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- GDP (PPP):
- $27.9 billion
- 4.2% growth
- 3.2% 5-year compound annual growth
- $4,554 per capita
- Inflation (CPI):
- FDI Inflow:
Nicaragua’s economic freedom score is 57.6, making its economy the 108th freest in the 2015 Index. Its score is 0.8 point lower than last year due to declines in half of the 10 economic freedoms, including property rights, monetary freedom, labor freedom, and the management of government spending, that outweigh modest improvements in business freedom and freedom from corruption. Nicaragua is ranked 18th out of 29 countries in the South and Central America/Caribbean region.
On a net basis, economic freedom in Nicaragua has dropped by 1.2 points over the past half-decade. Declines in half of the 10 economic freedoms include large drops in property rights, labor freedom, and investment freedom.
Nicaragua’s shaky institutional infrastructure makes any score declines potentially damaging. Protections for contracts and property rights are uneven, reflecting the incompetence of the judiciary. Corruption remains pervasive, and attempts to target corrupt officials have turned into political battles. Entrepreneurs find it hard to do business, and the labor market is rigid. This forces many small businesses into the informal sector. The inefficiency of the financial sector inhibits capital formation.
Despite a constitutional prohibition, Sandinista President Daniel Ortega was re-elected in November 2011, and constitutional changes approved by the National Assembly early in 2014 will allow him to stay in power indefinitely. Ortega has weathered domestic opposition thanks to economic assistance from Venezuela, divisions among his opponents, and a policy agenda that maintains relative economic openness. 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 is the second poorest nation in the Americas. Much of the workforce is underemployed in the formal sector. The government has granted a Chinese company a concession to construct a transatlantic canal, but the feasibility of the project has been questioned.
Democracy was further weakened in 2014 by Daniel Ortega’s authoritarian tendencies and efforts to subvert the constitution for political benefit. Ortega’s significant influence over all state organs, including the Supreme Court and the Supreme Electoral Council, has undermined checks on the executive. Protection of private property rights is not enforced effectively, and contracts are not always secure.
Nicaragua’s top individual and corporate income tax rates are 30 percent. Other taxes include a value-added tax and a capital gains tax. With adjustments in the income tax thresholds, revenue generation has reached 18.9 percent of domestic income. Public expenditures equal 28 percent of gross domestic product, and public debt equals approximately 42 percent of the domestic economy.
Requirements for launching a business are not time-consuming, but the licensing process still takes more than 200 days to complete. Labor regulations are not efficient enough to support a vibrant labor market. Substantial energy and cash subsidies from Venezuela have distorted domestic prices, although the level of that aid could fall because of Venezuela’s growing economic problems.
Nicaragua’s average tariff rate is 2.3 percent. Imports of used cars and genetically modified food are restricted. The legal and regulatory environment may be difficult for foreign investors. The small financial sector has been evolving, particularly in the urban areas. A limited number of commercial credit instruments are available to the private sector, and capital markets are rudimentary.