Economist warns that Nicaragua’s growth in the region does not mean more jobs and better quality of life. These are the IMF’s forecasts for the region
Nicaragua’s economy will grow longer than expected and will sneak among those that will expand the most this year in Central America. The International Monetary Fund improved its forecasts for the performance of Nicaragua’s Gross Domestic Product (GDP), initially estimated at 3.5 percent and now raised to 4 percent, almost in line with the projections of the Central Bank of Nicaragua.
The improvement in the forecasts of the International Monetary Fund puts Nicaragua’s GDP among the economies that will expand the most this year in the region, even above Panama that in recent years had looked at growth above 5 percent and will now remain in the regional tail with 2.5 percent.
Only the Dominican Republic will be at the forefront of regional growth with 5.1 percent; followed by Costa Rica that will experience the same Nicaragua rate. In the third position will be Honduras with 3.6 percent.
Guatemala will remain the fourth economy in the growth range, with an expansion of 3.5 percent; followed by El Salvador, in the penultimate position with three percent.
Nicaragua’s economy will even be above the expected average for Latin America and the Caribbean, which is expected to be 2.1 percent, according to the IMF.
It’s pure arithmetic.
Arithmetically can the Fund say that Nicaragua will be among the most growing, but there is an undeniable reality: it is a growth that is not producing jobs, not enough to curb, for example, migration. And that can be reflected in the same statistics of the Social Security Institute, where there are serious problems getting affiliates, explains an economist, who prefers not to be cited for fear of reprisals.
In a recent update on economic outlook, the Central Bank indicated that it estimated the expansion of GDP, driven by remittances, the services sector, foreign investment and increased tax collection, among other factors, in a range of 3.5 to 4.5 per cent.
In its report, the top bank issuer admitted the poor performance of the labour market. INSS had been able to increase its affiliate base by 1.1 per cent until September.
In line with the performance of economic activity, the unemployment rate remains low (3 per cent as of August), accompanied by a reduction in the underemployment rate, however, the lag in the recovery of labour participation. Also, as of September, stability in formal employment has been reflected, with an annual increase of 1.1 percent in membership of the Nicaraguan Social Security Institute (INSS), he said in his report.
Reality is another
The economist acknowledged that the IMF generally aligns itself with official forecasts and that this could explain its update. The reality is what people live, jobs, wages, prices in the market and in that we are not very good for it to be said, he emphasizes.
In fact, the same numbers show that until August of this year, the ability to buy the wages of more than 800 thousand formal workers was 4,692.5, less than in December, but better than in the same month last year.
Meanwhile, the real wage of government workers, which reflects the ability of a wage to buy goods and services, stood at 4,541.8 córdobas, slightly higher than 4,458.1 in December last year and 4,379.3 córdobas in the same month of 2023.
IMF recommendations
At the regional level, the Fund expects growth in the region to remain near its historically low average due to persistent unresolved problems, such as low investment and low productivity growth, and demographic changes.
What is worrying is that the ongoing reform agenda is considerably reduced and could lead to a vicious cycle of low growth, social discontent and populist policies. To avoid this situation, reforms must continue. Improving governance – by strengthening the rule of law, improving government effectiveness and combating crime – is a priority that covers all areas of growth,” he said.
The Fund recommended that the region promote capital accumulation need to improve the business climate, promote competition and promote foreign trade. There is also a need to expand public investment and make it more effective. In order to maintain a dynamic workforce and boost productivity, it is necessary to address informality and make formal labour markets more flexible, inter alia, so that they can adapt to new technologies. Increasing women’s participation can help to expand the workforce and counteract demographic changes.
The outlook for 2025
As for next year’s projections, the Monetary Fund predicts slower growth for Nicaragua, with a rate of 3.8 percent, which, however, will be the second highest rate in Central America and the Dominican Republic.
The Dominican Republic would again lead growth with 5 percent; followed by Nicaragua and then Guatemala with 3.6 percent; Costa Rica and Honduras would share the same seat with 3.5 percent; and El Salvador and Panama will stay in line with 3 percent.
This article has been translated after first appearing in La Prensani