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© 2010 International Monetary Fund
December 2010
IMF Country Report No. 10/376
Nicaragua: Fourth and Fifth Review Under the Three-Year Arrangement Under the Extended Credit Facility, Requests for Extension of the Arrangement, Rephasing of Access, and Waiver of Nonobservance of Performance of Criterion, and Financing Assurances Review—Staff Report; Press Release on the Executive Board Discussion; and Statement by the Executive Director for Nicaragua.
In the context of the Fourth and Fifth Review Under the Extended Credit Facility, the following documents have been released and are included in this package:
The staff report for the Fourth and Fifth Review Under the Extended Credit Facility, prepared by a staff team of the IMF, following discussions that ended on September 17, 2010, with the officials of Nicaragua on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on November 1, 2010. The views expressed in the staff report are those of the staff team and do not necessarily reflect the views of the Executive Board of the IMF.
A Press Release summarizing the views of the Executive Board as expressed during its November 19, 2010 discussion of the staff report that completed the request and/or review.
A statement by the Executive Director for Nicaragua.
The documents listed below have been or will be separately released.
Letter of Intent sent to the IMF by the authorities of Nicaragua* Technical Memorandum of Understanding*
*Also included in Staff Report
The policy of publication of staff reports and other documents allows for the deletion of market-sensitive information.
Copies of this report are available to the public from
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INTERNATIONAL MONETARY FUND
NICARAGUA
Fourth and Fifth Reviews Under the Three-Year Arrangement Under the Extended Credit Facility, Requests for Extension of the Arrangement, Rephasing of Access, and Waiver of Nonobservance of Performance Criterion, and Financing Assurances Review
Prepared by the Western Hemisphere Department
(In consultation with other departments)
Approved by Miguel A. Savastano (WHD) and Dhaneshwar Ghura (SPR)
November 1, 2010
Background. A three-year PRGF (now ECF) arrangement for SDR 71.5 million (55 percent of quota) was approved on October 5, 2007 and augmented by SDR 6.5 million (5 percent of quota) on September 11, 2008. The second and third reviews under the ECF arrangement were completed in November 2009. The fourth review was postponed due to a decision to grant a monthly wage bonus to public sector employees that had not been contemplated in the program. On September 24, 2010, the Executive Board approved a two-month extension of the arrangement (which was expiring on October 4) to allow time to conclude negotiations for bringing the program back on track. Jointly with the fourth and fifth reviews, the authorities are requesting an extension of the arrangement through December 4, 2011. The extension would entail a re-phasing of remaining access under the ECF. The staff report on the 2010 Article IV consultation was discussed by the Executive Board on July 9.
Recent developments and outlook. The economic recovery, tax collections, and net capital flows are somewhat stronger than anticipated at the time of the Article IV discussions. All quantitative performance criteria through end-December 2009 and end-June 2010 (set in November 2009) were met with margins (except for the ceiling on nonconcessional external debt which for a technical reason was formally not observed), but the surplus of the social security institute (INSS) was lower than envisaged. Good progress has been made in moving forward the structural agenda—a new Central Bank charter and legislation extending coverage of the anti-theft electricity law were approved by the Assembly in July, and a study on options for reform of the pension system has been published.
Program understandings. The strong revenue performance and higher-than-expected grants will allow the authorities to keep the overall fiscal deficit in 2010 significantly below what was projected at the time of the Article IV consultation. A prudent fiscal policy in 2011 will result in a substantial improvement in the cyclically-adjusted fiscal balance. On the structural front, the authorities will adopt measures to enhance the monitoring and transparency of external assistance and assess the scope for streamlining government employment practices.
Discussions. A team comprising Messrs. Gelos (head), Brousseau, Di Bella (Resident Representative), Samake (all WHD), and Messrs. Fenochietto (FAD) and Serra (SPR) visited Managua during September 9-17 and met with Central Bank President Rosales, Finance Minister Guevara, other senior officials, Assembly leaders, and representatives of the private sector. Mr. Gramajo (OED) joined the policy discussions.
Contents
1. Introduction
II. Recent Developments
III. Macroeconomic Outlook and Risks
IV. The Economic Program for 2010 and 2011
A. Fiscal Policy
B. Monetary, Exchange Rate, and Financial Sector Policies
C. Structural Reforms
V. Program Financing
VI. Program Modalities, Risks, and Safeguards
VII. Staff Appraisal
Tables
1a. Quantitative Performance Criteria and Indicative Targets, 2009–11
1b. Structural Measures, 2010–11
2. Selected Social and Economic Indicators, 2007–11
3a. Operations of the Central Government, 2007–11
3b. Operations of the Central Government, 2007–11
4a. Operations of the Combined Public Sector, 2008–11
4b. Operations of the Combined Public Sector, 2008–11
5. Summary Accounts of the Central Bank, 2008–11
6. Summary Accounts of Deposit Banks and the Financial System, 2008–11)
7. Balance of Payments, 2007–15
8. External Financing Requirements, 2007–15
9. Nonfinancial Public Sector Gross Financing Requirements, 2008–11
10. Indicators of Capacity to Repay the Fund, 2010–15
11. Schedule of Disbursements Under the Current and Extended ECF Arrangement
12. Financial Soundness Indicators: Core and Encouraged Sets, and Structure and Performance, 2005–10
Figures
1. Recent Economic Developments, 2006–10
2. Selected Fiscal Indicators, 2005–10
3. External Sector Developments, 2005–10
Box
1. Estimates of Fiscal Impulse
Appendices
1. Letter of Intent
2. Changes to the Technical Memorandum of Understanding
Annex
1. Estimates of Fiscal Impulse
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INTERNATIONAL MONETARY FUND
NICARAGUA
Fourth and Fifth Reviews Under the Three-Year Arrangement Under the Extended Credit Facility, Requests for Extension of the Arrangement, Rephasing of Access, and Waiver of Nonobservance of Performance Criterion, and Financing Assurances Review—Informational Annex
Prepared by the Western Hemisphere Department
November 1, 2010
Contents
I. Relations with the Fund
II. Bank-Fund Country Level Joint Managerial Action Plan
III. Relations with the Inter-American Development Bank
IV. Statistical Issues
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Press Release No. 10/451
FOR IMMEDIATE RELEASE
December 16, 2010
International Monetary Fund
Washington, D.C. 20431 USA
Telephone 202-623-7100
Fax 202-623-6772
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November 19, 2010
