2020 is just around the corner! Economically, 2020 could be a challenging year just like 2019, but thankfully most of the uncertainty regarding changes in rules and regulations are behind us. Uncertainty is by far the biggest factor in deciding whether to invest or not.
The government deficit is no longer growing at an uncontrolled pace, likely due to the fiscal reform package that was passed in late 2018 and took effect throughout 2019. Read the article regarding lower deficit growth (in Spanish). The reform included the introduction of the Value Added Tax (VAT – known by the initials IVA in Spanish) as well as changes in the reporting and taxation of passive income sources.
Read our article So Far in 2019: A Digest for more information about the many changes in Costa Rica during the past year.
Tax Changes are Behind Us?
One of the rather interesting results of the fiscal reform package is that more self-employed Costa Ricans are finally getting into the habit doing things correctly. A game changer was the introduction of the Value Added Tax, which requires service providers to charge tax, but also allows them to deduct any tax paid on purchases directly related to their business.
This could be the start of a cultural shift that is not unlike the shift away from smoking that started with the anti-smoking law of 2011. Another example: when I first came to Costa Rica in 2002, there was no such thing as recycling here, and it’s commonplace now.
However, one troubling statistic is the rise in informal, unreported income in Costa Rica (for example – people getting paid “under the table”). Informal income tends to be low on a per person basis, often below minimum wage even.
One culprit for the increase of informality could be the social contributions in Costa Rica, whose rates are some of the highest in the region: 36.67% as of this writing, and set to increase slightly on January 1, 2020.
Consumer Spending and Debt
Consumer spending is up slightly in the latter half of 2019 compared to the same time in 2018, but is still very low compared to previous years. It’s clear that consumers will still keep their wallets close in 2020, though. Read the source article regarding consumer spending recovery (in Spanish).
Several banks are offering credit consolidation programs that are being pushed by the government, such as BCR’s Plan Salvacrédito. Heavily indebted people can take advantage of these programs to restructure their debt with lower monthly payments, with the hope that they get their finances in order. Personal bankruptcy does not exist in Costa Rica, but there can be relief through insolvency.
Joining the OECD?
Costa Rica’s government is dead set on joining the Organization for Economic Cooperation and Development (OECD) in 2020. The OECD is an intergovernmental organization with the aim to stimulate economic progress and world trade. It is considered an exclusive club of wealthier, developed countries, and will allow Costa Rica access to economic and political resources never before available.
17 of the 22 OECD committees covering various different topics have already approved Costa Rica’s petition to join, with five more pending. It’s possible that regulations may need to be adjusted in order to complete the process of joining the OECD, and there could be delays, but this is definitely the end goal for this administration.
At Grupo Gap we are hopeful that 2020 turns out to be a great year for the economy and investment. Regardless, opportunities to invest are always present! If you’re looking for new opportunities in the new year, contact our head of business development, Steven Stewart, now by using the contact form or directly at +506-4001-6413 (mobile / WhatsApp).
–Jeffrey Alami, Loan Analyst, Grupo GAP LLC SRL