The Executive Board of the International Monetary Fund (IMF) concluded recently the Article IV consultation with Nicaragua. The Executive Board stressed that the economic developments in 2015 have been broadly positive.
Growth, after reaching 4.7 percent in 2014, is expected to moderate owing to the effects of a drought and the decline in commodity prices; real GDP grew by 3.9 percent in the first half of the year. Inflation declined to 3 percent in October, mainly reflecting declines in food and transportation costs. Core inflation remained stable at around 6.5 percent.
The financial sector appears to remain robust despite still high credit growth. As of August 2015, capital adequacy ratios (13.3 percent) were above the 10 percent regulatory level, and the non-performing loan ratios, including restructured loans, remained below 3 percent. Private sector credit growth has slowed but remains high (20 percent), in particular for consumer and commercial credit, and continues to exceed the growth rate of deposits.
Additionally, the 2014 household survey reveals that 29.6 percent of the population lives in poverty (42.5 percent in 2009), and 8.3 percent in extreme poverty (14.6 percent in 2009). Per capita consumption increased by 33 percent, helped by a fall in the average household size and a rise in per capita remittances. Nicaragua has made inroads in improving gender equality.
The board also emphasized that the medium-term outlook remains broadly favorable. Growth is expected to moderately accelerate in 2016, owing to the projected recovery in foreign demand and an increase in election-related spending, which would result in a more expansionary fiscal policy. In the medium term, staff estimates that growth will converge to its potential of 4 percent.
Directors welcomed the authorities’ continued interest in strengthening the fiscal accounts. They emphasized the importance of increasing the institutional coverage of the public sector, improving the quality of fiscal and public debt statistics, and publishing the public institutions’ financial statements to enhance transparency.
In 2015, Min Zhu, Deputy Managing Director of the IMF, said that Nicaragua has a very resilient economy driven by its low fiscal deficit (1.6%) in relation to most Latin American countries. Additionally, the total government debt declined from 49 to 42 percent and the country’s external debt is at 46 percent, which is regarded as excellent.
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