Caribbean & Central America - July 2025

A new academic paper raises the prospect that the deterioration of social and environmental factors, such as education, health, and security, could endanger Costa Rica’s strong record of attracting foreign direct investment (FDI).

The study published 13 June by the Universidad de Costa Rica (UCR), a public university that is one of the country’s leading higher education institutions, claims that international investors are increasingly giving the same consideration to social and environmental factors as they do to economic incentives, such as tax breaks, when deciding where to invest. 

Author Jhon Fonseca Ordóñez, a researcher and professor at UCR, believes that firms that have recently invested in the country would have based their decisions on data published several years ago, but worsening social indicators will discourage companies from making new investments in Costa Rica in the coming years. He bases this judgment on an assessment of what he calls the “productive ecosystem” of the country, which is a combination of variables that feed into the likelihood that a given investment project will prosper. 

While Costa Rica’s economic incentives, such as tax breaks and well-developed industrial parks, remain attractive, the country’s reputation as a safe and prosperous nation which cares for its people and the environment has taken a hit in recent years.

Fonseca Ordóñez highlights the deterioration of the country’s education system, with the country’s scores in the Programme for International Student Assessment (PISA), an Organisation for Economic Co-operation and Development (OECD) survey that evaluates education systems worldwide, falling in recent years, as well as the country’s homicide rate, which has spiked to record levels as organised crime groups have become increasingly influential. There are also growing concerns among environmentalists and local communities about the impact of the heavy use of chemicals such as pesticides and insecticides in the country’s agricultural sector.

Fonseca Ordóñez’s concerns are echoed in the study by the Coalición Costarricense de Iniciativas de Desarrollo (Cinde), a private sector organisation that works to attract investment in Costa Rica. The image of a sustainable country “carries enormous weight,” according to Andrea Centeno, head of communications at Cinde, but Costa Rica must make sure it is actually doing these things, rather than just talking about them, she said. Investors compare countries to each other and then choose to invest in the one that offers the best conditions, she said. “Costa Rica used to perform much better,” she said, underlining that the country is also facing increasing competition from other countries keen to attract investment.

Centeno said that Costa Rica needs to streamline bureaucratic processes around foreign investment, maintain the system of benefits provided by free trade zones, increase workers’ level of proficiency in English, and bring more women into the labour market.

While some are concerned about the direction of the country, the International Monetary Fund (IMF) recently praised Costa Rica for its “remarkable economic progress,” which it attributes to its “very strong fundamentals, policies, and policy frameworks”. According to an IMF report published in May, following the conclusion of an Article IV mission to Costa Rica, Costa Rica’s GDP growth has averaged over 5% per year since 2021, while inflation is rising toward the central bank (BCR)’s 3% target, which the IMF expects to be reached in 2026, public debt has dropped steadily to less than 60% of GDP, international reserves are “at comfortable levels”, and “systemic financial stability risks are contained”. The IMF expects Costa Rica’s growth to moderate to around 3.5% this year while the current account deficit is expected to increase slightly to 1.8% of GDP and the primary surplus is expected to rise to 1.25% of GDP. 

President Rodrigo Chaves has also talked up the achievements of his time in office, most recently in his annual report for 2024-2025, published in May. Although the report does cover areas such as citizen security, education, and healthcare, analysis by local media outlet La Nación published on 5 May highlights five main areas that it says were “omitted” from Chaves’ report, some of which echo the concerns raised by Fonseca Ordóñez and Centeno.

These include the deteriorating security situation and lack of detail on falling quality in the education system. Other issues include recent budget cuts to education, with spending equivalent to less than 5% of GDP in 2025, the lowest proportion in 10 years according to La Nación. Less spending is linked to a lower quality education, producing young people that are less able to respond to the needs of the kind of high value-added manufacturing sectors that Costa Rica is working to attract, such as semiconductors.

If these issues are allowed to deteriorate they will make for a country that is less educated, less healthy, and less safe, with important knock on effects for the local population and the decision making processes of potential investors. This could stymy the country’s attempts to move up value chains and stall recent progress in diversifying its economy away from a historic reliance on agricultural exports. The prospect of arresting this recent decline appears slim, with Chaves focused on advancing a populist authoritarian security policy based on Salvadorean President Nayib Bukele’s approach rather than working on social issues.

And while Chaves has entered his last year in office, it is hard to foresee who will emerge as the winner in elections scheduled for 2026, with a survey published in April by the UCR’s Centro de Investigación y Estudios Políticos (Ciep), reporting that 71% of respondents said they were as yet undecided on who to vote for. While this makes it difficult to map out the possible future policy direction of the country, whoever takes office will face competing demands for increased spending on security policies designed to combat organised crime groups, and boosting investment in education and healthcare.

Waiting lists

In its 5 May report, La Nación also flags growing concerns around waiting lists in the country’s social security institute (CCSS), with patients failing to receive treatment for longer and longer periods.

Education

In its 5 May report, La Nación cites Universidad de Costa Rica as reporting that just 6.7% of first year students passed its maths test in 2024.