Estudios Económicos
Nicaragua

Nicaragua

Population 6.5 million
GDP 1,920 US$
D
Country risk assessment
C
Business Climate
Change country
Compare countries
You've already selected this country.
0 country seleccionado
Clear all
Add a country
Add a country
Add a country
Add a country
Compare

Synthesis

MAJOR MACRO ECONOMIC INDICATORS

  2018 2019 2020 (e) 2021 (f)
GDP growth (%) -4.0 -3.9 -4.5 0.5
Inflation (yearly average, %) 4.9 5.4 4.4 4.0
Budget balance (% GDP) -3.0 -0.5 -4.3 -3.0
Current account balance (% GDP) -1.9 6.0 10.0 6.0
Public debt (% GDP)* 37.6 42.1 48.3 50.3

(e): Estimate (f): Forecast *Including only Central Government, which also covers Social Security

STRENGTHS

  • Mineral (gold) and agricultural (coffee, sugar, meat) resources
  • Membership of the Central America/U.S. and Central America/EU free trade areas
  • Large flows of expatriate remittances

WEAKNESSES

  • High vulnerability to natural disasters
  • Inadequate health, education and persistence of poverty
  • Insufficient infrastructure (energy, transport)
  • Institutional shortcomings: concentration of power in the executive and Sandinista party, corruption
  • Highly dollarized economy

RISK ASSESSMENT

End of recession but no rebound

Nicaragua is expected to avoid a fourth successive year of negative growth in 2021, without benefiting from a rebound in activity. The political crisis, still unresolved since its outbreak in the spring of 2018, the U.S. sanctions imposed to put an end to the repression of opponents, the weak dynamism of demand in the United States and climate conditions are all factors that will weigh on the country's activity. In 2020, Nicaragua was one of the few countries in the world not to impose lockdown measures to counter the spread of COVID-19. Domestic demand has therefore been less affected than elsewhere, but the progress of the pandemic is still very uncertain, while public confidence in the information produced by the government on its spread is low. This uncertainty, coupled with the political crisis, is expected to prevent a real recovery in household consumption, which accounted for 72% of GDP in 2019. Nevertheless, the relatively dynamic flows of expatriate remittances will support this sluggish demand. The catch-up effect observed on these flows in the second half of 2020, together with the reopening of the economy in the United States, is expected to fade away in 2021. Unemployment among the Latino population in the United States, the main source of these flows, is slower than for the rest of the population. Public demand will continue to be constrained by a lack of financing due to U.S. sanctions, which limit access to most multilateral lenders (IMF, World Bank, Inter-American Development Bank). In addition, investment will remain limited because of these same U.S. sanctions and the climate of political uncertainty. Finally, external demand will remain constrained, while the main partners (United States, Europe, Costa Rica) will only experience a moderate recovery. On the supply side, the agricultural sector is expected to suffer from the repercussions of the two hurricanes, Eta and Iota, which hit the country in November 2020, the economic cost of which represents 6% of GDP according to initial estimates. The flooding of agricultural land, but also the destruction of roads, is expected to limit the volume of coffee production in the 2020-2021 season (September-August), as well as sugar production. The manufacturing industry, especially in the free zones (electronic components, clothing), will be affected by the weak recovery in U.S. consumption and will compete with production from other countries, especially Vietnam for clothing. Mining production will be buoyed by a high gold price, boosting the results of the country's main gold companies.

 

Public accounts under sanctions but a comfortable external position

The 2021 budget planned by the government takes note of poor access to external sources of financing, providing for a limited amount of expenditure, 98.9% of which should be financed by tax revenues, assuming a 6.5% increase in these revenues compared to 2020. Although the 2019 tax reform has led to a significant increase in tax revenues (+8% in 2019), the absence of a rebound in activity in 2021 is expected to make it difficult to achieve this objective in the absence of a further reform. The deficit is therefore expected to be higher than that envisaged by the government. Financing needs are expected to be met by obtaining loans from the Central American Bank for Economic Integration, which is not affected by U.S. sanctions (a loan of USD 300 million obtained in December 2020). From the point of view of the external accounts, the deficit in the balance of goods, although still reduced compared to its pre-crisis level, is expected to increase in 2021. The expected resumption of imports, linked to the stabilisation of the economy, will only partially offset the sharp contraction in imports in 2020 due to the fall in domestic demand and the fall in oil receipts. Exports are not expected to compensate for this recovery, affected by the lower export volumes of coffee, clothing and sugar, despite the rise in gold exports. Expatriate remittances are still largely expected to offset this deficit, but the resulting current account surplus will be lower than that observed in 2020. In this context, the country will continue to consolidate its reserves, up 30% in September 2020 compared to the year 2019, equivalent to 8 months’ worth of imports. This will support the mobile pegging of the Cordoba (annual depreciation of 2% per year against the dollar).

 

Political stagnation in an election year

Anti-government demonstrations against corruption and nepotism, which began in April 2018, occur regularly and are strongly suppressed by President Daniel Ortega (FSLN), who has been in power since 2007. Nevertheless, a way out of the crisis is unlikely in this election year. President Daniel Ortega is most likely to run again in the November elections or leave his seat to his wife, Vice-President Rosario Murillo. In this context, relations with the international community are likely to remain tense as U.S. and European sanctions against those close to the regime pile up. Nicaragua's diplomatic relations with Taiwan, which has provided aid for infrastructure construction and in the fight against the pandemic, play an important role, while the United States and China (which has disappointed Nicaragua in the transoceanic canal project) are competing in the region.

 

Last updated: March 2021

Parte superior