Honduras: Money Problems

Honduran President Porfirio Lobo is facing a severe cash crunch. (Photo: Honduran Presidency)

The Honduran government struggles to meet payments.

Exclusive Analysis

President Lobo's government has been struggling to meet salary payments on time since mid-2012. Public workers, unions, health workers, and majors awaiting the transfer of funds from the central government have been protesting nationwide since December 2012. The government has been unable to honour payments for several reasons. First, the fiscal deficit expanded from 4.6 percent of GDP in 2011 to almost 6 percent in 2012. Second, several state-run companies such as telecoms firm Hondutel and electricity company ENEE are highly inefficient and making loses, costing the state substantially. Finally, the government has not received credit from the IMF since March 2012, as the two parties have been unable to negotiate a new stand-by agreement. 

Points of contention include IMF requests that the government cut public spending, devalue the currency and privatize state-run companies. Honduras has a manageable debt-to-GDP ratio of 35 percent of GDP, but a lack of agreement with the IMF is hurting its ability to obtain alternative sources of financing.

This situation has significantly increased non-payment risks. The state's debt to private contractors was estimated at about $502 million in December 2012, a figure that represents about 20 percent of the country's foreign reserves. Drugs firm supplying the country's hospitals face the same problem, and construction firms have threatened to stop all works by February 5, 2013 if the government fails to pay a $35 million debt.

We expect President Lobo to prioritize the payment of salaries as soon as funds become available, rather than the payment of debt owed to contractors. In the meantime, we expect unions and public workers to continue demonstrating. Supporters of former President Zelaya, who was ousted in a coup in 2009, are likely to join in the demonstrations. Such protests are likely to take the form of roadblocks and demonstrations in front of ministries and state-run companies. Risks of vandalism and property damage to nearby commercial assets would increase if the government decides to repress protesters. However we assess they are unlikely to do this so as to avoid just such escalation.

Carlos Caicedo is head of the Latin America division at Exclusive Analysis, a UK-based global risk consultancy recently acquired by IHS.




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