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Honduras at a Glance: 2007-08

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Honduras at a Glance: 2007-08 Country Report Honduras HondurasHonduras atat aa glance:glance: 2007-082007-08 OVERVIEWOVERVIEW CRManuel Overview Zelaya summary Rosales hereof the Partido Liberal (PL) took office as president of Honduras for a four-year term on January 27th 2006. The PL’s failure to gain a Keysimple changes majority from in the last Congress month leaves the government reliant on the support of other parties in order to pass legislation. The Economist Intelligence Unit Politicalexpects broad outlook policy continuity in 2007-08, focusing on goals agreed under an • IMF-World CR Political Bank outlook poverty text reduction here and growth facility (PRGF). Honduras will Economicbenefit from policy debt outlook relief under the heavily indebted poor countries (HIPC) •initiative during 2007-08. Annual GDP growth will average 3.9% in 2007-08. The CR exchange Economic rate policy will outlook stay broadly text here stable in real terms against the US dollar. EconomicRapid growth forecast in the import bill, associated with high oil prices and relatively •strong CR Economic domestic forecastdemand, text will here result in a widening trade deficit, keeping the current-account deficit relatively wide. Key changes from last month Political outlook • Existing tensions within the government have been exacerbated by Mr Zelaya’s perceived desire to foster closer relations with the administration of Hugo Chávez in Venezuela. Failure on the part of Mr Zelaya to change the direction of his foreign policy in response to the misgivings of some ministers could lead to a cabinet crisis in the coming months. Economic policy outlook • Following a strong improvement in the public finances in the first half of the year, we have revised down our estimate for the budget deficit in 2006. We expect the central government deficit to narrow to 0.3% of GDP in 2006, before increasing to an average of 0.6% of GDP in 2007, and further to 1.1% of GDP in 2008 as government expenditure is stretched to meet spending commitments. Economic forecast • After estimated growth of 5.2% in 2006, we expect growth to slow in 2007- 08, to an annual average of 3.9%, in line with slower growth in the US. Relatively robust domestic demand and high oil prices will result in strong import growth, keeping the current-account deficit wide. October 2006 The Economist Intelligence Unit 26 Red Lion Square London WC1R 4HQ United Kingdom The Economist Intelligence Unit The Economist Intelligence Unit is a specialist publisher serving companies establishing and managing operations across national borders. For over 50 years it has been a source of information on business developments, economic and political trends, government regulations and corporate practice worldwide. The Economist Intelligence Unit delivers its information in four ways: through its digital portfolio, where the latest analysis is updated daily; through printed subscription products ranging from newsletters to annual reference works; through research reports; and by organising seminars and presentations. The firm is a member of The Economist Group. London New York Hong Kong The Economist Intelligence Unit The Economist Intelligence Unit The Economist Intelligence Unit 26 Red Lion Square The Economist Building 60/F, Central Plaza London 111 West 57th Street 18 Harbour Road WC1R 4HQ New York Wanchai United Kingdom NY 10019, US Hong Kong Tel: (44.20) 7576 8000 Tel: (1.212) 554 0600 Tel: (852) 2585 3888 Fax: (44.20) 7576 8500 Fax: (1.212) 586 0248 Fax: (852) 2802 7638 E-mail: [email protected] E-mail: [email protected] E-mail: [email protected] Website: www.eiu.com Electronic delivery This publication can be viewed by subscribing online at www.store.eiu.com Reports are also available in various other electronic formats, such as CD-ROM, Lotus Notes, online databases and as direct feeds to corporate intranets. For further information, please contact your nearest Economist Intelligence Unit office Copyright © 2006 The Economist Intelligence Unit Limited. All rights reserved. Neither this publication nor any part of it may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of The Economist Intelligence Unit Limited. All information in this report is verified to the best of the author's and the publisher's ability. However, the Economist Intelligence Unit does not accept responsibility for any loss arising from reliance on it. ISSN 1473-9011 Symbols for tables “n/a” means not available; “–” means not applicable Printed and distributed by Patersons Dartford, Questor Trade Park, 151 Avery Way, Dartford, Kent DA1 1JS, UK. Honduras 1 Contents Honduras 3 Summary 4 Political structure 5 Economic structure 5 Annual indicators 6 Quarterly indicators 7 Outlook for 2007-08 7 Political outlook 8 Economic policy outlook 9 Economic forecast 12 The political scene 15 Economic policy 18 The domestic economy 20 Agriculture 21 Manufacturing 22 Financial services 24 Foreign trade and payments List of tables 9 International assumptions summary 12 Forecast summary 16 Central government finances 19 Monthly index of economic activity (IMAE) 20 Consumer price inflation 22 Selected industrial production 23 Credit to the private sector 24 Merchandise trade List of figures 12 Gross domestic product 12 Consumer price inflation Country Report October 2006 www.eiu.com © The Economist Intelligence Unit Limited 2006 Honduras 3 Honduras October 2006 Summary Outlook for 2007-08 Manuel Zelaya Rosales of the Partido Liberal (PL) took office as president of Honduras for a four-year term in January 2006. With just 62 of the 128 seats in Congress, compared with 55 for the Partido Nacional (PN), the government is reliant on the support of other parties to pass legislation. A government priority in 2007-08 will be to agree an IMF-World Bank poverty reduction and growth facility (PRGF) to replace the PRGF that expires in early 2007. Honduras will benefit from debt relief under the heavily indebted poor countries (HIPC) initiative during 2007-08. Annual GDP growth will average 3.9% in 2007-08, while inflation is forecast to average 4.8%. The exchange rate will stay broadly stable in real terms against the US dollar. An increasing trade deficit as a result of strong, investment-driven import demand will cause the current-account deficit to remain wide in 2007-08, although gains made in the services account from the buoyant maquila (offshore assembly for re-export) and tourism industries will help to offset the effect of continued strong demand for imports. The political scene After nearly eight months in office, Mr Zelaya is facing a deteriorating political environment, in which the government’s lack of a majority, confrontation with political allies, a controversial foreign policy and growing social tensions threaten to disrupt government effectiveness. Economic policy The public finances underwent a sharp year-on-year improvement in the first half of 2006, with the central government recording a surplus as a result of expenditure restraint and strong revenue growth. Despite the improved fiscal performance, there are concerns over the potential impact on the public finances of government fuel subsidies and public-sector pay increases. The domestic economy In the first six months of 2006 the Indice Mensual de la Actividad Económica (IMAE, the monthly index of economic activity), a proxy for GDP growth, expanded by 5.4%, compared with 3.8% in the same period of 2005, led by growth in the construction and banking sectors. Foreign trade and payments In the first seven months of 2006 the merchandise trade deficit widened by 23.2% year on year, as growth in import spending continued to outstrip increases in export earnings. Remittances by Honduran workers abroad and value-added earnings by the maquila (offshore assembly for re-export) industry helped to offset much of the trade deficit. Editors: Ian Emery (editor); Martin Pickering (consulting editor) Editorial closing date: September 22nd 2006 All queries: Tel: (44.20) 7576 8000 E-mail: [email protected] Next report: Full schedule on www.eiu.com/schedule Country Report October 2006 www.eiu.com © The Economist Intelligence Unit Limited 2006 4 Honduras Political structure Official name Republic of Honduras Form of state Unitary republic The executive President, elected for a four-year term National legislature National Congress, comprising one member and one substitute member elected for every 35,000 people or fraction over 15,000 Legal system US-style Supreme Court system National elections November 2005 (legislative and presidential); next elections due November 2009 (legislative and presidential) National government Following his victory in the November 27th 2005 election, Manuel Zelaya Rosales of the Partido Liberal (PL) took office as president on January 27th 2006 Main political organisations Government (from January 27th 2006): Partido Liberal (PL) Opposition: Partido Nacional (PN); Partido de Innovación Nacional y Unidad-Social Demócrata (PINU-SD); Partido Demócrata Cristiano (PDC); Partido de Unificación Democrática (PUD) President Manuel Zelaya Rosales Vice-president Elvin Santos Key ministers Agriculture Hector Hernández Culture & sports Rodolfo Pastor Fasquel Defence Arístides Mejía Economy, industry & commerce Lizzy Azcona Bocok Education Rafael Pineda Ponce Finance Rebeca Santos Foreign affairs Milton Jimenez Puerto Health Jenny Meza Interior & justice Jorge Arturo Reina Labour & social security Riccy
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