Subchapters:
- Basic data
- Public finances and the state budget
- Banking system
- Tax System
Basic data
According to cheeroutdoor.com, Nicaragua remains the second poorest country in Latin America and the Caribbean (half of the population below the poverty line; a quarter below the extreme poverty line). Since the beginning of the political crisis in 2018, Nicaragua has shown negative economic growth figures and faced an outflow of foreign capital. In 2021, after three years, economic growth resumed, even at 9.7% of GDP, restoring Nicaragua’s GDP to pre-crisis values. The higher GDP growth was mainly due to higher exports and also an increased inflow of foreign capital. In the following years, however, a moderate growth of around 2% is expected in view of the expected slowdown of the US economy, to which Nicaragua is significantly linked by its exports, and also in view of the increased commodity prices caused by the conflict in Ukraine. Remittance flows are also expected to slow, dampening private consumption.
Like most countries in the world, Nicaragua is struggling with high year-on-year inflation, which stood at 8.7% in March 2022. Its further development, as well as the development of the entire economy, depends, among other things, on the future of Nicaragua’s cooperation with China.
Unemployment in Nicaragua is stable around 5%. The largest employer in the country is the agricultural sector with 30% of the population contributing 15% to the country’s GDP. This ratio is decreasing every year, while the share of industry (25%) and services (49%) in GDP is increasing. The trade balance is significantly in deficit, which is caused by the export of products with low added value, and, conversely, the necessity of importing consumer goods and technologies. The main export items are mainly gold, textiles, coffee, beef, tobacco products and sugar. Fuels, textiles, medicines, machinery, chemical products, and plastics predominate in imports.
| Pointer | 2019 | 2020 | 2021 | 2022 | 2023 |
| GDP growth (%) | -3.9 | -2.8 | 9.7 | 2.5 | 2.3 |
| GDP/population (USD/PPP) | 5,646.40 | 5,569.70 | 6,230.00 | 6,580.00 | 6,830.0 |
| Inflation (%) | 5.4 | 3.7 | 4.9 | 7.7 | 5.1 |
| Unemployment (%) | 5.4 | 5 | 4.8 | 4.7 | 4.7 |
| Export of goods (billion USD) | 2.7 | 2.9 | 3.4 | 3.6 | 3.6 |
| Import of goods (billion USD) | 4.4 | 4.4 | 6.2 | 6.6 | 6.6 |
| Trade Balance (Billion USD) | -1.1 | -0.9 | -1.9 | -2.1 | -2.2 |
| Industrial production (% change) | ON | ON | ON | ON | ON |
| Population (millions) | 6.6 | 6.6 | 6,7 | 6.8 | 6.9 |
| Competitiveness | ON | ON | ON | ON | ON |
| OECD export risk | 07.VII | 07.VII | 07.VII | ON | ON |
Source: EIU, OECD, IMD
Public finance and state budget
| Public finance | 2021 |
| State budget balance (% of GDP) | -1.5 |
| Public debt (% of GDP) | 65.9 |
| Current account balance (billion USD) | -0.3 |
| Taxes | 2022 |
| AFTER | 30% |
| F.O | 15-30% |
| VAT | 15% |
Nicaragua’s public debt-to-GDP ratio was 66% in 2021, which is quite high for a developing economy, but should gradually decrease in the coming years, according to EIU analysis. In 2021, there was an increase in revenue that helped reduce the fiscal deficit to 1.5% of GDP. In 2022, the deficit is expected to be reduced to 1.2% of GDP, taking into account planned cuts in public investment. It should be noted that due to political events, Nicaragua has less options for loans from multilateral financial institutions (historically the main source of funding in US dollars) and the question is whether it will be able to replace them with agreements with China. Domestically, the government will continue to issue bonds, but will have to offer higher interest rates to attract investors, which will increase debt servicing costs. The decreasing stocks of foreign exchange reserves are also a problem,
Banking system
The country is open for banking business, but transferring funds through US correspondent banks can be a problem. Bank transactions are controlled by the government and international payments may be delayed or returned to the sender for a variety of reasons.
The tasks of the central bank are performed by the Banco Central de Nicaragua (www.bcn.gob.ni). Interest rates hover around 4%, with a slight increase expected due to current inflation.
Main banking institutions in Nicaragua:
Banco de la Producción, SA – (BANPRO)
Banco LaFise Bancentro, SA – (LAFISE BANCENTRO)
Banco de América Central, SA – (BAC)
Banco de Finanzas, SA (BDF)
Banco de Fomento a la Producción (Banco PRODUZCAMOS)
All commercial banks provide standard banking services.
Tax system
The tax system is relatively transparent, however, due to the current political situation in Nicaragua, there is a risk of unexpected changes in the tax burden, and it cannot therefore be considered stable.
FO and PO Income Tax
In Nicaragua, personal income tax ranges from 15% to 30%. The 30% rate applies to incomes above 500,000. NOTHING. In the same way, the income of legal entities is taxed, i.e. at a rate of 30%. Conversely, incomes of natural persons that do not exceed the amount of 100 thousand NICs are tax exempt.
Value Added Tax
The standard value added tax rate is 15%, no tax is imposed on exported goods and services.
