Statement by the IMF Staff Representative

This paper discusses Nicaragua’s 2005 Article IV Consultation and Seventh, Eighth, and Ninth Reviews Under the Three Year Arrangement Under the Poverty Reduction and Growth Facility (PRGF). The economy continued to perform well, notwithstanding pressure from higher oil prices. Strong performance under the program in 2003–04 allowed Nicaragua to reach the Heavily Indebted Poor Countries completion point in January 2004. Since then, growth has moderated toward 4.1 percent y/y in 2005. Key medium-term challenges include addressing vulnerabilities arising from weak balance sheets, reflected in high levels of debt and dollarization.

Abstract

This paper discusses Nicaragua’s 2005 Article IV Consultation and Seventh, Eighth, and Ninth Reviews Under the Three Year Arrangement Under the Poverty Reduction and Growth Facility (PRGF). The economy continued to perform well, notwithstanding pressure from higher oil prices. Strong performance under the program in 2003–04 allowed Nicaragua to reach the Heavily Indebted Poor Countries completion point in January 2004. Since then, growth has moderated toward 4.1 percent y/y in 2005. Key medium-term challenges include addressing vulnerabilities arising from weak balance sheets, reflected in high levels of debt and dollarization.

Since the issuance of the staff report, the following additional information has become available. This information does not alter the thrust of the staff appraisal.

  • Inflation in 2005 was slightly lower than projected. Preliminary full year data indicate that inflation at end-2005 was 9.6 percent y/y as compared with the projected 10.5 percent. Lower-than-expected inflation reflects mainly some reduction in domestic prices of petroleum products in line with international prices.

  • Tax revenues remained on track in 2005. Preliminary data through end-December indicate that tax revenues in 2005 were in line with program projections of 17.6 percent of GDP, with nominal y/y growth slightly above 20 percent.

  • International reserves ended the year stronger than projected. Adjusted NIR increased by US$71 million in 2005, as compared to the projection of a US$15 million increase, such that the stock of adjusted NIR stood at US$282 million at end-2005. This reflects mainly a higher than expected accumulation of government deposits at the central bank in December. Data are not yet available to explain the breakdown of the higher than programmed government deposits. This could reflect a combination of delays in the execution of spending and higher than programmed net external financing during December.

Nicaragua: Staff Report for the 2005 Article IV Consultation, Seventh, Eighth, and Ninth Reviews Under the Three Year Arrangement Under the Poverty Reduction and Growth Facility, Requests for Rephasing and Waiver of Performance Criteria, Financing Assurances Review, and Request for Extension of the Arrangement
Author: International Monetary Fund