Risks to Social Stability in Costa Rica On the Rise

• Fitch Solutions highlighted greater political risk in Costa Rica going forward, underpinned by a rise in social discontent and the recent anti-government protests, in addition to mounting security challenges.
• Thousands demonstrated on October 25 2023 in San Jose in protest of the perceived deterioration in public service delivery in healthcare and education. These protests were not the first of the year; in June thousands demonstrated against the government’s decision to avoid increasing spending on education. 
• These demonstrations are largely associated with President Rodrigo Chaves’s fiscal consolidation agenda. Furthermore, persistent fiscal tightening is likely to keep these risks high at least until the conclusion of the IMF-backed reform programme.
• While having risen, Fitch believes that these risks are nonetheless capped by a lack of inflationary pressures and low unemployment.
• A combination of appreciations in the local exchange rate and stabilising global commodity prices has brought Costa Rica into deflation, implying a strengthening in household purchasing power. Similarly, the unemployment rate fell below 8.0% for the first time since the Covid-19 pandemic. Taken together, these factors will help cap the frequency of protests going forward, or at least contain discontent to the normal democratic channels.  

 (Source: Fitch Solutions)