Nicaragua WT/TPR/S/167/Rev.1 
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I. ECONOMIC ENVIRONMENT 
(1) MAIN FEATURES OF THE ECONOMY  
1. Nicaragua has the lowest population density and largest surface area (130,373 km2) of all 
Central American countries.1  Most economic activities take place in the Pacific coastal lowlands, 
whereas the Atlantic coast is less developed and l acks infrastructure;  but it does have forestry assets 
(timber, biodiversity), as well as fishing and mining r esources (gold and silver).  About 60 per cent of 
Nicaragua's 5.6 million inhabitants live in urban zon es, with one in every four living in the capital, 
Managua.  Nicaragua's population was growing at 2.6 per cent per year in 2004 (compared to 2.8 per 
cent in 2000)2, and its demographic structure is young:  roughly 38 per cent are in the 0-14 year age 
group, and 59 per cent are between 15 and 64.3  In terms of the Human Development Index, 
Nicaragua was ranked 112th in 2003 out of 177 countries.4 
2. Nicaragua's recent economic history can be divide d into three periods.  The first (1960-1977) 
was characterized by relative econom ic stability and real GDP growth of 6.4 per cent per year.  The 
second period (1978-1993) included years of ci vil war, overexpansion of the public sector, 
hyperinflation, and a 56 per cent drop in per capita GDP.  Since then, in the third period from 1994 to 
the present, Nicaragua has introduced major econom ic reforms, including trade liberalization, 
privatization of most State enterprises, reduction of  its external debt, and a general shift towards a 
market economy.5 
3. These economic reforms have helped raise pe r capita GDP from US$776 in 2000 to US$867 
in 2005.  Nonetheless, Nicaragua still has the second  lowest per capita GDP in Latin America, and 
this is compounded by the fact that economic activit y is highly concentrated in the city of Managua, 
which generated 36.3 per cent of the country's GDP in 2000.6  Although poverty declined from 
50.3 per cent in 1993 to 45.8 per cent in 2001, over  25 per cent of the population, mostly rural 
dwellers, remain below the poverty line.7  The services sector generates the largest share of both real 
GDP (54.2 per cent in 2005) and employment (68.4 per cent in 2004);  the share of manufactured goods rose from 17.1 per cent in 2000 to 18.6 pe r cent in 2005, while agriculture slipped from 
20.5 per cent of real GDP to 19.9 per cent during the same period, and mining saw its share rise from 
1.0 per cent to 1.2 per cent. 
4. The national currency is the córdoba.  Since Ja nuary 1996, when the exchange-rate system 
was unified, access to foreign exchange  has been restriction-free and no  exchange controls have been 
applied.  The Central Bank of Nicaragua (BCN) b uys (sells) unlimited amounts of foreign exchange 
from (to) financial institutions at the official excha nge rate plus a 1 per cent commission.  There is a 
legal, freely operating parallel exchange market;  a nd the spread between exchange rates on this and 
the official market averaged 0.39 per cent in 2005 .  A crawling-peg exchange-rate system has been in 
force since January 1993, in which the annual rate of depreciation in 2004 and 2005 was 5 per cent.  
                                                     
 
1 Nicaragua has both Caribbean and Pacific coasts, as  well as borders with Honduras to the north and 
Costa Rica to the south.  About 20 per cent of the country's land area is  arable, and the central zone is 
mountainous.  It has a vast lowland plain on the Pacific coast;  numerous volcanoes;  several lakes, including the 
largest freshwater lake in Central America (Lake Nicaragua);   and one of the world's rainiest tropical jungles on 
its Atlantic coast. 
2 World Bank, information available at:  http://web.worldbank.org/ni. 
3 World Facts, information available a t:  http://worldfacts.us/Nicaragua.htm. 
4 UNDP, information available at:  http://hdr.undp.org/ statistics/data/country_fact_sheets/cty_fs_NIC. html. 
5 WTO (1999). 
6 Republic of Nicaragua (2005). 
7 World Bank, information available at:  http://web.worldbank.org/ni. WT/TPR/S/167/Rev.1 Trade Policy Review 
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On 30 July 1964, Nicaragua accepted the obligations established in Article VIII of the Articles of the 
Agreement of the International Monetary Fund. 
(2) RECENT ECONOMIC RESULTS  
5. At the time of the previous review of its trade policy in 1999, Nicaragua was embarking on 
reconstruction following the devastation wrought by Hurricane Mitch.8  Since then, despite a difficult 
political environment, Nicaragua has redoubled its efforts to achieve stabilization9, which has helped 
produce a combination of moderate growth, single-dig it inflation, control of the fiscal deficit, and 
reduction of external debt to sustainable le vels.  Nicaragua still faces significant economic 
vulnerabilities, however, including a high level of public debt, a large current-account deficit and 
widespread dollarization of the economy.10  It is also working to build up an efficient financial system 
that will allow lower intermediation margins (Chapter IV(5)(ii)). 
6. The real GDP growth rate accelerated from an average of 0.05 per cent per year in 1987-1996 
to 3.8 per cent in 1997-2005, fuelled largely by dynamism in agriculture, manufacturing industry, 
tourism, transport and communications.  However, economic growth has not translated into lower 
unemployment, which has remained above 10 per cen t in the last few year s (Table I.1).  Real 
GDP growth is expected to slip from 4 per cent in  2005 to 3.7 per cent in 2006, despite an expansion 
in exports. 
7. The cumulative annual inflation rate, measured by  the consumer price index (CPI), dropped 
from 18.5 per cent in 1998 to 4 per cent in 2002 (its lowest rate in recent years), basically thanks to sound management of fiscal and monetary policies.  The crawling-peg exchange rate maintained by 
the BCN has also provided a credible nominal anchor  for price stability.  Nonetheless, inflation has 
picked up again since 2003 mainly because of higher international prices for oil and certain 
agricultural products.  The inflation rate climbed to  9.3 per cent in 2004, and is estimated at 9.6 per 
cent for 2005.  The authorities are forecas ting a lower rate of 7.3 per cent for 2006. 
Table I.1 
Main economic indicators, 2000-2005 
 2000 2001 2002 2003 2004 2005a
Miscellaneous indicators      
Nominal GDP (US$ million) 3,938.1 4,102.4 4,026. 0 4,148.8 4, 555.6 5,007.5 
GDP per capita (US$) 776 788 754 757 810 867 
Real GDP (annual growth rate, %) 4.1 3.0 0.8 2.3 5.1 4.0 
Investment (% of GDP) 31.0 28.2 26.1 26.1 28.3 30.8 
National saving (% of GDP) 10.1 8.5 6.3 7.4 11.6 13.0 
External saving (% of GDP) 20.8 19.8 19.8 18.7 16.7 17.8 
Unemployment rate (%) 9.8 10.7 10.7 11.7 .. .. 
Table I.1 (cont'd)
                                                      
8 In October-November 1998, Hurricane Mitch caused severe damage to the economy, with losses 
estimated at US$1.5 billion.  Real GDP growth in 1998 was downgraded from 6 per cent to 4 per cent, as a result of sharp falls in agricultural output, construction and energy supply.  At the time, it was estimated that 
reconstruction would take five years (WTO, 1999). 
9 Backing for the macroeconomic st abilization and structural reform measures being undertaken by 
Nicaragua includes the IMF Poverty Reduction and Grow th Facility (PRGF).  On 18 January 2006, the Fund 
extended this arrangement until 12 December 2006 (IMF Press Release 06/1 3 of 18 January 2006). 
10 Of total deposits in 2005, 68.1 per cent were held in dollars (Superintendency of Banks and Other 
Financial Institutions, 2006). Nicaragua WT/TPR/S/167/Rev.1 
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 2000 2001 2002 2003 2004 2005a
Consumer price index (end of period, variation %) 9.9 4.7 4.0 6.6 9.3 9.6 
Real effective exchange rate (end of period, variation %)b  -0.2 2.7 4.4 2.0 -0.6 -0.8 
Exchange rate (córdoba per US$ at en d of period) 13.1 13.8 14.7 15.6 16.3 17.1 
Monetary sector (Variation %, end of period) 
M3A  4.5 12.1 13.0 14.3 17.3 14.0 
Sector share of GDP  (Percentage)  
Agriculture, livestock, forestry, fishing 20.5 20.4 20.2 20.3 20.2 19.9 
Mining 1.0 1.1 1.2 1.1 1.2 1.2 
Manufacturing 17.1 17.6 17.8 17.9 18.5 18.6 
Servicesc 53.0 56.6 53.5 53.9 53.9 54.2 
Public finance (% of GDP) 
Consolidated public sector balance, before grants -8.9 -9.9 -5.1 -6.0 -5.0 -4.3 
Consolidated public sector debt .. 213.7 212.3 193.3 147.7 133.7 
National accounts  (Real variation, %)  
Total consumption 5.2 4.1 3.6 3.7 3.1 3.4 
Gross national investment -16.8 -8.4 -7.1 -5.5 9.1 12.1 
Gross national expenditure -0.9 1.2 1.3 1.9 4.2 5.0 
Exports of goods and non-factor services 12.5 7.3 -3.5 7.9 17.7 6.3 
Imports of goods and non-factor services -4.7 0.7 -0.2 4.4 9.9 8.0 
Memorandum item       
Current account balance (% of GDP) -21.3 -19.5 -17.3 -15.7 -15.3 16.0 
Total external debt (US$ m illion) 6,660 6,374 6, 363 6,596 5,391 5,348 
Total external debt (% of GDP) 169.1 155.4 158.0 159.0 118.3 106.8 
Gross official reserves (US$ million) 498 383 454 504 670 730 
Gross official reserves (in months of total imports) 2.8 2.1 2.5 2.5 2.8 2.7 
Import coverage (export-import ratio for goods  and services) 51.4 51.8 52.6 54.8 58.4 56.5 
Trade in goods and services (% of GDP) 82.4 79.8 82.3 89.0 98.3 102.9 
Terms of trade (variation %)d 1.8 -6.0 1.6 -1.5 -1.6 -3.0 
.. Not available. 
a Provisional figures. 
b (-) indicates a real depreciation. c Including construction, electricity , transport and communications. 
d (-) indicates a deterioration. 
Source : IMF, International Financial Statistics , various editions;  and information provided by the Nicaraguan authorities. 
8. In recent years, Nicaragua has significantly improved its fiscal position, which had been one 
of the main sources of macroeconomic imbalance.  The effective public-sector deficit before grants 
fell from 9.9 per cent of GDP in 2001 to 5 per cent in 2004;  and the latest estimates put it at 4.3 per 
cent of GDP in 2005.  The fiscal improvement has been achieved largely through greater control of 
public expenditure, and a tariff hike (Chapter III(2)(iv )(a)).  In addition, a new tax code was adopted 
in 2005, which is scheduled to come into force in 2006.11  Nonetheless, the government's 
decentralization programme, reform of the pensio n system, civil service reform, and the free trade 
agreement between Central America, the Dominican Republic and United States (CAFTA)12, are all 
                                                      
11 Among other things, the new Tax Code seeks to promote higher rates of taxpayer compliance by 
establishing effective sanctions and strengthen ing tax administration generally (IMF, 2004). 
12 Although CAFTA is also known as CAFTA-DR or DR-CAFTA, this report will use the term 
CAFTA for simplicity. WT/TPR/S/167/Rev.1 Trade Policy Review 
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expected to generate fiscal costs in the short a nd medium term, which will put additional pressure on 
public finances. 
9. The burden of Nicaragua's total public debt ( both external and domestic) remains very high, 
even though its solvency indicator (total debt/GDP) fell from 213.7 per cent in 2001 to 133.7 per cent 
in 2005.13  This improvement is explained in particular by  a drastic cut in the level of foreign debt, in 
which the outstanding balance fell from US$6.66 b illion in 2000 (equivalent to 169.1 per cent of 
GDP) to US$5.348 billion in 2005 (106.8 per cent of GDP).14  This reduction in the stock of external 
debt is partly due to the Heavily  Indebted Poor Countries (HIPC) initiative, through which Nicaragua 
obtained relief on over 80 per cent of its external de bt with the IMF, the Inter-American Development 
Bank (IDB) and the World Bank (WB).15  In addition, the G-8 Multilateral Debt Relief Initiative will 
reduce its total external debt by up to US$825 million.16 
(3) TRADE AND INVESTMENT RESULTS  
(i) Trade in goods and services 
10. Nicaragua has traditionally recorded an overall deficit on the balance of payments, since its 
current-account deficit far outweighs the surplus on the financial and capital accounts (Table I.2).  
Consistent with the country's economic results and the trend of the real ef fective exchange rate 
(Table I.1), the current-account deficit narrowed from US$838 million in 2000 (equivalent to 21.3 per 
cent of GDP) to US$800 million in 2005 (16 per cent of GDP).  The current-account deficit has been 
financed mainly through large inflows of foreign assistance and private capital. 
Table I.2 
Balance of payments, 2000-2005 (US$ million) 
 2000 2001 2002 2003 2004 2005 
Current account -838.4 -799.7 -698.5 -651.1 -695.7 -799.8 
Exports of goods and services 1,101.9 1,118.4 1,142.5 1,307.2 1,650.6 1,860.7 
Merchandise in general 642.8 589.4 561.0 604.5 755.6 857.9 
Free zones 230.7 296.3 347.0 433.7 596.7 682.1 
Merchandise acquired in ports by freight 
forwarders 7.1 9.6 8.7 11.4 12.5 11.6 
Freight and insurance 12.8 11.7 15.3 16.2 10.3 14.0 
Travel 128.6 135.3 134.6 160.2 192.0 207.1 
Other 79.9 76.1 75.6 81.2 83.5 88.0 
Imports of goods and services -2,144.7 -2,157.2 -2,171.4 -2,384.7 -2,827.2 -3,291.7 
Merchandise in general  -1,653.2 -1,617.3 -1,598.8 -1,720.4 -2,010.3 -2,378.1 
Free zones -148.3 -187.8 -235.5 -300.9 -429.7 -487.2 
Table I.2 (cont'd)
                                                      
13 Roughly 80 per cent of Nicaragua's public debt held abroad, while the remaining 20 per cent 
corresponds to domestic liabilities with the private sect or.  In 2005, approximately two thirds of service 
payments on the total public debt related to domestic obligations and the remainder to outgoings on external 
debt (Central Bank of Nicaragua and Ministry of Finance and Public Credit, 2005). 
14 Of Nicaragua's total external debt, roughly 56 per cent is concessional, and 91 per cent of this is 
owed to multilateral agencies such as the World Bank and IDB.  The other 44 per cent is non-concessional 
(mostly contracted in the 1980s), with 85 per cent owed to official bilateral lenders that are not members of the Paris Club, including Costa Rica, Honduras, Libya and Iran, and foreign commercial banks (Central Bank of 
Nicaragua and Ministry of Public Finance and Credit, 2005). 
15 In January 2004, Nicaragua became the 10th country to attain the HIPC completion point, following a 
lengthy process of structural ad justment and fiscal discipline (Republic of Nicaragua, 2005). 
16 This initiative proposes to cancel all debt owed by HIPC countries to the IMF and WB.  The proposal 
is expected to be formalized during the first half of 2006 (Central Bank of Nicaragua and Ministry of Finance and Public Credit, 2005). Nicaragua WT/TPR/S/167/Rev.1 
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 2000 2001 2002 2003 2004 2005 
Freight and insurance -121.8 -134.3 -134.4 -137.6 -148.4 -182.9 
Travel -78.4 -76.0 -69.4 -75.0 -89.3 -90.3 
Other -143.0 -141.8 -133.3 -150.8 -149.5 -153.2 
Income (net) -201.8 -240.3 -200.4 -190.7 -192.3 -119.2 
Revenue 30.7 14.7 9.2 6.7 9.3 22.3 
Official interest 26.3 12.1 6.0 5.1 7.9 18.5 
Expenses -232.5 -255.0 -209.6 -197.4 -201.6 -141.5 
Official interest -163.1 -177.8 -138.2 -120.5 -121.6 -59.1 
Current transfers 406.2 479.4 531.1 617.1 673.2 750.4 
Of which:  workers' remitta nces 320.0 335.7 376. 5 438.8 518.8 600.4 
Capital and financial account 660.8 527.9 506.6 476.6 617.4 765.7 
Capital account 296.4 297.6 312.0 283.9 307.4 289.2 
Official transfers 296.4 297.6 312.0 283.9 307.4 289.2 
Financial account 364.4 230.3 194.6 192.7 310.0 476.5 
Public capital 173.4 105.5 -39.9 96.5 150.8 134.5 
Disbursements 242.4 211.6 212.7 303.2 340.7 261.9 
Amortization -183.6 -142.9 -282.9 -224.8 -201.9 -111.9 
Other (net) 114.6 36.8 30.3 18.1 12.0 -15.5 
Private capital 191.0 124.8 234.5 96.2 159.2 342.0 
Financial sector 60.8 2.0 -10.0 -15.9 -2.5 84.6 
Assets 79.9 -16.7 -41.1 -16.0 -8.2 1.8 
Liabilities -19.1 18.7 31.1 0.1 5.7 82.8 
Direct investment 266.5 150.2 203.9 201.3 250.0 241.1 
Portfolio investment 34.6 14.2 1.2 0.3 -1.0 -7.8 
Other capital (net) -55.9 -4.3 55.2 -89.5 -87.3 24.1 
Overall balance -177.6 -271.8 -191.9 -174.5 -78.3 -34.1 
Variation in reserve assets (increase -) 16.2 113.9 -85.2 -68.7 -168.9 -45.9 
Net variation in arrears (decrease -) 65.1 -376.6 -390.2 8.7 -1,398.1 -102.8 
Exceptional financing (net) 96.3 534.5 667.3 234.5 1,649.4 182.8 
Source:  Central Bank of Nicaragua. 
11. Since its last review, Nicaragua's merchandise- trade deficit has widened from US$1.01 billion 
in 2000 (25.6 per cent of GDP) to US$1.52 billion in 2005 (30.4 per cent of GDP), mainly as a result 
of the rise in fuel prices and expansion of private consumption and investment.17 
12. Nicaragua's total trade in goods and services (e xports and imports) grew from 82.4 per cent of 
GDP in 2000 to 102.9 per cent in 2005, while the export/import ratio for goods and services rose from 
51.4 per cent to 56.5 per cent over the same period (Table I.1).  In 2004, Nicaragua was ranked 113th 
among world merchandise exporters (considering EC countries as a single group and excluding trade 
between its member countries), and 95th among importers.  In the case of trade in services, it was ranked 110
th and 115th respectively.18 
13. Total merchandise exports increased from US$880.6 million in 2000 to US$1.552 billion in 
2005 (Chart I.1).  Exports under the special free zone regime grew from US$231 million in 2000 to 
US$682 million in 2005, expanding from 26.2 per cent of total merchandise exports to 43.9 per cent 
over the same period.  The number of enterprises in free zones also grew from 39 in 2000 to 87 in 
2004, generating 66,000 direct jobs in 2004 compared to 37,000 in 2000.19 
                                                      
17 Key factors behind the widening trade deficit include an increase in  family remittances and greater 
availability of financing through personal loans and credit cards.  This has fuelled higher private consumption, 
which has been supplied mainly by imports (Central Bank of Nicaragua, 2004). 
18 WTO (2005). 
19 BCN, information available at:  http://bcn.gob.ni/estadisticas/exterior/red. WT/TPR/S/167/Rev.1 Trade Policy Review 
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0.00.20.40.60.81.01.21.41.61.8
1997 1998 1999 2000 2001 2002 2003 2004 2005Chart I.1
Nicaragua:  Exports, 1997-2005
US$ billion
Source: Calculated on the basis of information provided by the Nicaraguan authorities.Free zones
General merchandise
 
14. Nicaragua's export base is heavily dependent on agricultural goods (mainly coffee, peanuts, 
meat and crustaceans), which represented 81.3 per cent  of its total merchandi se exports in 2004 (down 
from 86.9 per cent in 2000).  Next in importance,  manufactured goods accounted for 10.4 per cent of 
total goods exports in 2004 (up from 7.3 per cent in 2000);  chemical products saw their share of total 
manufactured exports rise from 1.9 per cent in 2000 to 3.5 per cent in 2004 (Chart I.2 and 
Table AI.1);  and the share of mining exports (basically gold) in total commodity exports varied 
between 2 per cent and 4.5 per cent over the period 2000-2004. 
15. About one third of Nicaragua's merchandise expor ts goes to the United States (Chart I.3), and 
this proportion is set to increase when CAFTA en ters into force.  The second most important 
destination for Nicaraguan exports is still El Salv ador (15 per cent of total merchandise exports in 
2004, up from 11.2 per cent in 2000), followed by other Central American countries, Mexico and 
Canada.  Exports of goods to the European Communities (EC)20 slumped from 20.4 per cent of total 
exports in 2000 to 13 per cent in 2004, whereas the proportion sent to Asia rose from 1.1 per cent to 
2.3 per cent in the same period (Table AI.2). 
16. Since the first review of its trade policy, th e total value of Nicaragua's merchandise imports 
has increased steadily, and GDP growth drove them to a historical high in 2005.  Almost two thirds of 
the country's merchandise imports are manufact ured goods, mainly machinery and transport 
equipment, and chemical products.  Despite the rise in oil prices, the sh are of fuels in total 
merchandise imports remained broadly stable around 6.8 per cent in the period 2000-2004, because 
oil imports shrank in volume terms.  The agricultural share in merchandise imports fell from 16.5 per cent in 2000 to 14.1 per cent in 2004 (Chart I.2 and Table AI.3). 
                                                     
 
20 All figures for the EC correspond to EC-15 up to 2004 and EC-25 from 2005 onwards. Nicaragua WT/TPR/S/167/Rev.1 
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17. Imported goods come mainly from the United Stat es, which in 2004 supplied 22.3 per cent of 
the country's merchandise imports (compared to 24 .3 per cent in 2000).  The second most important 
country of origin is the Bolivarian Republic of  Venezuela, which in 2004 supplied 11.4 per cent 
(11.8 per cent in 2000), followed by Costa Rica, Guatemala and Mexico.  The proportion of 
merchandise imports obtained from EC-15 increased  from 5.3 per cent in 2000 to 6.7 per cent in 
2004;  whereas the share obtained from Asian countries rose from 9.3 per cent to 13.7 per cent in that 
period (Chart I.3 and Table AI.4). 
18. Balance-of-payments figures show that Nicaragua is a net importer of services, with a deficit 
averaging around US$116.5 million per year for the period 2000-2005.  Total services exports 
(mainly tourism) expanded from US$221 million in  2000 to US$309 million in 2005, whereas 
services imports (largely freight and insurance a nd travel services) grew in total from US$343 million 
to US$426 million in the same period. WT/TPR/S/167/Rev.1 Trade Policy Review 
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0%20%40%60%80%100%
1995 2000 2001 2002 2003 2004
Coffee (unroasted) Peanuts Other manufactures
Crustaceans (frozen) Other products
Carne de ganado bovino, congeladaMeat of bovine Bovine livestock Other products
0%20%40%60%80%100%
1995 2000 2001 2002 2003 2004Chart I.2
Structure of merchandise ex ports and imports, 1995-2004
(a) Exports
(b) Imports
Calculated by the WTO Secretariat on the basis of information from the United Nations Statistics Division, 
COMTRADE database (SITC Rev.3).Agriculture Other semi-manufactures Textiles and clothin g
Electrical machinery Iron and steel Other products
Chemicals Trans port e quipmentFuels Non-electrical machinery Other consumer goodsChemicals Meat of bovine animals (frozen)
Source :
 Nicaragua WT/TPR/S/167/Rev.1 
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0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%199520002001200220032004Chart I.3
Direction of merchandise trade, 1995-2004
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%199520002001200220032004(a) Exports
(b) Imports
Source :Calculated by the WTO Secretariat on the basis of information from the United Nations Statistics Division, 
COMTRADE database (SITC Rev.3).Mexico EC-15EC-15 Costa RicaUnited States Asia Mexico
Guatemala Canada Other countries
China Guatemala United States
Japan Venezuela El Salvador
Costa Rica Other America Other countriesOther America El Salvador
 WT/TPR/S/167/Rev.1 Trade Policy Review 
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(ii) Foreign direct investment 
19. Foreign direct investment (FDI) into Nicar agua averaged US$214.4 million per year in 
2000-2004 (up from US$146.5 million in 1994-1999), ma inly reflecting the positive trend of the 
economy in recent years and a number of privatiza tions, including the public telecommunications 
provider (ENITEL), which was sold for US$60 million in 2004.  As a result, the stock of FDI in 
Nicaragua rose from 35.4 per cent of GDP in 2000 to 48.3 per cent in 2004 (Table I.3).  According to the UNCTAD Inward FDI Performance Index
21, Nicaragua was ranked 30th out of 140 countries in 
2004 (38th in 2003), having achieved its best ranking (25th) in 2000. 
Table I.3 
Foreign direct investment, 2000-2004 (US$ million) 
 2000 2001 2002 2003 2004 
Inward FDI  266.5 150.2 203.9 201.3 250.0 
FDI inflows to Nicaragua 1,396 1,546 1,750 1,951 2,201 
FDI inflows to Nicaragua (% of GDP) 35.4 37.7 43.5 47.0 48.3 
Outward FDI .. 15 12 10 .. 
FDI from Nicaragua abroad 18 35 47 57 57 
FDI from Nicaragua abroad (% of GDP) 0.5 0.9 1.2 1.4 1.3 
.. Not available.  
Source:  UNCTAD (2005), World Investment Report,  Geneva;  and estimates by the WTO Secretariat. 
20. Since its previous review, Nicaragua has take n steps to improve the investment climate, 
including the adoption of a new Foreign Investment  Law in 2000 (Chapter II(5)).  Over the last 
decade Nicaragua has also privatized a large propor tion of its State enterprises and opened up many 
industries to foreign direct investment.  Further st eps are needed, however, to make the most of its 
structural potential for attracting FDI;  for exampl e, foreign firms remain barred from investing in 
certain activities which are reserved for the State,  such as the water and sewerage system, electric 
power transmission, and airport services, or in which foreign investment is subject to restrictions (Chapter IV(3)(ii)(b)).  In 2003 Nicaragua was ranked 113th by the Inward FDI Potential Index 
(compared to 118th in 2000).
22 
21. Data provided by the Nicaraguan authoriti es show that FDI flows in 2000-2004 were 
distributed as follows:  energy (23.4 per cent of th e total), telecommunications (20.4 per cent), trade 
and services (19.3 per cent), free zones (14.9 per cent ), agribusiness (7.7 per cent), tourism (6.6 per 
cent), construction (3.9 per cent), banking and finance (1.8 per cent), fishing (1.4 per cent), industry 
(0.4 per cent), and mining (0.2 per cent).  These FDI flows came mostly from the United States 
(40.7 per cent of the total in that period), follo wed by Mexico (15.3 per cent), Republic of Korea 
(9.7 per cent), Spain (7.1 per cent), Sweden (5.3 per cent), Canada (2.4 per cent), Panama (1.3 per 
cent), Chinese Taipei (1.1 per cent), Costa Rica (1.0 per cent), and othe r countries (5.4 per cent).  In 
view of ongoing structural reforms, inward FDI to Nicaragua is expected to  increase in the future, 
which is essential for the country to pr oceed with its economic development. 
                                                      
21 The UNCTAD Inward FDI Performance Index ranks FDI recipient countries by the amount of FDI 
they receive in relation to the size of their economy.  It is obtained by cal culating the ratio be tween the country's 
share of world FDI inflows and its share in world GDP (UNCTAD, 2005). 
22 The UNCTAD Inward FDI Potential Index ranks FDI recipient countries on the basis of the amount 
of FDI they receive in relation to their potential.  It is  calculated on the basis of st ructural variables, such as 
country risk and trade-related measures.  This in dex also includes 140 countries (UNCTAD, 2005). Nicaragua WT/TPR/S/167/Rev.1 
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(4) PROSPECTS  
22. According to projections contained in the National Development Plan (PND)23, the 
Nicaraguan authorities expect real GDP growth to rise from an average of 3.1 per cent per year in 2001-2005 to around 4.7 per cent in th e period 2006-2010, and then to settle above 5 per cent between 
2010 and 2020.  This would make it possible to raise per capita GDP to nearly US$1,000 by the end 
of 2010, and reduce the proportion of Nicaraguan people living in extreme poverty from 15.1 per cent 
in 2004 to 11.5 per cent in 2010.  On the prices fro nt, inflation is forecast to drop from an annual 
average of 6.8 per cent over the period 2001-2005 to  5.3 per cent in 2006-2010, thanks partly to 
greater fiscal discipline which will also make it possi ble to cut the effective public-sector deficit (after 
grants) from -4.8 per cent in 2001-2005 to 1.4 per cent in 2006-2010 (Table I.4). 
Table I.4 
Nicaragua:  Economic prospects, 2006-2010 
  Estimatesa 
Categories 2001-2005 2006 2007 2008 2009 2010 2006-10 
 Growth rate 
GDP at constant prices 3.1 3.7 4.2 4.7 5.0 5.0 4.7 
GDP per capita 2.3 4.5 3.3 3.7 4.0 3.5 3.8 
Consumer prices (end of 
period) 6.8 7.3 6.0 5.0 4.0 4.0 5.3 
 % of GDP 
Foreign transactions 
current account, of which: -16.7 -16.9 -15.4 -14.3 -13.5 -12.7 -14.4 
Trade balance -23.8 -27.6 -26.4 -25.3 -24.4 -23.6 -25.3 
Trade balance (US$ 
million) -1,036.6 -1,477.9 -1,494.3 -1,524.6 -1,563.4 -1,601.0 -1,532.2 
Exports f.o.b.  1,155.6 1,753.1 1,948.7 2,116.7 2,294.9 2,488.6 2,120.4 
Imports f.o.b. 2,193.2 3,231.0 3,443.0 3,641.3 3,858.3 4,089.6 3,652.6 
Consolidated public 
sector         
Income 21.2 23.0 23.2 23.2 23.3 23.4 23.2 
Expenditure 30.4 29.5 28.4 28.0 27.8 27.5 28.2 
Saving 0.7 4.1 5.2 5.6 5.9 6.4 5.4 
Primary saving 5.3 6.5 7.6 7.9 8.0 8.1 7.6 
Overall balance before 
grants  -8.4 -6.5 -5.2 -4.8 -4.4 -3.9 -5.0 
Grants 3.6 3.8 3.8 3.6 3.4 3.3 3.6 
Overall balance after 
grants -4.8 -2.7 -1.4 -1.2 -0.9 -0.6 -1.4 
Memorandum item:        
GDP (US$ million) 4, 368.1 5,358.0 5,667. 1 6,016.6 6,406.1 6,790.9 6,047.7 
GDP per capita (US$) 795.1 906.3 936.3 971.0 1,009.8 1,045.6 973.8 
Gross international 
reserves (US$ million) 538.8 773.0 844.0 917.0 1,007.0 1,135.0 935.2 
Gross international 
reserves (in months of 
imports) 2.4 2.5 2.6 2.6 2.7 2.9 2.7 
a  Preliminary figures. 
Source : Republic of Nicaragua (2005),  National Development Programme (PND) , Managua;  and information provided by 
the Nicaraguan authorities. 
 
                                                      
23 The PND emerged as a result of the Poverty Re duction and Growth Facility (PRGF) arrangement 
between Nicaragua and the IMF.  An initial draf t of the PND was released in December 2002. WT/TPR/S/167/Rev.1 Trade Policy Review 
Page 12 
 
 
23. The Government views exports as one of the key factors on which future GDP growth and 
Nicaragua's poverty reduction progra mme depend.  The PND foresees greater dynamism in exports, 
which are expected to grow from an average of US$1.156 billion per year in 2001-2005 to US$2.12 billion in 2006-2010, thanks mainly  to the favourable impact of CAFTA
24, stronger 
international coffee prices, and a more effective agricultural policy.  Partly as a result of export 
dynamism, the PND sees the external deficit on cu rrent account narrowing from 16.7 per cent of GDP 
in 2001-2005 to 14.4 per cent over the following five years (Table I.4). 
24. The prospects for the Nicaraguan economy also depend on a major inflow of resources from 
abroad, mainly in the form of FDI, family remittances25, income from tourism, and external debt 
relief.  Nicaragua also intends to persevere w ith sound macroeconomic policies, press ahead with 
structural reforms, resolve problems of governance and corruption, clarify property rights, establish a strong institutional and legal framewo rk, and improve its economic infr astructure, technological level, 
and health and education systems. 
                                                     
 
24 Once CAFTA is implemented by all members, real GDP growth in the Central American countries is 
expected to rise by more than 1.5 percentage points a bove its current level, with exports expanding by roughly 
28 per cent (Republic of Nicaragua, 2005). 
25 Family remittances increased from US$320 million in 2000 (8 per cent of GDP) to US$600.4 million 
in 2005 (12 per cent of GDP) (Table I .2).