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BUDGET SUPPORT FICHE
HONDURAS
1. Overview of BS programme(s):
 Ongoing BS Programme(s)
In 2009, cooperation with Honduras, the second largest beneficiary of the EU assistance in
Latin America, suffered from the political conditions prevailing in the country. This included,
amongst others, the suspension of aid, with the exception of emergency assistance and
activities implemented by NGOs and other local bodies. Cooperation progressively resumed
in 2010, while the government was stabilizing the macro-economic conditions. Some budget
support programmes, namely APN and PROADES (pls. see below) were restructured as to
adapt to the new policies.
In 2011 two BS payments were made totalling some €12.5M.
- GBS "Poverty reduction – APN" (€60.5 million), 6.85 M paid in 2011 (representing the 1st
variable tranche). The maximum amount for this tranche was €12 million; however
performance was low, mainly as a consequence of the slow recovery from the post-crisis
2009.
- SBS "Decentralisation – PROADES" (€33.77 million), 5.6 M paid in 2011 (representing the
2011 fixed tranche).
- SBS "Food security programme" PASAH (€14M), no disbursement made in 2011. No
disbursement was foreseen for 2011. An Addendum was approved in early 2012 restructuring
the remaining € 3.555 M, expected to be disbursed in 2012.
- SBS "Phasing out PASAH" (€2M), no payment made in 2011. A fixed tranche of € 1M
could not be processed in 2011 and was deferred to 2012.
 New Commitments:
- 'Water and Sanitation and Quality Support Programme - PAPSAC' (total value of the
programme is €42.1M, due to lack of sufficient commitment credits approx. €26M were
committed in 2011 and the remaining amount was committed in January 2012).
 Other donors providing BS:
World Bank, Inter-American Development Bank, Germany and Spain also suspended their
BS programmes during the political crisis in mid-2009. Only IDB and WB have resumed
them since then. They provide Policy Development Loans which have characteristics of
General Budget Support.
2. National/Sector Development Performance
GBS - Poverty reduction
The Poverty Reduction Strategy Paper (PRSP) has been replaced by the Plan de Nación
(Nation's plan) adopted in 2010. This plan contains the policy priorities of the Honduran
Government in its fight against poverty and achievement of the MDGs. It puts forward the
main elements of the relevant sectoral policies and a clear monitoring system as well as a
multiyear budgetary framework.
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In 2011 the overall performance along the sector indicators was below the desired levels,
mainly resulting from the crisis in 2009 and partially due to the effects of the global downturn
2009/2010. The coup d'état in June 2009 seriously affected the education system, as most
schools were at the centre of blockages and disputes between the various political groups. The
traditionally powerful teachers' trade unions also played their role in the political scene. On
the other hand, the political instability did not allow for effective measures to mitigate the
effects of the global economic crisis and the state budget for 2010 could not accommodate the
needs for the provision of basic health services, thus resulting in a negative impact on the
reduction of children mortality in 2011.
The main social protection programme of the Government 'Bono 10 000' remained under
constant scrutiny and progress so far is assessed positively. In 2010 the programme covered
160 000 households and the objective (final data is not available yet) for 2011 was set at 300
000 (approx. 20% of the population).
Decentralisation
The political commitment to decentralisation within the Lobo Government remains firm and
decentralisation continues to stand high on the political agenda. The impetus that has been
given by the executive to the 'revival' of the decentralisation processes after several years of
lethargy are being backed also by the legislator. The main policy document of the
Government in the area of decentralization “Plan Estratégico 2010-2014: Programa
Descentralización para el Desarrollo Local en el Marco de la Visión de País 2038” has
remained valid and is undergoing implementation. Further to the Strategic Plan, the
Government has worked intensively on the draft 'Policy on Decentralisation for Local
Development' which suffered some delays, but eventually was presented in August 2011
together with a roadmap for the participative process related to its adoption.
In financial terms the rate of decentralisation of public expenditure is under constant scrutiny.
Figures show that starting from a very low baseline (approx. 3%) in 2009, there was a
moderate increase in 2010 (the year after the political crisis and in which the new Government
took office). Targets for the coming three years are as follows: 2011 – 8%, 2012 – 9%, 2013 –
10%. The objective is to achieve a 40% share of decentralised public expenditure in 2038.
Food security
In the framework of its major strategic document, the Plan de Nación, the new Government
confirmed the political commitment to advance in the area of Food Security and Nutrition and
to ensure the continuity in the implementation of the National Policy for Food Security and
Nutrition. Further to this in 2011, the National Strategy for Food Security and Nutrition was
adopted which covers the period 2010-2022. The institutional strengthening has continued
during 2011 with the official creation of Unidad Técnica de Seguridad Alimentaria y
Nutricional (UTSAN) and the Inter-institutional Technical Committee for Food security
(COTISAN). The gradual inclusion of the food security provisions within the regional
investment plans has also progressed during 2011. A major step forward was the launching of
the National Student Register which will be the tool to measure the weight and height of
students and hence elaborate and focus on nutritional studies.
3. PFM
The government has made an explicit commitment to achieve fiscal consolidation as part of
the IMF agreement, mostly by keeping spending in check to compensate for the modest
revenue growth. Efforts have been made to contain the traditionally high share of wages
(mainly in the education and health sectors) in the public expenditure (including
demonstrating tougher stance against union demands) and there have been attempts to
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introduce some new taxes, mainly on businesses and on financial transactions, to fund budget
increases in key sectors (such as security).
However, despite measures enacted so far, some tax reforms enacted by the Congress in July
2011 have since been contested in the courts by several private sector organisations, on the
basis that they violate the Honduran constitution. These measures included a security levy
aimed at large businesses and the wealthy, an income tax reform and an anti-tax evasion
measure. Further to this on the fiscal policy front, the IMF agreement entails a reduction of
the fiscal deficit from 4.8% in 2010 to 3.5% in 2011, but recent reports point to a best case
scenario of 3.9%, falling short of what has been agreed with the IMF.
A major achievement is the elaboration of a multi-annual macroeconomic framework in line
with the National Plan, published as part of the Budget Policy 2012-2015. Efforts have been
made also to address the issue of the 'floating debt', however SIAFI (Sistema de
Administración Financiera Integrada) system still presents a number of challenges, as some
decentralized institutions are not integrated in the system.
Two important documents have been issued in July 2011:
- 'Plan de Mejora de la Gestión, Transparencia y Escrutinio de las Finanzas Públicas' Aimed at
addressing the greatest weaknesses indicated in the PEFA 2009 and the OBI 2010 analysis;
- 'Plan de Transparencia y Lucha Contra la Corrupción' listing a series of measures in relation
to the above-mentioned plan and measures regarding public procurement.
Another relevant improvement is the regular publication on the website of the Ministry of
Finance quarterly reports on budget execution (http://www.sefin.gob.hn). The budget for 2012
was approved by the Congress in December. It is available on the above website.
An external evaluation on PFM in Honduras was undertaken in the first half of 2011 based on
the PEFA methodology. However this study covered the years 2008-2010 that included the
political turmoil period of 2009 which distorted to a great extent the results. There is a
common agreement between donors (EU, Germany, Spain, World Bank and IADB) to carry
out a comprehensive PEFA in 2012 and the Government has expressed its commitment to
engage in the assessment.
4. Macro-economic situation
The last mission of the IMF to Honduras for 2011 took place in the period 6-16/09/2011 to
review the 202 million USD Stand-By Arrangement (SBA) and Stand-By Credit Facility
(SCF) approved by the IMF Executive Board in October 2010. The mission confirmed that all
performance criteria and structural benchmarks agreed for end-June 2011 have been observed
(including the deficit of the consolidated public sector, and net international reserves).
The authorities reaffirmed their commitment to keeping the deficit of the combined public
sector at 3.1 % of Gross Domestic Product (GDP) in 2011 and to apply the monetary policy to
moderate inflationary pressures and to protect the external position. The end-year inflation is
expected to be kept within the central bank’s target range (6-8%). Annual inflation is expected
to average 6.2% in 2012-13, but consumer prices will remain vulnerable to supply shocks and
adverse weather.
Taking account of the recent deterioration in the global growth outlook and in particular in the
US, which is Honduras's most important trade and investment partner, the projection of real
GDP growth for Honduras in 2012 was revised down to 3.6 %. As for trade, it has benefited
over the last months mostly from a rise in agricultural prices (most notably coffee prices,
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Honduras’s largest single export), in contrast with the maquila sector, which has performed
less well owing to weak US import demand.
The current-account deficit is forecasted to reach 7.7% of GDP in 2013, owing to a high trade
deficit and a slow recovery of remittances. The current-account deficit will be financed by
inward foreign direct investment (FDI), which should reach US$1.1bn by 2013. With
multilateral and bilateral aid also expected to flow in, reserves should rise to US$3.8bn by
end-2013, providing around four months of import cover.
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