IMF and Honduras Reach Staff-Level Agreement on a Stand-by/Credit Facility Arrangement

IMF release

I am pleased to announce that in support of the Honduran government’s economic and institutional reform agenda, the IMF and the Honduran authorities have reached a staff-level agreement on a 24-month blended Stand-By Arrangement (SBA) and Standby Credit Facility (SCF) for US$311 million (equivalent to SDR 224.8 million or 90 percent of Honduras’ quota in the IMF). The authorities have indicated that they intend to treat the agreement as precautionary.

An International Monetary Fund (IMF) mission led by Esteban Vesperoni visited Tegucigalpa and San Pedro Sula during April 22-May 6, 2019 to conduct the annual Article IV consultation and pursue discussions with the authorities on an economic program that can be supported by the International Monetary Fund. At the end of the mission, Mr. Vesperoni issued the following statement:

“Macroeconomic conditions in Honduras remained stable in 2018. GDP growth slowed from the buoyant performance in 2017 to 3¾ percent last year due to weaker terms of trade, but remained close to potential, supported by private consumption amid strong growth in remittances. Inflation is stable around the center of the central bank´s 4±1 percent target band. Owing to lower coffee prices and higher oil prices, the current account widened to 4¼ percent of GDP; but stayed close to its historical average. Despite a higher than expected deficit in the electricity company (ENEE), the nonfinancial public sector (NFPS) posted a deficit of 0.9 percent of GDP, in line with the target in the Fiscal Responsibility Law (FRL). The financial system is stable, liquid, and well capitalized, with NPLs at historic lows.

“Amid lower global growth and still weak terms of trade, growth in 2019 is expected to moderate slightly to around 3½ percent, still close to potential. Policies in the economic program targeting an increase in productivity will sustain the macroeconomic performance in coming years and gradually create fiscal space for much-needed public investment and social spending. Inflation and inflation expectations are expected to converge towards the midpoint of the central bank target range, while the current account deficit is expected to remain stable at around 4 percent of GDP.

“A key objective of the economic program is to maintain macroeconomic stability, while enacting economic and institutional reforms to foster inclusive growth. Policies will build on previous achievements to strengthen the policy and institutional framework. Adherence to the FRL will be coupled with reforms aimed at creating fiscal space to reduce the infrastructure gap and increase social spending, including on important gender programs. The program will preserve previous revenue mobilization efforts, implement the electricity sector framework law, and put the financial situation of the public electricity company (ENEE) on a sustainable path.

“Priority has also been given to enhancing governance, including through measures to increase transparency. These reforms will aim at improving the macroeconomic policy framework, increasing the quality of public spending, and strengthening the rule of law. These reforms are fundamental to improving the business environment and foster growth.

“Monetary policy will continue to focus on controlling inflation and maintaining an adequate level of international reserves. In addition, the program will aim at further strengthening monetary policy and financial institutions, developing money and foreign exchange markets to support the transition towards inflation targeting, and enhancing the macro-prudential framework to reinforce financial resilience.

“The mission held discussions with President Juan Orlando Hernández, Head of the Economic Cabinet Marlon Tábora, Central Bank Governor Wilfredo Cerrato, Minister of Finance Rocío Tábora, Director of the Tax Agency Miriam Guzmán, President of the National Commission of Banking and Insurance Ethel Deras and other senior officials and representatives of the private sector.

“The IMF team would like to thank the Honduran authorities and other counterparts for the excellent discussions; and reiterate that it greatly appreciates their kind hospitality.”