The following item is a Letter of Intent of the government of Nicaragua, which describes the policies that Nicaragua intends to implement in the context of its request for financial support from the IMF. The document, which is the property of Nicaragua, is being made available on the IMF website by agreement with the member as a service to users of the IMF website.
The performance of the Nicaraguan economy has been satisfactory during 2011. All quantitative performance criteria for June 2011 under the Extended Credit Facility (ECF) have been met, and progress has been made in implementing the supplementary agenda, both of which have contributed to foster macroeconomic stability. For the remainder of the year, the Government of Reconciliation and National Unity (GRUN) will continue to implement prudent macroeconomic policies, with particular attention to the potential impact on the economy of the observed economic slowdown in the advanced economies and the continuing high level of international commodity prices. Macroeconomic Framework for 2011-2012.
After growing at a rate of 4.5 percent in 2010, gross domestic product (GDP) will continue to recover in 2011 at a projected rate of around 4 percent. Inflation is expected to hover at the lower end of the 8 to 9 percent range, primarily reflecting pressures on international prices for agricultural and energy products. In line with the decline in the terms of trade and a higher level of economic activity, the external current account deficit will increase in 2011, from 14.8 percent of GDP in 2010 to 15.7 percent of GDP this year.
The revised growth outlook in the advanced economies suggests that GDP growth will slow in 2012, to a figure of between 3 and 3.5 percent, while inflation is also expected to decline to a range between 7 and 8 percent. It is expected that the external current account deficit will stand at around 18.4 percent of GDP in 2012.
The government will continue to implement a prudent and sustainable fiscal policy, and to that end will send to the National Assembly an amendment to the 2011 General Budget of the Republic (GBR) consistent with a central government deficit after grants of approximately 0.1 percent of GDP, which represents a 1 percentage-point improvement over the program agreed in the context of the sixth review of the ECF. This result will be achieved owing to improvements in tax revenues, reflecting the higher level of economic activity, and changes in income tax withholding for commercial banks, as well as a prudent execution of government expenditure. The increased resources will be used to pay down public debt, with priority being given to debt associated with the electricity sector. The payment of this debt will be included in a budget amendment to be approved by the National Assembly in 2011. In line with the improved central government deficit, consolidated public sector deficit will also be smaller than expected in the last review and will reach about 1.1 percent of GDP in 2011. In addition, in mid-October the government will send to the National Assembly the GBR for 2012, which will be consistent with a deficit after grants of 0.4 percent of GDP. The monitorable wage bill as a share of GDP will remain broadly constant, while poverty-reducing expenditure will continue to be protected as a share of GDP. The surplus of the Nicaraguan social security institute (INSS) will stand at 0.5 percent of GDP, while the deficit of the consolidated public sector (CPS) will total around 2 percent of GDP.
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