NS4540 Winter Term 2019 Honduras Economy Federal Reserve Bank of Chicago, Strong Dollar Weak Dollar

Honduras Profile

Honduras Trade Partners

Central America: Economic Freedom

Honduras Economic Freedom

Honduras Governance Trends

Doing Business in Honduras

Violence Trends

FDI into Honduras

Competitiveness I

Competitiveness II

Competitiveness III

Overview I With gross national income per capita at US$2,766 in 2018, Honduras remains one of the poorest and least developed economies in Latin America Over one half population is living in poverty Also one of the highest inequality ratings in the region Acute socio-economic problems fueled significant levels of crime and corruption Despite some success in efforts to diversify the country’s economic base, Honduras remains overly dependent on primary agricultural and fisheries exports Dependence on agriculture has made the economy vulnerable to frequent natural disasters europa

Overview II Country sustained steady rates of growth during most of the 2000s GDP increased at an average annual rate of 4.1% 2000-18 after 2.6% 1980-99 Growth fueled by a sharp increase in credit and FDI stemming from debt reduction and free trade agreements Population estimated at 8.9 million at mid-2015 Population growth rate slowing progressively decreasing to an annual rate of 2.0% from 2.5% in 2001 High levels of underemployment in agricultural workforce Pressure on land Increased mechanization of export agriculture and Seasonal nature of coffee, banana, sugar, and fruit production

Poverty in Honduras

Honduras Human Development

Manufacturing Honduran manufacturing sector underwent substantial transformation in the 1980s and 1990s with the establishment of maquila (offshore assembly) plants producing goods for re-export Maquila industry benefited in 2000 from the extension of NAFTA import duty to Honduran assembled goods Allowed import tariffs to be reduced by 15% on such goods entering U.S. market Enabled sector to diversify into textile operations such as dyeing and cutting Maquila sub-sector further boosted by the CAFTA-DR) with the U.S. ratified in 2005 Since then Honduran exports quite sensitive to developments in U.S. Economy Output growth in manufacturing averaged 2.7% in 2004-13, sector’s share of GDP was 17.4% in 2014

Criminality and Corruption In power since January 2014 President Orlando Hernandez has made combatting criminality and drug trafficking one of his government’s priorities Despite progress made Honduras is still one of the most dangerous countries in the world Violence and criminality are one of the main curbs on investment Corruption still widespread – policy and judiciary included President’s brother arrested on drug trafficking charges in November 2018 Major Bank scandal (Rosenthal family) accused of laundering drug money Image of country tarnished – investors associate country with drug trafficking

Political Instability The November 2017 presidential election was followed by violent protests Made the security situation more uncertain, despite the progress made (homicide rate lowered from 75 to 37 cases per 100,000 inhabitants since 2014). The two finalists, Juan Orlando Hernandez (National Party, whose candidature to the election was highly disputed) and Salvador Nasralla (Opposition Alliance against Dictatorship), both announced their victory. The Electoral Tribunal officially announced Mr Hernandez’s victory which has been highly criticized by international observers Mr Nasralla has refused to accept the results despite US pressures, calling for protests, while the violence has already claimed several victims.

Honduras: Prospects I With U.S economy doing well Honduran economy should fare well U.S. accounts for 44% of exports and 80% of remittances Continuation of austerity policy under the IMF Adjustment measures adopted from 2014 Higher fuel taxes and VAT raised from 12% to 15% Freeze on civil service salaries Have helped reduce deficit in public accounts The tax liability law approved in 2016 sets a ceiling for the non-financial public sector deficit: 1% of the GDP by 2020. An extension of the agreement with the IMF after its deadline of December 2017 may occur.

Honduras Prospects II The government will prioritize fiscal consolidation, and policies to foster employment and reduce poverty. Efforts to tackle gang- and drug-related violence and the high murder rate will continue, as will steps to address corruption, but progress will be limited. Decelerating private consumption-due to rising consumer prices and slower remittance inflows-will contribute to an easing of GDP growth to 3.4% in 2019, down from an estimated 3.5% in 2018. Growth will average 3.4% in 2019-23.

Honduras: Macroeconomic Forecast

Growth Projections

Risks to Forecasts