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- GDP (PPP):
- $37.8 billion
- 3.3% growth
- 2.5% 5-year compound annual growth
- $4,610 per capita
- Inflation (CPI):
- FDI Inflow:
Honduras’s economic freedom score is 57.1, making its economy the 112th freest in the 2014 Index. Its overall score is 1.3 points worse than last year due to deteriorations in six of the 10 economic freedoms including investment freedom, business freedom, freedom from corruption, and trade 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.
Over the 20-year history of the Index, Honduras’s economic freedom has been stagnant. Scores for six of the 10 economic freedoms, notably in the area of market openness assessed by trade freedom, investment freedom, and financial freedom, have improved. However, considerable deteriorations in the management of public spending and the rule of law, measured by property rights and freedom from corruption, have offset these gains. Briefly rated a “moderately free” economy in 2003, Honduras has been ranked “mostly unfree” for the rest of the history of the Index.
Business regulations are relatively benign except in the area of labor relations. The government has been developing the idea of “charter cities” to stimulate the economy, but broader implementation of deeper institutional reforms is critical to spurring more dynamic economic growth.
In June 2009, the legislature ordered the military to arrest President Manuel Zelaya after he violated the constitution by trying to amend it to run for another term. The military deported Zelaya to Costa Rica, and Honduras was expelled from the Organization of American States. Zelaya returned later that year and was not prosecuted. National Party candidate Porfirio Lobo won the presidency in November 2009, and Honduras returned to the OAS two years later. The constitutional crisis continued in 2012–2013, however, with the removal of high-court judges by the legislature. Political polarization, drug trafficking, violent crime, and youth gangs are ongoing concerns. The economy, based traditionally on exports of coffee and bananas, has diversified to include shrimp, melons, tourism, and textiles, but Honduras remains one of Latin America’s poorest countries.
Weak institutions and corruption limit the country’s economic potential, and intensifying gang and drug-related violence continues to pose a significant risk of political and social instability. The court system is weak and inefficient, and resolution of disputed cases can take years. Laws and practices regarding real estate differ substantially from those in more developed countries, and fraudulent deeds and titles are common.
The top individual income and corporate tax rates are 25 percent. A 5 percent temporary social contribution tax for corporations will be phased out by 2015. Other taxes include a capital gains tax and a general sales tax. The overall tax burden equals 16.1 percent of GDP. Public expenditures equal around a quarter of gross domestic income, and government debt is 35 percent of GDP. Growing deficits have eroded the country’s credit rating.
Earlier 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. Much of the workforce is employed in the informal sector. The government subsidizes electricity and continues to regulate the prices of key products (for example, fuel) and services.
The average tariff rate for Honduras is 7.3 percent. Foreign investors sometimes find it difficult to have contracts enforced through the judicial system. The financial sector remains relatively stable and continues to expand. There are two state-owned banks, but private banks dominate the banking sector. There are few legal and regulatory barriers to entry, but most foreign banks’ participation has been at a regional rather than national level.