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Honduras Economy

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Honduras, with a per capita gross national income of $1,635, is one of the poorest countries in the Western Hemisphere. The economy grew 6.3% in 2006 and 2007, marking four consecutive years of better than 6% growth. Growth was expected to slow to about 4% in 2008, primarily because of external price shocks and the effects of the global economic slowdown. Historically dependent on exports of agricultural goods, the Honduran economy has diversified in recent decades and now has a strong export-processing (maquila) industry, primarily focused on assembling textile and apparel goods for re-export to the United States, as well as automobile wiring harnesses and similar products. These industries employ about 130,000 Hondurans, out of an economically active population of 2.8 million. Despite the recent economic diversification, there continues to be a large subsistence farmer population with few economic opportunities. Honduras also has extensive forest, marine, and mineral resources, although widespread slash-and-burn agricultural methods and illegal logging continue to destroy Honduran forests.

Remittances from Hondurans living abroad, particularly the U.S., totaled $2.56 billion in 2007--more than one-fifth of GDP--but the annual rate of growth of remittances slowed to 10%, compared with 31% in 2006. Remittance growth continued to slow in 2008 and is expected to turn negative in 2009. Meanwhile, Honduras's fuel import bill rose sharply with the surge in world oil prices (Honduras produces no petroleum), and foreign reserves of the Central Bank fell by nearly $98 million--about 4%. Reserves continued to decline during 2008 and by November equaled just over three months worth of imports. The rise in global grain prices also put upward pressure on Honduran consumer prices in 2007, and the inflation rate accelerated to 8.9% from 6.2% in 2006. Inflation was expected to exceed 12% in 2008.

The official exchange rate has been essentially fixed at 18.9 Honduran Lempiras to the dollar since 2005. About 38% of the Honduran workforce was considered either unemployed or underemployed in 2007. This does not include the roughly 1 million Hondurans who have migrated to the United States for lack of acceptable employment opportunities at home.

Since 2005, Honduras has received nearly $4 billion in debt relief from bilateral and multilateral donors. The donor community estimated this would reduce annual debt service payments by about $200 million in 2007. The Government of Honduras has committed to apply these funds to poverty alleviation, as laid out in the existing Poverty Reduction Strategy. However, much of the ensuing rise in government spending has gone to public sector salaries and fuel subsidies. Fuel subsidies were phased out and electricity subsidies reduced and targeted more tightly to the poor in 2008. But salaries, especially for teachers, continue to claim an increasing share of public spending.

Information by U.S. Department of State

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