Nicaragua: Staff Report for the 2019 Article IV Consultation—Supplementary Information

2019 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Nicaragua

Abstract

2019 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Nicaragua

This statement provides information that has become available since the staff report was finalized. This information does not alter the thrust of the staff appraisal.

1. Headline inflation reached 6 percent (year-on-year) in December 2019. Consumer Price Index picked up during the last quarter of 2019, reflecting upward adjustments in energy prices.

uA04fig01

Inflation developments

(12-month rates, in contributions, percent)

Citation: IMF Staff Country Reports 2020, 059; 10.5089/9781513532622.002.A004

Source: Central Bank of Nicaragua1/ The tax reform of March 2019 widened the coverage of products subject to VAT.

2. Monetary aggregates continue to signal a bottoming out. Net international reserves reached US$1.4 billion (US$229 million annual increase) in December 2019, corresponding to a gross international reserve coverage of 5.2 months of non-maquila imports. The accumulation of reserves reflected higher external disbursements and lower pressures in the FX market. Likewise, monetary base and broad money increased by 21 and 4 percent, respectively (compared with – 20 and -19 percent in 2018). Bank credit to the private sector contracted by 18 percent annually during 2019 (from US$4.3 billion in December 2018 to US$3.5 billion in December 2019), but the rate of contraction has significantly diminished since last September. In December, the central bank reduced the reference rate by 50 bps to 4.75 percent.

uA04fig02

Bank Deposits, Credit and Net International Reserves

(US$, millions)

Citation: IMF Staff Country Reports 2020, 059; 10.5089/9781513532622.002.A004

Source: Central Bank of Nicaragua

3. The proposed budget for 2020 was approved by the National Assembly in December 2019 with no revisions, in line with staff report (SM/20/36).

4. Minimum wages raised by 2.6 percent starting on March 1. After keeping minimum wages frozen in 2019, the commission in-charge of setting minimum wages (composed by representatives from the government, workers, and employers) decreed a rise in minimum wages for nine economic sectors —the exception being wages in the free-zone industrial sector, where a separate process resulted in an 8.2 percent increase in January. This increase is estimated to reach at least one-hundred-thousand workers (about 14 percent of total formal employment) for which minimum wages are binding. With projected inflation of 4 percent for 2020, minimum wages in real-terms are expected to fall for a second consecutive year, consistent with staff projections

Nicaragua: 2019 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Nicaragua
Author: International Monetary Fund. Western Hemisphere Dept.