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Honduras 2022: Economic Perspectives and Development Opportunities

According to the International Monetary Fund (IMF, 2022), the year 2022 starts in weaker conditions than expected and therefore world growth is expected to moderate from 5.9% in 2021 to 4.4% in 2022; that is, half a percentage point less in 2022 than expected, largely due to the cut in the projections for the United States and China. Similarly, global growth is projected to be 3.8% in 2023, however this will depend on indicators of poor health falling to low levels in most countries by the end of 2022, assuming immunization rates will improve on an international scale and that more effective therapies will appear. On the other hand, inflation is expected to remain elevated in the short term, averaging 3.9% in advanced economies and 5.9% in emerging market and developing economies in 2022, before receding in 2023.

In line with the dynamism observed in the world economy, according to the Central Bank of Honduras (BCH, 2022) for the year 2021, Honduras presented a growth of 12.5% ​​of the Gross Domestic Product (GDP) in real terms, as a result of the strengthening of the external demand and the recovery of internal demand, associated with the increase in consumption and investment in the private sector, in accordance with the increase in the income of households and companies, mainly due to higher family remittances, the partial recovery of employment, and the better adaptation from economic activities to sanitary measures.

All economic activities contributed positively to the interannual variation of the GDP, highlighting the greater contribution of Financial Intermediation, Manufacturing Industry and Commerce. It is important to note that some of the activities, including Hotels and Restaurants, Transportation, Construction and Agriculture, have not yet recovered the levels recorded prior to the pandemic; however, this last activity has registered positive variations in banana, coffee, African palm, and poultry farming, after the heavy damage caused by the rains at the end of 2020.

Given the national and international economic situation, the BCH estimates that economic growth will be between 3.5% and 4.5% in 2022 and 2023, mainly supported by consumption and private investment, however, said dynamism would be conditioned to revisions in the expected growth of the main trading partners and the increase in the prices of raw materials, especially energy. On the other hand, inflation will be above the upper limit of the tolerance range (4.0% ± 1.0 pp). In this sense, the projection scenario incorporates the partial reversal of the adjustment in the electricity rates of January 2022 and the reduction in fuel prices at the pump. Thus, the forecasts indicate that, as of the third quarter of 2023, total inflation would be within the established tolerance range.

In this context, the BCH will continue to use the MPR as the main instrument to signal its monetary policy stance to the market and will continue to manage the liquidity of the financial system, prioritizing the placement of longer-term securities and increasing the amounts offered in the auctions of BCH securities, in order to avoid higher inflationary pressures and at the same time guarantee adequate levels of liquidity in the economy. The following table describes the main macroeconomic results for 2022 and 2023:

Macroeconomic Results

On the other hand, the net flow of Foreign Direct Investment (FDI) totaled USD700.2 million in 2021, showing a year-on-year growth of 67.3% (2020 presented a decrease of 16% compared to 2019), product of the recovery of economic activity. According to the source of financing, this behavior was due to the improvement in the income level of the companies dedicated to the Manufacturing Industry, Financial Services and due to equity contributions received from resident banks. According to the country of origin, it was distributed as follows:

Finally, the Inter-American Development Bank (IDB, 2022) recently presented a report with development opportunities after the pandemic for Honduras, in which the following areas of interest stand out:

Finally, given that Honduras presents the appropriate macroeconomic conditions and attributing that part of the expected dynamism comes from private sector investments coupled with the development opportunities existing in the country after the pandemic, investments related to the four identified areas should be invested. by the IDB to promote the development of Honduras. These identified areas are consistent with the information presented by the National Investment Council as “enabling investments” in recent years. Some of these opportunities include improvement and expansion of logistics infrastructure; strengthening of the energy sector; greater accessibility and quality of the water and sanitation service; expand telecommunications and digitization; promotion of integration into international trade and value chains; among others.

Bibliografía

Central Bank of Honduras (BCH, 2022). Informe de Balanza de Pagos, Posición de Inversión Internacional y Deuda Externa IV Trimestre de 2021. Recuperado de https://www.bch.hn/estadisticos/EME/Informe%20BOP%20PII%20y%20Deuda/Informe%20de%20Balanza%20de%20Pagos,%20Posici%C3%B3n%20de%20Inversi%C3%B3n%20Internacional%20y%20Deuda%20Externa%20IV%20trim_2021.pdf

Central Bank of Honduras (BCH, 2022). Programa Monetario 2022-2023. Recuperado de https://www.bch.hn/estadisticos/AM/LIBPROGRAMA%20MONETARIO/Programa%20Monetario%202022-2023.pdf#search=Programa%20Monetario%202023

Inter-American Development Bank (IDB, 2022). BIDeconomics Honduras: Oportunidades de mayor desarrollo para todos en post pandemia. Recuperado de https://publications.iadb.org/publications/spanish/document/BIDeconomics-Honduras-oportunidades-de-mayor-desarrollo-para-todos-en-post-pandemia.pdf

International Monetary Fund (IMF, 2022). Actualización de Perspectivas de la Economía Mundial: Creciente número de casos, una recuperación interrumpida y mayor inflación enero 2022. Recuperado de https://www.imf.org/es/Publications/WEO/Issues/2022/01/25/world-economic-outlook-update-january-2022#:~:text=Se%20prev%C3%A9%20que%20el%20crecimiento,las%20dos%20econom%C3%ADas%20m%C3%A1s%20grandes

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FOREIGN DIRECT INVESTMENT (FDI) BY SOURCE OF FINANCING AND COUNTRY OF ORIGIN

According to the Report on Foreign Direct Investment Flows (FDI) of the Central Bank of Honduras (BCH) in the first quarter of 2019, FDI in Honduras totaled US $ 306.5 million, down 3.7% (US $ 11.8 million) compared to the same period of the year Previous, a fact that is explained by lower profits reinvested in various economic activities, highlighting companies in the Manufacturing Industry, Maquila, Mines and Quarries. Likewise, there was a decrease in the registration of new capital contributions in established companies.

FUND FUNDING SOURCES

In the first three months of 2019, preliminary information shows that companies with direct foreign participation reinvested US $ 178.9 million (58.4% of total FDI), an amount less than US $ 28.8 million (13.9%) as reported in the same quarter of the year previous. The primary factor that caused such behavior was a reduction in profits by subsidiaries and associates of multinationals, highlighting those dedicated to manufacturing; nevertheless, this trend was partially attenuated by the positive results in the income received by the institutions of the Financial Sector with foreign participation.

 ORIGIN OF FDI

North America was the main region that generated FDI flows to the country, reaching a 40.1% share of the total (equivalent to US $ 122.9 million). These resources come mostly from the US with US $ 91.7 million, reporting a growth of US $ 64.4 million in year-on-year terms, as a result of the increase in loans granted to Maquila companies for the acquisition of inputs for the production of textiles and the like. 

In order of participation, secondly, the capitals originating from the Rest of America (25.4% of the total) are located, with an amount of US $ 77.9 million, reflecting an increase of US $ 7.9 million; highlighting the reinvestment of profits of Colombian control financial companies. From countries in Europe, investments for US $ 64.4 million (21.0% of the total) were recorded, showing a drop of US $ 40.1 million compared to what was presented in March 2018; result – mostly – of the amortization of debts of companies of the Manufacturing Industry to their parent companies in Switzerland and Germany, mainly those dedicated to the coffee beneficiary. 

In Central America, FDI income of US $ 21.2 million was received, with a decrease of US $ 31.0 million compared to that recorded during the first quarter of 2018, due, in part, to the lower investment in Shares and Participations of institutions of the Financial System , and net losses in subsidiaries dedicated to Commerce and Hotels and Restaurants.

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