Honduras Case Study

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1. The Honduran economy’s extreme sensitivity to a wide range of shocks—internal and external, endogenous and exogenous—is largely responsible for its pattern of slow and uneven growth punctuated by repeated crashes. Honduras’ economy is small, open, largely agricultural and predominantly informal. A lack of physical and institutional infrastructure, an adverse business climate, burdensome regulations and high security costs discourage investment, inhibit diversification and slow the reallocation of capital and labor, creating structural rigidities on the supply side. Agricultural output is especially vulnerable to both market volatility and exogenous shocks, as the sector focuses on a narrow range of primary commodities produced with limited …show more content…

Although the contribution of mining to GDP has decreased over the last few decades, Honduras is now presented with an important opportunity to explore its untapped mineral potential. Currently, there are only seven metallic mines and about 300 non-metallic mines in Honduras. Yet, the country has significant reserves of iron oxide, and there are about 160 pending permit requests for exploration and feasibility studies. The revised Mining Law passed in April 2013 provides an improved framework to promote investment in the sector. In addition, offshore oil exploration is underway, and a commercially viable discovery could significantly improve the trade balance, encourage foreign investment and bolster government revenues, all of which would help to reinforce macroeconomic stability. However, for extractive industries to effectively promote long-term growth and sustainable social development appropriate transparency and accountability mechanisms must be in place. In light of Honduras fragile ecology, environmental protection must also be accorded a high priority. Finally, high-value extractable resources have a history of fomenting instability in developing countries, and steps must be taken to ensure that any new resource development does not further undermine the rule of …show more content…

Honduras’ macroeconomic profile is expected to improve during 2015-16, as a positive external environment supports critical efforts to strengthen the country’s fiscal position and boost economic growth. Table 5.1 presents Honduras’ medium-term macroeconomic outlook. Growth is expected to recover during 2015-18, with all major sectors contributing. The ongoing recovery in coffee production combined with rising yields for other export-oriented crops will bolster the agricultural sector, while continued growth in manufacturing and construction will have an especially positive impact on employment indicators. Increasing investment will boost the credit supply as the financial sector remains solvent, while expanding internet and telecommunications infrastructure will spur growth in services. Finally, lower oil prices are expected to help reduce the current-account deficit. However, this forecast rests on the assumption that current fiscal consolidation efforts will continue to be implemented as part of a broader program of governance reforms, and that past progress will be maintained. Consequently, a sustained political commitment to the reform agenda is critical to the positive outlook presented

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