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Quick Facts
- Population:
- GDP (PPP):
- $33.6 billion
- 2.8% growth
- 3.5% 5-year compound annual growth
- $4,417 per capita
- Unemployment:
- Inflation (CPI):
- FDI Inflow:
Honduras’s economic freedom score is 58.8, making its economy the 93rd freest in the 2012 Index. Its overall score is 0.2 point better than last year, reflecting small gains in five of the 10 economic freedoms including investment freedom and monetary freedom. Honduras is ranked 19th out of 29 countries in the South and Central America/Caribbean region, and its overall score is lower than the world and regional averages.
Implementation of deeper institutional reforms is critical to strengthening the foundations of economic freedom and inducing more dynamic economic growth. Systemic weaknesses persist in the protection of property rights and enforcement of anti-corruption measures. The judicial system is weak, undercut by political instability, and vulnerable to political influence.
The Honduran economy receives relatively high scores for policies that support and sustain open markets. The economy has benefited from implementation of the Central America–Dominican Republic–United States Free Trade Agreement and other free trade agreements that have resulted in overall tariff reductions and helped to enhance the investment environment. Regulatory efficiency is facilitated by moderate taxation.
Background
Following the June 2009 arrest of Liberal Party President Manuel Zelaya and his constitutional removal from office by the Honduran Supreme Court, the military deported him to Costa Rica, and the Congress later voted to remove him from power officially. In a highly politicized response, the Organization of American States (OAS) expelled Honduras. In November 2009, National Party candidate Porfirio Lobo won the presidency. In June 2011, Honduras returned to the OAS and Zelaya was allowed to return from exile and resume political activity. Political instability, drug trafficking, violent crime, and youth gangs are ongoing concerns. The economy, based on exports of coffee and bananas, has expanded to include shrimp, melons, tourism, and textiles. The government is shedding debt under World Bank and International Monetary Fund supervision.
The legal framework remains underdeveloped, and protection of property rights is weak. Laws and practices regarding real estate differ substantially from those in more developed countries, and fraudulent deeds and titles are common. The court system is weak and inefficient, and disputed cases can take years to resolve. Corruption, perceived as pervasive, continues to undermine potential progress in other areas.
The top income and corporate tax rates are 25 percent, though the corporate rate is equivalent to 27.5 percent when a social contribution tax is included. Other taxes include a capital gains tax and a general sales tax. The overall tax burden equals 15.7 percent of total domestic income, and government spending is equivalent to 23.5 percent of GDP. The deficit has been declining, with public debt remaining under 30 percent of GDP.
The regulatory environment continues to evolve, but the pace of reform has been sluggish. Although launching a business takes less than the world average of seven procedures and 30 days, completing licensing requirements remains costly. Labor regulations are burdensome and outmoded. A large part of the labor force relies on the informal sector for employment. The government continues to regulate the prices of key products and services.
The trade weighted average tariff rate is 6.5 percent. Non-tariff barriers remain onerous. Measures taken in 2011 to encourage foreign investment include the implementation of a law protecting investments from direct or indirect expropriation and the creation of a “single window” to provide information and guidance to potential foreign investors. Reforms in recent years appear to have strengthened and stabilized the banking sector.