Mission Concluding Statement 

Nicaragua: Staff Concluding Statement of the 2024 Article IV Mission

November 22, 2024

Washington, DC: A staff team from the International Monetary Fund (IMF), led by Ms. Alina Carare, visited Managua during November 11-22, for the 2024 Article IV Consultation. The team met with Central Bank President Ovidio Reyes, Deputy Finance Minister Adrian Chavarria, other senior officials, and representatives from banks and the international community.

Nicaragua is maintaining robust economic performance, underpinned by prudent macroeconomic policies and very strong remittance flows. The economy continues to be open and resilient, after confronting multiple large shocks since 2018, and against a backdrop of international sanctions and reorientation of official financing. Real GDP grew by 4½ percent in 2023 and the first half of 2024. The estimated poverty ratio continues to decline, but it remains above the regional average. Banks are reportedly liquid, and well capitalized, and although non-performing loans increased recently, they remain low. Twin fiscal and external surpluses are leading to a steady decline in the public debt-to-GDP ratio and the accumulation of strong buffers to absorb shocks. Inflation is low and stable, and the Central Bank of Nicaragua (BCN) has started an easing cycle.

The economic outlook points to sustained growth, amid continued prudent macroeconomic policies and sound external and fiscal positions. Public investment is expected to support growth in 2025. However, over the medium term, real GDP growth is expected to moderate to 3.5 percent, given a lower labor contribution due to recent emigration, and prudent private investment decisions. International reserves are expected to grow at a slower pace than in the recent past, given smaller current account surpluses, but they will remain ample.

There are broadly balanced risks to this outlook in the short term and tilted to the downside in the medium term. Upside risks include stronger domestic demand and remittances growth, especially in the short term. Downside risks include lower global growth, a deterioration in the terms of trade, natural disasters, stricter and wider international sanctions, and a change in immigration policies in the U.S.

The mission recognizes the continued efforts to preserve fiscal sustainability, while supporting medium-term growth. The authorities continue strengthening fiscal buffers, including by improving tax administration and expenditure efficiency, and aim to increase public investment to support medium-term growth. Within the authorities’ medium-term fiscal path, the mission recommends adopting additional permanent fiscal measures to finance higher social spending. The mission also recommends further enhancing fiscal transparency and oversight of public enterprises to minimize fiscal risks, and identifying permanent, sustainable, and comprehensive solutions to address imbalances in the social security system.

The current policy mix is appropriate, and the authorities’ efforts to strengthen the monetary transmission mechanism are welcome. BCN is maintaining an adequately moderately tight monetary, while fiscal policy has been appropriately tight and countercyclical. Both policies are moving towards a neutral stance and have supported price stability, growth, and an ample accumulation of international reserves consistent with the current exchange rate regime. The mission recommends enhanced monetary policy communication to help strengthen the monetary policy transmission.

Advancing efforts to promote financial deepening and to maintain financial stability remain important. The credit-to-GDP ratio remains below the pre-multiple shocks ratio, and bank deposits and credit continue to grow at a robust pace. The mission recommends enhancing financial development and financial inclusion to support inclusive growth. The mission also recommends continuing efforts to maintain financial stability, through among others, enhancing monitoring of distressed assets and non-performing loans, aligning the crisis preparedness framework with best international practices, and continuing to strengthen risk mitigation measures.

The mission supports the authorities’ initiatives to support medium-term inclusive growth and recommends further measures. Efforts to improve transport infrastructure are welcome. To increase medium-term inclusive growth and competitiveness, further measures are needed, including improving business climate and the rule of law, along with increasing human capital, fostering labor force participation for women, and developing capital markets.

The mission recommends significantly improving the rule of law and safeguarding judicial independence to support investors’ confidence. Recent actions affecting property rights, and reactions to international sanctions, may hamper investment decisions. The mission recommends ensuring judicial independence as provided by international covenants ratified by Nicaragua, strengthening the transparency of administrative and judicial proceedings involving property rights, and guaranteeing adequate, effective, and fair recourse. The mission also recommends continuing to implement initiatives to improve the efficiency and modernization of the judiciary.

The authorities have taken steps to improve the anti-corruption framework in line with previous advice, and further measures should align it with international best practice. Digitization efforts of the asset declaration system and the adoption of norms to protect whistleblowers are welcome advances. Further efforts need to focus on increasing the capacity to detect and punish corruption, especially by putting in place risk-based audits over asset declarations, publishing assets declarations of politically exposed persons, and amending the illicit enrichment offence in line with international best practice. 

The authorities are advancing toward the preparation of the upcoming evaluation of the AML/CFT framework, and the effective implementation of the framework should be strengthened. The authorities’ efforts to shift the supervision of financial institutions to thematic inspections and utilizing robust risk-based tools are welcome. Next steps should include prioritizing compliance with regulations concerning domestic politically exposed persons, and increasing coordination among agencies, and with the sectors supervised.

The authorities’ efforts to improve the quality of statistics, supported by technical assistance, are welcome. Data is adequate for surveillance. Efforts are needed to continue to improve the quality of national accounts, supported by technical assistance. Further efforts are needed to improve the timeliness of the publication of key statistics and reports.

The IMF Executive Board is expected to hold Nicaragua’s Article IV Consultation in early 2025. The mission expresses its sincere thanks to the authorities for their support, hospitality, and candid and constructive discussions.