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Quick Facts
- Population:
- GDP (PPP):
- $43.2 billion
- 3.6% growth
- 3.4% 5-year compound annual growth
- $5,272 per capita
- Unemployment:
- Inflation (CPI):
- FDI Inflow:
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Honduras’s economic freedom score is 60.6, making its economy the 94th freest in the 2018 Index. Its overall score has increased by 1.8 points, with dramatic improvements in fiscal health and trade freedom offsetting lower scores for government integrity, judicial effectiveness, and monetary freedom. Honduras is ranked 19th among 32 countries in the Americas region, and its overall score is above the regional average but below the world average.
The government has prioritized fiscal consolidation and implementation of structural reforms to improve tax collection and streamline public-sector institutions. These and additional reforms are needed to spark more robust economic growth. Although steps have been taken to open the domestic market and facilitate engagement in global commerce, the business environment still suffers from weak protection of property rights and political instability. Systemic corruption erodes the rule of law and trust in the government.
Background
Honduras, Central America’s second-poorest country, has one of the world’s highest homicide rates. Gangs and transnational criminal networks prey on communities, often in collusion with authorities. Its international image has also been undermined by extensive narcotics-related money laundering. Capitalizing on a 2015 Supreme Court ruling that suspended a constitutional ban on consecutive presidential reelection, as well as incumbency and an economy that is performing well, President Juan Orlando Hernández of the center-right National Party was reelected in November 2017. Historically dependent on exports of bananas and coffee, Honduras has diversified its export base to include apparel and automobile wire harnessing, but the economy remains heavily dependent on U.S. trade and remittances.
The property registration system remains unreliable. Approximately 80 percent of the privately held land in Honduras is either untitled or improperly titled. Resolution of title disputes in court often takes years, in part because of the judicial system’s weakness. Pervasive corruption and weak state institutions make it virtually impossible to combat threats posed by violent transnational gangs and organized criminal groups.
The top individual income and corporate tax rates are 25 percent (27.5 percent for corporations with an added social contribution tax). The overall tax burden equals 21.6 percent of total domestic income. Over the past three years, government spending has amounted to 27.9 percent of total output (GDP), and budget deficits have decreased, averaging 2.3 percent of GDP. Public debt is equivalent to 45.4 percent of GDP.
Physical and political insecurity inhibit business activity, and start-up costs are high. Labor regulations are outmoded, and much of the labor force works in the informal sector. Instead of overhauling the struggling state-owned electricity utility in 2017, the government borrowed an additional $700 million to keep it afloat. It also continued to maintain price controls for basic food items along with water, telecommunications, and ports.
Trade is extremely important to Honduras’s economy; the combined value of exports and imports equals 101 percent of GDP. The average applied tariff rate is 2.8 percent. Nontariff barriers impede some trade. Government openness to foreign investment is above average. The financial sector remains relatively stable and continues to expand. There are two state-owned banks, but private banks dominate the banking sector.