RE: Moving forward4 Oct 2018 18:06
Ten minutes reading is all it takes
This from MOODY's recent downgrade
Over the past decade, Nicaragua's consensus-building policymaking model bringing together government, business, labor and other key institutions in a cooperative framework emerged as an important supportive feature of the country's credit profile, providing macroeconomic policy predictability. The presence of a prudent and predictable policy framework with strong support from the private sector has contributed positively to economic growth, a condition that made Nicaragua attractive to investment in general, and foreign direct investment in particular, relative to some other Central American countries. Moody's decision to assign a positive outlook last year reflected the longer-term economic and fiscal benefits likely to be derived from the strengthening institutional framework.
Recently, however, social protests triggered by a pension reform unilaterally introduced by the government in April -- which was subsequently reversed -- have significantly weakened this consensus-building institutional setting. Attempts to maintain a national dialogue have proven unsuccessful and increased tensions between the government and all other sectors of society are evident. So far, there is no indication that a constructive dialogue will emerge as the positions of various social groups have become more polarized. While a resolution of this political and social unrest could surface in the coming months, it is becoming increasingly likely that the country's consensus-building model has been permanently weakened, reducing the effectiveness and predictability of policy.
In short, as well as potentially undermining the longer-term strength of Nicaragua's institutions, the recent political turmoil also suggests that the fiscal and debt trajectory in the coming years is unlikely to be as credit supportive as Moody's had assumed last July when the positive outlook was assigned.
Given the still uncertain outcome of the political crisis, negative rating pressures could emerge, potentially quite quickly, if the ongoing social unrest and political tensions were to intensify or persist beyond this year and undermine growth, public finances and/or access to financial support from multilateral institutions, which together account for the bulk of the country's sources of financing. Additionally, as oil prices have risen and Nicaragua still relies on oil imports -- albeit to a lesser extent than in previous years -- and Venezuelan flows have materially decreased over the past few years, a significant reduction in external financing from other sources, including foreign direct investment, would add significant external funding pressures.
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