IMF Aids Nicaragua On Tax Reform Efforts

by Leroy Baker, Tax-News.com, New York

21 September 2009

A Nicaraguan delegation visited the International Monetary Fund (IMF) headquarters in Washington, DC, during September 10-11 to continue negotiations on tax policy as part of the second and third reviews under the Poverty Reduction and Growth Facility (PRGF).

After the conclusion of the discussions, Luis Cubeddu, the IMF mission chief for Nicaragua, disclosed the following in a statement:

“The mission held fruitful discussions on policies for the remainder of 2009 and 2010 that could be supported under the PRGF arrangement. An agreement in principle, still subject to IMF Management and Executive Board consideration and approval, was reached on a strengthened macroeconomic program for 2009-10, aimed at protecting Nicaragua’s balance of payments position and ensuring the sustainability of public finances.”

“To this end, and following a large widening of the fiscal deficit in 2009, the authorities are committed to implement measures to underpin an important consolidation of the public finances in 2010, through a mix of expenditure restraint as well as steps to strengthen the tax system and finances of the pension system.”

“In the coming weeks, the authorities will work toward securing approval of an additional budgetary reform to accommodate part of the revenue shortfall in 2009 and on finalizing a draft 2010 budget, which will protect key social and infrastructure programs while rationalizing spending in non-priority areas. In addition, the authorities will continue consultations with key stakeholders on a comprehensive tax reform that would go into effect in 2010 aimed at widening the tax base and improving the efficiency of the system, while boosting revenues over the medium term. Additional revenues will be used to consolidate public finances and to address Nicaragua’s social and infrastructure needs,” Cubeddu added.

Providing progress in implementing the agreed commitments, an IMF Board meeting to consider and decide on completion of the second and third reviews under the PRGF arrangement will likely take place in late October, the IMF has disclosed. Completion of the reviews would allow disbursement of an amount equivalent to SDR28.3m (USD35m).

In an assessment of the effect of the financial and economic crisis on Nicaragua, the IMF noted that the country has been impacted negatively, as with the rest of the region. The IMF projects that real GDP will fall by about 1% in 2009, reflecting declines in exports, remittances and external financing.

Recommended