Wednesday 5 October 2022

Costa Rica must wait until 2030 for full post-pandemic economic reactivation

Mideplan presented a document that observes the behavior of the economy in the first year of the pandemic.

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05 October 2022 - At The Banks - BCCR

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QCOSTARICA – Costa Rica’s economy, as in the rest of the world, was affected by the COVID-19 pandemic, which caused a deterioration in economic conditions, which were reflected in the drop in variables such as Foreign Direct Investment (FDI), Gross Domestic Product (GDP) and Balance of Payments, among others; as well as an increase in the indicators of poverty, unemployment and inequality.

According to the Prospectiva en análisis macroeconómico de Costa Rica: Resiliencia post covid-19 – a prospective analysis prepared by the Ministry of National Planning and Economic Policy (Mideplan), a neutral recovery scenario could be reached by 2030 and a full reactivation after that year, with a view to achieving sustainable development.

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As concluded in the document, to achieve a positive scenario, the country must promote better use of the territory; invest in human resources; improve education, health and infrastructure; in addition to promoting the development and use of science and technology as fundamental elements for development.

Marlon Navarro Álvarez, interim minister of Mideplan, stated that “The COVID-19 pandemic confronted us with a harsh reality, in which it was shown that we must work more strategically on structural issues, in which the country must make a more determined effort to provide effective solutions, this study, is a means to know this reality and focus the resources available to the State, to resolve issues that cannot continue to be neglected and on which the country’s inhabitants require tangible solutions in the short and medium term«.

Ability to adapt to change

Costa Rica is a small, open, upper-middle income economy with a per capita income of US$12,670 in 2019. As explained in the document, the country has diversified its production and exports, which is why in nine years it climbed from position 58 to 44 in the Índice de Complejidad Económica (ICE) – Economic Complexity Index, that is, it has a greater capacity for future growth.

Comparing this information with the GDP per capita data, the study forecasts that by 2029 growth will be 3.7% per year.

Carlos von Marschall Murillo, head of the Prospective Analysis and Public Policy Unit of the Mideplan Development Analysis Area and coordinator of the study, explained that the document presented seeks to impact the formulation of public interventions (policies, plans, programs or projects), knowledge-based socioeconomic planning under strategic prospective planning where future scenarios are formulated through multidisciplinary techniques in order to reduce uncertainty and thus, the country can generate a transformative reactivation by reducing territorial gaps, leaving no one behind.

Read more: Costa Ricans will take longer than the average of countries to recover their economic well-being

Globalized economic situation

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Post-pandemic recovery does not depend only on internal factors, the document also analyzes various factors of the economic situation, such as the incorporation of Costa Rica into the Organization for Economic Cooperation and Development (OECD), problems in logistics trade (container crisis), changes in the exchange rate and inflationary pressures as a result of the war between Ukraine and Russia.

It also considers a series of risks contemplated in the Macroeconomic Plan of the Central Bank of Costa Rica: lower growth of the world economy, derivative prices, rate of spread of COVID-19 and trade flows with Central America, social and political tensions, risks to the stability and solvency of the financial system.

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