Nicaragua Economy

June 29, 2010Nicaraguaby EconomyWatch

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Nicaragua, with a population of over 5 million (CIA July 2008 estimates) had a GDP growth of 2.90 % in 2007 and GDP purchasing power parity $16.17 billion.

Agriculture contributes about 16.9%, while industrial produces form 25.8% of Nicaragua national economy. Some of the major industries in Nicaragua include food processing, chemicals, machinery and metal products, textiles, clothing, petroleum refining and distribution, beverages, footwear, and wood carving.

Nicaragua has made considerable progress despite devastating natural calamities and civil wars. The country has progressed towards macroeconomic stability in the past few years.

Real economic growth of Nicaragua fell from 7.4% in 1999 to 1% in 2002, then turned around to grow back to 2.3% in 2003, and about 4% in 2004. Foreign investments grew by about 35% since 2001 and remain steady at about $200 million per year. In January 2004, Nicaragua reached the completion point of the Heavily Indebted Poor Country (HIPC) Initiative and, as a result, will have approximately 80% of its external debt forgiven.

Nicaragua is the second-poorest country in the US, ahead of only Haiti. The country has widespread underemployment (over 4.9%), one of the highest degrees of income inequality in the world, and the third lowest per capita income in the Western Hemisphere. Though it has done formidable progress in achieving macroeconomic stability in the recent years, the annual GDP growth has been insufficient to meet the country's needs. Nicaragua depends largely on international economic assistance to meet fiscal and debt financing obligations. In the year 2004, Nicaragua secured $4.5 billion in foreign debt reduction under the Heavily Indebted Poor Countries (HIPC) initiative, and in October 2007, the IMF approved a new poverty reduction and growth facility (PRGF) program for creating fiscal space for social spending and investment. The US-Central America Free Trade Agreement (CAFTA) has been in effect since April 2006. This has opened fresh export opportunities for many agricultural and manufactured goods. Energy shortages fueled by high oil prices, is a major growth deterrent for Nicaragua.

Consumer prices in Nicaragua rose by 0.17% in August 2006. Year-on-year inflation came to 8.65% in the month, indicative of a downward path over the past quarter. Inflation in August 2005 was 9.7% year-of-year and 0.48% month-of-month. Domestic prices will continue correspond to changes in world oil prices, which during August saw a slight decrease, leading to a temporary fall in the prices of petrol and diesel.

GDP ranking 103 GGDP (PPP) $17.09 billion (2006 est.) GDP growth rate 2.90 % GDP per capita $3,100 (2006 Est.) Inflation 9.8% (2007 est.)

 

Country Forecast Overview (2007-08)

Key factors 2007 2008 Real GDP growth 1.10 1.40 Consumer price inflation (avg; %) 11.13 21.30 Budget balance (% of GDP) -3.07 -4.80 Current-Account Balance (% of GDP) -17.48 -20.80 Exchange Rate US$: Euro (avg) 18.45 19.39 Exchange Rate US$:Euro 18.90 19.85