Nicaragua

Activity driven by consumption, but weakened by tighter US policy

Growth will slow in 2025 under the impact of US tariff increases from August and the tightening of US immigration policy. Strong remittances from the US seen in the first quarter, prompted by concerns among Nicaraguan emigrants, are not expected to continue throughout the rest of the year.

In 2026, activity is expected to slow again – at an even sharper pace – as the factors that are damping growth in 2025 fully materialise. Admittedly, private consumption (70% of GDP) will remain the main driver of the economy and is benefiting from moderate inflation, which is at the upper end of the target range (3% +/- 1%) set by the Central Bank of Nicaragua (CBN). Following in the footsteps of the US Federal Reserve (Fed), the CBN has lowered its key rate three times since the end of 2024, setting it at 6.25% in January 2025 and maintaining a positive differential with the Fed. The BCN is expected to continue its easing policy in line with the Fed, with further cuts expected by the end of 2025 and in early 2026. Remittances (26.6% of GDP in 2024), 82.6% of which come from the US, will continue to support consumption. Nevertheless, expatriate remittances could decline as a result of tighter US immigration policy: first, through the introduction of a 1% US tax on non-bank transfers from January 2026, second, by revoking the temporary legal resident status of 532,000 nationals from Central America, including Nicaragua and, last, by securing the border with Mexico. More than one million Nicaraguan nationals live in the US, including nearly 300,000 illegal immigrants. Public investment will continue to grow, particularly under the Public Investment Program (8.1% of GDP in 2025), which will support construction. Foreign investment from the US and other Western countries will remain moderate, hampered by the poor business environment. The authorities will strengthen ties with China, which is financing projects such as the conversion of a military airport into a civilian terminal (USD 400 million), solar power plants and highways. That said, public consumption will remain curbed by fiscal restraint, which is notably reflected in civil service cuts and the concentration of spending on aid to exporting companies and returnees from the US.

While the US accounted for 52% of Nicaraguan exports in 2024 (its largest customer), the US set a 18% tariff on goods imported from Nicaragua in August 2025. Several sectors are exposed, including clothing (20% of total exports), as Nicaragua is the second largest supplier to the US among CAFTA-DR countries. Exports of electrical wiring for the automotive industry (10%), beef products (10%) and premium cigars (6.3% of the total, 78% of which are destined for the US) will also come under pressure. A loss of competitiveness compared to neighbours subject to lower duties is on the cards. Added to this is the US threat to expel Nicaragua from the CAFTA-DR free trade agreement. Last, the tourism sector will continue to be underdeveloped due to the reluctance of the government and the local business environment, which is discouraging for investors.

Sound public accounts and a comfortable external position

The regime maintains a strict fiscal policy, curbed both by high public debt and limited access to international financing, and aimed at preserving headroom in case of a souring of relations with the US. This fiscal discipline has enabled the government to produce budget surpluses since 2022, supported by robust growth. For 2025, the budget forecasts USD 4.3 billion in revenues (20.8% of GDP, +14.5% compared to 2024) and USD 4.2 billion in expenditure (20.2% of GDP), with a marked increase in investment (+36.7%) explaining the moderate reduction in the budget surplus expected in 2025 and 2026. Expenditure is mainly allocated to health (17%), education (12%), infrastructure (13%) and security (10%). In addition, efforts to support social programmes will be maintained. The government is expected to continue to impose staff reductions. In addition, between January and April 2025, revenues grew by 15.4%, driven by improved tax collection. However, this momentum is expected to be slowed by the decline in remittances expected in 2026.

The debt ratio’s downward trajectory is set to continue on back of primary surpluses and moderate growth. Almost all public debt is denominated in US dollars (93%), making it sensitive to exchange-rate risk, although the latter is mitigated by solid international reserves and a fixed exchange-rate regime. Nicaragua’s external debt (85% of the total in 2024) will remain largely contracted on concessional terms. Approximately 78% is held by multilateral creditors, including the Inter-American Development Bank (28% at the end of 2023), the Central American Bank for Economic Integration (27%) and the World Bank (11%). However, access to international markets will remain virtually impossible and financing from multilateral organisations could gradually decline under US pressure.

In terms of external accounts, the current account surplus will increase in 2025, fuelled by higher remittances (+11.9% between January and April 2025) and gold prices (18% of total exports in 2024) on back of increased gold mining. However, the surplus could weaken in 2026 under the combined effects of softer US demand, higher US tariffs and lower expatriate remittances. In addition, underinvestment, labour shortages caused by mass emigration, and climate hazards will hurt key sectors such as coffee (7% of total exports in 2024). The current account surplus will continue to shore up foreign exchange reserves, which stood at USD 6.7 billion in April 2025, covering six months of imports. This should be sufficient to maintain the cordoba's peg to the dollar.

Consolidation of an increasingly isolated authoritarian regime

Daniel Ortega has been President of Nicaragua since January 2007 and his wife, Rosario Murillo, has been officially co-President since January 2025. Their party, the Sandinista National Liberation Front (FSLN, the Sandinistas), holds 76 of the 92 seats in the National Assembly. The couple wields absolute power in a regime marked by repression of opponents, eradication of organised civil society and neutralisation of countervailing powers. The general elections, which have been postponed until November 2027, are unlikely to bring about a change in power. Domestically, the regime is pursuing its strategy of control, illustrated by a constitutional reform passed in January 2025. It aims to strengthen the executive branch by extending the presidential term (from five to six years), creating the position of co-President, currently held by Murillo, and ending the independence of the legislative and judicial branches. The move was accompanied by the revocation of the legal status of thousands of NGOs, the deprivation of citizenship for hundreds of dissidents (some of whom have been rendered stateless) and the withdrawal from the UN Human Rights Council in February 2025. The Ortegas are pushing protesters to flee, mainly to the US and Costa Rica. However, some of these refugees could be sent back to Nicaragua due to the tightening of US immigration policy.

International isolation is growing. European sanctions against senior officials have been in place since October 2019 and have been extended until at least October 2025. Targeted sanctions have also been imposed by the US, notably through the Renacer Act of 2021, authorising economic and diplomatic measures against members of the regime and the suspension of multilateral loans. The Renacer Act also paves the way for Nicaragua's exclusion from the CAFTA-DR free trade agreement. The regime remains unfazed by these sanctions, which have little impact on the economy. Tensions with the US have escalated after the government recognised the Taliban in Afghanistan, severed relations with Israel and following US measures to restrict migration flows.

At the same time, the Ortegas are strengthening their ties with Russia and China. A bilateral agreement with Moscow provides for mutual legal protection for leaders, while discussions are under way on increased military cooperation. Last, relations with China have been consolidated since the country's alignment with Beijing in 2021. The entry into force of the free trade agreement in early 2024 has paved the way for growing Chinese involvement in strategic sectors.

Last updated:August 2025