2020 Index of Economic Freedom

Nicaragua

OVERALL SCORE57.2
WORLD RANK115
Rule of Law

Property Rights33.5

Judicial Effectiveness19.5

Government Integrity24.3

Government Size

Tax Burden76.3

Government Spending77.5

Fiscal Health87.2

Regulatory Efficiency

Business Freedom55.1

Labor Freedom55.5

Monetary Freedom71.5

Open Markets

Trade Freedom75.4

Investment Freedom60.0

Financial Freedom50.0

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Quick Facts
  • Population:
    • 6.3 million
  • GDP (PPP):
    • $35.7 billion
    • -4.0% growth
    • 3.0% 5-year compound annual growth
    • $5,683 per capita
  • Unemployment:
    • 4.5%
  • Inflation (CPI):
    • 5.0%
  • FDI Inflow:
    • $359.2 million

Nicaragua’s economic freedom score is 57.2, making its economy the 115th freest in the 2020 Index. Its overall score has decreased by 0.5 point due to a drop in the fiscal health score. Nicaragua is ranked 23rd among 32 countries in the Americas region, and its overall score is slightly below the regional average and well below the world average.

The Nicaraguan economy fell from the moderately free ranks in 2009 and has been mostly unfree ever since then. GDP growth had been modestly positive for five years until 2018, when it turned sharply negative as the authoritarian government tightened its grip on the country and economic deterioration accelerated.

If market-based democracy is ever restored in Nicaragua, the first step needed to resuscitate economic freedom is a complete overhaul of the rule-of-law institutions to protect property rights, establish a transparent and reliable judicial system, and expunge the many forms of corruption that flourish under a socialist system.

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Background

In the late 1970s, Sandinista National Liberation Front (FSLN) leader Daniel Ortega overthrew the authoritarian Somoza dynasty and headed a provisional FSLN-led government until losing several free and fair elections. Finally elected president in 2006, he was reelected for a third five-year term in a 2016 election that was deemed illegitimate. Ortega and his wife (who is also his vice president) fully control the government, security forces, and key sectors of the economy. Since April 2018, the country has been locked in a political crisis engendered by Ortega’s brutal response to antigovernment demonstrations. As a result of the political turmoil, the economy has deteriorated. Agricultural goods and textile production account for 50 percent of exports. Nicaragua remains Central America’s poorest nation.

Rule of LawView Methodology

Property Rights 33.5 Create a Graph using this measurement

Judicial Effectiveness 19.5 Create a Graph using this measurement

Government Integrity 24.3 Create a Graph using this measurement

Private property rights are not protected effectively, especially for foreign investors. Contracts are not always secure. The judicial system suffers from corruption and long delays; the government controls the politicized Supreme Court. Public-sector corruption and bribery of public officials are major challenges. The Ortega family’s ongoing authoritarian rule is the greatest threat to the rule of law.

Government SizeView Methodology

The top individual income and corporate tax rates are 30 percent. Other taxes include value-added and capital gains taxes. The overall tax burden equals 23.8 percent of total domestic income. Government spending has amounted to 27.4 percent of the country’s output (GDP) over the past three years, and budget deficits have averaged 2.5 percent of GDP. Public debt is equivalent to 37.2 percent of GDP.

Regulatory EfficiencyView Methodology

Political instability undermines consumer and business confidence, hurting private businesses. A new unified collateral registry has strengthened access to credit, but bank credit had shrunk by late 2018 because of multiple shocks to the economy. The already low level of formal employment contracted further. The government controls prices of butane gas, electricity for households, and pharmaceuticals while heavily subsidizing fuel and water.

Open MarketsView Methodology

The total value of exports and imports of goods and services equals 93.3 percent of GDP. The average applied tariff rate is 2.3 percent, and 54 nontariff measures are in force. Foreign investment is formally welcome, but the investment regime is neither transparent nor efficient. Lingering political instability adds to the risk of long-term investment. The financial sector remains underdeveloped, providing a limited range of services.

Country's Score Over Time

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Regional Ranking

RANK COUNTRY OVERALL CHANGE
1Canada78.20.5
2Chile76.81.4
3United States76.6-0.2
4Colombia69.21.9
5Uruguay 69.10.5
6Jamaica 68.5-0.1
7Saint Lucia68.2-0.5
8Peru67.90.1
9Panama 67.20.0
10Saint Vincent and the Grenadines66.81.0
11Mexico661.3
12Costa Rica 65.80.5
13The Bahamas64.51.6
14Guatemala 641.4
15Paraguay 631.2
16El Salvador 61.6-0.2
17Barbados61.4-3.3
18Honduras 61.10.9
19Dominican Republic60.9-0.1
20Dominica60.8-2.8
21Trinidad and Tobago58.31.3
22Belize57.42.0
23Nicaragua 57.2-0.5
24Guyana56.2-0.6
25Brazil53.71.8
26Argentina53.10.9
27Haiti52.3-0.4
28Ecuador51.34.4
29Suriname49.51.4
30Bolivia42.80.5
31Cuba26.9-0.9
32Venezuela 25.2-0.7
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