Discusses key economic indicators and trade statistics, which countries are dominant in the market, and other issues that affect trade.
Located in the geographic heart of Central America, Honduras has a democratic government and a free market economy. Honduras represents the 38th largest export market for the United States in 2021 (0.37 percent of total U.S. exports). Total bilateral trade in both goods and services was $11.7 billion in 2021, with a trade surplus of $1.3 billion in favor of the United States. Honduras’ growing population of 9.6 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-19 pandemic and hurricanes Eta and Iota successively hitting the country in November 2020. Honduras conducted a peaceful electoral process in late 2021, resulting in the inauguration of the country’s first female President and denoting the population’s strong commitment to the democratic process. At present, the country requires significant progress towards improving its investment climate, including 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.
The United States is Honduras’ largest trade and economic partner, accounting for 33.8 percent of total merchandise imports and 65 percent of general assembly imports. In 2021, U.S. exports of goods and services to Honduras were $6.5 billion, up 55 percent from 2020. Total Honduran imports grew by 35 percent by year-end 2021, resulting from an increase in external demand, investment, and the gradual reactivation of domestic economic activity. 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.
Honduras had a nominal GDP of USD 28 billion in 2021. 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. The International Monetary Fund predicts economic growth to be 3.4 percent in 2022.
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 a moderate inflation rate of 5.32 percent in 2021 and is expected to reach 10.30 percent by the end of 2022, the country’s highest level since 2009, largely due to external shocks affecting prices of goods and services. Honduras’ currency, the Lempira, has floated in a band system since 2011 and monetary policy measures are reviewed every three months, but the Castro administration has taken a more aggressive approach to exchange rate management, putting much more weight on factors like reserve adequacy, inflation among trading partners, and previous seven-day averages than on market demand for foreign exchange. As a result, shortages of foreign exchange occur on a frequent basis.
In 2021, the U.S. direct investment position in Honduras (outward) 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.