An IMF mission visited Honduras during March 26-April 8 to conduct the 2014 Article IV consultation. During the visit the mission met with President Juan Orlando Hernández, Minister Coordinator of the Government Jorge Hernández Alcerro, Central Bank Governor and Head of the Economic Cabinet Marlon Tábora, Minister of Finance Wilfredo Cerrato, other senior government officials and representatives of the private sector.
At the conclusion of the visit, mission chief Lisandro Ábrego issued the following statement today in Tegucigalpa:
“The mission reviewed recent economic developments in Honduras and discussed the macroeconomic outlook and economic policies. In 2013, economic growth decelerated to 2.6 percent, reflecting mainly weaker trading partner growth, a drop in coffee production due to the roya disease, and lower private investment related largely to political uncertainty due to the election process. At the same time, inflation declined to about 5 percent. The combined public sector (CPS) deficit rose to 7.6 percent of GDP, driven by higher primary expenditures and interest payments, and an increase in the deficit of the state-owned electricity company (ENEE). In the external sector, the current account deficit increased slightly as lower coffee exports offset a significant increase in remittances. However, international reserves rose notably, reflecting mainly the placement of US$1 billion in global bonds.
“In 2014, economic growth is expected to rise to 3 percent, driven by more favorable external conditions, the dissipation of political uncertainty and an improvement in private sector confidence. Inflationary pressures are projected to increase temporarily this year, but should remain under control and decline next year. The implementation of fiscal measures aimed at strengthening the public finances is expected to lower the CPS deficit in 2014. At the same time, more favorable terms of trade, a recovering coffee sector, and higher growth in Honduras’ key trading partners are expected to help lower the external current account deficit. The government’s debt management strategy, which will imply lower private external financing, is expected to lead to a modest decline in international reserves.
“The mission welcomes the revenue measures adopted recently, and ongoing efforts to rein in primary expenditure growth and strengthen tax administration, all of which is needed to bolster the country’s public finances. The mission also supports continued pension system reform and plans to reform the electricity sector. The staff team considers that additional measures to control expenditure and implementation of the electricity sector reform to substantially reduce the ENEE deficit will be key to sustaining the ongoing process of restoring the health of the public finances in Honduras. Strengthening the framework for public-private partnerships is also necessary to limit contingencies and the fiscal impact from these operations.
“On the monetary policy front, it is important that the central bank remain vigilant of monetary developments to ensure that credit expands at a moderate rate, which would help protect international reserves and keep inflation under control. The mission welcomes plans to implement the recapitalization of the central bank, which is necessary to cover the costs of monetary policy.
“Finally, the mission thanks the authorities and private sector representatives of Honduras for a very open and fruitful dialogue, which we expect will continue in the future, as well as for their excellent cooperation and hospitality.”