IMF Executive Board Concludes 2023 Article IV Consultation with Nicaragua
IMF News, January 19, 2024
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- Published: January 19, 2024
Macroeconomic overview and recent performance
- Real GDP growth:
- "very strong rebound in 2021"
- 2021: 10.3
- 2022: 3.8
- 2023: 4.0
- Inflation:
- Consumer price inflation (period average) series shows recent values: 4.9, 3.7, 10.5 (years not separately labeled in text)
- Consumer price inflation (end of period): 3.9, 6.1, 2.9, 7.2, 11.6, 6.0, 4.8
- Fiscal stance:
- Central government maintaining a small surplus and healthy government deposits.
- Consolidated public sector (overall balance after grants): -3.8, -1.2, -3.0, -1.9, 0.1, -0.7, -0.5
- Central Government overall balance (of which): -3.2, -2.7, -1.6, 0.3, 0.6, 0.7
- Central government revenue (series): 17.6, 19.0, 21.1, 21.7, 20.2, 20.9, 20.0, 21.8, 22.7, 21.3
- External sector and reserves:
- Remittances projected to reach about 28 percent of GDP at end-2023 (double their end-2021 level).
- Current account balance turned to a projected surplus of about 4 percent of GDP in 2023.
- Gross international reserves: US$5 billion by end-October; Table shows gross international reserves (US$ million): 2,080; 2,199; 3,003; 3,828; 4,173; 5,153; 5,734.
- Reserves in months of imports excluding maquila: 4.7; 5.2; 5.1; 5.5; 6.4.
- Net international reserves (US$ million): 1,146; 1,374; 1,887; 2,531; 3,011; 3,818; 4,285.
- Exchange rate:
- Period average (córdobas per US$): 31.6; 33.1; 34.3; 35.2; 35.9; 36.4; 36.6
- End of period (córdobas per US$): 32.3; 33.8; 34.8; 35.5; 36.2; 2023 value 36.2 (table lists up to 36.2)
Outlook and growth projections
- 2024 and medium-term growth:
- Real GDP projected to grow by about 3½ percent in 2024 and over the medium term.
- Historical average (2000-17) GDP growth: 3.9 percent.
- Growth drivers: supported primarily by private consumption; constrained by cautious recovery in investment, limited approved new official financing, and lower labor contribution due to recent emigration.
- External and fiscal sustainability:
- "The external and fiscal positions are assessed to be sustainable under the baseline scenario, given the current policy mix and financing plans."
- Nicaragua is assessed at moderate overall risk of external and public debt distress.
- Public sector debt (percent of GDP): 47.6; 49.1; 56.8; 54.9; 52.0; 50.8; 49.6
- External Public Debt: 38.0; 41.2; 46.3; 44.8; 42.5; 40.3; 40.0
- Private sector external debt: 44.2; 43.6; 44.1; 39.7; 35.6; 29.0
Risks—upside and downside scenarios
- Upside risks:
- More sustained recovery in domestic demand, including investment.
- Stronger remittances than projected, especially in the near term.
- Downside risks:
- Deterioration of the terms of trade.
- A more severe global downturn than incorporated into the baseline, reducing exports and remittances.
- Vulnerability to natural disasters given high exposure and dependence on climate-sensitive sectors.
- Stricter and wider international sanctions could negatively affect the outlook.
Executive Board assessment
- Board action:
- On January 16, 2024, the Executive Board concluded the Article IV consultation and "considered and endorsed the staff appraisal without a meeting."
- Key assessments reiterated by Directors:
- Economy "has remained resilient" supported by appropriate macroeconomic policies, substantial buffers, and multilateral support.
- Policy mix in 2023 was "consistent and adequate," with tight fiscal and monetary policies and continued reserve accumulation.
- External position at end-2022 assessed as stronger than the level implied by medium-term fundamentals and desired policies.
Staff recommendations and policy advice
- Fiscal policy:
- Support for authorities’ plans to maintain prudent fiscal policy and multi-year fiscal consolidation plans.
- Recommended "more ambitious fiscal efforts" to entrench fiscal sustainability, build fiscal buffers, and create space for higher social and capital spending in the medium term.
- Suggested measures: tax administration measures, better targeting subsidies, and reallocating current expenditures.
- Monetary and exchange rate policy:
- Monetary policy should remain geared towards supporting the exchange rate regime, while safeguarding price stability.
- Support for the authorities’ decision to continue adjusting the rate of crawl of the exchange rate.
- Emphasis on vigilance and readiness to adjust monetary and exchange rate policies as needed.
- Continued reserve accumulation over the medium-term deemed essential to maintain the exchange rate regime.
- Financial sector resilience:
- While banks are well-capitalized and liquid, staff recommended increasing provisions for distressed assets.
- Support for activating countercyclical buffers as needed and increasing minimum payments for credit cards.
- Encourage aligning crisis preparedness framework with best international practices, obtaining complete data for credit and savings cooperatives, and expanding oversight if needed.
- Continue monitoring FX risks and strengthen FX risk mitigation measures.
- Structural and medium-term growth policies:
- Continue investment in infrastructure and human capital.
- Implement policies to raise labor force participation and enhance the business climate by strengthening institutions and frameworks in contract enforcement, protection of property rights, and resolution of insolvencies.
- Governance, AML/CFT, and rule of law:
- Improve effective application of the AML/CFT framework in line with FATF recommendations to sustain performance after removal from the "gray list" in 2022.
- Authorities have taken steps to enhance governance and anti-corruption frameworks, but major efforts needed to strengthen effective application and the rule of law.
- Specific recommendations following recent progress on the Law of Access to public Information and asset declarations:
- (i) publish the asset declarations of politically exposed persons;
- (ii) implement risk-based assessments of these declarations;
- (iii) enact whistleblower protection regulations.
- Strengthen the rule of law by guaranteeing adequate, effective, and fair administrative and judicial recourse to legal proceedings, especially those with consequences for property rights.
- Fiscal transparency and data:
- Commended efforts to improve fiscal transparency; urged sustaining publication of all audit reports regarding pandemic-related funds, promptly publishing annual financial statements of the central government and their audit reports, and expanding publication of SOEs financial statements.
- Recommended continuing to improve data quality and enhance institutional capacity in fiscal, monetary, financial, and statistical issues.
Key social and demographic indicators (selected)
- GDP per capita (current US$, 2022): 2,371.7
- GNI per capita (Atlas method, current US$, 2022): 2,090.0
- Income share held by the richest 10 percent (2014): 37.2
- GINI Index (2014): 46.2
- Poverty rate ($3.65/day line in 2017 PPP, percent, 2014): 14.4
- Population (millions, 2022): 6.5
- Unemployment (percent of labor force, 2022): 7.5
- Adult literacy rate (percent, 2015): 82.6
- Life expectancy at birth in years (2021): 73.8
- Infant mortality rate (per 1,000 live births, 2021): 11.4
IMF Press Release No. 24/15, January 19, 2024.