Honduras Public Expenditure Review : Strengthening Fiscal Resilience

Honduras remains one of the poorest and most unequal countries in the Western Hemisphere. Structural exposure to external shocks and natural hazards go hand in hand with high levels of crime, political instability, and a weak institutional and business environment. These problems have undermined the country's competitiveness and economic diversification, propelled emigration, and slowed progress toward raising incomes, reducing poverty, and tackling exclusion. Vulnerability to external shocks, natural hazards, and fiscal risks constitute important development challenges. The compound effect of the pandemic and two hurricanes in 2020 underscored the fragility of economic and poverty gains, and Honduras's exposure to potential reversals. Substantial fiscal risks coupled with insufficient risk management and inefficient and rigid public spending constrain the country's capacity to respond efficiently and effectively to shocks. The crucial challenge faced by Honduran policy makers is to reinforce fiscal resilience to achieve, to protect, and to sustain income and poverty gains. This Public Expenditure Review (PER) considers key fiscal challenges faced by policy makers to strengthen fiscal resilience and sustainability: significant fiscal risks and the high public wage bill