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IMF Country Report No. 20/59

NICARAGUA

2019 ARTICLE IV CONSULTATION—PRESS RELEASE; STAFF REPORT; AND STATEMENT BY THE EXECUTIVE DIRECTOR FOR NICARAGUA

February 2020

Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. In the context of the 2019 Article IV consultation with Nicaragua, the following documents have been released and are included in this package:

  • A Press Release summarizing the views of the Executive Board as expressed during its February 21, 2020 consideration of the staff report that concluded the Article IV consultation with Nicaragua.

  • The Staff Report prepared by a staff team of the IMF for the Executive Board’s consideration on February 21, 2020, following discussions that ended on November 12, 2019 with the officials of Nicaragua on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on January 30, 2020.

  • An Informational Annex prepared by the IMF staff.

  • A Debt Sustainability Analysis prepared by the staffs of the IMF and the World Bank.

  • A Staff Supplement updating information on recent developments.

  • A Statement by the Executive Director for Nicaragua

The IMF’s transparency policy allows for the deletion of market-sensitive information and premature disclosure of the authorities’ policy intentions in published staff reports and other documents.

Copies of this report are available to the public from

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PO Box 92780 • Washington, D.C. 20090

Telephone: (202) 623–7430 • Fax: (202) 623–7201

E-mail: publications@imf.org Web: http://www.imf.org

Price: $18.00 per printed copy

International Monetary Fund

Washington, D.C.

© 2020 International Monetary Fund

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NICARAGUA

STAFF REPORT FOR THE 2019 ARTICLE IV CONSULTATION

January 30, 2020

Key Issues

Context: 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.

Outlook and Risks: 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.

Key Policy Recommendations:

  • Fiscal. Maintaining 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. Addressing medium- term fiscal challenges and undertaking structural reforms —which are unavoidable to safeguard fiscal sustainability— require obtaining broad public support.

  • Monetary and Financial. A stronger external position is needed over the medium term to maintain the resilience of the crawling peg regime. Financial sector soundness would be supported by reforms to strengthen (i) the regulatory and supervisory framework to ensure proper loan-loss provisioning; and (ii) the AML/CFT framework to reduce pressures on correspondent banking relationships.

  • Anti-corruption and Structural. Establishing a broad-based anticorruption policy would help mobilize actions to improve efficiency in delivering public goods and services and reducing corruption. Strengthening the protection of property rights, guaranteeing investor protection, and resolving insolvency will enhance competitiveness.

Approved By

Aasim M. Husain (WHD) and Maria Gonzalez (SPR)

Discussions took place in Managua during October 29–November 12, 2019. The mission team comprised R. Garcia-Saltos (Head), J. Arze del Granado, S. Marcelino (all WHD), T. Asonuma (SPR), L. Cortavarria and M. Otero (MCM), I. Rossi (LEG) and G. Peraza (Regional Resident Representative). M. Coronel (OED) participated in the discussions. B. Saravia (OED) and A. Husain (WHD) participated in the concluding meetings. M. Sans provided research assistance, and M Toshmuhamedova offered editorial support for the preparation of the report.

Contents

  • CONTEXT AND RECENT ECONOMIC DEVELOPMENTS

  • OUTLOOK AND RISKS

  • POLICY DISCUSSIONS

  • A. Safeguarding Fiscal Sustainability

  • B. Monetary and Financial Sector Policies

  • C. Competitiveness and Governance

  • D. Statistics and Capacity Development

  • STAFF APPRAISAL

  • BOXES

  • 1. Credit Crunch and Liquidity Management During Financial Stress

  • 2. The 2020 Budget Proposal

  • FIGURES

  • 2. Indicators of Real Sector Activity

  • 3. Fiscal Developments

  • 4. External Sector

  • 5. Monetary Sector Developments

  • 6. Financial Sector Developments

  • TABLES

  • 1. Selected Social and Economic Indicators, 2015–24

  • 2a. Operations of the Budgetary Central Government, 2015–24 (In Millions of Cordobas)

  • 2b. Operations of the Budgetary Central Government, 2015–24 (In Percent of GDP)

  • 3a. Operations of the Consolidated Public Sector, 2015–24 (In Millions of Cordobas)

  • 3b. Operations of the Consolidated Public Sector, 2015–24 (In Percent of GDP)

  • 4. Non-financial Public Sector Gross Financing Requirements, 2015–24

  • 5a. Summary Accounts of Central Bank and Financial System, 2015–24 (In Billions of Cordobas)

  • 5b. Summary Accounts of Central Bank and Financial System, 2015–24 (Annual flows, in Billions of Cordobas)

  • 6. Quasi-Fiscal Balance of the Central Bank, 2015–24

  • 7. Balance of Payments, 2015–24

  • 8. External Financing Needs and Sources, 2015–24

  • 9. Medium-Term Macroeconomic Framework, 2015–24

  • 10. Saving-Investment Balance, 2015–24

  • 11. Selected Sustainable Development Goals

  • ANNEXES

  • I. Progress on 2017 Article IV Policy Recommendations

  • II. External Sector Assessment

  • III. Risk Assessment Matrix

  • APPENDIX

  • I. Reserve Adequacy Assessment

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NICARAGUA

STAFF REPORT FOR THE 2019 ARTICLE IV CONSULTATION—INFORMATIONAL ANNEX

January 30, 2020

Prepared By

Western Hemisphere Department

(in consultation with other departments)

Contents

  • FUND RELATIONS

  • RELATIONS WITH OTHER INTERNATIONAL FINANCIAL INSTITUTIONS

  • MAIN WEBSITES OF DATA

  • STATISTICAL ISSUES

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NICARAGUA

STAFF REPORT FOR THE 2019 ARTICLE IV CONSULTATION—DEBT SUSTAINABILITY ANALYSIS

January 30, 2020

Approved By

Aasim M. Husain and Maria Gonzalez (IMF) and Marcelo Estevão (World Bank)

Prepared by staff of the International Monetary Fund and the World Bank.

Nicaragua: Joint Bank-Fund Debt Sustainability Analysis

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NICARAGUA

STAFF REPORT FOR THE 2019 ARTICLE IV CONSULTATION—SUPPLEMENTARY INFORMATION

February 14, 2020

Approved By

Aasim M. Husain (WHD) and Maria Gonzalez (SPR)

Prepared by the Nicaragua team.

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Press Release No. 20/69

FOR IMMEDIATE RELEASE

February 25, 2020

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