2020 OECD ECONOMIC SURVEY OF COSTA RICA Keeping the reform momentum 15 July 2020, Paris – San José
http://www.oecd.org/economy/costa-rica-economic-snapshot/
Key messages • Timely and well targeted measures are helping to contain the impact of the COVID-19 crisis. • Reform momentum has been extraordinary. Going ahead with further reforms is key. • As soon as the recovery is established, full implementation of the fiscal reform is critical. • Simplifying business regulations and reducing bureaucracy would boost competitiveness and jobs. • Improving public spending efficiency, reducing informality and boosting financial inclusion would improve inclusiveness. 2
COVID-19 is taking a toll on the economy
3
The economy is in recession Real GDP, y-o-y % change Y-o-y % change 10
Y-o-y % change 10
8
8
6
6
4
4
2
2
0
0
-2
-2
-4
-4
-6
2000
2004
2008
Note: Data for 2020 refer to an average over Q1 and Q2, which are forecast. Source: OECD Economic Outlook 107 database.
2012
2016
2020
-6
4
Unemployment is surging % of labour force 20
% of labour force 20
16
16
12
12
8
8
4
4
0
2000
2004
2008
Note: Data for 2020 refer to an average over Q1 and Q2, which are forecast. Source: OECD Economic Outlook 107 database.
2012
2016
2020
0
5
Sovereign risk premia have increased EMBI sovereign bond spreads, basis points 1000
BRA
900
CHL
COL
CRI
1000
MEX
900
800
800
700
700
600
600
500
500
400
400
300
300
200
200
100
100
0 Jan-13
Jul-13
Source: Refinitiv.
Jan-14
Jul-14
Jan-15
Jul-15
Jan-16
Jul-16
Jan-17
Jul-17
Jan-18
Jul-18
Jan-19
Jul-19
Jan-20
0
6
Inflation is subdued Y-o-y % changes Y-o-y % changes 16 14
Central bank target range
Headline inflation
Policy rate
Y-o-y % changes 16 14
12
12
10
10
8
8
6
6
4
4
2
2
0
0
-2 2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Note: Shaded area represents the central bank target range. Data are based on monthly averages. Latest value refers to May 2020. Source: Banco Central de Costa Rica.
2019
2020
-2
7
The recovery will be very gradual Single-hit scenario
2020
2021
Gross domestic product
-4.1
2.7
Unemployment rate
15.9
13.9
Fiscal deficit (% of GDP)
-8.9
-7.1
Primary fiscal deficit (% of GDP)
-3.9
-1.7
Gross public debt (% of GDP)
67.9
70.6
Double-hit scenario
2020
2021
Gross domestic product
-4.9
1.5
Unemployment rate
17.0
15.5
Fiscal deficit (% of GDP)
-9.1
-7.7
Primary fiscal deficit (% of GDP)
-4.0
-2.1
Gross public debt (% of GDP)
68.8
73.1
Note: GDP refers to annual percentage growth. Unemployment rate is per cent of labour force. Source: OECD Economic Outlook 107 database.
8
Recommendations to cope with the COVID-19 crisis • Any support to firms and households during the coronavirus crisis should be temporary and targeted at the most affected sectors. • Prepare for increases in healthcare demand, including by boosting testing and tracing capabilities. • Be ready to ease monetary policy further to support the economy during the COVID- 19 crisis. • Continue to provide liquidity to the banking system to preserve its integrity and support confidence and continue to adjust prudential regulation during the crisis.
9
Economic progress has been significant but significant gaps with OECD countries persist
10
The export basket has become increasingly diversified Economic complexity and diversity 230
0.4 Number of products
Economic Complexity Index (RHS)
220 210
0.3 0.2 0.1
200 0.0 190 180
-0.1 -0.2
170 -0.3 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Source: Harvard University Center for International Development Atlas of Economic Complexity. 11
Costa Rica is one of the few countries that reversed deforestation Land covered by forest, % of total land area
Source: OECD Environment database; Worldometers.info 12
The income gap with advanced economies remains large Thousands of PPP-adjusted 2015 USD per capita 50 45
CRI
OECD
LAC OECD
50 45
40
40
35
35
30
30
25
25
20
20
15
15
10
10
5
5
0 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Note: LAC OECD refers to the simple average of Chile, Colombia and Mexico. Source: OECD Economic Outlook 107 database; World Bank World Development Indicators.
13
Inequality is high Gini coefficient, 2019 or latest year available 0.6
0.6 Before taxes and transfers
After taxes and transfers 0.5
0.4
0.4
0.3
0.3
0.2
0.2
0.1
0.1
0.0
0.0
ISL SVK CHE CZE SWE EST KOR SVN NOR POL DNK HUN BEL CAN JPN NLD DEU OECD ISR LVA AUS TUR AUT FIN LTU ITA PRT FRA ESP LUX GBR GRC USA IRL MEX COL CHL CRI
0.5
Source: OECD Income Distribution database. 14
Macroeconomic policies have improved but the fiscal framework should be reinforced
15
The fiscal deficit remains large Government financial balance, % of GDP 6
6 Budget balance
4
Primary balance
4
2
2
0
0
-2
-2
-4
-4
-6
-6
-8
-8
-10
2006
2008
2010
2012
2014
2016
2018
2020
Source: OECD Economic Outlook 107 database; and Ministerio de Hacienda. Data for 2020 are projections based on the single-hit scenario in the Economic Survey of Costa Rica 2020.
-10
16
Public employment spending is high Compensation of government employees % of total revenue, 2018 or latest available year 60
60
50
50
40
40
30
30
20
20
10
10
0
DEU
COL
MEX
FRA
OECD
PRT
SWE
NOR
Source: ILOSTAT; OECD Analytical database; and IMF Global Finance Statistics.
ESP
AUS
CHL
USA
CAN
BRA
PER
CRI
0
17
Public procurement is not widely used % of general government expenditure less salaries and interest payments, 2018 or latest available year
Note: Data for Costa Rica refer to 2017. Source: Calculations based on the OECD Government at a Glance database.
NLD
AUS
ISR
KOR
CAN
JPN
TUR
SWE
GBR
DEU
IRL
FIN
POL
0
NOR
0
DNK
10
USA
10
CHE
20
FRA
20
BRA
30
ESP
30
COL
40
MEX
40
PRT
50
GRC
50
ITA
60
CRI
60
18
The government’s interest expenditure is high Interest expenditure % of GDP, 2019 or latest year available 4.5
4.5
2008
4.0
4.0
3.5
3.5
3.0
3.0
2.5
2.5
2.0
2.0
1.5
1.5
1.0
1.0
0.5
0.5
0.0
DEU
CHL
POL
FRA
OECD
ESP
USA
TUR
COL
PRT
ARG
ITA
GRC
Source: IMF World Economic Outlook, Oct. 2019. Data on interest expenditure for Costa Rica are from Ministerio de Hacienda.
MEX
CRI
0.0
19
Full implementation of the fiscal rule is critical for debt sustainability Central government debt scenarios, % of GDP 100
100
90
90
80
80
70
70
60
60
Single-hit scenario
50
Double-hit scenario
40
40
Incomplete implementation
30 20 2010
50
30
Structural reform (double-hit scenario) 2015
2020
2025
2030
2035
Note: Evolution of central government debt-to-GDP ratio under the alternative scenarios as described in OECD Economic Survey of Costa Rica 2020. Source: OECD calculations based on data from Ministerio de Hacienda.
2040
20
20
Key recommendations to further improve macroeconomic policies • Ensure that the fiscal reform is fully applied once the recovery is established. • Eliminate tax exemptions benefiting more affluent tax payers. • Adopt a single salary scale for public employment. • Increase the use of public procurement. • Create a public debt management agency. 21
Boosting productivity and improving regulations
22
Labour productivity is relatively low 1000s of PPP-adjusted USD per capita, 2018 or latest available year 70
70
60
60
50
50
40
40
30
30
20
20
10
10
0
COL
CRI
CHN
MEX
CHL
POL
HUN
PRT
SVK
CZE
ESP
Note: OECD average calculated as the simple average across OECD countries with available data. Source: OECD Productivity database.
NZL
FRA
OECD
AUS
DEU
USA
0
23
Regulations are very stringent Overall PMR score, index from 1 to 6 (most restrictive) 2.5
2.0
2.0
1.5
1.5
1.0
1.0
0.5
0.5
0.0
0.0
GBR DNK ESP DEU NLD SWE AUS NOR LTU NZL EST LVA SVN CZE HUN ITA PRT FIN OECD IRL CHL ISR ISL POL AUT JPN CHE SVK GRC FRA MEX LUX BEL KOR CAN COL TUR CRI
2.5
Note: Data refer to 2018. Source: OECD Product Market Regulation database.
24
Establishing a company is highly bureaucratic Number of bodies to contact A. Limited liability company
B. Personally-owned enterprise, no employees
9
7
8
6
7
5
6 5
4
4
3
3
2
2
1
1 0
OECD
CHL
MEX
Note: Data refer to 2018. Source: OECD Product Market Regulation database.
COL
CRI
CHL
OECD
MEX
COL
CRI
0
25
Prices of goods are high Rice, PPP-adjusted USD, 2018 4
4
3
3
2
2
1
1
0
Spain
Chile
Note: Prices are converted to PPP dollars by using 2018 conversion rates. Source: OECD computations based on Numbeo and OECD data.
France
Mexico
Costa Rica
0
26
Boosting competition in the rice sector would benefit low-income households Potential gains in purchasing power by income decile % 2.5
% 2.5
2.0
2.0
1.5
1.5
1.0
1.0
0.5
0.5
0.0
1
2
3
4
5
6
7
Note: This illustrative scenario shows the impact across the income distribution of a decreased by 40% in rice prices Source: OECD calculations based on Costa Rican Households and Consumption surveys.
8
9
10
0.0
27
Costa Rica lags behind in digital government Share of government transactions that can be completed on line (%) 80
80
70
70
60
60
50
50
40
40
30
30
20
20
10
10
0
CRI
COL
ARG
BRA
URY
CHL
MEX
0
Source: IDB 2018 publication, "Wait no more: Citizens, red tape, and digital government". Benjamin Roseth, Angela Reyes and Carlos Santiso. 28
There is room to improve the governance of public enterprises Index from most (0) to least (6) competition-friendly regulation A. Scope of SOEs
B. Governance of SOEs
4.0
4.0
3.5
3.5
3.0
3.0
2.5
2.5
2.0
2.0
1.5
1.5
1.0
1.0
0.5
0.5
0.0
CHL
MEX
OECD
Note: Data refer to 2018. Source: OECD Product Market Regulation database.
CRI
OECD
CHL
CRI
MEX
0.0
29
Recommendations to boost productivity and improve regulations • Introduce online one-stop mechanisms and ensure physical ones cover all licenses and permits and are present in all major cities. • Eliminate the requirement for using a notary to register a company. • Make the electronic signature mechanism more user-friendly. • Widen the scope of silent is consent rules and remove the need to require administratively its application. • Ensure a full and timely implementation of the competition reform road map. • Gradually phase out remaining exemptions to competition law in rice, sugar, coffee, maritime services and professional services.
30
Reducing inequality and promoting financial inclusion
31
Poverty rates have room to decrease further % of households 30
% of households 30 Total poverty
Extreme poverty
25
25
20
20
15
15
10
10
5
5
0 1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
2017
0 2019
Source: INEC Encuesta Nacional de Hogares (ENAHO) and Encuesta de Hogares de PropĂłsitos MĂşltiples (EHPM). 32
Female labour market participation is low 90
Female labour force participation rate % of female population aged 15-65
90 80
70
70
60
60
50
50
40
40
30
30
20
20
10
10
0
0
TUR MEX CRI ITA CHL KOR GRC BRA COL POL BEL HUN SVK IRL LUX FRA USA ISR OECD CZE ESP SVN AUT JPN PRT AUS GBR DEU LVA CAN EST NOR DNK FIN NLD NZL LTU CHE SWE ISL
80
Note: Data refer to 2019 or latest year available. Source: OECD Labour Force Statistics. Data for Costa Rica are from INEC and refer to 2019.
33
Informality is high % of total employed population 60
60 Own-account
Employees
50
50
40
40
30
30
20
20
10
10
0
III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Note: Informality is defined as the percentage of workers in employment 1) not contributing to the social security system, 2) unpaid workers or 3) selfemployed workers and employers who have companies that are not registered in the National Property Registry and do not keep a formal accounting. Source: Instituto Nacional de EstadĂstica y Censos: Encuesta Continua de Empleo.
0
34
Spending on education is high Expenditure on educational institutions, % of GDP Latest available year
8
8
7
7
6
6
5
5
4
4
3
3
2
2
1
1
0
JPN
ESP
DEU
MEX
CHL
COL
OECD
PRT
USA
FRA
ARG
BRA
SWE
FIN
NOR
CRI
Note: Data for Costa Rica is based on 2020’s budget of Education Ministry and the Vocal Education Agency (INA). Including teachers pensions, spending in Costa Rica reaches 9% of GDP. Data for all other countries are for 2017. Source: OECD estimate; OECD Education at a Glance database; and OECD PISA database.
0
35
Returns to education are low PISA average score 520
520 CHL
COL
CRI
MEX
URY
OECD
500
500
480
480
460
460
440
440
420
420
400
400
380 2009
2012
2015
380 2018
Source: OECD PISA database. 36
A pension reform is needed Central government public debt, % of GDP 130
130
Single-hit scenario
110
110
Single-hit scenario with ageing costs Increase in number of years to calculate benefits
90
90
Increase in retirement age
70
70
50
50
30
30
10 2015
2020
2025
2030
2035
2040
2045
2050
2055
10 2060
Note: Evolution of central government debt-to-GDP ratio under scenarios that take into account ageing costs and alternative pension policy changes as described in OECD Economic Survey of Costa Rica 2020. Source: Carranza and JimĂŠnez (2019); OECD calculations.
37
There is room to increase financial account ownership % aged over 15 with account at financial institution, 2017
Note: Latin America and Caribbean (LAC) includes: Argentina, Belize, Bolivia, Brazil, Chile, Colombia, Costa Rica, Dominican Republic, Ecuador, El Salvador, Guatemala, Haiti, Honduras, Jamaica, Mexico, Nicaragua, Panama, Paraguay, Peru and Venezuela. Source: World Bank Global Findex database.
DEU
LUX
BEL
CHE
JPN
AUT
EST
SVN
GBR
0
IRL
0
KOR
10
FRA
10
ITA
20
ESP
20
LVA
30
USA
30
ISR
40
PRT
40
OECD
50
POL
50
GRC
60
SVK
60
LTU
70
CZE
70
HUN
80
CHL
80
CRI
90
TUR
90
LAC
100
MEX
100
38
Financial inclusion levels are low in many counties
Note: The county-level Financial Inclusion Index is a normalised indicator as defined in the OECD Economic Survey of Costa Rica 2020. The county of Rio Cuarto, which was created in 2017 is excluded from the analysis for consistency. Source: Banco Central de Costa Rica; Instituto Nacional de EstadĂstica y Censos; and Superintendencia General de Entidades Financieras.
39
Household indebtedness has increased rapidly Household debt, loans and debt securities, % of GDP 35
35
30
30
25
25
20
20
15
15
10 2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
10 2018
Source: IMF Global Debt database. 40
Recommendations to boost inclusiveness and financial inclusion • Improve targeting and focus social spending programmes on low-income individuals. • Continue to increase the supply of affordable childcare. • Reduce informality by shifting part of the tax burden from social security contributions to property taxes. • Strengthen teacher recruitment, selection and training based on regular teachers evaluations. • Link the retirement age to increases in life expectancy. • Grant FinTech companies full and direct access to the national payments. 41
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http://www.oecd.org/economy/costa-rica-economic-snapshot/
OECD Economics OECD 42