This Public Expenditure Review has twobroad objectives. The first is to analyze the pattern andevolution of public expenditures in Nicaragua with a viewtoward assessing their consistency with the prioritiesexpressed in the recent Poverty Reduction Strategy Paper(PRSP), as well as recommending ways to improve theirpoverty reducing impact. The PRSP puts heavy emphasis on thesocial sectors and the rural sectors: projects in thesesectors account for 80 percent of the total portfolio ofpoverty reducing projects. Accordingly, the sector reviewsin this report mainly focus on these two sectors plustransport, which has the single largest sector investmentprogram. Municipal finances are not covered for lack ofadequate information. The second objective of the PER is todiagnose Nicaragua's institutional capacity toimplement the poverty reduction programs to be defined inthe PRSP and recommend measures for raising that capacity.The Joint Staff Assessment of the Interim and full PRSPpoint toward the need to proioritize further the povertyreducing projects and programs envisaged by the government.Such a prioritization is likely to require a significantreallocation of public resources that could strain thelimited capacity of the public sector's planning andbudgeting framework. As part of this institutionaldiagnosis, the PER also evaluates the tracking mechanism tomonitor the use of HIPC funds, and recommends measures forstrengthening it.
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