INTERNATIONAL DEVELOPMENT ASSOCIATION INTERNATIONAL MONETARY FUND HONDURAS JOINT WORLD BANK-IMF DEBT SUSTAINABILITY ANALYSIS June 2020 Prepared jointly by the staffs of the International Development Association (IDA) and the International Monetary Fund (IMF) Approved by Marcello Estevão (IDA), Patricia Alonso-Gamo and Ana Corbacho (IMF) Honduras: Joint Bank-Fund Debt Sustainability Analysis Risk of external debt distress Low Overall risk of debt distress Low Granularity in the risk rating Tool not applicable Application of judgment No The Debt Sustainability Analysis (DSA) indicates that Honduras remains at low risk of debt distress both for public external debt and overall debt. 1,2 Honduras’ proven record of compliance with the Fiscal Responsibility Law (FRL) provides confidence that the response to the COVID-19 pandemic will not jeopardize debt sustainability. Going forward, continuous adherence to the FRL and institutional reforms to boost inclusive growth and increase the economy’s potential are critical to recover quickly from the crisis and maintain debt sustainability. 1 This DSA updates the previous joint IMF/WB DSA prepared in July 2019 in the context of the Honduras Article IV staff report (IMF Country Report No. 19/236). 2 Honduras’s debt carrying capacity is assessed to be strong based on a composite indicator of 3.21 that uses the April and October 2019 WEO vintages and the 2018 CPIA. BACKGROUND 1. Total public debt increased in 2019 due mainly to higher domestic borrowing. 3 Gross public debt stood at 43.1 percent of GDP at end-2019, up by 1.1 percentage points of GDP since 2018, of which 30.8 percentage points corresponded to external public and publicly guaranteed (PPG) debt and 12.3 percentage points to domestic debt (Text Table 1). Domestic debt explained most of the increase, reflecting in part the financial imbalances faced by the state-owned electricity company (ENEE). 2. PPG external debt has increased slightly since 2016. Following a US$700 million international bond issuance in 2017, the PPG external debt-to-GDP ratio increased to 30.8 percent in 2019. Total external debt reached 38.5 percent of GDP—up from 38.1 percent in 2018—mainly driven by an increase in private external debt of 0.4 percent of GDP. Private external debt has rebounded to the level shown five years ago. Text Table 1. Honduras: PPG Debt Stock Composition by Level of Government (End-of-year stock, in percent of GDP) 2015 2016 2017 2018 2019 Domestic Debt Central government 8.1 8.9 7.4 8.4 9.2 Local governments 0.8 0.9 1.0 1.2 1.4 Nonfinancial public companies 2.1 1.9 1.2 1.7 1.7 Total 11.0 11.7 9.6 11.3 12.3 External Debt Central government 27.3 27.3 29.3 29.5 29.7 Local governments 0.0 0.0 0.0 0.0 0.0 Nonfinancial public companies 0.9 1.1 1.1 1.3 1.0 Total 28.2 28.4 30.5 30.7 30.8 Total Debt Central government 35.4 36.3 36.7 37.8 39.0 Local governments 0.8 0.9 1.0 1.2 1.4 Nonfinancial public companies 3.0 3.0 2.3 3.0 2.8 Total 39.2 40.1 40.1 42.0 43.1 Memorandum item Private External Debt 7.9 7.0 6.7 7.4 7.8 Source: Country authorities. Preliminary data for 2019. 3 2019 data used in this DSA is preliminary and subject to change. 2 3. Public debt is mostly held by foreign creditors (Text Figure 1). The share of PPG external debt stood at 71.4 percent of total public debt as of end 2019. The main creditors to Honduras are international bondholders, the Inter-American Development Bank (IDB), the Central American Bank for Economic Integration (CABEI), and the World Bank, which provide lending at long maturities, particularly in the case of the multilaterals. Public domestic debt is mainly held by commercial banks, has a shorter—though rising—maturity (over 4 years), and carries a higher real interest rate. In March 2018, the government placed a 15-year bond in the local market at a fixed interest rate of 11 percent raising 154 million Lempiras (around US$6 million). This reflects a broader strategy by the authorities to increase Lempiras-denominated debt with longer maturities, to be held increasingly by pension funds and other institutional investors. Text Figure 1. Honduras: PPG Debt Stock Composition by Instrument Source: Country authorities. 4. The debt coverage for the public sector is comprehensive. The DSA covers the nonfinancial public sector (NFPS). Therefore, it includes general government debt and non- financial state-owned enterprises’ debt, both guaranteed and non guaranteed. Debt from extrabudgetary funds such as trust funds 4—which are treated as private entities under Honduran legislation but should be registered as general goverment units according to the 2014 GFSM—are also included (Text Table 2). 5 Decentralized agencies such as public universities, among others, are included. Public pension funds debt and central bank debt borrowed on behalf of the government are also covered in the debt stock. Among debt for non-financial SOEs, in the case of ENEE, this includes arrears to energy generators. The contingent liability test includes lawsuits in international courts in the amount of 3.5 percent of GDP, 6 PPPs for 3 percent of GDP, and the default financial market shock (5 percent of GDP). Since the DSA coverage does not include public banks, an additional 2 percent of GDP is added to the contingent liability test. The DSA uses a currency-based definition of external debt—non-residents do not hold domestic debt, hence there is no material difference between the residency-based and the currency-based concepts. Whereby, 4 Only the trust fund “Fondo de Protección y Seguridad Poblacional” has contracted debt. 5 Where complete details on the debt service for local governments and trust funds are not available, conservative, commercial bank financing assumptions are used. 6 Disputed amounts reach 8.1 percent of GDP, but contingent liabilities are 3.5 percent after factoring lawsuit-specific probabilities of resolution according to estimations prepared by the Treasury’s contingency unit. 3 lempiras-denominated debt is considered public domestic debt and public foreign currency- denominated debt is accounted as public external debt. Text Table 2. Honduras: Public Debt Coverage and Calibration of Contingent Liability Stress Test Subsectors of the public sector Sub-sectors covered 1 Central government X 2 State and local government X 3 Other elements in the general government X 4 o/w: Social security fund X 5 o/w: Extra budgetary funds (EBFs) X 6 Guarantees (to other entities in the public and private sector, including to SOEs) X 7 Central bank (borrowed on behalf of the government) X 8 Non-guaranteed SOE debt X 1 The country's coverage of public debt The entire public sector, including SOEs Used for the Default analysis Reasons for deviations from the default settings 2 Other elements of the general government not captured in 1. 0 percent of GDP 3.5 It includes contingent liabilities for international lawsuits. 3 SoE's debt (guaranteed and not guaranteed by the government) 1/ 2 percent of GDP 2.0 It includes financial state-owned enterprises. 4 PPP 35 percent of PPP stock 3.0 5 Financial market (the default value of 5 percent of GDP is the minimum value) 5 percent of GDP 5.0 Total (2+3+4+5) (in percent of GDP) 13.5 1/ The default shock of 2% of GDP will be triggered for countries whose government-guaranteed debt is not fully captured under the country's public debt definition (1.). If it is already included in the government debt (1.) and risks associated with SoE's debt not guaranteed by the government is assessed to be negligible, a country team may reduce this to 0%. MACROECONOMIC AND POLICY ASSUMPTIONS 5. The main macroeconomic assumptions are based on the authorities’ policy targets and staff projections. The medium-to long-term macroeconomic outlook assumes that the FRL is fulfilled and that structural reforms envisaged in the Fund-supported program are implemented, while accommodating the response to the COVID-19 shock this year. As a result, the baseline macroeconomic projections are revised compared to the last DSA update dated July 2019 (Text Table 3). 4 Text Table 3. Honduras: Selected Economic Indicators, Current vs Previous DSA 2017 2018 2019 2020 2021 2022 2023 2024 2025 2029 2039 Real GDP growth (percent) Current DSA 4.8 3.7 2.7 -3.3 4.7 4.2 3.9 3.9 3.9 4.0 4.0 Previous DSA 4.9 3.7 3.4 3.5 3.6 3.7 3.9 3.9 3.9 3.9 3.9 GDP deflator growth (percent) Current DSA 4.5 1.9 4.3 4.5 6.0 4.7 4.7 4.7 4.7 4.0 4.0 Previous DSA 4.3 1.8 3.2 3.4 3.2 3.5 3.6 3.7 3.8 4.1 4.0 Primary balance (% of GDP) Current DSA 0.1 0.0 0.2 -3.0 -1.5 0.4 0.2 0.0 0.5 0.5 0.5 Previous DSA 0.1 0.0 0.6 0.7 0.8 1.0 0.9 0.7 0.8 0.7 0.5 Current account balance (% of GDP) Current DSA -0.8 -5.4 -1.4 -2.1 -2.5 -3.4 -3.9 -4.0 -4.0 -4.4 -4.4 Previous DSA -1.8 -4.2 -4.2 -4.3 -4.2 -4.1 -3.9 -3.9 -3.9 -3.7 -3.2 Net FDI (% of GDP) Current DSA 4.5 3.7 2.0 1.4 2.5 2.7 3.0 3.5 4.1 4.1 4.1 Previous DSA 4.4 4.8 4.9 4.9 4.9 4.9 4.9 4.9 4.9 4.9 4.9 Source: IMF staff estimates and projections. • Real sector. In the short term, GDP growth downward revisions reflect the slowdown of 2019 and the expected hit of the COVID-19 shock in 2020. In particular, the economy is expected to be hit by negative external shocks through weaker export demand as economic conditions deteriorate in the main trade partners (WEO April 2020), lower remittances due to the record high unemployment levels in the U.S., and a sharp decline in tourism revenues. In addition, containment and mitigation measures are expected to remain in place until June. A recovery in economic activity is envisaged for the second half of the year, with a stronger rebound —above potential — in 2021. GDP growth converges around 4 percent in the long term, unchanged with respect to the previous DSA. Inflation is projected to stabilize at 4 percent, in line with the Central Bank’s target, but the deflator over the next few years is affected by the oil price dynamics. Naturally, given the high uncertainty surrounding the pandemic, risks are tilted to the downside. • Fiscal variables. Fiscal projections assume compliance with the FRL. The escape clause of the FRL was called for 2020 and 2021 on the grounds of emergency (Art. 4 of the FRL, item 1) leading to a NFPS deficit of 4 and 3 percent of GDP, respectively. A return to the deficit limit of 1 percent of GDP is assumed from 2022 onwards. • Debt issuance assumptions. The share of external borrowing from multilateral and bilateral institutions is expected to grow in response to the COVID-19 shock. The deterioration in global market conditions raise risks about the rollover of the Eurobonds maturing this year, which will be nonetheless covered by concessional financing 5 instead. 7 Rollover of Eurobonds maturing later on and increased commercial borrowing lead to a decline in concessionality over the long run. The projections also envisage that the authorities succeed in deepening the domestic debt market, increasing maturities and issuing predominantly at fixed rates. These assumptions are consistent with the Honduran Debt Management Strategy. • Debt service suspension initiative (DSSI). The authorities are considering whether to request debt service suspension from official bilateral creditors as envisaged under the Debt Service Suspension Initiative, supported by the G-20 and Paris Club. 8 • External sector. With respect to the previous DSA, an improvement of the current account is now expected over the next few years reflecting the drop in economic activity induced by the COVID-19 shock and the lower oil prices. However, this still represents a worsening of the current account deficit in 2020 with respect to 2019. The current account deficit would hover around 4 percent of GDP over the long term. In the outer years, the current account deficit is still expected to be financed primarily by foreign direct investment.9 FDI is expected to increase in critical economic sectors such as electricity as the authorities move forward with their reform agenda for the sector. 6. The realism tools suggest that the projections are reasonable (Figures 3 and 4). 10 The baseline assumes an improvement of the primary balance of 0.2 percentage points of GDP over the next three years, which falls around the median of the distribution for LICs. This improvement in the primary balance is warranted by compliance with the FRL, which serves as an anchor to guide fiscal sustainability, with the loosening of 2020 expected to be reverted promptly as the economy recovers and temporary measures expire. Compared to the previous DSA, both growth projections and the evolution of investment are similar, after excluding the COVID-19 shock. The projected contribution of the government’s capital stock to growth remains very low, in line with historical levels. The growth path is consistent with reasonable levels for the fiscal multiplier, as it is mostly driven by the COVID-19 shock. 7 The World Bank accelerated preparation of a Disaster Risk Management development policy credit with a Deferred Drawdown Option (CAT-DDO) of US$119 million, with a Board approval on April 10, 2020; that credit is fully disbursed. The CAT-DDO is a contingent DPO support product linked to disaster risk response, and, as a result, represents a departure of the Bank’s preference to use the Investment Project Financing (IPF) instrument in Honduras. The Bank also approved a US$20 million COVID-19 Fast Track Facility on April 15, 2020 aimed at the prevention, containment and response to the pandemic, and temporarily waived the school-attendance condition under the Social Protection Integration Project to ensure that eligible families continue receiving a transfer while schools remain closed to contain the spread of COVID-19. The WBG is currently working with the Government to determine the need to activate emergency components of existing projects (CERCs) of some of its operations and discussing Pandemic Emergency Financing Facility (PEF) allocation for US$1.3 million. 8 Participation in the DSSI which provides a time-bound suspension of official bilateral debt service payments to IDA-eligible and least developed countries as defined by the UN would provide additional fiscal space in the near term. 9 The lower levels assumed for the long term reflect methodological changes that led to a revision of the estimates for 2018 and 2019. 10 Realism tools are designed to encourage examination of baseline assumptions and cover (i) drivers of debt dynamics, (ii) realism of planned fiscal adjustment, (iii) fiscal adjustment-growth relationship, and (iv) public investment-growth relationship . 6 COUNTRY CLASSIFICATION AND STRESS TESTS 7. Honduras debt carrying capacity is classified as strong. Debt carrying capacity is determined by a composite indicator (CI) that includes the World Bank’s Country Policy and Institutional Assessment (CPIA) score, world economic growth, and Honduras’s real growth rate, import coverage of reserves, and remittances. Two consecutive signals are needed to modify the classification. For this DSA, the April and October 2019 WEO vintages and the 2018 CPIA are used. Both the current and previous vintages yield a rating of strong debt carrying capacity, leading to no changes with respect to the previous DSA (Text Table 4). A strong debt-carrying capacity implies higher thresholds for the stress tests (Text Table 5). Text Table 4. Honduras: Debt Carrying Capacity Country Classification Debt Carrying Capacity Strong Classification under old methodology based on the two Classification based on Classification based on vintages preceding the last two Final current vintage the previous vintage ones Strong Strong Strong Strong 3.21 3.22 3.21 Note: Until the April 2019 WEO vintage is released, the two previous vintages ago classification and corresponding score are based solely on the CPIA per the previous framework. 8. Honduras qualifies for several stress tests. All standard stress tests apply without any changes to the default settings. The calibration of the contingent liabilities stress test is as discussed in paragraph 4. In addition, Honduras qualifies for a natural disaster tailored shock due to its exposure to frequent natural catastrophes such as hurricanes and droughts that are being exacerbated by climate change. Honduras does not qualify for a commodity price shock. Honduras qualifies for the market financing shock because it has outstanding Eurobonds. The default settings for the tailored shocks are considered appropriate for Honduras. 7 Text Table 5. Honduras: Public and Publicly Guaranteed (PPG) External Debt Thresholds and Total Public Debt Benchmarks Applicable thresholds APPLICABLE APPLICABLE EXTERNAL debt burden thresholds TOTAL public debt benchmark PV of total public debt in PV of debt in % of percent of GDP 70 Exports 240 GDP 55 Debt service in % of Exports 21 Revenue 23 EXTERNAL DSA 9. Honduras’s risk of external debt distress is assessed to be low. The PV of PPG external debt-to-GDP ratio is projected to peak at 32 percent in 2020, below the 55 percent threshold (Table 3). The PPG external debt to exports and PPG external debt service-to-revenue also peak in 2020, well under their respective thresholds of 240 percent and 23 percent, respectively. The PPG external debt service-to-exports ratio reaches 13 percent in 2027, below the threshold of 21. Consequently, all solvency and liquidity indicators under the baseline scenario and under various stress tests remain below their respective thresholds (Figure 1). The peaks observed on debt service indicators are explained by the repayments of Eurobonds in 2027. 10. However, some debt indicators are sensitive to shocks. A negative shock to exports, equivalent to a one standard deviation decline in the nominal growth of exports in the second and third years of projection and a decline in real GDP growth, generates the largest increase in the PV of the PPG external debt-to-GDP ratio, leading to a peak of 43 percent in 2022 (Figure 1). Under the same shock, the PPG external debt-to-exports ratio would peak in 2023, reaching 158 percent (below the 240 percent threshold). Furthermore, the same shock would lead the PPG external debt- service-to-exports ratio to reach 20 percent in 2027. The most extreme shock for the PPG external debt-service-to-revenue ratio would be combined shock, under which the ratio would reach 19 in 2027. In both cases, the liquidity ratios remain below their risk thresholds. PUBLIC DSA 11. Public debt ratios are expected to peak in 2020, and then decline over the medium term. Public debt is projected to peak at 51.6 percent of GDP in 2022 and start declining, supported 8 by stable primary surpluses as well as declining interest payments, reaching 45.1 percent of GDP by 2030 (Table 4 and Figure 2). The FRL is the critical difference between baseline projections and the historical scenario, providing an anchor for a sound fiscal position. In present value terms, the debt-to-GDP ratio is expected to peak at 49 percent of GDP in 2022 and fall to 42 percent of GDP by 2030. Public debt dynamics remain vulnerable to contingent liabilities and exogenous shocks, especially to those related to natural disasters (Table 4). However, under no scenario does any of the indicators breach its benchmark. 12. Market-Financing Risk Indicators suggest low liquidity risks given that the authorities do not plan to access the international market (Figure 5). The maximum gross financing needs over a 3-year period under the baseline projection horizon in Honduras are expected to be around 9 percent of GDP, which is below the benchmark value of 14 percent. EMBI spreads have increased from 252 basis points at the beginning of the year to 550 basis points on May 14, slightly below the benchmark level of 570 basis points. However, that increase reflects a general trend of massive capital outflows from emerging economies that have taken place over the last few months, rather than a Honduras-specific financial constraint. As Honduras is not assumed to rollover its Eurobonds maturing this year, the country is relatively insulated from the general trend. In addition, the PV of debt relative to GDP and to exports, as well as the ratios of debt service to exports and to revenue, are all expected to remain below the thresholds under the baseline projection and under the market financing scenario. Nevertheless, given significant uncertainty regarding global financial conditions, a cautious debt management approach is warranted. RISK RATING AND VULNERABILITIES 13. The DSA indicates that Honduras’s risks of external debt and public total debt distress are low, supported by strict observance of the FRL, even when leveraging its escape clause to deal with a temporary negative shock. This risk rating is unchanged from the 2019 DSA. PPG external debt burden indicators remain below the thresholds under the baseline scenario and stress tests. Nonetheless, shocks associated to exports or natural disasters showcase existing debt vulnerabilities, implying that adhering consistently to the FRL is a key element to ensuring debt sustainability. The results also highlight the importance of raising domestic revenue, addressing structural vulnerabilities in SOEs, and leveraging concessional sources of financing when available. Authorities’ Views 14. Authorities agreed with this debt sustainability assessment. They noted that the temporary activation of the escape clause of the FRL would allow them to address the challenges raised by the pandemic, but they will swiftly return to the target of 1 percent NFPS deficit by 2022 as mandated by the law. They reiterated their commitment to preserving the revenue mobilization efforts while implementing reforms in SOEs to resolve their imbalances, and to the further 9 development of the domestic debt market. The contingency unit at SEFIN will continue addressing data limitations with the goal of improving the management of fiscal risks. 10 Table 1. Honduras: External Debt Sustainability Framework, Baseline Scenario, 2017-40 (In percent of GDP, unless otherwise indicated) (In percent of GDP, unless otherwise indicated) Actual Projections Average 8/ 2017 2018 2019 2020 2021 2022 2023 2024 2025 2030 2040 Historical Projections External debt (nominal) 1/ 37.2 38.1 38.5 42.7 42.1 40.5 40.5 37.9 36.4 33.1 22.5 33.3 37.5 Definition of external/domestic debt Currency-based of which: public and publicly guaranteed (PPG) 30.5 30.7 30.8 34.9 34.3 32.8 32.8 30.2 28.7 25.6 15.0 25.9 29.9 Is there a material difference between the two No criteria? Change in external debt 1.8 0.9 0.4 4.1 -0.6 -1.6 -0.1 -2.6 -1.5 -0.9 -1.1 Identified net debt-creating flows -5.9 0.3 -2.1 2.0 -1.8 -1.0 -0.6 -1.0 -1.5 -0.9 -0.7 -1.1 -0.8 Non-interest current account deficit -0.5 4.0 0.2 0.8 1.1 2.0 2.5 2.6 2.6 3.2 3.5 4.4 2.4 Deficit in balance of goods and services 14.8 19.1 17.4 16.3 15.7 16.3 16.7 17.0 17.2 17.4 17.5 17.7 16.9 Exports 43.5 41.6 39.7 34.1 34.9 34.4 34.2 34.2 34.3 34.3 34.3 Debt Accumulation Imports 58.2 60.7 57.1 50.4 50.7 50.7 50.9 51.2 51.4 51.7 51.8 2.5 20 Net current transfers (negative = inflow) -20.1 -21.6 -23.7 -20.3 -20.4 -20.1 -19.9 -20.0 -20.2 -20.2 -20.2 -19.3 -20.2 of which: official -0.3 -1.3 -1.5 -1.2 -1.2 -1.2 -1.2 -1.2 -1.3 -1.3 -1.3 18 2.0 Other current account flows (negative = net inflow) 4.8 6.5 6.5 4.7 5.8 5.7 5.8 5.6 5.6 6.0 6.1 6.0 5.7 16 Net FDI (negative = inflow) -4.5 -3.7 -2.0 -1.4 -2.5 -2.7 -3.0 -3.5 -4.1 -4.1 -4.1 -4.7 -3.4 1.5 Endogenous debt dynamics 2/ -0.9 0.0 -0.3 2.6 -0.4 -0.2 -0.1 0.0 0.0 0.0 0.0 14 Contribution from nominal interest rate 1.3 1.4 1.1 1.3 1.4 1.4 1.4 1.5 1.4 1.3 0.8 1.0 12 Contribution from real GDP growth -1.6 -1.3 -1.0 1.3 -1.8 -1.6 -1.5 -1.5 -1.4 -1.3 -0.9 0.5 10 Contribution from price and exchange rate changes -0.6 0.0 -0.5 … … … … … … … … Residual 3/ 7.7 0.7 2.5 2.1 1.2 -0.6 0.6 -1.7 0.0 0.0 -0.4 2.6 0.3 8 0.0 of which: exceptional financing 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 6 -0.5 4 Sustainability indicators -1.0 PV of PPG external debt-to-GDP ratio ... ... 29.0 31.7 31.4 29.7 29.7 27.2 25.7 22.6 12.9 2 PV of PPG external debt-to-exports ratio ... ... 73.0 93.0 89.9 86.3 86.7 79.4 75.0 66.0 37.6 -1.5 0 PPG debt service-to-exports ratio 9.1 9.6 10.4 12.5 6.8 8.6 8.5 8.6 9.0 6.9 5.2 2020 2022 2024 2026 2028 2030 PPG debt service-to-revenue ratio 13.4 13.7 14.1 15.7 8.4 10.1 9.8 10.0 10.3 7.8 5.8 Gross external financing need (Billion of U.S. dollars) 1.5 2.7 2.5 2.7 2.0 2.5 2.6 2.5 2.4 2.7 3.5 Debt Accumulation Grant-equivalent financing (% of GDP) Key macroeconomic assumptions Grant element of new borrowing (% right scale) Real GDP growth (in percent) 4.8 3.7 2.7 -3.3 4.7 4.2 3.9 3.9 3.9 4.0 4.0 3.6 3.4 GDP deflator in US dollar terms (change in percent) 1.6 0.0 1.2 2.0 3.5 2.9 2.4 2.4 2.4 1.7 1.7 1.8 2.2 Effective interest rate (percent) 4/ 3.9 3.9 3.1 3.4 3.6 3.6 3.7 3.9 4.0 3.9 3.8 2.7 3.8 External debt (nominal) 1/ Growth of exports of G&S (US dollar terms, in percent) 8.9 -0.7 -0.9 -15.2 10.8 5.6 5.8 6.5 6.6 5.8 5.8 6.0 4.5 of which: Private Growth of imports of G&S (US dollar terms, in percent) 9.6 8.2 -2.3 -12.8 8.7 7.4 6.7 7.2 6.9 5.8 5.8 5.9 4.9 45 Grant element of new public sector borrowing (in percent) ... ... ... 17.6 15.0 15.3 8.3 17.4 9.4 7.4 3.1 ... 11.6 40 Government revenues (excluding grants, in percent of GDP) 29.7 29.1 29.3 27.1 28.3 29.4 29.6 29.6 29.8 30.4 30.9 28.4 29.5 Aid flows (in Billion of US dollars) 5/ 0.3 0.3 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.3 0.4 35 Grant-equivalent financing (in percent of GDP) 6/ ... ... ... 1.7 1.2 0.9 0.9 0.7 0.8 0.7 0.6 ... 0.9 Grant-equivalent financing (in percent of external financing) 6/ ... ... ... 25.0 28.4 32.3 20.9 47.8 28.4 30.1 41.9 30 ... 28.7 Nominal GDP (Billion of US dollars) 23 24 25 25 27 29 30 32 34 46 80 25 Nominal dollar GDP growth 6.6 3.7 3.9 -1.3 8.3 7.2 6.4 6.5 6.4 5.8 5.8 5.5 5.7 20 Memorandum items: 15 PV of external debt 7/ ... ... 36.7 39.5 39.1 37.4 37.3 34.8 33.3 30.2 20.3 10 In percent of exports ... ... 92.5 115.7 112.0 108.7 109.2 101.8 97.3 88.0 59.3 Total external debt service-to-exports ratio 26.6 26.2 29.7 33.5 25.7 27.4 26.1 25.1 25.0 20.0 14.5 5 PV of PPG external debt (in Billion of US dollars) 7.2 7.8 8.4 8.5 9.0 8.8 8.8 10.3 10.3 0 (PVt-PVt-1)/GDPt-1 (in percent) 2.3 2.3 0.5 1.9 -0.7 0.2 0.5 -0.2 2020 2022 2024 2026 2028 2030 Non-interest current account deficit that stabilizes debt ratio -2.4 3.0 -0.2 -3.3 1.7 3.5 2.6 5.2 4.1 4.1 4.6 Sources: Country authorities; and staff estimates and projections. 1/ Includes both public and private sector external debt. 2/ Derived as [r - g - ρ(1+g)]/(1+g+ρ+gρ) times previous period debt ratio, with r = nominal interest rate; g = real GDP growth rate, and ρ = growth rate of GDP deflator in U.S. dollar terms. 3/ Includes exceptional financing (i.e., changes in arrears and debt relief); changes in gross foreign assets; and valuation adjustments. For projections also includes contribution from price and exchange rate changes. 4/ Current-year interest payments divided by previous period debt stock. 5/ Defined as grants, concessional loans, and debt relief. 6/ Grant-equivalent financing includes grants provided directly to the government and through new borrowing (difference between the face value and the PV of new debt). 7/ Assumes that PV of private sector debt is equivalent to its face value. 8/ Historical averages are generally derived over the past 10 years, subject to data availability, whereas projections averages are over the first year of projection and the next 10 years. 11 Table 2. Honduras: Public Debt Sustainability Framework, Baseline Scenario, 2017-40 (In percent of GDP, unless otherwise indicated) Actual Projections Average 6/ 2017 2018 2019 2020 2021 2022 2023 2024 2025 2030 2040 Historical Projections Public sector debt 1/ 40.0 41.8 43.1 47.8 50.9 51.6 51.4 50.4 48.9 45.1 38.9 36.2 48.5 of which: external debt 30.5 30.7 30.8 34.9 34.3 32.8 32.8 30.2 28.7 25.6 15.0 25.9 29.9 Definition of external/domestic debt Currency-based of which: local-currency denominated Change in public sector debt -0.1 1.8 1.3 4.6 3.1 0.7 -0.2 -1.0 -1.5 -0.7 -0.6 Is there a material difference Identified debt-creating flows -1.6 0.5 -1.7 3.8 2.1 0.1 -0.9 -1.6 -2.2 -0.7 -0.6 1.4 -0.2 No between the two criteria? Primary deficit -0.1 0.0 -0.2 3.0 1.5 -0.4 -0.2 0.0 -0.5 -0.5 -0.5 2.1 0.1 Revenue and grants 30.3 29.8 29.9 27.7 29.0 29.9 30.2 30.2 30.3 30.9 31.5 29.3 30.1 of which: grants 0.6 0.7 0.7 0.6 0.7 0.6 0.6 0.6 0.6 0.6 0.6 Public sector debt 1/ Primary (noninterest) expenditure 30.2 29.8 29.8 30.7 30.5 29.6 29.9 30.2 29.8 30.4 31.0 31.4 30.2 Automatic debt dynamics -1.1 1.0 -1.1 3.0 -1.8 -0.8 -0.6 -0.5 -0.4 -0.1 -0.1 of which: local-currency denominated Contribution from interest rate/growth differential -0.5 -0.1 -0.9 3.1 -0.9 -0.7 -0.5 -0.3 -0.3 -0.2 -0.1 of which: foreign-currency denominated of which: contribution from average real interest rate 1.3 1.3 0.2 1.6 1.2 1.4 1.5 1.6 1.6 1.6 1.4 of which: contribution from real GDP growth -1.9 -1.4 -1.1 1.4 -2.1 -2.1 -2.0 -1.9 -1.9 -1.8 -1.5 60 Contribution from real exchange rate depreciation -0.6 1.1 -0.2 ... ... ... ... ... ... ... ... 50 Other identified debt-creating flows -0.4 -0.4 -0.4 -2.2 2.4 1.2 0.0 -1.2 -1.3 -0.1 0.0 -0.3 -0.2 Privatization receipts (negative) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 40 Recognition of contingent liabilities (e.g., bank recapitalization) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 30 Debt relief (HIPC and other) -0.4 -0.4 -0.4 -0.4 -0.4 -0.3 -0.3 -0.3 -0.3 -0.1 0.0 Other debt creating or reducing flow (please specify) 0.0 0.0 0.0 -1.8 2.8 1.5 0.2 -0.9 -1.0 0.0 0.0 20 Residual 1.5 1.3 3.0 0.8 0.1 0.5 0.5 0.5 0.5 0.1 0.0 0.5 0.3 10 Sustainability indicators 0 PV of public debt-to-GDP ratio 2/ ... ... 41.5 45.2 48.1 48.8 48.6 47.7 46.1 42.4 36.9 2020 2022 2024 2026 2028 2030 PV of public debt-to-revenue and grants ratio … … 138.5 162.9 166.2 163.1 161.0 158.1 152.2 137.0 117.2 Debt service-to-revenue and grants ratio 3/ 11.0 10.8 13.8 29.8 18.6 26.2 29.6 30.3 32.8 30.3 31.9 Gross financing need 4/ 2.9 2.8 3.6 9.1 9.3 8.7 8.7 8.0 8.2 8.8 9.5 of which: held by residents Key macroeconomic and fiscal assumptions of which: held by non-residents 1 Real GDP growth (in percent) 4.8 3.7 2.7 -3.3 4.7 4.2 3.9 3.9 3.9 4.0 4.0 3.6 3.4 1 Average nominal interest rate on external debt (in percent) 3.5 3.4 3.6 4.0 4.2 4.2 4.3 4.6 4.7 4.7 5.0 2.8 4.5 1 Average real interest rate on domestic debt (in percent) 7.9 11.0 -3.6 4.2 3.7 4.4 4.3 4.6 4.5 4.8 4.2 3.7 4.6 1 Real exchange rate depreciation (in percent, + indicates depreciation) -2.2 3.8 -0.7 … ... ... ... ... ... ... ... 0.0 ... 1 1 n.a. Inflation rate (GDP deflator, in percent) 4.5 2.5 3.8 4.5 6.0 4.7 4.7 4.7 4.7 4.0 4.0 4.5 4.5 0 Growth of real primary spending (deflated by GDP deflator, in percent) 5.3 2.3 2.6 -0.3 3.8 1.1 5.3 4.7 2.8 4.3 4.1 2.7 3.6 0 Primary deficit that stabilizes the debt-to-GDP ratio 5/ 0.0 -1.8 -1.5 -1.7 -1.6 -1.1 0.0 1.0 1.0 0.2 0.1 -1.1 -0.1 0 PV of contingent liabilities (not included in public sector debt) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0 0 2020 2022 2024 2026 2028 2030 Sources: Country authorities; and staff estimates and projections. 1/ Coverage of debt: The entire public sector, including SOEs . Definition of external debt is Currency-based. 2/ The underlying PV of external debt-to-GDP ratio under the public DSA differs from the external DSA with the size of differences depending on exchange rates projections. 3/ Debt service is defined as the sum of interest and amortization of medium and long-term, and short-term debt. 4/ Gross financing need is defined as the primary deficit plus debt service plus the stock of short-term debt at the end of the last period and other debt creating/reducing flows. 5/ Defined as a primary deficit minus a change in the public debt-to-GDP ratio ((-): a primary surplus), which would stabilizes the debt ratio only in the year in question. 6/ Historical averages are generally derived over the past 10 years, subject to data availability, whereas projections averages are over the first year of projection and the next 10 years. 12 Figure 1. Honduras: Indicators of Public and Publicly Guaranteed External Debt under Alternative Scenarios, 2020-30 60 300 PV of debt-to GDP ratio PV of debt-to-exports ratio 50 250 40 200 30 150 20 100 10 50 Most extreme shock: Exports Most extreme shock: Exports 0 0 2020 2022 2024 2026 2028 2030 2020 2022 2024 2026 2028 2030 25 25 Debt service-to-exports ratio Debt service-to-revenue ratio 20 20 15 15 10 10 5 5 Most extreme shock: Exports Most extreme shock: Combination 0 0 2020 2022 2024 2026 2028 2030 2020 2022 2024 2026 2028 2030 Baseline Historical scenario Most extreme shock 1/ Threshold Customization of Default Settings Borrowing assumptions on additional financing needs resulting from the stress tests* Size Interactions Default User defined Shares of marginal debt No No External PPG MLT debt 100% Tailored Stress Terms of marginal debt Combined CL Yes Avg. nominal interest rate on new borrowing in USD 4.8% 4.8% Natural disaster No No USD Discount rate 5.0% 5.0% Commodity price n.a. n.a. Avg. maturity (incl. grace period) 20 20 Market financing No No Avg. grace period 5 5 Note: "Yes" indicates any change to the size or interactions of * Note: All the additional financing needs generated by the shocks under the stress tests are the default settings for the stress tests. "n.a." indicates that the assumed to be covered by PPG external MLT debt in the external DSA. Default terms of marginal stress test does not apply. debt are based on baseline 10-year projections. Sources: Country authorities; and staff estimates and projections. 1/ The most extreme stress test is the test that yields the highest ratio in or before 2030. The stress test with a one-off breach is also presented (if any), while the one-off breach is deemed away for mechanical signals. When a stress test with a one-off breach happens to be the most exterme shock even after disregarding the one-off breach, only that stress test (with a one-off breach) would be presented. 13 HONDURAS Figure 2. Honduras: Indicators of Public Debt under Alternative Scenarios, 2020-30 90 PV of Debt-to-GDP Ratio 80 70 60 50 40 30 Most extreme shock: Combined contingent liabilities 20 10 0 2020 2022 2024 2026 2028 2030 250 60 PV of Debt-to-Revenue Ratio Debt Service-to-Revenue Ratio 50 200 40 150 30 100 20 50 10 Most extreme shock: Natural disaster Most extreme shock: Combined contingent liabilities 0 0 2020 2022 2024 2026 2028 2030 2020 2022 2024 2026 2028 2030 Baseline Most extreme shock 1/ TOTAL public debt benchmark Historical scenario Borrowing assumptions on additional financing needs resulting from the stress Default User defined tests* Shares of marginal debt External PPG medium and long-term 30% 30% Domestic medium and long-term 70% 70% Domestic short-term 0% 0% Terms of marginal debt External MLT debt Avg. nominal interest rate on new borrowing in USD 4.8% 4.8% Avg. maturity (incl. grace period) 20 20 Avg. grace period 5 5 Domestic MLT debt Avg. real interest rate on new borrowing 4.1% 4.1% Avg. maturity (incl. grace period) 5 5 Avg. grace period 0 0 Domestic short-term debt Avg. real interest rate 0.0% 0.0% * Note: The public DSA allows for domestic financing to cover the additional financing needs generated by the shocks under the stress tests in the public DSA. Default terms of marginal debt are based on baseline 10-year projections. Sources: Country authorities; and staff estimates and projections. 1/ The most extreme stress test is the test that yields the highest ratio in or before 2030. The stress test with a one-off breach is also presented (if any), while the one-off breach is deemed away for mechanical signals. When a stress test with a one-off breach happens to be the most exterme shock even after disregarding the one-off breach, only that stress test (with a one-off breach) would be presented. 14 Table 3. Honduras: Sensitivity Analysis for Key Indicators of Public and Publicly Guaranteed External Debt, 2020-30 (In percent) Projections 1/ 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 PV of debt-to GDP ratio Baseline 32 31 30 30 27 26 26 24 23 23 23 A. Alternative Scenarios A1. Key variables at their historical averages in 2020-2030 2/ 32 33 32 33 31 31 33 31 31 32 31 0 #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A B. Bound Tests B1. Real GDP growth 32 32 31 31 28 27 28 25 24 24 24 B2. Primary balance 32 32 33 33 31 30 31 29 28 29 28 B3. Exports 32 37 43 43 40 38 39 36 34 34 33 B4. Other flows 3/ 32 36 38 38 35 34 34 32 30 30 29 B5. Depreciation 32 39 31 31 28 26 27 24 23 24 23 B6. Combination of B1-B5 32 41 41 41 38 36 37 34 33 33 31 C. Tailored Tests C1. Combined contingent liabilities 32 35 34 35 33 32 33 31 31 31 31 C2. Natural disaster 32 35 34 34 32 32 33 31 30 31 31 C3. Commodity price n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C4. Market Financing 32 35 33 33 30 29 30 27 26 26 25 Threshold 55 55 55 55 55 55 55 55 55 55 55 PV of debt-to-exports ratio Baseline 93 90 86 87 79 75 77 70 67 68 66 A. Alternative Scenarios A1. Key variables at their historical averages in 2020-2030 2/ 93 95 94 96 91 91 95 91 89 92 91 0 93 85 77 72 60 53 52 41 35 33 28 B. Bound Tests B1. Real GDP growth 93 90 86 87 79 75 77 70 67 68 66 B2. Primary balance 93 93 96 98 91 88 91 85 82 83 81 B3. Exports 93 121 158 158 148 142 144 134 127 126 121 B4. Other flows 3/ 93 102 110 111 103 98 100 92 88 88 84 B5. Depreciation 93 90 72 72 65 61 63 56 54 56 55 B6. Combination of B1-B5 93 121 111 129 120 115 117 107 102 102 98 C. Tailored Tests C1. Combined contingent liabilities 93 101 99 102 96 93 97 91 89 91 90 C2. Natural disaster 93 102 100 102 96 94 98 92 90 93 92 C3. Commodity price n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C4. Market Financing 93 90 86 87 80 75 78 71 68 69 66 Threshold 240 240 240 240 240 240 240 240 240 240 240 Debt service-to-exports ratio Baseline 13 7 9 8 9 9 8 13 7 7 7 A. Alternative Scenarios A1. Key variables at their historical averages in 2020-2030 2/ 13 7 9 9 9 10 9 15 9 8 9 0 13 7 8 8 8 8 7 12 5 4 4 B. Bound Tests B1. Real GDP growth 13 7 9 8 9 9 8 13 7 7 7 B2. Primary balance 13 7 9 9 9 10 8 14 8 8 8 B3. Exports 13 8 12 13 13 14 12 20 13 13 13 B4. Other flows 3/ 13 7 9 10 10 10 9 15 9 9 9 B5. Depreciation 13 7 9 8 8 8 7 13 6 5 6 B6. Combination of B1-B5 13 7 11 11 11 12 10 18 11 10 10 C. Tailored Tests C1. Combined contingent liabilities 13 7 9 9 9 10 8 14 8 8 8 C2. Natural disaster 13 7 9 9 9 10 9 15 8 8 8 C3. Commodity price n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C4. Market Financing 13 7 9 9 9 9 8 14 11 7 7 Threshold 21 21 21 21 21 21 21 21 21 21 21 Debt service-to-revenue ratio Baseline 16 8 10 10 10 10 9 15 8 8 8 A. Alternative Scenarios A1. Key variables at their historical averages in 2020-2030 2/ 16 9 11 11 11 11 10 17 10 9 10 0 16 8 10 9 9 9 8 14 6 5 4 B. Bound Tests B1. Real GDP growth 16 9 11 10 10 11 9 16 9 8 8 B2. Primary balance 16 8 10 11 11 11 10 16 9 9 9 B3. Exports 16 9 11 12 12 12 11 18 12 11 11 B4. Other flows 3/ 16 8 11 11 11 12 10 17 11 10 10 B5. Depreciation 16 11 13 11 12 12 10 18 8 8 8 B6. Combination of B1-B5 16 9 12 12 12 13 11 19 12 11 11 C. Tailored Tests C1. Combined contingent liabilities 16 8 11 11 11 11 10 16 9 9 9 C2. Natural disaster 16 8 11 10 11 11 10 16 9 9 9 C3. Commodity price n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C4. Market Financing 16 8 10 10 10 11 10 16 12 7 8 Threshold 23 23 23 23 23 23 23 23 23 23 23 Sources: Country authorities; and staff estimates and projections. 1/ A bold value indicates a breach of the threshold. 2/ Variables include real GDP growth, GDP deflator (in U.S. dollar terms), non-interest current account in percent of GDP, and non-debt creating flows. 3/ Includes official and private transfers and FDI. 15 Table 4. Honduras: Sensitivity Analysis for Key Indicators of Public Debt, 2020-30 Projections 1/ 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 PV of Debt-to-GDP Ratio Baseline 45 48 49 49 48 46 45 44 44 43 42 A. Alternative Scenarios A1. Key variables at their historical averages in 2020-2030 2/ 45 50 53 56 57 58 60 62 63 65 67 0 #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A B. Bound Tests B1. Real GDP growth 45 50 53 54 54 54 55 55 56 56 57 B2. Primary balance 45 51 58 58 57 55 54 53 53 52 51 B3. Exports 45 53 61 61 60 58 57 56 55 53 52 B4. Other flows 3/ 45 52 57 57 56 54 53 52 51 50 49 B5. Depreciation 45 54 52 49 46 43 39 36 33 31 28 B6. Combination of B1-B5 45 49 54 53 52 50 49 48 46 45 44 C. Tailored Tests C1. Combined contingent liabilities 45 62 62 62 61 59 58 57 57 56 55 C2. Natural disaster 45 59 60 60 60 59 58 58 57 57 57 C3. Commodity price n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C4. Market Financing 45 48 49 49 48 46 45 45 44 43 42 TOTAL public debt benchmark 70 70 70 70 70 70 70 70 70 70 70 PV of Debt-to-Revenue Ratio Baseline 163 166 163 161 158 152 148 145 142 139 137 A. Alternative Scenarios A1. Key variables at their historical averages in 2020-2030 2/ 163 172 178 185 189 192 197 201 206 211 216 0 30 18 23 25 25 27 29 35 30 30 28 B. Bound Tests B1. Real GDP growth 163 173 177 179 181 179 179 179 181 182 184 B2. Primary balance 163 177 194 191 188 182 178 175 171 168 166 B3. Exports 163 183 205 202 199 192 187 183 178 172 168 B4. Other flows 3/ 163 181 191 188 185 179 174 170 165 161 157 B5. Depreciation 163 187 174 164 154 141 129 119 109 99 90 B6. Combination of B1-B5 163 168 180 176 172 165 160 156 151 147 143 C. Tailored Tests C1. Combined contingent liabilities 163 213 208 205 202 195 191 187 184 181 178 C2. Natural disaster 163 204 201 200 198 193 190 188 186 184 183 C3. Commodity price n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C4. Market Financing 163 166 163 161 158 153 149 146 143 140 137 Debt Service-to-Revenue Ratio Baseline 30 19 26 30 30 33 33 38 32 32 30 A. Alternative Scenarios A1. Key variables at their historical averages in 2020-2030 2/ 30 19 27 32 35 39 42 49 44 46 46 0 30 18 23 25 25 27 29 35 30 30 28 B. Bound Tests B1. Real GDP growth 30 19 28 32 34 38 39 45 40 40 40 B2. Primary balance 30 19 29 36 37 40 40 45 38 38 36 B3. Exports 30 19 27 32 32 35 35 40 36 35 34 B4. Other flows 3/ 30 19 27 31 32 34 34 40 35 34 33 B5. Depreciation 30 19 28 30 30 33 32 38 31 29 27 B6. Combination of B1-B5 30 18 27 33 33 35 35 40 33 32 31 C. Tailored Tests C1. Combined contingent liabilities 30 19 35 39 40 43 44 46 40 39 38 C2. Natural disaster 30 19 33 38 39 42 43 46 41 40 39 C3. Commodity price n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C4. Market Financing 30 19 26 30 31 33 34 39 36 31 30 Sources: Country authorities; and staff estimates and projections. 1/ A bold value indicates a breach of the benchmark. 2/ Variables include real GDP growth, GDP deflator and primary deficit in percent of GDP. 3/ Includes official and private transfers and FDI. 16 Figure 3. Honduras: Drivers of Debt Dynamics – Baseline Scenario External debt Gross Nominal PPG External Debt Debt-creating flows Unexpected Changes in Debt 1/ (in percent of GDP; DSA vintages) (percent of GDP) (past 5 years, percent of GDP) Current DSA 30 80 Residual 20 Previous DSA proj. 20 70 DSA-2015 Interquartile 15 range (25-75) Price and 60 exchange rate10 50 10 Real GDP growth 0 Change in PPG 40 debt 3/ 5 30 Nominal -10 interest rate 20 0 Median -20 Current 10 account + FDI -5 -30 0 Change in 5-year 5-year 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 PPG debt 3/ Contribution of Distribution across LICs 2/ historical projected -10 unexpected change change Public debt Gross Nominal Public Debt Debt-creating flows Unexpected Changes in Debt 1/ (in percent of GDP; DSA vintages) (percent of GDP) (past 5 years, percent of GDP) Residual 20 Current DSA Previous DSA proj. 20 DSA-2015 Interquartile 80 Other debt range (25-75) creating flows 10 15 70 Real Exchange 60 rate 10 depreciation 50 0 Real GDP 5 Change in debt growth 40 30 Real interest -10 0 rate 20 Primary deficit -5 10 -20 Median 0 -10 Change in debt 5-year 5-year Distribution across LICs 2/ 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 historical projected Contribution of change change -15 1/ Difference between anticipated and actual contributions on debt ratios. 2/ Distribution across LICs for which LIC DSAs were produced. 3/ Given the relatively low private external debt for average low-income countries, a ppt change in PPG external debt should be largely explained by the drivers of the external debt dynamics equation. 17 Figure 4. Honduras: Realism Tools 3-Year Adjustment in Primary Balance Fiscal Adjustment and Possible Growth Paths 1/ (Percentage points of GDP) 6 2 14 Distribution 1/ 5 Projected 3-yr adjustment 1 12 4 3-year PB adjustment greater In percentage points of GDP than 2.5 percentage points of 3 10 0 GDP in approx. top quartile 2 In percent 8 1 -1 0 6 -2 -1 4 -2 -3 2 -3 -4 -4 0 2014 2015 2016 2017 2018 2019 2020 2021 Baseline Multiplier = 0.2 Multiplier = 0.4 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 5.5 6.0 6.5 7.0 7.5 8.0 more -4.5 -4.0 -3.5 -3.0 -2.5 -2.0 -1.5 -1.0 -0.5 Multiplier = 0.6 Multiplier = 0.8 1/ Data cover Fund-supported programs for LICs (excluding emergency financing) approved since 1990. The size 1/ Bars refer to annual projected fiscal adjustment (right-hand side scale) and lines show possible real GDP of 3-year adjustment from program inception is found on the horizontal axis; the percent of sample is found on growth paths under different fiscal multipliers (left-hand side scale). the vertical axis. Public and Private Investment Rates Contribution to Real GDP growth (percent of GDP) (percent, 5-year average) 26 5 24 4 22 4 20 18 3 16 3 14 2 12 2 10 8 1 6 1 4 0 2 Historical Projected (Prev. DSA) Projected (Curr. DSA) 0 -1 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Gov. Invest. - Prev. DSA Gov. Invest. - Curr. DSA Contribution of other factors Priv. Invest. - Prev. DSA Priv. Invest. - Curr. DSA Contribution of government capital 18 Figure 5. Honduras: Market-Financing Risk Indicators GFN 1/ EMBI 2/ Benchmarks 14 570 Values 9 550 Breach of benchmark No No Potential heightened liquidity needs Low 1/ Maximum gross financing needs (GFN) over 3-year baseline projection horizon. 2/ EMBI spreads correspond to the latest available data. 60 300 PV of debt-to GDP ratio PV of debt-to-exports ratio 50 250 40 200 30 150 20 100 10 50 0 0 2020 2022 2024 2026 2028 2030 2020 2022 2024 2026 2028 2030 25 25 Debt service-to-revenue ratio Debt service-to-exports ratio 20 20 15 15 10 10 5 5 0 0 2020 2022 2024 2026 2028 2030 2020 2022 2024 2026 2028 2030 Baseline Market financing Threshold Sources: Country authorities; and staff estimates and projections. 19