Honduras approves fiscal reform to head off debt crisis

TEGUCIGALPA Sat Dec 21, 2013 1:58pm EST

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TEGUCIGALPA Dec 21 (Reuters) - Honduras' Congress early on Saturday approved its biggest fiscal shakeup in over two decades with a reform expected to generate nearly $800 million in added revenues each year in a bid to tackle soaring public debt.

Honduras, the second poorest nation in Latin America, has seen its internal public debt more than quadruple since 2008 to $2.9 billion, with a deficit that stands at 6 percent of gross domestic product for two years running.

The debt crisis has kept the government from paying salaries and bonuses to thousands of public employees, and making transfer payments to the country's 289 municipalities.

The legislation raises taxes on gasoline and eliminates a sales tax exemption for dozens of basic consumer goods and services. Telecommunications services will also face higher sales tax under the law while an electricity subsidy will be reduced.

The law also freezes 2014 budget allocations and transfers to ministries, cities and state governments at their 2013 levels, while imposing new sanctions on officials who over spend.

The National Party, which holds the presidency and dominates Congress, pushed the law through before it loses control of the the legislative body next month.

The party's president-elect Juan Hernandez, who takes office on Jan. 27, will then be able to keep a campaign promise not to raise taxes during his administration.

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