The First 100 Days: Are We on Track?

In late February, the United States and Israel launched military operations against Iran. Iran responded by effectively closing the Strait of Hormuz, through which 20% of the world's traded oil passes. The impact on oil prices was immediate: WTIFootnote 1^[1], which averaged 60 dollars per barrel in January before the conflict escalated, closed the first quarter above 100 dollars.

For Honduras — a country that produces no oil and spends an average of 15.2% of its general merchandise imports on fuels — the impact flows through several mutually reinforcing channels. The annual fuel bill rises significantly relative to the 67-dollar-per-barrel average recorded in 2025 (BCH, 2026), demanding more dollars and pressuring the external accounts. At the same time, the dry season cuts hydroelectric generation and forces greater reliance on thermal generation — which closed 2025 at 41% of electricity supply — just as its main input has become more expensive. And the rise in fuel costs passes first into transportation costs, then gradually into the rest of the productive structure, with a final impact on household consumption. What this episode reveals goes beyond the immediate energy situation: Honduras's vulnerability to external shocks is structural.

Few Immediate containment options are readily available. Honduras, like several countries in the region, has chosen to subsidize part of the fuel price increase. The problem is well known: these measures ease household budgets in the short run but strain public finances, and become unsustainable if crude prices remain high for a prolonged period.

The most recent projections from the International Monetary Fund (IMF) illustrate the shift: in October 2025 it forecast a slight decline in energy prices for 2026; in April 2026 it projects a 19% increase, with oil rising 21.4% above pre-conflict expectations. If the war drags on, global growth could fall to 2.5% — versus the 3.4% projected before the conflict — and inflation could climb to 5.4%. The growth hit for energy-importing emerging economies is expected to be more than twice that for advanced economies.

In parallel, US trade policy maintains an environment of uncertainty. In February, the Supreme Court struck down the tariffs President Trump had imposed by executive order on nearly all imports into the country; these were immediately replaced with a temporary 10% surcharge on goods entering the United States, in effect for up to 150 days. In March, the US Trade Representative's office (USTR) also opened a forced-labor investigation that includes Honduras — no immediate sanctions, but with the potential to escalate.

This environment has reactivated trade negotiations worldwide. The IMF notes that tariff uncertainty has prompted a growing number of countries to close pending agreements or forge new partnerships to protect access to key markets. Honduras's exposure is high: the United States is its main trading partner, with goods trade of 12.5 billion dollars in 2025 and Honduran exports of 5.5 billion dollarsFootnote 2^[2], meaning any deterioration in that relationship has consequences felt across the entire economy.

The first quarter of 2026 closed with year-on-year inflation of 3.94%, within the BCH's tolerance band (4.0% ± 1.00 p.p.), but on a trajectory that reversed direction in March.

Honduras has a new thermometer. In January 2026, the BCH updated the commodity basket it uses to measure prices. What's new?

• The Consumer Price Index (CPI) calculation now uses a new base period (December 2025 = 100), built from the Encuesta Nacional de Ingresos y Gastos de los Hogares (ENIGH 2023–2024).
• The basket has grown — from 282 products and 313 varieties to 405 products and 710 varieties. 204 new goods and services have been added, while 201 items from the previous list are retained.
• Coverage has been expanded — from 8 cities in 7 regions to 34 cities in 8 regions, covering all 18 departments. Monitored establishments increased from 1,875 to 4,882, and weekly price observations from 31,212 to 65,510.
• Weights have been recalibrated. The share of each category now reflects current consumption patterns.
• The formulas have been updated following the CPI Manual 2020, adopting the Jevons elementary index and the Lowe index for higher-level aggregates.
• Historical series are unchanged. Splicing exercises were carried out to ensure comparability across periods.

For more information, see the document Metodología del Indice de Precios al Consumidor (IPC) base diciembre 2025 = 100 and the video at this link.

In January and February, the pace of inflation slowed relative to the end of 2025; during those months, price increases were driven mainly by some services and rents. March was the turning point: year-on-year inflation reached 3.94% and monthly inflation hit 0.72%, the highest in the previous twelve months. One figure captures what happened: the transport category accounted for nearly two-thirds of March's monthly inflation. The explanation lies in the rise in fuel prices. In Tegucigalpa alone, between January and March prices increased considerably: around 28 lempiras for premium gasoline, 22 for regular, 33 for diesel, and 52 for keroseneFootnote 3^[3].

What we see so far is the first-round effect: the rise in the cost of moving people and goods across the country. But fuel does not only power vehicles — it moves freight, generates electricity, and enters the costs of virtually every part of the productive chain. When those higher costs feed through into transport fares, electricity tariffs, and logistics costs, second-round effects begin. Signs of that transmission are on the near horizon: adjustments to electricity tariffsFootnote 4^[4] for the next quarter and announced increases in public transport point to broader pass-through in the coming months.

As a containment strategy, the government decided to continue subsidizing energy and fuels, absorbing 50% of weekly increases in diesel and regular gasoline and freezing the price of liquefied petroleum gas (LPG). The fiscal cost is significant and has already been acknowledged by the finance minister, who noted that the government spends more than 90 million lempiras per week on fuel subsidies.

In sum, the fuel shock — with more than fifteen consecutive weeks of price increases — is testing price stability in an economy that imports every drop of oil and its refined products it consumesFootnote 5^[5]. The pressures already visible in March will intensify as long as international crude prices remain high. Added to this are the potential fiscal effects of the subsidy on the fiscal deficit and public debt. All of this underscores something that goes beyond the current situation: as long as Honduras remains this dependent on fossil fuels, every geopolitical conflict will become an inflationary episode.

Honduras closed 2025 with real GDP growth of 3.8%, slightly above the 3.6% recorded in 2024 (BCH). While growth is a positive sign, when that 3.8% is broken down what emerges is an economy that grew on the back of domestic consumption driven by extraordinary external income (remittances and better prices), without converting that windfall into greater productive capacity. It is that composition — more than the number itself — that defines the starting point for 2026.

Consumer spending was, by far, the main driver: it contributed 3.9 percentage points (pp) of total growth, supported by a record flow of remittances — equivalent to 31% of GDPFootnote 6^[6] — and by a labor market with moderate improvements in participation (up 2.4 pp year-on-year) and employment (the unemployment rate fell 0.3 pp). In an election year, a 7.3% increase in public consumption was also key. In the other direction, net exports subtracted 3.1 pp: Honduras sold roughly the same volumes to the world as in 2024, but at much higher prices — starting with coffee, whose nominal value added nearly doubled, almost entirely through the price effect.

And investment? Essentially zero. Gross Fixed Capital Formation (GFCF) fell -0.1% in real terms, with private investment contracting slightly. High interest rates — tied to the increase in the MPR to 5.75% at the end of 2024 — hit construction and real estate directlyFootnote 7^[7], while electoral-cycle uncertainty may also have weighed on greater investment. Across productive sectors, the picture is similar: the fastest-growing sector was financial intermediation (+11.3%), capitalizing on the same high margins that may have constrained the rest of the economy, while the textile maquila sector (export processing) contracted for the third consecutive yearFootnote 8^[8] — a sector that generates more than 82,000 direct jobs is quietly shrinking.

The first 2026 data show no break in momentum. The cumulative change in the trend-cycle series of the Monthly Economic Activity Index stood at 4.1% through February, almost the same as in 2025 (4.0%). But the composition is shifting: the "Other Services" component — which includes public administration and net taxes — fell -31.8% in February, the reverse of the fiscal and electoral boost of 2025. By contrast, productive sectors are starting the year in positive territory: agriculture (+3.7%), manufacturing (+3.1%), trade (+3.3%).

The IMF projects growth of 3.3% for Honduras — above the Latin American average of 2.3%, but below 2025. The BCH, in its Monetary Program 2026–2027, places growth in a range of 3.0% to 4.0%, while warning that the balance of risks is tilted to the downside. The risks are concrete: remittances are moderating (growing 11% in the first two months versus 26% in 2025), the oil shock is eroding purchasing power, and the revised budget calls for more restrained public spending.

If the pillars that sustained growth in 2025 weaken, the impetus would have to come from investment — precisely the component that was absent. There are incremental signals pointing in the right direction: accession to ICSID, the improvement of the sovereign outlook by Standard & Poor's (S&P) (from negative to stable), the extension of the temporary import regime, and tariff negotiations with the United States. But from the other direction, measures to contain inflationary pressures could raise the cost of financing new investments.

2025 was a year of records for Honduras's external sector. Remittances closed at 12.2 billion dollars, the export value of coffee doubled, and the current account recorded a surplus for the first time since 1990 — excluding the atypical year of 2020. Total exports grew 24.9%, remittances 25.3%, and the trade deficit narrowed by more than 900 million dollars relative to 2024.

However, as shown in the growth section, the 2025 windfall was fundamentally a price phenomenon: real exports fell -0.4%. Coffee illustrates this clearly: its export value doubled, but the price per bag rose from 193.6 to 338.0 dollars (+74.6%) while volume grew a more modest 27%. Its share of nominal agricultural value added jumped from 25% to 39% in a single year, almost entirely through the price effect. The first 2026 data suggest a shift in the composition of that dynamic. In January–February, the export value of coffee reached 775 million dollars — 52% more than in the same period of 2025. But unlike last year, the impulse comes from volume: bags exported grew 47.1%, while the average price stabilized at 349.9 dollars per bag, just 3.5% above the 2025 level. If this trend holds, Honduras would be exporting more coffee, not just more expensive coffee — a more encouraging signal for the sustainability of the external sector.

Remittances grew 11.2% in the first two months of the year — slowing relative to the 26% of 2025, but still well above the historical average. And international reserves reached 10.86 billion dollars in March (6.6 months of import cover), adding 641 million in the first quarter alone.

But these strong data arrive at a moment when external conditions are worsening. The oil shock described in the international context section raises the fuel import bill — the largest dollar expenditure after capital goods — and could offset part of the trade balance improvement achieved by exports. On the trade side, tariff uncertainty with the United States persists, and a sharper slowdown in the US economy would simultaneously reduce demand for exports and remittance flows — the two pillars that sustained the external sector in 2025.

On the positive side, Honduras recorded bilateral surpluses with both the United States and Europe in January, and a recovery in banana exports — if sustained — would diversify an export basket that is overly concentrated. A strong reserves cushion also provides room to absorb exchange rate pressures. The challenge remains the one we raised in the previous Radar: converting extraordinary revenues into lasting productive gains — renovating the coffee-growing stock, preparing for the EUDR, reactivating the maquila — before the price cycle turns.

As of February 2026, the ENEE has accumulated debt of 4.4 billion dollarsFootnote 9^[9] — around 26% of the total debt of the Non-Financial Public Sector (NFPS) — with overdue bills to generators of approximately 790 million dollars (Figure 8)Footnote 10^[10].

The system records losses exceeding 38% of generated energy. Yet the tariff approved by the Comisión Reguladora de Energía Eléctrica (CREE) allows only up to 15% of those losses to be recovered through the tariff. The remainder — equivalent to around 500 million dollars during 2025 — represents excess losses: energy that enters the system but generates no revenue (Figure 9)Footnote 11^[11]. Although the monetary cost of losses fell in mid-2025, that improvement reflected a drop in the CREE tariff, not efficiency gains (Figure 10). And the margin between the approved tariff and the generation cost narrowed in the fourth quarter, limiting the capacity to cover transmission, distribution, and debt service costs.

This financial deterioration converges with a capacity constraint: after nearly a decade without tenders, a deficit of more than 1,000 MW is projected for 2029, in a context where investment lead times make closing that gap in the short term very difficult.

Institutional uncertainty compounds the problem. The government took office without filling key positions in the sector and without resolving the ENEE/Ministry of Energy duality established by the previous administration, prolonging ambiguity about the direction of necessary reforms in the electricity sector.

The new administration has signaled plans to move on several fronts, including reviewing the 1,500 MW tender and initial steps toward targeting the energy subsidy — a necessary measure, though pushed in the opposite direction by the external fuel shock. Without clear structural reforms, however, that tender — and those that follow — risks reflecting high risk premiums, resulting in contracts at uncompetitive prices. Investing in energy in Honduras is still seen as high-risk, and every quarter without change in the sector raises the eventual cost of adjustment.

The new government revised the previous administration's draft budget for 2026Footnote 12^[12]. The new figure stands at 444.23 billion lempiras, a reduction of more than 25 billion lempiras from the 469.25 billion lempiras proposed (a 5% cut). The adjustment implies reducing the NFPS deficit from 2.2% to 1.0% of GDP — in line with the Fiscal Responsibility Law (LRF)Footnote 13^[13] — reinforcing a fiscal consolidation strategy based on containing expenditure without creating new taxes.

Where are the cuts? The largest adjustment falls on economic affairs (−13%, equivalent to −16.32 billion lempiras), followed by social protection (−5%), education (−5%), and the environment (−43%, though from a small base). The only sector that increases is health (+5%) (Figure 11). The message is direct: the new administration is pursuing across-the-board austerity with one explicit exception in healthFootnote 14^[14].

The budget is 89% financed by national resources — mainly tax revenues (equivalent to 17% of GDP) and income from state-owned enterprises and pension funds. The remainder comes from debt (Figure 12). Total public investment stands at 45,101 million lempiras, concentrated in state modernization (30%), roads (22%), health (10%), and energy (10%) (Figure 13).

This spending restraint comes at a moment when financial obligations are mounting. As noted in the previous Radar, projected debt service for 2026 is 801.8 million dollars, with a peak of 1.51 billion dollars in 2027 due to the maturity of a 700-million-dollar sovereign bond issued in 2017Footnote 15^[15]. On top of this, the fuel and energy subsidies the government has committed to in response to the oil shock — spending not contemplated in the original revised budget — add pressure to an already tight fiscal space.

After 67 days of negotiation, the tripartite commission reached a two-year agreement on the minimum wage for 2026 and 2027, retroactive to January 1. The 2026 increases range from 6% to 7.5% depending on company size, above the 2025 inflation rate of 4.98%.

But beyond the specific agreement, the problem with minimum wages in Honduras is structural. Honduras sets 45 different minimum wages — a level of complexity unmatched in the region for a country at its income level. The values are not low: the legal minimum exceeds the average worker's income (Figure 14). The result is that 1 in 3 employed workers earns less than the minimum that applies to them (UNAH, 2026). Setting high values does not guarantee compliance; paradoxically, every increase widens the gap between the norm and reality. Available evidence indicates that a 10% rise in the minimum wage reduces formal employment by ~8% and increases informal employment by ~7% (Ham, 2018). Moreover, since minimums rise with firm size, growing has an implicit cost that rewards businesses staying small and informal.

In March, Congress approved the Part-Time Employment Law, which regulates workweeks of 18 to 32 hours with proportional rights — including contributions to IHSS, RAP, and INFOP. The law aims to formalize labor arrangements that currently exist outside all legal protection and could expand formal labor force participation, particularly among young people, students, and those with caregiving responsibilities. The risk — which unions have raised — is that it will be used to replace full-time jobs with part-time ones. The new law includes safeguards (a mandatory written contract, automatic conversion to full-time status if the 32-hour threshold is exceeded for three months), but its effectiveness will depend on enforcement capacity.

Both issues point to the same challenge: Honduras needs a labor framework that protects workers and makes it easier to be a part of the formal economy. With more than 70% of the labor force working informally, the rules matter as much as the numbers.

Honduras closes the first quarter of 2026 with some macro indicators that are, in several respects, the best in decades: international reserves at historic highs, falling sovereign risk, and inflation — through March — within the tolerance band. But when those figures are broken down, what emerges is an economy that grew by consuming, not investing; that exported at higher prices, not mainly greater volumes; and that faces an oil shock simultaneously pressing inflation, the balance of payments, and public finances — precisely in a context of fiscal consolidation.

The challenges are not new — the ENEE, the textile maquila, minimum wages have been building for years. What is new is that they now coincide with an external environment that makes them worse. There are signals pointing in the right direction: ICSID accession, the improved S&P outlook, the Part-Time Employment Law, tariff negotiations with the United States, and a budget oriented toward fiscal consolidation. If these translate into effective policy, they could begin to reverse a growth pattern that depends too much on consumption and too little on investment.

The margin Honduras has today — reserves, contained inflation, foreign exchange flows — is not permanent. It depends on coffee prices that could correct, on remittances tied to an uncertain migration context, and on a geopolitical conflict whose duration no one can predict. Using it to lay productive foundations is the task; consuming it without leaving investment behind is the risk.