On February 21, 2020, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation1 with Nicaragua.
Since April 2018, social unrest and its aftermath eroded confidence and caused large capital and bank deposits outflows, adversely affecting Nicaragua’s economic activity. Real GDP is estimated to have further contracted in 2019 by 5.7 percent (-3.8 percent in 2018) owing to the deterioration in aggregate demand, strong fiscal consolidation, and sanctions. Inflation is estimated to have increased to 6.1 percent by end-2019 (as compared to 3.9 percent in 2018), as a result of tax measures adopted to partially offset the collapse in revenues and financing. Although the economic downturn translated into a current account surplus in 2018 and 2019, the improvement was fully offset by a reversal in the financial account.
The authorities eased monetary and financial sector policies during 2018–19 to avoid a downward economic spiral. The Central Bank managed to stabilize the financial sector by introducing repos, reducing reserve requirements, and phasing-in regulatory provisioning. To bring back the deficit from 4 percent of GDP in 2018 to 2 percent of GDP in 2019, the government adopted a package of tax and pension reforms in the first quarter of 2019. The authorities announced in October 2019 a reduction in the rate of crawl from 5 percent to 3 percent, to signal a commitment to low inflation.
Under Article IV of the IMF s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.
At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country’s authorities. An explanation of any qualifiers used in summings up can be found here: http://www.imf.org/external/np/sec/misc/qualifiers.htm.