First Fiscal and Decarbonization Management DPL

closed

The operation supports Costa Rica in mitigating the social and economic impacts of the coronavirus (COVID-19) pandemic and lays the foundations for sustainable fiscal recovery that also promotes green growth and low carbon development. The proposed US300 million dollars operation is the first in a programmatic Development Policy Financing (DPF) series of two in support of the Government’s program to: (i) protect people’s income and jobs from the impacts of COVID-19 and foster small and medium enterprise (SME) recovery; (ii) reinforce fiscal sustainability in the aftermath of COVID-19; and (iii) lay out the foundations for strong post-COVID-19 recovery by promoting green growth and low-carbon development. Supporting the Government of Costa Rica in effectively responding to the pandemic is critical to assist the population in greatest need, prevent job loss, and foster job creation, while at the same time tapping non-distortionary revenue sources to partially fund these efforts. Once the crisis moderates, the authorities plan to reinforce their fiscal and decarbonization programs, which the Government had vigorously launched prior to the pandemic. Swift and continuous implementation of fiscal and decarbonization reforms is essential to boost the country’s stabilization efforts and generate new sources of sustainable growth. The last DPL for Costa Rica was approved in April 2009. The proposed operation is being prepared as part of an international financing package to support Costa Rica during the COVID-19 emergency. The series is part of a coordinated effort by the international community to support Costa Rica’s macroeconomic stabilization and sustainable growth program. In the context of COVID-19, this effort has been adjusted to help the crisis response. The international package includes an International Monetary Fund (IMF) Rapid Financing Instrument (RFI) for US504 million dollars, which was approved on April 29, 2020 as a bridge until a full arrangement is in place. Attached to the IMF’s RFI, the Inter-American Development Bank (IDB) is preparing a financing package of around US250 million dollars to support the crisis response and has already approved a budget support operation together with the French Development Agency (AFD) for US380 million dollars. The Development Bank of Latin America (CAF) has already disbursed a package of around US500 million dollars to support the crisis response and the Central American Bank for Integration (CABEI) is providing US300 million dollars in parallel co-financing to the proposed IBRD operation.