This Survey was prepared for the Committee by Alberto González Pandiella and Enes Sunel under the supervision of Patrick Lenain. Statistical research assistance was provided by Roland Tusz and the publication coordination by Carolina González. The Survey also benefited from contributions from Gloriana Lang Clachar and Marnix Dek. The Survey was discussed at a meeting of the Economic and Development Review Committee (EDRC) on 19 March 2020 and is published on the responsibility of the Secretary-General of the OECD.

Addressing the coronavirus outbreak is the overarching priority in the short term. Timely confinement measures and well-targeted economic actions are helping to contain the pandemic and support those hardest hit. Looking forward, boosting testing and tracing capabilities and continuing to prepare for increases in healthcare demand are essential priorities.

Costa Rica’s social and economic progress has been remarkable. A strong commitment towards trade openness has been key to attract foreign direct investment and move up in the global value chain. The effort to provide virtually universal health and pensions has translated into well-being indicators comparable with OECD standards in several dimensions. Costa Rica has also shown a strong commitment to preserving natural resources. Challenges to retain achieved successes and to continue converging towards higher living standards are substantial. The fiscal situation remains a critical vulnerability. Reform momentum has been extraordinary, as a significant number of legal initiatives linked to OECD accession have been finalised. This includes the fiscal reform approved in December 2018, a historic step to restore fiscal sustainability. These reforms would also facilitate the recovery from the COVID-19 shock. In the short term, addressing the coronavirus outbreak is the overarching priority. Once the recovery is established, full implementation of the fiscal reform is critical to restore medium-term fiscal sustainability, ensure macroeconomic stability and set the basis for higher incomes and wider spread improvements in living standards. Putting Costa Rica on a path to stronger growth requires boosting productivity by adopting structural reforms to streamline regulations and maintaining the commitments to trade, foreign direct investment and natural resources preservation. Extending the benefits of growth to all Costa Ricans will require improving public spending efficiency, reducing informality and increasing female labour market participation.

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 chapter 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.

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 chapter 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.