- International Monetary Fund (IMF) staff and the Honduran authorities have reached staff level agreement on a set of comprehensive policies and reforms needed to complete the first and second reviews of Honduras' program supported by the IMF.
- The authorities have made important progress under their program. Fiscal policy remains prudent, public investment continues to expand, and the authorities have recently begun normalizing monetary and exchange rate policies.
- Strengthened budget execution, energy sector reforms, including to reduce the public power company's arrears, and further adjustments to monetary and exchange rate policies remain key to safeguard macroeconomic stability and promote inclusive and sustained growth.
Tegucigalpa, Honduras: An International Monetary Fund (IMF) team led by Ricardo Llaudes visited Tegucigalpa during October 7-18, 2024. The mission was a continuation of presential and virtual discussions in recent months. At the conclusion of the visit, Mr. Llaudes issued the following statement:
"The Honduran authorities and the IMF team have reached staff level agreement on the economic policies necessary to complete the first and second reviews of the Extended Credit Facility (ECF) and Extended Fund Facility (EFF) arrangements. The IMF's Executive Board is expected to consider the case in the coming weeks.
"The team and the authorities concurred that the Honduran economy remains broadly resilient despite a still-challenging global environment and the impact of the El Niño climate shock. Robust growth has continued this year—projected close to 4 percent—and inflation has stabilized between 4½ and 5 percent, within the tolerance range around the BCH's inflation objective. On the external front, international reserves levels remain adequate but have continued to decline this year owing to a variety of factors, including the severe drought in the first half of the year—hindering agricultural exports and increasing energy imports—and lower-than-expected multilateral and bilateral financing support.
"The authorities have reiterated their strong commitment to implement a prudent macroeconomic policy mix to strengthen economic stability and to take prompt actions on all critical aspects of their economic reform program supported by the IMF to ensure program objectives are met. Policy discussions and program reforms revolved around five key pillars.
"First, continued budgetary discipline to preserve debt sustainability. As in 2023, fiscal performance this year is expected to overperform program objectives, supported by solid tax revenues and strengthened public financial management. The authorities are planning additional measures to further bolster the fiscal position, including enhancing transparency in budget execution, further strengthening the Treasury Single Account, and modernizing the public procurement framework. Timely adoption of the 2025 budget in line with program objectives is essential to support the authorities' fiscal efforts and public investment program.
"Second, strengthened social spending to protect the most vulnerable. The authorities have faced capacity constraints in disbursing social support. These constraints are now being lifted, and the authorities agreed on the need to roll out more decisively monetary transfers under the flagship program Red Solidaria, accelerate completion of the census of urban households in extreme poverty, and finalize the Single Social Sector Information System to facilitate the design, monitoring, and transparency of Honduras' social programs.
"Third, decisive implementation of monetary and exchange rate policies to keep inflation low and safeguard international reserves. Following the global shocks of 2020-2023—including the COVID-19 pandemic, global commodity shocks, and climate events—the authorities have recently begun normalizing monetary and exchange policies. Key recent measures include an increase in reserve requirements, adjustments to the monetary policy rate (TPM), and a higher rate of crawl of the Lempira, in line with the crawling band regime. There was agreement on the need for additional tightening of the TPM to support demand for Lempira assets and continued decisive implementation of the crawling band regime to achieve a healthy and sustainable external position. The authorities agreed to stand ready to further adjust these policies as needed to ensure achievement of program objectives. Strong communication with the public and markets on these measures will be key to strengthen their effectiveness.
"Fourth, improved health of the energy sector. The team was encouraged by the recent downward trend in electricity losses by the public power company ENEE. That said, it was agreed that continued reforms will be vital to underpin ENEE's financial health. In the short run, the authorities agreed that reducing ENEE's payment arrears through domestic bond issuances and enhancing coordination across relevant official stakeholders to tackle ENEE's challenges are a priority. These measures are also essential to attract needed investment to expand generation capacity and guarantee adequate provision of energy. In parallel, the authorities committed to continue other structural reforms, including integration of ENEE's three distribution units and upgrading of its financial accounting to international standards.
"Fifth, steadfast commitment to fight corruption. The recent establishment of an asset declaration system for public level officials and a National Observatory of Transparency and Anticorruption are welcome. Continuing efforts to strengthen the AML/CFT framework ahead of the evaluation by the Financial Action Task Force (FATF) in 2026 are essential, including approval of the Beneficial Ownership Law and creation of a corresponding firm registry including beneficial ownership information. The authorities also committed to ensure the adoption of the Honduran National Transparency and Anti-Corruption Strategy (ENTAH) and continue to strengthen the public dialogue and participation of civil society.
"The IMF team would like to thank the authorities, the private sector, and civil society for their kind hospitality and candid discussions."
