Bloomberg Línea — The Honduran government and the International Monetary Fund (IMF) have reached a three-year staff-level agreement that will allow the Central American country to access $830 million to finance economic reform policies.
The IMF-supported economic program focuses on creating fiscal space to help meet urgent social spending and investment needs while consolidating macroeconomic stability, according to the lender.
The pakage also contains measures to strengthen governance, ensure the sustainability of the country’s energy sector and the state-owned electric power utility Empresa Nacional de Energía Eléctrica (ENEE), improve resilience to climate change, and foster inclusive growth.
The loan will come under the IMF’s extended fund facility (EFF) and extended credit facility (ECF), but has not yet been approved by the IMF’s executive board.
The negotiation of the agreement stemmed from meetings that the IMF mission, led by Ricardo Llaudes, held in Tegucigalpa in early June for the Article IV review, plus remote discussions in recent weeks with the Honduran authorities.
The mission chief said “the Honduran economy has continued to show remarkable resilience in the face of various internal and external shocks, including the pandemic, natural phenomena (storms and droughts), the impact of the war in Ukraine, and the slowdown of the world economy, which especially impacts the export sector”.
Llaudes added that the country continues to face social and structural problems, including a high vulnerability to climate change. “Addressing these challenges will require the consistent implementation of policies and structural reforms that promote economic diversification and social inclusion.”
Honduras’ reform program, endorsed by the IMF, includes economic and institutional measures aimed at strengthening macroeconomic stability and, at the same time, creating fiscal space through the Tax Justice Law, “a far-reaching tax reform” currently before Congress, which, according to the IMF, would reduce the numerous income tax exemptions and, at the same time, safeguard competitiveness.
The funds to which Honduras will have access are equivalent to 250% of its IMF quota. Since the country joined the multilateral lender in 1945, it has signed 25 agreements.
The Central Bank of Honduras projects an annual GDP variation for 2023 of between 3.5% and 4%, similar to the growth range of 2022.
Honduras is one of the poorest and most unequal countries in the region. The World Bank estimates that, to 2022, 52.4% of the population lived in poverty and 13.35% in extreme poverty.
