Professional Documents
Culture Documents
Economics Proje
Economics Proje
Economics Proje
Capital - Managua
Official languages-Spanish
Population
• 2012 census-6,167,237
Currency-Córdoba (NIO)
Birth rate-24.12/1,000
Death - 4.42/1,000
Religions
Roman - 58.5%
Evalangical - 21.6%
Moravian-1.6%
Jehovah's Witnesses-0.9%
Noneg-15.7%
Others- 1.5%
B.Demography
Since the 1950s, the country has had a high population growth rate. This is reflected in the
falling mortality and increasing fertility rates. Most of the urban growth is seen in the capital
city. This increase has lead to a large amount of younger population. By 1993, almost half the
population was below the age of 15. This has manifested in present in such a way that currently
the service sector is the largest sector of the Nicaraguan economy. This section includes
transportation, commerce, warehousing, restaurant and hotels, arts and entertainment, health,
education, financial and banking services, telecommunications as well as public administration
and defense.Tourism in Nicaragua is one of the most important industries in the country. It is
the second largest source of foreign exchange for the country and is predicted to become the
first largest industry in 2017. More than 60% of the Nicaraguans live in the Pacific lowlands. The
people here share a Hispanic and European culture. Almost 40% of the population lives below
the poverty line. Life expectancy has improved from 64 years in 1990 to 74 years in 2017 . the
HDI has also improved from 0.48 to 0.60 during this period. Even though there is extensive
poverty, the literacy rate is quite high, at 82.4% for males and 83.2%for females. It is because
of all these factors that there has been tremendous growth in the tertiary sector of the
economy.
Historical view
The coffee Boom - 1840s-1940s.
One of the major changes that came in the country's economy was the production boom of
coffee. As the drink became popular in America, it's production in the country turned from a
hobby to a cash crop. Large areas were cleared out for its production. But this needed a of
capital and large pools of labour. By the end of the 19th century, the economy turned into a
Banana economy, the Republic being controlled foreign elites and a few domestic players who
wanted to focus on the production of this singular commodity. Profits flowed outside the
country. The price of coffee lead to the boom and depression of the economy in those years.
Taxes on coffee was virtually non existent.
By the mid -1970s, the government's economic and dictatorial political policies had alienated
nearly all sectors of society. Armed opposition to the Somoza regimes,which had started as a
small rural insurrection in the early 1960s,had grown by 1977 to a full-scale civil war . the
fighting caused foreign investment to drop sharply and the private sector to cut investment
plans . many government expenditures were shifted to the military budget. The forces finally
won the struggle in 1979, but it took a huge toll on the economy. The new leadership was
conscious of the social inequities produced during the previous thirty years of unrestricted
economic growth and was determined to make the country's workers and peasants
,the"economicallyunder-privileged ,"the prime beneficiaries of the new society.Conse-quently,in
1980 and 1981, unbridled incentives to private investment gave way to institutions designed to
redistribute wealth and income. Private property would continue to be allowed,but all land
belonging to the Somoza was confiscated.However, the ideology of the Sandanista put the
future of the private sector and of private ownership of the means of production in doubt . even
though under the new government both public and private ownership were
accepted,government spokespersons occasionally referred to are construction phase in the
country's development,in which property owners and the professional class would be tapped
for their managerial and technical expertise . After reconstruction and recovery ,the private
sector would give way to expanded public ownership in most areas of the economy . despite
such ideas,which represented the point of view of a faction of the government,the Sandanista
government remained officially committed to a mixed economy.
Between 1995-
2017, the economy has
grown almost linearly. In
2013,it registered a growth of 4.3% making it the fastest growing economy in Central America.
The construction sector is currently in a boom. In the recent years, their Bop has been positive
and their budgets have been accurate to a large extent. In 2016, the NIGR improved
considerably due to the increase in employment by 11.2% and hence the development of the
tertiary sector. It seems that the economy is moving towards the service sector.
Part 2
In 2014, the government maintained a mildly expansionary fiscal policy whose primary
objective was to ensure the sustainability of public finances. Efforts were made to strengthen
revenue collection and modernize the tax and customs administration. The 2014 general budget
was adopted by Act No. 851 for a total of 55.781 billion córdobas. The deficit was financed
through external cooperation, confessional loan disbursements and government bond issues.
The budget was amended twice in 2014, first in August by Act No. 877 and then in November by
Act No. 887. Furthermore, during the year, an amount of 1.300 billion córdobas in international
donations was added to the budget.Total central government revenues expanded by 15% in
nominal terms in 2014 (higher than the 6.7% growth recorded in 2013). Tax revenues increased
by 15.8% as a consequence of higher direct and indirect tax revenues. Income tax and value
added tax (VAT) receipts grew by 21.6% and 15.8%, respectively, in 2014. The tax burden was
therefore equivalent to 15.4% of GDP, slightly higher than in 2013. Total central government
expenditure also increased (16.1% versus 8.5% in 2013), as a result of higher wages and salaries
(20.4%) and capital and current transfers (11.2%).The central government balance, including
grants, was equivalent to 0.3% of GDP in 2014. When added to the net results of State-owned
enterprises, the consolidated deficit of the non-financial publicsector, including grants, stood at
1.5% of GDP (compared with 1.1% in 2013). External and internal funding operations nudged up
total public debt by 0.2% to US$ 5.800 billion in December 2014,representing 49.1% of GDP (as
against 53.3% of GDP in 2013). The foreign debt-to-GDP ratio held steady at 40.6%.In the first
quarter of 2015, total central government revenues rose by 12.4% year-on-year. Cumulative
income tax receipts totalled 7.597 billion córdobas, a rise of 16.2%. Total VAT receipts grew at a
cumulative rate of 5.6%, mainly because of the VAT hike on imports. The tax burden is expected
to reach about 15% at the end of the year. Spending rose by 26.5% year-on-year to March
(compared with 19.5% in the first quarter of 2014) owing mainly to the early payment of the
April payroll and a rise in purchases of goods and services. Meanwhile, grants increased by
15.2% year-on-year. In the first quarter of 2015, a surplus, after grants, of 167.8 million
córdobas was recorded, compared with 1.729 billion córdobas in the same period of 2014. A
central government deficit, after grants, of around 2% of GDP is expected in 2015, in line with
projected revenue and expenditure of 16.5% of GDP and 18.2% of GDP, respectively. Total public
debt stood at US$ 5.791 billion in March (47.1% of GDP), with 82% of that debt financed by
external sources.
In 2014, the central bank held its nominal crawling-peg exchange-rate policy at 5% and
continued to use instruments such as open-market operations and reserve requirements. The
reserve requirement continued to be used, furthermore, as a monetary and prudential control
instrument, maintaining a dual system of daily and fortnightly reserve requirements (12% and
15%, respectively, on deposits subject to the requirement under resolution CD-BCN-VI-1-11
adopted by the Board of Directors of the Central Bank of Nicaragua, in force since 4 April
2011).In April 2015, in response to a liquidity shortage, the central bank implemented an
expansionary monetary policy through the net redemption of securities worth US$ 21 million.
Gross international reserves thus totalled US$ 2.243 billion, equivalent to 2.5 times the
monetary base.
The gross loan portfolio grew by 19.4% to December 2014 over the previous year (compared
with growth of 21.3% in 2013), ending the year with a balance of 99.354 billion córdobas (US$
3.827 billion). By institutional sector, credit to households posted the most robust growth
(23.2%), followed by lending to companies (17.2%). By type of debtor, the largest growth was
seen in credit to the livestock sector (31.2%), personal loans (28.2%) and mortgages (20.7%). In
2014, financial sector assets grew by 19.4% (17.4% at the end of 2013), while total liabilities
expanded by 19.1% (17.1% in 2013). In terms of the distribution of deposits by currency, dollar-
denominated deposits (22%) grew faster than those denominated in domestic currency (16.2%).
In March 2015, the national financial system continued to build on its momentum, with growth
in both deposits (13.8%) and credit (19.0%, owing mainly to increased commercial and personal
loans). Deposits were higher for both national currency (9.7%) and foreign currency (15.3%).
The profitability of the financial sector remained stable in the first quarter of 2015. The return
on total assets (RoA) stood at 2.2% (slipping down from 2.3% in March 2014), while the return
on equity (RoE) was 20.7% (compared with 21.9% in the same period last year).
Cumulative inflation to December 2014 was 6.5% (compared with 5.7% in 2013), which was
determined by the crawling-peg devaluation rate set at 5.0% per annum. The rainy season
pushed updomestic prices of basic grains in the first part of the year, which was partially offset
by the decline in international oil and fuel prices in the fourth quarter and the introduction of
government subsidies for basic grains. With a view to protecting the purchasing power of
households, the government continued to subsidize public transport and electricity
consumption. In 2014 the food and non-alcoholic beverages category posted cumulative
inflation of 11.7% (6.0% in 2013).
Year-on-year inflation to May 2015 was 5.2% (4.9% in 2014), driven by transportation; food and
non-alcoholic beverages; recreation and culture; restaurants and hotels; and education. These
increases were partially offset by lower prices for communications. Core inflation rose by 6.9%
year-on-year.Inflation continues to trend upward and is expected to end the year within the
target range of 6.0%-7.0%.In 2014, the Ministry of Labour raised the minimum wage despite not
reaching a tripartite agreement between the government, employers and workers. It adopted
annual increases (divided into two equal parts) of 10.77% for the agricultural sector, 9.80% for
small and medium-sized enterprises (SMEs) and 10.27% for other sectors. In January 2014, an
annual adjustment of 8% was applied to the wages of workers in the free zone. Public-sector
workers in health and education received a 7% raise, while other workers in the public sector
received 5%. Enrolment in the Nicaraguan Social Security Institute (INSS) increased by 5.4% with
respect to 2013, as more jobs were created in commerce, hotels and restaurants, and
community, social and personal services. In the third quarter of 2014 the open unemployment
rate was 6.7% (5.3% in 2013) according to the findings of the continuous household survey.In
the first quarter of 2015, growth in the number of workers enrolled in the INSS rose to
7.6%.Most of the new jobs were concentrated in the commerce and services sector.
Part 3
Recommendedations
Improving the tourism industry will create more employment and lead to growth
of NI.
Working in agreement with developed economies such as the USA.
Focus on making exports easier and development of infrastructure through FDI.
Focusing more on the needs of the disadvantaged sections of the society. It
seems as if the divide between the rich and the poor is increasing in the
economy
Investment in social programs and public finances for the overall development of
the economy.
Controlling migration as it leads to the outflow of human resources of the
country. This would have to be done carefully as a lot of residents are living
on remittances they receive from relatives working abroad.
. The current policy mix is broadly adequate to maintain macroeconomic
stability in the near term, but Nicaragua needs to fortify its policy
framework. In particular, reducing tax exonerations and exemptions and
improving the targeting of fiscal subsidies would strengthen the
efficiency and equity of public finances and contribute to rebuilding
fiscal buffers. Greater emphasis needs to be placed on improving public
sector accounting and fiscal transparency. With regard to the financial
sector, the supranational structure and cross-border activities of financial
conglomerates warrant a strengthening of regional cooperation in
prudential supervision. The timeliness, quality, and reliability of statistics
need to be improved, which will help to enhance economic decision-
making and transparency. Additional efforts are needed to improve the
investment environment, promote competitiveness, and strengthen the
rule of law.
Bibliography
Www.worldbank.org
Www.imf.org
Gerarado peraza's report on Nicaraguan
economy
Economic Survey of Latin America and
the Caribbean ▪ 2015.
Www.bancocentraldenicaraguaorg
National Bureau of Economic Research
Volume Title: The Macroeconomics of
Populism in Latin America
Uncefs report on Nicaraguan economy