Press Release No. 17/203

IMF Staff Concludes Visit to Honduras

June 1, 2017

• IMF team encouraged by the continued strengthening of Honduran economy
• The outlook for 2017 remains favorable

An International Monetary Fund (IMF) staff team led by Mr. Roberto Garcia–Saltos visited Tegucigalpa from May 22 – June 1 to review economic developments and authorities’ implementation of their Fund-supported program during 2016 and the first quarter of 2017. At the conclusion of the visit Mr. Garcia–Saltos issued the following statement:

“The team is encouraged by the continued strengthening of the Honduran economy, including advances in the security situation.

“The economy grew steadily at 3.6 percent in 2016. Adequate macroeconomic policies, low oil prices and moderate exchange rate depreciation kept inflation at end-2016 low at 3.3 percent— below the central bank inflation target band of 4.5 ± 1 percent. The non-financial public sector (NFPS) posted a historically minimum deficit of 0.5 percent of GDP (3.9 percent in 2014) and the central government reached a deficit of 2.8 percent of GDP (4.5 percent of GDP in 2014). The external current account deficit has narrowed to 3.8 percent of GDP in 2016 (7.3 percent in 2014) as the decline in imports and the increase in remittances more than offset a decrease in exports. International reserves increased to the equivalent of 5 months of imports (4.3 months in 2014).

“The outlook for 2017 remains favorable. Real GDP growth through 2017 Q1 is estimated between 4 to 4.5percent (y/y) —owing to steady expansion of private consumption and strong growth of exports— broadly consistent with staff’s projection of 3.5 percent for the year. This projected growth is supported by scaled up public infrastructure investment and active monetary policy. Inflation through May 2017 picked up to 4.1 percent (y/y) —owing to recovery of domestic demand and higher international oil prices—, and is consistent with staff’s projection of 4.75 percent (y/y) for end-2017, within the central bank target band for inflation. In line with the existing program, the NFPS deficit is expected to increase —but be below the 1.5 percent of GDP ceiling established in the Fiscal Responsibility Law— to accommodate planned investment in infrastructure. A stronger policy mix and improved external conditions are expected to lead to a higher accumulation of international reserves. At the same time, consistent with expanding economic activity and greater private sector confidence, credit to the private sector is expected to grow by 10 percent in nominal terms, in line with a sustainable pace of financial deepening.

“The team encourages the government to press forward with their macroeconomic, financial and tax administration policies to achieve stronger and more inclusive growth. The discussions have been productive, and the government concurred with the team about the need to meet the end-June 2017 quantitative targets to complete the pending reviews under the Fund-supported program.

“The team welcomes the authorities’ decision to keep the target for the deficit of the NFPS at 1.5 percent of GDP in 2017 and an accumulation of central bank international reserves of US$311 million, consistent with the objectives of the Fund-supported program. These objectives include an additional reduction of the central government deficit to 3.2 percent of GDP. The team also welcomes the authorities’ proposal to establish new structural benchmarks on preparing a customs agency strategic plan and make operational the Financial Stability Council following the reforms to the financial system law approved in December 2016.

“To ascertain the compliance with the end-June 2017 targets and conclude discussions of the pending reviews, the team will return to Tegucigalpa later in August 2017.

“The team met with Minister Coordinator of Government, Jorge Ramon Hernandez-Alcerro, Head of the Economic Cabinet and Minister of Finance Wilfredo Cerrato, Central Bank Governor Manuel Bautista, Minister Director of the Tax Agency Miriam Guzman, President of the National Commission of Banking and Insurance Ethel Deras, Vice Minister of Public Credit and Investment Rocio Tábora and other senior government officials as well as with representatives of private sector institutions and of the international community.

“The team would like to thank the authorities for a fruitful and cordial dialogue, as well as for their cooperation.”