The Executive Board of the International Monetary Fund (IMF) today completed the first review of Honduras economic performance under a program that combines two different IMF credit lines, the Stand-By Arrangement (SBA) and the Stand-By Credit Facility (SCF). Upon completion of the review, a total equivalent to SDR 51.8 million (about US$ 83.4 million) becomes immediately available for disbursement, but the Honduran authorities plan to continue treating the financing as precautionary.

The SBA and the SCF arrangements for Honduras were approved on October 1, 2010 (see Press Release No. 10/374), to support the country’s efforts to restore macroeconomic stability and advance economic reforms consistent with the authorities’ poverty reduction and growth objectives.

Following the Executive Board’s discussion, Mr. Naoyuki Shinohara, Deputy Managing Director and Acting Chair, made the following statement:

“The Honduran economy experienced a gradual recovery in 2010, helped by strengthened macroeconomic policies and increased access to external official financing. Real GDP grew by 2½ percent, inflation remained low, international reserves increased significantly, and private sector confidence improved. Effective control of public sector expenditure and the launch of important structural reforms were key factors behind the strong program performance under the Stand-By Arrangement and the Standby Credit Facility, for which the authorities are to be commended.

“Going forward, close adherence to the policies and targets set out in the 2011 budget will be essential to further strengthening the fiscal position and establishing a track record of sound macroeconomic management. To attain the revenue targets, all measures aimed at strengthening tax administration should be adopted without delays. On the expenditure side, continued strict control of current spending will be essential to improve the composition and quality of public expenditure. These policies are necessary to meet the government’s objective of reducing the fiscal deficit and maintaining the public debt-to-GDP ratio stable over the medium term.

“The government is committed to deepen the reforms that are critical for maintaining macroeconomic stability and strengthening public finances. In this context, they intend to advance the reforms of public pension funds, which are needed to restore their long-term financial viability, and to develop concrete plans before year-end to enhance the operational efficiency of the electricity and telephone companies. The shift in government spending toward poverty reduction should be accompanied by efforts to improve targeting and structural reforms to promote private sector development and enhance the economy’s growth potential.

“The monetary and exchange rate policies for 2011 are appropriately geared at containing inflation and protecting Honduras’ external position. To achieve these objectives, the central bank will continue to rely as necessary on active placements of its instruments and adjustments in its policy rate. The authorities also plan to take prompt action to modernize Honduras’ monetary policy framework, taking into account recommendations of Fund technical assistance missions,” Mr. Shinohara said.