Unpaid Bills Stalls Construction And Prompts Forecast Revision


BMI View: Public sector construction work has ground to a halt in Honduras after unpaid bills have forced workers to down tools. The government owes the industry an estimated US$100mn in payment for work, a symptom of the growing fiscal crisis underway in the country. The work stoppage has prompted a slight downward revision in our already weak 2013 growth outlook for the sector, from 2.7% to 2.1% y ear -o n -y ear , with further downside if the debacle is not resolved promptly.

Construction work at over 100 sites across Honduras was halted on February 5 th after members of the Construction Industry Chamber went on strike over unpaid government bills. In January the members had threatened to strike if bills were not paid by February 5 th; this demand was not met, and thus the workers downed tools. With the government unable to pay bills, workers have consequently not been paid.

Living Beyond Its Means
Honduras Fiscal Budget

The crisis has come about as Honduras struggles with bankruptcy on the back of increased debt servicing costs, high levels of corruption and failures to reign in fiscal expenditure during an election year. The construction sector is one of just a number of sectors hit by the government's lack of solvency, including the armed services, teachers and basic public services. Against this backdrop the government had struggled to pass a budget which would enable politically unpalatable spending cuts. This has further prevented the government from distributing funds. The budget was partially passed in mid-January, however a number of institutions (including the National Electricity Company (ENEE), the National Port Company (ENP) and the National Autonomous Service of Aqueducts and Sewers (SANAA)) were not included as agreements could not be reached, indicating further liquidity concerns ahead. We see little hope for fiscal consolidation over the near term, primarily due to increased political pressure in the run up to the elections in November 2013 and are subsequently forecasting a budget deficit of 6% of GDP for 2013, far above the government's estimate of 3.5%.

The lack of payment and subsequent work stoppage is likely to impact construction industry net output for the first quarter of 2013. Consequently, we have revised down our outlook for construction industry value real growth for the year as a whole from 2.7% to 2.1%, with further downside if work is on hold for a sustained period of time.

Work Stoppage Weighs On Outlook
Honduras Construction Industry Value And Growth

A broader concern is the refusal of members of the chamber to participate in government tenders for works unless guaranteed financing, even if work is approved in the budget. The issue presents two concerns: first a more lasting impact of the construction stoppage, with broader implications for projects in the pipeline, not only currently ongoing project, second, the loss of confidence in the government as a source of contracts and a business partner. This latter point will dent Honduras' hopes of attracting private investors into the infrastructure sector. Indeed, Honduras is currently studying potential models for developing the Palmerola airport through a public-private partnership (PPP). The country's Commission for the Promotion of Public Private Partnerships (COALIANZA) is in discussions with Spain's Advance Logistics Group for studies relating to the model. Our outlook for the implementation of PPPs in Honduras was already poor, given the high levels of security risk, lack of confidence in regulations and general business environment, and therefore this presents further risks.

This article is tagged to:
Sector: Infrastructure
Geography: Honduras, Honduras, Honduras, Honduras