This Monday, Costa Rican economic authorities began formal talks to reach an Extended Fund Facility (EFF) agreement with the International Monetary Fund (IMF) for $1.75 billion. Under this agreement, the authorities’ macroeconomic, financial, and structural policy programme would be designed to ensure the country’s medium- and long-term economic stability, and to promote stronger, more inclusive, and sustainable growth.
In the fiscal area, policies are geared towards achieving public debt sustainability. Most of the proposed adjustment comes from reductions in public spending, such as the public employment bill. In addition, the government will present this afternoon Decree No. 42798-H on measures to control and reduce public spending from 2021 to 2015, which ensures compliance with the fiscal rule on current transfers, acquisition of goods and services, special services, substitutions and eventual remuneration.
It also provides for the reduction of fiscal benefits such as the elimination of the exemption of income from school salaries and the freezing of pensions from the national budget, which would not affect the IVM pensions of the Costa Rican Social Security Fund (CCSS) and would be maintained as long as the public debt is not less than 60% of GDP.
Taken together, these measures will reduce current primary expenditure (i.e. total expenditure less interest and capital expenditure) from the current 16.45% of GDP to 13% over five years.
In order to generate additional income, some progressive measures are proposed, i.e. taxing proportionally the richer segments of the population. For example, some exemptions are eliminated or reduced, the tax on luxury houses is proposed to be modified and the application of the global income, one of the agreements in the Multisectoral Dialogue, is considered. In addition, measures are proposed that would generate non-recurring income, such as the sale of the portfolio of the National Commission for Education Loans (CONAPE), also part of the agreements reached in the Multisectoral Dialogue.
This is the list of projects linked to the proposal:
- Public Employment Bill
- Decree No. 42798-H on Measures to Control and Reduce Public Expenditure, which ensures compliance with the fiscal rule
- Law on the reduction of tax benefits and adjustment of tariffs on capital income to strengthen the tax system, which provides for the elimination of the non-subordination of school salary income.
- Bill to modify the tribute to luxury houses.
- Draft law on profit contribution by state-owned enterprises
- Reform of the General Law on Customs
- Global income bill (agreement at the Multisectoral Dialogue).
- Draft law to ensure that pensions above the base salary of a judicial branch clerk 1 (₡450.200) are not increased from the national budget. This would not affect the IVM pensions of the Costa Rican Social Security Fund (CCSS) and would be maintained as long as the public debt is not less than 60% of GDP.
- Draft law Excise tax on national lottery prizes
- Draft law for the sale of CONAPE’s credit portfolio (agreement of the Multisectorial Dialogue).
“The government’s proposals to the IMF on fiscal matters are centred on reducing public expenditure, which is why more than half of the 2.5% reduction in the fiscal deficit that is necessary to ensure the stability of public finances in the medium and long term will come from containing primary public expenditure. Increasing VAT to 14% and the financial transaction tax are not viable options,” said Elian Villegas, Minister of Finance.
The Fund’s technical team will be led by Manuela Goretti. On the Costa Rican side, the negotiations will be led by Elian Villegas, Minister of Finance; Pilar Garrido, Minister of National Planning and Economic Policy; and Rodrigo Cubero, President of the Central Bank of Costa Rica (BCCR) in his capacity as Costa Rica’s Governor to the IMF.
“An agreement with the IMF would not only allow direct access to credit but also provide a seal of confidence to the country’s macroeconomic and financial policies, which would strengthen the economic recovery process and promote the well-being of all Costa Ricans,” said Rodrigo Cubero.
The hierarchy and technical teams of the Treasury, Planning, Central Bank and IMF representatives will hold thematic meetings to address the national macroeconomic panorama and its risks in the medium and long term, debt management, the national budget, fiscal projections, monetary policy, the financial system, social security and will have spaces to learn about specific agendas such as climate change and the impact of the pandemic on tourism.
In addition to discussions between the parties’ technical teams, the mission envisages the organisation of spaces for exchange with members of Congress, academia, civil society organisations and the private sector.
Website to know the proposals
As part of the actions to facilitate the knowledge of the official proposals to the citizens, the Ministry of Communication makes available the website http://presidencia.go.cr/propuesta-fmi
On this site you can find the proposals that are part of the negotiations with the IMF, learn about the bills already submitted and the details of each one.
After the conclusion of the mission, the national authorities and the IMF mission will be reporting on the results of the negotiations, which will be communicated in due course.