Abstract
This paper discusses request from Honduras’ authorities for a Stand-By Arrangement (SBA). Honduras has had three previous Poverty Reduction and Growth Facility (PRGF) arrangements, the last of which ended in February 2007. The most recent PRGF program focused on fiscal consolidation and structural reforms. However, the program went off track owing to large wage increases granted in 2006, including a four-year agreement with teachers. The authorities are now requesting a 12-month SBA covering economic policies through December 2008. In IMF staff’s view, the authorities’ program appropriately addresses emerging imbalances.
1. This statement updates on developments since the preparation of the staff report. The additional information does not change the thrust of the staff appraisal.
2. All prior actions for approval of the Stand-By Arrangement have been completed:
The 2008 budget was approved by Congress on April 2, 2008, and is consistent with the policies discussed in the staff report.
The end-March floor on net international reserves was met, with a margin of US$6 million. The indicative ceiling on net domestic assets was also observed by a margin of L420 million, partly reflecting larger-than-anticipated accumulation of government deposits.
The monetary tightening through increasing obligatory investments and sales of central bank bills (equivalent to 2 percentage points of reserves requirements) was met on April 3. Preliminary data suggests this prior action was met with a significant margin (about 15 percent).
3. The authorities have also implemented a prudential measure envisaged under the program. On March 25, regulations to tighten loan classification and provisioning were issued to help banks internalize the risks associated with the rapid expansion of bank credit.