NEWTOWN, Conn. -- While Nicaragua does not face the same threats from violent gangs that some of its neighbors do, the country continues to face threats that require the military to respond. Drug traffickers often pass through Nicaraguan territory, requiring a military strong enough to maintain sovereignty. Furthermore, Nicaragua continues to have border disputes with its neighbors. A strong military is seen as necessary to act as a deterrent against other nations in the region.
Defense spending has fluctuated in Nicaragua. It increased rapidly through 2014, but then declined in 2015, before starting to rise again. However, the general trend has been a healthy climb. Compound annual growth rate (CAGR) was 4.5 percent between 2013 and 2017. In terms of U.S. dollars, defense spending has actually declined at an annual rate of 0.5 percent. In real terms, the budget increased only 0.1 percent. As inflation continues to be high and the Cordoba declines in value compared to the U.S. dollar, Nicaragua's buying power on the international market is not increasing at the same rate as the defense budget in local currency.
After a 20.8 percent increase in 2017, Nicaragua will increase its defense budget in 2018 by only 2.7 percent. With such a modest increase, there will be little money available for purchases of equipment. Spending on capital expenditures will decline from 6.3 percent of the budget in 2017 to only 1.1 percent in 2018. On the other hand, personnel spending will increase from 61.1 percent in 2017 to 64.9 percent in 2018. The transition is being made as Nicaragua completes major programs, such as the acquisition of T-72 tanks.
Going forward, defense spending will steadily increase in Nicaragua. Forecast International expects defense spending to grow at an annualized rate of 4.8 percent between 2019 and 2023. Growing defense spending will enable Nicaragua to continue to improve its military capabilities, and hence its ability to defend its territory from drug traffickers and to provide deterrence against other nations. As the government becomes more authoritarian, the military may also serve as a bedrock of support as militaries have in other authoritarian Latin American countries.
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