August 15, 2023
- The Honduran authorities and IMF staff have reached staff-level agreement on a 36-month arrangement under the IMF’s Extended Fund Facility (EFF) and Extended Credit Facility (ECF) for about US$830 million to support Honduras’ economic reform policies.
- The economic program supported by the IMF focuses on creating fiscal space to help address urgent social spending and investment needs, while anchoring macroeconomic stability.
- The program also contains measures to strengthen governance, ensure the sustainability of the energy sector and the public electricity company ENEE, enhance resilience to climate change, and foster inclusive growth.
An International Monetary Fund (IMF) team, led by Mr. Ricardo Llaudes, Mission Chief for Honduras, visited Tegucigalpa during June 5–16, 2023, [1] and held virtual discussions in the recent weeks, to discuss with the Honduran authorities IMF support for their policy and reform plans. Mr. Llaudes issued the following statement today:
“The Honduran authorities and the IMF have reached staff-level agreement on a 36-month blended arrangement under the IMF’s Extended Fund Facility (EFF) and Extended Credit Facility (ECF) for about US$830 million (equivalent to SDR 624.5 million or 250 percent of Honduras’ quota in the IMF) to support Honduras’ economic reform policies. The agreement is subject to the approval of the IMF’s Executive Board.
“The Honduran economy has remained remarkably resilient to several shocks, both domestic and external, including the pandemic, weather events (tropical storms and droughts), the impact of the war in Ukraine, and the global economic slowdown, which has impacted especially the country’s export sector. Honduras continues to face long-standing social and structural challenges, including high vulnerability to climate change. Addressing these challenges will require steadfast implementation of policies and structural reforms that promote economic diversification and social inclusion.
“The authorities’ reform program, supported by the Fund, includes economic and institutional reforms to entrench macroeconomic stability while creating fiscal space for much-needed productive investment and social spending to foster durable and inclusive growth and enhance climate resilience.
“The authorities’ ambitious reform program is anchored by four key pillars:
- Preserving macroeconomic stability. The program envisages a medium-term fiscal frameworkthat creates fiscal space for productive investment and social spending while preserving debt sustainability. The Central Bank will continue to support the ongoing disinflation process and will take any necessary action to ensure that there are no undue pressures on the exchange rate. Over the course of the program, and with the support of IMF Technical Assistance, the Central Bank will continue to strengthen the frameworks for monetary and foreign exchange (FX) policies with a view to preserving external competitiveness and creating the necessary conditions to gradually transition to a balanced, competitive, and efficient FX allocation system while safeguarding exchange rate stability.
- Opening fiscal space to support productive investment and social spending. The government is advancing a comprehensive reform agenda to generate fiscal space and improve public financial management, including by (i) eliminating trust funds, which have hampered transparent spending execution; (ii) strengthening tax and customs administration; and (iii) promoting and strengthening budget transparency. A far-reaching tax reform, currently in Congress, would reduce the extensive exonerations to the income tax while safeguarding Honduras’ competitiveness. If adopted, it will be crucial that implementation of the reform proceeds in a transparent and predictable manner, as would be set out in corresponding regulations. These reforms will be critical to support urgent infrastructure investment, particularly on climate adaptation and the energy sector. Moreover, the program will support the authorities’ efforts to build a well-targeted and wide-reaching social safety net, centered on the flagship programs Red Solidaria and Programa de Acción Solidaria, aimed at the extreme poor and the most vulnerable groups in society.
- Strengthening the monetary framework, developing the local debt market, and safeguarding financial stability. The Central Bank will continue enhancing the functioning of the monetary transmission mechanism. To further develop domestic debt markets, the authorities will resume regular issuance of treasury bonds and put in place a medium-term debt strategy. This will help mobilize domestic savings, diversify financing sources, and issue in international capital markets. The financial system remains robust but close monitoring of risks remains warranted.
- Improving governance and transparency, fighting corruption, and enhancing economic resilience. The authorities are determined to strengthen the Anti-Money Laundering framework in line with international standards. The recent repeal of Decree 57-2020 and modification of Decree 93-2021 are key steps in this direction. To improve governance and transparency, the repeal of the Secrecy Law, which blocked access to public information, and, recently, of Decree 116-2019 on the departmental fund, through which Congress members have been directing budgetary resources, have also been important. To further enhance governance, the authorities aim to implement a nationwide firm registry, including beneficial ownership information, and an electronic asset declaration system for public employees. Safeguarding the sustainability of the energy sector—including through the steadfast implementation of the authorities’ loss-reduction program and strengthening the financial position of the electricity company ENEE—will be critical to support growth and employment.
“The IMF team would like to thank the authorities for the open and constructive dialogue and looks forward to our continuing work with the authorities to support Honduras and its people.”