Press Release No. 06/269

Press Release: IMF Executive Board Completes Final Review Under Nicaragua's PRGF Arrangement

December 11, 2006

The Executive Board of the International Monetary Fund (IMF) has completed the eleventh and final review of Nicaragua's performance under the Poverty Reduction and Growth Facility (PRGF) arrangement. In completing the review, the Executive Board approved Nicaragua's request for waivers of performance criteria. 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$21 million) for disbursement. Nicaragua's three-year PRGF arrangement amounting to SDR 97.5 million (about US$147.5 million) was approved in December 2002 (see Press Release No. 02/53) and further extended in February 2006 (see Press Release No. 06/13).

After the Executive Board's discussion of Nicaragua, Mr. Murilo Portugal, Deputy Managing Director and Acting Chair, issued the following statement:

"Nicaragua's performance under the PRGF arrangement continues to be satisfactory, reflecting the authorities' prudent and pro-active management. Notwithstanding the challenging circumstances of an election year, macroeconomic stability has been maintained. Growth has remained positive, inflation has begun to decline, and the overall external position has been strengthened. International reserves have remained stable and the decline in deposits experienced in the run up to the elections is being reversed. However, progress on structural reforms has been slow and fraught with political difficulty.

"The authorities have sought to strengthen further the macro-policy framework by preparing a prudent 2007 budget that would lower the consolidated public sector deficit while increasing the level of poverty reducing expenditure. This will underpin stability, while setting a good base for sustained growth, supported by public investment. The new government will need to exercise vigilance with respect to pressures for higher public sector wages and subsidies, which could adversely affect stability and competitiveness, and should be prepared to implement offsetting measures, if needed. It will also be important to repeal the fiscally unsustainable pension reform Law 539 approved last year.

"The new administration is encouraged to advance early and quickly with the remaining agenda of structural reforms. Strengthening the regulatory framework for the energy sector should be a priority, in order to bolster financial stability and attract needed new investment in the sector. Road maps have already been prepared for critical reforms of the pension and fiscal responsibility frameworks, as well as draft laws to reform the fiscal decentralization process. It will be essential to reach a political consensus in favor of these reforms in the period ahead so that they can move forward.

"The legacy of broadly strong performance under the current PRGF-supported program sets a good base for additional structural reforms to cement stability, boost growth, and reduce poverty," Mr. Portugal said.