Nogui Acosta

Costa Rica expects to get off the EU grey list in October, its finance minister tells Barbara Pianese.

Nogui Acosta Jaén, Costa Rica’s finance minister, sat down with The Banker in March during the Inter-American Development Bank annual meeting. 

Q: In 2018, the ministry of finance launched a fiscal consolidation plan. How is the country progressing with these efforts?

A: In the short term, we aim to reduce the debt-to-gross domestic product (GDP) ratio to below 60%. This will allow the country to devote more resources to capital expenditures, such as public infrastructure, and help the most vulnerable within society with additional social spending.

Costa Rica was one of the few countries in 2018 to enact a tax reform bill to strengthen public finances. The bill also included a fiscal rule to limit public spending and additional controls on the wage bill.

However, difficulties during the Covid-19 pandemic resulted in the necessity of reaching an agreement with the International Monetary Fund (IMF).

For 2023, the agreement foresees some fiscal targets, including a primary balance of 609bn colons [$1.3bn] and a ceiling on the central government debt of 30,942bn colons. We expect to comply with these benchmarks by a comfortable margin, proving that Costa Rica has managed to stabilise its public finances.

Like any other region in the world, we faced high inflation, which pushed the Central Bank of Costa Rica to increase the monetary policy rate by 825 basis points quickly. More recently, the inflation rate has shown a downward trend, and in March, the Central Bank of Costa Rica became the first central bank in Latin America to cut interest rates this year. 

Q: Costa Rica has recently received US$1.5bn from a Eurobond debt issuance. How is the capital going to be deployed?

A: The Eurobond debt issuance is a key element of our long-term financing strategy. The main purpose of this plan is to reduce rollover debt risks and reduce debt interest payments. In addition, the Legislative Assembly approved two critical laws to our objectives.

First, the authorisation to issue Costa Rican debt in international markets up to $5bn, and a reform to give judicial security to foreign investors in the country. Also, we are working with Euroclear to facilitate holding securities for foreign investors. 

We don’t see any short-term impact from the decision, but investors might wait for us to exit the list

Q: The government presented a bill to sell the Banco de Costa Rica (BCR) and the Banco Internacional de Costa Rica (BICSA). Can you tell more about this initiative?

A: We plan to reduce public debt with extraordinary payments. The potential sale of public assets, such as BICSA and the BCR, will give us fresh resources of approximately 2.8% of GDP. We are discussing a draft law with the Legislative Assembly at this moment.

Q: In February, the EU included Costa Rica on the ‘grey list’ of non-cooperative countries in tax matters. How do you think it is going to affect the country and the banking sector?

A: We were included in the list because of our territorial tax system, which taxes rents from Costa Rican sources.

According to the EU, there is a risk of double non-taxation. We do not export capital, so we do not believe having a worldwide tax system that also considers profits earned in foreign countries is necessary.

In 2020, the EU asked Costa Rica to change the tax regime. The previous government committed to changing the system within three months but did not manage to. We now have plans to change this, and we sent proposals to the legislative assembly in March.

We don’t see any short-term impact from the decision, but investors looking to invest in the country might wait for us to exit the list before committing. We still hope to get off the list in October. 

Q: Costa Rica aims for a decarbonised economy with net-zero emissions by 2050. What could be done to support these efforts?

A: Costa Rica is one of the few countries that has experienced a reforestation process. We are keen to monetise our decarbonisation efforts. This means making sure investors support and understand this policy.

Geographically, Costa Rica is located in a region with a high vulnerability to the effect of climate change, something that has caught the attention of several financial institutions. We should rely on financial instruments to finance the fight against climate change and resilient infrastructure projects.

Costa Rica was the first country to secure financing from the IMF Resilience and Sustainability Fund, a scheme to support vulnerable countries in the face of long-term difficulties caused by climate change. We need more schemes such as this by multilateral institutions. 


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