Honduras - Joint World Bank-IMF Debt Sustainability Analysis

Overview & Synopsis

This joint debt sustainability analysis for Honduras, prepared by the International Development Association and the International Monetary Fund, covers the entire public sector including the general government and non-financial state-owned enterprises, with expanded coverage to include extrabudgetary trust funds, decentralized agencies, and recognized domestic obligations. Prudent fiscal management in 2025 and sizeable net debt repayments improved debt dynamics relative to the previous assessment, with end-2025 public debt at 45.4 percent of gross domestic product and public and publicly guaranteed external debt at 25.8 percent of gross domestic product; the risk of external debt distress remains low and the overall risk of public debt distress is moderate. The baseline assumes continued macroeconomic prudence under the Extended Credit Facility and Extended Fund Facility, real gross domestic product growth of 3.3 percent in 2026 rising toward 3.8 to 3.9 percent in the medium term, inflation easing to around 4 percent, and a non-financial public sector deficit near 1 percent of gross domestic product sustained over the medium term, alongside measured reliance on multilateral financing, selective market access including Eurobond rollovers, and a deepening of the domestic debt market. Stress tests, including tailored natural disaster and market financing shocks, show all public and publicly guaranteed external indicators remain below thresholds, while total public debt indicators breach their benchmark only under the most extreme standardized stress scenario; liquidity risks are contained, with gross financing needs well below benchmarks and sovereign spreads low. The analysis underscores vulnerabilities to external shocks, notably higher oil prices, weaker global demand, and frequent climate-related disasters, and highlights the importance of sustained reforms. Conclusions point to maintaining prudent fiscal policy, a positive primary balance, and robust debt management to keep debt on a declining path, while policy changes already enacted or underway include legal amendments strengthening the Treasury Single Account and cash management, enhanced transparency in debt coverage, measures to reduce arrears at Empresa Nacional de Energia Electrica (ENEE), efforts to deepen the domestic debt market with longer fixed-rate instruments, strengthened monetary and foreign exchange policy frameworks, continued improvements in tax administration, and scaled investment in resilient, low-carbon infrastructure to mitigate climate risks and safeguard debt sustainability.