IMF Executive Board Approves US$822 Million Arrangements Under the Extended Fund Facility and the Extended Credit Facility for Honduras and Concludes 2023 Article IV Consultation
IMF News, September 21, 2023
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- Published: September 21, 2023
Overview
- The Executive Board approved arrangements under the Extended Fund Facility (EFF) and the Extended Credit Facility (ECF) for Honduras totaling US$822 million (SDR 624.5 million, equivalent to US$822 million or 250 percent of quota).
- The decision allows an immediate disbursement of SDR 89 million (about US$117 million).
- The arrangements provide support for the Honduran government’s economic and institutional reform agenda over the next three years, aiming to preserve macroeconomic stability, improve governance and transparency, and fight corruption.
Program and Financing
- Combined arrangements: SDR 624.5 million (equivalent to US$822 million or 250 percent of quota).
- EFF: SDR 416.3 million (about US$548 million).
- ECF: SDR 208.2 million (about US$274 million).
- Immediate disbursement: SDR 89 million (about US$117 million).
- Program objectives:
- Strengthen economic resilience and address structural bottlenecks to boost inclusive growth.
- Increase public investment while safeguarding macroeconomic stability.
- Support far-reaching tax reform and measures to strengthen tax administration.
- Build a well-targeted and wide-reaching social safety net.
- Diversify financing sources, including developing domestic debt markets, bolstered by a zero limit on central bank financing of the budget.
- Strengthen frameworks for monetary and foreign exchange policies, supported by Fund technical assistance.
- Support reforms in the energy sector, including a comprehensive loss reduction plan for the public electricity company.
- Enhance governance and transparency, including eliminating trust funds, implementing an electronic declaration system for public officials’ finances, creating a comprehensive beneficial ownership registry, and establishing an anti-corruption commission.
Macroeconomic Outlook and Key Projections
- Post-pandemic and storms rebound: economic output now around 6 percent above pre-pandemic levels.
- Growth projections:
- 2022: 4.0
- 2023: 2.9
- 2024: 3.2
- 2025: 3.5
- 2026: 3.7
- 2027: 3.8
- (Table entry: "GDP (change in percent)" with annual values: 12.5 for 2021; 4.0 for 2022; 2.9 for 2023; 3.2 for 2024; 3.5 for 2025; 3.7 for 2026; 3.8 for 2027)
- Inflation projections:
- Average inflation: 2021: 4.5; 2022: 9.1; 2023: 6.4; 2024: 4.7; 2025: 4.1
- End of period inflation: 2021: 5.3; 2022: 9.8; 2023: 4.2
- IMF staff note: growth projected to moderate to around 3 percent in 2023, down from 4 percent in 2022; medium-term growth projected to increase to near 4 percent, supported by public investment and reforms.
- Inflation: After peaking near 11 percent in 2022 in the aftermath of the global commodity price shock, inflation has declined significantly and is projected to moderate to near 5 percent by the end of 2023.
Public Finances and Debt (percent of GDP)
- Non-financial public sector overall balance:
- 2021: -3.7
- 2022: -0.2
- 2023: -2.0
- 2024: -1.7
- 2025: -1.4
- 2026: -1.0
- 2027: -0.9
- Non-financial public sector primary balance:
- 2021: -2.3
- 2022: 1.2
- 2023: -0.7
- 2024: 0.0
- 2025: 0.4
- Gross debt:
- 2021: 51.6
- 2022: 52.3
- 2023: 51.9
- 2024: 51.3
- 2025: 50.4
- 2026: 49.1
- 2027: 47.8
Balance of Payments and Reserves
- Current account balance, percent of GDP:
- 2021: -4.6
- 2022: -3.2
- 2023: -5.2
- 2024: -4.9
- 2025: -4.7
- 2026: -4.3
- 2027: -4.1
- Gross international reserves (billions of US$):
- 2021: 9.0
- 2022: 8.7
- 2023: 7.9
- 2024: 8.0
- 2025: 8.1
- Memorandum item — Nominal GDP (billions of Lempiras):
- 2021: 684
- 2022: 777
- 2023: 850
- 2024: 919
- 2025: 990
- 2026: 1068
- 2027: 1153
Executive Board Assessment and Directors’ Views
- Directors agreed with the thrust of the staff appraisal and commended authorities’ implementation of prudent economic policies that underpinned macroeconomic stability and resilience to recent shocks.
- Key concerns and priorities highlighted by Directors:
- Poverty and inequality, corruption, and large investment needs remain major hindrances to sustained growth and development.
- Need to maintain strong ownership and commitment to reforms, continued capacity development support by the Fund and other IFIs, and adequate contingency planning.
- Importance of revenue mobilization policies, including the planned tax reform and strengthened tax administration.
- Need for mechanisms to enhance the targeting of social spending, including a planned social registry, and improvements to public investment efficiency, including through the upcoming PIMA.
- Continued progress in diversifying fiscal financing sources.
- Enhance monetary and exchange rate policies to support price stability and resilience to shocks; manage the crawling band exchange rate regime to preserve competitiveness and improve foreign exchange market allocation efficiency.
- Importance of data-driven monetary policy, including active monitoring of developments in international interest rates, and enhancing the monetary policy framework and transmission.
- Support for authorities’ efforts to strengthen transparency and governance and reduce corruption risks, including elimination of trust funds and strengthening of the AML/CFT framework.
- Need to accelerate energy sector reforms to limit fiscal risks, support growth, and improve the business environment.
- Call for increased preparedness and resilience to the effects of climate change; Directors took note of authorities’ interest in Fund financing under the Resilience and Sustainability Facility.
Policy Recommendations and Structural Measures
- Fiscal policy:
- Implement medium-term fiscal framework that preserves debt sustainability while opening space to increase productive investment and social spending.
- Undertake far-reaching tax reform and measures to strengthen tax administration.
- Diversify financing sources and develop domestic debt markets; maintain zero limit on central bank financing of the budget.
- Social policy:
- Build a well-targeted and wide-reaching social safety net to reach the most vulnerable groups.
- Establish a planned social registry to enhance targeting of social spending.
- Monetary and exchange rate policy:
- Strengthen frameworks for monetary and foreign exchange policies with IMF technical assistance.
- Manage the crawling band exchange rate regime to preserve competitiveness and improve foreign exchange allocation efficiency.
- Ensure monetary policy supports the disinflation process and that there are no undue pressures on the exchange rate.
- Governance and anti-corruption:
- Strengthen transparency and governance, including elimination of trust funds, implementation of an electronic declaration system for public officials’ finances, creation of a comprehensive beneficial ownership registry, and establishment of an anti-corruption commission.
- Strengthen the Anti-Money Laundering framework.
- Energy and climate resilience:
- Implement comprehensive loss reduction plan for the public electricity company to limit fiscal risks and improve electricity provision.
- Build resilience to climate change and consider Fund financing under the Resilience and Sustainability Facility.
Press Release No. 23/321 — IMF Communications Department — September 21, 2023