Honduras has a small, open, predominantly agricultural, and informal economy. Given its strategic location, solid industrial base, ample productive resources and young and growing population, the country has the potential to accelerate its economy in an inclusive and resilient manner.
During the 2010-2019 decade, the average annual growth of the gross domestic product (GDP) in real terms was 3.1 percent, driven mainly by remittances-fueled private consumption. During this period, Honduras benefited from prudent macroeconomic policy management anchored in the Fiscal Responsibility Law. In 2018 and 2019, the country's economic growth was 3.8 and 2.7 percent, respectively. This growth was above the average for Central America (1.9 percent) and Latin America and the Caribbean (0.9 percent). However, this growth has yet to translate into increased household income, especially in rural areas.
Today, Honduras remains one of the poorest and most unequal countries in the region. In 2019, roughly half of the Honduran population (49.5 percent) lived on less than US$6.85 per day (US$6.85 per person per day in 2017 Purchasing Power Parity, PPP). This proportion was much higher than the averages for Latin America and the Caribbean, and Central America for 2019, standing at 27.8 percent and 25.6 percent, respectively. Extreme poverty reached 12.7 percent (US$2.15 per day PPP 2017), and inequality, measured by the Gini Index, reached 48.2 that same year.
The COVID-19 pandemic and hurricanes Eta and Iota significantly impacted the Honduran economy in 2020. Real GDP contracted by 9 percent, and poverty (US$6.85 line) increased 8.2 percentage points to 57.7 percent in 2020. A countercyclical policy response cushioned the effects of these multiple shocks. However, social assistance programs had a relatively small mitigating impacts due to their low coverage. During that year, around 400,000 people lost their jobs, and approximately 70 percent of households reported reduced income, according to high-frequency telephone surveys by the World Bank.
Driven by private consumption, the reconstruction post-Hurricanes Eta and Iota, and strong export demand, the Honduran economy rebounded strongly by 12.5 percent in 2021, reaching the pre-crisis level of GDP. Likewise, despite global headwinds and the impact of Hurricane Julia (1.2 percent of 2021 GDP), annual real GDP expanded by 4 percent in 2022, according to preliminary data from Honduras’s Central Bank. The growth forecast for 2023 is 3.5 percent.
Although the economic improvement was accompanied by an estimated reduction in poverty in 2021 (to 53.3 percent moderate poverty), high inflation in 2022 limited further progress. The poverty rate is calculated to have decreased slightly to 52.4 percent and extreme poverty to 13.3 percent in 2022, while the Gini Index stood at 47.5 percent.
Human development outcomes in the country are among the lowest in Latin America and the Caribbean. For example, according to the World Bank's Human Capital Indicator, a child born in Honduras will be almost half (48 percent) as productive when they grow up than they could be if they were guaranteed a complete education and health.
To create more opportunities for the most vulnerable population in Honduras, it is necessary to foster greater economic growth, enhance productivity and competitiveness and promote inclusion by improving access to quality services and jobs. At the same time, it is necessary to implement institutional reforms on critical issues such as the sustainability of the electricity sector, governance, and the business environment.
Similarly, Honduras faces the challenge of strengthening the resilience to climate change and improving governance and the quality of institutions, including transparency and independence of constitutional powers.
Last Updated: Apr 04, 2023