IMF Approves Final Honduras Program Review

The International Monetary Fund (IMF) has reached a staff-level agreement with Honduras on the final review of its economic reform program, paving the way for approximately $120 million in financing. The agreement, subject to approval by the IMF's Executive Board in late December, recognizes progress in fiscal discipline, external reserves, and economic growth.

Despite these gains, the IMF highlights persistent challenges, including rising inflation, energy price volatility, and external shocks that threaten Honduras' economic stability. These factors could undermine the country's recent macroeconomic improvements if not addressed effectively.

Honduras' economy grew by 3.7% in the first half of 2026, though full-year growth is projected to slow to 3.4% due to external pressures. The IMF attributes this to higher energy prices linked to the Middle East conflict and a severe El Niño-related drought, both of which have impacted domestic stability.

Inflation reached 6.3% in September 2026, driven by increases in food and energy prices, while core inflation remained at 3.5%. This divergence highlights the significant impact of volatile essential costs on consumer prices, particularly for vulnerable households.

The IMF also notes a shift in Honduras' external position, with a current account surplus of 4.1% of GDP in the first half of 2026 expected to turn into a deficit of 2.2% for the full year. However, international reserves of about $11.5 billion provide a buffer against external pressures, though their sustainability remains uncertain.

The electricity sector remains a major fiscal risk, with state-owned company ENEE facing high losses, arrears, and governance issues. The IMF recommends reforms to reduce these burdens and improve sectoral sustainability, including better governance, reduced losses, and increased competition.