Nicaragua has been experiencing political and economic instability since 2018, which has had a significant impact on the country’s economy. The country’s economy has been heavily constrained by low human capital, significant infrastructure gaps, and a weak institutional and business environment.
The political crisis has led to a decline in foreign investment, a decrease in economic growth, and a rise in inflation. The country’s economy is highly vulnerable to climatic shocks, and the impact of climate change has led to a decrease in agricultural productivity, exacerbating food insecurity and poverty. The level of extreme poverty is expected to reach 44.1% in 2023, and the country is highly vulnerable to climatic shocks.
The government has been urged to adopt ambitious institutional and economic reforms to place Nicaragua on a more dynamic path and offer better economic opportunities to the entire population, especially women and young people. The World Bank has supported poverty reduction measures in Nicaragua through the International Development Association (IDA), the World Bank’s fund for the poorest countries to boost their economy.
The instability has rocked Nicaragua’s developing market, which is now expected to contract by 6 percent this year. The workforce has shrunk by 10 percent, and panicky investors have pulled out some $1 billion in capital. The tourism sector, once a pillar of growth, has been particularly hard hit, with many hotels and restaurants closing or cutting back service.
Ongoing political and social unrest since 2018 has led to economic contraction, with GDP declining over 4% in 2018 and nearly 6% in 2019.
Key sectors like— tourism, manufacturing, construction and retail of Nicaragua have been negatively impacted due to reduced economy investment, disruption of supply chains, and dampened consumer demand. Government crackdowns on civil liberties and democratic institutions have damaged business confidence and Nicaragua’s investment climate
Economic instability has contributed to rapid inflation and currency devaluation, eroding purchasing power and standards of living for most Nicaraguans.
