Economy

Education and training are a high priority for Costa Rica that devotes to them more than 6.5% of GDP, one of the highest spending shares among OECD countries. However, educational outcomes remain poor and firms struggle to fill their vacancies, particularly in technical and scientific positions, which may endanger Costa Rica’s capacity to keep attracting foreign direct investment. Its complex fiscal situation requires Costa Rica to improve efficiency and quality of public spending in education to better support growth and equity. There is a fundamental need to improve the quality of early and general basic education to avoid that too many Costa Ricans leave education too early and without the skills needed to find a formal job. This requires a more targeted support to students with learning gaps, improving teachers’ selection and training and expanding access to early education. Revisiting the university funding mechanism will improve its accountability and can help increase the number of graduates in scientific areas. Reforms in vocational education may increase the supply of high-quality technicians, which will reduce existing skills mismatches and help more Costa Ricans access better-paid formal jobs.

Costa Rica recovered well from the pandemic-induced recession. Sustained and resilient export performance continues to support growth, while consumption is hindered by high inflation and unemployment. The fiscal situation improved but remains challenging, requiring sustained efforts to contain spending and boost public sector efficiency for several years. Maintaining and reinforcing the commitment to foreign direct investment and trade, which has been key to diversify the export basket, and improving the conditions for domestic companies to thrive are key challenges to boost living standards and formal job creation. This would require reducing the regulatory burden, improving the tax mix, fostering competition in key markets and continuing decarbonisation and environment protection efforts. Supporting higher female labour participation and upgrading social protection will help to adapt to ongoing demographic changes and improve the equality of opportunities. Education and training are a high priority for Costa Rica that devotes to them one of the highest spending shares among OECD countries. However, educational outcomes remain poor and firms struggle to fill their vacancies, particularly in technical and scientific positions. Improving efficiency and quality of public spending in education is needed to better support growth and equity. SPECIAL FEATURES: EDUCATION AND TRAINING; SKILLS

Costa Rica recovered well from the pandemic-induced recession. Sustained and resilient export performance continues to support growth, while consumption is hindered by high inflation and unemployment. The fiscal situation improved but remains challenging, requiring sustained efforts to contain spending and boost public sector efficiency for several years. Maintaining and reinforcing the commitment to foreign direct investment and trade, which has been key to diversify the export basket, and improving the conditions for domestic companies to thrive are key challenges to boost living standards and formal job creation. This would require reducing the regulatory burden, improving the tax mix, fostering competition in key markets and continuing decarbonisation and environment protection efforts. Supporting higher female labour participation and upgrading social protection will help to adapt to ongoing demographic changes and improve the equality of opportunities. Education and training are a high priority for Costa Rica that devotes to them one of the highest spending shares among OECD countries. However, educational outcomes remain poor and firms struggle to fill their vacancies, particularly in technical and scientific positions. Improving efficiency and quality of public spending in education is needed to better support growth and equity. SPECIAL FEATURES: EDUCATION AND TRAINING; SKILLS

This report compiles comparable tax revenue statistics over the period 1990-2020 for 27 Latin American and Caribbean economies. Based on the OECD Revenue Statistics database, it applies the OECD methodology to countries in Latin America and the Caribbean to enable comparison of tax levels and tax structures on a consistent basis, both among the economies of the region and with other economies. This publication is jointly undertaken by the OECD Centre for Tax Policy and Administration, the OECD Development Centre, the Inter-American Center of Tax Administrations (CIAT), the Economic Commission for Latin America and the Caribbean (ECLAC) and the Inter-American Development Bank (IDB).

Having access to credit is essential for households to address the volatility of their personal finances over time and for firms to fund their investments. Accessing financial services at affordable cost on the other hand, is crucial to ensure financial security of all economic units. Despite recent improvements, there are still large financial inclusion disparities in Costa Rica, notably across regions, by gender, and size of firms. This paper discusses policy reforms that would reduce these disparities. Some of the key policy priorities are to improve transparency by strengthening the credit registry and allocating the development banking credit more effectively. Enhancing financial literacy could help avoid excessive consumer indebtedness. Technological innovation would also help Costa Rica: granting FinTech start-ups direct and full access to the state-of-the-art electronic payments system would increase competition, reduce transactions costs and ensure financial inclusion for all.

Regulations of product markets serve legitimate objectives but, when ill-designed, can impose unnecessary restrictions on competition, and therefore on business dynamism, productivity and ultimately well-being. A recent update of the OECD’s Product Market Regulation indicator for Costa Rica shows that there is ample room to improve regulations. Costa Rica’s economic development is hindered by heavy state involvement and high barriers to entry, compared to both OECD countries and regional peers. This paper discusses options to improve product market regulations, based on international best practices. Regulatory reform can improve consumer welfare by boosting competition and thus lowering prices of key goods and services, which in turn increases the purchasing power of low-income households and reduces poverty. By raising productivity, stronger competition will also allow higher wages. Reducing barriers to entry can facilitate firm creation, boosting investment and jobs.

Costa Rica’s social and economic progress has been remarkable. Over the last 30 years, growth has been steady and GDP per capita has tripled. A strong commitment towards trade openness has been key to attract foreign direct investment and move Costa Rica up in the global value chain. Costa Rica faces substantial challenges to retain achieved successes and to continue converging towards higher living standards. The fiscal situation remains a critical vulnerability. Large deficits and rapidly rising public debt threaten Costa Rica’s achievements. The fiscal reform approved in December 2018 was a historic step to restore fiscal sustainability. Boosting growth is also a key priority, as the gap in GDP per capita with advanced economies remains large and unemployment is high. Inequality and informality remain also high. The COVID-19 pandemic has significantly impacted Costa Rica, with the global economic slowdown and the necessary containment measures hampering growth prospects and fiscal accounts. Responding successfully to these substantial challenges will hinge on buttressing the fiscal framework and implementing reforms to foster inclusive growth. Further advances on living standards will hinge on raising productivity by setting the right conditions for domestic companies to thrive and maintaining and reinforcing the commitment to foreign direct investment and trade. Maintaining the commitment to preserving natural resources and biodiversity and with the decarbonisation plan will pay off in terms of growth and jobs. SPECIAL FEATURES: REGULATIONS; FINANCIAL INCLUSION