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, due to the impact of the COVID-19 (coronavirus) pandemic, the country’s economy is expected to register a -2.3 percent growth in 2020 and 3.9 percent in 2021.
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.
However, the country has been facing high levels of poverty and inequality. A 48.3 percent of people live in poverty in the country (2018, with updated official poverty lines) and the percentage of people living in poverty in rural areas (60.1 percent) is higher than in urban areas (38.4 percent). Inequality (GINI 50.5 in 2017, among the highest in the region and the world) had also resulted in one of the smallest middle classes in LAC (11 percent in 2015, compared with 35 percent regional average).
In addition, Honduras struggles from high levels of violence with over 41 homicides per 100,000 inhabitants (2017). Moreover, Honduras is vastly exposed to natural adverse events and climate change, especially heavy rainfall and drought that regularly occur and disproportionately affect the poor.
Moderate and volatile economic growth and high inequality have created the conditions for the emergence of two mutually reinforcing cycles in the country: i) a high crime-low growth cycle; and ii) an emigration/remittance flows-low growth cycle. These continue to affect the economy’s growth potential and the economic opportunities available for Hondurans. These dynamics intertwine to act as push factors for migration. The primary triggers of migration for many people in Honduras continue to be better economic opportunities, crime and violence, and family reintegration.
An agreement with the IMF can help to strengthen the country's macroeconomic framework and support economic and institutional reforms on key issues, such as improving the sustainability of the electricity sector, as well as governance and the business climate, which can contribute to further developing a framework for inclusive growth in Honduras.
Recent progress in boosting competitiveness in rural economic development and strengthening social protection in Honduras can also improve human capital outcomes and foster more job and economic opportunities among the country’s most vulnerable.
Last Updated: Apr 12, 2020