IMF projects a favorable economic outlook for Honduras in 2016

TEGUCIGALPA, Honduras, June 15, 2016 /PRNewswire/ -- In its third review of the economic program with Honduras, the International Monetary Fund (IMF) stated that growth projections for 2016 are favorable in an environment of sustained credit growth and an expected rise in net international reserves.

The IMF mission concluded on Monday the 2016 Article IV consultation and the third review of Honduras' Fund-supported program, which includes oversight of the monetary system.

The mission met with President Juan Orlando Hernández and the Economic Cabinet in the Presidential House and issued a statement presenting favorable projections for the Honduran economy.

The IMF estimated Honduras will increase its Gross Domestic Product (GDP) by 3.6 percent, supported by agriculture, construction, and a more favorable monetary policy.

Wilfredo Cerrato, Minister of Finance and coordinator of the Economic Cabinet, stated in a press conference that the visit marks the conclusion of two of the objectives established by the IMF related to the review of Article IV and the third review of the agreement signed between the government of Honduras and the international organization.

"I want to emphasize key points we have reached after this review; the 3.6 percent growth projection for Honduras is good news, particularly given the situation we are seeing in other countries in Latin America," Cerrato said.

Cerrato added that the above "is the result of the central government's efforts to boost strategic sectors such as agriculture, construction and infrastructure, all of which have increased demand for labor– a goal outlined by the government of President Hernández."

The Minister of Finance emphasized that discipline in public finances has allowed the state to maintain the necessary liquidity to deliver on the government's commitments, as well as to assign these resources to the social programs led by President Hernández.

Many institutions were evaluated

Cerrato said that "we have evaluated the Honduras 20/20 program and seen how it will have a positive impact in economic growth."

He also stated that other variables were considered, as well as how these benefit the economic performance.

The public official said "there must be a combination of a strong performance in the public sector and in the private sector, and this joint effort of the public and private sectors, coordinated by President Hernández, will lead Honduras to grow even beyond the established projections." 

He also said they analyzed the situation of the National Port Company (ENP), which is currently experiencing better results than in the past five years.

Cerrato also stated that the Honduran Telecommunications Company (Hondutel) is having profitable results for the second consecutive year in a three year period.

However, Cerrato said that "the National Electric Energy Company (ENEE) remains a challenge, but we recognize the progress achieved in 2015 compared with 2014, when the company was able to shrink the cash deficit from 3,500 million Lempiras to 1,500 million Lempiras."

"We also analyzed what was formerly the Executive Directorate of Revenue (DEI), and is now the Revenue Service Administration (SAR), and the good news from the evaluation is that despite the drastic and profound change, we remain efficient in tax collection," he said.

Cerrato added that they also discussed the changes in the Immigration Department. Regarding the purge process in the National Police he said that "even when the government changes, these processes will lead to strengthening institutions that will better serve the people."

Meanwhile, the Chief of the IMF mission, Roberto García-Saltos, read in a conference the official press release on the delegation's visit, held May 31 – June 13, and which is included below:

IMF Staff Completes 2016 Article IV and Third Review Mission to Honduras
Press Release No. 16/280
June 13, 2016

An International Monetary Fund (IMF) mission, led by Roberto Garcia-Saltos, visited Tegucigalpa during May 31-June 13 to conduct the 2016 Article IV consultation and the third review of Honduras' Fund-supported program.

At the conclusion of the visit, Mr. Garcia-Saltos issued the following statement in Tegucigalpa today:

"Honduras' economic program with the IMF remains on track, with strong ownership and implementation by the government. Since December 2014, the government's economic reform policies are laying a path for inclusive growth, greater coverage of the social safety net, and a better foundation for fiscal sustainability— including additional resources to improve citizens' security. These achievements will anchor the strategy to obtain higher growth and better social conditions and job creation over the medium-term.

"The mission and the authorities reached staff level understandings for the program for the remainder of 2016 and 2017. The agreement contains quantitative targets, including a minimum floor on social spending, and appropriate policies to boost growth-enhancing spending by the government. The government met most performance criteria for end-December 2015. Two structural benchmarks are proposed for rescheduling for end-2016. Further institutional reforms to control and reduce tax exemptions will help to improve the allocation of scarce tax resources and reduce income inequality. These understandings are subject to approval by the IMF's Management and Executive Board, which is expected to consider the third program review later in the year.

"In 2015, economic performance was better than expected. Real output grew at 3.6 percent supported by a boost in investment and the recovery in private consumption—which responded positively to a reduction in gasoline prices and strong remittances inflows. An improved macroeconomic policy mix and lower international oil prices have helped to reduce headline inflation, and narrow the external current account deficit. Headline inflation decelerated to 2.4 percent from 5.8 percent in the previous year, well below the inflation target of 4.5 percent. Meanwhile, the external current account deficit narrowed to 6.3 percent of GDP in 2015, higher than the 6.0 percent of GDP foreseen in the program, but lower than the 7.4 percent of GDP achieved in 2014. Net international reserves increased by US$307 million, supported by private capital inflows in excess of program projections.

"The 2016 economic growth outlook is favorable, amid steady credit growth and an expected increase in net international reserves. Real output growth is projected to grow by 3.6 percent in 2016, supported by agriculture, construction (including scaled-up public sector infrastructure investment) and a more supportive monetary policy stance. After the significant fiscal adjustment in 2015, and in line with the recently approved fiscal responsibility law, the non-financial public sector (NFPS) deficit is expected to widen from 1 to 1.5 percent of GDP to accommodate planned investment in infrastructure. Inflation is projected to remain in line with the inflation objectives, despite the expected rise in energy prices.   Meanwhile, consistent with expanding real sector activity and greater private sector confidence, credit to the private sector will grow in line with a sustainable pace of financial deepening. 

"The economic reform agenda is moving forward. Last April, Congress approved the Fiscal Responsibility Law which would help to protect the hard-won fiscal gains. This is a step forward to institutionalize the much needed fiscal discipline and thus help to enhance the credibility of public policies. The challenge now is to develop the supporting regulations, including better control of tax exemptions and continue enhancing the transparency of budgetary practices across the central government and all public enterprises. On monetary policy, the authorities are committed to modernize the monetary policy framework by adopting an inflation targeting framework in the near-future and continue with exchange rate flexibilization. This is expected to provide the necessary cushion to help manage external shocks. To bolster financial stability and continue to reduce dollarization, the authorities are implementing measures to reduce currency mismatches by un-hedged borrowers while monitoring financial risks, including on the buildup of household debt.

"The staff team met with President Hernandez, Minister Coordinator of the Presidency, Jorge Ramon Hernandez-Alcerro, Minister Secretary of the Council of Ministers Ebal Diaz, Head of the Economic Cabinet and Minister of Finance Wilfredo Cerrato, Central Bank Governor Manuel Bautista, President of the National Commission of Banking and Insurance Ethel Deras, Minister of Infrastructure and Public Services Roberto Ordoñez, Presidential Commissioner on Tax Administration Angela Madrid, Vice Minister of Public Credit and Investment Rocio Tábora, Executive Director of the Interamerican Development Bank Marlon Tabora and other senior government officials, members of congress, and private sector representatives.

"The mission would like to thank the authorities and private sector representatives for a cordial and productive dialogue, as well as for their excellent cooperation and hospitality."

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SOURCE Honduras Presidency