Caribbean News Now!

About Us Contact Us

Countries/Territories

Jump to your country or territory of interest

Advertise with us

Reach our daily visitors from around the Caribbean and throughout the world. Click here for rates and placements.

Contribute

Submit news and opinion for publication

Subscribe

Click here to receive our daily regional news headlines by email.

Archives

Click here to browse our extensive archives going back to 2004

Also, for the convenience of our readers and the online community generally, we have reproduced the complete Caribbean Net News archives from 2004 to 2010 here.

Climate Change Watch

The Caribbean is especially vulnerable to rising sea levels brought about by global warming. Read the latest news and information here...

Follow Caribbean News Now on Twitter
Connect with Caribbean News Now on Linkedin



News from the Caribbean:


Back To Today's News

IMF concludes consultation with Honduras
Published on June 17, 2014 Email To Friend    Print Version

WASHINGTON, USA -- On June 9, 2014, the executive board of the International Monetary Fund (IMF) concluded the Article IV consultation with Honduras.

Economic growth decelerated to 2.6 percent in 2013 (from about 4 percent in 2012), owing to lower private investment, a drop in coffee output due to leaf-rust disease, and weaker trade-partner growth. Inflation declined to 5 percent (from 5½ percent in 2012), driven by softer commodity prices, weaker economic activity, and lower currency depreciation. On the external front, the current account deficit rose to about 9 percent of GDP in 2013, reflecting less favorable terms of trade and a drop in coffee exports. This deficit was financed by FDI inflows and the placement of two global bonds totaling US$1 billion. These inflows allowed international reserves to rise to 3.7 months of imports.

The fiscal accounts continued to weaken in 2013, driven by higher primary spending and interest payments, and increased losses by the state-owned electricity company. The combined public sector deficit reached 7.6 percent of GDP in 2013 (4.2 percent in 2012). Given the magnitude of the deficit and tight domestic debt markets, government cash-flow pressures persisted despite the global bond placements. Monetary conditions tightened, with higher market interest rates and lower credit growth. The central bank (BCH) kept the policy rate unchanged but withdrew liquidity through open market operations. In mid-2013, the BCH widened the inner band of the exchange rate, but kept wide discretion on setting its level. Following this adjustment, the lempira’s rate of depreciation slowed (to 3.2 percent in 2013 compared to close to 5 percent the previous year), leading to a small appreciation in real effective terms.

The new government has started to implement measures to improve fiscal discipline. A substantial package of fiscal consolidation measures focused on increasing revenue was approved by the outgoing congress in December 2013. This was followed by the approval of legislation to implement electricity sector and pension reforms, as well as by measures to strengthen tax administration and improve discipline in the budget process.

For 2014, economic activity is expected to grow at 3 percent, supported in part by more favorable external conditions. Inflation is projected to temporarily pick up, but should remain under control and decline in 2015. The combined public sector deficit is expected to be reduced to 6.2 percent of GDP, supported by higher tax revenues and lower primary spending. The external current account deficit would decline to slightly over 8 percent of GDP, reflecting more favorable external conditions and fiscal adjustment.

Executive Board Assessment

Executive directors noted that Honduras’s economic performance weakened in 2013 and medium-term prospects are undermined by fiscal imbalances and structural weaknesses. Welcoming ongoing consolidation and reforms in the fiscal and electricity sectors, directors encouraged the authorities to redouble their efforts to strengthen the public finances, maintain the reform momentum, and promote sustainable, inclusive growth.

Directors noted that while the authorities’ fiscal plans envisage significant adjustment for the period ahead, debt ratios would continue to grow over the medium term in the absence of additional measures. Stronger efforts are required to safeguard the sustainability of the fiscal position and open up policy space. In particular, directors considered that there is scope for further rationalizing public expenditure, including by reducing the wage bill and transfers to local governments, to make room for priority social and infrastructure spending. To further limit the drain on the budget from the electricity sector, reducing distribution losses and gradually adjusting tariffs remain policy priorities.

Directors welcomed ongoing efforts to improve tax administration and strengthen the budget process. Weaknesses in the current framework for public-private partnerships should also be addressed, including those arising from the possibility of issuing government guarantees for debt contracted by private companies involved in such partnerships. Directors welcomed the approval of legislation expected to strengthen the financial position of the pension fund for public servants and encouraged the authorities to follow through with a reform of the Social Security Institute.

Directors agreed that the monetary stance is broadly appropriate, but encouraged the authorities to stand ready to tighten it to protect international reserves or keep inflation in check. They took note of the staff’s assessment that the lempira is somewhat overvalued, and agreed that more exchange rate flexibility within the current regime would strengthen the external position and ease the costs of fiscal adjustment. Over the medium term, the authorities could also consider a more flexible regime as part of the modernization of the monetary framework. Directors welcomed the ongoing recapitalization of the central bank.

Directors noted that the banking system is generally sound and well capitalized. Nonetheless, they expressed concern over rising dollarization and lending to unhedged borrowers. They encouraged the authorities to consider additional measures to reduce currency mismatches by borrowers.

Considering the pervasiveness of poverty in Honduras, directors highlighted the critical importance of reforms to bolster the business climate, strengthen institutions, and improve infrastructure and human capital. These will be crucial to raising competitiveness and ensuring durable inclusive growth.
 
Reads: 1044





Click here to receive daily news headlines from Caribbean News Now!



Back...

Comments:

No comments on this topic yet. Be the first one to submit a comment.

Back...

Send us your comments!  

Send us your comments on this article. All fields are required.

For your contribution to reach us, you must (a) provide a valid e-mail address and (b) click on the validation link that will be sent to the e-mail address you provide.  If the address is not valid or you don't click on the validation link, we will never see it!

Your Name:

Your Email:

(Validation required)

Comments:
Enter Code



Please note that, if you are using an AT&T domain email address, e.g. att.net, bellsouth.net, sbcglobal.net, the verification email will likely not be delivered. This is outside of our control and the only remedy seems to be for readers to complain to AT&T





Disclaimer
User comments posted on this website are the sole views and opinions of the comment author and are not representative of Caribbean News Now or its staff. Caribbean News Now accepts no liability and will not be held accountable for user comments.
Caribbean News Now reserves the right to remove, edit or censor any comments. Any content that is considered unsuitable, unlawful or offensive, includes personal details, advertises or promotes products, services or websites or repeats previous comments will not be approved.
Before posting, please refer to our Terms of Use and Privacy Policy.



Other Headlines:



Regional Sports: