Nicaragua: Staff Report for the 2013 Article IV Consultation

Publication Date: December 27, 2013
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Summary: KEY ISSUES Context. Macroeconomic stability has been maintained and policies are broadly in line with the recommendations of the 2012 Article IV consultation. Growth is expected to slow somewhat, reflecting in part lower coffee production and slowdown in construction. Inflation expectations are anchored by the crawling peg and core inflation remains stable. The external current account deficit has remained large, while international reserves coverage of imports has been broadly adequate. Bank credit to the private sector increased rapidly over the past year and may pose risks. The Board discussion of the 2012 Article IV took place in June 2012. Outlook and Risks. Under current policies, growth is expected to decline from about 5.2 percent in 2012 to 4.2 percent in 2013; inflation is projected to pick up marginally to about 7 percent by end-2013. Large external current account deficits with associated financing needs and high external debt will keep vulnerabilities relatively high. Risks to the outlook stem from slower than expected economic recovery in the United States and Europe, higher oil prices, and unexpected changes to the oil collaboration scheme with Venezuela. Policy recommendations. Sustained implementation of prudent macroeconomic policies has strengthened the economy’s resilience to risks but large external and fiscal vulnerabilities remain. The authorities’ fiscal strategy is to keep deficits low and to lower public debt ratios over the medium term which will require protecting revenues, reforming the social security system to ensure its long-term financial viability, containing current spending, and rationalizing subsidies to electricity and other economic sectors. Economic collaboration with Venezuela, while beneficial, has generated dependency on financing that could pose risks to external stability, and needs to be made more transparent. Authorities’ views. The authorities broadly agreed with staff’s assessment of near-term risks and the need to reduce fiscal and external vulnerabilities. In particular, there was agreement on the need to continue prudent fiscal policy and lower public debt ratios to gain fiscal space, and to further increase transparency of public sector operations. The authorities also concurred with the assessment that rapid credit growth might pose risks and required monitoring. They welcomed close cooperation with the Fund and its role as a trusted advisor.
Series: Country Report No. 13/377
Subject(s): Article IV consultation reports | Fiscal policy | Fiscal consolidation | Fiscal reforms | Private sector | Bank credit | Banking sector | Monetary policy | Economic indicators | Debt sustainability analysis | Staff Reports | Press releases | Nicaragua

Publication Date: December 27, 2013
ISBN/ISSN: 9781484335437/1934-7685 Format: Paper
Stock No: 1NICEA2013001 Pages: 80
US$18.00 (Academic Rate:
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