(Reuters) - Ratings agency Standard & Poor's on Thursday upgraded the long-term sovereign credit rating of Honduras to B-plus from B, noting the long-term focus and reform implementation allowed by the more stable political environment.
"The upgrade follows the government's ability to restore good ties with external donors and reduce domestic political tensions, thereby creating an environment for recent progress in fiscal and pension reform and gradual exchange rate flexibility," S&P noted in a statement.
Honduras expects its economy to expand by up to 4 percent in 2012, helped by higher coffee prices and textile exports to the United States.
"Monetary and fiscal rigidities and shallow domestic capital markets are credit constraints," S&P added.
The rating has a stable outlook, the rating agency said.
"The stable outlook reflects our expectation that the recently achieved political stability will be sustained through the next election cycle," the statement read.
Honduras is the third poorest country in the hemisphere, following Haiti and Nicaragua. It currently faces insufficient growth and a fiscal deficit covered partly by international aid and internal debt, which has worsened the country's finances.
The B-plus rating puts it one notch above Moody's Investors Service, which has a stable outlook on the credit. Fitch Ratings does not rate the credit.
Honduras is now tied with Mexico for a spot as the world's No. 3 arabica coffee producer after Brazil and Colombia, according to the U.S. Department of Agriculture.
Read the Standard and Poor review of Honduras' political and economic situation here.