Press Release: IMF Executive Board Approves US$113.2 Million Stand-By Arrangement and US$75.4 Million Stand-By Credit Facility for Honduras
IMF News, December 4, 2014
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- Authors: Arrangement
- Published: December 4, 2014
Approval and financing terms
- The Executive Board approved a US$113.2 Stand-By Arrangement and a US$75.4 arrangement under the Stand-By Credit Facility (SBA/SCF) for Honduras for a combined SDR 129.5 million (about US$188.6 million or 100 percent of Honduras’s quota).
- Immediate access made available: SDR 38.85 million (about US$56.6 million).
- Remainder disbursed in six varying tranches upon completion of semi-annual program reviews.
- The Honduran authorities plan to treat the arrangements as precautionary.
- Honduras has an IMF quota of SDR 129.5 million (about US$188.6 million).
Statement by Mr. Min Zhu, Deputy Managing Director and Acting Chair — program goals and key policy directions
- Program objectives:
- Preserve macroeconomic stability by further strengthening fiscal and external positions.
- Improve conditions for sustainable and inclusive growth.
- Fiscal policy:
- Sustained fiscal consolidation necessary to reduce large fiscal deficit and contain public debt.
- Authorities have implemented tax policy measures and expenditure reductions; steps taken to improve financial position of the state electricity company.
- Recommended focus: further reducing current expenditure, improving tax administration, and strengthening the electricity company’s finances.
- Protect social spending and public investment by shifting composition of public expenditure away from inefficient current outlays.
- Monetary and external sector policy:
- Sound monetary policy and exchange rate flexibility to keep inflation in check and protect international reserves.
- Exchange rate flexibility to protect competitiveness and ease fiscal adjustment.
- Presence of currency mismatches among borrowers calls for more stringent macroprudential measures to reduce banking sector risks.
- Structural reforms:
- Key reforms in the electricity sector, pensions, and public-private partnership framework.
- Expansion of the social safety net to support poverty reduction efforts.
Recent economic developments (2014 context and near-term outlook)
- Political and policy context:
- New government took office January 2014 with commitments to reduce macroeconomic imbalances, promote inclusive growth, and improve domestic security.
- 2014 performance indicators:
- Real economic activity rose by 2.6 percent from January–August (compared with 2.1 percent in the same period last year).
- Combined public sector deficit declined to 1 percent of GDP in January–August, from 3.3 percent of GDP in the same period last year.
- Inflation increased to about 6.3 percent in October (4.6 percent in the previous year), driven by December 2013 fiscal measures and weather-related factors.
- Balance of payments: improving trade balance, solid remittance growth, and higher international reserves.
- Monetary conditions:
- Central bank kept policy rate and reserve requirements unchanged, withdrew liquidity through open market operations, and helped keep credit growth at about 10 percent.
- In the year ending September, the lempira depreciated by about 3 percent, resulting in a small appreciation in real effective terms.
- 2015 projections:
- Real GDP growth expected to remain at 3 percent.
- Inflation projected to fall to 5.8 percent in 2015.
- External current account deficit expected to decline to about 7 percent of GDP.
- International reserve coverage expected to rise slightly to 3.8 months of imports.
- Combined public sector deficit expected to continue to decline, falling to somewhat above 3 percent of GDP in 2015.
Program summary — fiscal, monetary, and structural pillars
- Fiscal objectives and measures:
- Restore discipline and contain public debt growth.
- Target: reduce overall balance of combined public sector from around 7½ percent of GDP in 2013 to about 2 percent of GDP in 2017.
- Plan to reduce ratio of wage bill to GDP over next three years while protecting key social programs.
- Consolidate social programs under Vida Mejor, using part of wage-bill savings to improve housing for low-income families; Vida Mejor will consolidate existing programs, notably Bono 10 mil.
- Monetary policy actions:
- Proactive management to keep inflation in check and strengthen external position.
- Central bank plan to modernize policy framework: improve short-term liquidity management and enhance reporting of monetary and economic data for the open market operations commission.
- Structural reforms and capacity building:
- Reforms in electricity sector, including ENEE; telecommunications company HONDUTEL; and the Social Security Institute.
- With IMF technical assistance, the National Tax Directorate (DEI) to implement a program to strengthen tax administration.
- Expected program effects:
- Preserve macroeconomic stability, bolster investor confidence, and catalyze resources from multilateral institutions and donors.
Selected economic indicators (highlights and exact figures)
- National income and prices (annual percentage change unless otherwise indicated):
- GDP at constant prices: 2010: 3.7; 2011: 3.8; 2012: 4.1; 2013: 2.6; 2014: 3.0; 2015: (Proj.) 3.0
- GDP deflator: 2010: 4.7; 2011: 7.8; 2012: 3.6; 2013: 1.5; 2014: 5.3; 2015: 5.7
- Consumer prices (eop): 2010: 6.5; 2011: 5.6; 2012: 5.4; 2013: 4.9; 2014: 5.8
- Exchange rate and competitiveness:
- Lempiras per U.S. dollar (eop) 1/: 2010: 19.0; 2011: 19.5; 2012: 20.4; 2013: 21.0; 2014: ...
- Real effective rate 2/: 2010: 4.3; 2011: 1.8; 2012: -1.7; 2013: 0.4; 2014: 1.2
- Money and credit:
- Private sector credit: 2010: 3.5; 2011: 9.6; 2012: 16.9; 2013: 11.2; 2014: 9.9; 2015: 10.5
- Broad money: 2010: 9.4; 2011: 12.7; 2012: 6.6; 2013: 8.4; 2014: 10.2; 2015: 10.6
- Combined public sector (percent of GDP):
- Noninterest revenue and grants: 2010: 22.7; 2011: 21.8; 2012: 21.1; 2013: 21.3; 2014: 22.8; 2015: 22.9
- Noninterest expenditure: 2010: 26.1; 2011: 24.8; 2012: 25.4; 2013: 28.4; 2014: 28.0; 2015: 25.0
- Primary balance: 2010: -3.4; 2011: -3.0; 2012: -4.3; 2013: -7.1; 2014: -5.2; 2015: -2.1
- Capital expenditure: 2010: 5.5; 2011: 6.4; 2012: 6.2; 2013: 4.5; 2014: (not listed)
- Overall balance: 2010: -2.8; 2011: -4.2; 2012: -7.6; 2013: -5.9; 2014: -3.2
- Public sector debt 3/: 2010: 29.8; 2011: 32.1; 2012: 34.4; 2013: 45.1; 2014: 47.8; 2015: 49.4
- Of which: External debt: 2010: 18.0; 2011: 18.1; 2012: 19.7; 2013: 28.1; 2014: 29.7; 2015: 31.8
- Public sector external debt service (in percent of nonmaquila exports): 2010: 3.9; 2011: 4.4; 2012: 2.8; 2013: 7.3; 2014: 7.9
- Savings and investment:
- Gross fixed capital formation: 2010: 21.6; 2011: 24.4; 2012: 25.6; 2013: 25.3; 2014: (not listed)
- Gross national savings: 2010: 17.2; 2011: 16.5; 2012: 15.8; 2013: 16.0; 2014: 17.7; 2015: 18.2
- External sector:
- Gross international reserves (millions of dollars): 2010: 2,921; 2011: 3,043; 2012: 2,778; 2013: 3,255; 2014: 3,329; 2015: 3,507
- GIR (In months of imports) 4/: 2010: 3.3
- External current account balance (percent of GDP): 2010: -8.0; 2011: -8.5; 2012: -9.5; 2013: -7.8; 2014: (not listed)
- Exports, f.o.b. (annual percentage change): 2010: 27.3; 2011: 4.8; 2012: -6.6; 2013: (not listed)
- Imports, f.o.b. (annual percentage change): 2010: 20.8; 2011: 24.9; 2012: 2.2; 2013: -3.7; 2014: 3.2; 2015: 3.4
Press Release No. 14/545 — December 4, 2014. IMF Communications Department.