Elections in Nicaragua Confirm Continuity

According to Fitch Ratings the reelection of Daniel Ortega as president of Nicaragua means stability in the country's economic policies.

Tuesday, November 8, 2016

EDITORIAL

Stability and economic and political continuity is what Fitch Ratings envisages for Nicaragua after the outcome of the presidential elections last Sunday, in which President Daniel Ortega was declared the winner, with 70% of the vote, according to a report by the Supreme Electoral Council. 

Now Ortega will preside over Nicaragua for a third consecutive term, following his victories in the elections of 2006 and 2011, and a controversial reform of the constitutional provisions that enable presidential reelection indefinitely.

Ortega's reelection, still overshadowed by undemocratic political procedures, will stay the course of the Nicaraguan economy, ensuring stability for investments in that country, at least in the short and medium term. See "Political and Economic Continuity in Nicaragua". 

From a press release issued by Fitch Ratings:

Fitch Ratings-New York-07 November 2016: Nicaragua's re-election of President Daniel Ortega following national elections Sunday, Nov. 6, supports continuity of the country's macro and fiscal policies, Fitch Ratings says.

Since 2006, the Ortega administrations improved Nicaragua's public debt dynamics, reduced external imbalances, and saw solid economic growth and declining inflation (aided by low oil prices). However, key structural weaknesses remain to Nicaragua's creditworthiness, posing policy challenges to fortifying long-term macro stability. 

The government plans to maintain its policy course to deepen macro gains. Sustaining investment and economic growth is a top policy priority, and Fitch projects growth at 4.5% in 2016. President Ortega has collaborated closely with the private sector to implement long-term, growth-oriented policies. 

This working relationship has been important for business confidence and private investment. Nicaragua diversified its trade and investment partners, in part to offset reduced financial inflows from Venezuela. A new public-private partnership framework passed into law in 2016 to support new infrastructure investment. However, Nicaragua's political checks and balances remain weak, constraining its governance indicators.

The government's 2017 budget sets a central government deficit to 0.9% of GDP. The government plans to run small deficits to increase public infrastructure investment that is to be financed mainly by multilateral development banks. Increased spending by municipalities will likely raise the general government deficit to 1.5% of GDP in 2017. 

The government could introduce measures to preserve budget space. Nicaragua's track record of prudent public financial management and timely adjustment to shocks is a comparative rating strength in the 'B' rating category. The IMF recommended changes to the electricity subsidy to better target low-income households and social security reform. Fitch's 2017 fiscal projections assume reforms to the INSS (the social security institute) are implemented to stem its small cash deficits, 0.3% of GDP in 2015, and return INSS' operating position to balance. 

Some of the macro structural challenges confronting Nicaragua include its high level of dollarization (at 73% of deposits and 91% of loans). Similarly, the country has a small domestic capital market. The private sector holds only 5% of GDP in central government treasury instruments - one-third of central government domestic debt by Fitch's measure. Private credit, a proxy for the size of the domestic capital market, is low at 37% of GDP in 2015, and the five-year average domestic savings rate, 10% of GDP, is half the emerging markets median.

Nicaragua also has external vulnerabilities. Its current account deficit, 7.8% of GDP in 2016, and its net external debt, close to 100% of current external receipts in 2016, far exceed the 'B' category medians. Its external financing needs are sensitive to foreign investment inflows and the availability of official financing. Commodities form a material share of exports. 

Nicaragua has made headway narrowing its current account deficit and reducing public sector external debt with debt forgiveness a few years ago. Strengthened international reserves at four months of current external payments and a USD200-million liquidity line partially buffer external risks.

Risks to private foreign direct investment and growth could materialize over the medium term if bilateral relations with the US deteriorate. Although it is not Fitch's base case scenario, the proposed US "Nica" bill of 2016, if passed and signed into law, could dampen commerce and investment between the two countries. 

Nicaragua's Outlook is Stable. Fitch will continue to focus on Nicaragua's investment and growth prospects, the impact of political developments on access to external financing and liquidity, and progress on reducing external imbalances and risks to macro and financial stability.



More on this topic

Crisis in Nicaragua: No Solution in Sight

May 2018

In the view of Fitch Ratings, continued political unrest could undermine investment conditions and economic growth, as well as raise the risks of confidence shocks to the financial system and macroeconomic stability.

From a statement issued by from Fitch Ratings:

Fitch Ratings-New York/San Salvador-17 May 2018: Continuing protests and resulting political violence in Nicaragua heighten risks to political stability and governability, says Fitch Ratings. Continued political unrest could undermine investment conditions and economic growth as well as elevate risks of confidence shocks to the financial system and macro stability.

Nicaragua as seen by Fitch Ratings

August 2017

The rating agency highlights growth at rates of 5% achieved in the last five years, but estimates that in 2017-18 this will fall to 4.5%, partly due to the effect of a reduction in financial flows from the program with Petrocaribe.

From a statement issued by Fitch Ratings:

Political and Economic Continuity in Nicaragua

October 2016

The vast majority of nicaraguans intend to vote for the re-election of the current President, Daniel Ortega, which would ensure the continuity of the current policies used to run the country.

EDITORIAL

Confirming what has been published by other pollsters, M & R Consultores notes that the results of its seventh national survey put the clear favorite to win the presidential election as Daniel Ortega and his wife Rosario Murillo, who according to this survey now have 66.3% of the vote. The nearest contender has only 8% of the vote, while the so-called hidden vote is 20.6%.

Nicaragua Gets B+ Credit Rating

December 2015

The upward trend in economic growth, prudent fiscal policy and debt reduction explain the B + grade with a stable outlook given by Fitch Ratings.

From the press release by Fitch Ratings:

Fitch Ratings-New York-16 December 2015: Fitch Ratings has assigned first-time ratings to Nicaragua as follows:

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