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IMF Staff and Honduras Reach a Staff-Level Agreement on the Second Review of the Economic Program

By Bufete Mejía & Asociados - 16/06/2020

An International Monetary Fund (IMF) team led by Mr. Esteban Vesperoni conducted a mission via videoconference on the Second Review of Honduras’ IMF-supported program under the Stand-By Arrangement (SBA) and the Stand-by Credit Facility (SCF). At the conclusion of the mission, Mr. Vesperoni issued the following statement:

“IMF staff and the Honduran authorities held productive discussions regarding Fund support for the authorities’ economic policies, including emergency measures adopted in the wake of the COVID-19 pandemic. Subject to approval by the IMF Executive Board, staff proposes augmenting access under the SBA/SCF facilities by SDR162 million (about US$222 million), bringing total access to SDR387 million (about US$530 million), and completing the second review.

“The COVID-19 pandemic is having a substantial adverse impact on social and economic conditions in Honduras. It will prompt a recession in 2020, when the economy is expected to contract by about 3.3 percent. This reflects the impact of necessary mitigation measures to alleviate pressures on the health system and protect lives, as well as large external spillovers from remittances, maquila and other exports, tourism, and external financial conditions. The pandemic is expected to generate large increases in fiscal and balance of payments financing needs.

“The authorities are deploying a well-targeted fiscal response to the pandemic while establishing strong transparency and accountability frameworks. In this context and following a request to Congress to make use of the emergency clause included in the Fiscal Responsibility Law, the program envisages a fiscal deficit of the Non-Financial Public Sector of 4 percent of GDP in 2020 and budget reallocations of non-priority current expenditure. The deficit will be driven by lower tax revenues due to the recession, as well as by higher expenditures to contain the extent and mitigate the impact of the healthcare, humanitarian and economic crisis caused by the pandemic. The authorities are also taking decisive monetary and financial measures to cushion the impact of the crisis, including by reducing the monetary policy rate, stepping up liquidity provision, providing debt service relief, and implementing a credit guarantee scheme.

“In addition to the immediate response to the crisis, the authorities reaffirm their steadfast commitment to maintaining macroeconomic stability while continuing to implement structural reforms to foster strong and inclusive growth. In the context of the Fund-supported program, the authorities will continue to focus on protecting social spending and investment from the fallout of tax revenues associated with a slowdown in economic growth; continuing reforms in the electricity sector; strengthening the monetary policy and financial regulatory and supervisory frameworks; and taking steps to improve the business environment and governance.

“The mission held discussions with Central Bank Governor Wilfredo Cerrato, Minister of Finance Rocío Tábora, Director of the Tax Agency Miriam Guzmán, and President of the National Commission of Banking and Insurance Ethel Deras.  The mission also meet with authorities and technical teams of Ministry of General Coordination, the Ministry of Labor and Social Security, the Ministry of Economic Development, the Court of Accounts, public development bank Banhprovi, ENEE’s intervention board, the electricity sector regulator and system operator, and representatives of civil society, the private sector and the international community. The mission would like to thank the authorities and other counterparts for the excellent discussions.”

By Bufete Mejía & Asociados - 16/06/2020
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