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International Monetary Fund

these objectives. The authorities were also encouraged to further strengthen the independence of the central bank. Directors noted that the crawling peg exchange regime has helped to keep inflation low, and that the current level of external competitiveness is broadly appropriate. While Directors saw no need to consider abandoning the crawling peg in the near future, many Directors considered that over the medium term greater flexibility would help reduce vulnerabilities and facilitate adjustment to shocks and structural change. These Directors, therefore, recommended

International Monetary Fund. Western Hemisphere Dept.

needed in assessing fiscal risks and enhancing fiscal governance. Directors highlighted the need to increase the international reserves coverage to support the crawling peg exchange regime and restore external buffers. Keeping inflation low while adopting structural reforms to raise productivity will increase competitiveness and resilience to shocks. Directors welcomed the resilience of the financial sector to recent confidence shocks but called for further efforts to mitigate risks from the elevated level of distressed assets. Enhancing crisis preparedness

International Monetary Fund. Western Hemisphere Dept.
This 2019 Article IV Consultation with Nicaragua highlights that social unrest and its aftermath eroded confidence and caused large capital and bank deposits outflows that resulted in a prolonged output contraction. Banks cut lending, which exacerbated the downturn. Faced with sharply lower revenues and a severe tightening in available financing, including on account of sanctions, the government was forced to cut spending and adopt a procyclical tax package. The economy is projected to continue to contract in the near term as it adjusts to weaker confidence and lower external financing. The sharp contraction in credit will continue to depress investment, and the tight fiscal and external financing situation will continue to drag down medium-term growth. The key risks relate to further erosion in confidence and renewed deposit outflows. The imposition of additional sanctions by trading partners could also heighten economic stress. It is recommended to maintain a conservative fiscal stance in 2020 remains the key to maintain macroeconomic stability. Curbing expenditures on goods and services will allow increased spending on social programs, social safety nets, and public investment, which would lead to more equitable and sustainable growth.
International Monetary Fund. Western Hemisphere Dept.
This 2017 Article IV Consultation highlights Nicaragua’s robust macroeconomic performance in 2016. Real GDP grew by 4.7 percent in 2016, supported by strong domestic demand, while inflation remained subdued at 3.1 percent as of the end of 2016, owing largely to the contribution of food prices. The current account deficit for 2016 is estimated to have narrowed to 8.6 percent of GDP, compared with 9 percent in 2015. This consolidation is largely explained by maquila exports, which have been better captured owing to improvements in statistical compilation. The current account deficit remained financed by foreign direct investment and other long-term inflows.
International Monetary Fund. Western Hemisphere Dept.

moderately weaker than fundamentals . In this regard, the international reserve coverage should be increased to support better the crawling peg exchange regime and increase Nicaragua’s resilience to shocks. Over the medium term, Nicaragua’s external competitiveness should be improved by enhancing structural reforms to boost productivity growth while keeping inflation low. Staff does not recommend approval of the exchange restriction arising out of Nicaragua’s participation in the SUCRE regional payments arrangement because it is discriminatory. 41. Nicaragua is assessed

Todd Schneider, Nabil Ben Ltaifa, Mr. Faisal Ahmed, and Mr. Saade Chami
This paper investigates the likely implications of declining oil production on Yemen's equilibrium exchange rate, and discusses policy options to ensure a smooth transition to a nonoil economy. The empirical results suggest that, as oil production and foreign exchange earnings fall, the Yemeni rial will have to adjust downward in real effective terms to keep pace with the equilibrium exchange rate. In light of strong pass-through from exchange rate depreciation to domestic inflation, this could entail a substantial depreciation in nominal terms. Given the nature of the adjustment, a floating exchange rate regime appears to be the best option, if supported by appropriate macroeconomic policies. However, given public fixation on a exchange rate stability, a softly managed float would be a better option for Yemen whereby the central bank may have to lead the market toward the equilibrium exchange rate.