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Honduras's New Economic Plan for Stability and Growth

A view of Tegucigalpa, Honduras. The country’s new economic plan is expected to boost inclusive growth (iStock/edfuentesg)

A view of Tegucigalpa, Honduras. The country’s new economic plan is expected to boost inclusive growth (iStock/edfuentesg)

July 19, 2019

Honduras has made significant progress in restoring economic stability and laying the groundwork for sustainable growth since completing its  IMF-supported economic program in December 2017. But poverty remains high, and a large informal labor market, strong dependence on agriculture, and violence continue to challenge economic growth, the IMF said in its latest economic review.

To tackle these structural challenges and to build on previous achievements, Honduras has requested US$311 million in IMF support to foster their reform agenda and promote inclusive growth. The authorities are planning to treat the financing as precautionary, that is, they are not planning to draw on it.

In the following interview, Esteban Vesperoni, the IMF’s mission chief for Honduras, discusses the details of the economic plan.

Honduras has made very good progress under the previous program. Why does the country need new assistance from the IMF?

Indeed, Honduras has made great strides reducing macroeconomic imbalances (high imbalances in a country can be a sign of economic and financial stress) and strengthening its policy framework supported by the IMF program during 2014-17. Nevertheless, challenges remain. The authorities have maintained prudent policies—with a low fiscal deficit that over-performed the targets in the Fiscal Responsibility Law over the last years—but the deteriorating financial situation of the public electricity company has strained public finances. 

This takes places in a context in which poverty is still high and significant social and infrastructure spending is needed. In addition, an overarching challenge to achieve sustainable inclusive growth is associated with the need to improve governance, which calls for wide-ranging institutional reforms.

What does the new economic plan seek to achieve?

The policy mix and structural reforms under the program aim at making the economy strong and stable, protecting the most vulnerable, and supporting jobs and growth that benefit all. This new economic plan is ambitious and comprehensive, and has the key elements:

  • securing the fiscal position by putting the public electricity company on a sustainable path through reforms in the electricity sector and through measures to maintain spending room in the budget for investment and social spending;
  • strengthening the monetary policy framework to buffer shocks and maintain stability; and 
  • implementing reforms to improve the business environment and governance, including by stepping up efforts in the fight against corruption. 

You have mentioned a number of reforms to maintain economic stability, boost growth, and address many structural issues. How will the government protect social spending under the plan?

This is at the core of the authorities’ program. Bold reforms to place the finances of the public electricity company on a sustainable path and efforts to uphold previous revenue mobilization achievements will help maintain space for social spending. The fiscal program also defines priority spending that will be protected going forward and comprises a set of high-impact interventions aimed at alleviating poverty, fostering investment in human capital, and supporting women entrepreneurship and participation in labor markets—such as Criando con Amor, Mejores Familias, and Ciudad Mujer—which are critical for long-term inclusive growth.

At 46 percent of the total working population, the participation of women in the formal labor market is low compared to Latin American peers. How does the new economic plan aim to support more women in the workforce?

The new economic plan combines new programs with an expansion of ongoing initiatives to promote women entrepreneurship and improve opportunities for women to access education and enter labor markets by:  (i) supporting childcare services;  (ii) facilitating credit for women; and (iii) supporting women with young children. 

Does the plan also include reforms that support strengthening governance and tackling corruption?

The authorities are also working on strengthening governance, including by stepping up efforts in their fight against corruption. The planned reforms aim at improving governance and transparency in public finance management, the monetary policy operational framework, and the electricity sector. The authorities are also working with the staff and other development partners to implement reforms aimed at enhancing the rule of law, with the objective of preventing the misuse of public funds and improving the business climate—notably by simplifying procedures in public administration with the objective to reduce red tape and discretion, which can give place to corruption. 

 

 

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