The economic outlook for Nicaragua is favorable although there are risks that external factors slow down the growth of the gross domestic product (GDP) and impact inflation, the International Monetary Fund (IMF) said this Friday.
“Real GDP growth (of Nicaragua) is expected to moderate to 3% in 2023 due to weak external demand and tighter external financial conditions,” said an IMF technical mission at the end of a visit to the country. .
Nicaragua’s GDP grew 10.3% in 2021 and is expected to grow 4% this 2022, sustained by private consumption and exports, according to the IMF and the Central Bank of Nicaragua.
The IMF technical mission, headed by Alina Carare, held virtual talks at the beginning of the month and visited Managua from November 7 to 15, in which they evaluated the economic evolution and growth prospects of Nicaragua, as part of the Article Consultation IV of 2022.
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“In the medium term, real GDP growth is projected to converge to its potential of around 3%, given the cautious recovery of investment and credit to the private sector and a lower participation of the labor force,” explained the IMF in its statement.
ECONOMIC RISKS
However, the Central American country faces economic risks due to a more severe global recession, external monetary tightening and higher-than-expected import prices, the multilateral warned.
“If these risks were to materialize, they could result in lower real GDP growth and lower growth in remittances, higher inflation, worsening food affordability, and a broader fiscal deficit,” he said.
The IMF warned that fiscal balances, economic activity, and social outcomes could be affected by natural disasters, given Nicaragua’s high exposure to the climate crisis and its economic dependence on climate-sensitive sectors.
In addition, he warned that a deterioration in the business environment and stricter international sanctions would affect trade and financing flows.
Given these scenarios, the IMF recommended that Nicaragua continue with “prudent” monetary, fiscal and financial policies in order to build resilience and achieve sustained growth in the medium term.
IMF: IMPROVE BUSINESS CLIMATE
The technical mission said it supports the efforts of the Nicaraguan authorities to sustain growth in the medium term by investing in infrastructure, reducing energy costs and empowering human capital.
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“Sustained efforts to improve the business climate and structural reforms to increase formal employment will help curb emigration and strengthen social security accounts,” he said.
The mission also said it supported the authorities’ efforts to address structural imbalances in public companies and social security accounts, and to improve mattresses, taking into account the country’s vulnerability to natural disasters and global financial conditions. .
He recommended a better targeting of subsidies and a reallocation of current spending in order to maintain adequate levels of social spending, reduce poverty and support growth.
Nicaraguan GDP contracted around 9% between 2018 and 2020 and since then “economic activity is recovering well, supported by appropriate macroeconomic and financial policies and substantial buffers of government deposits and international reserves prior to the crisis,” the IMF highlighted. .
The IMF executive board is expected to hold Nicaragua’s Article IV consultation in early 2023.
