An official website of the United States Government Here's how you know

Official websites use .gov

A .gov website belongs to an official government organization in the United States.

Secure .gov websites use HTTPS

A lock ( ) or https:// means you’ve safely connected to the .gov website. Share sensitive information only on official, secure websites.

Honduras

Executive Summary

Honduras contains all the ingredients for a thriving, prosperous economy: strategic location next to U.S. markets with a deep-water port, a rich endowment of natural resources, breathtaking tourist destinations, and hard-working people, including a significant cadre of skilled labor. Despite these advantages, per capita income in Honduras is the third lowest in all Latin America. Investors cite corruption, crime, and poor infrastructure and weak or nonexistent rule of law as the primary reasons that Honduras does not attract more of the private investment it needs to stimulate inclusive economic growth. According to the International Monetary Fund (IMF), real Honduran GDP grew by 12.5 percent in 2021, a rebound from the devastating effects in 2020 of the COVID-19 pandemic and twin hurricanes Eta and Iota. The IMF predicts the economy will grow by 3.8 percent in 2022.

The 2022 inauguration of Honduras first woman president, Xiomara Castro, marked the beginning of a new era in the country’s political economy. The participation of U.S. Vice President Harris at President Castro’s inauguration exemplified the strong U.S. commitment to Honduras. The two countries have committed to work jointly to address the root causes of migration, including by combating corruption and expanding economic opportunity. Since taking office, the Castro administration has launched initiatives to reduce corruption, improve education and public health, and create jobs.

These laudable efforts have been frustrated by fiscal challenges, including budget planning and debt management. Although the United States and international organizations including the IMF assess Honduras as low risk for debt distress, public messaging from the administration announcing a fiscal crisis roiled international bond markets, driving up the risk premium on Honduran debt. To address these budget shortfalls, the government announced it will utilize its foreign reserves to finance operations, which could put additional inflationary pressure on the economy. To help Honduras implement its social agenda without increasing its debt burden, the United States has begun a debt management technical assistance program with the Ministry of Finance.

In both public and private, the Castro administration emphasizes the need for job creation and private investment in Honduras. The government approved a new law in 2022 to facilitate the development and formalization of Micro, Small, and Medium Enterprises (MSMEs). The government’s Results-Based Governance system and other anti-corruption efforts are excellent examples of efforts to improve the investment climate. From the perspective of the private sector, however, these efforts have been overshadowed by policy decisions that have dramatically increased the uncertainty of investment returns. Chief among these was the May 2022 approval of a new energy law that threatens power generators with forced sale at a “just price” if they do not reduce their tariffs to the government’s satisfaction. The law provides no guarantee of future payment, stipulates that new energy investment must be majority state-owned, and all but eliminates private trade in energy. As a result of the new law, several private energy companies have discontinued planned projects in Honduras and are exploring investment opportunities in other countries in the region.

The Castro administration also eliminated the special economic zones known as “ZEDEs” by their initials in Spanish. The ZEDEs were broadly unpopular, including with much of the private sector, and viewed as a vector for corruption. Rather than pursuing reforms or seeking dialogue with the ZEDE investors, by eliminating the frameworks without any regard for the protections afforded the investors under the U.S.-Honduras Bilateral Investor Treaty (BIT) or the Dominican Republic-Central America Free Trade Agreement (CAFTA-DR), the government has exposed itself to potentially significant liability and fueled concerns about the government’s commitment to commercial rule of law.

Another government policy contributing to uncertainty in the investment climate has been the elimination of the legal framework used by most businesses to employ per-hour workers. The law’s repeal fulfilled a Castro campaign promise, responding to criticism by labor unions that temporary work allowed companies to evade their social security obligations and exploit workers. Business representatives note, however, that many industries, including retail, tourism, and food service rely heavily on hourly labor and will be constrained by the new framework. Civil society representatives also point out that the change adversely affects women and students, who relied on hourly work to manage households and school schedules, although union leaders counter that the previous framework allowed employers to target women and young people for economic exploitation, given that their personal circumstances often do not allow them to take on full-time employment.

Many foreign investors in Honduras operate thriving enterprises. At the same time, all investors face challenges including unreliable and expensive electricity, corruption, unpredictable tax application and enforcement, high crime, low education levels, and poor infrastructure. Squatting on private land is an increasingly severe problem in Honduras and anti-squatting laws are poorly enforced. Continued low-level protests and strikes are additional concerns for private investors.

Despite these setbacks, over 200 American companies operate businesses in Honduras. Honduras enjoys preferential market access to the United States under CAFTA-DR, which has allowed for the development of intra-industry trade in textiles and electrical machinery, among other sectors. The proximity to the United States and established supply chain linkages means that opportunities exist to increase nearshoring sourcing to meet U.S. demand for a variety of goods. The White House “Call to Action to Deepen Investment in the Northern Triangle” is designed to coordinate increased U.S. investment in the region, including Honduras. This program, along with others, aims to support sustained and inclusive economic development in Honduras and surrounding countries.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2021 157 of 175 http://www.transparency.org/research/cpi/overview 
Global Innovation Index 2021 108 of 132 https://www.globalinnovationindex.org/analysis-indicator 
U.S. FDI in partner country ($M USD, historical stock positions) 2020 USD 1,111 https://apps.bea.gov/international/factsheet/ 
World Bank GNI per capita 2020 USD 2180 https://data.worldbank.org/indicator/NY.GNP.PCAP.CD 

4. Industrial Policies

5. Protection of Property Rights

9. Corruption

In February 2022, President Castro fulfilled her campaign promise to request support from the UN for an international anti-corruption commission (CICIH).  A UN Technical Assistance Mission visited Honduras in May 2022 to begin work on the request.  The commission would continue the work started by the OAS Mission Against Corruption and Impunity in Honduras (MACCIH) which left Honduras in 2020 after the former administration failed to renew its mandate. Though details are still under discussion, the commission would likely fill an investigative and prosecutorial role similar to MACCIH. Its mandate would likely extend beyond the current administration.  Several risks remain; notably, a broad amnesty law passed in February 2022 that would prevent the commission from investigating a significant number of cases, and unclear financing for the commission.

U.S. businesses and citizens report corruption in the public sector and the judiciary is a significant constraint to investment in Honduras.  Historically, corruption has been pervasive in government procurement, issuance of government permits, customs, real estate transactions (particularly land title transfers), performance requirements, and the regulatory system.  Civil society groups are critical of recent legislation granting qualified immunity to government officials and a 2019 law that gave the highly politicized government audit agency a first look at corruption cases.  Congress repealed the latter in 2022.  In 2018, Congress passed a revision of the 1984 penal code that lowered penalties for some corruption offenses. The new code went into effect in June 2020 and was retroactively applied to several high-profile corruption cases resulting in a spate of dismissals and retrials.  In late 2020, the GOH created a new Ministry of Transparency to act as the government’s lead institution in coordinating and implementing efforts to promote transparency and integrity and prevent government corruption. The Castro government further institutionalized the ministry’s anti-corruption mandate, naming it the Ministry of Transparency and the Fight against Corruption. The Castro administration’s Government by Results initiative should pay off in decreased vulnerability to corruption, and the ministers of Health and Economic Development both signed cooperation agreements with the country’s Anticorruption Council.

Honduras’s Rankings on Key Corruption Indicators:

Measure Year Index/Ranking
TI Corruption Index 2021 23/100, 157 of 180
MCC Government Effectiveness FY 2022 -0.12 (35 percent)
MCC Rule of Law FY 2022 -0.42 (10 percent)
MCC Control of Corruption FY 2022 -0.40 (16 percent)

The United States Foreign Corrupt Practices Act (FCPA) deems it unlawful for a U.S. person, and certain foreign issuers of securities to make corrupt payments to foreign public officials for the purpose of obtaining or retaining business for directing business to any person. The FCPA also applies to foreign firms and persons who take any act in furtherance of such a corrupt payment while in the United States. For more information, see the FCPA Lay-Person’s Guide:  http://www.justice.gov/criminal/fraud/  .

Honduras ratified the UN Anticorruption Convention in December 2005. The UN Convention requires countries to establish criminal penalties for a wide range of acts of corruption. The UN Convention covers a broad range of issues from basic forms of corruption such as bribery and solicitation, embezzlement, trading in influence, and the concealment and laundering of the proceeds of corruption. The UN Convention contains transnational business bribery provisions that are functionally similar to those in the Organization for Economic Cooperation and Development Anti-Bribery Convention.

Honduras ratified the Inter-American Convention against Corruption (OAS Convention) in1998. The OAS Convention establishes a set of preventive measures against corruption; provides for the criminalization of certain acts of corruption, including transnational bribery and illicit enrichment; and contains a series of provisions to strengthen the cooperation between its states’ parties in areas such as mutual legal assistance and technical cooperation.

Investment Climate Statements
Edit Your Custom Report

01 / Select A Year

02 / Select Sections

03 / Select Countries You can add more than one country or area.

U.S. Department of State

The Lessons of 1989: Freedom and Our Future