Discusses key economic indicators and trade statistics, which countries are dominant in the market, and other issues that affect trade.
Nicaragua is the second poorest country in the Western Hemisphere with a 2020 GDP per capita of approximately $1,900. The United States is Nicaragua’s largest trading partner, the source of roughly one-quarter of Nicaraguan imports and the destination for approximately two-thirds of Nicaraguan exports. Nicaragua and its economy, however, continue to suffer from an ongoing political and economic crisis. The crisis began following President Ortega’s violent repression of peaceful demonstrations in April 2018 and deepened in 2021. The regime’s undemocratic, authoritarian actions have undermined the credibility of Nicaragua’s electoral process, reduced consumer purchasing power, and eroded investor confidence.
The government of Nicaragua (GON) has since 2019 pursued a fiscal policy designed to generate short-term budget funding instead of long-term growth. The GON has aggressively increased taxes, even on basic goods. Tax reforms passed in 2019 taxed previously exempt items in the “basic” basket of goods. An estimated 70 percent of basic household items are now taxed, including food and locally made clothing and shoes. The 30 percent of products that remain exempt now face higher costs as their inputs are taxed. The private sector has felt the strain of these increased costs. One Nicaraguan tobacco company in 2019 laid off 30 percent of its workers after the new law went into effect; consumers were not willing to pay higher prices and shifted consumption to informal or illicit markets.
Nicaragua has suffered several recent external economic shocks, including the COVID-19 pandemic and 2020 hurricanes Eta and Iota. Economists struggle to estimate the scope of Nicaragua’s economic contraction due to the government’s refusal to publish official numbers and key economic indicators. Even when published, economists question the accuracy of the official data. According to the Central Bank of Nicaragua, the economy contracted 3.4 percent in 2018, 3.7 percent in 2019, and 2 percent in 2020. From this lower starting point, economists expect economic growth in 2021; the Central Bank of Nicaragua projects 3.5 percent growth, and independent think tank FUNIDES forecasts 5.4 percent growth.
The 2020 economic slowdown decreased formal employment, while also increasing the size of the informal sector. Unemployment rose from 3.7 percent in 2017 to 4.8 percent in 2020 and could reach 5 percent in 2021, according to estimates from the National Statistics Institute (known by its Spanish initials INDE) and independent think tank FUNIDES. At the same time, economists estimate the poverty level rose from 20 percent in 2017 to 44 percent in 2019, before falling to 32 percent in 2020.
The GON’s repression of political opponents and systematic erosion of the rule of law, in addition to its unorthodox and non-transparent management of the COVID-19 pandemic, have created uncertainties that make it challenging to do business in Nicaragua. The international community has applied a range of sanctions on individuals and entities linked to human rights abuses and corruption. For more information on sanctions and sanctioned individuals, see the U.S. Department of Treasury’s summary of Nicaragua-related sanctions and the Global Magnitsky Designations for Nicaragua.
The Nicaraguan government targets and harasses businesses believed to support the opposition and has imprisoned several private sector leaders. Business chambers and other private sector organizations recognize that economic prosperity requires stronger rule of law and respect for democracy.