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Document of The World Bank
Report No: ICR2702
IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA-50210)
ON A
CREDIT
IN THE AMOUNT OF SDR 55.1 MILLION (US$86 MILLION EQUIVALENT)
TO THE
REPUBLIC OF HONDURAS
FOR A
FIRST PROGRAMMATIC REDUCING VULNERABILITIES FOR GROWTH DEVELOPMENT POLICY CREDIT
May 8, 2013
Poverty Reduction and Economic Management Central America Country Management Unit Latin America and the Caribbean Region
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Honduras - Government Fiscal Year January 1 – December 31
Currency Equivalents
(Exchange rate effective as of April 30, 2013) Currency unit = Lempiras (Ls.)
20.0 Ls. = US$1
ABBREVIATIONS AND ACRONYMS
CCT Conditional Cash Transfer CPAR Country Procurement Assessment Report CPI Consumer Price Inflation CPS Country Partnership Strategy CPV Community Perception and Victimization Surveys DEI Tax Administration Unit (Dirección Ejecutiva de Ingresos) DPC Development Policy Credit ICR Implementation Completion and Results Report IDA International Development Association FHIS Honduran Social Investment Fund GDP Gross Domestic Product IADB Inter-American Development Bank IMF International Monetary Fund IHSS Honduran Social Security Institute (Instituto Hondureno de Seguridad Social) INE National Institute of Statistics INPREMA Teacher’s Pension Institute (Instituto Nacional de Previsión del Magisterio) INJUPEMP Public Employees’ Pension Institute (Instituto Nacional de Jubilación y
Pensiones de los Empleados Publicos) NCSCP National Citizen Security and Coexistence Policy OAS Organization of American States PDO Project Development Objective PRSC Poverty Reduction Support Credit PROHECO Honduran Community Education Program (Programa Hondureño de
Educación Comunitaria SE Ministry of Education (Secretaria de Educacion) SEFIN Ministry of Finance (Secretaría de Finanzas) SEPLAN Ministry of Planning (Secretaria de Planificacion) SEDS Ministry of Security (Secretaria de Estado en el Despacho de Seguridad) SMP Safer Municipalities Project UNDP United Nations Development Program USAID United States Agency for International Development
Vice President: Hasan A. Tuluy
Country Director: C. Felipe Jaramillo Sector Manager: Auguste Tano Kouame Lead Economist: Oscar Calvo-Gonzalez
Task Team Leader: Christian Y. González & R. Serrano-Berthet ICR Team Leader: Luc Razafimandimby
ICR Primary Author: Ana Lucia Armijos
REPUBLIC OF HONDURAS
Implementation Completion and Results Report for the First Programmatic Reducing
Vulnerabilities for Growth Development Policy Credit
CONTENTS
Data Sheet A. Basic Information ................................................................................................................................... i B. Key Dates ............................................................................................................................................... i C. Ratings Summary ................................................................................................................................... i D. Sector and Theme Codes ....................................................................................................................... ii E. Bank Staff .............................................................................................................................................. ii F. Results Framework Analysis ................................................................................................................ iii G. Ratings of Program Performance in ISRs ............................................................................................ iv H. Restructuring ....................................................................................................................................... iv Contents
1. Program Context, Development Objectives and Design ........................................................................ 1 1.1 Country Context at Appraisal ........................................................................................1 1.2 Country context during Implementation ........................................................................3 1.3 Original Program Development Objectives (PDO) and Key Indicators .......................5 1.4 Revised PDO and Key Indicators, and Reasons/Justification .......................................6 1.5 Original Policy Areas Supported by the Program .........................................................6 1.6 Revised Policy Areas .....................................................................................................9 1.7 Other significant changes ...............................................................................................9
2. Key Factors Affecting Implementation and Outcomes .......................................................................... 9 2.1 Program Performance ....................................................................................................9 2.2 Major Factors Affecting Implementation: ...................................................................11 2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization: ............12 2.4 Expected Next Phase/Follow-up Operation : ...............................................................13
3. Assessment of Outcomes ..................................................................................................................... 13 3.1 Relevance of Objectives, Design and Implementation ................................................13 3.2 Achievement of Program Development Objectives ....................................................14 3.3 Justification of Overall Outcome Rating .....................................................................17 3.4 Overarching Themes, Other Outcomes and Impacts ...................................................17 3.5 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops ............17
4. Assessment of Risk to Development Outcome .................................................................................... 18
5. Assessment of Bank and Borrower Performance................................................................................. 18 5.1 Bank Performance ........................................................................................................18 5.2 Borrower Performance .................................................................................................20
6. Lessons Learned ................................................................................................................................... 21
7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners ...................................... 21
Annex 1 Fist Programmatic Reducing Vulnerabilities for Growth DPC Policy Matrix .......................... 22 Annex 2. Bank Lending and Implementation Support/Supervision Processes ........................................ 26 Annex 3. Summary of Borrower's ICR and/or Comments on Draft ICR ................................................ 27 Annex 4. List of Supporting Documents ................................................................................................. 30
Map of Honduras ..................................................................................................................................... 31
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DATA SHEET
A. Basic Information
Country: Honduras Program Name:
First Programmatic Reducing Vulnerabilities for Growth Development Policy Credit
Program ID: P127331 L/C/TF Number(s): IDA-50210 ICR Date: 03/13/2013 ICR Type: Core ICR
Lending Instrument: DPL Borrower: GOVERNMENT OF HONDURAS
Original Total Commitment:
XDR 55.10M Disbursed Amount: XDR 55.10M
Revised Amount: XDR 55.10M Implementing Agencies: Ministry of Finance Co-financiers and Other External Partners: B. Key Dates
Process Date Process Original Date Revised / Actual
Date(s)
Concept Review: 09/12/2011 Effectiveness: 12/15/2011 Appraisal: 10/24/2011 Restructuring(s): Approval: 12/06/2011 Mid-term Review: 06/04/2012 Closing: 11/15/2012 11/15/2012 C. Ratings Summary C.1 Performance Rating by ICR
Outcomes: Moderately Satisfactory Risk to Development Outcome: Substantial Bank Performance: Moderately Satisfactory Borrower Performance: Moderately Satisfactory
C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings
Quality at Entry: Moderately Satisfactory Government: Moderately Satisfactory
Quality of Supervision: Moderately Satisfactory Implementing Agency/Agencies: Moderately Satisfactory
Overall Bank Performance: Moderately Satisfactory Overall Borrower
Performance: Moderately Satisfactory
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C.3 Quality at Entry and Implementation Performance IndicatorsImplementation
Performance Indicators
QAG Assessments (if any)
Rating:
Potential Problem Program at any time (Yes/No):
No Quality at Entry (QEA):
None
Problem Program at any time (Yes/No):
No Quality of Supervision (QSA):
None
DO rating before Closing/Inactive status:
Satisfactory
D. Sector and Theme Codes
Original Actual
Sector Code (as % of total Bank financing) Central government administration 50 50 Compulsory health finance 7 7 Compulsory pension and unemployment insurance 36 33 Other social services 7 10
Theme Code (as % of total Bank financing) Administrative and civil service reform 29 29 Debt management and fiscal sustainability 29 29 Other social protection and risk management 21 21 Social safety nets 7 7 Tax policy and administration 14 14 E. Bank Staff
Positions At ICR At Approval
Vice President: Hasan A. Tuluy Pamela Cox Country Director: Carlos Felipe Jaramillo Carlos Felipe Jaramillo Sector Manager: Auguste Tano Kouame Auguste Tano Kouame
Program Team Leader: Luc Razafimandimby Christian Y. Gonzales/Rodrigo Serrano-Berthet
ICR Team Leader: Luc Razafimandimby ICR Primary Author: Ana Lucia Armijos
iii
F. Results Framework Analysis Program Development Objectives (from Project Appraisal Document) The operation's Development Objective is to assist the Government in strengthening fiscal management and institutional mechanisms and programs responsible for an integrated violence prevention strategy. The DPC operation supports progress towards the Country Partnership Strategy objectives of: Expanding Opportunities, Reducing Vulnerabilities and Improving Citizen Security. Revised Program Development Objectives (a) PDO Indicator(s)
Indicator Baseline Value
Original Target Values (from
approval documents)
Formally Revised Target Values
Actual Value Achieved at
Completion or Target Years
Indicator 1 : The number of large taxpayers filling electronically increases by at least 10 percent
Value (quantitative or Qualitative)
335 large taxpayers in 2010
369 large taxpayers (1.10* 335) in 2012
The number of large taxpayers filing declarations electronically increased to 549, and other 62 large taxpayers are in the process of converting to electronic filing. This represents a 64% increase, surpassing largely the target
Date achieved 12/31/2010 12/15/2011 12/31/2012 Comments (incl. % achievement)
Achieved.
Indicator 2 : 100 percent of Honduran Community Education Program (PROHECO) teachers' pension contributions are flowing into INPREMA.
Value (quantitative or Qualitative)
Agreements signed between the Ministry of Finance, the Ministry of Education, and the Teacher’s Pension Institute on October 27, 2011, by which the Government formally incorporated the PROHECO teachers to the INPREMA pension system.
100% of the teachers of the PROHECO pension plan must be incorporated to IMPREMA
100% of all employer and employee's contributions for 2012 have been deposited with INPREMA.
Date achieved 12/15/2011 12/15/2011 12/31/2012
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Comments (incl. % achievement)
Achieved
Indicator 3 : Central Government's wage bill falls by at least 0.7 percent of GDP.
Value (quantitative or Qualitative)
The wage bill was 11 percent of GDP in 2010
10.3 percent of GDP by end 2012.
The Central Government wage bill in 2012 is 9.7 of GDP. The fall in the wage bill is 70% higher than the original target of 0.7 percent of GDP
Date achieved 12/31/2010 12/15/2011 12/31/2012 Comments (incl. % achievement)
Achieved
Indicator 4 : Average perception of insecurity has improved in the municipalities of the center, northern, and eastern regions where the "Safer Municipalities" Program is being implemented
Value (quantitative or Qualitative)
In 2010, the perception of insecurity reached 91percent (UNDP)
The indicator of the perception of insecurity should be 80 percent in 2012.
The data to assess performance of this indicator (perception of insecurity) was not available
Date achieved 12/31/2010 12/15/2011 12/31/2012
Comments (incl. % achievement)
Not rated Data was not available at the closing of the operation. The data will be collected in the first semester of 2013, during the implementation of the "Safer Municipalities" project approved on December 13, 2012
(b) Intermediate Outcome Indicator(s)
Indicator Baseline Value
Original Target Values (from
approval documents)
Formally Revised Target Values
Actual Value Achieved at
Completion or Target Years
G. Ratings of Program Performance in ISRs
No. Date ISR Archived
DO IP Actual
Disbursements (USD millions)
1 02/27/2012 Satisfactory Satisfactory 84.75 2 06/24/2012 Satisfactory Moderately Satisfactory 84.75
H. Restructuring (if any)
Not Applicable
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Implementation Completion and Results Report for a First Programmatic Reducing Vulnerabilities for Growth Development Policy
Credit to the Republic of Honduras
1. Program Context, Development Objectives and Design
This Implementation Completion and Results Report (ICR) describe the results of the First Programmatic Reducing Vulnerabilities for Growth Development Policy Credit (DPC) to Honduras. This single tranche loan of SDR 55.1 million (US$86.0 million equivalent) was approved by the World Bank Board of Executive Directors on December 6, 2011 and disbursed upon loan effectiveness on December 15, 2011. This operation, prepared under regular budget support procedures, was designed to support the Government’s efforts to reduce vulnerabilities and foster growth by strengthening fiscal management and institutional mechanisms and programs responsible for an integrated violence prevention strategy. Specifically, the operation supported four areas that are central to the Government’s reform program: (i) A tax administration reform focused on improving tax payer compliance; (ii) A reform of the Pension System designed to lessen contingent fiscal vulnerabilities by achieving sustainable financial balances in the Teacher’s Pension Institute (IMPREMA) and the Public Servant’s Pension Institute (INJUPEMP), incorporating the Honduran Community Education Program (PROHECO) teacher’s pension plan to INPREMA, and stabilizing the Social Security Institute (IHSS) long-term financial situation; (iii) A Civil Service Reform focused on achieving a fiscally sustainable wage bill; and (iv) Improving Citizen Security, focused on strengthening institutional coordination mechanisms and programs needed for an integrated violence prevention strategy. The DPC operation supported progress towards two of the (2012-2014) Country Partnership Strategy objectives of improving citizen security and expanding opportunities through reducing vulnerabilities. This DPC was the first in a series of two programmatic single tranche Development Policy Credits, but became a stand-alone operation once the second programmatic subsequent loan was dropped in response to fiscal slippage in 2012, and a significant risk of further deteriorating fiscal performance in 2013. While the first DPC helped address several long standing structural issues related to the pension and public sector wage bill, these reforms alone were not enough to ensure the macroeconomic framework remained adequate. 1.1 Country Context at Appraisal Political Context
In June 2009, the Honduran Supreme Court ordered the removal of President Zelaya following his decision to conduct a referendum to allow him to convene a National Constituent Assembly to rewrite the Constitution and stand for re-election. Following these political developments, much of the international community put aid programs on hold, although a number of donors continued implementation of projects, particularly those focused on the poor. The Bank followed a process consistent with Operational Policy (OP) 7.30, which included conducting an assessment of the prevailing
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situation with respect to the de facto Government. During the assessment period the Bank “paused” the implementation of the existing portfolio and no new lending was approved. The Bank resumed disbursements in December 2009, once it was clear that the conditions of Operation Policy 7.30 were fulfilled.
Porfirio Lobo from the National Party won the November 2009 elections with 55 percent of votes cast. After President Lobo was inaugurated on January 27, 2010, the new Government quickly set about a series of actions aimed at easing political tensions. Some of the most important steps included: establishment of a Truth and Reconciliation Commission; working with Congress on important Constitutional reforms; restoring diplomatic relations with partner countries; and prompting re-engagement with the international community and development partners. The Government also faced a major challenge bringing the fiscal situation under control (see below). In June 2011, Honduras’ membership in the Organization of American States was restored, marking a milestone in the country’s efforts to normalize international relations. Despite these advances, there continued to be concerns of latent political instability and the widespread public sentiment appeared to be that change was not happening fast enough.
Economic Context
Honduras is a lower middle income country with broad growth, security and development challenges. The country remains one of the poorest and most unequal countries in Latin America. It is Central America’s second most populated country, with 8.2 million people, and the second largest in size. About half of the population is rural, 80 percent of which live in hillside areas, practicing subsistence agriculture. It has the highest poverty rate in Central America, with 66 percent of poor and 45 percent of extreme poor in 2010, and with a low sensitivity of poverty reduction with respect to growth. Average in LAC is 2 percent while in Honduras is less than 1 percent. Inequality in income distribution is also among the highest in Latin America with a Gini index of 0.58 in 2010. Human development challenges persist, particularly with regards to educational attainment and gender gap. Honduras is also one of the most at-risk countries to natural hazards, and its national infrastructure suffered substantial damages from the 1998 Hurricane Mitch and subsequent storms. The Honduran economy recovered quickly from the global crisis and the internal political crisis of 2009 and presented a moderate growth in the period 2010-2011. After contracting by 2.4 in 2009, GDP grew by 3.7 percent a year in 2010 and 2011 due to the strong recovery in exports and in foreign and public investment. Economic growth was also supported by increases in remittances from the US. However the recovery was accompanied by deterioration in the external balance and an increase in inflation. The current account deficit increased from 4.0 percent of GDP in 2009 to 5.3 and 8.5 percent in 2010 and 2011, respectively. This reflects a jump in the trade deficit due to higher world oil prices, which also contributed to boost the inflation rate that reached 6.5 and 5.6 percent in 2010 and 2011, up from 3 percent in 2009. The surge in the current account deficit was financed primarily by an increase in foreign direct investment and long term public sector borrowing (Table 1).
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The Administration took a series of corrective measures aimed at stabilizing the fiscal situation. The Government’s strategy comprised tax reforms and spending cuts, including measures to control public sector wages and especially teacher salaries. The international community supported the country’s fiscal consolidation efforts through World Bank Fiscal Emergency Recovery Development Policy Credit, the IMF Stand-By Arrangement and Standby Credit Facility programs, and budget support operations from the IDB, European Union, and the Central American Bank for Economic Integration. As a result of the Government’s consolidation efforts, the combined public sector deficit reached 2.8 percent of GDP in 2010 and 2011, down from 4.5 percent in 2009. However, fiscal control weakened in 2011 and the public debt ratio increased to 32.1 percent of GDP from 24.6 percent of GDP in 2009. Deteriorating citizen security is undermining Honduras’ growth potential and investment climate, and its social and human development progress. The annual economic costs of crime and violence have been estimated at near 10 percent of GDP (nearly US$900 million). The UN Office on Crime and Drugs (UNODC) has estimated that Honduras's homicide rate in 2011 was as high as 92 per 100,000 inhabitants, the highest in the world.
1.2 Country context during Implementation
Economic activity continued strong in 2012 but its pace of expansion decelerated while inflation remained broadly stable. GDP growth in 2012 reached 3.3 percent reflecting partly a contraction of the maquila sector. The rate of inflation was 5.4 percent at end 2012, slightly below the level of 2011, due to favorable commodity prices developments during most of the year. However, less favorable terms of trade and a robust domestic demand widened the external current account deficit that increased from 8.5 percent of GDP in 2011 to 9.9 percent in 2012. The oil bill weighs heavily in the increase in imports and exports have been affected negatively by the decrease in coffee prices and a decrease in volume of textile products due to a lower external demand from the US. The increase in the current account deficit was financed primarily by an increase in public debt that rose from 32.1 percent of GDP in 2011 to 34.7 percent of GDP in 2012. The Bank was responsive and quick to help the Government in a difficult political and social environment given the promising fiscal situation at project inception. However, the Government fiscal efforts weakened, increasing downside risks and vulnerabilities, creating a disappointing reversal. In 2012, fiscal policy became expansionary reflected in a faster increase in real expenditure compared to 2011. Central Government total expenditures increased from 21.6 percent of GDP in 2011 to 22.8 percent of GDP in 2012. On the revenue side, tax revenue growth declined sharply despite the fact that in June 2011 Congress approved the Efficiency of Revenues and Expenditures Law eliminating some tax exemptions and enforced new measures against tax evasion; and the Reforms of the Population Security Law, that created temporary taxes to finance security and social prevention. The decline in tax revenue reflected continuing tax exemptions, weak revenue administration, the expiration of tax measures adopted in 2010, and a Supreme Court ruling against changes to the income tax from
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2011. The central government deficit widened to 6 percent of GDP in 2012, from 4.6 percent of GDP in 2011. Due to financing constraints and weakening confidence the Honduran economy is projected to maintain in 2013 the same economic activity growth rate as 2012. Honduras is one of the most vulnerable countries in the region with exports and remittances being the main channels of transmission of external shocks to the economy. The fiscal space to counteract external shocks through expansionary fiscal policy is limited, and the authorities’ ability to use monetary policy stimulus is also restricted by the narrow foreign exchange band. Although social protection systems—including the conditional cash transfer program Bono 10,000—are in place, there is limited scope for expansion due to fiscal constraints. Looking ahead, real GDP growth is projected to remain at 3.3 percent in 2013, while inflation is expected to rise to about 6 percent. The combined public sector deficit is projected to increase to 4.6 percent of GDP as a slight increase in revenues is outpaced by higher current spending, notably on domestic interest payments. Finally, the external current account deficit is projected to rise to over 11 percent of GDP, driven partly by strong import growth.
Table 1 Honduras - Selected Economic Indicators
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Given the increasing importance of the citizen security agenda in Honduras, the Government introduced several police-led security initiatives. In November 2011 the president launched "Operation Lightening" that relied for the first time on considerable numbers of soldiers as well as police officers, patrolling the cities and rural areas. Most reliable statistics suggest, however, that few tangible results have been achieved. According to the Observatorio de la Violencia at the national autonomous university, which monitors violent crime rates, the number of murders rose from 7,014 in 2011 to 7,173 in 2012, maintaining Honduras's homicide rate as the highest in the world.
1.3 Original Program Development Objectives (PDO) and Key Indicators (as approved) The operation’s Development Objective was to assist the Government in strengthening fiscal management and institutional mechanisms and programs responsible for an integrated violence prevention strategy. In this regard, the DPC operation supported progress towards the Country Partnership Strategy objectives of expanding opportunities and reducing vulnerabilities and of improving citizen security. Both, the DPC and the CPS were presented jointly to the Board of Executive Directors on December 6, 2011. Directors stressed the importance of policy continuity in all the proposed areas and encouraged the Bank’s efforts to identify and mitigate risks associated particularly with implementation capacity. The Key Economic Indicators, expected to be achieved by December 2012, were the following: I. Improving Tax administration by :
Increasing the number of large taxpayers filing electronically by at least 10 percent from a baseline of 335 large taxpayers in 2010.
II. Reforming the pension systems to lessen contingent fiscal vulnerabilities through:
Incorporating 100 percent of the PROHECO (Honduran Community Education Program) teachers' pension contributions into INPREMA (Teacher’s Pension Institute).
III. Reforming Civil Service to achieve a fiscally sustainable wage bill by:
Reducing the Central Government’s wage bill by at least 0.7 percent of GDP from a baseline of 11 percent of GDP in 2010.
IV. Strengthening Citizen Security through:
Improving the average perception of insecurity in the municipalities from the center, northern, and eastern regions where the “Safer Municipalities” Program is being implemented, so as to reduce the percentage of insecurity felt from a baseline of 91 percent (UNDP 2010) to 80 percent in 2012.
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1.4 Revised PDO (as approved by original approving authority) and Key Indicators, and Reasons/Justification
Neither the program development objectives nor the core outcome indicators were revised.
1.5 Original Policy Areas Supported by the Program (as approved) The Lobo Administration’s priorities derived from the Government’s Country Vision 2010-2038 and National Plan 2010-2022 approved by Congress in 2010 included the strengthening of macroeconomic and fiscal management in order to achieve economic growth at rates above population increases. The First Programmatic Reducing Vulnerabilities for Growth was a regular budget support operation, prepared to support key elements of the government’s strategy. These included: (i) reforming the country’s tax system to raise collections and improve tax administration; (ii) reducing the actuarial deficit of public pension and health institutions; and (iii) bringing the public wage bill under control in key sectors, with a focus on education. The program also included a fourth policy area (iv) aimed at ensuring the rule of law and controlling crime and violence. In particular the DPC operation supported the violence prevention strategy and inter-institutional coordination mechanism of the citizen security policy. Policy Area I: Tax Administration Reform
This component supported the Government efforts to improve tax administration through approving a registry of large taxpayers and strengthening the large taxpayer unit within the Tax Administration Agency (DEI). As a result of tax reforms approved by Congress, such as Law 17/20101, revenue as a share of GDP increased from 14.4 percent in 2010 to 14.8 percent in 2011. Direct tax revenues rose from 4.8 percent in 2010 to 5.2 percent of GDP in 2011, and indirect taxes increased from 8.8 percent to 8.9 percent of GDP in 2010 and 2011, respectively (Tables 1 and 2). Despite this increase in tax collections, they did not met expectations partly because of weaknesses in tax administration. The Tax Administration Agency (DEI) had identified important operational capacity constraints that explained the underperformance of tax collection units. In particular, the Large Taxpayer Unit, responsible for collecting close to 80 percent of Central Government revenues, had important operational deficiencies. Under this component the Government committed itself to approve a plan to strengthen the large taxpayer unit within DEI, to create a registry of large taxpayers and to focus on substantial improvements of the operational capacity of the large taxpayer unit. Also, new IT developments, including tax registry, e-filing and taxpayer services that were tested in a small portion of taxpayers, would be extended to the whole taxpayer base.
1 Law 17 on Strengthening of Revenues, Social Equity and Rationalization of Public Spending, introduced a number of tax policy changes that were estimated to raise revenues by 1 - 1.5 percent of GDP on an annual basis over three years
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Table 2 Central Government Current Revenues (Percent of GDP)
In the medium term the Government committed itself to further strengthen tax administration as evidenced by the reduction in the number of incompliant large taxpayers to below 2.5 percent of the total from a baseline of 2.77 in 2011. To that end the authorities have to: a) to elaborate a report of those who have not filed their returns, b) to implement a system for sending reminders and c) to make a telephone follow-up plan for incompliant tax-payers. Policy Area II: Reform of the Pension Systems
This component of the operation was aimed at (a) reducing the actuarial deficits of the public pension systems, (b) regularizing the pension regime for the teachers of the Honduran Community Education Program (PROHECO), and (c) stabilizing the IHSS long-term financial situation. (a) The Honduran pension system is implemented by five institutions covering 21 percent of the working age population ages 20 to 60 and 10 percent of the population over 60 years old. The system is facing financial problems due to structural design issues such as aging population, early retirement ages, and low contribution ratios in most of the system’s institutions, in particular INPREMA and INJUPEMP 2 , resulting in critical actuarial situations. To ensure continuity of operations and reduction of the actuarial deficits, parametric changes in the operational rules had to be introduced by law. The implementation of the legal reforms would reduce the actuarial deficits by 43 percent for INPREMA and 51 percent in the case of the INJUPEMP. (b) PROHECO3 was created in 1999 as a policy action to help improve the coverage, quality and accountability of education in the most relegated areas of the country. However, the program had not validated the teachers as public employees. And as a result
2 INPREMA: Teacher’s Pension Institute ( Instituto Nacional de Previsión del Magisterio) INJUPEMP: Public Servant’s Pension Institute (Instituto Nacional de Jubilación y Pensiones de los Empleados Publicos) 3 PROHECO: Honduran Community Education Program (Programa Hondureño de Educación Comunitaria)
2008 2009 2010 2011 2012
Total Current Revenues 17.8 15.2 15.5 15.9 15.9
o/w Tax Revenues 16.1 14.2 14.4 14.8 14.6
Direct Taxes 5.2 4.7 4.8 5.2 5.0
Income Taxes 4.5 4.1 4.0 4.4 4.4 Other Direct Taxes 0.7 0.6 0.8 0.8 0.6 Indirect Taxes 9.8 8.7 8.8 8.9 8.8
Excise 0.8 0.7 0.7 0.7 0.7 Sales 6.3 5.2 5.4 5.7 5.6 Other Indirect Taxes 0.6 0.6 0.6 0.6 0.6 Fuel Tax 2.1 2.2 2.1 1.8 1.9 Tariffs 1.1 0.7 0.8 0.8 0.8
Source: Ministry of Finance
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PROHECO’s teachers did not have the certainty of which institution would pay their pensions. Therefore, this component of the DPC was intended to assist the Government in complying with the agreements agreed upon by a Tripartite Commission (INPREMA, SEFIN, and SEDUC) and regularizing the situation so that PROHECO’s teachers would be fully incorporated to INPREMA and would have the same pension coverage as the teachers participating in the latter. (c) The Social Security Institute of Honduras (IHSS) faces financial problems stemming from both its health and pensions obligations. The IHSS manages the pensions of the private sector and municipal employees, as well as medical and workers’ insurance. To strengthen the financial situation of the IHSS, the Government had to increase the maximum salary subject to contribution to IHSS, improving its cash flow. In the medium-term the Government will prepare a long-term plan to tackle remaining issues. These include: INPREMA would maintain constant net worth of at least L$18,000 million in real terms; INJUPEMP maintains constant net worth of at least L$15,000 million in real terms; 100 percent of the PROHECO teachers are legally eligible to receive pension payments from INPREMA; The Government will draft a new law to reform IHSS separating the health and pensions management. Policy Area III: Civil Service Reform
This component aimed at ensuring a fully sustainable wage bill, by anchoring pay negotiation with the previous year’s inflation; assuring equity of salary increases by establishing a uniform pay adjustment methodology for all public servants; and strengthening the monitoring of the teacher’s payroll. Achieving a fiscally sustainable wage bill is a crucial challenge for the public administration. Increases in teachers’ salaries together with the creation of new posts and lack of an adequate payroll management, pushed the wage bill from 8.3 percent of GDP in 2006 to 10.9 percent of GDP in 2009, or about 75 percent of tax revenues. Teachers’ salaries accounted for 53 percent of the Government’s wage bill. Although since 2010 the Government had made significant efforts to contain personnel expenditures, the creation of new positions and salaries negotiation were areas of concern due to the lack of legal and management control instruments, particularly in the education sector. This component supported the Government’s efforts to ensure equity of salary increases for all public employees, by submitting to Congress a bill to establish a uniform pay adjustment methodology; and to strengthen the monitoring of the teacher's payroll, by establishing a single database for 80 percent of the public employees (including teachers), creating a payroll management and control unit within SEFIN, and approving a consolidated set of rules to manage human resource processes in the education sector. The implementation of these reforms was expected to reduce the wage bill by at least 0.7 percent of GDP so that it would reach about 10.3 percent of GDP by end 2012. In the medium-term the Government Agenda would commit to achieve a fiscally sustainable wage bill. This would include strengthening controls over payroll in other key sectors beside education and planning to work towards achieving other key human resource management objectives, such as improving the attraction and retention of
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qualified personnel and the professionalization of the civil service. The Central Government’s wage bill would fall to below 9.8 percent of GDP. Policy Area IV: Improving Citizen Security This pillar of the operation supported the Government’s efforts towards prevention of crime and violence aimed at achieving the development and poverty reduction objectives. The systemic nature of crime and violence had become one of the most important obstacles to good governance, growth, human and economic development in Honduras. Over the past decade, the Government has been unable to develop a comprehensive and integrated policy that can meet this challenge. Efforts to prevent violence by addressing its multiple causes have been marginal, underfunded, and sporadic. However, a few innovative experiences at the municipal level have shown the importance of coordinating actions at a local level. The current Administration has approved an integrated National Citizen Security Policy comprising the creation of the National Security Council and the National System of Citizen Security, with the local governments being at the forefront of the innovations. Despite the progress achieved, the efforts are still isolated and there is lack of evaluations to measure their effectiveness. This component was intended to support the Government efforts towards the adoption of a violence prevention strategy focused on youth at risk, conflict resolution, road safety, and citizenship building so as to improve the average perception of insecurity in the municipalities from a baseline of 91 percent in 2010 to a target of 80 percent in 2012. In the medium-term the Government will develop an Action Plan to ensure an effective implementation of its National Citizen Security Policy. An indicative outcome indicator would be the reduction of gun- related homicides at the national level from a baseline of 83 percent in 2010 to a target of 75 percent in 2013.
1.6 Revised Policy Areas (if applicable) N/A 1.7 Other significant changes N/A
2. Key Factors Affecting Implementation and Outcomes
2.1 Program Performance
Upon the completion of all prior actions, the First Programmatic Reducing Vulnerabilities for Growth DPC was approved by the Board on December 6, 2011 and signed the following day. The single tranche operation became effective on December 15, 2011 and was disbursed following effectiveness. The quick disbursement fulfilled a critical role in helping to fill the 2011 financing gap of the Government, and the loan closed on December 15, 2012. The DPC was the first programmatic lending operation envisaged in CPS for FY12, which was presented to the Board simultaneously with this DPC and was intended to contribute to the CPS objectives of reducing vulnerabilities for growth and improving citizen security.
10
Table 3. Objectives, Prior Actions and Status
Objectives Prior Actions for Board Approval of the First Programmatic Loan
Status
I. Tax Administration Reform Improve tax administration
To improve taxpayer compliance, the Government has: Approved a plan to strengthen the large taxpayer unit within
DEI, as evidenced by Agreement DEI SG 118-2011, dated May 16, 2011, and published in the Recipient’s Official Gazette on October 25, 2011; and
Approved a registry of large taxpayers, as evidenced by Agreement DEI SG 043-2011, dated March 18, 2011, and published in the Recipient’s Official Gazette on June 25, 2011.
Completed
II. Pension Reform Achieve sustainable actuarial and financial balances in INPREMA and INJUPEMP
To reduce the actuarial deficits of the public pension systems, the Government has: Submitted to Congress, for approval thereof, a bill of law to
reform INPREMA’s pension system, as evidenced by acknowledgement signed by the first secretary of Congress, dated October 26, 2011; and
Submitted to Congress, for approval thereof, a bill of law to reform INJUPEMP’s pension system, as evidenced by acknowledgement signed by the first secretary of Congress, dated April 26, 2011.
Completed
PROHECO teachers’ pension plan incorporated into INPREMA
To regularize the pension regime for the PROHECO teachers, the Govt. has formalized the incorporation of the PROHECO teachers to the INPREMA pension system, as evidenced by: Agreement signed among SEFIN, SE and INPREMA
(Convenio de Afiliación), dated October 27, 2011; and ( Agreement signed by SEFIN with INPREMA to cancel the
Recipient’s debt to INPREMA with respect to teachers’ and employers’ contributions (Convenio de Cancelación de Deuda), dated October 27, 2011.
Completed
Stabilize The Social Security Institute’s (IHSS) long-term financial situation
To strengthen the financial situation of IHSS, the Government has increased the maximum salary subject to contribution to IHSS, as evidenced by Resolution SOJD No. 02-29-03-2011, and published in the Official Gazette on June 17, 2011.
Completed
II. Civil Service Reform
Achieve a fiscally sustainable wage bill
To ensure equity of salary increases for all public servants, the Government has submitted to Congress for approval, a bill to establish a uniform pay adjustment methodology for all said public servants, as evidenced by acknowledgement signed by the first secretary of Congress, dated October 28, 2011.
Completed
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Objectives Prior Actions for Board Approval of the First Programmatic Loan
Status
Achieve a fiscally sustainable wage bill
To strengthen the monitoring of the teacher's payroll, the Administration has: Established a single database (SIARH-SIAFI) which
accounts for over 80 percent of the Government's public servants and includes all teachers, as evidenced by a letter from the Minister of SEFIN, dated October 27, 2011;
Created a payroll management and control unit within SEFIN, as evidenced by Executive Decree PCM-006-2011, dated February 8, 2011, and published in the Official Gazette on March 22, 2011;
Approved a consolidated set of norms regulating human resource management processes in the education sector, as evidenced by Executive Agreement No 032-2011, date October 25, 2011, and published in the Official Gazette on October 25, 2011.
Completed
IV. Citizen Security To improve citizen security
To support the prevention of crime and violence and achieve the Government's development and poverty reduction objectives, the Government has: Adopted a violence prevention strategy of proposed
programs focused on: youth at risk, alternative conflict resolution, road safety, and citizenship building, as evidenced by Decree No. PCM 057-2011, dated September 6, 2011, published in the Official Gazette on October 1, 2011; and
Created the National Citizen Security Council, as evidenced by Decree No. 003-2011, dated October 18, 2011, published in the Official Gazette on October 20, 2011.
Completed
2.2 Major Factors Affecting Implementation: The implementation of the program has been Moderately Satisfactory as it was affected by the following factors:
Fiscal Emergency. The increase in the fiscal deficit, especially during the first semester of 2012, prompted the authorities to declare a fiscal emergency on August 14, 2012. The October 2012 Bank supervision mission noted that the main cause of the macroeconomic deterioration was the lack of fiscal discipline, particularly a weak control of expenditures. On the other hand, the deterioration of the external balance responded to a rising import bill, fueled by an increase of domestic credit and the spike in oil prices. Moreover, tax revenues slightly decreased in 2012 (14.6 percent of GDP) compared with the 2011 performance (14.8 percent of GDP), and failed to meet the 1 – 1.5 percent of GDP projected increase on an annual basis over three years, which was the expectation from the tax reforms approved by Congress in 2010. Lower-than-projected growth rate, weak tax administration, and extensive tax exemptions accounted for such a performance.
12
Impact of crime and violence. Crime and violence is one of the most important development challenges in Honduras, which has the highest homicide rate in the world (92 homicides per 100,000 inhabitants in 2011). The creation of the National Security Council and the National System of Citizen Security, have not yet enabled the authorities to do evaluations to measure the effectiveness of its programs related to citizen security. The Safer Municipalities Project, approved by the Board on December 13, 2012 is aimed at: (i) improving the capacities of national and local authorities in violence prevention, (ii) addressing risk factors of crime and violence in selected municipalities, and (iii) improving its capacity to respond promptly and effectively to an eligible emergency. Community Perception and Victimization (CPV) surveys are envisioned under the implementation of this project. Therefore the fourth outcome indicator related to the reduction in the percentage of the population who feel insecure has been delayed until the data is available.
Notwithstanding the above factors which affected implementation, the program benefitted from:
Previous legal reforms: The Fiscal Emergency Law and the Law on the Strengthening of Revenues, Social Equity and Rationalization of Public Spending were approved by Congress in 2010 and 2011, providing a strong foundation for fiscal reforms.
Collaboration with other donors: The DPC was prepared in close consultation with the IMF and IDB as part of a coordinated multilateral effort to support the Government's agenda to consolidate fiscal sustainability and macroeconomic stability.
Additionally, the Bank has been working on the security agenda in collaboration with the G-16 donor group and UNDP. The G-16 Group, including the European Union, UNDP, the Spanish Cooperation, USAID, the US State Department, IDB, and CIDA, has prepared a matrix on projects and technical assistance to be funded by the international cooperation. The Bank also worked in close collaboration with UNDP, which has been advising the Ministry of Security on the national citizen security policy and the Safer Municipalities program, which defined a strategy at the local level. Finally, the Bank also discussed with the European Commission on opportunities for collaborative interventions on violence prevention
2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization: Design, implementation and utilization: Outcome indicators, baseline values, and targets were assigned to each of the four policy areas defined under the DPC program. The design focused on output and outcome indicators that were easy to calculate and that were expected to be achieved by the closing date of the operation (December 2012). The M&E sought to align output indicators to indicators and targets frequently monitored by the Government, such as number of large taxpayers using the electronic payment system, percentage of teachers contributing to the Teacher’s Pension Institute (IMPREMA) and expenditure in wages and salaries. The Ministry of Finance (SEFIN) was responsible for the implementation of the operation as well as for coordinating the actions among the concerned agencies, including the Ministry of Education, the Ministry of Planning, and
13
the Ministry of Security. Together with SEFIN, these ministries collected the necessary information for the monitoring indicators. Finally, the Bank influenced its M&E engagement with the Government of Honduras in the design of new project lending such as the Safer Municipalities project approved in December 2012.
2.4 Expected Next Phase/Follow-up Operation (if any): The Government had demonstrated its interest in continued financial and technical support from the Bank in the context of a series of programmatic operations. In principle, the Bank would continue providing assistance in the policy areas supported under the First Programmatic Reducing Vulnerabilities for Growth DPC, through a Second Programmatic Reducing Vulnerabilities for Growth, single tranche DPC, for which triggers were to be completed under the First DPC. Progress towards completing the triggers for the DPC2 was achieved and some of the triggers were even completed by May 2012, but limited progress took place in the missing triggers after this date, as was evidenced by the September 2012 supervision mission. Notwithstanding progress made towards complying with the indicative triggers for the DPC2, and some successes obtained under the first DPC, they were not sufficient to warrant a planned follow-up operation. The second operation was cancelled due to considerable fiscal slippage in 2012, and a significant risk of further deteriorating fiscal performance in 2013. The recently approved Safer Municipalities project addresses crime and violence issues in selected Municipalities (US$ 15 million, approved December 13, 2012), and supports the Government in strengthening its capacities for violence prevention and effective response to emergencies. This project is closely aligned with the First Programmatic Reducing Vulnerabilities DPC objectives.
3. Assessment of Outcomes
3.1 Relevance of Objectives, Design and Implementation The operation’s scope and Program Development Objectives (PDOs) were adequate and addressed the main issues relevant to Honduras’ challenges at project inception. Revenue and public wage bill were the main fiscal issues to be tackled as the largest current expenditure ticket. The indicators selected reflected the progress needed in the areas addressed by the DPC. With respect to Fiscal Management, the source of fiscal slippage in 2012 was unforeseen at the onset of the operation, and stemmed from the lack of control of discretionary expenditures outside of the public wage bill, an area not covered by the DPC. The indicators under the citizen security reform were considered important for Honduras as the deteriorating citizen security was undermining Honduras’ growth potential and investment climate, its social and human development progress, and its prospects for improving governance. Reducing the perception of insecurity is expected to foster a more comprehensive policy regarding security. The PDOs continue to be relevant and the Government agrees with the need to tighten macroeconomic policies and press ahead with structural reforms to safeguard external and fiscal sustainability to stimulate economic growth. The
14
Government is committed to strengthening institutional mechanisms and programs that contribute to an integrated violence prevention strategy. The DPC operation supported progress towards the CPS objectives of expanding opportunities and reducing vulnerabilities for growth. However, in 2012 economic growth slowed, fiscal policy became expansionary and the external position continued to weaken in response to a lack of fiscal discipline. Government real expenditure grew slightly faster than in 2011 and tax revenue growth declined. The latter reflected continuing tax exemptions, weak revenue administration, and a Supreme Court ruling against changes to the income tax approved by Congress in 2011 through the Efficiency of Revenues and Expenditures Law.
The other important DPC objective, improving citizen security, continues to be relevant as well. The DPC has supported the prevention and institutional aspects of the National Citizen Security and Coexistence Policy, as well as advisory and convening services related to the sharing of international violence prevention good practices. In terms of violence prevention, the 2011-2022 National Citizen Security and Coexistence Policy (NCSCP) combines the traditional emphasis on crime control with a new emphasis on violence prevention. Under this policy, the National Citizen Security Council was created to coordinate efforts in the criminal justice and violence prevention sectors. An important reform has been the creation of the national “Safer Municipalities Program” (SMP) that acknowledges that crime and violence is a national problem that tends to manifest locally in pockets of urban violence. 3.2 Achievement of Program Development Objectives
Overall, the program was not successful in achieving the development objectives. The PDOs were to assist the Government in strengthening fiscal management and reinforcing institutional mechanisms and programs responsible for an integrated violence prevention strategy. The PDO focused on outcomes for which the operation could reasonably be held accountable, given its duration, resources, and approach, without comprising higher-level objectives dependent on other efforts outside the scope of the operation. However, the operation did meet the outcome indicators. Annex 1 details the status of the outcomes as of the closing of the operation, and lays out the actions the Government is implementing as part of its medium term reform program. The outcomes and current status of the components under each pillar are discussed below. Objective 1: Improving tax administration
Outcome: Increase the number of large taxpayers using the electronic payment system. Achieved The number of large taxpayers using the electronic payment system was expected to increase by 10 percent from 335 in 2010 to about 368 in 2012. According to information provided by the Large Taxpayers Unit, as of Sept. 2012, 549 large taxpayers (88 percent of total) were filing their declarations electronically, with another 62 large taxpayers in the process of converting to electronic filing. This represents a 64 percent increase from the baseline, surpassing largely the target of 10 percent.
15
In the medium term the Government is committed to further reduce the number of incompliant large taxpayers from a baseline of 2.7 percent in 2011 to 2.5 percent at end 2012 through a number of measures such as: (i) elaborating a report at the end of the day of those who have not filed their returns, (ii) implementing a system for sending reminders and (iii) making a telephone follow-up plan for incompliant tax-payers. To that end the Government has to hire a consultant to assist with the implementation of these reforms. Objective 2 - Reforming the pension systems.
2(a): Achieving sustainable actuarial and financial balances in INPREMA and INJUPEMP in the medium-term. INPREMA is already facing an operational deficit as contributions are not sufficient to cover the payment of benefits and expenses. Meanwhile the actuarial deficit equivalent to about 25 percent of GDP, is four times bigger than INPREMA’s net worth of L$18.132 (2010). As a result of a new law for INPREMA, approved in 2011, that substantially modify rules and regulations (i.e., increase in minimum retirement age, contribution rates, and years of service for full pension) it is expected that their actuarial situation would improve and would allow INPREMA to stabilize its net worth in real terms in at least L$18 billion. On the other hand, INJUPEMP has an operational surplus but the actuarial deficit is equivalent to about 11 percent of GDP, two times bigger than the institute’s net worth of L$15,208 million (2010). The approval of a new law for INJUPEMP will wait for the appropriate opportunity. 2(b): Incorporating PROHECO teacher’s pension plan into INPREMA Outcome: 100 percent of PROHECO teacher’s pension contributions flow into INPREMA. Achieved According to the information provided by PROHECO, a 100 percent of all employer and employee contributions for 2012 have been deposited with INPREMA. Once the PROHECO teachers have their situation regularized and the commitments and agreements have been implemented, the uncertainty regarding which institution should pay the pensions of these teachers is over. The teachers now have the same pension coverage as the teachers participating in INPREMA and a 100 percent of PROHECO teachers are legally eligible to receive pension payments from INPREMA. 2(c): Stabilizing IHSS long-term financial situation. The Social Security Institute of Honduras (IHSS) faced financial problems stemming from both its health and pensions obligations. The premium charged to provide medical coverage has been insufficient to pay operational expenses, forcing the IHSS management to transfer money from the pension area to health area. The increase in the maximum salary subject to contributions to IHSS that took place in March 2011, has improved the IHSS’s cash flow, however to stabilize the long-term financial situation, the authorities, through SEFIN and with technical assistance from IDB, are preparing a reform of the social security system which will separate the health and pension components, improving the financial viability of the system, increasing benefit coverage and allowing the elimination of transfers from the
16
pension area to the health area. A consultant firm sponsored by the IDB has prepared a draft report which is in the process of been shared with the authorities. Objective 3 - Achieving a fiscally sustainable wage bill.
Outcome: Reduction of Central Government wage bill by at least 0.7 percent of GDP. Achieved The wage bill of the central government declined to 9.7 percent of GDP in 2012, better than the 10.3 percent target, which is an extraordinary achievement on the part of the Government. The reasons for better-than-expected performance included several measures taken by the authorities to further reduce the wage bill under the Fiscal Emergency Decree such as the freezing of public sector hiring, reducing the wages of high earners, permanently delinking teachers’ salary adjustments from the private sector minimum wage, and filling new teachers' demands with existing teachers. Furthermore, the Government has committed to using the inflation rate, determined by the Central Bank, as the basis for pay negotiation for all public sector employees.
In the medium-term the Government is committed to maintain the wage bill below 9.8 percent of GDP. As of December 2012 Congress has not approved the adoption of a new uniform pay adjustment methodology, but the 2012 budget law limited civil servants’ wage increases to the CPI. The authorities have included a similar provision in the budget law in 2013 and have the intention to include it in the future, allowing the Government to maintain the wage bill as planned.
Objective 4 - Improving citizen security
Outcome: Improving average perception of insecurity in the municipalities from the center, northern and eastern regions where the “Safer Municipalities” Program is being implemented. Not rated As of the closing of this operation, the data to assess performance of this indicator (perception of insecurity) was not available. However, the recently approved “Safer Municipalities” project (December 13, 2012) that addresses crime and violence issues in selected Municipalities, will support the Government in strengthening its capacities for violence prevention. Data to be used in monitoring and evaluation will come from quantitative and qualitative information collected by the Honduran Social Investment Fund (FHIS) including documentation from project reports and community perception and victimization (CPV) surveys, that will be done in the first semester of 2013. A medium-term outcome indicator under this objective establishes that the gun-related homicides at the national level should be reduced to 75 percent in 2013 from a baseline of 83 percent in 2010. To improve citizen security and reduce violence several measures have been advanced. The Government has submitted to Congress a draft integrated policy between the security and justice sectors; and reforms to the Arbitration and Conciliation Law to expand the authority of municipal governments regarding alternative conflict resolution mechanisms, have been also sent to Congress.
17
3.3 Justification of Overall Outcome Rating Rating: Moderately Satisfactory The overall outcome rating of "Moderately Satisfactory” is appropriate given that the lack of an adequate macroeconomic framework represents a significant shortcoming in the achievement of the operation’s development objectives. With respect to the outcome indicators, important progress was made including a 64 percent increase from the baseline in the number of taxpayers filling electronically; regularization of the pension regime for the teachers of the Honduran Community Education Program (PROHECO) allowing them to receive pension payments from the Teacher’s Pension Institute (INPREMA); and reducing, from the 2010 baseline, the Central Government wage bill by about 12 percent. However it was not possible to rate the achievement of improving citizen security, as the data to assess if the perception of insecurity in municipalities has decreased from 91 percent (2010) to 80 percent (2012) is not available. Overall, the Government was able to fully achieve three of the four outcome indicators. 3.4 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development The DPC implementation was expected to have short and long-run impacts on welfare and its distribution. In the short run, teachers and contributors to IHSS, INPREMA and INJUPEM were affected by the increase in the salary ceiling for contribution, by the delinking of teachers’ salaries from the private sector minimum wage; and by the increase in the employee contribution rates. Also in the short run, the increase in private school employers’ contribution to INPREMA is likely to negatively affect the welfare of those sending their children to private schools because the demand for private education is mostly inelastic and additional costs would be transferred to consumers. The increase in public school employers’ contribution to IMPEMA is likely to affect welfare only indirectly via additional fiscal deficits. Overall, these impacts are mostly small. The program supported by this DPC has no identifiable impact on gender. (b) Institutional Change/Strengthening The DPC helped promoting institutional changes by supporting actions: to improve tax administration; to strengthen the financial situation of the public pension systems by reducing their actuarial deficits; to achieve a fiscally sustainable wage bill by ensuring equity of salary increases for all public servants and by strengthening the monitoring of the teacher's payroll. Finally, this DPC supported actions towards the prevention of crime and violence by adopting a violence prevention strategy and by creating the National Citizen Security Council. (c) Other Unintended Outcomes and Impacts (positive or negative, if any) N/A
3.5 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops N/A
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4. Assessment of Risk to Development Outcome Rating: Substantial This DPC identified that achievement of the development objectives would be subject to five main sources of risks: political, economic, institutional, environmental, and citizen insecurity, but at the mean time there were in place mitigation measures that would help contain these risks to a moderate level. However, some risks were not foreseen, notably the lack of fiscal discipline that led to a decline in tax revenues despite the actions taken to improve tax collection and ultimately to the worsening of the fiscal balance. There is also a risk that some of the attained outcomes might not be maintained or actually could be reversed, such as the target of achieving a fiscally sustainable wage bill in the next two years. In addition to this, the political and institutional framework does still seem to be fragile, even though it has improved from 2009, with the Supreme Court reversing the decision taken by Government to rule against changes in the income tax approved by Congress in 2011 through the Efficiency of Revenues and Expenditures Law. On the institutional side, the main risk is the weak capacity of public institutions to implement the fiscal consolidation program and the pension system reform. To reduce these risks, the Bank has been working with other donors to support the government efforts, including programs to provide technical assistance. On the environmental side, the main risk is the country's high exposure to multiple natural disasters. Honduras has been hit by multiple hurricanes in recent years which resulted in significant material damage such as Hurricane Mitch in 1998, and Hurricane Stan in 2005. The Government has taken important steps towards strengthening the country's disaster risk management legal and institutional frameworks. In addition, the Bank is providing key technical support to Honduras in terms of strengthening the institutional capacity to engage in disaster risk management. On the citizen security side, there are institutional and indirect risks related to strengthening institutional capacities to implement an integrated violence prevention strategy. Institutional risks relate to weak capacity and lack of financing requirements that are being mitigated through sound policy design, a gradual and sequenced implementation action plan, coordinated by a multi-stakeholder National Citizen Security Council and developed with the support from a coalition of development partners, and funded partly through the fiscal space created by a new security tax. Indirect risks relate to potential basic rights abuses or corruption that might be associated with some of the actions supported by programs that will be designed in the future as part of the law enforcement component of the policy in areas such as police equipment, prison infrastructure and management, gun control.
5. Assessment of Bank and Borrower Performance
5.1 Bank Performance
(a) Bank Performance in Ensuring Quality at Entry Rating: Moderately Satisfactory
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The design of the DPC was not adequate for addressing the challenges faced by the country at the onset of the operation given external and internal developments, including low taxpayer compliance, large imbalances in Central Government finances, unresolved structural weaknesses in public pension funds, and increasing levels of crime and violence that are undermining the country’s growth potential and investment climate. The First Programmatic Reducing Vulnerabilities for Growth DPC was designed in close collaboration with the Government to ensure the actions supported by the operation were fully consistent with the country’s long term development goals included in the Country Partnership Strategy covering the period FY2012-2014. The policy actions to be taken by the Government proved to be unrealistic and optimistic. The Government had the political capital to implement the reforms needed to strengthen the fiscal management and lost an opportunity to do the reforms. (b) Quality of Supervision
Rating: Moderately Satisfactory Supervision was carried out through three supervision missions that followed the Ministry of Finance (SEFIN) and the Bank agreement settled during project preparation. These reviews are summarized in three Implementation Status and Results (ISR) of January, June and September 2012, and in more detail in the Aide-Memoire of April 23, 2012. The Program Performance was considered satisfactory by the first two ISRs however, during the third supervision mission in September the progress towards achievement of PDO was rated as moderately satisfactory due to delays in the data to assess performance in the perceptions of insecurity. In parallel, informal supervision took place when team members visited the country in the context of macro-monitoring missions aimed at discussing economic developments and macro projections for year 2012, which took place in March, May, October and December 2012. Notwithstanding the frequent formal and informal supervision missions, the Bank could have been more proactive in the supervision of the fiscal framework and rely less on the IMF’s monitoring, and should have raised with the Government, at an earlier stage the risk of fiscal slippage.
(c) Justification of Rating for Overall Bank Performance Rating: Moderately Satisfactory Overall, Bank performance is rated Moderately Satisfactory. The operation supported relevant development objectives, and built consensus around critically important issues: fiscal sustainability and citizen’s security. The operation also assessed several risks for the program sustainability but did not make the adequate mitigation. The monitoring and evaluation system in place allowed both the Government and the Bank to periodically track progress toward the target outcome indicators. The SEFIN and the Bank have agreed to monitor the program supported by the DPC and its progress was the base for the preparation of the “Safer Municipalities” project, approved in December 2012, aimed at improving citizen security, which is the first strategic objective of the CPS 2012-2014. The “Safer Municipalities” Project builds upon the policy dialogue initiated under the programmatic DPC which supported the prevention and institutional aspects of the
20
National Citizen Security and Co-existence Policy and the design of the Safer Municipalities Program.
5.2 Borrower Performance
(a) Government Performance Rating: Moderately Satisfactory Throughout the preparation and supervision process of the operation, the Ministry of Finance (SEFIN) successfully coordinated with the different ministries (Security, Education and Planning) and other institutions involved in the operation including, the National Institute of Statistics (INE) and the Pensions Institutions. The coordination was instrumental in shaping the actions of each institution and ensuring the timely implementation of the prior actions under the program. However, achievement under the project has been adversely affected by a worsening in fiscal and external balances during 2012. The authorities declared a fiscal emergency to limit the deterioration in the fiscal deficit but further efforts have not been made to reduce tax exemptions, strengthen tax administration to boost revenue or to reduce the public sector wage bill. (b) Implementing Agency or Agencies Performance Rating: Moderately Satisfactory The Ministry of Finance (SEFIN) was the principal executing agency, responsible for the implementation and overall coordination of the operation as set out in the Letter of Development Policy. SEFIN is responsible for coordinating the actions among the concerned agencies, including the Ministry of Education (SEDUC), the Ministry of Planning (SEPLAN), the Ministry of Security (SES), INPREMA, INJUPEM, IHSS, and PROHECO. Together with SEFIN and the National Institute of Statistics (INE), these institutions collect the necessary data for the identified monitoring indicators. Although delays were encountered in the implementation of the Government’s program supported by the DPC, the staff in SEFIN continued monitoring and coordinating the program with the support of Bank Staff. They provided leadership to address bottlenecks or pending problems, and paid attention to every issue. (c) Justification of Rating for Overall Borrower Performance Rating: Moderately Satisfactory Overall the Borrower’s performance is rated as Moderately Satisfactory despite its high level of engagement during the preparation, implementation and supervision. As described above, substantial progress was made in implementation of the program despite the obstacles that prevented the full achievement of one of the outcome indicators. The borrower participation was crucial in the coordination among the different ministries and institutions involved in the Program. The fragile social and security situation following the political crisis of 2009 and the highly politicized environment due to the future elections (2013) also played a role in the performance shortcomings.
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6. Lessons Learned
The First Programmatic Reducing Vulnerabilities for Growth DPC responded to a specific request from the Government of Honduras to address a difficult fiscal situation that arose from the large imbalances in Central Government finances and unresolved structural weaknesses in public pension funds; and a challenging security situation that requires an integrated strategy to tackle the increasing levels of crime and violence that undermine the country’s growth potential and investment climate. The main lessons from the implementation of this operation include:
Sustaining the dialogue on macroeconomic performance is critical for a satisfactory outcome of a Development Policy Credit. This operation was supposed to be the first of a programmatic series of two but ended up as a standalone operation because, despite all the prior actions being met, the macroeconomic and fiscal framework was not adequate, and therefore insufficient for a second operation. The Bank could have done more and been more pro-active in terms of its own fiscal assessment regarding the macroeconomic risks outside of the policy areas addressed by the DPO. Alternatively, much more care could be exercised in establishing the outcome indicators in order to better capture the relevant macroeconomic risks in a high-uncertainty environment such as in Honduras.
Linking the program with analytical work is key to providing the basis for a satisfactory outcome. The design of the operation was backed by solid analytical work which enabled the Bank team to respond to the Government requests in a short period of time under a difficult social and political environment. Analytical work prepared before the operation, included: Fiscal Emergency Non-Lending Technical Assistance (2010); Technical Assistance Report on Pension System (2011); Public Expenditure Tracking and Service Delivery Survey- Education and Health; the Country Governance and Anti-Corruption Experience: Opportunities and Challenges (2011); Crime and Violence in Central America, A Development Challenge (2011); and Honduras, Criminal Justice and Human Rights (2011). All the ESW allowed the Government and the team to identify priority policy areas, build consensus around critical issues.
7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners
(a) Borrower/Implementing agencies The comments to the implementation completion report provided by the borrower are included in Annex 3 (b) Co-financiers N/A (c) Other partners and stakeholders N/A
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An
nex
1 F
ist
Pro
gram
mat
ic R
edu
cin
g V
uln
erab
ilit
ies
for
Gro
wth
DP
C P
olic
y M
atri
x
Ob
ject
ives
P
rior
Act
ion
s fo
r B
oard
App
rova
l F
irst
Pro
gram
mat
ic L
oan
Inte
rmed
iate
O
utc
ome
Ind
icat
or
(Dec
emb
er 2
012)
S
tatu
s o
f re
form
s b
y en
d-2
012
In
dic
ativ
e M
ediu
m-
Ter
m O
utc
ome
Ind
icat
ors
S
tatu
s of
Med
ium
-Ter
m
refo
rms
I. T
ax A
dm
inis
trat
ion
Ref
orm
1.
Impr
ove
tax
adm
inis
tratio
n To
impr
ove
taxp
ayer
com
plia
nce,
the
Gov
ernm
ent h
as: (
i) ap
prov
ed a
pla
n to
stre
ngth
en th
e la
rge
taxp
ayer
uni
t w
ithin
DEI
, as e
vide
nced
by
Agr
eem
ent D
EI S
G 1
18-2
011,
dat
ed
May
16,
201
1, a
nd p
ublis
hed
in th
e R
ecip
ient
’s O
ffic
ial G
azet
te o
n O
ctob
er 2
5, 2
011;
and
(ii)
appr
oved
a
regi
stry
of l
arge
taxp
ayer
s, as
ev
iden
ced
by A
gree
men
t DEI
SG
04
3-20
11, d
ated
Mar
ch 1
8, 2
011,
and
pu
blis
hed
in th
e R
ecip
ient
’s O
ffic
ial
Gaz
ette
on
June
25,
201
1.
Sta
tus:
Com
plet
e
The
num
ber o
f lar
ge
taxp
ayer
s fill
ing
elec
troni
cally
in
crea
ses b
y at
leas
t 10
per
cent
(B
asel
ine
2010
=335
la
rge
taxp
ayer
s).
Ach
ieve
d
The
resu
lts e
xcee
d th
e ta
rget
set a
t the
la
unch
ing
of th
e pr
ojec
t.
Acc
ordi
ng to
info
rmat
ion
prov
ided
by
the
Larg
e Ta
xpay
ers U
nit,
as o
f Sep
t. 20
12, 5
49 la
rge
taxp
ayer
s (88
per
cent
of
tota
l) w
ere
filin
g th
eir d
ecla
ratio
ns
elec
troni
cally
, with
ano
ther
62
larg
e ta
xpay
ers i
n th
e pr
oces
s of c
onve
rting
to
ele
ctro
nic
filin
g. T
his r
epre
sent
s a
64%
incr
ease
from
the
base
line,
su
rpas
sing
larg
ely
the
targ
et o
f 10%
in
crea
se.
The
Gov
ernm
ent h
as
redu
ced
the
num
ber o
f in
com
plia
nt la
rge
taxp
ayer
s by
keep
ing
them
bel
ow 2
.5 p
erce
nt
of th
e to
tal
(Bas
elin
e: 2
011=
2.7
7 pe
rcen
t).
On
goin
g Th
e G
over
nmen
t has
hi
red
a co
nsul
tant
to
assi
st w
ith th
e im
plem
enta
tion
of th
is
refo
rm.
II.
P
ensi
on R
efor
m2.
Ref
orm
the
pens
ion
syst
ems
2.1.
Ach
ieve
su
stai
nabl
e ac
tuar
ial a
nd
finan
cial
bal
ance
s in
INPR
EMA
and
IN
JUPE
MP
To re
duce
the
actu
aria
l def
icits
of t
he
publ
ic p
ensi
on sy
stem
s, th
e G
over
nmen
t has
: (i)
subm
itted
to
Con
gres
s for
app
rova
l a b
ill o
f law
to
refo
rm IN
PREM
A’s
pen
sion
syst
em,
as e
vide
nced
by
ackn
owle
dgem
ent
sign
ed b
y th
e fir
st se
cret
ary
of
Con
gres
s, da
ted
Oct
ober
26,
201
1;
and
(ii) s
ubm
itted
to C
ongr
ess f
or
appr
oval
a b
ill o
f law
to re
form
IN
JUPE
MP’
s pen
sion
syst
em, a
s ev
iden
ced
by a
ckno
wle
dgem
ent
sign
ed b
y th
e fir
st se
cret
ary
of
Con
gres
s, da
ted
Apr
il 26
, 201
1.
Sta
tus:
Com
plet
e.
INPR
EMA
mai
ntai
ns
cons
tant
net
wor
th o
f at
leas
t L$1
8,00
0 m
illio
n in
re
al te
rms.
IN
JUPE
MP
mai
ntai
ns
cons
tant
net
wor
th (n
ot
incl
udin
g pr
ovis
ions
) of
at le
ast L
$15,
000
mill
ion
in re
al te
rms.
Don
e
The
appr
oval
of n
ew la
w
for I
NPR
EMA
(201
1),
mod
ifyin
g (m
inim
um
retir
emen
t age
, co
ntrib
utio
n ra
tes,
and
year
s of s
ervi
ce) w
ould
im
prov
e th
e ac
tuar
ial
situ
atio
n an
d sta
biliz
e its
ne
t wor
th in
real
term
s in
at le
ast L
$18
billi
on.
A n
ew la
w fo
r IN
JUPE
MP,
sim
ilar t
o th
e on
e of
INPR
EMA
, w
ill w
ait f
or th
e ap
prop
riate
opp
ortu
nity
.
23
Ob
ject
ives
P
rior
Act
ion
s fo
r B
oard
App
rova
l F
irst
Pro
gram
mat
ic L
oan
Inte
rmed
iate
O
utc
ome
Ind
icat
or
(Dec
emb
er 2
012)
S
tatu
s o
f re
form
s b
y en
d-2
012
In
dic
ativ
e M
ediu
m-
Ter
m O
utc
ome
Ind
icat
ors
S
tatu
s of
Med
ium
-Ter
m
refo
rms
2.2.
PR
OH
ECO
te
ache
rs’ p
ensi
on
plan
inco
rpor
ated
in
to IN
PREM
A
2.3.
Sta
biliz
e IH
SS lo
ng-te
rm
finan
cial
situ
atio
n
To re
gula
rize
the
pens
ion
regi
me
for
the
PRO
HEC
O te
ache
rs, t
he
Gov
ernm
ent h
as fo
rmal
ized
the
inco
rpor
atio
n of
the
PRO
HEC
O
teac
hers
to th
e IN
PREM
A p
ensi
on
syst
em a
s of t
he d
ate
each
said
teac
her
was
app
oint
ed, a
s evi
denc
ed b
y: (i
) ag
reem
ent s
igne
d am
ong
SEFI
N, S
E an
d IN
PREM
A, d
ated
Oct
ober
27,
20
11; a
nd (i
i) ag
reem
ent s
igne
d by
SE
FIN
with
INPR
EMA
to c
ance
l the
R
ecip
ient
’s d
ebt t
o IN
PREM
A w
ith
resp
ect t
o te
ache
rs’ a
nd e
mpl
oyer
s’
cont
ribut
ions
, dat
ed O
ctob
er 2
7, 2
011.
S
tatu
s: C
ompl
ete
To st
reng
then
the
finan
cial
situ
atio
n of
IHSS
, the
Gov
ernm
ent h
as
incr
ease
d th
e m
axim
um sa
lary
subj
ect
to c
ontri
butio
n to
IHSS
, as e
vide
nced
by
Res
olut
ion
SOJD
No.
02-
29-0
3-20
11, a
nd p
ublis
hed
in th
e O
ffic
ial
Gaz
ette
on
June
17,
201
1.
Sta
tus:
Com
plet
e
100
perc
ent o
f PR
OH
ECO
teac
hers
’ pe
nsio
n co
ntrib
utio
ns
are
flow
ing
into
IN
PREM
A.
Ach
ieve
d A
ccor
ding
to th
e in
form
atio
n pr
ovid
ed b
y PR
OH
ECO
, a 1
00
perc
ent o
f all
empl
oyer
and
em
ploy
ee
cont
ribut
ions
for 2
012
have
bee
n de
posi
ted
with
INPR
EMA
.
100
perc
ent o
f the
PR
OH
ECO
teac
hers
are
le
gally
elig
ible
to re
ceiv
e pe
nsio
n pa
ymen
ts fr
om
INPR
EMA
(B
asel
ine
2010
=0).
Tran
sfer
s fro
m IH
SS
pens
ion
to th
e he
alth
are
a ha
ve b
een
elim
inat
ed
(bas
elin
e: S
epte
mbe
r 20
11=
L$ 1
,200
mill
ion)
Don
e
The
teac
hers
now
hav
e th
e sa
me
pens
ion
cove
rage
as t
he te
ache
rs
parti
cipa
ting
in
INPR
EMA
and
a 1
00
perc
ent o
f PR
OH
ECO
te
ache
rs a
re le
gally
el
igib
le to
rece
ive
pens
ion
paym
ents
from
IM
PREM
A
On
goin
g Th
e au
thor
ities
, thr
ough
SE
FIN
and
with
tech
nica
l as
sist
ance
from
IDB
, are
pr
epar
ing
a re
form
to
IHSS
to se
para
te th
e he
alth
and
pen
sion
co
mpo
nent
s, im
prov
ing
the
finan
cial
via
bilit
y of
th
e sy
stem
. A
con
sulta
nt fi
rm
spon
sore
d by
the
IDB
has
pr
epar
ed a
dra
ft re
port
to
be sh
ared
with
the
auth
oriti
es
24
Ob
ject
ives
P
rior
Act
ion
s fo
r B
oard
App
rova
l F
irst
Pro
gram
mat
ic L
oan
Inte
rmed
iate
O
utc
ome
Ind
icat
or
(Dec
emb
er 2
012)
S
tatu
s o
f re
form
s b
y en
d-2
012
In
dic
ativ
e M
ediu
m-
Ter
m O
utc
ome
Ind
icat
ors
S
tatu
s of
Med
ium
-Ter
m
refo
rms
III.
Civ
il S
ervi
ce R
efor
m
3. A
chie
ve a
fis
cally
su
stai
nabl
e w
age
bill
To e
nsur
e eq
uity
of s
alar
y in
crea
ses
for a
ll pu
blic
serv
ants
, the
G
over
nmen
t has
subm
itted
to it
s C
ongr
ess,
for a
ppro
val t
here
of, a
bill
of
law
to e
stab
lish
a un
iform
pay
ad
just
men
t met
hodo
logy
for a
ll sa
id
publ
ic se
rvan
ts, a
s evi
denc
ed b
y ac
know
ledg
emen
t sig
ned
by th
e fir
st
secr
etar
y of
Con
gres
s, da
ted
Oct
ober
28
, 201
1.
Sta
tus:
Com
plet
e.
To st
reng
then
the
mon
itorin
g of
the
teac
her's
pay
roll,
the
Rec
ipie
nt h
as:
(i) E
stab
lishe
d a
sing
le d
atab
ase
(SIA
RH
-SIA
FI) w
hich
acc
ount
s for
ov
er 8
0 pe
rcen
t of t
he G
over
nmen
t's
publ
ic se
rvan
ts a
nd in
clud
es a
ll te
ache
rs, a
s evi
denc
ed b
y a
lette
r fro
m
the
Min
iste
r of S
EFIN
, dat
ed O
ctob
er
27, 2
011;
(ii
) cre
ated
a p
ayro
ll m
anag
emen
t and
co
ntro
l uni
t with
in S
EFIN
, as
evid
ence
d by
Exe
cutiv
e D
ecre
e PC
M-
006-
2011
, dat
ed F
ebru
ary
8, 2
011,
an
d pu
blis
hed
in th
e O
ffic
ial G
azet
te
on M
arch
22,
201
1; a
nd
(iii)
appr
oved
a c
onso
lidat
ed se
t of
norm
s reg
ulat
ing
hum
an re
sour
ce
man
agem
ent p
roce
sses
in t
he
educ
atio
n se
ctor
(N
orm
as U
nific
adas
Cen
tral G
over
nmen
t’s
wag
e bi
ll fa
lls b
y at
le
ast 0
.7 p
erce
nt o
f G
DP.
(B
asel
ine:
201
0 =
11.0
per
cent
).
Ach
ieve
d Th
e C
entra
l Gov
ernm
ent w
age
bill
for
2012
is 9
.7 p
erce
nt o
f GD
P. T
his
achi
evem
ent r
espo
nds t
o th
e im
plem
enta
tion
of a
Fis
cal
Emer
genc
y D
ecre
e w
hich
froz
e pu
blic
se
ctor
hiri
ng a
nd re
duce
d th
e w
ages
of
high
ear
ners
. The
fall
in th
e w
age
bill
is 1
.3 p
erce
ntag
e po
ints
, abo
ut 7
0 pe
rcen
t hig
her t
han
the
orig
inal
targ
et
of 0
.7 p
erce
nt o
f GD
P.
Cen
tral G
over
nmen
t’s
wag
e bi
ll is
bel
ow 9
.8
perc
ent o
f GD
P
(Bas
elin
e: 2
010
= 11
.0
perc
ent).
On
goin
g
Con
gres
s has
not
ap
prov
ed th
e ad
optio
n of
a
new
uni
form
pay
ad
just
men
t met
hodo
logy
, bu
t the
201
2 bu
dget
law
lim
ited
civi
l ser
vant
s’
wag
e in
crea
ses t
o th
e C
PI.
The
auth
oriti
es h
ave
incl
uded
a si
mila
r pr
ovis
ion
in th
e bu
dget
la
w fo
r 201
3.
25
Ob
ject
ives
P
rior
Act
ion
s fo
r B
oard
App
rova
l F
irst
Pro
gram
mat
ic L
oan
Inte
rmed
iate
O
utc
ome
Ind
icat
or
(Dec
emb
er 2
012)
S
tatu
s o
f re
form
s b
y en
d-2
012
In
dic
ativ
e M
ediu
m-
Ter
m O
utc
ome
Ind
icat
ors
S
tatu
s of
Med
ium
-Ter
m
refo
rms
Apl
icab
les
a la
Ges
tión
de R
ecur
sos
Hum
anos
Doc
ente
s), a
s evi
denc
ed b
y Ex
ecut
ive
Agr
eem
ent N
o 03
2-20
11,
date
Oct
ober
25,
201
1, a
nd p
ublis
hed
in th
e O
ffic
ial G
azet
te o
n O
ctob
er 2
5,
2011
. S
tatu
s: C
ompl
ete.
IV
. Citi
zen
Secu
rity
4. T
o im
prov
e ci
tizen
secu
rity
To su
ppor
t the
pre
vent
ion
of c
rime
and
viol
ence
and
ach
ieve
the
Gov
ernm
ent's
dev
elop
men
t and
po
verty
redu
ctio
n ob
ject
ives
, the
G
over
nmen
t has
: (a)
ado
pted
a
viol
ence
pre
vent
ion
stra
tegy
of
prop
osed
pro
gram
s foc
used
on:
you
th
at ri
sk, a
ltern
ativ
e co
nflic
t res
olut
ion,
ro
ad sa
fety
, and
citi
zens
hip
build
ing,
as
evi
denc
ed b
y D
ecre
e N
o. P
CM
05
7-20
11, d
ated
Sep
tem
ber 6
, 201
1,
publ
ishe
d in
the
Off
icia
l Gaz
ette
on
Oct
ober
1, 2
011;
and
(b) c
reat
ed th
e N
atio
nal C
itize
n Se
curit
y C
ounc
il, a
s ev
iden
ced
by D
ecre
e N
o. 0
03-2
011,
da
ted
Oct
ober
18,
201
1, p
ublis
hed
in
the
Off
icia
l Gaz
ette
on
Oct
ober
20,
20
11.
Sta
tus:
Com
plet
e.
Ave
rage
per
cept
ion
of
inse
curit
y ha
s im
prov
ed in
the
mun
icip
aliti
es o
f the
ce
nter
, nor
ther
n, a
nd
east
ern
regi
ons w
here
th
e "S
afer
M
unic
ipal
ities
" Pr
ogra
m is
bei
ng
impl
emen
ted
(Bas
elin
e 20
10: 9
1 pe
rcen
t fel
t ins
ecur
e;
Targ
et 2
012:
80
perc
ent f
elt i
nsec
ure)
.
Not
rat
ed
The
data
to a
sses
s per
form
ance
of t
his
indi
cato
r (pe
rcep
tion
of in
secu
rity)
is
not y
et a
vaila
ble.
But
, it w
ill b
e co
llect
ed in
the
first
sem
este
r of 2
013,
du
ring
the
impl
emen
tatio
n of
the
"Saf
er M
unic
ipal
ities
" pr
ojec
t tha
t w
as a
ppro
ved
on D
ecem
ber 1
3, 2
012.
Red
uctio
n of
gun
- rel
ated
ho
mic
ides
at t
he n
atio
nal
leve
l (B
asel
ine
2010
:83
perc
ent;
Ta
rget
201
3: 7
5 pe
rcen
t; so
urce
: Vio
lenc
e O
bser
vato
ry).
On
goin
g
To im
prov
e ci
tizen
se
curit
y a
draf
t int
egra
ted
polic
y be
twee
n th
e se
curit
y an
d ju
stic
e se
ctor
s has
bee
n su
bmitt
ed to
Con
gres
s. Th
e Se
cret
aria
t of t
he
Inte
rior i
nfor
med
that
, the
re
form
s to
the
Arb
itrat
ion
and
Con
cilia
tion
Law
to
expa
nd th
e au
thor
ity o
f m
unic
ipal
gov
ernm
ents
re
gard
ing
alte
rnat
ive
conf
lict r
esol
utio
n m
echa
nism
s hav
e be
en
sent
to C
ongr
ess.
26
Annex 2. Bank Lending and Implementation Support/Supervision Processes
(a) Task Team members
Names Title Unit Responsibility/
Specialty
Luc Razafimandimby Senior Economist LCSPE Task Team Leader
Rodrigo Serrano-Berthet Senior Social Development Specialist LCSSO Senior Social
Development Specialist
Christian Y. Gonzalez Senior Economist AFTP1 Former Task Team Leader
Denis Medvedev Senior Country Economist SASEP Former Task Team Leader Juan Diego Alonso Education Economist LCSHE Education Economist
Oscar Calvo-Gonzalez Lead Economist and Sector Leader LCSPR Lead Economist and
Sector Leader
Margarita Puerto Gomez Social Development Specialist SDV Social Development
Specialist
Nuria Tolsa Caballero Junior Professional Associate LCSPE Junior Professional
Associate Silvia Gulino Program Assistant LCSPE Team Support
(b) Staff Time and Cost
Stage Staff Time and Cost (Bank Budget Only)
No. of staff weeks USD Thousands (including travel and consultant costs)
Lending 58.00 314,898.81
Supervision/ICR 40.66 218,988.99
Total: 98.66 533,887.80
27
Annex 3. Summary of Borrower's ICR and/or Comments on Draft ICR
On behalf of the Government of Honduras, the Vice Minister of Public Credit and Investment expressed its agreement with the content of the Implementation Completion Report (ICR) in a letter to the Resident Representative in Honduras dated April 30, 2013. The letter is accompanied by comments and observations that are summarized below: The Government supports the operations of budget support in order to reduce vulnerabilities and promote development through the strengthening of fiscal management and other actions aimed at reducing constraints to growth. These operations must be part of a multi-year shared strategy and to the extent possible, they must respond to its own objectives and leverage a strategy based on less cross conditionality because abandoning or suspending subsequent operations of this type due to little progress in some cross conditionality can put at risk the strategy itself and undermine the momentum and progress in the objectives and goals.
The objectives of the operation continue to be relevant and have been heightened in the context of development. Since the inception of the operation it was clear that the requirements and its execution were of high risk, therefore the outcome indicators should be better identified, within a broader reform, even though the ultimate objectives are not fully achieved. Therefore, the technical work at the base is of vital importance, as well as actions to raise the level of identification and appropriation among policy makers. The work done to identify policy actions and outcome indicators was intense. The Ministry of Finance was the coordinating institution and directly responsible for executing actions. However, during the implementation period several elements appeared that put at risk the fiscal sustainability, such as the need of restructuring and financially strengthening public enterprises. The fourth area of work (citizen security) constituted a new challenge for both, Government as well as the Bank, and where the experience of working together, is scarce. Although the parties showed a total identification with the first operation, the commitment to medium-term strategy was weakened by internal governance factors as well as by the impact of a less favorable international economic environment. Finally, the dialogue between the Government and the Bank has been fluid and the assessment of the operation in the context of the medium-term strategy is correct. The Bank and the Government should be prepared with solid technical work to update the content that could be agreed in 2014 under a new proposal for a medium-term strategy.
28
29
Informe Final de Ejecución IDA-5021, Primer Crédito Programático en Políticas de Desarrollo: Reducción de Vulnerabilidad para el Crecimiento
Comentarios y Evaluación El gobierno respalda este tipo de operaciones de apoyo presupuestario con el propósito de reducir vulnerabilidades y fomentar el desarrollo mediante el fortalecimiento de la gestión fiscal y otros aspectos que reduzcan vulnerabilidades para el crecimiento. Estas operaciones deberán formar parte de una estrategia compartida multianual. Asimismo, en la medida de lo posible las operaciones deben responder a sus propios objetivos y apalancar una estrategia propia sujetándose en menor grado a condicionalidades cruzadas, ya que abandonar o suspender las subsecuentes operaciones de este tipo por pocos avances en esas otras condicionalidades cruzadas podría poner en riesgo la estrategia propia y socavar el impulso y avances en los objetivos y metas propias. La relevancia de los objetivos de la operación continua vigente y más bien se ha acentuado en el contexto de desarrollo. Desde su inicio se ponderó que lo requerido por las operaciones era de alto riesgo en su ejecución y que por lo tanto las acciones deberían ser bien identificadas en el ámbito de reformas amplias, aun cuando los objetivos de alto nivel no fuesen completamente alcanzados. Es por ello que el trabajo técnico de base es de esencial importancia así como las acciones para elevar el nivel de identificación y apropiación entre los hacedores de política. El trabajo realizado para identificar las medidas a tomar así como las metas e indicadores fue intenso hasta llegar a acordar una matriz de política. De las cuatro áreas incluidas tres corresponden a aspectos macro fiscales, la SEFIN fue la institución coordinadora que llevó el liderazgo en el Gabinete Económico y en relación a cada una de las instituciones directamente responsable de ejecutar acciones. El trabajo intenso preparatorio resultó en que no fuese necesaria la revisión de los indicadores. No obstante, durante el periodo surgieron otros elementos que han puesto en riesgo la sostenibilidad fiscal y que requieren incorporarse a subsiguientes operaciones similares; un ejemplo de ello es la restructuración y fortalecimiento financiero de las empresas públicas. La cuarta área de trabajo responde a un nuevo desafío tanto del gobierno como del Banco y en donde la experiencia de trabajo conjunto, con un marco institucional debidamente coordinado, es escasa. Si bien las partes mostraron una identificación total con la primera operación, el compromiso con la estrategia de mediano plazo se vio debilitado por diferentes factores internos de gobernabilidad como en los impactos por las condiciones externas de un ambiente económico menos favorable. El diálogo mantenido entre el gobierno y el banco durante la primera operación fue fluido aunque posteriormente se debilitó. La evaluación de la operación por sí sola podría elevarse una muesca aunque en el contexto de la estrategia de mediano plazo la evaluación es correcta. El Banco y el gobierno deberían prepararse con trabajo técnico sólido para actualizar la identificación del contenido que se podría acordar en el momento de revisión y propuesta de una nueva estrategia de mediano plazo a acordar en 2014.
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Annex 4. List of Supporting Documents
First Programmatic Reducing Vulnerabilities for Growth Development Policy Credit in the amount of SDR 55.1 million to the Republic of Honduras. Report No. 65556-HN, November 3, 2011. Fiscal Emergency Recovery Development Policy Credit Emergency in the amount of SDR 49.6 million to the Republic of Honduras. Report No. 55656-HN, October 4, 2010. Country Assistance Strategy for the Republic of Honduras for the period FY12-FY2014 Report No. 63370-HN, November 1, 2011 Safer Municipalities Project in the amount of SDR 9.8 million to the Republic of Honduras. Report No. 72349-HN, November 15, 2012 IMF Honduras First Review under the Stand-By Arrangement and Under the Standby Credit Facility Staff Report No. 11/101, May 2011. IMF Honduras Second Review Under the Stand-By Arrangement and Under the Stand-By Credit Facility and Request for a Modification and Waivers of Applicability of Performance Criteria. Julio 15, 2011 IMF Executive Board Concludes 2012 Article IV Consultation with Honduras Public Information Notice (PIN) No. 13/19, February 15, 2013 Implementation Status & Results for Honduras First Programmatic Reducing Vulnerabilities DPC, January 31, 2012 Implementation Status & Results for Honduras First Programmatic Reducing Vulnerabilities DPC, May 16, 2012 Implementation Status & Results for Honduras First Programmatic Reducing Vulnerabilities DPC, September 19, 2012
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Las ManosLas Manos
El El TriunfTriunfo
San MarcosSan Marcosde Colónde ColónSan LorenzoSan Lorenzo
SabanaSabanaGrandeGrande
CedrosCedrosGuaimacaGuaimaca
SalamáSalamá CatacamasCatacamas
Dulce NombreDulce Nombrede Culmíde Culmí
El CarbónEl Carbón
San EstebanSan Esteban
AwasbilaAwasbila
SirsirtaraSirsirtara
BalfateBalfate
SonagueraSonagueraOlanchitoOlanchito
Las VegasLas Vegas
CorocitoCorocito
El ProgresoEl ProgresoMorazánMorazán
HigueritoHiguerito
JaitiqueJaitiqueSan LuisSan Luis
QuimistanQuimistan
NuevoNuevoArcadiaArcadia
Copán RuinasCopán Ruinas
MapulacaMapulaca
CamascaCamasca
MarcalaMarcala
YuscaránYuscarán
NacaomeNacaome
CholutecaCholuteca
JuticalpaJuticalpa
YoroYoro
San PedroSan PedroSulaSula
SantaSantaBárbaraBárbara
Santa RosaSanta Rosade Copánde Copán
GraciasGracias
LaLaEsperanzaEsperanza La PazLa Paz
ComayaguaComayagua
TEGUCIGALPATEGUCIGALPA
Cordi l lera Nombre de Dios
Cordi l lera Nombre de Dios
Valle deValle deAngelesAngeles
AhuasAhuasC O R T E S
C O L Ó N
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SabanaGrande
Valle deAngeles
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Salamá
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Catacamas
Dulce Nombrede Culmí
Barra PatucaBrusLaguna
El Carbón
San Esteban
Awasbila
Sirsirtara
Ahuas
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Balfate
TocoaSonaguera
OlanchitoLas Vegas
Corocito
El ProgresoMorazán
Higuerito
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Puerto Cortés
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Copán Ruinas
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Patuca
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Guayape
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PACIFIC OCEAN
Lago de Yojoa
Lago de Izabal
Gulf ofHonduras
Golfo de Fonseca
Embalse GeneralFrancisco Morazán
To Estelí
To Puerto
Cabezas
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To San Salvador
To San Miguel
To San Salvador
To Chiquimula
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