Overview

«

»

Context
Strategy
Results

Honduras possesses multiple strengths with the potential for a faster growth and higher shared prosperity, with its strategic location, a growing industrial base, ongoing efforts to diversify its exports, and a young and growing population.
During recent years, Honduras had registered the second highest economic growth rates in Central America, only behind Panama. The country’s GDP growth reached 4.8 percent in 2017, 3.7 percent in 2018 and 2.7 percent in 2019, above the average in Central America and well above the average in Latin America and the Caribbean (LAC).
However, the country has been facing high levels of poverty and inequality. International estimates for the latest available year (2019), before the double impact of the COVID-19 pandemic and hurricanes Eta and Iota, showed that 14.8 percent of the Honduran population lived on less than US$1.90 per day. In addition, almost half of the population (4.8 million people) lived on less than US$5.50 per day, the second highest poverty rate in LAC after Haiti. Another third of the population was near-poor and vulnerable to falling back into poverty, while the size of Honduras' middle class (18 percent) was among the smallest in the region (compared to an average middle class of 41 percent).
In addition, Honduras struggles with high levels of violence, with over 38 homicides per 100,000 inhabitants (2018). This rate has diminished however in recent years, from a peak of 83 homicides per 100,000 inhabitants in 2011.
To minimize the impact of the COVID-19 pandemic on economic activity and social welfare, the Government adopted strict containment measures, authorizing new borrowing for US$2.5 billion (10 percent of the GDP), and prioritized healthcare and humanitarian services, including basic needs support to the poor, as well as support to firms. A prudent macroeconomic framework helped contain vulnerabilities, buoyed by the IMF program.
Still, the pandemic significantly impacted Honduras’s economy. The country’s GDP is expected to have contracted by 9 percent in 2020 due to the pandemic and the unprecedented impact of two successive hurricanes. Around 45 percent of households, according to World Bank surveys, reported income losses in August, which likely deteriorated further with the November hurricanes. Projections suggest that the proportion of people living under the US$5.50 poverty line could increase to 55.4 percent in 2020, resulting in more than 700,000 new poor, while inequality slightly increases.
While the country’s economy is expected to rebound in 2021 to a 4.5 percent growth, amid the reactivation of domestic economic activity and recovering investment and external demand, risks and challenges remain. A deeper global downturn amid the prolonged pandemic could weaken economic recovery and continue to threaten the health and welfare of the population.
Continued focus on boosting competitiveness in rural economic development, investing in human capital and strengthening social protection in Honduras can also improve social outcomes and support recovery by fostering more job and economic opportunities among the country’s most vulnerable. Institutional reforms on key issues, such as improving the sustainability of the electricity sector, as well as governance and the business climate, can also contribute to further developing a framework for inclusive growth in Honduras.

Last Updated: May 28, 2021
Since COVID-19 struck, the World Bank has been working intensely on fast, broad actions to limit harm and help countries, including Honduras, prepare for recovery and rebuilding better and stronger than before, by focusing on four priorities:
saving lives threatened by the pandemic;
protecting the poor and vulnerable;
securing the foundations of the economy to shorten the time to recovery; and
strengthening policies and institutions for resilience based on transparent and sustainable debt and investments.
The World Bank’s current portfolio in Honduras totals US$692.95 million in commitments and includes twelve investment projects. World Bank initiatives support sectors in Honduras such as rural competitiveness, social protection, early childhood education, water and food security and disaster risk management. An additional initiative focuses on promoting socio-economic productive activities to improve the livelihoods of Miskito indigenous people in Honduras.
World Bank-financed operations approved during 2020 include a US$ 20 million emergency investment project to respond to the threat posed by COVID-19; a US$ 119 million credit to allow the country to mobilize financial resources to respond to the emergency caused by COVID-19; US$ 30 million to support an investment project to improve the quality of pre-school education services, a US$ 45 million project to improve water supply services in participating urban municipalities in Honduras, a US$ 70 million project to improve water service delivery and governance in the Dry Corridor, and a US$ 150 million project to support the country’s response and recovery needs after hurricanes Eta and Iota.

Last Updated: May 28, 2021
The World Bank supported Honduras to transform, in less than one year, the way the country measures poverty. Working closely with the Inter-American Development Bank, the Bank provided non-lending technical assistance to review and update Honduras’s methodology for measuring monetary poverty, which now includes cutting edge international standards, paving the way to target social protection programs more effectively and better-informed policy making. A key component was to ensure full knowledge transfer and capacity building to the National Statistics Institute and appropriation of the updated methodology by government institutions.
Through the Education Quality, Good Governance and Institutional Strengthening Project, the Secretary of Education managed to expand school coverage in disadvantaged communities from 36 percent to 50 percent through the opening and equipping of nearly 800 pre-schools, as well as providing training for all their volunteer teachers.
With support from the Nutrition and Social Protection Project, the Government of Honduras helped 36,000 at-risk children avoid food insecurity and improved their social security through a pilot education program benefitting vulnerable youth. The Social Protection Project focused on increasing school attendance and use of preventive health services by vulnerable families through conditional cash transfers known as Bono Vida Mejor. The project benefitted more than 1.5 million Hondurans (about 300,000 families) living in extreme poverty.
The Project to Modernize the Water and Sanitation Sector supported the decentralization of water and sanitation services in eight municipalities, with populations between 40,000 and 300,000, by establishing autonomous municipal water and sanitation service providers that collect revenue and provide increased coverage. Infrastructure works financed by the Project directly benefited 13,167 families with improved water services and 3,786 families with improved sanitation. Overall, the improvements in the utilities indirectly benefitted about 650,000 people (108,000 families).

The Rural Competitiveness Project (COMRURAL) has contributed to increase productivity, competitiveness, and market linkages among 7,200 small-scale rural producers of coffee, dairy, honey and other products in Honduras. Each US$1 invested by COMRURAL as part of a productive alliance has leveraged US$1.5 from private financial institutions (around US$12.5 million in total), increasing the financial inclusion and creditworthiness of small-scale farmers. Since 2008, the Project has contributed in making agricultural value chains more competitive and increasing the volume of gross sales of rural producers by 23 percent. Producers supported by COMRURAL produce around 30 percent of all the specialty coffee exported by Honduras to the United States, Europe and Asia.
Implemented from 2006 to 2016, the Rural Infrastructure Project improved access, quality and sustainability of basic infrastructure services, including the construction of 113 water and sanitation projects and the installation of 4,893 latrines, benefitting 20,751 families in 112 communities. Additionally, the project financed 8,550 rural electrification projects (of which 98% were solar photovoltaic energy systems) and helped habilitate 844 kilometers of power lines in 282 communities, benefitting approximately 84,220 people. The project also contributed to the rehabilitation of 667 kilometers of rural roads and provided adequate maintenance mechanisms for 593 kilometers of roads.
The Disaster Risk Management Project is strengthening capacities for the comprehensive management of disaster risks at the municipal and national government levels. It also helps to improve government capacity for rapid and effective emergency response. The project supports the implementation of disaster risk management programs in 81 of the country’s most vulnerable municipalities, benefitting approximately five million people.
The World Bank has provided technical assistance and grants to support several initiatives in Honduras to strengthen transparency and good governance and improve multi-sector interactions in key development areas, such as the Open Government Partnership (OGP), the Extractive Industries Transparency Initiative (EITI) and the Transparency Initiative for Construction and Public Infrastructure (CoST).

Last Updated: May 28, 2021