2014 Index of Economic Freedom

Nicaragua

overall score58.4
world rank102
Rule of Law

Property Rights15.0

Freedom From Corruption24.1

Limited Government

Government Spending80.0

Fiscal Freedom78.6

Regulatory Efficiency

Business Freedom52.6

Labor Freedom60.3

Monetary Freedom72.8

Open Markets

Trade Freedom85.4

Investment Freedom65.0

Financial Freedom50.0

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Quick Facts
  • Population:
    • 6.0 million
  • GDP (PPP):
    • $26.7 billion
    • 5.2% growth
    • 3.2% 5-year compound annual growth
    • $4,458 per capita
  • Unemployment:
    • 7.8%
  • Inflation (CPI):
    • 7.9%
  • FDI Inflow:
    • $810.0 million
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Nicaragua’s economic freedom score is 58.4, making its economy the 102nd freest in the 2014 Index. Its score is 1.8 points better than last year, with significant improvements in investment freedom and the control of government spending offsetting declines in labor freedom and freedom from corruption. Nicaragua is ranked 18th out of 29 countries in the South and Central America/Caribbean region, and its overall score is below the world average.

Over the 20-year history of the Index, Nicaragua has advanced its economic freedom score by nearly 16 points, a top-20 improvement facilitated especially by gains in the area of market openness as measured by trade freedom, investment freedom, and financial freedom. Scores for three of the 10 economic freedoms, notably monetary freedom, have advanced by 20 points or more. Nicaragua reached its highest economic freedom score in 2006 and was rated “moderately free” during most of the 2000s.

Since 2009, however, Nicaragua’s economy has fallen back to “mostly unfree.” Anti–free market policies are bolstered by economic and political populism that drives class warfare. Institutional weaknesses persist in protection of property rights and combating corruption.

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Background

Despite a constitutional prohibition, Sandinista President Daniel Ortega was re-elected in November 2011. He is aligned with the Bolivarian Alliance for the Americas (ALBA), an anti-American trade organization organized by Venezuela. Ortega has weathered domestic opposition due to economic assistance from Venezuela and a divided opposition. The Central America–Dominican Republic–United States Free Trade Agreement (CAFTA–DR) has helped to diversify the economy. Agricultural goods and textile production account for 50 percent of exports. Nicaragua remains one of the least developed and poorest countries in the Americas. Much of the workforce is underemployed in the formal sector. The government has granted a Chinese company a concession to begin construction of an Atlantic/Pacific canal in Nicaragua.

Rule of LawView Methodology

Property Rights 15.0 Create a Graph using this measurement

Freedom From Corruption 24.1 Create a Graph using this measurement

Corruption cases against opposition figures and private entities appear to be politically motivated. There are persistent concerns about the transparency of funds flowing to Nicaragua from the Venezuela-funded Bolivarian Alliance. The judicial system is not independent from political interference. Protection of private property rights is not enforced effectively, and contracts are not always secure.

Limited GovernmentView Methodology

The top individual 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 is 18.4 percent of gross national income. Government spending is 26 percent of GDP. Public debt has fallen to half the size of the domestic economy. The government still relies on development assistance, but donors withdrew some support after flawed 2008 elections.

Regulatory EfficiencyView Methodology

The entrepreneurial environment remains burdened by costly regulatory procedures. The minimum capital requirement for starting a business has been eliminated, but licensing costs still average over twice the level of average annual income. The non-salary cost of employing a worker is moderate, but regulations on work hours are restrictive. Substantial energy and cash subsidies from Venezuela distort domestic prices.

Open MarketsView Methodology

Nicaragua’s average tariff rate is 2.3 percent. There are no significant non-tariff barriers to trade. Foreign investors must contend with legal and regulatory systems that are affected by political connections. The financial sector is concentrated in urban areas and not fully developed. The small banking sector is highly dollarized and provides a limited range of financial services. The cost of long-term financing is high.

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
1Chile78.7-0.3
2Saint Lucia70.70.3
3Colombia70.71.1
4The Bahamas69.8-0.3
5Uruguay 69.3-0.4
6Barbados68.3-1.0
7Peru67.4-0.8
8Saint Vincent and the Grenadines670.3
9Costa Rica 66.9-0.1
10Jamaica 66.7-0.1
11El Salvador 66.2-0.5
12Dominica65.21.3
13Panama 63.40.9
14Trinidad and Tobago62.70.4
15Paraguay 620.9
16Dominican Republic61.31.6
17Guatemala 61.21.2
18Nicaragua 58.41.8
19Honduras 57.1-1.3
20Brazil56.9-0.8
21Belize56.7-0.6
22Guyana55.71.9
23Suriname54.22.2
24Haiti48.90.8
25Bolivia48.40.5
26Ecuador481.1
27Argentina44.6-2.1
28Venezuela 36.30.2
29Cuba28.70.2
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