IMF Staff Concludes Visit to Nicaragua

IMF News, October 31, 2018

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An International Monetary Fund (IMF) team led by Roberto Garcia-Saltos visited Managua from October 24-30 to take stake stock of recent economic developments.
The mission held discussions with senior government officials, representatives from the private sector, and the donor community.
The mission has agreed to conduct the next Article IV consultation during the first half of 2019.

Multiple shocks are affecting the Nicaraguan economy, with political instability since April affecting consumer and investor confidence.
Sectoral effects:
- Temporarily affected: transportation, retail, and the service sector.
- Lasting impacts from reduced demand: tourism and construction.
Labor, investment, and credit dynamics:
- Contraction in formal employment.
- Retrenchment in FDI.
- Reduction in credit to the private sector.
Forecasts and fiscal outcome:
- The mission forecasts a decline of 4 percent in real GDP in 2018.
- The consolidated public sector (CPS) deficit for 2018 is projected to increase by 2.4 percentage points to 4.6 percent of GDP.
Household and private-sector effects:
- A fall in disposable income due to continued job losses and reduction in bank credit is projected to lead to a drop in private consumption and investment.

Authorities’ efforts to support commercial banks’ continued liquidity are commendable.
Measures to contain the expansion in public expenditures to partially offset tax revenue shortfalls because of the economic downturn are positive.

Preserve macroeconomic and financial stability for 2019 and beyond.
Address medium-term fiscal challenges and undertake structural reforms to safeguard fiscal sustainability; these require obtaining broad support.
Restore private sector confidence and prevent negative feedback loops arising from:
- Lower activity and employment,
- Deterioration in asset quality,
- Credit contraction,
- Deposit outflows.
Adopt measures to mitigate identified risks affecting the economy to promote economic recovery and offset an increase in poverty.

Press Release No. 18/402, October 31, 2018.