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Honduran Tax Reforms Win Credit Agency's Support

by Mike Godfrey,, Washington

18 May 2015

Moody's Investors Service on May 11, 2015, revised the outlook for Honduras's bond ratings to positive, up from stable, due in large part to the Central American country's successful fiscal reform efforts.

The fiscal deficit narrowed to 4.4 percent of gross domestic product (GDP) in 2014 from 7.9 percent of GDP in 2013, surpassing the Government's own target of 4.7 percent of GDP, the ratings agency said. This was thanks in part to tax reform that raised revenues by almost two percent of GDP.

The tax reforms implemented at the beginning of last year included an increase to the headline value-added tax (VAT) rate from 12 percent to 15 percent and the removal of certain VAT exemptions. The Government has also taken steps to improve tax administration. Authorities said at the end of last year that there is not much scope to further increase tax rates.

Moody's noted that Government officials are planning to deliver fiscal deficits lower than those agreed in December 2014 under an economic program backed by the International Monetary Fund (IMF). The Government is targeting a deficit of 3.8 percent of GDP in 2015, lower than the four percent target under the IMF agreement. The Government's target for 2016 is also three percent of GDP, rather than 3.4 percent.

The ratings agency said that the new "positive outlook" reflects its expectation that Honduras will continue to make steady progress in 2015 on fiscal consolidation and that the Government will continue to comply with targets set by the IMF program.

TAGS: tax | economics | value added tax (VAT) | fiscal policy | gross domestic product (GDP) | budget | International Monetary Fund (IMF) | tax rates | tax reform | currency | Honduras | Invest

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