Building Costa Rica

Sustainable infrastructure in Central America.

Last year’s Global Innovation Index revealed that Costa Rica was ranked 51st – better than much of the region. On infrastructure however, Costa Rica lags, the same report ranked the country 71st. Unsurprisingly, Costa Rica’s Chamber of Industries expressed significant alarm at the findings. The country is facing a challenge particular to the region which will require long-term investment to effectively tackle. That is of infrastructure developing at a pace that provides sector-specific employment opportunities.

A former minister of public works in Costa Rica explained, “There is interest and commitment on the part of the Costa Rican government to clean up the country’s finances and carry out the changes and reforms that the new president Rodrigo Chaves announced during his campaign. A key part of this platform is a commitment to sustainable infrastructure development.”

“There is interest and commitment on the part of the Costa Rican government to clean up the country’s finances […] a key part of this platform is a commitment to sustainable infrastructure development.”

Former minister of public works, Costa Rica

To achieve this however, the administration will have to undertake intense negotiations with hostile political forces in congress and also with sectors of the economic elite.

On the one hand, more Costa Rican students are graduating in STEM and technical subjects, the problem is that infrastructure – existing and pipeline – is not generating the kinds of jobs to stem an exodus of the brightest minds to foreign shores. Costa Rica is now focused on sustainable development for which it has earned an erstwhile reputation, hence the tapping of the IMF’s new sustainability infrastructure fund.

Under new president Rodrigo Chaves, who assumed office in May, the administration will need to redirect fiscal resources to upgrading the country’s infrastructure. No easy task given rising socioeconomic inequalities, as well as a slow pandemic-induced recovery. His task would be easier were it not for the fact that previous administrations have persistently kicked infrastructure spending into the long grass. A slow-moving judiciary has not helped matters.

Rising public debt however, is likely to make that much-needed fiscal reorientation harder. Indeed, according to the US International Trade Organisation, basic infrastructure including ground transportation and water treatment needs upgrading.

“The conditioning and expansion of the national road network is needed, port capacity in the Atlantic in Puerto Limón and Caldera in the Pacific needs expanding, alternative airports in the provinces of Guanacaste and Alajuela could support more tourists and the railway system for both transportation and mobility could be strengthened in the capital and between provinces,” adds the former minister.

“The conditioning and expansion of the national road network is needed, port capacity in the Atlantic in Puerto Limón and Caldera in the Pacific needs expanding, alternative airports in the provinces of Guanacaste and Alajuela could support more tourists and the railway system for both transportation and mobility could be strengthened in the capital and between provinces.”

Former minister of public works, Costa Rica

The country’s worsening fiscal deficit places additional limitations on Costa Rica’s ability to finance needed infrastructure projects. Public-private partnerships as well as concessions continue to face numerous legal and procedural challenges that have delayed or, in some cases, cancelled major infrastructure initiatives.

This is a major challenge for Costa Rica not least because of rising public debt which by Q1 of this year was equivalent to 66.46% of GDP. Whilst the government was quick to present a medium-term debt strategy for the five-year period 2022-2027, Costa Rica is the second country most indebted in the region only below El Salvador which means that finding the funds for infrastructure development remains challenging.

That said, the IMF will be comfortable disbursing funds to San Jose given the country’s reputation for political stability as well as international recognition for the solidity of its institutions and that marks an important difference in comparison to the country’s less than transparent neighbours.

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