## 1hndea2021001 ## Source details **Canonical URL:** [1hndea2021001](https://www.imf.org/-/media/files/publications/cr/2021/english/1hndea2021001.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2021/english/1hndea2021001.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2021/english/1hndea2021001.pdf.json) --- ### INTRODUCTION — mission, timing, and scope - At the request of the Honduran Ministry of Finance (SEFIN), an IMF Fiscal Affairs Department mission visited Tegucigalpa from October 22 to November 5, 2018, to conduct a fiscal transparency evaluation under the first three pillars of the IMF Fiscal Transparency Code. - Evaluation based on information available in November 2018. - Mission composition: - Mission chief: Ramón Hurtado - Team members: Concha Verdugo (FAD), Mariana Sabatés (STA), Marta Morano (FAD expert), Natalia Salazar (FAD expert) - Participating experts/representatives: Mr. Jean-Baptiste Gros (CAPTAC-DR), Mr. Jaume Puig (IMF Western Hemisphere Department resident representative) - Principal meetings: SEFIN (Minister Rocio Tábora, deputy ministers, directorates), Banco Central de Honduras (BCH), Comisión Nacional de Bancos y Seguros (CNBS), Municipality of Tegucigalpa, the legislature, Tribunal Superior de Cuentas (TSC), Contraloría General de Cuentas, ENEE, social security and pension administrations. - Nature of findings: opinions/advice of IMF mission team; data in text/tables are IMF mission estimates unless specified. ### EXECUTIVE SUMMARY — overall evaluation and headline ratings - Overall evaluation: Honduras’s fiscal transparency practices evaluated against the IMF Fiscal Transparency Code (FTC); score similar to other Latin American and emerging market economies evaluated. - Ratings by area: - basic in 15 areas; - good in 7 areas; - advanced in 6 areas. - Strongest area: Fiscal forecasting and budgeting practices. - Weakest area: Fiscal risk analysis and management practices. - Current practices fall short of FTC principles in eight areas. ### PILLAR I — Fiscal Reporting: key findings (strengths) - Overall practice: basic and good, in line with other Latin American evaluations. - Multiple monitoring reports published by different institutions. - Budget monitoring and CGR financial statements: - produced monthly, within the first 10 days of the following month, on average; - produced quarterly, before the end of the following quarter. - Budget outturn reconciled monthly with accounting records. - Budget documentation includes an analysis of the cost of tax expenditures. - Court of Audit (TSC) publishes audit and supervisory reports; annual accountability process (rendición de cuentas) completed prior to regulatory deadline; TSC consolidated annual report (IRC) published and submitted to Congress prior to presentation of the general budget. ### PILLAR I — Fiscal Reporting: shortcomings and risks - Institutional coverage incomplete: - absence of data on execution of funds managed by trusts; - delays in municipal reporting. - Monthly and quarterly information on financing not exhaustive and lags. - Financial statements of consolidated public sector incomplete: - In 2017, several institutions delayed submission or did not submit financial statements to the CGR by due date. - Only the 20 percent of the total expenditures of municipalities was considered reliable to be included in 2017 financial statements. - Tax expenditure analysis: methodology and detail by sectors only for 2017; should be expanded to 2018 and 2019 at same level of detail. - TSC does not issue a qualified opinion on the reliability of the Government General Account; limits analysis to the Government Property Account. ### PILLAR I — Institutional and data coverage (selected quantitative facts) - Public sector in Honduras in 2017 included 408 institutions whose total spending represented approximately 34 percent of GDP. - Budgetary central government (BCG) consists of 91 entities: - 70 national institutions of the central administration (seven economic cabinets, 9 bodies of the three branches of government, 17 ministries, and 37 deconcentrated entities); - 21 decentralized entities, including national universities. - Extrabudgetary funds organized as trusts managed budget funds but do not submit expenditure execution reports; in 2017, budget transfers to those funds represented less than 9 percent of total budget expenditure. - Municipalities: 298 municipalities; largest 18 municipalities accounted for nearly 60 percent of total municipal expenditure. - Net assets of Fideicomisos (trust funds) represented 2.3 percent of GDP in 2017. - BANADESA aggregate liabilities represented 1.09 percent of 2017 GDP (note: text highlights fiscal risks associated with this state bank). ### PILLAR I — Mission recommendations (summary) - Recommendation 1.1: Design an annual statistical report summarizing flows (revenue, expenditure, financing) and stocks of assets and liabilities for major sectors using the 2014 GFSM; publish statistical information in Excel format. - Recommendation 1.2: In the tax expenditure section of the proposed budget (analysis to t-2), include projections in the MTMFF for same expenditures. - Recommendation 1.3: Include an express opinion in the TSC’s IRC on appropriateness and accuracy of balance sheet and earnings in consolidated public sector financial statements. - Recommendation 1.4: Publish reconciliation tables with descriptions of adjustments and main differences between fiscal, accounting, and budget statistics. ### PILLAR II — Fiscal and Budget Forecasting: strengths - Legal framework relatively simple and comprehensive; Fiscal Responsibility Law (LRF) effective in 2016 strengthened framework. - Adherence to budget calendar facilitates timely submission and approval. - Budget incorporates a macro-fiscal framework presenting principal fiscal and budget aggregates per international standards classification. - Public investment management system transparent with periodic updates of multiyear commitments and public disclosure of public tenders. - System for budget management at the output level exists and is monitored. - Significant efforts to disclose and communicate approved budget in simple language to promote citizen participation. ### PILLAR II — Fiscal and Budget Forecasting: shortcomings and reforms needed - Budget unity: Not met — institutional coverage incomplete; portion of public resources escapes the budget process (trusts), violating principle of budget unity and one-year budget rule. - Macroeconomic projections: Basic — underlying assumptions not specified (exceptions: global and US growth from IMF WEO); revisions between April and August not discussed in detail. - Independent evaluation: Not met — macroeconomic and fiscal projections are not subjected to independent evaluation. - MTMFF and MTBF inconsistencies: MTMFF and MTBF based on different horizons and figures not fully consistent; changes in indicative ceilings not explained. - Public Investment Program issues: - Projects identified as human development projects representing 30 percent of the PIP that should be current spending. - PIP indicates 58 percent domestic financing and remainder external. - Cost-benefit analyses prepared only for selected projects and not published. - Timeliness: Proposed budget presented to Congress before September 15; approval sometimes delayed into January (exception: 2018 budget approved in January). - Tax expenditures magnitude and disclosure: - In 2019, tax expenditures represented 6.3 percent of GDP, equivalent to 36 percent of projected tax revenue in 2019. - Law establishes no controls or targets for size of tax expenditures. ### PILLAR II — Principal recommendations - Recommendation 2.1: Include all revenue and expenditure in scope of general budget and include trusts’ annual execution of revenue, expenditure, and financing. - Recommendation 2.2: Improve macroeconomic and fiscal projections by explicitly identifying assumptions and methodologies and submit projections for comparison with other institutions. - Recommendation 2.3: Adopt procedures for congressional discussion and approval to ensure budget approval prior to year-end (specify calendar for comparisons, Budget Committee review, and orderly debate). ### PILLAR III — Fiscal Risk Analysis and Management: strengths - Satisfactory internal analysis of macroeconomic risk and debt sustainability over past 20 years. - DGPMF refining macroeconomic scenarios, sensitivity analyses, and will use additional stochastic models. - Calculations performed for specific risks such as guarantees, litigation, and PPPs; methodologies developed for other risks (public corporations and municipalities) though calculations incomplete. - Legal limit on borrowing in place. - Transparency on PPPs satisfactory: COALIANZA and SAPP publish extensive information; PPP regulations establish orderly process and contingency line item. - Given vulnerability to natural disasters, government has developed risk management and mitigation policy geared to prevention. - BCH publishes semiannual financial system stability reports. ### PILLAR III — Fiscal Risk Analysis and Management: shortcomings and quantified risks - Overall assessment: Not met for risk disclosure/analysis — fiscal risk analysis and management remain in early stages. - Macroeconomic risks: - No public discussion of sensitivity of fiscal projections to key macro assumptions despite internal studies. - Internal sensitivity analysis (Table 3.2 examples — impacts for 2018, percentage of GDP): - Economic growth (1% increase) — Impact on tax revenue: 0.2 - Petroleum price (US$1 increase per barrel) — Impact of ENEE on deficit: 0.04; Impact of NFSP on deficit: 0.04 - Petroleum price (US$5 increase per barrel) — Impact of ENEE on deficit: 0.18; Impact of NFSP on deficit: 0.18 - Exchange rate (5% depreciation) — Impact on central government current expenditure: 0.1; Impact on central government deficit: 0.1; Impact on stock of NFPS public debt: 1.6; Financial costs (impact on debt service/revenue): 0.3 - Interest rate (1% increase) — Impact on stock of NFPS public debt: 0.1 - Specific risks quantified (selected entries from Table 3.3): - Legal actions against the government — Maximum exposure (HNL millions): 3,430; Percentage of GDP contingent liabilities (projected) 2018: 4.17%; Contingent liabilities (HNL millions): 1,003 - Guarantees of public credit operations — Maximum exposure (HNL millions): 909; Percentage of GDP contingent liabilities (projected) 2018: 2.07%; Contingent liabilities (HNL millions): 497 - Energy contract guarantees — Maximum exposure (HNL millions): 900; Percentage of GDP contingent liabilities (projected) 2018: 1.86%; Contingent liabilities (HNL millions): 447 - PPP claims (2 IMAG projects) — Maximum exposure (HNL millions): 811; Contingent liabilities (HNL millions): 277 (HNL 277 million represents contingent liability for IMAG) - Actuarial liabilities (HNL figures presented; total noted): 160,894 (IHSS: 99,000; INPREMA: 19,000; IPM: 1.04; INJUPEMP: 41,800) — actuarial liabilities by institution presented by authorities and IMF staff estimates. - Long-term fiscal sustainability: - 2019–22 MTMFF includes projections to 2038; DSA presented but sensitivity analysis of underlying fiscal variables not discussed. - Trusts and extrabudgetary funds: - Changes in deposit accounts owned by trusts (67 existing trusts) not taken into account in financing calculations. - Consolidation/reconciliation indicates overestimation of trusts’ expenditures for 2017: total expenditure should be HNL 8,295 million rather than HNL 12,093 million when considering trust balances and borrowing. - Trust net assets: e.g., Trust statement lines show Balance as of Dec 2016 / Transactions 2017 / Balance as of Dec 2017 including Income (budget transfers): 12,093; Expenses: 8,295; Result - deficit/+surplus: 3,797; Financial Assets: 10,892 / 5,509 / 16,401; Liabilities (Security Fee Trust) (1): 2,230 / 1,711 / 3,942. - Contingent liabilities and guarantees: - Preliminary SEFIN figures suggest central administration’s exposure to guarantees could be on order of 2.1 percent of GDP; other preliminary incomplete calculations indicate exposure to guarantees represents 4 percent of GDP. - PPP quantifiable commitments legal ceiling: 5 percent of GDP (present value of firm and contingent commitments net of income). - Some PPP contingencies (e.g., minimum-income guarantees) not included in previously cited 2.1 percent of GDP exposure. - Natural disasters: - Honduras highly vulnerable: between 1997 and 2018 endured 12 hurricanes, 9 droughts, and 22 floods; 5.3 million persons affected in a population of 9.3 million inhabitants. - Fiscal contingencies associated with natural disasters have not been quantified and were not planned to be included in the first fiscal risks report. - Municipalities: - Municipal sector important (7.5 percent of general government expenditure in one section; elsewhere municipal total expenditure representing 9.6 percent of budgetary central government GDP — document notes both figures in context). - No annual report disclosing municipal financial performance; SAMI coverage and reporting timeliness issues: in 2017 municipal financial statements received from over 100 but only 91 included; municipal expenditures in annual statements represent no more than 20 percent of total municipal-level expenditures. - Public corporations and ENEE: - ENEE net loss: HNL 4,548.7 million (2017) vs. HNL 3,872.5 million (2016). - ENEE energy losses: 27.9 percent total (10.5 percent technical losses; 17.4 percent non-technical losses). - Public corporations total deficit: 2013 = -1.7 percent of GDP; 2016 = -0.1 percent of GDP; 2017 = -0.4 percent of GDP. ### PILLAR III — Mission recommendations (summary) - Recommendation 3.1: Strengthen macroeconomic risk analysis (DGPMF) — submit baseline MTMFF and PEP scenarios to longer-duration and combined shocks; publish macroeconomic and fiscal scenarios and sensitivity analyses; expand analysis to include exogenous shocks and combine macro shocks with specific risks. - Recommendation 3.2: Prepare an annual report quantifying specific risks and develop mitigation strategies — develop/finalize methodologies to quantify specific risks (guarantees, legal issues, PPPs, municipalities, public corporations, financial, environmental, trusts); strengthen DGPMF Fiscal Contingencies Unit (UCF). - Recommendation 3.3: Establish legal and supervisory framework for trusts — criteria for creation, financial/accounting supervision, unit responsible for supervision, publish consolidated report on financial performance of trusts. - Recommendation 3.4: Publish long-term public finance projections — include pension and healthcare liability risks. - Recommendation 3.5: Publish annual report on municipalities — compile categories A and B data, shorten lag times, compile categories C and D, publish consolidated municipal financial performance. - Recommendation 3.6: Ensure coverage of contingent liabilities from all types of guarantees in fiscal risks statement. - Recommendation 3.7: Characterize and quantify natural disaster risks and associated contingencies; include quantification in annual fiscal risks statement. ### SELECTED FISCAL AND FINANCIAL QUANTITATIVE HIGHLIGHTS (preserved exactly as presented) - Public sector in 2017: 408 institutions; total spending ≈ 34 percent of GDP. - Trusts: 67 existing trusts; consolidation indicates trust total expenditure adjustment from HNL 12,093 to HNL 8,295 for 2017. - Trust balance sheet selected figures: - Income (budget transfers): 12,093 - Expenses: 8,295 - Result - deficit/+surplus: 3,797 - Financial Assets (Dec 2017): 16,401 - Liabilities (Security Fee Trust) (Dec 2017): 3,942 - Coverage omissions in debt stocks (2017 figures): - Central government loans refinanced in 2005: HNL 42.176 billion (78 percent of GDP). - Fideicomiso Tasa de Seguridad loans aggregated: HNL 3.942 billion (0.7 percent of GDP). - Financial liabilities pursuant to PPP contracts (DGPMF application of IPSAS 32): HNL 1.360 billion (0.3 percent of GDP). - Other payable accounts not considered in stocks of gross debt: HNL 60.673 billion (11.2 percent of GDP). - Pension liabilities (actuarial debt): HNL 62.597 billion (11.6 percent of GDP). - Liabilities of BANADESA and BANHPROVI: HNL 8.543 billion (1.6 percent of GDP). - Other debt instruments relating to BCH omitted items: HNL 61.866 million (11.5 percent of GDP). - Nonfinancial assets (total nonfinancial assets including accumulated depreciation for total public sector): HNL 196.544 billion (25.8 percent of GDP). - Financial assets (IIP estimate with consolidations): HNL 265.790 billion (49.2 percent of GDP). - 2017 NFPS debt preliminary estimate: 42.6 percent of GDP. - NFPS debt composition (2017): external debt 71.7 percent; domestic financing 28.3 percent. - 2018 financing needs: HNL 28,390.6 million. - Floating debt valued at HNL 11.256 billion at September 30, 2018 (2.08 percent of 2017 GDP). - Floating Debt Total (selected ledger sum): 11,256,977,098.79 - Municipal gross domestic debt (close of 2017): HNL 8,218.7 million. - Municipal borrowing by creditor (2017): Commercial banks HNL 5,593.1 million; Central administration HNL 2,625.6 million. - Municipal borrowing from local banks (2017 disbursed): HNL 5,149.4 million; amortized HNL 3,870 million. - Tax expenditures (2019): represented 6.3 percent of GDP; equivalent to 36 percent of projected tax revenue in 2019. - Health expenditure projections (DGPMF figures): - Health Expenditures % GDP: 2015 2.34, 2016 2.39, 2017 2.43, 2018 2.47, 2019 2.51, 2020 2.54 - Health Expenditures (millions of Lps): 2015 10,293.5; 2016 11,351; 2017 12,513; 2018 13,791; 2019 15,195; 2020 16,739 - Health Expenditures (millions of dollars): 2015 466.8; 2016 490.3; 2017 514.7; 2018 540.2; 2019 567.0; 2020 594.8 - BANADESA selected totals (Annex IV): - TOTAL ASSETS: 4,885,177,223.87 (Dec-15); 7,661,564,856.89 (Dec-16); 7,036,854,121.39 (Dec-17) - TOTAL LIABILITIES AND CAPITAL: 4,885,177,223.87 (Dec-15); 7,661,564,856.89 (Dec-16); 7,036,854,121.39 (Dec-17) - Loan portfolio: 2,339,196,521.40 (Dec-15); 4,356,489,990.48 (Dec-16); 3,298,859,990.61 (Dec-17) - Deposits: 1,499,242,471.92 (Dec-15); 1,530,656,611.66 (Dec-16); 1,599,063,714.97 (Dec-17) - Floating contingent or memorandum accounts totals and loan guarantees figures preserved in Annex IV as presented. ### ANNEX I — Action Plan (selected prioritized objectives) - Pillar I objectives: - Implement 2014 GFSM, publish annual summary tables of NFPS stocks and flows, publish statement of uses and application of funds for NFPS, include financial public sector institutions in fiscal statistics, expand tax expenditure analysis and projections in budget documents. - Responsible: DGPM, CGN, BCH, SEFIN. - Pillar II objectives: - Include trusts in scope of general budget or eliminate/restrict trusts; develop standardized data entry; include trust information in budget documentation. - Publish assumptions/methodologies underlying macro-fiscal projections; explain deviations and compare with other institutions. - Revise congressional budget discussion/approval procedure to ensure year-end approval. - Responsible: SEFIN, Interagency Committee, Congress. - Pillar III objectives: - Deepen/publish macroeconomic risk analysis; quantify and disclose principal risks; establish legal/supervisory framework for trusts; publish long-term public finance projections including pensions and healthcare; publish annual municipal reports; include contingent liabilities from guarantees; quantify natural disaster contingencies. - Responsible: DGPMF (UCF), CNBV, BCH, COPECO, DGID, IHSS, IMPREMA, IPM, INJUPEM. *Source: IMF fiscal transparency evaluation mission report (content unit 1hndea2021001), based on information available in November 2018.* ### INTRODUCTION __________________________________________________________________________________________ 9 ### INTRODUCTION ### Mission mandate and timing - At the request of the Honduran Ministry of Finance (SEFIN), a mission from the IMF Fiscal Affairs Department visited Tegucigalpa, Honduras from October 22 to November 5, 2018, to conduct a fiscal transparency evaluation under the first three pillars of the IMF Fiscal Transparency Code. - This fiscal transparency evaluation is based on the information available in November 2018 when it was concluded. ### Mission composition - Mission chief: Ramón Hurtado - Team members: Concha Verdugo (FAD), Mariana Sabatés (STA), Marta Morano (FAD expert), Natalia Salazar (FAD expert) - Participating experts and representatives: - Mr. Jean-Baptiste Gros, long-term resident expert from the IMF Central America-Panama-Dominican Republic Regional Technical Assistance Center (CAPTAC-DR), participated in the initial meetings. - Mr. Jaume Puig, resident representative of the IMF Western Hemisphere Department in Honduras, took part in the initial and closing meetings with the authorities. ### Meetings and consultations - The mission met with: - Ms. Rocio Tábora, Minister of Finance - The deputy ministers of finance - Heads of SEFIN directorates general: Macro-fiscal Policy, Transparency, Public Credit, Decentralized Institutions, Budget; Accounting; the Treasury; and other SEFIN divisional units - The mission also met with officials from: - Banco Central de Honduras (BCH) - Comisión Nacional de Bancos y Seguros (CNBS) - Municipality of Tegucigalpa - The legislature - Tribunal Superior de Cuentas (TSC, Court of Audit) - The congressional general accounting office (Contraloría General de Cuentas) - Empresa Nacional de la Energía Eléctrica (ENEE, National Electric Company) - Social security and pension administrations ### Presentation of results - The results of the evaluation and the key recommendations of the action plan were presented at a closing meeting, chaired by SEFIN and attended by members of the government’s economic sector cabinet. ### Nature of findings and data - The findings and recommendations represent the opinions and advice of the IMF mission team and do not necessarily reflect the views of the Honduran government. - Unless otherwise specified, the data presented in the text and tables of this report are estimates by the IMF mission team, not official estimates by the Honduran government. ### Acknowledgments - The mission thanks all institutions for their hospitality, consideration, and frank and open discussions. - Special thanks to Ivonne Ramirez and Belky Mejia of SEFIN for organizing the agenda and arranging the mission’s access to information. *Source: INTRODUCTION (fiscal transparency evaluation mission report), based on information available in November 2018.* ### EXECUTIVE SUMMARY ### EXECUTIVE SUMMARY ### Overall evaluation - This report evaluates Honduras’s fiscal transparency practices in relation to the IMF Fiscal Transparency Code (FTC). - Honduras’s score is similar to those of other Latin American countries and emerging market economies that have undergone the evaluation. - In relation to the fiscal transparency principles, Honduran practices are considered: - basic in 15 areas; - good in 7 areas; - advanced in 6 areas. - Fiscal forecasting and budgeting practices are the strongest. - Fiscal risk analysis and management practices are the weakest. - Honduras’s current fiscal transparency practices fall short of the FTC principles in eight areas. ### Pillar I: Fiscal Reporting — findings - Overall practice: basic and good, in line with fiscal transparency evaluations for other Latin American countries. - Multiple monitoring reports are published by different institutions. - Budget monitoring reports and financial statements issued by the General Accounting Office of the Republic (CGR): - produced monthly, within the first 10 days of the following month, on average; - produced quarterly, before the end of the following quarter. - Budget outturn is reconciled monthly with accounting records. - Budget documentation includes an analysis of the cost of tax expenditures. - The Court of Audit (Tribunal Superior de Cuentas, TSC) is responsible for external control and coordination of internal control and publishes audit and supervisory reports. - The annual accountability process (rendición de cuentas) is completed prior to the regulatory deadline. - The TSC’s consolidated annual report (informe de rendición de cuentas, IRC) is published and submitted to the Congress prior to the presentation of the general budget. ### Pillar I: Fiscal Reporting — shortcomings and risks - Institutional coverage of fiscal data is broad (includes the nonfinancial public sector, NFPS) but incomplete: - absence of data on the execution of funds managed by trusts; - delays in reporting by municipalities. - Monthly and quarterly information on financing is not exhaustive and lags behind other budget outturn publications and financial accounts. - Financial statements of the consolidated public sector are incomplete. - In 2017, a number of institutions delayed submission of information or did not submit financial statements to the CGR by due date. - Only the 20 percent of the total expenditures of municipalities was considered reliable to be included in 2017 financial statements. - Analysis of tax expenditure included methodology and detail by sectors only for 2017; it should be expanded to 2018 and 2019 at the same level of detail. - The TSC comments extensively on performance in terms of budget outturn but does not issue a qualified opinion on the reliability of the Government General Account (Cuenta General del Estado); it limits its analysis to the Government Property Account (Cuenta de Bienes Patrimoniales del Estado). ### Pillar II: Fiscal and Budget Forecasting — strengths - Fiscal and budget forecasts demonstrate significant strengths with respect to transparency. - Legal framework is relatively simple and comprehensive; strengthened through the Fiscal Responsibility Law (LRF), effective in 2016. - Adherence to the budget calendar facilitates timely submission and approval of the budget. - The budget incorporates a macro-fiscal framework considered complete and presents principal fiscal and budget aggregates according to international standards classifications. - Public investment management system is transparent and provides periodic updates of multiyear commitments and public disclosure of all public tenders. - There is a system for budget management at the output level, subject to ongoing monitoring by government and oversight entities. - Significant efforts have been made to disclose and communicate the approved budget in simple and accessible language to promote citizen participation. ### Pillar II: Fiscal and Budget Forecasting — shortcomings and reforms needed - Institutional coverage of budgets is incomplete; a portion of public resources escapes the budget process, violating the principle of budget unity and the one-year budget rule. - Transparency would be enhanced if budget documents identified the most relevant assumptions underlying macroeconomic projections and provided a discussion of any revisions and their impact on fiscal forecasts. - Some substantive but relatively simple technical improvements would require political support. ### Pillar III: Fiscal Risk Analysis and Management — strengths - Satisfactory internal analysis of macroeconomic risk and debt sustainability over the past 20 years. - The Directorate General of Macro-fiscal Policy (DGPMF) is refining macroeconomic scenarios and sensitivity analyses and will soon use additional stochastic models. - Calculations are performed for specific risks such as guarantees, litigation, and public-private partnerships (PPPs). - Methodologies developed for other risks (public corporations and municipalities), though calculations are not yet complete. - A legal limit on borrowing is in place. - Transparency with respect to PPPs is satisfactory: - Public-Private Partnership Promotion Agency (COALIANZA) and the Superintendency of Public-Private Partnerships (SAPP) publish extensive information on individual projects and contracts are accessible to the public. - PPP regulations establish an orderly process, restrict use of the mechanism, and provide for a specific line item to cover contingencies with clear access and limits. - Given vulnerability to natural disasters, the government has developed a risk management and mitigation policy geared to prevention. - The BCH publishes semiannual reports on the stability of the financial system. ### Pillar III: Fiscal Risk Analysis and Management — shortcomings and risks - Fiscal risk analysis and management remain in early stages and need strengthening. - Analysis of macroeconomic assumptions and their implications for fiscal variables is not published, despite numerous internal studies at DGPMF. - Analysis and management of specific risks should be improved and coordinated across institutions. - Risk disclosure is incomplete; the relationship of risks to fiscal projections is not clear. - Regulations permit allocation of resources for contingencies; however, allocations are generally below the allowed limit and, given potential disaster magnitude, contingencies must be covered by budget amendments, eroding budget planning effectiveness. - Strategies to mitigate risks from liabilities other than debt and from financial and nonfinancial assets are not fully defined. - Significant risks arise in management of trust assets and liabilities that are not disclosed: - Net assets of Fideicomisos (trust fund) represented 2.3 percent of GDP in 2017. - Government guarantees represent a significant fiscal risk for the central administration; these contingencies are currently being quantified. - Financial system is well capitalized with adequate liquidity, but there are significant risks associated with one state bank: - National Agricultural Development Bank (BANADESA) aggregate liabilities represented 1.09 percent of 2017 GDP and are not fully analyzed or disclosed. - Contingencies associated with natural disasters are not covered by the risk report under preparation by the government, which will be presented next year. - Municipalities are an important sector (7.5 percent of general government expenditure); their debts are not significant, but there is no annual report disclosing their financial performance. ### Key institutional and quantitative facts highlighted - Public sector in Honduras in 2017 included 408 institutions whose total spending represented approximately 34 percent of GDP. - Budgetary central government (BCG) consists of 91 entities: - 70 national institutions of the central administration (seven economic cabinets, 9 bodies of the three branches of government, 17 ministries, and 37 deconcentrated entities); - 21 decentralized entities, including national universities. - Extrabudgetary funds organized as trusts managed budget funds but do not submit expenditure execution reports; in 2017, budget transfers to those funds represented less than 9 percent of total budget expenditure. - Municipalities: 298 municipalities, with the largest 18 municipalities accounting for nearly 60 percent of total municipal expenditure. Box: Honduran pension system (fragmentation and liabilities) - The Honduran public pension system is fragmented across multiple pension scheme administrators. - Actuarial liabilities (HNL millions; % GDP): - Liabilities 62,597 11.6 - INJUPEMP 41,827 7.8 - INPREMA 20,065 3.7 - INPREUNAH N/A N/A - IPM 705 0.1 - Contingent liabilities: - Contingent liabilities 99,491 18.4 - IHSS 99,491 18.4 ### Tables and annexes referenced - Table ES.1 summarizes Honduras’s performance against the FTC (listing numerous sub-dimensions under Pillars I–III). - Table ES.2 presents a preliminary and partial estimate of the Honduras public sector financial overview for FY 2017. - Annex 1 includes an action plan organized by pillar presenting the mission’s most important recommendations to improve fiscal transparency practices in Honduras. *Source: EXECUTIVE SUMMARY, 1hndea2021001 - EXECUTIVE SUMMARY* ### 4. Fiscal reports in Honduras traditionally covered the entities of the central ### 1hndea2021001 - 4. Fiscal reports in Honduras traditionally covered the entities of the central ### Institutional coverage and reporting practices - Fiscal reports have traditionally covered: central government, general government, nonfinancial public sector (NFPS), and in some cases the “combined public sector” (NFPS plus BCH). Reports on stocks of gross debt continue to be published for the combined public sector. - The LRF increased emphasis on producing fiscal information for the NFPS and its subsectors. Subsector financial accounts include: general government, central government, and central administration (a subgroup of central government); these financial reports are reported individually. - SEFIN publishes flows: - (1) monthly revenue and expenditure for the NFPS, general government, and central government; - (2) quarterly report of central administration revenue, expenditures, and financing. - Stocks information is limited to monthly publication of gross debt liabilities of the NFPS, general government, central government, and BCH, by borrower and creditor and, for domestic debt, by instrument. - Annual financial statements provide the broadest institutional coverage and are consolidated for the total public sector; subsector aggregates are presented but not yet consolidated per GFSM 2014 requirements. - A consolidation system for subsectors is being developed; consolidated accounting information for public sector and subsectors will improve presentation and analysis and will include assets and liabilities. ### Gaps and data quality in financial statements and coverage - The 2017 financial statements: - Cover all subsectors but do not include data from each institution and were not updated to December 2017. - UNAH and BANADESA did not submit December 2017 statements on time; balances from June 2017 were included. - For local government, out of more than 100 municipal financial statements received, only 91 municipalities were included (78 via SAMI and the remainder from CGR); the others were rejected due to inconsistencies. The 91 municipalities do not include Tegucigalpa and San Pedro Sula; thus municipal expenditures in the annual statements represent no more than 20 percent of total municipal-level expenditures. - Financial account omissions and inconsistencies: - Flows of public financial corporations are omitted from the financial account — the largest omission. - Large municipalities often do not report through the municipal system; when others report they often fail to meet clarity criteria, present inconsistent input, or have conceptual classification errors. - For local government sector, financial account uses data processed by BCH by source of financing; revenue and expenditure are distributed based on the same percentage used in the distribution for the previous year. ### Coverage of stocks (deficiencies and omitted instruments) - Principal fiscal reports used to monitor LRF rules and BCH publications do not include stocks of assets; they focus on stocks of gross debt and omit many debt instruments. - CGR financial statements provide most information on stocks (central administration monthly; consolidated public sector annually) but possess institutional coverage deficiencies and subsectors are not consolidated as required by the 2014 GFSM. - SEFIN annual report is the only public report providing data on stocks and flows for central administration and NFPS; stocks are limited to gross domestic and external debt and omit debt instruments included in BCH’s total financing. - Aggregate estimate: instruments not considered or disclosed in debt reports represent nearly 32 percent of GDP for 2017. - Instruments and amounts not fully covered (2017 figures): - Central government loans refinanced in 2005 with multilateral creditors and HIPC creditors: HNL 42.176 billion (78 percent of GDP). - Debt contracted by Fideicomiso Tasa de Seguridad with the banking system (aggregated with another loan): total amount of both loans HNL 3.942 billion (0.7 percent of GDP) in December 2017. - Financial liabilities pursuant to PPP contracts (DGPMF application of IPSAS 32): HNL 1.360 billion (0.3 percent of GDP) — reflected in financing and central administration financial account but not included in stock of gross debt. - Other payable accounts not considered in stocks of gross debt: HNL 60.673 billion (11.2 percent of GDP) (includes HNL 3.990 million in external payable accounts arising from differences between external debt stocks and amounts recorded as liabilities in the IIP). - Pension liabilities of social security institutions covering government employees (actuarial debt calculations): HNL 62.597 billion (11.6 percent of GDP). - Liabilities of BANADESA and BANHPROVI (deposits by general public plus loans): HNL 8.543 billion (1.6 percent of GDP). - Other debt instruments relating to BCH (omitted items include deposits of other sectors at BCH, monetary base, and SDR allocations): HNL 61.866 million (11.5 percent of GDP). - Assets reporting: - Nonfinancial assets (from SIAFI subsystem and financial statements): total nonfinancial assets including accumulated depreciation for total public sector HNL 196.544 billion (25.8 percent of GDP). - Financial assets are not reported in a fiscal report; IIP indicates total public sector financial assets represent 49.2 percent of GDP, or HNL 265.790 billion (estimated from financial statements with consolidations). - Valuation and residency issues: - Government securities are recorded at face value, not market or nominal value. SIGADE module is being checked to calculate accrued interest to compute nominal values for government securities and loans in SIGADE. - Internationally issued government securities are considered external debt in total despite information showing some instruments are held by residents; banking-system annexes include holder information. Efforts are underway to request banks’ portfolio information to improve creditor data. ### Coverage of flows, trusts, and reconciliations - Reporting basis: - Fiscal reports used to monitor fiscal rules are on a modified cash basis: revenue and expenditures on a cash basis; accrual accounting used for some expenditures; accrual basis used in calculating financing because all financial assets and liabilities are considered (including other payable accounts and PPP liabilities). Interest recognized on a cash basis; efforts underway to calculate interest on an accrual basis. - Trusts and extrabudgetary funds: - Changes in deposit accounts owned by trusts (67 existing trusts) are not taken into account in financing calculations. Trust bank balances are not considered when determining amounts effectively spent by trusts. The budgetary transfer from budget to trust is assumed to equal trust spending, but trusts maintain balances and may borrow (e.g., Fideicomiso de Tasa de Seguridad is a borrower from resident banking system). - Consolidation and reconciliation indicate overestimation of trusts’ expenditures for 2017: total expenditure should be HNL 8.295 billion rather than HNL 12.093 billion when considering trust balances and borrowing. - Table 1.3 (Year 2017; MM lempiras) — consolidated flows between Central Government and Trusts (selected figures preserved exactly as presented): - Revenue: 12,093 (CGTrusts / To be consolidated / Consolidated CG context) - Expenses: 12,093 / 8,295 / -12,093 / 8,295 (as in table rows) - Result - deficit/+surplus: -12,093 / 3,797 / 0 / -8,295 - Financial balance sheet: -12,093 / 3,797 / 0 / -8,295 - Financial Assets: -12,093 / 5,509 / -6,584 - Liabilities (Security Fee F.): V/ 1,711 / 1,711 - Trust statement (selected figures preserved exactly as presented): - Balance as of Dec 2016 / Transactions 2017 / Balance as of Dec 2017 - Income (budget transfers): 12,093 - Expenses: 8,295 - Result - deficit/+surplus: 3,797 - Financial balance sheet: 8,662 / 3,797 / 12,459 - Financial Assets: 10,892 / 5,509 / 16,401 - Liabilities (Security Fee Trust) (1): 2,230 / 1,711 / 3,942 - Expenditures Adjusted in Financial Accounts: -3,797 - Increase to Debt: 2,230 / 1,711 / 3,942 - Note: (1) The liability is not entirely for the Security Fee Trust; part is debt for infrastructure construction. ### Coverage of tax expenditures and budgetary presentation - Publication and detail: - Information on revenue losses due to tax expenditures is published annually. - Details are included in two budgetary documents: - MTMFF: past tax expenditures and a three-year projection with brief methodology by tax type. - Separate tax expenditures section (referred to 2017) included for the first time in the 2019 proposed budget. - The 2019 proposed budget identifies beneficiaries of each tax type by sector but does not indicate objective of tax expenditures or reference the fiscal year of the proposed budget. The 2019 information is ex-post collection data for 2017 and is not a forecast (lag of two fiscal years). - Regulations and analysis: - Article 3 of LRF implementing regulations defines tax expenditure as revenue forgone due to creation or expansion of tax incentives or benefits (exemptions, preferential rates, deductions to benefit, promote, or develop specific activities, sectors, regions, or taxpayer groups). - Article 4 requires cost-benefit analysis of new tax expenditures and publication of their impact while in effect. - Magnitude and limits: - In 2019, tax expenditures represented 6.3 percent of GDP, equivalent to 36 percent of projected tax revenue in 2019. - The law establishes no controls or targets for the size of tax expenditures. Budget regulations prescribe no limit or control on total tax expenditure amounts. - Advanced practices suggested include: (1) establish a ceiling on total volume; (2) impose time limits on tax benefits; or (3) ensure tax expenditures and spending program projections are presented and discussed collectively in the budget documentation to consider trade-offs. ### Summary assessment points (coverage, timeliness, comparability) - Coverage of flows: reports are registered on a modified cash basis with some accrual elements; financing calculations attempt to consider all financial assets and liabilities but omit trust balances and some instruments. - Coverage of stocks: Not met — stocks of assets are generally not included in principal monitoring reports; many debt instruments and liabilities are omitted from published gross debt stocks. - Institutional consolidation: ongoing work to consolidate subsectors; current financial statements and SEFIN reporting have substantial institutional and instrument coverage gaps that limit international comparability and comprehensive macro-fiscal analysis. *Prepared from: 1hndea2021001 - 4. Fiscal reports in Honduras traditionally covered the entities of the central* ### 24. The CGR, DGPMF, and BCH publish the financial statements for the central ### 24. The CGR, DGPMF, and BCH publish the financial statements for the central ### Coverage and frequency of fiscal publications - The CGR, DGPMF, and BCH publish the financial statements for the central administration, the financial account for the central administration and the NFPS, and debt statistics on a monthly basis. - The reports on financial statements by the CGR are published within 10 days following the month to which they pertain. They include: - statements of financial position, - financial performance, - changes in net assets, - cash flows statement, - comparative statements between the budget and accounting reports, - an explanation of differences and an analysis of financing and debt. - The DGPMF’s monitoring reports for the central administration and NFPS financial accounts include revenue, expenditures, and stocks; these are reported monthly but with a longer publication lag. - BCH publishes monthly and quarterly information on domestic debt and a range of tables on gross internal debt and consolidated internal debt with a publication lag of 40 days for listed tables. ### DGP / DGP(MF) and DGP publications on budget execution - The Directorate General of Budget (DGP) publishes monthly reports on budget execution and quarterly monitoring reports on financial execution by the public administration. - The DGP publishes monthly budget execution reports within the first 30 days of the following month on the SEFIN website. - Monthly reports provide details of expenditure, by institution, for the central administration, the decentralized institutions, and social security funds, and show expenditure relative to: - initial projections, - current expenditure, - accrued spending, - by funding source, group, and spending targets. - The quarterly Report of Monitoring and Evaluation of Budget Financial Execution for the Public Administration is published 45 days after the close of each quarter and analyzes: - revenue and expenditure execution for the central administration and decentralized institutions, - budget modifications, - executed expenditure, by purpose, - the public debt position, - transfers to municipalities pursuant to applicable laws, - the public investment program for the public sector. ### Timeliness of audited annual financial statements - The audited annual financial statements are published in July, within nine months after the annual closing. - The TSC submits the audited reports to the National Congress in late July of each year to ensure Congress can analyze previous-year public sector reports before approving the following year’s budget. - Pursuant to Article 100 of the Budget Framework Law (LOP), the CGR has until April 30 to submit its annual report (informe de rendición de cuentas, IRC) for the previous fiscal year to the Congress; however, the CGR submits the reports ahead of schedule (in March presents budget liquidation, central administration balance sheet, and consolidated public sector financial position). ### Classification and accounting frameworks - The general budget classification is three-level: institutional, economic (by spending object and revenue category), and functional (by spending sector); budget execution reports do not reflect functional classification. - Secondary classification exists by funding source, financing entity, and geographic location; governed by technical regulations and the 2018 Manual of Budget Classifiers. - The budget classification is aligned to the 2001 GFSM; efforts are underway to complete alignment to the 2014 GFSM. - The classification by budget program is limited; pilot projects have been conducted but definitions are not widely used. - Weakness: substantial expenditures for projects identified as human development projects are recorded as investments though they should be considered current spending. - Municipal budgets use a specific economic classification (Budget Classification Manual for SAMI Municipalities) with greater disaggregation. - Honduras is implementing International Accounting Standards: IPSAS for NFPS and IFRS for public financial corporations. - The financial account uses the 1986 GFSM classification, but conceptual definitions of revenue and expenditure are aligned with the 2014 GFSM. - Net lending by the government is treated as a component of financial assets rather than as an expenditure item. - Amortizations and disbursements are treated as financing transactions rather than negative or positive spending, respectively. - The country is submitting general government data to the IMF database in accordance with the 2014 GFSM format; at the mission date the most recent submission dated from 2015; the 2016 and 2017 data were being prepared for transmittal but have yet to be sent. ### Internal consistency, revisions, and statistical integrity - Honduras publishes only one of the three internal consistency reports on fiscal data required under the FTC. BCH publications on gross debt include tables by borrower sector, creditor, and domestic public debt by debt holder. - No public reconciliation report exists between the deficit measured above the line by SEFIN and the below the line financing calculated by BCH; amounts are discussed monthly but not published. - No public report explains year-to-year change in debt according to disbursements and amortizations; a BCH report analyzing consistency between stocks and flows exists but is not publicly disclosed. - The most recent revision explained in SEFIN tables is for 2016; no data prior to 2016 have been revised. Revision was due to the LRF establishing a new methodology for calculating the fiscal deficit in line with the 2014 GFSM (treatment of central government loans to other institutions changed from expenditure to financial assets). - Fiscal statistics are compiled and disseminated by DGPMF (unit of SEFIN) and BCH in accordance with the IMF General Data Dissemination System. - Public finance statistics were reported in 2014 GFSM format through 2015; reporting was suspended thereafter with a commitment to resume transmittal beginning 2018, completing historical series through 2017. - BCH compiles and disseminates gross domestic and external public debt statistics and calculates financing for the NFPS reconciled with DGPMF. - SEFIN is responsible for publication of the medium-term fiscal framework (MTFF) in consultation with BCH; SEFIN compiles revenue and expenditure statistics for the NFPS and subsectors. There is no independent fiscal statistics unit. - Recommendation: designating a specific government agency—and, to the extent possible, an independent professional body—responsible for producing fiscal statistics would enhance professional independence, reliability, and adherence to advanced international practices. ### External audit and internal controls - The Court of Audit (TSC) has clear mandate, independence, and publishes all audit and inspection reports. TSC governed by Constitution and LOTSC; members appointed to a six-year term by a two-thirds vote of Congress. - Constitutional and LOTSC provisions recognize functional and administrative autonomy of the TSC. - TSC’s annual external audit and inspection reports and recommendations are disclosed publicly. - TSC reports annually to Congress on budget outturn prior to government’s presentation of the proposed budget for the following fiscal year; Article 205 of the Constitution and Article 32 of the LOTSC grant TSC authority to issue an opinion on budget outturn and evaluate efficiency and effectiveness of the public sector. - TSC supervises and evaluates internal controls; develops manuals and issues Standards for Public Sector Internal Control and General Standards for Internal Audit. - Internal audit units exist in all central government instrumentalities and concentrated institutions; they have professional independence and broad authority but lack sufficient resources and enforcement authority. - TSC annual audit reports focus on analysis of budget liquidation; in 2017 the report did not include any opinion on central administration financial statements other than a section on public debt. - TSC’s IRCs focus on budget outturn; 2015 and 2016 IRCs included sections evaluating consolidated public sector financial position and central administration financial statements; 2017 report limited to evaluation of reporting on public debt. - TSC’s IRCs do not provide an opinion; they describe findings and formulate recommendations. - Box 1.2 Key findings of the 2018 TSC report: - Debt records indicate poor budget programming with respect to debt service, substantial modifications, and noncompliance with accounting closing guidelines; discrepancies related to external debt and debt relief were identified. - Government Property Account showed discrepancies between historical records in SIAFI and institution records; overall institutional performance considered effective but weaknesses identified in financial structure of public corporations (sensitive position of ENEE) and need for actuarial analysis for social security institutions. - Internal controls of the central administration and decentralized institutions considered effective overall, but significant weaknesses in training and adequate organization were identified. - TSC prepares reports based on its regulatory framework aligned with International Audit Standards and gradually adapting to INTOSAI; key differences concern risk identification, audit evidence, and stricter characterization of audit opinions. ### Comparability and reconciliation of fiscal data - Budget execution reports facilitate comparisons with initially approved budgets using the same classification. - Monthly reports of central administration and CGR financial statements compare amounts initially approved, modifications, accrued and paid expenditures, and accrued and received revenues. - Accounting records are not directly comparable with budget execution because of differences in coverage and base, but monthly reconciliation tables are published. - CGR financial statements publish comparative tables of budget execution data and accounting records with notes explaining differences (differences relate to allocation of exchange gains and losses, external debt relief, and trust funds). - Financial statements differ from the budget in coverage and financial structure, precluding direct comparison (differences include recognition of PPP expenditures and register of trusts). ### Overall assessment, strengths, and areas for enhancement - Overall rating for fiscal reporting is Basic and Good. - Identified strengths: - Numerous monitoring reports published by different institutions; budget monitoring and CGR financial statements produced monthly within the first 30 days of the following month and quarterly by the end of the following quarter. Monthly publications cover central administration and decentralized institutions’ budget outturn, central administration financial statements, central administration and NFPS financial accounts, and debt statistics. Budget execution is reconciled with accounting records monthly. - Annual public sector reporting is concluded in advance of regulatory deadlines; TSC’s IRC is published and submitted to Congress prior to presentation of the general budget for the following year. - Budget documentation includes analysis of revenue losses due to tax expenditures as required by the LRF. - Existence of an independent external control body (TSC) that publishes audits and controls. - Areas where fiscal transparency could be enhanced: - Institutional coverage is incomplete: lack of execution data for funds managed by trusts (representing 9 percent of total budget expenditure) and lag in municipal reporting. - Monthly and quarterly financing information is not exhaustive and lags behind other publications on budget outturn and financial accounts; this information is important for ensuring consistency between above-the-line fiscal outturn data and below-the-line financing. - Statements of consolidated public sector financial position are incomplete: in 2017 several institutions were late in submitting information; UNAH and BANADESA failed to submit information to CGR in December and June 2017 data were used for consolidation. Municipal information is based on data from only 91 municipalities representing roughly 20 percent of total municipal expenditure. - Analysis of tax expenditure in budget documentation presents methodology and detail by sectors only for 2017 (information on two fiscal years prior to the fiscal year to which the proposed budget pertains). Projected tax expenditures for 2018 and 2019 are less complete and refer only to the type of taxes; it would be helpful to identify areas or policies to which tax expenditures are applied to facilitate comparability with budgeted expenditures. - TSC’s IRC, while detailed on budget execution attainment, does not issue a qualified opinion on the reliability of the Government General Account and limits analysis to the Government Property Account. *Source: 1hndea2021001 - 24. The CGR, DGPMF, and BCH publish the financial statements for the central (IMF PDF chapter).* ### 53. The mission offers four recommendations under this pillar of the FTC to improve ### 1hndea2021001 - 53. The mission offers four recommendations under this pillar of the FTC to improve ### Pillar I — Fiscal Transparency: Mission recommendations - Recommendation 1.1. Design a statistical report, published at least annually, that summarizes information on flows (revenue, expenditure, and financing) and stocks of assets and liabilities (balance sheet) for the major sectors defined by the manual and the respective subsectors using the 2014 GFSM as the analytical framework; and publish statistical information in Excel format to facilitate users’ analysis of the data. - Recommendation 1.2. In the tax expenditure section of the proposed budget, which includes the analysis to (t-2), include the projection in the MTMFF for the same expenditures. Doing this would provide a more complete view of the fiscal year to which the budget pertains, which would improve the score for this indicator to “good.” - Recommendation 1.3. Include an express opinion in the TSC’s IRC of the appropriateness and accuracy of the balance sheet and earnings shown in the financial position and financial returns and in the consolidated public sector financial statements. - Recommendation 1.4. Make an effort to increase the transparency and comparability of fiscal, accounting, and budget statistics by publishing reconciliation tables with descriptions or details of the adjustments and main differences between those statistics. ### Pillar I — Key evaluation findings (Table 1.6 summary) - Coverage - 1.1.1 Coverage of institutions: Basic. Fiscal reports (statistics and accounting) are consolidated for the public sector (including BCH in some reports and the public sector in others), although they are not consolidated by subsector. Medium: Efforts are underway at the CGR to provide for consolidation of financial statements at the level of subsectors of the public sector. Recommendation: 1.1 - 1.1.2 Coverage of stocks: Not met. Published fiscal reports cover only certain debt liabilities; other payable accounts, liabilities associated with PPPs, and other liabilities are omitted. Also, only internal BCH reports include financial assets. Importance: High. Recommendation: 1.1 - 1.1.3 Coverage of flows: Basic. Flows include revenue on a cash basis and some expenditures on an accrual basis. Other payable accounts are considered in calculating financing. Importance: Low. Recommendation: 1.1 - 1.1.4 Coverage of tax expenditures: Basic. Since 2018, the annual budget has included tax expenditures, with details by tax and sector, and a summary of the methodology used. However, the information pertains to the two previous fiscal years. For the budget year, only tax figures are reported. Importance: Low. Recommendation: 1.2 - Frequency and timeliness - 1.2.1 Frequency of in-year fiscal reporting: Advanced. Data on budget execution, the central administration financial statements, the central administration financial account, the NFPS financial accounts, and debt statistics are published monthly. Quarterly information is also published. Importance: Low. - 1.2.2 The timeliness of the annual financial statements: Advanced. The CGR presents the IRC for the previous fiscal year to Congress in March. Importance: High. - Quality - 1.3.1 Classification: Basic. The reports do not follow the IMF 2014 economic classification. Importance: Medium. - 1.3.2 Internal consistency: Basic. Revenue, expenditure, and financing are reviewed for consistency. However, statistical discrepancies are not explained in all reports. Importance: High. Recommendation: Explain the statistical discrepancy among revenue, expenditure, and financing in the regular publications; Publish the integration of financial assets and liabilities flows and stocks. - 1.3.3 Historical revisions: Basic. Revisions of fiscal aggregates are not indicated in bridging tables but are indicated by a note. Importance: Low. Note: The revisions to data were minor, representing less than 0.1 percent of GDP. - Integrity - 1.4.1 Statistical integrity: Basic. This is in line with international standards for data disclosure GDDS. Importance: Medium. Note: There is a conflict of interest between verifying the compliance with the fiscal rule and methodological purity, because the same directorate, the DGPMF, is responsible of monitoring fiscal rule compliance and compiling fiscal statistics. - 1.4.2 External Audit: Basic. The TSC is the independent institute that implements external control. Its annual audit report analyzes budget liquidation, excluding a qualified opinion on the central administration general account in 2017, apart from the public debt section and the property account. Importance: Medium. - 1.4.3 Comparability of fiscal data: Good. Accounting records are not directly comparable with budget execution due to differences in coverage and base, but reconciliation tables are published monthly. Fiscal statistics and budgets are not directly comparable due to differences in coverage and economic structure. Importance: Medium. Recommendation: Improving the standardization of classifications will improve the comparability of the data. ### II. Fiscal forecasting and budgeting — scope and evaluation approach - Four dimensions considered: - The comprehensiveness of the budget and associated documentation. - The orderliness and timeliness of the budget process. - The fiscal policy orientation. - The credibility of fiscal projections and budget proposals. - Principal laws and documents reviewed include: Honduran Constitution 1982; Budget Act and implementing regulations 2004; Fiscal Responsibility Law and implementing regulations 2016; Court of Audit Founding Law (LOTSC) 2002; General Law on the Public Administration (LGAP) 1986, 2014 amendment; Transparency and Access to Public Information Act 2007; Government Procurement Law 2001. - Documents relating to the annual budget (entities and frequency) summarized include: Annual budget (SEFIN (DGP and DGPM), presented to president in April; all documentation presented to Congress before September 15), Budget execution reports (SEFIN (DGP), Monthly), Budget Evaluation Report (SEFIN (DGP), Annual), Budget Liquidation Report (SEFIN (DGP), Annual), MTMFF Monitoring Report (SEFIN (DGPM), By end-August of each year), Report on Fiscal Rule Compliance (SEFIN (DGPM), By the close of the first half of each year), Citizen Budget (SEFIN (DGP), Annual), Central administration financial statements (CGR, Monthly). ### A. Comprehensiveness — main findings - 2.1.1 Budget unity: Not met. - The LOP establishes coverage of the central government budget (BCG) including the central administration and decentralized institutions. Central administration includes executive, legislative, and judicial branches; Supreme Electoral Tribunal; TSC. Decentralized institutions consist of (1) decentralized entities, (2) social security institutions, and (3) national universities. Budgets of institutions that make up the BCG are presented, discussed, and approved simultaneously and published in a single decree in the Official Gazette. - Municipal governments are not part of the central government budget; they have autonomy and receive transfers from the general budget. The central administration transfer to local governments represented 4.4 percent of total expenditure in the initial 2018 budget. - Collective fiscal weights: - Decentralized institutions: 13.6 percent of GDP. - Social security institutions: 7.3 percent of GDP. - 2018 approved budget for public corporations: 6 percent of GDP. - ENEE accounts for 13.7 percent of total spending (central administration plus decentralized institutions). - Quantitative importance: Social security institutions slightly greater than public corporations combined. - No consolidated revenue and expenditure budget covering entities included in the national budget proposal. Transfers from central administration to decentralized institutions absorb 2 percent of total central administration expenditure. The budget includes the MTMFF with revenue and expenditure data in gross terms, financing, and debt. - Violation of budget unity examples: - Revenue collected by the Property Institute in the form of vehicle registration fees is not included in the central government budget. Total amount noted as HNL 2.158 billion (2016 Property Institute annual report). - Existence of extrabudgetary funds (trusts) for which complete budget information is not presented. CGR financial statements in 2017 included information on 69 trusts totaling HNL 16.400 billion (3 percent of GDP). In the initial 2018 budget, central government contributions to certain trusts were shown as financial investments representing 4 percent of total aggregate expenditure and 1.7 percent of GDP. - Consequences of trusts and extrabudgetary activity: - Precludes adequate budget planning and programming, violating the one-year budget rule and principle that budget figures be presented in gross values. - Spending by trusts charged to prior fiscal years generates fiscal activities during the year not reflected in the current budget. - Some trusts have own resources not presented in the revenue budget. - Ongoing measures: - Central administration adopted measures to gradually subject trusts to greater control and increase transparency; efforts are early stage and not included in budget documentation. - A centralized, online trust registration system (SIRFIDE) has been created; a technical committee on trusts is responsible for monitoring them. - For larger trusts, periodic budget execution data are already available (example: Fideicomiso para la Reducción de la Pobreza Extrema). - General budgets for 2019 contain general provisions on control of trusts and compulsory inclusion of trusts in budgets. - 2.1.2 Macroeconomic projections: Basic - Documents accompanying the annual budget contain projections for GDP growth, domestic consumption, gross fixed capital formation, inflation, exports, imports, foreign direct investment, foreign remittances, the current account balance, and international reserves coverage. - Projections are discussed by the interagency committee created by the LRF, published in the BCH monetary program (every April, revision in August), and in the MTMFF for the current year and following three years (in April). Other budget documents presented prior to September 15 include inflation and GDP growth projections for the same horizon. - Gaps and limitations: - Underlying assumptions are not specified except for global and US growth (taken from IMF WEO). Important assumptions on exchange rate, devaluation, domestic and international interest rates, and international coffee prices are not explicitly identified. - Projections are not compared with projections of other organizations (IMF, ECLAC, CABEI). - Revisions between April and August are not discussed in detail in budget documents. First-round projections discussed in April; revised by August before presentation to Congress; initial projections published in BCH monetary program; MTMFF presents initial projections but no document explicitly presents August revisions or discusses changes. - Accuracy and bias: - Deviations in projections are usually not minor but do not appear systematically biased (Figure 2.1 note). - Short-term projections for GDP growth and inflation are generally conservative. - Medium-term projections for economic growth and inflation tend to be higher than those presented in the WEO. - 2.1.3 Medium-term budget framework: Good - Honduras prepares an integrated medium-term budget framework (MTBF) consistent with fiscal policy objectives. - The MTMFF is published in April and provides fiscal projections of revenue, expenditure (ceilings), and debt with economic disaggregation under the considered macroeconomic scenario and in accordance with requirements of the fiscal rule. The aim is to approximate coverage of the NFPS. - The MTBF is produced annually (not required by the LRF) and sets spending ceilings over a three-year horizon, applying economic disaggregation on revenue and disaggregation by institution, objective, and function on expenditure. The budget also includes the budget policy guidelines document. *Italic line: Content based on the supplied source text.* ### 2.3 detail the horizon and content with respect to revenue, expenditure, and financing in the ### 1hndea2021001 - 2.3 detail the horizon and content with respect to revenue, expenditure, and financing in the ### Medium-term fiscal documents and consistency - The MTMFF and the MTBF are the most extensive documents on medium-term projections consistent with the fiscal rule that accompany the budget presentation, but they are based on different time horizons; as a result, the figures presented in the two documents are not fully consistent. - The indicative ceilings defined in the MTMFF and the MTBF have been changing from one year to the next, with no explanation provided of the changes or discussion of whether they reflect changes in the macroeconomic scenario or the impact of fiscal measures adopted. - Total spending ceilings were modified upwards in the three first years and downwards in the most recent fiscal year. - Initially, the difference between the ceiling defined in the MTBF and the spending initially approved in the budget was significant; over time, the difference has narrowed. - The MTBF includes "indicative expense ceilling for projection years" and other features; Honduras has made progress in seven of the 11 characteristics of an advanced MTBF (see Table 2.3 summary in source). ### Coverage, horizons, and content of fiscal frameworks and budget documentation - Medium-term Macro-Fiscal Framework - Time horizon: Two prior years, ongoing year, two or three years into the future. - Content: Macroeconomic and fiscal variable projections under economic disaggregation; NFPS estimated based on Central Administration consolidation, social security and welfare institutes, other decentralized entities, municipalities, and public companies. - Medium-term Budget Framework - Time horizon: Three years into future. - Content: Revenue budget (economic disaggregation) and expense budget by expense group (economic disaggregation), institution, purpose, and duty. - Revenue budget (annual) - Time horizon: Prior year, ongoing year, next year. - Content: Revenue budget by detailed item. - Expenditures comparison - Time horizon: Prior year, ongoing year, next year. - Content: Expense budget by financing source, expense group, purpose, program, entity, purpose, and duty. ### Public Investment Program (PIP) and investment projects - The budget documentation each year includes a public investment program (PIP) and details of multiyear commitments associated with investment projects. - The PIP reviews recent evolution of investment and provides detailed forecasts by sector, institution, and project, including projected investments for public corporations, PPPs, and trusts. - The PIP includes a substantial volume of spending for projects identified as human development projects that actually represent current spending, not investment expenditure; together, those projects represent 30 percent of the PIP. - The documentation indicates sources of investment financing: 58 percent is domestic, and the remainder is external (external credit and grants). - The PIP is published by sector cabinet, identifying the institution and multiyear commitments for each specific project. - Revisions to multiyear commitments involve substantial deviations relative to the previous year's projections; revisions were larger in the first year than in following years, except in 2019. - The public investment process includes a preinvestment phase in which cost-benefit analyses are prepared only for selected projects, and the analyses are not published. - The General Methodological Guide for Formulation and Evaluation of Public Investment Projects is detailed and complete and includes calculation of cost-benefit analyses; the analysis is applied largely to major infrastructure projects and selected defense projects, but it is not a widespread practice for all sectors. - When analyses are conducted, they are not published. - A methodology is being developed with the support of the Inter-American Development Bank to standardize the analyses for all sectors. - The Directorate General of Public Investment (DGIP) conducts cost-efficiency analyses for all projects and prescribes requirements for information to obtain authorization to include a public investment project in the budget; those requirements include estimates of the recurring expenditures associated with those projects. - Since 2017 substantially fewer projects have been approved because only projects for which there is sufficient fiscal space, in accordance with the LRF, are approved. - The number of priority papers (Notas de Prioridad) approved decreased from 88 in 2012 to 6 in 2017. - Execution and procurement - For each project, a project operations manual is prepared identifying each actor's role in execution. - Ongoing physical-financial monitoring is performed, including on-site visits documented in monthly and quarterly reports and made public. - Contract awards financed with domestic resources are governed by the procurement law and are generally awarded through public competitive processes in accordance with DGIP. - The Government Procurement Law (Law 47/2001) requires open and transparent processes by means of public tenders. - Contract awards are published by the National Office of Government Procurements (www.honducompras.gob.hn) and the Office publishes a consolidated statistical report. - The 2016 report estimated: public tenders accounted for only 2 percent of the number of contracts but represented 70 percent of the total amounts; private tenders were employed for 18 percent of contracts and represented 17 percent of the total value; other procurement modalities represented 3 percent of contracts in terms of volume and 1 percent in terms of value. - The TSC audits procurement processes, and its audit reports are publicly available on the TSC website. ### Institutional framework, legal basis, and budget process timelines - Legal framework - The Constitution contains provisions on public finance, the budget process, and the role of Congress in approving the annual budget (articles 205, 361–372). - The Framework Budget Law, Law No. 83-2004 (LOP), defines all aspects of budget management, including formulation, discussion and approval, execution, monitoring, and evaluation; fiscal year corresponds to the calendar year. - The LRF (Legislative Decree 25 of 2016) has been in effect since 2016 and covers aspects of risk management, including PPPs. - Article 100 of the LOP establishes the deadline for issuance of the IRC for the previous year. - Documentation requirements (Article 23 of the budget law) - SEFIN must prepare: the statement of purpose; the medium-term financial programming; the multiyear budget including macroeconomic context; estimates of tax revenues not specified in budget appropriations and of fiscal activities; the annual work plan; the revenue and expenditure budget; the financial account showing current savings, investment, net income, and financing; a comparative chart of fiscal aggregates for the two previous years; a document explaining the calculation of revenue; and the general provisions. - Requirements for increasing or modifying expenditures (Article 27 of the LOP) - Any increase in total spending in the proposed budget presented by the Executive Branch must have the respective financing based on the prior reasoned opinion of SEFIN. - Investment projects that have not undergone the evaluation and approval phases provided under the national public investment system may not be included in the budget. - Once a project is approved and budgeted and execution has begun, the Executive Branch shall have the initiative to increase or modify the expenditure budget. - Timeliness of budget documents - The Executive Branch must submit the budget to Congress during the first half of September (Article 25 of the LOP); that deadline is systematically observed. - If the established deadline is not met, the previous year's budget will apply to the entity in question (LOP Article 22). - A calendar of budget activities is prepared and published annually (Table 2.4). Key dates/activities from Table 2.4: - March: Creation of budget policy technical and steering committee to establish guidelines. - By May: Update of the MTMFF, baseline, and medium-term budget policy; approval by the president. - June: Transmittal of preliminary ceilings, institutions' proposed updates, and allocation of final ceilings; revision of the Public Investment Program. - July: Communication of final ceilings and recording in the integrated financial management system (SIAFI). - August: Revision of AWP-Budget and SIAFI adjustments. - By August: Update of general provisions. - By September 15: Preparation and presentation of the proposed budget, including the MTBF document, to the National Congress. - October to December: Consideration and final approval by the legislature. - There is no deadline or established procedure for congressional discussion and approval of the budget, which has been delayed until January on occasion. The congressional process begins with discussions in the Budget Committee (12 deputies) assisted by a technical committee. - Once Congress has approved the budget, it must be submitted to the Executive Branch within three days for publication. Article 29 of the LOP addresses budget extensions if the budget is not approved at the beginning of the fiscal year. - The budget documentation is considered complete, orderly, and detailed to facilitate review and approval by Congress. The 2019 budget proposal for the first time included an analysis of tax expenditures. ### Fiscal policy orientation and the fiscal rule - The LRF introduced a quantitative fiscal rule that explicitly presents the transition to achieve long-term targets; the law establishes specific exceptions and has remained unchanged since its introduction in 2016. - The law establishes quantitative rules for three variables: 1. The NFPS deficit may not exceed 1 percent of GDP. 2. Central administration current spending may not increase at a rate that exceeds average economic growth over the previous 10 years plus the projected inflation rate for the following year. 3. Central administration payable accounts may not increase by more than 0.5 percent of GDP. - The law provides for convergence by establishing intermediate targets for the NTFS deficit: - Not to exceed 1.6% in 2016 - Not to exceed 1.5% in 2017 - Not to exceed 1.2% in 2018 - Not to exceed 1% in 2019 and thereafter - Exceptions provided in the law: - (1) Declared national emergency or natural disaster defined as damage greater than or equal to 1.0 percent of GDP; at the government's request, Congress must suspend application of all three components of the rule; the request should include new targets for stocks and corrective measures; exception covers a two-year period. - (2) Economic recession defined as a contraction of real GDP for two consecutive quarters; in this case the first component of the rule is not mandatory but under no circumstance may the deficit exceed 2.5% of GDP that year; this exception may be extended for an additional year with appropriate justification. - In cases (1) and (2), the fiscal deficit must be reduced by at least 0.5 percent of GDP in each subsequent year until it returns to the limit established by the rule. - Compliance and transparency requirements - A declaration of noncompliance with the fiscal rule in the previous year should be submitted to Congress and published before June 30 of the current year; in case of deviations, the report must present and explain the corrective measures to be taken. - A monitoring report on fiscal rule compliance for the current year should be published by end-August; in the event of deviations, corrective measures must be identified and explained and must be approved by the Council of Ministers. - Both the SEFIN compliance reports and the DGPMF monitoring reports have been published since 2016. - The compliance reports indicate that the rule has been observed and surpassed in 2016 and 2017. - The most recent DGPMF monitoring report published in August 2018 identifies ENEE problems as a risk for compliance with the first component of the fiscal rule and presents the main aspects of the adjustment program adopted to consolidate ENEE finances to enable the NFPS balance sheet to be closed. *Source: 1hndea2021001 - 2.3 detail the horizon and content with respect to revenue, expenditure, and financing in the* ### 1.2 percent of GDP, as established by the LRF. ### 1.2 percent of GDP, as established by the LRF. ### Compliance with the Fiscal Rule - The quantitative fiscal rule is set at 1.2 percent of GDP, as established by the LRF. - Table 2.6. Compliance with Fiscal Rule in 2016 and 2017: - Rule 1 — NFPS Deficit (% GDP): - 2016 Goal: 1.6 - 2016 Close: 0.5 - 2017 Goal: 1.5 - 2017 Close: 0.8 - Rule 2 — Growth rate of central administration current expenses: - 2016 Goal: 9.1 - 2016 Close: 8.8 - 2017 Goal: 8.1 - 2017 Close: 7.8 - Rule 3 — New payments arrears from central administration of more than 45 days: - 2016 Goal: 0.5 - 2016 Close: 0.2 - 2017 Goal: 0.5 - 2017 Close: 0.2 - Source for table: DPMF, Monitoring Report on the Medium-Term Fiscal Rule, 2018–21. ### Performance information (Assessment: Good) - The government has developed budget performance evaluations at the output level. - All public entities are evaluated annually by progress on the annual work plan (AWP); preparation of an AWP is required for inclusion of an entity's appropriations in the upcoming annual budget. - AWPs: - Based on a strategic institutional plan (mission, vision, objectives, project/programs, activities). - Establish targets for program outputs and link quantities produced to budget resources. - Are entered into the SIAFI platform to facilitate monitoring and evaluation during implementation. - Are monitored quarterly; physical and financial execution is published in the budget evaluation report. - SEFIN and the Ministry of General Government Coordination (SCGG) participate throughout the AWP cycle; the TSC conducts annual AWP compliance reviews for a substantial number of entities. - Scope includes sector cabinets with consolidated AWPs monitored quarterly by SEFIN; eight sector cabinets are current: Government and Decentralization; Development and Social Inclusion; Economic Development; Security and Defense; Productive Infrastructure; International Relations and International Cooperation; Economic Management and Regulation; and Prevention, Peace, and Coexistence. - Limitations: - Results-based budgeting has not been fully developed. - SIAFI links programs/projects to national development plans (Plan de Nación y Visión and Plan de Gobierno), but the definition of indicators and method of measurement have yet to be determined. - Constraints include weaknesses in institutional capacity, lack of clarity on responsibilities between SCGG and SEFIN, and coordination difficulties. - These findings align with the 2016 PEFA report and the IMF 2017 mission on results-based budgeting. ### Public participation (Assessment: Good) - Transparency progress noted, but citizen participation component remains weak per the Open Budget Index (OBI). - OBI rankings: 12/100 in 2010; 53/100 in 2012; 54/100 in 2017. - Global average: 42/100. - Citizen participation component for Honduras: 7/100. - SEFIN publishes an annual Citizen Budget (since 2010) in simple language covering: - Basic elements of the budget exercise. - Principal provisions of the approved budget (expenditure by administrative classification, sector, expenditure group, and function). - Relevant aspects of social and municipal spending. - General implications of the fiscal deficit. - Criticism: Citizen Budget presents implications in general terms without differentiating by population group; delays in publishing the Citizen Budget noted by the International Budget. - Pre-budget debate: Congress holds televised public hearings attended by sector cabinets; civil society participates; informal WhatsApp channel allows citizen suggestions during hearings. Citizens have limited influence on budget formulation. - Legal and institutional transparency framework: - Transparency and Access to Public Information Act (LTAIP), promulgated in 2007, and the LRF (2016) strengthen transparency and public participation. - IAIP created to facilitate access to public information and administer the One-Stop Transparency Portal (Portal Único de Transparencia). - Transparency portal: - As of June 2018, the portal included information and evaluations for 210 entities required to disclose information. - A total of 405,439 documents has been publicly released to date. - Portal tabs include organizational structure; planning and accountability; finances; regulation; citizen participation; and links. Under finances, entities report on financial statements, budget liquidation, monthly budget, annual reporting, physical expenditure, physical execution, financial execution, debt, and arrears. - Other portals: - HoncuCompras: web-based procurement information system for contracting procedures. - SISOCS: sistema de información y seguimiento de obras y contratos de supervisión, reporting and monitoring investment projects, including PPPs. ### Budget Credibility - Independent evaluation of macroeconomic and fiscal forecasts: Not met. - SEFIN prepares initial fiscal projections; BCH prepares macroeconomic forecasts within a range/band without a specific point estimate. - SEFIN compares BCH intervals with forecasts of international institutions (basically IMF Article IV) and internally selects scenarios for definitive fiscal projections. - The budget documentation does not include a comparison between the government's macro-fiscal forecast and those prepared by other institutions for Honduras. - BCH reports do not include forecasts by rating agencies, research institutions, or other domestic banks. - Supplementary budget (Assessment: Good): - Any increase in total budget amount must be authorized by Congress (Article 36 of the LOP). - Increases in domestic borrowing require prior opinion of SEFIN. - SEFIN may, by internal resolution, add external resources from grants and loans previously approved by Congress to the current budget subject to ceilings. - Authorities and transfer rules: - Congress: authority over modifications that change the total approved amount and transfers between branches of government. - President: authority over transfers between individual ministries, between ministries and decentralized institutions, and between capital spending and current spending, subject to the prior opinion of the interagency committee established by the LRF. - Ministries: may transfer funds between categories of the same program (up to a maximum of 40 per institution). - SEFIN: may transfer funds between appropriations for contingencies. - Quarterly monitoring reports to Congress detail modifications by institution and source of funding. - Principal sources of funding for budget increases: surplus revenue collection or loans received relative to initial anticipations (increased revenue collection or internal/external credits). - Over the past four years, changes in the total budget amount have averaged 12 percent of the initial expenditures, although the percentage fell substantially in 2017 and the second half of 2018. - Reconciliation of forecasts (Assessment: Basic): - Budget documentation provides no analysis reconciling differences between macroeconomic and fiscal forecasts for successive fiscal years. - Annual budget liquidation presents information on phases of expenditure and descriptions of principal modifications; however, no breakdown distinguishes changes due to macroeconomic projection revisions from those due to fiscal policy measures. - Significant differences often arise between amounts approved and amounts executed (accrued), implying changes in budget composition. - Recommended reconciliation should explain differences resulting from: - a. changes in accounting treatment or classification; - b. changes in the baseline for macroeconomic projections due to changes in assumptions or demographic parameters; - c. the impact of policies adopted during the year. - International examples: Finland and the United Kingdom noted for reconciliation practices; the UK Budget Office produces ex post evaluations and reconciles changes by three categories: (1) classification changes following Office of Statistics decisions; (2) discretionary changes when economic forecasts change with new information; (3) changes resulting from policy decisions. ### Conclusions and Recommendations (Summary) - Pillar II (fiscal transparency) shows the most satisfactory levels compared with Pillars I and III; two dimensions are unmet, and many are rated good. - Strengths identified: - Legal framework is relatively simple and comprehensive; strengthened by the Fiscal Responsibility Law, resulting in orderly significant fiscal adjustment and compliance with a quantitative fiscal rule. - Annual budget formulation adheres to the calendar and is submitted to Congress sufficiently in advance to allow discussion and approval. - Budget incorporates a macro-fiscal framework presenting principal fiscal and budget aggregates consistent with international standards. - Public investment management system is transparent with periodic updates of multiyear commitments and publication of procurement processes. - Efforts to disclose and communicate the approved budget in accessible language to promote citizen participation. - System in place to manage the budget at the output level, monitored by government and oversight bodies. - Areas for improvement: - Institutional coverage of budgets is incomplete because substantial resources are managed through trusts outside the budget process, distorting transparency of public sector economic and financial activities. - Macroeconomic and fiscal projections are not subject to independent evaluation, which could erode credibility. - Although Congress has generally approved the budget before the fiscal year, there was a delay of close to 20 days in 2018, preventing executing entities from accessing budgets at the fiscal year start. - Macroeconomic projections do not explicitly identify underlying assumptions. - Macroeconomic and fiscal projections deviate perceptibly from actual conditions without explanations in documents. - Challenges in institutional capacity, delimitation of responsibilities, and coordination between SEFIN and SCGG hinder effective implementation of results-based budgeting. *Source: 1hndea2021001 - 1.2 percent of GDP, as established by the LRF.* ### 108. There are three principal recommendations for this pillar of the FTC to enhance ### 1hndea2021001 - 108. There are three principal recommendations for this pillar of the FTC to enhance ### Principal recommendations (Pillar II: Fiscal Transparency) - Recommendation 2.1. Include all revenue and expenditure in the scope of coverage of the general budget, in addition to information on the trusts’ annual execution of revenue, expenditure, and financing. - Recommendation 2.2. Improve the macroeconomic and fiscal projection exercises by explicitly identifying the underlying assumptions and methodologies used, and submit projections for comparison with those of other institutions that issue projections for Honduras. - Recommendation 2.3. Adopt procedures for congressional discussion and approval of the proposed budget to ensure approval prior to the close of the year. The procedure could specify a calendar for comparisons, Budget Committee review and discussion of detailed revenue and expenditure items, and discussion of the final proposal as a whole by the full Congress. The debate should also be more regulated and more orderly. ### Summary of Honduras’s evaluation against Pillar II (selected findings from Table 2.7) - Comprehensiveness - 2.1.1 Budget unity - Evaluation: Not met: The budget includes ministries and central administration institutions, decentralized institutions, social security funds, and public corporations; but some revenue and expenditure are not reflected in the budget because they are managed through trusts. - Importance: High: There is a significant volume of public sector economic-financial activity not reflected in the budget for which complete information is not available. - Recommendation: R2.1 - 2.1.2 Macroeconomic projections - Evaluation: Basic: Budgets include macroeconomic projections but do not explicitly identify the underlying assumptions. - Importance: Medium: The transparency exercise would enhance the credibility of projections. - Recommendation: R2.2 - 2.1.3 Medium-term budget framework - Evaluation: Good: Honduras has made progress toward the preparation of an integrated macro-fiscal framework consistent with fiscal policy objectives. - Importance: Medium: Strengthening the framework by ensuring consistency among all components would enhance the credibility of fiscal policy. - 2.1.4 Investment projects - Evaluation: Good: The budget includes a public investment program and details of multiyear commitments for investment projects. In most cases, project contracts are awarded through competitive processes. - Importance: Low: Cost-benefit analyses are conducted for key projects, but the analyses are not public. A common methodology is being developed. - Orderliness and participation - 2.2.1 Fiscal legislation - Evaluation: Advanced: The Honduran legal framework for the budget and public financial management is complete and clear. - Importance: Medium: Appropriate regulation of congressional budget debate would enhance the transparency and reliability of the budget approval process. - 2.2.2 Timeliness of budget documents - Evaluation: Basic: The proposed budget is duly presented to Congress by September 15, but it is not always approved before the start of the year. - Importance: Low: Exceptionally, the 2018 budget was approved in January; the general practice is the Congress approves budgets in December. - Recommendation: R2.3 - Policy orientation and performance - 2.3.1 Fiscal policy objectives - Evaluation: Advanced: The LRF introduced a quantitative fiscal rule that explicitly sets out the transition to achieve long-term targets and provides for specific exceptions. - Importance: High: The clarity of fiscal objectives and the authorities’ commitment represent an important anchor to move forward in the macroeconomic adjustment process. - 2.3.2 Performance information - Evaluation: Good: Honduras has been developing budget performance evaluations at the output level. - Importance: Medium: Lack of clarity as to the respective authorities of SCGG and SEFIN, and difficulties in coordinating their actions, have limited progress toward results-based budgeting. - 2.3.3 Public participation - Evaluation: Good: An educational document (Citizen Budget) is published, but citizen participation is limited despite the availability of channels. - Importance: Low: OBI transparency indicators have improved substantially. - Credibility - 2.4.1 Independent evaluation - Evaluation: Not met: Macroeconomic and fiscal projections are not subjected to independent evaluation. - Importance: Medium: Although no significant bias is detected in the projections, they would gain in credibility if they were compared with projections by other institutions. - Recommendation: R2.2 - 2.4.2 Supplemental budget - Evaluation: Good: Once the budget is approved, increases in the total amount require authorization by Congress. Changes made during execution are reported quarterly. - Importance: Medium: The budgets initially approved have been increased by significant amounts. - 2.4.3 Reconciliation of forecasts - Evaluation: Basic: The budget provides no analysis between successive medium-term macroeconomic and fiscal projections. - Importance: Low: An explanation of deviations would enhance the clarity and credibility of fiscal policies. *Italic: Table 2.7 represents a summary of Honduras’s evaluation against the Pillar II of the FTC.* ### Fiscal risk analysis and management (Pillar III): scope and focus - Objective: Governments should disclose, analyze, and manage risks to public finances and ensure effective coordination of fiscal decision-making across the public sector. - Evaluation focus areas: - i. General provisions for disclosure and analysis of macroeconomic and specific fiscal risks. - ii. Risks arising from specific sources, such as government assets and liabilities, guarantees, financial sector, and PPPs. - iii. Coordination of fiscal policy decision-making among the central government, subnational governments, and public corporations. ### Fiscal risk reporting (Table 3.1: key documents and frequency — selected items) - Macroeconomic Risks - 2014 annual report — SEFIN — Annual - 2019–22 Public Borrowing Policy — Public Credit Commission — Annual - MTMFF — SEFIN, SCGG, and BCH — Annual - 2018 Annual Financing Plan — DGCP — Annual - Financial Stability Report, December 2017 — BCH — Semiannual - Long-term fiscal sustainability - 2019–22 Public Borrowing Policy. Nonfinancial public sector — Public Credit Commission — Annual - 2019–22 MTMFF — SEFIN, SCGG, and BCH — Annual - Fiscal deficit scenarios for the analysis of public debt payment capacity in the medium term — SEFIN — Annual - Debt management - 2018 Annual Financing Plan — SEFIN — Annual - 2018 Public Debt Strategy — DGCP — Annual - Financial sector risks - Financial system stability reports (December 2017) — BCH — Biannual - CNBS annual report (2017) — CNBS — Annual - Guarantees, contingencies, trusts, nonfinancial assets, municipalities, public corporations, PPPs, natural disasters — Various agencies and frequencies as listed in Table 3.1. ### Risk disclosure and analysis — Macroeconomic Risks (3.1.1) - Evaluation: Not met - Key findings: - Honduras’s economy is volatile. Nominal GDP volatility from 2003–16 was close to the average for specific Central American countries. - Greater volatility is seen in the standard deviation of fluctuations of fiscal revenue in real terms (Figure 3.1). - Volatility drivers include fluctuations in agricultural commodity prices (such as coffee), oil prices, interest rates, exchange rates, and migrant remittances. - During periods of falling oil prices, shocks are reflected in the balance sheet of the national power company, ENEE (Figure 3.2). - The price of oil impacts the purchase of energy and overall balance sheet of ENEE: when oil prices increase, the cost of energy increases; when oil prices fall, the cost of energy decreases. - SEFIN actions and limitations: - SEFIN identified risks in the 2019–22 MTMFF and the 2018 Public Borrowing Policy (PEP), addressing macroeconomic factors affecting real, external, and fiscal sectors. - DGPMF has begun developing a comprehensive risk methodology to include fluctuations in commodity prices, impacts of remittances, and various macroeconomic scenarios; the authorities expect to finalize those models during first quarter of 2019. - Authorities publish no discussion of the sensitivity of fiscal projections to key macroeconomic assumptions, although projections are available internally. - MTMFF and PEP include medium-and-long-term macroeconomic projections of the deficit but do not include sensitivity analysis of revenue and expenditure to changes in five key variables: growth, oil prices, exchange rates, interest rates, and coffee prices. - Internally, SEFIN has sensitivity calculations for the budget year (Table 3.2); the assumed changes in variables used to calculate sensitivities are relatively small. - The PEP includes a sensitivity analysis for public debt attached as an annex to the MTMFF, but there is no discussion of the analysis and alternative macroeconomic scenarios are not presented. ### Internal sensitivity analysis (Table 3.2 — Impact Projections for 2018, Percentage of GDP) - Economic growth (1% increase) - Impact on tax revenue: 0.2 - Petroleum price (US$1 increase per barrel) - Impact of ENEE on the deficit: 0.04 - Impact of NFSP on the deficit: 0.04 - Petroleum price (US$5 increase per barrel) - Impact of ENEE on the deficit: 0.18 - Impact of NFSP on the deficit: 0.18 - Exchange rate (5% depreciation and the average exchange rate) - Impact of the central government on current expenditure: 0.1 - Impact of the central government on the deficit: 0.1 - Impact on stock of NFPS public debt: 1.6 - Financial costs: Impact on debt service/revenue: 0.3 - Interest rate (1% increase) - Impact on stock of NFPS public debt: 0.1 ### Public debt and sensitivity (3.1.1 continued and Figure 3.3) - SEFIN publishes medium-and long-term projections of public debt. The 2019–22 PEP includes simulations for the next 20 years for a baseline scenario that provides a present value of the ratio of debt to GDP, but there is no discussion of the sensitivity analysis of underlying fiscal variables. - The 2018–22 Medium-Term Debt Strategy evaluates sensitivity of costs associated with the effect of interest rates on debt, changes in the interest rate, and refinancing risk in the next fiscal year. - Note on Figure 3.3: The Debt/GDP indicator shows that the most extreme stress test is in the growth rate, which is the historic average minus one standard deviation. It only applies to the second and third year of projections; this impact does not exceed the threshold until 2014. The definition of income includes donations. ### Specific fiscal risks (3.1.2) - Evaluation: Not met - Key findings: - The MTMFF enumerates specific risks but this enumeration is not exhaustive, lacks qualitative or quantitative analysis, and does not establish a clear relationship to fiscal projections. - Multiple sources of fiscal risk exist; Table 3.3 provides quantification of certain specific risks based on information from the authorities. - MTMFF includes a section on fiscal risks but it cannot be considered a disclosure of fiscal risks because there is no quantitative or qualitative discussion. - The LRF requires SEFIN to identify, evaluate, and publish a report of fiscal risks within three years from 2016 and include mitigation plans. - The most recent MTMFF discusses risks being addressed by SEFIN: government-guaranteed debt, PPPs, local governments, legal actions, public corporations, and natural disasters. Calculations relating to those risks have not yet been finalized. - SEFIN lacks a methodology to analyze risks arising from the banking sector and development banks or to calculate risks associated with natural disasters. - Information on contingent liabilities relating to pensions and the health sector are not consolidated but are presented individually, by entity. ### Quantified specific 2017 risks (selected items from Table 3.3) - Legal actions against the government - Maximum exposure (HNL millions): 3,430 - Percentage of GDP contingent liabilities (projected) 2018: 4.17% - Contingent liabilities (HNL millions): 1,003 - Guarantees of public credit operations (Movimento Unificado de Campesinos del Aguan, Universidad Autónoma de Honduras, ENP, ENEE, BANHPROVI), June 2018 - Maximum exposure (HNL millions): 909 - Percentage of GDP contingent liabilities (projected) 2018: 2.07% - Contingent liabilities (HNL millions): 497 - Energy contract guarantees - Maximum exposure (HNL millions): 900 - Percentage of GDP contingent liabilities (projected) 2018: 1.86% - Contingent liabilities (HNL millions): 447 - PPP claims (2 IMAG projects) - Maximum exposure (HNL millions): 811 - Contingent liabilities (HNL millions): 277 (note 1: HNL 277 million represents the contingent liability for IMAG) - Actuarial liabilities (as a percentage of the central government budget) - IHSS: 17.0 - INPREMA: 3.3 - IPM: 0.2 - INJUPEMP: 7.2 - Corresponding HNL figures presented: 99.000; 19,000; 1.04; 41.800; total noted: 160,894 (Sources: Authorities and IMF staff estimates.) - Notes from Table 3.3: - Contingent liabilities associated with the tourist corridor project will depend on early termination of the contract. (In any event, HNL 277 million represents the contingent liability for IMAG.) - There is still no study of the risks associated with trusts. The authorities have a methodology to analyze the risks of municipalities but do not have calculations. The same is true for public corporations: the methodology is in place, but there are no calculations. - The IHSS, IMPREMA, IPM, and INJUPEMP actuarial liabilities were presented to the IMF team during the on-site evaluation. ### Assessment of disclosed risks and correlations (3.1.2 continued) - For the risks mentioned in the MTMFF, the absence of a qualitative or quantitative analysis makes it difficult to know how these risks could affect the achievement of fiscal goals and projections for the coming years. - The information disclosed does not explain how these risks could be positively correlated with low economic growth or an increase of financial system risks. ### Long-term fiscal sustainability analysis (3.1.3) - Evaluation: Basic - Key findings: - The 2019–22 MTMFF includes information on long-term fiscal sustainability with projections to 2038. - These projections take the form of a simple debt sustainability analysis (DSA). - The fiscal variables included in the DSA are consistent with the MTMFF and the monetary program. - The DSA includes projections of fiscal variables, such as tax revenue and expenditure, debt, nominal and real GDP, exchange rate, and the fiscal and real current account. *Italic: Source — Extracts from the content unit 1hndea2021001 (IMF chapter/section).* ### 119. Pensions and the health sector are included in the deficit calculations. However, the ### 1hndea2021001 - 119. Pensions and the health sector are included in the deficit calculations. However, the ### Pensions and health sector pressures - Pensions and the health sector are included in the deficit calculations, but the budget document does not provide details on the outlook for the population age structure or contingent liabilities associated with pensions. - Pension plan administrators—IHSS, INPREMA, INJUPEMP, and IPM—have actuarial calculations; detailed information on those liabilities would help supplement projections and calculations on challenges for public finances in Honduras (see Box 3.1). - Based on authorities’ data, the actuarial value of pension liabilities—excluding INPREUNAM—was estimated at more than 27.6 percent of the central administration budget in 2017. ### Box 3.1 — Long-Term Pressures on Public Finances (summary) - Honduras faces demographic changes and pressures that call for appropriate fiscal planning. - Social security institutions for public sector employees regularly produce actuarial estimates of future pension liabilities. - Health sector expenditures expected to grow considerably and exert pressure on public finances. - Government expects health expenditures will increase by the 15 percent projected population increase. - DGPMF analysis predicts health expenditure of 2.54 percent of GDP in 2020. Key health sector figures (as presented) - Health Expenditures % GDP: 2015 2.34, 2016 2.39, 2017 2.43, 2018 2.47, 2019 2.51, 2020 2.54 - Health Expenditures (millions of Lps): 2015 10,293.5; 2016 11,351; 2017 12,513; 2018 13,791; 2019 15,195; 2020 16,739 - Health Expenditures (millions of dollars): 2015 466.8; 2016 490.3; 2017 514.7; 2018 540.2; 2019 567.0; 2020 594.8 - Inflation: 6.44 6.44 6.44 6.44 6.44 6.44 - Population (thousands of people): 2015 8,895.0; 2016 9,064; 2017 9,223; 2018 9,369; 2019 9,412; 2020 9,597? (table text shows concatenated figures) - Growth rate: 1.9% 1.9% 1.9% 1.9% 1.9% 1.9% - Population served (thousands of people): 2015 5,337; 2016 5,529; 2017 5,726; 2018 5,929; 2019 6,138; 2020 6,352 - Coverage: 2015 60.0; 2016 61.0; 2017 62.0; 2018 63.0; 2019 64.0; 2020 65.0 - Annual increase: 0 1 1 1 1 1 - Annual cost per capita Lps: 2015 1,928.7; 2016 2,052.9; 2017 2,185.1; 2018 2,325.8; 2019 2,475.6; 2020 2,635.1 - Annual cost per capita Dollars: 2015 87.5; 2016 88.7; 2017 89.9; 2018 91.1; 2019 92.4; 2020 93.6 Source attribution for Box 3.1: DGPMF, IHSS, IMPREMA, IPM, INJUPEMP, and IMF staff. ### B. Risk Management — Budget contingencies - Article 40 of the LOP provides for a budget appropriation for contingencies that may not exceed 2 percent of current revenue budgeted for the central administration. - The appropriation may be used only for special circumstances established by law: to cover counterpart contributions under loan agreements; fulfill obligations under guarantees; fulfill obligations arising from implementation of laws in preparation during the budget approval phase; or meet immediate, urgent, or unanticipated needs resulting from natural disasters, domestic unrest, or public emergency. - Requesting entities must submit a formal request to SEFIN; SEFIN reviews and accepts or denies; if accepted, funds transferred and SEFIN advises Congress. - The contingencies line item is included in the approved budget and in budget execution reports. The amounts appropriated have generally been below the legal limit, but in practice the 2 percent limit has proven insufficient. - Coping with contingencies has required substantial resources in many years, particularly for natural disasters; it is common to exceed the 2 percent budget item and alter budget composition accordingly. ### Asset and liability management — Legal and institutional framework - There is a legal ceiling on debt: Constitution (Decree No. 131-1982) and Regulations on the Public Credit Subsystem of the Budget Framework Law (Decree No. 83-2004), implementing regulations (Decision No. 0419 of 2005), and annual provisions on “Public credit operations.” - All public sector borrowing, including guarantees for borrowing, must be authorized by Congress. - LRF and MTMFF established a limit on municipalities’ borrowing. - For PPPs, statutory limit on both firm commitment and quantifiable contingencies may not exceed 5 percent of GDP; limit may be revised by the president at SEFIN’s request (President’s faculty not yet applied). ### Liabilities — Debt strategy and composition - Information on debt sustainability is published in the PEP and the MTMFF; a 2018–22 medium-term debt strategy is in place. - According to preliminary figures at close of 2017, the NFPS debt was estimated at 42.6 percent of GDP. - Debt portfolio composition (2017 NFPS): external debt 71.7 percent of public debt portfolio; domestic financing 28.3 percent. - 2017 NFPS external debt was 18.3 percent higher than 2016 following issuance of sovereign bonds in amount of US$700 million to cover outstanding accounts payable and the ENEE deficit. - Debt to multilateral institutions represents 58.5 percent of the total. - Financing needs in 2018 were HNL 28,390.6 million. - Past quasi-fiscal activity: BCH issues central bank bills; losses on monetary policy operations are absorbed by SEFIN. In the past, this quasi-fiscal activity totaled HNL 12 billion. ### Market capacity and debt absorption (Box 3.2 summary) - Policies for revenue and containment of spending led to a substantial deficit adjustment of 5.1 percentage points of GDP between 2013 and 2018. - Despite adjustment, accumulation of debt continued due to increase in current spending since 2006 without equivalent permanent revenue; required bond issuance to cover financing needs. - Limited capacity of the Honduran domestic market to absorb bonds has required borrowing from international institutions through budgetary assistance funds. ### Floating debt and other liabilities - Floating debt valued at HNL 11.256 billion at September 30, 2018 (2.08 percent of 2017 GDP). - Of total floating debt at end-2018, 27 percent represented debt from previous years. - Discrepancies exist between Treasury estimations of floating debt and figures in the accounting system because Treasury table covers only the National Treasury while accounting system includes all sources. - Floating debt amount and related cash flows can fluctuate with inflation and interest rates; no clear policy for analysis and mitigation of these risks. - The floating debt has been reduced through issuance of bonds. Selected floating debt items (Central Administration Financial Statements at 09/30/2017, Lempiras) - Commercial Accounts Payable: 942,194,710.42 - Contractors Accounts Payable: 270,321,620.26 - Accounts Payable Other Central Gov. Institutions: 216,847,161.57 - Wages and Salaries Payable: 65,534,598.07 - Employer Contributions Payable: 2,360,003,414.53 - Deductions Payable: 806,861,997.51 - Transfers Payable to Public Sector: 1,270,032,403.60 - Trust Funds Payable: 1,382,297,917.67 - Trust to Finance Different Short-term Programs and Projects: 3,427,592.00 - Trust for Construction Obispo-Empalme Highway... Payable: 159,447,000.00 - Current Year Total: 8,280,521,398.01 - Prior Year Total: 2,976,455,700.78 - Floating Debt Total: 11,256,977,098.79 ### Financial assets and trusts - No clear policy on financial asset management. - Financial assets of the budgetary central government were 11.6 percent of 2017 GDP. - Investments in bonds recognized in accounting system at cost; interest recognized in income statement; assessment method is cost with changes in profit or loss. - Financial assets include accounts and loans receivable, documents, advances, guaranteed debt, and trust funds. - Total assets of trusts represented 3 percent of GDP in 2017; limited information on use of trusts creates substantial risks. - Lack of legal framework and public regulation for trusts (only the commercial code applies) hinders implementation of well-defined accounting procedures and a strategy for managing trusts. - Some trusts make risky investments, for example transferring money for loans to banks like BANADESA (mission’s discussions). ### Nonfinancial assets and property management - Information on nonfinancial assets exists but is incomplete; two sources: physical register and accumulated accounting information. - Authorities are finalizing reconciliation of physical and accounting data to connect register and accounting systems. - Directorate National of Government Property (DNBE) assumes functions of recording, control, and administration of all government assets. - SEFIN issued Executive Decision 226-2017 establishing regulations, organization, and operation of government property. - All public sector institutions must maintain records and perform internal audits of inventories and submit updated inventories to DNBE by December 15 each year. - Need to refine the single automated government property information system in terms of information and control; DNBE should continue working with CGR to update and preserve national inventory of government real property. ### Guarantees and contingent liabilities - LOP permits the central administration to provide guarantees and does not establish a quantitative limit on stocks or flows of new guarantees. - Prior congressional approval requirement implies government does not have full control over provision of guarantees; Article 78 of LOP requires presidential approval prior to congressional approval for guarantees, bonds, and similar undertakings. - SEFIN Fiscal Contingencies Unit (UCF) must evaluate associated risks and determine whether counter-guarantees should be implemented. - Preliminary SEFIN figures suggest central administration’s exposure to guarantees could be on the order of 2.1 percent of GDP; breakdown by beneficiary has not been made public. - Exposure includes guarantees of borrowings by public corporations and public universities and one guarantee provided to the private sector. - SEFIN committed to begin producing a fiscal risks document in 2019 to measure total exposure to guarantees, nature of guarantees, probability of contingency events, and value at risk. - Power purchase agreements (PPAs) should be considered central administration fiscal contingencies; preliminary UCF calculations indicate guarantees associated with PPAs represent approximately 1.86 percent of GDP. - New Electric Power Law of 2014 eliminated PPAs, but 210 signed PPAs remain; 87 of them are still in commercial operation. Given contract clauses, ENEE is undergoing an upgrading process because some contracts may be in default. *Source: DGPMF, IHSS, IMPREMA, IPM, INJUPEMP, and IMF staff (as presented in the chapter).* ### 135. Financing of infrastructure works through PPPs may give rise to contingencies ### Financing of infrastructure works through PPPs may give rise to contingencies ### PPP contingent liabilities and fiscal reporting - PPP-related contingencies arise from guarantees provided in PPP contracts (see dimension 3.2.4). - The liabilities have not been quantified; a quantification of risks is expected to be included in the fiscal risks report to be published in 2019. - Some contracts in execution provided for minimum-income guarantees and other financial guarantees; those contingencies are not included in the 2.1 percent of GDP reported earlier. - Because Honduras adheres to the IPSAS, the national accounting system (in Note 68 to the financial statements published by the CGR) identifies the beneficiary contracts and the characteristics of the guarantees provided; it does not quantify the contingent liabilities. - The contingency represented by guarantees of PPPs will also be part of the report on fiscal risks being prepared by the UCF, which is expected to be published in 2019. ### PPP institutional and regulatory framework - The 2010 Law on Promotion of Public-Private Partnerships (LPAPP) established PPP principles, modalities (public or private initiative), and the national and municipal entities that could initiate PPP projects. - LPAPP created: - COALIANZA (Comisión para la Promoción de la Alianza Público-Privada) — agency responsible for managing PPPs for public works and services. - SAPP — entity responsible for regulation, control, and monitoring of works and services delivered through PPPs. - Amendments in 2014 and 2015: - The first amendment created the SEFIN-UCF and tasked it with identifying, analyzing, quantifying, managing, and issuing opinions on costs and fiscal risks arising from PPPs and other sources of fiscal risks, and developing action plans to address potential triggering of contingencies. ### PPP projects, investment, and public information - Currently, 11 PPP projects are under construction or in execution, representing a total investment of US$1.263 billion. - Project composition: - A large number of projects belong to infrastructure (roads, ports, and airports) and public buildings. - If a project is government-initiated, COALIANZA conducts cost-benefit studies and participates in project structuring and competitive award procedures. - If a project is a private initiative, private parties conduct cost-benefit analysis and the UCF issues an opinion confirming country interest before project structuring. - Public disclosure: - The government publishes extensive information on individual PPP projects through the COALIANZA information system and the SISOCS. All contracts are accessible to the public. - Based on contracts, the UCF is modeling variables to approximate individual and aggregate contingencies associated with PPP guarantees; this work will be part of the fiscal risks report prepared by the UCF. - The SAPP annual report will disclose estimated future revenue and payments. ### Legal limit and monitoring of PPP commitments - Article 26 of the LPAPP sets a legal limit: total present value of quantifiable firm and contingent commitments assumed by the NFPS in connection with PPP contracts, net of income, may not exceed the equivalent of 5 percent of GDP. - The limit may be increased every three years by the president and the Council of Ministers, after consultation with SEFIN, provided the new limit is consistent with the country’s capacities. - There is no public report providing regular disclosure of the percentage of the limit consumed. - According to internal, nonpublic calculations, the amount of current PPP liabilities is close to the limit imposed by the law. ### Financial sector exposure and government guarantees - The government’s support to the financial sector through explicit guarantees to public banks and the Deposit Insurance Fund (FOSEDE) is quantified and disclosed in annual reports. - FOSEDE protects savings of small depositors with private banks, nonbank financial institutions, and savings and loan associations, guaranteeing reimbursement up to the insured amount. - The maximum FOSEDE coverage per depositor and per institution represented HNL 227,990 for the 2017 period. - FOSEDE-insured deposits represented 30 percent of total deposits of Honduras’s financial system at December 31, 2017. - Table-level FOSEDE figures (HNL millions): - Total Insured: HNL 90,799.1 (30.00 percent of total) - Uninsured deposits: HNL 212,670.7 (70.00 percent of total) - Total deposits: HNL 303,469.8 (100.00 percent) - FOSEDE resolution and recovery mechanisms since 2001: - Insurance coverage paid: HNL 2,015.9 million - Capital contributions: HNL 470 million - Loans under the least-cost rule: HNL 300 million - Reimbursable contributions under the same rule: HNL 219 million - Total disbursed under various resolution mechanisms: HNL 3,012.8 million ### Oversight, monitoring, and financial stability arrangements - Oversight: - President of the Executive Branch exercises oversight and control of banking, insurance, and financial institutions through the CNBS. - The CNBS founding law charges it with supervision, oversight, control, and audit of institutions that engage in financial intermediation and other supervised entities. - Financial Stability Committee (CEF): - Created by the Financial System Law to comply with international standards and monitor integrity and soundness of the financial system; first meeting on November 2, 2017. - BCH responsibilities: - BCH periodically monitors banking system developments, considering interrelationships with other sectors and publishes semiannual financial stability reports (most recent cited: December 2017). - Regional liquidity: Honduras’s 31 percent exceeds the regional average of 27.4 percent for Central America, the Dominican Republic, and Panama. - Despite increase in commercial bank lending to the private sector (9.6 percent a year), arrears declined to 2.3 percent at end-2019 from 2.9 percent in 2016. - Stress tests: - BCH conducts stress tests for the commercial banking system; tests do not include public banks and their status was not discussed in semiannual reports. ### Public banks, BANADESA, and fiscal risks - CNBS analyzes evolution of supervised institutions including public banks; results of BANADESA supervision were not included in the CNBS annual report. - BANADESA presents fiscal risk due to irregularities identified by the National Anti-Corruption Board (CNA) in administration of a trust signed by the bank and a commercial firm. - A decision was made to provide funds in the amount of HNL 105 million to the commercial firm through the trust in 2016 to be used for construction of real property. - HNL 105.6 million was transferred through the trust to the firm; CNA determined on-site that physical progress was inconsistent with amounts authorized and found an unjustified difference of HNL 29.4 million. - CNA stated BANADESA officials were negligent in making the loan without following procedures established by law. - Managing fiscal risks from public banks requires coordination between CNBS and SEFIN; SEFIN-UCF must manage fiscal consequences of potential problems, especially where explicit legal guarantees support public bank activities. ### Natural resources and fiscal risk assessment - The government does not publish the amount or volume of the country’s natural resources annually. - INHGEOMIN: - Publishes a monthly updated list of concessions for exploration and development of minerals; it does not have aggregate statistics or periodic volumes of production and prices. - Its budget was reduced from HNL 67 million in 2015 to HNL 50 million in 2017. - Honduras joined the Extractive Industries Transparency Initiative (EITI) in 2013; additional disaggregated information on the extractive sector is available, but it is not possible to quantify total production, government and municipal revenue, or trends over time from published materials. - Fiscal risk from extractives: - Given the limited scale of mining activity, uncertainty linked to fluctuations in production and exports does not represent a significant fiscal risk. - The extractive sector consists of metallic minerals (gold, zinc, lead, and silver) and nonmetallic minerals (limestone, pozzolans, clay, gypsum, and aggregates). - World Bank: total income from mining activities in Honduras represented 2.3 percent of GDP in 2016. - Mining sector contribution to GDP in Honduras represented 0.6 percent of the total during 2015–17. - During 2015–17, exports of gold, zinc, and lead averaged less than 2 percent of the country’s total external sales. - Government revenue from taxes, royalties, and other fees on mineral production represent less than 1 percent of total revenue. *Source: 1hndea2021001 - 135.* ### 154. Honduras is one of the countries in the world most vulnerable to natural disasters, ### Honduras is one of the countries in the world most vulnerable to natural disasters ### Exposure and historical impact - Honduras is especially vulnerable to hurricanes, droughts, and flooding. - Between 1997 and 2018 the country withstood 12 hurricanes, 9 droughts, and 22 floods. - Those events left 5.3 million persons affected in a country whose total population is only 9.3 million inhabitants. - Honduras has the largest number of natural events in Central America; Nicaragua has the second largest number of victims and is in second place in terms of the associated economic costs. - Source indicators referenced: WorldRisk Index; Center for Research on the Epidemiology of Disasters (CRED), International disaster database, emdat.be. ### Human and economic toll by country (1997–2018) — selected figures from Table 3.8 - El Salvador: No. Events 43; Total affected* 3,828,048; Total damages in US$ thousands 4,909,200 - Honduras: No. Events 52; Total affected* 5,439,099; Total damages in US$ thousands 4,241,579 - Guatemala: No. Events 73; Total affected* 10,977,766; Total damages in US$ thousands 3,325,132 - Nicaragua: No. Events 52; Total affected* 3,010,272; Total damages in US$ thousands 996,250 - Costa Rica: No. Events 35; Total affected* 783,371; Total damages in US$ thousands 671,090 - Panama: No. Events 37; Total affected* 179,091; Total damages in US$ thousands 292,850 - Note: * = Total deaths, injuries, indigents and persons affected in any way. ### Institutional response and disaster risk management progress - Hurricane Mitch prompted the government to implement a disaster risk management program and shift from reactive to proactive risk management and from a weak centralized system to capacity building at the local level. - Principal achievements: - Consolidation of the legal and institutional framework by adoption of the National Risk Management (SINAGER) Law in 2009. - Strengthening of entities such as the Permanent Commission on Contingencies (COPECO) and the Ministry of the Environment. - Adoption of a hydrological and geological early warning system to improve monitoring effectiveness. - Establishment of the National Risk Management Plan in 2014 as the operational instrument to activate and coordinate risk management in response to natural disasters. - Many municipalities have produced risk characterizations for their jurisdictions based on historical statistics and regional planning elements. - Documents noted as public: the SINAGER law, the National Risk Management Plan, and municipal characterizations. ### Fiscal contingencies and the need for quantification - The fiscal contingencies associated with natural disasters have not been quantified; according to the authorities, they will not be included in the first report on fiscal risks. - Although local governments have identified and characterized principal risks, the fiscal cost of the largest natural disasters has not been quantified in either qualitative or quantitative terms. - Given Honduras’s extreme vulnerability, the text emphasizes the importance of beginning to quantify the fiscal cost to: - Identify possible actions to address fiscal contingency without requiring budget modifications that would erode fiscal planning efforts. ### Subnational fiscal coordination and municipal reporting (status and challenges) - There is currently no annual reporting on municipalities’ financial position, though a legal framework provides for this report to be produced in the medium term. - Municipalities are required to enter financial performance information into the SAMI system every three months, but information is not received in a timely manner. - LRF and implementing regulations provide for phased incorporation of municipal information into the NFPS fiscal balance: - Categories A and B municipalities reporting in 2018. - Categories C and D municipalities reporting in 2019. - Municipal data entry options: SAMI or an equivalent system specified by SEFIN; until all municipalities have entered data, they may report through a general ledger reporting module in SAMI. - Category A and B municipalities must be included in SAMI because those municipalities represent more than 70 percent of the total revenue and expenditure of all local governments. - Reporting gaps and personnel changes: - Seven municipalities from Group A and B were not reporting through SAMI. - Changes in personnel in some municipalities under the new government administration hinder consolidation of information. - In 2018, of the 19 category A municipalities, only 16 reported information for the second quarter; only 1 of the 43 category B municipalities reported for the same period. ### Municipal consolidated financial execution (SAMI consolidated data, fourth quarter 2017, preliminary) - Annual Revenue and Donations: - Budget 9,706,465,413.00; Cumulative thru 4th Quarter 6,895,462,383.00; Percent Budgeted to Actual - 4th Quarter 71.00%; Consolidated Total Budget 16,361,212,335.60; Consolidated Total Cumulative thru 4th Quarter 13,182,992,338.20; Consolidated Percent 81% - Current Revenue: - Budget 8,705,400,933.60; Cumulative 5,715,953,981.70; Percent 65.70%; Consolidated Total Budget 11,255,434,361.20; Consolidated Cumulative 7,811,521,218.80; Consolidated Percent 69% - Tax Revenue: - Budget 5,237,812,515.50; Cumulative 3,147,538,719.60; Percent 60.10%; Consolidated Total Budget 6,583,297,669.50; Consolidated Cumulative 4,256,674,906.10; Consolidated Percent 65% - Non-Tax Revenue: - Budget 3,120,005,345.80; Cumulative 2,389,238,733.30; Percent 76.60%; Consolidated Total Budget 3,816,100,708.90; Consolidated Cumulative 2,938,959,702.70; Consolidated Percent 77% - Interest and Dividends: - Budget 159,763,596.80; Cumulative 74,826,317.00; Percent 46.80%; Consolidated Total Budget 253,910,619.90; Consolidated Cumulative 144,495,015.90; Consolidated Percent 57% - Current Transfers (Consolidated): - Budget 375,598,523.90; Cumulative 294,562,038.60; Percent 78% - Capital Inflows (Consolidated): - Budget 5,105,777,974.40; Cumulative 4,895,839,736.30; Percent 96% - Revenue (component of Capital Inflows, Consolidated): - Budget 615,755,821.10; Cumulative 353,681,067.40; Percent 57% - Capital Transfers (Consolidated): - Budget 4,490,022,153.30; Cumulative 4,542,158,668.90; Percent 101% - Annual Expenses (Consolidated): - Budget 15,840,931,899.20; Cumulative 11,886,087,858.00; Percent 75% - Current Expenses (Consolidated): - Budget 8,118,374,855.00; Cumulative 6,927,491,418.70; Percent 85% - Wages and Salaries (Consolidated): - Budget 4,190,665,120.30; Cumulative 3,580,236,208.50; Percent 85% - Goods and Services (Consolidated): - Budget 2,441,301,171.80; Cumulative 1,952,062,288.70; Percent 80% - Interest Paid (Consolidated): - Budget 498,336,185.50; Cumulative 470,911,763.30; Percent 94% - Current Transfers (Consolidated): - Budget 967,711,777.50; Cumulative 924,240,824.10; Percent 96% - Capital Expenditures (Consolidated): - Budget 7,722,557,044.20; Cumulative 4,958,596,439.30; Percent 64% - Real Investment (Consolidated): - Budget 3,987,363,735.30; Cumulative 1,086,575,708.00; Percent 27% - Change to Inventory (Consolidated): - Budget 2,734,415,388.90; Cumulative 2,835,881,716.20; Percent 104% - Capital Transfers (Consolidated): - Budget 1,000,617,920.10; Cumulative 1,035,896,515.10; Percent 104% - Net Overall Balance (Consolidated): - Budget 520,280,436.40; Cumulative 1,296,904,480.20 ### Observations from municipal execution data - Actual tax collection by the municipalities represented 65 percent of the amount budgeted for 2017. - Expenditures for wages and salaries totaled 85 percent of the amounts budgeted for 2017. - Goods and service purchases totaled 80 percent of the amounts budgeted for 2017. - Investment execution represented only 65 percent of the budget (textual comparison with SAMI noted). - Notes on coverage in table: - Category "A": 19 municipalities; La Ceiba, Atlántida excluded from comparison because it did not provide information for 2017. - Category "B": 43 municipalities included (100%). - Category "C": 111 municipalities included (100%). - Category "D": 125 municipalities; Lauterique, La Paz excluded for not providing 4th Quarter 2017 information. - La Ceiba, Atlántida had been included in 2017 Budget Financial Accounts with an estimate but was left off this comparison table. *Italic line: Consolidated financial and disaster exposure figures presented in the source document.* ### 162. New borrowing by the municipalities is limited by budget laws. ### 1hndea2021001 - 162. New borrowing by the municipalities is limited by budget laws. ### Municipal borrowing framework - New borrowing by the municipalities is limited by budget laws. - Municipalities may borrow from a national institution, preferably a sovereign institution; when they borrow from foreign entities, they must follow all procedures established in the Public Credit Law (Decree No. 111-90, sections 1, 2, and 3). ### Municipal domestic debt levels and composition (close of 2017) - Gross domestic debt of the municipalities: HNL 8,218.7 million. - Debt contracted through loans: - National currency: HNL 7,825.5 million. - Foreign currency: HNL 393.2 billion. - Amounts by creditor: - Commercial banks: HNL 5,593.1 million. - Central administration: HNL 2,625.6 million. - Borrowing from local banks: - Disbursed: HNL 5,149.4 million. - Amortized: HNL 3,870 million. - Interest rates on commercial bank debt (national currency): ranging between 10 percent and 28 percent. ### Distribution by municipality size and largest indebted municipalities - Categories A and B municipalities account for 90.1 percent of borrowing. - Categories C and D municipalities account for 9.9 percent of borrowing. - Municipalities with largest indebtedness to the financial system (representing 80 percent of the total): - Central District: HNL 2,995.6 million. - San Pedro Sula: HNL 976.6 million. - Puerto Cortés: HNL 499.8 million. - Central District (January–December 2017): - Received loan resources: HNL 4,031.4 million. - Repaid (amortized): HNL 2,315.4 million. - Puerto Cortés (January–December 2017): - Disbursements received: HNL 465.5 million. - Amortized: HNL 481.9 million. ### Time series snapshots (tables cited) - Municipalities’ Borrowings from the National Financial System (HNL millions) — selected values: - 2014: 3,789.9 - 2015: 3,762.3 - 2016: 4,313.8 - 2017: 5,593.1 - Municipalities’ Borrowings from Local Banks (2017 debt, HNL millions): - A and B Municipalities: 4,639.61 - C and D Municipalities: 509.79 - Total 2017 debt (local banks): 5,149.40 ### Public corporations: structure, transfers, and financial performance - Definition and coverage: - Public corporations: entities created to conduct economic activities that do not adopt the form of commercial corporations (Public Administration Law, Article 53). - Nonfinancial public corporations operate in electric power, telecommunications, drinking water, port services, strategic reserves, access to basic goods, and transportation. - Financial corporations include state banks: BCH, BANHPROVI, and BANADESA. - Government disclosure: - SEFIN and the annual budget disclose transfers between the government and public corporations; consolidated data on current and capital transfers are presented. - Government transfers to nonfinancial public corporations (Current Transfers, 2016; Central Government Capital Transfers, 2016, HNL millions): - ENEE: Current 0, Capital 181 - ENP: Current 0, Capital 0 - HONDUTEL: Current 0, Capital 0 - SANAA: Current 52.3, Capital 164.7 - IHMA: Current 74.5, Capital 0 - BANASUPRO: Current 6.3, Capital 0 - FNH: Current 3.3, Capital 0 - HONDUCOR: Current 58.6, Capital 0 - Nonfinancial public corporations transfers to the government (HNL millions): - ENP: 2013 = 50; 2014 = 50; 2015 = 10; 2016 = 60 - Aggregate financial results and trends: - Public corporations’ total deficit: - 2013: -1.7 percent of GDP. - 2016: -0.1 percent of GDP. - 2017: -0.4 percent of GDP (a deterioration relative to 2016). - Selected reported figures (aggregated or institution-level, HNL millions and percent of GDP as presented): - Total Revenue (2016): 27,019.4; (2017 MTMFF/Prelim values shown in source table). - Total Expenses (2016): 27,710.7. - OVERALL BALANCE: 2016 = -691.3; 2017 preliminary = -2,153.7; percent of GDP entries: -0.1, -0.5, -0.4 as shown in source table. - Operating earnings (Box 3.3 highlights, fiscal year 2017): - ENEE net loss: HNL 4,548.7 million (2017) vs. HNL 3,872.5 million (2016). - ENEE energy losses: 27.9 percent total (10.5 percent technical losses; 17.4 percent non-technical losses). - SANAA financial debt: HNL 273.6 million; administrative balance increase: HNL 173.4 million. - IHMA negative current account savings: HNL 5.8 million. - Other entities with positive results in 2017: HONDUTEL, BANASUPRO, ENP, HONDUCOR, and BANADESA (per DGID report). - Investment execution rates (2017): ENEE execution 3 percent; SANAA execution less than 50 percent; HONDUTEL execution less than 10 percent. ### Fiscal risks, disclosures, and identified gaps - Key fiscal risk observations: - GDP and tax revenue are relatively volatile. - Oil price shifts significantly affect ENEE energy costs and profitability. - Growing long-term pressures from the pension system and increased healthcare costs. - Some specific risks are substantial and interconnected. - Identified shortcomings in risk management and disclosure: - Macroeconomic risk analysis is not published despite internal sensitivity models. - Incomplete disclosure and unclear linkage between internal risk analysis and fiscal projections. - Appropriations for contingencies have generally been well below legal limits, prompting budget modifications. - Strategies to mitigate risks associated with liabilities not related to debt and with financial and nonfinancial assets are unclear. - Trusts present important undisclosed risks; net assets of trusts total HNL 12,459 million. - Government guarantees are a significant contingent liability; preliminary incomplete calculations indicate exposure to guarantees represents 4 percent of GDP. - Transparency on PPPs is satisfactory; PPP regulations limit fiscal risk. - Financial system well capitalized with adequate liquidity, but significant risks associated with BANADESA remain insufficiently analyzed and disclosed. - Vulnerability to natural disasters exists; disaster contingencies will not be addressed in the risk report being prepared next year. - Municipalities: total expenditure representing 9.6 percent of budgetary central government GDP; no annual report disclosing their physical and financial performance. ### Recommendations to strengthen fiscal risk management (by action and sub-actions) - Recommendation 3.1: Strengthen macroeconomic risk analysis (DGPMF). - Submit baseline MTMFF and PEP scenarios to longer-duration and combined shocks. - Publish macroeconomic and fiscal scenarios and associated sensitivity analyses. - Expand analysis to include impact of exogenous shocks on fiscal variables and combine macro shocks with specific risks. - Recommendation 3.2: Prepare an annual report quantifying specific risks and develop mitigation strategies. - Develop and finalize methodologies to quantify specific risks in consultation with relevant institutions prior to first publication in 2019 (including guarantees, legal issues, PPPs, municipalities, and public corporations). - Develop and finalize methodologies to quantify risks such as financial, environmental, and trusts. - Strengthen DGPMF Fiscal Contingencies Unit to prepare and publish reports and implement risk management strategies. - Recommendation 3.3: Establish legal and supervisory framework for trusts. - Establish criteria for creation of trusts and framework for financial/accounting supervision. - Create unit responsible for financial supervision of trusts. - Publish consolidated report on financial performance of trusts for inclusion in budget documents. - Recommendation 3.4: Publish long-term public finance projections. - Include long-term projections including pension and healthcare liability risks in budget documents, with explanations. - Recommendation 3.5: Publish an annual report on municipalities. - Compile data for categories A and B municipalities and shorten data entry lag times. - Compile data for categories C and D municipalities. - Publish consolidated report on fiscal and financial performance of municipalities in budget documents. - Recommendation 3.6: Ensure coverage of contingent liabilities from guarantees and include them in the fiscal risks statement. - Present a report on risks that includes contingent liabilities associated with all types of guarantees. - Recommendation 3.7: Characterize and quantify natural disaster risks and associated contingencies. - Compile municipal-level disaster risk characterizations and identify municipalities without them. - Develop methodology to quantify fiscal contingencies associated with natural disasters based on existing characteristics and historical information. - Include quantification of contingent liabilities in the annual fiscal risks statement. ### Summary evaluation highlights (Table 3.16 excerpts) - Subnational governments (3.3.1): Not met — municipalities input to SAMI every three months but no annual report and untimely information; budget laws limit new municipal borrowing. Importance: High. Note in table: municipalities represent over 19.6 percent of budgetary central government GDP (table text also notes 9.6 percent earlier). - Public corporations (3.3.2): Good — transfers disclosed annually; consolidated financial performance report exists but quasi-fiscal activities not disclosed. Importance: High. *Source: Extracted content from the provided IMF chapter/section.* ### Annex I. Recommendations of the Fiscal Transparency Evaluation: Action Plan ### Annex I. Recommendations of the Fiscal Transparency Evaluation: Action Plan ### Pillar I: Fiscal reporting — Improve the coverage and comparability of fiscal reports - Objective 1. Improve the coverage of fiscal reports. - Implement the 2014 MEFP. Publish an annual summary table of NFPS stocks and flows, using the analytical framework of the 2014 GFSM. - Publish the statement of uses and application of funds for the NFPS. - Publish the general government in the IMF statistics yearbook. - Complete the revision, and coordinate the 2014 GFSM sectoring and classifications between the compilers of macroeconomic statistics. - Publish a summary table of annual flows for the NFPS and subsectors, making use of the consolidation work by the CGN. - Establish mechanisms to ensure support of municipalities' financial statements at the CGN. - Include financial public sector institutions in fiscal statistics. - Regularly publish a summary table of stocks and flows for the public sector and subsectors. - Responsible Agency: DGPM, CGN, and BCH - Tax expenditures: - Expand the analysis of tax expenditures to the current budget exercise. - Include a projection by sectors through 2020 in the tax expenditure section of the 2020 budget. - In addition to the current year projections, publish the projections for the period covered by the MTFF. - Responsible Agency: SEFIN - Objective 1. Improve the comparability of fiscal reports. - Publish reconciliation tables with a description or details of adjustments and key differences between statistical tables and others. - Develop reconciliation tables between budget and accounting statistics and the financial account. - Publish the reconciliation on a quarterly basis; move to publish the reconciliation on a monthly basis. - Responsible Agency: SEFIN, DGPM ### Pillar II: Fiscal and budget forecasting — Trusts, projections, and congressional procedure - Objective 1. Include information on annual revenue and expenditure execution by trusts in the general budgets' scope of coverage. - Propose that the practice of managing public resources via trusts be eliminated or restricted to limited situations. - Issue regulations. - Include trusts in the scope of coverage of the general budget. - Develop a standardized data entry form for revenue and expenditure and financing information, where applicable. - Include information on the 70 percent of the trusts' budget in the general budget. - Include information on the remaining trusts' budgets in the budget documentation. - Responsible Agency: SEFIN - Objective 2. Enhance macroeconomic and fiscal projection exercises by means of explicit assumptions, hypotheses, and methodologies. - Include the assumptions and methodologies underlying macro-fiscal projections in the budget documentation. - Explain deviations between the observed and expected projections, and include comparisons with projections by other institutions. - Responsible Agency: Interagency Committee - Objective 3. Revise the procedure for congressional discussion and approval of the proposed budget to ensure its approval before the end of the year. - Amend the LOP to provide for a regulated procedure for discussion and approval of the budget that ensures budget approval prior to the end of the year. - Responsible Agencies: SEFIN and Congress ### Pillar III: Fiscal risk analysis and management — Macroeconomic risks, specific risks, trusts, long-term projections, municipalities, guarantees, and natural disasters - Objective 1. Improve the analysis of macroeconomic and other risks. - Deepen, expand, and publish the analysis of macroeconomic risks done by DGPMF. - Submit the baseline scenarios used in the MTMFF and the PEP to shocks of longer duration, as well as combined shocks. - Publish macroeconomic and fiscal scenarios and the respective sensitivity analyses. - Strengthen the DGPMF. - Expand the analysis to include the impact of exogenous shocks on fiscal variables, and combine macro-fiscal shocks with specific risks shocks. - Responsible Agency: DGPMF - Objective 2. Quantify and disclose information on specific principal risks. - Prepare an annual report that quantifies specific risks, and develop a corresponding mitigation strategy. - Develop and finalize methodologies to quantify specific risks, in consultation with other relevant institutions. - Strengthen the DGPMF Fiscal Contingencies Unit to prepare and publish reports on specific risks, and develop and implement a strategy to manage the risks. - Responsible Agencies: DGPMF (UCF), CNBV, and BCH - Objective 3. Establish a legal and supervisory framework for trusts. - Develop a regulatory and supervisory framework for trusts. - Establish list of criteria for the creation of trusts, and prepare a framework for financial and accounting supervision of trusts. - Create a unit responsible for implementing financial supervision of trusts, and create an early warning system. - Publish a consolidated report on the financial performance of trusts to be included in the budget documents. - Responsible Agency: DGPMF - Objective 4. Publish the public finance projections. - Prepare long-term public finance projections. - The budget documents should include a long-term projection of public finances, including risks associated with pension and healthcare liabilities. - Publish long-term projections. - Responsible Agencies: DGPMF, IHSS, IMPREMA, IPM, and INJUPEM - Objective 5. Publish an annual report on municipalities. - Prepare an annual report that quantifies the risks assumed by municipalities. - Compile data for categories A and B municipalities, and shorten the lag times in entering the data. - Compile data for categories C and D municipalities. - Publish a consolidated report on the financial performance of municipalities to be included in the budget documents. - Responsible Agencies: DGPMF and DGID - Objective 6. Ensure that contingent liabilities associated with all types of guarantees are included in the risk report. - Ensure coverage of contingent liabilities associated with all types of guarantees included in the risk report. - Present a report on risks that includes contingent liabilities associated with all types of guarantees. - Responsible Unit: UCF-SEFIN - Objective 7. Supplement the characterization of natural disaster risks, and quantify associated contingencies. - Compile information on the characterization on disaster risks at the municipal level, and compile a list of municipalities where the characterizations have not been prepared. - Complete the characterization; in parallel, based on the existing characteristic and historical information, develop a methodology to quantify fiscal contingencies associated with natural disasters. - Include a quantification of those contingent liabilities in the annual report on risks. - Responsible Agencies: COPECO and UCF-SEFIN *Source: Comptroller General.* --- ### Annex II. Summary of Nonfinancial Assets — selected balances and flows (extracts) - Note 20 — Lands and Properties (Code 12311) - Assets as of 9/30/2017 (Debits/Credits line totals shown): 1,906,992,065.54 ... Assets as of 9/30/2018: 2,082,152,337.16 - Detailed line: 1,906,992,065.54 357,561,917.42 220,061,000.00 37,805,053.06 0.00 145,698.86 2,082,152,337.16 - Note 21 — Non-Residential Buildings and Personnel Housing (Codes 12321, 12322) - Total (combined): 835,383,164.67 78,768,178.98 0.00 3,726,780.80 0.00 5,599,928.01 912,278,196.44 - Personnel Housing line: 339,999.04 ... totals included above. - Note 22 — Office, Medical, Educational, Transport, Production, Communications, Computer, Security, Non-War Military Equipment (Codes 12331–12339) - Aggregate total (Note header): 20,340,490,596.30 1,563,297,481.23 252,639,121.91 57,467,562.97 3,500,037,919.00 3,624,549,384.51 21,584,105,053.08 - Selected lines (examples preserving values exactly): - Office Equipment (12331): 1,376,940,320.82 127,060,905.76 105,551,407.58 8,252,351.26 309,271,446.02 329,743,224.90 1,386,230,391.38 - Medical & Health Equipment (12332): 3,544,977,235.19 125,393,471.84 29,415,348.22 1,550,094.53 938,000,086.85 951,995,409.00 3,628,510,131.19 - Transport Equipment (12334): 5,865,246,695.64 252,412,865.98 25,695,099.86 9,035,873.00 571,940,087.67 574,780,046.77 6,098,160,375.66 - Computer Equipment (12337): 2,957,936,845.26 296,415,009.64 37,785,483.65 22,045,004.23 1,023,047,081.30 1,086,470,058.54 3,175,188,398.24 - Note 23 — Household/Lodging Furniture, Books, Larger Tools, Non-Medical Lab Equipment (Codes 12341, 12342, 12344, 12345) - Aggregate total: 1,246,197,137.25 31,615,263.63 412,956,109.65 213,936.13 7,859,474.74 6,464,059.19 866,465,642.91 - Household/Lodging Furniture (12341): 1,077,594,196.57 29,580,795.53 395,785,753.52 144,124.58 3,573,915.92 225,957.77 714,881,321.31 - Note 24 — Public Goods: Airports, Urban Works, Hydraulic Works, Highways, Roads & Bridges (Codes 12351–12354) - Aggregate total: 15,509,349,740.27 0.00 0.00 0.00 131,014,574.34 45,530,802.43 15,594,833,512.18 - Highways, Roads & Bridges (12354): 13,398,336,026.12 0.00 0.00 0.00 32,259,360.84 0.00 13,430,595,386.96 - Note 25 — Installations (Code 12361) - Assets as of 9/30/2018: 422,463,585.82 (Debits/Credits line: 422,463,585.82) - Note 26 — Airports under Concession and Highways under Concession (Codes 12451, 12454) - Combined: 5,663,468,055.63 754,978,327.83 0.00 0.00 0.00 0.00 6,418,446,383.46 - Airports under Concession (12451): 1,512,999,743.61 ... Assets as of 30-09-18: 1,512,999,743.61 - Highways under Concession (12454): 4,150,468,312.02 754,978,327.83 0.00 0.00 0.00 0.00 4,905,446,639.85 - Change summary (30-09-18 vs 30-09-17) lines show totals and changes exactly: - 1,512,999,743.61 1,512,999,743.61 0.00 - 3,186,573,103.13 2,806,465,011.26 380,108,091.87 - 1,042,384,057.18 868,130,004.75 174,254,052.43 - 676,489,479.54 475,873,296.01 200,616,183.53 - 6,418,446,383.46 5,663,468,055.63 754,978,327.83 - Note 28 — Biological Assets (Code 12811) - Debits/Credits: 0.00 845,129.66 0.00 0.00 0.00 0.00 845,129.66 - Note 29 — Intangible Assets (Code 12911) - Debits/Credits summary lines: - 1,458,925,237.80 284,808,542.23 119,941,144.52 22,824,370.26 270,877,071.28 163,256,760.01 1,754,237,317.04 *Source: Comptroller General.* --- ### Annex III. Financial Soundness Indicators of Commercial Banks — Honduras and regional summary (selected indicators) - Honduras — Financial Soundness (percentages, series shown for 2016 and 2017 where provided) - Capital / Risk-weighted Assets: 17.1 16.8 ... (series across columns include values such as 18.7 18.1 13.6 14.6 13.8 13.8 14.5 14.7 16.4 16.4 15.8 16.7 15.7 15.9) - NPL Ratio (Outstanding Loans / Total Loans): 1.8 2.4 ... (series includes 2.1 2.0 2.1 2.3 2.9 2.3 0.9 1.0 1.5 1.6 1.6 1.7 1.8 1.9) - Allowances for Portfolio Losses / Outstanding Loans: 116.4 113.5 ... (series includes 116.3 120.2 120.4 119.6 117.4 138.0 252.0 228.5 80.2 74.8 181.3 173.2 140.6 138.2) - EBIT / Average Equity (ROE): 11.9 7.7 ... (series includes 9.6 10.5 17.0 17.8 19.7 18.9 30.9 28.1 8.5 12.4 22.1 19.9 17.1 16.5) - EBIT / Average Assets (ROA): 1.3 0.8 1.3 1.3 1.5 1.6 2.0 1.9 3.4 3.2 1.0 1.4 2.1 2.0 1.8 1.8 - (Cash + Short-term Inv.) / Total Assets: 25.8 28.1 24.3 24.9 28.5 29.1 29.6 31.3 26.7 26.8 16.6 17.0 34.3 34.5 26.5 27.4 - (Cash + Short-term Inv.) / Total Deposits: 41.1 44.0 35.1 34.3 40.2 41.0 42.7 44.3 38.7 39.7 20.5 21.8 44.7 44.6 37.6 38.5 - Note: Data from Honduras are prepared at the BCH. Return indicators use earnings before income taxes as the numerator to be comparable with coefficients in the rest of the countries. - Regional summary — Banking System Indicators for Central America, Panama, and Dominican Republic (December of each year, selected lines preserve provided values) - Required Capital to Risk-weighted assets: 14.5 14.6 14.0 13.8 13.8 - Primary capital to Risk-weighted assets: 10.2 10.6 10.3 9.9 8.5 - Total capital to Total assets: 11.3 11.7 11.0 11.2 10.5 - NPL ratio: 3.4 3.3 3.0 2.9 2.3 - Return on Assets (ROA): 1.3 1.3 1.3 1.3 1.3 - Return on Equity (ROE): 13.8 13.2 13.7 14.0 13.5 - Interest margin to Gross income: 69.8 71.5 71.8 70.6 74.4 - Liquid Assets to Total Assets: 29.7 30.3 30.0 29.6 31.3 - Liquid Assets to Short-term Liabilities: 44.2 45.2 44.5 42.7 44.3 - Net position in foreign exchange to capital: 15.7 9.9 14.3 10.4 9.1 - Source for regional data: Department of Financial Stability, BCH, with figures from the CNBS. - Note p/: Preliminary *Source: Secretariat of the Central American Monetary Council (SECMCA); Department of Financial Stability, BCH; Comptroller General.* ### Annex IV. BANADESA Financial Statements, 2016-17 ### Annex IV. BANADESA Financial Statements, 2016-17 ### ASSETS - TOTAL ASSETS: 4,885,177,223.87 (Dec-15); 7,661,564,856.89 (Dec-16); 7,036,854,121.39 (Dec-17) - ASSETS SUBTOTAL: 4,848,838,723.09 (Dec-15); 7,512,398,406.67 (Dec-16); 6,932,275,170.74 (Dec-17) - CONTINGENT ASSETS: 36,338,500.78 (Dec-15); 149,166,450.22 (Dec-16); 104,578,950.65 (Dec-17) - CASH: 278,553,464.23 (Dec-15); 537,712,861.27 (Dec-16); 752,061,102.69 (Dec-17) - Cash: 87,076,943.69 (Dec-15); 161,484,370.80 (Dec-16); 125,395,844.80 (Dec-17) - Central Bank: 79,809,058.85 (Dec-15); 201,349,636.33 (Dec-16); 163,253,718.72 (Dec-17) - Domestic Currency: 78,260,858.13 (Dec-15); 200,502,974.45 (Dec-16); 159,679,605.81 (Dec-17) - Foreign Currency: 1,548,200.72 (Dec-15); 846,661.88 (Dec-16); 3,574,112.91 (Dec-17) - Domestic Banks: 111,667,461.69 (Dec-15); 174,878,854.14 (Dec-16); 463,411,539.17 (Dec-17) - Foreign Banks: (no values provided) - INVESTMENTS: 424,684,278.99 (Dec-15); 872,764,521.10 (Dec-16); 571,504,614.87 (Dec-17) - in Official Entities: 306,576,120.12 (Dec-15); 735,199,822.96 (Dec-16); 411,981,538.70 (Dec-17) - Immediately Available: (no values provided) - Shares and Equity: 23,085,361.52 (Dec-15); 21,920,955.04 (Dec-16); 21,941,148.39 (Dec-17) - Other Investments: 95,022,797.35 (Dec-15); 115,643,743.10 (Dec-16); 137,581,927.78 (Dec-17) - LOAN PORTFOLIO: 2,339,196,521.40 (Dec-15); 4,356,489,990.48 (Dec-16); 3,298,859,990.61 (Dec-17) - Current: 1,503,048,840.81 (Dec-15); 3,232,754,355.68 (Dec-16); 1,698,585,270.79 (Dec-17) - Domestic Currency: 1,503,048,840.81 (Dec-15); 3,232,754,355.68 (Dec-16); 1,698,585,270.79 (Dec-17) - Foreign Currency: (no values provided) - Outstanding: 395,519,673.52 (Dec-15); 694,852,059.90 (Dec-16); 1,445,796,962.03 (Dec-17) - Domestic Currency: 395,519,673.52 (Dec-15); 694,852,059.90 (Dec-16); 1,445,796,962.03 (Dec-17) - Foreign Currency: (no values provided) - Overdue: 440,628,007.07 (Dec-15); 428,883,574.90 (Dec-16); 154,477,757.79 (Dec-17) - Domestic Currency: 440,628,007.07 (Dec-15); 428,883,574.90 (Dec-16); 154,477,757.79 (Dec-17) - Foreign Currency: (no values provided) - INTEREST RECEIVABLE: 67,712,383.95 (Dec-15); 109,328,773.91 (Dec-16); 72,249,942.97 (Dec-17) - INCIDENTAL ASSETS: 38,762,482.51 (Dec-15); 35,385,093.02 (Dec-16); 26,213,964.23 (Dec-17) - FIXED ASSETS: 507,807,909.83 (Dec-15); 529,631,997.54 (Dec-16); 530,637,313.92 (Dec-17) - DEFERRED CHARGES: 13,996,417.73 (Dec-15); 3,823,930.17 (Dec-16); 3,312,124.03 (Dec-17) - OTHER ASSETS: 1,178,125,264.45 (Dec-15); 1,067,261,239.18 (Dec-16); 1,677,436,117.42 (Dec-17) ### LIABILITIES AND CAPITAL - TOTAL LIABILITIES AND CAPITAL: 4,885,177,223.87 (Dec-15); 7,661,564,856.89 (Dec-16); 7,036,854,121.39 (Dec-17) - LIABILITIES SUBTOTAL: 4,320,281,622.25 (Dec-15); 6,877,354,475.72 (Dec-16); 6,476,881,256.68 (Dec-17) - DEPOSITS: 1,499,242,471.92 (Dec-15); 1,530,656,611.66 (Dec-16); 1,599,063,714.97 (Dec-17) - In Checking Accounts: 957,518,812.56 (Dec-15); 884,162,487.38 (Dec-16); 1,002,414,600.75 (Dec-17) - Domestic Currency: 955,258,799.20 (Dec-15); 874,007,252.34 (Dec-16); 988,822,045.31 (Dec-17) - Foreign Currency: 2,260,013.36 (Dec-15); 10,155,235.04 (Dec-16); 13,592,555.44 (Dec-17) - Savings: 466,736,477.24 (Dec-15); 602,299,465.03 (Dec-16); 505,112,687.96 (Dec-17) - Domestic Currency: 466,157,183.23 (Dec-15); 601,330,012.71 (Dec-16); 504,098,348.35 (Dec-17) - Foreign Currency: 579,294.01 (Dec-15); 969,452.32 (Dec-16); 1,014,339.61 (Dec-17) - Term: 41,046,351.28 (Dec-15); 28,403,512.91 (Dec-16); 75,926,144.77 (Dec-17) - Domestic Currency: 41,046,351.28 (Dec-15); 27,063,847.61 (Dec-16); 74,581,634.47 (Dec-17) - Foreign Currency: (no value for Dec-15); 1,339,665.30 (Dec-16); 1,344,510.30 (Dec-17) - Other Deposits: 33,940,830.84 (Dec-15); 15,791,146.34 (Dec-16); 15,610,281.49 (Dec-17) - Domestic Currency: 26,179,225.77 (Dec-15); 15,603,558.17 (Dec-16); 15,422,014.90 (Dec-17) - Foreign Currency: 7,761,605.07 (Dec-15); 187,588.17 (Dec-16); 188,266.59 (Dec-17) - OTHER DEBT: 991,978,045.27 (Dec-15); 3,379,193,207.92 (Dec-16); 2,893,073,619.61 (Dec-17) - BANKING DEBT: 1,313,255,704.56 (Dec-15); 1,433,893,240.77 (Dec-16); 1,395,898,353.13 (Dec-17) - Sector Loans: 717,301,634.18 (Dec-15); 837,939,170.39 (Dec-16); 799,944,282.75 (Dec-17) - Domestic Currency: 717,301,634.18 (Dec-15); 837,939,170.39 (Dec-16); 799,944,282.75 (Dec-17) - Foreign Currency: (no values provided) - Banking Debt and Credits: 595,954,070.38 (Dec-15); 595,954,070.38 (Dec-16); 595,954,070.38 (Dec-17) - Others: 595,954,070.38 (Dec-15); 595,954,070.38 (Dec-16); 595,954,070.38 (Dec-17) - Domestic Currency: 595,954,070.38 (Dec-15); 595,954,070.38 (Dec-16); 595,954,070.38 (Dec-17) - Foreign Currency: (no values provided) - TECHNICAL RESERVES / DEFERRED LOANS: 7,649,640.99 (Dec-15); 7,075,101.89 (Dec-16); 7,078,526.87 (Dec-17) - VALUATION RESERVES: 422,253,968.23 (Dec-15); 414,031,795.37 (Dec-16); 435,812,284.96 (Dec-17) - For Doubtful Accounts: 277,465,150.29 (Dec-15); 304,452,929.93 (Dec-16); 322,815,498.58 (Dec-17) - For Depreciation of Moveable & Immoveable Prop.: 76,137,124.88 (Dec-15); 81,086,789.98 (Dec-16); 84,504,710.92 (Dec-17) - Others: 68,651,693.06 (Dec-15); 28,492,075.46 (Dec-16); 28,492,075.46 (Dec-17) - INCIDENTAL RESERVES: 85,901,791.28 (Dec-15); 112,504,518.11 (Dec-16); 145,954,757.14 (Dec-17) - CAPITAL AND CAPITAL RESERVES: 528,557,100.84 (Dec-15); 635,043,930.95 (Dec-16); 455,393,914.06 (Dec-17) - PRIMARY CAPITAL: 820,786,579.50 (Dec-15); 820,786,579.50 (Dec-16); 570,786,579.50 (Dec-17) - Capital: 820,786,579.50 (Dec-15); 820,786,579.50 (Dec-16); 570,786,579.50 (Dec-17) - SUPPLEMENTAL CAPITAL: -292,229,478.66 (Dec-15); -185,742,648.55 (Dec-16); -115,392,665.44 (Dec-17) - Revaluation Reserves: 275,634,937.86 (Dec-15); 275,634,937.86 (Dec-16); 275,634,937.86 (Dec-17) - Losses from Prior Fiscal Years: -573,110,365.09 (Dec-15); -567,864,416.52 (Dec-16); -457,047,524.00 (Dec-17) - Results from the Fiscal Year: 5,245,948.57 (Dec-15); 106,486,830.11 (Dec-16); 66,019,920.70 (Dec-17) - LIABILITIES AND CAPITAL SUBTOTAL: 4,848,838,723.09 (Dec-15); 7,512,398,406.67 (Dec-16); 6,932,275,170.74 (Dec-17) - CONTINGENT LIABILITIES: 36,338,500.78 (Dec-15); 149,166,450.22 (Dec-16); 104,578,950.65 (Dec-17) ### MEMORANDUM & CONTROL ACCOUNTS - MEMORANDUM & CONTROL ACCTS.: 10,966,868,885.54 (Dec-15); 18,512,170,466.49 (Dec-16); 15,626,994,538.58 (Dec-17) - Securities and Goods Pledged as Collateral: 688,553,694.39 (Dec-15); 788,687,633.46 (Dec-16); 754,768,768.48 (Dec-17) - Loan Guarantees: 5,672,547,198.81 (Dec-15); 5,972,042,690.15 (Dec-16); 5,991,289,161.70 (Dec-17) - Credit Portfolio Rating: 2,407,213,292.85 (Dec-15); 4,816,214,773.41 (Dec-16); 3,420,214,608.58 (Dec-17) - Commercial Loans: 2,305,205,708.30 (Dec-15); 4,558,162,815.23 (Dec-16); 3,153,411,092.04 (Dec-17) - Consumer Loans: -20,755,527.54 (Dec-15); 26,957,969.89 (Dec-16); (no value for Dec-17) - Housing Loans: 122,763,112.09 (Dec-15); 231,093,988.29 (Dec-16); 266,803,516.54 (Dec-17) - Microcredit: (no values provided) - Lending to Related Parties: 5,785,647.86 (Dec-15); 5,945,866.18 (Dec-16); 4,163,612.89 (Dec-17) - Other Authorities: 1,472,917,202.54 (Dec-15); 6,103,177,061.88 (Dec-16); 4,459,123,507.32 (Dec-17) - Trusts: 1,308,216,798.20 (Dec-15); 5,915,504,821.86 (Dec-16); 2,897,703,757.68 (Dec-17) - Others: 164,700,404.34 (Dec-15); 187,672,240.02 (Dec-16); 1,561,419,749.64 (Dec-17) - Other Memorandum and Control Accounts: 719,851,849.09 (Dec-15); 826,102,441.41 (Dec-16); 997,434,879.61 (Dec-17) *Source: BANCO NACIONAL DE DESARROLLO AGRICOLA (BANADESA) Condensed Statement of Financial Position (Annex IV. BANADESA Financial Statements, 2016-17).* --- _Source: https://www.imf.org/-/media/files/publications/cr/2021/english/1hndea2021001.pdf_