Public Infastructure projects in Nicaragua

Rodrigo Ibarra, partner, and Kevin Humberto Castro, associate attorney at ARIAS, Nicaragua  

Public infrastructure projects can be defined as the activity or set of activities whose function is to improve the provision of services in the medium and long term; and due to their level of importance, according to the Political Constitution of the Republic of Nicaragua , the State must guarantee national and foreign investment, so that they contribute to the economic and social development of the country, as well as the legal framework to promote public-private projects that facilitate said investments, necessary for the improvement and development of infrastructure, especially energy, ports, roads and hospitals.

Through Law No. 477 “General Law on Public Debt” (the “General Law on Public Debt”) and Executive Decree No. 2-2004 “Regulations of Law No. 477, General Law on Public Debt” (the “Regulations”), as consolidated through the Nicaraguan Legal Digest of the Subject Financial Administration System , published in La Gaceta, Official Gazette No. 190, of October 19, 2023, the public indebtedness process of Public Sector entities is regulated, under the premise of ensuring that the State’s financial needs and its payment obligations are met at the lowest possible cost, consistent with the adoption of a prudent degree of risk, and ensuring the country’s payment capacity in accordance with the behavior of the relevant macroeconomic variables.

The development of public infrastructure can be financed through Internal Public Debt, when contracted with resident individuals or legal entities; or External Public Debt, when contracted with non-resident individuals or legal entities.

In general, when large-scale projects are developed (which are commonly known as megaprojects ), Public Sector entities can obtain external sources of financing in the medium and long term, so the General Law of Public Debt and its Regulations regulate the approvals or authorizations necessary to be able to carry out such contracts:

• Authorization from the Ministry of Finance and Public Credit (MHCP) for the contracting of public debt.
• Presidential Agreement of the President of the Republic authorizing the signing of the Loan Agreement.
• Decree of Approval of the National Assembly for the signing of the Loan Agreement when the External Public Debt must be contracted by the MHCP, and publish it in La Gaceta, Official Journal.
• Technical opinion issued by the Central Bank of Nicaragua (BCN), in case the MHCP requires it to assess the degree of concessionality of the new debt, among others.
• Legal opinion of the Attorney General’s Office (PGR), once the External Public Debt has been acquired.

For these public debt creation operations, the corresponding Public Sector entities take into consideration the Annual Public Debt Policy that is formulated and published annually (the “Policy”), which is an integral part of the Annual General Budget Law of the Republic through which the annual State budget is approved. This Policy determines (i) the minimum acceptable degree of concessionality of external loans to be contracted; (ii) the maximum limits of net indebtedness of each institution based on its payment capacity; (iii) the prioritization of public credit operations; and (iv) the maximum amount of Contingent Liabilities (defined as endorsements, sureties, guarantees or any other obligation that derives from the State’s support for obligations contracted by public sector institutions, including decentralized government entities, State banks and financial institutions, State business entities, municipal mayors’ offices and other State Powers) that may be subscribed by institutions authorized by the General Public Debt Law.

In this regard, Presidential Decree No. 09-A-2024 of “Guidelines of the Annual Public Debt Policy 2025” , published in La Gaceta, Official Gazette No. 144, dated August 7, 2024, compiles these determination requirements as follows:

• Sustainability and concessionality of public debt: Public debt will continue to be within the indicative thresholds of medium- and long-term public debt sustainability in accordance with the Debt Sustainability Framework for Low-Income Countries, using the methodology of the World Bank and the International Monetary Fund (which is summarized in balancing the State’s financing needs and ensuring that these coincide with its current and future repayment capacity).
• Maximum contracting limits: The following maximum contracting limits are included (expressed in millions of United States Dollars), which may be modified if necessary:

• Maximum limits on net indebtedness: The maximum limits on external and internal net indebtedness are included (expressed in millions of United States dollars):

Rodrigo Ibarra

Kevin Humberto Castro