IMF report comments on Nicaragua’s fiscal position

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On 22 June 2017 the Executive Board of the IMF concluded consultations with Nicaragua under Article IV of the IMF’s articles of agreement and a report has been issued.

The report notes that Nicaragua’s economic performance in 2016 was robust with real GDP growth of 4.7%. Growth is projected to be 4.5% in 2017. The deficit of the consolidated public sector widened from 2.2% in 2015 to 2.4% in 2016, but is projected to slightly decrease to around 2.3% of GDP in 2017.

Tax revenues increased slightly in 2016 as a result of improvements in tax administration and the impact of full implementation of the 2012 tax reform. The IMF considers that fiscal buffers are required to confront risks. Fiscal consolidation may be achieved primarily by a rationalization of subsidies and of tax expenditures, especially a rationalization of VAT exemptions.

Reform of the social security system is considered to be a priority as increased government transfers to finance pensions and health benefits will otherwise be required from 2019. A combination of measures should be taken to improve sustainability of the social security system. As far as possible the measures should be introduced gradually.

Vulnerability to external shocks could be reduced by further improvements in competitiveness. Action is required to maintain investment in infrastructure, increase human capital development and address labor skills bottlenecks.

 

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