NS 4540 Winter Term 2019 Honduras Economy Honduras
- Slides: 24
NS 4540 Winter Term 2019 Honduras Economy
Honduras Profile 2
Honduras Trade Partners 3
Central America: Economic Freedom 4
Honduras Economic Freedom 5
Honduras Governance Trends 6
Doing Business in Honduras 7
Violence Trends 8
FDI into Honduras 9
Competitiveness I 10
Competitiveness II 11
Competitiveness III 12
Overview I • With gross national income per capita at US$2, 766 in 2018, Honduras remains one of the poorest and least developed economies in Latin America • Over one half population is living in poverty • Also one of the highest inequality ratings in the region • Acute socio-economic problems fueled significant levels of crime and corruption • Despite some success in efforts to diversify the country’s economic base, Honduras remains overly dependent on primary agricultural and fisheries exports • Dependence on agriculture has made the economy vulnerable to frequent natural disasters 13
Overview II • Country sustained steady rates of growth during most of the 2000 s • GDP increased at an average annual rate of 4. 1% 2000 -18 after 2. 6% 1980 -99 • Growth fueled by a sharp increase in credit and FDI stemming from debt reduction and free trade agreements • Population estimated at 8. 9 million at mid-2015 • Population growth rate slowing progressively decreasing to an annual rate of 2. 0% from 2. 5% in 2001 • High levels of underemployment in agricultural workforce • Pressure on land • Increased mechanization of export agriculture and • Seasonal nature of coffee, banana, sugar, and fruit production 14
Poverty in Honduras 15
Honduras Human Development 16
Manufacturing • Honduran manufacturing sector underwent substantial transformation in the 1980 s and 1990 s with the establishment of maquila (offshore assembly) plants producing goods for re-export • Maquila industry benefited in 2000 from the extension of NAFTA import duty to Honduran assembled goods • Allowed import tariffs to be reduced by 15% on such goods entering U. S. market • Enabled sector to diversify into textile operations such as dyeing and cutting • Maquila sub-sector further boosted by the CAFTA-DR) with the U. S. ratified in 2005 • Since then Honduran exports quite sensitive to developments in U. S. Economy • Output growth in manufacturing averaged 2. 7% in 200413, sector’s share of GDP was 17. 4% in 2014 17
Criminality and Corruption • In power since January 2014 President Orlando Hernandez has made combatting criminality and drug trafficking one of his government’s priorities • Despite progress made Honduras is still one of the most dangerous countries in the world • Violence and criminality are one of the main curbs on investment • Corruption still widespread – policy and judiciary included • President’s brother arrested on drug trafficking charges in November 2018 • Major Bank scandal (Rosenthal family) accused of laundering drug money • Image of country tarnished – investors associate country 18 with drug trafficking
Political Instability • The November 2017 presidential election was followed by violent protests • Made the security situation more uncertain, despite the progress made (homicide rate lowered from 75 to 37 cases per 100, 000 inhabitants since 2014). • The two finalists, Juan Orlando Hernandez (National Party, whose candidature to the election was highly disputed) and Salvador Nasralla (Opposition Alliance against Dictatorship), both announced their victory. • The Electoral Tribunal officially announced Mr Hernandez’s victory which has been highly criticized by international observers • Mr Nasralla has refused to accept the results despite US pressures, calling for protests, while the violence has 19 already claimed several victims.
Honduras: Prospects I • With U. S economy doing well Honduran economy should fare well • U. S. accounts for 44% of exports and 80% of remittances • Continuation of austerity policy under the IMF • Adjustment measures adopted from 2014 • Higher fuel taxes and • VAT raised from 12% to 15% • Freeze on civil service salaries • Have helped reduce deficit in public accounts • The tax liability law approved in 2016 sets a ceiling for the non-financial public sector deficit: 1% of the GDP by 2020. • An extension of the agreement with the IMF after its deadline of December 2017 may occur. 20
Honduras Prospects II • • The government will prioritize fiscal consolidation, and policies to foster employment and reduce poverty. Efforts to tackle gang- and drug-related violence and the high murder rate will continue, as will steps to address corruption, but progress will be limited. Decelerating private consumption-due to rising consumer prices and slower remittance inflows-will contribute to an easing of GDP growth to 3. 4% in 2019, down from an estimated 3. 5% in 2018. Growth will average 3. 4% in 2019 -23. 21
Honduras: Macroeconomic Forecast 22
Growth Projections 23
Risks to Forecasts 24
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