Nicaragua will strengthen its fiscal management, improve tax collection and increase the quality, transparency and efficiency of spending on poverty with the third and final loan totaling $42.5 million approved by the Inter-American Development Bank (IDB) to support policy reforms.

Nicaragua's government expects this project will contribute to improve the macroeconomic environment, accelerate economic growth and reduce poverty rates. With this third loan, the IDB has provided a total of $103 million since December 2008 on budget support Nicaragua’s tax system reform.

This project will finance several activities including the maintenance of a stable macroeconomic framework for renewed growth, with single-digit inflation and reduced fiscal deficit. The project will help improve tax and customs administration by modernizing legislation; implementing control tools and processes, improving collection and lowering transaction costs.

The efficiency of government spending will improve with the expansion of the Medium-Term Expenditure Framework and the implementation of a national system to improve the quality of public investment. The project will also implement an electronic system for government procurement, which will boost transparency in the management of government resources as well as improve the coverage of the country’s national audit and administrative contracting systems.

Finally, the program is expected to improve the coverage, quality and targeting of poverty reduction expenditures in order to ensure they reach the poorest and most vulnerable population groups.

The program will enable Nicaragua to improve the quality of spending on poverty reduction and increase poverty alleviation spending from 12.3 percent of gross domestic product in 2007 to 13 percent in 2011.

In addition, the project will enable the Internal Revenue Service to increase the number of new taxpayers registered in the single taxpayer system by 30 percent. Also, the Customs Administration expects to speed up the clearance process by 35 percent, after the implementation of risk management module in 12 customs administrations in the country.

The IDB financing includes a loan of $21.25 million with a 30-year maturity, a grace period of 5.5 years at a fixed interest rate. The remaining $21.25 million will be comprised of another loan from the Fund for Special Operations, with a term and grace period of 40 years and an annual interest rate of 0.25 percent.