Throughout the 1980s, the Honduran government was heavily financed by foreign assistance. External financing--mostly bilateral credit from the United States--rose dramatically until it reached 87 percent of the public deficit in 1985, rising even further in subsequent years. By 1991 the public-sector deficit was enÍÍÍÍtirely financed with net external credit. That financing permitted the government to reduce the demand for internal credit and, therefore, to maintain its established exchange rate.

In 1991 President Callejas managed to give the appearance of having reduced the overall fiscal deficit, a requirement for new credit. The deficit decrease, however, was mostly an accounting device because it resulted from the postponement of external payments to the Paris Club (see Glossary) debtors and eventually would be offset by pressure to raise public investment. During 1991, loan negotiations with multilateral and bilateral lending institutions brought Honduras US$39.5 million in United States development assistance, US$70 million in balance-of-payments assistance in the form of cash grants, and US$18.8 million in food aid. The country also negotiated US$302.4 million in concessional loans from the multilateral lending institutions. Total outstanding external debt as a percentage of GDP fell from 119 percent in 1990 to 114 percent in 1991 and to 112 percent in 1993. This drop was largely the result of debt forgiveness of US$448.4 million by the United States, Switzerland, and the Netherlands. Scheduled amortization payments of an average US$223.2 million per year, however, guaranteed that Honduras's gross funding requirements would remain large indefinitely.

The government of Honduras projected that overall tax revenues would increase from 13.2 percent of GDP in 1989 to about 15.7 percent in 1991. Adjustments for low coffee prices and the continuation of lax collection methods, however, undermined those goals. Despite these tax increases, compared to developed countries, Honduras has low tax rates with particularly low property taxes.

Data as of December 1993