Investing.com -- On Friday, Fitch Ratings confirmed Nicaragua’s Long-Term Foreign Currency Issuer Default Rating (IDR) at ’B’, maintaining a Stable Outlook. The rating reflects Nicaragua’s careful fiscal policy and twin surpluses, which have led to the growth of external and fiscal buffers.
Nicaragua maintained a general government surplus of 2.4% of GDP in 2024, similar to 2023, due to continued double-digit revenue growth and controlled spending. This has allowed for increased capital spending. Fitch anticipates a further rise in capital spending that will slightly reduce the fiscal surplus to 2.0% of GDP in 2025 and 1.4% in 2026.
The fiscal surplus has supported the build-up of fiscal buffers, with the government paying down higher-interest local bonds and increasing its cash reserves. Deposits reached 12.9% of GDP in 2024. General government debt fell to 39.7% of GDP in 2024, and is projected to continue decreasing to 36.9% in 2025 and 34.7% of GDP in 2026. These figures are below the projected ’B’ median of 51.5% and 50.6% of GDP, respectively.
Most of the debt (92.9%) is in foreign currency, making debt dynamics vulnerable to currency risk. However, this risk is offset by substantial international reserves and a crawling-peg exchange rate regime. Nicaragua has no commercial debt, and its external debt is predominantly concessional.
Policies under the new Trump administration present significant risks for Nicaragua. Key administration officials have previously led sanctions related to human rights issues and have publicly criticized Nicaragua’s CAFTA-DR membership. The U.S., which is Nicaragua’s main export destination, currently imposes a 10% tariff, which could increase to the original 18% in July.
Tighter U.S. immigration policy poses a risk to Nicaragua, as remittances accounted for 25% of GDP, with around 83% coming from the U.S. However, Fitch does not predict deportations or migration restrictions significant enough to severely impact remittances and impair growth in Nicaragua and neighboring economies.
Net external financing fell to 0.7% of GDP in 2024 from 2.4% in 2023, reflecting lower disbursements and higher amortizations. Disbursements from official creditors decreased by 25% in 2024, mostly due to a 35% decline in new loans from CABEI (Nicaragua’s largest external creditor).
The current account surplus fell to 4.2% of GDP in 2024 from 8.2% in 2023. This decline stemmed from a substantial deterioration in the goods trade deficit, a decline in the services surplus to a balanced position, and greater profit repatriation by foreign companies. However, strong remittance growth, which reached 26.6% of GDP, partially offset these pressures.
As of April 2025, reserves stood at USD6.7 billion, covering more than 80% of broad money and around six months of current external payments. The sovereign net foreign debtor position improved to 13% of GDP in 2024 from 30% in 2019.
Real GDP growth slowed to 3.6% in 2024 from 4.4% in 2023. Consumption remains the main growth driver, bolstered by a 13% rise in remittances in 2024. Fitch expects growth to stabilize between 3% and 3.5% in 2025-2026 amid a slowdown in U.S. growth.
Inflation has significantly slowed to 1.7% yoy as of April 2025, down from 5.4% yoy in April 2024. The BCN began cutting its policy rate in October 2024, bringing it to the current 6.25% level.
Weak governance remains a key constraint for Nicaragua’s credit profile. Political tensions persist under the administration of President Daniel Ortega. The government’s crackdown on civil society groups has led to sanctions from the U.S. and large out-migration.
In November 2024, the congress passed a law against domestic enforcement of international sanctions, which could pose risks to the banking sector. However, the SIBOIF has advised financial institutions to enforce the law partially to maintain their international correspondent banking relations. Banks have successfully navigated these restrictions by avoiding actions that risk violating international sanctions.
Factors that could lead to a negative rating action include intensification of geopolitical risk, a sharp and sustained decline in international reserves, or deterioration in the policy mix that results in depletion of financial buffers. Conversely, factors that could lead to a positive rating action include reduced geopolitical risks, maintenance of prudent policy settings, and strong economic growth that deliver significant further improvements in financial buffers and public debt/GDP.
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