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Quick Facts
- Population:
- GDP (PPP):
- $36.4 billion
- 4.9% growth
- 4.8% 5-year compound annual growth
- $5,849 per capita
- Unemployment:
- Inflation (CPI):
- FDI Inflow:
Nicaragua’s economic freedom score is 57.7, making its economy the 107th freest in the 2019 Index. Its overall score has decreased by 1.2 points, with lower scores for trade freedom, business freedom, and government integrity outweighing an improvement in property rights. Nicaragua is ranked 21st among 32 countries in the Americas region, and its overall score is below the regional and world averages.
Investor confidence was badly shaken by the deadly violence deployed by the authoritarian Ortega regime in 2018 against peaceful protestors opposed to perceived undemocratic rule. Land-grabs of farms by pro-government groups, although limited in scope, appear to have been aimed at undermining political opponents. The business environment has deteriorated, and state-owned enterprises have continued to receive favored treatment. Government revenues have fallen in parallel with continuing declines in assistance from Venezuela. Institutional weaknesses and an inefficient judicial system fail to protect property rights and combat corruption.
Background
In the late 1970s, Sandinista National Liberation Front (FSLN) leader Daniel Ortega overthrew the authoritarian Somoza political dynasty and headed a provisional FSLN-led government until he lost several free and fair elections. Finally elected president in 2006, he was reelected for a third time in a 2016 election that international observers deemed neither free nor fair. Ortega has severely weakened democratic institutions and fully controls the government, security forces, and key sectors of the economy. In 2018, the government responded to student-led protests against Ortega family control with lethal violence, killing hundreds and paralyzing the country. Agricultural goods and textile production account for 50 percent of exports. Nicaragua remains Central America’s poorest nation.
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, and the government controls the politicized Supreme Court. Public-sector corruption and bribery of public officials are major challenges. The Ortega family’s authoritarian rule is the greatest threat to the evenhanded rule of law.
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 22.6 percent of total domestic income. Over the past three years, government spending has amounted to 26.4 percent of the country’s output (GDP), and budget deficits have averaged 1.6 percent of GDP. Public debt is equivalent to 33.6 percent of GDP.
Nicaragua’s structural reform effort has been sluggish. Significant state interference in the economy through state-owned enterprises and inconsistent regulatory administration introduce uncertainty into the market. The lack of employment opportunities has caused chronic underemployment. The government controls prices of butane gas, electricity for households, and pharmaceuticals while heavily subsidizing fuel and water.
The combined value of exports and imports is equal to 96.7 percent of GDP. The average applied tariff rate is 2.0 percent. As of June 30, 2018, according to the WTO, Nicaragua had 54 nontariff measures in force. The judicial and regulatory systems impede foreign investment. The low level of financial intermediation undermines private-sector growth. About 33 percent of adult Nicaraguans have an account with a formal banking institution.