new system, double deflation method is applied to obtain annual value added in constant prices; whereas single extrapolation is used for quarterly volume estimates using output volume indicators. Appropriate price indices are used to derive current value estimates. Changes in inventories are obtained following the 2008 SNA recommendations for those products for which enough information is available. This includes the most important agricultural and livestock products. The proportional Denton method is applied for benchmarking quarterly national accounts series to their annual counterpart. The informal activity of households as producers of goods and services is included in GDP level (but not separately estimated) thanks to the elaboration of employment and remuneration matrices.

Price statistics: The compilation of the consumer price index (CPI) employs concepts and definitions from the last international CPI manual. Its structure, scope, and coverage have been recently updated. The CPI weights are based on the 2012/2013 Income and Expenditure Survey, and the index covers the national urban and mixed households, which comprise approximately 73 percent of the total population and 82 percent of the total consumption expenditures of Costa Rica. Atypical movements in the data are investigated and corrected when necessary.

The PPI is compiled based on concepts and definitions from the 1993 SNA and the international PPI Manual, and is calculated both by product and economic activity (manufacture and services activities). The base year of the PPI for domestic manufacture, transportation, tourism services and professional services is 2012, whereas PPI for electricity and sales hydrocarbons, and the export and import price index (that is not yet available) are calculated following a moving-base approach.

Government Finance Statistics: The concepts and definitions used in compiling GFS generally follow the guidelines of the GFSM 1986. However, financing data and government debt, which use national concepts that combine instruments and holders, are not in accordance with international standards. Monthly fiscal statistics are only compiled and disseminated for budgetary central government, while annual statistics are compiled and disseminated for the entire public sector and its subsectors. Annual data for the GFS Yearbook are reported on a regular basis, most recently for 2014. The place of issue (Costa Rica or abroad) criterion is followed to classify domestic and foreign debt, instead of the internationally recommended residency criterion. Fiscal data discrepancies among national compilers on particular items are not regularly reconciled, although large fluctuations or discrepancies are investigated. Fiscal statistics are not regularly reconciled with monetary statistics, or other macroeconomic statistics.

Monetary and Financial Statistics: Central Bank of Costa Rica (CBCR) reports the Standardized Report Forms (SRFs) 1SR for CBCR, 2SR for the other depository corporations (ODCs), and 5SR for monetary aggregates for publication in the IMF’s International Financial Statistics (IFS) on a monthly basis with a lag of two months. The reported monetary statistics are broadly in line with the methodology of the Monetary and Financial Statistics Manual (MFSM). The classification of financial instruments and economic sectors follows the MFSM with some exceptions. Accrued interest is not classified together with underlying instruments, as recommended the MFSM. The CBCR is working for expanding the coverage of the monetary statistics including short term funds as ODCs and investment funds and pension funds as other financial corporations.

Financial sector surveillance: Costa Rica reports all core financial soundness indicators (FSIs) and one of the 13 encouraged FSIs for deposit takers on a monthly basis for posting on the IMF’s FSI website with less than one quarter lag. The authorities are planning to expand the reported FSIs of the encouraged set for deposit takers.

External sector statistics: The Central Bank of Costa Rica (BCCR) compiles and disseminates quarterly balance of payments and international investment position (IIP) statistics, which are produced on a sixth edition of the Balance of Payments and International Investment Position Manual (BPM6) basis. Source data are generally adequate and derived from sound collection programs and work is still ongoing to improve the coverage of financial transactions of the nonfinancial private sector (such as those related to trade credit and advances), and remuneration of employees. Transfer prices in some cases are not converted to market prices.

The BCCR also monthly compiles and disseminates the Data Template on International Reserves and Foreign Currency Liquidity, reports semi-annual data to the Coordinated Portfolio Investment Survey (CPIS) and annual data to the Coordinated Direct Investment Survey (CDIS), and submits quarterly external debt statistics to the Quarterly External Debt Statistics (QEDS) database.

Data Standards and Quality: Costa Rica is in observance with the Special Data Dissemination Standards (SDDS). Data Module Report on the Observance of Standards and Codes (ROSC) was published in February 2010.

Costa Rica: Table of Common Indicators Required for Surveillance(As of March 24, 2016)
Date of latest observationDate receivedFrequency of Data5Frequency of Reporting5Frequency of PublicationMemo Items:
Data Quality – Methodological soundness6Data Quality – Accuracy and reliability7
Exchange RatesMar 16Mar 16DDD
International Reserve Assets and Reserve Liabilities of the Monetary Authorities1Mar 16Mar 16DDD
Reserve/Base MoneyFeb 16Feb 16DDDO, LO, LO, LOO, O, O, LO, O
Broad MoneyFeb 16Feb 16MMM
Central Bank Balance SheetFeb 16Feb 16MMM
Consolidated Balance Sheet of the Banking SystemFeb 16Feb 16MMM
Interest Rates2Mar 16Mar 16DDD
Consumer Price IndexFeb 16Mar 16MMMO, LO, O, OLO, O, LO, LO, O
Revenue, Expenditure, Balance, and Composition of Financing3– Central GovernmentDec 15Feb 15MMMLO, LNO, LO, LOLO, O, O, LO, O
Stocks of Central Government and Central Government-Guaranteed Debt4Dec 15Feb 15MMM
External Current Account BalanceSep 15Jan 16QQQO, LO, O, LOLO, O, LO, O, LNO
Exports and Imports of Goods and ServicesSep 15Jan 16QQQ
Gross External DebtSep 15Jan 16QQQ
International Investment PositionSep 15Jan 16QQQ

Includes reserve assets pledged or otherwise encumbered as well as net derivative positions.

Both market-based and officially-determined, including discounts rates, money market rates, rates on treasury bills, notes, and bonds.

Foreign, domestic bank, and domestic nonbank financing.

Including currency and maturity composition.

Daily (D); weekly (W); monthly (M); quarterly (Q); annually (A); irregular (I); and not available (NA).

Reflects the assessment provided in the data ROSC, published in February, 2010 and based on the findings of the mission that took place in April, 2012, for the dataset corresponding to the variable in each row. The assessment indicates whether international standards concerning concepts and definitions, scope, classification/sectorization, and basis for recording are fully observed (O); largely observed (LO); largely not observed (LNO); not observed (NO); and not available (NA).

Same as footnote 6, except referring to international standards concerning source data, assessment of source data, statistical techniques, assessment and validation of intermediate data and statistical outputs, and revision studies.

Includes reserve assets pledged or otherwise encumbered as well as net derivative positions.

Both market-based and officially-determined, including discounts rates, money market rates, rates on treasury bills, notes, and bonds.

Foreign, domestic bank, and domestic nonbank financing.

Including currency and maturity composition.

Daily (D); weekly (W); monthly (M); quarterly (Q); annually (A); irregular (I); and not available (NA).

Reflects the assessment provided in the data ROSC, published in February, 2010 and based on the findings of the mission that took place in April, 2012, for the dataset corresponding to the variable in each row. The assessment indicates whether international standards concerning concepts and definitions, scope, classification/sectorization, and basis for recording are fully observed (O); largely observed (LO); largely not observed (LNO); not observed (NO); and not available (NA).

Same as footnote 6, except referring to international standards concerning source data, assessment of source data, statistical techniques, assessment and validation of intermediate data and statistical outputs, and revision studies.

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