The World Bank In Honduras

Honduras possesses multiple strengths and the potential for faster growth and higher shared prosperity, due to its strategic location, a growing industrial base, ongoing efforts to diversify its exports, and a young and growing population.

Real GDP in Honduras grew at an average annual rate of 3.1 percent over the past decade. The country also implemented prudent macroeconomic policies during recent years, anchored in the Fiscal Responsibility Law, and posted the second highest economic growth rates in Central America, only behind Panama. The country’s GDP growth reached 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 COVID-19 pandemic, coupled with two Category 4 hurricanes —Eta and Iota— in 2020, led to a sharp GDP decline of 9 percent, while income and employment sank, with about 400,000 people losing their jobs during that year.

Honduras remains one of the poorest and most unequal countries in the Western Hemisphere. Prior to the twin shocks of 2020, 25.2 percent of the Honduran population lived in extreme poverty and almost half (4.4 million people) lived in poverty, based on the official poverty lines. Poverty had shown little decline since 2014, while extreme poverty increased in rural areas since 2014 and in urban areas since 2017. Rural inequality also rose sharply from a Gini index of 0.431 in 2014 to 0.486 in 2019. Overall, Honduras had in 2019 the fourth-highest level of income inequality (Gini index of 0.482) in the LAC region.

Poverty and inequality levels are likely to remain higher than pre-crisis levels and other development challenges persist for Honduras. Human development outcomes in the country are among the lowest in LAC. A child born in Honduras today will be 48 percent as productive when she grows up as she could be if she enjoyed complete education and full health.

Improving governance and the quality of institutions remains at the core and will require addressing issues of state capture and impunity. Further progress is needed in strengthening the independence of the judiciary and regulatory agencies, enhancing the capacity for citizens to hold public and elected officials accountable, improving transparency, and strengthening capacities for digital and open government, among others. Strengthening violence prevention and law enforcement also remains critical for reducing levels of crime and violence.

The country’s economy rebounded to a 12.5 percent growth in 2021 and is expected to grow a 3.5 percent in 2022 and 3.1 percent in 2023. A new government took office in early 2022 and will have the opportunity to chart a course consistent with the recovery and reconstruction needs of the country and to address the critical constraints to growth.

Continued focus on boosting growth and competitiveness, fostering inclusion by improving access to quality basic services and jobs, and promoting resilience in the face of climate change will improve social outcomes and foster more 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: Oct 04, 2022

The World Bank’s current portfolio in Honduras consists of 13 projects, totaling US$984 million in commitments (including a US$35 million donation from the Global Agricultural and Food Security Program). World Bank initiatives support sectors in Honduras such as rural competitiveness, social protection, early childhood education, water and sanitation, health, food security and disaster risk management. An additional initiative focuses on promoting socio-economic productive activities to improve the livelihoods of the Miskito indigenous people in Honduras.

World Bank-financed operations approved since the pandemic 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; 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 reconstruction needs after hurricanes Eta and Iota.

During 2021, the World Bank approved US$20 million in additional financing for vaccine procurement and deployment; US$70 million in additional financing to strengthen the social protection system, and US$100 million to support the Rural Competitiveness Project.

The World Bank recently updated its Systematic Country Diagnostic, a comprehensive assessment of growth and poverty reduction challenges for Honduras, and is working on a new Country Partnership Framework for the country.

Last Updated: Oct 04, 2022

Between November 1st and 18th, 2020, hurricanes Eta and Iota consecutively hit Honduras and other Central American countries, with a magnitude comparable to Hurricane Mitch in 1998. The two hurricanes affected more than 4.5 million Hondurans, causing 95 deaths and the evacuation of over one million people. After the devastation, the World Bank responded swiftly and worked with technical teams from the Government of Honduras to prepare and approve, in just three weeks, a US$150 million investment project to support the country’s rehabilitation and resilient reconstruction.

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 the country’s methodology for measuring monetary poverty, which now includes cutting edge international standards, paving the way to more effectively target social protection programs 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.

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. COMRURAL has benefited more than 14,000 families, of which more than 4,000 have a woman as head of the family and more than 5,000 are indigenous families. 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 to making agricultural value chains more competitive and increasing the volume of gross sales of rural producers by 57 percent. Producers supported by COMRURAL produce around 30 percent of all the specialty coffee exported by Honduras to the United States, Europe and Asia.

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. In total, World Bank-financed projects have helped provide social protection coverage and support to more than 1.13 million people in urban and rural areas of Honduras. That is, 200,000 families living in extreme poverty in rural areas and 40,000 families in similar conditions in urban areas.

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).

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: Oct 04, 2022