IMF: Nicaragua’s economy must grow faster

(posted May 15, 12:50 p.m.)-Despite Nicaragua’s strong economic recovery from the financial crisis of 2008-09, the country must grow its economy even faster to reduce poverty, according to the International Monetary Fund (IMF).

Following a nine-day IMF visit to the Nicaragua, which concluded May 11, Marcello Estevao, IMF mission chief for Nicaragua, said Nicaragua has done a good job recovering its economy—growing at  clip of 4.5% annually—while keeping inflation in check and strengthening the Central Bank’s international reserves. Estevao also noted that Nicaragua’s economic outlook for 2012 is “generally positive,” despite slowing growth levels this year and an expected inflation rate around 8-9%.

But to really move the country out of poverty, Nicaragua needs to grow its economy even faster, says Estevao.

 

Nicaragua must do more to reduce its informal economy, the IMF says

“Higher economic growth is essential to reduce poverty rates significantly over the medium-term,” Estevao said, according to an IMF statement released today. “In this regard, measures to further strengthen institutions, reduce labor-market informality, and enhance the effectiveness of public spending while reducing budget rigidities will be key. Boosting growth and reducing the high dependence on oil imports require strengthening the electricity sector, including with predictable rules that attract new investments. In addition, reforming the pension system is necessary for inter-generational fairness and long-term fiscal sustainability, and a more equitable tax system would also generate resources for needed infrastructure investment and social spending.”

Estevao said that risks to this year’s economic outlook include, “Lower global activity, an adverse terms-of-trade shock, and sudden changes in concessional assistance or foreign-direct investment.”

The IMF urges Nicaragua to maintain “prudent macroeconomic policies” to respond  to any herky-jerky behavior by the world economy.

“In this context, keeping public spending pressures at bay, including by targeting subsidies and moderating wage increases, while preserving the room for social and infrastructure spending, is a priority,” Estevao said.