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Quick Facts
- Population:
- GDP (PPP):
- $80.7 billion
- 3.7% growth
- 4.0% 5-year compound annual growth
- $16,436 per capita
- Unemployment:
- Inflation (CPI):
- FDI Inflow:
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Costa Rica’s economic freedom score is 65.6, making its economy the 57th freest in the 2018 Index. Its overall score has increased by 0.6 point, with improvements in fiscal health, monetary freedom, and property rights offsetting declines in government integrity and labor freedom. Costa Rica is ranked 11th among 32 countries in the Americas region, and its overall score is above the regional and world averages.
Macroeconomic stability, strong institutions, policy predictability, a fairly well-educated workforce, and a favorable stance toward trade and private foreign direct investment underpin Costa Rica’s attractive business environment. The regulatory regime has improved in recent years, but deeper institutional reforms are needed. Excessive government bureaucracy still discourages dynamic entrepreneurial activity, and the pace of privatization and fiscal reform has slowed. Widening budget deficits have put public debt on an upward trend. The judicial system, while transparent and not corrupt, remains inefficient.
Background
The most prosperous of the Central American Common Market’s five countries, Costa Rica has a long history of democratic stability and one of Latin America’s highest levels of foreign direct investment per capita. The opposition-controlled legislature continues to obstruct approval of nearly every proposal advanced by President Luis Guillermo Solís, and his center-left Partido Acción Ciudadana may have difficulty retaining the presidency in the February 2018 general election. While traditional agricultural exports of bananas, coffee, sugar, and beef are still the backbone of its commodity-driven export economy, Costa Rica is also one of Central America’s most popular tourist destinations and is especially well-known for ecotourism. High-value-added goods and services, including medical devices, further bolster exports.
Property rights are secure, and contracts are generally upheld, although enforcement is sometimes difficult. The judicial branch is independent but often slow to act. Despite ongoing efforts to combat drug trafficking, fiscal challenges threaten to undermine the security and justice sectors. Costa Rica was approved for the OECD Anti-Bribery Convention in May 2017, but corruption remains a nagging issue.
The top personal income tax rate is 25 percent, and the top corporate tax rate is 30 percent. Other taxes include general sales and real property taxes. The overall tax burden equals 23.4 percent of total domestic income. Over the past three years, government spending has amounted to 19.3 percent of total output (GDP), and budget deficits have averaged 5.6 percent of GDP. Public debt is equivalent to 43.7 percent of GDP.
Poor infrastructure, high energy costs, complex bureaucracy, weak investor protection, and uncertain enforcement of contracts impede entrepreneurship. The informal economy accounts for nearly 45 percent of employment. Dismissing a worker without cause can cost almost a year’s severance pay. Committed to forswearing the use of fossil fuels, the government subsidizes the cost to consumers of hydroelectric power generated by the state-owned electric utility.
Trade is significant for Costa Rica’s economy; the combined value of exports and imports equals 64 percent of GDP. The average applied tariff rate is 2.7 percent. Nontariff barriers impede some trade. Government openness to foreign investment is above average. The financial sector remains relatively resilient and continues to expand. Despite increased market competition, state-owned financial institutions dominate the sector and influence lending.