2013 Index of Economic Freedom

Nicaragua

overall score56.6
world rank110
Rule of Law

Property Rights15.0

Freedom From Corruption25.0

Limited Government

Government Spending65.1

Fiscal Freedom78.7

Regulatory Efficiency

Business Freedom51.2

Labor Freedom62.2

Monetary Freedom73.2

Open Markets

Trade Freedom85.4

Investment Freedom60.0

Financial Freedom50.0

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Quick Facts
  • Population:
    • 5.9 million
  • GDP (PPP):
    • $18.9 billion
    • 4.7% growth
    • 2.8% 5-year compound annual growth
    • $3,206 per capita
  • Unemployment:
    • 8.0%
  • Inflation (CPI):
    • 8.1%
  • FDI Inflow:
    • $967.9 million
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Nicaragua’s economic freedom score is 56.6, making its economy the 110th freest in the 2013 Index. Its score is 1.3 points worse than last year, with declines in the control of government spending and labor freedom outweighing improvements in investment freedom and fiscal freedom. Nicaragua is ranked 21st out of 29 countries in the South and Central America/Caribbean region, and its overall score is below the world average.

The foundations of economic freedom are fragile and uneven across Nicaragua. Poor protection of property rights and widespread corruption discourage the emergence of a more vibrant private sector. The rule of law is weak, and local courts are subject to substantial political interference.

Anti-free market policies continue, bolstered by economic and political populism that drives income redistribution and class warfare that are used to justify the large presence of the state in the economy. The inefficient regulatory framework impedes expansion and diversification of the productive base. The lack of access to long-term financing precludes dynamic entrepreneurial growth, and the investment regime lacks transparency.

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Background

Despite a constitutional prohibition, Sandinista President Daniel Ortega ran for and was re-elected president in November 2011. He is aligned with Venezuela’s Hugo Chávez and supports the Bolivarian Alliance for the Americas (ALBA), a Latin American socialist trade organization. Electoral fraud in 2008 and a government crackdown on civil society led the U.S. to cancel part of its Millennium Challenge Corporation grant to Nicaragua. Half of the workforce is unemployed or underemployed. The Central America–Dominican Republic–United States Free Trade Agreement has helped to diversify the economy to include mineral and textile production, but Nicaragua remains among the least developed and poorest countries in the Americas. Remittances constitute roughly 15 percent of GDP. Support from international financial institutions, economic assistance from Venezuela, and a divided opposition have enabled Ortega to weather domestic political challenges.

Rule of LawView Methodology

Property Rights 15.0 Create a Graph using this measurement

Freedom From Corruption 25.0 Create a Graph using this measurement

The rule of law is gradually collapsing as authoritarian power is concentrated in the executive. Weak institutions, rampant corruption, and nepotism act as a brake on development. The judicial system is not independent from political interference. Protection of private property rights is not enforced effectively, and contracts are not always secure. Many expropriation cases from earlier years remain unresolved.

Limited GovernmentView Methodology

The top income and corporate tax rates are 30 percent. Other taxes include a value-added tax (VAT) and a capital gains tax. The overall tax burden equals 18.3 percent of GDP. Government spending is equivalent to 34.1 percent of GDP. Public debt hovers at around 70 percent of GDP. Tax reform implemented in 2009 has helped to generate a more positive fiscal outlook.

Regulatory EfficiencyView Methodology

Red tape and inconsistent enforcement of commercial regulations burden the regulatory environment. The cost of launching a business is about the level of average annual income. Obtaining necessary permits still takes more than 200 days and costs over three times the average income level. Because of an inefficient and inflexible labor market, high unemployment persists. Inflation has been rising as monetary stability continues to erode.

Open MarketsView Methodology

The trade-weighted average tariff rate is moderate at 2.3 percent, but complex regulations increase the cost of trade. The investment regime is not transparent and efficient. Despite anti-market comments from some government leaders, the country has attracted growing levels of foreign investment. The high cost of long-term financing continues to hinder more dynamic private-sector growth.

Country's Score Over Time

Bar Graph of Nicaragua  Economic Freedom Scores Over a Time Period

Country Comparisons

Bar Graphs comparing Nicaragua  to other economic country groups

Regional Ranking

rank country overall change
1Chile790.7
2Saint Lucia70.4-0.9
3The Bahamas70.12.1
4Uruguay 69.7-0.2
5Colombia69.61.6
6Barbados69.30.3
7Peru68.2-0.5
8Costa Rica 67-1.0
9Jamaica 66.81.7
10El Salvador 66.7-2.0
11Saint Vincent and the Grenadines66.70.2
12Dominica63.92.3
13Panama 62.5-2.7
14Trinidad and Tobago62.3-2.1
15Paraguay 61.1-0.7
16Guatemala 60-0.9
17Dominican Republic59.7-0.5
18Honduras 58.4-0.4
19Brazil57.7-0.2
20Belize57.3-4.6
21Nicaragua 56.6-1.3
22Guyana53.82.5
23Suriname52-0.6
24Haiti48.1-2.6
25Bolivia47.9-2.3
26Ecuador46.9-1.4
27Argentina46.7-1.3
28Venezuela 36.1-2.0
29Cuba28.50.2
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