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Overview

Prior to 2018, market-oriented reforms and sound macroeconomic management, including a crawling peg exchange rate and modest fiscal deficits, contributed to a solid economic expansion.

Between 2000 and 2017, growth averaged 3.9 percent, led by domestic demand fueled by remittances and Foreign Direct Investment (FDI). Nevertheless, growth was driven primarily by factor accumulation (labor and capital) and led by low-skill agricultural and manufacturing exports.

Following a two-year recession brought on by the sociopolitical crisis of 2018, the country suffered further declines in economic activity due to the COVID-19 pandemic and two major hurricanes in 2020.

Compared to regional peers, the economic impact of the pandemic was limited due to mild containment measures. Nonetheless, real GDP declined 1.8 percent in 2020 as voluntary shutdowns weighed on domestic demand, while the global crisis reduced external demand. However, economic activity in 2021 recovered to pre-2018 levels.

Real GDP increased 10.3 percent in 2021 and continued through the first half of 2022 with a 5.0 percent growth. Remittance-fueled private consumption and exports drove the expansion in the first half of 2022. Public consumption, COVID-19 related investment and hurricane reconstruction fueled growth in 2021, but subsequently decelerated in 2022 following fiscal consolidation efforts and projects being finalized. Trade, manufacturing, hotel and restaurants, mining and transportation and communications were the leading sectors in the first half of 2022.

Despite the economic recovery, some welfare impacts of the COVID-19 crisis remain. Employment rates in 2022 Q2 were lower than in 2019 Q2 (64 vs 66 percent), as labor- intensive sectors like construction, hotels and restaurants have not fully recovered.  According to the World Bank High Frequency Survey, around 10 percent of those formally employed prior to the pandemic transitioned to an informal job by the end of 2021. Employment and wage declines drove a reduction in total income for 28 percent of households.

The pace of expansion is expected to slacken in the second half of 2022 amid slowing external demand and fiscal consolidation. Growth is projected to moderate to 4.1 percent in 2022 and to slow further to 2.0 percent in 2023, consistent with a global economic deceleration.

Recent international geopolitical developments are expected to weigh on growth, only partially offset by positive impacts from higher prices of exported commodities. Moreover, the present domestic political context is expected to keep investment below historical levels.

These events will prevent further reductions in poverty (defined as $3.65/day Purchase Power Parity - PPP) in 2022, which will then remain at around 13 percent.

Inflation is expected to peak in 2022 and decline thereafter as commodity price pressures ease and higher interest rates reduce domestic demand. Nicaragua is still one of Latin America’s least developed countries, where access to basic services is a daily challenge.

The World Bank has supported poverty reduction measures in Nicaragua through the  International Development Association (IDA), the World Bank’s fund for the poorest countries.

To better reach the country’s vulnerable families, IDA projects leverage local initiatives that stretch limited resources further and deliver sustainable results.

Last Updated: Oct 04, 2022

LENDING

Nicaragua: Commitments by Fiscal Year (in millions of dollars)*

*Amounts include IBRD and IDA commitments
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Country Office Contacts

NICARAGUA +505 2270 0000
5to. piso Edificio Cobirsa, Km 6,5 carretera a Masaya, Managua
USA +1 202 473-1000
1818 H Street NW, Washington, DC 20433