Press Release No. 10/451

Press Release: IMF Executive Board Concludes Fourth and Fifth Reviews Under Nicaragua's Extended Credit Facility and Approves Extension of the Arrangement

November 19, 2010

The Executive Board of the International Monetary Fund (IMF) today completed the fourth and fifth reviews of Nicaragua’s economic performance under the three-year Extended Credit Facility (ECF). The Executive Board also approved an extension of the arrangement through December 4, 2011.

The extension involves a re-phasing of disbursements already scheduled in the arrangement. A total of SDR 12.8 million (equivalent to US$19.97 million) will be made available immediately upon completion of the reviews, while the rest will be disbursed in two equal tranches of SDR 5.55 million (about US$8.66 million), during 2011. Total disbursements so far had been of SDR 54.1 million (about US$84.41 million).

All quantitative performance criteria through end-December 2009 and end-June 2010 were met with margins, except for the one on the ceiling for non-concessional external debt, which for a technical reason was not observed and the Executive Board approved a waiver. Good progress has been made in moving forward the structural agenda.

The Executive Board approved the three-year ECF (formerly PGRF) arrangement for SDR 71.5 million (about US$111.6 million) in October 2007 (see Press Release No. 07/224). In September 2008, the Board increased financial support under the program by SDR 6.5 million (about US$10.14 million) to help Nicaragua cope with the natural disasters of 2007 (see Press Release No. 08/204).

Following the Executive Board discussion on Nicaragua, Mr. Murilo Portugal, Deputy Managing Director and Acting Board Chair, issued the following statement:

“The Nicaraguan economy is recovering gradually from the effects of the global financial crisis. The pickup in activity in 2010 has been broad based and balanced, exports are growing faster than anticipated, and the financial system remains stable and liquid. Real GDP growth is expected to reach 3 percent this year and the balance-of-payments position has improved. “The authorities strengthened their economic program for the remainder of this year and for 2011 to mitigate risks, protect the external position, and pave the way for further fiscal consolidation.

“Reducing the still high public debt remains a key challenge. The authorities’ decision to use part of the stronger-than-expected revenues to lower the fiscal deficit in 2010 is appropriate, as is their commitment to a prudent fiscal stance in 2011. In the medium term, continued efforts to contain current expenditure growth, while creating space for investment and well-targeted poverty spending, remain critical. Bold progress is needed in enhancing tax administration, broadening the tax base, improving the actuarial situation of the pension system, and in reforming employment practices in the public sector.

“Recent progress in the implementation of key structural reforms is encouraging. The approval of a new central bank charter, the strengthening of the electricity law, the publication of a study on pension reform options, and the adoption of a new procurement law are important advances. In addition, improvements in reporting and monitoring of foreign aid flows will help foster confidence and mobilize donor support. Maintaining the momentum of structural reforms will be critical to boost Nicaragua’s growth potential, improve living standards, and reduce poverty.

“The banking system remains sound, but uncertainties about the economic outlook call for continued enhanced supervision. Implementing the recommendations of the recent Financial Sector Assessment Program (FSAP) Update should be a key priority, as is the adoption of strengthened regulations of the microfinance and cooperatives sectors.”