Moody's lowers outlook on Honduras to negative on deteriorating finances

Government bonds, already rated as junk, get junkier

By Tess Stynes 

Wall Street Journal

Moody's Investors Service lowered its outlook on Honduras's junk-level ratings to negative from stable amid concerns about the government's deteriorating finances and expectations that the nation is unlikely to reach a new agreement with the International Monetary Fund in 2013 because it is an election year.

The credit-ratings company has Honduras's bond and currency ratings at B2, or five levels into junk territory. A downgrade is possible if Honduras sees a continued and marked deterioration of its finances.

Moody's notes a temporary loss of multilateral budget support has increased the government's reliance on domestic funding, leading to higher financing costs. The Honduran government's interest payments amounted to about 10% of government revenue last year, compared with roughly 3% in 2008, Moody's said.

Though the government has said it would take steps to improve tax collection and improve fiscal oversight, Moody's said expects that will be difficult owing to coming elections in November.

Moody's also noted a steady deterioration in the nation's trade balance and stated that Honduras's current-account deficit expanded to 10% of gross domestic product last year from an average of 6% from 2009 to 2011. Moody's expects the current-account deficit to widen to 11% of GDP this year. The gap could expand even further, Moody's noted, as the country's largest export--coffee--is vulnerable to a rust leaf disease outbreak affecting Central America.