Although no agency has predicted growth for Nicaragua of more than 4 percent for this year and last year, Daniel Ortega’s regime estimated that the economy could expand to 4.5 percent at the end of the period, according to an update from the Central Bank. By 2023, the government believes growth could have reached up to 5 percent.
In the best results in the second half of 2023, the NCB is projecting that economic growth of 2023 will be in a range of between 4.0 and 5.0 percent and that in 2024 it will be in a range of between 3.5 and 4.5 percent, indicates the maximum bank issuer in its monetary and exchange rate policy report for January.
But the forecasts of international agencies, which then adopt the official figure at the end of the year, do not go down that line. All, including the International Monetary Fund, have pointed out that Nicaragua is heading for a long period of low growth, not even reaching levels prior to the socio-political crisis of 2018.
BM projects lower growth
In 2024 and in the medium term, real GDP is expected to increase by about 3.5 percent, supported mainly by private consumption, below the historical averages (2000-17) of 3.9 percent, given the cautious recovery of investment, limited new approved official financing and the lower contribution of the labour force to growth due to recent emigration, the Fund said in its latest Article IV report to Nicaragua.
For its part, the World Bank, in an update of its global projections in January, predicts that Nicaragua’s GDP over the next two years will not exceed 3.5 percent growth, which would be the best rate since 2021, when a year after the pandemic, it was 10.3 percent.
Meanwhile, the Economic Commission for Latin America and the Caribbean estimated in its third quarter-old update last year that Nicaragua’s growth for this year would be one of the lowest in the hemisphere, with 2.9 percent.
In June last year, The Economist Intelligence Unit (EIU), of the prestigious British publisher The Economist, warned that Ortega will remain in power, but will rest on an economy with mediocre growth. Several of these trends will last in 2024-2027, maintaining growth at an average of 2 percent per year. In their report, they mention that GDP will expand this year 1.2 percent, next year 2.2 percent, in 2025 and 2026 it will grow 1.9 percent each of those years, and in 2027 it will increase 2 percent.
On employment and inflation
Nicaragua’s prospects for economic growth are tarnished by recurrent political conflicts and little confidence in the rule of law – despite the lucrative opportunities in mining, energy and manufacturing. Nicaragua will therefore remain one of the poorest countries in Central America.
The central bank focuses its growth expectations for this year on the evolution that the economy showed in the second half of last year. Thus, by the end of 2023, the Nicaraguan economy has managed to consolidate on a path of sustained growth, registering an expansion driven by the good performance of most economic sectors and domestic demand, while the employment rate remains stable and inflation is reduced.
The Monthly Index of Economic Activity (IMAE) of November 2023 shows that economic activity grew 4.7 percent in accumulated terms, driven mainly by hotels and restaurants, exploitation of mines and quarries, energy and water, trade, financial intermediation and construction.
What the Government does admit is that although it expects a moderate growth rate, employment generation will remain stagnant and price rises will continue, but also at a slower rate than the last two years.
Inflation and other indicators
Inflation by 2024 is expected to converge to a range of between 3 and 4 per cent. The inflationary goal is based on an appropriate fiscal, monetary and exchange rate policy framework, with the Government’s subsidy policies to contain the increase in the cost of living of the population and the establishment of the zero per cent exchange slide rate for this year. While the forecasts for 2024 are positive, these are conditioned on the continuity in the decrease in international price pressures and the prospects for a good cycle of agricultural production.
While the labour market provides for an unemployment rate of between 3 and 3.5 per cent. On the external sector side, the balance of payments is expected to show a current account surplus of between 4.5 and 5.5 per cent of GDP by 2023 and between 3 and 4 per cent of GDP by 2024, he says.
Regarding the córdoba access rate for the national financial system, the Central Bank says it expects to keep it at its current level of 7 percent, being one of the highest in recent years. With regard to MTA (monetary reference rate), the NCB expects that it will remain unchanged at 7.0 per cent in the short term, as long as the MRD continues to contribute to the stability of economic growth, employment and prices, and to facilitate financial intermediation. However, the NCB may make adjustments to the MTA in accordance with international conditions and internal monetary and financial conditions, he said.
Interest rates
And although access to the córdoba is expensive, the NCB says that the NCB’s interest rate policy, together with the rest of its monetary instruments, will continue to focus on promoting financial intermediation and credit mobilization, with the aim of supporting economic growth.
Among the risks, the Central Bank mentions the materialization of shocks from geopolitical conflicts that result in increases in oil and food prices, generating pressures on domestic prices, and the effects of the tightening of global monetary policy to contain more persistent inflation, which could further slow the dynamics of world production and affect exports.
Internally, the risks related to climate events persist, which may have an impact on the evolution of macroeconomic variables.
This article has been translated from the original which first appeared in La Prensa NI