Costa Rica: Mid-term revision of the Macroeconomic Program 2021-2022

CENTRAL AMERICA - In Brief 05 Aug 2021 by Fernando Naranjo

The Central Bank of Costa Rica released the mid-term revision of the macroeconomic program for 2021-2022 on July 30th. Based on H1 indicators, with a better external outlook and improvement on vaccine process, the Bank concluded that economic activity will be higher than previous estimates in 2021. Real GDP will rebound to 3.9% y/y (2,9% y/y on April), driven mainly by the reopening of domestic commercial activity, a strong positive trend of merchandise exports, increase in FDI, favorable financial conditions and better fiscal results. For 2022 the Bank estimates that GDP will grow 3.7%.

GDP increase won’t be as large as in other countries because activities like tourism, construction and transportation will recover at a much slower pace. Moreover, the lack of fiscal room to stimulate the economy would take its toll in terms of slower growth in the process of recovery. First semester results were better than expected on the fiscal front. Central Government deficit decreased to 2.0% of GDP y/y at the end of H1. The improvement in fiscal situation will allow the country to comply with the IMF first review of EFF (Extended Fund Facility) in October.

Projections of the macroeconomic program are based in the fulfillment of compulsory objectives of the agreement with the IMF for three years (See our January 2021 report). It also has more optimistic assumptions like the full approval of the IMF agenda that the government presented in congress and access to a more than generous external financing.

The Central Bank maintained the inflation target for both years in the same range of 3% (± 1 pp), assuming inflationary external pressures to be tr...

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