Costa Rican Economic Expansion Depends Upon Fiscal Sustainability

The Costa Rican economy continues to expand steadily following the COVID-19 pandemic. Costa Rica has improved its credit rating with international agencies over the past couple of years, receiving praise from global entities for the upgrades. However, Costa Rica still faces risks concerning the fiscal sustainability of its recent gains while continuing to focus on poverty and unemployment reduction in the long-term.

The December OECD’s Economic Outlook report for Costa Rica forecasts that the economy grew around 4.2% in 2025. This figure aligns closely with last year’s growth of 4.3%. Costa Rican economic expansion remains stable as its production and export sectors continue to show resilience, while domestic consumption and investment continue to improve.

OECD: Fiscal Sustainability Efforts Needed

For Costa Rica to continue fiscal reforms and improve its current rating, the OECD report highlighted that Costa Rica will need to make reforms to ensure fiscal sustainability. The report says, “The fiscal situation has improved, but to ensure fiscal sustainability, it is necessary to maintain strict compliance with the fiscal rule to contain public spending and introduce expenditure reviews to increase efficiency.”

The OECD report also mentioned that Costa Rica’s main economic indicators have continued improving since the fiscal reform enacted by the Costa Rican Congress in 2018. The new President of Costa Rica, Laura Fernández, will face challenges to ensure the fiscal reforms remain sustainable in the long term. During the presidential campaign, many candidates suggested modifications to the fiscal rule to increase spending, as well as plans to overturn the five-year freeze on public sector wages and pensions. These types of decisions can play a significant role in Costa Rican economic expansion if they compromise fiscal responsibility or scare away investors.

Projected economic growth will slow down in the coming years, another factor the new government will have to consider when dealing with Costa Rican economic growth. The OECD estimates that Costa Rica’s economic growth will be 3.5% in 2026 and 3.4% in 2027. Even though the economy will continue to expand under these estimates, the speed of Costa Rican economic growth expansion will start to decelerate.

Exports Threatened by Trump Tariffs

Costa Rica, along with the rest of the world, now faces tariffs imposed by former President Donald Trump. For Costa Rica, this means goods exported from the country can be taxed by 10% on a variety of products. This has created uncertainty for Costa Rican exporters that do business with the United States.

In addition to the concerns of a trade war, the OECD points out that the United States is investigating tariffs on exported goods, specifically medical devices. Medical devices make up Costa Rica’s most significant exported goods. “The investigation could lead in 2026 to increased tariffs for medical devices, a key export sector for Costa Rica that is highly dependent on demand in the United States,” the report says. A significant portion of the medical device industry in Costa Rica is owned by American companies.

Despite threats from tariffs on Costa Rican exports, Costa Rica continues to see improvements within its export sector. Minister of Foreign Trade Manuel Tovar stated in a recent interview that Costa Rican exporters have reached record highs this year even with the unknowns of the international market and tariffs created by Donald Trump. In 2025, exports of goods increased 14% over 2024, reaching $22.855 billion.

Mr. Tovar addressed concerns over tariffs created by the U.S., stating, “We must position ourselves with prudence and responsibility to ensure we continue having excellent relations with those trading partners.” Costa Rica will continue to work with the United States to avoid jeopardizing Costa Rican economic growth.

Tourism Sector Growing at a Snail’s Pace

Costa Rica’s tourism sector experienced slight growth in 2025, with a 1% increase compared to the previous year. This growth can be attributed to the last quarter of the year when tourism started to make a comeback after the pandemic. Before the pandemic, tourism played a more significant role in the Costa Rican economy and employed more people. Analysts hope the tourism sector can regain its growth rate pre-pandemic to help support Costa Rican economic growth.

Poverty and Unemployment

Costa Rica’s previous president, Rodrigo Chaves, touted that poverty in Costa Rica went from 18.3% in 2024 to 15.5% in 2025. Unemployment also dropped to 6.6%. Additionally,

Costa Rica maintained low inflation for the 4th year in a row by registering -1.23% inflation for 2025. For the fourth year in a row, inflation continues to be outside the Central Bank target range of 2% to 4%.

Costa Rica Focuses on Fiscal Responsibility

Costa Rica should remain committed to its current fiscal rule that will allow the nation to increase investor confidence and promote Costa Rican economic expansion. Policymakers should also focus on continuing structural reforms that have allowed the country to reach this level of development. Infrastructure investments are another great tool that can be used to promote growth. While the future does hold obstacles that may slow down Costa Rica’s growth, if policymakers follow the fiscal rules that have put the country in a great position today, Costa Rica can look forward to a prosperous future.