Caribbean & Central America - July 2025

The International Monetary Fund (IMF) has praised President Xiomara Castro’s government for its “decisive policies” and handling of the economy, but a recent survey showed that voters believe economic issues are the biggest problem facing the country.

On 13 June, the IMF published its third review under Honduras’ Extended Fund Facility (EFF) and Extended Credit Facility (ECF) arrangements with the Fund, in which it highlighted economic resilience, contained inflation, strengthening international reserves, and improving foreign exchange market conditions. Honduras’s GDP growth was 3.6% in 2024, which the IMF attributes to remittance-supported consumption and some increases in private investment, while public investment stabilised. 

The Honduran economy has performed well in terms of the expectations of the IMF programme, said the Fund. In fact, all of the targets to end-March 2025 were met, apart from a floor on priority social spending, which remains lower than expected due to challenges to execution, said the IMF. This has helped to catalyse external financing, it said, including from private lenders, and in April Fund staff agreed to disburse a further US$155m to Honduras, pending approval by the IMF’s executive board.

While the government has implemented policies stipulated by the IMF, the Fund recognises that external risks to the economy have increased, although it claims that its programme is “an important economic anchor” that “provides a policy framework amid significant external and domestic uncertainties”. 

These uncertainties include US tariffs amid President Donald Trump’s trade war with China, as well as a proposed US tax on remittances (yet to be approved at the time of writing), which would have a significant impact on the Honduran economy as remittances contributed 28% of GDP in 2023, according to research from the Inter-American Dialogue, a Washington DC-based thinktank which tracks the flow of remittances.

Domestic uncertainties include elections scheduled for November 2025. Castro herself is not running for reelection, and former defence minister (2024-2025) Rixi Moncada will be the Libre party candidate. Moncada appears to have a shot at winning which would likely make for policy continuity, but polling is limited and there are serious concerns around the legitimacy of the electoral process. This means that turnout could be low, as well as increasing the risk of political violence, meaning that the next president will inherit a more complicated situation.

The potential for a difficult start to the new presidential term is exacerbated by a disconnect between the IMF assessment of Honduras’s economic performance and public perceptions. A recent survey of 1,590 respondents, carried out from 17-28 March and published at the end of May by the Equipo de Reflexión, Investigación y Comunicación de la Compañía de Jesús (Eric-SJ), a local thinktank that focuses on social justice, found that unemployment and economic issues were named as the biggest problem facing the country by 48.9% of respondents. In addition, 53.1% of respondents said that resolving the economic crisis should be the top priority for Castro in her final few months in office.

Although the IMF does acknowledge that social spending remains below levels expected under its programme, the contrast between the Fund’s assessment of Honduras’s economic situation and that of voters reveals differing priorities: while economic fundamentals may have improved, a stronger buffer of foreign reserves, for example, doesn’t put food on the table for ordinary Hondurans. And while the IMF has praised Castro for a commitment to “prudent fiscal policies”, those struggling to eat might prefer the government to increase public spending on social programmes. 

Looking ahead, the Fund believes that growth will slow to 3.2-3.4% of GDP in 2026-2027, down from 3.5% this year. It blames tighter credit conditions and slower credit activity which will mean slower growth in consumption. These calculations include an assumption that remittances will contribute a declining share of GDP, but the IMF acknowledges that “exceptional uncertainty around the outlook remains”.

Although economic growth of over 3% is relatively good, the results of the survey discussed above show that these benefits are not being equally distributed, as many Hondurans perceive themselves to be living through an economic crisis rather than a period of growth. Although the IMF might be pleased with recent developments, the fact that so many ordinary Hondurans aren’t means there is great potential for protests and social unrest unless the government can find ways to more equitably distribute economic gains.

Energy tender

In June, Honduras’s state electricity company Empresa Nacional de Energía Eléctrica (ENEE) launched an international public tender to procure 1,500 megawatts (MW) of energy to guarantee the country’s energy supply until 2030. According to a finance ministry (Sefin) press release, the plan aims to add an additional 800MW by 2027, 300MW in 2028, and 400MW by 2030, as well as providing a 10% reserve margin to guarantee stability and availability of electricity supply in the national grid (SIN). According to the Sefin press release, payments will be backed by a sovereign guarantee issued by the Honduran state in addition to a credit offered by a multilateral finance institution: Sefin notes that advanced talks are underway with the Central American development bank (BCIE) with regard to this objective.