Nicaragua: Economic Outline

Economic Indicators

For the latest updates on the key economic responses from governments to address the economic impact of the COVID-19 pandemic, please consult the IMF's policy tracking platform Policy Responses to COVID-19.

Nicaragua is the poorest country in Central America and is classified as a Heavily Indebted Poor Country (HIPC) by the IMF and the World Bank.
 In 2021, Nicaragua registered an estimated growth rate of 5%, mainly due to expatriate remittances from the U.S., which support household consumption amid the country's slow labour market. According to the IMF, GDP growth is expected to slow down to 3.5% in 2022 and 2.2% in 2023.

The IMF calculated that gross debt stood at 49.5% of GDP in 2021, and expects it should decrease to 48.1% in 2022 and 48.9% in 2023. The inflation rate increased to 4.1% in 2021, but it should decrease to 3.6% in 2022 and 3.5% in 2023. Nicaragua's fiscal deficit, weaker external liquidity and higher country risk undermine the country's economic performance. In previous years, the Nicaraguan economy experienced dynamic growth driven by consumption and investment in the energy and manufacturing sectors, public spending, domestic consumption, greater agricultural production and sustained trade with the United States (its leading export market and primary investor). Nevertheless, social instability derived from political protests affected tourism and lead to higher unemployment rates. Nicaragua has tried for years to reduce investments and finance its current expenditures. The Government also seeks to reduce its dependence on Venezuelan oil by developing renewable energies.

 With the support of the IMF, Nicaragua has pursued structural reforms and a fiscal discipline policy, allowing the country to establish a certain degree of macroeconomic stability. However, attempts to improve the business environment have been insufficient, institutions are weak, the judicial system is inefficient, and corruption is present. Additionally, the government has increased taxes on cigarettes and beer, and increased the tax on business earnings, but these measures are unlikely to generate as much revenue collection as expected. In 2021, to mitigate the impact of COVID-19, the government continued implementing a series of fiscal measures prioritising programs to strengthen the social safety net, including the provision of food packages among vulnerable families. Furthermore, the Central Bank of Nicaragua reduced its repo reference rate by 300 bps, temporarily reduced reserve requirements in domestic currency, and updated its Business Continuity Plan COVID-19 to guarantee the continuity of financial, treasury, accounting and administrative operations. Overall, Nicaragua's fiscal measures to mitigate the pandemic have been effective in boosting economic activity, which has been gradually recovering.

According to the IMF, the unemployment rate was heavily affected by the negative economic impact of the COVID-19 pandemic, and rose to 11% in 2021. However, that rate is expected to decrease in the next couple of years, reaching 7.5% in 2022 and 7.1% in 2023. Still, even though unemployment rates are relatively low, nearly half of those who are employed are actually underemployed, and poverty is widespread. Social issues include high violence rates, high social inequality, extreme poverty, a strong informal economy, civil unrest, police brutality, and lack of freedom of the press. On the other hand, the homicide rate is low and has been falling in recent years.

Monetary Indicators	2016	2017	2018	2019	2020
Nicaraguan Cordoba Oro (NIO) - Average Annual Exchange Rate For 1 GHS	7.17	6.91	6.88	6.37	6.14

Source: World Bank - Latest available data.

© eexpand, All Rights Reserved.
Latest Update: February 2023