Hondura's monetary policy remains appropriate: IMF
The Executive Board of the International Monetary Fund (IMF) completes today the fourth review of Honduras' performance under its economic program supported by a Stand-By Arrangement (SBA) and an arrangement under the Standby Credit Facility (SCF), approved an augmentation of access by SDR 149.9 million (US$215.8 million), and extended the duration of the SBA and SCF by two months until January 14, 2022.
The two-year arrangements under the SBA and SCF were approved on July 15, 2019. Including the augmentations approved today and on June 1, 2020, the two-year arrangement provides access to about SDR 537.1 million (about US$773 million).
The completion of the review allows for immediate disbursements of SDR 87.4 million (about US$125.8 million) to help Honduras meet its balance of payments and fiscal financing needs which have been exacerbated by the ongoing pandemic and tropical storms Eta and Iota.
Following the Executive Board's discussion on Honduras, Mr. Mitsuhiro Furusawa, Deputy Managing Director and Acting Chair, said, "despite the pandemic and tropical storms, the Honduran authorities remain committed to macroeconomic stability and continue to implement many of the reforms under the IMF-supported program.
Nonetheless, sustained efforts and steadfast implementation of structural reforms, especially in the governance and financial management of the electricity sector, are urgently needed.
"The ongoing health emergency and significant reconstruction needs call for a temporarily looser fiscal stance in 2021-2022. The authorities appropriately triggered the escape clause under the Fiscal Responsibility Law which will help support the economy without jeopardizing the debt trajectory; Honduras' risk of debt distress remains low.
Further advancing procurement and electricity sector reforms, together with the revenue mobilization agenda, will be key to preserve hard-won gains.
The authorities' commitment to fiscal prudence over the medium term will also be crucial to anchor debt sustainability.
"Monetary policy accommodation remains appropriate in the current conjuncture.
The authorities should continue their efforts to strengthen the monetary policy framework and continue the transition towards a more flexible exchange rate regime which will help anchor price stability and safeguard international reserves.
Engaging Congress for a swift passage of the draft laws submitted during the program will help anchor policy continuity. "Continued vigilance, together with prudent provision of liquidity and support for credit growth will bolster financial stability.
The new requirement for supervised institutions to establish equity reserves will help build buffers. The authorities continue to enhance crisis preparedness and stand ready to act as needed.
"Expeditiously improving governance in the public electricity company (ENEE) and strengthening its financial situation will be key for fiscal sustainability and improving the business environment. Restarting the loss reduction strategy and containing the recurrence of arrears should be focal points.
"Continued institutional strengthening is essential to step up the fight against corruption.
As part of this work, the authorities have aligned public officials' asset declarations with international standards and are finalizing the completion of a comprehensive beneficial ownership registry. Implementing the new procurement portal and streamlining administrative procedures will be important next steps.
"Expanding investments in climate-resilient infrastructure will be key to sustainable development given the country's vulnerability to climate shocks."