Costa Rica’s dollar exchange rate has fallen to levels not seen in about two decades, and economists Fernando Naranjo and Norberto Zúñiga say one of the main reasons is the government’s heavy use of external debt since 2023. The two argued that foreign borrowing has pumped more dollars into the local market, adding to the pressure that has pushed the U.S. currency lower against the colón. The dollar has already fallen by about ₡22 since the start of the new year alone, with much of that drop concentrated in February.
The broader market data backs up the idea that Costa Rica is dealing with an unusually large supply of dollars. In its January monetary policy report, the Central Bank said the abundance of foreign currency helped drive down the nominal exchange rate. It reported that the accumulated surplus from the public’s foreign exchange operations with intermediaries reached $6.65 billion in 2025, slightly below 2024 but still far above the average of recent prior years.
That is where the debt argument fits in. When the government takes on financing abroad, those funds arrive in dollars. Once public institutions exchange part of that money into colones for domestic use, the local market gets more dollar supply. Naranjo and Zúñiga said that this external indebtedness has become one of the most significant drivers behind the exchange-rate drop, especially given the scale of borrowing since 2023.
Finance Ministry figures show external financing has indeed remained part of the government’s funding mix. Its fourth-quarter 2025 fiscal results report said Costa Rica’s central government had gross financing needs of more than ₡6.35 trillion, with 7.6% covered through external sources. Another 16.7% came from cash pre-funding. Those figures do not prove that external debt alone caused the exchange-rate slide, but they do support the economists’ claim that foreign borrowing has been a meaningful part of recent government financing.
Other reporting shows how strong the downward pressure on the dollar has become. It was reported in February that the Central Bank bought $39 million in MONEX to avoid a steeper fall, yet the weighted average exchange rate still closed at ₡474.95, a level comparable to May 2005. The Central Bank itself later said an extraordinary increase in the private foreign-exchange surplus in February created additional downward pressure and led to stabilization purchases in MONEX.
The picture, though, is larger than debt alone. The Central Bank’s reports point to a market awash in foreign currency from multiple sources, including broader private-sector flows. That means external borrowing appears to be one important factor, but not the only one. Tourism, exports, foreign investment, seasonal flows, and Central Bank intervention are also shaping the exchange rate.
Still, the argument from Naranjo and Zúñiga lands at a moment when the consequences are becoming harder to ignore. A stronger colón can help importers and consumers by making some dollar-priced goods cheaper. But it also squeezes exporters, tourism operators and other businesses that earn in dollars while paying many of their local costs in colones.
With the exchange rate now near levels last seen around 2005, the debate is shifting from why the dollar has dropped so far to how long Costa Rica’s productive sectors can absorb the pressure.
