Country Report Nicaragua November 2020

________________________________________________________________________________
Country Report
Nicaragua
Generated on November 17th 2020

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Nicaragua 1
Nicaragua
Summary
2 Briefing sheet
Outlook for 2021-25

3 Political stability
5 Election watch
5 International relations
5 Policy trends
6 Fiscal policy
6 Monetary policy
7 International assumptions
7 Economic growth
8 Inflation
8 Exchange rates
8 External sector
8 Forecast summary
Data and charts

9 Annual data and forecast
10 Quarterly data
10 Monthly data
11 Annual trends charts
12 Monthly trends charts
13 Comparative economic indicators
Summary
13 Basic data
15 Political structure
Recent analysis
Politics
17 Analysis
Economy
21 Forecast updates
22 Analysis
Country Report November 2020 www.eiu.com © Economist Intelligence Unit Limited 2020
Nicaragua 2
Briefing sheet
Editor: Abhijit Surya
Forecast Closing Date: October 25, 2020
Political and economic outlook

The Economist Intelligence Unit expects the ruling Frente Sandinista de Liberación Nacional
(FSLN, the Sandinistas) to retain power in the 2021-25 forecast period, even with popular
support for the party at its lowest level in more than a decade.
The FSLN's political dominance has its roots in growing authoritarianism. Although the
domestic civic opposition will contest the forthcoming elections in November 2021, it will be
unable to shift the balance of power given that polls are unlikely to be free or fair.
The US will continue to enforce targeted sanctions against Nicaraguan public officials in an
attempt to pressure the Sandinista regime into undertaking democratic reforms. However, such
efforts are unlikely to yield their desired results.
The economy will stage a very weak recovery from a recession that began on the back of a
political crisis in 2018 and deepened as a result of the coronavirus (Covid-19) outbreak in 2020.
Real GDP will be below its 2017 peak throughout the forecast period.
The fiscal deficit will remain wide in 2021 amid weak revenue collection. Although the
government will seek to consolidate its accounts from 2022, the financing requirement will
remain high and funding it will prove challenging.
We expect the authorities to successfully defend the crawling peg, under which the córdoba
weakens at a rate of 3% annually against the US dollar. However, there is a risk that capital
controls will be imposed as foreign reserves decline over the forecast period.
Key indicators
2020a 2021b 2022b 2023b 2024b 2025b
Real GDP growth (%) -3.2 1.0 2.0 1.8 1.5 1.5
Consumer price inflation (av; %) 3.9 3.1 3.7 5.0 4.1 4.1
Government balance (% of GDP) -3.3 -3.3 -2.5 -2.7 -3.0 -3.3
Current-account balance (% of GDP) 10.1 9.7 6.0 4.6 4.1 3.0
Money market rate (av; %) 6.2 5.3 5.1 4.9 4.7 4.5
Unemployment rate (%) 7.0 6.5 5.8 5.2 5.0 4.8
Exchange rate C:US$ (av) 34.38 35.42 36.48 37.58 38.71 39.87
a Economist Intelligence Unit estimates. b Economist Intelligence Unit forecasts.
Nicaragua 3
Key changes since September 25th

In mid-October the Banco Central de Nicaragua (the central bank) published a slew of economic
data for 2019 and 2020, after several months without data releases.
Consequently, we have adjusted various indicators, including real GDP, external trade and the
fiscal deficit, not just for the historical period (notably in 2019), but also this year's estimates
and forecasts for 2021.
Notably, we have upgraded our real GDP forecasts for 2020-21 significantly. We now expect
real GDP to contract by 3.2% in 2020 (compared with 7% previously), followed by a partial
recovery of 1% in 2021 (in contrast to a further contraction of 1.5% previously).
The month ahead

TBC—Additional sanctions on Nicaraguan officials: US lawmakers have put increasing
pressure on the administration of the US president, Donald Trump, to apply sanctions on the
Nicaraguan president, Daniel Ortega, and other high-ranking regime officials. There is a risk that
these sanctions will be applied, possibly along with harsher measures.
TBC—Economic activity (September): Activity has registered positive sequential growth since
June, owing to fewer pandemic-related disruptions. We expect the recovery to have continued
in September, albeit at a slower pace than in preceding months.
Major risks to our forecast

Scenarios, Q3 2020 Probability Impact Intensity
A loss of international reserves prompts the imposition of capital controls High Very high 20
Monetary financing of the fiscal deficit leads to a surge in inflation High Very high 20
State control over the economy increases High Very high 20
The banking sector faces solvency problems High Very high 20
A remittance tax is imposed High High 16
Note. Scenarios and scores are taken from our Risk Briefing product. Risk scenarios are potential
developments that might substantially change the business operating environment over the coming two
years. Risk intensity is a product of probability and impact, on a 25-point scale.
Source: The Economist Intelligence Unit.
Outlook for 2021-25

Political stability
The Economist Intelligence Unit expects the ruling Frente Sandinista de Liberación Nacional
(FSLN, the Sandinistas) to remain in power, even with public support for the party at a historic
low. The political dominance of the Sandinistas has its roots in growing authoritarianism. The
president, Daniel Ortega, has held office since 2007 and has used the FSLN's legislative majority
to remove presidential term limits, strengthen executive powers and reinforce the (already strong)
state security apparatus. Mr Ortega's virtually unchecked influence over state institutions has
Nicaragua 4
allowed him to stay in power, despite an ongoing political crisis that began in April 2018 following
a public uprising against his rule.
The main opposition to the president is the Alianza Cívica (AC), a coalition of students, civil
society groups and businesspeople, which is fighting for demo-cratisation. In mid-2018 some
representatives of the alliance held protests and set up roadblocks, but the unrest was quelled
violently by pro-government forces, leaving hundreds dead. Any signs of dissent are now quickly
stifled, keeping the opposition contained. The price of state repression has been extremely steep.
Political turmoil, along with a slew of international financial sanctions, brought about a sharp
economic contraction. Although this pressure initially brought the Ortega regime to the
negotiating table with the AC, attempts at a national dialogue quickly floundered.
With prospects of a political compromise growing ever bleaker, the AC is now focusing on
mounting a credible challenge to the FSLN in the November 2021 general election. In January the
AC joined forces with the Unidad Nacional Azul y Blanco (UNAB), another wing of the post-April
2018 protest movement; the two groups have invited a number of opposition political parties and
movements to join them in an umbrella organisation called the Coalición Nacional (CN). Opinion
polls suggest that growing dissatisfaction with the FSLN—driven by the government's
mismanagement of the coronavirus (Covid-19) outbreak, as well as concerns about the economic
situation and rising public insecurity—could in theory make the CN competitive in the
forthcoming presidential and legislative elections. However, the CN faces a number of challenges,
including disunity within its ranks and the absence of a strong leader.
Moreover, even if the CN manages to solidify and gets on the ballot, it is unlikely to compete in
free and fair elections. In mid-October the National Assembly approved a law that requires
individuals or organisations that receive funds from a source traceable to a foreign government to
register as "foreign agents", which significantly restricts their ability to participate in political
activities. Opposition forces decried the measure as a move to stymie their attempts to organise
themselves and as a threat to prevent their leaders from becoming candidates for office. The
government is also contemplating two other reforms to the penal code, both of which would
impinge on Nicaraguans' civil liberties and stifle political participation. Whether or not the
remaining laws are passed, the FSLN is clearly signalling that it intends to manage the 2021
electoral process in a manner similar to the national and municipal elections in 2016 and 2017,
respectively. On those occasions, only token opposition was allowed (greatly limiting turnout)
and the Consejo Supremo Electoral (CSE, Supreme Electoral Council) enjoyed wide freedom in
administering the results.
However, there are substantial risks to our forecast that the FSLN will remain in power. One of the
Ortega regime's main vulnerabilities is its exposure to US punitive measures. The US government
has already applied sanctions to 24 senior Nicaraguan officials, including the vice-president and
first lady, Rosario Murillo. The US has also used its influence at multilateral institutions
to significantly curb new official lending to Nicaragua. Such pressures could eventually weaken
Mr Ortega's position.
In the event of a significant escalation of political or economic pressure, Mr Ortega's hold
on power will be determined by the role of the security forces. The president currently exerts
complete control over the police and strong influence over the military. The most senior military
officers have been placated with access to commercial assets and the revenue derived from these.
Mean-while, the regime has used the active participation of police forces to stamp out political
insurrection, cement institutional cohesion and instil fears of retribution should the opposition
come to power. This has so far been sufficient to ensure the loyalty of the security forces, but
there is a high risk of fractures within the regime if economic or political conditions worsen
radically.
Nicaragua 5
Election watch
The next legislative and presidential elections are scheduled to take place in November 2021.
Given the probable lack of a negotiated solution to the ongoing political conflict, we expect Mr
Ortega (or a candidate of his choice) to remain in power in the 2021-25 forecast period. Although
Mr Ortega may make modest concessions on electoral reform in an attempt to legitimise the next
elections internationally, these are likely to be superficial as the FSLN would retain control over
the CSE, the judiciary and other important institutions.
International relations
Nicaragua's major foreign policy challenge will be navigating its ties with the US in a way that is
compatible with the survival of the Ortega regime. The government will remain committed to the
Dominican RepublicCentral America FreeTrade Agreement (DRCAFTA), to which the US—
Nicaragua's main trade and investment partner—is a signatory. However, diplomatic tensions will
continue for as long as Nicaragua's long-running political crisis remains unresolved.
The Ortega government has stood firm in the face of a litany of sanctions put in place by the
current US administration of Donald Trump. Moreover, with Mr Trump's re-election chances
dwindling, Mr Ortega is unlikely to make any concessions to a leader who appears to be on his
way out. Instead, the Ortega government will look to reset US-Nicaragua relations under a
prospective administration led by the Democratic candidate, Joe Biden (Mr Trump's electoral
opponent). However, we remain sceptical that any forthcoming bilateral nego-tiations would yield
such a result. US efforts to promote democratisation in Nicaragua have typically enjoyed
bipartisan support in the US, and this is likely to continue under a Biden administration. For their
part, we do not expect the Sandinistas to accept any political reforms that would require them to
cede their near-absolute control over state institutions.
Policy trends
In the near term, policymaking will be driven by the government's pressing need to cover its
sizeable financing requirements. The government's negligent response to the coronavirus
outbreak initially prevented it from securing the emergency multilateral financing that was made
available to many of its Central American peers. However, since late July the government has
changed course on its pandemic response. It has curtailed its own large-scale social and political
activities, increased epidemiological surveillance of the virus (particularly at ports of entry), and
committed greater resources for the purchase of health equipment and the modernisation of the
country's health infrastructure.
These policy concessions opened the door to fresh external assistance. In August the Inter-
American Development Bank granted Nicaragua a loan for US$43m to strengthen its health
system. Similarly, the Central American Bank for Economic Integration (CABEI) approved two
loans, of US$50m each, for the Ortega government to support small businesses during the
pandemic and to purchase Covid-19 vaccines. However, as emergency finance from multilateral
organ-isations is dialled down in the medium term, the government will be forced to make
adjustments to consolidate the public finances. As such, we expect the government to embark on
a new round of social security reforms in 2022. More broadly, we expect the government to retain
its relatively orthodox macro-economic policy framework. However, glaring weaknesses in the rule
of law and the risk of ad hoc inter-ventionism will deter investment.
Nicaragua 6
Fiscal policy
The government's attempts at fiscal consolidation will be thwarted in the near term amid a steep
economic downturn. The non-financial public sector (NFPS) will register a deficit of 3.3% of GDP
in 2021—keeping it stable in GDP terms relative to 2020. A partial economic recovery, along with
aggressive tax enforce-ment efforts, will help to boost revenue collection. However, the
expenditure bill will rise in tandem as the government lifts spending ahead of the November 2021
general election. In addition, the Instituto Nicaragüense de Seguridad Social (INSS, the social
security system) and staterun companies—including Enatrel (electricity transmission), Enel
(electricity generation) and Enacal (water)—will continue to run wide deficits, which the
government will have to absorb.
Looking further ahead, we expect the government to embark on a new round of social security
reforms in 2022, which will help to narrow the NFPS deficit to 2.5% of GDP that year. However, the
improvement in INSS finances is likely to be short-lived; we believe that, in the absence of a
resolution to the political crisis and significant improvements to the business environment, the
INSS will not be able to grow its contributor base at a sustainable rate. Consequently, the NFPS
deficit will widen again, to 3.3% of GDP in 2025.
Our baseline forecast assumes that the government will be able to cover most of its financing
needs by taking on new debt. In addition to accessing coronavirus-related multilateral financing,
the government was able to renew a US$200m credit line with CABEI. Going forward, the lion's
share of new US dollar financing will come from CABEI and from official bilateral creditors. On the
domestic front, the government will continue to issue bonds in local financial markets. However, it
will have to offer extremely high interest rates to attract investors, which will lift debt-servicing
costs. Nonetheless, we expect the government to rely partly on transfers of foreign reserves from
the Banco Central de Nicaragua (BCN, the central bank) to close its financing gap. Although
Nicaragua's experience with hyperinflation in the 1980s has made policymakers averse to debt
monetisation, there is still a risk that the authorities will resort to outright money printing if other
sources of funding dry up.
Monetary policy
We believe that the BCN will achieve its main objective of preserving exchange-rate stability,
which is maintained through a crawlingpeg exchangerate regime under which the córdoba is tied
to the US dollar, with an annual ceiling for depreciation set at 3%. However, given our expectation
that foreign reserves will fall over the forecast period, the BCN may be forced to impose capital
controls in order to prop up the currency.
On the lending side, the BCN uses three standing facilities to restrict the volatility of interbank
rates. In order to lift credit growth, the central bank has cut its reference repurchase agreement
(repo) rate by a cumulative 225 basis points since March, to 4.5% in June, and rates were similarly
slashed at the BCN's overnight lending and deposit facilities.
The central bank also authorised a reduction in the reserve requirement for domestic-currency
liabilities so as to inject C4bn (US$115m) into the financial system. However, the measures are
unlikely to be effective as banks remain risk-averse and credit demand from businesses remains
weak. Monetary policy will remain loose in 2021-25, but credit growth will be underwhelming
owing to weak trans-mission mechanisms.
Nicaragua 7
International assumptions
2020 2021 2022 2023 2024 2025
Economic growth (%)
US GDP -4.6 3.6 2.6 2.3 2.0 2.0
OECD GDP -6.1 4.0 2.7 2.2 2.0 1.9
World GDP -5.0 4.4 3.3 3.0 2.8 2.7
World trade -11.6 7.1 5.0 3.9 4.0 3.8
Inflation indicators (% unless otherwise indicated)
US CPI 0.7 1.7 1.9 2.2 1.9 1.8
OECD CPI 1.0 1.7 2.0 2.1 2.0 2.1
Manufactures (measured in US$) -1.1 3.7 3.1 4.1 2.4 2.0
Oil (Brent; US$/b) 42.0 45.0 55.0 60.0 57.0 51.0
Non-oil commodities (measured in US$) 0.0 5.8 3.0 -4.8 1.9 1.0
Financial variables
US$ 3-month commercial paper rate (av; %) 0.6 0.1 0.2 0.6 1.0 1.5
US$:€ (av) 1.14 1.17 1.15 1.19 1.21 1.23
¥:US$ 107.08 106.11 106.09 107.35 108.25 109.90
Economic growth
New data published by the BCN have led us to make significant upgrades to our economic
projections for 2020-21. According to the latest official data, economic activity contracted by just
3.2% in JanuaryAugust year on year—a relatively shallow contraction by regional comparisons.
The better than expected result partly reflects the laxity of the government's pandemic response
(which minimised supply-side disruptions) and relatively robust external demand for Nicaraguan
goods. Consequently, we now estimate that real GDP will contract by 3.2% in full-year 2020
(compared with 7% in our previous report).
The better than expected result for 2020 will generate positive statistical carryover effects for 2021.
On this basis, we now forecast real GDP growth of 1% in 2021, compared with a contraction of
1.5% previously. That said, this modest growth comes after three years of recession, and implies a
continued stagnation in living standards. Furthermore, a number of factors indicate that risks to
the near-term outlook remain stacked to the downside. First, despite a recent stabilisation in
coronavirus infections, there is a substantial risk that a new wave of coronavirus cases will
materialise in the coming months and dampen services activities (even without the imposition of
formal containment measures). Secondly, economic growth will be hamstrung by a lack of fiscal
support. As a result, job losses and business closures that occurred during the pandemic are
much less likely to be reversed than in other countries in the region. Thirdly, increased political
instability and social unrest around the time of the November 2021 elections will weigh on
consumer and business confidence, while also raising the risk of a run on Nicaragua's fragile
banking system.
Nicaragua's medium-term prospects will also be marred by investor concern over political
developments and a lack of confidence in the rule of law. As such, we expect real GDP growth to
average just 1.7% in 2022-25. At this rate of growth, real GDP will remain about 4% below its 2017
peak, even by the end of our 2021-25 forecast period.
Economic growth
% 2020a 2021b 2022b 2023b 2024b 2025b
GDP -3.2 1.0 2.0 1.8 1.5 1.5
Private consumption -3.0 1.0 2.2 1.5 1.5 1.5
Government consumption 2.2 2.5 -1.0 0.0 0.5 1.0
Gross fixed investment -5.0 1.5 7.0 3.0 3.0 3.0
Exports of goods & services -8.1 6.5 3.2 2.4 2.2 1.7
Imports of goods & services -2.8 4.5 4.1 2.9 2.2 2.0
Domestic demand -1.0 0.6 2.6 2.2 1.6 1.7
Agriculture 3.5 1.5 2.0 2.0 2.0 2.0
Industry -5.0 2.0 2.5 1.8 1.5 1.5
Services -4.5 0.5 2.2 1.8 1.5 1.5
Nicaragua 8
Inflation
Inflation will be relatively subdued throughout the forecast period, averaging 4% in 2021-25,
owing to tepid demandside pressures. A relatively stable córdoba will also help to keep imported
inflation in check. The main risk to the price environment will be stronger than expected
commodities prices, given the high share of food and fuel in the overall consumption basket.
Exchange rates
Assuming that the BCN's crawlingpeg framework is maintained as it is, we expect the córdoba to
weaken from C34.85:US$1 at end-2020 to C40.41:US$1 at end-2025. At this rate of crawl, the
córdoba will remain undervalued relative to its tenyear average (in real, tradeweighted terms).
External sector
Amid economic and political crisis, dramatic import compression has shifted Nicaragua's
traditionally large current-account deficit into a sizeable surplus. We expect the current account to
remain in surplus until 2025, although it will narrow substantially, from 10.1% of GDP in 2020 to 3%
of GDP in 2025, driven almost entirely by trends in the trade account.
As the current-account surplus narrows and principal repayments on external debt remain high,
Nicaragua's gross external financing requirement will grow in 2021-25. The external financing
requirement is unlikely to be fully covered by inward foreign direct investment (FDI) and fresh
medium- and long-term debt disbursements throughout the forecast period. This will produce a
decline in foreign reserves, from US$2.9bn in 2020 to US$2.5bn in 2025, but they will still provide
adequate import cover of at least 3.5 months throughout 2021-25. There are, however, substantial
risks to the balance-of-payments position. In the near term, we highlight the risk that political
instability ahead of the November election could generate capital flight from Nicaragua's highly
dollarised banking system. In the medium term, there is a risk that Nicaragua's potential output will
be lower than currently anticipated, leading to weaker FDI flows than we have pencilled in.
Although it is not our baseline forecast, an unexpectedly steep deterioration in reserves could
force the government to implement heterodox measures including currency controls and import
restrictions.
Forecast summary
Forecast summary
(% unless otherwise indicated)
2020a 2021b 2022b 2023b 2024b 2025b
Real GDP growth -3.2 1.0 2.0 1.8 1.5 1.5
Gross fixed investment growth -5.0 1.5 7.0 3.0 3.0 3.0
Unemployment rate (av) 7.0 6.5 5.8 5.2 5.0 4.8
Consumer price inflation (av) 3.9 3.1 3.7 5.0 4.1 4.1
Consumer price inflation (end-period) 2.8 2.8 5.4 4.0 4.3 3.9
Lending interest rate 11.7 11.2 10.5 10.0 10.0 10.0
NFPS fiscal balance (% of GDP) -3.3 -3.3 -2.5 -2.7 -3.0 -3.3
Exports of goods fob (US$ bn) 4.8 5.1 5.2 5.3 5.5 5.6
Imports of goods fob (US$ bn) 5.3 5.8 6.4 6.7 7.0 7.1
Current-account balance (US$ bn) 1.2 1.2 0.7 0.6 0.5 0.4
Current-account balance (% of GDP) 10.1 9.7 6.0 4.6 4.1 3.0
External debt (year-end; US$ bn) 11.7 11.9 12.1 12.2 12.3 12.4
Exchange rate C:US$ (av) 34.38 35.42 36.48 37.58 38.71 39.87
Exchange rate C:US$ (end-period) 34.85 35.90 36.98 38.09 39.23 40.41
Exchange rate C:€ (endperiod) 41.13 40.93 43.08 45.71 48.06 49.71
Exchange rate C:SDR (end-period) 48.98 49.83 51.76 53.83 55.96 58.26
Nicaragua 9
Data and charts

Annual data and forecast
2016a 2017a 2018a 2019a 2020b 2021c 2022c
GDP
Nominal GDP (US$ m) 13,286 13,786 13,064 12,521 11,963 12,211 12,536
Nominal GDP (C m) 380,261 414,279 412,208 414,714 411,353 432,478 457,318
Real GDP growth (%) 4.6 4.6 -3.9 -3.9 -3.2 1.0 2.0
Expenditure on GDP (% real change)
Private consumption 5.7 2.7 -4.5 -2.5 -3.0 1.0 2.2
Government consumption 8.2 1.6 -1.5 1.2 2.2 2.5 -1.0
Gross fixed investment 1.4 2.1 -20.1 -26.0 -5.0 1.5 7.0
Exports of goods & services 4.6 10.1 -1.0 5.3 -8.1 6.5 3.2
Imports of goods & services 4.1 3.3 -14.0 -5.4 -2.8 4.5 4.1
Origin of GDP (% real change)
Agriculture 4.6 9.1 1.0 2.3 3.5 1.5 2.0
Industry 3.1 2.3 -1.3 -3.7 -5.0 2.0 2.5
Services 5.4 4.7 -5.0 -4.8 -4.5 0.5 2.2
Population and income
Population (m) 6.3 6.4 6.5 6.5b 6.6 6.7 6.8
GDP per head (US$ at PPP) 5,694 6,004 5,829 5,631b 5,405 5,487 5,627
Fiscal indicators (% of GDP)
Non-financial public-sector revenue 27.5 28.1 26.8 29.5 29.8 29.8 30.1
Non-financial public-sector expenditure 29.4 30.2 30.8 31.2 33.2 33.2 32.6
Non-financial public-sector balance -1.9 -2.0 -4.0 -1.7 -3.3 -3.3 -2.5
Net public debt 44.8 47.2 52.9 56.3 61.8 62.0 60.8
Prices and financial indicators
Exchange rate C:US$ (end-period) 29.33 30.79 32.33 33.84 34.85 35.90 36.98
Consumer prices (end-period; %) 3.1 5.7 3.9 6.1 2.8 2.8 5.4
Stock of money M1 (% change) 0.2 13.5b -13.6b 20.1b 22.0 17.0 20.0
Stock of money M2 (% change) -0.2 13.0b -15.0b 16.4b 19.9 15.0 17.9
Lending interest rate (av; %) 11.4 10.8 10.9 12.5b 11.7 11.2 10.5
Current account (US$ m)
Trade balance -2,497 -2,370 -1,604 -1,055 -537 -689 -1,227
Goods: exports fob 3,795 4,180 4,197 4,342 4,785 5,095 5,160
Goods: imports fob -6,292 -6,549 -5,802 -5,397 -5,323 -5,783 -6,386
Services balance 392 527 402 519 336 393 424
Primary income balance -634 -712 -652 -466 -398 -478 -459
Secondary income balance 1,596 1,551 1,599 1,745 1,807 1,954 2,010
Current-account balance -1,143 -1,003 -255 743 1,208 1,180 748
External debt (US$ m)
Debt stock 10,985 11,461 11,618 11,534b 11,713 11,870 12,061
Debt service paid 829 1,140 1,066 1,246b 1,371 1,326 1,095
Principal repayments 605 870 791 885b 1,012 936 704
Interest 225 270 275 361b 359 390 390
International reserves (US$ m)
Total international reserves 2,448 2,758 2,261 2,397 2,900 2,800 2,701
a Actual. b Economist Intelligence Unit estimates. c Economist Intelligence Unit forecasts.
Source: IMF, International Financial Statistics.
Nicaragua 10
Quarterly data
2018 2019 2020
4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr
Non-financial public sector balance (C
m)
Revenue & grants 29,417 29,417 29,417 29,417 29,417 29,417 29,417 n/a
Expenditure & net lending 39,011 39,014 39,017 39,020 39,023 39,026 39,029 n/a
Balance -9,595 -9,598 -9,601 -9,604 -9,607 -9,610 -9,613 n/a
Prices
Consumer prices (av; 1994=100) 217.9 220.3 226.6 227.9 230.4 233.0 234.0 n/a
Consumer prices (% change, year on year) 4.5 3.9 5.8 6.0 5.8 5.7 3.3 n/a
Financial indicators
Exchange rate C:US$ (av) 32.13 32.53 32.92 33.33 33.70 33.96 34.21 34.47
Exchange rate C:US$ (end-period) 32.33 32.72 33.12 33.53 33.84 34.09 34.34 34.60
Deposit rate (av; %) 2.3 3.5 2.4 2.7 3.7 2.7 2.0 n/a
Lending rate (av; %) 12.5 12.5 13.3 12.0 12.0 11.5 12.0 n/a
Foreign trade (US$ m)
Exports fob 764.3 767.2 671.4 421.8 185.4 n/a n/a n/a
- -
Imports cif -1,319.2 -816.2 -349.1 n/a n/a n/a
1,397.4 1,427.8
Trade balance -633.2 -660.6 -647.8 -394.4 -163.6 n/a n/a n/a
Foreign payments (US$ m)
Merchandise trade balance -461.6 -244.1 -257.6 -229.5 -323.7 -148.5 n/a n/a
Services balance 82.9 98.1 141.7 115.2 164.3 155.9 n/a n/a
Primary income balance -145.2 -122.6 -124.8 -89.6 -129.4 -104.1 n/a n/a
Net transfer payments 418.9 395.8 437.8 450.8 473.5 445.5 n/a n/a
Current-account balance -105.0 127.2 197.1 246.9 184.7 348.8 n/a n/a
Reserves excl gold (end-period) 2,261.1 2,125.3 2,194.52,256.52,397.42,571.32,738.3 n/a
Sources: Banco Central de Nicaragua; IMF, International Financial Statistics.
Monthly data
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Exchange rate C:US$ (av)
2018 30.86 30.98 31.10 31.23 31.36 31.48 31.61 31.74 31.87 32.00 32.13 32.27
2019 32.40 32.53 32.66 32.79 32.92 33.06 33.19 33.33 33.47 33.60 33.71 33.80
2020 33.88 33.96 34.05 34.13 34.21 34.30 34.38 34.47 34.55 n/a n/a n/a
Exchange rate C:US$ (end-period)
2018 30.92 31.03 31.16 31.29 31.42 31.55 31.68 31.81 31.94 32.07 32.20 32.33
2019 32.46 32.59 32.72 32.85 32.99 33.12 33.26 33.40 33.53 33.67 33.75 33.84
2020 33.92 34.00 34.09 34.17 34.26 34.34 34.43 34.51 34.60 n/a n/a n/a
Deposit rate (av; %)
2018 2.6 0.5 0.6 2.0 0.5 0.5 0.8 0.6 0.8 1.0 2.8 3.1
2019 4.8 4.2 1.5 1.5 4.1 1.7 1.6 4.1 2.5 4.6 1.7 4.8
2020 2.9 2.6 2.6 2.7 1.7 1.5 2.4 n/a n/a n/a n/a n/a
Lending rate (av; %)
2018 12.9 8.5 8.1 10.4 9.6 10.4 11.2 10.2 12.1 12.1 12.1 13.4
2019 12.9 11.8 12.9 13.0 13.3 13.7 11.3 13.0 11.9 12.0 12.5 11.4
2020 11.8 12.4 10.5 12.1 12.4 11.6 10.0 n/a n/a n/a n/a n/a
Consumer prices (av; % change, year on year)
2018 5.4 4.8 4.8 4.8 5.3 5.7 5.2 5.0 5.1 5.1 4.4 3.9
2019 3.3 3.4 5.1 5.8 6.0 5.6 6.1 6.3 5.6 5.4 5.7 6.1
2020 6.4 6.4 4.4 3.2 2.9 3.6 n/a n/a n/a n/a n/a n/a
Foreign-exchange reserves excl gold (US$ m)
2018 2,782.4 2,813.2 2,891.7 2,970.2 2,902.3 2,654.2 2,496.3 2,446.7 2,301.6 2,260.1 2,250.6 2,261.1
2019 2,179.0 2,149.8 2,125.3 2,174.4 2,145.1 2,194.5 2,183.9 2,201.1 2,256.5 2,317.3 2,352.3 2,397.4
2020 2,419.5 2,446.5 2,571.3 2,664.8 2,727.8 2,738.3 2,767.6 n/a n/a n/a n/a n/a
Sources: Banco Central de Nicaragua; IMF, International Financial Statistics; Haver Analytics.
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Annual trends charts
Nicaragua 12
Monthly trends charts
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Comparative economic indicators
Basic data
Land area
121,428 sq km; mountainous upland in the central area, with a wide plain on the western coast and
tropical forest on the eastern coast
Population
6.5m (2018, UN estimate)
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Main towns
Population in '000 (2012, official estimates)
Managua (capital): 1,448
Matagalpa: 542
Chinandega: 423
León: 404
Masaya: 348
Nueva Segovia: 243
Estelí: 221
Climate
Semi-tropical; tropical rainforest on the Atlantic coast
Weather in Managua (altitude 83 metres)

Hottest month, May, 2732°C (average daily minimum and maximum); coldest month, January, 23
30°C; driest month, January; wettest month, October
Languages
The official language is Spanish. Miskito, Mayangna, Garífuna and English are spoken on the
Atlantic coast
Measures
Metric system, but imperial measures are in popular use. Other measures include:
Quintal = 46 kg
Manzana = 0.7 ha
Currency
Córdoba (C); average exchange rate in 2019: C33.12:US$1; yearend rate in 2019: C33.84:US$1
Time
6 hours behind GMT
Public holidays
January 1st (New Year's Day); April 9th (Maundy Thursday); April 10th (Good Friday); May 1st
(Labour Day); July 19th (Sandinista Revolution Day); September 14th (Battle of San Jacinto);
September 15th (Independence Day); December 8th (Immaculate Conception); December 25th
(Christmas Day)
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Political structure
Official name
Republic of Nicaragua
Form of state
Presidential democracy with National Assembly
The executive
The president is head of state, head of government and commander-in-chief of the armed forces.
They are elected for a period of five years and appoint a cabinet
National legislature
National Assembly: a 92-member unicameral legislature, elected by proportional representation for
five years
Legal system
Supreme Court, at the apex of a subordinate court system, elected by the National Assembly for
five years
National elections
The last presidential and legislative elections took place on November 6th 2016. The next elections
are due in November 2021
National government
The president, Daniel Ortega, governs with the support of the Frente Sandinista de Liberación
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Nacional (FSLN, the Sandinistas)
Main political organisations

Government: FSLN
Opposition: Alianza Cívica por la Justicia y la Democracia (AC), Unidad Nacional Azul y Blanco
(UNAB), Ciudadanos por la Libertad (CxL), Partido Liberal Constitucionalista (PLC)
Key ministers
President: Daniel Ortega Saavedra
Vice-president: Rosario Murillo
Agriculture: Edward Francisco Centeno
Defence: Martha Elena Ruiz Sevilla
Development, industry & commerce: Orlando Solórzano
Economy, family & community: Justa Pérez Acuña
Education, culture & sports: Miriam Soledad Ráudez
Energy & mines: Salvador Mansell Castrillo
Environment & natural resources: Fanny Sumaya Castillo
Family: Johana Vanessa Flores Jiménez
Finance & public credit: Iván Acosta
Foreign affairs: Denis Moncada Colindres
Health: Martha Verónica Reyes Álvarez
Interior: María Amelia Coronel Kinloch
Labour: Alba Luz Torres Briones
Transport & infrastructure: Óscar Salvador Mojica Obregón
Central bank president

Leonardo Ovidio Reyes Ramírez
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Recent analysis
Generated on November 17th 2020
The following articles have been written in response to events occurring since our most recent forecast was
released, and indicate how we expect these events to affect our next forecast.
Politics
Analysis
Latin America looks to shifts in policy under Biden
November 12, 2020: International relations
The recent election of Joe Biden as US president promises a return, in large part, to the status
quo of US-Latin American relations seen during the administration of a former president,
Barack Obama (2009-17). This will involve a less draconian immigration policy, support for
trade, rapprochement with Cuba and a change of tack on Venezuela. However, we do not expect
the US policy focus on immigration and security to change under Mr Biden. This threatens to
crowd out other issues of mutual interest where the US risks losing influence to other
countries, particularly China. The evolving relationship between China and Latin America and
the Caribbean (LAC) is, in fact, likely to emerge as one of the Biden administration's key policy
challenges in the region.
US-Latin American policy has for many years revolved around the three main issues of
immigration, security and trade, and has been heavily focused in recent decades on Mexico,
Central America and the Caribbean. In South America, US relations with Colombia and Venezuela
have provided scarce examples of close co-operation and conflict respectively. These priorities
have not changed under the current US president, Donald Trump, although his administration has
taken a much more aggressive policy stance, creating tensions with Mexico and Central America,
particularly on issues of trade and immigration.
Outside these areas, there has been a feeling on the part of LAC leaders that the Trump
administration has failed to engage much with the region. This seems likely to change at least
somewhat under Mr Biden, who had an important role in managing Mr Obama's Latin America
policy during their two terms in office, and it is likely that the region will be considered
strategically important, even if there are priorities elsewhere. Mr Biden will benefit from some of
Mr Trump's few successes in the region, such as the negotiation of the United States-Mexico-
Canada Agreement (USMCA). However, he will also inherit some of his predecessor's most
controversial policies towards Latin America, chief among them the problem of immigration.
Immigration in the spotlight

The Trump administration's immigration policies—including widespread detentions of immigrants
and their families, as well as limits on protections for immigrants who arrived in the US as children
under the Deferred Action for Childhood Arrivals (DACA) programme—have been met with
considerable criticism in Latin America. Mr Biden has promised to continue supporting DACA
and is likely to focus deportation and detention efforts more closely along the border.
However, evidence from the Obama administration suggests that policy will not change wholesale
under Mr Biden. Although frequent claims that deportations were higher under Mr Obama than
under his predecessors are incorrect, Mr Obama did significantly increase deportations that
involved a legal process and a formal court order (this procedure is known as a "removal"). This
also resulted in an expansion of the immigration detention infrastructure, which Mr Trump has
leveraged to increase border detentions. The Obama administration also promoted the use of
Mexico's security forces to stop migrants at Mexico's southern border, in order to combat the
"caravans" of immigrants from Central America (which now account for the bulk of illegal
immigration) that have become common in recent years. This has been continued by the Trump
administration, albeit through more coercive means, including a threat of trade sanctions against
Mexico in mid-2019.
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Mr Biden is unlikely to resort to those threats but will continue to seek ways of curtailing
immigration from the sub-region, particularly from the three Northern Triangle countries
(Guatemala, El Salvador and Honduras). His major policy proposal is a US$4bn regional strategy
to combat the underlying drivers of immigration, working in some areas with development banks,
although the concrete details of the strategy remain vague. The plan does appear to be highly
conditioned on Central American countries combating corruption.
Friends and enemies

Although the data are incomplete, US foreign assistance to Latin America and the Caribbean is
likely to have declined substantially under Mr Trump. Under Mr Biden, we expect total funds to
Latin America to increase once again, and for some of this to be focused on economic
development and institutional capacity-building. However, as has been the case for many years,
security will continue to represent a big chunk of US aid to Latin America. Mr Biden's proposals
on regional security have not been fully developed, but if his time as vice-president is any guide,
these will be modelled on the US's existing plans such as Plan Colombia and Plan Mérida
(México). These plans involve high levels of military and security aid, training for local security
forces, and in some cases the deployment of US security forces (ostensibly in an advisory role),
as evidenced by the recent deployment of a Security Force Assistance Brigade (SFAB) in
Colombia on a four-month operation. Mr Biden has previously praised programmes such as Plan
Colombia for helping to reduce levels of violence in the country. The US has also provided
considerable security aid in Central America.
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Although Colombia, Mexico, Central America and parts of the Caribbean will continue to take the
lion's share of US foreign assistance to the region, Cuba and Venezuela will remain the US's
biggest individual policy and diplomatic challenges in Latin America. With regard to Cuba, it is
likely that some elements of the 2014-17 rapprochement that took place under Mr Obama will be
restored under Mr Biden, particularly those concerning travel, investment and remittances.
However, even assuming some easing in policy under the next US government, we currently
assume that trade sanctions will remain in place.
Meanwhile, the difficult standoff with the administration of Nicolás Maduro in Venezuela will
continue, although we expect a change of tack from Mr Biden. The president-elect has recognised
the opposition leader, Juan Guaidó, as the legitimate president of Venezuela; this should put him
immediately at odds with Mr Maduro, who is increasingly secure in his position following failed
attempts by the opposition to remove him. However, Mr Biden is unlikely to make overt calls for
regime change (by force if necessary), as has been common under the Trump administration,
particularly when John Bolton was national security adviser and tensions with Venezuela were at
their peak. The Trump administration has also levied economic sanctions on Venezuela, but there
has been no commitment by Mr Biden to remove them. Although some easing of sanctions is
possible, particularly on humanitarian grounds, we believe that the Biden administration is likely
to work closely with the opposition and maintain pressure for a negotiated resolution to
Venezuela's political crisis, for instance through guaranteed free and fair elections.
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Mr Biden may also struggle to deepen the US's diplomatic ties with certain countries where Mr
Trump has cultivated a strong personal relationship with the leader, such as Jair Bolsonaro's
Brazil. Mr Biden could end up being at odds with Mr Bolsonaro over the Brazilian president's
policies on climate change and Amazon deforestation. Mexico remains a question mark. Although
in theory Mr Biden and his Mexican counterpart, Andrés Manuel López Obrador, are more
ideologically aligned, Mr López Obrador had developed a reasonable working relationship with
Mr Trump, although this was founded on a power imbalance between the two sides and fear of
US policy reprisals. On top of this, the Mexican president is a populist with his own record of
refusing to respect election results (this happened in 2006, when he narrowly lost the presidential
election). Although we expect relations to remain sound—bearing in mind Mexico's reliance on
the US—Mr López Obrador has certainly got off on the wrong foot by refusing (like Mr Bolsonaro
but unlike the rest of Latin America) to recognise Mr Biden's victory until all legal challenges have
been exhausted. Barring these (significant) exceptions, however, most countries in the region will
find more compatibility with Mr Biden's view of the world than with Mr Trump's, ensuring an
amicable relationship.
Losing economic ground

Although US-Latin American relations seem likely to be warmer under Mr Biden, and there is
likely to be some increase in aid to the region, we do not believe that the president-elect will have
much luck in increasing US economic engagement with Latin America—or countering the growing
economic influence of China. Thankfully, the ratification of the USMCA has largely put an end to
US trade threats towards Latin America. Mr Biden has a more benign view of trade than
Mr Trump; this will be one area in which a Biden administration will find it easier to restore the
pre-Trump status quo. The Biden administration may also have some interest in attempting to
reshore supply chains into the western hemisphere in order to avoid disruptions of the kind seen
Nicaragua 21
during the coronavirus (Covid-19) pandemic. Concrete initiatives in this area would be welcome in
the likes of Mexico, Central America and Colombia, although they will be complicated by issues of
labour cost, skills and logistics capacity.
Moves of this kind would help the US to regain some of the ground that it has lost to China over
the past decade, but we remain doubtful about the extent to which the US's economic relationship
with LAC will grow amid the region's deepening links with China. For many large economies in
South America in particular, China is already a more important trading partner than the US. As we
have previously highlighted, China's growing economic influence in the region does not
necessarily reflect US negligence, but rather a lax stance on conditionality by Chinese firms
seeking to secure resources. Bearing in mind that US (and other) firms are likely to be much more
easily deterred by questions over contract rights, institutional strength and corruption than their
Chinese counterparts have been to date, the incoming Biden administration will find it difficult to
reverse China's growing economic presence in South America.
This may ultimately prove Mr Biden's biggest policy challenge in Latin America, and US pressure
in technology, including the region's development of fifth-generation (5G) services, as well as
finance and investment, is likely to build under Mr Biden, if anything. However, the president-
elect may be more inclined to use the carrot than the stick to make fresh policy gains in Latin
America.
Economy
Forecast updates
Workers' remittances from abroad remain dynamic
November 16, 2020: External sector
Event
According to the Banco Central de Nicaragua (the central bank), workers' remittances from abroad
rose by 9% year on year, to US$1.4bn (12% of GDP), in January-September.
Analysis
Workers' remittances continue to support Nicaragua's domestic consumption and balance of
payments. According to private-sector estimates, 700,000 households (roughly 40% of the total)
receive such transfers from abroad. In 2019 total remittance inflows amounted to
US$1.7bn (13.4% of GDP), up from US$1.5bn (11.5% of GDP) in 2018. Continued strong remittance
growth in 2020 is unusual, coming as it does amid the coronavirus (Covid-19) pandemic and
accompanying surges in unemployment worldwide. Generally speaking, flows of remittances to
Nicaragua fluctuate in tandem with employment trends in host countries, a rule of thumb that has
(temporarily) fallen by the wayside.
Nicaragua 22
Remittances from the US totalled US$808m in January-September, a 17.6% year-on-year gain

despite the fact that unemployment among Hispanics exploded as a result of the pandemic.
According to the US Bureau of Labour Statistics, Hispanic unemployment rose from a very
modest 4.1% in October 2019 to a peak of 18.5% in April 2020, before subsiding gradually to
8.8% in October 2020. A similar situation is evident in Spain, from which remittances were up by
22.1% year on year, to US$193m, despite that country's travails with Covid-19. Only Costa Rica
conformed to the usual pattern; as unemployment surged in Costa Rica, remittances to Nicaragua
fell by 10.3% year on year, to US$198m.
The overall robust growth in remittances is unusual, but not altogether unexpected. Access to
expanded unemployment insurance is likely to have helped some migrants in the US to generously
support family members back home. Similarly, unemployment benefits and the introduction of a
means-tested "minimum income scheme" in Spain are likely to have aided the growing diaspora of
Nicaraguans. By contrast, the decline in remittances from Costa Rica partly reflects less generous
fiscal support measures by that country's government. It also reflects the fact that many
Nicaraguans who emigrated to Costa Rica in recent years have been unable to secure a foothold
in its labour market, hindering their ability to assist relatives at home.
Impact on the forecast

Our forecasts are unchanged. We expect remittance growth to moderate in 2021 as governments in
source countries dial down fiscal stimulus. Nonetheless, at a forecast 14.9% of GDP in 2021,
remittances will provide much-needed support to the current-account surplus and to
private consumption.
Analysis
NFPS deficit to remain wide in 2021
November 3, 2020: Fiscal policy outlook
In mid-October the Ministry of Finance presented its budget bill for 2021. The proposed budget
envisages only marginal increases to central government revenue and spending, helping to
contain the central government deficit to just 0.2% of GDP that year. However, rising costs in
an ailing social security system and continued problems with key government enterprises will
keep the broader non-financial public-sector (NFPS) deficit relatively wide, at an officially
projected 3.5% of GDP. Financing the NFPS deficit will prove challenging, given the
government's restricted access to financing from official creditors.
The budget makes fairly conservative assumptions about the state of the economy. The finance
ministry assumes modest real GDP growth of 0.5% in 2021, following an officially estimated real
GDP contraction of 4.5% in 2020. By contrast, The Economist Intelligence Unit forecasts real GDP
growth of 1% in 2021, following a contraction of 3.2% in 2020. We recently upgraded our GDP
Nicaragua 23
projections for 2020-21, following the lagged publication of data by the Banco Central de
Nicaragua (BCN, the central bank), which showed that activity contracted by just 3.2% year on
year in January-August.
Central government deficit in check

The authorities are projecting total central government revenue of C80.7bn, up by just 1.9% in
nominal terms compared with the sum budgeted for 2020 and static as a percentage of GDP,
at 18.5%. Income tax revenue is expected to increase by 4.6% (i.e. marginally in real terms) and
excise taxes by 3.5%. But value-added tax (VAT) proceeds will barely rise at all (by 0.5%), while
revenue from fuel tax will drop by 7% owing to lower oil prices.
Central government expenditure will rise even more slowly, by a mere 0.8% to C81.5bn or 18.7% of
GDP (up slightly from a budgeted 18.5% of GDP in 2020). Although current spending increases by
2.4%, capital outlays are expected to fall by 5.1%. Spending increases will be most notable in the
health system—owing to the coronavirus (Covid19) pandemic—and in the Supreme Electoral
Council, which will receive an extra C773m (US$22m) to cover the cost of the elections.
The expenditure budget is silent about wage increases for public-sector workers, but maintains
public subsidies and transfers to municipal governments at roughly their 2020 levels. With this
restraint, the central government deficit is projected to be a mere 0.2% of GDP (down slightly from
an officially estimated 0.4% in 2020).
In our view, both revenue and expenditure are likely to be higher than the government anticipates.
On the revenue front, we expect aggressive enforcement by the tax administration to boost
revenue collection in 2021. Indeed, tax collection by the central government fell by just 2.3% in
January-July 2020, despite the pandemic-induced recession as a result of strict tax enforcement.
At the same time, we anticipate expenditure to be higher than the level contemplated in the
budget, as the government seeks to shore up its dwindling base of support, in addition to
maintaining its system of political patronage.
Nonetheless, on balance, we believe that a central government deficit equivalent to 0.2% of GDP
is reasonable. That said, available external resources to meet financing needs will be much
reduced next year, with foreign donations falling by a nominal 18.8%, to US$43m, and net foreign
loans (after paying service on the foreign debt) by 11.5%, to US$101m. As a consequence,
although external aid receipts will suffice to cover the budget gap and pay off internal debt service
of C4.2bn (US$120m), nothing will be left over to help cover shortfalls in other parts of the public
sector.
The NFPS gap will remain sizeable

Although the central government deficit is poised to be modest, the deficit of the social security
administration, which has been growing since 2014, is slated to swell to C8bn (US$230m) in 2021,
equivalent to more than 1.8% of GDP and up from 1.5% of GDP estimated for 2020. Nicaragua's
public enterprises are expected to fare little better, generating a total shortfall of C7.7bn, again
almost 1.8% of GDP—similar to its 2020 level. The national water company, Enacal, the power
transmission company, Enatrel, and the port system are the chief culprits generating deficits in
their accounts. Factoring in all other government components, the combined public-sector deficit
is projected at C16.5bn (or 3.8% of forecast 2021 GDP). Stripping away the deficits of public
financial entities, the government forecasts that the NFPS deficit will equal3.5% of GDP next year.
This result is broadly similar to our own forecast for an NFPS deficit of 3.3% of GDP in 2021.
Financing the NFPS deficit will prove challenging given that international sanctions have
significantly curbed Nicaragua's access to new multilateral and bilateral finance. The government
is likely to step up non-concessional borrowing from entities outside the purview of sanctions,
such as the Central American Bank for Economic Integration (CABEI). However, even when
taking into account increased financing from CABEI, the government is likely to have to dip into
the BCN's international reserves in order to close its financing gap.
Hurricane Eta takes a heavy toll on Central America

November 13, 2020
Hurricane Eta, the most severe of the 2020 hurricanes so far, made landfall in Central America
Nicaragua 24
on November 3rd. The hurricane came ashore in Nicaragua, just south of Puerto Cabezas at
Category 4 strength. The hurricane then moved north through the region, causing major
damage as a result of direct impact, flash floods, landslides and mudslides. Although much of the
damage has yet to be fully assessed, preliminary indications suggest that the affected
governments will face substantial clear-up costs, at a time when the financial ramifications of
the coronavirus (Covid-19) pandemic are already weighing heavily on domestic economic and
fiscal prospects.
The hurricane has caused 153 deaths across the region, with the bulk in Honduras (63) and
Guatemala (42), as well as 27 in Mexico. Only two deaths were recorded in Nicaragua despite
reports of major damage near Puerto Cabezas, which may reflect the low population density in that
area (the North Caribbean Coast Autonomous Region) and government efforts to evacuate people
ahead of the hurricane; about 10,000 people were moved into temporary shelters.
Hurricane damage
The hurricane damage is still being assessed as authorities work to restore power and assess the
damage to infrastructure. Despite making landfall in Nicaragua, Honduras has suffered the most
from Hurricane Eta. Initial estimates from the government indicate that the damage could equate to
US$3bn-5bn (11.5-19.2% of estimated 2020 GDP). Mudslides and flooding affected an estimated
2m people, while numerous buildings and roads suffered structural damage. An estimated
150,428 families have been affected, with 2,384 homes damaged or destroyed. The scale of the hit
to infrastructure is unclear, but reports indicate that at least 21 bridges and 14 main roads were
destroyed, and the country's second-largest airport, La Lima, was flooded. In addition, there has
been substantial damage to crops, with the Consejo Hondureño de la Empresa Privada (Cohep,
the private enterprise council) warning on November 9th that 150,000 ha of palms, 13,000 ha of
bananas and 20,000 ha of sugar were still flooded following the hurricane.
Meanwhile, the Nicaraguan government issued a preliminary report on November 9th estimating
that the hurricane had caused US$172m in damage, with reconstruction and clean-up costs
estimated at US$35,900. According to the report, 1,890 homes were destroyed and 8,030 damaged,
while 66 bridges, 901 km of roads, 16 health centres and 45 educational centres were damaged. In
Guatemala, much of Puerto Barrios (in the Caribbean department of Izabal) has been flooded, with
damage to the city still being assessed. Early reports indicate that more than 24,000 houses
suffered mild or severe damage, 11 roads were destroyed (133 registered moderate destruction)
and 20 bridges were washed away. Other countries in Central America, including Costa Rica
and Panama, were also affected by Hurricane Eta in the form of extreme rain. Western Panama and
the Costa Rican Pacific also suffered flooding and crop losses, albeit to a lesser extent than in
Honduras or Guatemala.
Economic impact
The damage caused by Hurricane Eta comes at a difficult time for Central America, as the region is
already struggling to cope with the economic blow of Covid-19. Although economic reopening is
well under way in Guatemala and Honduras—and although closures have been largely voluntary
in Nicaragua—these economies were on course for sharp contractions in 2020, even before
factoring in the hurricane damage. Further, the damage puts at risk moderate recoveries that we
had pencilled in for 2021. We will revise down our 2020-21 GDP projections for Honduras and, to a
lesser extent, Guatemala, given the magnitude of the damage to infrastructure and the impact on
the agricultural sector.
In addition, the costs of hurricane reconstruction will weigh on state finances, undermining
economic recovery prospects into 2021. This is particularly the case given that governments have
already increased spending as part of their pandemic responses, aiming to provide unemployment
and business support, as well as stimulus measures as their economies began to reopen. This
high spending has widened fiscal deficits across the region, leaving the countries affected by the
hurricane with little leeway to find additional spending for relief and reconstruction efforts.
Post-hurricane
In Honduras, which has sustained the most severe hurricane damage, the president Juan Orlando
Hernández has already announced a US$49m hurricane response package that focuses on
Nicaragua 25
infrastructure repair and reconstruction. This is set to push up the country's financing needs even
higher; Honduras had already approved an emergency widening of the non-financial public-sector
deficit in 2020-21. Extra financing needs caused by the hurricane will drive affected countries to
seek more international aid, with Mr Hernández leading calls for the World Bank, the Inter
American Development Bank and the Central American Bank for Economic Integration to assist
the region in its hurricane recovery efforts by combating climate change. Although the link
between climate change and increased severity of the hurricane season will encourage long-term
co-operation in this area, in the short term, the affected Central American countries will need to
finance hurricane recovery efforts partly out of funds previously earmarked for the pandemic
response. Moreover, the extreme conditions provoked by Hurricane Eta will spur further outward
migration flows, as many of those affected seek will better livelihoods outside their home
countries.

Country Report Nicaragua November 2020

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Country Report Nicaragua November 2020

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Country Report Nicaragua November 2020

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Generated on November 17th 2020

Hong Kong Geneva

This report can be accessed electronically as soon as it is published by visiting store.eiu.com or by

Symbols for tables

Outlook for 2021-25

Data and charts

Political and economic outlook

Key changes since September 25th

The month ahead

Major risks to our forecast

Outlook for 2021-25

Data and charts

Annual trends charts

Monthly trends charts

Comparative economic indicators

Weather in Managua (altitude 83 metres)

Main political organisations

Central bank president

Immigration in the spotlight

Friends and enemies

Losing economic ground

Remittances from the US totalled US$808m in January-September, a 17.6% year-on-year gain

Impact on the forecast

Central government deficit in check

The NFPS gap will remain sizeable

Hurricane Eta takes a heavy toll on Central America

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