## IMF Executive Board Concludes 2017 Article IV Consultation with Nicaragua

_IMF News, June 26, 2017_

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## Bibliographic details
- Published: June 26, 2017

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### 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).*

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## References

- [The Executive Board](http://www.imf.org/external/np/sec/memdir/eds.aspx)
- [PRESS CENTER](http://presscenter.imf.org/)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2017/06/26/pr17247-imf-executive-board-concludes-2017-article-iv-consultation-with-nicaragua_