Q COSTARICA — Maintaining healthy public finances amidst significant challenges in security, education, and health will be President-elect Laura Fernández’s primary task upon taking office on May 8, as the 50th president.
The challenge is not easy, as the government has increasingly less money to meet its responsibilities, according to economists at the Economic and Social Observatory of the Universidad Nacional (UNA).
In short, the fiscal situation is fragile, according to Fernando Rodríguez, an economist at the UNA.
“There is a gradual deterioration in tax revenues, reflected in the reduction of Central Government income as a percentage of GDP, which fell from 15.98% in 2022 to 14.42% in 2025. This decline is mainly due to weakening tax collection. Specifically, the tax burden decreased from 13.20% of GDP in 2024 to 12.78% in 2025,” Rodríguez said.
Among the main factors explaining this behavior is the loss of dynamism in income tax revenue, especially in the corporate component, whose collection grew by only 1.1%. Likewise, the value-added tax (VAT) showed a slowdown, registering a year-on-year drop of 0.51% in 2025, reflecting less dynamism in sectors relevant to its collection, such as construction and tourism.
The Problem
The problem is that, in terms of security, for example, a war between drug cartels has led to record homicide rates since 2023, while resources for education have been significantly reduced, falling from 7.2% of GDP in 2015 to 5.4% in 2024.
Added to this is the crisis facing the CCSS pension system, which could collapse if reform is not implemented.
Regarding spending, after a brief respite, public debt once again exceeded the 60% threshold, reachin 60.4% of GDP,
This reactivated the fiscal rule, thereby containing public spending, and public sector salaries are expected to be frozen again until 2027.
Deteriorating tax revenues and high spending
Costa Rica must find a way to guarantee the sustainability of public finances while ensuring the social and productive investment the country requires (Figures from the Ministry of Finance, reviewed by UNA):
- Central Government revenues fall from 15.98% of GDP (2022) to 14.42% (2025)
- Fiscal deficit drops from 3.72% of GDP in 2024 to 3.41% in 2025.
- Tax burden falls from 13.20% in 2024 to 12.78% of GDP in 2025.
- Income tax loses momentum.
- IVA (VAT) slows down year-on-year change -0.51% in 2025).
- Drops in selective consumption tax and fuels.
- Signs of weakening in the State’s revenue-collecting capacity.
The Challenges
Economists from the UNA presented what they consider to be the eight major economic challenges facing Fernández:
- Economic growth outside of free trade zones
- Loans with better terms
- Greater labor force participation of women
- To ensure the sustainability of public finances without compromising social or public investment
- Efficient public transport and infrastructure
- Population aging and social sustainability
- Investment in education and technological adaptation
- Infrastructure
In addition to the fiscal situation and the need to invest more resources in education, health, and security, the experts point to the urgency of fostering genuine growth in the permanent pension system, ensuring that the reduction in the Monetary Policy Rate (MPR) translates into cheaper loans more quickly, and, of course, resolving the traffic congestion problem through improved public transportation, as well as addressing the aging population.
“Strengthening the sustainability of the pension system through gradual adjustments, broadening the contributor base, and reducing informal employment are vital actions to address the aging population. It is also necessary to incentivize supplemental savings and the voluntary extension of working life, including flexible retirement plans and part-time work beyond age 65,” the specialists added.