Caribbean & Central America - November 2024

Migrants are on course to send home a record-breaking amount of remittances to Nicaragua this year, with money sent home providing an economic lifeline to many families and helping to shore up the government’s financial position.

From January-September this year, Nicaragua received US$3.83bn in remittances, more than in the whole of 2022, when US$3.23bn was sent to the country, according to figures from the country’s central bank. It appears likely that 2024 will see further growth compared to last year, when a record US$4.66bn in remittances was received, and in an article published 12 October, local outlet Confidencial is forecasting that this year’s total will exceed US$5bn. The value of remittances rose steadily from 2009 onwards before starting to increase more rapidly from 2016 and then recording massive year-on-year growth from 2021 onwards.

This money represents a lifeline for many recipient households, but it is also a signal of increased emigration from Nicaragua. Eliseo Núñez, a Nicaraguan economist and former legislator, told Confidencial that the growth in the value of remittances comes at the cost of divided families and a brain drain that will hurt the country’s competitiveness in the long-term. 

Núñez said that almost two-thirds of migrants are between 20 and 35 years old, which will have knock-on effects on the country’s demographics as the number of retired people per working age person increases as younger people of child-bearing age leave the country. This will leave Nicaragua with an ageing population, and those of working age who have stayed will have few technical skills, he added. 

Núñez also highlights the fact that remittances are on course to surpass the total value of Nicaraguan exports, the same as they did in 2023. The value of the country’s exports has stagnated in recent years, according to figures from the central bank. In the first half of 2024 exports were worth US$3.95bn, down from US$3.980bn in the same period last year and US$4.06bn in the same period in 2022. The US remains Nicaragua’s largest export market, representing 36.5% of the total, but exports to the US were worth 14.9% less in the first half of 2024 compared to the same period in 2023.

Another economist, who spoke to Confidencial anonymously, said that remittances cannot be relied on in the long-term. Most migrants send a larger amount of money home in the first seven years after they leave, after which the number starts to fall, they said, highlighting the fact that value of remittances has been increasing more slowly in the last couple of years.

Although this growth has slowed, the significance of remittances to the Nicaraguan economy has been increasing. Remittance inflows as a percentage of Nicaragua’s GDP have skyrocketed in recent years, according to the Migration Data Portal, which is managed by the UN’s International Organization for Migration (IOM) Global Migration Data Analysis Centre (GMDAC). The portal highlights that inflows have increased from 9.5% of GDP in 2016 to 15.1% in 2021, 19.9% in 2022, and 26.8% in 2023, the fifth-highest proportion of any country in the world. Remittance inflows as a percentage of GDP were also high in regional peers Honduras (25.7%), El Salvador (24.1%), and Guatemala (19.6%) in 2023, but Nicaragua has seen the fastest increase in the last decade.

One issue is that President Daniel Ortega’s increasing authoritarianism has isolated Nicaragua from the US and its allies, dissuading investment from those countries, particularly since his crackdown on protests in 2018. According to the United Nations (UN) Economic Commission for Latin America and the Caribbean (Eclac), Nicaragua received a total US$1.23bn in foreign direct investment (FDI) in 2023, 5% lower than the year before. Further declines appear likely with only one project, a US$137m warehouse to be built by Sri Lanka-based logistics company EFL Global, announced last year. Washington has also slapped a wide range of sanctions on Nicaraguan individuals and businesses in an attempt to encourage Ortega to restore democracy.

Worsening relations with the West have left Managua increasingly reliant on China, and Chinese firms have invested massively in gold mining since the two countries re-established diplomatic ties in 2021. Although mining operations have long been present in Nicaragua, the amount of national territory granted as concessions more than doubled from 2021-2023, according to figures from the energy & mining ministry seen by environmental news site, Mongabay, and Ortega’s mining law grants tax incentives including tariff exemptions on materials and machinery. 

Despite stagnating exports and decreasing FDI inflows, the Nicaraguan economy has “remained resilient in the face of multiple shocks,” said the International Monetary Fund (IMF) in a statement published in January. It highlighted the role of remittances in driving a current account surplus of around 4% of GDP in 2023, allowing the rapid accumulation of international reserves. It also highlights that GDP growth has proven resilient, forecasting in its January statement to reach 3.5% this year.

However a deepening reliance on remittances and gold mining leaves Nicaragua vulnerable to external shocks such as an economic downturn in the US, where the vast majority of remittances come from, as well as a fall in gold prices, which have reached record highs this year. Nonetheless Ortega is unlikely to change course, with emigration providing a useful release valve for political dissent and the resulting remittances driving domestic consumption.