IMF Executive Board Concludes 2022 Article IV Consultation with Nicaragua
IMF News, January 27, 2023
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- Published: January 27, 2023
Overview
- The Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Nicaragua.
- Prudent macroeconomic policies, substantial pre-crisis buffers (primarily government deposits), and official external financial assistance supported a rebound after a protracted contraction during 2018–2020 caused by the socio-political crisis of 2018, two major hurricanes in 2020, and the pandemic.
Economic performance and projections
- Real GDP growth:
- Grew by 10.3 percent in 2021.
- Projected to have grown by 4 percent in 2022, supported by external demand, remittances, and high prices for commodity exports.
- Expected to moderate to 3 percent in 2023, due mainly to the global slowdown.
- In the medium-term, real GDP is expected to grow by about 3½ percent, below the pre-crisis historical average, as credit to the private sector and private investment cautiously recover.
- Inflation:
- Reached 11.4 percent in November 2022, primarily due to import price increases.
- Projected to decline in 2023 in line with lower growth and an expected significant decline in global inflation.
- External buffers and reserves:
- Gross international reserves have doubled since end-2018 to over US$4 billion; about 6 months of imports, excluding maquila.
- Gross official reserves: 2,199 (2019), 3,003 (2020), 3,828 (2021), 4,286 (2022), 4,344 (2023) (millions of U.S. dollars).
- Banking and deposits:
- Bank deposits are growing, reaching the pre-crisis level (in Córdobas).
- Broad money growth (annual percent change, end of period): 6.2 (2019), 15.6 (2020), 13.8 (2021), 14.9 (2022), 10.8 (2023).
- Credit to the private sector (annual percent change, end of period): -15.6 (2019), -3.6 (2020), 5.3 (2021), 8.2 (2022), 9.5 (2023).
- Non-performing loans to total loans (ratio): 3.2 (2019); data not shown for subsequent years in the table.
Executive Board assessment
- Directors agreed with the thrust of the staff appraisal and noted the strong economic recovery and favorable outlook.
- Directors welcomed authorities’ commitment to continued prudent policies to strengthen policy buffers, economic growth, and resilience, given downside risks and vulnerabilities to natural disasters.
- Directors underscored the need for further efforts to improve the business climate, transparency, and governance.
Policy recommendations and priorities highlighted by Directors
- Fiscal policy and public finances:
- Strengthen medium-term fiscal consolidation to safeguard fiscal sustainability and external stability.
- Streamline other current expenditures, improve the targeting of subsidies, and unwind crisis-related spending measures while preserving adequate social spending and reducing poverty.
- Address imbalances in the social security system and state-owned enterprises (SOEs).
- Strengthen domestic revenue mobilization.
- Monetary and exchange rate policy:
- Continue raising the reference interest rate to maintain the interest-rate differential with the U.S., consistent with the crawling exchange rate peg regime and financial and external stability.
- Financial sector:
- Further strengthen the financial sector by increasing provisions for distressed assets, preserving sound lending practices as credit rebounds, enhancing the crisis preparedness framework, and expanding the prudential supervisory perimeter.
- Directors welcomed sound banking sector capital and liquidity buffers.
- Anti–money laundering/combating the financing of terrorism (AML/CFT) and governance:
- Welcomed improvements in the AML/CFT framework and Nicaragua’s recent exit from the FATF grey list.
- Encouraged authorities to strengthen the effectiveness of the framework further, including in the non-profit sector.
- Noted steps to enhance governance and anticorruption frameworks but stressed the need for further efforts to address remaining shortcomings.
- Recommended strengthening the asset declaration regime for public officials, prioritizing reviews of politically exposed persons, ensuring whistleblower protection, and ensuring fair and impartial access to the court system and to recourse in legal proceedings to support property rights, contract enforcement, and investment protection.
- Transparency and statistics:
- Welcomed recent steps toward increasing fiscal transparency, including the publication of the first fiscal risks report and the first external audit report on the use of COVID-19 funds.
- Encouraged authorities to publish all audit reports and financial statements of state-owned enterprises.
- Welcomed the authorities’ commitment to improve the quality and consistency of statistics, building on Fund technical assistance recommendations.
Key statistics (selected items from table "Nicaragua: Selected Economic Indicators, 2019–23")
- Output (Annual percent change) — Real GDP:
- 2019: -3.8
- 2020: -1.8
- 2021: 10.3
- 2022: 4.0
- 2023 (Projections): 3.0
- Real GDP (nominal, US$ million):
- 2019: 12,611
- 2020: 12,586
- 2021: 14,001
- 2022: 15,737
- 2023: 17,233
- Consumer price inflation (period average):
- 2019: 5.4
- 2020: 3.7
- 2021: 4.9
- 2022: 10.2
- 2023: 8.4
- Consumer price inflation (end of period):
- 2019: 6.1
- 2020: 2.9
- 2021: 7.2
- 2022: 11.2
- Central Government (In percent of GDP) — Revenue (Incl. grants):
- 2019: 19.6
- 2020: 19.2
- 2021: 21.3
- 2022: 19.5
- 2023: 19.0
- Central Government Expenditure 1/ (In percent of GDP):
- 2019: 20.1
- 2020: 21.5
- 2021: 22.6
- 2022: 21.0
- Overall balance (after grants) (In percent of GDP):
- 2019: -0.5
- 2020: -2.3
- 2021: -1.2
- 2022: -1.6
- 2023: -0.7
- Total public sector gross debt 2/ (In percent of GDP):
- 2019: 50.2
- 2020: 57.8
- 2021: 56.9
- 2022: 58.1
- 2023: 56.1
- External: 41.6 (2019), 46.6 (2020), 45.3 (2021), 45.2 (2022), 44.3 (2023)
- Domestic: 8.6 (2019), 11.6 (2020), 12.9 (2021), 11.8 (2022)
- Current account (In millions of U.S. dollars):
- 2019: 754
- 2020: 497
- 2021: -317
- 2022: -271
- 2023: -305
- (percent of GDP): 6.0 (2019), 3.9 (2020), -1.7 (2021)
- Memorandum Items:
- Nominal GDP (billions of Córdobas): 417.2 (2019), 432.3 (2020), 492.9 (2021), 565.1 (2022), 631.1 (2023)
- Per capita GDP, US$: 1,924 (2019), 1,937 (2020), 2,141 (2021), 2,382 (2022), 2,581 (2023)
- Córdoba/U.S. dollar (period average): 33.1 (2019), 34.3 (2020), 35.2 (2021), 35.2 (2022)
- Months of imports excluding maquila:
- 2019: 5.0
- 2020: 7.1
- 2021: 6.5
- 2022: 6.3
IMF Communications Department, Press Release No. 23/22, January 27, 2023.