Development Progress| Challenges Ahead | World Bank Assistance to Honduras | Project Achievements DEVELOPMENT PROGRESS Honduras is a lower middle-income country, located in Central America. The population in 2007 is estimated at 7.5 million and per capita income stands at US$1,635 (Source: Honduras Central Bank). The capital of Honduras is Tegucigalpa, in the highlands, and the most important cities are San Pedro Sula, on the northern coast, which is highly industrialized, and Choluteca on the southern coast, which is an agricultural center for diverse products such as shrimps, meat, and dairy products. The country has a diversified economy, based on international trading of agricultural commodities and manufactures, which makes it the most open economy in Central America: exports plus imports amounted to 129 percent of GDP in 2007.
Honduras has one of the highest incidences of poverty and inequality in the western hemisphere. The situation of the poor, who usually live off small-scale agriculture in rural areas, was aggravated by the disaster caused by Hurricane Mitch in 1998. After this massive loss of life and assets, Honduras embarked on a very ambitious Poverty Reduction Strategy (PRS) in consultation with civil society and donors, agreeing to a set of actions aimed at reducing the incidence of extreme poverty by half by 2015. 
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The World Bank’s Country Assistance Strategy (CAS) for Honduras 2007-2010 supported the PRS by contributing to the restoration of macro-economic stability, improvement of the business climate, better performance of the financial sector, and a sound framework for public sector financial management. Since 2003 the pace of growth has picked up, averaging 4.7 percent in 2004-05, 6.3 percent in 2007. Core inflation has risen to over 14 percent, specially as commodity prices have increased in global markets. The real exchange rate has remained fairly stable. The growth in Honduras is largely attributable to the continued growth in remittances and strong export performance, particularly by the maquila sector and by the CAFTA effect on private investment. These achievements allowed Honduras to reach the HIPC (Heavily Indebted Poor Country)Completion Point in April 2005 and to maintain the benefit from the MDRI (Multilateral Debt Relief Initiative) in 2007. Honduras' external debt will remain sustainable over the medium-term if fiscal deficits and rates of growth are maintained at their current levels. Total external public debt fell from around 70 percent of GDP in 2000 to 15.1 percent in 2007. Under those circumstances the economy can withstand temporary external shocks such as those involving the terms-of-trade or adverse weather conditions. Although the incomes of 50 percent of Hondurans remain below the poverty line, increased public spending on health and education has shown significant results. Over the past decade: vaccination programs reached virtually the entire population; maternal mortality fell from 182 per 100,000 live births to 108 per 100,000, a 38 percent reduction; chronic malnutrition in children aged 1-5 fell from 33 percent in 2001 to less than 24.7% in 2006 primary school attendance rose from 85 percent in 2002 to 89.4% in 2005.
In 2005 Hondurans elected José Manuel Zelaya as President in the seventh successive peaceful, democratic change of government since 1982. The Zelaya administration has made poverty reduction its top priority, endorsing the Poverty Reduction Strategy Paper. The four pillars identified by the President for his administrative mandate (Jan. 2006 to January 2010) are: equitable economic growth for employment generation; good governance through state modernization and civic participation; environmental protection and risk management; development of human capital.
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CHALLENGES AHEAD Honduras remains vulnerable to external shocks. The agricultural sector has lost about one third of its purchasing power in the past two decades, largely due to the decline in prices for export crops, particularly bananas and coffee. The impact of the coffee crisis, from 1997 to 2001, was particularly severe; export earnings dropped by nearly a third from 1999 to 2001. Small farmers (accounting for 90 percent of coffee producers and 45 percent of production) were hardest hit. Honduras is susceptible to hurricanes and droughts. In 1998 Hurricane Mitch caused 5,750 dead and losses amounting to nearly 40 percent of GDP. Measures to mitigate the impact of these shocks are primarily geared to strengthening households' capacity to adapt, extending market-based risk management mechanisms, and developing effective safety nets. A stable macro-economic environment, coupled with a flexible labor market, would help in softening the impact of an economic shock. Although Honduras’ trends on most indicators have been favorable for the past decade, the prospects for meeting the targets laid out in the Millennium Development Goals are uncertain. Progress is on track for: universal primary enrollment; reducing maternal mortality by three-quarters; and reducing the share of the population without access to an improved water source by half. However, current trends fall short in four areas: reducing extreme poverty by half, reducing under five malnutrition by half, and reducing under five and infant mortality by two-thirds. Further progress in achieving the MDGs in Honduras will require improved quality of PRSP spending and an acceleration in economic growth of at least 5 to 6 percent. Macro-economic stability, as well as improvements in governance and in the quality of and access to economic and social services, are critical for sustained growth. Bank studies have highlighted the importance of improvements in the quality of education (see Poverty Assessment and Development Policy Review). They also argue that progress will need to be made in increasing rural productivity and diversifying the sources of rural incomes, since most of the country's poor live in rural areas and are dependent on agriculture for their livelihood (see Drivers of Sustainable Rural Growth and Poverty Reduction in Central America). back to top
WORLD BANK ASSISTANCE TO HONDURAS With support for the Honduran Poverty Reduction Strategy as its major objective, the Bank is financing 17 projects for a total of US$ 441.3 of which a total of $258.3 million are undisbursed. The projects are designed to: remove long-standing structural barriers to growth, by modernizing the public sector and improving the performance of economic and social services; improve rural productivity and generate employment; strengthen human development by improving educational opportunities and health care; and improve the protection of environmental resources.
 Source: Projects Data Projects include a $27 million Health System Reform Project to extend and improve health care coverage, especially to the low-income population. The project has supported the development of a decentralized mechanism for the delivery of maternal-child health care involving local stakeholders in the management of clinics. In education, significant progress has been made with community schools that involve parents in school management, jointly with teachers, with financing from the Community Based Education Project. The Bank has also supported the harmonization of external assistance in the education sector through the Education for All initiative. The Nutrition and Social Protection Projectis helping to finance the expansion of the community-based integrated child support program as well as creating opportunities for youth at risk. The "Barrio Ciudad", Rural Infraestructure, and "Nuestras Raices", projects, executed by the Fondo Hondureño de Seguridad Social (FHIS), aim to strengthen capacity for the development and management of investments at the municipal and community levels. Investments under the Rural Infrastructure Project include rural water and sanitation, rural roads, and rural electrification. The Nuestras Raices project seeks to assist indigenous and Afro-Honduran communities in guiding their own development. The Natural Disaster Mitigation Project, in its extended phase, is designed to put the disaster-response system on a firm footing. The project has supported the development and implementation of risk mitigation plans in the 60 highest-risk municipalities as well as strengthening the national disaster early-warning and response system. Environmental management and rural development are priorities for the World Bank. The Bank finances projects that help rural and indigenous people manage forest resources through the Forests and Rural Productivity Project, and protect the largest remaining area of humid tropical forest north of Colombia through the Corazon Transfrontier Biosphere Reserve Project. The Bank has supported the Government's efforts to establish a unified property register and regularize land tenancy, including in rural areas, with the Land Administration Program. Improved governance is an important pillar of the Bank's program. The Bank supports the Government's state modernization program and efforts to improve the transparency and impact of public spending through its Poverty Reduction Strategy Technical Assistance Credit. The Financial Sector Technical Assistance Credit focuses on strengthening regulation and supervision of the banking system. The Trade Facilitation and Productive Improvement Project seeks to improve the climate for doing business in Honduras. Judicial reforms encompassing measures to expand and improve access to justice, for vulnerable groups, women and those in rural areas are supported through the Judicial Branch Modernization Project Bank-financed projects are complemented by policy-based budgetary support operations, such as the Poverty Reduction Strategy Technical Assistance Credit. Honduras has also received grant funds managed by the Bank, notably from the Government of Japan, which support project design and implementation. The Government of Japan has also provided grant funding for an Aid Harmonization Project. Grant funding from Japan and the Global Environment Facility has supported the Pico Bonito Sustainable Forest Project, which aims to use bio-carbon finance to help develop and protect tropical forests near the city of La Ceiba. Other GEF-funded projects include the La Esperanza Hydroelectric Project and Corazon Transfrontier Biosphere Reserve Project.
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PROJECT ACHIEVEMENTS The World Bank has achieved considerable impacts in the development of the urban and rural populations of Honduras. Please visit our page on Results: Projects in Action for more details. back to top
CONTACTS
Public Information Center and External Affairs
María Amalia San Martín
Teléfono: 504-239-4551/52/53/54/60
Fax: 504-239-4555
Email: msanmartin@worldbank.org
For more information on World Bank assistance to Honduras including lending breakdown and project reports, see:
All Projects
Proposed Projects
Additional data on Honduras, source World Development Indicators.
Updated October 2008
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