Located in the geographic heart of Central America, Honduras currently has a democratic government and a mixed economic system. The Castro administration has expressed its intention to create an alternate economic model; according to its public government plan, the administration proposes “an alternative economic model that increases the role of the state in the economy, especially in strategic areas and public services, and the formulation and implementation of public policies aimed at strengthening the different types of enterprises and property: state, commercial/private and social, such as cooperatives, rural banks, and solidarity ventures.” The government’s public government plan also describes an important role for the government “in correcting market distortions and orienting investment towards harmonious coexistence with the environment and towards priority production, instead of alienated consumption.” Honduras represented the 39th largest export market for the United States in 2022 (0.4 percent of total U.S. exports). Total bilateral trade in both goods and services was $14 billion in 2022, with a trade surplus of $1.9 billion in favor of the United States. Honduras’ growing population of 10.3 million is highly receptive to U.S. goods and services.
During the past years, Honduras has faced a series of external shocks, including an economic downturn due to the COVID pandemic and hurricanes Eta and Iota successively hitting the country in November 2020. Honduras conducted elections and swore in a new President in January 2022 for a four-year term. There was widespread participation in the democratic elections. Since then, civil society and others claim the Castro administration has consolidated its power across all branches of government, including over the Attorney General’s office in an irregular and unprecedented manner. Independent voices in opposition political parties, civil society, the private sector, and diplomatic community have expressed concern at shrinking space to express divergent views.
To improve Honduras’ investment climate, the government will need to implement a host of measures, including improving the rule of law, strengthening independent institutions and the balance of powers, adopting fiscal discipline and consolidation for macroeconomic stability; executing infrastructure reconstruction and development; addressing energy and food security challenges, climate change and disaster resilience efforts; combating corruption and security concerns; simplifying bureaucratic procedures; implementing structural regulatory reforms and focusing on improving overall competitiveness and productivity. Currently the government tightly controls access to foreign currency exchange and is unwilling to provide full exchange services to meet the demand for U.S. dollars forcing companies to retain earnings in Honduras and making it difficult to pay invoices.
On September 2023, Honduras, and the International Monetary Fund (IMF) reached a staff-level agreement on a three-year Extended Fund Facility (EFF) and Extended Credit Facility (ECF) for approximately US$830 million to support Honduras’ economic reform policies. Key pillars for the program include preserving macroeconomic stability, opening fiscal space to support productive investment and social spending, safeguarding financial stability, and improving governance and transparency, fighting corruption, and enhancing economic resilience. During the November 2023 visit to Honduras, the IMF team acknowledged a more complex global environment and reaffirmed Honduras’ full year growth expectation in the 3% range. It is important to note the IMF stated it will provide the Honduras Central Bank (BCH) technical assistance in evaluating monetary and exchange rate frameworks to improve efficiency of foreign exchange allocation.
The United States is Honduras’ largest trade and economic partner, accounting for 36.9 percent of total trade, followed by China at 12.6 percent, and third being Mexico at 6.1 percent. In 2022, The Government of Honduras switched diplomatic recognition from Taiwan to the People’s Republic of China (PRC) in early 2023. Since then, government institutions have been actively promoting Chinese products and strongly encouraging businesses to work with the PRC. They also recently began strongly encouraging businesses to engage with and do business with Russia. U.S. exports of goods totaled $7.9 billion, up 25 percent from 2021. Total Honduran merchandise imports amounted to $15.2 billion and grew by 14.9 percent by year-end 2022, primarily attributed to purchases of petroleum products, foods and beverages, international commodity prices, and overall reactivation of the local economy. The United States-Central America-Dominican Republic Free Trade Agreement (CAFTA-DR), which entered into force in 2006, has boosted U.S. export opportunities and diversified the composition of bilateral trade. On average, U.S. exports to Honduras have more than doubled since 2005 (reported at USD 3.2 billion), the year before the implementation of this Free Trade Agreement (FTA). CAFTA-DR implemented important measures related to investment, customs administration and trade facilitation, technical barriers to trade, government procurement, intellectual property rights, transparency, labor, and environmental protection. As a result of this Free Trade Agreement, more than 95 percent of U.S. consumer and industrial goods exports to the Central America region that meet relevant rules of origin are no longer subject to tariffs. The government has been the subject of 9 new arbitration requests through the International Centre for Settlement of Investment Disputes (ICSID) since taking office. As a result, the government has threatened to pull out of ICSID.
Honduras had a nominal GDP of USD 32 billion in 2022. It is a low/middle-income country, with approximately 60 percent of its population living in poverty. Honduras has enjoyed moderate economic growth since 2010 with an average growth rate of 3.8 percent during the three years prior to COVID-19. Honduras also registered the second-highest trade-to-GDP ratio in Central America, only behind Panama and above the average in Latin America and the Caribbean. After being severely impacted by the pandemic and natural disasters, however, Honduras’ GDP contracted by 9 percent in 2020 but experienced a rebound of 12.5 percent growth in 2021. According to the International Monetary Fund, real Honduran GDP grew by 4 percent in 2022 and is predicted to grow by 3.7 percent in 2023.
Honduras’ economic activity is highly influenced by economic performance in the United States, particularly tied to exports and family remittances sent from the United States. Honduras registered an inflation rate of 9.1 percent in 2022 (the country’s highest level since 2009, largely due to external shocks affecting prices of goods) and is expected to average between 6.0 and 7.0 percent by the end of 2023. Honduras’ currency, the Lempira, has floated in a band system since 2011 but has informally been pegged at 24 Lempiras to the dollar since the Castro administration took office. Monetary policy measures are reviewed every three months. According to the latest data available, the U.S. direct investment position into Honduras was $1.2 billion, up by 13 percent from 2020. More than 200 American companies currently operate in Honduras.
Top five reasons why U.S. companies should consider exporting to Honduras:
1) Free Trade Agreement (FTA) market.
2) Strategic location and proximity to the United States.
3) Among the most receptive markets for U.S. goods and services worldwide.
4) Modernized port infrastructure and logistical platform for the region.
5) Large market share and opportunities for U.S. firms.
Political Environment
Visit the State Department’s website for background on the country’s political and economic environment