In January, The Economist Intelligence Unit (EIU) forecast a contraction of the Nicaraguan economy for 2020 and a slight recuperation between 2021 and 2024, while indicating a continued rupture in relations between the private sector and the regime, and its subsequent impact on the country’s economic growth.
According to the prestigious British firm’s forecast, “The alliance that existed between the larger business community and the government prior to the crisis is unlikely to be rebuilt. With this in mind, we expect average growth to be only 1.6% between 2021 and 2024, lower than the 4.7% growth seen between 2013 and 2017.”
“Following an estimated reduction in gross domestic product (GDP) of 5.1% in 2019, we expect the Nicaraguan economy to contract an additional 1.5% in 2020,” says the EIU. The firm’s calculations are similar to those of the International Monetary Fund (IMF), which predicts a decrease of 1.2%. The Nicaraguan Foundation for Economic and Social Development (FUNIDES) predicts a decrease in GDP of 1.1%.
In their monthly analyses of Nicaragua, the EIU has warned that beginning in 2018 the country has suffered “dramatic” economic decline and that political risk is “extremely high” due to President Daniel Ortega’s defiant attitude and insistence on remaining in power no matter the cost.
Ortega “shows no desire to forge a negotiated solution to the crisis,” according to the EIU’s publication, adding that the presidential couple “has adopted an increasingly authoritarian stance”.
“Limits to the presidential mandate have been eliminated and the government exercises a strong influence on all public institutions. The FSLN has used its legislative majority to strengthen presidential powers, such as the already strong state security apparatus,” says the EIU.
Changes in the face of sanctions
As in previous analyses, the British firm predicted that Ortega or whomever he designates, will remain in power until 2022, when a new term or change of government begins. Although, it warns that its prediction could fail with increasingly harsh US sanctions.
“The political situation is highly volatile, and our predictions are subject to substantial risks. One of the Ortega regime’s principal vulnerabilities is being the target of US actions,” the EIU states.
The United States sanctioned five entities and 15 Ortega officials, including 3 members of the president’s family: First Lady and Vice-President Rosario Murillo; and their sons Rafael Ortega Murillo and Laureano Ortega Murillo.
Minimum wage will decrease
With great fanfare, the Ortega regime announced a 2.63% increase in the minimum wage, effective March 1, 2020. However, the EIU’s publication, property of the British entity, The Economist, states that the “minimum wage will decrease for the second consecutive year throughout the majority of (Nicaragua’s) economy”.
The publication clarifies that this reduction will not affect the free trade zone industrial sector, whose workers received an annual wage increase of 8.2% last January under separate negotiations.
The 2.6% salary adjustment will be applied to 9 economic sectors, including construction, agriculture and livestock, mining, commerce, tourism and the central and municipal governments.
According to the EIU, salaries were negotiated according to the usual practice of adjusting the minimum wage based on the previous year’s inflation rate added to the real GPD growth rate. “Given that 2019 closed with inflation at 6.1% and the economy contracted by 3.5% in real terms, according to government estimates, the decision was technically justified.
Nevertheless, this will be the first salary adjustment since 2018. Salaries were frozen in 2019, something that wasn’t taken into consideration when negotiating the new minimum wage. In 2019, Nicaraguan consumers suffered from an increase in the cost of household basic goods, and services such as electricity.
This adjustment will be applied only once per year, unlike previous years in which the adjustment was applied in 2 semesters. Thus, next September there will be no adjustments, which was the norm prior to 2018.
Decisions in line with the government’s position
The British publication, which specializes in offering country specific analyses and forecasts, explained that prior to the current sociopolitical crisis, the Supreme Council of Private Enterprise (COSEP) enjoyed regular participation in the negotiations as the representative of private enterprise. However, their place at the table has now been taken by the “pro-governmental” Nicaraguan Council of Micro, Small and Medium Enterprise (CONIMIPYME), which ratified the increase.
The EIU publication points out that “the majority of pro-governmental unions pressured for acceptance of the government’s proposal, although the [also pro-governmental] Sandinista Central Workers Union (CST) lobbied for an increase of 5%.”
“Private businesses, hit hard in 2019 by large increases in required Social Security contributions, and by broad fiscal reforms, were largely opposed to any adjustments,” added the EIU.