Press Release No. 23/418

Costa Rica Engages with Multilateral Partners to Launch a Sustainable Project Preparation Facility and Crowd in Climate Investments

December 2, 2023

Dubai: The Government of Costa Rica announced today the creation of a Public-Private Partnership (PPP) Project Preparation Facility (PPF) to leverage public and private sector resources to develop sustainable and efficient infrastructure projects.

This initiative will take place in the context of the Resilience and Sustainability Facility (RSF) arrangement approved by the International Monetary Fund (IMF)’s Executive Board in November 2022, in the amount of US$ 725 million at the time of approval of the arrangement. [1] > The RSF arrangement supports reforms to integrate climate risks into fiscal planning, strengthen public investment and infrastructure resilience to climate change, support its decarbonization efforts, and reinforce the ability of its financial sector to assess and manage climate-related risks. RSF reforms include developing and publishing guidelines to include climate change criteria in project appraisal and selection; adopting regulation to facilitate private-sector power generation from renewables; and introducing feebates to incentivize the purchase of low-pollution vehicles. The reform package will support creating an enabling environment to help catalyze critical climate financing from other official and private partners.

Establishing a Project Preparation Facility

The Inter-American Development Bank (IDB) will coordinate the establishment of the PPF jointly with the Government of Costa Rica that would become a multi-donor facility with the participation of other stakeholders. The PPF will follow international best practices for sustainable project preparation and will leverage IDB’s expertise on the PPP PPF set-up in the region (Brazil, Colombia, Jamaica). The PPP PPF will also build on IDB’s current technical assistance to the country, where it works upstream closely with the government (Ministry of Finance and Ministry of Public Works’ Consejo Nacional de Concesiones) to develop and update the institutional coordination guidelines, the implementation manuals, and PPP best practices to ensure sustainable development of PPPs—environmental and social sustainability of infrastructure projects.

The PPP PPF will provide both financial, on a contingent recovery basis, and technical support that will help to create capacity and in-house technical expertise in Costa Rica to achieve the Sustainable Development Goals (SDGs). The facility will have four areas of intervention: upstream support (regulatory and institutional PPP reforms required, as well as capacity building), sustainable project identification and prioritization, sustainable project structuring (including potential de-risking support to strengthen project bankability), and private sector support.

The PPP PPF has the potential to catalyze up to USD 1.2 billion in private sector resources for projects in sustainable public infrastructure sectors such as sustainable transport and energy, water and sanitation, and social infrastructure by 2030. The facility also aims to optimize strategies for risk allocation and mitigation, and to mainstream sustainability criteria and fiscal responsibility requirements.

Establishing a Financing Facility

The European Investment Bank (EIB) announced the creation of a regional financing facility that will support sustainability-related projects in the areas of energy, transport, water and sanitation, and environmental conservation, among others. Through this facility, the EIB expects to crowd-in additional resources to support high-impact climate and environmental initiatives and enhance Costa Rica’s ability to mitigate and adapt to the effects of climate change. In coordination with the European Union (EU) Delegation in Costa Rica, the EIB expects to work closely with national institutions, EU national development entities, and multilateral partners on the implementation of the facility.

The World Bank (WB) has been actively engaged in supporting climate finance in the country, including through supporting disaster risk management and climate adaptation activities. Recently, the WB agreed to provide technical assistance to El Instituto Costarricense de Electricidad, the state energy company, on green bond issuance, among other areas. The WB has also agreed to provide financing to Costa Rica for up to US$ 60 million for reducing emissions from deforestation and forest degradation (REDD+). The first payment was made in August 2022. Building on the experience accumulated in related incentive mechanisms in the forest area, the WB is supporting the development of an innovative Payment for Marine Ecosystems Services program. Discussions with the authorities on further collaboration on fostering green finance in Costa Rica are ongoing given its importance to national development.

The World Bank Group’s International Finance Corporation (IFC) is also continuing to bolster climate resilience in Costa Rica through multifaceted initiatives to support the private sector. These include developing a green taxonomy at a Central America regional level to help channel financing into a range of climate-friendly projects, coordinating the structuring process to sustainably modernize and expand Puerto Caldera—the main freight port in the Pacific side of the country—, and designing and implementing financing solutions to help transform the agribusiness sector.

Developing a Sovereign Thematic Bond Strategy to Support Climate Goals

Costa Rica is committed to environmental protection and has implemented a comprehensive strategy to achieve its goals. This strategy includes potentially issuing sovereign bonds that are recognized for the country’s overall climate and social credentials. Taking advantage of its ambitious climate actions, Costa Rica is also developing, together with the UNDP, a sovereign thematic bond strategy linked to its SDGs and Nationally Determined Contribution (NDC), which will allow it to catalyze more financing from private investors, through the issuance of use of proceeds bonds or sustainability-linked bonds. As stated at the SDG Summit, Costa Rica is also committed to look for a more integrated approach to the SDGs. Additional financial strategies, jointly designed with other development partners, are expected to be developed to further support Costa Rica’s comprehensive climate goals.

These collaborative efforts will support Costa Rica’s home-grown reform program to institutionalize the significant progress to help promote inclusive and sustainable growth, and to strengthen Costa Rica’s role as a global leader in the climate agenda achieved in the context of the IMF supported Extended Fund Facility (EFF) and RSF arrangements.

Quotes

• President Rodrigo Chaves of Costa Rica commented “It is crucial for the country to diversify its investment portfolio and move beyond relying solely on debt financing. In this regard, fostering Public-Private Partnerships (PPPs) as sustainable catalysts for investment projects holds immense significance. The initial collaboration with the IMF, IDB, and other stakeholders through the PPF will play a pivotal role in solidifying this approach.”

• Kristalina Georgieva, Managing Director of the International Monetary Fund, said “We continue to support Costa Rica through the IMF’s Resilience and Sustainability Trust as the country advances on its ambitious climate agenda. I very much welcome these coordinated initiatives, working with the Inter-American Development Bank, the European Investment Bank, and other development agencies to support Costa Rica’s efforts to mobilize private sector climate financing. Such initiatives help build resilient and sustainable infrastructure and bolster Costa Rica’s role as a global leader in the climate agenda.”

• Ilan Goldfajn, President, Inter-American Development Bank Group, stated “We are proud to be part of this initiative in Costa Rica, who is fast becoming a world leader in sustainability. The facility represents a milestone and is the result of a close partnership with the IMF and the collaborative work with the Government of Costa Rica to develop sustainable infrastructure projects”.

• Werner Hoyer, President of the European Investment Bank, said “At the EIB, we are very happy to work with the Government of Costa Rica and international partners like IDB and IMF on innovative schemes to accelerate green investment and crowd-in private partners. The Project Preparation Facility has the potential to bring tangible progress: we are looking forward to delivering high-impact climate investments through its implementation.”

• Achim Steiner, Administrator of the United Nations Development Programme, said “We are proud to be supporting Costa Rica in the development of a sovereign thematic bond strategy that could bring significant private capital to deliver on their development, gender equality, and climate goals. Sustainable sovereign debt can channel resources towards the achievement of SDGs and NDCs, while diversifying the investor base and potentially lowering debt costs and strengthening fiscal positions.”

• Alfonso García Mora, IFC's Vice President for Europe, Latin America and the Caribbean, said “Costa Rica is redoubling efforts to bolster its climate resilience and become a low-carbon leader. IFC will continue to work closely with the country and collaborate with other multilateral institutions to accelerate the flow of private capital in support of Costa Rica's ambitions.”