Business & Economy

Elevated public debt a major challenge facing incoming Honduran gov’t

Tegucigalpa, Dec 6 (EFE).- High public debt equivalent to nearly 60 percent of gross domestic product, a lack of good jobs and a financial crisis affecting the state power company are the main economic challenges facing the incoming Honduran government, which will take office on Jan. 27.

The Central American country’s elevated level of internal and external debt, which this year exceeds $16 billion, represents a major stumbling block for the new left-wing administration, Hugo Noe Pino, a former finance minister and erstwhile Central Bank president, told Efe on Monday.

He said that in 2022 the new government will need to pay around 52.6 billion lempiras ($2.2 billion) in public debt service payments, an amount that represents about 30 percent of budgetary spending.

Reducing the public debt requires lowering the budget deficit, which is projected to come in at around 5 percent of GDP in 2021, according to Noe Pino, one of the economic advisers to Xiomara Castro, Honduras’ presumed president-elect.

The new government also must “re-profile” its debt, meaning “exchange expensive debt for cheap debt.”

He said he expects that Castro – wife of former President Manuel Zelaya, who was ousted in a 2009 coup – will take steps to solve this problem during her first 100 days in power.

The former president of the College of Honduran Economists, Liliana Castillo, agreed with Noe Pino on the need to renegotiate the Central American country’s public debt and said the $5.3 billion in debt contracted with multilateral lenders should be focus of renegotiation efforts.

“They need to see how the (payment) terms can be lengthened and also perhaps lower interest rates,” the economist said.

Another big problem Castro’s government will face is a financial crisis affecting the ENEE state power utility, economist Claudio Salgado told Efe.

He added that the new administration will need to find a solution to ENEE’s debt load of more than 80 billion lempiras, which some authorities say is partly the result of buying high-priced electricity from private companies and selling it much more cheaply.

Salgado and Noe Pino said the new government will need to review ENEE’s contracts in a bid to get its finances in order.

Honduras also faces a series of challenges on the labor front, with some workers underemployed and others working more hours than they would like while earning less than they are legally owed, Salgado said.

Eighty percent of Honduras’ 9.5 million inhabitants face employment problems and 75 percent are below the poverty line, the economist added, urging the country’s new authorities to reduce underemployment through support for small- and medium-sized enterprises.

SMEs are big job creators in Honduras despite their low productivity and high levels of informality, Salgado said, adding that their options are now limited because they only receive 3 percent of the loans provided by the financial system. EFE


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