IMF Executive Board Completes Tenth Review Under Nicaragua's PRGF ArrangementPress Release No. 06/196
September 8, 2006
The Executive Board of the International Monetary Fund (IMF) completed today the tenth review of Nicaragua's performance under the Poverty Reduction and Growth Facility (PRGF) arrangement. In completing the review, the Executive Board approved Nicaragua's requests for a waiver of a performance criterion. In addition, the Executive Board completed the financing assurances review under Nicaragua's PRGF arrangement.
The completion of the review makes available SDR 13.9 million (about US$20.6 million) for disbursement. Nicaragua's three-year PRGF arrangement amounting to SDR 97.5 million (about US$144.3 million) was approved in December 2002 (see Press Release No. 02/53) and further extended in February 2006 (see Press Release No. 06/13). Completion of the latest review will bring total disbursements under the arrangement to SDR 83.6 million (about US$123.7 million).
After the Executive Board's discussion of Nicaragua, Mr. Takatoshi Kato, Deputy Managing Director and Acting Chair, issued the following statement:
"Nicaragua's performance under the PRGF arrangement continues to be favorable. The macroeconomic framework is sound, and important structural reforms have been implemented. The economy continues to grow; inflation is expected to come down gradually; and the external position is stronger than programmed despite a much higher oil import bill. Fiscal policy has remained prudent, while spending on poverty reduction has risen further, and the central bank has taken a pro-active stance to safeguard monetary and financial sector stability during the upcoming election period.
"In the coming months, the authorities will need to stay the course by maintaining fiscal discipline and a cautious monetary policy. It will be important to prepare a prudent budget for 2007, and to advance the technical work on pending reform initiatives. Putting in place a coherent public sector wage policy, strengthening the efficiency and pro-poor orientation of public spending, revamping the framework of fiscal decentralization, and reforming the pension system are important future challenges.
"Fiscal performance in 2006 has been strong, with buoyant revenue growth testifying to the success of tax policy and administration reforms implemented under the program. The budget amendment approved earlier this week by the assembly is consistent with the fiscal program. Spending needs to be monitored carefully and kept on track through the upcoming election period.
"The recent reform of the education law reflects the authorities' commitment to strengthening education within a sustainable fiscal framework. The recent amendments to the tax procedures code will further strengthen the institutional framework for tax collection. Recent steps to rationalize power sector tariffs, while mitigating the impact on the poor, are welcome, but it will be important to ensure that rates continue to be adjusted to reflect fuel import costs. Fundamental reforms of the legal and regulatory framework in the electricity sector are needed to encourage new investment in generation and modernization of the distribution network.
"The favorable performance under the program helps to underpin an environment of economic stability for the coming political transition, and sets the stage for the implementation of more far-reaching reforms that promise to entrench macroeconomic sustainability, boost the growth potential, and further reduce poverty," Mr. Kato said.