- The International Monetary Fund (IMF) and Honduran authorities have reached a crucial staff-level agreement on comprehensive policies and reforms essential for the completion of the first and second reviews of Honduras’ IMF-supported program.
- Significant progress has been made by the authorities under their program. Fiscal policies remain prudent, public investments are expanding, and there has been a recent normalization of monetary and exchange rate policies.
- Key to sustaining macroeconomic stability and fostering inclusive growth are enhanced budget execution, energy sector reforms aimed at reducing the public power company’s arrears, and further adjustments to monetary and exchange rate policies.
TEGUCIGALPA, Honduras: Recent negotiations between the IMF team and Honduran officials during the mission from October 7-18, 2024, have resulted in a staff-level agreement on vital economic policies. This agreement is necessary to advance the Extended Credit Facility (ECF) and Extended Fund Facility (EFF) arrangements, with the IMF’s executive board set to evaluate it in the upcoming weeks.
The IMF team underscored that the Honduran economy demonstrates resilience despite global challenges and the repercussions of the El Niño climate phenomenon. Economic growth approaches 4 percent, while inflation stabilizes between 4½ and 5 percent, positioning it within acceptable limits set by the Central Bank of Honduras. However, international reserves have been on a decline due to various factors, including severe drought conditions affecting agricultural exports and increased energy imports.
The authorities reaffirmed their commitment to maintaining a prudent macroeconomic policy framework aimed at enhancing economic stability through decisive action on critical aspects of their reform agenda supported by the IMF.
Key policy pillars discussed included:
First, maintaining budgetary discipline to ensure debt sustainability. Fiscal performance is expected to exceed program expectations, driven by robust tax revenues and improvements in public financial management. Measures to enhance transparency in budget execution and timely alignment of the 2025 budget with program objectives are vital to further solidify fiscal positioning and public investment.
Second, enhancing social spending to support vulnerable populations. The authorities have recognized previous constraints in distributing social assistance and are now prioritizing the rollout of monetary transfers to those in need, alongside expedited efforts to complete the urban poverty census.
Third, implementing decisive monetary and exchange rate policies to control inflation and protect international reserves. Recent measures include increasing reserve requirements and adjusting the monetary policy rate to better align with economic conditions.
Fourth, working towards improving the energy sector’s health. A positive trend in reducing electricity losses was noted; however, the ongoing reforms are critical to maintaining the financial health of the public power company ENEE. Immediate priorities include reducing ENEE’s payment arrears and enhancing stakeholder collaboration to attract investment for capacity expansion.
Fifth, a strong commitment to combating corruption. The launch of a public official asset declaration system and the establishment of a National Observatory of Transparency and Anti-Corruption signal progress. Continued efforts to improve the Anti-Money Laundering and Counter-Terrorism Financing framework are indicated ahead of upcoming evaluations.
The IMF group expressed gratitude to the authorities, private sectors, and civil society for their hospitality and openness during discussions.
