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Honduras’ central bank unexpectedly increased its key interest rate by 100 bps to 4.0%, aiming to protect the external position and mitigate inflationary pressures, especially after inflation exceeded the official target (4%±1%) in June for the first time this year, influenced by supply shocks affecting food and transportation costs. Policymakers noted that the current FX reserves level (USD 6.9 bln as of July) is stable, covering 4.4 months of imports.
Honduras’ Consumer prices rose 0.6% MoM in July, accelerating from 0.3% in June. This increase pushed annual inflation to 5.1%, above the central bank’s projected range. The rise was driven mainly by a 1.5% MoM increase in food prices due to adverse supply shocks.
Honduras’ Finance Secretary stated that despite differing views with the IMF on economic imbalances, the Central Bank of Honduras is addressing these issues. He noted intense discussions about exchange rates and monetary policies. Delays in publishing the first semi-annual IMF review results, due in part to slow structural reforms and emerging exchange rate problems, contrast with strong fiscal performance and add uncertainty to the IMF’s forthcoming assessment.
Economic activity in Honduras grew by 3.2% YoY in May, slowing from the revised 9.1% growth observed in April. The average growth rate for April-May stands at 6.1% YoY, marking a significant acceleration compared to the 3.8% growth recorded in the first quarter of 2024.
Honduras’ inflation rate slightly declined to 4.87% YoY in June. Consumer prices rose by 0.32% MoM, compared to 0.16% in the previous month. Elsewhere, Costa Rica’s annual inflation rate dropped by a marginal 0.04% in June following a 0.34 % decline in May, marking the thirteenth consecutive month of disinflation, albeit the slowest rate in the series
Remittances to Latin America and the Caribbean reached an estimated USD 156 bln last year, nearly triple the amount from a decade ago and surpassing the annual lending of the World Bank and IMF to developing countries. In nations like Guatemala, Honduras, and Nicaragua, remittances account for 20% to 30% of GDP, often exceeding the levels of taxes and government spending. Analysts from Morgan Stanley predict that remittances will continue to be resilient, supported by a robust US economy and recent increases in immigration.
Honduras’ central bank has adjusted its economic growth projection for 2024 to a range of 3.5%-4.5%, up from 3.5%-4.0% in the prior year, acknowledging better-than-expected recent activity figures. For 2025, the growth forecast remains the same. Inflation is projected to stabilize at 4%±1% for both years. On the external front, Remittances’’ growth rate is projected to decline from 5.0% to 3.0% for 2024-2025, and the current account deficit is expected to increase to 4.7% of GDP in 2024, up from the mid-2023 projection of 3.0% of GDP.
Honduras’ witnessed robust economic growth in Q4 2023, with a 3.9% YoY expansion, topping an annual growth rate of 3.6%. Construction led the growth, surging by 16.9% YoY, while financial intermediation continued its strong performance with double-digit growth. Despite a higher current account deficit of USD 0.78 bln in Q4 2023, the annual deficit improved to USD 1.3 bln, or 3.9% of GDP, from the previous year’s USD 2.1 bln, indicating a favorable shift towards more sustainable external balances.
Honduras’s monthly economic activity index (IMAE) rose by 4.8% YoY in January, outpacing December’s 4.7% increase and the overall 3.8% growth in 2023. Notably, the manufacturing sector reversed its declining trend, recording a 2.4% YoY growth in January after a challenging year of consistent downturns. This shift indicates a potential recovery from the sector’s recession experienced throughout the previous year.
Honduras’ Central Bank Governor, Rebeca Santos, has highlighted the IMF’s pressure for a currency devaluation, which she believes would adversely affect the Honduran populace. Despite IMF suggestions that an exchange rate adjustment could balance the FX market, Santos cites speculative pressures and substantial purchasing power within certain sectors as reasons for maintaining the current rate. She expects the country’s economic growth for 2023 to surpass the IMF’s forecast, aiming for a 3.6% increase, contrasting with the IMF’s projection of below 3%.
Honduras saw a 5.8% YoY increase in family remittances in February, reaching USD 680 mln, countering the significant drop in January. The total remittances for the first two months of 2024 stood at USD 1.4 bln, slightly above the previous year, despite concerns over a deceleration trend and diminishing international reserves.
Honduras outperformed its fiscal targets, posting a non-financial public sector deficit of 1.3% of GDP, significantly better than the expected 2.0% shortfall per the IMF agreement. This result reflects a robust 8.1% increase in revenues and an 11.5% uptick in primary expenditures, highlighted by a 53.7% boost in capital spending, contributing to a sound fiscal stance compared to the previous year’s slight imbalance.
Honduras’ annual inflation rate slowed to 4.5% in February from 5.0% in January. The MoM inflation rate saw a rise of 0.68%, marking an uptick from the 0.23% recorded in the preceding month, indicating variations in the country’s price movements and inflationary trends.
Honduras’ annual inflation rate slowed to 4.5% in February from 5.0% in January. The MoM inflation rate saw a rise of 0.68%, marking an uptick from the 0.23% recorded in the preceding month, indicating variations in the country’s price movements and inflationary trends.
A survey by the Honduran Council of Economic Enterprises (Cohep) revealed that 98.4% of companies encountered difficulties obtaining foreign exchange in the past year. That has led to payment delays to external providers and increased financing costs for participating in the Central Bank of Honduras (CBH) FX auctions. Cohep urges national authorities to implement reforms to improve FX distribution among local agents.
A survey by the Honduran Council of Economic Enterprises (Cohep) revealed that 98.4% of companies encountered difficulties obtaining foreign exchange in the past year. That has led to payment delays to external providers and increased financing costs for participating in the Central Bank of Honduras (CBH) FX auctions. Cohep urges national authorities to implement reforms to improve FX distribution among local agents.
Honduras registered a 4.5% YoY expansion in its monthly index of economic activity in December, accelerating from a 2.9% growth rate in November and breaking a four-month deceleration trend. The economy grew by 3.8% in 2023 despite slowing remittance growth and a manufacturing slump. Meanwhile, the country’s trade deficit narrowed to USD 8.0 bln in 2023, a USD 0.5 bln improvement from 2022, driven by a 6.6% decrease in imports.
Honduras registered a 4.5% YoY expansion in its monthly index of economic activity in December, accelerating from a 2.9% growth rate in November and breaking a four-month deceleration trend. The economy grew by 3.8% in 2023 despite slowing remittance growth and a manufacturing slump. Meanwhile, the country’s trade deficit narrowed to USD 8.0 bln in 2023, a USD 0.5 bln improvement from 2022, driven by a 6.6% decrease in imports.
Honduras registered a 3.3% YoY decline in family remittances in January, totaling USD 661 mln. This contraction continues the downward trend observed in 2023, contrasting with the double-digit growth in 2022. Despite a strong US labor market, the fall in remittances poses risks to Honduras’s domestic economy, especially if US economic conditions tighten. This decline in remittances has also contributed to a reduction in Honduras’s net international reserves, which fell by USD 124.2 mln in January, accelerating the pace of decline seen throughout 2023.
Honduras registered a 3.3% YoY decline in family remittances in January, totaling USD 661 mln. This contraction continues the downward trend observed in 2023, contrasting with the double-digit growth in 2022. Despite a strong US labor market, the fall in remittances poses risks to Honduras’s domestic economy, especially if US economic conditions tighten. This decline in remittances has also contributed to a reduction in Honduras’s net international reserves, which fell by USD 124.2 mln in January, accelerating the pace of decline seen throughout 2023.
Honduras reported a cumulative trade deficit of USD 7.3 bln up to November, a 5.7% decrease compared to the same period in 2022. These figures align with the projected reduction in Honduras’ structural current account deficit from 3.2% of GDP in 2022 to 2.8% in 2023.
Honduras’ central bank reaffirmed the strength of the country’s international reserves, currently at USD 7.6 bln, sufficient for 5.1 months of imports. Despite this assurance, concerns remain due to a consistent decline in net international reserves throughout 2023, coupled with sustained net capital outflows, reflecting local economic challenges and saving-investment preferences.
Honduras has extended its agreement with the United Nations to establish the International Commission Against Impunity in Honduras (CICIH) until June 2024. Despite progress, challenges stemming from the local legal framework and the country’s legislative crisis are delaying the Commission’s installation. The CICIH is considered crucial for enhancing corruption prosecution and strengthening Honduras’ judicial system.
The IMF has approved a USD 822 mln package for Honduras, with an immediate disbursement of USD 117 mln to preserve medium-term debt sustainability and augment productive investment and social spending. Out of the USD 822 mln, the EFF contributes USD 548 mln, and the ECF provides USD 274 mln. The IMF plans to bolster the nation’s reforms over the next three years, emphasizing enhanced governance and anti-corruption measures.
The IMF agreed on a 36-month ECF and EFF with Honduras on August 11, worth approximately USD 830 mln, to support economic reform policies and stabilize macroeconomic conditions while promoting social welfare and infrastructure investments. According to official records, the Honduran economy grew by 4% the previous year and is forecast to register a 3.5-4.0% growth in 2023.
A UN expert team has arrived in Honduras to assess the enactment of an international anti-corruption mission. Despite promising to establish an anti-corruption commission during her campaign, leftist president Xiomara Castro’s progress has been slow, causing impatience among civil groups. The government and the UN haven’t agreed on the commission’s scope. Separately, S&P affirmed Honduras’ BB- Local Currency Long-Term credit rating with a negative outlook.
The IMF concluded its Article IV for Honduras, highlighting that while the country’s economic recovery has been remarkable, social conditions remain fragile, and downside risks are significant. Emphasizing the importance of careful fiscal management and supportive fiscal structural policies, the IMF urges continued progress in reforming the energy sector, strengthening governance and transparency, and enhancing resilience to climate change.
Chinese president Xi Jinping told the Honduran president Iris Xiomara Castro Sarmiento that China would boost imports from Honduras and is seeking talks on a free-trade agreement. Both leaders signed bilateral agreements on various sectors, and China expressed its interest in participating in Honduran projects on economic development, energy, environmental protection, infrastructure, and telecommunications.
Honduras, the central bank reported that consumer prices rose by 9.05% YoY in March, down from 9.80% in February. Monthly, prices increased by 0.24%, compared to February’s increase of 1.16%. In Uruguay, inflation rate increased by 7.3% YoY in March, down from 7.6% in February. Meanwhile, prices rose by 0.90% MoM compared to February’s increase of 1.0%.
Honduras’ deputy foreign minister has asked Taiwan to vacate its embassy in Honduras within thirty days following the end of their long-time alliance. The minister also emphasized the importance of establishing a diplomatic mission in China to explore potential projects for investment. He suggested that China could invest up to USD 10 bln in Honduras, benefitting local workers.
