The World Bank has agreed to forgive 80% of Nicaragua's debt to the institution under its highly-indebted poor countries scheme.
A spokesman for the World Bank said the board had agreed to the debt relief on Thursday, but the International Monetary Fund would also have to approve it as a matter of formality on Friday.
The World Bank also announced it would be offering Nicaragua a $75m loan to finance poverty reduction projects.
The Nicaraguan president, Enrique Bolanos, described the announcement as the best news for Nicaragua in the last 25 years.
Nicaragua's total foreign debt stands at around $6.5bn.
From the newsroom of the BBC World Service
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