IMF Completes 2016 Article IV Consultation with Honduras
IMF News, November 22, 2016
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- Published: November 22, 2016
Economic performance in 2015
- Real output grew at 3.6 percent.
- Demand-side supports:
- Recovery in private consumption, responding positively to a reduction in gasoline prices and strong remittances inflows.
- A boost in investment.
- Supply-side supports:
- Recovery in manufacturing and agriculture.
- Headline inflation decelerated to 2.4 percent from 5.8 percent in the previous year, below the inflation target of 4.5 percent—owing to strong demand management policies and lower fuel prices.
- Fiscal position improved: the primary balance moved into surplus, implying a fiscal adjustment of 6.5 percentage points of GDP relative to 2013.
- External sector:
- External current account deficit narrowed to 6.3 percent of GDP in 2015.
- Net international reserves increased by US$307 million, supported by private capital inflows.
- These developments contributed to a systematic improvement in Honduras’ international sovereign debt credit ratings.
Outlook for 2016
- Real GDP through 2016 Q2 grew by 4.1 percent (y/y), broadly consistent with staff’s projection of 3.6 percent for the year.
- Growth drivers: scaled up public infrastructure investment and a supportive monetary policy stance.
- Inflation through August 2016 was 2.5 percent (y/y), projected to remain low.
- Fiscal stance:
- Nonfinancial public sector deficit expected to widen to 1.5 percent of GDP from 1.0 percent to accommodate planned investment in infrastructure, in line with the existing program and the Fiscal Responsibility Law (FRL).
- Financial deepening: credit to the private sector expected to grow by 10 percent in nominal terms, in line with a sustainable pace of financial deepening.
Program performance and structural reforms
- Program performance described as satisfactory.
- Key reforms advanced by the authorities:
- Adoption of caps on expenditure and prioritizing public investment under the FRL.
- Reforms to tax administration.
- Establishment of a social protection framework.
- Overhaul of the electricity sector.
- Comprehensive reform of the framework for bank resolution, including extensive legal amendments and strengthened authorities’ capacity to deal with financial sector distress.
Executive Board Assessment
- Directors commended the improved macroeconomic policy mix under the Fund-supported program, noting stabilization, higher economic growth, low inflation, stronger fiscal and external positions, and progress in social policies.
- Directors encouraged continued prudent policies and reform momentum to achieve stronger and more inclusive growth while safeguarding macroeconomic and financial stability.
- Fiscal policy:
- Welcomed fiscal consolidation efforts and recent adoption of the FRL.
- Encouraged quick operationalization of the law’s provisions and clarification of implications for extra-budgetary programs.
- Urged a more proactive approach to rationalizing tax exemptions and supported adopting a results-based approach to spending programs in health and education.
- Called for additional electricity sector reforms to strengthen public finances and foster competition.
- Monetary policy and financial stability:
- Agreed that the supportive monetary policy stance remains appropriate.
- Given a more neutral policy rate, the closing output gap, and planned recovery of real electricity costs, Directors urged the Central Bank of Honduras (BCH) to be cautious against further easing in the near term.
- Called on the BCH to remain vigilant and be ready to tighten policy if inflation or credit growth were to accelerate and signs of overheating emerged.
- Exchange rate and institutional reforms:
- Welcomed the move toward a more flexible exchange rate regime and an inflation targeting framework.
- Encouraged development of domestic and foreign exchange markets, reform of the central bank law to give the BCH a clear mandate to achieve price stability, and acceleration of the de-dollarization process.
- Growth and structural priorities:
- Recommended focusing on key medium-term reform priorities to achieve higher growth and employment.
- Encouraged efforts to improve the rule of law, competitiveness, and the business climate.
- Welcomed the recently launched medium-term economic development strategy Honduras 2020.
Selected economic indicators (as reported)
- GDP at constant prices (annual percentage change):
- 2011: 3.8
- 2012: 4.1
- 2013: 2.8
- 2014: 3.1
- 2015: 3.6
- 2016 (Prel./Proj.): 3.7
- GDP deflator:
- 2011: 7.8
- 2012: 1.4
- 2013: 5.5
- 2014: 6.3
- 2015: 3.0
- Consumer prices (eop):
- 2011: 5.6
- 2012: 5.4
- 2013: 4.9
- 2014: 5.8
- 2015: 2.4
- 2016 (Proj.): 4.0
- 2017 (Proj.): 4.5
- Exchange rate (eop, depreciation -) Lempiras per U.S. dollar 1/:
- 2011: 19.1
- 2012: 20.0
- 2013: 20.7
- 2014: 21.6
- 2015: 22.4
- 2016: 22.9
- Real effective rate 2/:
- 2011: 1.8
- 2012: -1.7
- 2013: 0.4
- 2014: 1.6
- 2015: -0.7
- Private sector credit (annual percentage change):
- 2011: 9.6
- 2012: 16.9
- 2013: 11.2
- 2014: 10.7
- 2015: 10.4
- 2016 (Proj.): 10.8
- 2017 (Proj.): 11.1
- Broad money (annual percentage change):
- 2011: 12.7
- 2012: 6.6
- 2013: 8.4
- 2014: 13.2
- 2015: 8.7
- 2016 (Proj.): 9.1
- 2017 (Proj.): 9.4
- Lending rate (eop, in percent) 3/:
- 2011: 14.2
- 2012: 16.7
- 2013: 15.9
- 2014: 14.0
- 2015: 12.3
- Deposit rate (eop, in percent) 3/:
- 2011: 7.4
- 2012: 11.4
- 2013: 11.0
- 2014: 8.8
- 2015: 7.6
- Nonfinancial public sector:
- Primary balance:
- 2011: -3.4
- 2012: -4
- 2013: -7.0
- 2014: -3.5
- 2015: 0.1
- 2016 (Proj.): -0.2
- 2017 (Proj.): -0.1
- Overall balance:
- 2011: -3.2
- 2012: -4.4
- 2013: -7.5
- 2014: -3.9
- 2015: -1.0
- 2016 (Proj.): -1.2
- 2017 (Proj.): -1.5
- Nonfinancial Public Sector gross debt:
- 2011: 25.5
- 2012: 30.2
- 2013: 40.2
- 2014: 40.9
- 2015: 41.9
- 2016 (Proj.): 43.2
- Of which: External debt:
- 2011: 18.3
- 2012: 20.2
- 2013: 28.5
- 2014: 29.3
- 2015: 29.5
- 2016 (Proj.): 30.7
- 2017 (Proj.): 32.3
- Public sector external debt service (in percent of nonmaquila exports):
- 2011: 4.4
- 2012: 8.6
- 2013: 8.3
- Savings and investment:
- Gross fixed capital formation:
- 2011: 24.4
- 2012: 21.8
- 2013: 22.1
- 2014: 25.2
- 2015: 26.4
- 2016 (Proj.): 26.8
- Gross national savings:
- 2011: 16.5
- 2012: 15.8
- 2013: 12.2
- 2014: 14.6
- 2015: 18.8
- 2016 (Proj.): 20.5
- 2017 (Proj.): 21.1
- External sector:
- Gross international reserves (millions of dollars):
- 2011: 3,043
- 2012: 2,778
- 2013: 3,255
- 2014: 3,698
- 2015: 3,992
- 2016 (Proj.): 4,385
- 2017 (Proj.): 4,648
- GIR (In months of imports) 4/:
- 2011: 3.3
- 2012: 4.3
- 2013: 4.7
- Change in net international reserves (increase -):
- 2011: 50
- 2012: 367
- 2013: -546
- 2014: -264
- 2015: -307
- 2016 (Proj.): -222
- 2017 (Proj.): -245
- External current account balance:
- 2011: -8.0
- 2012: -8.6
- 2013: -9.6
- 2014: -7.4
- 2015: -6.3
- 2016 (Proj.): -5.9
- 2017 (Proj.): -5.7
- Exports, f.o.b. (annual percentage change):
- 2011: 27.3
- 2012: 4.8
- 2013: -6.6
- 2014: 3.4
- 2015: -0.4
- 2016 (Proj.): 2.0
- 2017 (Proj.): 6.1
- Imports, f.o.b. (annual percentage change):
- 2011: 24.9
- 2012: 2.2
- 2013: -3.7
- 2014: 1.1
- 2015: 0.2
- 2016 (Proj.): 2.3
- 2017 (Proj.): 5.3
IMF Communications Department, Press Release No. 16/518, November 22, 2016.