Typical street scene in Santa Ana, El Salvador. (Photo: iStock)
IMF Survey: IMF to Lend $111m to Nicaragua
October 9, 2007
- Central American country making progress with structural reforms
- Loan approved under IMF's Poverty Reduction and Growth Facility
- Three-year loan is at concessional interest rate of 0.5 percent
The IMF approved a three-year, $111 million loan to Nicaragua under the Poverty Reduction and Growth Facility (PRGF) to support the central American country's economic program.
Power supply maintenance in Managua, Nicaragua, where government program includes reducing electricity distribution losses (photo: Oswaldo Rivas/Reuters)
LOANS TO LOW-INCOME COUNTRIES
The decision allows an immediate disbursement to Nicaragua of about $18.5 million.
After the IMF Executive Board approved the loan, Deputy Managing Director Murilo Portugal said Nicaragua had made important strides over the past few years. "Macroeconomic stability has been strengthened, vulnerabilities reduced, and poverty-reduction spending expanded, while important progress has been made with structural reforms. With support from the IMF and the international community, including debt relief, past policies have facilitated growth and some improvement in social indicators."
Portugal noted the new government's program aimed to consolidate these gains while moving forward to reduce poverty in a more decisive way and achieve the Millennium Development Goals. It created additional fiscal space to increase social spending and investment in key sectors such as energy, water, education, and health.
Power sector
At the same time, public debt levels were expected to fall over the medium term, while key structural challenges would be addressed, most notably in the power sector, strengthening the transparency and governance of public sector institutions, as well as developing future options for social security reform.
Poverty Reduction and Growth Facility
The PRGF is the IMF's concessional facility for low-income countries. It is intended that PRGF-supported programs are based on country-owned poverty and reduction strategies adopted in a participatory process involving civil society and development partners and articulated in a Poverty Reduction Strategy Paper (PRSP).
This is intended to ensure that PRGF-supported programs are consistent with a comprehensive framework for macroeconomic, structural, and social policies to foster growth and reduce poverty. PRGF loans carry an annual interest rate of 0.5 percent and are repayable over 10 years with a 5½-year grace period on principal payments.
"The authorities' program appropriately prioritizes a multipronged strategy for addressing these challenges," Portugal stated. In the case of the electricity sector this included increasing investment in the sector and reducing distribution losses, as well as improving the regulatory framework.
While poverty spending was set to increase, the authorities also recognized the importance of, and had committed to, further improving the efficiency of government expenditure, Portugal said. The authorities were committed to better targeting of poverty-related spending, strengthened systems of budget control and investment planning, and accounting transparently for all development assistance. Social security reform that reestablishes the balance between contributions and benefits also remains a central challenge.
"The authorities recognize the importance of steadfast implementation of the program in the face of a more difficult external environment," Portugal said. "This will fortify the program's anchoring role in supporting confidence. They are also committed to increasing private investment and intend to continue working on strengthening the business climate."