Development Progress| Challenges Ahead | World Bank Assistance | Project Achievements| Contacts
DEVELOPMENT PROGRESS In their recent history, the Nicaraguan people have withstood a series of devastating disasters. During the fifties and sixties, Nicaragua had one of the fastest growing economies in the region, but lived under a dictatorship. Years of political conflict, natural disasters and a civil war (which resulted in the loss of more than 50,000 lives) together with unfavorable economic conditions and corruption transformed this nation of five million inhabitants: by the early nineties Nicaragua had become the country with the slowest economic growth in the region and one of the most indebted and economically unstable in the world. Half of the population lived in poverty, with a fifth in extreme poverty. During the first half of the nineties, Nicaragua rapidly became a market economy, dropping its trade barriers, reducing the size of its public sector and modernizing the government. A larger proportion of public spending was geared to the poor. The education and health sectors were reformed and the extreme poverty quickly shrank. Nonetheless, following the devastation of Hurricane Mitch in October 1998, the government was overwhelmed by the short-term emergency needs of its population and lost its long-term development focus. When the flow of emergency aid began to abate, the government did not succeed in reducing its spending and the budgetary deficit got out of control. Nicaragua abandoned its program with the International Monetary Fund (IMF) and by 2002 economic growth had fallen to under 1%. Hurricane Mitch destroyed the achievements of Nicaragua’s return to a market economy. Upon taking the reins of government in 2002, the administration of President Enrique Bolaños focused on establishing fiscal discipline and attacking corruption. Its efforts bore fruit when Nicaragua became the tenth country in the world to fulfill the conditions for debt alleviation under the highly indebted poor countries (HIPC) initiative. (To date, only 20 countries in the entire world have reached the HIPC fulfillment point). In early 2004, more than US$3 billion of its public debt was pardoned, investors returned and economic growth reached 5.1% in the same year. There has been progress in Nicaragua’s economic performance since 2001. The economy has continued to grow moderately (an annual average of 3.2%), with low inflation (averaging 7.6%) and high levels of international reserves. Exports have doubled (close to US$2 billion, including the maquila—assembly plants for re-export—with value added) and the public debt dropped from 200% of the Gross Domestic Product (GDP) to an expected 55% by the end of 2007. In addition, there was an important fiscal consolidation with the reduction of the deficit of 6% of the GDP in 2001 to a modest surplus in 2006. The financial sector stabilized following the crisis of 2000-2001. Nonetheless, the poverty levels in Nicaragua have not improved much. They dropped slightly between 1993 and 2005, with a reduction in total poverty between 1993 and 2001, but the current poverty rate of 46% is similar to 2001 levels. The progress in the rural areas has been more substantial, with a reduction of poverty from 76% to 69% between 1993 and 1998. Despite the limited overall reduction of poverty, there has been a significant decline in extreme poverty, from 19% in 1993 to 17% in 1998 and 15% in 2005. Nicaragua, however, can only expect to advance in reducing poverty with significantly faster economic growth. The administration of President Daniel Ortega, who came to power in January 2007, has expressed its interest in maintaining the continuity and has recognized the need to review policies regarding some key themes that have an impact on the poorest population, above all social ones. The administration is particularly interested in efforts to improve the country’s economic growth performance, at the same time reducing poverty and sharing the economic achievements more widely. back to top
CHALLENGES AHEAD Nicaragua is the second poorest country in Latin America after Haiti. Although the economic achievements have reduced the scale and severity of poverty, it is still high, as 46% of the population lives below the poverty line. To achieve the Millennium Development Goals (MDG), it will be necessary to accelerate the rate of advance. Nicaragua’s main challenges are grouped into five areas: Maintain macroeconomic stability Seek public sector efficiency Construct a competitive investments climate Maximize its human potential Expand economic opportunities for the poor, particularly in rural areas.
The long-term development vision and poverty reduction strategy are summarized in the 2005-2009 National Development Plan (PND) for Nicaragua, which gives greater importance to economic growth than the strategic document preceding it. The PND focuses on five strategic themes: (i) generation of economic growth and employment to reduce poverty, (ii) development of human capital and social protection, (iii) development of the productive and social public infrastructure, (iv) governance and reform of the state, and (v) macroeconomic stability. The main objective of the Ortega administration (January 2007) is the creation of wealth and reduction of poverty through widely shared economic growth. It also includes a commitment to solid macroeconomic and fiscal policies, a healthy investment climate with growth led by the private sector as a means to create national wealth and reduce poverty, better harmonization of the aid and less dispersion of projects, expanded economic relations with new partners, reactivation of rural production, development of small and medium businesses (PYMEs) to create jobs, and directed social programs as key elements of the development of Nicaragua’s poverty reduction strategy. The Ortega administration is currently bringing the PND up to date, renaming it the Socioeconomic Development Plan, and expects to conduct consultations in early 2008. These priorities are aligned with the MDGs, and some, like poverty reduction, neonatal and infant mortality, and access to sanitation seem to be on the way to attaining the goals in 2015. There are, however, still major challenges ahead in net primary school enrollment, maternal mortality, chronic malnutrition, access to water and illiteracy, but the new administration has declared its intent to focus on these problems to assure that they are also met. back to top
WORLD BANK ASSISTANCE TO NICARAGUA
International Promotion Association (AIF) The AIF is one of the major sources of assistance for the 81 poorest countries in the world, among them Nicaragua. It is the main provider of donors’ funds for basic social services. The AIF loans money (“credits”) in concessionary conditions. This implies that the credits from AIF do not carry interest charges and that its reimbursement period extends to between 35 and 40 years, including a 10 year grace period. Since July 1, 2002, the World Bank in Nicaragua has disbursed US$468.01 million in AIF credit operations. The current loan portfolio includes 11 projects totaling US$239.3 million The World Bank’s Assistance Strategy, approved on October 11, 2007, projects the delivery of up to US$240 million to Nicaragua over a five-year period (2007-2012).
International Financial Corporation (IFC) The International Financial Corporation (IFC) is the affiliated institution concerned with the private sector. In the past five years, the IFC has invested in 5 projects with a total value of US$48 million, of which US$41.79 million has been disbursed as of April 30, 2007. From the investment point of view, it seeks to strengthen the financial sector and infrastructure, and in the sphere of technical assistance, to improve the environment for commercial capacity-building.
As regards strengthening of the capacity of small and medium businesses (PYME), the IFC, in alliance with the World Wildlife Fund (WWF), is helping strengthen the lumber sector’s competitiveness with a project linked to improving competitiveness by providing support to local PYMEs of wood products and producers of board feet lumber from the community. The IFC has increased its support to improving the business promotion environment with the Bank’s competitiveness program in association with the local Chamber of Commerce (CACONIC) and Association of Municipal Governments (AMUNIC). The IFC is implementing a project that simplifies administrative procedures for granting licenses to new companies. This process finished in December 2006 in the municipal governments of León, Masaya and Granada and in July 2007 in the municipality of Managua and it is hoped that the simplification of procedures will finish soon in the municipal governments of Matagalpa, Chinandega, Rivas and San Juan del Sur. Multilateral Investment Guarantees Agency (MIGA) The Multilateral Investment Guarantee Agency (MIGA) is the institution that promotes foreign direct investment through the services of political risk insurance, technical assistance and mediation. The MIGA has four projects in Nicaragua for a total of US$105 million, equivalent to 1.96% of its total portfolio. The net MIGA presence through reinsurance is US$54 million or 1.63% of its total portfolio. The agency is focused principally on two energy sector projects (97%). With respect to technical assistance, the MIGA has provided significant support to Pro-Nicaragua over the past four years. Pro-Nicaragua is a national investment promotion agency and has been a model in the region. Thanks to the positive environment created with the reforms in the nineties, Pro-Nicaragua generated approximately US$150 million in new direct investment with approximately 12,000 direct jobs in the 2003-2005 period. back to top
PROJECT ACHIEVEMENTS The Land Administration Project contributes to the long-term development of the Property Organizing Project (PRODEP) improving land tenure security, stimulating investment in agriculture, and increasing productivity and income; it contributes to social justice by concentrating on the most vulnerable groups (small farmers and indigenous peoples), promotes the long-lasting use of natural resources and increased income collection at the municipal level as a means for promoting decentralized service provision. It is a five-year project that will end in December 2007. The objective of the Technical Assistance Project for Public Sector Reform is to strengthen the public sector’s capacity to develop and implement policies that permit improved effectiveness, efficiency and transparency in the use of public resources and their impact in the implementation of the Poverty Reduction Support Credit (PRSC). It supports Government efforts to control corruption and promote governance and institutional development. It ends in June 2008. The Third Basic Education Project aids the Government of Nicaragua in implementing its National Education Program, including its Education for All (EFA) goals. Its objectives are to increase preschool, primary and secondary student enrollment, improve attention to the quality and relevance of the educational program, improve the systems of governance and responsibility and harmonize assistance by the different donor groups within the education sector. It is a four-year project and is planned for closure in June 2008. The main objective of the Rural Electrification Project for Development Outside of the Central Grid is to support the Government in providing sustainable electricity services and other social and economic benefits associated with these services in selected rural areas in Nicaragua, as well as to strengthen the Government’s institutional capacity to execute its rural electrification strategy. It is a five-year project and is scheduled to conclude in December 2009. The Financial Services Access Project seeks to improve access to and equity of financial services for small and micro businesses and low-income households as well as reducing the transaction costs for these services. It focuses on three areas directly related to sustainable financial services provided by financing institutions: the legal and regulatory framework and the issue of micro-finance and micro-credit supervision; the restructuring and strengthening of the Nicaraguan Investment Financier (FNI); and the fostering of an incentive system to increase coverage by private financing institutions (including NGOs, banks, finance companies and cooperatives) of markets that do not have sufficient access to these services. It is planned for closure in December 2008. Poverty Reduction Support Credit II. This is the second credit of a series of operations to support the implementation of the Poverty Reduction Strategy (PND). PND (PRSP II) is based on five pillars: Economic Growth for poverty reduction, (ii) Development of human capital and social protection, (iii) Productivity and public social infrastructure, (iv) Reform of the State and governance, and (v) Macroeconomic stability. Poverty Reduction Support Credit II (PRSC II) also identifies, in concordance with the Nicaraguan authorities, a series of Poverty Reduction Support Credits (PRSC) starting in fiscal year 2008. The PRSCs II are designed as operations of US$25 million available for disbursement. It finishes on June 30, 2007. Modernization and Expansion of Health Services II. APL: The objective is to improve health care results in Nicaragua, particularly among the poor, by increasing the effectiveness, efficiency, equity and sustainability of Nicaragua’s health system. The goals will be achieved with the implementation of three strategic objectives in a five-year plan: (i) Expansion and coverage of a basic nutrition and health services package to the poorest areas of the country through the integrated Health mode; (ii) Institutional and fiscal strengthening of the health network focused on maternal-infant care; and (iii) Strengthening of institutional capacity, concentrating basically on the Health Ministry’s development for purchasing, monitoring and evaluating. The total amount is US$11 million and it ends on November 30, 2009. Agricultural Technology II—within the sector-wide program of governments. The credit will support two specific objectives: (i) Strengthening of the Government’s technical and inter-institutional capacity to coordinate the Sector Wide Approach (SWAp) for the Agriculture and Forestry sector with a Medium-Term Expenditure Framework (MTEF) approach to protection, monitoring and evaluation policies, as well as fiduciary mechanisms for the 2005-2006 period. (ii) Support to a strategic part of the first two years of the Government’s MTEFs by promoting an improvement in innovative agricultural and forestry technology to small producers. The total project amount is US$12 million and it finishes on March 31, 2010. Rural Telecommunications of Nicaragua: The objective of this project is to increase access to and reduce the costs of telecommunications services in the rural areas of Nicaragua. The performance indicators are: i) Increased minutes of telephone use, ii) Increased use of Internet service hours, iii) Reduction of the average distances rural inhabitants must travel to the closest telephone, iv) Reduction of the price of international calls due to increased competition. The total amount is US$7 million, to finalize on June 30, 2011. Transport IV: The specific objectives are support to economic growth by: i) Expanding and completing the previous highway focus by improving the connectivity system of secondary and rural highways that would increase economic activities in a given productive sector.; (ii) Improving the sustainability of highway improvement through the strengthening of maintenance practices and iii) Improvement of the institutional capacity of the Ministry of Transport and Infrastructure (MTI) and Road Maintenance Fund (FOMAV). The credit is US$60 million and finalizes on December 31, 2011. Competitiveness II: The objective of the project’s development is to strengthen the competitiveness in international markets of firms in Nicaragua by improving the business climate, financial sector system, certification of providers and quality of services to increase the productivity level. The main groups to which it is directed are small and medium businesses. The total project amount is US $17 million and it is planned to end on December 31, 2011. Precious Wood Project: This project supports the generation of 297,045 tons of CO2e emissions reduction by 2017 through the reforestation of 600 hectares of private lands degraded by agriculture in southern Nicaragua and the conservation of approximately 350 hectares of secondary forests. This project also creates a sustainable chain of high-value lumber for national and international markets, reducing the pressure on the natural forests. The total credit amount is US$8.37 million and it will end in March 2018. back to top
CONTACTS
For more information, please contact:
Maria Teresa Norori
Public Information Analyst
E-mail: mnorori@worldbank.org
Phone: (505) 265-0500 ext. 436
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For more information on World Bank assistance to Nicaragua, including lending breakdown and project reports, see: Proposed Projects
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