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Quick Facts
- Population:
- GDP (PPP):
- $83.9 billion
- 3.2% growth
- 3.4% 5-year compound annual growth
- $16,877 per capita
- Unemployment:
- Inflation (CPI):
- FDI Inflow:
Costa Rica’s economic freedom score is 65.3, making its economy the 61st freest in the 2019 Index. Its overall score has decreased by 0.3 point, with declines in fiscal health, judicial effectiveness, and trade freedom exceeding improvements in labor freedom and property rights. Costa Rica is ranked 11th among 32 countries in the Americas region, and its overall score is above the regional and world averages.
The new government is expected to continue the policy predictability, support for strong institutions, and favorable attitude toward trade and private foreign direct investment that have created an attractive business environment in Costa Rica. Although the regulatory regime has improved, deeper institutional reforms are needed. Excessive government bureaucracy still discourages dynamic entrepreneurial activity, slowing the pace of privatization and fiscal reform. 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. Center-left Citizens’ Action Party (PAC) candidate Carlos Alvarado’s victory in the 2018 election, which saw the main center-right Social Christian Unity Party’s candidate derailed by a contentious fight over same-sex marriage, maintained the PAC’s control of the presidency and the legislature. Traditional agricultural exports of bananas, coffee, sugar, and beef are still the backbone of its commodity-driven export economy, but Costa Rica is also one of Central America’s most popular ecotourism destinations and an exporter of medical devices and other high-value-added goods and services.
Property rights are secure, and contracts are generally enforced. Despite reforms in 2018, however, land registries remain unreliable. The judicial branch is independent, but its processes are often slow. Drug trafficking and budgetary constraints have undermined the security and justice sectors. A complex bureaucracy slows the pace of capacity-building, and corruption, including among high-ranking officials, remains a problem.
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 23.6 percent of total domestic income. Over the past three years, government spending has amounted to 19.6 percent of the country’s output (GDP), and budget deficits have averaged 5.7 percent of GDP. Public debt is equivalent to 49.1 percent of GDP.
The overall business framework does not adequately support entrepreneurial activity. Licensing requirements have been reduced, but procedures for launching a business remain cumbersome. The nonsalary cost of employing a worker remains high. Hoping to become the world’s first decarbonized society, Costa Rica subsidizes hydroelectric power generated by the state-owned electric utility.
The combined value of exports and imports is equal to 67.6 percent of GDP. The average applied tariff rate is 1.8 percent. As of June 30, 2018, according to the WTO, Costa Rica had 65 nontariff measures in force. The government restricts investment in some sectors of the economy. The growing financial sector functions relatively well. About 68 percent of adult Costa Ricans have access to an account with a formal banking institution.