IMF Executive Board Concludes 2017 Article IV Consultation with Nicaragua
IMF News, June 26, 2017
Source details
- Canonical URL
- IMF Executive Board Concludes 2017 Article IV Consultation with Nicaragua
Other formats
Bibliographic details
- Published: June 26, 2017
Summary
- On June 22, 2017, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Nicaragua and considered and endorsed the staff appraisal without meeting on a lapse-of-time basis.
- Press Release No. 17/247.
Macroeconomic performance (2016)
- Real GDP growth: 4.7 percent in 2016.
- Inflation (end-2016): 3.1 percent, largely influenced by food prices.
- Private sector credit growth: 17.4 percent in 2016.
- Bank soundness:
- Non-performing loans: below 1 percent of total loans (end-2016).
- Capital adequacy ratio: 13.5 percent of risk-weighted assets (end-2016).
- Gross international reserves: US$2.3 billion at end-2016, with coverage of about 4 months of non-maquila imports.
Fiscal sector (2016) and near-term stance
- Tax revenues increased by 0.7 percent of GDP in 2016 due to advances in tax administration and full implementation of the 2012 tax reform.
- Consolidated public sector (CPS) overall balance, after grants: -2.4 percent of GDP in 2016 (from -2.2 percent in 2015).
- CPS deficit widened slightly to 2.4 percent in 2016 from 2.2 percent in 2015.
- CPS debt ratio: 41.9 percent of GDP in 2016 (from 40.7 percent in 2015).
- Drivers of spending pressures: election-related spending, expansion of public investment, and further deterioration of the financial position of the Social Security Institute (INSS).
External sector (2016)
- Current account deficit: estimated at -8.6 percent of GDP in 2016 (compared with -9 percent in 2015).
- Consolidation largely explained by maquila exports being better captured due to improvements in statistical compilation.
- Current account financed by foreign direct investments (FDI) and other long-term inflows despite declining Venezuela cooperation inflows.
- Gross reserves (reported elsewhere in indicators): US$2,296 million (2016).
Projections and near-term outlook (2017)
- Real GDP growth projected: 4.5 percent in 2017.
- Inflation projected: contained and anchored by the crawling peg at about 6 percent.
- CPS deficit projected: about 2.3 percent of GDP in 2017, implying a broadly neutral fiscal stance in line with the authorities’ fiscal anchor.
- Current account balance projected: about -8.5 percent of GDP.
Executive Board assessment — findings and risks
- Fiscal stance: broadly adequate to maintain macroeconomic stability in the near term, but fiscal buffers are needed to confront risks.
- Key risks:
- Growing INSS deficits and the need to take over social programs currently financed by Venezuelan cooperation are likely to intensify spending pressures in the next few years.
- Potential impact of the NICA Act could be significant if it affects investment and growth, and rates on public debt.
- Combination of a further reduction of Venezuela’s cooperation and lower IFI financing, in case of approval of the NICA Act, could put pressure on the FX market.
- Vulnerability to spillovers from U.S. policies and to catastrophes/calamities/disasters (CCD) noted as risk factors.
Executive Board recommendations and policy advice
- Fiscal consolidation:
- Staff recommends a fiscal consolidation of 1.6 percent of GDP, implemented over two years, to maintain fiscal sustainability in the medium term.
- Suggested measures: primarily through a rationalization of subsidies and tax expenditures, particularly VAT exemptions.
- Social security reform:
- Priority to reform the INSS; INSS liquid reserves will be depleted by 2019, potentially increasing government transfers for pensions and health benefits.
- Urgent action recommended using a combination of measures to improve sustainability, to the extent possible introduced gradually.
- Medium-term fiscal policy:
- Aim to improve resilience against potential external shocks and be more counter-cyclical given external risks.
- Better monitoring of fiscal risks and improved oversight of state-owned enterprises (SOEs) recommended.
- External and financial buffers:
- Strengthen reserve position to reach the IMF’s suggested adequacy range given the exchange rate framework.
- Banks should enhance liquidity, capital, and provisioning buffers to preserve financial stability against potential declining asset quality, higher interest rates, and lower remittances.
- Supervision and regulation:
- Address gaps in the supervisory perimeter; every deposit-taking and systemically important non-bank should be subject to effective risk-based supervision and AML/CFT oversight.
- Strengthen regional financial regulatory cooperation.
- Improve stress test methodology in line with best practices.
- Publication: CBN continues to publish audited financial statements in accordance with the Safeguards Policy; implementation of IFRS remains in progress.
- Liquidity management and financial markets:
- Strengthen short-term liquidity management with focus on calibration, choice of instruments, and monitoring of liquidity developments.
- Introducing a short-term policy rate and a corridor can reduce interest rate volatility, deepen financial markets, and provide some cushion against external shocks.
- Careful weighing of the amplification of negative external shocks on output, competitiveness and exports against the price stability anchor of the crawling peg exchange regime.
- Structural reforms to improve competitiveness:
- Maintain investment in infrastructure.
- Increase human capital development.
- Address labor skills bottlenecks.
- Data and statistics:
- Further improve data quality and scope of macroeconomic statistics.
- Continue strengthening base statistics, complete the rebasing of the national accounts, and increase data quality by applying IMF’s compilation methodologies.
Selected economic indicators (2012–17) — key figures preserved from table
- GDP growth (annual percentage change):
- 2012: 6.5
- 2013: 4.9
- 2014: 4.8
- 2015: 4.7
- 2016: 4.7
- 2017 (Proj.): 4.5
- GDP (nominal, U.S.$ million):
- 2012: 10,532
- 2013: 10,983
- 2014: 11,880
- 2015: 12,748
- 2016: 13,230
- 2017 (Proj.): 13,942
- Consumer price inflation (period average):
- 2012: 7.2
- 2013: 7.1
- 2014: 6.0
- 2015: 4.0
- 2016: 3.5
- 2017 (Proj.): 5.4
- Consumer price inflation (end of period):
- 2012: 6.6
- 2013: 5.7
- 2014: 3.1
- 2015: 5.8
- 2016: 3.1
- Period average exchange rate (Cordobas per U.S.$):
- 2012: 23.5
- 2013: 24.7
- 2014: 26.0
- 2015: 27.3
- 2016: 28.6
- End of period exchange rate (Cordobas per U.S.$):
- 2012: 24.1
- 2013: 25.3
- 2014: 26.6
- 2015: 27.9
- 2016: 29.3
- Fiscal sector (percent of GDP, selected rows):
- Consolidated public sector revenue (excl. grants): 2014–2016 entries include 25.4, 25.5, 26.3 (years aligned in original table).
- Overall balance, after grants:
- 2012: -0.8
- 2013: -1.3
- 2014: -2.0
- 2015: -2.2
- 2016: -2.4
- 2017 (Proj.): -2.3
- Money and credit:
- Broad money: 2012: 15.4; 2013: 18.3; 2014: 19.0; 2015: 11.0; 2016: 10.8; 2017 (Proj.): …
- Credit to the private sector: 2012: 20.2; 2013: 20.5; 2014: 17.4; 2015: 14.0; 2016: 11.7
- External sector (percent of GDP):
- Current account:
- 2012: -10.7
- 2013: -10.9
- 2014: -7.1
- 2015: -9.0
- 2016: -8.6
- 2017 (Proj.): -8.3
- Capital and financial account:
- 2012: 16.9
- 2013: 14.4
- 2014: 13.7
- 2015: 8.8
- 2016: 9.1
- Gross reserves (U.S.$ million):
- 2012: 1,778
- 2013: 1,874
- 2014: 2,147
- 2015: 2,353
- 2016: 2,296
- 2017 (Proj.): 2,393
- In months of imports excl. maquila:
- 2012: 3.6
- 2013: 3.7
- 2014: 4.2
- 2015: 4.6
- 2016: 3.9
- Public sector debt:
- 2012: 41.5
- 2013: 42.3
- 2014: 40.2
- 2015: 40.7
- 2016: 41.9
- Private sector external debt (percent of GDP):
- 2012: 42.5
- 2013: 45.1
- 2014: 44.7
- 2015: 44.9
- 2016: 44.8
- 2017 (Proj.): 42.6
Source: Press Release No. 17/247 (June 26, 2017).