Caribbean & Central America - February 2023

On 13 January Honduras’ congress approved a L392.52bn (US$16bn) state budget for 2023, up 8.9 % compared to 2022, with various budget items prompting criticisms from civil society organisations like Asociación para una Sociedad Más Justa (ASJ), the local chapter of anti-corruption NGO Transparency International, and think tank Foro Social de la Deuda Externa de Honduras (Fosdeh).

One of the main criticisms is that the weighting of resources doesn’t reflect the stated priorities of President Xiomara Castro’s government to guarantee access to fundamental services such as health services and education, according to ASJ. Another is that it will cost 47% of GDP, the largest proportion of any country in the region, where state budgets average 27% of GDP, said the NGO in a statement dated 12 January.

The amount of resources dedicated to the state-owned energy company Empresa Nacional de Energía Eléctrica (ENEE) rose by 128% year on year, according to ASJ. This is part of Castro’s plan to get a handle on the parlous state of the government owned and operated company, which has accumulated huge debts and recorded losses that affect the public finances. However, in its statement, ASJ says that with these funds “it would be possible to double the number of teachers, doctors and medicines, to benefit the most vulnerable”. ASJ and Fosdeh both highlight the increase in spending on security. Fosdeh highlights that under the 2023 budget, L10.2bn has been earmarked for security up from L7.8bn in the revised 2022 budget while L10.9bn has been assigned to defence, up from L9.3bn in 2022. In December, Castro declared a partial state of exception covering dozens of municipalities with the aim of combating organised gangs.

In its statement ASJ highlights that these spending priorities are “inconsistent with the national reality,” and it said that more money should be invested in health and education, which have seen their share of the total budget decrease for 2023. Improving health and education systems is a priority for Castro, but nonetheless the new budget provides less resources for public provision of these services than last year, according to ASJ. This continues the trend of the last 10 years, adds the organisation, with the assignation for education as a proportion of the budget dropped to 10% from 16% over the past decade.

Both ASJ and Fosdeh highlight the lack of resources for fighting corruption – another declared government priority. Fosdeh points out that just 1% of the budget is assigned to institutions tasked with fighting corruption, which include the transparency ministry which received just L157.1m, the attorney general’s office, which received US$2.2bn, the high court of auditors (TSC), which received L491.9m, and the institute for access to public information (L39.0m).

Liliana Castillo, a former president of the Colegio de Economistas de Honduras, a national association of economists, told local media outlet Proceso in an article published 12 January that most of the budget was set aside for running costs, with only the equivalent of 1% of GDP destined for investment. This will not be enough to generate public sector jobs, according to Castillo. And there was more criticism over the approval process. Economist Julio Raudales said it was “painful” that the budget was approved during the night after only one debate “

The enlarged budget comes at a time of economic slowdown forecast for Honduras. GDP growth is expected to slow from 3.5% in 2022 to 3.1% in 2023, according to the World Bank (WB), before rebounding to 3.7% in 2024. While these figures aren’t terrible given global headwinds, it is important to note that the Honduran economy remains heavily reliant on remittances sent home by migrants living abroad, leaving the country dependent on the economic situation in the US. Honduras received a total US$8.69bn in remittances in 2022, up from US$7.37bn in 2021, on figures from the central bank (BCH). According to WB data, remittances represented 25.3% of Honduras’s GDP in 2021.

To fulfil her campaign promises and put Honduras on the path to sustained growth, Castro needs to overhaul the country’s development model. However one year of her term has already passed and she has made little progress. She has been hamstrung by the fact that her Partido Libertad y Refundación (Libre) party does not have enough legislators in the 128-member unicameral legislature to pass legislation on its own. The situation worsened in October with the breakdown of an alliance with Partido Salvador de Honduras (PSH) party, with which Libre had forged an electoral alliance ahead of the November 2021 general election. Far from being able to concentrate on the economy, Castro’s energy will likely be used up fighting ongoing political battles in congress, on issues such as the election of the new supreme court which will have a huge say in the direction of the country over their seven-year terms.

Taiwan concerned about Honduras’s relations with China

On 19 January, Taiwan’s foreign ministry was reported as expressing “grave concern” over news of a meeting between Honduras’ foreign minister Eduardo Enrique Reina and Chinese deputy foreign minister Xie Feng. The meeting reportedly took place on 1 January in Brazil’s capital, Brasília, where both officials were attending the inauguration of Brazil’s President Luiz Inácio Lula da Silva.  

According to the local media, the pair discussed China’s possible involvement in the construction of the Patuca II hydroelectric dam in Honduras’s Olancho department. Honduras is one of 14 countries that maintains diplomatic relations with Taiwan in the face of growing pressure from China to break ties. For his part, Reina said that there are no plans to establish diplomatic relations with China, although Honduras will “open its doors to the world in order to gain the most benefit for the Honduran people,” he said. In recent years, Panama, El Salvador, Nicaragua, and the Dominican Republic have all switched allegiance from Taiwan to China, and Castro caused a stir ahead of the election with her pledge to make a similar switch – a promise on which she has since rowed back.