Country Economic Forecasts > Costa Rica

In 2016 the Costa Rican economy is expected to pick up to 3.8% growth, assisted by expansionary domestic monetary policy, continued growth in the US, increased foreign investment in the service sector and spending on infrastructure projects.However, the key challenge for 2016 and, indeed, the longer-term outlook lies in reducing the fiscal deficit, which currently stands at 6% of GDP. President Solis has used the Panama Papers scandal to assist in bringing fiscal reform to the top of the political agenda, in particular the tax fraud bill. It is estimated that government revenue equivalent to 8% of GDP is lost because of tax fraud and evasion. The Presidents PAC party has gained support from the PLN and Broad Front, and thus a majority in the legislature, to press for passing of the tax fraud bill. However, the effectiveness of the reform is unlikely to be apparent for some time.Other proposed reforms, such as changes to income tax bands and the introduction of VAT at 14%, are making little or no progress because of the PACs minority in the legislature. Failure to implement fiscal reforms led S&P in February to downgrade Costa Ricas credit rating to BB- with a negative outlook. Moodys has also adjusted its outlook from stable to negative.