Costa Rica:Technical Assistance Report-Upgrading the Rule-Based Fiscal Framework

Author: International Monetary Fund. Fiscal Affairs Dept.

Technical Assistance Report-Upgrading the Rule-Based Fiscal Framework

Volume/Issue: Volume 2023 Issue 097

Publication date: February 2023

ISBN: 9798400235016

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Topics covered in this book

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Economics- Macroeconomics , Money and Monetary Policy , Public Finance , International - Economics , expenditure rule , government expenditure growth , expenditure growth , expenditure ceiling , IMF's Fiscal Affairs Department , fiscal rule , Fiscal rules , Budget planning and preparation , Current spending , Global , Central America , Caribbean

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Summary

The fiscal rule that came into force in 2020 has bolstered fiscal discipline and served Costa Rica well. The rule sets ceilings on nominal expenditure growth for current and total expenditures linked to past nominal GDP growth and debt levels. The rule—explicitly identified in the Law 9635—is transparent, relatively simple, and allows flexibility in crises through an escape clause. The rule has been instrumental in the policy framework. It not only guides the fiscal policy in the budget, but also coalesces public opinion on the need for fiscal discipline. Along with other fiscal reforms, the government commitment to the fiscal rule has been instrumental to fiscal adjustment in 2021-22.