Costa Rica - Third Fiscal and Decarbonization Management Development Policy Loan Project

Overview & Synopsis

Ratings of the Costa Rica Fiscal And Decarbonization Management Dpl Series for Costa Rica were as follows: overall outcome was moderately satisfactory; relevance of prior actions was highly satisfactory; achievement of objectives (efficacy) was moderately satisfactory; Bank performance was satisfactory. Lessons learned include that strong analytical underpinnings and coordinated engagement with partners position countries to seize reform windows when macro frameworks and political space align; crisis-response operations yield lasting impacts when they simultaneously tackle underlying structural constraints in social protection, fiscal management, and decarbonization; programmatic development policy financing benefits from consistency of objectives coupled with flexibility to adjust prior actions and sequencing as contexts evolve, including extending a series to allow complex reforms such as public employment laws to mature; statutory and constitutional requirements, such as legislative approval of external borrowing, can materially affect timing even after policy actions are completed and should be factored into risk mitigation and scheduling; and institutional reforms can advance broader graduation objectives by strengthening macro credibility and access to markets, although results systems should better capture longer-term institutional effects beyond short-term indicators. Recommendations for the next phase are to sustain and deepen revenue mobilization by protecting the tax base, improving governance of tax expenditures, and accelerating tax administration modernization; preserve fiscal gains through steady implementation of the fiscal rule, continued public employment reform, and strengthened debt management; consolidate advances in adaptive social protection to improve shock response and targeting; maintain momentum on decarbonization by scaling green finance, electric mobility, and environmental services while continuing electricity sector modernization; and preserve the benefits of training and employability reforms by addressing implementation gaps in the National Training Institute’s modernization. Continued coordinated support, including ongoing public finance reviews, technical assistance on income taxes and debt management, and targeted development policy operations on fiscal management, green growth, and social risk management, is advised to address persistent inequality, reinforce fiscal resilience, and advance a green, resilient, and inclusive development path.