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- GDP (PPP):
- $39.2 billion
- 2.6% growth
- 2.3% 5-year compound annual growth
- $4,839 per capita
- Inflation (CPI):
- FDI Inflow:
Honduras’s economic freedom score is 57.4, making its economy the 116th freest in the 2015 Index. Its overall score has increased by 0.3 point since last year, with improvements in freedom from corruption, trade freedom, and labor freedom offsetting declines in business freedom and the control of government spending. Honduras is ranked 19th out of 29 countries in the South and Central America/Caribbean region, and its overall score is lower than the world and regional averages.
Over the past decade, Honduras has been developing “charter cities” with more reasonable business and trade regulations to attract trade and investment. Overall economic freedom, however, has fallen by 1.2 points over the past five years. Score deteriorations in three of the 10 economic freedoms have included drops of close to 10 points in the management of government spending and labor freedom.
The decline in economic freedom has undermined an economic environment that already lacks strong institutional foundations. As in many other Latin American countries, political and social instability related to the drug trade destabilizes the rule of law and encourages corruption. The labor market remains one of the world’s most rigid, and procedural and licensing requirements make it prohibitive for entrepreneurs to enter the formal sector.
Juan Orlando Hernández of the conservative National Party of Honduras took office in January 2014, defeating Xiomara Castro, leftist candidate and wife of ousted President Manuel Zelaya. Hernández has created the National Investment Board to facilitate dialogue between the private and public sectors and to promote foreign investment and growth. Honduras plans to launch a “Zone for Employment and Economic Development,” and Hernández has encouraged El Salvador and Nicaragua to join him in making Central America more competitive. Honduras remains one of Latin America’s poorest countries, with more than two-thirds of the population living in poverty. Hernández faces the challenge of reducing a rising deficit and endemic corruption. Honduras still has the world’s highest homicide rate.
Rampant corruption and weak state institutions make it almost impossible to combat threats posed by transnational gangs and organized criminal groups. Honduras has the world’s highest murder rate. The court system is weak and inefficient, and resolution of disputed cases can take years. Laws and practices regarding real estate differ substantially from those in more developed countries, and fraudulent deeds and titles are common.
The top individual and corporate income tax rates are 25 percent. Other taxes include a 5 percent social contribution tax for corporations, a capital gains tax, and a sales tax. The overall tax burden is equivalent to 16.1 percent of domestic income, and government expenditures amount to 26.6 percent of domestic output. Public debt is equal to 40 percent of gross domestic product.
Application of regulations has been inconsistent and non-transparent. Starting a new business is fairly easy, but obtaining operating licenses still takes close to three months on average. In the absence of a well-functioning labor market, informal labor activity persists. Although the government regulates the prices of key products (e.g., fuel) and services, it took steps in 2014 to reduce electricity and other subsidies.
The average tariff rate for Honduras is 6.5 percent. Additional barriers impede imports of agricultural goods. The government is attempting to create special economic development zones to attract foreign investment. The small financial sector remains relatively stable. The reasonably sound regulatory framework and financial system infrastructure have helped to enhance the public’s access to formal banking institutions and credits.