The protests began on 18 April and initially targeted pension reforms proposed by the left-wing dominated government. The reforms aimed at stabilising the near-bankrupt pension provider by introducing higher contribution rates for both employers and employees, combined with lower pensions for retirees. The proposals were quickly met with peaceful demonstrations, but clashes with pro-government forces turned deadly. Four days later, President Ortega announced the repeal of the proposed reforms, but this did little to quell the protests. On the contrary, protests flared up and are estimated to have led to a death toll of about 100 persons. Indeed, the harsh crackdown has fuelled public outrage and protests have morphed into a more general outpouring of anger against Ortega.

Impact on country risk

The street protests have become the biggest challenge for Ortega's authority since he took office in 2007. Ortega has overseen economic growth of around 4% in the past 11 years and reduced poverty. Nevertheless, he is criticised for his tight control over the police, courts and Congress, the country’s high corruption rate and his authoritarian rule.

Protests are unusual in Nicaragua, which is known as one of the most stable countries in Central America. The unrest represents a breach in the total dominance of the government and is eroding the pillars of the president’s support in the church, military and business world. Nevertheless, the recently re-elected Ortega is expected to retain his hold on power and will not hesitate to violently curb the protests. One major reason is that the social movement is still a coalition of fragmented groups with no clear leadership. The most likely outcome is that Ortega will make some concessions but he is unlikely to significantly weaken his grip on institutions. That being said, the risk of escalation cannot be ruled out.

The crisis will likely adversely impact the economy this year. The expected GDP growth of 4.7% in 2018 is probably too optimistic after the current events. Moreover, tourism revenues (accounting for about 10% of current account receipts) are likely to decline, risking a further widening of the already elevated current account deficit (projected at -7.8% of GDP in 2018). Furthermore, the unrest has increased the risk that the US government approves the Nicaragua Investment Conditionality Act (NICA) which could have detrimental economic consequences and spark further unrest.

The short-term political risk is in category 3/7. The country enjoys a relatively low level of external short-term debt while foreign exchange reserves are comfortable (covering around 4 months of imports in December 2017). The medium-/long-term political risk is in category 6/7. Nicaragua’s high rating reflects its relatively high external debt but low debt service, elevated current account deficits, reliance on oil imports, the risk of the NICA being passed, and the importance of tourism and remittances as sources of export revenues. At this stage, the recent events will not have an impact on the current short-term and medium-/long-term political risk classifications.

Analyst: Jolyn Debuysscher - J.Debuysscher@credendo.com