Nicaragua: IMF Executive Board Completes Sixth Review of Extended Credit Facility and approves US$8.95 Million Disbursement

The Executive Board of the International Monetary Fund (IMF) today completed the sixth review of Nicaragua’s economic performance under its Extended Credit Facility (ECF). The decision was taken on a lapse of time basis (a process in which the Board approves the completion of a review without convening formal discussions) and allows an immediate disbursement to Nicaragua of an amount equivalent to SDR 5.55 million (about US$ 8.95 million).

The Executive Board approved a three-year ECF (formerly known as the Poverty Reduction and Growth Facility) in the amount of SDR 71.5 million (about US$111 million) in October 2007 (see Press Release No. 07/224). In September 2008, the Board increased financial support under the program by SDR 6.5 million (about US$10 million) to help Nicaragua cope with the natural disasters of 2007 (see Press Release No. 08/204). In November 2010, the Executive Board approved an extension of the arrangement through December 4, 2011.

Economic performance in 2010 was satisfactory. Real Gross Domestic Product (GDP) grew by 4.5 percent, supported by strong consumption and investment, fiscal performance (especially tax revenues) was stronger than envisaged, and the balance of payments strengthened. Bank credit to the private sector started to recover, while the financial system remained liquid and profitable. All quantitative performance criteria through end-December 2010 were met with margins, although the three indicative fiscal targets were narrowly missed.

Prospects for 2011 are broadly favorable, although high international commodity prices will put pressures on inflation and the external current account deficit. Against this background, the authorities’ economic program seeks to strike a balance between mitigating the effects of higher fuel and food prices on the poor and taking advantage of the strong revenue prospects to deepen fiscal consolidation. In line with this, the overall public sector deficit will be kept below 2 percent of GDP and the ratio of public debt to GDP will decline. Monetary policy will be geared at keeping inflation below 7.5 percent and protecting international reserves. On the structural front, the authorities plan to continue improving public financial management and the quality of expenditures; adopt a legal framework for the microfinance sector; and take further steps to enhance the transparency of external assistance.