Caribbean & Central America - August 2026

Nicaragua's external debt continues to increase slowly, but international financial institutions remain largely positive on the government’s macroeconomic management even as political risks mount.

Nicaragua’s external debt reached US$16.4bn in the first quarter of 2026, continuing its recent slow growth, according to figures from the country’s central bank. This means that public and private external debt has increased from US$15.5bn in 2021 to US$15.8bn in 2023 and 2024, and US$16.2bn in 2025 before hitting a new high earlier this year. Of the US$16.4bn currently owed, 54.6% corresponds to public sector debt while 45.4% corresponds to the private sector, according to data from Nicaragua’s central bank (BCN) published in July. However, according to calculations by opposition media outlet Confidencial published on 9 July, net inflows, or the money available to use, were worth just US$11.5m after taking into account the cost of servicing the existing debt. Confidencial also flags a number of other concerns, including the terms of new debt issuances, of which 71.1% were short term. This allows lenders to reassess the level of risk on a yearly basis, and reflects a lack of confidence in Nicaragua, according to Confidencial. In addition, private sector lending fell 28.8% in Q1 2026 compared to the same period in 2025, according to the outlet. However an anonymous finance professional interviewed by Confidencial said that the statistics show that Nicaragua’s private sector is still trusted by international lenders. “The private sector took on debt and paid it back in significant quantities,” he said. “This shows that the private sector has the capacity to absorb debt, administer it and repay it,” he said, adding that the public sector does not enjoy the same level of trust among lenders.  

Nonetheless, international financial institutions have praised the government’s financial management in recent months. For example, in January the International Monetary Fund highlighted that the national economy has “weathered well multiple shocks since 2018, and strong fundamentals should help Nicaragua withstand headwinds from ongoing shifts in the global policy landscape”.

Then in May, credit ratings agency Fitch Ratings maintained Nicaragua’s Long-Term Foreign Currency (LTFC) Issuer Default Rating at ‘B’ with a stable outlook, citing “a prudent fiscal policy and twin surpluses that support the accumulation of external and fiscal buffers”. The government has been using surpluses to repay higher-interest bonds, and general government debt is forecast to continue its recent decline from 39.7% of GDP in 2024 to 33.9% of GDP in 2027, according to Fitch. The agency also flagged that net external financing fell from 2.4% of GDP in 2023 to 0.6% in 2025, although multilateral disbursements have declined as more expensive private external creditor disbursements have increased significantly, a trend that is expected to continue. 

In summary, the Nicaraguan government has shored up its fiscal position in recent years, and its governance record has received plaudits internationally due to efforts to improve debt sustainability, but risks remain. First, on 21 July co-president Daniel Ortega announced that the country would no longer hold elections, in a move that drew a wave of international condemnation. Notably, US Secretary of State Marco Rubio called for international action to further isolate the regime, and Representative María Elvira Salazar (R-FL) posted on X that “after Cuba, Nicaragua is next,” alluding to the Donald Trump administration’s stated aim of achieving regime change in those countries.

It therefore appears that Ortega’s announcement has drawn international attention after a period in which it appeared that his regime was flying under the radar in terms of pressure from the US. And Washington does have several economic tools at its disposal. One option is to suspend Nicaragua from the Dominican Republic-Central America-US Free Trade Agreement (Cafta-DR) trade deal, under which the country runs a trade surplus with the US, which would have severe consequences for the export sector. Up to now, the US has been reluctant to inflict this kind of pain on the Nicaragua economy, perhaps fearful of setting off a wave of northward migration, but Ortega’s provocations increase the possibility of significant action from Washington.