Nicaragua's economy relies on light manufacturing, services, and agriculture. The country has a small, open economy that benefits from foreign direct investment and remittances. Nicaragua's long-term growth and per capita incomes are heavily constrained by low human capital, significant infrastructure gaps and a weak institutional and business environment. Coupled with high vulnerability to shocks and natural hazards, this makes Nicaragua one of the poorest countries in the region, despite opportunities.
GDP expanded by 3.8 percent in 2022 despite high inflation, global headwinds, and the damage caused by Hurricane Julia. This expansion was driven by robust private consumption fueled by remittances and net exports.
Nicaragua's economic growth is projected to moderate to 3.1 percent in 2023 due to the global economic slowdown and a tight monetary policy environment. Thereafter, growth is projected to rise modestly, driven by an increase in exports as global economic conditions improve and the continued strong stance of the country in remittances and foreign direct investment.
The average annual inflation in 2022 surged to 10.5 percent - the highest among Central American countries and more than double the average inflation rate over the past decade. Inflation was driven by strong domestic consumption and higher import prices of food and fuel. Inflation is projected to moderate gradually in the medium term in line with the fiscal and monetary tightening and decelerating fuel and food prices.
Poverty measured at the US$3.65 per capita per day poverty line (2017 PPP) is expected to decline to 12.5 percent in 2023 from 13.1 percent in the previous year. This moderate decline is largely driven by sustained growth in remittances coupled with lower inflation and modest but positive growth in employment that reached 64.8 percent during the first half of 2023.
The fiscal deficit is expected to increase over the medium term, reaching an estimated 1.9% by 2025, as public expenditures are likely to increase at a faster pace than revenues. Nonetheless, public debt (share of GDP) is anticipated to decline to 58.2 percent by 2023.
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, 2023