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Nicaragua: Staff Report for the 2017 Article IV Consultation—Informational Annex

Author(s):
International Monetary Fund. Western Hemisphere Dept.
Published Date:
June 2017
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Fund Relations

(As of March 31, 2017)

Membership Status: Joined: March 14, 1946; Article VIII

General Resources Account:SDR Million%Quota
Quota260.00100.00
Fund holdings of currency (Exchange Rate)227.5187.5
Reserve Tranche Position32.512.5
SDR Department:SDR Million%Allocation
Net cumulative allocation124.54100.00
Holdings76.9761.80
Outstanding Purchases and Loans:SDR Million%Quota
ECF Arrangements42.9716.53

Latest Financial Arrangements:

TypeDate of

Arrangement
Expiration

Date
Amount Approved

(SDR Million)
Amount Drawn

(SDR Million)
ECF1Oct 05, 2007Oct 31, 201178.0078.00
ECF1Dec 13, 2002Dec 12, 200697.5097.50
ECF1Mar 18, 1998Mar 17, 2002148.96115.32

Projected Payments to Fund2

(SDR Million; based on existing use of resources and present holdings of SDRs):

Forthcoming
20172018201920202021
Principal13.7613.229.544.781.67
Charges/Interest0.140.200.200.200.20
Total13.9013.429.744.981.86

Implementation of Post-Catastrophe Debt Relief (PCDR): Not Applicable

Exchange Rate Arrangements:

In December 1995, the Monetary Board of the central bank approved the unification of the exchange rate system effective January 1, 1996. With the unification of the exchange rate, all previous exchange restrictions on payments and transfers for current international transactions and multiple currency practices were eliminated. The central bank buys/sells any amount of foreign currency from/to financial institutions at the official exchange rate, and implements a crawling peg arrears will be shown in this section system. Since December 2004, the monthly crawl has been set at an annual rate of 5 percent. As of April 30, 2017, the official exchange rate was C$29.7989 per U.S. dollar. Nicaragua has accepted the obligations of Article VIII, Sections 2, 3, and 4, and maintains an exchange system free of restrictions on the making of payments and transfers for current international transactions.

Article IV Consultation:

The previous consultation was completed by the Executive Board on January 28, 2016 (Country Report No. 16/34).

Safeguards Assessment:

An updated safeguards assessment of the Central Bank of Nicaragua (CBN), was completed in January 2009. The assessment noted continued progress at the CBN in the areas of International Financial Reporting Standards (IFRS) implementation and reserve management operations. Timely publication of the audited financial statements is in place in accordance with the Safeguards Policy. The 2015 financial statements were audited and published on the CBN’s website, however, the external audit opinion continues to be qualified due to the uncertainty surrounding the valuation of government debt. Further, implementation of IFRS remains in progress.

FSAP Participation:

An FSAP update was completed in October 2009, and the Financial System Stability Assessment report for Nicaragua was issued on April 28, 2010.

Technical Assistance:

Nicaragua has received substantial technical assistance. The schedule below details assistance provided since April 2015.

Dept.PurposeTime of Delivery
Fiscal
CAPTACImproving Auditing ProcessesJanuary 2017
CAPTACAdjust and Monitor the Strategic Plan for Tax Administration2016–2017
CAPTACPublic Financial Management2016–2017
CAPTACTax Administration2016
CAPTACCustoms Administration, Business Process Management2016
CAPTACFiscal Risks and Financial Programming2016
FADGeneral diagnostic and revenue mobilization2016
FADDiagnostic mission on tax administration and customs administrations2016
CAPTACTreasury Single Account2015
FADGovernment Accounting and Financial Statistics2015
Monetary and Financial sector
CAPTACLiquidity risk supervisionOn-going
CAPTACStrengthening the Monetary Policy Operational FrameworkOn-going
CAPTACStrengthening the Systemic Risk Monitoring FrameworkMarch 2017
CAPTACCredit risk supervision2015–2017
CAPTACCredit scoring model2016–2017
CAPTACCredit risk Stress Testing2016
CAPTACRegional Macroprudential Policies2015–2016
CAPTACIT risk supervision2016
CAPTACStrengthening of the Central Bank’s capacity for economic analysis and forecasting2015–2016
CAPTACStress Testing2015
CAPTACRegulation and Supervision of Operational Risk2015
CAPTACMarket Risk Monitoring2015
CAPTACMacroeconomic policy analysis and development of models and projection2015
MCMDeposit Insurance System2015
MCMInternational Arrangements and Domestic Debt Market Development2015
Statistics
CAPTACExport and Import Price Index (XMPI)On-going
CAPTACSurvey of marginsOn-going
CAPTACAnnual National Accounts rebasing processFebruary 2017
CAPTACBalance of Payments Statistics2015–2017
CAPTACFinancial Account and Cash Flow2016
CAPTACNational Accounts Statistics2015
CAPTACGovernment Finance Statistics2015–2016
CAPTACExternal Sector Statistics
STAFinancial Soundness Indicators2015
STAGovernment Finance Statistics2015

Bank-Fund Country Level Joint Managerial Action Plan, 2017

A. Mutual information on relevant work programs
The Fund work program
Strategy: Since the last IMF-supported program ended in October 2011, the focus has shifted to a relationship based on bilateral surveillance and technical assistance. The Resident Representative office closed in 2016, but close engagement between Fund staff and the authorities continues through regular videoconferences. TA has been extensive, and has been focused on a range of different topics, including statistics, tax policy, tax administration, public financial management, and financial supervision. The last IMF staff visit was in November/December 2016 and the last Article IV mission took place in April/May 2017.
The World Bank work program
Strategy: The Bank’s ongoing operations and analytical activities with Nicaragua are contemplated under the Country Assistance Strategy (CAS) 2013–2017 with a focus on social welfare through improvement of people’s access to basic services and a heightened concern on issues of productivity, competitiveness, and export diversification. Additionally, the IFC’s strategy focuses on fostering sustainable economic growth, critical infrastructure, and job creation, and helping Nicaragua take advantage of regional integration opportunities.

The Bank is working on the first Systematic Country Diagnostic (SCD), expected to be ready by June 2017. The SCD aims to identify the most important challenges and opportunities at the country level to make progress towards the twin goals on a sustainable manner, and will inform the partnership with Nicaragua as established in the new approach to country engagement—the Country Partnership Framework (CPF). The CPF takes the place of the CAS and guides the Bank Group’s support to a member country.

The table below summarizes the financial relations between Nicaragua and the World Bank (in millions of US dollars).

Project NameTotal loan or grantUndisbursed through FY17Projected disbursements in FY18
Second support to the education sector30.06.06.0
Education sector strategy support48.026.356.35
Climate adaptation and water (GEF)6.02.822.82
Caribbean coast food security33.9026.548.00
Public financial management modernization35.016.7516.75
Strengthening the public health care system60.044.4621.00
Social protection19.51.000
Second land administration project36.007.047.04
Rural roads infrastructure improvement project92.04.624.62
Sustainable rural water supply and sanitation sector30.024.366.4
A. Technical assistance and analytical work
B.1. Constraints and Opportunities Analysis: Transformation of the Agricultural SectorSeptember 2015
B.2. Regional Social Expenditure and Institutional ReviewMay 2016
B.3. Regional Enhancing Disaster Risk ManagementJune 2016
B.4. Water Services and Sanitation ReformJune 2017
B.5. Regional Central America Energy AssessmentJune 2018
B.6. Regional Trade FacilitationApril 2017
B.7. Regional PPPJune 2019
B.8. 2016 – 2021 Education Sector Strategy PreparationJune 2019

Relations with the Inter-American Development Bank

(As of March 31, 2017)

1. In November 2012, the IADB approved its country strategy for Nicaragua for the period 2012–2017. It focused on the following sectors: (i) energy; (ii) transportation; (iii) health; and (iv) comprehensive early childhood development (ECD). The strategy pays particular attention to rural zones where poverty is concentrated, and where there is potential to develop value chains.

2. As of March, 31st 2017, the portfolio of approved sovereign-guaranteed loans under execution amounted to US$983.5 million, with an undisbursed balance of US$674 million.

3. The existing sovereign guaranteed portfolio focuses on: (i) transport, 34 percent; (ii) energy, 20.7 percent; (iii) health, 18.6 percent; and (iv) value chains, 18.3 percent. In the private sector, the IADB has an exposure of US$97.7 million in operations focused on financial services; energy; agro-industry & manufacture; SMEs; and non-financial services (tourism and low income housing).

4. The pipeline for IADB approvals in 2017 includes three operations in the public sector for US$197.5 million distributed as follows: (i) a Policy-Based Loan for US$65 million to improve productivity in Nicaragua through strengthen financial regulations, improving access to financing, and enhancing the business climate and competition; (ii) US$87,5 million to improve basic human needs services for the rural population of the Dry Corridor, focusing on integrated health services, water and sanitation, road access and rural electrification; and (iii) a Water and Sanitation program of US$45 million to improve the living conditions of poor vulnerable populations in urban and peri-urban areas by increasing the coverage of sewage services in an efficient and sustainable manner, and improving the management of water and sanitation services. As of March 31, the Policy-Based Loan of US$65 million has been approved, and the rest of the pipeline will be approved later in the year.

IADB Sovereign Guaranteed Loan Portfolio in NicaraguaAs of March, 31, 2017 (In millions of US Dollars)
SectorCurrent ApprovedAvailable Amount
Transport330.7229.2
Health221.2125.2
Energy191.6139.8
Science and Technology5048.9
Value Chains and Financial Markets85.074.6
Trade55.046.6
Agriculture and Rural Development40.06.8
Modernization of the State10.02.9
Total983.5674
IDBG Non-sovereign Guaranteed Loan Portfolio in NicaraguaAs of February, 28 2017 (In millions of US Dollars)
SectorCurrent ApprovedExposure
Financial services32.526.2
Energy9.523.9
Agro-industry & Manufacture42.110.9
SMEs4033.3
Non-financial services203.4
Total144.197.7
IADB Disbursement of Sovereign Guaranteed Loan Portfolio in Nicaragua 2012–16(In millions of US Dollars)
YearAmount
2012168.3
2013154.7
2014169.7
2015207.2
2016151.9
IADB Annual Net Flows with Sovereign Guarantee 2012–16(In millions of US Dollars)
20122013201420152016
Repayments15.817.219.624.430.6
Disbursement168.3154.7169.7207.2151.9
Net Loan Flow152.5137.5150.1182.8121.3
Subscriptions and Contributions6.16.16.71.71.7
Net Capital Flow146.4131.4143.4181.1119.6
Interest and Charges16.120.123.126.333.8
Net Cash Flow130.3111.3120.3154.885.8

Statistical Issues

(As of March 31, 2017)

Assessment of Data Adequacy for Surveillance
General. Data provision is broadly adequate for surveillance but there are numerous data shortcomings in national accounts, fiscal, debt, and external sector statistics.
National Accounts. The Central Bank of Nicaragua (CBN) changed the base year of the annual national accounts (NA) to 2006. As part of this dataset the complete set of integrated economic accounts by institutional sector for 2005–06 are disseminated, in accordance with the recommendations of the System of National Accounts 1993 (1993 SNA), and the classifications and most relevant recommendations of the 2008 SNA for which source data are available. In March 2017, while releasing the 2016 NA data, the CBN had revised earlier years, specifically the 2010–13 data comprising number of refinements (i.e., update of trade and producer price indexes, use of a new employment matrix, revised agricultural production, and, in particular, addressed discrepancies between NA and the balance of payments (BOP) trade data in the tax-free zones).
Price and Labor Statistics. The consumer price index (CPI) uses expenditure weights derived from a 2006/07 household expenditure survey. The CPI covers Managua and eight other cities and is published monthly. Expenditures (weights) and prices in rural areas are excluded. The producer price index (PPI) (July 2006=100) covers a sample of small and medium-size establishments, as well as goods for processing establishments in the maquila sector. There is also scope for expanding the coverage of the PPI to the service sector.

Labor market statistics are scarce and unemployment figures are available irregularly during the year.
Government Finance Statistics (GFS). Institutional coverage is not in line with international standards, given that extra-budgetary institutions such as public universities and 152 of 153 municipalities, Managua municipality being the exception, are not included in the accounts of the consolidated public sector. Recording of transactions is mostly on a cash basis but there are inconsistencies; for example, checks are recorded at the moment of issuance rather than when the check is cashed. The Ministry of Finance and Public Credit (MHCP) compiles fiscal statistics with a monthly frequency, and remits these to the CBN for publication on their website and for inclusion into the CBN’s quarterly reports on public finances. Typically, these statistics are published with about a 5-week lag. Separately the MHCP produces its own quarterly report on the execution of the budget. Annual financial statements of public enterprises are produced, but are not audited externally or published. Data on the budgetary central government and social security institute are reported for publication in the GFS Yearbook, although with a delay.
The monitoring of fiscal performance from the financing side needs significant improvement, and is complicated by some idiosyncrasies in classifying expenditure items in the budgetary central government. There is also a need to strengthen collaboration between the MHCP and the CBN to derive more accurate and timely estimates of external and domestic financing of the nonfinancial public sector, including with respect to the monitoring of domestic public debt in the nonfinancial public sector other than that of the budgetary central government. Some positive steps towards compiling statistics on the domestic debt of state-owned enterprises have been taken recently.
Monetary and Financial Statistics. Monetary statistics are, in general, consistent with the Monetary and Financial Statistics Manual (MFSM, 2000). Nicaragua publishes detailed daily, weekly, and monthly monetary data on its website, and remits monthly monetary data to STA on a timely basis. In 2015, with technical assistance from the Fund, the coverage of monetary statistics was enhanced to include insurance companies and microfinance institutions. However, sectorization is incomplete and data on the microfinance sector does not include the Caja Rural Nacional (Caruna)—the private cooperative handling until now the Venezuela oil collaboration. Moreover, there are major differences between the data remitted to STA and the monetary data published on the CBN’s website, which are not consistent with the MFSM 2000. The authorities are submitting to STA Financial Soundness Indicators (FSI) on a regular quarterly basis. However, the coverage of the FSI needs to be extended to include all deposit taking institutions.
External Sector Statistics. Since September 2013, the BOP statistics follow the concepts and definitions set out in the sixth edition of the Balance of Payments Manual (BPM6), within the limits set by the availability of information sources. Resident institutional units are defined in conformity with BPM6’s concepts of economic territory, residency, and center of economic interest. However, coverage of the private sector is incomplete for the current and financial accounts. The CBN is in the process of revising the transactions and positions of FDI and reinvested earnings from private financial and non-financial companies with the information available. However, these efforts are hampered by a low survey response ratio and the submission of inconsistent data by enterprises engaged in FDI. The central bank also needs to cross check enterprise-by-enterprise trade flows, FDI and external debt to assess any discrepancies between merchandise trade and financial associated flows. These efforts will help to address in part the large errors and omissions in the balance of payments which hinder the assessment of the external sustainability.
Data Dissemination and Quality. Nicaragua has participated in the General Data Dissemination System (GDDS) since February 2005. Data ROSC was published in December 2005.
Nicaragua: Table of Common Indicators Required for Surveillance(As of April 30, 2017)
Date of latest observationDate receivedFrequen cy of Data7Frequenc y of Reporting 7Frequency of Publication 7Memo Items:
Data Quality – Methodological soundness8Data Quality – Accuracy and reliability9
Exchange Rates4/28/20174/28/2017DDD
International Reserve Assets and Reserve Liabilities of the Monetary Authorities14/27/20174/28/2017DDD
Reserve/Base Money04/27/20174/28/2017DDDO, LO, LO, LOLO, O, LO, LO, LO
Broad Money04/27/20174/28/2017DDD
Central Bank Balance Sheet02/28/20174/26/2017MMM
Consolidated Balance Sheet of the Banking System03/3½0174/26/2017MMM
Interest Rates24/30/20174/30/2017DDD
Consumer Price IndexMarch 20174/7/2017MMMO, LO, LO, LOLO, LO, LO, O, LO
Revenue, Expenditure, Balance and Composition of Financing3 – General Government4Dec. 2016⅜/2017MMMLO, LNO, LNO, LOLO, LO, LO, LO

O, O, O, O, O
Revenue, Expenditure, Balance and Composition of Financing3– Central GovernmentDec. 2016⅜/2017MMM
Stocks of Central Government and Central Government-Guaranteed Debt5Q1 2017?3/3/2017QQQ
External Current Account BalanceQ4 20164/7/2017QQQLO, LO, LO, LNOLO, LO, LO, LO, LNO
Exports and Imports of Goods and ServicesQ4 20164/7/2017QQQLO, LO, LO, LNOLO, LO, LO, LO, LNO
GDP/GNPQ4 20164/7/2017QQQO, O, O, LOLO, O, LO, O, LNO
Gross External DebtQ4 20164/7/2017MMM
International Investment Position6Q4 20164/7/2017QQQ

Any reserve assets that are pledged or otherwise encumbered should be specified separately. Also, data should comprise short-term liabilities linked to a foreign currency but settled by other means as well as the notional values of financial derivatives to pay and to receive foreign currency, including those linked to a foreign currency but settled by other means.

Both market-based and officially-determined, including discount rates, money market rates, rates on treasury bills, notes and bonds.

Foreign banks, domestic banks, and domestic nonbank financing.

The general government consists of the central government (budgetary funds, extra budgetary funds, and social security funds) and state and local governments.

Including currency and maturity composition.

Includes external gross financial asset and liability positions vis-à-vis nonresidents.

Daily (D), Weekly (W), Monthly (M), Quarterly (Q), Annually (A), Irregular (I); Not Available (NA).

Reflects the assessment provided in the data ROSC published on December 8, 2005, and based on the findings of the mission that took place during January 11–26, 2005 for the dataset corresponding to the variable in each row. The assessment indicates whether international standards concerning concepts and definitions, scope, classification/sectorization, and basis for recording are fully observed (O), largely observed (LO), largely not observed (LNO), or not observed (NO).

Same as footnote 8, except referring to international standards concerning source data, assessment and validation of source data, statistical techniques, assessment and validation of intermediate data and statistical outputs, and revision studies.

Any reserve assets that are pledged or otherwise encumbered should be specified separately. Also, data should comprise short-term liabilities linked to a foreign currency but settled by other means as well as the notional values of financial derivatives to pay and to receive foreign currency, including those linked to a foreign currency but settled by other means.

Both market-based and officially-determined, including discount rates, money market rates, rates on treasury bills, notes and bonds.

Foreign banks, domestic banks, and domestic nonbank financing.

The general government consists of the central government (budgetary funds, extra budgetary funds, and social security funds) and state and local governments.

Including currency and maturity composition.

Includes external gross financial asset and liability positions vis-à-vis nonresidents.

Daily (D), Weekly (W), Monthly (M), Quarterly (Q), Annually (A), Irregular (I); Not Available (NA).

Reflects the assessment provided in the data ROSC published on December 8, 2005, and based on the findings of the mission that took place during January 11–26, 2005 for the dataset corresponding to the variable in each row. The assessment indicates whether international standards concerning concepts and definitions, scope, classification/sectorization, and basis for recording are fully observed (O), largely observed (LO), largely not observed (LNO), or not observed (NO).

Same as footnote 8, except referring to international standards concerning source data, assessment and validation of source data, statistical techniques, assessment and validation of intermediate data and statistical outputs, and revision studies.

1

Formerly PRGF.

2

When a member has overdue financial obligations outstanding for more than three months, the amount of such arrears will be shown in this section

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