Millennium Development Goals for Honduras: Current Achievements and Forthcoming Challenges

The progress on many Millennium Development Goals (MDGs) in Honduras lags behind other countries in Latin America, and, if current trends continue, none of the MDGs are likely to be reached by 2015. Using a dynamic general equilibrium model extended to include explicit ‘production functions’ for MDGs (the MAMS model), a Business-asUsual (BaU) scenario is contrasted with several alternative scenarios. The BaU case shows only modest improvements in the poverty, education, health, and water-sanitation MDGs, despite assuming per capita growth rates well above the past decade averages and significant expansion of public provision of social services. Our simulations demonstrate that reaching the MDGs will require public expenditure in related service categories to more than double from business-as-usual levels, although significant cost savings are likely to be realized from various synergies across the MDGs. The vast increase in government spending has a number of economy-wide effects, including crowding out the private sector and a widening wage gap due to increased demand for skilled labor. At the same time, the achievement of the education MDG has important effects on the composition of the labor supply. The source of MDG financing determines whether the economy suffers from pronounced Dutch disease effects (foreign grant financing) or whether private consumption and growth are seriously penalized and poverty rises (domestic tax financing).