Public debt: balancing prudence and risk

Following the 2013 fiscal reforms, Honduras shows consistent macro‑fiscal discipline. Its debt levels, debt‑service performance, and diversified financing instruments reflect this progress. Sovereign risk has improved, yet Honduras still holds one of the lowest credit ratings in the region and faces persistent fiscal pressures. For the new administration, fiscal sustainability will depend on the electricity sector and on strategic public‑debt management — especially the upcoming sovereign bond maturities. Directing public resources toward projects that raise productivity will help preserve the stability achieved.

• In 2024, Honduras reported public debt of 43% of GDP — well below El Salvador (88%), Costa Rica (60%), and the Dominican Republic (59%) (Figure 1).
• The fiscal deficit reached about 1% of GDP, placing Honduras among the countries with the lowest deficits — second only to Nicaragua, which recorded a surplus of 2% in 2024 (Figure 2).

• Between 2013 and 2016, the government introduced several fiscal reformsFootnote 1^[1] — including the Fiscal Responsibility Law (LRF)Footnote 2^[2] — that capped the deficit and current spending and strengthened tax collection. These measures slowed the pace of borrowing (Figure 3).
• In 2024, Central Administration debt reached USD 17.4 billion (47.9% of GDP), split almost evenly between domestic and external debt. The deficit remained below the LRF ceiling. (Figures 3 and 4).
• However, the National Electricity Company (ENEE) continues to pose the main fiscal risk. Since 2017, ENEE’s losses hovered around 1% of GDP, representing nearly the entire deficit of the Non‑Financial Public Sector (NFPS) (Figure 4)Footnote 3^[3].

How do the Central Administration and the NFPS relate to each other?

The NFPS includes the central government, local governments, and non-financial public enterprises (such as ENEE). The Central Administration (CA) is a sub-component of the NFPS and groups the institutions responsible for formulating and executing fiscal policy — ministries, secretariats, and others.

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Source: Glossary – SEFIN. Note: NFPS excludes the Banco Central and other public financial institutions, including CNBS, BANADESA, and BANHPROVI.

CA debt and deficit are higher because net NFPS debt incorporates the assets of pension and social security institutions, which reduces its fiscal deficit (Figure A).

Most of the NFPS's current debt stems from ENEE (Figure B). At end-2024, ENEE accounted for roughly 70% of the sector's fiscal deficit (equivalent to -0.7% of GDP). Analyzing both the CA's and the NFPS's fiscal positions is therefore essential for a comprehensive picture of public finances.

Figure A

NFPS vs. CA Deficit (% of GDP)

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Figure B

NFPS Deficit, ENEE vs. Others (% of GDP)

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• Multilateral creditors hold 66% of Honduras’s external debt (Figures 5 and 6), with a weighted average interest rate close to 3% (Figure 7)Footnote 5^[5].
• Sovereign bonds represent about one‑fifth of external debt. Their cost is higher than other sources (6.9% vs. 3–4%), but they provide fast access to external financing (Figure 7).
• About 90% of external debt is denominated in U.S. dollars, and 41% carries a variable rate, which increases exposure to exchange‑rate movements and global financial volatility (SEFIN March 2025).

• Domestic debt rose from roughly one‑quarter to nearly half of total public debt between 2008 and 2024 (Figure 8).
• The sharpest increase came between 2020 and 2021, when the Government turned to the domestic market for financing during the pandemic and the temporary suspension of the fiscal rulesFootnote 7^[7].
• Unlike multilateral financing, domestic debt is contracted in local currency under less favorable terms, with higher rates and shorter maturitiesFootnote 8^[8] (Figure 10).

• In 2024, debt service reached USD 2.5 billion, equal to 35% of current revenues, creating a substantial fiscal burdenFootnote 9^[9] (Figure 11).
• The share of variable‑rate debt increased from 7% in 2008 to 35% in 2024, heightening exposure to exchange‑rate swings and global interest‑rate volatility (Figure 12).

• Since 2022, country risk has declined. In 2025, the EMBI spread remained above Guatemala, Panama, and the Dominican Republic (Figure 13).
• Honduras continues to hold one of the lowest credit ratings in Central America — BB‑ (S&P) and B1 (Moody’s) — unchanged since 2017. In 2024, S&P revised Honduras’s outlook from stable to negative due to rising fiscal pressures and weaker growth expectations (Figure 14)Footnote 11^[11].

A. Moody's

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B. Standard & Poor's

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