Honduras Foresees Ratings Upgrade as Budget Deficit Narrows

Honduras Finance Minister Wilfredo Cerrato said this week’s decision by Moody’s Investors Service to raise the country’s outlook to positive is a reflection of responsible government spending and he forecast a credit upgrade within a year.

Cerrato said the government expects to reduce its fiscal deficit to 3.8 percent of gross domestic product this year and 3 percent next year, down from 4.4 percent in 2014. Tax laws approved in 2013 have helped boost revenue 21 percent through April this year from a year earlier while the government has cut spending 9 percent, he added.

Moody’s raised Honduras’s outlook to positive from stable on Monday, citing “continued progress toward fiscal consolidation targets.” The $19 billion economy, known for its coffee and textile exports, is rated B3 by Moody’s, putting it in the same category as Ghana and Ecuador.

“We are reducing the deficit and we need less debt, therefore the government revenue stream is improving,” Cerrato, 43, said in a phone interview Wednesday from the northwestern city of San Pedro Sula. “We expect not only an improvement in the outlook, but also to climb a level in the ratings.”

Honduran dollar bonds have returned 6.7 percent this year, almost double the 3.4 percent average for emerging markets, according to JPMorgan Chase & Co.’s EMBIG index. President Juan Orlando Hernandez said in an interview last month that the country doesn’t need to sell dollar debt this year after reaching a three-year, $188 million agreement with the International Monetary Fund in December.

The government is seeking to simplify its tax code and reduce taxes for companies as it tries to boost investment in the energy sector, Hernandez said. The country of 8.6 million people was ranked 153rd out of 189 economies this year by the World Bank in terms of paying taxes.

While the economy expanded 2.9 percent in February from a year earlier, Cerrato said he projects economic growth to accelerate to 3.5 percent to 4 percent this year.