Document of The World Bank Report No: ICR00004554 IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA-57500) ON A LOAN IN THE AMOUNT OF US$50 MILLION TO THE REPUBLIC OF HONDURAS FOR A FIRST FISCAL SUSTAINABILITY AND ENHANCED COMPETITIVENESS DEVELOPMENT POLICY FINANCING December 27, 2018 Macroeconomics, Trade and Investment Global Practice Central America Country Management Unit Latin America and the Caribbean Region CURRENCY EQUIVALENTS (Exchange Rate Effective December 7, 2018) Currency Unit = Honduran Lempira HNL 1.00 = US$ 0.040986 US$ 1.00 = HNL 24.39 FISCAL YEAR January 1 – December 31 ABBREVIATIONS AND ACRONYMS AF Additional Financing IMF International Monetary Fund CCT Conditional Cash Transfer INE National Statistics Institute CEDLAS Center for Distributive, Labor and IPF Investment Project Financing Social Studies LAC Latin America and the Caribbean CENISS Social Sector National Information M&E Monitoring and Evaluation Center MTDS Medium Term Debt Strategy CPF Country Partnership Framework MTFF Medium-Term Fiscal Framework CPSPR Country Partnership Strategy Progress NFPS Non-Financial Public Sector Report ONCAE National Procurement Office CREE Electricity Regulatory Agency PDO Program Development Objective DNA Diagnostic for National Action RUP Single Registry of Participants DPC Development Policy Credit SCD Systematic Country Diagnostic DPF Development Policy Financing SDR Special Drawing Rights ENEE State-Owned Electricity Company SEDIS Secretariat of Social Inclusion and EPHPM Household Budget Survey, Encuesta Development Permanente de Hogares de Propósitos SEDLAC Socio-Economic Database for Latin Múltiples America and the Caribbean FDI Foreign Direct Investment SEFIN Secretariat of Finance GDP Gross Domestic Product SIAFI-GES Integrated Financial Management HNL Honduran Lempira System HONDUTEL Honduras’ Telecommunications SIARH Human Resources Management System Company SIREP Public Employee Control and Registry ICR Implementation Completion Report System ICRR Implementation Completion and SOE State-Owned Enterprise Results Report TA Technical Assistance IDA International Development Association TFA Trade Facilitation Agreement IADB Inter-American Development Bank US United States IFI International Financial Institution VAT Value Added Tax IHNFA Honduran Institute for Children and WB World Bank Family WTO World Trade Organization Vice President: Jorge Familiar Country Director: Seynabou Sakho Practice Manager: Jorge Araujo ICR Team Leader Ewa Korczyc Suzana de Campos Abbott ICR Main Author Ewa Korczyc The World Bank (P155920) REPUBLIC OF HONDURAS First Fiscal Sustainability and Enhanced Competitiveness Development Policy Financing CONTENTS 1. Program Context, Development Objectives and Design ................................................................. 1 1.1 Context at Appraisal .................................................................................................................. 1 1.2 Original Program Development Objectives (PDO) and Key Indicators (as approved) ............. 4 1.3 Revised PDO and Key Indicators, and Reasons/Justification ................................................... 5 1.4 Original Policy Areas Supported by the Program...................................................................... 5 1.5 Revised Policy Areas (if applicable).......................................................................................... 7 1.6 Other significant changes ........................................................................................................... 7 2. Key Factors Affecting Implementation and Outcomes ................................................................... 7 2.1 Program Performance ................................................................................................................ 7 2.2 Major Factors Affecting Implementation ................................................................................ 10 2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization: ........................ 12 2.4 Expected Next Phase/Follow-up Operation: ............................................................................ 14 3. Assessment of Outcomes ............................................................................................................... 14 3.1 Relevance of Objectives, Design and Implementation ............................................................ 14 3.2 Achievement of Program Development Objectives ................................................................ 16 3.4 Justification of Overall Outcome Rating ................................................................................. 27 3.5 Overarching Themes, Other Outcomes and Impacts ............................................................... 28 3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops ........................ 28 4. Assessment of Risk to Development Outcome .............................................................................. 28 5. Assessment of Bank and Borrower Performance .......................................................................... 29 5.1 Bank Performance .................................................................................................................... 29 5.2 Borrower Performance ............................................................................................................. 30 6. Lessons Learned............................................................................................................................. 31 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners................................ 32 Annex 1 Bank Lending and Implementation Support/Supervision Processes................................... 33 Annex 2. Beneficiary Survey Results ................................................................................................ 34 Annex 3. Stakeholder Workshop Report and Results........................................................................ 35 Annex 4. Summary of Borrower's ICR and/or Comments on Draft ICR .......................................... 36 Annex 5. Comments of Cofinanciers and Other Partners/Stakeholders ............................................ 37 Annex 6. List of Supporting Documents ........................................................................................... 38 Annex 7. Analytical Underpinnings .................................................................................................. 40 iii The World Bank (P155920) A. BASIC INFORMATION Honduras First Fiscal Sustainability and Country: Honduras Program Name: Enhanced Competitiveness DPF Program ID: P155920 L/C/TF Number(s): IDA-57500 ICR Date: 12/06/2018 ICR Type: Core ICR MINISTRY OF Financing Instrument: DPL Borrower: FINANANCE Original Total USD 50.00M Disbursed Amount: USD 50.00M Commitment: Revised Amount: USD 50.00M Implementing Agencies: Instituto Nacional de Estadísticas (INE) Empresa Nacional de Energia Eléctrica (ENEE) Cofinanciers and Other External Partners: B. KEY DATES Process Date Process Original Date Revised / Actual Date(s) Concept Review: 10/06/2015 Effectiveness: 03/15/2016 03/30/2017 Appraisal: 11/02/2015 Restructuring(s): Approval: 12/15/2015 Mid-term Review: Closing: 03/30/2017 03/30/2017 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: Satisfactory Government: Satisfactory Implementing Quality of Supervision: Moderately Satisfactory Moderately Satisfactory Agency/Agencies: iv The World Bank (P155920) Overall Bank Overall Borrower Moderately Satisfactory Moderately Satisfactory Performance: Performance: C.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments (if Indicators Rating Performance any) Potential Problem Program No Quality at Entry (QEA): None at any time (Yes/No): Problem Program at any Quality of Supervision No None time (Yes/No): (QSA): DO rating before Closing/Inactive status: D. SECTOR AND THEME CODES Original Actual Sector Code (as % of total Bank financing) Public Administration Other Public Administration 50 50 Energy and Extractives Energy Transmission and Distribution 13 13 Social Protection Social Protection 13 13 Industry, Trade and Services Other Industry, Trade and Services 24 24 Theme Code (as % of total Bank financing) Economic Policy 28 28 Fiscal Policy 16 16 Fiscal sustainability 16 16 Trade 12 12 Trade Facilitation 12 12 Private Sector Development 13 13 Business Enabling Environment 13 13 Regulation and Competition Policy 13 13 Public Sector Management 44 44 v The World Bank (P155920) Public Administration 14 14 Transparency, Accountability and Good 14 14 Governance Public Finance Management 30 30 Debt Management 16 16 Public Expenditure Management 14 14 Social Development and Protection 17 17 Social Protection 17 17 Social Safety Nets 17 17 E. BANK STAFF Positions At ICR At Approval Vice President: Jorge Familiar Calderon Jorge Familiar Calderon Country Director: Yaye Seynabou Sakho J. Humberto Lopez Practice Manager/Manager: Jorge A. de Thompson R. Araujo Pablo Saavedra Liliana Do Couto Sousa Program Team Leader: Ewa Joanna Korczyc Marco Antonio Hernandez Ore ICR Team Leader: Ewa Joanna Korczyc ICR Primary Author: Suzana Nagele de Campos Abbott Ewa Joanna Korczyc F. RESULTS FRAMEWORK ANALYSIS Program Development Objectives (from Project Appraisal Document) The Program Development Objective of the DPF series was to support the Government of Honduras in: (i) strengthening institutional arrangements to support fiscal sustainability, and (ii) enhancing the regulatory framework to promote competitiveness. vi The World Bank (P155920) Revised Program Development Objectives (if any, as approved by original approving authority) (a) PDO Indicator(s) Original Target Formally Actual Value Achieved at Values (from Indicator Baseline Value Revised Target Completion or Target approval Values Years documents) vii The World Bank (P155920) Indicator 1 : The deviation of actual from projected recurrent expenditure as specified in the medium-term fiscal framework is less than 10 percent in 2016 (against 2015 MTFF) and 2017 (against 2016 MTFF) Value quantitative or Not available Less than 10 Central Administration: Qualitative) percent 5.5 percent in 2016 and 9.2 percent in 2017; Non-financial public sector: 2 percent in 2016 and 7.9 percent in 2017 Date achieved 12/31/2014 12/29/2017 12/29/2017 Comments Achieved. (incl. % achievement) Indicator 2 : ENEE’s financial deficit is reduced by at least 60 percent in nominal Lempiras relative to its level in 2014 (5,204 million); Value quantitative or 6,473.4 million 60 percent less 4,548.8 million, i.e. Qualitative) (HNL2,589.4 around 30 percent million) reduction Date achieved 12/31/2014 12/29/2017 12/29/2017 Comments Partially achieved. (incl. % achievement) Indicator 3 : Share of public debt issuances that are conducted using competitive auction mechanisms Value quantitative or 42 percent 85 percent 96 percent Qualitative) Date achieved 12/31/2014 12/29/2017 12/29/2017 Comments Exceeded. (incl. % achievement) Indicator 4 : Share of public sector workforce that has been evaluated by an institutional functional review Value quantitative or 0 percent 50 percent 60 percent Qualitative) Date achieved 12/31/2014 12/29/2017 12/29/2017 Comments Exceeded. (incl. % achievement) Indicator 5 : The number of children in extreme poor households attending 7th to 9th grade that receive cash transfers from the Bono Vida Mejor has increased by at least 60 viii The World Bank (P155920) percent relative to the number in 2015; and at least 49 percent of the recipients are boys Value quantitative or 78,739 children, 60 percent Not available. Qualitative) of which 48 increase, of percent were which 49 boys percent are boys Date achieved 12/31/2015 12/29/2017 12/29/2017 Comments Not available. However, unofficial data from IADB shows that the coverage of (incl. % beneficiaries of Bono increased from 78,739 in 2015 to 137,696 in 2018 (i.e. achievement) increase of 74 percent), which implies that the progress in the reform area was achieved. Indicator 6 : Number of years for which the EPHPM microdata (2011-2015) used to calculate official poverty statistics have been made available through INE’s website or on Redatam Value quantitative or 0 14 0 Qualitative) Date achieved 12/31/2014 12/29/2017 12/29/2017 Comments Not achieved. (incl. % achievement) Indicator 7 : Number of legal counsels trained to provide advice on a leniency application Value quantitative or 0 30 123 Qualitative) Date achieved 12/31/2014 12/29/2017 12/29/2017 Comments Exceeded. (incl. % achievement) Indicator 8 : Number of days to start a business Value quantitative or 14 10 13 Qualitative) Date achieved 12/31/2014 12/29/2017 12/29/2017 Comments Partially achieved. (incl. % achievement) Indicator 9 : Number of days to export and import Value quantitative or Export Baseline Export Target Not available due to Qualitative) 2015: 12 days; 2017: 11 days; change in the Import Baseline Import Target methodology. 2015: 16 days 2017: 14 days ix The World Bank (P155920) Date achieved 12/31/2015 12/29/2017 12/29/2017 Comments Not available. However, based on other available evidence, the progress in this (incl. % reform area was partially achieved. achievement) G. RATINGS OF PROJECT PERFORMANCE IN ISRs Date ISR Actual Disbursements No. GEO IP Archived (USD millions) H. RESTRUCTURING (IF ANY) Not Applicable x The World Bank (P155920) 1. Program Context, Development Objectives and Design 1. Honduras is one of the poorest and most unequal countries in the Latin America and the Caribbean (LAC) region. When the Program was prepared in 2015, per capita gross national income in Honduras totaled US$2,090, compared to a LAC average of US$8,082 (Atlas method). Nearly one in six Hondurans lived on less than US$1.9 per day, the second highest rate in LAC. According to official poverty lines, in 2015 almost 63 percent of Honduran households lived in poverty and 29.5 percent lived in extreme poverty, including 53 percent of rural Hondurans. With a Gini coefficient at 0.49, income inequality has been one of the highest in the region, and had remained at that level for the previous two decades 1. 2. This Implementation Completion and Results Report (ICRR) assesses the results of the First Fiscal Sustainability and Enhanced Competitiveness Development Policy Financing (DPF) to the Republic of Honduras. The DPF was the first in a programmatic series of two DPFs designed to support the Government of Honduras to strengthen institutional arrangements to support fiscal sustainability and enhance competitiveness, which were seen as essential to preserve the social protection system and generate employment opportunities to reduce poverty and promote shared prosperity. A US$50 million single-tranche credit was approved by the World Bank’s Board of Executive Directors on December 15, 2015 and fully disbursed upon loan effectiveness on December 28, 2015. The second loan, initially planned for late 2016 did not materialize for reasons not related to project performance. These developments limited policy dialogue with the authorities, which in turn slowed down reform progress in meeting several of the triggers for DPF2, such as debt management, doing business agenda, competitiveness, or data quality and transparency. 1.1 Context at Appraisal 3. The DPF was designed to support the Government’s efforts to strengthen macroeconomic and fiscal stability, to help build the basis for sustainable fiscal policies, and accelerate growth. At the time of the DPF preparation, Honduras was implementing policies aimed at achieving macroeconomic stabilization, which is a necessary precondition for sustained economic growth. The reforms, initiated in late 2014, included a comprehensive package of fiscal consolidation measures aimed at reducing fiscal deficit as well as structural reforms of State Owned Enterprises (SOE) sector, financial sector, tax administration and social protection systems. The Government had also adopted important measures to cushion the impact of fiscal consolidation on the extreme poor. 4. The DPF represented a World Bank’s contribution to the integrated assistance by the International Financial Institutions (IFIs) to support Honduras in achieving fiscal consolidation and strengthening the conditions for sustainable growth. Since late 2014, the 1 Data reported based on the Household Budget Survey (Encuesta de Hogares de Propósitos Múltiples) for 2015 and the World Bank’s LAC Equity Lab: http://www.worldbank.org/en/topic/poverty/lac-equity-lab1 Page 1 The World Bank (P155920) IFIs had been supporting Honduras in its program to achieve macroeconomic stability by consolidating public finances, reducing debt, restoring confidence and building the foundations for economic growth and enhanced opportunities. The World Bank’s Fiscal Sustainability and Enhanced Social Protection Development Policy Credit (DPC, P151803) approved in December 2014, followed by the First Programmatic Fiscal Sustainability and Enhanced Competitiveness DPF approved in December 2015, were part of the coordinated effort of the IFIs: the International Monetary Fund (IMF) the Inter-American Development Bank (IADB) and the European Commission. The IMF supported program, approved in December 2014 2, had been negotiated in parallel with the DPC, and the IADB provided additional budget support and technical assistance on a number of policy actions. 5. At the time of the DPF preparation and appraisal, Honduras’ macroeconomic framework continued to strengthen, benefiting from favorable external conditions and strong implementation of stabilization policies, especially on the fiscal side. Lower oil prices and a steady recovery in the US economy supported growth, which strengthened to 3.5 percent on annual terms through the first half of 2015 from 2.8 percent in 2013 and 3.1 percent in 2014 (Table 1). Private investment began to recover and the growth rate of private consumption remained positive, fueled by remittances and the expansion of consumer credit. The current account balance had narrowed markedly in 2014 to 7.4 percent (from 9.5 percent in 2013) and was projected to fall further in 2015, supported by a reduction in imports, strong remittance inflows, and a moderate recovery in exports. Monetary and exchange rate policies supported economic recovery. The financial sector was seen as being sound and resilient, but the forced liquidation of Banco Continental (Honduras’ eighth largest bank) created some uncertainty. Nonetheless, the authorities, helped by the international community, acted swiftly to limit its macroeconomic impact 3. The comprehensive fiscal consolidation program, which had been implemented since December 2013, has also started to show results. The deficit of the combined public sector had been brought down by 3.3 percentage points of GDP in one year, from 7.6 percent of GDP in 2013 to 4.3 percent in 2014. This performance was underpinned by both revenue and expenditure measures, as well as by measures to restore the financial health of public enterprises. In particular, a comprehensive tax package, which included a 3 percentage point increase in the VAT rate (from 12 to 15 percent), higher fuels taxes, elimination of some of the exemptions helped to strengthen the revenue side. At the same time, reforms aimed at rightsizing public sector employment and controlling wage growth, as well as reducing other current expenditure, including in the SOE sector, helped to contain expenditures. 2 The IMF-supported program included a 36-month Stand-By Arrangement (SDR 77.7 million) and a 24-month arrangement under the Standby Credit Facility (SDR 51.8 million) to help preserve macroeconomic stability and implement a broad structural reform agenda. 3 On October 7, 2015, the U.S. Office of Foreign Assets Control designated several companies from the Grupo Continental, including Banco Continental, and its owners pursuant to the Kingpin Act for allegedly laundering money for drug traffickers. Page 2 The World Bank (P155920) Table 1. Honduras—Key Macroeconomic Indicators 2010-2017 2010 2011 2012 2013 2014 2015 2016 2017 Real sector Annual percentage change, unless otherwise indicated Real GDP 3.7 3.8 4.1 2.8 3.1 3.8 3.8 4.8 Per Capita GNI (Atlas method) 1,910 2,070 2,000 2,040 2,040 2,090 2,160 2,250 Contributions: Consumption 2.7 2.7 3.7 3.5 1.7 3.5 4.0 4.0 Investment 2.5 5.3 -0.7 -2.8 2.0 5.0 -1.0 1.5 Net exports -2.5 -4.2 0.6 2.2 -0.7 -4.2 0.8 -0.7 Statistical discrepancy 1.0 0.1 0.5 -0.1 0.0 -0.5 0.0 0.1 CPI (average) 4.7 6.8 5.2 5.2 6.1 3.2 2.7 3.9 Fiscal Accounts Percent of GDP, unless otherwise indicated Revenues and grants 29.7 29.7 29.4 30.5 31.2 31.2 32.5 32.0 Current Revenues 28.1 28.4 28.2 29.3 30.3 30.2 31.7 31.3 Of which: Taxes 15.1 15.4 15.1 15.3 16.7 17.5 19.0 18.3 Expenditures 32.7 32.9 33.8 37.9 35.2 32.2 33.1 32.8 Current Expenditures 27.4 27.3 28.3 31.6 29.2 26.7 27.1 26.5 Of which: wages and salaries 14.7 13.4 13.2 14.2 12.7 11.7 11.4 11.3 Capital Expenditures 5.3 5.6 5.5 6.4 5.9 5.5 6.0 6.3 Overall balance -2.6 -2.5 -3.7 -7.1 -3.9 -0.9 -0.6 -0.8 Balance of Payments Percent of GDP, unless otherwise indicated Current account balance -4.3 -8.0 -8.5 -9.5 -6.9 -4.7 -2.7 -1.7 Merchandise exports, f.o.b. 39.8 45.2 45.1 42.2 41.1 39.2 36.7 37.8 Merchandise imports, fob 56.6 63.0 61.4 59.2 56.1 53.3 48.8 49.3 Foreign direct investment 971 1,012 851 992 1,315 952 900 1012.5 (m.US$) Remittances net 16.6 15.9 15.6 16.7 17.0 17.4 17.8 18.7 Memorandum items GDP nominal in US$ billion 15.7 17.6 18.5 18.5 19.8 21.0 21.6 23.0 Public sector debt 30.6 32.7 34.8 43.6 44.3 44.4 45.7 47.7 Sources: World Bank, IMF, the Government of Honduras Notes: Data on fiscal accounts refer to non-financial public sector 6. The DPF was aligned with the Government’s strategy and the World Bank’s objectives of reducing poverty. Specifically, the DPF was aligned with the strategic documents of the Government: 2014-2018 Plan de Todos para una Vida Mejor, that built upon its Country Vision 2010-2038 and the National Plan 2010-2022 approved in early 2010. In particular, three high-level objectives of the Government’s strategy: (i) human development, reduction of inequalities and social protection, (ii) employment generation through enhanced competitiveness and productivity; and (iii) a transparent and modern state, were aligned with the reforms supported by the DPF program. The DPF was also fully aligned with the World Bank’s Country Partnership Page 3 The World Bank (P155920) Framework (CPF) for FY16-FY20 4 (CPF), specifically with Pillar 1 (Fostering Inclusion), Objective 1 (Expand Coverage of Social Programs) and Pillar 2 (Bolstering Conditions for Growth), Objective 4 (Strengthen the regulatory framework and institutional capacity). Objective 1 supported expanding coverage of the extreme poor through further enhancing the targeting of the Bono Vida Mejor Program while ensuring its fiscal sustainability, while Objective 4 supported strengthening fiscal management through continued implementation of consolidation measures to improve Honduras’ fiscal position, and providing continued support in making improvement to the regulatory environment. 1.2 Original Program Development Objectives (PDO) and Key Indicators (as approved) 7. The Program Development Objective of the DPF series was to support the Government of Honduras in: (i) strengthening institutional arrangements to support fiscal sustainability, and (ii) enhancing the regulatory framework to promote competitiveness. 8. The following nine Key Indicators were to measure progress towards expected outcomes: Strengthening Institutional Arrangements to Support Fiscal Sustainability • The deviation of actual from projected recurrent expenditure as specified in the medium- term fiscal framework is less than 10 percent in 2016 (against 2015 MTFF) and 2017 (against 2016 MTFF) • ENEE’s financial deficit is reduced by at least 60 percent in nominal Lempiras relative to its level in 2014 (5,204 million) • Share of public debt issuances that are conducted using competitive auction mechanisms (Baseline 2014: 42 percent; Target 2017: 85 percent) • Share of public sector workforce that has been evaluated by an institutional functional review (Baseline 2014: 0 percent; Target 2017: 50 percent) • The number of children in extreme poor households attending 7th to 9th grade that receive cash transfers from the Bono Vida Mejor has increased by at least 60 percent relative to the number in 2015 (78,739); and at least 49 percent of the recipients are boys (in 2015, 48 percent were boys) • Number of years for which the EPHPM microdata (2011-2015) used to calculate official poverty statistics have been made available through INE’s website or on Redatam (Baseline 2014: 0; Target 2017: 14) 4 World Bank, Country Partnership Framework for the Republic of Honduras for the Period FY16-FY20, Report No. 98367-HN dated November 13, 2015. Page 4 The World Bank (P155920) Enhancing the Regulatory Framework to Promote Competitiveness • Number of legal counsels trained to provide advice on a leniency application (Baseline 2014: 0; Target 2017: 30) • Number of days to start a business (Baseline 2014: 14; Target 2017: 10) • Number of days to export and import (Export Baseline 2015: 12; Export Target 2017: 11; Import Baseline 2015: 16; Import Target 2017: 14) 1.3 Revised PDO and Key Indicators, and Reasons/Justification 9. Neither the PDO nor the Key Indicators were revised. Small changes were introduced to the baseline value of indicator 2 to reflect updated data that became available. 1.4 Original Policy Areas Supported by the Program Pillar 1: Strengthening institutional arrangements to support fiscal sustainability 10. Strengthening institutional arrangements to support fiscal sustainability focused on putting in place improved instruments to support fiscal, financial and electricity sector management that would promote macroeconomic stability and increase the fiscal space needed to safeguard social protection programs and avoid a drastic reduction in capital investments. This pillar addressed several institutional issues that affected the performance of public finances in Honduras and supported actions to advance fiscal stability by improving: (i) fiscal and financial management; (ii) the targeting of energy subsidies and reduction of quasi-fiscal deficits, and (iii) the targeting and transparency of social spending. These higher level objectives of the pillar were incapsulated in several areas of reform. First, the volatility of fiscal policy outcomes was in large part due to insufficient institutional arrangements and poorly guided political decisions, including weak budgetary controls, the lack of a credible medium-term fiscal framework (MTFF) and fiscal responsibility provisions, which led to a situation where the fiscal policy mirrored electoral cycle in the country 5 . Second, despite earlier reforms, the National Electricity Company (ENEE) continued to be one the main contributors to Honduras’ persistent public sector deficit and addressing the company’s inadequate cost-recovery scheme was necessary to manage fiscal and quasi-fiscal deficits. Third, the lack of clear fiscal and debt-policy frameworks has resulted in persistent deficits, pro-cyclical policies without buffer accumulation, rising debt levels and a gradual loss of credibility. Fourth, in a context of scarcity of resources and pressing demands, the transparency and prioritization of public expenditure was critical, and Honduras’ financial management system threatened to undermine fiscal performance due to weak control of expenditures and the absence of ex-ante credible controls on spending levels. Fifth, despite earlier efforts to improve the Bono Vida Mejor’s targeting formula to restrict eligibility to 5 Hernandez Ore, Marco Antonio; Sousa, Liliana Do Couto; Lopez, J. Humberto. 2017. Honduras - Unlocking economic potential for greater opportunities: systematic country diagnostic (Vol. 2) (English). Washington, D.C. : World Bank Group. http://documents.worldbank.org/curated/en/519801468196163960/Honduras-Unlocking-economic-potential-for-greater- opportunities-systematic-country-diagnostic Page 5 The World Bank (P155920) beneficiary families classified as extreme poor, thereby increasing the program’s fiscal sustainability, the Government aimed to further improve its targeting. Specifically, it aimed to expand coverage of excluded extreme poor families, and to include children living in extreme poverty that were attending 7th to 9th grade to help address high dropout rates in secondary school— one of Honduras’ most pressing challenges with implications for longer-term growth. Finally, this pillar aimed to improve transparency and accessibility of statistical information to help identify, characterize and monitor poverty and other social welfare indicators more effectively to guide the design implementation and assessment of social assistance and other pro-poor fiscal policies. Pillar 2: Enhancing the Regulatory Framework to Promote Competitiveness 11. Enhancing the regulatory framework to promote competitiveness was critical to detect anti-competitive practices, and simplify business and trade regulations to advance Honduras’ competitiveness agenda to boost productivity to support growth. This pillar addressed several issues that affect Honduras’ competitiveness such as a weak competitive environment, burdensome administrative procedures for business activities, including for starting a business, and measures expected to enhance trade facilitation through streamlined import and export procedures including the strengthening of trade facilitation institutions, by supporting actions to enhance the country’s framework to promote competitiveness by improving: (i) the regulatory framework to foster competition, and (ii) trade facilitation. Despite its introduction of a competition law in 2005, Honduras ranked 83rd out of 144 countries on the extent of market dominance in the 2015 Global Competitiveness Report. This pillar aimed to help put in place an enhanced legal framework and tools to detect and deter barriers to competition, by supporting a new Competition Law adopted in May 2015 that created a Leniency Program (exempting cartel members from sanctions in exchange for information on the cartel) to serve as a channel for communication between public and private stakeholders. Similarly, in the doing business area, despite earlier efforts, regulatory burdens continued to pose additional challenges to private sector competition: Honduras still ranked 104th in the world in the ease of doing business according to the 2015 Doing Business Report. To address this, this Pillar under the second DPF in the series was aimed to support a further streamlining of the regulatory framework, with a focus on reducing the costs of starting and running a business. As a start, Honduras had adopted a number of reforms that improved trading across borders that resulted in a reduction of the time to obtain export certificates and concluded negotiations of a Trade Facilitation Agreement (TFA) with the World Trade Organization that promoted regional integration by providing a framework for cooperation between customs and other appropriate authorities. Actual ratification of the TFA by Congress and putting in place the framework for implementing its commitments (e.g. creation of new systems to enhance electronic payments, publication of trade related information and procedures for appeal, review, fees and charges, risk mitigation processes, post-clearance audits, border agency cooperation and the application of international standards) was aimed to enhance transparency and impartiality and further reduce the number of days required to import and export, thereby significantly reducing trade costs. Page 6 The World Bank (P155920) 1.5 Revised Policy Areas (if applicable) 12. The policy areas remained unchanged throughout the program. 1.6 Other significant changes Not applicable. 2. Key Factors Affecting Implementation and Outcomes 2.1 Program Performance 13. The Program was designed to be supported by a programmatic series of two, single-tranche Development Policy Financing operations. The First Fiscal Sustainability and Enhanced Competitiveness DPF in the amount of US$55 million was approved by the World Bank’s Board of Directors on December 15, 2015 and disbursed upon effectiveness on December 28, 2015. All required Prior Actions were completed prior to the operation’s approval (Table 1). The second operation, which was tentatively scheduled for late 2016, did not materialize due to country circumstances exogenous to the DPF. The Government largely continued to implement envisaged reforms, but sometimes the focus shifted towards the priority areas supported by lending programs of other IFIs. As a result, by the time of this ICRR, 6 out of 9 triggers for DPF2 had been completed. Table 1: Prior Actions for the DPF1 and Triggers for DPF2 Prior Action for DPF1 Trigger for DPF2 Status of Status of Prior Trigger for Action DPF2 6 Pillar 1: Strengthening Institutional Arrangements to Support Fiscal Sustainability Prior Action 1: The Government, Trigger 1: A Fiscal Completed Completed through SEFIN has: (a) approved Responsibility and and published on the Ministry’s Transparency Law is website a medium-term enacted, specifying: (a) macroeconomic and fiscal fiscal rules; (b) fiscal framework that is consistent with procedural rules, and (c) the medium-term debt management surveillance mechanisms. strategy, and (b) submitted this framework to Congress for approval. 6 Given that the DPF2 did not materialize, this ICRR includes only brief discussion of the reforms envisaged under the second loan. Page 7 The World Bank (P155920) Prior Action 2: The Government’s Trigger 2: (a) A decree Completed Completed National Energy Commission has restructuring the approved and published an energy Electricity Company tariff structure that reduces the (ENEE) has been issued; electricity subsidy for residential (b) a decree creating an consumers. independent National Electricity Dispatch Center has been issued, and (c) the Government approved enabling regulations for the Electricity Regulatory Agency (CREE). Trigger 3: The Not completed Government approved and published a new electricity tariff framework that specifies measures to reduce electricity demand during peak hours. Prior Action 3: The Government, Trigger 4: Amendments Completed Not completed through SEFIN, has: (a) approved to the Organic Budget and published on its website a Law that improve the medium-term debt policy that public debt legal established public debt ceiling framework are enacted, recommended targets for state- specifying: (a) borrowing owned enterprises, and borrowing objectives and procedures guidelines for local governments, for contracting public and (b) approved and published a debt, including the calendar for debt issuance for 2015 issuance of domestic and 2016. government guarantees, and (b) requiring mandatory reporting to Congress. Prior Action 4: The Government, Trigger 5: (a) The Completed Completed through SEFIN, has: (a) created a Congress has enacted the budgeting module in the Integrated 2016 Budget Law that Financial Management System specifies processes for (SIAFI-GES) that specifies budget registering public trust ceilings consistent with the funds in the budget medium-term macroeconomic and (Fideicomisos), and (b) fiscal framework and (b) submitted the Government has to Congress for approval the 2016 undertaken, approved and Budget Bill of Law that specifies published institutional processes for registering public functional reviews, and approved corresponding Page 8 The World Bank (P155920) trust funds in the budget staffing strategies for (Fideicomisos). selected ministries following the findings of the institutional function review. Prior Action 5: The Government, Trigger 6: The Completed Completed through SEDIS, has (a) expanded Government has signed at the coverage of the Bono Vida least one contract with a Mejor conditional cash transfer regulated financial th program to children attending 7 to institution for the 9th grade of lower secondary provision of services to education, and (b) approved a more effectively channel methodology to prioritize the payments of the coverage of the Platform Vida conditional cash transfer Mejor in 141 municipalities most program through basic affected by poverty vulnerability, accounts or other forms violence and migration. of electronic payment. Prior Action 6: INE has: (a) Trigger 7: (a) The Completed Not completed published the full documentation Government has and metadata of the 2013 completed a poverty map Population Census, and (b) and published the map published the tabulations of the and the underlying EPHPM and the 2013 Population poverty headcount data Census on its website by municipality; (b) SEDIS and INE have signed an agreement to use the poverty map in the targeting of social programs, and (c) the Government approved and published a quality assessment for the 2015 household survey. Pillar 2: Enhancing the Regulatory Framework to Promote Competitiveness Prior Action 7: (a) the Government Trigger 8: The Completed Completed has adopted the amended Government has created Competition Law which creates a the electronic platform Leniency Program that provides “MiEmpresaEnLinea” incentives for corporations and which simplifies individuals that report and regulatory procedures to cooperate in the investigation of start and operate a cartel practices, and (b) the business in Honduras. Competition Authority has issued regulations that detail the procedures for the Competition Authority to implement the Leniency Program. Page 9 The World Bank (P155920) Prior Action 8: The Government Trigger 9: (a) Congress Completed Completed has submitted to Congress for has ratified the World approval a Trade Facilitation Trade Organization’s Agreement with the World Trade Trade Facilitation Organization Agreement, and (b) the Government has created an electronic system to process sanitary and phyto-zoo sanitary certifications for selected agricultural products. 2.2 Major Factors Affecting Implementation 14. The overall implementation of the DPF was moderately satisfactory. The DPF was the second World Bank-financed operation designed to support the Government’s broader fiscal reform agenda in Honduras that had been supported just one year earlier by the Fiscal Sustainability and Enhanced Social Protection DPC (DPC). The DPC’s Program Development Objectives of strengthening the fiscal and financial management; strengthening the management of the power sector; and improving the targeting of social protection programs, laid ground for the subsequent DPF thereby providing continuous support to Government’s reforms. The fiscal reform was also supported by the IADB through the budget support operations aimed at supporting structural reforms in the electricity sector 7 and policy measures to strengthen macro-fiscal management, increase tax revenue collection, enhance public expenditure management, and improve the management of fiscal risks associated with contingent liabilities. 8 In addition, the IMF’s Stand-By Arrangement/Credit Facility for the period 2014-2017 that was in place throughout. Most of the factors that positively affected the earlier DPC’s implementation continued to be in place throughout the DPF’s implementation. However, the implementation of the program was also affected by the factors exogenous to the operation which prevented the DPF2 from materializing. In addition, the political turmoil in Honduras following the Presidential Elections in November 2017 has also affected the implementation of some of the policies supported under the DPF. Overall, the positive aspects affecting program implementation are: strong Government ownership, sustained complementarity of assistance among donors, both during preparation and throughout implementation, including the complementarity of the DPF with other operations in the World Bank’s Honduras portfolio, and strong analytical underpinnings supporting the Government’s fiscal reform agenda. On the negative side, the lack of continuity of the DPF2 program, institutional capacity constraints and the political situation in Honduras had an impact on the achievement of some of the results of the series or their sustainability. The key aspects are highlighted below. 15. The fiscal reform program, and its objectives, continued to count upon strong government ownership, but the political unrest following Presidential elections in November 7 HO-L1070 - Apoyo Programático a Reformas Estructurales del Sector Eléctrico 8 HO-L1103 - Programa de Apoyo a la Consolidación Fiscal Page 10 The World Bank (P155920) 2017 increased the risk of political polarization that could affect the pace and the support to reforms going forward. The outcome of the earlier Fiscal Sustainability and Enhance Social Protection DPC was considered Satisfactory, with stronger progress in the areas of strengthening fiscal and financial management and improving the efficiency of social programs, and with somewhat less, albeit still important, progress in the area of strengthening the management of the power sector due to the complex institutional reforms it entailed. As a result, the Government’s fiscal position had improved considerably by the time the DPF was appraised (para. 7). Contrary to previous electoral campaigns, the fiscal discipline was maintained in the election year and the Government kept the deficit below the Fiscal Responsibility Law (FRL) limit. Nonetheless, the contested elections weakened the Government’s position and ability to pursue further reforms that are necessary to protect the hard-won gains of the fiscal consolidation, as demands from interest groups that could come to threaten fiscal reform efforts going forward. 16. The Government fiscal program’s and the DPF’s reforms benefitted from strong analytical underpinnings. Because of its central importance in Honduras’ development trajectory, fiscal sustainability had been a constant theme in the World Bank’s dialogue with the Government (para. 5). The World Bank has developed several analytical studies that sustained a fruitful dialogue highlighting the importance of and policies to support fiscal reform, not only in terms of promoting macroeconomic stability, but also allowing expansion of social programs targeted at the poorest. World Bank studies that helped inform the design of the Government’s fiscal reform program, and of the DPF, are presented in Annex 7. 17. The DPF built upon the Government’s earlier strong performance in implementing its program and continued to count upon strong cooperation among Honduras’ development partners. The IMF, the IADB and the World Bank have continued to work in coordination since the enactment of the December 2013 fiscal package, in support of the Government’s fiscal consolidation program. As noted already, the DPF was the second lending program by the World Bank to support Government’s reform agenda, following the successful DPC from late 2014. At the appraisal of the DPF, the program was already producing results. Performance under the IMF Stand-By Arrangement (SBA) had been considered satisfactory at the Second Review which was finalized in early December 2015. Overall, the IMF Program was completed in December 2017 (for the first time in Honduran history) and with the exception of energy sector, the performance was considered strong 9. Finally, the outcome of the First Fiscal Sustainability DPC (P151803) was rated as Satisfactory, although in the power sector, while important progress was made, it was slower than expected given that more support was needed to carry out the complex institutional reforms. During the DPF’s implementation, all three institutions continued to work in close coordination in the provision of technical and advisory services supporting the Government in the implementation of the program’s policy actions. 18. The DPF was also part of an integrated program of World Bank lending assistance, supported by investment operations in the Honduras portfolio. The DPF followed the earlier 9 IMF, Fifth and Sixth Reviews Under The Stand-By Arrangement, Staff Report, IMF Country Report No. 17/331 Page 11 The World Bank (P155920) DPC and several earlier Investment Project Financing operations (IPFs) in support of reforms related to the DPF’s objectives. The IPFs included: the Improving Public Sector Performance Project (P110050) that supported the strengthening of procurement and financial management systems and the improvement of human resource management in the public sector (DPF Outcome Indicator 4), the Power Sector Efficiency Enhancement Project (P104034) 10 that supported actions to improve ENEE’s operational and financial performance (DPF Outcome Indicator 2) and the Social Protection Project P152266), co-financed with the IADB, supported the Bono Vida Mejor program, focusing on coverage and institutional functions (DPF Outcome Indicator 5). The IFC provided technical advisory services on improving ENEE’s operations, with a mandate to promote private sector participation in the power sector. 19. On the negative side, the lack of continuity of the DPF2 program, institutional capacity constraints and political situation in Honduras had impact on the achievement of some of the results of the series and their sustainability. Limited policy dialogue triggered by developments not related to the DPF program have slowed down reform progress in meeting several of the triggers for DPF2, such as debt management, doing business agenda, competitiveness, or data quality and transparency. The political situation, related first to the electoral campaign and later the post-electoral unrest was not conducive to some of the more socially difficult reforms like for example in the energy sector. Finally, the limited institutional capacity in several line ministries affected the speed of program implementation. In fact, the Systematic Country Diagnostic (SCD) 11 argued that “a plausible root cause behind the country’s development outcomes is the low quality of its institutions.” Weak technical capacity in institutions to carry out and implement reforms is a factor that leads to delays in projects almost across the portfolio in Honduras. For the DPF as in the earlier DPC, this affected mostly implementation of reforms in the power sector. While the power sector reforms aimed to improve institutional quality in the long run, in the short term, the technical capacity and political economy to implement those reforms continued to result in slower than expected implementation. 2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization: 20. The Program’s Development Objectives were clear and concise, and the two pillars and the respective Key Indicators under each of the pillars very well aligned with each of the two objectives. (a) Design 21. Both in its text and in the Policy and Results Matrix in Annex 1, the Program Document clearly described the pillars, prior actions, triggers for the second phase of the DPF, expected 10 The project Power Sector Efficiency Enhancement Project (PROMEF) (P104034) was closed in June, 2015 –prior the approval of the DPF; the overall rating at closing was Moderately Unsatisfactory with High risk in sustainability of the Program Development Objective. 11 World Bank, Honduras – Unlocking Potential for Greater Economic Opportunities: Systemic Country Diagnostic, Report No. 100441 dated October 26, 2015. Page 12 The World Bank (P155920) results, and indicators by which progress towards the expected results would be measured. Indicators defined precisely the expected results, and all of the indicators had identified baselines (2014) and end targets (2017) in line with the Program’s expected outcomes. Nonetheless some outcome indicators could have been better designed to show the attribution of the program reforms, for example the indicator measuring the progress of reforms in the energy sector (the financial deficit of ENEE) was impacted much more by exogenous oil price developments than the structural reforms of ENEE. Results indicators for Doing Business (DB) reforms in the area of external trade could have been improved as both the methodological changes and the fact that DB focuses only on a selected external markets (Germany and the US) did not fully reflect the progress of the DPF-supported reforms. The Program’s pillars and respective reforms were informed by consultation processes among various sectors of Honduran society, including different levels of government, the private sector, civil society and development partners, including bilateral and multilateral donors. The Program, and the Policy and Results Matrix were prepared in close cooperation with the IMF, the IADB and the European Union as a coordinated effort to help close the financing gap and support the implementation of structural reforms. The teams from each of these institutions coordinated the design of the policy matrix to support complementary efforts and ease the reporting and monitoring burden upon the authorities. (b) Implementation 22. The early stage monitoring of the DPF reforms was carried out through an ongoing dialogue with the Government, jointly with the IMF, and the IADB that were also monitoring their respective operations in parallel. However due to country developments exogenous to the DPF program, the policy dialogue under the DPF was put on hold in April 2016. Since then, the implementation of the DPF reforms was supported through the dialogue carried out under the complementary investment projects (Section 2.2), hands-on technical assistance, and as part of the analytical activities. One ISR was filed into the system on April 7, 2017 12. On the Government’s side, The Secretariat of Finance’s (SEFIN’s) Public Credit Department was responsible for the Program’s implementation and its monitoring, coordinating with other Government ministries and agencies involved in its implementation, in particular, the Secretariat of Social Inclusion and Development (SEDIS), the National Statistics Institute (INE), and ENEE. Together with SEFIN, these institutions were responsible for collecting the necessary data to assess implementation progress and results, and provide this data to the World Bank. (c) Utilization 23. Following practice established under the earlier DPC, the DPF operation promoted and supported the use of M&E arrangements and respective systems in several areas, including, inter alia, in the areas of: public debt management, fiscal accounts, and social assistance. Regular 12 Korczyc, Ewa Joanna. 2017. Honduras - Honduras First Fiscal Sustainability and Enhanced Competitiveness DPF : P155920 - Implementation Status Results Report : Sequence 01 (English). Washington, D.C. : World Bank Group. http://documents.worldbank.org/curated/en/221131491565322143/Honduras-Honduras-First-Fiscal-Sustainability-and- Enhanced-Competitiveness-DPF-P155920-Implementation-Status-Results-Report-Sequence-01 Page 13 The World Bank (P155920) monitoring and data collection led to oversight and correction on implementation of reforms and results. Systems put in place under the Program, starting with those adopted under the DPC, have been an important factor in the achievement of program results, especially with respect to fiscal reform objectives. For example, the creation of the MTFF increased the utilization of the fiscal accounts data, enhanced collaboration between SEFIN and the Central Bank in the area of macro and fiscal projections; and was a necessary precondition for further reforms of fiscal framework, like the introduction of FRL and fiscal rules, which are embedded in and integrated with the MTFF. 2.4 Expected Next Phase/Follow-up Operation: 24. The DPF was designed as a programmatic series and the Second Fiscal Sustainability and Enhanced Competitiveness Development Policy Financing (DPF2) was supposed to provide continued support to fiscal and competitiveness reforms in Honduras. However, the second operation did not move forward for country conditions exogenous to the DPF series. As explained in Section 3 of the ICRR, the Government continued to make progress on complying with the majority of triggers established for the DPF2, which helped to meet many of the outcome indicators envisaged at the inception of the DPF series. 25. At this point, no budget support operation is planned in Honduras in the foreseeable future and hence IDA resources are being allocated in high priority investment projects in agriculture, social protection, water and potentially energy sector. The FY19 upcoming Country Partnership Framework Progress and Learning Report is expected to take stock of the Honduras project portfolio and inform future engagement with the country. 3. Assessment of Outcomes 3.1 Relevance of Objectives, Design and Implementation Overall Rating: High (a) Relevance of Objectives: High 26. The DPF’s objectives, to support the Government’s efforts in: (i) strengthening institutional arrangements to support fiscal sustainability, and (ii) enhancing the regulatory framework to promote competitiveness were and remain highly relevant to Honduras. The objectives were aligned with the Government’s 2014-2018 Plan de Todos para una Vida Mejor and with the World Bank’s Country Partnership Strategy Progress Report (CPSPR) for 2012-2015 when the DPF was approved (Section 1.1) and with the CPF for the period FY16-FY20 (para. 8). The reforms supported by the DPF ware also part of the coordinated assistance by international donor community and closely aligned to shared objectives of development assistance. 27. The DPF’s focus continues to be highly relevant for Honduras. While macroeconomic stabilization objectives were largely achieved in the last few years, including through successful graduation of Honduras from the IMF-supported program in December 2017, the outstanding Page 14 The World Bank (P155920) reform agenda requires further efforts. In this context, continued implementation of Honduras’ fiscal consolidation agenda, prudent macroeconomic policies and growth-enhancing structural reforms are critical to maintaining investor confidence and support sustained and inclusive growth. Given an expected moderation of economic growth in 2019-2020 to around 3.5 percent, the Government needs to continue to enhance macroeconomic stabilization. Commitment and adherence to fiscal targets specified in the Fiscal Responsibility Law are needed to safeguard fiscal sustainability. Related to that continued efforts to strengthen the management of the power sector are still highly relevant given that the financial deficit of the electricity company continues to represent the biggest challenge for meeting the Government’s non-financial public sector (NFPS) deficit target. Continued prudent macroeconomic management will be needed to sustain growth, thereby creating opportunities for escaping the vicious cycles that have been locking the country in low growth equilibrium. In particular sustaining transparency and accountability are needed to rebuild trust in government institutions. In addition, reforms aimed at improving social outcomes through targeted social transfers and improved service delivery in education could help reduce poverty. (b) Relevance of Design: High 28. The DPF’s design incorporated findings of strong analytical work prepared in advance, the outcomes of close donor coordination and lessons learned from previous budget support operations in Honduras, most specifically those of the DPC. The DPF was a subset of the Government’s broader reform agenda to consolidate public finances, reduce debt, restore confidence and build the foundations for economic growth and enhance opportunities for the most vulnerable. A substantial wealth of analytical work, produced by the World Bank Group and other institutions (Section 2.2), provided the basis for the policy dialogue with the new administration regarding the design of its fiscal reform agenda. Close cooperation with the IMF and IADB, both in the policy dialogue and preparation and design process, resulted in a coordinated program of assistance and policy matrix in support of the Government’s agenda. The DPF’s policy matrix reflected the areas of the World Bank’s focus, and the Prior Actions and Key Indicators selected were largely appropriate to measure the accomplishment of its objectives. The DPF’s design provided for more focused technical assistance from ongoing investment projects in the Honduras portfolio (Section 2.2). Given the Satisfactory outcome of the earlier DPC, the DPF was prepared as a two-phase programmatic series to ensure support to reform initiatives throughout the implementation period. (b) Relevance of Implementation: Satisfactory 29. The DPF’s implementation arrangements were and continue to be relevant. Given the multi-sector focus of the DPF, the implementation of the program was supported by multiple agencies of the Government. SEFIN was the main executing agency given its overall responsibility for fiscal policy and management, and coordinated with other ministries and agencies involved with the Program’s implementation, in particular SEDIS, INE, and ENEE. In addition, during the program implementation, selected Government agencies were receiving technical assistance from Page 15 The World Bank (P155920) the Bank to strengthen their implementation capacity. Implementation of the program also benefitted from the strong cooperation with the IMF and IADB. 3.2 Achievement of Program Development Objectives Overall Rating: Moderately Satisfactory 30. The Program’s Development Objectives of the DPF of strengthening institutional arrangements to support fiscal sustainability and enhancing the regulatory framework to promote competitiveness were largely achieved, as evidenced by progress on Key Indicators and other supporting indicators, as well as the Government’s commitment to reforms across the DPF’s pillars. Substantial progress was made in implementing reforms in each of the DPF pillars. Of the DPF’s nine results indicators, three were exceeded by large margins, one was achieved, two were partially achieved, and one was not achieved. For the remaining two indicators (regarding Bono Vida Mejor Program and number of days to import and export) there is no information available at the time of the ICRR to verify the progress towards achievement of the indicators. Nonetheless, other supporting evidence points to significant progress achieved through the DPF-supported reforms towards operation’s PDOs, including in the area where an outcome indicator was not met. Despite the decision not to continue with the Second DPF, the outstanding reforms specified as Triggers were mostly completed (6 out of 9) and the implementation of reforms across the DPF program has been largely satisfactory, with the exception of energy sector. Therefore, the overall outcome rating is Moderately Satisfactory. Outcomes of the Government’s Reform Program Objective 1: Strengthening Institutional Arrangements to Support Fiscal Sustainability 31. This objective supported actions to advance fiscal stability by improving: (i) fiscal and financial management; (ii) energy subsidies and quasi-fiscal deficits, and (iii) the targeting and transparency of social spending. For the first objective, the DPF delivered or exceeded its expected outcomes in three out of six results indicators. Among the remaining three indicators: one was partially met (energy), one was not met, and there is no available information to assess the progress on the third. With regards to the energy sector, the result indicator was partially achieved, albeit not in a sustainable manner (please see below). The outcome indicator related to data access and transparency was not met, but important progress was achieved in this area and is highlighted in the ICRR. Finally, the indicator for Bono Vida Mejor Program was not available at the time of the ICRR, but other evidence points that the DPF-supported reforms were effective in strengthening coverage and educational attainment of poor secondary school students in Honduras. Overall, the ICRR assessment shows that while the performance in terms of outcome indicators was mixed, there is strong evidence pointing to good results achieved by the Program in all areas, with exception of energy. Given the above, the performance towards development objective is rated Moderately Satisfactory. Page 16 The World Bank (P155920) Outcome Indicator 1: The deviation of actual from projected recurrent expenditure as specified in the medium-term fiscal framework is less than 10 percent in 2016 (against 2015 MTFF) and 2017 (against 2016 MTFF); Baseline: N/A; Target: less than 10 percent in 2016 and 2017; Actual: Central Administration: 5.5 percent in 2016 and 9.2 percent in 2017; Non-financial public sector:2 percent in 2016 and 7.9 percent in 2017; 32. The performance of public finances in Honduras had been highly volatile, mostly due to inadequate institutional arrangements and political pressures. In such context, the DPF was supporting reforms aimed at strengthening the fiscal framework in order to increase budgetary controls, especially for current expenditures, reduce the impact of electoral cycles on fiscal policy, and improve transparency, accountability and sustainability in fiscal policy making. As a Prior Action under the DPF, the Government prepared and submitted to Congress in September 2015 its first Medium-Term Fiscal Framework (MTFF) to guide the preparation of the 2016 budget, and published the MTFF on the SEFIN’s website. The MTFF included projections over a three-year horizon for: GDP growth, the balance of payments, the monetary sector, and the fiscal accounts. It was consistent with the Government’s debt strategy and included a clear fiscal anchor and fiscal policy targets. Further, the Government set up two committees—a Steering Committee and a Technical Committee--to coordinate the preparation and monitoring of the MTFF, thereby institutionalizing the MTFF as an instrument of fiscal policy. To further institutionalize the prudent management of fiscal policy and secure hard-won fiscal consolidation gains thus far, the Government enacted a Fiscal Responsibility and Transparency Law (FRL) in 2017 (DPF2 Trigger). The FRL was based on international best practices and built upon the budgetary principles of accountability, transparency and stability. It codified fiscal rules, which are expected to provide a permanent anchor on fiscal policy. 13 On transparency and accountability, the FRL formalized the MTFF as a critical part of the budget cycle, and required a formal assessment of the central bank on the consistency of the MTFF with monetary and exchange rate policies. SEFIN is required to report periodically on the evolution of fiscal aggregates relative to targets, and on compliance with the Law. The enhanced fiscal framework has already delivered results. The Government over- complied with the FRL targets and remains committed to achieving further consolidation even when the external environment turned more negative (Figure 2). In 2018, the worsening financial situation of the public electricity company Empresa Nacional de Energía Eléctrica (ENEE) triggered deeper cuts to investment and current spending to mitigate the risk of breaching the FRL targets. The effective enforcement of the FRL thus far and strong commitment to fiscal targets helped to build confidence in the Honduran economy and resulted in upgrades by the major rating agencies 14 . Also, the quality of fiscal planning has been improved as the fiscal projections embedded in the MTFF do not differ much from the actual outcomes (Figure 1). In 2016 and 2017, the deviation of actual from projected recurrent expenditure as specified in the MTFF was below 10 percent both at the Central Administration and the Non-Financial Public Sector levels. 13 The FRL includes a one percentage point of GDP ceiling on the NFPS deficit (after a 2016-18 transition period where deficit targets are separately specified) and provision to limit the real growth of current spending. The FRL also includes escape clauses in the event of economic emergencies or natural disasters, with a clear convergence path to guide the return of fiscal aggregates to the mandated parameters, if the escape causes are used. 14 Honduras sovereign credit rating was upgraded by Standard and Poor’s to 'BB-' from 'B+' in July 2017 and by Moody’s to B1 from B2 in September 2017. Page 17 The World Bank (P155920) Specifically, the deviation in the case of Central Administration was 5.5 percent in 2016 and 9.2 percent in 2017, while for Non-financial public sector it was 2 percent in 2016 and 7.9 percent in 2017 vis a vis the 2015 and 2016 MTFF. Progress towards this Outcome Indicator was met. Figure 1. The deviation of actual from projected Figure 2. The fiscal deficit FRL limit and actual recurrent expenditure in the medium-term fiscal outcome framework Source: World Bank staff based on data from SEFIN Notes: *Data for 2018 are projections Outcome Indicator 2: ENEE’s financial deficit is reduced by at least 60 percent in nominal Lempiras relative to its level in 2014 (5,204 million); Baseline: 6,473.4 million 15; Target: 60 percent less (HNL2,589.4 million); Actual: 2017: HNL 4,548.8 million, i.e. around 30 percent reduction; 33. Despite progress in reforming the energy sector framework, the financial situation of ENEE remains the primary fiscal challenge in Honduras. In late 2013, the financial situation of the Honduran electricity company was deteriorating rapidly with deficit reaching almost 1.8 percent of GDP, putting pressure on the overall fiscal deficit of the non-financial public sector. The persistent deficit of the state-owned electricity company (ENEE) stems from a combination of structural weaknesses related to inefficient transmission and distribution systems, expensive and limited generation capacity, and misaligned tariffs, amid weak institutional and governance framework. Supported by the international community, the Government initiated ambitious reforms in the area of the energy sector aimed at improving financial sustainability of the sector and service delivery. The measures included among others: the approval of the new Electricity Law, adjustment in electricity tariffs, eliminating subsidies, reducing technical and non-technical losses, and employment restructuring of ENEE. Some of these measures were supported by the earlier DPC (P151803) 16. The DPF operation supported, as a Prior Action, adjustment of tariffs in 15 The data for this indicator, both baseline and target come from the unaudited financial statements of ENEE. The baseline value of this indicator was updated twice due to data revision by ENEE. The original value from the approved documents was HNL5,204 million, which was amended to HNL 6,314 million at the ISR (ISR25919), and to HNL 6473.4 million at the time of the ICRR (December 2018). The progress towards meeting the indicator is assessed against the latest available data point, i.e. from December 2018. 16 The DPC had supported several reforms adopted in 2014 to address the structural causes of those losses, including: (i) increasing electricity tariffs 12 percent in October 2014; (ii) eliminating electricity subsidies for those consuming more than 75kWh per month; Page 18 The World Bank (P155920) January 2015 that modified the tariff formula to improve cost recovery reducing direct subsidies. This adjustment raised the average tariff by around 9 percent, still below the cost recovery levels. Acknowledging that electricity costs highly depend on volatile variables like rainfall patterns and international oil prices, an automatic mechanism to set tariffs factoring-in these variables is key to achieve a sustainable cost-reflective tariff structure. Further adjustments were to be supported under this operation’s second phase that has not moved forward. The decree restructuring ENEE— a Trigger for DPF2--was issued under an Executive Decree signed on October 2014, though it has not yet been implemented and ENEE still operates as a vertically integrated company. Approval of the new electricity tariff framework that specifies measures to reduce electricity demand during peak hours (DPF2 Trigger) has not materialized due to technical shortcomings in infrastructure (lack of appropriate power meters to capture energy consumption in peak hours). In addition, some of the aspects of the Electricity Law have also not been implemented or implemented with a significant lag. For example, a new Secretariat of Energy was created only in August 2017 and a Secretary of Energy nominated in January 2018 (over three years after the approval of the Law). Also, the new Secretariat still lacks human and technical resources to perform its duties. Some of the financial sustainability reforms like the tariff adjustment, workforce restructuring and reduction of losses, combined with record low oil prices, helped to temporarily reduce financial deficit of ENEE from 6,473.4 million Lempiras in 2014 to 2018.6 million Lempiras in 2015. However, during 2016, ENEE’s deficit started to increase again reaching 3,872.5 million Lempiras due to large operational fees for Empresa Energía Honduras (EEH) services, which was hired by the Government to manage the distribution grid and reduce technical and non-technical losses. The financial situation of ENEE continued to deteriorate in 2017 and 2018 reflecting lack of progress with tariff adjustment (despite the automatic mechanism which was supposed to trigger adequate tariff adjustments in the event of changes in oil prices and exchange rate) and limited implementation of structural reforms in the sector, amid rising oil prices. By October 2018, the financial deficit of ENEE reached 6,962.2 million Lempiras thereby exceeding its 2014 level in nominal terms. This deteriorating financial situation of the enterprise prompted the Government to approve a comprehensive program for the electricity sector, which includes actions to accelerate the full implementation of the Electricity Sector Law passed in 2014 and improve financial discipline of ENEE 17. The tariff adjustment implemented under the Plan (increase of around 18 percent for residential users and around 11 percent for commercial) was a necessary step to improve the balance of ENEE and reduce the risk of breaching the FRL target for the NFPS in 2018. While the Outcome Indicator was partially achieved using the metrics of the DPF results framework (the financial deficit of ENEE dropped by around 30 percent by end 2017 (iii) adopting a new Electricity Law that: (a) defined sector responsibilities, (b) mandated the creation of a new Electricity Regulatory Commission, (c) allowed partial private sector participation in transmission and distribution, (d) established an Independent System Operator to perform dispatch of generation units and oversee security of supply, and (e) mandated the restructuring of ENEE into a holding company with subsidiaries for generation, transmission and distribution. 17 In response to the increasing fiscal pressures, in October 2018, the Government has developed a “comprehensive plan” for energy sector aimed at restoring financial sustainability of ENEE. The plan includes measures aimed at providing short-term fiscal relief (tariff increases, which have been already implemented) and more structural medium-and long-term measures like adjusting energy mix, reduction of technical and non-technical losses, renegotiation of existing contracts with generators. Page 19 The World Bank (P155920) relative to end 2014), this achievement was clearly not sustainable and further reforms are required to improve ENEE’s financial outcomes (Figure 3). Figure 3. ENEE’s financial deficit as percent of GDP, 2013-2018 Source: World Bank staff based on data from SEFIN Notes: *Data for 2018 are World Bank staff projections Outcome Indicator 3: Share of public debt issuances that are conducted using competitive auction mechanisms; Baseline 2014: 42 percent; Target 2017: 85 percent; Actual: 96 percent; 34. The lack of clear fiscal- and debt-policy frameworks had resulted in persistent deficits, pro-cyclical economic policies, rising debt levels and a gradual loss of policy credibility. Following the development and adoption of a rolling, three-year, medium-term debt strategy (MTDS) under the earlier DPC (P151803), the Government, as a Prior Action under the DPF approved and published on its website a medium-term public debt policy that established public debt ceilings, recommended targets for state-owned enterprises, and specified borrowing guidelines for local governments. In addition, as part of the reform package, the Government has also approved and published a calendar for debt issuance for 2015 and 2016. The medium-term public debt policy, which is the operationalization of the MTDS, helped to enhance control and monitoring of the public debt stock, thereby increasing the transparency of fiscal policy. Furthermore, the introduction of numerical debt ceiling targets for state-owned enterprises and borrowing guidelines for local governments brought more discipline to the fiscal framework. At the same time, the published calendar for debt issuance, including dates of the auctions and type of instruments offered was expected to provide market participants with a secure basis for their investment decisions, lead to further development of the debt market and increased number of competitive auctions as opposed to private placements. Also, the competitive auctions were expected to improve the transparency of debt management and its cost-efficiency (Figure 5). Further reforms aimed at strengthening institutional arrangements for debt management envisaged under DPF2 did not materialize. While the draft Organic Budget Law was prepared by the Government and submitted to Congress, it is pending approval and the subsequent implementation. Overall, the implementation of the DPF supported reforms in this area has been successful; the Government continues to prepare and publish on its website the medium term public debt policy in a timely manner and makes the debt auction calendars publicly available. As a result, the share Page 20 The World Bank (P155920) of public debt issuance that were conducted using competitive auction mechanisms increased from 42 percent in 2014 to 96 percent in 2017, exceeding the Outcome Indicator target of 85 percent (Figure 4). Progress towards this Outcome Indicator was Exceeded. Figure 4. Public debt issuances, 2013-2018 Figure 5. Average interest rate on domestic debt, percent Source: World Bank staff based on data from SEFIN Notes: Data for 2018 referring to the third quarter Outcome Indicator 4: Share of public sector workforce that has been evaluated by an institutional functional review; Baseline 2014: 0 percent; Target 2017: 50 percent; Actual: 60.1 percent; 35. Two important institutional factors that affect Honduras’ fiscal performance are its financial management system, the Integrated Financial Management System (SIAFI-GES), and its control of the public sector wage bill. Supported by the World Bank’s Improving Public Sector Performance Project and the earlier DPC, the Government has since 2014 been taking important actions to control the public sector wage bill through the establishment of a personnel registry cross-referenced to the SIAFI-GES to reduce leakages and ghost positions. In continuing this line of reform, the Government, as a Prior Action under the DPF strengthened SIAFI-GES by introducing a budget module that establishes ex-ante credible controls on spending levels and increases accountability and transparency in the use of public funds. Specifically, as a Prior Action, the Government: (i) created a budgeting module in the SIAFI-GES that specifies budget ceilings consistent with the medium-term macroeconomic and fiscal framework, and (ii) submitted to Congress for approval the 2016 Budget Law that specifies processes for registering public trust funds (fideicomisos) in the budget. By 2015, this new SIAFI-GES budget module had been rolled out and implemented in all institutions of the central government and in 70 percent of the decentralized institutions. Rollout of the budget module to an additional 9 decentralized institutions is scheduled for 2018. The approved 2016 Budget Law, a Trigger for DPF2, contains a chapter on control of fideicomisos and Public-Private Partnerships, and specifically authorizes the SEFIN to register in SIAFI-GES operations derived from trust fund contracts created by institutions in the Central Administration. It also specifies that new fideicomisos created by institutions in the Central Administration starting from Fiscal Year 2016 must be incorporated in the General Budget of Revenue and Expenditure, and that operations derived from those contracts must be registered in SIAFI-GES by each executing institution, following the trust fund Page 21 The World Bank (P155920) registration procedure approved by SEFIN. The Government is now in the process of bringing the fideicomisos under the budgetary framework, but the progress has been very slow. Regarding the public wage bill management, the DPF2 Trigger was expected to support the design and implementation of institutional functional reviews in five key government agencies (Education, Health, Security, Finance and Infrastructure Secretariats) that at the time accounted for roughly 80 percent of the Central Government wage bill. Despite the fact that the DPF2 did not materialize, the Government completed the functional reviews with the support of the World Bank’s Improving Public Sector Performance Project (P110050). The corresponding report was approved by the Government and its conclusions were shared with each participating institution, but not made public. The recommendations of the institutional functional reviews have been partially implemented in the participating entities, with varying degrees of implementation. However, SEFIN together with the Civil Service Directorate are in the process of developing new general position profiles and a functional model for public sector staff mapped under the civil service regime, as well as a new government policy for wage setting and management. Both measures seek to streamline the management of the wage bill and aim to feed into new civil service legislation. The latter will likely require a significant amount of political capital to streamline the different wage setting regimes, but would represent substantial progress, if enacted 18 . The functional model, as well as the new wage policy are being developed with the support from USAID, and are expected to be completed in May 2019. The model and the policy will then be implemented in 12 central government agencies that together account for the bulk of staff in terms of headcount and wage bill. Institutional Functional Reviews have been carried out for 60 percent of the public sector workforce. Progress towards this Outcome Indicator was Exceeded. Outcome Indicator 5: The number of children in extreme poor households attending 7th to 9th grade that receive cash transfers from the Bono Vida Mejor has increased by at least 60 percent relative to the number in 2015 (78,739); and at least 49 percent of the recipients are boys (in 2015, 48 percent were boys); Baseline 2015: 78,739 children, of which 48 percent were boys; Target 2017: 60 percent increase, of which 49 percent are boys; Actual: Not available 19 36. Bono Vida Mejor, Honduras’ flagship CCT program has been shown to impact the livelihoods of poor families, both in terms of the impacts on poverty as well as promoting increased primary school and health center attendance. The Vida Mejor strategy, launched in January 2014, created an umbrella framework for social policies and targeting of the extreme poor population. The new Secretariat of Social Inclusion and Development (SEDIS), created as part of that strategy, adjusted the Bono targeting model with the aim reducing large inclusion and exclusion errors—only about 25-30 percent of the extreme poor were Bono beneficiaries—in order 18 This area of reform has been informed by the World Bank’s Technical Assistance: Honduras: Expenditures on Public Sector Wage Bill - Reform Options delivered in January 2018 and presented to the Government’s Economic Cabinet in April 2018. 19 No verified data on the actual number of Bono Vida Mejor beneficiaries was available at the time of the ICRR. Unofficial data from IADB shows that the coverage of beneficiaries of Bono increased from 78,739 in 2015 to 137,696 in 2018 (i.e. increase of 74 percent). Other available evidence used for the ICRR – on beneficiaries of Bono Vida Mejor Rural - shows that the impact of the DPF supported reform was instrumental in expanding coverage and educational attainment for secondary students in Honduras. Page 22 The World Bank (P155920) to prioritize benefits for only families living in extreme poverty. Supported by the earlier DPC, the Government issued a Presidential Decree in October 2014 mandating the use of the Registro Unico de Participantes (Unique Registry of Participants, RUP) as the targeting instrument for all social interventions, and the RUP is now being used as a targeting instrument for all social programs. With the support under the Social Protection Project and its Additional Financing (AF) strong progress was made in registering new beneficiaries in areas not previously covered by the program, including those with high extreme poverty, in remote areas with a high incidence of indigenous populations and in areas prone to severe draught. As a Prior Action under the DPF, in 2015, the Bono Vida Mejor design was modified to address high drops out rates in secondary school by extending coverage to children in lower-secondary education (grades 7-9) and also to prioritize the expansion of Bono coverage to the most vulnerable municipalities. 37. The results of Bono have been very positive, including in promoting educational attainment. The percentage of extreme poor households that received cash transfers under the Bono Vida Mejor increased from 27 percent in 2014 to 41.57 percent in 2018. The number of indigenous and afro-Honduran households registered in the program and receiving transfers increased from 1,504 in 2015 to 8,657 in 2018. The Bono Vida Mejor Rural 20 CCT program expanded the coverage to children attending 7th to 9th grade children in 2015. In 2015, there were 30,050 children who were enrolled in 7th to 9th grade and were a member of the CCT beneficiary household, 38.7 percent of them were reported to have attended 80 percent of the school days. In 2017, according to the data from the CCT program’s management information system, there were a total of 40,328 children between enrolled in 7th to 9th grade, among them 88.5 percent attended and hence eligible to receive the CCT education grant. Supported also by the Social Protection Project Additional Financing, the percentage of beneficiary boys aged 16 to 18 that completed lower secondary education (9th grade) increased from a baseline of 19 percent in 2014 to 91.47 percent in 2018. Similarly, 93.35 percent of beneficiary girls completed lower secondary in 2018 (from a baseline of 22 percent in 2014). An impact evaluation published in December 2017 indicated its positive impact on school enrollment. Beneficiaries had 10.3 percentage points higher school enrollment rates in 7th to 9th grades, compared to children in the same age group and socioeconomic conditions in the control group. The program’s impact on education was predominantly due to the increase in the school enrollment among the 7th to 9th graders, indicating that the reform supported by the DPF considerably strengthened the program’s design. This clearly shows that this change in policy had a strong impact on educational achievement. With regards to improved Bono coverage in the most vulnerable municipalities, it is expected to result in 1,010 persons being alleviated from poverty, 7,014 persons being alleviated from extreme poverty into poverty, and improvements in housing and living conditions of 11,110 households in the 141 prioritized municipalities 21. No impact evaluation of this component of the Vida Mejor program was conducted and data is derived from administrative sources only. 20 Information is available only for the rural component of Bono Vida Mejor Program as it was co-financed by the World Bank and the IADB. The urban component of the program is managed fully by the Government. 21 http://ceniss.gob.hn/logros/proyeccion.html Page 23 The World Bank (P155920) 38. The DPF2 Trigger was aimed to promote the electronic payment of Bono to ensure more regular, transparent, and timely payments to CCT beneficiaries. While the DPF2 did not materialize, SEDIS carried out a pilot study with one financial institution for a subset of 7,258 beneficiary households of the 8,681 beneficiary households in the 9 pilot municipalities 22. The beneficiaries were assisted to open basic bank accounts to receive the cash transfers after a series of training sessions conducted by the Government. This pilot was successful overall, with beneficiaries indicating satisfaction with the new payment process. Also, by implementing this pilot, the Government recognized the importance of training beneficiaries before switching the payment mechanism and the need to coordinate with the bank branches to reduce waiting times on the day of the payment, and issues related to lack of valid identification among some beneficiaries who have only temporary identification cards. The pilot, however, was terminated at the end of 2017, as the financial institution requested a renegotiation of the fees charged per transaction, and the contract that was being financed under the World Bank-financed Social Protection Project could not be extended given the World Bank’s Procurement Guidelines. The Government is continuing to seek improved payment mechanisms for the Bono Vida Mejor program, under the new World Bank-financed Social Protection Integration Project (P152057). While the data on the progress towards this Outcome Indicator was not available at the time of the ICRR, the supporting evidence shows that DPF-supported reform helped to increase the coverage and educational attainment of vulnerable secondary school students in Honduras. Outcome Indicator 6: Number of years for which the EPHPM microdata (2011-2015) used to calculate official poverty statistics have been made available through INE’s website or on Redatam; Baseline: 0; Target: 14; Actual: 0 39. Good quality and publicly available statistics is crucial for socioeconomic analysis and designing effective and evidence-based policies. The National Statistics Institute (INE) releases annual poverty estimates based on its national labor force and household survey (Encuesta Permanente de Hogares de Propósitos Múltiples, EPHPM) and conducted Population Census in 2001 and 2013. However, accessibility to the data has been limited, scarce documentation is made publicly available regarding the quality of data produced, and access to the microdata is infrequently granted. To enhance transparency of data with a view to improving the effectiveness of public spending, the Government provided more access to data and revamped INE’s website to increase its usefulness to users. As a Prior Action under the DPF, INE published the full documentation and metadata of the then recently completed 2013 Population Census using internationally recognized standards (Data Documentation Initiative) and provided online access to detailed tabulations of the Population Census through Redatam Software 23. INE also published, as a Prior Action, user-friendly tabulations of the Household Surveys and greatly improved their website to include more data. To facilitate access to restricted microdata, a data center was opened in INE with the goal of granting direct access to local researchers and other users. These actions 22 The nine pilot municipalities included: Corquin, Santa Rosa, Copan Ruinas, Omoa, Puerto Cortes, Choloma, Santa Cruz, and Tocoa. 23 Redatam is an initiative of La Comisión Económica para América Latina (CEPAL) and widely used in Latina America which allows for user-generated tabulations from large microdata files. Page 24 The World Bank (P155920) are expected to lead to more access to nationally representative data and can lead to improvements in the targeting of social spending and policies. Further, to complement its official monetary poverty measurement, the Government established a Technical Committee to develop an official Multidimensional Poverty Index. This work led by the Secretaría de Coordinación General de Gobierno has resulted in publications of multi-dimensional poverty rates, indicating priority areas for investment to reduce poverty. The DPF2 was supposed to support further measures to enhance data quality, transparency and use for public policies. As part of proposed Triggers, INE created a poverty map, with technical assistance from the World Bank and the IADB. While the poverty map was calculated and shared on a limited basis within the Government, it has not been published as required by the Trigger. To ensure the use of the Poverty Map to help improve targeting of public resources, DPF2 also contained a Trigger requiring the signing of an agreement to use poverty maps in the targeting of social programs, but this was formalized only very recently 24. The RUP is currently being updated only using the Social Sector National Information Center’s (CENISS’) administrative data, which is not represented at the national level. Finally, the Government did not approve and publish a quality assessment of the 2015 EPHPM which would have been useful in identifying several issues with the EPHPM that affect income and poverty measurement. Overall, it seems that DPF Prior Action helped to increase data access and transparency through the revamped INE’s Portal, but access to microdata is still not available online, although it is available through the INE data center. Therefore, despite the fact that outcome indicator was not met, the progress towards making microdata publicly available was partially achieved. Objective 2: Enhancing the Regulatory Framework to Promote Competitiveness 40. For the second objective, enhancing the regulatory framework to promote competitiveness, the DPF was moderately satisfactory in achieving its expected outcomes. Out of three outcome indicators, one was exceeded, one partially met, and one was not possible to assess at the time of the ICRR due to changes in Doing Business methodology. Nonetheless, other available evidence helped to confirm that important progress was achieved across all policy reforms in that pillar. Outcome Indicator 7: Number of legal counsels trained to provide advice on a leniency application; Baseline 2014: 0; Target 2017: 30; Actual: 123; 41. Promoting competitiveness and addressing governance related challenges that negatively impact the overall investment climate are essential for Honduras to move to a path of increased and more sustainable growth. In May 2015, as a Prior Action for the DPF, Honduras adopted an amended Competition Law which creates a Leniency Program that provides incentives for corporations and individuals that report and cooperated in the investigation of cartel practices, and in October 2015 the Competition Authority issued regulations that detail the procedures for it to implement the Leniency Program. The Leniency Program allows the 24 The Institute for Public Access to Information issued a Resolution No. SE-001-2018 from November 19, 2018 which establishes procedures for information transparency and exchange within social sector entities. https://portalunico.iaip.gob.hn/portal/ver_documento.php?uid=NDQ4NTgyODkzNDc2MzQ4NzEyNDYxOTg3MjM0Mg Page 25 The World Bank (P155920) Competition Authority to exempt cartel members from sanctions in exchange for information on the cartel. The program creates a permanent threat that any of its members may reveal the cartel in order to avoid fines. A total of 123 legal counsel received training to provide advice on preparing a leniency application, well exceeding the target of 30 counsel that were to be trained. Progress towards this Outcome Indicator was exceeded. Outcome Indicator 8: Number of days to start a business; Baseline 2014: 14 days; Target 2017: 10 days; Actual: 13 days; 42. Regulatory burdens pose additional challenges to private sector competition, and streamlining of the regulatory framework is a priority. Building upon the Government’s new Competition Law and associated regulations, the DPF was expected to support efforts to simplify regulatory procedures to start and operated a business through the creation of an electronic platform (MiEmpresaEnLínea) aimed at facilitating a number of common business tasks, such as filing permits and obtaining licenses. (The creation of this platform was a trigger for DPF2). Despite the fact that the second operation did not materialize, the Government remained committed to this policy action. The platform was created and is operational, but further progress in its dissemination will be required. It facilitates the following common business tasks: (i) carrying out procedures necessary to start a business, including municipal permits; (ii) acquiring environmental license, and (iii) obtaining permits needed for importing and exporting. Still, it has resulted in a reduction in the average number of days to start a business from 14 days in 2014 to 13 days in 2017 and 2018. The outcome indicator was partially met. Outcome Indicator 9: Number of days to export and import; Export Baseline 2015: 12 days; Import Baseline 2015: 16 days; Export Target 2017: 11 days; Import Target 2017: 14 days; Actual: Not available due to changes in Doing Business methodology; 43. Excessive “red tape” related to document requirements and burdensome customs procedures lead to extra costs and delays for exporters and importers, stifling Honduras’ trade potential. As a Prior Action, Honduras in 2016 submitted to Congress a Trade Facilitation Agreement (TFA) with the World Trade Organization (WTO) that identifies areas or actions needed to facilitate trade including: (i) the publication and availability of trade-related information, and procedures for appeal or review; (ii) measures to enhance transparency and impartiality, as well as fees and charges in connection to imports and exports; (iii) the adoption of procedures for electronic payments, and of a risk management system for customs control, and (iv) the publication of average release times, and border agency cooperation. The Honduran Congress ratified the TFA in July 2016, as a Trigger for DPF2. Honduras’ Category A commitments under the TFA (those that will be implemented by the time the Agreement enters into force) include, among others, the creation of new systems to enhance electronic payments, risk management processes, post- clearance audits, border agency cooperation, and the application of international standards. Following Honduras’ launching of the Electronic System for Trade in 2013, the regulation for use of electronic forms was expected to expedite processing time. The Program Document for the DPF had cited empirical evidence that a reduction of one day in transit would significantly reduce trade costs, equivalent to 0.6 percent to 2.1 percent of the value of goods exported. A Customs Union Page 26 The World Bank (P155920) with Guatemala (officially launched in June 2017) and El Salvador 25 will further facilitate customs procedures and greater expediency in the number of days to import and export. Already, the time for goods to cross borders between Guatemala and Honduras has been significantly reduced. Previously, the time to cross these borders could take up to 19 hours and it has now been reduced to only 10 minutes 26. In 2015, the Government began development of an electronic system to process sanitary certifications and health certificates for selected agricultural products (Phyto and Zoo). Implementation of the system, a Trigger for DPF2, began in January 2018 and 100 percent of Phyto and Zoo sanitary certificates for Central America are issued electronically with online payments through a financial institution. In October 2018 international Phyto sanitary certificates began online processing and payment, and processing and payment of all international Zoo sanitary certificates are expected to also be online in the near future. The results foreseen at the inception of the DPF program were targeting the reduction in number of days to import and export as measured by the Doing Business methodology. The methodology was revised and no longer provides for a comparable data to measure progress against the original baseline from the DPF Program Document. According to the new DB methodology, there were no improvements in documentary and border compliance times between 2015 and 2018. It is important however to consider the shortcomings of DB methodology which measures time to export to Germany and time to import from the US, and hence the results are not influenced by large improvements in the intra-regional trade following the Union with Guatemala and El Salvador and a modernization of the customs services supported by the IMF Program of Technical Assistance. Given the change in the methodology and other supporting evidence, the ICR concludes that the progress in achieving results in this DPF area has been partially achieved. 3.4 Justification of Overall Outcome Rating Rating: Moderately Satisfactory 44. The overall rating for the Honduras DPF is moderately satisfactory. Important progress in reform implementation measured by the key outcome indicators was attained and both the institutional arrangements to support fiscal sustainability and the regulatory framework to promote competitiveness are stronger today than at the inception of the DPF program. Specifically, a robust fiscal policy and debt management frameworks underpinned by prudent PFM arrangements are of critical importance in Honduras where fiscal sustainability had always been at the core of macroeconomic challenges. The approval of the FRL helped to strengthen fiscal institutions, create Government’s ownership and commitment to fiscal targets, which are essential to further support credibility of Honduran macroeconomic policies. Furthermore, the Government met most of the indicative triggers (6 out of 9) and results have largely been delivered. 45. At the same time, progress has been more limited in other reform areas. This might be partially attributed to the fact that the follow-on to the DPF did not materialize due to factors exogenous to the DPF series. Particularly in the energy sector, progress proved to be only short- 25 El Salvador formally joined the Central American Customs Union in August 2018, but the operational phase of joining the customs union will be completed after meeting technical requirements, which is expected in early 2019. 26 http://blogs.worldbank.org/latinamerica/customs-union-between-guatemala-and-honduras-10-hours-15-minutes Page 27 The World Bank (P155920) lived and further reforms are needed to address the fragile fiscal situation of the electricity company – as well as other challenges in the energy sector related to inadequate capacity, resource constraints, political economy and governance challenges. In addition, further integration of Honduran external trade both at the global and regional level, accompanied by improved customs procedures, will be required to accelerate economic growth. Similarly, additional reforms aimed at facilitating entrepreneurship and improving the business environment are needed to enable private sector development, reduce informality and create jobs. As a result, not all of the outcome indicators were achieved during the program implementation. 3.5 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development 46. The DPC’s impacts on poverty and social development were likely positive, especially since one of its objectives and policy areas addressed the targeting of social protection programs directly (Section 3.2). It is difficult to prove the counterfactual, but the creation of fiscal space made possible through the implementation of the Government’s program and through actions supported by the DPF were likely pro-poor as cost-saving measures may have reduced the need to cut spending on social programs targeted at the most vulnerable. Further, improvements in the Bono Vida Mejor, detailed under Objective 5 in Section 3.2 increased coverage of the extreme poor in the most vulnerable municipalities and by focusing on secondary school enrollment helped reduce the school drop-out rates of children in the 7th to 9th grades. Finally, improved access to and transparency of Honduras’ socioeconomic data, particularly the release of microdata, while not directly impacting poverty, is expected to lead to improvements in the design of public policies and better targeting of public spending in the future. (b) Institutional Change/Strengthening 47. The DPF’s objectives and respective Prior Actions and Triggers supported measures that were mostly related to institutional change and strengthening. In addition, throughout implementation the Government also advanced on other institutional measures, congruent with the DPF’s objectives. Progress towards these is summarized in Section 3.2. As development policy financing is not particularly designed to provide hands-on supervision or technical advice, the DPF counted upon technical advisory mechanisms under other ongoing operations (Section 2.2), an extensive body of analytical and advisory activities in areas supported by the DPF (Section 2.2), and support by other multilateral institutions. The main beneficiaries of these activities were the SEFIN, ENEE, SEDIS and INE. (c) Other Unintended Outcomes and Impacts (positive or negative, if any) N/A 3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops N/A 4. Assessment of Risk to Development Outcome Page 28 The World Bank (P155920) Rating: Substantial 48. Despite the significant achievements of the DPF and of the Government’s Fiscal Reform Program more broadly, Risk to Development Outcome continues to be Substantial. The Government remains committed to its program, but political instability following the presidential elections in late 2017 put at risk the continued implementation of the macroeconomic and structural reforms that are critical for meeting the country’s development goals. The Government is facing growing pressures from multiple interest groups (private sector, trade unions, etc.) that may affect its economic program, leading to a gradual buildup of fiscal pressure that could threaten macroeconomic stability. So far, with the exception of the ENEE, fiscal numbers remain solid, but vulnerabilities are gradually building up from new legal initiatives presented to Congress (the amnesties described below or new sectoral tax incentives like for example Tourism Law) and may weaken the medium-term fiscal sustainability. The fiscal deficit of the non-financial public sector (NFPS) in 2017 widened slightly to around 0.8 percent of GDP from 0.5 percent in 2016 but remained comfortably below the Fiscal Responsibility Law’s upper limit of 1.5 percent of GDP. The debt to GDP ratio is estimated to have reached 42.8 percent of GDP in 2017, reflecting the issuance of a US$700 million in external bond for debt repayment of the state-owned electricity company. The financial deficit of ENEE represents the biggest challenge for meeting the NFPS deficit target in 2018 and beyond. The Government is working on a comprehensive plan for ENEE. Apart from the energy sector the recent extension of various amnesties including for taxes and electricity bills by Congress threatens Honduras’ fiscal position. The amnesties that were supposed to expire at the end of May 2018 were extended by Congress for another 30 days after publication of a new decree. At about 7 percent of GDP, tax expenditures in Honduras are among the highest in the world. The IMF urged the authorities to streamline tax expenditures as a way to sustain the level of tax revenues achieved during the IMF-supported program that concluded in December 2017. Continued adherence to fiscal targets is critical given the challenges stemming from these legal initiatives. There are other risks to Honduras’ macroeconomic outlook. Externally, faster than expected normalization of the monetary stance in the United States may affect capital inflows. Tighter immigration policy in the United States may reduce remittances and increase local labor market pressures. Further, there is increase uncertainty related to the trade outlook as the United States considers modifying trade agreements. Domestically, adverse weather conditions may strongly affect some parts of Honduras leading to large agricultural losses. These risks would disproportionately affect poor households should they materialize. Risks of weak institutional capacity could affect the pace and quality of future reforms and sustaining already enacted ones. 5. Assessment of Bank and Borrower Performance 5.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry Rating: Satisfactory 49. Bank Performance in Ensuring Quality at Entry was Satisfactory. The DPF represented a continuation of the World Bank’s support to Honduras’ fiscal reform efforts begun under the Page 29 The World Bank (P155920) previous DPC. As such, it built upon earlier analytical studies, and upon experience under the earlier DPC. The DPC had been cautious in its approach with a stand-alone operation, given the satisfactory progress under that operation and under the Government’s reform program supported by IFIs more generally, the DPF was appropriately designed as a two-phase programmatic operation. In a continuation of earlier support, the World Bank worked closely with Honduras’ partners, especially the IMF and the IADB to define the next-stage in a program of coordinated support, with each institution preparing assistance packages in the areas most appropriate given their mandate and comparative advantage based on already ongoing operations. As in the earlier DPC, the DPF continued to provide support in areas for which investment projects were ongoing in the World Bank’s portfolio, thereby ensuring necessary technical assistance. The DPF’s results framework was clear and well defined, with appropriate linkages between PDO, Prior Actions, triggers and results indicators, and limited to the areas of World Bank support within the overall program. Finally, risks were well identified, with appropriate mitigation measures defined, albeit not for all sectoral reforms (for example energy sector). (b) Quality of Supervision Rating: Moderately Satisfactory 50. Bank Performance in the Quality of Supervision was Moderately Satisfactory. As the DPF was designed as a two-phase programmatic engagement, the supervision was supposed to evolve as a continuous process from preparation through program implementation, and preparation of the follow-up DPF2 (Section 2.4). Nevertheless, the preparation of DPF2 was put on hold in April 2016 due to factors unrelated to the DPF program. This decision affected the policy dialogue and the implementation of the reforms foreseen for DPF2. Since then, the implementation of the DPF reforms was supported through the dialogue carried out under the complementary investment projects (Section 2.2), hands-on technical assistance, and as part of the analytical activities. (c) Justification of Rating for Overall Bank Performance Rating: Moderately Satisfactory 51. Overall Bank Performance is rated Moderately Satisfactory. This is based on the split ratings for Quality at Entry and Quality of Supervision, and the Moderately Satisfactory Outcome rating. 5.2 Borrower Performance 52. For purposes of this review, Government refers to the Secretariat of Finance, while Implementing Agencies refer to ENEE, SEDIS and INE. (a) Government Performance Rating: Satisfactory 53. The Government’s Performance is rated Satisfactory. Since the earliest stages, the Government engaged with the World Bank in defining its fiscal reform priorities, and showed strong commitment to the implementation of its program. SEFIN, coordinated by the Public Credit Page 30 The World Bank (P155920) Department, worked closely with the implementing agencies to coordinate the implementation of agreed actions, and to monitor and collect information to assess progress. (b) Implementing Agency or Agencies Performance Rating: Moderately Satisfactory 54. Implementing Agencies Performance is rated Moderately Satisfactory. Most of the implementing agencies worked closely with the World Bank team during the DPF preparation and implementation, especially given the complementarities with other ongoing initiatives on projects, analytical work or technical assistance (SEDIS and INE). In the case of energy sector reforms, the performance was below expectations. While substantial progress in reforming the legal framework was made, key agencies in the sector (ENEE, Secretariat of Energy, CREE) suffer from capacity and resource constraints, as well as political economy and governance challenges. (c) Justification of Rating for Overall Borrower Performance Rating: Moderately Satisfactory 55. Borrower Performance is rated Moderately Satisfactory, based on the split ratings for both Government and Implementing Agencies’ Performance, and the Moderately satisfactory Outcome rating. 6. Lessons Learned • Programmatic DPFs can at times be affected by exogenous factors, with subsequent phases either held up or not processed for reasons unrelated to either the macroeconomic framework or compliance with Prior Actions of the subsequent phase. When this occurs, and to the extent feasible, it is important to maintain a strong policy dialogue, technical assistance under either ongoing IPFs or knowledge products in areas supported by the reform, and continued donor coordination. The Government was able to maintain momentum with its reform program in policy areas that had strong ownership, were supported by World Bank-financed IPFs and knowledge products, and that were supported by other international financial institutions. • Comprehensive reform programs in difficult institutional environments require substantial advisory services and ideally should be accompanied by technical support, either under investment operations or knowledge products. The areas of the DPF, that were also supported through the active investment project portfolio (for example social sector reforms) or that had a dedicated TA budget (like public sector reforms) showed stronger progress in policy implementation. In these areas the progress continued even when the DPF engagement stopped. • Complex and multi-dimensional challenges, like in the energy sector, require comprehensive and well-coordinated solutions. The energy reforms supported by the DPF provided only short-lived results, which were quickly undermined by the external (oil price Page 31 The World Bank (P155920) increases) and internal developments (weak governance, political economy aspects). The budget support instrument, both the earlier DPC and the DPF, which supported specific and isolated sectoral interventions, demonstrated that without tackling the challenges in the energy sector in a comprehensive manner, durable progress is very difficult to achieve. Going forward, the support to energy sector reform in Honduras requires a dedicated, sector specific intervention, which would tackle fiscal, governance, and infrastructure challenges in a coordinated manner with international community and under a strong mandate and leadership for reform in the country. • Coordinated assistance by country’s main partners helps solidify and consolidate reforms, while offering complementarity in support to Government. Enhanced collaboration with multiple stakeholders was anchored in the DPF, allowing for the extensive provision of complementary TA in support of the joint objectives. The coordination among the donors was crucial given Honduras’ low institutional capacity in the country and large development challenges. 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/Implementing agencies (b) Cofinanciers (c) Other partners and stakeholders Page 32 The World Bank (P155920) Annex 1 Bank Lending and Implementation Support/Supervision Processes (a) Task Team members Responsibility/ Names Title Unit Specialty Lending Giselle Del Carmen Research Analyst GPV04 Manuela Francisco Program Leader LCC2C Sebastian Essl Jr Professional Officer GMTMD Mariano Gonzalez Serrano Senior Energy Specialist GEE04 Tanja Goodwin Senior Economist GMTCI Silvia Gulino Passera Operations Analyst GMTLC Marco Antonio Hernandez Ore Senior Economist GMTLC Task Team Leader Patricia Chacon Holt Program Assistant GMTLC Laura Liliana Moreno Research Analyst GPV04 Laura Sofia Olivera Garrido Research Analyst GMTLC Junko Onishi Sr Social Protection Specialist GSP04 Lilia Razlog Senior Debt Specialist GMTMD German Reyes Research Analyst GPV04 Jovana Stojanovic Senior Operations Officer LCC2C Susana Sanchez Senior Economist GMTLC Liliana Sousa Do Couto Senior Economist GPV04 Task Team Leader Supervision Ewa Joanna Korczyc Economist GMTLC Task Team Leader Suzana Nagele de Campos Abbott Consultant GMTLC ICR Primary Author Liliana Sousa Do Couto Senior Economist GPV04 Eduardo Andres Estrada Governance Specialist GGOLP Junko Onishi Sr Social Protection Specialist GSP04 Mariano Gonzalez Serrano Senior Energy Specialist GEE04 Mayra Del Carmen Alfaro De Moran Senior Private Sector Specialist GFCL1 (b) Staff Time and Cost Staff Time and Cost (Bank Budget Only) Stage USD Thousands (including No. of staff weeks travel and consultant costs) Lending Total: 21 122,496.92 Supervision/ICR Total: 7 30,000.00 Page 33 The World Bank (P155920) Annex 2. Beneficiary Survey Results No beneficiary survey is available. Page 34 The World Bank (P155920) Annex 3. Stakeholder Workshop Report and Results No stakeholder workshop was held. Page 35 The World Bank (P155920) Annex 4. Summary of Borrower's ICR and/or Comments on Draft ICR The Borrower did not provide formal comments to the ICR. The team received editorial comments to the draft ICR from the Secretariat of the Public Finance (SEFIN) - Public Credit Department. The edits were incorporated into the ICR. Page 36 The World Bank (P155920) Annex 5. Comments of Cofinanciers and Other Partners/Stakeholders Not available. Page 37 The World Bank (P155920) Annex 6. List of Supporting Documents Grinsteins, Gabriela. 2015. Official Documents- Financing Agreement for Credit 5750-HN (Closing Package) (English). Washington, DC: World Bank. http://documents.worldbank.org/curated/en/168551468257937998/Official-Documents- Financing-Agreement-for-Credit-5750-HN-Closing-Package Hernandez Ore, Marco Antonio; Sousa, Liliana Do Couto; Lopez, J. Humberto. 2016. Honduras - Unlocking economic potential for greater opportunities: systematic country diagnostic. Washington, D.C.: World Bank Group. http://documents.worldbank.org/curated/en/519801468196163960/Honduras-Unlocking- economic-potential-for-greater-opportunities-systematic-country-diagnostic Inter-American Development Bank. 2014. Programmatic Support to the Power Sector Reforms Agenda, HO-L1070. http://www.iadb.org/en/projects/project-description- title,1303.html?id=HO-L1070 International Monetary Fund. 2014. Honduras: Request for a Stand-by Arrangement and an Arrangement under the Standby Credit Facility; Country Report No. 14/361 International Monetary Fund. 2015. Honduras: First Reviews under the Stand-By Arrangement and Standby Credit Facility; Country Report No. 15/283 International Monetary Fund. 2016. Honduras: Second Reviews Under the Stand-By Arrangement and the Arrangement under the Standby Credit Facility, Country Report No. 16/4 International Monetary Fund. 2016. Honduras: 2016 Article IV Consultation, Third and Fourth Reviews under the Stand-By Arrangement and the Arrangement under the Standby Credit Facility, Country Report No. 16/362 International Monetary Fund. 2017. Honduras : Fifth and Sixth Reviews Under the Stand-By Arrangement-Press Release; Staff Report; and Statement by the Executive Director for Honduras, Country Report No. 17/331 International Monetary Fund. 2018. Honduras : 2018 Article IV Consultation – Press Release; Staff Report and Statement by the Executive Director for Honduras, Country Report No. 18/206 Korczyc, Ewa Joanna. 2017. Honduras - Honduras First Fiscal Sustainability and Enhanced Competitiveness DPF : P155920 - Implementation Status Results Report : Sequence 01 (English). Washington, D.C. : World Bank Group. http://documents.worldbank.org/curated/en/221131491565322143/Honduras-Honduras- Page 38 The World Bank (P155920) First-Fiscal-Sustainability-and-Enhanced-Competitiveness-DPF-P155920-Implementation- Status-Results-Report-Sequence-01 World Bank, 2015. Program Document, Honduras - First Fiscal Sustainability and Enhanced Competitiveness Development Policy Financing, Report No. 99600-HN, dated November 13, 2015. World Bank. 2013. Honduras - Country partnership strategy progress report for the period FY2012-2015. Washington D.C.: World Bank. http://documents.worldbank.org/curated/en/334281468040157798/Honduras-Country- partnership-strategy-progress-report-for-the-period-FY2012-2015 World Bank. 2014. Honduras Social Expenditures and Institutional Review. Washington, DC. World Bank. https://openknowledge.worldbank.org/handle/10986/21804 License: CC BY 3.0 IGO. World Bank. 2014. Program Document. Honduras - Fiscal Sustainability and Enhanced Social Protection Development Policy Credit, Report No. 90810-HN World Bank. 2014. Program Information Document. Honduras - Fiscal Sustainability and Enhanced Social Protection Project. Washington, D.C.: World Bank Group. http://documents.worldbank.org/curated/en/144241468254057969/Honduras-Fiscal- Sustainability-and-Enhanced-Social-Protection-Project World Bank. 2015. Honduras - Country partnership framework for the period FY16 - FY20. Washington, D.C.: World Bank Group. http://documents.worldbank.org/curated/en/431191468179338816/Honduras-Country- partnership-framework-for-the-period-FY16-FY20 World Bank. 2015. Honduras - Power Sector Efficiency Enhancement Project, Implementation Completion and Results Report, Report No. ICR3594 World Bank. 2015. Program Document. Honduras - Social Protection Project: additional financing; Report No. PAD1245-HN World Bank. 2016. Honduras - Power Sector Efficiency Enhancement Project, Implementation Completion Report Review, Report No. ICRR0020145 World Bank. 2017. Honduras: Implementation Completion and Results Report, Fiscal Sustainability and Enhanced Social Protection Development Policy Credit, Report No. ICR00004127 dated February 28, 2017. Page 39 The World Bank (P155920) Annex 7. Analytical Underpinnings Analytical Work Focus Pillar 1: Strengthening Institutional Arrangements to support fiscal sustainability Public Expenditure Review Analyzes the drivers of rising fiscal deficit, noting how fiscal (2013) consolidation remains a challenge to Honduras. It also highlights the role of wages, especially in the education sector, and how improved public financial management practices could enhance fiscal discipline. Managing Fiscal and Public Highlights that an integral fiscal reform strategy would include the Finance Challenge in following objectives: expanding the tax base (including elimination of Honduras Policy Note (2013) tax exemptions), strengthening budget control, reducing ENEE’s deficit, and improving debt management. Towards and Efficient and Explains the role of ENEE as a source of fiscal problems for Honduras. Sustainable Energy Sector It identifies challenges in the sector, such as ENEE’s high technical and Policy Note (2013) commercial losses, large and ineffective subsidies, and an inadequate legal framework. The note identifies a series of measures to reduce commercial losses, including the need for modern information systems. Multidimensional Poverty Provides a methodological framework for the index. Index, Oxford Poverty and Human Development Initiative (2013) Debt Management and Highlight the importance of adopting a medium-term debt management Performance Assessment strategy. (2014) and Reform Plan for Debt Management (2014) Honduras Current Account Analyzes the drivers of the current account deficit, in particular, the Assessment (2014) linkages between the fiscal deficit and the current account deficit. Institutional Models for Draws on the main lessons for poverty measurement from countries in Poverty Measurement: LAC International Practices and Lessons for Chile (2014), by Alan Fuchs, Peter Siegenthaler and Renos Vakis Honduras SCD (2015) Provides an overview of trends and drivers of economic growth, inclusion and sustainability. It defines priority areas for engagement which include the promotion of fiscal sustainability and highlights the role of governance as a core driver of development outcomes. Honduras Economic DNA Analyzes economic developments and assesses trends and drivers of “Maintaining Commitment” poverty and shared prosperity. It highlight that an integral fiscal reform (2015) strategy would need to combine revenue and spending measures with structural reforms to address structural challenges and raise the efficiency of public spending. Honduras Social Expenditure Highlights the importance of strengthening the targeting of social Review (2015) programs to reduce poverty and promote share prosperity. Pillar 2: Enhancing the regulatory framework to promote competitiveness Honduras’ Public Expenditure (See above) Review (2013) Page 40 The World Bank (P155920) Strengthening Social Explain the importance of strengthening the targeting of social Protection Systems in programs to reduce poverty and promote shared prosperity, and Honduras Policy Note (2013) highlight that a single registry would help improve the management of and Honduras’ Social social programs. Expenditure Review ( ) Poverty and Shared Prosperity Provides an overview of trends and drivers of poverty and shared in Honduras Policy Note prosperity in Honduras, highlighting the relevance of social programs. (2013) Honduras SCD (2015) Provides an overview of trends and drivers of economic growth, inclusion and sustainability. It defines priority areas for engagement which include the promotion of fiscal sustainability and highlights the role of governance as a core driver of development outcomes. WBG/OECD Product Market Provide an overview of regulatory challenges that affect competition in Regulation Indicators 2013- Honduras. 2014 (2015); World Economic Forum’s Global Competitiveness Report (2015) and Honduras: “Promoviendo la Competencia” Policy Note (2013) Page 41