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

September 21, 2023

• The Executive Board of the International Monetary Fund (IMF) approved arrangements under the Extended Fund Facility (EFF) and the Extended Credit Facility (ECF) for Honduras for a total of US$822 million.
• These arrangements provide support for the Honduran government’s economic and institutional reform agenda over the next three years. The program also aims to support the authorities’ efforts to improve governance and transparency and fight corruption.
• The program will advance policies needed to strengthen economic resilience and address structural bottlenecks to boost inclusive growth, including by increasing public investment while safeguarding macroeconomic stability.

Washington, DC : The Executive Board of
the International Monetary Fund (IMF) approved today an SDR 416.3 million
(about US$548 million) arrangement under the Extended Fund Facility (EFF)
and an SDR 208.2 million (about US$274 million) Extended Credit Facility
(ECF) for Honduras for a combined SDR 624.5 million (equivalent to US$822
million

[1]

or 250 percent of quota) and concluded the 2023 Article IV consultation.

[2]

The Executive Board’s decision allows the authorities an immediate
disbursement of SDR 89 million, equivalent to about US$117 million. These
arrangements will help address Honduras’ balance of payments needs and
provide support for the Honduran government’s economic and institutional
reform agenda over the next three years.

The authorities’ IMF-supported program includes economic and institutional
reforms to support macroeconomic stability on a sustainable basis while
creating fiscal space for much-needed productive investment and social
spending. The program also aims at fostering durable and inclusive growth
and enhancing climate resilience, while supporting the authorities’ efforts
to improve governance and transparency.

Following the pandemic and tropical storms, the Honduran economy has
rebounded, with economic output now around 6 percent above pre-pandemic
levels. Economic growth is projected to moderate to around 3 percent in
2023, down from 4 percent in 2022. Over the medium term, growth is
projected to increase to near 4 percent, supported by public investment and
the authorities’ reform agenda. 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.

Following the Executive Board discussion, Mr. Kenji Okamura, Deputy
Managing Director and Chair, made the following statement:

“The Honduran economy has shown remarkable resilience to recent domestic
and external shocks. Still, Honduras faces long-standing social and
structural challenges, including weak governance and limited economic
opportunities, that hinder its development potential and fuel migration.
Infrastructure and climate adaptation investment needs are also
significant. The authorities’ economic program supported by a Fund
arrangement seeks to preserve macroeconomic stability and begin to address
these challenges to foster more robust and inclusive growth.

At the core of the authorities’ program is a medium-term fiscal framework
that preserves debt sustainability while opening space to increase
productive investment and social spending. Underpinning these efforts will
be a far-reaching tax reform and measures to strengthen tax administration.
The program will also support the authorities’ efforts to build a
well-targeted and wide-reaching social safety net to reach the most
vulnerable groups. Importantly, the authorities are also working on
diversifying financing sources, including by developing domestic debt
markets, which will be bolstered by a zero limit on central bank financing
of the budget.

The authorities are committed to strengthening the frameworks for monetary
and foreign exchange policies, supported by Fund technical assistance, with
a view to preserving competitiveness and creating the necessary conditions
to transition to a balanced, competitive, and efficient foreign exchange
allocation system. Monetary policy should support the ongoing disinflation
process and ensure that they are no undue pressures on the exchange rate.

Reforms in the energy sector will be essential to limit fiscal risks and
improve the business environment. The authorities are implementing a
comprehensive loss reduction plan to strengthen the financial position of
the public electricity company and enhance the provision of electricity. In
this context, the program also aims to support the authorities’ efforts to
build resilience to climate change.

The authorities have prioritized enhancing governance and transparency and
the fight against corruption. They have strengthened the Anti-Money
Laundering framework and are eliminating trust funds, which created
corruption risks in spending execution. To further strengthen governance,
the authorities are taking steps to implement an electronic declaration
system for public officials’ finances, create a comprehensive beneficial
ownership registry, and establish an anti-corruption commission.”

Executive Board Assessment[3]

Executive Directors agreed with the thrust of the staff appraisal. They
commended the authorities’ implementation of prudent economic policies that
underpinned macroeconomic stability and promoted resilience to recent
shocks. Notwithstanding these achievements, Directors noted that poverty
and inequality, corruption, and large investment needs remain major
hindrances to sustained growth and development. In this context, they
supported the new Fund arrangements to anchor the authorities’ reform
agenda and catalyze additional external financing. Directors stressed the
importance of maintaining strong ownership and commitment to reforms,
continued capacity development support by the Fund and other IFIs, and
adequate contingency planning.

Directors welcomed the program’s aim to create fiscal space for increased
social spending and investment while preserving debt sustainability. To
this end, they underscored the need to implement revenue mobilization
policies, including the planned tax reform and strengthened tax
administration. Directors noted the importance of mechanisms to enhance the
targeting of social spending, including a planned social registry, and
improvements to public investment efficiency, including through the upcoming
PIMA. They also called for continued progress in the diversification of
fiscal financing sources.

Directors emphasized the need to enhance monetary and exchange rate
policies to support price stability and resilience to shocks. To this end,
they underscored that the crawling band exchange rate regime should be
managed with a view to preserving competitiveness, while the efficiency of
foreign exchange market allocation should be improved. Directors also called
for data-driven monetary policy, including active monitoring of developments
in international interest rates. They also underscored the importance of
enhancing the monetary policy framework and transmission and looked forward
to the findings of the updated safeguards assessment.

Directors commended the authorities’ efforts to strengthen transparency and
governance and reduce corruption risks, including the elimination of trust
funds and the strengthening of the AML/CFT framework. They supported the
authorities’ plans to increase financial transparency of public officials,
simplify administrative procedures, and create an international corruption
commission. Directors also stressed the need to accelerate energy sector
reforms to limit fiscal risks, support growth, and improve the business
environment.

Directors called on the authorities to increase preparedness and build
resilience to the effects of climate change. In this context, they took
note of the authorities’ interest on Fund financing under the Resilience
and Sustainability Facility.

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[1]

U.S. dollar amounts have been calculated using today’s exchange
rate: (SDR 0.759521/US$).

[2]

Under Article IV of the IMF’s Articles of Agreement, the IMF holds
bilateral discussions with members, usually every year. A staff
team visits the country, collects economic and financial
information, and discusses with officials the country’s economic
developments and policies. On return to headquarters, the staff
prepares a report, which forms the basis for discussion by the
Executive Board.

[3]

At the conclusion of the discussion, the Managing Director, as Chair
of the Board, summarizes the views of Executive Directors, and this
summary is transmitted to the country’s authorities. An explanation
of any qualifiers used in summings up can be found here:

http://www.IMF.org/external/np/sec/misc/qualifiers.htm

.

Table 1. Honduras: Selected Economic Indicators, 2021–27
	2021	2022	2023	2024	2025	2026	2027
			Projections
Activity and Prices
GDP (change in percent)	12.5	4.0	2.9	3.2	3.5	3.7	3.8
Inflation (percent)
Average	4.5	9.1	6.4	4.7	4.1	4.0	4.0
End of period	5.3	9.8	5.3	4.2	4.0	4.0	4.0
Public Finances (percent of GDP)
Non-financial public sector overall balance	-3.7	-0.2	-2.0	-1.7	-1.4	-1.0	-0.9
Non-financial public sector primary balance	-2.3	1.2	-0.7	-0.2	0.0	0.4	0.4
Gross debt	51.6	52.3	51.9	51.3	50.4	49.1	47.8
Balance of Payments
Current account balance, percent of GDP	-4.6	-3.2	-5.2	-4.9	-4.7	-4.3	-4.1
Gross international reserves (billions of US$)	9.0	8.7	7.9	8.0	8.1	9.1	8.7
Memorandum item:
Nominal GDP (billions of Lempiras)	684	777	850	919	990	1068	1153
Sources: Honduran authorities; and IMF staff calculations.

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