Honduras and the IMF
Free Email Notification
A mission has been in Honduras over the past two weeks or so to advance discussions with the authorities for the first review of Honduras's PRGF program with the Fund. The discussions were brought forward in order to work closely with the authorities as they sought to adapt their 2004 economic program for the impact of higher world oil prices than anticipated in the program. As usual, the discussions have been constructive and very cordial, and overlapped with last week's conference on Central America that was held in San Pedro Sula.
The mission's findings confirm that Honduras's program is broadly on track. Despite short-term pressures from the high oil prices, the authorities have done well to stay the course of reforms under their program. Thus, Honduras's growth in 2004 should exceed the program objective and reach the 3½-4 percent range. Although the inflation rate has been temporarily affected by the oil price developments, the authorities are confident that their financial policies are limiting the second-round effects, and that 12-month inflation remains firmly in the single-digit range. The external position has benefited from coffee prices and exports, as well as by continuing buoyant remittances, offsetting the higher oil import bill.
The fiscal position has generally been overperforming during the first half of the year. Tax revenues and the wage bill have been in line with expectations, and the authorities remain confident of maintaining them in line with the program. They see recent wage settlements as consistent with their macroeconomic framework and long-run sustainability. The authorities also see room to expand pro-poor spending, in line with available concessional financing from external sources, to help cushion the impact of the high oil prices on the most vulnerable groups in society.
Among structural reforms in the authorities' program, the next key steps relate to the approval of legislation to strengthen the financial system, including the institutional framework for monetary policy and supervision. The authorities are confident of their passage in the coming weeks.
While data for end-June performance criteria are still awaited, the mission's assessment is that overall developments remain consistent with completing the first program review in a timely way. Board approval of the first review will result in another disbursement from the Fund of about US$15 million, and constitute a further important step toward achieving the completion point under the HIPC Initiative, expected in early 2005. Looking forward, the authorities recognize fully that the continued success of the program, in an environment of growth and price stability, will depend on maintaining prudent fiscal policies and implementing the important structural reform agenda in their program.
IMF EXTERNAL RELATIONS DEPARTMENT