Facilitating International Bond Market Access in Nicaragua
Challenge
Nicaragua is one of the least developed countries in Central America and the second poorest country in the Americas by nominal GDP. The small country's economy is focused primarily on the agricultural sector. In recent years, the economy has been on a solid growth track, following significant foreign debt reductions under the IMF/World Bank Heavily Indebted Poor Countries (HIPC) initiative during 2006-07.
On the back of an improved external debt position and stronger macroeconomic performance, and given the low global interest rate environment and relatively undeveloped domestic capital markets, Nicaragua, like many countries in a similar position, began exploring international capital markets for prospective funding for its own development priorities.
Approach
The Nicaraguan authorities tapped into the IMF’s repository of experience and expertise to help assess the possibility of issuing a bond on international capital markets, and what steps should be taken prior to issuance. The team discussed the merits to issuing international bonds, while recognizing the importance of carefully evaluating overall funding needs, the cost associated with the issuance, and possible funding alternatives, including from the domestic market. A number of operational and technical prerequisites also have to be met—including related to financial reporting and being rated by a major credit rating agency—to make the debt issuance a success. After analyzing the pros and cons, the Nicaraguan authorities agreed to do further preparatory work prior to issuing the international bond, including putting together a strategy for engaging with rating agencies.
Impact
As a result of collaboration with the IMF, the authorities acquired a better understanding on a number of strategic and operational issues to be considered before a first-time bond issuance in the international markets. The IMF continues to collaborate with the authorities to help make a potential debt international bond issuance a success, while at the same time helping to further develop local debt markets and improve the authorities' overall debt management capabilities.