Nicaragua: 2019 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Nicaragua

IMF Staff Country Reports, February 27, 2020

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Canonical URL: Nicaragua: 2019 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Nicaragua

Social unrest and its aftermath eroded confidence and caused large capital and bank deposits outflows that resulted in a prolonged output contraction.
Banks cut lending, which exacerbated the downturn.
Faced with sharply lower revenues and a severe tightening in available financing, including on account of sanctions, the government was forced to cut spending and adopt a procyclical tax package.
The sharp contraction in credit will continue to depress investment.
The tight fiscal and external financing situation will continue to drag down medium-term growth.

The economy is projected to continue to contract in the near term as it adjusts to weaker confidence and lower external financing.
Key risks:
- Further erosion in confidence and renewed deposit outflows.
- The imposition of additional sanctions by trading partners could also heighten economic stress.

Maintain a conservative fiscal stance in 2020 as the key to maintain macroeconomic stability.
Curb expenditures on goods and services to allow increased spending on:
- Social programs,
- Social safety nets,
- Public investment.
These reallocations are intended to lead to more equitable and sustainable growth.

Subject: Banking, Currencies, Economic sectors, Expenditure, External debt, Money, Public debt, Public sector
Keywords: Central America, central bank of Nicaragua, consumer price inflation, CR, crawling peg exchange regime, Currencies, headline inflation, IMF staff calculation, inflation development, ISCR, Public sector, staff appraisal, U.S. dollar