Economic activity in Honduras fell by 1.9% as a consequence of Hurricane Mitch, which hit the country in October 1998. The decline in the economic situation, which was reflected in a 4.6% drop in per capita GDP, would have been even worse had it not been for the opportune arrival of international aid in the form of significant donations, concessional credits and the deferral of service payments on the country’s foreign debt. Accordingly, thanks to the reduction in the corresponding expenditure on interest and a strong increase in transfers from abroad, national income rose by 1.3%, while consumption also increased moderately. The export sector performed poorly and imports rose, leading to a significant increase in the deficit on the balance-of-payments current account. The fiscal deficit also expanded due to the increased expenditure required for the necessary reconstruction work. On the other hand, a tight monetary policy helped to keep inflation under control and to ensure that the depreciation of the exchange rate was fairly modest.

Related Subject(s): Economic and Social Development
Countries: Honduras
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