Press Release No. 07/229

Press Release: IMF Mission Examines the Draft 2008 Fiscal Budget for Honduras

October 12, 2007

Mr. Mario Garza, Resident Representative of the International Monetary Fund (IMF) in Tegucigalpa, issued the following statement on October 11, 2007:

"An IMF mission visited Honduras during October 3-11, 2007 to review fiscal developments in 2007 and examine the draft fiscal budget for 2008. The mission held policy meetings with President Manuel Zelaya, his economic cabinet, Congress President Roberto Michelleti, and other members of congress.

"Despite a strong performance on tax revenue, the mission projected that on current policies, the overall public sector deficit could rise from 2 percent of GDP in 2006 to over 3 percent of GDP this year, as a result of strains in the finances of public enterprises, mainly the electricity firm ENEE, and rising current spending. Looking ahead, the mission agreed with the authorities on the need to protect priority social and investment spending, and keep the public debt stable. In particular, the mission supported the authorities' target of an overall public sector deficit of 1 percent of GDP proposed in the draft budget for 2008. Achieving this objective will require a broad national consensus on policies that improve the financial situation of ENEE in a sustainable way, contain the rapid growth of the public sector wage bill, better target subsidies to the poor, and return the level of lending by public pension funds to more sustainable levels.

"The upcoming budget discussions provide a favorable opportunity to seek such a consensus to strengthen fiscal policy with a view to maintaining macroeconomic stability, supporting sustained growth, and achieving poverty reduction.

"The IMF greatly appreciates the close policy dialogue maintained with the authorities, and stands ready to help Honduras in any way possible."