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