Press Release No. 09/308

Press Release: IMF Staff and Nicaragua Reach Preliminary Agreement on Economic Policies Under PRGF Arrangement

September 16, 2009

A Nicaraguan delegation visited the International Monetary Fund (IMF) headquarters in Washington, D.C. during September 10-11 to continue negotiations on the second and third reviews of the Poverty Reduction and Growth Facility (PRGF). After the conclusion of the discussions, Mr. Luis Cubeddu, the IMF mission chief for Nicaragua, made the following statement:

“The global economic and financial crisis has had a negative impact on Nicaragua and the rest of the region. Real GDP is projected to fall by about 1 percent in 2009, reflecting declines in exports, remittances and external financing. Steps have been taken to shield the financial system from global shocks, as well as to preserve macroeconomic stability, including through several rounds of expenditure cuts in light of lower-than-budgeted revenues and grants.

“The mission held fruitful discussions on policies for the remainder of 2009 and 2010 that could be supported under the PRGF arrangement. An agreement in principle, still subject to IMF Management and Executive Board consideration and approval, was reached on a strengthened macroeconomic program for 2009-10, aimed at protecting Nicaragua’s balance of payments position and ensuring the sustainability of public finances. To this end, and following a large widening of the fiscal deficit in 2009, the authorities are committed to implement measures to underpin an important consolidation of the public finances in 2010, through a mix of expenditure restraint as well as steps to strengthen the tax system and finances of the pension system.

“In the coming weeks, the authorities will work toward securing approval of an additional budgetary reform to accommodate part of the revenue shortfall in 2009 and on finalizing a draft 2010 budget, which will protect key social and infrastructure programs while rationalizing spending in non-priority areas. In addition, the authorities will continue consultations with key stakeholders on a comprehensive tax reform that would go into effect in 2010 aimed at widening the tax base and improving the efficiency of the system, while boosting revenues over the medium term. Additional revenues will be used to consolidate public finances and to address Nicaragua’s social and infrastructure needs.

“Pending progress in implementing the agreed commitments, an IMF Board meeting to consider and decide on completion of the second and third reviews under the PRGF arrangement could take place in late October. Completion of the reviews would allow disbursement of an amount equivalent to SDR 28.3 million (about US$35 million)."

See Press Releases No. 07/224 and 08/204 for background on Nicaragua’s PRGF arrangement.