Event

This month, Daniel Ortega was sworn in for a third consecutive term as Nicaragua's president, with his wife Rosario Murillo as the new vice president. Ortega ruled in 1979-90 and for two consecutive terms since 2007. He was re-elected president for a third term in November 2016 with about 72% of the vote. The election results have been criticised by the opposition who fears Ortega is trying to install an autocratic family rule. Also internationally, criticism is swelling due to moves towards increased state control.

Impact on country risk

It is likely that the policy will continue through Ortega's third five-year term. In the past years, the country has enjoyed a healthy growth rate (forecast at 4.3% in 2017), single-digit inflation (6.8% expected in 2017) and moderate debt service levels despite relatively high external debt (82.4% of GDP at the end of 2016). Under Ortega, the Central American state has also reduced poverty in one of the poorest countries in the Western hemisphere. However, Nicaragua could face economic challenges in the coming years. Venezuela is scaling back its aid due to the severe economic crisis it is experiencing. Venezuelan petrodollars have been financing the large, persistent Nicaraguan current account deficits (expected at -8.7% of GDP in 2017) in the past years and a sudden stop could negatively affect the balance of payments. Additionally, it is possible that a US bill blocking access to loans from international lending organisations will be signed into law (the Nicaraguan Investment Conditionality Act (NICA)). The act was signed by the House of Parliaments citing critical lack of government transparency in the country. This act, if approved by the Senate and signed by Trump, could affect World Bank and Inter-American Development Bank loans and weaken perceptions on the overall investment climate. It could also affect growth, negatively impact debt service ratios, disturb the stability of the balance of payments and worsen structural fiscal deficits (estimated at -1.6% of GDP in 2017) as the country is very reliant on aid.

Analyst: Jolyn Debuysscher, j.debuysscher@credendo.com