Nicaragua Financial and Economic Situation

As one of countries in Central America according to homosociety, Nicaragua took part in the international initiative for the most heavily indebted countries (HIPC), which was launched in 1996 by the World Bank and the G7 countries. The then Federal Development Minister Wieczorek-Zeul also took the initiative, and the Federal Republic of Germany made a considerable contribution in the international context. The then incumbent government of President Bolaños went to great lengths to meet the numerous requirements of the HIPC process, and in 2004 the country was waived the huge sum of around 2.5 billion US dollars (for such a small country). The HIPC initiative was made conditional on the implementation of a poverty reduction program. For a long time there was a visible decline in poverty,

The public external debt arose in 2019 according to the central bank to US $ 6.279 billion. This means an increase of 5.5% compared to the previous year (2018: US $ 5.950 billion). Together with the internal debt of US $ 885.6 million, the total public debt amounted to US $ 7.164 billion. That corresponds to 57.1% of GDP. Annual debt service to foreign creditors was US $ 329.1 million, an increase of 32.4% over the previous year. High expenditures for the internal debt of the state had an additional impact. The financial consolidation of recent years has long been widely recognized, but has been called into question by the current state and economic crisis (see below). Due to the corona crisis and the damage caused by hurricanes ETA and IOTA, a further increase in debt is expected for 2020.

According to zipcodesexplorer, Nicaragua’s high dependency on the world market, both on the export and import side, entails considerable risks. The economic activity of the last few years up to 2018 was made possible by favorable factors that have since deteriorated. The fall in world market prices led to a decline in export earnings in 2015 and 2016; however, this tendency weakened in 2017. With the state and economic crisis in Venezuela, the important financial aid and special grants from this country have not been received. The fall in the international oil price had previously given economic relief, when spending on the import of crude oil and fuels fell from US $ 1.1 billion (2014) to US $ 690 million (2016). However, it has reversed, and in 2018 again US $ 996 million and another US $ 958 million in 2019 had to be spent on oil imports, although domestic demand fell significantly. In order to reduce the oil bill permanently, the use of water and wind power as well as geothermal energy in energy generation is to be expanded.

The Nicaraguans are traditionally used to an inflation rate of 5 to 10%. The annual inflation rate in 2015 and 2016 was 3.1% each. This low was due to the well-known special conditions on the international capital market and the drop in the price of oil. In 2017 prices rose sharply and increased by 5.7%. This increase flattened to 3.9% in 2018 due to the decline in domestic demand, but rose again to 6.1% in 2019.

The effects of the crisis since April 18, 2018 make a reassessment of the economic situation necessary, even if the central bank and government have been able to maintain essential mechanisms of economic life. The exchange rate of the Cordoba is stable and the loss of bank deposits and foreign exchange is sensitive, but is still limited. But the economic losses and destruction caused by months of unrest and the paralysis of public life are immense. The losses in public finances are particularly painful. The INSS social security is an unresolved restructuring case, and the decline in current tax revenues is tearing large gaps in the state budget. With the crisis in public finances, not only pensions but all social and educational services will become a hotly contested issue.As recently announced, the state finances in the current financial year 2020 will be financed by the Banco Centroamericano de Integración Económica (BCIE), the Banco Interamericano de Desarrollo (BID) and the World Bank (BM) in the amount of 178 million US dollars $ saved from the worst. Since this aid is given in the form of loans, the external debt will continue to rise. In addition, the leading role played by the BCIE in the Central American integration system suggests that the sanctions threats announced by the OAS secretariat will hardly be as drastic as the opposition hoped.

In the spring of 2018, economic growth of 4.9% was forecast for 2018. In the end, GDP fell by 4.0%. In other words, economic development was 8.9% worse than expected. In the following year 2019, GDP fell again by 3.9%. This means that GDP per capita fell by 6.2% in 2018 compared to the previous year, and in 2019 the same happened again by minus 5.1%. The government’s tax revenues decreased by 6.1% in the 2018 annual result. Exports were more or less stable, but FDI in the country fell from US $ 1,035 million (2017) to US $ 838 million (2018) and US $ 503 million (2019), and capital flight is an acute one Problem. The income from tourism, which in 2017 was still at US $ 840.5 million, collapsed to US $ 544 million in 2018 (-35.2%) and again to US $ 515.3 million (-5.3%) in 2019. Heavy losses were also expected for the remesas (money sent by migrants abroad), which stood at US $ 1,390.8 million in 2017. But surprisingly, they rose to US $ 1,501.2 million (+ 7.9%) in 2018 and even reached US $ 1,682.4 million (+ 12%) in 2019. The external support of the Remesas and the still reasonable income from exports do nothing to change the fact that economic life at home has slipped from recession into depression and is going through a severe crisis. The value of GDP falls, wages and demand fall. Many people have lost their jobs, and poverty and hunger are spreading. According to the independent FUNIDES foundation, 453,000 employees have been laid off.

The agency Moody’s downgraded Nicaragua’s creditworthiness from B2 to B3 in February 2020. In addition to the extent of the severe recession since 2018, the dramatic upheavals due to the Corona crisis have been added since March 2020. In general, a decline in exports, a further reduction in foreign direct investment and a slump in money transfers by migrants from abroad are expected. Tourism is already down and the factories in the free trade zones are at a standstill. Moody’s speaks in its analysis from May 2020 that Nicaragua will suffer another “economic shock” due to the global corona crisis and that gross domestic product will decline by 4% in 2020. According to Moody’s, there are also fears that the public finances deficit, which was 2.4% of GDP in 2019, will rise to 4.1% this year.

Nicaragua Children in the coffee harvest