Coface Group
Nicaragua

Nicaragua

Population 6,270 million
GDP per capita 2 024 US$
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Synthesis

MAJOR MACRO ECONOMIC INDICATORS

  2014 2015  2016 (e) 2017 (p)
GDP growth (%) 4.6 4.9 4.7 4.5
Inflation (yearly average) (%) 6.0 3.9 6.1 7.2
Budget balance (% GDP) -1.2 -1.03 -1.7 -1.6
Current account balance (% GDP) -7.7 -8.2 -8.0 -8.7
Public debt (% GDP) 29.3 29.3 30.4 31.1

 (e) Estimate (f) Forecast

STRENGTHS

  • Mineral (gold) and agricultural (coffee, sugar, meat) resources
  • Membership of Central America/United States and Central America/EU free trade zones
  • Cautious economic policy
  • Stable financial system
  • Support of the international community
  • Low crime rates compared with other countries in the region

WEAKNESSES

  • Vulnerability to natural disasters (cyclones, earthquakes)
  • Healthcare and education shortcomings and persistent poverty levels
  • Inadequate infrastructure (energy, transport)
  • Large current account deficit
  • Dependence on international aid, in particular from Venezuela
  • Institutional failings: concentration of power within the executive and the Sandinista party, corruption

RISK ASSESSMENT

Growth driven, in particular, by the dynamism of private consumption

Since 2013, Nicaragua has recorded a relatively high rate of growth above the average for the countries of Latin America. In 2017, growth is expected to remain resilient, driven mainly by the dynamism of private consumption and the expected increase in agricultural production. Internally, the dynamism of expatriate workers' remittances, maintenance of welfare and the government's flagship "Zero Hunger" programme help to increase household purchasing power, particularly for food products. Public investment spending is, on the other hand, likely to slow, in turn affecting construction sector performance for the second consecutive year. With regard to external trade, primary exports are expected to benefit from the rise in agricultural output after the dissipation of the El Nino weather phenomenon. Semi-manufactured products (beef, dairy products) will also benefit from higher productivity and exports of semi-manufactures (especially textiles), from the still preferential access to the American market (main customer). Finally, inflation is expected to rise as a result of the momentum in internal demand.

 

Continuation of cautious fiscal policy

The budget deficit is expected to remain relatively stable, despite an expected increase in current spending. The 2017 budget includes an increase in civil service wages in the health and education sectors in particular, as well as new civil service recruitment. As in 2016, the government is expected to cut investment spending in order to release addition resources to finance current spending and multiple welfare programmes. The deficit and the public debt will remain under control, but access to official multilateral loans, which are highly concessional in nature, is expected to lessen because of the political choices of the Ortega government which, according to international observers, are undermining democracy. In September 2016, the US House of Representatives thus approved a draft law making future loans to Nicaragua conditional on the country's adhering to democratic principles. A final version of the draft is due to be presented to the US Senate during 2017. Nicaragua could, as a result, lose an allocation of almost USD 200 million a year (about 1.5% of GDP) in the form of loans from the World Bank and the Inter-American Development Bank by 2019.

 

Current account deficit grows as result of rising imports

The current account deficit is expected to grow as a result of rising imports in connection with the dynamism of domestic consumption and the increase, though modest, in oil prices. Primary exports are expected to benefit from the increase in agricultural output (coffee, beans, peanuts), in manufactured goods and preferential access to the US market, although this will only partially cover the rise in imports (particularly of consumer goods). Remittances from Nicaraguans working abroad are expected to remain buoyant and to continue to contribute to a reduction in the current account deficit. This is mainly financed by official multi- and bilateral loans which ensure half of the country's capital formation and are concentrated in mining, agriculture, telecommunications and energy.

 

As expected, the Ortega husband and wife couple won the 2016 presidential elections, but democratic credibility appears weakened

President Daniel Ortega and his party, the Sandinista National Liberation Front (FSLN), won a third consecutive term in the November 2016 presidential elections. With a majority in the National Assembly and known for his distinct interventionism in all the country's political, administrative and legal processes, the president is accused of having acted to prevent his more popular opposition rival, Eduardo Montealegre, leader of the Independent Liberal Party (PLI) from running for the presidency. With no real opposition, the president and his wife, Rosario Murilo (vice-president) were elected with 72.5% of the votes cast, whereas his rival the centre-right candidate only received 14.2% of the votes cast. The government's political manoeuvring has attracted the attention of the international media and the American Congress worried about the electoral process in Nicaragua. While Venezuela's capacity to provide the country with financial support is reducing, President Ortega will have to work on assuaging the criticisms directed against his administration and strengthening ties with the United States in order to avoid sanctions regarding access to external finance, since the United States has a right to veto loan transactions awarded by the Inter-American Development Bank.

 

Last update: January 2017

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