Costa Rica proposes tax hikes, austerity ahead of IMF negotiation

Costa Rica on Thursday proposed privatisations, tax increases and additional austerity measures ahead of 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 negotiations with the IMF to access financial aid worth $1.75 billion to help offset the economic blow from the coronavirus pandemic.

Costa Rica on Thursday proposed privatisations, tax increases and additional austerity measures ahead of 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 negotiations with the IMF to access financial aid worth $1.75 billion to help offset the economic blow from the coronavirus pandemic. The plan was presented 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. In addition, it 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.

"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 added 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% 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% of GDP with an indebtedness at 70% of GDP.

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