Press Release No. 10/220

Press Release No. 10/220
May 28, 2010

Mario Garza, resident representative of the International Monetary Fund (IMF) in Tegucigalpa, issued the following statement today:

“An IMF mission conducted discussions on the 2010 Article IV consultation with Honduras during May 17-27. The mission met with President Porfirio Lobo, the government’s economic team, as well as private sector and civil society representatives. Discussions focused on the economic outlook for 2010 and the macroeconomic policy response of the government. There was agreement that the global crisis that erupted in late 2008 together with the uncertain political situation in Honduras in 2009 had a strong adverse impact on the economy and further deteriorated the fiscal and external accounts. In light of this situation, there was a shared view that corrective policies need to be implemented urgently to avoid a further deterioration in the fiscal and balance of payments positions that would delay the return to a path of sustained economic growth.

“For 2010, economic growth is anticipated to recover to some 2¾ percent, while the central bank expects to contain inflation at 6 percent. In the fiscal area, the mission acknowledged the importance of the tax reform approved in April and recommended its swift implementation. The authorities agreed that the revenue gains from this reform need to be complemented with decisive actions to regain control over public current spending. To this end, it is key to contain the growing wage bill (which used up over 90 percent of tax revenue in 2009) and ensure that subsidies be targeted only to the poor. The mission supported the authorities’ efforts to strengthen the finances of public enterprises and recommended developing a comprehensive policy to recover the financial viability of public pension funds. The goal of the government’s fiscal strategy is, in the short term, to reduce the public sector financing needs for 2010-11, and in the medium term, to ensure the sustainability of public finances.

“In the monetary area, the mission agreed with the official inflation projection for 2010, and recommended that the central bank contains the expansion of liquidity to strengthen foreign reserves. In the financial sector, the priority should be to further improve bank supervision to secure the soundness of the loan portfolio and strengthen financial intermediation. Looking ahead, the mission supported the authorities' plans to develop a structural reform agenda that includes greater private sector participation in infrastructure investment, to improve medium-term prospects for economic growth and poverty reduction.

"Upon its return to Washington, DC, the mission will present a staff report to the IMF Executive Board, which will have the opportunity to give an opinion on the report and conclude the consultation in July. The report would be published shortly after the Executive Board meeting.”