Press Release No. 12/176

Press Release No. 12/176
May 15, 2012

A staff team from the International Monetary Fund (IMF) visited Managua during May 2–11 to hold discussions on the 2012 Article IV consultation with Nicaragua. ¹ The mission met with the Nicaraguan Vice President, the Economic Cabinet, the Superintendent of Banks, the Attorney General, the Comptroller General, the Minister of Energy, the Economic Commission of the National Assembly, other government representatives, the business community, labor unions, civil society organizations, and international donors.

At the end of the visit Mr. Marcello Estevão, the IMF mission chief for Nicaragua, made the following statement:

“The Nicaraguan economy has recovered strongly from the global financial crisis of 2008-09. Helped by high export prices, large concessional and foreign direct investment flows, and broadly appropriate macroeconomic policies, the economy has averaged growth rates in excess of 4.5 percent during 2010-11. Inflation rates have remained relatively contained; fiscal accounts have improved on the back of the 2009 tax reform and stronger economic activity; and the international reserve position of the Central Bank has strengthened. In addition, the financial sector remained stable and credit to the private sector resumed growth.

“The outlook for 2012 is generally positive. Economic growth is projected to be somewhat lower than in 2011 on the back of weaker global activity, and inflation to be in a range of about 8 to 9 percent due to energy price pressures. Risks to this outlook include lower global activity, an adverse terms-of-trade shock, and sudden changes in concessional assistance or foreign direct investment. Maintaining prudent macroeconomic policies will be essential to an appropriate, swift response to these risks. In this context, keeping public spending pressures at bay, including by targeting subsidies and moderating wage increases, while preserving the room for social and infrastructure spending, is a priority. IMF Staff welcomes the commitment of the fiscal and monetary authorities to preserve the sustainability of public finances and to keep adequate international reserve buffers, in the context of the well-functioning crawling-peg exchange rate regime”.

“Higher economic growth is essential to reduce poverty rates significantly over the medium-term. In this regard, measures to further strengthen institutions, reduce labor market informality, and enhance the effectiveness of public spending while reducing budget rigidities will be key. Boosting growth and reducing the high dependence on oil imports require strengthening the electricity sector, including with predictable rules that attract new investments. In addition, reforming the pension system is necessary for inter-generational fairness and long-term fiscal sustainability, and a more equitable tax system would also generate resources for needed infrastructure investment and social spending.”

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¹ Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities.