IMF sees Nicaragua economic growth cooling as pace of remittances fall

(Reuters) - Nicaragua's economy will likely grow at around 4% this year, similar to its expected 2024 expansion, due to prudent macro-economic polices as well as "high" remittances, according to a Friday report from the International Monetary Fund.

The Central American economy grew by 4.6% in 2023.

But the board report from the international lender expects economic expansion to cool in the medium-term, at around 3.5%, due to the likelihood of slowing remittances from Nicaragua's large migrant diaspora, which is heavily concentrated in the United States.

Remittances make up just over a fourth of the country's gross domestic product.

Other factors weighing on growth cited by the IMF include smaller private sector investment and less domestic labor due to accelerating migration.

"Going forward, domestic and international political developments, and deterioration of the rule of law may also impact economic performance by potentially increasing the cost of doing business," according to the IMF report.

The government of President Daniel Ortega faces increasing isolation abroad, as rights groups and the United Nations have sounded the alarm over whey they describe as a growing concentration of power and broad restrictions on freedom of expression, following the recent enactment of a sweeping constitutional reform.

Ortega's 2018 crackdown on dissent, following mass anti-government protests, has led to what critics see as a tightening grip on power marked by arbitration arrests and violent suppression of dissent to his rule, which is now shared with his wife and newly installed co-president, Rosario Murillo.

The IMF report emphasized the need to "significantly improve" the rule of law and protect the judiciary's independence. The lender also urged the government to mitigate fiscal risks, including by reforming its pension system, strengthen transparency and improve supervision over state-run companies.

(Reporting by Diego Ore; Writing by David Alire Garcia; Editing by Chris Reese)

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