Country risk reference rating: level 8 (8/9)
Country Risk Outlook: Stable
Economic and trade risks
In 2012, Honduras’ nominal GDP was US$18.3 billion, the real economic growth rate was 3.3%, the per capita GDP was US$2,310, and the inflation rate reached 5.2%. Honduras has a low level of economic development, backward industrial and agricultural production, poor infrastructure, and relies on the export of primary products for economic development. It is highly dependent on the United States and is susceptible to changes in the international economy. There is a serious shortage of domestic labor, especially skilled workers. Foreign direct investment inflows are low and growth is slow. Medium- and long-term economic risks exist in many areas.
Honduras is one of the poorest countries in the Western Hemisphere. With 20 years of economic diversification, export processing, tourism and other industries have grown significantly, and the proportion of the service industry has increased year by year. But overall, the Honduran economy remains fragile, with economic growth highly dependent on remittance inflows, financial aid and foreign debt relief. The Honduran economy has long relied on U.S. support and trade with the United States. As the U.S. economy bottoms out, Honduras’ remittance inflows and export earnings will continue to increase, but the future will still be affected by global economic fluctuations.
Investment risk
The business environment in Honduras is poor. Insufficient power infrastructure, lack of investment protection, heavy tax burden, and extremely low contract enforcement efficiency ranked 125th among 185 economies in the 2013 Doing Business Report, lower than Latin America and the Caribbean, which ranked 97th s level. However, Honduras has better access to building permits and credit than the regional average. On the other hand, the Honduran government has widespread administrative corruption, low administrative efficiency, and prevalent bureaucracy. It ranks 133rd among 176 countries in the Corruption Perception Index released by Transparency International.
Honduras implements economic liberalization policies and opens its market to the outside world. Most economic fields welcome foreign investment.
Legal risks
The Constitution of Honduras stipulates that the country implements the separation of executive, legislative and judicial powers, and the legal system has the characteristics of British common law. Although the Investment Law clearly stipulates that no distinction is made between domestic and foreign investors, in general, Honduran laws are implemented to protect local investors.
Judicial corruption is relatively common in Honduras, legal remedies are narrow, and conflicts between the Supreme Court and government officials have led to continued challenges to the majesty of the law. Due to the weak judicial system and serious interference from political pressure and corruption, it is difficult to resolve commercial disputes in Honduras. Foreign investors are generally reluctant to seek resolution in local courts when encountering commercial disputes. Although Honduras prohibits commercial monopolistic behavior, it cannot effectively restrict monopolistic behavior in actual law enforcement.
Overall risk
Political risks in Honduras are relatively stable. The upcoming general election will become the direction of future governance and reform and deserves attention. Honduras has a low level of economic development, backward industrial and agricultural production, poor infrastructure, serious criminal crimes, and frequent natural disasters. Economic development relies on the export of primary products, is highly dependent on the United States, and is susceptible to changes in the international economy. Domestic consumption levels are low and there is a serious shortage of labor, especially skilled workers. Honduras’ economy suffers from serious structural imbalances, and its current account deficit has led to international reserves that can only maintain the minimum demand for foreign exchange for imports. Due to the lack of attracting foreign investment, foreign direct investment inflows are low and growth is slow. The business climate in Honduras is poor. Electric power infrastructure is insufficient, investment protection is lacking, tax burdens are heavy, contract enforcement efficiency is extremely low, and government administrative corruption is widespread, administrative efficiency is low, and bureaucracy is prevalent. Honduras does not allow investors to set up joint ventures.
Based on the analysis and assessment of the current overall situation, the national risk reference rating of Honduras is 8 (8/9), with a significant national risk level and a stable national risk outlook.
