Costa Rica proposes tax increases, austerity before IMF talks

The Central American country seeks $1.75bn in IMF aid to help offset the economic blow from the coronavirus pandemic.

Increase of Coronavirus Cases Threatens Costa Rica
Costa Rica's economy is largely based on tourism and agriculture [Arnoldo Robert/Getty Images]

Costa Rica has proposed privatisations, tax increases and additional austerity measures before a negotiation with the International Monetary Fund (IMF) over a package to help the Central American country’s struggling economy.

President Carlos Alvarado had said that his administration would seek talks with the IMF to access financial aid worth $1.75bn to help offset the economic blow from the coronavirus pandemic.

The plan was presented on Thursday by Finance Minister Elian Villegas and Central Bank President Rodrigo Cubero. The opposition-controlled Congress will have to approve some of the measures.

Proposals include raising income and property taxes and a tax on banking transactions.

It also proposes freezing public sector wages, selling a state factory that produces alcohol and a bank currently in government hands, as well as land.

A nation of five million people, Costa Rica’s economy is largely based on tourism and agriculture, including coffee and bananas, as well as electronics.

‘The best way’

“We need another fiscal adjustment, in addition to the one we did in 2018,” said Cubero. “The best way to do it is with the IMF because it gives us access to resources and a seal of confidence from the international market.”

Villegas also said that the IMF aid, if approved, would be used to pay off debt and cover ongoing costs.

Combined with the tax increases and austerity measures, he said the funds would help to generate revenues equivalent to 6 percent of gross domestic product (GDP).

The pandemic has aggravated public finances problems and caused the deficit projection for this year to rise to 9.3 percent of GDP with an indebtedness at 70 percent of GDP.

Source: Reuters