Nicaragua Economy Profile 2012

The Nicaraguan economy grew strongly in the first half of 2011 despite deteriorating global conditions. Growth continues to be broad based. Inflows of foreign investment and official borrowing are expected to more-than-finance the still-high external current account deficit and contribute to reserve accumulation in 2011. The authorities’ policies aim to enhance the resilience of the economy against downside risks.

Further fiscal consolidation to reduce public indebtedness remains a key priority, with a focus on restraining government current spending (especially the wage bill), sustaining gains in revenue mobilization, and strengthening the financial position of the energy sector. The authorities’ decision to use the revenue overperformance expected for this year to pay down government debt is appropriate. Efforts have been intensified to create space for investment and well-targeted assistance to the poor. Key structural reforms in the fiscal area include enhancing tax administration, broadening the tax base, and reforming the pension system and the civil service.

The Nicaraguan banking system remains generally sound. Banks are well capitalized, profitability continues to improve, and liquidity buffers remain ample. The authorities intend to step up their efforts to improve coordination and information exchanges with other regional supervisors, and to monitor volatile aid-related deposits.

Important steps have been taken to advance the structural reform agenda, including the approval of a law regulating the micro-finance sector and the introduction of norms requiring greater disclosure by financial cooperatives and trust funds. Significant progress has been made in managing and reporting aid flows, and continued improvements in this area would help foster confidence, facilitate macroeconomic management, and mobilize donor support,” Mr. Zhu said.