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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 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 2 percent in 2020 as voluntary shutdowns weighed on domestic demand, while the global crisis reduced external demand. Cumulative loss amounting to 8.8 percent since 2018, however, economic activity in 2021 is estimated to have recovered to pre-2018 levels.

Real GDP grew by 10.3 percent in 2021. This recovery can be attributed to: (i) private consumption fueled by robust remittance inflows; (ii) public consumption and investment aimed at addressing the impacts of COVID-19 and the hurricanes; and (iii) private investment and exports supported by favorable commodity prices. Mining, manufacturing, construction, and trade have been the main drivers of growth; tourism is recovering slowly.

Nevertheless, welfare impacts of the COVID-19 crisis remain. Data show lower employment rates in the third quarter of 2021 (44 percent) than in the same period of 2020 (46 percent), as labor-intensive sectors such as construction, hotel and restaurants have not fully recovered their employment levels. According to the World Bank High Frequency Survey, around 13 percent of those formally employed prior to the pandemic had transitioned to an informal job by June 2021.

Employment and wage declines drove a reduction in family income for 44 percent of households by mid-2021.

Growth is expected to decelerate in 2022 to 2.9 percent amid global headwinds and a fiscal consolidation. Authorities are planning a consolidation starting in 2022 as part of their commitment to the International Monetary Fund (IMF) and concerns over debt sustainability. This entails a reduction in capital spending. However, current spending momentum will remain to ensure absorption of COVID-19 funds, and then decline.

Recent international geopolitical developments are expected to weigh on growth amid elevated oil prices and lower demand, only partially offset by positive impacts from higher prices of exported commodities.

Moreover, the present domestic political context is expected to keep investment and growth below historical levels throughout the forecast period.

Despite a deceleration, growth is sufficient to have slightly reduced the poverty rate (defined as $3.2/day Purchasing Power Parity - PPP) from 13.5 percent in 2020 to 12 percent in 2021; and enough to keep that rate stable between 2022-2024.

Meanwhile, inflation is expected to increase further, to 5.9 percent in 2022, as commodity price pressures and supply-chain disruptions are aggravated by recent geopolitical events, gradually declining thereafter. 

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: Apr 07, 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