The International Monetary Fund (IMF) is applauding Nicaragua’s “recent prudent management of macroeconomic policy” and its effective debt-reduction efforts, but stressed the need to “focus efforts to reduce fiscal and external vulnerabilities.”
The IMF mission, which visited Managua last week to meet with the administration’s economic team and business leaders, found that Nicaragua’s “economic performance has been favorable.” GDP growth over the past two years has averaged 5.3% while inflation held around 7%. In IMF projects that Nicaragua will maintain a baseline growth of 4% and hold inflation to single digits in the years ahead.
Still, the IMF mission warns that Nicaragua’s economy remains vulnerable to “external shocks.” As a result, the government needs to maintain macroeconomic discipline, increase international reserves, and push for greater reform efforts at home, the mission said. The IMF specifically mentioned the need to reform the pension system, strengthen tax administration, and rationalize expenditures, including subsidies. The IMF also urged Nicaragua to continue “improvements in the transparency of fiscal and quasi-fiscal operations, including the cooperation with Venezuela.”
“The authorities’ fiscal policy is anchored by the commitment to significantly reduce the public debt to GDP ratio over the medium term,” the IMF mission reports. “To protect fiscal discipline, the government intends to incorporate the wage bonus (bono solidario) in the budget while maintaining a stable level of public spending.”