The economy of Costa Rica has been very stable for some years now, with continuing growth in the GDP (Gross Domestic Product) and moderate inflation, though with a high unemployment rate: 11.49% in 2019. Costa Rica's economy emerged from recession in 1997 and has shown strong aggregate growth since then. The estimated GDP for 2026 is US$125 billion, up significantly from the US$52.6 billion in 2015 while the estimated 2026 per capita (purchasing power parity) is US$33,897.

Inflation remained around 4% to 5% per annum for several years up to 2015 but then dropped to 0.7% in 2016; it was expected to rise to a still moderate 2.8% by the end of 2017 In 2017, Costa Rica had the highest standards of living in Central America in spite of the high poverty level. The poverty level dropped by 1.2% in 2017 to 20.5%, thanks to reducing inflation and benefits offered by the government. The estimated unemployment level in 2017 was 8.1%, roughly the same as in 2016.

The country has evolved from an economy that once depended solely on agriculture, to one that is more diverse, based on tourism, electronics and medical components exports, medical manufacturing and IT services. Corporate services for foreign companies employ some 3% of the workforce. Of the GDP, 5.5% is generated by agriculture, 18.6% by industry and 75.9% by services (2016). Agriculture employs 12.9% of the labor force, industry 18.57%, services 69.02% (2016) Many foreign companies operate in the various Free-trade zones. In 2015, exports totalled US$12.6 billion while imports totalled US$15 billion for a trade deficit of US$2.39 billion.

The growing debt and budget deficit are the country's primary concerns. By August 2017, Costa Rica was having difficulty paying its obligations and the President promised dramatic changes to handle the "liquidity crisis". Other challenges face Costa Rica in its attempts to increase the economy by foreign investment. They include a poor infrastructure and a need to improve public sector efficiency.

History

Public finances

Debt and deficit One of the country's major concerns is the level of the public debt, especially as a percentage of the GDP (Gross Domestic Product), increasing from 29.8% in 2011 to 40.8% in 2015 and to 45% in 2016. The total debt in 2015 was $22.648 billion, up by nearly $3 billion from 2014. On a per capita basis, the debt was $4,711 per person. Costa Rica had a formal line of credit with the World Bank valued at US$947 million in April 2014, of which US$645 million had been accessed and US$600 million remained outstanding.

In a June 2017 report, the International Monetary Fund stated that annual growth was just over 4% with moderate inflation. The report added that "financial system appears sound, and credit growth continues to be consistent with healthy financial deepening and macroeconomic trends. The agency noted that the fiscal deficit remains high and public debt continues to rise rapidly despite the authorities' deepened consolidation efforts in 2016. Recent advances in fiscal consolidation have been partly reversed and political consensus on a comprehensive fiscal package remains elusive".

The IMF also expressed concern about increasing deficits, public debt and the heavy dollarization of bank assets and liabilities, warning that in tighter-than-expected global financial conditions these aspects would "seriously undermine investor confidence". The group also recommended taking steps to reduce pension benefits and increase the amount of contribution by the public and increasing the cost effectiveness of the education system.

The country's credit rating was reduced by Moody's Investors Service in early 2017 to Ba2 from Ba1, with a negative outlook on the rating. The agency particularly cited the "rising government debt burden and persistently high fiscal deficit, which was 5.2% of GDP in 2016". Moody's was also concerned about the "lack of political consensus to implement measures to reduce the fiscal deficit [which] will result in further pressure on the government's debt ratios". In late July 2017, the Central Bank estimated the budget deficit at 6.1 percent of the country's GDP. A 2017 study by the Organisation for Economic Co-operation and Development warned that reducing the foreign debt must be a very high priority for the government. Other fiscal reforms were also recommended to moderate the budget deficit.

In 2014, President Solís presented a budget with an increase in spending of 19% for 2015, an increase of 0.5% for 2016 and an increase of 12% for 2017. When the 2017 budget was finally proposed, it totaled US$15.9 billion. Debt payments account for one-third of that amount. Of greater concern is the fact that a full 46% of the budget will require financing, a step that will increase the debt owed to foreign entities. In late July 2017, the Central Bank estimated the budget deficit at 6.1 percent of the country's GDP.

Liquidity crisis In early August 2017, President Luis Guillermo Solís admitted that the country was facing a "liquidity crisis", an inability to pay all of its obligations and to guarantee the essential services. To address this issue, he promised that higher VAT and higher income tax rates were being considered by his government. Such steps were essential, Solís told the nation. "Despite all the public calls and efforts we have made since the start of my administration to contain spending and increase revenues, there is still a gap that we must close with fresh resources", he said. The crisis was occurring in spite of the growth, low inflation and continued moderate interest rates, Solís concluded.

Solís explained that the Treasury would prioritize payments on the public debt first, then salaries, and then pensions. The subsequent priorities included transfers to institutions "according to their social urgency". All other payments would be made only if funds are available.

Other challenges A 2016 report by the U.S. government report identifies other challenges facing Costa Rica as it works to expand its economy by working with potential foreign investors:

The ports, roads, water systems would benefit from major upgrading. Attempts by China to invest in upgrading such aspects were "stalled by bureaucratic and legal concerns". The bureaucracy is "often slow and cumbersome". The country needs even more workers who are fluent in English and languages such as Portuguese, Mandarin and French. It would also benefit from more graduates in Science, Technology, Engineering and Math (STEM) programs. Some sectors are controlled by a state monopoly which excludes competition but in other respects, "Costa Rican laws, regulations and practices are generally transparent and foster competition". The country has been slow in completing environmental impact assessments which have caused delays in projects being completed. Product registration is a slow process, although this may improve with digitization. In spite of government attempts at improving the enforcement of intellectual property laws, this aspect remains a concern.

Natural resources

Costa Rica's rainfall, and its location in the Central American isthmus, which provides easy access to North and South American markets and direct ocean access to the European and Asian Continents. Costa Rica has two seasons, both of which have their own agricultural resources: the tropical wet and dry seasons. One-fourth of Costa Rica's land is dedicated to national forests, often adjoining beaches, which has made the country a popular destination for affluent retirees and ecotourists.

A full 10.27% of the country is protected as national parks while an additional 17% is set aside for reserves, wildlife refuges and protected zones. Costa Rica has over 50 wildlife refuges, 32 major national parks, more than 12 forest reserves and a few biological reserves.

Because of ocean access, 23.7% of Costa Rica's people fish and trade their catches to fish companies; this is viewed as "small scale artisanal coastal" fishing and is most common in the Gulf of Nicoya. Costa Rica also charges licensing fees for commercial fishing fleets that are taking tuna, sardines, banga mary, mahi-mahi, red tilapia, shrimp, red snapper, other snappers, shark, marlin and sailfish. In mid 2017, the country was planning to ban large-scale commercial fishing off the southern Pacific Coast in an area nearly a million acres in size. The bill in congress was intended to "protect the extraordinary marine and coastal resources" from "indiscriminate and unsustainable commercial fishing."

Sport fishing in Costa Rica is an important part of the tourism industry; species include marlin, sailfish, dorado, tarpon, snook, rooster fish, wahoo, tuna, mackerel, snapper and rainbow bass.

In terms of the 2012 Environmental Performance Index ranking, Costa Rica is 5th in the world, and first among the Americas. The World Economic Forum's 2017 Travel & Tourism Competitiveness Report ranked Costa Rica as third of 136 countries based on natural resources, the number of World Heritage natural sites, protected areas and species as well as eco tourism.

Economic sectors Agriculture

Costa Rica's economy was historically based on agriculture, and this has had a large cultural impact through the years. Costa Rica's main cash crop, historically and into modern times, has been the banana. The coffee crop had been a major export, but decreased in value to the point where it added only 2.5% to the 2013 exports of the country.

Agriculture also plays an important part in the country's gross domestic product (GDP). It makes up about 6.5% of Costa Rica's GDP, and employs 12.9% of the labor force (2016). By comparison, industry employs 18.57% of the labor force, and the service sector 69.02%.

Depending on location and altitude, many regions differ in agricultural crops and techniques. The main agricultural exports from the country include: bananas, pineapples (the second highest export, with over 50% share of the world market), other tropical fruits, coffee (much of it grown in the Valle Central or Meseta Central), sugar, rice, palm oil, vegetables, tropical fruits, ornamental plants, maize, and potatoes.

Livestock activity consists of cattle, pigs and horses, as well as poultry. Meat and dairy produce are leading exports according to one source, but both were not in the top 10 categories of 2013.

The combined export value of forest products and textiles in 2013 did not exceed that of either chemical products or plastics.

Mining

Mining in Costa Rica contributes a small amount to the economy. In 2018 5.2 tons of gold were produced.

Industries

Over the years, Costa Rica successfully attracted important investments by such companies as Intel Corporation, Procter & Gamble, Abbott Laboratories and Baxter Healthcare. Manufacturing and industry's contribution to GDP overtook agriculture over the course of the 1990s, led by foreign investment in Costa Rica's Free Trade Zones (FTZ) where companies benefit from investment and tax incentives. Companies in such zones must export at least 50% of their services. Well over half of that type of investment has come from the U.S. According to the government, the zones supported over 82 thousand direct jobs and 43 thousand indirect jobs in 2015; direct employment grew 5% over 2014. The average wages in the FTZ increased by 7% and were 1.8 times greater than the average for private enterprise work in the rest of the country. Companies with facilities in the America Free Zone in Heredia, for example, include Dell, HP, Bayer, Bosch, DHL, IBM and Okay Industries.