Fitch Ratings has confirmed Costa Rica’s long-term foreign currency issuer default rating at ‘BB’ and kept the outlook positive. The decision points to steady progress in public finances and solid economic growth, even as global pressures like U.S. tariffs test the export sector.
The economy held firm in 2025. Gross domestic product expanded 4.1 percent, a slight dip from 4.3 percent in 2024. Free trade zones drove much of the performance, with exports up 15 percent year-over-year through October, despite trade barriers. Imports grew 8 percent, trimming the trade deficit. Fitch forecasts growth at 3.5 percent for 2026 and 2027, matching the average for countries in the same rating category.
On the fiscal side, central government revenues climbed 2.2 percent through September, while total spending dropped 1.6 percent, led by an 8.7 percent reduction in interest payments. The primary surplus reached 1.3 percent of GDP in the third quarter, up from 1.2 percent in 2024. Fitch expects the overall fiscal deficit to shrink to 3.2 percent of GDP this year, down from 3.8 percent last year. The interest-to-revenue ratio will fall to 29 percent, though it remains above peers.
Central government debt held at 59.4 percent of GDP, under the 60 percent mark that eases fiscal rules for infrastructure spending. This stems from consistent primary surpluses and lower borrowing costs. The government covered most of the deficit through local markets, with rates close to dollar funding. In November, it raised 1 billion euros via global depositary notes open to foreign investors.
International reserves hit 16 billion dollars in November, more than double the 6.9 billion at the end of 2021. This covers 4.7 months of external payments, on par with the ‘BB’ median. Foreign direct investment totaled 2.1 billion dollars in the first half, fully funding the current account deficit, projected at 1.3 percent of GDP.
Inflation stayed negative since May, at -0.4 percent year-over-year in November. The central bank cut its policy rate to 3.5 percent in September, reacting to colon appreciation and U.S. Federal Reserve moves. Fitch anticipates average inflation of 0.3 percent in 2026, below the 3 percent target.
In June, the International Monetary Fund approved a two-year 1.5-billion-dollar flexible credit line, acknowledging fiscal reforms, tax updates, and stronger central bank independence. These steps have cut poverty and steadied debt over the past decade. Looking to the February 2026 elections, Fitch expects fiscal and macroeconomic policies to continue, no matter the winner. Political divisions remain, but polls favor governing party candidate Laura Fernández, who could secure a first-round win with over 40 percent. Security ranks as voters’ top issue.
Fitch notes that fiscal backsliding or rising debt could shift the outlook. On the upside, larger primary surpluses, widespread growth, and smoother legislative reforms could lead to an upgrade. This affirmation follows S&P Global Ratings’ October move, which lifted Costa Rica to ‘BB’ from ‘BB-‘ with a stable outlook. Both agencies highlight advances but stress the need to address fiscal constraints, like interest payments at 4.8 percent of the economy.
The government plans to seek approval for 1.5 billion dollars in annual external bonds over nine years, with a bill set for the Legislative Assembly in 2026. Past efforts stalled, but the current environment may help passage. Costa Rica draws on strengths like high per-capita income and sound governance, ranking in the 71st percentile on World Bank indicators. Still, fiscal stiffness and past political hurdles limit options.
