231

How Do We Measure Economic Freedom?

See page 471 for an explanation of the methodology
or visit the Index Web site at heritage.org/index.
2012 data unless otherwise noted.
Data compiled as of September 2013.
Quick Facts
Population: 8.2 million
GDP (PPP): $37.8 billion
3.3% growth in 2012
5-year compound annual growth 2.5%
$4,610 per capita
Unemployment: 4.4%
Ination (CPI): 5.2%
FDI Inow: $1.1 billion
Public Debt: 34.7% of GDP
Economic Freedom Score
Least Most
free free
50
25 75
0 100
0 20 40 60 80 100
Country Comparisons
Freedom Trend
Country
World
Average
Regional
Average
Free
Economies
2010 2011 2012 2014 2013
56
57
58
59
60
57.1
60.3
59.7
84.1
57.1
HONDURAS
World Rank: 112 Regional Rank: 19
H
ondurass economic freedom score is 57.1, making its econ-
omy the 112th freest in the 2014 Index. Its overall score is
1.3 points worse than last year due to deteriorations in six of
the 10 economic freedoms including investment freedom,
business freedom, freedom from corruption, and trade free-
dom. Honduras is ranked 19th out of 29 countries in the South
and Central America/Caribbean region, and its overall score
is lower than the world and regional averages.
Over the 20-year history of the Index, Hondurass economic
freedom has been stagnant. Scores for six of the 10 economic
freedoms, notably in the area of market openness assessed by
trade freedom, investment freedom, and financial freedom,
have improved. However, considerable deteriorations in the
management of public spending and the rule of law, measured
by property rights and freedom from corruption, have offset
these gains. Briefly rated a moderately free economy in
2003, Honduras has been ranked mostly unfree for the rest
of the history of the Index.
Business regulations are relatively benign except in the area
of labor relations. The government has been developing the
idea of charter cities to stimulate the economy, but broader
implementation of deeper institutional reforms is critical to
spurring more dynamic economic growth.
BACKGROUND: In June 2009, the legislature ordered the
military to arrest President Manuel Zelaya after he violated
the constitution by trying to amend it to run for another term.
The military deported Zelaya to Costa Rica, and Honduras
was expelled from the Organization of American States. Zela-
ya returned later that year and was not prosecuted. National
Party candidate Porfirio Lobo won the presidency in Novem-
ber 2009, and Honduras returned to the OAS two years later.
The constitutional crisis continued in 20122013, however,
with the removal of high-court judges by the legislature.
Political polarization, drug trafficking, violent crime, and
youth gangs are ongoing concerns. The economy, based tra-
ditionally on exports of coffee and bananas, has diversified to
include shrimp, melons, tourism, and textiles, but Honduras
remains one of Latin Americas poorest countries.
232 2014 Index of Economic Freedom
Property Pights
lreedom rom
Corruption
liscul lreedom
Covernment
Spending
8usiness lreedom
Lubor lreedom
Monetury lreedom
1rude lreedom
nvestment lreedom
linunciul lreedom
Business Freedom
Labor Freedom
Monetary Freedom
RCUlATCRY
ffICINCY
CPN
MARkTS
Trade Freedom
Investment Freedom
Financial Freedom
CCVRNMNT
SIZ
Fiscal Freedom
Government Spending
RUl Cf
lAW
Property Rights
Freedom from Corruption
0 20 40 0 80 00
0 20 40 0 80 00
0 20 40 0 80 00
0 20 40 0 80 00
Country World Average Rank Change
1Year
Score
RUl Cf lAW
CCVRNMNT
SIZ
RCUlATCRY
ffICINCY
CPN MARkTS
20.0
6.3
+l9.4
3.6
+0.4
l8.2
+7.3
+l4.4
+l0.0
+l0.0
93rd
140th
54th
53rd
136th
181st
102nd
96th
80th
41st
30.0
23.7
84.9
79.8
55.4
26.5
75.l
75.4
60.0
60.0
0
2.3
0.4
0.6
5.6
0.3
l.2
l.7
5.0
0
Long-Term Score Change (since 1995)
THE TEN ECONOMIC FREEDOMS
Weak institutions and corruption limit the countrys economic potential, and intensifying gang
and drug-related violence continues to pose a significant risk of political and social instability.
The court system is weak and inefficient, and resolution of disputed cases can take years. Laws
and practices regarding real estate differ substantially from those in more developed countries,
and fraudulent deeds and titles are common.
Earlier reforms have reduced the number of days and procedures required to launch a new
business, but overall progress in easing regulatory constraints lags behind other countries.
Getting necessary licenses costs over twice the level of average annual income. Much of the
workforce is employed in the informal sector. The government subsidizes electricity and con-
tinues to regulate the prices of key products (for example, fuel) and services.
The average tariff rate for Honduras is 7.3 percent. Foreign investors sometimes find it difficult
to have contracts enforced through the judicial system. The financial sector remains relatively
stable and continues to expand. There are two state-owned banks, but private banks dominate
the banking sector. There are few legal and regulatory barriers to entry, but most foreign banks
participation has been at a regional rather than national level.
The top individual income and corporate tax rates are 25 percent. A 5 percent temporary social
contribution tax for corporations will be phased out by 2015. Other taxes include a capital gains
tax and a general sales tax. The overall tax burden equals 16.1 percent of GDP. Public expendi-
tures equal around a quarter of gross domestic income, and government debt is 35 percent of
GDP. Growing deficits have eroded the countrys credit rating.
HONDURAS
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continued
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