Wednesday 2 December, 2020

IMF approves $185 million in emergency funds to Nicaragua

The Executive Board of the International Monetary Fund (IMF) yesterday approved Nicaragua’s request for emergency financial assistance for a total amount of about US$185.32 million to help the country meet urgent balance of payment needs stemming from the COVID-19 pandemic.

This assistance is provided under two instruments: the Rapid Credit Facility (RCF) equivalent to SDR 43.33 million (about US$61.77 million, or 16.7 percent of quota), and the Rapid Financing Instrument (RFI) equivalent to SDR 86.67 million (about US$123.55 million or 33.3 percent of quota).

The pandemic comes on top of a two-year recession in Nicaragua. Faced with sharply lower revenues and a severe tightening in available financing, the COVID-19 crisis has added severe strains to an already weak macroeconomic outlook. To alleviate the impact on the most vulnerable, the authorities are scaling up public health expenditure and social assistance.

The RCF/RFI financing would help to address urgent balance of payments needs, provide resources to strengthen the health system and support the population most affected by the pandemic, preserve fiscal space and catalyze other concessional financing. Once the crisis abates, the authorities intend to implement fiscal measures to ensure debt sustainability and structural reforms to promote inclusive growth.

The authorities have taken important actions to enhance fiscal transparency, especially related to COVID-19 spending. The Ministry of Finance has begun to publish the details of all COVID-19 related spending and of all public procurement contracts on its website.

All COVID-19 related spending will be subject to an independent external audit within a year. The government has also sought the assistance of the United Nations Office for Project Services (UNOPS) and the World Food Programme (WFP) for the execution of emergency spending. The authorities have committed to transfer one half of the emergency funds received from the IMF to both agencies. The UNOPS will assist with the execution of health care spending, while the WFP will implement an emergency agricultural-support program to ensure adequate food supply.

Following the Executive Board’s discussion on Nicaragua, Mitsuhiro Furusawa, Deputy Managing Director and Acting Chair, issued the following statement: “The COVID-19 pandemic is exacerbating existing economic challenges, creating additional urgent fiscal and balance of payments needs. The IMF’s emergency financing under the Rapid Credit Facility and Rapid Financing Instrument will help address the balance of payments need while financing increased health and social spending. It will also catalyze further assistance from other multilateral institutions, critical to close the remaining financing gap and ease the adjustment burden.

“A widening of the budget deficit this year to preserve public health and contain the economic impact of the pandemic is appropriate. Continued commitment to enhance transparency in public spending and ensure the good use of emergency financing remains important. The authorities are committed to safeguard medium-term debt sustainability and rebuild buffers once the pandemic abates.

“To facilitate the recovery and counter future shocks, the authorities intend to maintain the accommodative monetary policy stance and safeguard the stability of the financial system. They are committed to making continued efforts to undertake structural reforms over the medium term, including strengthening governance and transparency, and tackling corruption.”

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