source: CEPR
On November 30, Hondurans will head to the polls to elect a new president and congress. The three leading contenders for the presidency are LIBRE candidate Rixi Moncada, a former finance and defense minister in the current Xiomara Castro administration; Liberal Party candidate Salvador Nasralla, who served as the country’s vice president for the first half of Castro’s term before resigning and joining the opposition; and Nasry Asfura, a former mayor of Tegucigalpa running for the National Party of former president Juan Orlando Hernandez.
The 2021 election of LIBRE’s Castro ended more than a decade of right-wing governance that had been ushered in by the 2009 military coup that ousted Castro’s husband, Manuel Zelaya. Hernandez, whom she replaced, is incarcerated in the United States for his involvement in the narcotics trade.
As CEPR has previously shown, the coup reversed the marginal progress made under Zelaya on social outcomes, with inequality, poverty, unemployment, and social spending all initially worsening under National Party governance. In 2019, poverty levels remained unchanged from 10 years earlier at the time of the coup.
The COVID pandemic hit Honduras especially hard in 2020, shrinking the economy by more than 10 percent and sending poverty rates soaring above 70 percent. Two major hurricanes added to the country’s difficulties. The circumstances remained highly challenging for Castro, who took office in early 2022, and her LIBRE party as they sought to recover from 12 years of governance marred by endemic corruption, electoral fraud and interference, social unrest, and violent state-led repression.
This brief will look at outcomes and policy choices under the Castro administration within the context of the upcoming elections. Though overall progress has been slow, there are indications that some of the structural changes pursued by LIBRE are beginning to show results. Poverty has come back down to pre-pandemic levels, inequality is continuing its downward trend, underemployment is at a low not seen in a decade, both public and private investment have reached new heights, and the country finds itself in a more sustainable economic position with low external public debt.
Nevertheless, Honduras remains the most impoverished country in Central America, and per capita GDP growth continues to lag behind regional peers, highlighting the challenges facing any incoming administration.
Economic Growth
Honduras reported 3.6 percent real (inflation-adjusted) GDP growth in 2024, with strengthened international reserves and a recovering export sector. It is expected to maintain 3.5 percent growth in 2025.
In terms of per capita GDP, Honduras averaged 2.0 percent annual real growth in the pre-pandemic period of 2016–2019, slightly higher than neighboring Guatemala and Costa Rica but lower than El Salvador, as illustrated in Figure 1. The COVID pandemic shock resulted in a sharp contraction of −10.5 percent, the largest decrease among its peers.
Real per capita GDP in Honduras is higher in 2025 than in the pre-pandemic era, and its growth averaged 2.0 percent annually between 2022 and 2025, slightly lower than its neighbors but virtually identical to the last years of the Hernandez administration.
As a primarily agricultural and textile-based economy, Honduras remains vulnerable to external shocks, including climate impacts, uncertain trade conditions stemming from US tariff policy, and commodity price volatility.
Figure 1
Source: International Monetary Fund, World Economic Outlook database.
Poverty
Addressing Honduras’s persistently high poverty rates will remain a significant challenge for the incoming administration.
Between 2014 and 2019, poverty levels changed moderately in Honduras, with the poverty rate decreasing from 62.8 percent to 59.3 percent, as shown in Figure 2.1 While extreme poverty decreased from approximately 40 percent to 36.7 percent during this period, the COVID pandemic shock caused a sharp spike to 53.7 percent by 2021 with overall poverty levels soaring above 70 percent.
In three years of LIBRE governance, the poverty rate has been reduced by about 15 percent. However, it remains above its pre-pandemic level. Recent public initiatives, including investments in public health and energy subsidies for vulnerable households, aim to support development and poverty reduction.
The LIBRE government also unveiled a series of new social programs, such as Red Solidaria, a conditional cash transfer program aimed at addressing extreme poverty. The completion of a census on urban poverty is expected to unlock additional financing to expand the program.
Figure 2
Source: Instituto Nacional de Estadística (INE) and Universidad Nacional de Honduras (UNAH). The Honduran government does not have available poverty figures for 2020 and 2022; these are UNAH estimates.
Income and Income Inequality
The real average monthly minimum wage in Honduras, illustrated in Figure 3, increased significantly during Castro’s administration and grew approximately 12 percent between 2022 and 2025, after having stagnated during the COVID pandemic.2 On average, the real minimum wage grew at an annual rate of 2.8 percent from 2022 to 2025, outpacing Hernandez’s last term from 2018 to 2021, during which annual growth of the minimum wage averaged about 2 percent.3 Looking at just the last three years, the real average minimum wage has increased by more than 4 percent annually, twice as fast as under the previous government.4
Figure 3
Source: Government of Honduras, Secretaria de Trabajo y Seguridad Social,5 and authors’ calculations.
Income inequality remains high in Honduras, with half of all income going to the wealthiest 20 percent of the population in 2024, while only 3.7 percent goes to the poorest 20 percent.6 As shown in Figure 4 below, inequality has nevertheless been in a steady decline over the past decade. The income share of the wealthiest fell from 54.5 percent in 2014 to 50 percent in 2024, while that of the poorest remained relatively stalled, ranging between 3.2 and 3.7 percent. Looking over the past 20 years, progress is more tangible, with the poorest 20 percent of the population having nearly doubled their share of income from 1.9 percent in 2005, although the majority of this change took place prior to the 2009 coup.
Figure 4
Source: World Bank, World Development Indicators.
Unemployment
Unemployment rates in Honduras have been in decline since 2021, as illustrated in Figure 5. The state of employment is measured by both an official unemployment rate as well as subemployment, which is defined as work with either insufficient hours or too little income. The sum of the two measures describes a total “underemployment rate.” While the unemployment rate is relatively low, subemployment is substantial in the largely informal Honduran labor market.
Subemployment in particular grew in the postcoup period, ranging between 40 and 54 percent during 2009–2014 and exceeding 55 percent every year between 2015 and 2019. Total underemployment skyrocketed during the COVID shock, reaching 82 percent in 2020. Between 2021 and 2024, it declined to about 49 percent, the lowest rate in the past 10 years. This can be attributed to improvements in both income and hours worked. Honduras has also seen significant gains in women’s employment, with overall women’s unemployment rates reaching its lowest point in a decade in 2023.
Figure 5
Source: Instituto Nacional de Estadística (INE), Permanent Multi-purpose Household Survey (Encuesta Permanente de Hogares y Propósitos Múltiples).
Public and Private Investment
Under the Castro government, the public sector has taken on a larger role in the economy. In 2023 and 2024, public sector spending contributed more to GDP growth than in any single year during the 12 years of National Party rule, with the exception of 2021, when the increase in public spending likely reflected the government’s belated response to the pandemic and preelection largesse.
This trend carried over to investment. Public sector investment, as measured by gross fixed capital formation, has traditionally been extremely low in Honduras, averaging 2.7 percent of GDP from 2010 to 2021. After an initial reduction in 2022, the LIBRE government increased gross fixed capital formation to 3.2 percent of GDP in 2023 and maintained a similar level last year, as shown in Figure 6 below. The International Monetary Fund (IMF) projects a modest increase in public investment for 2025.
Four years of LIBRE governance, however, has not crowded out investment in the private sector. In 2024, private sector gross fixed capital formation was higher than every year except one after the 2009 coup. Foreign direct investment was higher in 2023 and 2024 than during the last four years of the Hernandez administration.
In 2023, the Honduran government repealed the so-called ZEDE law that had allowed the formation of controversial semi-autonomous economic free zones like Honduras Prospera and that was later ruled unconstitutional by the country’s supreme court. Seeking more than $10 billion in damages, the largely US-based investors behind Prospera took the Honduran state to international arbitration. Last month, the claim was reduced to $1.6 billion. Last year, the Honduran government withdrew from the World Bank’s International Centre for Settlement of Investment Disputes, an arbitration body that rules on investor-state disputes — controversial legal suits in which private companies take sovereign governments to court over alleged contractual breaches.
Figure 6
Source: Central Bank of Honduras and authors’ calculations.
Remittances
As shown in Figure 7, the Honduran economy remains highly dependent on remittances, which represented over 25 percent of GDP in 2024, more than that of its neighbors. The relative contribution of remittances to these Central American economies grew substantially before and during the COVID pandemic period in each country except for Costa Rica. Income from remittances peaked in Honduras in 2022 at 27 percent of GDP. Since 2023, remittances as a percentage of GDP began to gradually decline, although the IMF reported an uptick in early 2025. The volume of remittances — overwhelmingly coming from the US — will partially depend on US immigration policy and enforcement.
Figure 7
Source: World Bank, World Development Indicators.
External Public Debt
In the period following the 2008 Global Financial Crisis, Honduras gradually increased its external public debt, like many developing countries taking advantage of favorable borrowing conditions. During the COVID pandemic shock, Honduras’s external public debt stock jumped from approximately 31 percent of GDP in 2019 to 39 percent of GDP in 2020, as illustrated in Figure 8 below.
Steady post-pandemic economic growth and fiscal stability brought external public debt down to roughly 27.6 percent of GDP by 2023, the latest available year for this data. Interest payments declined and then increased again, likely reflecting global rate hikes — led by the US Federal Reserve — starting in 2022. While sovereign debt risks are heightened globally, Honduras remains at low risk of external debt distress, according to the IMF.
Figure 8
Source: Authors’ calculations according to the International Monetary Fund, World Economic Outlook database, and World Bank International Debt Statistics.
Conclusion
The Castro government represented a clear break from the more than 10 years of National Party rule, with a renewed focus on public sector investment and increasing social spending. Nevertheless, per capita income gains continue to lag behind regional peers, while poverty and inequality remain stubbornly high.
Despite popular narratives depicting LIBRE as fiscally irresponsible and antibusiness, the Castro government has maintained an IMF program throughout its time in office and received praise from the IMF for its prudent fiscal management. Gross fixed capital formation — both public and private — and foreign direct investment have actually increased under the current administration.
Catalyzing growth through strategic investment and addressing persistent social inequities will remain key challenges for the incoming administration. However, whoever arrives in office will be in a much better place to do so than when Castro took over from Hernandez in 2022.
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