Report: 116484-NI Acknowledgments
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Nicaragua Public Disclosure Authorized Paving the way to faster growth and inclusion Systematic Country Diagnostic Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized June 18, 2017 Report: 116484-NI Acknowledgments We would like to thank the members of the Nicaragua Country Team from all Global Practices and the International Finance Corporation, partners and stakeholders in Nicaragua, who contributed to the preparation of this Systematic Country Diagnostic. We are grateful for their inputs, knowledge, and advice received in the preparation of this report. The team was led by Fernando Im (Senior Economist) and Leonardo Lucchetti (Economist), and included Germán Reyes (Research Analyst, Poverty), under the guidance of J. Humberto López (Country Director). Friederike (Fritzi) Koehler-Geib (Program Leader) worked closely with the team in preparing the final report. The following people also provided overall guidance: Frank Sader (Head, IFC), Luis Constantino (Country Manager), Oscar Calvo-Gonzalez (Practice Manager), Pablo Saavedra (Practice Manager), Maryanne Sharp (Country Operations Adviser), Christian Peter (Program Leader), Tania Dmytraczenko (Program Leader), Carlos Vegh (Chief Economist for LAC), Augusto de la Torre (former Chief Economist for LAC), Daniel Lederman (Lead Economist), Raúl Barrios (Senior Country Operations Officer), and Jovana Stojanovic (Operations Officer). Manuela Francisco (Practice Manager, former Program Leader) worked closely with the team on the preparation of document at the concept stage. The following team contributed inputs and participated in many meetings: Enrique Alasino (GED04), Pablo Acosta (GSP02), Mayra Del Carmen and Alfaro de Moran (GTCCA), Tuuli Bernardini (GEN04), Benedicte De La Briere (GCGDR), Ana Campos García (GSU10), Carolina Cardenas (CLAPA, IFC), David Casanova (GWA03), Juan Pablo Castaneda (GENGE), Raul Andres Castaneda (GPV04), Leyla Castillo (GFM04), Carolina Diaz-Bonilla (GPV04), Daniel Dulitzky (Practice Manager, GHN04), Koffi Ekouevi (GEE04), Augusto García (GFA04), Elena Gasol Ramos (GTCIE), Mariano Gonzalez (GEE04), Tanja Goodwin (GTC04), Amparo Elena Gordillo-Tobar (GHN04), Sara Hause Van Wie (GPV04), Migara Jayawardena (IEGSD), Alina Koenig (GGO16), Brenda Kuhn (CLAPA), Rita Kullberg Almeida (GED04), Alberto Leyton (GGO16), Lourdes Linares (GGO22), Augustin Maria (GSU11), Martha Martinez Licetti (GTCTC), Sevara Melibaeva (GTI01), Miriam Montenegro (GSP04), Juan Jose Miranda Montero (GENGE), Emma Monsalve Montiel (GSP07), Miriam Muller (GPV04), Ana Maria Munoz Boudet (GPV03), Zafer Mustafaoglu (Practice Manager, GFM04), Lizardo Narvaez Marulanda (GSU10), Ana Maria Oviedo (GPV04), Daniel Reyes (GTCIC), Enrique Roman (GGO22), Eliana Rubiano Matulevich (GCGDR), Zenia Salinas Vallecillo (GEN04), Klas Sander (GEN04), Hector Serrano (GWA03), Antonio Skarica (CCEDR, IFC), Rocio Sanchez Vigueras (GTI09), Liliana Sousa (GPV04), Ruth Tiffer-Sotomayor (GEN04), Ian Walker (GPSJB), and Laura Wendell Berman (GEE04). The team would also like to thank Ruth Eunice Flores (GPV04) and Desiree Gonzalez (LCC2C) for their support to the task. The team would like to thank peer reviewers Anna Fruttero (Senior Economist, GPVGE) and David Rosenblatt (Adviser, DECOS). ii Abbreviations and Acronyms ALBA Bolivarian Alliance for the Peoples of Our America (Alianza Bolivariana para los Pueblos de Nuestra América) BCN Central Bank of Nicaragua (Banco Central de Nicaragua) CCT Conditional Cash Transfer CEDLAS Center for Distributive, Labor and Social Studies, Universidad Nacional de la Plata CENAGRO National Agropecuarian Census (Censo Nacional Agropecuario) CIAT Inter-American Center of Tax Administration (Centro Inter-Americano de Administración tributaria) CSA Community Supported Agriculture ECLAC Economic Commission for Latin American and the Caribbean EMNV Living Standards Measurement Studies Survey (Encuesta Nacional de Hogares sobre Medición de Nivel de Vida) ENACAL Nicaraguan Water and Sewage Company (Empresa Nicaraguense de Acueductos y Alcantarillados) ESCO Energy Services Company FDI Foreign Direct Investment FISE Social investment Fund for Emergencies (Fondo de Inversión Social para Emergencias) FOMAV Road Maintenance Fund (Fondo de Mantenimiento Vial FSLN Frente Sandinista de Liberación Nacional FUNIDES Fundación Nicaragüense para el Desarrollo Económico y Social GDP Gross Domestic Product GHG GreenHouse Gas GIC Growth Incidence Curve HIPC Heavily Indebted Poor Countries IDA International Development Association IMF International Monetary Fund INATEC National Technology Institute (Instituto Nacional Tecnológico) INETER Nicaraguan Institute of Territorial Studies (Instituto Nicarguense De Estudios Territoriales) INIDE National Statistical Institute (Instituto Nacional de Información de Desarrollo INSS National Security Institute LAC Latin America and the Caribbean LSMS Living Standards Measurement Study MDRI Multilateral Debt Relief Initiative MINSA Ministry of Health (Ministerio de Salud de Nicaragua) MoF Ministry of Finance and Public Credit (Ministerio de Hacienda de Nicaragua) MPI Multidimensional Poverty Index MSME Micro, Small and Medium Enterprises NWRP National Water Resource Plan OECD Organization for economic Co-operation and Development PDVSA Petróleos de Venezuela, S.A PFM Public Finance Management PMR Product Market Regulation PMSAF Public Finance Management System Modernization Project (Proyecto de Modernización del Sistema de Administración Financiera del Sector Publico) PPP Public Private Partnerships REDD+ National Strategy for the Reduction of Deforestation and Forest Degradation (Estrategia Nacional para la Reducción de la Deforestación y Degradación Forestal) iii SCD Systematic Country Diagnostic SEDLAC Socio-Economic Database for Latin America and the Caribbean SIBOIF Financial Sector Superintendence Nicaragua (Superintendencia de Bancos y de Otras Instituciones Financieras) SME Small and Medium-Size Enterprise SPS Sanitary and Phytosanitary Standards TFA Trade Facilitation Agreement TFP Total Factor Productivity UNESCO United Nations Educational, Scientific and Cultural Organization US United States USD United States Dollar WEF World Economic Forum WDI World Development Indicators iv Table of Contents 1. OVERVIEW.................................................................................................................... 1 1.1. Where do we stand now and how did we get here? ................................................... 1 1.2. Factors behind the rebound ....................................................................................... 1 1.3. Making up for lost time: growth, inclusion& poverty in a model based on factor accumulation ..................................................................................................................... 2 1.4. What’s the way forward? ........................................................................................... 5 1.5. Risks: sustaining the gains achieved in poverty reduction and shared prosperity .... 7 1.6. Priority areas .............................................................................................................. 8 1.7. Knowledge gaps ........................................................................................................ 9 1.8. Structure of the report .............................................................................................. 10 2. POVERTY AND SHARED PROSPERITY ................................................................. 11 2.1. Poverty has declined in recent years ....................................................................... 11 2.2. Poverty remains high ............................................................................................... 22 2.3. Poverty is lower than in countries with similar incomes ......................................... 28 3. GROWTH ..................................................................................................................... 31 3.1. Introduction ............................................................................................................. 31 3.2. A historical perspective to understand where the country stands today .................. 33 3.3. Recent growth dynamics and analysis ..................................................................... 36 3.4. Potential sources of growth and its constraints ....................................................... 46 3.4.1. Enhancing the process of factor accumulation ..................................................... 47 3.4.2. Enhancing competitiveness in Nicaragua ............................................................. 56 4. EQUITY AND INCLUSION ........................................................................................ 67 4.1. Restricted and unequal access to basic opportunities and services ......................... 67 4.2. Limited and unequal access to and quality of education ......................................... 72 4.3. Health: many challenges still lie ahead ................................................................... 78 4.4. Limited redistributive impact of fiscal policy ......................................................... 79 4.5. Low returns to skills contributed to the low levels of income inequality ............... 83 5. SUSTAINABILITY ...................................................................................................... 88 5.1. Maintaining macroeconomic stability and prudent fiscal policies .........................