Statement by the IMF Article IV Mission to Honduras

Press Release No. 12/480
December 11, 2012

An International Monetary Fund (IMF) mission visited Honduras during November 26-December 10 to conduct discussions for the 2012 Article IV consultation. The mission met with the Minister of the Presidency María Antonieta de Bográn, Central Bank Governor María Elena Mondragón, Minister of Finance Wilfredo Cerrato, and other senior government officials and representatives of the private sector. At the end of the visit, Lisandro Ábrego, IMF mission chief for Honduras, issued the following statement:

“The mission reviewed recent economic developments in Honduras, and held discussions on the macroeconomic outlook and economic policies. Economic activity is expected to increase by 3.3 percent in 2012, supported by strong domestic demand. Inflation is projected at 5.7 percent, aided by lower imported commodity prices. However, the mission highlighted pressures in the external sector, with a rising external current account deficit and declining international reserves, reflecting both less favorable terms of trade and expansionary macroeconomic policies. On the fiscal front, the deficit of the central government is projected to be larger than in 2011, which has created financing challenges. At the same time, the mission considers that measures to contain the external imbalances and the rapid growth in credit, especially in foreign currency, have not been sufficient.

“The mission considers that economic growth in 2013 would be similar as this year’s while inflation could rise slightly above 6 percent. The external current account deficit would continue to increase further, driven by higher growth in imports and softer terms of trade. The deficit of the central government is projected to be smaller than in 2012. The planned issuance of a sovereign global bond would help the government alleviate recent financing pressures and reduce payment arrears, but would not help strengthen the fiscal position and would present other challenges, including the sterilization of liquidity by the Central Bank.

“There are important risks to the near-term outlook. The mission recommends the prompt adoption of measures to mitigate these risks. Monetary policy efforts to lower credit growth should be supported by the use of macro-prudential instruments, which would also help protect the financial sector. There is a need for measures to reduce the central government deficit compared to the level currently projected for 2013 and thus strengthen the fiscal position. This could comprise measures to reduce current expenditures and to raise revenues through the elimination of generous tax exemptions

“The mission supported the authorities’ ongoing efforts to strengthen tax administration by reforming the National Tax Agency (DEI) and measures to increase tax compliance in the near term. It also welcomed plans to improve the performance of public enterprises (particularly the state electricity company) and recent and planned reforms of the public pension funds. The team strongly encourages the authorities to implement these reforms, which are important to strengthen the public finances and the Honduran economy in general.”

“Finally, the IMF team would like to thank the authorities and private sector representatives of Honduras for a frank and fruitful dialogue, as well as for their excellent cooperation and warm hospitality.”



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