IMF Executive Board Completes Second and Third Reviews Under Poverty Reduction and Growth Facility Arrangement with NicaraguaPress Release No. 09/384
November 2, 2009
The Executive Board of the International Monetary Fund (IMF) today completed the second and third reviews of Nicaragua’s economic performance under the three-year Poverty Reduction and Growth Facility (PRGF) arrangement. The completion of the reviews enables Nicaragua to receive an immediate disbursement of SDR 23.8 million (about US$37.8 million), bringing total disbursements to SDR 54.1 million (about US$85.9 million).
The Executive Board also granted waivers of non-observance of two program targets. These waivers cover a shortfall in net international reserve accumulation for the second half of 2008 resulting from temporary declines in external financing, and delays in central bank approval of the bank-bond restructuring agreements with private banks, reflecting Assembly delays in ratifying a new central bank board.
The Executive Board approved the three-year PGRF arrangement for SDR 71.5 million (about US$113.5 million) in October 2007 (see Press Release No. 07/224). In September 2008, the Board increased financial support under the program by SDR 6.5 million (about US$10.3 million) to help Nicaragua cope with the natural disasters of 2007 (see Press Release No. 08/204).
Following continued implementation of program commitments and a strengthened macroeconomic program for the remainder of 2009 and 2010, the remaining SDR 23.9 million (about US$37.9 million) will be disbursed over the course of 2010.
Following the Executive Board discussion, Mr. Takatoshi Kato, Deputy Managing Director and Acting Board Chair, issued the following statement:
“The Nicaraguan economy has been negatively affected by the global crisis and domestic uncertainties. Output is expected to decline in 2009 owing to lower external and domestic demand, resulting in lower exports, remittances, and investment. The authorities’ policy response thus far in 2009 has been geared at supporting domestic demand and shielding the financial system from global shocks.
“The authorities have developed a strengthened macroeconomic program for the remainder of 2009 and 2010 aimed at protecting the balance of payments position and placing public debt on a sustainable path. Fiscal consolidation efforts will be underpinned by measures comprising a strict control on current spending—particularly on wages and pensions to make room for capital and social outlays, a revenue-enhancing reform that broadens the tax base, and measures to begin to strengthen the pension system’s finances. Broad consensus should be sought to ensure the approval of these measures by end-year, which is critical for fiscal consolidation.
“Monetary policy will be geared to keeping inflation low, while protecting international reserves and supporting the crawling peg regime. The proposed reforms to the central bank charter should strengthen the central bank’s autonomy and accountability, and improve the effectiveness of monetary operations.
“The banking system remains sound, though increased vigilance will be required in light of growing nonperforming loans. With regard to the unregulated microfinance sector, the authorities will encourage a market-friendly and voluntary resolution in the case of troubled debtors. Progress on the effective implementation of risk-based and consolidated cross-border supervision will continue.
“Structural reforms will be geared to improving Nicaragua’s medium-term growth prospects and ensuring the sustainability of public finances. Reforms in the energy sector will be aimed at further reducing distribution losses, while creating conditions for private investment in renewable and more efficient generation sources. Actions on the fiscal front will focus on improving public financial management to increase the efficiency and pro-poor orientation of public spending, on strengthening revenue administration, and on developing options to address the pension system’s actuarial imbalance.
“The authorities recognize the importance of steadfast implementation of the program and the need to consolidate public finances over the medium term. Strengthening governance and the business climate will be critical to leverage donor support and improve growth prospects,” Mr. Kato said.