IMF and Honduras Reach a Staff-Level Agreement on the Third Review of the Economic Program under the SBA/SCF

IMF News, October 30, 2020

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A staff-level agreement was reached between IMF staff and the Honduran authorities on the third review of Honduras’ Stand-By Arrangement (SBA) and the Stand-by Credit Facility (SCF).
Subject to approval by the IMF Executive Board, staff proposes completing the third review, which would allow a disbursement of SDR 62.5 million (about $88 million).

The pandemic has slowed down economic activity more than previously anticipated.
The surge in infections over the summer delayed the gradual exit from the lockdown required to alleviate pressures on the health system and protect lives.
Growth projections:
- The economy is now expected to contract by about 7 percent in 2020.
- The economy is expected to recover by close to 5 percent in 2021.
External position:
- Resilient remittances and low oil prices have supported the country’s external position.
- A weaker external environment has contributed to the negative impact on growth and the fiscal outlook.

Fiscal measures:
- Flexibility in the Fiscal Responsibility Law has allowed the authorities to respond to the crisis with a temporary increase in the deficit of the Non-Financial Public Sector in 2020-21.
- The deficit increase is mainly driven by lower tax revenues.
- Emergency expenditures to address the healthcare, humanitarian and economic crisis have been largely accommodated through budget reallocations.
- The authorities project a return to the Fiscal Responsibility Law deficit limit in 2022.
- The authorities maintain a commitment to mobilize revenue to protect social spending and investment.
Monetary and financial measures:
- Authorities reduced the monetary policy rate.
- Authorities stepped up liquidity provision.
- Implemented schemes to guarantee new credits—both to SMEs and large companies.
- Supported restructuring of credits.
Objective: These measures aim to cushion the impact of the crisis, maintain confidence, and preserve access to international capital markets.

Initial phase implementation challenges arose from flaws in emergency procedures adopted to allow swift execution of healthcare and other critical expenditures.
Detection and oversight:
- The authorities’ sound monitoring system of pandemic-related spending and civil society oversight helped identify missteps in initial implementation.
Corrective actions taken:
- Intervention of the agency initially in charge of emergency purchases and transfer of these responsibilities to other specialized agencies.
- Additional enhancements to internal processes and controls for emergency purchases.
- Improvements to transparent reporting of pandemic-related spending.

Progress and priorities:
- Important progress in implementing structural reforms to foster strong and inclusive growth, notably to enhance governance and improve the business environment.
- Continued commitment to reform the electricity sector.
- Continued strengthening of the monetary policy and financial regulatory and supervisory frameworks.
Building on reforms implemented over recent years, these actions aim to strengthen Honduras’s policy framework.

The IMF mission was led by Mr. Esteban Vesperoni and conducted via videoconference.
Discussions were held with:
- Central Bank Governor Wilfredo Cerrato
- Minister of Finance Marco Midence
- Director of the Tax Agency Miriam Guzmán
- President of the National Commission of Banking and Insurance Ethel Deras
- Minister of General Coordination Carlos Madero
- Technical teams from the Ministry of Health, Ministry of Labor, Ministry of Social Development and Inclusion
- ENEE’s intervention board, the electricity sector regulator and system operator
- Representatives of civil society, the private sector and the international community
The mission thanked the authorities and counterparts for the excellent discussions.

IMF Communications Department — Press Release No. 20/327 (October 30, 2020).