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- GDP (PPP):
- $61.6 billion
- 3.5% growth
- 3.4% 5-year compound annual growth
- $12,942 per capita
- Inflation (CPI):
- FDI Inflow:
Costa Rica’s economic freedom score is 67.2, making its economy the 51st freest in the 2015 Index. Its overall score has increased by 0.3 point from last year, reflecting improvements in labor freedom and freedom from corruption that outweigh a combined decline in monetary freedom, business freedom, and the control of government spending. Costa Rica is ranked 10th out of 29 countries in the South and Central America/Caribbean region, and its overall score is higher than the global and regional averages.
Economic development has focused on orienting the economy to the global marketplace. Costa Rica has one of the highest levels of foreign direct investment in Latin America, and the government’s limited economic presence has facilitated a business environment based on tourism, agriculture, and technology.
The small increase in Costa Rica’s overall score this year has reversed a multi-year decline. Over the past five years, Costa Rica’s economic freedom has declined in four of the 10 factors, including property rights, fiscal freedom, labor freedom, and trade freedom. Changes in the corporate income tax regime to help pay for security services have undermined fiscal freedom.
Luis Guillermo Solís of the Partido Acción Ciudadana was elected president in 2014, ousting the incumbent Partido Liberación Nacional amid concerns over corruption. The peaceful transfer of power highlighted the long history of democratic stability that has contributed to one of Latin America’s highest levels of foreign direct investment per capita. Nevertheless, many people live in poverty and work in the underground economy. Fiscal and structural reforms to liberalize the economy are long overdue. While Costa Rica remains safer than many of its neighbors, crime rates are rising. There is an ongoing border dispute with Nicaragua. Costa Rica has benefited from foreign investments in electronics and health care, and the Central America–Dominican Republic–United States Free Trade Agreement (CAFTA–DR) has opened insurance and telecommunications to private investors.
Corruption is lower than elsewhere in the region, and Costa Rica has avoided the infiltration of its state institutions by organized crime, but drug-related activity has increased in the past two years as Mexican cartels move into Central America. The judicial branch is independent, but there are often substantial delays in the judicial process. Property rights are secure, and contracts are generally upheld.
The top individual income tax rate is 25 percent, and the top corporate tax rate is 30 percent. Other taxes include a general sales tax and a real property tax. The overall tax burden equals 21.9 percent of the domestic economy. Government spending amounts to 18.3 percent of gross domestic product, and public debt is equivalent to around 37 percent of yearly domestic income.
The environment for business formation is now more streamlined, but regulatory compliance remains time-consuming. Obtaining necessary permits still takes more than 100 days. The labor market remains relatively flexible, although a modest increase in the minimum wage went into force in July 2013. The government maintains price controls and in 2014 announced a one-year extension of price supports for rice.
Costa Rica’s average tariff rate is 3.1 percent, and the government has upgraded its customs procedures. Domestic and foreign investors are treated similarly, but investment in some sectors of the economy is restricted. The growing financial sector has gradually become more open to competition, but state-owned banks continue to dominate the sector. Capital markets are not fully developed.