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IMF COUNTRY FOCUS
November 15, 2022/IMF
Costa Rica has been a pioneer in greening its economy, and its efforts to fight climate change and restore ecosystems have earned the country international recognition. But climate change continues to pose important risks, most acutely through natural disasters. Costa Rica is now the first country to benefit from the IMF’s new Resilient and Sustainability Facility to support the country’s climate change reforms.
In an interview with Country Focus, Manuela Goretti, IMF Mission Chief (right), and Nogui Acosta Jaén (left), Costa Rica’s Minister of Finance, talk about the new facility.
What are the key challenges Costa Rica is facing from climate change and what is your strategy to tackle them?
Minister Acosta Jaén: Due to its geographical location, Costa Rica is highly exposed to climate change risks and is ranked as 61st out of 182 countries by the ND-GAIN index. Although Costa Rica is in a better position than its neighboring countries, estimates from the Ministry of National Planning and Economic Policy indicate that, in the last three decades, the direct cost of climate change disasters was about half a percent of GDP per year, mainly related to infrastructure.
Costa Rica has worked on many initiatives to mitigate the effects of climate change and adapt to risks, while protecting the most vulnerable. We already have relatively low emissions due to our environmentally friendly economic model, with significant growth in sectors like sustainable tourism and hydropower generation. Almost 100 percent of the country’s electricity is from renewable sources. But we’re still aiming to transition to a net zero emission economy over the next three decades, consistent with our National Decarbonization Plan.
What is the IMF’s new Resilient and Sustainability Facility (RSF)?
Manuela Goretti: The facility, created under the Resilience and Sustainability Trust, is a new financing tool to help low-income and vulnerable middle-income countries build resilience to external shocks and ensure sustainable growth. It complements the IMF’s existing lending facilities by providing longer-term, affordable financing to address challenges such as climate change and pandemic preparedness. Costa Rica is an excellent fit for the RSF given its vulnerability to the effects of climate change and its ambitious climate change reform agenda.
How will the newly approved RSF support Costa Rica’s efforts?
Minister Acosta Jaén: The RSF will have both a direct and indirect positive impact. Working with the IMF will help us better assess climate change risks to public investment projects, which will mitigate costs in the medium term. Also, the additional resources provided through the RSF will improve our financing mix, giving us fiscal space to spend more on education, health, or other areas that help improve the lives of our citizens.
Given the very large financing needs to fight climate change, how can the country catalyze more resources at affordable terms?
Minister Acosta Jaén: The fact that we are the first country to receive this type of financing from the IMF confirms Costa Rica’s strong commitment to inclusive and environmentally sustainable economic growth. This in itself has a significant catalytic effect.
But beyond that, other international organizations and investors who delve into the specific reforms underpinning the RSF financing will appreciate the comprehensiveness and ambition of our climate agenda. As part of our financing strategy, we intend to leverage this Fund-supported climate change reform program to issue environmental, social and governance (ESG) bonds.
We also believe that this can set an example for neighboring countries or those facing similar climate risks, as the RSF is an instrument that responds to a real need and has a significant impact in the medium and long term.