Honduras: Economic Outline

Economic Indicators

Honduras experienced an average annual growth rate of 3.7% from 2010 to 2019, primarily fueled by remittance-driven household consumption. This growth was supported by sound macroeconomic policies, including adherence to the Fiscal Responsibility Law (FRL), a stable exchange rate, sufficient foreign reserves, and a robust financial sector. However, the country's productive capacity did not expand significantly. In 2023, real GDP growth slowed to an estimated 3.5%, down from 4.0% in 2022. This decline was influenced by reduced demand for Honduran textiles in the United States, resulting in a 7.2% contraction in manufacturing. However, steady remittances and sustained credit growth supported household consumption and investment, helping to mitigate the impact of the export decline. As per the World Bank, growth is projected to slow to 3.4% in 2024 and 3.3% in 2025, with a subdued U.S. economy delaying the recovery of manufacturing exports and dampening remittances. This is expected to lead to a deceleration of households' consumption growth.

The fiscal deficit is estimated to have widened to 1.3% of GDP in 2023, as the execution of public investments improved in the second semester, particularly in energy, roads, and productive projects. Public debt decreased to 45.1% of GDP by June 2023, down from 46.2% in June 2022, due to net capital repayments (World Bank). Looking ahead, the fiscal deficit is projected to expand to 2.5% of GDP in 2024 as budget execution continues to improve. However, it is expected to gradually narrow over the medium term towards the Fiscal Responsibility Law's (FRL) 1% target. This trajectory will be supported by broadening of the tax base and enhanced efficiency of revenue collection and public spending. Inflation moderated to 6.7% in 2023, down from a peak of 9.1% in 2022. This decrease was attributed to lower international prices and measures taken by the central bank to absorb liquidity, such as open market operations and increases in reserve requirements and the overnight rate, leading to higher market interest rates. Inflation is expected to fall within the central bank's target range of 4±1 percent in 2024, aligning with declining international prices. Despite potential renewed energy inflation, inflationary pressures are anticipated to remain subdued in the medium term (World Bank).

The unemployment rate was estimated at 6.8% in 2023 by the World Bank (from 7% one year earlier). Labor market gender disparities persist, with women's unemployment nearly doubling that of men, while female labor force participation, at 40% in 2023, is about half the rate of men. In 2023, poverty, defined as living below the USD 6.85 line, is estimated to have reached 51.3%, declining from 2022 but still above pre-pandemic levels. Additionally, inequality, as measured by the Gini index, is estimated to have been 47.3%. Honduras also suffers from a high rate of criminality, which costs the country 10% of GDP according to the World Bank. Progress has already been made, though, as there has been a significant drop in homicides in the country in recent years. Migration is also an issue, as lower coffee production, financial adversity, and high crime rates drive farmers towards the United States.

Monetary Indicators	2016	2017	2018	2019	2020
Honduras Lempira (HNL) - Average Annual Exchange Rate For 1 GBP	30.83	30.23	31.89	30.63	31.52

Source: World Bank - Latest available data.

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Latest Update: May 2024