2016 Index of Economic Freedom

Nicaragua

overall score58.6
world rank109
Rule of Law

Property Rights10.0

Freedom From Corruption28.0

Limited Government

Government Spending82.8

Fiscal Freedom78.0

Regulatory Efficiency

Business Freedom61.2

Labor Freedom55.7

Monetary Freedom69.0

Open Markets

Trade Freedom86.2

Investment Freedom65.0

Financial Freedom50.0

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Quick Facts
  • Population:
    • 6.2 million
  • GDP (PPP):
    • $29.5 billion
    • 4.5% growth
    • 4.7% 5-year compound annual growth
    • $4,736 per capita
  • Unemployment:
    • 5.3%
  • Inflation (CPI):
    • 6.0%
  • FDI Inflow:
    • $840.0 million
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Anti–free market policies and populism have driven what amounts to a permanent campaign to justify the large state presence in Nicaragua’s economy. The inefficient regulatory framework impedes expansion and diversification of the productive base. A state-directed average 10 percent increase in the minimum wage for most sectors in 2015 typifies the type of government interference that is politically popular but does nothing to improve productivity.

Economic Freedom Snapshot

  • 2016 Economic Freedom Score: 58.6 (up 1.0 point)
  • Economic Freedom Status: Mostly Unfree
  • Global Ranking: 109th
  • Regional Ranking: 18th in the South and Central America/Caribbean Region
  • Notable Successes: Trade Freedom
  • Concerns: Rule of Law, Regulatory Efficiency, and Financial Freedom
  • Overall Score Change Since 2012: +0.7

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Background

Constitutional changes approved in 2014 allow Sandinista President Daniel Ortega to stay in power indefinitely. The Central America–Dominican Republic–United States Free Trade Agreement has helped the economy, which grew 4.7 percent in 2014. Agricultural goods and textile production account for 50 percent of exports. Nicaragua is the second-poorest nation in the Americas. The government has granted a company headed by Chinese billionaire Wang Jing a concession to construct a canal connecting the Caribbean Sea and the Pacific Ocean. A major hiatus in supply or a disorderly collapse of Venezuela’s economy and the subsequent end of subsidized oil shipments through PetroCaribe could provoke an energy crisis.

Rule of LawView Methodology

Property Rights 10.0 Create a Graph using this measurement

Freedom From Corruption 28.0 Create a Graph using this measurement

Daniel Ortega’s authoritarian, open-ended rule is the greatest threat to the rule of law in Nicaragua. Public-sector corruption, including bribery of public officials, remains a major challenge. The judicial system suffers from corruption and long delays; the politicized Supreme Court is controlled by Sandinista judges. Private property rights (especially those of foreign investors) are not protected effectively, and contracts are not always secure.

Limited GovernmentView Methodology

The top individual income and corporate tax rates are 30 percent. Other taxes include a value-added tax and a capital gains tax. The overall tax burden equals 20 percent of GDP. Government spending amounts to 24 percent of GDP. Public debt equals about 32 percent of GDP. The growth of public spending has outstripped revenue expansion and is likely to continue in 2016.

Regulatory EfficiencyView Methodology

Red tape and inconsistent enforcement of commercial regulations undermine entrepreneurial activity. Because of an inefficient and inflexible labor market, many Nicaraguans are underemployed. Preferential PetroCaribe financing for oil imports (equal to more than 10 percent of government revenue) permits state subsidies for fuel and electricity.

Open MarketsView Methodology

Nicaragua’s average tariff rate is 1.9 percent. Imports of used cars are restricted. State-owned enterprises operating in several sectors distort the economy. The legal and regulatory systems discourage private foreign investment. The financial sector remains vulnerable to state interference. The high cost of long-term financing continues to hinder more dynamic private-sector growth.

Country's Score Over Time

Bar Graph of Nicaragua  Economic Freedom Scores Over a Time Period

Country Comparisons

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Regional Ranking

rank country overall change
1Chile77.7-0.8
2The Bahamas70.92.2
3Colombia70.8-0.9
4Saint Lucia70-0.2
5Saint Vincent and the Grenadines68.80.8
6Uruguay 68.80.2
7Barbados68.30.4
8Jamaica 67.5-0.2
9Peru67.4-0.3
10Costa Rica 67.40.2
11Dominica670.9
12El Salvador 65.1-0.6
13Panama 64.80.7
14Trinidad and Tobago62.9-1.2
15Guatemala 61.81.4
16Paraguay 61.50.4
17Dominican Republic610.0
18Nicaragua 58.61.0
19Honduras 57.70.3
20Belize57.40.6
21Brazil56.5-0.1
22Guyana55.4-0.1
23Suriname53.8-0.4
24Haiti51.30.0
25Ecuador48.6-0.6
26Bolivia47.40.6
27Argentina43.8-0.3
28Venezuela 33.7-0.6
29Cuba29.80.2
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