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Western Hemisphere > Nicaragua

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Cover IMF Working Papers
Long-term Effects of US Tariff Increases on CAPDR
Alexander Subramaniam Beames
In a series of declarations throughout 2025 and into 2026, the United States announced higher tariffs on nearly all imports from most countries. The countries that make up the CAPDR region (Costa Rica, Dominican Republic, Guatemala, Honduras, Nicaragua, Panama and El Salvador) are affected through sizeable direct trade linkages with the United States, and through indirect trade linkages with third countries. This paper explores the potential long-term economic effects of these tariff increases on CAPDR using a multi-region multi-industry model of the global economy. The modelling exercises suggest that CAPDR member countries will experience falls in real GDP to varying degrees, with the severity of the effect closely linked to direct export exposure to the United States. The most vulnerable industries are heavily trade-exposed manufactures, although exemptions – most importantly for textiles & apparel – may provide some scope for trade diversion to offset some of the GDP losses. Although ongoing legal challenges have introduced additional uncertainty regarding the ultimate extent of tariff changes, the results in this paper will remain broadly valid providing the tariffs remain in place.
Keywords:
International trade; Trade policy; Trade models; Input-Output analysis; Central America; IMF working papers; CAPDR region; CAPDR member country; tariff change; model of the global economy; vulnerable industry; Tariffs; Exports; Imports; Trade balance; Global
Cover IMF Working Papers
Systemic Banking Crises Database: 1970-2025
Luc Laeven
and
Fabian Valencia
This paper presents an updated version of the Laeven and Valencia (2013, 2020) database on systemic banking crises, extending the coverage through 2025. The update incorporates new episodes, while maintaining the definition established in previous editions, which emphasizes both significant signs of financial distress and substantial policy interventions. The update integrates textual tools to screen potential candidates that are then further scrutinized to confirm if our definition is met. The database includes information on banking crises episodes during 1970-2025, including starting dates, policy responses, fiscal costs, and output losses. It offers a comprehensive tool for assessing cross-country vulnerabilities and policies to resolve banking crises.
Keywords:
banking crisis; IMF working papers; crises outcome; banking crises database; views of the IMF; Banking crises; Systemic crises; Global financial crisis of 2008-2009; Commercial banks; Global; South America; Central America; Caribbean
Cover IMF Staff Country Reports
Nicaragua: 2025 Article IV Consultation-Press Release; and Staff Report
International Monetary Fund. Western Hemisphere Dept.
The 2025 Article IV Consultation discusses that the Nicaraguan economy weathered well multiple shocks since 2018, supported by appropriate macroeconomic and financial policies, substantial pre-2018, and financing from international financial institutions (IFIs) during the pandemic. Strong fundamentals—low inflation, a declining public debt-to-gross domestic product ratio, twin fiscal and external surpluses, well capitalized banks, and sizeable buffers—should help Nicaragua withstand headwinds from ongoing shifts in the global policy landscape. Risks are tilted to the downside in the medium term, including from natural disasters, commodity price volatility, weaker global growth, tighter US immigration and trade policies, and stricter and wider international sanctions. Continued prudent fiscal, monetary, and financial policies will help maintain macroeconomic and financial stability, preserve fiscal sustainability, and strengthen policy buffers. For higher medium-term growth and further progress on poverty reduction, it is crucial to increase public investment, human capital accumulation, and targeted social spending; support the integration of returning migrants in the labor market; and diversify exports, while strengthening frameworks, the business climate, and significantly improving the rule of law.
Keywords:
exchange rate arrangement; central bank; Imf executive board; foreign exchange operation; fund holding; SDR million; Public and publicly-guaranteed external debt; Public sector; Global; Central America
Cover IMF Working Papers
How Do Remittances Affect the Real Exchange Rate? An Empirical Investigation
Alina Carare
,
Juan P Celis
,
Metodij Hadzi-Vaskov
, and
Yasumasa Morito
Growing remittance flows to emerging and developing economies may lead to real exchange rate appreciation and weaken their competitiveness. While the empirical literature finds mixed results about the relevance of this relationship, it does not delve into understanding the interplay of two crucial elements for policymakers—the exchange rate regime and the structure of the economy. Filling this gap in the literature, our paper examines how exchange rate regimes and the structure of the economy affect the impact of remittance flows on the real effective exchange rate (REER). Using data from a large sample of economies over 2008-21, we arrive at three key findings. First, REER overvaluation correlates positively with remittance flows under flexible exchange rate regimes. Once controlling for potential endogeneity in a dynamic panel and other variables determining exchange rate behavior, we find that countries with fixed exchange rate regimes also experience appreciation, albeit smaller and slower relative to countries under flexible regimes. Second, we find relatively larger REER appreciation effects for countries that have import-to-GDP ratios lower than the world median, and countries with remittances-to-GDP ratios higher than the world median. Third, for countries that receive relatively high remittances and import relatively less, the REER appreciates after a remittance shock, regardless of the exchange rate regime. The results are robust to alternative classifications, data sources, specifications and sample size.
Keywords:
Remittance; Real Exchange Rates; Dutch disease; REER overvaluation; remittance flow; REER undervaluation; remittance receiver; Annex i.; Exchange rate arrangements; Real effective exchange rates; Remittances; Conventional peg; Exchange rate flexibility; Global; Caribbean
Cover IMF Staff Country Reports
Nicaragua: 2024 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Nicaragua
International Monetary Fund. Western Hemisphere Dept.
The 2024 Article IV Consultation discusses that Nicaragua’s economic performance remains robust, underpinned by prudent macroeconomic policies and very strong remittance flows. The economy remains open and resilient, after confronting multiple large shocks, and on a backdrop of transfers of private property to the state, international sanctions, and reorientation of official financing. Going forward, domestic and international political developments may impact economic performance, by potentially increasing the cost of doing business and impacting other cross-border flows. Fiscal and current account surpluses are expected to narrow, due to authorities’ plans to increase public investment, and the increase in imports supporting the private consumption-led growth. Risks to the outlook are broadly balanced in the short-term and on the downside in the medium term. Continued prudent fiscal, monetary, and financial policies will help maintain macroeconomic and financial stability, preserve fiscal sustainability, strengthen policy buffers, and support medium-term inclusive growth. Policy coordination remains crucial, alongside key reforms, including reforming the pension system, strengthening the monetary policy transmission mechanism, enhancing financial deepening, and supporting human and physical capital accumulation.
Keywords:
update safeguard assessment; transmission mechanism; Policy coordination; safeguards recommendation; tax audit procedure; exports threshold; authority of the BCN; headline inflation; Public sector; Financial sector stability; Global; Central America; Caribbean
Cover IMF Staff Country Reports
Nicaragua: 2023 Article IV Consultation-Press Release; and Staff Report
International Monetary Fund. Western Hemisphere Dept.
The 2023 Article IV Consultation highlights that Nicaragua’s economy has remained resilient in the face of multiple shocks, supported by appropriate economic policies, substantial buffers, and multilateral support. The external and fiscal positions are assessed to be sustainable under the baseline scenario, given the current policy mix and financing plans. In 2024 and the medium-term real Gross domestic Product (GDP) growth is expected to converge to potential sustained by domestic demand and remittances. Risks to this outlook include on the upside higher than projected real GDP growth due to sustained recovery in the domestic demand and remittances, especially in the near term, and on the downside a deterioration in the terms of trade, a more severe global downturn than currently incorporated into the baseline scenario, natural disasters, and stricter international sanctions. The report suggests investing in human capital and infrastructure; implementing policies to raise labor force participation and enhance the business environment by strengthening government institutions and frameworks in the areas of contract enforcement, protecting property rights, and resolving insolvencies.
Keywords:
government institution; government deposit; exports threshold; authorities' effort; financial asset; burden indicator; central bank; Public sector; Government finance statistics; Foreign direct investment; Global; Central America
Cover IMF Staff Country Reports
Costa Rica: Selected Issues
International Monetary Fund. Western Hemisphere Dept.
This Selected Issues paper focuses on the neutral interest rate in Costa Rica. Estimates of Costa Rica’s real natural rate of interest are between 0 and 3 percent, with a suite of semistructural and univariate methods reaffirming this conclusion at close to 1 percent. This toolkit of multiple differing methods accounts for characteristics of the Costa Rican economy and suggests current monetary policy remains restrictive. Univariate estimates for Costa Rica are between those for the United States and largest regional peers. Structural changes to the Costa Rican economy, particularly in recent years, have important implications for the movement in the neutral rate. A suite of univariate methods also reaffirms this conclusion and suggests current monetary policy remains restrictive. Estimates for Costa Rica are between the United States and largest regional peers. Replicating the univariate approach for the United States and other countries in Latin America suggests Costa Rica has a somewhat lower neutral real interest rate than the largest regional peers, Brazil and Mexico, which currently appear to have neutral rates above 2 percent but above the United States.
Keywords:
labor market characteristic; refugees in Costa rica; estimation uncertainty; neutral real interest rate; card payment fee; Real interest rates; Migration; Labor markets; Social assistance spending; Caribbean
Cover IMF Working Papers
How to Mitigate the Impact of Economic Downturns on Labor Markets: Evidence from Nicaragua
Ms. Sandra Marcelino
and
Mariana Sans
This paper studies the drivers of the labor market performance in Nicaragua with a particular focus on informality, to identify vulnerable groups during economic downturns; and estimates the speed of adjustment of employment to shocks. The paper compares this experience with the ones in other CAPDR countries (Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, and Panama). Our findings are that while the high countercyclical informality in Nicaragua has been the active margin of adjustment during economic downturns mitigating unemployment, the trade-off has been a lower speed of adjustment to shocks hampering the country’s ability to revert to its potential. Policy recommendations relate to mitigating the impact of downturns on employment in Nicaragua, easing adjustments and inequalities in the labor market to hasten the employment recovery and thus, support growth.
Keywords:
labor market indicator; informality responsiveness; indicators in Nicaragua; labor market performance; employment recovery; Labor markets; Labor force participation; Employment; Unemployment; Unemployment rate; Global; Western Hemisphere; Caribbean
Cover IMF Staff Country Reports
Nicaragua: 2022 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Nicaragua
International Monetary Fund. Western Hemisphere Dept.
This 2022 Article IV Consultation highlights that prudent macroeconomic policies, substantial pre-crisis buffers and official external financial assistance helped Nicaragua’s economy rebound from a protracted contraction during 2018–2020, caused by the socio-political crisis of 2018, two major hurricanes in 2020, and the pandemic. Real gross domestic product (GDP) growth is expected to moderate to 3 percent in 2023, due mainly to the global slowdown. Inflation—which reached 11.4 percent in November 2022, primarily due to import price increases—is projected to decline in 2023 in line with lower growth and an expected significant decline in global inflation. In the medium term, real GDP is expected to grow by about 3 1/2 percent, below the pre-crisis historical average, as credit to the private sector and private investment cautiously recover. The favorable outlook is subject to uncertainty and risks on the downside, primarily due to external developments, natural disasters, or deterioration in the business climate and stricter international sanctions.
Keywords:
implementation capacity; inflation expectation; IMF team; article IV consultation swith Nicaragua; authorities' measure; Medium-term real GDP growth; Public sector; Government finance statistics; Debt sustainability analysis; Global; Central America
Cover IMF Staff Country Reports
Nicaragua: Requests for Purchase under the Rapid Financing Instrument and Disbursement under the Rapid Credit Facility-Press Release; Staff Report; and Statement by the Executive Director for Nicaragua
International Monetary Fund. Western Hemisphere Dept.
Nicaragua faces an acute crisis as the COVID-19 shock comes on top of a two- year recession. So far, the speed of transmission of the pandemic in Nicaragua, in terms of officially confirmed cases, has been slower than in neighboring countries, but this may understate the true spread of the disease. The pandemic is expected to produce the third year of consecutive recession and lead to large fiscal and external financing needs given the impact of voluntary distancing and regional and global spillovers. The very limited fiscal space, eroded by the ongoing recession and the limited external financing, constrains the authorities’ ability to self-finance the emergency response.
Keywords:
ISCR; CR; RFI financing; pandemic shock; public health expenditure; RCF-RFI disbursement; health response; mitigation measure; RCF-RFI resource; COVID-19; Currencies; Public sector; Credit; Global