Costa Rica 2016 Economic Assessment making Costa Rica more productive and inclusive 15 February

1. www.oecd.org/eco/surveys/economic-survey-costa-rica.htm
OECD
OECD Economics
2016 OECD ECONOMIC
ASSESSMENT OF COSTA RICA
Making Costa Rica more productive and
inclusive
San José, 15 February 2016

2. 2
Main message
• Costa Rica has made remarkable progress in the last decades:
o Rising living standards and well being
o Good management of natural resources
• Current challenges:
o Restore fiscal sustainability
o Make growth more inclusive, especially for informal workers and
women
o Adopt reforms to boost productivity growth

3. 3
Living standards have risen sharply in the
last decades
Note: OECD upper half refers to the non-weighted average of 17 OECD countries with the highest GDP per capita.
Source: OECD, National Accounts Database and World Bank, World Development Indicators.
22
23
24
25
26
27
28
29
30
31
22
23
24
25
26
27
28
29
30
31
1990 1994 1998 2002 2006 2010 2014
%%
GDP per capita of Costa Rica relative to OECD upper half

4. 4
Well-being is high
Note: Data are preliminary. Each well-being dimension is measured by one to four indicators taken from the OECD Better Life Index set. Normalised
indicators are averaged with equal weights. Indicators are normalised to range between 10 (best) and 0 (worst) according to the following formula:
(indicator value - minimum value) / (maximum value - minimum value) x 10.
Source: For Costa Rica: National Institute of Statistics and Censuses (INEC); National Electoral Tribunal (TSE); Gallup World Poll Database (Gallup,
2015). For OECD average: OECD Better Life Index Database.
Many components of well being are already comparable with OECD
countries' levels
0
2
4
6
8
10
Housing
Income (incomplete)
Jobs (incomplete)
Community
Education
Environment
Civic engagement
(incomplete)
Health
Life satisfaction
Safety
Work-life balance
Costa Rica OECD average

5. 5
Life expectancy is high
Note: Life expectancy at birth for all population.
Source: OECD Health Statistics.
50
55
60
65
70
75
80
85
50
55
60
65
70
75
80
85
1968 1973 1978 1983 1988 1993 1998 2003 2008 2013
Costa Rica Latin America & Caribbean OECD
Years Years

6. 6
Costa Rica is an attractive destination for
investment
Source: World Bank, World Development Indicators.
Net foreign direct investment
0
1
2
3
4
5
6
7
8
0
1
2
3
4
5
6
7
8
1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013
% of GDP% of GDP
Costa Rica Latin America & Caribbean OECD

7. 7
Macroeconomic stability is crucial for growth
Note: Inflation expectations are one year ahead.
Source: Central Bank of Costa Rica.
Improved monetary policy framework has contributed to falling
inflation
-4
-2
0
2
4
6
8
10
12
14
16
18
-4
-2
0
2
4
6
8
10
12
14
16
18
2003 2005 2007 2009 2011 2013 2015
%%
Inflation
Inflation expectations

8. 8
Natural resources are well managed
Source: IEA CO2 Emissions from Fuel Combustion Statistics, Indicators for CO2 Emissions Database.
CO2 emissions per capita are low; the share of renewables in
electricity generation and forest cover are large
0
2
4
6
8
10
12
14
16
18
0
2
4
6
8
10
12
14
16
18
CRI
MEX
TUR
SWE
PRT
CHL
FRA
CHE
ESP
ITA
GRC
GBR
POL
DEU
JPN
OECD
NLD
USA
tCO2 per capita, 2012 tCO2 per capita, 2012

9. 9
First challenge: restoring fiscal
sustainability

10. 10
The tax reform will cut the budget deficit
Source: Ministry of Finance of Costa Rica and OECD Economic Outlook 98 Database.
General government budget balance
-6
-5
-4
-3
-2
-1
0
1
2
-6
-5
-4
-3
-2
-1
0
1
2
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
% of GDP% of GDP
No reform OECD recommendation
Tax reform
submitted to
Congress
No reform

11. 0
10
20
30
40
50
60
70
80
0
10
20
30
40
50
60
70
80
2009 2011 2013 2015 2017 2019 2021 2023 2025 2027 2029
General government debt as % of GDP
No reform
Tax reform submitted to Congress: 2.1% GDP
With additional fiscal measures: 3% GDP
General government debt as % of GDP
11
A fiscal adjustment of 3% GDP will cut the
public debt
Effect of alternative reforms
Source: OECD calculations.
Structural reforms will boost growth, further cutting the debt ratio

12. 12
Public spending is rising because of an
increasing wage bill
General government, composition of expenditure
Source: Ministry of Finance.
0
5
10
15
20
25
30
35
40
0
5
10
15
20
25
30
35
40
2008 2009 2010 2011 2012 2013 2014
% of GDP% of GDP
Others Wage bill

13. 13
Fiscal revenues are low
 Approve and implement the proposed tax reform submitted to
congress
Total revenue
Source: OECD Revenue Statistics in Latin America and the Caribbean 2015.
0
5
10
15
20
25
30
35
40
0
5
10
15
20
25
30
35
40
1990 1996 1998 2000 2002 2004 2006 2008 2010 2012
% of GDP% of GDP
OECD
Costa Rica

14. 14
Earmarking makes public spending inflexible
Organisation of the public sector with expenditure share in percent (2014)
Source: Ministry of Finance.
The central government has little control over public-sector finance
 Strengthen the authority of the Ministry of Finance to control
overall public-sector expenditure
Constitutional and
legal mandates
69%
Debt service
14%
Non-rigid spending
17%

15. 15
Second challenge: making
growth more inclusive

16. 0
5
10
15
20
25
30
35
0
5
10
15
20
25
30
35
DNK
CZE
FIN
SVN
ISL
SVK
BEL
NOR
SWE
DEU
NLD
CHE
AUT
LUX
HUN
POL
FRA
IRL
NZL
CAN
AUS
EST
OECD
PRT
GBR
JPN
KOR
ITA
ESP
GRC
RUS
TUR
USA
MEX
CHL
CRI
16
The richest 10% earn 32 times the income of
the poorest 10%
Ratio of incomes of the top 10% vs. bottom 10% (latest available year)
Note: Data for 2012 or latest available year. Preliminary estimate for Costa Rica.
Source: OECD Income Distribution Database (IDD).

17. 17
The tax and transfer system does little to reduce
income inequality
Inequality (Gini) before and after taxes and transfers (latest available year)
Note: Data for 2012 or latest available year. Preliminary estimate for Costa Rica.
Source: OECD Income Distribution Database (IDD); and Lustig et al. (2013).

18. 18
Female labour market participation is low
Note: Data for Brazil is 2013.
Source: OECD Labour Force Statistics Database.
0
10
20
30
40
50
60
70
80
90
0
10
20
30
40
50
60
70
80
90
TUR
MEX
CRI
ITA
CHL
KOR
GRC
BRA
HUN
POL
IRL
OECD
SVK
COL
BEL
LUX
CZE
JPN
USA
SVN
FRA
ESP
PRT
AUS
AUT
EST
GBR
DEU
FIN
NLD
NZL
CAN
DNK
NOR
CHE
SWE
ISL
%%
Women labour force participation rate (age 15 to 64, 2014)

19. 19
The lack of childcare services keeps
poor women out of paid work
Increase the supply of publicly-funded childcare services to
facilitate women’s participation in the labour market
Percentage of women out of the labour force
because of non-paid care responsibilities (24-35 years, 2014)
Source: OECD calculations based on ENAHO 2014.
0
10
20
30
40
50
60
70
80
90
0
10
20
30
40
50
60
70
80
90
Poorest quintile Quintile II Quintile III Quintile IV Richest quintile
%%

20. 20
Informality is increasing
Strengthen enforcement and reduce administrative burdens
Source: INEC, Encuesta Continua de Empleo, 2015.
70
80
90
100
110
120
130
140
150
70
80
90
100
110
120
130
140
150
I 2011 III 2011 I 2012 III 2012 I 2013 III 2013 I 2014 III 2014 I 2015 III 2015
Index 2011 Q1=100Index 2011 Q1=100
Informal employment
Formal employment

21. 21
Educational outcomes are poor
Percentage of adults who have attained at least upper secondary education (2014)
Establish better educational outcomes as the main policy target
Source: OECD Education at a Glance 2015.
0
10
20
30
40
50
60
70
80
90
100
0
10
20
30
40
50
60
70
80
90
100
25-64 year-olds 25-34 year-olds
%%
OECD average Chile Brazil Costa Rica

22. 22
Waste-water treatment is deficient
Note: Data for the latest available year.
Source: World Bank, World Development Indicators Database 2012; Estado de la Nación 2014; UN stat; Eurostat; Aquastat FAO
data; UNEP 2000; OECD Water database; OECD Environment at a Glance 2013.
Improve waste-water management facilities
0
10
20
30
40
50
60
70
80
90
100
0
10
20
30
40
50
60
70
80
90
100
Connection to sewage treatment (%) Sewage treatment (%)
%%
Costa Rica Brazil Mexico Chile OECD average

23. 23
Third challenge: adopt reforms to
boost productivity growth

24. 0.0
0.5
1.0
1.5
2.0
2.5
3.0
0.0
0.5
1.0
1.5
2.0
2.5
3.0
1990s 2010-2015
Costa Rica OECD
Annual % change, average Annual % change, average
24
Productivity growth is slowing
Source: OECD Economic Outlook 98 Database.
Enhance the strategic role of the Presidential Council on
Competitiveness and Innovation

25. 0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
COL
CHL
MEX
CRI
GRC
ARG
SVK
POL
TUR
ITA
NZL
HUN
ESP
PRT
NOR
IRL
CAN
GBR
CZE
CHN
AUS
NLD
BEL
FRA
OECD
SVN
USA
AUT
DNK
DEU
CHE
JPN
SWE
FIN
KOR
% of GDP % of GDP
25
R&D activities are limited
Note: Total R&D expenditure (public and business) as a percentage of GDP, 2012 or latest available year.
Source: OECD, Main Science and Technology Outlook 2014; Eurostat; UNESCO Institute for Statistics (UIS), June 2014.
Public R&D spending (latest available year)
The public sector accounts for a large share of R&D spending

26. 26
Higher education contributes to s small
share pf public R&D expenditure
 Increase the share of public R&D channeled to universities;
better enforce intellectual property rights (IPRs)
Note: Public R&D expenditure by type of research system. Data for 2012 or latest available year.
Source: OECD Science, Technology and Industry Outlook 2014.
Public R&D spending (latest available year)
0
10
20
30
40
50
60
70
80
90
100
110
0
10
20
30
40
50
60
70
80
90
100
110
CHN
ARG
KOR
SVN
MEX
USA
CRI
POL
DEU
HUN
SVK
NZL
ESP
CZE
FRA
JPN
OECD
GRC
NOR
ITA
FIN
AUS
BEL
NLD
GBR
TUR
CAN
IRL
AUT
SWE
PRT
COL
CHL
DNK
CHE
Higher education expenditure on R&D Government expenditure on R&D
% of public R&D spending % of public R&D spending

27. 27
Regulation restricts competition in product
markets
 Eliminate anti-trust exemptions and give the competition
commission more independence
Note: OECD is a simple average of OECD countries, 2013 data. USA latest data is 2008.
Source: OECD Product Market Regulation Database for OECD countries and Brazil. OECD-World Bank Group Product Market
Regulation Database for Colombia, Peru and Costa Rica.
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
2.2
2.4
2.6
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
2.2
2.4
2.6
NLD
GBR
USA
AUT
DEN
NZL
ITA
AUS
EST
FIN
DEU
PRT
HUN
SVK
BEL
CZE
JPN
CAN
ESP
IRL
LUX
OECD
NOR
FRA
ISL
CHE
CHL
LTU
SWE
LVA
POL
PER
SVN
GRC
COL
KOR
MEX
CRI
TUR
BRA
Level of PMR scoreLevel of PMR score

28. 28
State-owned banks play a dominant role but
have higher costs than private banks
 Eliminate regulatory asymmetries favouring state-owned banks;
improve corporate governance of state-owned banks
Banks' administrative costs over total assets and liabilities
Note: The bars show the median of private and public banks' monthly administrative costs (general and personnel expenditures)
expressed as percentage of the sum of total assets and liabilities; the ratio of the monthly administrative costs to the sum of total
assets and liabilities are averaged over the year; data for 2015 are from January to September.
Source: Superintendencia General de Entidades Financieras (SUGEF).
0.00
0.05
0.10
0.15
0.20
0.00
0.05
0.10
0.15
0.20
Private
banks
Public
banks
Private
banks
Public
banks
Private
banks
Public
banks
2013 2014 2015
%%
General expenditures Wage bill

29. 1
2
3
4
5
6
7
1
2
3
4
5
6
7
BRA
CRI
POL
LAC
SVK
CZE
NOR
ITA
GRC
EST
MEX
AUS
TUR
ISL
SVN
NZL
OECD
CHL
GBR
BEL
IRL
CAN
DNK
SWE
KOR
USA
LUX
FIN
DEU
ESP
JPN
CHE
NLD
FRA
AUT
PRT
From 1 (worst) to 7 (best) From 1 (worst) to 7 (best)
29
Perceived quality of transport infrastructure is
poor
Source: World Economic Forum, The Global Competitiveness Index Historical Dataset © 2005-2015.
 Reduce the number of public-works agencies and better
coordinate their policy and project-execution roles
Perceived quality of roads (2013-2014)

30. 30
Summary

31. Main Findings
o Tax revenues are low and spending is rising fast. The public
administration is highly fragmented.
o The central bank’s independence in the conduct of monetary policy can be
improved.
o Banking-sector competition and financial systemic risks remain concerns.
o Income inequality is high and poverty has remained largely unchanged
over the last two decades.
o Female labour market participation is low.
o The share of informal employment is high and rising.
o Spending on education is high but outcomes are poor.
o Competition is weak and the role of state-owned enterprises is pervasive.
o Low productivity growth and barriers to entrepreneurship hamper income
convergence.
o Transport infrastructure is deficient due to a complex institutional
framework and low coordination.
31
ProductivityInclusionMacro

32. Recommendations to restore fiscal
sustainability and enhance monetary credibility
 Cut the central government deficit by 2% of GDP during 2016-17 and an
additional 1.5% thereafter by approving and implementing the proposed tax
reform, combatting tax evasion, eliminating tax exemptions without an
economic or social rationale, and curbing expenditure growth.
 Introduce a medium-term fiscal framework with a verifiable expenditure rule.
 Strengthen the authority of the Ministry of Finance to control overall public-
sector expenditure and introduce performance-based budgeting.
 Strengthen the effectiveness of monetary policy to achieve price stability with
appropriate institutional reforms, in particular by delinking the designation of
the President of the Central Bank from the political cycle, and clarifying
accountability rules such as clear motives for her/his dismissal.
 Establish a deposit-insurance scheme covering all banks to help level the
playing field in the banking sector, accelerate the adoption of Basel III
principles, and release publicly the results of banks' stress tests.
32

33. Recommendations to make growth more
inclusive
 Increase the supply of publicly-funded childcare services to facilitate
women participation in the labour market.
 Simplify the minimum wage structure and enforce compliance with the
law.
 Adopt a comprehensive strategy to reduce high labour market
informality by strengthening enforcement, reducing administrative
burdens to entrepreneurship, and enabling the poor to become formal
workers.
 Establish better educational outcomes as the main policy target, with
special emphasis on improving the performance of disadvantaged
students and schools.
 Develop an apprenticeship system that closely involves employers.
More in Chapter 1 of the Economic Assessment
33

34. Recommendations to boost productivity
34
 Give the competition commission more independence and eliminate anti-
trust exemptions.
 Improve the corporate governance of state-owned banks and enterprises by
adopting the OECD Guidelines on Corporate Governance of State-Owned
Enterprises.
 Strengthen the institutional design to align policies to boost productivity by
enhancing the strategic role of the Presidential Council on Competitiveness
and Innovation
 Improve the business environment and reduce barriers to entrepreneurship.
 Streamline the institutional and legal framework of public-work agencies, to
achieve better policy design and execution in transport and other
infrastructure sectors.
More in Chapter 2 of the Economic Assessment

35. More Information…
www.oecd.org/eco/surveys/economic-survey-costa-rica.htm
OECD
OECD Economics
Disclaimers:
The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without
prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law.
This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers
and boundaries and to the name of any territory, city or area.
35