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- GDP (PPP):
- $31.3 billion
- 4.5% growth
- 5.0% 5-year compound annual growth
- $4,997 per capita
- Inflation (CPI):
- FDI Inflow:
Nicaragua’s efforts to improve macroeconomic stability and enhance economic growth have been modest. Relatively well-controlled government spending has strengthened the management of public finance, but inefficiency and uncertainty in such other key policy areas as the regulatory and investment frameworks have impeded dynamic growth.
Overall, Nicaragua’s structural reform effort has been sluggish, and privatization has stalled. Significant state interference in the economy through state-owned enterprises or inconsistent regulatory administration introduces uncertainty into the market. Institutional weaknesses persist in protection of property rights and combating corruption. The inefficient judicial system enforces contracts inconsistently and is subject to political interference.
In the late 1970s, the Sandinista National Liberation Front, led by Daniel Ortega, overthrew the authoritarian Somoza political dynasty. Ortega became de facto ruler of a provisional FSLN-led government before free and fair elections in 1990, 1996, and 2001. Ortega lost all of these elections but was finally elected to a five-year presidential term with 38 percent of the vote in 2006. Since then, he has been reelected twice and has engineered constitutional changes that may permit him to retain power indefinitely. Despite his revolutionary rhetoric, Ortega has governed fairly pragmatically, accepting billions in subsidized oil shipments from Venezuela while embracing the U.S.–Central America–Dominican Republic Free Trade Agreement.
Private property rights are not protected effectively, especially for foreign investors, and contracts are not always secure. The judicial system suffers from corruption and long delays, and the politicized Supreme Court is controlled by Sandinista judges. Bribery of public officials remains a major challenge. The authoritarian and open-ended rule by President Daniel Ortega and his family is the greatest threat to the rule of law.
The top individual income and corporate tax rates are 30 percent. Other taxes include a value-added tax and a capital gains tax. The overall tax burden equals 21.9 percent of total domestic income. Government spending has amounted to 25.3 percent of total output (GDP) over the past three years, and budget deficits have averaged 1.1 percent of GDP. Public debt is equivalent to 31.2 percent of GDP.
The regulatory system lacks both transparency and clarity. The lack of employment opportunities has caused chronic underemployment. The state regulates and heavily subsidizes the energy and water sectors. The Ortega government was able to consolidate power partly because of the inflows of hundreds of millions of dollars of Venezuelan PetroCaribe oil subsidies.
Trade is important to Nicaragua’s economy; the value of exports and imports taken together equals 93 percent of GDP. The average applied tariff rate is 2.0 percent. The judicial and regulatory systems impede foreign investment, and state-owned enterprises distort the economy. Inadequate levels of financing reflect the low level of financial intermediation in the economy and continue to undermine private-sector growth.