Economic growth in Nicaragua, once a top performer in the region, will slow to a crawl this year after months of violent chaos left hundreds dead and paralysed business activity.
The $13.7 billion economy will expand just 1 percent this year in an “optimistic scenario” compared with an original forecast of 5 percent, Central Bank Chief Ovidio Reyes said in an interview in Managua, Nicaragua. The economy will shed 86,000 jobs in 2018 and unemployment will rise to six percent by year’s end from 3.7 percent in December, he said.
“We had a positive scenario with good medium-term prospects,” Reyes said. “Unfortunately, the events of April and socio-political developments hit those projections hard.”
Violent clashes between police and protesters erupted on April 18 when the government announced it would raise social security taxes and cut benefits. President Daniel Ortega repealed the reform, but months of unrest followed. Rights groups say more than 350 people have been killed while Ortega places the number at 195. Some 23,000 Nicaraguans have requested asylum in neighboring Costa Rica since April, according to the United Nations.
Reyes said that Nicaragua’s social security institute burned through its reserves in recent years as revenues fell and the fund “still requires reform. We are going to have to do something to guarantee its sustainability,” he said.
Tourism will be among the hardest hit sectors this year and the industry will generate at least $250 million less than the $940 million originally projected, Reyes said. Hotels and restaurants have closed while businesses that remain open have reduced their hours and built gates around their entrances for protection.
“Tourists stopped coming,” he said.
The country’s gross domestic product had been growing at nearly five percent annually since 2010 and remained relatively free of the political and gang violence afflicting neighbours such as Honduras. Last year, Nicaragua’s economy expanded the most in the Americas after Panama.
But economic activity contracted 4.9 percent in May this year, the biggest drop since the aftermath of the global financial crisis a decade ago, and Reyes said June’s numbers could be worse as violence intensified that month. Third quarter activity should reflect improvement since fighting calmed in late July, he said.
Barricades of bricks and burning tires have been removed from roads and highways while police in anti-
riot gear patrol the main thoroughfares that were blocked during the uprising.
Universities in Managua where students entrenched themselves during clashes with government forces are now closed.