Document of the World Bank FOR OFFICIAL USE ONLY Report Number: 82511-CR INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT AND INTERNATIONAL FINANCE CORPORATION COUNTRY PARTNERSHIP STRATEGY PROGRESS REPORT FOR THE REPUBLIC OF COSTA RICA FOR THE PERIOD FY12-FY15 January 31, 2014 Central America Country Unit Latin America and the Caribbean This document is being made publicly available prior to Board consideration. This does not imply a presumed outcome. This document may be updated following Board consideration and the updated document will be made publicly available in accordance with the Bank’s Policy on Access to information. The date of the last Country Partnership Strategy was June 10, 2011 CURRENCY EQUIVALENTS Currency Unit = Colon US$1.0 = 505 FISCAL YEAR January 1 – December 31 ABBREVIATION AND ACRONYMS CAFTA-DR Central American Free Trade Agreement CAT-DDO Catastrophe Deferred Drawdown Option CCSS Social Security Agency (Caja Costarricense de Seguro Social) CPS Country Partnership Strategy ERPA Emission Reduction Payment Agreement FCPF The Forest Carbon Partnership Facility FDI Foreign Direct Investment FY Fiscal Year GDP Gross Domestic Product GEF Global Environment Facility IBRD International Bank for Reconstruction and Development IDF Institutional Development Fund IFC International Finance Corporation LAC Latin America and the Caribbean MSMEs Micro Small and Medium Enterprises PPP Public Private Partnerships PR Progress Report PES Payment for Environmental Services Program (Pago por Servicios Ambientales) RAS Reimbursable Advisory Services REDD Reducing Emissions from Deforestation and Forest Degradation SETENA National Environmental Authority SME Small and Medium Enterprises UMI Upper Middle Income UNFCC United Nations Framework Convention on Climate Change WBG World Bank Group WDR World Development Report IBRD IFC Regional Vice President Hasan A. Tuluy Regional Vice President Jean Philippe Prosper Country Director C. Felipe Jaramillo Regional Director Irene Arias Resident Representative Fabrizio Zarcone Sub-Regional Manager Roberto Albisetti Task Manager Jovana Stojanovic Head Angela Fonseca ii COUNTRY PARTNERSHIP STRATEGY PROGRESS REPORT COSTA RICA TABLE OF CONTENTS   I.  Introduction and Country Context ................................................................................................... 1  II.  Development Challenges and Relevance of the CPS....................................................................... 3  III.  WBG engagement and progress towards achieving CPS outcomes ................................................ 5  IV.  CPS Going Forward ....................................................................................................................... 10  V.  Risks............................................................................................................................................... 11  Table 1: Fiscal Year Disbursement Ratios 2008-2013 ................................................................................. 9  Annex 1: Results Matrix ............................................................................................................................. 12  Annex 2: Original and Revised CPS Outcomes.......................................................................................... 15  Annex 3: List of Active Trust Funds .......................................................................................................... 18  Annex 4: Gender at a Glance ...................................................................................................................... 19  Annex 5: Key Macroeconomic Indicators and Projections......................................................................... 22  Annex 6: Standard CPS Annexes................................................................................................................ 23  iii I. Introduction and Country Context 1. Costa Rica stands out as a development success story. It is a small, environmentally friendly economy that has steadily developed over the past 25 years seeking to position itself as one of the leading economies of Latin America and the Caribbean (LAC). Costa Rica is characterized by strong equity policies in public services, a dynamic open economy, robust institutions and a rigorous system of constitutional checks and balances. Notwithstanding these strengths, maintaining the achievements of the past several decades and successfully tackling the development challenges ahead will require more effective ways to provide public services. 2. This Progress Report (PR) reviews the implementation of the FY12-15 joint World Bank-International Finance Corporation (IFC) Country Partnership Strategy (CPS) for the Republic of Costa Rica. The CPS has three pillars: (i) improving equity in social sectors; (ii) supporting environment and disaster risk management; and (iii) supporting competitiveness. The CPS was expected to accompany the new Government through the four year political cycle, ending in May 2014. The CPS envisaged commitments of approximately US$600 million, with an expectation that all lending would be front-loaded given the high risk of projects not obtaining congressional approval towards the end of the current Government’s political cycle. The CPS proposed two investment loans in education and health. To date one project, Higher Education Improvement Project (P123146) in the amount of US$200 million, has been approved. Poverty and Shared Prosperity 3. Costa Rica enjoys one of the lowest poverty levels in the LAC region. In 2012, poverty stood at 24 percent and extreme poverty at 7 percent using the official national poverty lines1. The available evidence suggests that poverty has been declining slightly over the last decade. From 2004 to 2009, poverty fell by around two percentage points, although the data is not directly comparable to data after 2010 due to a change in survey methods2. The decline in national poverty rates can be attributed to solid economic growth in the middle of the decade and a relatively rapid recovery from the food and fuel crises of 2007–2008 and the financial crisis of 2008–2009. However, given the relatively rapid economic growth observed in the last decade, the decline in overall poverty has been relatively modest, particularly when compared to most other countries in LAC. 4. Prosperity is being shared across the income distribution. From 2003 to 2009, the mean per capita income of the bottom 40 percent of Costa Rica's population grew at an annualized rate of 4.4 percent, slightly higher than the growth rate of mean per capita income (4.2 percent) of the population. Those with incomes in the bottom 40 percent have seen their average daily per capita income increase from US$3 in 2003 to US$4 in 2009. In 2003, 69 percent of the bottom 40 percent of the population lived in poverty with less than US$4 a day, compared to only 49 percent in 2009.                                                              1 Poverty line is at US$175 a month, and extreme poverty line is at US$82 a month (National Institute of Statistics and Census of Costa Rica). 2 The household survey was substantially revised in 2010 and the new series (2010-13) is not comparable with the old series. An analytical effort is underway to enable comparability of the two series. Preliminary results of the 2012 household survey indicate that the percentage of the population living below the national poverty line decreased from 21.3% (2010) to 20.6% (2012) (using the international US$4 a day line, poverty fell from 12.7 in 2010 to 12.2 percent 2012) 1 5. Costa Rica’s social indicators continue to rank higher than those of other countries in the region. Basic education and health indicators are above the regional standards and gender indicators also compare favorably. Costa Rica has achieved universal primary education. The country is also closing the education gender gap. At the primary level, the female-male primary gross enrollment ratio is roughly equal (0.99 in 2011) while at the secondary levels, there is a slight tendency in favor of girls, with a female-male ratio of 1.05. In 2009, 99 percent of all births were attended by skilled health staff, which is better than the averages for upper middle income countries (96 percent) and the LAC region (89 percent). The contraceptive prevalence rate of 82 percent is also better than the average for upper middle income countries (75 percent) and the LAC region (75 percent). Other important health achievements include life expectancy of 79 years and low infant mortality rates (8 deaths per 1,000 live births in 2012), outcomes that are impressive not only in a regional context, but at a global level. Improving the living standards of the indigenous peoples (2.4 percent of the population) remains a challenge. The majority of this population lives in poverty and lacks access to health services and clean water. Average years of schooling and illiteracy rates within the indigenous territories are 3.4 years and 30.2 percent respectively and very few attend university. Economic Developments 6. Costa Rica has experienced robust economic growth in recent years despite the impact of the global economic crisis and weak external conditions. After contracting by 1 percent in 2009, the economy rebounded quickly and has grown at an annual average rate of 4.8 percent from 2010 to 2012 (see Annex 5). However, growth slowed down in 2013, due to external factors, including a steepening of the yield curve in the U.S., the softening of Chinese growth, and lower commodity prices. Due to a lower contribution from net exports and a slower expansion in domestic consumption, real Gross Domestic Product (GDP) growth is estimated at around 3 percent in 2013. Economic growth has been particularly strong in high-tech industries, creating opportunities for highly skilled workers. However, the overall unemployment rate remains relatively high by Costa Rican historical standards (7.8 percent in 2012). 7. Openness to trade and foreign direct investment (FDI) have continued to underpin the structural transformation of the Costa Rican economy. Costa Rica has seen a remarkable transformation into a diversified economy that includes high-tech manufacturing, a variety of services, and agricultural exports. Computer microchips and parts are now Costa Rica’s top export, while corporate and technology services have now surpassed tourism. Despite the global economic crisis, Costa Rica has continued to attract FDI, which stood at over 5 percent of GDP in 2011, more than double the average for LAC. FDI is expected to be around 4 percent of GDP in 2013 and cover most of the 5.4 percent of GDP current account deficit. With a ratio of exports plus imports over GDP in excess of 80 percent, Costa Rica is one of the most open economies in the region and exports have been a key driver of growth. Given the general weakness of the external environment, the trade deficit may continue to widen somewhat over the short- and medium-term. 8. Inflation has remained within the target range during recent years and large capital inflows have put appreciating pressure on the exchange rate. In 2009, consumer price inflation (end of period) reached 7.8 percent. Since then, inflation has remained within the target range (4-6 percent). Large capital inflows have resulted in appreciating pressures on the local currency and led to an increase in net international reserves, up from US$4.8 billion at end-2011 to US$7.6 2 billion as of September 2013. The significant share of dollarized liabilities in the domestic financial sector is likely to continue to restrain nominal exchange rate flexibility. 9. The economic outlook is positive but there are risks associated with the external environment and fiscal policy challenges. Following the onset of the global economic crisis in 2008, the adoption of countercyclical fiscal policies led to fiscal deficits, which have since remained around 4-5 percent of GDP. As a result, central Government public debt has been expanding since 2008 from 24.7 to 35.3 percent of GDP in 2012 and is expected to trend upwards unless structural measures are implemented. A fiscal reform that was expected to generate additional revenue of 3 percentage points of GDP was approved by Congress in March 2012 but was subsequently deemed unconstitutional by the Supreme Court on the basis of procedural irregularities. Recently, the Minister of Finance presented a robust fiscal consolidation plan3 and launched a National Fiscal Dialogue, which is expected to build a strong consensus around significant structural measures to be submitted to Congress in 2014. In addition to the fiscal policy challenges, the main risk for Costa Rica stems from potential external shocks, including weaker than expected global growth, an increase in oil prices, further decreases in the price of export commodities such as coffee and bananas, and a sudden stop to FDI flows. II. Development Challenges and Relevance of the CPS 10. The main challenges facing Costa Rica remain largely unchanged since the CPS was prepared. The Chinchilla Administration put forward an ambitious public investment program that identified a number of priorities for the country’s growth and development, inter alia, improving the country’s aging infrastructure, enhancing the country’s competitiveness, continuing improving equity in the social sectors and implementing an ambitious environmental agenda. However, limited fiscal space and a fragmented Congress made it difficult to move forward on all of these fronts. New Congressional and Presidential elections are scheduled for February 2, 2014. The possible outcome of the elections is unclear at the moment. 11. Costa Rica has been one of the most stable democracies in Latin America with consecutive democratically-elected governments and peaceful transitions of power since 1949. Costa Rica’s government and political norms have long placed a high premium on achievement of wide socio-political consensus on major policies. While this helps create a broad social base, enhances the sustainability of reforms and helps to maintain the credibility and accountability of public institutions, it also leads at times to long delays in the introduction of changes to policies and programs. 12. Costa Rica has experienced a decline in the quality of public services, associated with decreasing levels of efficiency in public provision. For many decades, the country has been an outstanding example of efficient and egalitarian public service delivery. Recently, however, the system has deteriorated, with growing dissatisfaction of end users, who are increasingly turning to private service providers. The authorities acknowledge the need to revamp public services to avoid a weakening of Costa Rica’s exemplary social contract4.                                                              3 On the Road to Fiscal Consolidation: Agenda for a National Dialogue (October 2013). 4 On the Road to Fiscal Consolidation: Agenda for a National Dialogue (October 2013). 3 13. A rapidly aging population and ever increasing expectations for delivery of high quality services has put pressure on the existing organizational arrangements of the national health insurance managed by Costa Rica’s Social Security Agency (Caja Costarricense de Seguridad Social – CCSS). While patient satisfaction surveys suggest that the population is relatively satisfied with inpatient services, there is a growing discontent with ambulatory services, waiting lists and overall efficiency and quality of health services. CCSS has also become a growing fiscal burden on public finances, which will worsen in the long run if efficiency and system reforms are not enacted in a timely manner. Key elements of reform in the health sector should include: (a) streamlining and strengthening management at the central level and establishment of a decentralized system; (b) moving from managing inputs to managing results; (c) improving efficiency of inpatient services and health care networks; and (d) establishing priorities to monitor responsiveness with indicators on the timeliness, quality, and efficient use of resources. These changes should take place within a framework of improved governance and greater transparency on budget and providers’ performance. The CCSS is now working on strategic and organizational changes to be implemented over the next five years. 14. Despite strong Government commitment, Costa Rica still struggles in key education areas. Government commitment to education is clearly shown by the significant fiscal resources allocated to public education: in 2013, expenditures amounted to 8.3 percent of GDP, the highest in the region. Despite near universal enrollment rates in primary education, the proportion of 18 to 22 year olds who had finished secondary education was only 46 percent in 2012, a modest increase from 40 percent in 2009. The Government has also been focusing on increasing the number of tertiary education graduates by expanding access to public universities (particularly for the poor and indigenous people), encouraging universities to improve quality and relevance of programs, and promoting university research and collaborative projects with industries. The latest data from the National Study on Education indicate that there has been an increase in the enrollment of the first and second quintile of the population in public universities, from 6 and 12 percent in 2009 to 9 and 15 percent in 2012, respectively. The accreditation of university programs is underway, and to date 68 programs have been accredited. 15. Costa Rica enjoys, however, widespread international recognition for its environmental policies and accomplishments. It has had remarkable success in increasing forest coverage and has made important advances on environmental issues. The challenges that lie ahead in Costa Rica’s environmental agenda include: (i) meeting its stated goal of becoming carbon neutral by 2021; (ii) strengthening the implementation of its climate change strategy and disaster risk management; and (iii) promoting the use of alternative renewable energy sources. The Carbon Neutrality Strategy seeks to have zero impact on the climate by 2021 at the national level. This is an extremely challenging target and will require significant multi-sector investments, as well as strong government leadership and coordination across Ministries. Costa Rica’s pioneering program of Payments for Environmental Services (PES) has been successful in promoting forest and biodiversity conservation but faces challenges of financial sustainability. This program has been funded from 3.5 percent of fuel tax revenues and 25 percent of water tariff revenues, as well as short-term donor financing. 16. Costa Rica is actively looking for solutions that will support climate-smart agriculture and natural resource management. With nearly 30 percent of the population living in rural settings and deriving much of its income from rural sources, there are tensions in providing for income growth while preserving the achievements of increasing or sustaining the 4 forest cover and enhancing the resilience of the community to future climate shocks. In its effort to sustainably confront climate change, the country is formulating Nationally Appropriate Mitigation Actions, a set of policies and actions it will undertake as part of its pledge under the United Nations Framework Convention on Climate Change (UNFCC) to contribute to global efforts to reduce greenhouse gas emissions. 17. Expanding access to clean energy while responding to increasing demand is a challenge. Even though 90 percent of total power generation comes from renewable sources (hydroelectric power and wind), most new capacity is from fuel-based thermal generation. A promising option is volcanic geothermal energy. However, Costa Rica’s volcanoes are mostly located within national parks, requiring special legislation, such as a bill currently under debate to allow exploration and production of geothermal energy inside the Rincón de la Vieja National Park. 18. Improving conditions for competitiveness will be critical for long-term success. Fiscal constraints and limited use of Public Private Partnerships (PPPs) have hampered the Government’s ability to improve infrastructure, particularly the road network that is in dire need of rehabilitation. In addition, weak implementation and institutional capacity have stalled progress in advancing the infrastructure agenda. While Costa Rica continued to improve its competitiveness by taking advantage of the new investment opportunities arising from the Central America Free Trade Agreement (CAFTA-DR), complementary reforms are needed to reap the full benefits of the treaty, inter alia, provision of key infrastructure (especially roads and energy), human capital, access to finance, competition policy and enforcement of intellectual property rights. Despite the progress in improving the business environment, the regulatory environment remains cumbersome. Costa Rica will need to improve the soundness of collateral laws to enable businesses to use their assets, especially movable property, as security to facilitate credit availability. III. WBG Engagement and Progress on CPS Outcomes 19. Progress has been made on CPS outcomes although implementation has been slow due to institutional constraints. Costa Rica has historically experienced prolonged implementation periods with an average project life of nine years. Lengthy legislative consensus- based approvals tend to delay the start of project implementation resulting in a long lag (20-24 months on average) from Board approval to project effectiveness. Following approval, implementation is also a challenge, due in part to weak implementation capacity and the need to comply with complex national procedures that are comprehensively overseen by the Contraloría (the supreme audit body). 20. To respond to a sophisticated upper-middle income client like Costa Rica, the World Bank and IFC have employed a wide array of tools. Being at the cutting edge of several development initiatives and with a solid demand for knowledge products, Costa Rica is a demanding client. Throughout the CPS, the WBG has maintained a flexible approach, particularly for on-demand services to provide high quality and timely analytical products. Although only one investment project was approved under this CPS, the WB and IFC remained engaged through knowledge and convening services across all three Pillars of the CPS. 5 21. The order, importance and names of Pillars have been revised to reflect the shift in focus of the WBG strategy and outcomes achieved under this CPS. As a result, the Pillar on Competitiveness has been de-emphasized and will be given less weight in the final assessment of achieved results at the end of the CPS period. The Pillar on Improving Efficiency and Equity in Social Sectors has been renamed to Improving Equity in Social Sectors to better reflect the CPS outcomes the Bank expects to influence. Finally, the Pillar on Supporting the Environment and Disaster Risk Management remains highly relevant and unchanged. Details of progress on performance indicators under this CPS are reflected in the Results Matrix (Annex 1) which has been revised to focus more narrowly on outcomes and indicators directly influenced by the Bank’s program that can be realistically achieved within the timeframe of this CPS. Changes to the results framework are outlined in Annex 2. Pillar I – Improving Equity in Social Sectors 22. The WBG program is contributing to further improvement in expanding access to education to indigenous populations in rural communities. Through the Equity and Efficiency of Education Project (P057857), the WB has been supporting the Government to improve equity by reducing gaps in graduation rates between indigenous territories and the national level. Between 2008 and 2013, the ratio of the graduation rate in indigenous territories over the graduation rate at the national level has increased from 60 percent to 94 percent compared to a target of 67 percent. Some 230 classrooms in 75 schools have been built, renovated and furnished in indigenous territories, although not yet equipped, compared to a target of 186. Poverty targeting mechanisms ensured more indigenous students remain in schools by providing scholarships, food and transportation programs. In addition, the Project helped Costa Rica comply with its international obligation which calls for education systems to respect indigenous cultures and participation in curriculum development, teaching and management. Finally, a Decree was issued in 2013 to regulate indigenous and intercultural education. 23. The World Bank has been supporting the institutional health care system reform through Reimbursable Advisory Services (RAS). Building on past engagements, the Government has requested strong presence of the Bank in the health sector. While the CPS envisaged a health loan, to date it has not yet materialized due to Government priorities. Instead, to support the launch of health system reform and demonstrating flexibility in the use of instruments, the WB undertook a RAS. A roadmap to increase efficiency and quality of health services over the short and medium term is being developed and measurable progress indicators are being identified. A Preliminary Report of the Health RAS was accepted by the Government and CCSS authorities in April 2013 and the final report is expected March 2014. The results of this assistance will be used by the Government to develop a medium and long term strategy to enhance sustainability and equitable access to services provided by social health insurance. Pillar II - Supporting the Environment and Disaster Risk Management 24. The WBG program is supporting Costa Rica’s efforts to consolidate its position as a global leader in the environment and strengthen its disaster management institutions. The Mainstreaming Market-Based Instruments for Environmental Management Project (P093384 IBRD; P098838 GEF) has continued to foster the development of a local market for environmental services by promoting forest conservation and increasing efforts to draw poorer small and medium-sized landowners into the PES scheme, including a greater share from 6 indigenous groups. As a result, the CPS outcomes are expected to be achieved. The Project has contributed to an increase in hectares of land with environmental service contracts and is close to reaching the national target of 310,000 ha (actual as of December 2013 is 292,000 ha). As a result, there has been a considerable increase in the conservation of land financed annually by PES instead of fuel taxes and donor contributions. Conservation of productive landscapes is maintained annually under PES contracts of 20 years. In addition, the number of small- and medium-sized and indigenous landholders participating in the PES program has been steadily increasing. The project has also helped establish a Sustainable Biodiversity Fund that has achieved a capitalization of about US$19 million. On its road to carbon neutrality, Costa Rica also designed its national Readiness Package (REDD) and signed a first performance-based payment agreement (Emissions Reduction Payment Agreement - ERPA) with the Forest Carbon Partnership Facility (FCPF), meeting UNFCCC standards5. The National Carbon Neutrality Program has been established and the rules and modalities of the Domestic Carbon Market are being formulated. Finally, the National Land Use Planning Policy was adopted and incorporates disaster risk management best practices. 25. IFC has been expanding its activities in renewable energy with two operations: (i) an investment in a local player, Banco Promerica, to expand the supply of long-term finance for energy efficiency; and (ii) a US$100 million loan (approved but not yet committed) for the Reventazón Hydro-Power Project to improve medium-term energy security, while increasing power supply to meet 15 percent of the country’s annual electricity demand, creating 3,300 jobs and contributing to climate change mitigation by reducing global greenhouse gas emission. Pillar III: Supporting Competitiveness 26. Progress under Pillar III has been uneven with notable results in the business environment but limited advancement on infrastructure and logistics investments. The CPS was overly ambitious in terms of results it expected to achieve under this pillar through the ongoing portfolio and a recently approved project. WBG engagement has focused on improving the quality of the business environment, logistics, infrastructure and tertiary education. 27. The WB-IFC Investment Climate Advisory Services provided support to improve the business environment as measured by a reduction in red tape. Starting a business has been made easier by creating an online platform for business registration, reducing the time to register with social security and simplifying the legalization of company books. Registering a business now only takes 20 days, a remarkable improvement compared to 60 days in 2011. A new Law on Secured Transactions, pending Congress approval, will improve access to finance for small and medium enterprises (SMEs) by enabling the use of movable assets as collateral. IFC has been supporting Micro Small and Medium Enterprises (MSMEs) by providing dedicated lines of credit through the formal banking system. To date, over 4,000 MSME loans for a total value of US$247 million have been provided in the agriculture sector, to women entrepreneurs and MSMEs in the frontier regions. IFC provided two advisory services on access to finance, which have facilitated 129 SME loans (56 for women entrepreneurs) in the amount of US$6.6 million.                                                              5 Reducing Emissions from Deforestation and Forest Degradation (REDD) is an effort to create a financial value for the carbon stored in forests, offering incentives for developing countries to reduce emissions from forested lands and invest in low-carbon paths to sustainable development. 7 28. Results under the City of Puerto Limon Integrated Infrastructure Project (P085539) are negligible notwithstanding concerted efforts from both the Government and the WB. Puerto Limon has continued to experience significant delays disbursing less than 10 percent in six years of implementation. The Project has been restructured twice, with no “structural” changes, given that any actual change in components and activities would have required congressional approval. Due to the overly complex design of the Project and need for close and hands-on coordination, implementation failed to move forward and the Project will likely close without achieving its development objectives. To this end, the CPS outcomes for this Project have been dropped from the results matrix. 29. The World Bank is supporting the Government’s efforts to strengthen human capital and skills development through a Higher Education Improvement Project (P123146). The Project supports the Government’s efforts to increase the number of the students obtaining tertiary education that come from poor and under-privileged households, including indigenous populations. The Project is expected to contribute to greater shared prosperity but implementation is only just beginning due to the time needed to achieve congressional approval and meet the effectiveness conditions. The Project is expected to deliver results under the next CPS period and as such, was dropped from the revised results matrix. 30. The World Bank helped the Government strengthen its practical tools to efficiently manage financial distress and potential systemic crisis, as well as to develop a systemic risk framework for the financial sector. In addition, the World Bank is providing assistance to ensure orderly development of capital markets in the country by supporting primary market regulations for non-government fixed income securities to facilitate the issuance process and encourage greater participation of various entities in the bond market. 31. IFC has successfully supported the mid-tier hotel sector in San Jose and Alajuela. Its greenfield investments address the shortage in the hotel market and contribute to the improvement of the country’s business hotel infrastructure and expansion of local trade and business development. To date, 42 new jobs have been generated, half of which benefited women workers. Portfolio Performance and Lessons Learned 32. The Bank’s current active portfolio in Costa Rica includes four projects, totaling US$377.5 million in net commitments, of which 21 percent has been disbursed. The disbursement ratio as of December 25, 2013 stood at 3.4 percent for FY14. In FY13, the portfolio had a disbursement ratio of 16.1 percent, which is likely to remain the same this FY. Whereas the FY disbursement ratio is below Central America and LAC averages, there has been a considerable improvement since 2007 (see Table 1). The low disbursements may be attributed to the fact that 70 percent of undisbursed commitments (US$275 million) are tied to a recently approved Higher Education Improvement Project (P123146; US$200 million) that has just begun implementation and to the non-performing City of Puerto Limon Integrated Infrastructure Project (P085539; US$72.5 million), the only project at risk in the portfolio. Other reasons influencing low disbursements in the past are a legalistic institutional environment, lengthy and difficult approval processes in Congress, lack of implementation readiness and weak implementation capacity. WBG engagement in Costa Rica is becoming more selective. Of the four projects currently active, two are expected to close by the end of FY14, leaving two projects in the portfolio, Higher 8 Education Improvement Project (P123146) and the Catastrophe Deferred Drawdown Option (P111926). Table 1: Fiscal Year Disbursement Ratios 2007-2013 Fiscal Year 2007 2008 2009 2010 2011 2012 2013 Disbursement ratio 3.8 4 2.7 10.4 13.5 11.7 16.1 33. The Government of Costa Rica and the Bank have been working together to strengthen portfolio implementation. For many years, the Costa Rica program was supported by Washington DC staff only. Recognizing the need to strengthen the dialogue with the authorities and other local stakeholders, the WBG Country Office in El Salvador was mandated to support the Costa Rica program beginning in 2012. To improve portfolio implementation, the WB’s capacity for supervision support in Costa Rica has been further strengthened through the recruitment of a Country Operations Officer in May 2013 – the first staff member to be based in Costa Rica in many years. Monthly portfolio meetings with the Ministry of Finance are now being held to advise Government officials on specific issues related to project execution, track implementation milestones for all operations, monitor the preparation and processing of procurement packages in a timely manner and facilitate the Bank’s response in due time as needed. 34. Costa Rica also benefits from a number of innovative Trust Funds, amounting to about US$17.5 million. These trust funds are mainly supporting Costa Rica’s efforts in environment and disaster risk management (Annex 3). 35. IFC remains an active partner in the private sector, and its support is fully aligned with the CPS pillars. Since FY10, IFC has committed 21 projects in the amount of US$234 million, of which US$216 million for own account (including US$138.4 million in trade finance) and US$17.3 million in mobilization. As of end-December 2013, IFC’s committed portfolio stood at US$84.8 million with 10 clients. In addition, four LAC regional projects also include activities in Costa Rica, spanning three business lines: Access to Finance (risk management), Investment Climate (agribusiness trade logistics), and Sustainable Business Advisory (corporate governance and agriculture). Lessons Learned 36. Relevant lessons learned continue to shape and inform the WBG’s engagement in Costa Rica. The following key lessons have emerged from the CPS implementation to date:  First, Costa Rica’s lengthy, consensus-based process for legislative action to approve Bank- supported projects has delayed the implementation of the Bank portfolio. Consequently, the Bank has shifted its focus on fewer, larger operations in areas of high strategic importance to a wide range of political actors and key stakeholders. The Higher Education Improvement Project (P123146) and the Equity and Efficiency of Education Project (P057857) serves as a good example of such an operation. It was approved unanimously by Congress nine months after the Bank’s Board approval, a marked improvement in relation to previous operations.  Second, drawing on lessons from the implementation of the City of Puerto Limon Integrated Infrastructure Project (P085539), the Bank recognizes that infrastructure projects in Costa Rica are very challenging to implement especially if the design of the project is overly complex with multifaceted implementation arrangements. In addition, restructuring of projects is difficult to do in the Costa Rican environment as any substantial change require 9 resubmission to Congress, as demonstrated by the failed restructuring efforts in both the Puerto Limon and Education Projects. Long and complex procurement processes also considerably affect the implementation of the portfolio. Going forward, the Bank is exploring alternative options for design of operations that have proven effective in delivering results in other countries. As a result, the new Health project is expected to be designed as a results- based investment lending, in which disbursement is linked to achievement of clearly defined indicators and results  Third, the Government and the Bank agreed on the importance of instituting more frequent meetings and joint portfolio reviews, with the Ministry of Finance to resolve bottlenecks and provide continuous implementation support.  Fourth, recognizing that implementation is often impeded by the difficulty of challenging any decision made by the Contraloría, the Bank will enhance cooperation with the authorities to bridge the gap between Bank procedures and Costa Rica’s legal and regulatory framework. IV. CPS Going Forward   37. In response to a Government request, the Bank is working with the CCSS on the early phase of preparation of a project that would support a comprehensive reform of the health sector (up to US$400 million), with a focus on ensuring the financial sustainability of the health services of the CCSS. The Project is expected to have an impact on shared prosperity by improving the quality and access to health services for low-income groups. This Project would be implemented with the new Government starting in FY15. Although all presidential candidates have expressed their support to the social sector agenda, including the health sector reform, finalization of the loan preparation will require confirmation by the new Government. 38. As part of the country’s risk financing strategy, Costa Rica has expressed its intention to participate in the Caribbean Catastrophe Risk Insurance Facility. This is an innovative mechanism intended to provide short term liquidity for catastrophic events of lower frequency but greater magnitude (e.g., earthquakes), while serving to protect public finances and enabling government response capacity. 39. During the remainder of the CPS period, the World Bank will use its analytical expertise to engage with the Government on a robust knowledge program. Responding to the Government’s need to increase efficiency and effectiveness of social expenditures, the World Bank is undertaking a Social Sector Expenditure and Institutional Review to analyze resource allocation to safety nets, pensions, labor market policies, health, education, and subsidies as well as the institutional setting for policy formulation in these sectors. It will provide concrete policy recommendations to maximize the poverty reduction and shared prosperity impact of social interventions and identify priorities for reform. In addition, the Green and Inclusive Growth analytical work will help Costa Rica develop a strategic and innovative approach to using rural landscapes productively, while at the same time contributing to the country’s ambitious goal to become carbon-neutral by 2021. The World Bank will also carry out a number of technical assistance activities, inter-alia, to identify best global practices and solutions to recognize foreign higher education degrees and facilitate labor integration, help implement an effective risk-based supervision methodology for Pension Funds, review relevant international experiences and programs that promote productive linkages between domestic SMEs and multinational corporations, and contribute to the improvement of the PPP legal and regulatory environment. 10 40. Finally, going forward IFC’s program will focus on: (i) renewable energy and energy efficiency projects; (ii) manufacturing and agribusiness sectors, with an emphasis increasing regional expansion and exports; (iii) private sector educational and healthcare institutions; (iv) providing funds for MSMEs; and (v) supporting the investment climate for infrastructure and sustainable agribusiness projects. Following the opening of the energy sector, IFC will seek to facilitate private participation in the sector and help address the challenges Costa Rica faces in finding sources for additional generation. V. Risks   41. The main risk to implementation of the CPS’ lending program stems from portfolio implementation delays and challenges in execution, as well as a fragmented political environment. The CPS attempted to minimize this risk by: (i) preparing large operations, securing high level political commitment with other stakeholders and ensure leveraging power; and (ii) building broad consensus on the content of the operations throughout the development phase. To mitigate the execution risk, the CPS is proposing that new lending be focused in areas where the Bank is actively engaged with counterparts that have a reasonable track record of implementation. To minimize the impact of delays, efforts will continue during the approval process to ensure implementation readiness. The design of operations will also take lessons learned and implementation challenges into account. Notwithstanding these mitigation measures, the impact of the Bank program and engagement may be insubstantial due to a weak and ineffective Executive. 42. Lack of capacity of the National Environmental Authority (SETENA) to issue environmental licenses poses an immediate risk to implementation of the Higher Education Improvement Project (P123146). This risk has been mitigated by ensuring the Project has an environmental regulatory framework in line with existing national procedures, environmental procedures of SETENA, and the Bank’s environmental safeguards requirements. Furthermore, as a mitigation measure, a full-time environmental specialist with experience in environmental impact and management will be hired by the Project and the Bank will provide intensive supervision support. 11 Annex 1: Results Matrix Country Outcomes the Bank Program Expects to Progress achieved at Milestones Bank Program Development Goals Influence Progress Report Pillar I: Improving Equity in Social Sectors Increase primary New. Improve equitable access to Number of classrooms and 230 classrooms in 75 Equity and Efficiency of Education and secondary level education in targeted poor and indigenous schools built and renovated, schools have been built, Project (P057857) completion rates areas as measured by: and provided with furniture renovated and furnished and equipment, in the compared to target of 186 School Networks but equipment has not yet been provided Increase in graduation rate in targeted areas (measured as the ratio between 11th and 7th Achieved. As of December grade enrollment) 2013, the graduation rate Baseline (2008): 22% in targeted areas is 32%. Target (2014): 27.5 % New. Increase in the graduation ratio Achieved. As of December between targeted areas and the national level 2013, the graduation ratio (reduction in gap) stands at 94%. Baseline (2008):60% Target (2014): 67% Pillar II: Supporting the Environment and Disaster Risk Management Maintain global Land incorporated into the PES increased Costa Rica designed its Achieved (original target). Ongoing Mainstreaming Market- leadership in Baseline (2007): 230,000 Ha national Readiness Package As of December 2013, Based Instruments for sustainable Original Target (2014): 288,000 Ha (average and Letter of Intent for achieved an average of Environmental Management environmental of Ha under contract annually) ERPA (emissions reduction 292,000 Ha under contract Project (PP111926)/GEF grant practices Revised Project Target (2014): 310,000 Ha payment agreement) valued annually (P098838) (average of Ha under contract) at US$63 million signed All new generation (September, 2013). Payment Ongoing REDD and FCPF of electric power to The number of small and medium land will be made upon delivery Achieved. As of December (TF12692) be from renewable owners (<100 Ha) participating in the of emission reductions in 2013, PES benefitted an sources program increased by 50 percent 2020 and Costa Rica will annual average of about IFC financing for renewable Baseline (2007): 1,900 use these funds to scale up 3,300 small and medium energy generation and energy Target (2014): 2,850 existing PES scheme. land owners efficiency projects. (completed) 12 Country Outcomes the Bank Program Expects to Progress achieved at Milestones Bank Program Development Goals Influence Progress Report Integration of Enhance the Government’s capacity to Enactment of Executive Achieved. Today, 100% of Ongoing CAT DDO (P085539) disaster risk implement its disaster risk management Decree ordering the all new approved assessments in program for natural disasters as measured adoption of “Technical investment projects Ongoing IDF Mainstreaming MIDEPLAN’s by: Norms, Guidelines and registered in Disaster Risk Management in the (Ministry of Procedures for Public MIDEPLAN's Investment Costa Rica Investment Process National Planning An increase in the number of projects Investments” applicable to Projects database and Political recorded in the public investment projects government agencies incorporates disaster risk Economy) (BPIP) that include a hazards assessment members of the National management investment projects component System of Public considerations. selection processes Baseline (2011): 22.9% Investments (completed) Target (2015): 75% Ten methodological training guides produced for project preparation and assessment by sectors, including: drinking water and sanitation; solid waste management facilities; hospital facilities; educational facilities; irrigations; safety; and transport infrastructure projects (completed) Capitalization of the Biodiversity Achieved. As of December Endowment Fund 2013, the Fund’s Baseline: US$7.5 million capitalization is around Revised Target: at least US$15 million (total) US$19 million. 13 Country Outcomes the Bank Program Expects to Progress achieved at Milestones Bank Program Development Goals Influence Progress Report Pillar III: Supporting Competitiveness Reduce red tape Improvement in business environment as Red tape reduction Action Achieved. Days to start a WBG Investment Climate and strengthen measured by a reduction in red tape: Plan with a timetable for business: 20 days (DB Advisory engagements business regulation implementation of reforms 2014) to promote Days to start a business articulated (completed) IFC financing for corporate with competitiveness and Baseline: 60 (2011) regional integration and export-led attract investment Target: 35 (2015) strategies IFC support for in private sector technical and vocational education institutions 14 Annex 2: Original and Revised CPS Outcomes Revised CPS Outcomes at Progress Description CPS Outcomes at CPS Report Pillar I. Improving Equity in Social Sectors Increase primary school completion rate in the targeted Replaced. The indicator was replaced as part of the 2011 restructuring of areas: the Equity and Efficiency of Education Project. Baseline 95.5% in 2009 Target 99% in 2014 Improved access to sewerage in Limon Dropped. The City of Puerto Limon Integrated Infrastructure project Baseline: 38% of pop. with access (2007) will likely close without achieving its development Target: 80% (2015) objectives. Center for adoption of new technology and health care Dropped. This indicator was for a Health investment project that is excellence established and protocols for management of being prepared for Board approval in FY15 most prevalent chronic conditions adopted Pillar II. Supporting the Environment and Disaster Risk Management Land incorporated into the PES increased Unchanged. Baseline (2007): 230,000 Ha Target (2014): 288,000 Ha The number of small and medium land owners (<100 Unchanged. Ha) participating in the program increases by 50 percent Baseline (2007): 1,900 Target (2014): 2,850 Increased contribution to mitigating climate change Dropped. No measurable progress has been made to date. Progress to be through verified reductions of carbon emissions from forest measured under the new Strategy. management. No measurable progress has been made to date. Progress to be Improved local livelihoods in forest areas as measured by Dropped. measured under the new Strategy. increases in the income of small farmers and indigenous communities from the REDD payments under the ERPA. 15 Revised CPS Outcomes at Progress Description CPS Outcomes at CPS Report Capitalization of the Biodiversity Endowment Fund Revised. The target was revised downwards to at least US$15 million Baseline: US$7.5 million in line with the PAD. Target: US$30 million (total) An increase in the number of projects recorded in the Revised. Added CPS outcome that was missing. Only the indicator was public investment projects (BPIP) that include a recorded in the original CPS matrix. hazards assessment component Baseline (2011): 22.9% of projects recorded in the BPIP include a hazard assessment component Target (2015): 75% Pillar III. Supporting Competitiveness Improvement in business environment as measured by a Indicators under this Pillar were revised or dropped to better reduction in red tape and improvement in Doing reflect the WBG engagement in Costa Rica. Business rankings Days to start a business Revised. Focused indicator on the reduction of red tape and dropped Baseline: 60 (2011) the focus on improvement in Doing Business rankings. Target: 35 (2015) Firms' increased access to finance using movable assets as Dropped. The three following indicators were dropped to reflect collateral in place selectivity in the outcomes the Bank program expects to Baseline: 0 (2011) influence and account for better progress in achieving those Target: > 0 (2015) outcomes Improved investor protection Dropped. Strength of investment protection index Baseline: 3 (2011) Target: 5 (2015) Improved insolvency regimes: Closing a business Dropped. Baseline: 3.5 years (2011) Target: 2.5 years (2015) SME growth in Limon (baseline: 0 new SMEs in 2007) Dropped all three outcomes. The City of Puerto Limon Integrated Infrastructure project will likely close without achieving its development Score in city’s image in tourists’ perception objectives. Baseline: Survey TBD Reduce waiting times of trucks, lengths of queues to Port as measured by Gate Dispatch Time Indicator 16 Revised CPS Outcomes at Progress Description CPS Outcomes at CPS Report An institutional system in place that facilitates efficient, Dropped. While some progress has been made in providing assistance transparent and accountable PPP arrangements, as to the Government of Costa Rica to enhance its institutional evidenced by at least one PPP in place under the new arrangements for managing PPPs, no concrete action has yet system taken place. Increase in percentage of students from first and second Dropped both outcomes. Due to delayed effectiveness, the Higher Education project quintile enrolled in public universities has just commenced its implementation Baseline: 6% and 12% (2009) Improve the quality and relevance of the higher education curricula as measured by the number of professions accredited and reduction in the dropout rates. 17 Annex 3: List of Active Trust Funds (in thousands of US$) Funds Trust Net Grant Managing Trust Fund Name Disb. to Closing Exec. By Fund # Amount Unit Date Date TF011378 Costa Rica - PMR Bank Executed Grant 350.00 304.57 6/30/2020 LCSEG Bank Costa Rica #10275 Development of TF012692 Capital Markets 149.80 83.63 3/31/2014 LCSPF Bank Wealth Accounting and Valuation of Ecosystem Services - Costa Rica TF012706 (WAVES-CR) 300.00 42.42 6/30/2015 LCSEN Bank TF013640 Costa Rica ER PIN 650.00 197.07 12/31/2013 LCSAR Bank Costa Rica #A010 An Analytical Framework for Assessing Systemic TF013758 Risk 123.32 19.97 6/30/2014 LCSPF Bank Costa Rica's Readiness Preparation TF015277 Proposal Readiness Fund of the FCPF 3,600.00 480.94 12/31/2014 LCSAR Recipient PCF - COTE HYDROELECTRIC TF050896 PROJECT - COSTA RICA 602.04 340.87 6/30/2018 CPFCF Recipient BCF : COSTA RICA FONAFIFO TF056604 COOPERAGRI PROJECT 283.15 3.12 12/31/2018 CPFCF Recipient GEF FSP-COSTA RICA: Mainstreaming Market-based Instruments for Environmental TF056666 Management Project 10,000.00 8,794.36 3/31/2014 LCSEN Recipient COSTA RICA:Neighborhood TF092530 ImprovementAND Slum Eradication 500.00 450.00 11/30/2013 UDRCA Recipient IDF: Costa Rica - Integration of Disaster Risk Information in Costa Rica TF097139 Planning System Project 450.00 235.74 7/18/2014 LCSDU Recipient Total 17,008.31 10,952.69   18 Annex 4: Gender at a Glance 1. Costa Rica has made impressive gains in addressing gender disparities and actually is amongst the best performers in LAC in terms of gender equality in some key indicators. At the same time, in some dimensions, Costa Rica performs worse compared to countries of comparable income level. 2. The World Development Report (WDR) 2012 identified three key dimensions of gender equality outcomes: i) endowments; ii) economic opportunities and, iii) agency that are closely related and mutually reinforcing. Gender equality across all three of these dimensions is important for reducing poverty, promoting equity and enhancing overall growth and productivity of current as well as future generations. 3. In terms of endowments, like in many Latin American countries, Costa Rica shows gender disparities in education favoring girls. At the primary level, the female-male completion rate is higher for girls (100 percent) compared to boys (97.3 percent, 2011). At the same time, the female to male primary gross enrollment ratio is roughly equal (0.99 for 2011). At the secondary levels, there is a slight tendency in favor of girls with a female-male ratio of 1.06 (2010). However, the gender gap has been continuously declining (the female to male ratio was 1.1 in 1999) and is not as expressed here as in some other countries in the Central America region, for instance Honduras where it stands at 1.22 (2010). As observed in other countries, the gender gap increases with level of education: The female to male ratio for tertiary enrollment reflects a clear disadvantage of men (1.29 in 2011) - almost equal to the LAC average of 1.28 (2011). 4. Similarly, in health, Costa Rica shows much better outcomes compared to the majority of countries in Latin America: 99.3 percent of all births in 2010 were attended by skilled health staff, which is better than the averages for upper middle income (UMI) countries (96 percent, 2009) and the LAC region (89 percent, 2009). The contraceptive prevalence rate of 82.1 percent (2010) is also better than the average for UMI countries (56.5 percent, 2010) and the LAC region (75 percent, 2010). At the same time, it is noteworthy that this rate was much higher a few years earlier (96 percent, 2005). Costa Rica also has one of the lowest maternal mortality rates in LAC – 40 (deaths per 100,000 live births in 2010) – compared to 80 on average in the region. In terms of economic opportunities, Costa Rica is still facing some challenges in terms of gender equality: Female participation in the labor force is still comparably low: It improved from 40 percent in 2000 to 50.6 percent in 2011 and the female to male labor force participation ratio grew relatively fast at 1.98 over the last decade (annual growth rate, 1990- 2010). Still, female labor force participation is still much lower than male labor force participation in the same year, 83.7 percent, and below the average for LAC countries (57.9 percent in 2011). It is noteworthy though that there is a remarkable trend showing that in the last decade low-income women are entering the labor force at a much higher rate than wealthier women (39 percent of the poorest women; and 12 percent of the richest) (Poverty and Labor Brief, World Bank 2012). 5. Unemployment rates have increased and continue to be higher for women than for men: 10.3 percent for women (2011; from 6.8 percent in 2007) versus 6 percent for men 19 (2011).6 An issue of concern is related to the very high unemployment rates of girls (21.6 percent compared to 13.5 percent for boys in 2011).With regards to the quality of women’s labor force participation, it has to be mentioned that women in Costa Rica are somewhat more likely than men to work in the informal sector: 32.8 percent of working women and 27 percent of working men are engaged in the informal sector (2010)7. The gender wage gap – while still showing less earnings for women compared to men - has decreased between 2000 (when women earned 78 percent of their male counterparts) and 2010 (now they earn on average 84 percent)8. 6. Women’s agency9 influences their ability to build human capital and pursue economic opportunities – as shown in the WDR 2012. Women’s agency also matters for the welfare of their children. While difficult to measure directly, agency, or a lack thereof, can manifest itself in many different ways including low rates of political participation, prevalence of gender based violence, and high rates of teenage pregnancy. 7. Traditionally, Costa Rica is a champion in Latin America in political representation of women. Parliamentary seats occupied by women during the 2000-2012 period increased from 19 percent to 38.6 percent. This stands out as more than twice the average for UMI countries (18 percent, 2008) and also much higher than the average for LAC countries (24.5 percent, 2012). At the same time, there is a very obvious gender gap in terms of political representation in functions other than parliamentary representation: Only 19 percent of the ministerial positions are held by women, and at the local level only 12.3 percent of the elected mayors were women (Economic Commission for Latin America and the Caribbean 2012). 8. The adolescent fertility rate (61.7 births per 1000 girls ages 15 to 19, 2011) – even though much lower than the regional average of 69 births per 1000 girls ages 15 to 19, 2011) is still much higher than expected given the country’s income level (compare to UMI average of 43.2, 2011), although the rate fell in recent years, from 81 in 2000. 9. In terms of gender-based violence, no recent Demographic and Health Survey data is available for Costa Rica. The latest available data stems from International Violence Against Women Survey 2003 according to which 33 percent of women in Costa Rica had suffered from physical violence by an intimate partner in their life time, and 15 percent had suffered from sexual violence from an intimate partner in their life time. Legal protection for women victims of violence was strengthened by the 2007 Criminalization of Violence Against Women Act, which includes acts of violence which were not previously covered by the Domestic Violence Act or by the Penal Code (including restriction of freedom of movement, emotional violence, abusive sexual conduct, sexual exploitation of a woman, aggravated forms of sexual violence, defrauding a woman of community property, misappropriation of earnings from family economic activities and economic exploitation of a woman)10.                                                              6 If not mentioned otherwise, data in this overview stem from World Development Indicators 2012. 7 Socio-Economic Database for LAC, using legal definition for informality (absence of social security rights). 8 World Bank 2012: Poverty and Labor Brief 2012: Women’s Economic Power in Latin America. 9 Agency represents people’s ability to make their own choices and transform those choices into desired actions. 10 Organisation for Economic Co-operation and Development Social Institutions and Gender Index, 2013. 20 Sources: Socio-Economic Database for LAC; Poverty and Labor Brief 2012: Women’s Economic Power in Latin America, WB 2012; World Development Report 2012; Organisation for Economic Co-operation and Development Social Institutions and Gender Index, 2013. 21 Annex 5: Key Macroeconomic Indicators and Projections As percentage of GDP, unless indicated otherwise Projections 2008 2009 2010 2011 2012 2013 2014 2015 2016 Growth and Prices (% ) Real GDP (% annual growth) 2.7 -1.0 5.0 4.4 5.1 3.0 3.7 4.0 4.0 Real GDP per capita (% change) 1.2 -2.5 3.4 2.9 3.6 0.5 1.2 1.5 1.5 CPI Inflation (eop) 13.9 4.0 5.8 4.7 4.6 5.0 5.0 5.0 5.0 Savings and Investment (% of GDP) Gross Domestic Investment 27.6 16.3 20.6 21.6 21.2 20.9 21.0 21.1 21.5 Gross Domestic Savings 17.8 16.9 17.9 16.7 17.7 17.4 17.7 17.7 18.1 Central Government Finance ( % of GDP) Total Revenues 15.9 14.0 14.3 14.6 14.4 14.7 14.9 14.8 16.2 o/w Tax Revenues 15.3 13.4 13.0 13.3 13.3 13.6 13.7 13.7 13.7 Total Expenditures 15.3 17.4 19.5 18.7 18.8 19.3 20.3 20.5 21.1 Current Expenditures 13.5 15.6 17.2 17.2 17.4 17.6 18.4 18.6 19.2 Capital Expenditures 1.8 1.8 2.4 1.5 1.5 1.7 1.9 1.9 1.9 Primary Balance 2.4 -1.3 -3.1 -1.9 -2.3 -2.2 -2.6 -2.7 -2.8 Overall Balance 0.6 -3.4 -5.2 -4.1 -4.4 -4.6 -5.4 -5.7 -6.2 Central Government Debt (% of GDP) 24.7 27.2 29.1 30.7 35.3 37.1 39.5 41.9 43.3 External 7.2 5.8 6.0 4.9 6.1 8.3 8.2 6.8 5.2 Domestic 17.5 21.4 23.2 25.8 29.2 28.8 31.3 35.1 38.0 Central Government Debt (millions of US$) 7,381 7,992 10,576 12,617 15,941 18,126 21,015 24,344 27,482 External 2,151 1,693 2,170 2,027 2,755 4,042 4,347 3,949 3,326 Domestic 5,230 6,299 8,406 10,590 13,186 14,084 16,668 20,395 24,156 External Sector (% of GDP) Current Account Balance -9.3 -2.0 -3.5 -5.4 -5.6 -5.4 -5.4 -5.7 -5.8 Trade Balance -16.8 -6.9 -9.5 -12.6 -11.9 -11.8 -11.8 -12.1 -12.1 Foreign Direct Investment 6.9 4.6 4.0 5.1 4.1 4.0 3.7 3.5 3.3 International Reserves (millions of US$) 3,799 4,066 4,627 4,756 6,857 8,356 9,351 10,159 10,357 Memorandum Items GDP at current prices (millions of US$) 29,831 29,383 36,298 41,032 45,104 48,821 53,260 58,159 63,510 Source: IMF and World Bank 22 Annex 6: Standard CPS Annexes _, - Costa Rica At-a-Glance Latin Upper Key Development Indicators Costa America middle Age d istribution. 2011 Rica & Carib. income (2011) Male female Population, m id-year (m illion s) 4 .7 589 2 ,490 75-79 Surface area (thousand sq. km ) 51 20,394 6 1,034 60-64 Population growth (%) 1.5 1.1 0 .7 Urban population(% of total population) 65 79 61 4$.49 30-34 GNI (Atlas method, US$ billions) 36.1 5 .050 16,34 1 1S.l9 GNI per capita (AUas method, US$) GNI per capita (PPP, international $) 7,640 11,860 8 ,574 11,582 6,563 10,703 ... 10 10 GOP g rowth (%) 4 .2 4.7 6.6 percent of total population GOP per capita growth (%) 2.7 3.6 5.9 (most recent estimate, 2005-2011) Poverty headcount ratio at $1 .25 a day (PPP. %) 3 6 9.0 Under-5 mortality rate (per 1.000) Poverty headcount ratio at $2.00 a day (PPP, %) 6 12 20.4 Life expectancy a t birth (ycarz) 79 74 73 Infant mortality (per 1,000 live births) 60 9 16 16 Child malnutrition (% of children under 5) Adult literacy. m ale (% of ages 15 a nd older) Adult literacy, female (% of ages 15 and older) 96 3 92 91 3 96 91 .. 50 30 96 Gross primary enrollment. male (% of age g roup) 108 118 111 20 Gross primary enrollment, female (% of age group) 107 114 111 \0 Access to a n improved water source (% of population) 97 94 93 Access to improved sanitation facilities (% of population) 95 79 73 o~tta~ca Oltltln Amcr!CC & tho Ctlf"'lbbean Net A i d Flows 1980 1990 2000 2011 (US$ millions) Net ODA and official aid 64 227 10 95 Growth of GOP and GOP per capita (%) Top 3 donors (in 2010): Japan 4 40 -6 64 jJM nt Germany 13 25 1 22 Spain 0 3 11 5 Aid (% of GNI) 1.4 3.2 0.1 0 .3 Aid per capita (USS) 27 74 2 20 Lo n g -Te rm Econ o m i c T ren ds 9S OS Consumer prices (annual % change) 18.1 19.0 10.2 4 .7 GOP implicit deflator (annual% change) 18.8 17.1 7.0 4 .1 - GOP - - GOP Del' ca1>ita Exchange rate (annual average, local per US$) 8.6 9 1.5 308.2 505.7 Terms of trade index (2000 = 100) 101 95 100 64 1980-90 1990-2000 2000-11 (average annual growth %) Population, m id-year (m illion s) 2.3 3.1 3.9 4 .7 2.7 2.4 1.7 GOP (US$ millions) 4.831 7.403 15.946 40.870 3.1 5.3 4.8 (% oiGDP) Agriculture 13.9 12.3 9.5 6.4 3.3 4 .1 3.2 Industry 32.5 29.9 32. 1 25.6 3.5 6.2 4.5 Manufacturing 24.8 22.6 25.3 17.6 3 .5 6.8 4.1 Services 53.6 57.8 58.5 68.0 2 .7 4 .7 5.4 Household final consumption expenditure 65.5 72.9 67.0 65.5 3 .8 5.1 4 .1 General gov't final consumption expenditure 18.2 14 .7 13.3 18.2 1.1 2.0 2 .6 Gross capital formation 26.6 18.5 16.9 20.6 5 .6 5.1 5 .5 Exports of goods and services 26.5 30.2 48.6 37.4 6.2 10.9 5.6 Imports of goods and services 36.8 36.3 45.8 41.6 7 .8 9 .2 4.6 Gross savings 12.2 9.8 12.5 14 .7 Note: Figures in italics are for years other than those specified. .. indicates data are not available. Development Economics, Development Data Group (DECDG). 23 Balance of Payments and Trade 2000 20 11 Governance indicators, 2000 and 201 1 (US$ millions) Total merchandise exports (fob) 5,813 10,383 Total merchandise imports (cit) 6 ,389 16,220 Voice and accountabiltty Net trade in goods and services 468 -1 ,914 Political stability Current account balance -691 -2,176 Regulatory quality as a % ofGDP -4.3 -5.3 Rule of law Personal transfers and compensation of employees (re<:eipts) 136 520 Control of corruption I Reserves. including gold 1,318 4,756 25 50 75 100 <1 20t 1 Country's percentile rank (0- 100) Centr a l Gov e r n me n t Fi nan ce ltll)lret ~s rmply bclf("l ratJti(JS 02000 (% of GOP) Source. Worldwld9 GoverntJnce lndlc6tors bV\V\v.govmdsc«ors.Otg) Current revenue (including grants) 12.5 14.6 Tax revenue 12.4 13.4 Current expenditure 14.5 17.3 Technology and Infrastructure 2000 2011 Overall surplus/deficit -3 .0 -4.1 Paved roads (% of total) 22.0 26.0 Highest marginal tax rate (%) Fixed line and mobile phone Individual 15 subscribers (per 100 people) 28 118 Corporate 30 30 High technology exports (% of manufactured exports) 5 1.7 40.8 Exte r nal Debt and Resource Flow s Environment (US$ millions) Total debt outstanding and disbursed 4,736 10,291 Agricultural land (% of land area) 36 37 Total debt service 655 1,593 Forest area (% of land area) 46.5 51 .5 Debt relief (HI PC. MDRI) Terrestrial protected areas (% of land area) 20.8 20.9 Total debt (% of GDP) 29.7 25.2 Freshwater resources per capita (cu. meters) 27,527 23,780 Total debt service (% of exports) 8 .2 10.2 Freshwater withdrawal(% of internal resources) 2.4 2.4 Foreign direct investment (net inflows) 409 2,176 C02 emissions per capita (mt) 1.4 1.8 Portfolio equity (net inflows) 0 0 GOP per unit of energy use (2005 PPP $ per kg of oil equivalent) 10.8 10.5 Composition of total external debt, 2011 IMF, 240 Energy use per capita (kg of oil equivalent) 755 998 SI'KM't·lenn. 2,422 Wor ld Bank Gr oup portfolio 2000 201 1 Sibter.tl. -402 (US$ millions) IBRD Total debt outstanding and disbursed 121 587 Disbursements 6 24 Principal repayments 33 7 Interest payments 12 10 US$ millions IDA Total debt outstanding and disbursed 2 0 Disbursements 0 0 Private Sector Dev e lopment 2000 2011 Total debt service 0 0 Time required to start a business (days) 60 IFC (fiscal y ear) Cost to start a business (% of GNI per capita) 11.1 Total d isbursed and outstanding portfolio 46 39 Time required to register property (days) 20 of which IFC own account 41 39 Disbursements for IFC own account 0 3 Ranked as a major constraint to business 2000 2011 Portfolio sales. prepayments and (% of managers surveyed who agreed) repayments for IFC own account 4 Access to/cost of financing 60.1 Anticompetitive or informal practices 48.7 MIGA Gross exposure 72 142 Stock market capitalization (% of GDP) 18 .3 3.5 New guarantees 0 0 Bank capital to asset ratio (%) 10.8 14.6 Note: Figures in italics are for years other than those specified . 3/ 15/ 13 .. indicates data are not available. - indicates observation is not applicable. Development Economies, Development Data Group (DECDG). 24 Mil lennium Development Goa ls Costa Rica With selected targets to achieve between 1990 and 2015 (estimate closest to date shown, +/- 2 years) Costa Rica Goal 1: halve the rates for extreme poverty and malnutrition 1990 1995 2000 2011 Poverty headcount ratio at $1.25 a day (PPP,% of population) 8.5 5.3 5.5 3.1 Poverty headcount ratio at national poverty line(% of population) 31 .0 23.9 23.1 24.8 Share of income or consumption to the poorest qunitile (%) 3.8 4.0 4.0 3.9 Prevalence of malnutrition (% of children under 5) 2.5 4.5 1.1 Goa l 2: ensure that children are able to complete primary schooling Primary school enrollment (net, o/o) 88 90 Primary completion rate (% of relevant age group) 75 81 87 99 Secondary school enrollment (gross,%) 43 50 61 101 Youth literacy rate (% of people ages 15-24) 98 98 Goa l 3: eliminate gender disparity in education and empower women Ratio of girls to boys in primary and secondary education (%) 100 102 101 102 Women employed in the nonagricultural sector (% of nonagricultural employment) 37 37 39 43 Proportion of seats held by women in national parliament (%) 11 16 19 39 Goa l 4: reduce under-5 mortality by two-thirds Under-5 mortality rate (per 1,000) 17 15 13 10 Infant mortality rate (per 1,000 live births) 15 13 11 9 Measles immunization (proportion of one-year olds immunized,%) 90 91 82 83 Goa l 5: reduce maternal mortality by three-fourths Maternal mortality ratio (modeled estimate, per 100,000 live births) 38 45 47 40 Births attended by skilled health staff (% of total) 98 98 99 Contraceptive prevalence (% of women ages 15-49) 75 80 82 Goa l 6: halt and begin to reverse the spread of HIV/AIDS and other maj or diseases Prevalence of HIV (% of population ages 15-49) 0.1 0.1 0.2 0.3 Incidence of tuberculosis (per 100,000 people) 48 43 35 12 Tuberculosis case detection rate (%, all forms) 16 40 43 88 Goa l 7: halve the proportion of people without sustainable access to basic needs_ _ _ _ _ _--=-=-----::-------=-=-----:::- Access to an improved water source (% of population ) 93 94 95 97 Access to improved sanitation facilities (% of population) 93 94 95 95 Forest area (% of total land area) 50.2 46.5 51.5 Terrestrial protected areas (% of land area) 18.7 20.7 20.8 20.9 C02 emissions (metric tons per capita) 1.0 1.4 1.4 1.8 GDP per unit of energy use (constant 2005 PPP $per kg of oil equivalent) 9.4 10.7 10.8 10.5 Goa l 8: develop a global partnership for development Telephone mainlines (per 100 people) 9.2 13.8 22.9 26.1 Mobile phone subscribers (per 100 people) 0.0 0.5 5.4 92.2 Internet users (per 100 people) 0.0 0.4 5.8 42.1 Households with a computer (%) 13.9 45.3 Education indicators (%) Measles immunization (% of 1-year olds) ICT indicators (per 100 people) 100 140 25 1 o-o-o-o-o-o-o-o 1 100 75 1:>0 100 75 80 50 5o 60 25 40 o +-r-~-,-,~~-r-r-r~~ 2000 2005 2010 1990 1995 2000 2011 2000 2005 2010 ~ Primary net enrollment ratio( ..) ~ Ratio of girls to boys in primary & secondary OCosta Rica Olatin America & the Garibboan a Fix&d ~ mobile subscribers o Internet users education Note: Figures in italics are for years other than those specified . .. indicates data are not available. 3/15/13 Development Economies, Development Data Group (DECDG). 25 Social Indicators L at est s ingle year Sam e r egio n/inc o me grou p Latin Upper- America middle- 1980-85 1990-95 2005-11 & Carib. income POPULATION Total population, mid-year (millions) 2.7 3.5 4.7 589.0 2,489.7 Growth rate (% annual average for period) 2.8 2.4 1.5 1.2 07 Urban population (% of population) 45.6 55.8 64 .6 79.1 60.6 Total fertility rate (births per woman) 3.5 2.8 1.8 2.2 1.8 POVERTY (% of population) National headcount index 23.5 24.8 Urban headcount index 19.2 22.0 Rural headcount index 28.5 29.3 INCOME GNI per capita (US$) 1,590 3,260 7,640 8,574 6,563 Consumer price index (2005=100) 6 32 165 INCOME/CONSUMPTION DISTRIBUTION Gini index 47.5 45.7 50.7 Lowest quintile (% of income or consumption) 3.4 4.0 3.9 Highest quintile (% of income or consumption) 51.4 50.4 55.9 SOCIAL INDICATORS Pub lic expenditure Health (% of GOP) 5.0 7.6 3.8 3.4 Education (% of GOP) 3.9 3.3 6.3 4.7 5.0 Net primary school enrollment rat e (% of age group) Total 86 90 94 95 Male 86 87 94 95 Female 86 89 94 94 Access to an improved water sou rce (%of population) Total 94 97 94 93 Urban 99 100 98 98 Rural 88 91 81 86 Immunization rat e (% of children ages 12-23 months) Measles 78 91 83 93 96 DPT 90 85 85 92 96 Child malnutrition (% under 5 years) 6 2 3 3 Life expectancy at b irth (years) Total 75 77 79 74 73 Male 72 75 77 71 71 Female 77 79 82 78 75 Mortality Infant (per 1,000 live births) 18 13 9 16 16 Under 5 (per 1,000) 21 15 10 19 20 Adult ( 15-59) Male (per 1,000 population) 109 178 159 Female (per 1,000 population) 57 96 100 Maternal (modeled, per 100,000 live births) 45 40 81 62 Births attended by skilled health staff (%) 98 99 97 Note: 0 or 0.0 means zero or less than half the unit shown. Net enrollment rate: break in series between 1997 and 1998 due to change from ISCED76 to ISCED97. Immunization: refers to children ages 12-23 months who received vaccinations before one year of age or at any time before the survey. W orld Development Indicators database, W orld BanK - 17 April 2013. 26 Key Exposure Indicators Actual Estimated Projected Indicator 2007 2008 2009 2010 20 11 2012 20 13 20 14 20 15 Total debt ou tstanding and 8450 9251 8 164 8552 10723 14458 13865 13022 11 599 disbursed (TDO) (US$ m)• Net di sbursements (US$m)" -1204 - 1593 -843 - 1423 Total debt service (TDS) 2210 3121 2658 2268 (USSm)" Debt :md debt service indic:nors (%) TDO J'GSb 60.1 63.2 62.1 58.8 66.7 8 1.6 74.9 64. 1 52.6 TDO/GDP 32. 1 3 1.0 27.8 23.6 26. 1 32.1 TDS/ XGS 12.5 16.9 13.1 10.3 C oncessioni1IITDO 5.4 6.0 7.7 8.3 6.4 4.6 5. 1 5.4 6.4 IBRD exposure indica tors(%) ffiRD DS/public DS 2.7 3.4 5.1 Preferred creditor DS/public 25.0 22.0 27.7 DS (%)< ffiRDDS/XGS 0.1 0.1 0. 1 0. 1 0.1 0.1 0.2 0.2 0.2 TBRD TOO (USSm)n 45 41 107 609 6 18 616 641 668 70 1 Of which presetlt value of guarantees (US$m) Share offfiRD portfolio(%) 0 0 0 I I I I I I IDA TOO (USSm)d 0 0 0 0 0 0 0 0 IFC (US$m) Loans Equity and quasi-equity /c MTGA MTGA guarantees (US$m) a. Includes public and publicly guaranteed debt, private nonguaranteed. use ofTMF credits and net short- term capital. b. "XGS" denotes exports of goods and services. including workers' remittances. c. Preferred creditors are defined as ffiRD. IDA, the regional multilateral development banks. the TMF, and the Bank for Internati onal Settlements. d. Includes present value of guarantees. e. Includes equi ty and quasi-equity types of both loan and equi ty instnunenrs. 27 Selected Indicators* of Bank Portfolio Performance and Management As Of Date 1/16/2014 Indicator 2011 2012 2013 201 4 Portfolio Assessment Number of Projects Under Implementation a 4 4 5 3 Average Implementation Period (years) b 5.7 6.9 6.7 7.0 Percent of Problem Projects by Number a, c 25.0 25.0 20.0 25.0 Percent of Problem Projects by Amount a, c 14.5 14.5 17.8 19.2 Percent of Projects at Risk by Number a, d 25 .0 25.0 20.0 25.0 Percent of Projects at Risk by Amount a, d 14.5 14.5 17.8 19.2 Disbursement Ratio (%) e 14.0 11.8 16.1 3.4 Portfolio Management CPPR during the year (yes/no) Supervision Resources (total US$) Avera~e Su~ervision iUS $/~roject~ Memorandum Item Since FY 80 Last Five FYs Proj Eval by OED by Number 28 2 Proj Eval by OED by Amt (US$ millions) 1,119.7 513.3 % of OED Projects Rated U or HU by Number 7.7 0.0 % of OED Projects Rated U or HU by Amt 5.8 0.0 a.As shown in the Annual Report on Portfolio Performance (except for current FY). b.Average age of projects in the Bank's country portfolio. c.Percent of projects rated U or HUon development objectives (DO) and/or implementation progress (IP). d.As defined under the Portfolio Improvement Program. e.Ratio of disbursements during the year to the undisbursed balance of the Bank's portfolio at the beginning of the year: Investment projects only. * All indicators are for projects active in the Portfolio, with the exception of Disbursement Ratio, which includes all active projects as well as projects which exited during the fiscal year.   28 Costa Rica IFC Investment Operations Portfolio   2011 2012 2013 2014* Original Commitments (US$m) IFC and Participants 41.45 34.15 83.59 19.20 IFC's Own Accounts only 41.45 34.15 83.59 19.20 Original Commitments b)! Sector(%)- IFC Accounts onl:t ACCOMMODATION & TOU RISM SERVICES 6 .73 FINANCE & INSURANCE 100 93.27 100 100 Total 100 100 100 100 Original Commitments b)! Invest ment Instrument (%l - IFC Accounts on l:v: Guarantee 63.81 93.27 58.13 100 Loan 36.19 6 .73 41 .87 Total 100 100 100 100 • Data as of Decem ber 31, 2013   29 IFC Committed and Disbursed Outstanding Investment Portfolio     Amounts in US Dollar Millions Accounting Date as of: 1213112013 Pago 1 ~l(•):l..elinAnJflb•ICIItle C•~• Cw•* li•); eo... Ric. Commitment IMtitutlon LN ET QL • OE GT RM ALL All LN ET OL • OE GT RM ALL ALL Fl:col Year Short Name Cmtd -IFC Cmtd -IFC Cmtd -IFC Cmtd - IFC Cmtd - IFC Cmtd - IFC Cmtd ·Part Out -IFC Out -IFC Out -IFC Out - IFC Out -IFC Out -IFC Out· Part 2010/ 2011/ 20 12120131 Banco lrr20!.8 5.00 0 9.65 14.65 5.00 9.65 14.65 0.00 20 14 20111 20121 201312014 BoOGO l AfiSE CR 0 5.06 5.06 5.06 5.oe 0.00 2013 8a!K2 t~l!!!fll CB 20.00 0 20.00 20.00 20.00 0.00 ~ 1.84 0 1.84 1.84 1.8