Poverty Reduction Strategy Paper: Progress Report on National Human Development Plan as of 2010

This paper reports on progress made on Nicaragua’s National Human Development Plan as of 2010. The operational goal for Nicaragua’s National Human Development Plan is economic growth with increased employment and reduced inequality and poverty. The results for 2007–10 highlight a significant reduction in inequality among Nicaraguans based on better distribution of income and consumption. This has been possible owing to redistributive government policies with positive results, economic recovery, and positive economic growth in the midst of a world financial and economic crisis.


This paper reports on progress made on Nicaragua’s National Human Development Plan as of 2010. The operational goal for Nicaragua’s National Human Development Plan is economic growth with increased employment and reduced inequality and poverty. The results for 2007–10 highlight a significant reduction in inequality among Nicaraguans based on better distribution of income and consumption. This has been possible owing to redistributive government policies with positive results, economic recovery, and positive economic growth in the midst of a world financial and economic crisis.



In 2009 the National Assembly approved Law No. 693, the Law on Food and Nutritional Sovereignty and Security and the Executive Secretariat for Food and Nutritional Sovereignty and Security (SE-SSAN) was created in 2010 to disseminate SSAN policy, strategy, and law with the participation of municipal governments and government institutions.

This policy is being implemented through various programs: PPA, school meals, food nutrition education, establishment of the food safety program, harvest and sale of basic products at fair prices, support for agroindustry, capitalization of poor female producers, loans to urban women, the seeds and urea program, nutrition programs for children, monitoring programs with growth and development checks to detect cases of chronic malnutrition in academic centers and health services networks, school snack program, fortified foods, and other programs.

The Food Production Bond (BPA) is designed to capitalize rural women holding one to ten manzanas [1 manzana = 1.7 acres] of land. The goal from 2007 to 2011 is to capitalize 84,000 families out of an initial universe of 280,000 families according to the III CENAGRO. Nationally, the program supports 30 percent of these families, Nicaragua’s poorest families, and had delivered a total of 59,755 bonds as of December 30, 2010.


A process was initiated to rehabilitate the educational system from the perspective of restoring rights based on the principles of educational equity and quality. The first policy action implemented by the government was to provide free education without exclusion or discrimination of any kind.

As part of the NHDP, the Educational Strategy was defined in April 2010. It expands on the new community-focused educational approach with the participation of local actors in educational management, initiating the Battle for the Sixth Grade (starting in 2010) and Ninth Grade, the principal objective for achieving universal basic education.

The illiteracy rate fell from 22 percent in 2006 to 3.0 percent in 2010. This was achieved through the “From Marti to Fidel” National Literacy Campaign and the “From Fonseca to Sandino” Session. On August 22, 2009 Nicaragua was declared a “Territory Free of Illiteracy” with 3.56 percent illiteracy, which fell to 3.0 in 2010. During the period 2007-2011, literacy was provided for 532,641 people, including young people and adults.

To continue the task of eradicating illiteracy, Nicaragua will continue to implement programs such as the “Now I Can Read and Write” leveling method in youth and adult education and the “Yes, I Can Continue” youth and adult primary methods, in order to ensure that youth and adults are included in the various forms of primary education. Post-literacy programs in 2010 involve the participation of 9,836 popular teachers supporting adult education in the country’s 153 municipalities.

During the period 2006-10, primary education indicators showed a positive trend. In 2010, the net enrollment rate (NER) in primary education was 87.5 percent, approaching the goal of 88.0 percent proposed in the NHDP for the year 2010. The primary school retention rate in 2010 was 91.2 percent, exceeding the 90.5 percent obtained in 2009, and an increase of 4.3 percentage points over the rate in 2006. This surpassed the goal of 91.0 percent established for 2010 in the NHDP. The primary school passing rate was 90.6 percent in 2010, exceeding the goal set for 2010 in the NHDP by 10.6 percentage points.

In secondary education, with the participation of teachers, students, and the educational community, enrolment reached 458,321 students in 2010. The passing rate increased from 76.7 percent in 2006 to 91.10 percent in 2010, while the retention rate fell slightly, from 86.0 percent in 2006 to 85.40 percent in 2010.

In technical education, construction of a new training model and development paradigm began in 2007. It is designed to develop, increase, and adapt individuals’ skills, particularly among the poorest segments of society. The challenge is to move the curriculum toward a high school degree offering two alternatives, the general baccalaureate and the technical baccalaureate, both linked to the programs of the NHDP.


The Government of Reconciliation and National Unity restored the right to free universal healthcare. The upward trend in the incidence of most illnesses that afflict the Nicaraguan population has been reduced since 2007. Disease prevention and control actions, with adequate financing and the participation of the people, have been essential in combating malaria, reaching the lowest historical figure in 2009, with a rate (annual parasite incidence) of 0.107 per 1000 inhabitants. Tuberculosis has gradually declined. The incidence of this disease in all its forms fell from 41.9 per 100,000 inhabitants in 2003 to 39.8 per 100,000 inhabitants in 2009.

The maternal mortality rate has been reduced in recent years, falling by nearly one-third in 2009 compared to 2006 (from 76.5 in 2006 to 59.8 in 2009), on its way to achieving the goal set for 2015 of 40 maternal deaths for every 100,000 live births. Most deaths are due to obstetrical causes. In 2010, preliminary data showed a rate of 67.4 maternal deaths for every 100,000 live births, 88 percent of which were due to obstetrical causes.

Infant mortality fell from 1,947 deaths in 2007 to 1,876 in 2010 (preliminary 2010 figures). This is due to advances in childhood health and nutrition over the last four years, reducing chronic malnutrition among children under the age of five.

With respect to disability, with support from Cuba and the members of the Sandinista Medical Movement Brigade, the “Everyone Has a Voice” Medical Brigade was formed and in 2010 concluded the first National Survey of the Disabled in Nicaragua, providing information regarding the physical, social, and economic problems faced by 126,316 disabled persons, the purpose being to define policies, programs, and projects to ensure a better quality of life for them.

There is an efficient system for supplying generic medications for the rational use of medications and the availability of physicians, nurses, and technicians has been expanded. In addition, the health services infrastructure was expanded and strengthened to include 1,222 units in 2010, 132 more units than in 2006.


In 2010 the social security system recorded 534,879 insured, an increase of 21.8 percent over 2006, and coverage of 20.3 percent of the Economically Active Population (EAP), maintaining an increase in proportion to the increase in the EAP. In 2010, there were 21,204 active employers registered, an increase of 32.6 percent compared to 2006 (15,990). A total of 1,226 cooperatives joined the INSS during the period 2007-2010.

In 2010, 123,824 pensions were paid. The average pension in 2010 was C$2,950.9. The minimum pensions were revalued based on the increase in the minimum wage, so that pensioners received an increase of 88.4 percent in 2010 compared to 2006 (from C$1,212.70 per month in 2006 to C$2,284.86 per month in 2010), benefitting 53 percent of pensioners and retirees.

Nicaragua continued to reactivate pensions for the mothers of those fallen and wounded in war, increasing from 19,663 in 2006 to 24,430 in 2010, and paying 24.2 percent more than in 2006. The amount of the pensions paid to the mothers of the fallen went from C$442.00 to C$1,640.00 per months (an increase of 271 percent).


The AMOR Program seeks to defend and guarantee the restoration of the rights of children, adolescents, the elderly, and socially at-risk families and to integrate them in education, health, security, sports, culture, recreation, and happiness.

From 2008 to 2010, the right to a name has been restored to 64,156 children under the age of 12. Between 2007 and 2010, an annual average of 10,534 children and adolescents were incorporated in the educational system, 1,909 more than in 2006. There is an Inter-Institutional Care Plan for Children and Adolescents at Risk of Commercial Sexual Exploitation at the border posts (El Espino, Las Manos, and Corinto) to combat sexual exploitation and trafficking targeting children and adolescents and from 2007 to 2010 a total of 285 children and adolescents have been repatriated and others have been guaranteed transfer to their place of origin.

The Ministry of Families, Adolescents, and Childhood (MIFAN) is currently in the process of building a new model of care that incorporates existing programs within an approach that includes promotion, prevention, integrated care, special protection, and the adoption of new values such as solidarity and complementarity. The principal focus will be the family and the community. The central pillar will be to promote healthy behaviors, values, new child-rearing and family relations guidelines, as well as risk prevention and internal and external referral services. To drive the model, an effective management, administrative, and financial system and an internal monitoring, follow-up, and evaluation system are being created to ensure timely decision-making and links are being established with the Childhood and Adolescence Information System (SINA) to provide appropriate information for decision-making in the area of childhood, adolescence, and the family.


The following priorities have been established for the sector: expanding the coverage of water and rural sanitation services with community participation, focusing on demand, with gender equity and environmental protection; updating, adaptation, implementation, operation, administration, and monitoring of the National Rural Water and Sanitation Information System (SINAS) in order to establish the baseline and link and strengthen the existing Drinking Water and Sanitation Committees (CAPS) and/or the Citizen Power Cabinets to build sustainable water and sanitation services.

Drinking water coverage in urban areas increased from 65 percent in 2006 to 88.7 percent in 2010, benefiting 530,000 people during this same period. In rural areas, water coverage increased from 53.36 percent in 2006 to 63.5 percent in 2011, bringing service to 307,989 new beneficiaries during this entire period. The number of new residential drinking water connections installed between 2007 and 2010 is 68,120 and a total of 695 wells were constructed for rural areas during the same period.


During the period 2007-10, direct subsidies were granted to low- and middle-income families to build 8,351 new dwellings, benefiting 41,755 people (82 percent of families with monthly incomes below C$4,000) and to improve and/or expand 4,595 homes, benefiting 22,975 people.

The Solidarity Roof Plan Project was instituted in 2009. Its objective is to give poor Nicaraguan families a decent roof over their heads and eliminate plastic and cardboard roofs. This project has delivered 1,486,000 sheets of zinc benefiting 148,600 Nicaraguan families and former combatants. It has also provided 297,200 pounds of nails.


The Continuous Household Survey has been conducted since February 2009. It replaces the National Employment Survey that used to be conducted once or twice a year using a dated conceptual framework that needed to be redesigned in order to obtain a better measure of each of the employment variables. The new survey provides information by moving quarter.

Survey results indicate that from 2006 to 2010 the employed population grew by about 649,200 people, equal to 31.1 percent. From 2009 to 2010, data measured in comparable moving series indicate that the employed population during the fourth quarter of the year increased by 304,000 people, representing an increase of 12.5 percent in the employed population.

Macroeconomic stability and the conditions provided for domestic and foreign companies have made it possible to maintain employment levels in the free trade zones, amounting to 89,927 nationally as of year-end 2010.

Paralleling job growth, as a result of government policies, from 2007 to 2010 social security for employees shows a sustained upward trend both in terms of the number of active insureds and the number of active employers registered with the INSS, closing 2010 with 534,879 active insureds, 32.6 percent more than as of the close of 2006.


Nicaragua is the most secure country in Central America. The Government of Reconciliation and National Unity prioritizes security for individuals, families, and communities, using a preventive and proactive strategy where the priorities are defined not by the State alone but in conjunction with the community.

The National Police and the Ministry of the Interior, pursuant to their constitutional mandate, have been working according to the preventive, proactive, and community policing model to ensure and guarantee citizen security.

The principal strategies implemented during the period 2009-10 include: plans to combat drugs, gangs, criminal groups, and organized crime; setup of 5,097 Social Crime Prevention Committees that in 2010 successfully reduced the most dangerous crimes compared to 2009; and dismantling and neutralizing of 16 cells of international drug-trafficking cartels.

Nicaragua has also continued to strengthen the specialized care model for women, children, and adolescents who are the victims of intrafamily and sexual violence, with 59 national offices, broken down into 18 departmental, 8 district, and 33 municipal delegations, which represents an increase of 24 new units during 2010, or an increase of 41 percent.

The Network of Voluntary and Communal Extension Workers increased by 37 percent, reaching 3,432 in 2010, contributing in this way to the work of prevention through the population’s participation in resolving the most serious social problems such as intrafamily and sexual violence.

Between 2007 and 2010 Nicaragua succeeded in involving a total of 23,000 young at-risk gang members in recreational activities in coordination with the Youth Institute (INJUVE), MINED, and the Nicaraguan Sports Institute (IND). Nicaragua set up 24,150 family counselors to treat youth at high social risk. Work was done in 2010 to separate 2,000 youths belonging to gangs at high social risk. Five hundred technical career scholarships were processed for at-risk youth.


The focus of environmental policies that used to be directed exclusively to the control, regulation, and protection of forests has been changed to a positive societal attitude directed to the care and conservation of Mother Earth and its natural resources, taking up the principle of defense of nature to overcome poverty levels and preserve the natural heritage, respecting the ancestral rights of indigenous peoples and ethnic communities. Consistent with this approach, Nicaragua was the first country to join the Universal Declaration of the Common Good of the Earth and Humanity, which is based on the principles of protecting and restoring ecosystems, with particular concern for biological diversity. In addition, the new transformed curriculum for basic general education now includes formal education on the environment and the subject of tourism culture as a cross-cutting theme.

It has been estimated that deforestation claims 70,000 hectares of land in Nicaragua each year. For this reason, among various initiatives, the GRUN has promoted the National Reforestation Crusade, which has reforested 82,343 hectares in degraded watershed and dry areas and has reduced forest fires by 95 percent and hot spots by up to 56 percent. All of this has been achieved with the active and decisive participation of organized local communities.

In the area of water resource management, since 2003 the National Indicative Hydrological Plan and the Annual Water Availability Plan (PHIPDA) has been based on conducting the Diagnosis of Water Resources by Watershed. It projected water availability for the Pacific basins for 2009-2010 and for the Atlantic basins for 2001 and 2012. These projections indicated increasing demand so that the balance is negative for most of the Pacific basins.

One of the most important advances in water management was approval of the General Law on National Waters (No. 620) and its regulations, approved by Presidential Decree 106-2007, Article 101 of which requires “Promoting the development and implementation of Plans to Protect Water Resources in Basins and Aquifers.”

With respect to coastal management, the major achievement during the period was approval of Law 690, the “Law on Development of Coastal Areas” and its Regulations, approved by Decree No. 78-2009. This has protected Paslama turtle nests in seven Pacific seacoast areas of Nicaragua and the El Cocal beaches south of Bluefields and the Cayos Perlas are reported to be the most important areas for Hawksbill turtle nests.


Progress made during the period 2007-10 to improve the socio-economic well-being of the Caribbean population is reflected in the demarcation and titling of 15 indigenous and afrodescendant territories, covering a land area of 22,478.99 km2 and benefiting 103,790 inhabitants in 215 communities. More than 114,000 producers have participated in production programs: the Food Production Program (Zero Hunger) has delivered 11,394 production bonds to women heads of family and the basic grain seeds program has benefited 3,000 families. The Zero Usury program is active in eight communities (Bluefields, Kukra Hill, Waslala, Puerto Cabezas, Waspan, Rosita, Bonanza, and Siuna). In 2010, the School Meals Program delivered production packages to 1,068 families in Miskito and Mayangna communities in the municipalities of Prinzapolka, Bonanza, Rosita, and Siuna.

In education, the right to intercultural bilingual education in original languages (miskita, manangna and creole English languages) up to the fourth grade and progress has been made in the process of regionalizing education.

With the restoration of the right to free healthcare, the Caribbean population has received more than 1.5 million medical consultations, with laboratory examinations performed and medications provided. Maternal mortality fell by 34 percent and deaths in children under the age of one fell by 16 percent. Forty-five new health units and four maternity centers began to operate and four new primary hospitals were built. In water and sanitation, more than 148,000 people have access to water and/or sanitation services. However, although there have been some solutions, a definitive solution is still needed for the problem of water and sanitation on the Caribbean coast.

Improvements were made to land transportation in the trunk routes of Waspam-Bilwi-Las Minas-Río Blanco. Ongoing maintenance was assured for the Waslala-Siuna and Rama-Laguna de Perlas trunk routes and the Nueva Guinea-Bluefields road was rehabilitated. In air transport, the airfield in Bilwi was completed and the construction phase began on the new air terminals in Bluefields and Corn Island. Electrification was brought to Kukra Hill, Laguna de Perlas, La Desembocadura, Mulukukú, Siuna, Alamikamba, Bonanza, Rosita, and Tasba Pri, benefiting 54,000 Caribbean households. In addition, Eurosolar hybrid photovoltaic systems were installed in isolated communities of Bonanza, Prinzapolka, Bilwi, Siuna, Rosita, and Waslala.

In agroindustry, the sowing of cacao and cocoa has been promoted in addition to a milk storage center in Layasiksa. Some 1,800 families have benefited from the strengthening of the production and harvesting of basic grains, eggs, pork, tubers, and fruits.

Fishing has been promoted through support for small-scale fisherman, with financing of US$1.8 million, with materials and tools, benefiting 1,405 families of fishermen in the Southern Atlantic Autonomous Region (RAAS) and 2,150 families in the Northern Atlantic Autonomous Region (RAAN). In addition, 50 fishermen received outboard motors as part of the Emergency Recovery Project following Hurricane Felix.

Seventy-five forest communities have been organized into 14 community forestry companies that received technical and financial assistance for their formation, training, and equipping for the exploitation and processing of timber. In addition, the forests in the RAAN have been protected with a forest surveillance system.

The autonomous institutional status of the Caribbean coast has been strengthened through training for institutional representatives in management and proactive follow-up for implementing the Caribbean Coast Development Plan; regionalizing health, education, and forestry; and providing training for regional, municipal, and territorial governments in productive plans and strategies for the Caribbean coast. An historical milestone was reached during this period with the declaration of a Special Development Zone for the communities of Alto Coco and Bocay, which allows the indigenous population to be included in development plans and programs. The institutional strengthening of the territories entails a redefinition of the autonomy process, culminating in reform of an autonomy statute with the institutional and legal adjustments required for self-government.


Strategic Matrix: Projections/Strategic Objectives, Indicators of Results, Goals August 2011

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The National Human Development Plan (NHDP), presented to the Nicaraguan people by President Daniel Ortega Saavedra in April 2008 on a preliminary basis and in its final version in October 2008, was the culmination of various strategic coordination efforts initiated since the Government of Reconciliation and National Unity (GRUN) came to power. The NHDP is in turn based on the Citizen Power Model, with human beings at its center. It restores to the people the State’s role in leading social progress and restores the people’s role as sovereign in national decision-making processes. Major priorities of the NHDP have been economic growth with increased employment and reduction of poverty and inequities and the restoration of the people’s economic, social, environmental, and cultural rights, particularly among all historically excluded sectors.

There was an energy crisis at the start of the GRUN in 2007 with blackouts lasting up to 12 hours each day. This was resolved with the rapid installation of 240 MW of power thanks to the solidarity of the countries of the Bolivarian Alternative of the Americas (ALBA) plus an additional 110 MW, for a total of 350 MW. The current strategy is to reduce dependence on oil for generating electricity, transitioning from 20 percent renewable energy in 2007 to 90 percent renewable energy in 2017. Hydroelectricity, geothermal power, wind power, and biomass are being considered for doubling electrical capacity.

Efforts were made to secure macroeconomic stability, to engage in tripartite labor consultation among employees, entrepreneurs, and the government to provide predictability in the labor force, to guarantee private property, to have a stable power supply, and to continue changing the energy matrix toward renewable energy. These efforts have provided the stability needed to stimulate production, private and foreign investment, and trade. Nicaragua has also sought to diversify markets; to find new markets and new products; to secure fair credit and trade, primarily for economic agents formerly excluded from financing; to encourage new participants in the economy through the Zero Hunger program, rural recapitalization, fair credit, and capitalization for poor families so they can use their own potential to emerge from poverty; to expand the coverage of rural electrification; to strengthen alliances with various economic sectors and cooperative, micro-, small, and medium-sized enterprises. Ongoing dialogue with big business has yielded tangible results with agreement on a minimum wage, tax cooperation in late 2009, cooperative activities in regard to low-cost housing, and fulfillment of the matrix of mutual government-private sector commitments. The strengthening of ALBA has made possible financing for petroleum on a concessionary basis and the creation of the fund to finance economic activity and a social fund.

In the social arena, Nicaragua has successfully restored the people’s rights, consolidating free education and health and continuing to promote high social impact programs such as the battle for sixth grade, the battle for the third year of secondary school, the AMOR program, and the AMOR program for the youngest children, the Family and Community Health program (MOSAFC) for preventive and curative health providing care for the family in the community, the Milagro operation for all vision diseases, the Everyone Has a Voice program to detect and care for the disabled, the program for the elderly, detection of and attention to critical social situations in communities, increased social security coverage, continued subsidy policies, and expanding such policies to other areas of social need, all of which are detailed below in the chapter on social issues. Environmental issues are addressed by Defense of Mother Earth, environmental preservation agreements with social program partners, and public and private investments that incorporate environmental sustainability.

In January 2009, President Daniel Ortega approved a Program for Defense of Production, Growth, and Employment (PDPCE) to redirect the course of growth, accompanied by public-private partnerships go promote mutual growth and peace. He then ordered an update of the NHDP adapted to deal comprehensively with the international economic crisis, a process that culminated in September 2009, which was also used for the IMF agreements within the framework of cooperation with the World Bank (WB), the Inter-American Development Bank (IDB), and with the cooperation community in general.

The results of these justice-based policies are as expected: peace, an environment of economic stability, social stability, a majority of the population who feel rights have been restored to them to which they had no access for long periods of social exclusion, progress made in reducing poverty, reduction of inequalities, and reduced malnutrition. All of this made it possible to resume the path to growth during 2010, when growth reached 4.5 percent, with anticipated growth between 3.5 percent and 4.0 percent in 2011.

As part of Reconciliation and National Unity, a Grand Alliance was articulated by President Daniel Ortega in his 2010 report to the National Assembly in June 2011, which he described as follows: “During the course of 2010, by strengthening the Great National Alliance of Urban and Rural Workers, Producers, Entrepreneurs, Cooperatives, Small, Medium, and Large-Scale Industry, and the Sandinista Government of Reconciliation and National Unity, in conjunction with international cooperation and domestic and foreign investment, we were all able to unite in achieving growth of 4.5 percent in our economy.”

A technical progress report on the NHDP is presented below. The economic annex and the matrix of indicators annex are attached.


In measuring general poverty and extreme poverty, Nicaragua has used the indirect Poverty Line method, along with the Aggregate Consumption model developed by the World Bank, based on the National Household Living Standards Survey (EMNV) conducted by the Nicaraguan Development Information Institute (INIDE).

Progress made on equity in Nicaragua from 2005 to 2009

In recent years Nicaragua has seen significant improvements in the population’s living standards. During 2005-09, general poverty and extreme poverty fell by 5.8 and 2.6 percentage points, respectively, while the Nicaraguan population with consumption less than or equal to US$1.25 and US$2.00 per day between 2005 and 2009 fell by 5.7 percent and 10.6 percent respectively.

The population’s improved living standard is due to a combination of economic growth and better distribution of wealth. Between 2005 and 2009 Nicaragua grew at an average annual rate of 1.692 percent. This is less than the 2.77 percent growth rate for Latin America as a whole but Nicaragua has nonetheless seen a sharp decline in poverty because its economic growth is being accompanied by a better distribution of income.

Between 2005 and 2009 Nicaragua ranked second in the region in terms of progress made in income distribution. Thus, its income Gini coefficient fell by 9.8 percent, which is surpassed only by Venezuela with 15.92 percent, followed by countries like Brazil with 6.04 percent, Ecuador with 5.84 percent, Paraguay with 4.48 percent, and others. This contrasts with countries that have experienced relatively high economic growth but a higher concentration of wealth.

Graph No. 1
Graph No. 1

Average Annual Growth Rate for 2005-2009 and Percentage Change in Gini Coefficient for 2005-2009 in Latin America

Citation: IMF Staff Country Reports 2011, 323; 10.5089/9781463924591.002.A001

Source: CEPAL & INIDEa. Countries ordered according to percentage change in inequality during the period 2005-2009. The source used is INIDE for Nicaragua and ECLAC for the rest of Latin America. The Urban Gini is used for Argentina in 2009; for Uruguay in 2005, the 2004 Gini is used for El Salvador in 2005; and for Mexico and Venezuela the 2008 Gini is used in 2009.

Poverty measured on the basis of consumption

-Incidence of poverty

In 2009 Nicaragua achieved great progress in combating poverty and hunger when it reversed the increase in Nicaragua’s poverty, reducing general poverty by 5.8 percentage points and extreme poverty by 2.6 percentage points, according to the EMNV conducted that year. The survey shows that general poverty at the national level measured on the basis of consumption fell from 48.3 to 42.5 percent between 2005 and 2009, and extreme poverty fell from 17.2 to 14.6 percent during the same period. In contrast, between 2001 and 2005, there was an increase in both general poverty (2.5 percentage points) and extreme poverty (2.1 percentage points).

In relative terms, poverty and extreme poverty continue to be overwhelmingly rural. Extreme rural poverty is approximately five times higher than extreme urban poverty and general rural poverty is twice the level of general urban poverty.

However, although the incidence of poverty and extreme poverty is higher in rural areas, in 2009 it was in those areas that the greatest reduction in poverty in 16 years was achieved. While general rural poverty fell by 7.0 percentage points, general urban poverty fell by 4.1 points. Meanwhile, extreme rural poverty fell by 3.9 percentage points and extreme urban poverty fell by 1.1 points. In contrast, during the period 2001-2005 the incidence of general poverty and extreme poverty in rural areas increased significantly, by 2.5 and 3.1 percent, while they increased by 0.8 and 0.5 percent, respectively, in urban areas.

This notable reduction in poverty, particularly in rural areas, is due in great part first to programs intended to provide financial resources and resources in kind to micro, small, and medium-sized producers, such as the Zero Hunger3 and the Zero Usury4 programs, and second to the increase in international prices for raw materials.

Table 1

Nicaragua: Change in the Incidence of Poverty by Area and Region of Residence

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Source: EMNV 2005 and 2009

During the period 2001-2005, general poverty by gender increased for both males and females, by 2.4 percent and 2.6 percent, respectively. Similarly, extreme poverty grew by 2.1 and 2.3 percent for males and females, respectively.

Table 2

Nicaragua: Change in Poverty by Gender, according to Area of Residence and Poverty Level

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Source: EMNV 2005 and 2009

However, a significant reduction is noted during the period 2005-2009. Nationally, general poverty fell by 6.4 percent among men and by 5.1 percent among women; extreme poverty fell by 2.4 and 2.8 percent for men and women, respectively.

Distribution of consumption by quintile

A comparative analysis of the distribution of annual per capita spending by quintile between 2005 and 2009 shows a greater increase in average spending by quintile in the poorest quintiles and a decline in the wealthiest quintiles.

Table 3

Nicaragua: Comparison of Consumption Quintiles1/

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The average per capita consumption figures by quintile in the 2005 EMNV were converted to córdobas in 2009.

Source: INIDE. EMNV 2005 and 2009.

Thus, consumption increased in all quintiles with the exception of the quintile with the highest consumption, which went from 47.2 percent of total consumption in 2005 to 44.51 percent in 2009. This contrasts with the other quintiles in that the first quintile went from 6.2 percent of total consumption in 2005 to 6.84 percent in 2009, while the second, third, and fourth quintiles show the same trend.

-The GINI coefficient and the Lorenz Curve for Consumption

The Lorenz curve for the years 2005 and 2009 indicates a curve in 2009 slightly closer to 45° than in 2005, confirming a reduction in the inequity of the distribution of spending in that period.

Graph 2
Graph 2

Lorenz Curve: Consumption, Year 2009-05

Citation: IMF Staff Country Reports 2011, 323; 10.5089/9781463924591.002.A001

Cumulative Percentage of Population

It should be noted that the substantial four percent reduction in the Gini coefficient nationally between 2005 and 2009 points to a significant reduction in inequality in the distribution of spending in Nicaragua, benefiting its poorest sectors.

-Depth and severity of poverty based on consumption

According to the depth and severity of poverty indices, in addition to having the highest incidence of extreme poverty, poverty is deeper in Nicaragua’s rural areas and inequality among the extreme poor is substantially greater than in urban areas.

Depth of poverty: In 2009 Nicaragua’s total depth of poverty index or poverty gap5 was 3.6. This means that on average the extreme poor need about 4.0 percent of the value of the extreme poverty line in order to improve their well-being. This indicates that extreme poverty, besides being more widespread in rural areas, is also deeper than in urban areas. For the extreme poor in urban areas this index is 1.16 while it is 6.82 in rural areas, five times higher than in urban areas.

Table 4

Change in Gini Coefficient for Consumption Nationally and Area of Residence

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Source: EMNV 2005 and 2009
Table 5

Nicaragua: Change in Depth and Severity of Poverty

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Source: EMNV 2005 and 2009

Severity of poverty: The extreme poverty severity index6 for the entire country was 1.34 in 2009. It was 0.35 in urban areas but 6.5 times higher in rural areas (2.64), indicating that the rural extreme poor are much farther from reaching the poverty line than the urban extreme poor.

The severity of poverty fell during the period 2005-2009, reducing the gap in all areas and more obviously in rural areas (Table 4).

Measuring poverty based on income.

-Nicaragua according to the international poverty line (PPP)

According to this method, 5.5 percent of Nicaragua’s national population in 2009 consumed an amount less than or equal to US$1.25 per day compared to 11.2 percent in 2011, a reduction of 5.7 percentage points compared to 2005 or more than half. Of this population, 21.0 percent survived with consumption less than or equal to US$2.0 per day, compared to 31.6 percent in 2005, a reduction of 10.6 percentage points compared to 2005.

Table 6

Nicaragua: Population Living on Less than US$1.25 and US$2.00 per Day

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Source: INIDE, EMNV 2005 and 2009

The results by area of residence indicate a notable reduction in the percentage of people living on less than US$1.25 per day (2.3 percentage points and 9.8 percentage points, respectively) and US$2.00 per day (6.1 percentage points and 15.7 percentage points, respectively).

The GINI coefficient and the Lorenz Curve for Income

The Lorenz curve shows how income distribution in 2009 has improved in comparison with 2005, as it approaches the 45° line.

Graph No. 3
Graph No. 3

Figure 1. Lorenz Curve for Income: Year 2009-2005

Citation: IMF Staff Country Reports 2011, 323; 10.5089/9781463924591.002.A001

Fuente: EMNV 2005 y 2009

A comparison of results between the EMNV 2005 and the EMNV 2009 shows that the Gini coefficient has fallen between these two dates, nationally and in both urban and rural areas.

Table 7

Nicaragua: Change in Gini Coefficient for Income

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Source: EMNV 2005 and 2009

At the national level, the Gini Coefficient has fallen by five percentage points. By area of residence, the largest reduction occurs in urban areas with 6 percentage points compared to 3 percentage points for rural areas.

Income distribution

A comparative analysis of average income indicates that average income increased nationally by 7.4 percent in 2009 compared to 2005. It increased by 11.3 percent in rural areas, greater than the 4.9 percent increase in urban areas.

Table 8

Nicaragua: Comparative Average Per Capita Income by Area of Residence according to Source

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Values in 2005 cordobas.

Source: INIDE, EMNV 2005 and 2009.

Unmet Basic Needs (UBN)

Between 2005 and 2009, the percentage of households with UBNs fell significantly, particularly in terms of overcrowding and low education, which fell by 10.9 and 10.4 percentage points, respectively, while inadequate housing and economic dependency fell by 0.6 and 1.4 percentage points, respectively.

Graph No. 4
Graph No. 4

Percentage of Households with Unmet Basic Needs (UBN) by Type of Need

Citation: IMF Staff Country Reports 2011, 323; 10.5089/9781463924591.002.A001


The Government of Reconciliation and National Unity is encouraging social capacity in order to bring about significant reductions in poverty, inequities, and malnutrition throughout the country and to transform Nicaragua. This is being achieved because Nicaraguans are building a more equitable alternative development model and a new more democratic human development structure characterized by greater social cohesion.

January 10, 2007 brought not only a change in government but changes as well in the strategic vision for directing national policies in order to reduce poverty. With this objective, the Government of Reconciliation and National Unity began to build a new model of development, based on restoring values and rights and strengthening capacities. More than 1,100,000 Nicaraguans are being mobilized each year as volunteers in literacy campaigns, community health and vaccination events, promoting social solidarity, reforestation, and support for other social programs, as a fundamental part of the Citizen Power Model.

The Citizen Power Model places human beings at the center as the fundamental subject of development. In essence, the government sees human life as being sacred and thus national policies must be directed so that men and women are able to enjoy a long and healthy life, gain knowledge, and have access to the resources they need to achieve a decent living standard allowing them the full realization of their dreams. This is a process of gradually changing the quality of human life, a sustainable process that promotes development and protects natural resources and the environment, so as to guarantee the common welfare of current and future generations.

The government places priority on encouraging and developing micro, small, and medium-sized enterprise (MSME). This sector has been given priority in food production and job creation strategy, in combating poverty, and in strengthening the legal framework of institutional policies, incentives, and fair credit policies. Modernization through technical assistance, training, and the purchase of machinery and equipment to increase productivity is being achieved more rapidly based on financial assistance from the Banco de Fomento a la Producción (BFP), the ALBA CARUNA Cooperative (Single Rural Fund), and support from the universities.

Regarding private sector participation, a matrix of commitments with periodic follow-up has been constructed by a mixed government-private sector commission. Three recent and important collaborative achievements are (1) tripartite agreement among employees, business, and government on the minimum wage, lending predictability in labor and recognized by the International Labour Organization (ILO) as a model to be followed in Latin America and the Caribbean; (2) agreement on a tax adjustment in the Fiscal Equity Law (LEF) to close the fiscal gap in the 2010 budget due to the international economic crisis; and (3) more recently, agreement on a social housing plan. Periodic follow-up of the matrix of commitments allows for wide-ranging dialogue on implementation of the pillars of private sector development on the one hand and on potentially relevant government policies and legislation on the other hand.

The pillars supporting the Citizen Power Model now being built are as follows: (1) awareness, identity, culture, and values; (2) political development with direct democracy; (3) economic development with social justice; (4) social development that ensures dignity; (5) sustainable development, defense, restoration, and protection of the environment, harmonious relationship between humans and nature; (6) reconciliation and national unity; and (7) respectful relationships with all countries in the world.


The central objective of the NHDP is to improve living conditions for all Nicaraguans, particularly those living in poverty. The policies and strategies implemented from 2007 to 2010 bring substantive changes for achieving more far-reaching and more rapid results than in the past. New strategies and a different approach to poverty is accompanied by a more decisive government role and citizen decision-making power as well as support from the international community.

In dealing with the international financial and economic crisis, the Government of Reconciliation and National Unit had to give priority to a contingency plan to defend the medium- and long-term objectives of the NHDP announced in 2008. Thus, while maintaining the fundamental principles of the document and the spirit of its policies, the government took into account the results of executing the plan in 2007-2008, the development of the world petroleum market, and the international financial and economic crisis in order to align its policies and resources in such a way as to safe guard the most socially vulnerable population.

This chapter presents a progress report on implementation of the strategies while facing the international economic crisis and achievements made in resuming the path of economic, social, and environmental growth in 2009 and 2010.

The revision of the NHDP in view of the international economic crisis, concluded in September 2009, included the following strategies:

  • Economic growth:

    • Macroeconomic policy.

    • Public investment policy

    • Productive and commercial strategy

  • Development of welfare and social equity

  • Measures for good governance.

  • Environmental sustainability and forest development.

  • Government policy on natural disasters and disasters caused by human activity.

  • Caribbean coast development strategy.

Based on these strategies, the NHDP progress report for 2009 and 2010 is presented in the following sections: (i) macroeconomic stability; (ii) fiscal policy; (iii) budgetary effort to combat poverty; (v) monetary and exchange policy; (vi) supplemental agenda, transparency, and accountability; and (v) balance of payments and foreign trade.


In 2007, the first year of the administration, the gross domestic product (GDP) grew by 3.1 percent, propelled by increased exports of goods and services, increased family remittances, and increased foreign investments. The economy also benefited from the environment of peace, confidence, and stability needed to stimulate production, investment, and trade, pointing as of mid-2008 to solid projected growth, a projection technically endorsed by government agencies as well as international financial organizations that indicated growth of 4.2 percent for 2008; 4.5 percent for 2009; 5.0 percent for 2010; and 5 percent for 2011, as included in the October 2008 version of the NHDP.

The international economic crisis that began in September 2007 and grew deeper in 2008 was felt in our country primarily starting in the third quarter of 2008. This meant that growth ultimately fell from the 4.2 percent projected for 2008 to 2.8 percent.

In late 2008, the trend for 2009 pointed dramatically to reduced exports, foreign investment, family remittances, external bank financing, and economic vitality. This was also reflected in reduced tax revenues, resulting in a decline of -1.5 percent instead of the projected 4.5 percent.

Since late 2008, in response to the uncertainty in the world economy, the Government of Reconciliation and National Unity has felt it prudent to implement a more far-reaching strategy but following a tighter order of priorities than that originally considered for the five year period 2007-2011. Its primary objective has been to reduce the effects of the crisis on the most vulnerable sectors, to safeguard a framework favorable to production, investment, and employment, and to maintain the cohesion of a population focused on the most essential tasks.

Due to the effects of the international financial crisis and the economy’s intrinsic structural problems, in late 2008 the President of the Republic, Daniel Ortega, directed the Economic Cabinet to develop a series of contingency measures to preserve employment and reduce the impact on the social sectors called “Defense of Production, Investment, Growth, and Employment.” The principal pillars of the measures approved by the President of the Republic in January 2009 were:

  • (i) Financial stability;

  • (ii) Priority public investment;

  • (iii) Support for production and private investment;

  • (iv) Solidarity-based employment;

  • (v) Fiscal austerity.

President Daniel Ortega ordered the revision of the NHDP in a document titled “Updated Technical Summary of the 2009-2011 NHDP,” which defines the policies, goals, and resource allocation to be achieved in the context of the limitations being imposed by the international financial crisis.

The basic principles of this plan are established in the NHDP. They include: (i) the renewed role of government in direct actions involving economic, social, environmental, and cultural affairs; (ii) a social policy with more direct content in favor of the poor; (iii) a social response expressed in a prioritized infrastructure policy; (iv) capitalization of the poor with programs focusing on food production and marketing; (v) continuation of the energy policy giving priority to renewable energy programs; (vi) guarantees for private investment and the effort to maintain a climate of coordination with the private sector; (vii) ongoing dialogue with the international community in the search for consensus and solidarity based on support in the area of trade and finance; and (viii) strengthening of the democratic process.

The document called “Updated Technical Summary of the 2009-2011 NHDP” was approved in September 2009 and formed the basis of the framework for review of the Economic Growth and Combating Poverty Service (SCLP) with the IMF and for achieving a cooperation plan with the WB, the IDB, the Central American Bank for Economic Integration (BCIE), and the cooperation agency community in general.

The economic policy incorporated in the NHDP is designed as a means to guarantee opportunities for action by economic agents by: (i) achieving broad alliances and ongoing collaboration; (ii) creating new economic agents formerly excluded from the economic system through the democratization of opportunities and access to resources; (iii) promoting fair credit and trade; and (iv) guaranteeing the stability of the goods and services market as well as the financial market so as to minimize the effect of inflation on family economics, the goal being to overcome poverty.

Macroeconomic stability has been achieved through sustainable fiscal management; a sliding currency; guaranteed convertibility of the córdoba; control of the money supply; control of inflation; and maintenance of the level of international reserves.

However, macroeconomic stability is a prerequisite—but not the only prerequisite—for achieving the objective of reducing inequality and poverty. Achieving a sustained recovery of the economy over the medium term with a redistributive effect on income was an initial purpose of the NHDP for changing assistance-based public policies, achieving advances in restoring the productive potential of the poor, increasing human capital, and improving the competitiveness of the economy. Effort has been made to have public spending with a higher rate of social return than that shown up to 2006, where greater effectiveness is achieved both through accurate prioritization of programs and projects and coordination of these policies with Citizen Power.

As a result of these policies, in 2010 annual growth of 4.5 percent was achieved. This result, in addition to what has been described above in terms of domestic policies, was also associated with good demand and prices for national export products. This led to an increase in exports and creation of domestic demand, in an environment of macroeconomic stability.

Productive activities generally responded to impulses created by demand, particularly activities linked to external markets. The most dynamic activities were agriculture (7.7 percent) and manufacturing (7 percent), despite the decline in the production of beverages, timber products and non-metal products. Trade and services activities showed growth, except for financial services. Finally, contraction slowed in the construction industry, giving signs of recovery.

Investment recovered by 29.8 percentage points compared to the previous year and was reinforced by growth in consumption (3.2 percent). Exports grew by 13.2 percent while imports grew by 10.8 percent, consistent with greater absorption. Increases in goods and services exports were explained by expansion of the goods component (19.9 percent) due to improvements in international prices and increased global demand, which more than offset the reduction in the services component (4.7 percent). Sales of agricultural and manufactured products stood out in terms of exported goods. Finally, increased tourism offset the decline in exported services.

The recovery of private consumption was based on families’ increased disposable income due to increased economic activity, the recovery of remittances, and growth in real salaries. Two factors that had a particular influence on the increase in real disposable income were adjustments in the minimum wage and the delivery of a transfer financed by the Venezuelan cooperation authorities for workers earning an amount equal to or less than 5,500 córdobas in public sector agencies. The transfer amounted to C$530 up to May 1, 2011 and C$700 after that date.

Public consumption remained unchanged in the aggregate but there were disaggregated increases in transfers, compensation payments, and spending on social programs, notably the bonus for health workers and increased spending on goods and services directed to social assistance programs.


Fiscal policy is the government’s primary instrument for playing a more active role in the conduct of the economy and in reducing poverty. Thus, changes were introduced in the design and management of fiscal policy, seeking a greater impact on infrastructure and on social and productive programs to combat poverty.

Prudent management of the fiscal deficit on a sustainable path has been the government’s ongoing practice for maintaining medium- and long-term stability. The government seeks to generate a policy of impactful spending, going beyond the superficial or assistance-based programs of earlier periods that rather than creating capacity among the poor created an unsustainable situation of dependency.

In contrast with the practice of increasing budgetary headings generally, starting in 2007 the government began a process of structural change in spending that involves a better allocation of resources in line with the objectives of the NHDP. To create fiscal opportunities to promote social spending it has been necessary to eliminate non-priority spending categories, regulate the salaries of civil servants, renegotiate domestic public debt, and implement an anti-crisis program.

Along with the above, the government is seeking ways to generate increased resources through reforms in its tax system and greater efficiency in tax administration. These efforts are complemented by management of external resources for financing the programs given priority in the NHDP.

At the same time, the government continues to promote changes in public investment policy, recognizing that structural changes in the economy are a long-term task. The NHDP establishes an order of priorities within which three levels of action are defined: primary and immediate, stabilization, and growth with social justice. The objective is to increase the impact that public and private investment have on economic growth and poverty reduction. The strategy adopts a sectoral, multisectoral, and national approach that goes beyond the microeconomic and institutional approach of earlier periods. It includes a policy of targeting investment in strategic productive and social sectors and fixed capital formation as a generator of productive capacity and social response. Another part of the strategy is to direct resources to pre-investment as a planning instrument and to eliminate the improvisation factor in projects.

To improve the impact of public spending on poverty reduction, the government has introduced changes in the definition and criteria of allocation:

  • (i) Enhanced productive capacities among the poorest groups;

  • (ii) Implementation of a food strategy in rural areas;

  • (iii) Restoration of free health and education services;

  • (iv) Implementation of a new National Social Welfare System;

  • (v) Creation of anti-poverty programs.

In this context, the government seeks to assign an important role to tax policy in achieving the objectives of economic development and poverty reduction. The tax plan implemented since 2007 includes a review of taxpayer status to eliminate cumulative arrears in some sectors; the implementation of legal or administrative mechanisms to reduce tax evasion in all its forms and increase the transparency of the system; rationalization of exemptions policy and preferential tax treatment; increased administrative efficiency; and combating corruption in the handling of taxes and public funds.

In early 2009 the government began a process of “Tax Consultation” seeking consensus on the most suitable system for Nicaragua, for which it outlined four general approaches for discussing the subject. In late 2009, this consultation led to the approval of:

  • (a) Reduction of production and financing costs of productive activities;

  • (b) Financing of fiscal stimuli with general and rationalization measures;

  • (c) Neutrality from the tax collection perspective;

  • (d) Improved tax legislation.

The government is seeking a long-term approach to tax policy, abandoning the short-term management of taxes and emphasis on tax collection. This means liberating tax policy from the tax expenditure function unequivocally assigned to it in recent five-year periods, an issue to be addressed in consultation during 2012. In practical terms, this means:

  • (a) Gradually changing the regressive structure of the system;

  • (b) Adjusting tax rates to competitive levels;

  • (c) Increasing the efficiency of tax collection;

  • (d) Reducing the persistent levels of discretion;

  • (e) Increasing the tax base by incorporating sectors now outside the system.

The most distinctive aspects of tax policy in 2009 and 2010 are presented below.

For Nicaragua, like the other countries of Central America, the adverse effects of the world economic crisis were felt more intensively in the domestic economy during 2009, with negative effects on tax collections. At the same time, government finances were affected by a lower amount of external grants intended for budgetary support. In response to this, the government adjusted its spending budget during the year by 2.2 percent of GPD, a measure that partially offset the decline in revenues. This resulted in a deficit after grants from the Non-Financial Public Sector (NFPS) of 1.9 percent of GDP in 2009 (0.8 percent in 2008).

Fiscal policy was directed to supporting growth and protecting social spending, while safeguarding macroeconomic stability. To achieve these objectives, in 2009 the government implemented the Program for Defense of Production, Growth, and Employment (PDPCE). Among other components, this included austerity measures that made it possible to reallocate limited resources while protecting the spending set aside in the General Budget of the Republic (PGR) for reducing poverty and increasing the investment in economic and social infrastructure.

In this respect, the subsidy policy was directed to protecting the disposable income of consumers with limited resources by keeping the rates for some basic services stable. Thus, urban mass transit fares were kept at 2.50 córdobas in the cities of Managua and Ciudad Sandino; the electricity rate for settlements was subsidized; funds were granted to the Nicaraguan Water and Sewage Systems Company (ENACAL) to subsidize the cost of electricity associated with pumping drinking water to low-income sectors. ENACAL froze the rates for drinking water.

With respect to the electricity market, during 2009 the Nicaraguan Energy Institute (INE) approved four rate increases equal to a net total of 19.5 percent, without affecting the marketing charge, the rate for public lighting, or rates for consumers using less than 150 kwh per month. However, due to the impact of the “El Niño” weather phenomenon on the cost of generating electricity, in October 2009 the government ordered that the rates for electrical service be frozen for six months (until April 30, 2010). According to INE data, the cost of the rate adjustments created by the above measure was estimated at US$20 million, which was financed with Venezuelan cooperation funds.

The government also implemented a series of austerity and domestic financing measures, including submitting a proposed tax reform called the Tax Consultation Law for public consideration. However, partial reform of the Fiscal Equity Law (Law No. 712, Law on Amendments and Additions to the LEF, Law No. 453) was approved to expand the taxpayer base and make adjustments to certain tax rates in order to guarantee an increase of 0.7 points of GDP to cover the 2010 budget gap.

In terms of the institutional development of the public sector, Nicaragua continued to strengthen transparent accountability, the culture of paying debts, and improving public services and other measures.

After contracting in 2009 as a result of the global economic crisis, in 2010 the Nicaraguan economy showed signs of recovery surpassing the projections. The rebound of economic activity due to success in implementing the Program for Defense of Production, Growth, and Employment (PDPCE) to redirect the path of economic growth, the favorable development of the international context, and the contribution of reform of the LEF was reflected in increased tax collection, which surpassed the increase in public spending. These factors led to a deficit after grants from the NFPS of 0.5 percent of GDP (deficit of 1.9 percent in 2009).

In this regard, with reform of the PGR, the level of revenue increased by 1.4807 billion córdobas, while outlays increased by 1.2077 billion córdobas, reducing the fiscal deficit after grants by 504 million córdobas.

Spending policy continued to be based on principles of austerity, financial discipline, rationalization, and prioritization of public spending, guaranteeing both constitutional allocations and contractual public debt services obligations. The increased spending was directed to social spending in institutions such as the Ministry of Health (MINSA) and the Agriculture and Forestry Ministry (MAGFOR). In addition, considering the damage done by heavy rains in the month of September, resources were assigned to the Ministry of Transport and Infrastructure, the Nicaraguan Army, and other institutions to handle priority expenses.

The subsidies policy continued to be directed to protecting consumers’ disposable income by maintaining the stability of rates for some basic services. Thus, urban mass transit fares remained unchanged in Managua and Ciudad Sandino. In addition, subsidies for the cost of energy associated with drinking water, electricity for the settlements and for power and water to universities and retirees continued.

With respect to the rate for electricity, the INE approved an increase of 6.85 percent in May 2010 without affecting the marketing charge, the rate for public lighting, or the rates to consumers using less than 150 KWH per month.

In the area of salaries, the government’s policy was directed to correcting lags in the lower-income sectors, so that adjustments were made in March for central government employees earning salaries equal to or less than 20,000 córdobas. Additionally, starting in May more than 120,000 government employees earning less than or equal to 5,500 received a bonus of 530 córdobas until May 2011 and 700 córdobas after that date, which is not part of the PGR. Those transfers were financed with contributions from ALBA private initiative. In addition, the government continued the policy of capitalizing families living in vulnerable conditions, which consists of the Zero Usury and Productive Food Bond (BPA) programs.


The monetary program is another of the basic pillars of the government’s economic program to promote the macroeconomic framework needed to combat poverty. The government’s commitment to macroeconomic stability, not as an end in itself but as a means contributing to the fight against poverty and inequities, added to the conclusion of an agreement with the IMF in the first year of the administration and followed by its implementation, has been essential to maintaining stability in the face of the international oil and financial crisis, protecting poverty reduction strategy resources.

Thus, the government continued to use exchange policy as the nominal price anchor, maintaining the convertibility of the currency at the pre-established exchange rate based on the currency sliding policy, which continued the rule of devaluation of the córdoba as against the dollar at five percent per year.

Monetary policy was also directed to conserving an international reserves level that would cover at least twice the monetary base, keeping sharp fluctuations in reserves to a minimum, using Open Market Operations (OMO) as the principal policy instrument.

The stability of the payments system was not threatened by the crisis, due in large part to the fact that the National Financial System (NFS) did not keep toxic assets in its portfolio nor did it face significant cutbacks in international lines of credit. This is demonstrated by analyzing the development of the banking system’s external indebtedness, which continued to increase up to the month of April 2009 and reversed as the NFS reacted to uncertainty by contracting credit, which allowed it in turn to accumulate liquidity and reduce the balance of the debt.

The decline in credit granted during 2009 was accompanied by increased provisioning of cash and cash equivalents as a mechanism for reducing credit and liquidity risks.

The reshaping of the assets of the NFS led the banks to keep a portion of these resources as required reserve deposits at the Central Bank of Nicaragua (BCN). This facilitated the accumulation of international reserves so that by the end of the year Gross International Reserves (GIR) reached the level of US$1.573 billion (2.6 times the monetary base), creating confidence with respect to the exchange regime and macroeconomic stability.

A notable factor in the area of monetary policy during 2009 was the IMF’s allocation of Special Drawing Rights (SDR) amounting to 164.4 million dollars.

During 2010, monetary policy was conducted in a context of economic recovery characterized by external sector vitality that had a positive impact on tax collections and the demand for money for transactions. The performance of these variables at higher than projected levels toward the end of 2009 presented challenges for the implementation of monetary policy since it necessitated more frequent revision of the projections for key variables such as required reserves, currency, and government deposits with the BCN. In addition, in this context of economic recovery, emphasis was placed on the liquidity level maintained by the NFS, promoting the placement of short-term debt for liquidity management with rates of return lower than those seen in earlier years.

The banking system’s high liquidity level in 2010 was due to the significant influx of funds to the NFS in the form of deposits and to anemic lending, which meant that these funds were channeled to cash and cash equivalents and investments. The liquidity conditions of the NFS fostered the accumulation of international reserves, which reached 1.799 billion dollars (2.7 times the monetary base) as of the end of December 2010.

The conduct of monetary and fiscal policy was framed by the Extended credit facility (ECF) with the IMF. Thus, on November 19, 2010 the IMF Executive Board approved the fourth and fifth review of the ECF, along with extending the program for an additional year and disbursing 12.8 million SDRs, the equivalent of US$19.6 million, intended to strengthen the foreign exchange regime.

In the context of the ECF, monetary and financial policies focused on three broad objectives: (i) keeping prices stable; (ii) safeguarding the soundness of the NFS; and (iii) strengthening the legal framework of the BCN.

Accordingly, the New Organic Law of the BCN, intended to consolidate the BCN’s institutional status, improve monetary policy instruments, and strengthen the mechanisms of accountability, was approved in July 2010. Measures were also adopted to preserve the soundness of the NFS such as on-site supervision and strengthening of the supervisory framework. In this respect, particular emphasis was placed on the need to strengthen the supervision, transparency, and efficiency of the microfinance and cooperative sector as part of the government’s commitment to promote the healthy development of microcredit and the payment culture in general.

In the area of public finances, the program sought to strengthen the fiscal position by implementing reform of the LEF, increasing the rate of contribution to the Nicaraguan Social Security Institute (INSS) and committing to keep payroll levels constant as a percentage of GDP. In addition, a PGR was approved for 2011 that provided for a deficit of 1.5 percent of GDP, including spending of 0.7 percent of GDP to finance the presidential elections.

Supplemental agenda, transparency, and accountability

The supplemental agenda related to the fourth and fifth review of the program focused on institutional strengthening of the BCN as noted above, development of the electrical sector, and the adoption of measures designed to improve transparency and accountability in government activities. The efforts related to the electrical sector focused on two pillars, strengthening finances in the sector and expanding supply.

In order to continue reducing distribution losses, in July 2010 the National Assembly expanded the universe of residential customers subject to fines for irregularities in using and paying for electrical service. In addition, in order to correct the rate deviation associated with generation costs, the regulatory institute approved an increase in the electricity rate of nearly seven percent in May 2010. Efforts to expand the supply of electrical generation with private sector participation resulted in an increase of 220 MW of power generated in the period 2009-10, 60 MW of which represented generation from renewable sources.

In addition, during 2010 Nicaragua also continued efforts to strengthen the general public’s access to information and accountability. Thus, two Official Foreign Cooperation Reports were published, one with a cutoff at the close of 2009 and the other as of the first half of 2010 and, as part of the commitment to improve the monitoring of foreign cooperation, agreement was reached on strengthening these reports based on the annual evaluation of 2010.

In addition, there were other important publications such as the report on monitoring social indicators, corresponding to the results for 2009 and the monthly report on monitoring the physical execution of the Public Investments Program, in order to improve the management of investment expenditure. In the area of pensions, the INSS submitted a series of options for improving the system’s financial position and gradually correcting its actuarial deficit, The audit of the 2009 PGR was presented by the Comptroller General of the Republic (CGR) and the 2007-2009 BCN financial statements were presented by the external auditing firm.

Other relevant policies in this area included approval of a new Government Procurement and Contracting Law in October 2010, which focused on improving the efficiency and transparency of those procedures in accordance with international standards, and the adoption of measures designed to strengthen tax and customs administration. For 2011, an important item in strengthening government administration will be to conduct a study of the management of the central government’s fixed and transitory costs budget, including options to allow improvements in the future.

The conclusion of the fourth and fifth review allowed the IMF to disburse 12.8 million SDRs (equal to US$19.6 million) and facilitated net financing to the government of US$42 million by the IDB.

Finally, it should be noted that during 2010 the IMF conducted a consultation with Nicaragua under Article IV of the IMF Articles of Agreement, whereby the IMF exercises its role of supervising all the member states in order to promote international financial stability. This mission included discussions with the IMF regarding medium-term issues such as the need to accelerate the pace of economic growth and poverty reduction and fiscal, monetary, and financial challenges.


The government set out a new strategy in the area of public investment policy and the use of foreign cooperation, seeking to increase their efficiency, return, and impact in terms of economic growth and poverty reduction. This is reflected in the PDPCE developed as the starting point for dealing with the international economic crisis, giving high priority to public investment. This approach is sectoral and integrated, focusing on the development of the productive infrastructure in those sectors that are capable of mobilizing economic activity and creating employment, has benefited small and medium-sized enterprise, and has successfully linked domestic private investment and private investment in the context of Central American integration.

This policy promotes the development of projects with high national impact, giving priority to gross capital formation, reducing current expenditure recorded as investment, and adopting a system of physical and financial monitoring for each project in the Public Investment Program (PIP) of the NHDP.

The PIP has given priority to rural and agroindustrial productive potential and the potential for generating electricity based on renewable sources. During 2007-2010 all productive areas have been integrated, thus increasing their opportunities for trade on domestic and foreign markets, with priority assigned to construction of the energy infrastructure and the infrastructure of highways, ports, and airports.

During 2007-2010, Nicaragua also focused increased resources on the drinking water and sanitation, health, and education sectors, considering their contribution to the well-being of the population and increased productivity.

A strategic element in the new public investment policy is the development of institutional planning and pre-investment capacities, so as to have a portfolio of projects in line with the government’s priorities as defined in the NHDP and technically evaluated as established in the Law on Financial Administration and the Budget Regime.

In summary, starting in 2007 the government has been working on the following priorities in the area of investment and gross fixed capital formation:

  • - Social infrastructure to increase coverage and improve basic social services;

  • - Productive investment with emphasis on poverty reduction;

  • - Investment in electricity;

  • - Transportation infrastructure;

  • - Productive investment;

  • - Investment in social housing.

Achievements of the 2007-2010 Public Investments Program

  1. The Public Investments Program consists solely of investment projects in gross fixed capital formation, defined as projects related to the construction, expansion, and/or rehabilitation of infrastructure, including studies and designs and the purchase of machinery and equipment supplemental to the operation of such projects, with parallel improvements in quality and spending efficiency.

  2. The programmatic structure of projects is classified correctly so that a project is broken down into construction and activities with the formal allocation of financial resources in the General Budget of the Republic.

  3. The Public Investment General Directorate (DGIP) was strengthened to carry out its role as the lead agency in the investment process and the National Public Investment System (SNIP), through the following actions:

    • - Consolidation of the system for monitoring the physical and financial execution of the PIP, based on contract scheduling;

    • - Consolidation of the SNIP Projects Bank as the single registry for government investment projects;

    • - Quality assurance of national public investment, through technical-economic review of investment projects, in compliance with the provisions of Law No. 550;

    • - Activities to improve the human capital of the SNIP have been supported by providing intensive courses on strategic planning, management of the execution of public investment, project management, and a postgraduate program in project formulation and evaluation. Coverage has included 38 member institutions of the SNIP and 78 employees. This is a substantive function of the DGIP, with immediate effects on the quality of the projects and programs developed by institutions and improvements in daily activities related to the management and administration of the projects cycle. Employees have also been trained in the correct use of the projects bank, particularly the recently implemented monitoring system.

  4. The Planning, Investment, Budget, and Cooperation Commission (PLANINPREC) was established as the lead agency for monitoring the planning and execution of the plans and goals of central government institutions and public enterprises. The institutional-level Planning and Budget Committees, which are the counterpart of PLANINPREC, were also established.

  5. All the above has allowed for better planning and execution of the PIP, with execution increasing from 85.6 percent in 2007 to 93.4 percent in 2010.

Public investment by sector

Table 9

NICARAGUA: Public Investment Program by Sector

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In accordance with the investment policy and in keeping with the guidelines of the NHDP, during the period 2007-2010 sectoral level resources have been channeled toward promoting the principal sectors that foster the country’s economic and social welfare. Thus, the transportation, community projects and services, water and sanitation, education, health, energy, and agriculture, forestry, and fisheries sectors are the sectors where most resources and execution efforts have been concentrated. This is illustrated below.

Graph. 5
Graph. 5

Nicaragua: Public Investment by Sectors, 2007-2010

Citation: IMF Staff Country Reports 2011, 323; 10.5089/9781463924591.002.A001

[Tr.: Transport; Community works and services; Water, sewerage, and sanitation; Education; Energy; Livestock, forestry, and fisheries; Health; State administration; Multisector; Housing; Social protection, assistance, and security; Mining, industry, commerce, and tourism; Environment; Culture, sport, and recreation; Communications.

Millions of dollars.]


The Citizen Power approach to reducing poverty7

The citizen power development model’s strategy for overcoming poverty as defined in the NHDP proposes to improve the quality of the living standard of Nicaraguans by satisfying their needs, seeking to generate income, and building citizen power through citizen participation, in order to develop a prosperous Nicaragua with equity, justice, and peace.

To develop and implement this strategy, the government has proposed to use public spending as a tool to stimulate growth, improve income distribution, and reduce poverty, focusing on strengthening fiscal sustainability, creating increased fiscal space8 for efficient and equitable public spending favorable to the poor, and improving efficiency, as well as counteracting the volatility of spending, particularly spending on basic social services, so as to optimize the delivery of public goods and services to Nicaraguans.

To utilize this space by maximizing the impact of these resources on the reduction of poverty, the government reviewed and redefined the percentage of public spending directed to this purpose, ultimately considering as a budgetary effort for combating poverty9 the spending intended for ensuring free and improved basic health, nutrition and education, as well as protection for the population living in extreme poverty and vulnerability. It incorporates the resources for improving the basic infrastructure for the well-being of the poor and increasing their productivity. It includes support programs to increase the productivity of small and medium-sized producers, as well as environmental protection, road infrastructure construction and maintenance, rural electrification, and energy sector modernization programs.

However, in the NHDP the government makes it clear that improving the indicators related to poverty reduction goes beyond the amount of spending directed to this objective. It requires a strategic and profound change in the workings of governmental management, in the design and implementation of programs and projects more directed to benefiting the poor, and aligning international cooperation with the government’s new priorities.

The budgetary effort and its impact levels

When the Government of Reconciliation and National Office took office in 2007 it found government institutions that were not focused on the needs of the people and this situation was reflected in deteriorating social indicators, indicating that poverty was becoming more widespread in Nicaragua. The government found an inefficient education and health system that was undersupplied in terms of infrastructure with equipment in poor condition and inadequate personnel in the areas most needed for delivering services to the population.

The government protected spending directed to combating poverty by creating fiscal space, which meant an investment during this four year term (2007-2010) of US$3.3585 billion, or an average of US$841.0 million per year (13.5 percent of GDP). This spending was higher by an annual average of US$304.1 million, or 56.7 percent more than the annual average of US$536.8 million (11.7 percent of GDP) invested during the period 2002-2006. Similarly, the investment in these four years alone (US$3.3585 billion) was US$674.3 million higher than the US$2.6842 billion invested during the previous five years (2002-2006).

Although it is very difficult to evaluate the impact of spending on poverty reduction, it is clear that the sustained increase in spending for better targeted programs and projects, in sectors as well as areas where the poorest groups are most concentrated, has helped to reduce general poverty by 5.8 percentage points and extreme poverty by 2.6 percentage points during the period 2005-2009 (2009 EMNV).

According to their impact on poverty reduction, during the period 2007-2010 most of these resources (77.4 percent, US$2.5999 billion) were invested in programs with greater impact on improving income distribution. Of this amount, 19.8 percent was invested in capitalization and increased productivity of the poorest groups in order to improve their incomes (US$664.5 million) and 2.8 percent was directed to programs that help to improve the efficiency of this spending (US$94.1 million).

Table 10

Budgetary Effort to Combat Poverty1/ Nicaragua

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Corresponds to spending executed by the central government and the autonomous entities, calculated using the new approach to combating poverty.


Source: Planning Directorate - SEPRES

A sectoral analysis of the budgetary effort to combat poverty indicates that the actions prioritized by the education and health sectors as well as care for children and adolescents and the population affected by natural disasters produced an accelerated increase in the resources assigned to the social sectors, amounting to two-thirds (65.9 percent, US$2.2117 billion) of executed spending during the years 2007-2010 and 67.2 percent (US$204.4 million) of the total average increase (US$304.1 million) in this period.

The productive sector absorbed 21.0 percent of these resources (US$748.0 million) thanks to the increase in the budgetary allocation for developing the energy sector and for constructing and maintaining highways and rural roads. Other sectors executed the remaining 11.9 percent of the resources (US$398.8 million) invested in the construction of municipal infrastructure and in environmental protection programs.

Table 11

Budgetary Effort to Combat Poverty1/ Nicaragua

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Corresponds to spending executed by the central government and the autonomous entities, calculated using the new approach for combating poverty.


Includes direct transfers to the poor, food production programs and social protection.

Includes program for housing construction and improvement and other social programs.

Includes programs for construction of highways and roads and rural highways, and investment in ports and lake and river piers.

Includes programs for rural productive development, small and medium enterprise, mining, and property regularization.

Includes construction of municipal infrastructure and environmental protection projects.

Source: Planning Directorate - SEPRES

First level of impact: programs to improve income distribution

Under the classification of the budgetary effort to combat poverty, the first level of impact brings together the programs that have the most direct impact on reducing poverty by improving income redistribution. During the period 2007-2010, these programs invested US$2.5999 billion, or an annual average of US$650.0 million (10.5 percent of GDP), recording the highest growth rate of the period (76.7 percent).

As mentioned above, the accelerated growth of this level in this four year term meant an additional allocation of US$760.5 million, reaching an annual average investment of US$650 million, US$282.1 million more per year than the amount invested in the period 2002-2006, which amounted to an average of US$367.9 million per year. Of these resources, 69.1 percent was invested in programs and projects intended to improve quality and expand the coverage of basic services (US$1.7978 billion), notably the funds directed to health and education, which together accounted for 90.1 percent, or the equivalent of US$1.6189 billion.

Here it should be emphasized that the government began a process of transforming the public health system in which the new scheme gives priority to preventive public health, to developing a family care model, to regional equity in the system, to preferential treatment of vulnerable groups, to implementation of differentiated interventions for those living in conditions of poverty and in rural and marginal urban areas, and to adaptation of health interventions.

To develop this transformation, US$906.8 million was allocated to health services, which means an average annual increase of US$90.0 million, which were in part used to finance the restoration of the right of access to health services for the most impoverished population and to cover the funds no longer received from charging for health services in the privatized areas of the system. Thus, charges were eliminated in the public health system, reestablishing the free nature of healthcare and prescription medications.

As in the health sector, the government also set out a new concept of education in which the citizens’ fundamental right to education was restored, reversing the exclusion of Nicaraguan children from education, as established by the school autonomy model that turned school into a market and deprived children and young people of an education, thus increasing illiteracy.

In the basic education subsystem, primary, preschool, adult, special education was allocated US$712.1 million, investing an annual average of US$75.9 million more than the US$510.7 million invested during the preceding period (2002-2006). These funds, in addition to covering the salaries of staff who directly provide educational services to the population and expenses for operating the lead agency, financed new budgetary items to cover primary education services in the subsidized autonomous centers as well as community preschool education services and increased allocations for special education centers, salary leveling for educators throughout the country, and hiring of new teachers, as well as the Integrated School Nutrition Program (PINE) to contribute to the health, nutrition, and continued school attendance of children with daily provision of school snacks to thousands of students nationally.

The water and sanitation sector, with an allocation of US$157.8 million (an additional US$10.6 million), made great advances in the construction of water and sanitation systems in marginal urban areas and rural areas and in the construction and expansion of mini-aqueducts pumped by electricity. In housing construction and improvement, US$21.0 million have been invested, subsidizing social housing and building homes for teachers.

Investment in municipal infrastructure amounted to US$330.7 million and investment in highways and rural roads amounted to US$274.3 million during the period, more than twice the amount invested during the period 2002-2006 (US$129.6 million). These funds were basically used to repair highways and rural roads destroyed by rains and natural disasters in order to reduce the losses suffered by small and medium-sized producers when they move their harvest to market.

Meanwhile, direct transfers to the poor continue to be subsidized, absorbing US$132.9 million during the period 2007-2010. These funds guarantee integrated care for children and adolescents at social risk, the policy of subsidizing transportation, electricity service, and drinking water in order to protect the real salary of employees from the effect of inflation, and provide care for populations harmed by natural disasters, among other items.

Finally, food production was allocated US$57.5 million, nearly three times the allocation during the period 2002-2006 (US$21.9 million). These funds are used to finance the Agro-Seeds Program and the BPA of the Zero Hunger Program, intended to capitalize thousands of families of impoverished small and medium producers.

Second level of impact: Programs to capitalize and improve the productivity of the poor

The second level of impact of the budgetary effort to combat poverty brings together programs and projects directed to capitalizing and increasing the productivity of the poor so as to improve their incomes. During the period 2007-2010, US$664.5 million were directed to this level for an annual average of US$167.4 million. This reflected an increase of US$22.2 million compared to the annual average of US$145.2 million executed during the period 2002-2006.

Of these resources, productive development was allocated US$198.2 million. Of this amount, $103.3 million was invested in rural development, particularly to develop new projects to combat poverty and give greater impetus to programs for rural development already in progress, such as the Agricultural Technology Project, which supports PRORURAL and is intended to increase Nicaragua’s productivity and exports. This group also includes the Fund for Agricultural Development (FONDEAGRO) which works to improve living conditions through technical assistance and credit to small and medium producers in the departments of Matagalpa and Jinotega. Funding is also provided for the operations of the Nicaraguan Agricultural Technology Institute (INTA), the Rural Development Institute (IDR), and the Banco de Fomento a la Producción (PRODUZCAMOS).

The development of small and medium enterprise was allocated US$43.2 million, eight times more than the amount invested during the period 2002-2006, which amounted to only US$5.2 million. Investments in this sector focused on developing MSMEs and their technological development, as well as promoting agroindustry and the construction of public tourism infrastructure. Financing was also provided for the operations of the Zero Usury Microcredit Program directed to women in urban areas of the country.

During the period 2007-2010 energy sector projects executed a total of US$136.5 million, US$40.3 million more than the amount executed in the preceding period (2002-2006). Of these resources, US$53.3 million were invested in the development and modernization of the sector, and US$83.2 million were invested in rural electrification projects, twice the US$39.1 million during the period 2002-2006.

Developing renewable sources based on the generation of hydroelectric and geothermal power is one of the government’s principal goals and work is being done under this assumption. Another priority is to raise the per capita rate of energy consumption which is 2.2 percent of kilowatts for each Nicaraguan while this figure is three times higher in countries like Costa Rica. Currently, slightly more than 50 percent of Nicaragua is electrified, but the goal is to bring power to the entire country.

The construction of electrical power distribution systems in rural communities and execution of the project to develop small-scale hydroelectricity for productive uses in off the grid areas are among the principal projects for rural electrification. Notable projects to develop the sector include the construction and modernization of substations and the maintenance and rehabilitation of the electrical transmission system.

Investment in the construction, rehabilitation, and maintenance of the country’s highways amounted to US$132.3 million, notably for execution of the program to maintain the national road network.

Secondary and technical education were allocated US$129.4 million, US$34.8 million more than the US$94.6 million executed during the period 2002-2006. As in basic education, these resources were used in part to cover the cost of centralized secondary education services, decentralized municipal education in autonomous centers, and subsidized secondary education centers.

The environmental sector executed US$68.1 million, 20 percent less than the annual average invested during the period 2002-2006. Despite this, funds were allocated to finance the National Forest Development Fund and execution was accelerated on the Master Forest Management Plan, the Program to Support the Environmental Sector. Resources were provided for the care and conservation of the Bosawás Biosphere Reserve, the program to Promote and Conserve the National System of Protected Areas (SINAP), for the Sustainable Management of the Land in Degraded Areas Subject to Drought (SLM), and for the Corazón Cross-Border Biosphere Reserve of the Biological Corridor (RBT).

Third level of impact: Programs to improve the efficiency of spending

Programs and projects with the third level of impact on reducing poverty, intended to increase the efficiency of institutions providing basic social services, recorded an investment of US$94.1 million, less than the amount recorded during the period 2002-2006.

This reduction fell on the programs directed to improving the administration of the education sector. The funds directed to improving the efficiency of spending in the health and social protection sectors remained at the same execution level as in the five-year period 2002-2006.

Table 12

Budgetary Effort for Capitalization and Increased Productivity to Combat Poverty NICARAGUA

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Corresponds to spending executed by the central government and the autonomous entities, calculated using the new approach to combating poverty.


Source: Planning Directorate - SEPRES
Table 13

NICARAGUA: Budgetary Effort for Capitalization and Increased Productivity to Combat Poverty 1/

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Corresponds to spending executed by the central government and the autonomous entities, calculated using the new approach to combating poverty.


Source: Planning Directorate - SEPRES