Mario Garza, the IMF representative observed that, “Despite a decline in public investment, the fiscal deficit rose markedly due to a substantial increase in current spending — mainly the wage bill — leading to a large increase in the public domestic debt.”

The mission’s statement claimed that the increase of central bank credit to the public sector contributed to a loss of international reserves. Honduras, therefore, needs to gear its monetary policy to protect the foreign reserve position and lower core inflation, said the statement. Honduras was asked to stabilize the public debt and improve the composition of public spending toward investment and poverty reduction.

Honduras’ economy contracted 2% in 2009 due to the global economic crisis and its domestic political turmoil, according to the IMF.