NICARAGUA PRSC I

closed

of public resources devoted to poverty alleviation and the adoption of measures to limit the fiscal impact of reforms which have a potential for fiscal destabilization, including pension reform and fiscal transfers to municipalities. The series of PRSCs will support the following subject areas contained in the four pillars of the PRSP, with PRSC I emphasizing the first one : Building Public Institutions and Governance (Pillar IV), is a key factor in the reduction of corruption and the achievement of the necessary fiduciary safeguards for policy-based lending that would allow more poverty reducing assistance. The following key areas will be supported by the PRSC: civil service, public investment program and medium term expenditure framework, public sector financial management, public procurement, civic engagement, decentralization and poverty analysis. The PRSC will support the Government's efforts to promote better coordination and an effective use of resources, as well as a series of reforms in basic education, health, population, social protection and water and sanitation. I) The PRSC would also support improvements in the investment climate, competition policy, access to land and credit, agriculture and forestry, and access and quality of infrastructure. The proposed operation would contribute to Nicaragua's poverty reduction efforts by: (a) increasing the accountability, responsiveness and effectiveness of the state, (b) directly supporting the achievement of PRSP social goals and MDGs including targets for primary school completion, improved child health and nutrition, improved water coverage, and improved reproductive and maternal health care for women, (c) helping to maintain a stable macroeconomic framework, (d) improving the country's investment climate, better positioning the country to benefit from the Central American Free Trade Agreement (CAFTA) and regional economic integration initiatives and (e) fostering improved donor coordination--a key ingredient for increasing the efficiency of aid- by fostering sector-wide approaches and strengthening the Government's fiduciary processes as the basis for harmonized assistance from different external partners. Political divisions between the Executive and the Nicaraguan National Assembly constitute the biggest source of risk for the PRSC. A second source o f risks is related to fiscal instability associated with the passage of the Fiscal Transfers Law and with pension reform. The Credit will be disbursed in two tranches.