2013 Index of Economic Freedom

Honduras

overall score58.4
world rank96
Rule of Law

Property Rights30.0

Freedom From Corruption26.0

Limited Government

Government Spending79.2

Fiscal Freedom85.3

Regulatory Efficiency

Business Freedom61.0

Labor Freedom26.8

Monetary Freedom73.9

Open Markets

Trade Freedom77.1

Investment Freedom65.0

Financial Freedom60.0

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Quick Facts
  • Population:
    • 8.2 million
  • GDP (PPP):
    • $35.7 billion
    • 3.6% growth
    • 2.9% 5-year compound annual growth
    • $4,345 per capita
  • Unemployment:
    • 5.1%
  • Inflation (CPI):
    • 6.8%
  • FDI Inflow:
    • $1.0 billion
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Honduras’s economic freedom score is 58.4, making its economy the 96th freest in the 2013 Index. Its overall score is 0.4 point worse than last year, reflecting declines in the control of government spending and labor freedom that offset gains in freedom from corruption and fiscal freedom. Honduras is ranked 18th out of 29 countries in the South and Central America/Caribbean region, and its overall score is lower than the world and regional averages.

The Central America–Dominican Republic–United States Free Trade Agreement and other free trade agreements have led to modernization and liberalization of the Honduran trade and investment regimes. Business regulations are relatively benign, except in the area of labor relations. Private-sector activity benefits from moderate taxation, though government services are correspondingly poor.

The government has been developing the idea of “charter cities” (special free trade and investment zones) to stimulate the economy, but broader implementation of deeper institutional reforms is critical to spurring more dynamic economic growth across the country. Systemic corruption persists, eroding the rule of law. The judicial system is weak and vulnerable to political influence.

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Background

In June 2009, Honduras’s legislature ordered the military to arrest Liberal Party President Manuel Zelaya after he tried to amend the constitution illegally to allow himself to remain in office. The military deported him to Costa Rica, and Honduras was expelled from the Organization of American States (OAS). Zelaya returned later that year and was not prosecuted. National Party candidate Porfirio Lobo won the presidency in November 2009. In June 2011, Honduras returned to the OAS. Political polarization, drug trafficking, violent crime, and youth gangs are ongoing concerns. Honduras is one of Latin America’s poorest countries. The economy, based traditionally on exports of coffee and bananas, has expanded to include shrimp, melons, tourism, and textiles. Much of the workforce is employed in agriculture. The government is attempting to shed official debt under World Bank and International Monetary Fund supervision.

Rule of LawView Methodology

Property Rights 30.0 Create a Graph using this measurement

Freedom From Corruption 26.0 Create a Graph using this measurement

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 resolution of disputed cases can take years. Corruption, perceived as pervasive, continues to undermine potential progress in other areas.

Limited GovernmentView Methodology

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 14.8 percent of total domestic income, and government spending is equivalent to 26.3 percent of GDP. The deficit is declining, with public debt now below 30 percent of GDP.

Regulatory EfficiencyView Methodology

Recent reforms have reduced the number of days and procedures required to launch a new business, but overall progress in easing regulatory constraints lags behind other countries. Getting necessary licenses costs over twice the level of average annual income. A large portion of the workforce is employed in the informal sector. Inflation has moderated, but the state continues to regulate the prices of key products and services.

Open MarketsView Methodology

The trade-weighted average tariff rate is 6.5 percent, and non-tariff barriers interfere with trade. Foreign and domestic investors are treated equally under the law, and new “charter cities” are being created in an attempt to attract more foreign investment. The financial sector remains relatively stable and continues to expand. There are two state-owned banks, but private banks are the dominant force in the banking sector.

Country's Score Over Time

Bar Graph of Honduras  Economic Freedom Scores Over a Time Period

Country Comparisons

Bar Graphs comparing Honduras  to other economic country groups

Regional Ranking

rank country overall change
1Chile790.7
2Saint Lucia70.4-0.9
3The Bahamas70.12.1
4Uruguay 69.7-0.2
5Colombia69.61.6
6Barbados69.30.3
7Peru68.2-0.5
8Costa Rica 67-1.0
9Jamaica 66.81.7
10El Salvador 66.7-2.0
11Saint Vincent and the Grenadines66.70.2
12Dominica63.92.3
13Panama 62.5-2.7
14Trinidad and Tobago62.3-2.1
15Paraguay 61.1-0.7
16Guatemala 60-0.9
17Dominican Republic59.7-0.5
18Honduras 58.4-0.4
19Brazil57.7-0.2
20Belize57.3-4.6
21Nicaragua 56.6-1.3
22Guyana53.82.5
23Suriname52-0.6
24Haiti48.1-2.6
25Bolivia47.9-2.3
26Ecuador46.9-1.4
27Argentina46.7-1.3
28Venezuela 36.1-2.0
29Cuba28.50.2
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