Honduras: Technical Assistance Report–Fiscal Transparency 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 seven areas; and advanced in six areas. Fiscal transparency practices in the area of fiscal forecasting and budgeting are the strongest, while the fiscal risk analysis and management practices are the weakest. Finally, Honduras’s current fiscal transparency practices fall short of the FTC principles in eight areas.

Abstract

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 seven areas; and advanced in six areas. Fiscal transparency practices in the area of fiscal forecasting and budgeting are the strongest, while the fiscal risk analysis and management practices are the weakest. Finally, Honduras’s current fiscal transparency practices fall short of the FTC principles in eight areas.

Introduction

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. The mission team consisted of Ramón Hurtado (mission chief), Concha Verdugo (FAD), Mariana Sabatés (STA), and Marta Morano and Natalia Salazar (FAD experts). 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.

During its visit, the mission met with Ms. Rocio Tábora, Minister of Finance; the deputy ministers of finance; and the heads of the directorates general of Macro-fiscal Policy, Transparency, Public Credit, Decentralized Institutions, Budget; Accounting, the Treasury, and other SEFIN divisional units.

The mission also met with officials of the Central Bank of Honduras (BCH), the National Banking and Insurance Commission (CNBS), the Municipality of Tegucigalpa, the legislature, the Court of Audit (Tribunal Superior de Cuentas, TSC), the congressional general accounting office (Contraloría General de Cuentas), the National Electric Company (ENEE), and the social security and pension administrations.

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.

This fiscal transparency evaluation is based on the information available in November 2018 when it was concluded. 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. The mission would like to thank all of the institutions for their hospitality and consideration and for the frank and open discussions. Special thanks go to Ivonne Ramirez and Belky Mejia of SEFIN for their impeccable organization of the agenda and for arranging the mission’s access to information.

Executive Summary

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 seven areas; and advanced in six areas. Fiscal transparency practices in the area of fiscal forecasting and budgeting are the strongest, while the fiscal risk analysis and management practices are the weakest. Finally, Honduras’s current fiscal transparency practices fall short of the FTC principles in eight areas.

Pillar I: Fiscal Reporting

Honduras’s fiscal reporting practices are considered basic and good, in line with the fiscal transparency evaluations conducted in other Latin American countries. Numerous monitoring reports are published by different institutions. The budget monitoring reports and reports on financial statements issued throughout the year by the General Accounting Office of the Republic (CGR)are produced monthly, within the first 10 days of the following month, on average, and quarterly, before the end of the following quarter. Budget outturn is reconciled monthly with the accounting records. Budget documentation includes an analysis of the cost of tax expenditures. An independent body, the Court of Audit (Tribunal Superior de Cuentas, TSC), is responsible for the external control and coordination of internal control and publishes the audit and supervisory reports. The annual accountability process (rendición de cuentas) is completed prior to the regulatory deadline, and 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.

The transparency of fiscal reporting can be easily improved in a number of areas. Although the institutional coverage of fiscal data is broad and includes the nonfinancial public sector (NFPS), it is incomplete due to the absence of data on the execution of funds managed by trusts and on delays in reporting by municipalities. The available monthly and quarterly information on financing is not exhaustive and lags behind other budget outturn publications and financial accounts; this information is particularly important because it is used to corroborate the consistency of the information about fiscal outturn. The financial statements of the consolidated public sector are also incomplete. In 2017, a number of institutions delayed the 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. The analyses of tax expenditure contained in budget documentation includes the methodology and detail, by sectors, only for 2017; it should be expanded to 2018 and 2019 at the same level of detail. The annual report by the TSC comments extensively on performance in terms of budget outturn, but the TSC does not issue a qualified opinion on the reliability of the Government General Account (Cuenta General del Estado), and it limits its analysis to the Government Property Account (Cuenta de Bienes Patrimoniales del Estado).

Pillar II. Fiscal and Budget Forecasting

Honduras’s fiscal and budget forecasts demonstrate significant strengths with respect to transparency. The legal framework, which is relatively simple and comprehensive, was strengthened through the Fiscal Responsibility Law (LRF), which became effective in 2016. Adherence to the budget calendar facilitates the timely submission and approval of the budget. The budget incorporates a macro-fiscal framework that is considered complete and presents the principal fiscal and budget aggregates according to international standards classifications. The public investment management system is transparent and provides for periodic updates of multiyear commitments and public disclosure of all public tenders. There is a system in place for budget management at the output level, and it is subject to ongoing monitoring by the 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.

Substantive but relatively simple technical improvements can be made in several areas, although these improvements would require political support. The institutional coverage of budgets is incomplete; accordingly, a portion of public resources escapes the budget process, which violates the principle of budget unity and the one-year budget rule. Transparency would be enhanced if the documents accompanying the budget identified the most relevant assumptions underlying the macroeconomic projections and provided a discussion of any revisions and their impact on the fiscal forecasts.

Pillar III: Fiscal Risks Analysis and Management

The mission identified a number of strengths in the management of fiscal risk in Honduras. Honduras has conducted a satisfactory internal analysis of macroeconomic risk and debt sustainability over the past 20 years. The Directorate General of Macro-fiscal Policy (DGPMF) is currently refining the macroeconomic scenarios and sensitivity analyses, and it will soon begin using additional stochastic models. Calculations are performed to determine specific risks, such as guarantees, litigation, and public-private partnerships (PPPs). Methodologies have been developed for other risks, such as public corporations and municipalities, but the calculations are not yet complete. A legal limit on borrowing is in place. The transparency with respect to PPPs is satisfactory. The government agency tasked with promoting PPPs, Public-Private Partnership Promotion Agency (COALIANZA), and the Superintendency of Public-Private Partnerships (SAPP) have implemented satisfactory transparency mechanisms. Both entities publish extensive information on individual projects, and information on contracts is accessible to the public. The regulations governing PPPs establish an orderly process and restrict the use of this mechanism, thereby limiting the fiscal risks associated with contingencies. The regulations provide for a specific line item to cover contingencies, with clear access and limits, which is satisfactory in light of unforeseeable events the government may face, such as natural disasters. Given Honduras’s vulnerability to natural disasters, the government has developed a risk management and mitigation policy geared to prevention. Finally, the BCH publishes semiannual reports on the stability of the financial system.

However, fiscal risks analysis and management is still in the early stages and should be strengthened. The analysis of macroeconomic assumptions and their implications for fiscal variables is not published, although there are numerous internal studies at the DGPMF. The analysis and management of specific risks should be improved and coordinated among the different institutions involved. Risk disclosure is incomplete, and the relationship of risks to fiscal projections is not clear. Regulations permit the allocation of resources for contingencies; however, they are generally below the allowed limit; given the magnitude of potential disasters, these resources for contingencies must be covered by budget amendments, a process that erodes the effectiveness of budget planning. The strategies to mitigate the risks from other liabilities than debt and from financial and nonfinancial assets are not yet fully defined. Significant risks arise in the management of trust assets and liabilities that are not disclosed. The net assets of Fideicomisos (trust fund) represented 2.3 percent of GDP in 2017. Government guarantees also represent a significant fiscal risk for the central administration; these contingencies are currently being quantified. The financial system is well capitalized, and liquidity levels are adequate. There are significant risks, however, associated with one state bank, the National Agricultural Development Bank (BANADESA), whose 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. The municipalities are an important sector (7.5 percent of general government expenditure); their debts are not significant, but there is no annual report that discloses their financial performance.

Table ES.1 represents a summary of Honduras’s performance against the FTC, and Table ES.2 presents a preliminary and partial estimate of the Honduras public sector financial overview for FY 2017.

Table ES.1.

Summary of Fiscal Transparency Evaluation

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Table ES.2.

Honduras: Public Sector Financial Overview, 2017

(Percentage of GDP)

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Sources: Annual financial accounts by NFPS subsectors; 2017 Annual Financial Statements published in theCGN.and Financial Statements of the Municipality of Tegucigalpa and San Pedro Sula, from respective websites; Actuarial Deficit Reports from the Social Security Institutes, INJUPEMP, IPM, INPREMA, and IHSS; calculation of APP liabilities by Department of contingencies; own estimates; PI I; and the BCH and Public Credit’s internal and external debt balances.

Annex 1 of this report includes an action plan that presents the mission’s most important recommendations, organized by pillar, to improve fiscal transparency practices in Honduras.

I. Fiscal Reporting

Fiscal reports should provide a comprehensive, relevant, timely, and reliable overview of the government’s financial position and performance.

1. This chapter evaluates the quality of Honduras’s fiscal reporting practices with respect to standards established by the Fiscal Transparency Code. It considers four key dimensions of reporting based on publicly available information:

  • the coverage of public sector institutions in terms of both stocks and flows

  • the frequency and timeliness of reports

  • the quality, accessibility, and comparability of fiscal reports

  • the reliability and integrity of data.

2. Honduras’s fiscal reports are prepared and disseminated by different entities. Table

1.1 presents a summary of the principal fiscal and budget laws and documents reviewed during the mission.

Table 1.1.

Fiscal and Budget Projection Documents

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A. Coverage

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3. In 2017, the public sector in Honduras included 408 institutions of various legal forms whose total spending represented approximately 34 percent of GDP (Table 1.2).

Table 1.2.

Subsector Contributions to Public Sector Results

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Sources: Honduras authorities and IMF estimates.

The institutions are grouped as follows in accordance with international standards:

  • Budgetary central government (BCG): The BCG consists of 91 entities divided as follows: the 70 national institutions of what is known at the national level as the central administration—consisting of seven economic cabinets, 9 bodies of the three branches of government (executive, legislative, and judicial), 17 ministries, and 37 deconcentrated entities; and 21 decentralized entities, including the national universities.

  • Extrabudgetary central government (ECG): This sector does not exist as an institutional unit because all central government entities that manage public funds are included in the budget. However, there are extra budgetary funds organized as trusts that manage 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. There is also a vehicle registration fee collected by the Property Institute (Instituto de la Propiedad), whose execution and collection do not appear in the budget because they are transferred to the trust that administers those funds. The last budget represented an exception insofar as 30 percent of vehicle registration fees were included as a budget revenue line item.

  • Social security funds: The sector includes five social security (pension and health benefits) institutions: the Honduran Social Security Institute (IHSS), the Executive Branch Employee Retirement and Pension Fund Administrator (INJUPEMP), National Teachers’ Pension Fund Administrator (INPREMA), the Military Pension Institute (IPM), and the Autonomous National University of Honduras Employees Pension Administrator (INPREUNAH) (Box 1.1).

  • Municipal governments: This sector comprises 298 municipalities but is characterized by the fact that the population and volume of expenditure managed are concentrated in a relatively small number of municipalities. The largest 18 municipalities account for nearly 60 percent of total expenditure.

  • Public corporations: This sector consists of four financial institutions and eight nonfinancial institutions. The financial institutions are the National Banking and Insurance Commission (CNBS)—the oversight authority for the system; the Central Bank of Honduras (BCH); and two public banks, BANADESA and BANHPROVI. The nonfinancial institutions are ENEE, the National Port Authority (ENP), the Honduran Telecommunications Company (HONDUTEL), the National Water and Sewer Service (SANAA), the Honduran Agricultural Market Institute (IHMA), the National Commodities Supplier (BANASUPRO), the National Railway Company (FNH), and the Honduran Postal Service (HONDUCOR).

Honduran Pension System

The Honduran public pension system is fragmented; multiple pension scheme administrators cover different sectors of the population.

The Honduran Social Security Institute (IHSS) created by Decree 140–1959 on July 3, 1959, provides health, disability, retirement pension, and survivor benefits to the general population.

The other social security institutions are divided according to subsectors of the public sector; they are defined-benefits scheme with allocated funding and are employment-related plans. The institutions and target populations are as follows:

  • The National Executive Branch Retirement and Pension Institute (INJUPEMP), a social protection system for Executive Branch employees,was created by law in 1971.

  • The National Educational Professionals Pension Institute (INPREMA, created by Decree No. 84 on December 10, 1970, provides post-employment benefits to public and private educators.

  • The Universidad Nacional Autónoma de Honduras Employee Pension Institute (INPREUNAH) was created in accordance to Article 59 of Decree No. 209–04 of the National Congress, approving the UNAH founding law; the INPREUNAH administers retirement benefits for university officials.

  • The Military Pension Institute (IPM) administers pension benefits for members of the Armed Forces, national police,and firefighter corps.

Under the 2014 GFSM, the statistical treatment of pension schemes depends on whether the plan is contributory or not, whether it is a defined-benefit or defined-contribution plan, and whether the plan is social-security-related or employment-related. For defined-benefits plans, the treatment depends on the type of beneficiary if the beneficiary is the general population or a large segment of the general population, the plan is considered to be a social security plan. If individuals, households, or a group of employees are eligible to receive social benefits, the plan is considered an employment-related social security plan.

Under asocial security scheme, the relationship between benefits and contributions is not considered sufficiently strong to give rise to a financial claim by contributors. Accordingly, liabilities are not recorded, but an estimate equal to the net implicit obligations for future social security benefits should be presented as a memorandum item on the balance sheet, as a contingent liability. In contrast, employment-related pension plans are considered to entail a contractual responsibility vis-à-vis employees and are recorded as liabilities. Under this criterion, the actuarial liabilities of the INJUPEMP, INPREMA, INPREUNAH, and IPM are recognized in the public sector financial statements as firm liabilities, while the net actuarial liabilities of the IHSS are considered contingent liabilities.

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4. Fiscal reports in Honduras traditionally covered the entities of the central government, general government, nonfinancial public sector (NFPS), and, in some cases, what is referred to as the “combined public sector,” which is the NFPS and BCH. Reports on stocks of gross debt continue to be published for the combined public sector.

5. The entry into force of the LRF placed increased the emphasis on the production of fiscal information for the NFPS and its subsectors. This information is critical for monitoring compliance with the rules imposed by the law and for evaluating the impact of fiscal policy on the economy. However, the results of the monitoring are not systematically published in a report covering the NFPS and each of its subsectors. The subsectors included in the financial account are the general government, the central government, and the central administration as a subgroup of the central government. These financial reports are reported individually.

6. Although a fiscal report covering the entire public sector is desirable, as long as coverage of the NFPS continues, it should include each of the subsectors indicated in the macroeconomic statistics manuals. The report should include revenue, expenditure, and financing flows (the financial account), as well as stocks of assets and liabilities associated with the same institutional coverage. Revenue and expenditures are publicly disseminated in various reports, each of which provides limited institutional coverage. The SEFIN website publishes the following information on flows: (1) monthly revenue and expenditure for the NFPS, general government, and central government; and (2) quarterly report of central administration revenue, expenditures, and financing. For the other sectors, financing data are limited to net borrowings plus an income line item. Information on stocks is limited to the 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.

7. The reports providing the broadest institutional coverage are the annual financial statements. The financial statements are consolidated for the total public sector; for its subsectors like the general government, public corporations, and NFPS, aggregates are presented with a general column with the consolidation for the entire public sector. Efforts are underway to prepare consolidated reports for each of these subsectors based on the accounting data.

8. A system is being developed to consolidate each of the subsectors. When the consolidated accounting information for the public sector and subsectors becomes available, it will represent a substantial improvement in the presentation and analysis of fiscal data by subsector, which will then include information on stocks of assets, as well as liabilities.

9. The 2017 financial statements cover all subsectors of the public sector but do not include data from each of institutions, and they were not updated with data as of December 2017. The Universidad Nacional Autónoma de Honduras (UNAH), a national university, and BANADESA did not submit their December 2017 financial statements on time, and therefore the balances from June 2017 were included. For the local government sector, out of the more than 100 municipal financial statements received, only 91 municipalities were included —78 of which came through the Integrated Municipal Administration System (SAMI) and the remainders were provided by the CGR— the others were rejected due to inconsistencies in figures. The 91 municipalities represented do not include the largest, Tegucigalpa and San Pedro Sula; as a result, the volume of expenditure included in the annual financial statements represents no more than 20 percent of total expenditures managed at the municipal level.

10. The financial account omits the flows of public financial corporations. These flows represent the largest omission of information from the financial account. In the case of municipalities, the largest do not report through the system specially designed to manage municipal information. When the rest of the municipalities report, they do not meet all of the required criteria for clarity. The information input is not always consistent, and there are differences between revenue and expenditure data and financing, or conceptual errors in classification. For this reason, the financial account uses data processed by BCH for the local government sector, by source of financing; revenue and expenditure are distributed based on the same percentage used in the distribution for the previous year.

Figure 1.1.
Figure 1.1.

Fiscal Reporting Coverage

Citation: IMF Staff Country Reports 2021, 150; 10.5089/9781513589084.002.A001

Source: Prepared by the IMF.
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11. The principal fiscal reports used to monitor the rules prescribed by the LRF and BCH publications do not include stocks of assets. The reports focus solely on stocks of gross debt without taking account of stocks of financial and nonfinancial assets. This indicator, however, is also inadequate because information on the public debt reported fails to take into account a number of debt instruments.

12. The reports providing the most information on stocks are the financial statements published by the CGR. The CGR publishes central administration financial statements monthly and consolidated public sector financial statements annually. These possess all of the deficiencies in terms of institutional coverage discussed previously. Also as noted above, however, the subsectors of the public sector are not consolidated, as required by the 2014 GFSM, to ensure the information is internationally comparable and provides consistent and significant macroeconomic aggregates for analysis.

13. The SEFIN annual report (memoria anual) is the only public report that provides data on stocks and flows for the central administration and NFPS; in this case, the stocks are limited to gross domestic and external debt. It does not consider the stocks of all instruments that would qualify as debt instruments (as discussed in the following paragraph), which are included in the total financing calculated by BCH.

14. On an aggregate basis, the instruments not considered or disclosed in debt reports represent nearly 32 percent of GDP for 2017 (Figure 1.2). Those instruments are as follows:

  • Central government loans refinanced in 2005 with multilateral creditors and creditors under the Heavily Indebted Poor Countries (HIPC) Initiative amounted to HNL 42.176 billion (78 percent of GDP), according to data provided by Public Credit. In 2005, Honduras refinanced outstanding loans with a number of its creditors”. In that process, the creditors agreed to forgive debt disbursed until 1999. With respect to disbursements made after that date, to the extent that the government used funds that would otherwise go to amortization and interest payments on the debt, social and infrastructure works implemented by the government would be recognized as payments. In other words, the debt was converted from debt amortized in cash to debt repaid in kind (expenditure on social programs and projects under the Poverty Reduction Strategy).

  • The debt contracted by Fideicomiso Tasa de Seguridad with the banking system could not be determined because the information on this liability is aggregated with another loan. The total amount of both loans was HNL 3.942 billion (0.7 percent of GDP) in December 2017.1 Information on the use of this funding and financing of trusts in general is not monitored on a regular basis. The transfer from the budget to the trust is recognized directly in the financial account as an expenditure made by the trust. This treatment will be discussed under the next indicator.

  • Liabilities in connection with public works implemented in the form of PPP contracts. These are calculated by the DGPMF applying the standard 32 of the International Public Sector Accounting Standards (IPSAS) to determine whether the amounts owed for each contract are characterized as financial or nonfinancial liabilities.2 The total financial liabilities pursuant to PPP contracts is HNL 1.360 billion (0.3 percent of GDP), which should be included in the stock of public debt. Changes in these liabilities are reflected in the financing and public works in the central administration financial account; however, they are not included in the stock of gross debt.

  • Other payable accounts not considered in stocks of gross debt represent a total of HNL 60.673 billion (11.2 percent of GDP), according to the 2017 financial statements. They consist of HNL 3.990 million in external payable accounts arising from the difference between the amount recorded in stocks of external debt and that recorded under the General Government Sector as liabilities in the International Investment Position (IIP) published quarterly on the BCH website. The rest arise from liabilities recorded in the financial statements

  • The pension liabilities of the social security institutions covering government employees have not been considered and represent roughly 11.6 percent of GDP (HNL 62.597 billion). This information was obtained from actuarial debt calculations provided by those institutions.

  • The stocks of debt consider only BCH; the liabilities of BANADESA and BANHPROVI should also be included. The liabilities consist of deposits by the general public plus loans received by both institutions, for combined total of HNL 8.543 billion (1.6 percent of GDP).

  • Other debt instruments relating to BCH total HNL 61.866 million (11.5 percent of GDP). Although BCH is included in the coverage of institutions for which stocks of gross debt are published, the coverage of instruments included in that information is limited; it omits deposits of other sectors at BCH, the monetary base, and Special Drawing Right (SDR) allocations from the IMF.

Figure 1.2.
Figure 1.2.

Coverage of Stocks in Fiscal Reports

(96 of GDP)

Citation: IMF Staff Country Reports 2021, 150; 10.5089/9781513589084.002.A001

Source: IMF staff estimates.

15. The only institutions whose financial statements include stocks of financial and nonfinancial assets are those institutions that report annually to the CGR and those that submit their financial statements through the Integrated Financial Management System (SIAFI):

  • Nonfinancial assets are reported in a decentralized SIAFI subsystem for nearly the entire central government and are valued at a constant carrying value. To gain an idea of the stock of nonfinancial assets for the entire public sector, the mission worked with the data included in financial statements. The total amount of nonfinancial assets, including accumulated depreciation for the total public sector, is HNL 196.544 billion (25.8 percent of GDP).

  • Financial assets are not reported in a fiscal report. The information reported in the IIP provides an indication of their magnitude. The IIP includes assets with respect to the rest of the world and is published quarterly. For the total public sector, the assets represent 49.2 percent of GDP, or HNL 265.790 billion. This amount was estimated based on data from financial statements, with the relevant consolidations. Financial assets with respect to the local banking system can be obtained more readily from the monetary statistics compiled by BCH.

16. Government securities are recorded at face value, not market value or nominal value. The new module of the debt management system, SIGADE, is being checked to be able to calculate accrued interest to use as part of the calculation of nominal values for government securities, as well as loans entered in SIGADE. With respect to government securities issued internationally, the total amount is considered external debt, despite information indicating that some of those instruments are held by residents. That information appears in the annexes to accounting statements from the banking system, which include information on government securities held by both banks and customers. The inclusion of this information would improve data on government securities by creditor. Efforts are being made to improve the available information about the holders of these instruments by requesting information from the banks that hold them in their portfolios. The figure 1.3 shows the public sector net worth in selected countries.

Figure 1.3.
Figure 1.3.

Public Sector Net Worth in Selected Countries

(96 of GDP)

Citation: IMF Staff Country Reports 2021, 150; 10.5089/9781513589084.002.A001

Source: IMF staff estimates.
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17. The fiscal reports used to monitor compliance with fiscal rules (see dimension 2.3.1) and discuss fiscal policies are registered on a modified cash basis. Revenue and expenditures are registered on a cash basis; accrual accounting is used for some expenditures, and the accrual basis is used in calculating the financing because all financial assets and liabilities are considered, including other payable accounts and liabilities relating to PPPs. Interest is recognized on a cash basis, but efforts are underway to calculate interest on an accrual basis.

18. Changes in deposit accounts owned by trusts (extrabudgetary funds) are not taken into account in the financing calculations. The bank accounts of the 67 existing trusts, which are managed separately from the budget, are not considered in calculating the amounts effectively spent by the trusts for their activities. The assumption is that the budgetary spending takes place at the moment that the budgetary virement from the budget to the trust is released. In fact, the trusts maintain balances in their accounts; Fideicomiso de Tasa de Seguridad (FTS) is also a borrower from the resident banking system. All information about changes in financial assets and liabilities should be taken into account in determining the trust’s effective expenditures.

19. Tables 1.3 and 1.4 presents the manner in which these transactions should be reflected in the consolidated central government and the overestimation of the trusts’ expenditures for 2017. The transfer from the budget is used, in part, to increase available cash, which, combined with the increased borrowing by the FTS, brings total expenditure for the year to HNL 8.295 billion rather than HNL 12.093 billion.

Table 1.3.

Flows Between Central Government and Trusts

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Notes:1. Transfer from Budget CG to Trust.2. Transactions in Trusts, they receive transfer from CG, spend part, and are financed by3. Consolidated PCG expense column and income for Trusts.4. Consolidated transactions for the CG.5. Increase in liabilities that also includes Security Fee, debt for infrastructure construction.Source: IMF staff calculations.
Table 1.4.

Reconciliation of Stocks and Flows for Trusts

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Notes:(1) The liability is not entirely for the Security Fee Trust, there’s a part that is debt for infrastructure construction.Source: IMF calculations.
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20. Information on revenue losses due to tax expenditures during the fiscal year is published annually. The details of tax expenditures are included in two different set of budgetary documents. First, as part of the MTMFF, where past tax expenditures and a three-year projection, with a brief explanation of the used methodology is presented by type of tax. Second, a separate section on tax expenditures, but referred to 2017, was included for the first time in the 2019 proposed budget.

21. The proposed 2019 budget identifies the beneficiaries of each type of tax by sector, but it does not indicate the objective of the tax expenditures or reference the fiscal year of the proposed budget. The budget section mentioned includes the most detail by the type of tax and identifies the branch of the economy and sector. However, the information presented in 2019 consists of ex-post tax information on the collection for 2017 but is not a forecast. This lag of two fiscal years precludes a comparison of the spending programs stated in the budget proposal with the benefits established as tax expenditures; the data relate to different fiscal years and therefore do not provide a complete view of total public spending allocated to a specific objective or sector.

22. The regulations clearly define tax expenditure; for new tax expenditures, the regulations require the publication of their impact during the time they remain in effect. Article 3 of the LRF implementing regulations defines tax expenditure as revenue forgone due to the creation or expansion of tax incentives or benefits; this category includes exemptions; preferential rates; and deductions to benefit, promote, or develop specific activities, sectors, branches of the economy, regions, or taxpayer groups. The regulations also provide, in Article 4, that a cost-benefit analysis of new tax expenditures must be conducted and made it public. In 2019, these benefits represented 6.3 percent of GDP, equivalent to 36 percent of projected tax revenue in 2019, with a similar tax structure to the projected total revenue collection.

Figure 1.4.
Figure 1.4.

Tax Expenditures, 2016–21

(HNL millions)

Citation: IMF Staff Country Reports 2021, 150; 10.5089/9781513589084.002.A001

Source: IMF staff estimates.

23. The law establishes no controls or targets for the size of tax expenditures. Tax expenditures are, by nature, the same as spending appropriations for different programs and should therefore be included in fiscal rules to limit their growth. The current budget regulations prescribe no limit or control of the total amount of tax expenditures. An advanced practice with respect to this principle would entail one of the following approaches: (1) establish a ceiling on total volume, in the same way as spending ceilings are imposed or limits of growth are set; (2) impose a time limit on tax benefits when they are approved; or (3) ensure that tax expenditures and spending programs projections are presented in the budget documentation and discussed collectively so as to consider trade-offs between them by the time that decisions on spending appropriations occur.

B. Frequency and Timeliness

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24. 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, and comparative statements between the budget and accounting reports, as well as 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. Finally, BCH publishes a wealth of monthly and quarterly information on domestic debt.

Table 1.5.

Fiscal Reports Published by BCH

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Source: BCH.

25. 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. The reports provide details of expenditure, by institution, for the central administration, the decentralized institutions, and social security funds, as well as the expenditure relative to initial projections, current expenditure, and 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. In addition to revenue and expenditure execution for the central administration and decentralized institutions, the report analyzes budget modifications; executed expenditure, by purpose; the public debt position; transfers to municipalities pursuant to applicable laws; and the public investment program for the public sector.

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26. 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,3 to ensure that the Congress has time to analyze the public sector reports from the previous fiscal year before approving the following year’s budget.

27. 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 of each year, it presents the budget liquidation; the central administration balance sheet, which includes the net assets of decentralized institutions; and a report on the consolidated public sector financial position. The mission confirmed the IRC submission dates for a three-year period.

C. Quality

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28. The general budget is based on a three-level classification: institutional, economic (by spending object and revenue category) and functional (by spending sector); the budget execution reports, however, do not reflect these classifications. The budget execution reports consider the institutional and economic classifications, but they do not include spending details by function. This principal classification is accompanied by a secondary classification by funding source, financing entity, and geographic location. The budget classifications are governed by technical regulations and procedures approved in the context of the LOP and set out in the 2018 Manual of Budget Classifiers. This budget classification is aligned to the 2001 GFSM; efforts are underway to complete the alignment to the 2014 GFSM.

29. The classification by budget program is quite limited. Pilot projects have been conducted to define budget programs in specific spending areas, but the definitions have not been developed and put into widespread use. Further details on the budget classifications are presented in indicator 3.2 of the performance information.

30. There are weaknesses in the allocation of investments to economic classifications, by spending objective. A substantial volume of expenditures for projects identified as human development projects are recorded as investments, but these should be considered current spending.

31. The municipal budgets use a specific economic classification, by spending objective, that incorporates a level of detail more aligned with their needs. A specific manual, the Budget Classification Manual for SAMI Municipalities, provides for greater disaggregation to accommodate the specificities of said municipalities. It incorporates classifications by spending objective, with a systematic, standardized organization of goods, services, and transfers applied by the municipalities in their activities.

32. Honduras is in the process of implementing the International Accounting Standards. The process will include implementation of the IPSAS and the International Financial Reporting Standards (IFRS) for the NFPS and public financial corporations, respectively.

33. The financial account uses the 1986 GFSM classification, but the 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.

34. The country is submitting general government data to the IMF database in accordance with the 2014 GFSM format. At the date of the mission, the most recent submission dated from 2015; the 2016 and 2017 data were being prepared for transmittal but have yet to be sent.

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35. Honduras publishes only one of the three internal consistency reports on fiscal data required under the FTC. The BCH publications on gross debt include tables presenting total external debt by type of borrower sector, as well as creditor and domestic public debt by debt holder.

36. There is no reconciliation report between the deficit measured above the line by SEFIN and the below the line financing calculated by BCH. The two institutions discuss and explain the discrepancy monthly, but neither the amount nor a reconciliation is published. Public disclosure and explanation of the discrepancy would substantially improve the transparency of fiscal figures.

37. There is likewise no public report explaining the change in debt from one year to another according to disbursements and amortizations during the period. Although there is a BCH report analyzing the consistency between stocks and flows of gross public debt, it is not disclosed to the public.

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38. The most recent revision of data from 2016 is explained in a note to the tables published on the SEFIN website. No data prior to 2016 have been revised. This revision was undertaken because the LRF established a new methodology for calculating the fiscal deficit in line with the 2014 GFSM. Previously, loans from the central government to other institutions were treated as an expenditure at the time of disbursement and as a negative expenditure when the borrowing institution repaid it (1986 GFSM). From the effective date of the LRF, such loans have been treated as central government financial assets, and therefore neither disbursements nor repayments affect the deficit. An explanatory note is included in the 2016 SEFIN economic report (Memoria Económica) and will also be included in the 2017 version; both are published on the SEFIN website.

D. Integrity

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39. Fiscal statistics are compiled and disseminated by the DGPMF, a 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, when the reporting was suspended. There is a commitment to resume transmittal of the information beginning 2018, completing the historical series through 2017.

40. BCH compiles and disseminates statistics on gross domestic and external public debt, and it calculates the financing for the NFPS and subsectors thereof, which is reconciled with data compiled by the DGPMF. The published data on gross public debt are disaggregated by creditor and borrower. As prescribed by the LRF, SEFIN is responsible for the publication of the medium-term fiscal framework (MTFF), in consultation with BCH, to ensure compliance with the fiscal rules established in the LRF. SEFIN is also responsible for compiling revenue and expenditure statistics for the NFPS and subsectors thereof. Accordingly, there is no independent fiscal statistics unit.

41. Designating a specific government agency—and, to the extent possible, an independent professional body—responsible for the production of fiscal statistics would enhance the function and would be consistent with the most advanced international practices. Doing this would result in a higher score with respect to FTC principles. An important aspect of fiscal integrity is the professional independence of the agency responsible for producing fiscal statistics, which will enable it to produce reliable statistics. The involvement of multiple agencies in compiling and publishing fiscal data based on different methodologies can create confusion and be counterproductive to transparency.

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42. The Court of Audit (TSC) has a clear mandate, is independent of the institutions it audits, and publishes all of its audit and inspection reports. The TSC is governed by the Constitution and its founding law (LOTSC). Its members are appointed to a six-year term by a two-thirds vote of the Congress. The Constitution and Article 6 of the LOTSC recognize functional and administrative autonomy of the TSC from the branches of government. The TSC’s annual external audit and inspection reports, and its recommendations on the public administrations’ operations and practices, are disclosed to the public.

43. The TSC is the supreme audit institution and reports annually to the Congress on budget outturn prior to the government’s presentation of the proposed budget for the following fiscal year. Article 205 of the Constitution and Article 32 of the LOTSC grant the TSC the authority to issue an opinion on budget outturn for the general government’s revenue and expenditure budget and to evaluate the efficiency and effectiveness of the public sector in terms of expenditure, organization, performance, management, adherence to operational plans, quality of internal control, and the accounting framework and implementation thereof.

44. The TSC is responsible for the supervision and evaluation of the efficiency of the internal controls of public institutions. In the course of performing these functions, the TSC develops manuals and issues the Standards for Public Sector Internal Control and General Standards for Internal Audit. Internal audit units are in place in all instrumentalities of the central government and the concentrated institutions. The audit units have professional independence, broad authorities, and training in professional audit methods; however, they lack sufficient resources and have little enforcement authority.

45. The TSC annual audit reports focus primarily on an analysis of budget liquidation; in 2017, the report did not include any opinion on central administration financial statements other than in a section on public debt. The TSC’s IRCs focus on budget outturn by means of a specific analysis of 87 public sector entities in 2017. The 2015 and 2016 IRCs included specific sections evaluating the consolidated public sector financial position and central administration financial statements. However, the 2017 report is limited to an evaluation of reporting on the public debt—the evaluation includes a comparative analysis of balances in public debt accounts, as shown in the central government financial statements; compliance with the Standards for the Accounting Closing; a reconciliation of public debt balances in SEFIN records; and an evaluation of the Government Property Account (Cuenta de Bienes Patrimoniales del Estado). The TSC’s IRCs do not provide an opinion; they merely describe findings and formulate recommendations.

Key Findings of the 2018 TSC Report

The most important conclusions of the 2018 reports focus on debt records and the special audit of the Government Property Account.

  • The debt records indicate poor budget programming with respect to debt service, which led to substantial modifications, and noncompliance with guidelines for the accounting closing. According to the authorities, the budget cutoff approved by the DGP and the Congress entailed a redistribution of the public debt ceiling that impacted the closing at the end of the fiscal year. Discrepancies were identified that related to external debt and debt relief.

  • With respect to the Government Property Account, discrepancies were identified between historical records in SIAFI and records maintained by the institutions. The general performance of the institutions reviewed is considered effective, with adequate use of resources. The report identified weaknesses in the financial structure of public corporations, particularly due to the sensitive position of ENEE, and the need for an actuarial analysis of the financial positions of social security institutions.

  • Internal controls of the central administration and decentralized institutions were considered effective, with a strong performance; however, significant weaknesses were identified in terms of training and adequate organization of the institutions.

46. The TSC prepares its reports based on its own regulatory framework, which is aligned with International Audit Standards. The review of public sector entities’ IRCs is conducted in accordance with the Framework for Government External Control (Marco Rector de Control Externo Gubernamental). The framework is consistent with the International Audit Standards issued by the International Federation of Accountants; the Statements on Auditing Standards issued by the American Instituted Certified Public Accountants; and the International Standards for the Professional Practice of Internal Auditing (ISPPIA). It is being gradually adapted to the audit standards developed by the International Organization of Supreme Audit Institutions (INTOSAI); the key differences with respect to the Honduran framework concern the identification of risks, audit evidence, and a stricter characterization of audit opinions.

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47. Budget execution reports facilitate comparisons with the budgets initially approved, using the same classification. The monthly reports of central administration and CGR financial statements compare the amounts initially approved in the revenue and expenditure budget, the modifications made during the fiscal year, the expenditures accrued and paid, and the revenues accrued and received.

48. The accounting records are not directly comparable with budget execution because of differences in coverage and base, but monthly reconciliation tables are published. The CGR financial statements also publish4 comparative tables of budget execution data and accounting records, with notes explaining any differences. The differences essentially relate to differences in allocation of exchange gains and losses, external debt relief, and trust funds.

49. The financial statements differ from the budget in terms of coverage and financial structure and are therefore not directly comparable. Although the principal source of information is the budget execution, the differences between the fiscal statistics and the budget in terms of scope of coverage5 and accounting base preclude direct comparison.

E. Conclusions and Recommendations

50. Honduras’s fiscal reporting is considered basic and good, in line with the fiscal transparency evaluations conducted in other Latin American countries. This pillar includes the only indicator not met, which could be easily remedied because the information is available.

51. The evaluation identifies the following strengths in fiscal reporting:

  • Numerous monitoring reports are published by different institutions. The budget monitoring reports and the reports of financial statements issued by the CGR throughout the year are 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, and central administration and NFPS financial accounts, as well as debt statistics for the central administration, decentralized institutions, municipalities, and NFPS. Budget execution is reconciled with accounting records on a monthly basis.

  • The annual public sector reporting exercise is concluded in advance of the regulatory deadline, and reports are issued prior to April of each year. The TSC’s IRC is published and submitted to the Congress prior to the presentation of the general budget for the following year, a practice that enables the detection of any problems so they can be addressed in the following budget.

  • In accordance with the LRF, the budget documentation included an analysis of revenue losses due to tax expenditures.

  • Honduras has established an independent body, the TSC, which is responsible for the external control and coordination of internal control for public sector economic-financial activities. The TSC publishes reports of its audit and controls.

52. Fiscal transparency could be enhanced in the following three areas:

  • Although the institutional coverage of fiscal data is broad, covering the NFPS, the coverage is incomplete in light of the lack of execution data for funds managed by trusts (representing 9 percent of total budget expenditure) and the lag in reporting by municipalities.

  • The available monthly and quarterly financing information is not exhaustive and lags behind the other publications on budget outturn and the financial accounts. This information is particularly important because it is used to ensure consistency between fiscal outturn data (above the line) and the uses and sources of financing (below the line).

  • The statements of consolidated public sector financial position are incomplete. In 2017, several institutions were late in submitting information; other entities, such as the UNAH and BANADESA, failed to submit information to the CGR in December, and the data from June 2017 were used for the public sector consolidation. The information on municipalities is based on data from only 91 municipalities that represent roughly 20 percent of total municipal expenditure.

  • The analysis of tax expenditure presented in the budget documentation presents the methodology and detail by sectors only for 2017; in other words, it presents information on the two fiscal years prior to the fiscal year to which the proposed budget pertains. The projected tax expenditures for 2018 and 2019 are less complete and refer only to the type of taxes. It would be helpful to identify the areas or policies to which the tax expenditures are applied in order to facilitate comparability with the budgeted expenditures.

  • Although the TSC’s IRC is detailed and comments extensively on the attainment of budget execution targets, the TSC does not issue a qualified opinion on the reliability of the Government General Account; rather, it limits its analysis to the Government Property Account.

53. The mission offers four recommendations under this pillar of the FTC to improve fiscal transparency:

  • 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.

Table 1.6 represents a summary of Honduras’s evaluation against the Pillar I of the FTC.

Table 1.6.

Honduras: Summary of Fiscal Reporting Evaluation

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II. Fiscal Forecasting and Budgeting

Fiscal forecasts and budgets should provide a clear statement of the government’s budgetary objectives and policy Intentions, as well as comprehensive, timely, and credible projections of the evolution of public finances, together with proper monitoring.

54. This section evaluates the quality of Honduras’s fiscal forecasting and budgeting practices in comparison with the rules established by the FTC. It considers four dimensions relevant to fiscal forecasting and the budget exercise, based on publicly available information:

  • 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.

Table 2.1 presents a summary of the principal laws and fiscal and budget documents reviewed by the mission.

Table 2.1.

Fiscal and Budget Projection Documents

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A. Comprehensiveness

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55. The LOP establishes the coverage of the central government budget, which includes the central administration and decentralized institutions constituting the budgetary central government (BCG). The central administration includes the executive, legislative, and judicial branches; the Supreme Electoral Tribunal, and the TSC. The decentralized institutions consist of the following: (1) decentralized entities, (2) social security institutions, and (3) national universities. The budgets of the institutions that make up the BCG are presented, discussed, and approved simultaneously and are published in a single decree in the Official Gazette.

56. The municipal governments follow similar principles but are not part of the central government budget. Municipal governments have autonomy to present their own budgets, which are not part of Honduras’s general budget, although they receive a substantial volume of transfers from the general budget. The principal transfer between public administrations is the central administration transfer to local governments, which represented 4.4 percent of total expenditure in the initial 2018 budget.

57. Collectively, the decentralized institutions represent 13.6 percent of GDP, and the social security institutions represent 7.3 percent. The 2018 approved budget for public corporations represents 6 percent of GDP. ENEE is particularly important in view of its size— accounting for 13.7 percent of total spending (central administration plus decentralized institutions)—and its fragile financial position. The quantitative importance of the social security institutions is slightly greater than the public corporations combined.

58. The central government budget is presented in a single document, with separate sections containing the budget of the central administration and decentralized institutions, respectively. There is no consolidated revenue and expenditure budget covering the entities included in the national budget proposal. The budgets of decentralized institutions present aggregates for each institution in the subsector. Transfers from the central administration to decentralized institutions absorb 2 percent of total central administration expenditure. In addition, the budget includes the MTMFF, which provides revenue and expenditure data in gross terms, financing, and debt.6

59. The principle of budget unity, which requires that all economic-financial activities of the public sector be included in the budget, is not fully observed. In particular, revenue collected by the Property Institute7 in the form of vehicle registration fees is not included in the central government budget.

60. In addition to this violation of the budget unity principle is the existence of extrabudgetary funds, or trusts,8 for which complete budget information is not presented. The Honduran government uses trusts to administer different spending programs. In 2017, the CGR financial statements included information on 69 trusts totaling HNL 16.400 billion (3 percent of GDP). The trusts’ activities remain apart from the general budget, which only reflects central government contributions to certain trusts as financial investments; in the initial 2018 budget, this item represented 4 percent of total aggregate expenditure and 1.7 percent of GDP.

61. The extrabudgetary activity of trusts precludes adequate budget planning and programming, in violation of the one-year budget rule and the principle that budget figures should be presented in gross values. Spending by the trusts charged to prior fiscal years generates fiscal activities during the year that are not reflected in the current budget. In addition, some trusts have own resources that are not presented in the revenue budget.

62. The central administration has adopted measures to gradually subject trusts to greater control and increase the budget transparency of their activities. These efforts are still in the early stage and are not included in the budget documentation. A centralized, online trust registration system (SIRFIDE) has been created, and a technical committee on trusts is responsible for monitoring them. For the larger trusts, such as the Fideicomiso para la Reducción de la Pobreza Extrema (Trust for the Reduction of Extreme Poverty), periodic budget execution data are already available. The general budgets for 2019 contain various general provisions on control or trusts and the compulsory inclusion of trusts in budgets.

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63. The different documents accompanying the annual budget contain projections of the principal macroeconomic variables on which the budget is based. The projections include GDP growth, domestic consumption, gross fixed capital formation, inflation, exports, imports, foreign direct investment, foreign remittances, the current account balance, and international reserves coverage. The projections are discussed at meetings of the inter agency committee created by the LRF and are published in the BCH monetary program for the current and following year (that is, every April, with a revision in August), and in the MTMFF for the current year and following three years (in April). Other documents accompanying the budget presented prior to September 15 include inflation and GDP growth projections for the same time horizon.

64. The projections of the principal macroeconomic variables are published; however, the assumptions underlying the projections are not specified, with the exception of economic growth worldwide and in the United States, which the authorities take from the IMF World Economic Outlook (WEO). Important assumptions regarding the exchange rate, devaluation, domestic and international interest rates, and international coffee prices—given Honduras’s status as net importer of unprocessed coffee beans and the resultant impact on the fiscal accounts—are not explicitly identified in BCH documents or the documents accompanying the budget.

65. The projections are not compared with those of other organizations, such as the IMF, the UN Economic Commission for Latin America and the Caribbean, or the Central American Bank for Economic Integration. A comparison of projected macroeconomic variables would provide additional support and enhance the credibility of government and BCH projections.

66. Revisions of projections and assumptions between April and August are not discussed in detail in the documents accompanying the budget. As noted previously, the first round of projections is discussed by the interagency committee in April, prior to presentation of the MTMFF. The projections are revised by August, before the budget is presented to the Congress. The initial projections for the current year and the following year are published in the BCH monetary program. Also, although the MTMFF presents initial macroeconomic projections covering the current year and three following years, and the fiscal programming is formulated in accordance with the fiscal rule based on those projections, no document explicitly presents the August revisions or discusses those changes.9

67. The deviations in projections of macroeconomic variables are usually not minor, although they do not appear to be systematically biased (Figure 2.1). The short-term projections for GDP growth and inflation are generally conservative. In the medium term, projections for economic growth and inflation tend to be higher than those presented in the WEO.

Figure 2.1.
Figure 2.1.

Accuracy of Macroeconomic Projections

Citation: IMF Staff Country Reports 2021, 150; 10.5089/9781513589084.002.A001

Source: DGPM-SEFIN and IMF World Economic Outlook.Note: The gray lines represent the projections contained in successive medium-term budget frameworks.
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68. Honduras has progressed to preparation of an integrated medium-term budget framework (MTBF) that is consistent with the fiscal policy objectives. The annual budget is accompanied by various documents; the first of them, 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 of the exercise is to approximate coverage of the NFPS. For purposes of this section, the other relevant document is the MTBF, which is produced annually although it is not required by the LRF. The document sets out the spending ceilings over a three-year horizon, applying an economic disaggregation on the revenue side, and disaggregation by institution, objective, and function on the expenditure side. In addition to those documents, the budget includes the budget policy guidelines document. Tables 2.2 and 2.3 detail the horizon and content with respect to revenue, expenditure, and financing in the documents relevant to the evaluation of this principle.

Table 2.2.

Documents Containing Medium-Term Fiscal Projections that Accompany the Budget Presentation

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Source: based on SEFIN data.
Table 2.3.

Characteristics of the Medium-Term Budget Framework

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Source: Prepared by the mission.

69. However, 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 (Figure 2.2). 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, however, the difference has narrowed.

Figure 2.2.
Figure 2.2.

MTBF Indicative Spending Ceilings and Initial Budget Appropriation (HNL millions)

Citation: IMF Staff Country Reports 2021, 150; 10.5089/9781513589084.002.A001

Note: The gray lines represent MTBF indicative spending ceilings from 2016 to 2018.Source: SEFIN.

70. Honduras has made a significant effort to align the features of its MTBF with international standards. Honduras has made progress in seven of the 11 characteristics of an advanced MTBF.

71. However, the MTMFF and the MTBF, which are the most extensive documents on medium-term projections consistent with the fiscal rule that accompanies the budget presentation, are based on different time horizons. As a result, the figures presented in the two documents are not fully consistent.

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72. Each year, the budget documentation includes a public investment program (PIP) and details of multiyear commitments associated with investment projects. The PIP included in the budget reviews the 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 also indicates sources of investment financing; 58 percent is domestic, and the remainder is external (external credit and grants). The PIP is also published by sector cabinet (groups of public sector institutions), identifying the institution and multiyear commitments for each specific project (Figure 2.3). The revisions involve substantial deviations relative to the previous year’s projections; they were larger in the first year than in following years, except in 2019.

Figure 2.3.
Figure 2.3.

Annual Update of Multiyear Commitments

Citation: IMF Staff Country Reports 2021, 150; 10.5089/9781513589084.002.A001

Source: Budget reports of the Sector Public Investment Program (annual budget).

73. 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. During the preinvestment phase, an ex ante evaluation is conducted for each project to decide whether it will be included in the PIP. The evaluation follows the General Methodological Guide for Formulation and Evaluation of Public Investment Projects, which is detailed and complete and includes the 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 the analyses are conducted, they are not published. However, a methodology is being developed with the support of the Inter-American Development Bank to standardize the analyses for all sectors and provide project sponsors with a common methodology. The Directorate General of Public Investment (DGIP) conducts cost-efficiency analyses for all projects. Furthermore, DGIP prescribes the requirements for the information to be submitted to obtain authorization to include a public investment project in the budget; those requirements include estimates of the recurring expenditures associated with those projects.

74. Substantially fewer projects have been approved since 2017, because the only projects approved are those for which there is sufficient fiscal space, in accordance with the LRF. Once a project is analyzed, it is submitted to the Ministry of Coordination and Planning, which determines whether it is aligned with the strategic goals of the national planning strategy. In collaboration with SEFIN, priority papers (Notas de Prioridad)10 are issued, and the availability of sufficient funding is verified. Under the current process, the number of priority papers approved has decreased from 88 in 2012 to 6 in 2017.

75. An appropriate institutional framework exists to promote coordination among the actors involved. For each project, a project operations manual is prepared that identifies each actor’s role in the execution phase. During execution, ongoing physical-financial monitoring is performed, including on-site visits that are documented in monthly and quarterly reports and that are made public.

76. Contract awards financed with domestic resources are governed by the procurement law and are generally awarded through public competitive processes, in accordance with the DGIP. The regulatory framework for public procurement is considered adequate; the Government Procurement Law11 governs procurement procedures and requires open and transparent processes by means of public tenders. Contract awards are published by the National Office of Government Procurements,12 where all projects are available with details of the award processes. The Office publishes a consolidated statistical report. The 2016 report, which estimated the proportion awarded under each procurement modality in terms of the number of contracts and the amounts, showed that public tenders accounted for only 2 percent of the number of contracts; however, they represented 70 percent of the total amounts, the largest volume of public investment reflected in the contracting. Private tenders, in contrast, were employed for 18 percent of contracts and represented 17 percent of the total value. The other procurement modalities represented 3 percent of contracts in terms of volume and 1 percent in terms of value.13 In addition, the TSC audits procurement processes, and its audit reports are publicly available on the TSC website.

B. Orderliness

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77. Honduras’s budget and public financial management legal frameworks are comprehensive and clear. The Constitution contains provisions on public finance, the budget process, and the definition of the Congress’s role in approving the annual budget (articles 205, 361–372). The Constitution is complemented by various laws and regulations on public finance and the budget, notably, the LRF (in effect since 2016), which covers all aspects of risk management, including PPPs; the Law on Accounting and Audit Standards (2004) and amendments thereto; laws on public borrowing; and the recent Government Procurement Law. Article 100 of the LOP establishes the deadline for issuance of the IRC for the previous year (see dimension 1.2.2).

78. The legal framework establishes the timetable for budget preparation and approval that has generally been upheld, particularly in the budget preparation phase (see dimension 2.2.2). The principal aspects of public financial management (PFM) originate with Honduras’s Constitution. In accordance with Article 368 of the Constitution, the Framework Budget Law, Law No. 83–2004 (LOP), defines all aspects of budget management, including formulation, discussion and approval, execution, monitoring, and evaluation. The fiscal year corresponds to the calendar year. The LOP also defined key requirements for the budget and the role of each institution in the budget process. The general provisions of budgets specify the role of SEFIN most clearly. Article 100 of the LOP establishes the deadline for the IRC for the preceding year.

79. Article 23 of the budget law prescribes the supporting documentation for Honduras’s general revenue and expenditure budget. It requires that SEFIN prepares the statement of purpose; the medium-term financial programming; and 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.

80. Article 27 of the LOP clearly establishes the requirements for increasing or modifying expenditures. 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 the project is approved and budgeted and execution has begun, the Executive Branch shall have the initiative to increase or modify the expenditure budget.

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81. The legal and regulatory framework for Honduras’s budget process provides that the Executive Branch must submit the budget to Congress during the first half of September. That deadline, provided in Article 25 of the LOP, is systematically observed, and Congress has more than three months to analyze, discuss, and approve the final budget. SEFIN, as the entity responsible for coordinating the process, is charged with establishing timely measures and ensuring that preliminary budget proposals are presented on time and in due form. The legislation also provides that 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, which is prepared and published annually, covers the entire budget preparation process (Table 2.4).

Table 2.4.

Budget Calendar

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Source: SEFIN http://www.sefin.qob.rin/wp-content/uploads/2018/04/Calendario Presupuestario 2019.pdf.

82. There is no deadline or established procedure for congressional discussion and approval of the budget, which has been delayed until January on occasion.14 The congressional process begins with discussions in the Budget Committee, which consists of 12 deputies, and is assisted by a technical committee that facilitates the technical understanding of the budget document and applicable regulations. The technical committee also reviews the budget documentation and identifies any errors or inconsistencies for correction. 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 in the event that the budget is not approved at the beginning of the fiscal year.

83. The documentation included in the budget proposal, stated in Article 23 of the Administrative Procedures Act, is considered complete, orderly, and detailed to facilitate review and approval by the Congress. The budget documentation includes budget policy guidelines summarizing the key figures and priorities incorporated in the proposal; the statement of purpose; the general provisions that review and explain the budget regulations to facilitate understanding; the medium-term framework including the MTMFF and the MTBF; the details of the revenue and expenditure budget; the financial accounts; the investment program; and, for the first time in the 2019 budget proposal, an analysis of tax expenditures. In addition to the budget proposal, in July, the Congress receives the audit report on the General Account for the previous fiscal year; it issues an opinion on the report, which is approved in a session of the full Congress.

C. Policy Orientation

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84. 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 2016.15 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; and (3) central administration payable accounts may not increase by more than 0.5 percent of GDP (Table 2.5). The law provides for the convergence of the first component overtime by establishing intermediate targets for the NTFS deficit of 1.5 percent of GDP in 2017, 1.2 percent of GDP in 2018, and 1 percent of GDP in 2019 and thereafter. It also establishes the circumstances in which the rule may be suspended and the procedure to be followed to request congressional suspension of the rule.

Table 2.5.

Basic Principles of the Fiscal Rule

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Source: Prepared by the mission, based on the Fiscal Responsibility Law.

85. The government provides regular quantitative reports on the achievement of targets for fiscal aggregates. Within the first half of each year, SEFIN must submit to Congress and publish a report on compliance with the fiscal rule during the previous year. Prior to end-August, the DGPMF must publish a monitoring report on targets for the current year, explaining any significant deviations and identifying corrective measures. Both documents have been published since 2016. The compliance reports indicate that the rule has been observed and surpassed in 2016 and 2017 (Figure 2.4 and Table 2.6). The most recent monitoring report by the DGPMF, published in August 2018, identifies ENEE problems as a risk for compliance with the first component of the fiscal rule. It presents the main aspects of the adjustment program adopted to consolidate ENEE finances, which will enable the NFPS balance sheet to be closed at 1.2 percent of GDP, as established by the LRF.

Figure 2.4.
Figure 2.4.

Central Administration and NFPS Balance Sheet (% GDP)

Citation: IMF Staff Country Reports 2021, 150; 10.5089/9781513589084.002.A001

Source: DPMF, Monitoring Report on the Medium-Term Fiscal Rule, 2018–21.
Table 2.6.

Compliance with Fiscal Rule in 2016 and 2017

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Source: DPMF, Monitoring Report on the Medium-Term Fiscal Rule, 2018–21.
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86. The Honduran government has been developing budget performance evaluations at the output level. The performance of all public entities is evaluated annually by means of progress on the annual work plan (AWP). The preparation of an AWP is required for an entity’s appropriations to be included in the upcoming annual budget. Based on a strategic institutional plan that defines the mission, vision, objectives, project/programs, and activities, each entity prepares an AWP that establishes targets for each of its programs in terms of the quantities produced, which are associated with the budget resources to achieve them. All components of the AWP are entered into the SIAFI platform to facilitate monitoring and evaluation during implementation of the plans. SEFIN and the Ministry of General Government Coordination (SCGG) are involved throughout the AWP cycle. Physical and financial execution is monitored quarterly and published in the budget evaluation report. The AWP serves as a basis for discussion at an annual public hearing before the Congress (see Section 2.3.3). In addition, the TSC conducts annual AWP compliance reviews for a substantial number of entities.

87. The scope of AWP evaluations includes the sector cabinets, which encompass national and decentralized entities and public corporations working in related policy areas.16 A consolidated AWP is prepared for each sector and monitored quarterly in a published report by SEFIN. There are currently eight sector cabinets: 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.

88. Although information from the AWPs has proven useful for hearings and supports budget decisions, Honduras has yet to develop results-based budgeting per se. Despite strengthening of the SCGG, AWP accounting under program budgeting has been complex. What has been accomplished at this point is that the SIAFI data identifies, for each program/project, the objectives of national development plans—the Nation and Visio Plan (Plan de Nación y Visión) and the Government Plan (Plan de Gobierno), with which it is associated. However, the definition of indicators and method of measurement have yet to be determined. This missing element is explained by weaknesses in institutional capacity, lack of clarity as to the responsibilities of SCGG and SEFIN in this area, and difficulties in coordinating their actions. This finding is consistent with the results of the 2016 Public Expenditure and Financial Accountability (PEFA) report and the report of the IMF 2017 mission on results-based budgeting.17

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89. In recent years, Honduras has progressed toward budget transparency. However, the component on citizen participation in the budget process does not reflect a high rating with respect to the Open Budget Index (OBI) (Figures 2.5 and 2.6). 18 Measured by that indicator, the country advanced from a ranking of 12/100 in 2010 to 53/100 in 2012 and 54/100 in 2017. This last rating is above the global average of 42/100. With respect to the citizen participation component of this survey—which assesses the degree to which the government provides opportunities for public participation in all phases of the budget process (preparation, discussion, execution, and audit)—Honduras’s rating is low, at 7/100, below the global average and one of the least satisfactory of the region.

Figure 2.5.
Figure 2.5.

Honduras Open Budget Index

Citation: IMF Staff Country Reports 2021, 150; 10.5089/9781513589084.002.A001

Source: International Budget.
Figure 2.6.
Figure 2.6.

Citizen Participation Index

Citation: IMF Staff Country Reports 2021, 150; 10.5089/9781513589084.002.A001

90. SEFIN has published an annual Citizen Budget document since 2010. This is a document written in simple language with visual elements illustrating key aspects of the approved budget: (1) basic elements of the budget exercise, (2) principal provisions of the approved budget (expenditure by administrative classification, sector, expenditure group, and function), (3) relevant aspects of social and municipal spending, and (4) general implications of the fiscal deficit. The document presents the budget’s implications for citizens in general terms, without differentiating by population group (for example, poor and vulnerable.). One of the criticisms of the International Budget is the delays in publishing the Citizen Budget.

91. Prior to the budget debate, the Congress holds public televised hearings attended by the sector cabinets. The hearings are broadcast on the channel used by the Congress to televise its sessions. Civil society also participates in the hearings. Experts or specialized firms take part in the budget hearings; informally, a WhatsApp channel has been set up to allow citizens to make suggestions during the public hearings. However, although citizens are allowed to participate, they have little influence on formulation of the budget, which is consistent with the OBI ranking.

92. Honduras has adopted laws to improve transparency and public participation in the other phases of the budget process. The two most important laws in this respect are the Transparency and Access to Public Information Act (LTAIP), promulgated in 2007, and the LRF adopted in 2016. The LTAIP and implementing regulations require all institutions to publish information on institutional management and the public funds that they administer or that have been guaranteed by the government. The regulations stem from the recognition that transparency, accountability, and access to information serve to improve the management of public funds and represent a powerful instrument to fight corruption. The law created the Institute on Access to Public Information (IAIP), which is responsible for facilitating citizens’ access to public information, regulating and supervising the entities required to provide citizens with information, and implementing an information system to integrate and systematize the information from entities required to provide information to citizens. The LRF, in turn, contains a section on fiscal transparency that establishes the obligation to prepare, present to Congress, and publish the MTMFF and monitoring documents on compliance with the fiscal rule. That law also contains provisions to ensure the transparency of tax exemptions and benefits.

93. In implementing the LTAIP, the IAIP administers the One-Stop Transparency Portal (Portal Único de Transparencia). It is a uniform template designed to present public institutions’ information in a simple, user-friendly manner. The portal includes an area dedicated to the publication of key budget information for each entity. Based on the information reported, the IAIP evaluates the transparency portal of each entity one of the components of analysis is the existence of a link enabling citizens to submit questions and recommendations.19 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.

94. In addition to the transparency portal, other portals contribute to transparency in public resources management. HoncuCompras is a web-based procurement information system that disseminates and manages information on contracting procedures conducted by entities subject to provisions of the Government Procurement Law. The public platform provides access to information on suppliers, public institutions, and international cooperation for monitoring, control, and audit purposes. Another important portal is the sistema de información y seguimiento de obras y contratos de supervisión (SISOCS), which reports information and monitoring of investment projects, including PPPs.

D. Budget Credibility

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95. The government’s macroeconomic and fiscal forecasts included in the budget documentation are not subject to an independent evaluation. Each fiscal year, SEFIN prepares initial fiscal projections that are submitted to BCH, which prepares macroeconomic forecasts, including the impact of fiscal policy in the final macroeconomic table. The BCH forecasts are estimated within a range or band, without providing a specific estimate, to account for uncertainties in the assumptions underlying the estimates. Internally, SEFIN considers the gross intervals estimated by BCH and compares them with the forecasts of international institutions—basically with the IMF Article IV staff reports—and evaluates and estimates the specific scenarios to be used in preparing the definitive fiscal projections.

96. The macroeconomic projections are compared with the IMF projections for Honduras, but this comparison is not included in the budget documentation. The budget documentation does not include a comparison between the government’s macro-fiscal forecast and those prepared by other institutions for Honduras. It would be useful to compare the forecasts and justify the potential differences based on the respective underlying assumptions. Also, the BCH reports do not include forecasts by rating agencies or research institutions or studies by other domestic banks. Such an exercise would improve the quality and accuracy of macroeconomic forecasts and enhance the transparency and objectivity of the forecasts.

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97. Once the budget is approved, any increase in the total budget amount must be authorized by the Congress. Article 36 of the LOP grants to the Congress the exclusive authority to approve amendments that alter the total amount of the budget initially approved. Moreover, increases in domestic borrowing require the prior opinion of SEFIN. As an exception, SEFIN may, by internal resolution, add external resources from grants and loans previously approved by Congress to the current budget, in the amounts it plans to use and subject to ceilings, to facilitate fiscal planning for each year.

98. The legislation addressing budget modifications is clear and limits the government’s authority to modify approved budgets. Articles 36 and 37 of the LOP prescribe the authorities to modify the total budget amount and to authorize transfers between budget appropriations after they have been approved by the Congress. The general provisions of the annual budgets also govern modifications. In accordance with the LOP and annual budgets:

  • Congress has authority over modifications that entail a change in the total approved amount, as well as over transfers between the branches of government.

  • The president has 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), and SEFIN may transfer funds between appropriations for contingencies.

99. As provided by those laws, the government may transfer funds so as to alter the composition of the budget and periodically report to the Congress on such transfers. The quarterly monitoring reports submitted to the Congress detail modifications by institution and source of funding.

100. The principal sources of funding primarily arise from surplus revenue collection or loans received relative to the amounts initially anticipated. The most common source of funding of those increases are additions to the budget for increased revenues collection or internal or external credits. To adhere to the fiscal policy targets for each fiscal year, which could be altered with additions, regulations are issued to identify budget space between institutions that prevent or limit additions. In 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 (Figure 2.7).

Figure 2.7.
Figure 2.7.

Increase in Total Amounts of Approved Budgets, 2014–17

Citation: IMF Staff Country Reports 2021, 150; 10.5089/9781513589084.002.A001

Source: Budget Evaluation Report (http://www.sefin.qob.hn/?paqe_id=82481)
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101. The budget documentation provides no analysis of the differences between macroeconomic and fiscal forecasts for successive fiscal years. As mentioned in Section 2.1.2, macroeconomic and fiscal projections change between successive MTMFFs and MTBFs; however, the documents do not explain the factors underlying the changes or whether they are due to the evolution of economic conditions or are the result of fiscal policy measures.

102. In the context of annual budget monitoring, the annual budget liquidation document presents information on all of the phases of expenditure under the respective classifications,20 describing the principal modifications and, in some cases, the measures that explain them. The document presents this information for the central administration and decentralized institutions; it also provides reports, by entity, on the page devoted to the Directorate General of Budget (DGB). Although explanations are given for the principal modifications occurring between appropriation and execution (some of them relating to economic factors, policies, or changes made during the budget year), no breakdown is provided between the amounts reflecting changes in macroeconomic projections and those reflecting fiscal policy measures. In view of the many changes made to the budget, differences arise— often significant—between the amounts approved and the amounts executed (accrued). These modifications, in turn, implies changes in the composition of the budget.

103. A reconciliation of projections, which would improve the score and practice with respect to this principle, should include explanations of the differences in macroeconomic and fiscal projections resulting from the following:

  • 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.

104. Among the countries for which the IMF has conducted a fiscal transparency evaluation, the Finland and the United Kingdom stand out with respect to reconciliation of projections. In the United Kingdom, the Budget Office produces an ex post evaluation of its performance in the forecasting exercise in an annual report that scrutinizes the difference between fiscal results and the previous projections. It also provides a reconciliation of changes to fiscal projections at each budget update, presenting the changes according to three categories: (1) changes in classification following a decision of the Office of Statistics; (2) changes made at the Budget Office’s discretion, particularly where economic forecasts are changed in light of new information; and (3) changes resulting from policy decisions.

E. Conclusions and Recommendations

105. In comparison with Pillars I and III, Pillar II indicates the most satisfactory levels of fiscal transparency. Only two dimensions of this pillar are unmet; a large number of dimensions is considered good.

106. The evaluation identifies strengthens in macro-fiscal forecasting and budgeting:

  • The legal framework is relatively simple and comprehensive, and it was recently strengthened with the entry into force of the Fiscal Responsibility Law. This process has resulted in an orderly and significant fiscal adjustment, including compliance with the requirements of a quantitative fiscal rule.

  • The annual budget formulation process adheres to the calendar, and the budget is sent to Congress sufficiently in advance to allow discussion and approval.

  • The budget incorporates a macro-fiscal framework that is considered complete and presents the principal fiscal and budget aggregates, according to classifications consistent with international standards.

  • The public investment management system is transparent, providing for periodic updates of multiyear commitments and publication of all procurement processes.

  • Significant efforts have been made to disclose and communicate the approved budget in language that is simple and accessible to citizens to promote citizen participation.

  • Honduras has a system in place to manage the budget at the output level; the system is continually monitored by the government and oversight bodies.

107. Fiscal transparency can be improved in several areas:

  • The institutional coverage of budgets is considered incomplete insofar as substantial resources are managed through trusts that escape the budget process, distorting the transparency of public sector economic and financial activities conducted in each budget year.

  • Macroeconomic and fiscal projections are not subject to independent evaluation, which could erode the credibility of projections.

  • Although Congress has been compliant in approving the budget prior to the start of the year, there was a delay of close to 20 days in 2018, which prevented the executing entities from accessing their budgets to begin the fiscal year.

  • Macroeconomic projections do not explicitly identify the underlying assumption.

  • Both macroeconomic and fiscal projections deviate perceptibly from actual conditions, yet the documents do not explain the reasons for the deviations.

  • Due to challenges in terms of institutional capacity, delimitation of responsibilities, and problems in the coordination of objectives and procedures between SEFIN and the SCGG, Honduras has far to go to effectively implement results-based budgeting.

108. There are three principal recommendations for this pillar of the FTC to enhance 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.

Table 2.7 represents a summary of Honduras’s evaluation against the Pillar II of the FTC.

Table 2.7.

Honduras: Summary of Evaluation of Fiscal and Budget Projections

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III. Fiscal Risk Analysis and Management

Governments should disclose, analyze, and manage risks to public finances and ensure effective coordination of fiscal decision-making across the public sector.

109. This section evaluates the quality of fiscal risk analysis, reporting, and management with respect to principles of the FTC. The focus of this pillar is to evaluate the central government’s exposure to shocks to fiscal variables produced from the rest of the public sector, the domestic private sector, and the international context. The section also covers issues of long-term debt sustainability. The fiscal risks include explicit risks—legal obligations or firm commitments to provide fiscal support under specific conditions—as well as implicit risks, where there is no legal obligation on the government but there is an expectation that the government will provide fiscal support. The risks are evaluated in terms of three dimensions:

  • 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.

Table 3.1 presents the key documents providing information on fiscal risks in Honduras.

Table 3.1.

Honduras: Fiscal Risk Reporting

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