Document of The World Bank FOR OFFICIAL USE ONLY Report No. 63370-HN INTERNATIONAL DEVELOPMENT ASSOCIATION AND INTERNATIONAL FINANCE CORPORATION COUNTRY PARTNERSHIP STRATEGY FOR THE REPUBLIC OF HONDURAS FOR THE PERIOD FY2012-2014 November 1, 2011 Central America Country Management Unit Latin America and Caribbean Region International Finance Corporation Latin America and Caribbean Department This document is being made publicly available prior to Board consideration. This does not imply a presumed outcome. This document may be updated following Board consideration and the updated document will be made publicly available in accordance with the Bank’s policy on Access to Information.     CURRENCY EQUIVALENTS (Exchange Rate Effective November 1, 2011) Currency Unit = Honduran Lempira US$1.00=HNL18.61 WEIGHTS AND MEASURES Metric System FISCAL YEAR January 1 - December 31 ABBREVIATIONS AND ACRONYMS AAA Analytic and Advisory Activity AACID Agencia Andaluza de Cooperación Internacional para el Desarrollo ACDI Agencia Canadiense de Desarrollo Internacional AECID Agencia Española de Cooperación Internacional para el Desarrollo APL Adaptable Program Loan BM Banco Mundial CA Central America CABEI/BCIE Central American Bank of Economic Integration CAFTA-DR Central America Free Trade Agreement – Dominican Republic CAS Country Assistance Strategy CATIE Centro Agronómico Tropical de Investigación y Enseñanza CCT Conditional Cash Transfer CEM Country Economic Memorandum CMU Country Management Unit CNA Consejo Nacional Anticorrupción CPR CAS Progress Report CPS Country Partnership Strategy COPECO Standing Committee on Contingencies COSUDE Agencia Suiza para el Desarrollo y la Cooperación CPPR Country Portfolio Performance Review CSJ Supreme Court of Justice CSOs Civil Society Organizations CY Calendar Year DfiD Department for International Development DGSC Central Civil Service Office DPL Development Policy Loan DPC Development Policy Credit DRM Disaster-Risk Management ENDESA National Survey on Population and Health ENEE Public Electricity Company ERSAPS Regulating Entity for Water and Sanitation Services ESW Economic and Sector Work EU European Union FAO Organización de las Naciones Unidas para la Agricultura y la Alimentación FHIS Honduras Social Investment Fund FIDA Fundación Italiana para el Desarrollo Agrícola FSTAC Financial Sector Technical Assistance Credit FY Fiscal year GAC Governance and Anti-Corruption Strategy GDP Gross Domestic Product GEF Global Environmental Facility GIZ(GTZ) Cooperacion Tecnica Alemana CNBS National Banking and Insurance Commission GOH Government of Honduras     GPOBA Global Partnership for Output-Based Aid IBRD International Bank for Reconstruction and Development ICAs International Cooperation Agencies ICO Instituto de Crédito Oficial de España ICR Implementation Completion Report IDA International Development Association IDB Inter-American Development Bank IDF Institutional Development Fund IEG Independent Evaluation Group IFC International Financial Corporation IGR Institutional and Governance Review IMF International Monetary Fund INE National Satatistics Institute IPDP Indigenous Afro-descendant Peoples and Gender Plan ISN Interim Strategy Note JICA Japan International Cooperation Agency JSDF Japan Social Development Fund KfW Banco de Crédito para la Reconstrucción / Kreditanstalt für Wiederaufbau KOICA Korean International Cooperation Agency LCR/LAC Latin America and the Caribbean Region MCC/ MCA Millennium Challenge Corporation MDG Millennium Development Goals M&E Monitoring and Evaluation MIGA Multilateral Investment Guarantee Agency MMR Maternal Mortality Ratio MITYC Ministerio de Industria y Comercio de España NDF Fondo Nórdico para el Desarrollo NGO Non Governmental Organization NLTA Non-Lending Technical Assistance OEA Organización de Estados Americanos OIEA Organización Internacional de Energía Atómica ONCAE National Public Procurement Office ONUSIDA Programa Conjunto de las Naciones Unidas sobre el VIH/SIDA OP Operational Policy OPS/OMS Organización Panamericana de la Salud PATH Land Administration Program PEFA Public Expenditure and Financial Accountability Assessment PER Public Expenditure Review PETS Public Expenditure Tracking Survey PFM Public Financial Management PHRD Japan Policy and Human Resource Development PIU Project Implementation Unit PMA Program Mundial de Alimentos PNUD/UNDP Programa de las Naciones Unidas para el Desarrollo PPP Public-Private Partnership PPIAF Public-Private Infrastructure Advisory Facility PROHECO Community Education Program PROSOL Solar System Program PRSP Poverty Reduction Strategy Program PRSTAC Poverty Reduction Strategy Technical Assistance Credit RBM Results Based Management ROSC Report on the Observance of Standards and Codes SDRs Special Drawing Rights SEFIN Ministry of Finance     SERNA Ministry of Environment and Natural Resources SFLAC Spanish Trust Fund SGJ Ministry of Justice and Interior SIAFI Integrated Financial Management Information System SICA Sistema de Integración Centroamericana SIDA Swedish International Development Cooperation Agency SINAGER National Risk Management System SINAP National Property Registration System SMEs Small- and Medium-Sized Enterprises SOPTRAVI Public Works, Transport and Housing Ministry SNV Organización Holandesa para el Desarrollo TA Technical Assistance TTLs Task Team Leaders USAID Agencia de los Estados Unidos para el Desarrollo Internacional WBG World Bank Group WHO World Health Organization IBRD IFC Vice President: Pamela Cox Vice President: Thierry A. Tanoh Country Director: C. Felipe Jaramillo Regional Director: Paolo M. Martelli Task Team Leader: Trina S. Haque Country Manager: Roberto Albisetti Team Support: Sonia C. Molina Task Manager: John Barham This CPS was prepared by a Bank team led by Trina Haque (LCC2C) and included Aaron Ordower (Author of the CAS Completion Report, LCC2C), Giuseppe Zampaglione, (LCCHN), Christian Y González (LCSPE), Martin Ochoa (LCCHN), Rodrigo Serrano-Berthet (LCSSO), Edgar Restrepo (IFC), Javier Posas (IFC), Jasmin Chakeri (LCSPE), Lorena Cohan (LCSSO), Ezequiel Miranda (LCCHN), Jose Rezk (LCSFM), Miriam Muller (LCSPP), Margarita Puerto (SDV), and Sonia Molina (LCC2C). The team is very grateful to the extended Honduras Country Team (Bank and IFC) for their collaboration, inputs, and advice. The team is also grateful for the close collaboration of the Government of Honduras during the preparation of the CPS. The team would also like to sincerely thank the many civil society and private sector participants of the CPS consultations in Honduras for taking the time to provide feedback on the Bank’s performance, and lay out suggestions on focus areas for the future. The team very much appreciated the guidance provided at various stages by Laura Frigenti, Geoffrey Bergen, Humberto Lopez, Gregor Wolf, Sajitha Bashir, Luis Alvaro Sanchez, Bruce Courtney, and Louise Cord. Finally, the team is very grateful to Felipe Jaramillo for his guidance to the overall effort.       Table of Contents     EXECUTIVE SUMMARY ....................................................................................................................... i  I.  . INTRODUCTION  .............................................................................................................................. 1  II.  . COUNTRY CONTEXT  ................................................................................................................. 2  Political Context ....................................................................................................................................... 2  . Governance Context  ................................................................................................................................. 3  Recent Economic Developments ............................................................................................................... 4  Crime and Violence, Citizen Security ....................................................................................................... 6  Poverty, Inequality, Gender and Social Development .............................................................................. 8  Environmental Vulnerability ................................................................................................................... 11  Medium-term Economic Perspectives ..................................................................................................... 12  III.  GOVERNMENT PROGRAM AND DEVELOPMENT CHALLENGES .............................. 13  Long-Term Country Vision and Nation’s Plan ....................................................................................... 13  The Lobo Administration’s Priorities ..................................................................................................... 13  IV.  LESSONS FROM PAST WORLD BANK EXPERIENCE ...................................................... 14  Recent Bank Implementation Experience................................................................................................ 14  Key Lessons ............................................................................................................................................. 16  Stakeholder Consultations ...................................................................................................................... 17  V.  WORLD BANK GROUP PARTNERSHIP STRATEGY FOR HONDURAS ........................... 18  Country Partnership Strategy Overview ................................................................................................. 18  Strategic Objectives, Results Areas, and Instruments ............................................................................. 18  . Strategic Objective One—Improving Citizen Security  ...................................................................... 19  Strategic Objective Two—Expanding Opportunities through Reducing Vulnerabilities ................... 22  Strategic Objective Three—Enhancing Good Governance ................................................................ 25  Proposed Program of Support ................................................................................................................ 27  En-Gendering the Development Impact of the CPS Program ................................................................ 29  Managing the Program ........................................................................................................................... 30  Fostering Partnerships ........................................................................................................................... 30  VI.  MANAGING RISKS .................................................................................................................... 31  . ANNEX 1 Honduras CAS Completion Report  .......................................................................................... 32        ANNEX 2 Honduras CPS Results Matrix ................................................................................................. 64  . ANNEX 3 IFC Program  ............................................................................................................................. 77  ANNEX 4 Gender Issues ............................................................................................................................ 79  ANNEX 5 CPS Consultations .................................................................................................................... 94  ANNEX 6 Selected Donor Mapping ........................................................................................................ 102  MAP           EXECUTIVE SUMMARY i. Honduras is a lower middle income country with broad macroeconomic, governance, security and growth challenges. The country remains one of the poorest and most unequal countries in Latin America. About half of the population of Honduras is rural, 80 percent of which live in hillside areas practicing subsistence agriculture. The trend in poverty had been one of gradual decline; however, poverty in Honduras may have risen by more than 150,000 people between 2009 and 2010 as a result of the economic contraction in 2009, before starting to fall again slowly as growth recovers. Human development challenges persist, particularly with regards to educational attainment, and a notable gender gap constitutes a developmental imperative. Honduras is also one of the most at-risk countries to natural hazards, and 1998’s Hurricane Mitch and subsequent storms have periodically battered the national infrastructure. ii. On June 28, 2009, Honduras experienced a governance crisis when the Honduran Supreme Court ordered the removal of President Zelaya. Porfirio Lobo from the National Party won the November 2009 elections and, following a period of international reconciliation, Honduras’ membership in the Organization of American States was restored. The 2009 political crisis should be considered in the context of broader unresolved national governance issues. Though Honduras has put forth several efforts in recent years aimed at improving governance, progress has been slow and uneven. iii. The country is still recovering from the effects of the 2008-2009 global economic crisis that negatively impacted the economy. The Honduran economy staged a moderate recovery in 2010, with exports and public investment being the key drivers of growth. The recovery was, however, accompanied by deterioration in the external balance and an increase in inflation. The Government is committed to fiscal consolidation efforts and reducing public sector vulnerabilities after the significant growth expenditures during the global crisis and the period before President Lobo’s election. iv. Crime and violence is now one of the most important development challenges for Honduras and the government has prioritized citizen security as its top priority. At 82.4 homicides per 100,000 inhabitants, in 2010 Honduras had the highest homicide rate in the world. Weak governance, low growth, and poor social outcomes have contributed to a more favorable environment for crime and violence that is attracting organized crime such as narco-trafficking and youth gangs. The impact of these external stresses has been amplified and exacerbated by the high prevalence of many of the risk factors that make individuals and communities vulnerable to violence, largely a result of the weak and fragmented social safety net system. The criminal justice system has been ineffective in its preventive, deterrence, or punitive roles, weakened by the corrupting influence of organized crime, and thus undermining good governance and the rule of law. v. An Interim Strategy Note (ISN) for Honduras covered a 12-month period up to October 2011, following the Country Assistance Strategy (CAS) for FY07-10. The 2007-2010 World Bank Honduras CAS was executed under especially challenging circumstances. The country experienced costly natural disasters, a food, fuel and global financial crisis, and i     political conflict that was followed by President Manuel Zelaya’s removal from office in 2009 and a “pauseâ€? in the Bank’s portfolio while an assessment of conditions on the ground was carried out in line with OP 7.30. Following resumption of the Bank’s assistance to Honduras, an ISN was prepared and discussed by the Bank’s Board of Executive Directors on November 9, 2010. The ISN was completed successfully, setting the stage for moving to a full Country Partnership Strategy (CPS). vi. The World Bank Group has developed its 2012-2014 CPS to respond to the Honduras Country Vision and National Plan, supported by the Lobo Administration. These priorities center along the goals of: i) improving social investments and opportunities; ii) crime and violence prevention; iii) social protection and reaching those in extreme poverty; and iv) improving economic growth and modernizing state institutions. vii. The CPS will accompany the Government in developing actionable strategies aligned to the national vision, through selective, strategic, and programmatic engagement. To do so it will reorient the existing program toward key strategic objectives supporting the major developmental priorities of the authorities, and will focus new engagement to reinforce these objectives. Given the limited amount of IDA resources available to help address the ambitious development agenda in Honduras, the implementation constraints that have been observed over the years, and the lessons learned, this CPS will contribute to the national development agenda in a strategic and selective way. Selectivity will be a major principle of the CPS, with fewer, larger operations supported by programmatic approaches and partnerships that leverage additional resources from other sources. Selectivity also means that the CPS does not envisage new investment financing at this time in some areas where the Bank has traditionally been providing financing, such as roads, education, or health. The 2012-2014 CPS will focus on three strategic areas: viii. Strategic Objective One—Improving Citizen Security. The Bank’s proposed strategy involves assisting the Government, within the Bank’s mandate, with building its capacity to implement a multi-sectoral and integrated citizen security strategy at both the national and local levels. First, the CPS aims to support the implementation of the National Citizen Security and Coexistence Policy with a focus on social prevention programs and strengthening the related governance structures. The Bank will also help build the anti- money laundering capacity of institutions and a base for better data on crime and violence. Second, the Bank will help to develop and finance interventions to reduce the physical, social, and economic exclusion of communities and municipalities where violence is high, with the ultimate goal of making them more resilient to the consequences related to the heightened levels of crime and violence. Third, key institutional capacity challenges across Central America are impeding the implementation of an integrated approach to reducing crime and violence. The Bank’s efforts in this area will be designed not only to increase awareness, skills, and new implementation know-how, but also to inspire partnerships and coalitions, and build consensus. The Bank will focus on developing approaches for raising the skills of young people for improving employability and transition to the labor market. ix. Strategic Objective Two—Expanding Opportunities through Reducing Vulnerabilities. This strategic objective defines both opportunities and vulnerabilities in an inclusive sense to ii     comprise those of an economic, social, or climatic nature. While the CPS will support diverse results contributing to this objective ranging from improved fiscal management, investment climate, and competitiveness, to more effective disaster risk management, a large part of the instruments will come from operations carrying over previous CAS period, especially in terms of infrastructure investments. New lending envisaged under this CPS pillar at this time will concentrate on a new programmatic series of DPCs. The CPS will also support actions and results in the investment climate and creditworthiness that will help position Honduras in the future for IBRD eligibility. x. Strategic Objective Three—Enhancing Good Governance. Though important reforms were passed with support under the preceding CAS in the governance sector and projects met their development objectives, many cross-cutting challenges persist, calling for a sustained engagement in a broader framework on good governance. The Bank will continue to support the modernization of public sector management systems and expects to continue its work and contribute to results in several areas, including public financial management and service delivery through municipal and other decentralized structures. This work will be complemented by an effort to incorporate the findings of the 2009 IGR, including the need to strengthen social accountability and the demand for good governance. xi. IFC will also continue to explore demand and expand its program in Honduras, focused primarily on the financial sector, agribusiness, infrastructure, and more recently, engagement with sub-national government entities. Possibilities will also be explored for assistance in the creation of public-private partnerships for infrastructure and crime and violence prevention. xii. Possibility of transition to IBRD-IDA blend status. Honduras is positioning itself for a possible transition in this CPS period from an IDA-only status to an IDA-IBRD blend status. To this end, during the CPS period, IBRD will undertake a creditworthiness assessment focusing on whether Honduras has built a consistent track record of macro management, has developed a robust debt management capacity, and is committed and able to move ahead with its core reform agenda. Should Honduras gain access to IBRD funds during the CPS period, the Bank will return to the Board with a CPS Progress Report and modified strategy. xiii. Risks and risk mitigation. The CPS will face key risks in the areas of fiscal consolidation, crime and violence, political economy, and the possibility of disasters. In each of these areas, the Bank has identified approaches and instruments to help mitigate the risks. Nevertheless, it is important to acknowledge that violence and crime are likely to continue to escalate. The Bank’s approach will be to help the Government target impact through multi-faceted interventions focused on prevention, and to bring about greater strategic coherence to bear on this objective over time. Moreover, the Bank will need to closely observe the political dynamics in the country and maintain an open dialogue with all political parties. The Bank will also monitor implementation of its Program with attention to political economy dimensions and periodically review with Government and others options in this regard. Emphasis will be given to actions that support the enlargement of the pro-reform constituencies with a focus on demand driven good governance initiatives.   iii     I. INTRODUCTION 1. An Interim Strategy Note (ISN) for Honduras covered a 12-month period up to October 2011, following the Country Assistance Strategy (CAS) for FY07-10. The 2007- 2010 World Bank Honduras CAS was executed under especially challenging circumstances. The country experienced costly natural disasters, a food, fuel and financial crisis, and political conflict followed by President Manuel Zelaya’s removal from office in 2009 and a “pauseâ€? in the Bank’s portfolio while an assessment of conditions on the ground was carried out in line with OP 7.30. Following resumption of the Bank’s assistance to Honduras, an ISN was prepared and discussed by the Bank’s Board of Executive Directors on November 9, 2010 (Report No. 56405- HN). The ISN was completed successfully, setting the stage for moving to a full Country Partnership Strategy (CPS). 2. The CAS Completion Report (see Annex 1) argues that despite these challenges, the Bank’s performance during the preceding CAS and ISN periods was moderately satisfactory, although the Program performance was moderately unsatisfactory. The Bank undertook proactive action given the evolving political and economic conditions as well as responding to a number of shocks, while also remaining focused on its engagement in several strategic development areas, such as governance. The difficult economic, governance, social, and political environment meant, however, that several of the CAS outcome targets were not achieved and the impact of the CAS Program on the broader development outcomes of the country has been mixed. Given limited local implementation capacity, moreover, greater selectivity in identifying areas of Bank engagement under the CAS would also have likely led to better performance of the lending portfolio. 3. The proposed Country Partnership Strategy (CPS) will cover the period FY12 to FY14, a period likely to be marked with emerging opportunities and serious challenges, for the following reasons: ï‚· Crime and violence. First, the citizen security agenda has acquired increasing significance in Honduras as both a serious drag on economic growth and a socially destabilizing force. Addressing it will need a strong, concerted and multi-pronged effort on the part of Government, civil society, private sector, and the international development partners of Honduras. This issue forms a cornerstone of the new CPS, with a package of Bank support that will involve financing, knowledge products, capacity building, and convening services within the international community. The Bank acknowledges, however, that while it has relatively robust diagnostics and some experience and ideas of what to support, the Bank’s work in this area is relatively new and concrete evidence of what works best in Honduras is still being accumulated. Therefore the Bank will maintain a proactive monitoring policy in order to make adjustments to the approach to citizen security in the CPS. ï‚· Political turmoil. The current administration has integrated actors from various political factions under a “National Unity Government,â€? but challenges remain. The Government’s success in delivering on national development priorities, as well as in conducting an orderly hand-over of power through the electoral process in 2013, will be crucial to consolidating the 1      strength of Honduras’ framework for governance. The financial and technical assistance under this CPS will be front-loaded to the extent possible to respond to both Government demand and to increase the chance that projects initiate implementation promptly before a new electoral cycle. In contrast, the latter months of this CPS are expected to be overshadowed by the approaching political transition, constraining prospects of significant institutional or legislative reform. ï‚· Possibility of transition to IBRD-IDA blend status. Honduras is positioning itself for a possible transition in this CPS period from an IDA-only status to an IDA-IBRD blend status. To this end, during the CPS period, IBRD will undertake a creditworthiness assessment focusing on whether Honduras has built a consistent track record of macro management, whether it has developed a robust debt management capacity, and whether it is committed and able to move ahead with its core reform agenda. Should Honduras gain access to IBRD funds during the CPS period, the Bank will return to the Board with a CPS Progress Report and modified strategy. 4. The proposed CPS is aligned with the Government’s development priorities and the LCR and IFC Regional strategies. The strategic objectives of the CPS are to: (i) improve citizen security; (ii) expand opportunities and reduce vulnerabilities (social, economic, and climate); and (iii) enhance good governance. Lessons from the implementation of the previous CAS have pointed to the need for greater selectivity in areas of lending engagement, a coherent combination of lending and knowledge services which are programmatic, a more modest approach in framing likely CPS results, and greater emphasis on communication and partnerships with other development institutions, civil society, and the private sector. II. COUNTRY CONTEXT 5. Honduras is a lower middle income country with a per capita gross national income of US$1,800 (2009 Atlas GNI per capita). It has about 7.5 million people and is the second largest country in Central America, with an area of 112,492 square kilometers, and is the second most populous. About half of the population of Honduras is rural, and 80 percent of the rural population lives in hillside areas practicing subsistence agriculture. Increasing land degradation and low agricultural productivity are major drivers of Honduras’ rural poverty. At 82.4 homicides per 100,000 inhabitants, in 2010 Honduras had the highest homicide rate in the world. Political Context 6. On June 28, 2009, the Honduran Supreme Court ordered the removal of President Zelaya following his decision to conduct a referendum that, if won, would have allowed him to convene a National Constituent Assembly to rewrite the Constitution and stand for re- election. An interim President was appointed by Congress the following day, to remain in place until the November 2009 elections. Following these political developments, much of the international community put aid programs on hold, although a number of donors continued implementation of projects, particularly those focused on the poor. The Bank followed a process consistent with Operational Policy (OP) 7.30, which included conducting an assessment of the prevailing situation with respect to the de facto Government. During the assessment period the Bank “pausedâ€? the implementation of the existing portfolio and no new lending was approved. 2      The situation remained fluid for much of 2009 and the Bank began to resume disbursements in December 2009, once it was clear that the conditions of OP 7.30 were fulfilled. 7. Porfirio Lobo from the National Party won the November 2009 elections with 55 percent of votes cast. International observers concluded that the elections were free and fair. After President Lobo was inaugurated on January 27, 2010, the new Government quickly set about a series of actions aimed at easing political tensions. Some of the most important steps were naming a government of national reconciliation which included some political rivals; establishment of a Truth and Reconciliation Commission; working with Congress on important Constitutional reforms; restoring diplomatic relations with partner countries; and prompt re- engagement with the international community and development partners. The Government also faced a major challenge bringing the fiscal situation under control (see below). In June 2011, Honduras’ membership in the Organization of American States was restored, marking a milestone in the country’s efforts to normalize international relations. Despite these advances, however, there continue to be concerns of latent political instability and the widespread public sentiment appears to be that change is not happening fast enough. Governance Context 8. The 2009 political crisis should be considered in the context of broader unresolved governance issues in Honduras. As explored in the Institutional Governance Review, finalized by the Bank during the first half of 2009: (i) the lack of transparency around decision-making; (ii) the lack of available information to assess performance (which makes it difficult for citizens to hold policymakers accountable); and (iii) the weak organizational capacity of groups representing public interest, create conditions conducive to state capture and severely undermine socio-economic and democratic development in the country. 9. Honduras has put forth several efforts in recent years aimed at improving governance conditions particularly focused on strengthening its institutional framework. Progress, however, has been slow and uneven. Advances have been observed during recent years in key reform areas, such as: the approval and implementation of the Law on Transparency and Access to Information; the expansion and improvement of the use of a national e-procurement system, as well as a public financial management (PFM) reform program based on SIAFI, to address weaknesses in the areas of budget formulation, planning, management information systems, internal controls, expenditure management, tax administration, external audits, and procurement policies; and some progress in decentralization. Almost all of these areas, however, were affected or set back as a result of the political crisis of 2009 and related events, compounded by an environment of conflict, insecurity, deterioration of trust in public institutions among Honduran society, and exacerbated social tensions. 10. Honduras has advanced in the development of the Public Financial Management systems by consolidating the SIAFI operation and further developing the UEPEX module for project reporting. This has enhanced the fiduciary control environment by reducing the amount of parallel systems, centralizing record management, and allowing a proper segregation of duties and authorization levels through the system. The SIAFI system covers almost the entirety of public administration budgeting, including SOEs and decentralized entities. The system includes operations of Budget, Accounting and Treasury and has direct and automatic 3      links with Public Credit, Investments and Human Resources (SIARH) Systems. SEFIN is planning to further develop this system by developing a SIAFI module for budget reporting at the municipal level. Furthermore, payments flow from the Single Treasury Account directly to beneficiaries’ bank accounts via wire transfers, ensuring that the beneficiary database is permanently updated and granting traceability (audit trail) for government payments. Finally, through the UEPEX Module, PIUs can report on the execution of externally-financed projects. Currently, only the Bank and IDB are using this module, although it is expected that the donor community will be adopting the system for their projects in the short term. Recent Economic Developments 11. The shocks that hit Honduras in 2008 and 2009 negatively impacted the economy. As the country struggled to cope with rising food and fuel prices, a tropical depression struck in October 2008. Honduras was then hit particularly hard by the global financial crisis because its economy is largely export driven, with high vulnerability to shifts in the global economy. Falling tax revenues and growing expenditure pressures—amplified during the 2009 political crisis— compromised the nation’s fiscal situation, with the combined public sector deficit increasing to 4.7 percent in 2009. As a result of these crises, the economy contracted 1.9 percent in 2009. 12. The Honduran economy staged a moderate recovery in 2010, with exports and public investment being the key drivers of growth. On the supply side, financial intermediation was the most dynamic sector, growing 4.3 percent year over year, followed by manufacturing at 4 percent. However, construction struggled for a second year, contracting 6.7 percent. On the demand side, public investment grew 19.7 percent year over year, followed by exports at 6 percent. GDP grew 2.8 percent in 2010, a modest recovery after the decline in 2009. 13. The recovery in 2010 was accompanied by a deterioration in the external balance and an increase in inflation. The current account deficit increased from 3.6 percent of GDP in 2009 to 6.2 percent in 2010. This reflects a jump in the merchandise trade deficit due to higher oil prices. Inflation reached 6.5 percent in 2010, up from 3 percent in 2009. The surge in the current account deficit was financed primarily by an increase in foreign direct investment and long term public sector borrowing. 14. Fiscal consolidation efforts started in 2010. The Combined Public Sector deficit was 2.9 percent of GDP in 2010, down from 4.7 percent in 2009 and well below the target of 3.7 percent under the IMF program. This improvement is mainly explained by a surplus from public enterprises, tax reforms (which yielded 1 to 1.5 percent of GDP), and measures to control public sector wages. In addition, the Central Government deficit reached 4.8 percent of GDP in 2010, down from 6.2 percent in 2009. The Bank supported the country’s fiscal consolidation efforts through a Development Policy Credit (US$76.4 million) delivered in November 2010, along with the IMF program and similar budget support operations from the IDB, EU, and the Central American Bank for Economic Integration. 15. The Government is committed to continuing its fiscal consolidation efforts. While the fight on crime may need additional resources, the Government is taking the necessary measures to secure them. In June 2011, Congress approved the Public Expenditure Efficiency Law, which eliminates some tax exemptions and enforces new measures against tax evasion. In addition, 4      Congress approved the Security Tax Law in September 2011, which creates new taxes to finance efforts to address security and social prevention programs. The new taxes are estimated to raise government revenues by about 0.3 percent of GDP annually. Fiscal consolidation efforts also include measures reducing the wage bill, increasing revenues through tax administration efficiency, and addressing the contingent liabilities in pensions. Table 1: Honduras - Selected Economic Indicators Output and Inflation (annual percentage change) p/ a/ a/ a/ a/ 2008 2009 2010 2011 2012 2013 2014 Real GDP Growth 4.0 (1.9) 2.8 3.4 3.6 4.0 4.0 CPI Inflation 10.8 3.0 6.5 8.2 7.9 6.0 6.0 Public Sector (percentage of GDP) a/ a/ a/ a/ a/ Public Sector Balance Components 2008 2009 2010 2011 2012 2013 2014 Combined Public Sector Balance (1.7) (4.7) (2.9) (3.1) (2.5) (2.0) (2.0) Central Government (2.4) (6.2) (4.8) (3.8) (3.1) (2.1) (2.1) Other Public Sector 0.7 1.6 1.9 0.7 0.6 0.1 0.1 o/w Pension Funds 2.0 1.7 2.3 1.9 1.6 1.3 1.2 p/ a/ a/ a/ a/ Central Government 2008 2009 2010 2011 2012 2013 2014 Central Government Total Revenues 19.9 17.5 17.4 17.2 17.5 17.6 17.6 Current Revenues 17.8 15.6 16.0 16.2 16.7 16.8 16.8 Tax Revenues 16.1 14.6 14.8 15.1 15.3 15.5 15.5 Non Tax Revenues 1.7 1.1 1.1 1.1 1.4 1.3 1.3 Other 2.1 1.9 1.4 1.0 0.8 0.8 0.8 Central Government Total Expenditures 22.4 23.8 22.2 21.0 20.6 19.7 19.7 Current Expenditures 17.5 19.2 18.4 17.1 16.7 16.6 16.6 o/w Wages & Salaries 9.3 11.2 11.0 9.9 9.7 9.5 9.3 Social Security Contributions 0.8 0.9 1.0 0.9 1.0 0.9 0.9 o/w Interest Payments 0.7 0.7 1.0 1.3 1.4 1.4 1.4 Capital Expenditures 4.8 4.6 3.7 3.9 3.9 3.1 3.1 o/w Budgetary Investment 2.4 2.8 1.7 2.3 2.1 2.1 2.1 o/w Other 2.4 1.8 2.0 1.6 1.8 0.9 0.9 Central Government Balance (2.4) (6.2) (4.8) (3.8) (3.1) (2.1) (2.1) Total Public Sector Debt 20.2 23.7 26.3 27.8 28.0 27.8 27.6 External Sector p/ a/ a/ a/ a/ 2008 2009 2010 2011 2012 2013 2014 Current Account (% of GDP) (15.3) (3.6) (6.2) (7.2) (6.3) (5.9) (5.7) Foreign Direct Investment (% of GDP) 7.3 3.7 5.2 5.5 5.2 5.0 5.0 Exports (annual percentage change) b/ 8.3 (18.7) 17.1 22.5 9.6 7.7 5.0 Imports (annual percentage change) b/ 17.4 (28.1) 17.6 18.2 8.7 6.8 4.9 Gross International Reserves (US Million) 2,691.0 2,331.0 2,931.0 3,280.0 3,460.4 3,680.3 3,896.6 In months of imports 4.7 3.5 3.8 3.2 3.1 3.1 3.1 Net International Reserves (US Million) 2,460.0 2,116.0 2,719.0 3,067.0 3,246.4 3,466.3 3,682.6 a/ Projections. b/ Goods only. p/ Preliminary. Note: The projections assume that the reforms supported by the DPC are implemented. Sources: Ministry of Finance; IMF, and Bank staff estimates 16. The rapid rise in the public sector wage bill has been halted. Rising public wages have been a significant fiscal challenge in Honduras over the past decade. The proliferation of special pay regimes for civil servants, notably teachers and health workers, has led to the wage bill representing about 75 percent of total tax revenues and more than three times the size of the investment budget. To counter the trend, the Government introduced several measures last year 5      to freeze the wage bill at 11 percent of GDP, recently initiating additional reforms expected to now lead to a decline of the wage bill to about 10 percent of GDP by the end of 2011. 17. The public pension systems have important actuarial deficits, but the Government is taking steps to reduce them. The Instituto Nacional de Previsión del Magisterio (INPREMA), which serves both private sector and public sector teachers, has an actuarial deficit of about US$4 billion and reserves have started to deplete. The Government has presented a Law to Congress that puts the management of INPREMA in the hands of technical and actuarial professionals to improve the management of assets as well as making several parametric adjustments in the pension law to gradual changes in the retirement age and the minimum number of working years. Similarly, the Instituto Nacional de Jubilación y Pensiones de los Empleados Públicos (INJUPEMP), which covers Central Government civil servants, has an actuarial deficit of about US$1.7 billion. The Government has submitted a bill to the Congress to reform INJUPEMP as well. 18. After weathering the crisis quite well, the domestic financial system is gradually improving. Since the beginning of 2011, the Central Bank has reduced reserve requirements. As a result, overall funding costs have decreased and stimulated credit demand, while a growth in the banking system’s deposit base has helped maintain liquidity at adequate levels. The banking system reported a non-performing loan (NPL) ratio of 4.5 percent in June 2011, which is lower than the pre-crisis level (6.5 percent in June 2009), but still above the regional average. The coverage ratio of provisions/NPL increased from 59 percent in 2009 to 84 percent in 2011. All banks complied with the minimum capital requirements of 10 percent of risk weighted assets. Supervision of the banking sector has also improved in the last year, due to the implementation of an ambitious plan to strengthen the Banking and Insurance Commission's (CNBS) supervisory capacity with the help of the Bank’s Financial Sector Technical Assistance Credit and the IDB. Crime and Violence, Citizen Security 19. Weak governance, political instability, low growth, and persistent poverty have contributed to a fertile ground for crime and violence. Between 2005 and 2010, the country’s homicide rate doubled from 37 to 82.4 murders per 100,000 inhabitants, moving it from third to first place in Central America (see Figure 1 on next page), and indeed the world. Violence is concentrated in urban areas. Among cities with more than 100,000 people, the most violent are La Ceiba (158 homicides per 100,000 inhabitants), San Pedro Sula (148), Juticalpa (129), Puerto Cortes (109), Comayagua (104), and Tegucigalpa and Comayaguela (93). Most victims of homicides are males (94 percent), particularly those between 15 and 34 years of age (30 percent). 20. In the past five years, violence against women has increased by 125 percent, and women’s homicide rates have increased from 4.8 murders per 100,000 inhabitants in 2005 to 10.8 murders per 100,000 inhabitants in 2010. In addition, according to the 2005 National Demographic and Health Survey (ENESF), 15 percent of women were victims of some form of violence at least once in the previous 12 months. The level of education correlates with the probability of maltreatment; for instance, 20 percent of women with no education experienced violence at least once in their lifetime, while the share was significantly lower for women with tertiary education levels (12 percent). 6      Figure 1. Homicide Rates in Central America, per 100,000 inhabitants (2005-2010) 90 80 70 Costa Rica 60 El Salvador 50 Guatemala 40 Honduras 30 Nicaragua 20 Panama 10 0 2005 2006 2007 2008 2009 2010 Source: WB (2011), UNDP (2011), SICA (2011) 21. The economic costs of crime and violence in Honduras are very high. A recent Bank study estimates that the economic costs of this violence are about 10 percent of Honduras’ GDP (nearly US$900 million) per year. The report also finds that reducing homicide rates by 10 percent could boost annual economic growth in Honduras by 0.7 percent. 22. The escalating levels of crime and violence in Honduras are partly the result of external phenomena such as drug trafficking. The shift in drug trafficking routes between South America and North America from the Caribbean to the Central America-Mexico corridor has made drug trafficking the main single factor behind the rising violence level in Honduras in recent years. There is a correlation between homicide rates and the country’s areas with high intensity of drug trafficking, such as the Atlantic coast and the bordering areas with Guatemala. 23. Similar to other countries of Central America’s Northern Triangle, the deportation of transnational youth gang members from US prisons since the mid-1990s has contributed to the proliferation of youth gangs in Honduras. It is estimated that about 112 youth gangs or maras (36,000 members) are now operating in the country, and that 15 percent of homicides are gang-related. While the role of youth gangs has tended to be exaggerated, its close links with different forms of organized crime has made them a growing threat for citizen security. 24. The impact of these external stresses has been amplified by the high prevalence of many of the risk factors that make individuals and communities vulnerable to violence. Studies show that violence does not result from a single risk factor but from the accumulation of multiple disadvantages and risk factors. Violent individuals tend to experience disadvantages not only at the individual level (e.g., low education, poor employability skills) but also in their families (domestic violence, lack of parental monitoring), relationships (friends who are gang members, violence against women), communities (living in violence hotspots with high presence of guns, drugs, alcohol), and society at large (stigmatization of poor youth as criminals, repressive and corrupt police). Territorial “hotspotsâ€? of crime and violence tend to coincide with enclaves of urban inequality suffering from multiple disadvantages (e.g. high levels of poverty, low social capital, lack of basic services, high exposure to natural disasters, urban decay). 25. Honduras shows a high prevalence of many of these risk factors. For instance, for at least the last two decades, Honduras has had high levels of outmigration in search of labor, 7      leaving dysfunctional family structures where young children and youth often do not have sufficient parental supervision, rendering these children prey to the guidance and structure offered by the maras. Another risk factor, for example, is that it has high levels of firearms with weak enforcement of the regulatory framework. In 2010, around 151,000 firearms were registered but the actual estimated number of total firearms was close to 800,000. 26. The criminal justice system has been ineffective in its preventive, deterrence, or punitive roles, weakened by the corrupting influence of organized crime, and thus undermining good governance and the rule of law. As the ill-equipped justice and security organs of the state struggle and often fail to combat organized crime, Honduran citizens’ trust in the rule of law declines. Overall trust in criminal justice institutions and the police have declined from 51 percent in 2004 to 41 percent in 2008, and from 57 percent in 2004 to 44 percent in 2008, respectively. 27. To sum up, crime and violence is undermining Honduras’ growth potential and investment climate, social progress, and efforts at good governance. Given the multiple factors contributing to such high levels of crime and violence, any attempt to address this through isolated interventions is not likely to succeed. Hence, there is need for a multi-faceted approach which takes account of the individual, family, community, and policy dimensions. Poverty, Inequality, Gender and Social Development 28. Honduras remains one of the poorest and most unequal countries in Latin America. Consumption-based poverty figures for 2009 indicate that about 44.5 percent of the population were living in poverty and 20.1 percent in extreme poverty (Figure 2). Also, according to official figures, the Gini coefficient measuring income inequality for 2007 stood at 0.57. These figures are among the highest in Latin America. Income based poverty measures are even higher; INE surveys indicate that for 2010 the population under the poverty line was at 66.2 percent, and extreme poverty 45.3 percent (http://www.ine.gob.hn/drupal/node/123). Furthermore, according to the Honduras Poverty Assessment (2006), indigenous peoples and other non-Mestizo/Ladino groups account for 6.5 percent of the population, with 71 percent living below the poverty line. 29. The poverty prevalence in Honduras was declining steadily in the early 2000s, but this trend was halted and reversed due to the combined crises of 2009. Poverty in Honduras may have risen by more than 150,000 people between 2009 and 2010 as a result of the economic contraction in 2009, before starting to fall again slowly as growth recovers. The decline in remittances constitutes an important transmission mechanism. Around a quarter of the poorest 20 percent of the population receive remittances, and this contributes around a quarter of their total incomes. The recent crisis destroyed circa 35,000 jobs, of which 15,000 jobs were in the labor-intensive export-oriented sector (or maquilas). The effects were felt more in urban areas, where unemployment rose from 3.9 percent in 2008 to 6.4 percent in 2010. Rural areas were less affected and even managed to sustain employment in the agriculture sector, but of a low-paying and highly informal nature, acting as an “employment of last resortâ€?. 8      Figure 2. Poverty and Extreme Poverty in Honduras (2002-07 and projections for 2008-2013) 60 50 40 30 Poverty  20 Extreme Poverty 10 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source: Own simulations based on LSMS survey data from INE. 30. Despite an impressive 47 percent reduction between 1990 and 2008, the maternal mortality ratio (MMR) in Honduras is still high for the Region (110 per 100,000 live births). Thus, Honduras is one of the four LAC focus countries in the WB Reproductive Health Action Plan (RHAP) that targets countries with high maternal mortality and high fertility. Most of the reduction happened between 1990 and 1997 and is attributed to a combination of increased skilled attendance and improved referrals of obstetric emergencies and high-risk women. 31. Early childbearing in Honduras remains high, especially among the poor. Adolescent fertility rates reached 93 per 1,000 women (WDI 2009). Data from the last available Demographic and Health Survey show that 40 percent of women aged 20-49 who have had a child did so before reaching 20 years age, and 23 percent before reaching 18 years. In rural areas, these percentages increase to 47 percent and 28 percent respectively. Adolescent girls in the poorest income quintile are three times more likely to become mothers than their richest counterparts (31 percent and 10 percent, respectively). Education seems to have a huge impact on whether or not adolescent girls become mothers or not: 46 percent of girls who are pregnant or mothers (age 15-19) have no education; 42 percent completed primary school; 11 percent finished secondary school, and only 2 percent attend tertiary education. 32. Over the past two decades Honduras has devoted an increasing share of public spending to the education sector, yet learning outcomes remain weak. Education spending rose from an already high 5 percent of GDP to 8.6 percent of GDP between 1990 and 2007. These increases facilitated an expansion in coverage, as a result of which in 2009, 83 percent of 15-19 year olds had completed at least 6 years of education compared to 78 percent for a cohort 5 years older. However, Honduras has not been able to increase student learning outcomes, due in part to serious teacher absenteeism and a resistance to implement reforms by strong teachers’ unions. Bank analysis also shows high drop-out among 12 to 15 year olds and this has not changed between 2000 and 2009. There is also a related problem of high repetition in grades 1- 3, which contributes to low grade attainment and high drop-out.   This situation also has serious implications in terms of violence, given that dropping out of school is one of the primary risk factors for the involvement of children and youth in crime and violence. 9      33. Gender gaps persist. Over the last decades the government of Honduras has taken decisive steps to strengthen the legal and institutional framework to promote women’s rights and gender equality. However, laws do not automatically translate into reality and, thus, gender gaps remain and persist (see Figure 3 and Annex 4 for a detailed analysis of gender issues). Figure 3. Selected Gender Indicators: Honduras vs Lower Middle Income Countries vs Latin America Births attended by  skilled health staff % 1.0 0.8 Ratio of female to  0.6 Contraceptive  male secondary  … 0.4 prevalence % 0.2 0.0 Proportion of seats  Adolescent fertility  held by women in … … rate (births per  Female labor force  … participation rate  Honduras 2009 lower middle income LAC 34. Female labor force participation in Honduras is one of the lowest in Latin America. In 2009 (WDI), it was 40.1 percent compared to 80.2 percent for male labor force participation. However, women’s participation in the labor market is almost twice as high in urban areas. The Central America Regional Gender Study (2011) shows that the gender wage gap in Honduras is about 5.6 percent, and is 16.3 percent if controlling for age and education, placing it within the group of LAC countries with the highest gender wage gaps. This inequality can be explained by cultural or social factors such as differential preferences between men and women, formal and informal systems of education that collectively result in the reinforcement of gender stereotypes, and societal expectations that limit women’s access to the labor market. 35. Gender and age-related issues have led to risky behaviors that may contribute to violence as a major development challenge for Honduras. High teenage pregnancy rates, especially among poor women leads not only to a large proportion of households headed by women—at 35 percent in 2006 it is the highest for Central America—but also to higher drop-out rates in this group, which makes it harder for young women to obtain quality employment. Among boys, dropping out of school, compounded by the lack of employment opportunities, may lead to their involvement in gangs as well as in crime and drug trafficking. 36. These are complex dynamics that call for multi-sector approaches to deal with gender and youth issues. For example, teenage pregnancy need not be part of a traditional health project. Rather, it might be better addressed through social protection interventions, and could also be connected with issues of youth at risk and youth unemployment. 10      Environmental Vulnerability   37. Honduras ranks 9th among countries at relatively high mortality risk from exposure to two or more natural/environmental hazards. In fact, the country is exposed to hazards from various sources that include extensive deforestation and land degradation, tropical storms, earthquakes, and volcanic activity. Over the last 30 years, the 50 natural disaster events that hit Honduras have killed 15,500 and affected 3.6 million people with losses valued at around US$4.7 billion. In fact, as this CPS is being submitted, Honduras and its neighbors are assessing the losses from the heavy rains and floods which engulfed Central America in mid-October 2011 (Tropical Depression 12-E). Climate change models have predicted that Honduras is expected to endure increased-intensity rainfalls, more frequent heat waves and droughts, and rising sea levels, as predicted for the rest of Mesoamerica. 38. The 1998 Hurricane Mitch, considered the worst disaster experienced by the country in recent times, highlighted to the Government and its development partners the urgent need to move from a reactive to a pro-active, ex-ante approach to disaster risk management (DRM). With support from the Bank’s Disaster Risk Mitigation Project, which closed in 2010, and a series of grants, national capacity for DRM has been improved, including the preparation and passage of the 2009 law establishing a formal disaster risk management system (SINAGER) and strengthening of key agencies such as the Disaster Preparedness and Response Agency (COPECO) and the Ministry of Environment (SERNA). These institutions effectively coordinated the response to the heavy rains of 2011. Additionally, the consolidation of flood early warning systems covering four main watersheds have also improved national capacity to prevent loss of life. In order for these efforts to have a sustained impact, COPECO will need to continue improving its internal capacity as well as leadership role among the multiple stakeholders involved in DRM activities in Honduras. Box 1. Better DRM with the Aid of the Honduras Disaster Risk Mitigation Project (closed 2010) The legal and institutional framework for DRM was improved through support to the preparation and passage of the 2009 SINAGER Law that established a formal DRM system for Honduras; strengthening of key agencies such as the Disaster Preparedness and Response Agency (COPECO) and the Ministry of Environment (SERNA); and implementation of a disaster awareness campaign. National capacity for hydro-meteorological and geophysical monitoring, and for flood forecasting was improved through consolidation of the original old and small-scale flood early warning system covering four of the main watersheds in the country, which were destroyed during Hurricane Mitch; adoption of early warning systems for landslides (8 municipalities); adoption of a monitoring system for droughts (18 municipalities); establishment of community-based early warning systems (7 municipalities); and production of close to 3,500 layers of geo-spatial information. Local vulnerability was reduced through the establishment of 95 municipal disaster emergency committees and 375 local emergency committees that actively engaged a total of 6,000 people; completion of participatory DRM programs in 81 municipalities; preparation of engineering designs for priority structural and non structural mitigation measures in 61 municipalities; completion of structural mitigation measures in 58 municipalities which benefited over 500,000 people, including close to 130,000 directly protected (according to the 2001 Census); and completion of drought mitigation measures in 8 municipalities. 11      Medium-term Economic Perspectives 39. The Honduran economy is expected to grow 3.4 percent in 2011, an improvement from 2009-2010 but a low rate compared with those posted in the mid-2000s. On the one hand, as the economies of Honduras’ major trade partners are slowing down, labor-intensive exports have stagnated. On the other hand, as commodity prices remain high, the value of agriculture exports such as coffee and bananas have increased. In addition, the economic slowdown in the US is expected to result in stagnation in remittances relative to 2010. Total exports are expected to grow 22.5 percent while imports are projected to increase 18.2 percent. Foreign direct investment is expected to rise from 5.2 percent of GDP in 2010 to 5.5 percent of GDP in 2011. 40. In view of the global economic uncertainty, the authorities have cautiously focused on fiscal structural reforms and a gradual tightening of fiscal policy to act promptly in case an adverse scenario materializes. The Central Bank is also conscious of the need of continuing to enhance its capacity to deploy counter-cyclical policy, if needed. In this regard, the greater exchange rate flexibility introduced recently (see below) is part of the strategy to buffer the likely impact of a more pronounced slow down. Under a double dip recession scenario in the world economy, Honduras’ GDP can be expected to contract in 2012 similarly as it did in 2008 (about 2 percent) as exports and remittance flows slow down. However, on the back of the recent structural reforms undertaken on the fiscal side, the central government deficit is not expected to increase as much as in 2008 (6.2 percent of GDP), reaching about 4.5 percent of GDP. In addition, although in this scenario exchange rate depreciation would increase the value of foreign debt, Honduras has a relatively low debt to GDP ratio (27.8 percent of GDP) that could provide a cushion and would allow the country to access additional financing from multilaterals and domestic creditors if needed to sustain expenditure levels. 41. Monetary policy has remained vigilant as headline inflation has picked up. Headline inflation stood at 6.5 percent in July, and current projections suggest it will reach 8.2 percent by end-2011, which is inside the Central Bank’s target range of 7-9 percent. The Central Bank is committed to meeting its inflation target. To attain this goal, it will continue to mop up excess liquidity through the placement of its own securities. In the near term, the exchange rate will continue to serve as the main anchor for inflation expectations. In the medium term, commodity and fuel prices are expected to decline and thus inflation is projected to follow a similar trend and reach 6 percent in 2014. 42. The Government introduced a crawling exchange-rate in late July 2011, ensuring greater exchange rate flexibility. The crawl rate will be equal to the expected differential between domestic and foreign inflation and changes in the nominal effective exchange rate. Over time the exchange rate will be allowed to move freely within the crawling band. 43. A debt sustainability analysis suggests that Honduras’ public debt is on a sustainable trajectory. In the baseline scenario, the public-debt-to-GDP is expected to increase from 26.3 percent of GDP in 2010 to 28 percent in 2012 and gradually decline afterwards. The trajectory of public debt is projected to decline even under the most pessimistic alternative scenarios considered in the analysis. 12      III. GOVERNMENT PROGRAM AND DEVELOPMENT CHALLENGES Long-Term Country Vision and Nation’s Plan 44. The Porfirio Lobo Administration´s development agenda fits into the Country Vision 2010-2038 (Visión de País 2010-2038) and National Plan 2010-2022 (Plan de Nación 2010-2022). Different from previous Executive Branch-driven Poverty Reduction Strategies (PRS), the Honduran Congress launched in early 2009 an initiative to develop a Country Vision with a long term planning horizon, based on the previous 2003 and 2008 PRS documents. The draft Vision and Plan received wide acceptance from the presidential candidates before the November 27, 2009 elections, leading to Congress approving the proposed long term development plans in January 2010, elevating the initiative as Country Law. While the Country Vision 2010-2038 provides principles, national objectives, and targets for the referred period, the National Plan 2010-2022 provides strategic guidelines, objectives and indicators derived from the Vision applicable to the 2010-13, 2014-18, and 2019-22 presidential terms. Feedback from civil society point to a need for greater Government effort at dialogue with civil society organizations during the remaining period of the implementation. The Lobo Administration’s Priorities 45. In accordance with the Country Vision and Nation Plan, the Lobo Administration has set up a set of targets defined as metas imperdonables or “targets which cannot be forgivenâ€?. Defined as commitments that the Lobo Administration has promised to deliver before the end of its term, the Secretary of the Presidency has compiled a set of 115 targets. These targets reflect social, citizen’s security, good governance and economic priorities, 19 of them highlighted as political priorities. Targets can be organized into four groups. 46. Improving social investments and opportunities. The Government has declared its commitment to designing and implementing national policies oriented towards reducing the vulnerability of youth at risk, promoting child nutrition, schooling and learning outcomes, and increased health coverage, decentralizing services in 60 main cities covering about two-thirds of the population while still providing direct services to the remaining population. Government has made efforts, particularly in the education sector, to increase the number of schooling days, increasing the quality and diversification of education, and increasing the state budget for this sector. There is, however, political interference from Congress and powerful interest groups such as teachers’ unions, hampering Government in its efforts to move forward. 47. Crime and violence prevention. The second group of priorities is aimed at strengthening crime and violence prevention. In September 2011 the Government of Honduras approved a National Citizen Security and Coexistence Policy for 2011-2022. This is the first time the Government has formulated a policy that combines the traditional emphasis on crime control with a stronger emphasis on the prevention of crime and violence. The strategy’s three pillars include: (i) strengthening national and local management of citizen security policy, (ii) implementing programs on crime and violence prevention and social cohesion with a human rights approach, and (iii) strengthening the infrastructure for security, alternative justice, and the penitentiary system. The policy aims to address the main risk factors (guns, drugs, gangs, lack of family and community cohesion) and protective factors (a culture of prevention, availability of 13      conflict resolution mechanisms, and greater opportunities for youth) that influence crime and violence. Criminal law enforcement is a key element of the national strategy, and it will be further developed through a specific policy aimed at strengthening coordination between justice and security sectors. The Policy will also support the strengthening of national and local institutions to address gender-based violence issues more effectively. 48. Social protection and reaching those in extreme poverty. The third group of priorities is aimed at strengthening the social protection network focusing on the most vulnerable, providing access to conditional cash transfers to 600,000 families on an annual basis, access to health and education, reduce child mortality, incrementing access to housing and to basic medication, increasing access of public servants to the public pension system, establishing a sustainable mechanism to adjust minimum wages. 49. Improving economic growth and good governance. The fourth group of priorities has a dual focus. In terms of facilitating economic growth, the Government envisages the development of public private partnerships, strengthening the business climate, reducing government’s red tape, and agribusiness development. It aims to provide better access to water for irrigation, facilitating access to credit and technical assistance to the rural poor, and to small and mid size entrepreneurs, particularly to women working in agriculture. Government has prioritized the expansion of the Port of Puerto Cortés in the North, the Central Corridor Highway, and the Atlantic Coast Highway system, as well as the expansion of telecommunications and modernization of the energy sector. In addition, providing rural infrastructure and technical assistance in agriculture is expected to increase opportunities for economic growth in rural areas 50. The Government is also committed to completing the governance reforms that were initiated during the previous administration but whose implementation was delayed due to the political crisis. This includes reducing tax evasion, increasing tax collection, improving public investment, and efficiency and transparency in public spending. Also in this group are: implementing mechanisms for monitoring and evaluating public sector performance, transparency in the acquisition of goods, works and services, and access to information for civil society participation. The Government is developing an updated Anticorruption Plan (focused on the Executive Branch of Government) to follow up on the first one drafted in 2007, which will include the design and implementation of a National Policy and System of Integrity. IV. LESSONS FROM PAST WORLD BANK EXPERIENCE Recent Bank Implementation Experience 51. The FY07-FY10 Country Assistance Strategy (CAS) for Honduras was aligned with the broad framework of the poverty reduction strategy prepared during the Maduro administration and priorities identified by the administration of President Manuel Zelaya. The CAS identified four strategic pillars: (i) Equitable Economic Growth for Employment Generation; (ii) Good Governance through State Modernization and Civic Participation; (iii) Environmental Protection and Risk Management; and (iv) Development of Human Capital. A CAS Progress Report (CPR), May 2008, delivered a positive message on progress towards achieving results, but amended the program by ending a series of Poverty Reduction Support Credits citing the challenges of delivering this in the buildup to a presidential election. It warned 14      of rising food and oil prices and also the potential impact of the forthcoming economic downturn in the US, but its early preparation meant that it did not foresee the political situation that came to be a dominant issue impacting the latter part of the CAS period. 52. The WBG responded to the Honduran political and fiscal crisis of 2009 with an Interim Strategy Note (ISN), approved by the Board along with a US$75 million Development Policy Credit on September 29, 2010. The ISN was aligned with President Lobo’s National Plan 2010-2022, and enabled the Bank to convert the remaining IDA 15 allocation into an important fiscal tool to help the administration gain fiscal control, as well as support reforms in public financial management and energy. 53. As of October 31, 2011 the Bank’s IDA-financed lending portfolio in Honduras consisted of 12 operations and an undisbursed amount of US$253 million1 (see Table 2). In addition to IDA resources, the Bank has also mobilized donor-financed Trust Funds for a range of activities in Honduras, with an undisbursed balance of US$10 million as of this date. Table 2 IDA Active Portfolio in Honduras as of October 31, 2011 Net Total Board Planned Total Commitment Undisbursed Project Name Approval Closing Disbursements Amount Balance Date Date (US$ million) (US$ million) (US$ million) HN Financial Sector Technical Assistance 6/24/2003 2/28/2013 9.9 6.6 4.5 HN Nutrition and Social Protection 7/7/2005 6/30/2013 23.6 16.7 7.6 HN (CRL1) Rural Infrastructure Project 7/7/2005 6/30/2012 47.0 33.2 17.0 HN (CRL) Barrio-Ciudad Project 7/7/2005 6/30/2012 15.0 9.3 6.3 HN GEF Rural Electrification 12/15/2005 6/30/2012 2.4 1.1 1.2 HN Rural Competitiveness Project 6/17/2008 11/30/2015 23.0 1.7 20.4 HN Education Quality, Governance & Insti 1/24/2008 6/30/2013 15.4 7.1 8.3 HN WATER AND SANITATION PROGRAM 6/21/2007 12/31/2013 30.0 10.9 20.3 HN Power Sector Efficiency Enhancement 1/22/2009 12/31/2013 30.0 1.0 31.4 HN (APL2) Land Administration 6/30/2011 1/30/2017 32.8 0.0 33.0 HN Road Rehabilitation & Improvement II 6/17/2008 6/30/2013 73.6 4.4 70.3 HN- Social Protection 6/29/2010 12/31/2014 40.0 9.5 32.4 Total 342.6 101.5 252.7 54. At the same time, the IFC has been scaling up its involvement in Honduras, with investments rising from US$38 million in FY08, to a committed balance of US$250 million at the end of June 2011. The bulk of IFC activity over the past two years has been in the financial sector, telecoms, and agribusiness. Loans accounted for US$135 million of FY11 commitments, whereas trade finance and risk guarantees accounted for US$82 and equity US$34 million respectively. (See Annex 3 for further details on IFC’s engagement in Honduras.) 55. Following the removal from office of President Zelaya, the Bank “pausedâ€? its operations while it carried out an assessment in line with OP7.30. Before resuming disbursements the Bank carried out individual project supervision in line with its fiduciary responsibilities. Despite normal operational engagement being achieved by February 2010, the political transition affected project implementation. Several projects have required some time to                                                              1 This includes one GEF operation for Honduras and does not include a Regional GEF operation (Corazon Transboundary Reserve) for Honduras and Nicaragua jointly. 15      review and develop their procurement plans and are poised to accelerate disbursements in FY12. At the request of the Government, the Bank has also restructured a part of the existing IDA portfolio to release approximately US$15 million in IDA resources from activities that are no longer a priority or achievable by their closing date, with the intention of directing them towards activities that it considers higher priority. 56. While the “pauseâ€? provided the country team with an opportunity to address some implementation challenges, disbursement ratios have not yet recovered to pre-pause levels. The disbursement ratio of the portfolio fell dramatically from 36.7 percent at the end of FY 2006 to just 16.1 percent in FY2009 (just before the pause in operations), followed by 12 percent in FY10 and 15.1 percent in FY11. Key Lessons 57. The following implementation experiences and challenges are based on the findings described in the CAS Completion Report (see Annex 1) and provide key lessons for this CPS. On Strategy ï‚· The impact of the CPS will be circumscribed by both the limited implementation capacity across the Government and the limited resources of the Bank, financially (IDA/IBRD) as well as administratively. In order to make a meaningful contribution to the broader development outcomes of the country, the Bank’s CPS should define areas of engagement selectively. Selectivity can best be exercised by focusing on those sectors where Government has demonstrated strong demand and commitments, which are of major development importance, and where the Bank is prepared to deliver. Similarly, analytical work through TA or policy dialogue also needs to be focused and sustained over time to have impact. This argues for a programmatic approach, instead of moving from one discrete area to another. ï‚· A focus on selectivity also points to the need to rationalize the existing lending portfolio to improve potential for impact. To this end, part of the portfolio was restructured in September-October 2011 to release approximately US$15 million in IDA resources for re- allocation to other, higher priority activities in the Honduras program. ï‚· The CPS will also explore options for building synergies across a cluster of interventions. One way of creating synergies, for example, would be to target communities that are vulnerable to multiple risks (such as high rates of crime and violence, natural disasters, and road safety, in addition to high rates of poverty and inequality), by utilizing the concept of ‘urban risk reduction.’ Integrated information systems (that include data on these risks, ideally GIS mapped) can be a tool developed to enhance planning efforts. Another area for synergies lies in improving the delivery of social payments through the financial system. The Bank is providing technical assistance to these efforts, which aim to reduce the costs of delivery while providing incentives for the expansion of the formal financial system and greater financial inclusion of the population in hitherto underserved areas. ï‚· Greater selectivity in lending and analytical engagement will also mean that the Bank may gradually withdraw from areas where it has been involved or change its modality of 16      engagement (e.g. from direct investment lending in the education sector to programmatic non-lending AAA and policy dialogue). It also implies that the new CPS should place greater emphasis on partnerships with other institutions to assure their presence in those areas where the Bank is scaling back. On Implementation ï‚· Capacity challenges in the civil service are a binding constraint to portfolio performance. Projects across all sectors struggled with implementation capacity constraints in planning, procurement, and financial management, further compounded by the endemic phenomenon of civil service and project management turnover which accompanies each new administration. For this reason, institutional strengthening has to be part of every operation and kept appropriately simple. Regular CPPRs are essential to keep the government engaged in this process, supplemented by regular training for counterparts in procurement, financial management, and monitoring and evaluation. Clear and simplified results frameworks can help implementation of even multi-sector engagements. ï‚· Working directly with municipalities can help bypass some of the difficulties encountered at the central level. Some success stories show that working with municipal governments can improve implementation because of stronger citizen accountability even if their capacity is weaker. The Bank Group can further explore this form of engagement. The 2009 IGR lays out specific recommendations for building confidence in municipal institutions, developing municipal institutional capacity, and incentivizing good municipal reporting and transparency. In the area of crime and violence prevention, for example, working at the local/municipal level has proven to be one of the most effective approaches for addressing crime and violence. ï‚· Use AAA strategically to respond to government demands towards the implementation of its strategic goals. During the last CAS a good part of the AAA was not delivered, or if delivered was poorly disseminated. While the extraordinary circumstances explain the weak AAA delivery, the Bank should more clearly agree with Government the priority areas of focus for the knowledge products and services in the CPS. Stakeholder Consultations 58. A number of stakeholder consultations have been undertaken around the proposed CPS. In all, close to 250 people from different groups, including government, civil society organizations, private sector, and donor agencies, participated in the consultation process. Overall, the participants of the consultations agreed with the proposed focus of this CPS, which is laid out in Section V below. The feedback from the civil society consultations was particularly rich, both on past performance as well as suggestions on how the Bank’s engagement can be strengthened going forward. The topics that were raised most frequently in these discussions was that the Bank should continue its engagement in the promotion of governance and transparency in Government policies and performance, as well as a strong desire that the Bank should also make its own studies and analytical work more open and accessible to the public in Honduras. A detailed account of the consultations for the CPS can be found in Annex 5. 17      V. WORLD BANK GROUP PARTNERSHIP STRATEGY FOR HONDURAS Country Partnership Strategy Overview 59. The World Bank Group Program. This CPS proposes an IDA lending program in the order of SDR 109.5 million or at current exchange rates approximately US$171 million over FY12-14 (which coincides with the IDA 16 cycle). In addition, IFC will continue to pursue its active strategy of support for private sector-led growth. IDA resources are proposed to be front- loaded under the CPS to enable a strong start to implementation well before the build-up to the next elections. Close coordination between IDA and IFC will be maintained. 60. IBRD creditworthiness. Should Honduras achieve a blend IDA-IBRD status in the course of this CPS period, IDA and IBRD resources would be utilized in complementary ways. A CPS Progress Report and modified strategy would be discussed with the country authorities and the Bank’s Board. 61. Strategic orientation and selectivity will be major principles of the CPS. Given the limited IDA resources available to help address Honduras’ ambitious development agenda, the persistent implementation constraints, and lessons learned, this CPS will contribute to the national development agenda strategically and selectively. It will reorient the existing program toward key Strategic Objectives supporting the major development priorities of Honduras, and will focus new engagement to reinforce these objectives. Selectivity will mean fewer, larger operations supported by programmatic approaches and partnerships that leverage additional resources from other sources. Selectivity also means that the CPS does not envisage at this time new investment financing in some areas where the Bank has traditionally been providing financing, such as roads, education, or health. Greater attention will be paid to design simplification to improve project disbursement ratios and development effectiveness. 62. CPS results need to be defined with realism. The WBG is aware of the high risks and the limited scope of the proposed engagement as compared to the size of the financial needs of the country. It will be important to manage expectations both within Honduras and within the Bank team as to what is achievable and attributable to Bank support under the CPS. Thus, while striving to maximize the development impact of its program of support, the CPS will also define its expected results in modest, pragmatic, and realistic terms. Strategic Objectives, Results Areas, and Instruments 63. Over the CPS period the WBG will contribute to achieving Honduras’ national development goals by supporting three strategic objectives and selected results within these three areas (see Figure 4). Strategic Objectives 2—Expanding Opportunities through Reducing Vulnerabilities and 3—Enhancing Good Governance represent elements of continuity from the preceding CAS, given the contextual analysis and consultations feedback on the importance of sustained engagement in these areas. In sharp contrast, Strategic Objective 1—Improving Citizen Security is a new focus area for the Bank program in Honduras. All activities to be supported by the Bank under the CPS will be in accordance with the institution's development mandate as defined by its Articles and the applicable legal and policy framework. 18      Figure 4 At A Glance—World Bank Group CPS FY12-14 for Honduras Strategic Objective 1: Strategic Objective 2: Strategic Objective 3: Improving Citizen Security Expanding Opportunities through Enhancing Good Governance Reducing Vulnerabilities RESULTS AREAS RESULTS AREAS RESULTS AREAS 1.1 Strengthened National 2.1 Improved Fiscal Consolidation 3.1 Improved Accountability in Capacity to Address 2.2 Improved Investment Climate Public Expenditures Citizen Security and Competitiveness 3.2 Stronger Decentralized 1.2 Linking National 2.3 Improved Quality of Education Structures Interventions to Regional Approaches on Citizen 2.4 Consolidated and Strengthened 3.3 Enhanced Social Security Social Protection System Accountability as Part of 2.5 More Effective Disaster Risk Demand-Driven Governance Management   Strategic Objective One—Improving Citizen Security 64. Overview. Given the importance of this agenda for the future development of Honduras, the improvement of citizen security will be the first strategic objective of the CPS. By including for the first time a pillar on citizen security, this CPS is following one of the key recommendations of the World Development Report (WDR) 2011 on Conflict, Security and Development, which promotes the inclusion of citizen security into country partnership strategies as a way of helping countries promote peace and state-building. The impact of the CPS can only be modest, however, given that this agenda is dauntingly difficult and the experience of the Bank is also relatively new. Nevertheless, the Bank cannot retreat from taking action. Hence this CPS puts forward a program of complementary and parallel interventions to help Honduras contend with this extremely important challenge. 65. Result 1.1 Strengthened national capacity to address citizen security. The Bank’s proposed strategy involves assisting the Government with building its capacity to implement a multi-sectoral and integrated citizen security strategy at both the national and local levels in order to address some of the key underlying factors which contribute to heightened insecurity. ï‚· Via an improved policy environment. The CPS aims to support the implementation of the National Citizen Security and Coexistence Policy with a focus on social prevention programs and strengthening the related governance structures. The Bank will also help build the anti- money laundering capacity of institutions and a base for better data on crime and violence. Accordingly, the programmatic Reducing Vulnerabilities to Growth DPC series, which has citizen security as a pillar, will support the coordination function of the Citizen Security National Council; ensure that grievance mechanisms and other forms of civil society oversight are put in place to promote accountability in policy implementation; assist developing transparent, effective budget allocations as well as an action plan for social prevention activities; and carry out a public expenditure and institutional review of the security sector as part of the PER. The Bank’s assistance to improve implementation of Honduras’ anti-money laundering regime will continue. This includes assistance for a national risk assessment on proceeds of crime to detect the critical vulnerabilities, address the related regulatory, institutional and other deficiencies, and specification of an action plan. 19      Capacity-building assistance is envisaged for financial sector supervisors as the first line of defense against the recycling of criminal money in the economy. The Prosecutor’s Office (Fiscalia) could also benefit from capacity building to better use all “follow the moneyâ€? tools, particularly towards transnational crime. Moreover, the Bank has mobilized a Grant to strengthen data/crime and violence information systems, i.e. the National Violence Observatory, to develop a basis for monitoring and evaluation and informed policy making. ï‚· Via improved violence prevention capacity of local governments and communities. Throughout Honduras neglected poor urban neighborhoods have higher levels of crime and violence, further marginalized by weak infrastructure connections and lacking community organization. The Bank will help to develop and finance interventions to reduce the physical, social, and economic exclusion of communities and municipalities where violence is high, with the ultimate goal of making them more resilient to all of the consequences related to the heightened levels of crime and violence. This includes collaborating with other donors in the implementation of the flagship Safer Municipalities Program/Municipios Mas Seguros, aimed at developing local strategies for violence prevention and inter-sectoral interventions “hot spots,â€? and building the capacities of local governments to lead municipal citizen security plans, using the WBI’s Municipal Capacity Building Course on Urban Crime and Violence Prevention. ï‚· The CPS will also contribute to strengthening the role of schools as strategic institutions for community-based violence prevention. The Bank’s School-Based Violence Prevention Toolkit includes a series of steps that schools and communities can take to design violence prevention programs and to create ‘safe schools’ both in terms of violence and disaster risk. ï‚· In addition, efforts to capture and share emerging lessons learned from operations that are currently under implementation and which include important crime and violence prevention interventions, such as the Barrio Ciudad Project (Box 2) and its companion JSDF Grant on Employment Generation in Poor Urban Areas, will continue. The multi-dimensional approach of Barrio Ciudad has shown great promise for impact and is a potential area for scaling up. Accordingly, this CPS envisages a new multi-sector Urban Vulnerability Reduction Project (FY13) which integrates physical, economic, and social interventions, including employment generation for youth-at-risk, to prepare for and address multiple sources of vulnerability in violent hot-spot localities. Box 2. Barrio Ciudad—Community-Based Prevention Activities Demonstrate Positive Results Experiences from the Barrio Ciudad Project, currently under implementation, are especially noteworthy. The design of Barrio Ciudad involved identifying neighborhoods that were hotspots and focusing physical, social and economic interventions on the individuals, families and communities living in these neighborhoods in order to enhance crime prevention. This design was based on world experience on crime and violence prevention and the importance of multi-sectoral coordinated interventions in areas that have high-levels of crime and violence. As part of the new CPS, the Bank will work with the Government to consider extending these approaches that address violence prevention through the combination of basic services provision together with social prevention interventions, including the possibility of implementing this type of operation in Tegucigalpa and San Pedro Sula. 20      ï‚· The Bank will mobilize its expertise on social accountability and transparency to encourage good governance of citizen security at national and local levels. Community participation in policing activities and public outreach has also proven successful in local contexts, as evidenced in Barrio Ciudad for example, since it has created bonds of trust, increased crime reporting, and reduced police abuse. These initiatives also build upon decentralized municipal approaches, a key new theme of engagement in the CPS. ï‚· Finally, the Bank will make a concerted effort to both mainstream crime and violence prevention measures across its portfolio and promote synergies between projects, particularly if they are being implemented in the same municipalities/communities. ï‚· Via employment opportunities for youth-at-risk. Youth unemployment and underemployment is associated with a higher probability of youth engaging in risky behavior, including crime and violence, given limited opportunities elsewhere. Honduras has substantial experience in development active labor market policies, but coverage is low and not well-targeted to priority groups such as youngsters. The Bank will focus on developing approaches for raising the skills of young people for improving employability and transition to the labor market. It will support initiatives that engage the private sector in the development of multi-dimensional approaches to violence and crime, including employment generation for youth at risk, job-skills training, among others. This will include implementation of the Mi Primer Empleo component of the Nutrition and Social Protection Project, which received Additional Financing in June 2011, as well as the JSDF for Employment Generation in Poor Urban Neighborhoods accompanying the Barrio Ciudad Project. The IFC may also finance technical training facilities provided through the private sector. The Bank will also establish strategic partnerships with Government, business chambers and federations, to disseminate its recently-developed Toolkit on Local Public Private Partnerships in Crime and Violence Prevention. ï‚· Furthermore, the Bank will prepare technical policy notes to promote and operationalize multi-sectoral approaches that address the key risky behaviors of youth, including: school dropout during adolescence, participation in gangs and other groups, risky sexual behavior, and substance abuse. The approach will be to adapt successful programs in the country/region, such as the Mi Primer Empleo youth training program, the full time school model, youth-friendly clinics, slum upgrading, etc., to the Honduran context. 66. Result 1.2 Linking national interventions to Regional (i.e., across Central America) approaches on citizen security. Key institutional capacity challenges across Central America are impeding the implementation of an integrated approach to reducing crime and violence. The Bank’s efforts in this area will be designed not only to increase awareness, skills, and new implementation know-how, but also to inspire partnerships and coalitions, and build consensus. A series of IDF grants will be used to strengthen the capacity of SICA and high-level entities across Central American in the area of crime and violence prevention. South-South knowledge exchange or peer-to-peer learning will also be deployed, with the support of the World Bank Institute (WBI), tapping into a wide array of knowledge exchange instruments, including dialogues, peer consultations, and study visits. These efforts would complement the South-South Cooperation Program already put in place by the Ministry of Foreign Affairs of Honduras, which focuses on Central America and the Caribbean, and on the specific issues of citizen security, 21      vocational training for youth at risk, community and rural development, and agricultural development. This CPS also provides for an opportunity to explore a possible Central America Regional operation for violence prevention, the specific scope to be defined at a later stage. A Nordic Trust Fund on Links between Human Rights and Crime and Violence in Central America will also support the Honduran program through the end of 2011. Strategic Objective Two—Expanding Opportunities through Reducing Vulnerabilities 67. Overview. Accelerating broad-based growth remains of fundamental importance for Honduras, particularly as poverty remains high and growth has been low since the global crisis of 2008-09. The second strategic objective of this CPS thus focuses on expanding opportunities through reducing vulnerabilities grouped in three areas—economic, social, and climatic. Economic Vulnerabilities 68. Result 2.1 Improved fiscal consolidation. The CPS intends to continue supporting Government efforts to maintain macroeconomic stability and to consolidate its fiscal position. This will entail a number of related but distinct reforms. ï‚· Via tax administration policy reforms. These reforms are expected to lead to higher Central Government tax collection by expanding the tax base and ensuring greater compliance, measures to make customs and tax administration more effective, adoption of legislation on transfer pricing and a tax procedural code, the creation of the office of control of tax exemptions, and the application of rules of origin in customs. ï‚· Via pension reforms. A core reform this CPS supports relates to improving the financial sustainability of Honduras’ contingent liabilities in terms of social security and pensions. The financial situation of INPREMA and INJUPEMP, which are currently projected to run massive deficits, are of key concern. The changes introduced in the laws are expected to provide a solid base and cash flow consolidation, which in turn will substantially reduce the projected deficits for both institutions and stabilize their net worth in real terms. ï‚· Via sustainability of wage bill. Achieving a fiscally sustainable wage bill remains a crucial challenge for Honduras. Steady increases in teachers’ pay and benefits in 2006-2009, combined with ineffective controls over the creation of new posts and payroll management, pushed personnel expenditures to 11 percent of GDP. The Bank will provide technical assistance to develop and implement measures which provide improved medium term predictability and control over the wage bill and avoid an upward spiral. ï‚· Via improving efficiency of utilities. The National Power Utility (ENEE) has massive financial losses annually, an unsustainable subsidy system, and an outdated management system. The Bank will continue to work with ENEE to help modernize the utility to enable it to both reduce its technical losses and improve service quality. 69. The main instruments that the Bank Program will deploy to achieve these results is the two-part programmatic Reducing Vulnerabilities for Growth Development Policy Credit series in FYs12 and 13 and the ongoing Power Sector Efficiency Enhancement Project. 22      70. Result 2.2 Improved investment climate and competitiveness. The issue of competitiveness and ability to attract foreign direct investment is prominent in the Government’s development agenda. The Bank has been providing technical advice to Honduras over the past year on key reforms on multiple fronts which can contribute to an improved enabling environment for business. ï‚· Via support to business reforms. At the request of the Government, the FPD Investment Climate Practice of the Bank Group (a joint IFC-Bank practice) will continue to provide analytical technical services during the CPS. The planned business enabling environment work will build on the results of the recently-closed Honduras Trade Facilitation Project. The project made important gains in times and costs to start a business and obtain construction permits. IFC Investment Climate Advisory Services and the FPD Investment Climate Practice will continue to provide support to improve agribusiness trade logistics and to facilitate the effective implementation of the competition policy framework initially developed under the Trade Facilitation Project. Furthermore, the Bank’s Central America Competitiveness and Integration Study, due to be completed in FY12, will contribute recommendations on microeconomic reforms to improve export competitiveness, strengthen value chains, foster rural productivity, and promote regional economic integration. IFC will continue to explore demand for its financial as well as advisory services and tailor its program of support accordingly over this CPS period particularly related to Public Private Partnerships in infrastructure related projects and Doing Business Reform Advisory (DBRA) – the latter aimed at reducing inefficiencies in the areas measured by Doing Business. ï‚· Via rural productivity. Given that the majority of the rural poor in Honduras work in the agriculture sector, the Bank will continue to support the development of agricultural value chains and productivity-enhancing initiatives for rural businesses through implementation of the IDA-financed Rural Competitiveness Project and JSDF for Microenterprise Development for the Poor and Indigenous People. In agribusiness, IFC is focusing on competitive export sectors as well as processed foods and in addition to having approved loans in the palm oil and sugar sectors, is pursuing opportunities in coffee, dairy, and beverages. ï‚· Via financial sector strengthening. The financial sector has improved significantly its prudential indicators since 2008 and, as credit growth starts to pick up, strengthening the sector becomes particularly important. The Bank will continue its support to help modernize Honduras’ banking sector by providing technical assistance in the operationalization of the new financial payments system through the ongoing Financial Sector Technical Assistance Credit. Additionally, MIGA has supported a US$6.2 million risk guarantee to ProCredit Holding of Germany to help capitalize its Honduran subsidiaries that provide SME loans, and stands ready to continue guarantees in Honduras. IFC is contributing to strengthening the local banking system by supporting the capital structure of systemic banks with equity and subordinated debt investments. IFC will continue to deepen its ongoing engagement with financial institutions with suitable investment and comprehensive advisory service programs to enhance performance in risk management, strategic planning, SMEs and Sustainable Energy Financing. ï‚· Via addressing logistics. Honduras struggles with both the quantity and quality of its infrastructure. These types of logistics constraints and resulting poor connectivity hinder the 23      competitiveness of Honduran products in the international market. The Bank will continue implementation of its Second Road Reconstruction and Improvement Project and Rural Infrastructure Project to help meet the deficits in this area, while the Bank and the IFC will explore opportunities for expanded Public Private Partnerships. IFC Investment Climate Advisory Services and the FPD Investment Climate Practice plan to support greater regional integration by developing a regional Central American Trade Logistics project, which will start with a pilot phase between Honduras and El Salvador to harmonize requirements and risk management products for trading across borders. The Bank will deliver its regional Central America Logistics Study, which will explore the major factors that need to be addressed to help Honduras and its Central American neighbors surmount the logistics constraints to accessing markets. ï‚· Via energy investments. The Bank is finalizing a US$30m investment plan for the Scaling Up Renewable Energy Program (SREP) in conjunction with the IFC and IDB. The grant facility–one of the Climate Investment Funds–will support (i) strengthening of the national regulatory framework; (ii) the development of renewable energy connections to the grid and; (iii) rural electrification through small-scale renewable sources. This complements ongoing Bank lending in the energy sector, including the IDA credit for the Power Sector Efficiency Enhancement (US$27.6m) and a US$13 million component for off-grid solar electrification through the Rural Infrastructure Project. IFC is working alongside local banks to develop mezzanine or risk-sharing facilities to reach small renewable energy projects, enabling it to support directly projects greater than 10MW. ï‚· Via better land tenure security. Many Hondurans lack land tenure security. Weak property rights have discouraged investments and restricted access to credit, constraining SME development. The Bank has been engaged in strengthening the cadastral land registration system for a decade given its important contribution to empowering the rural poor including indigenous peoples. The Land Administration APL Program (PATH) and associated Trust Funds provide vehicles to continue this long-term partnership. Social Vulnerabilities 71. Result 2.3 Improved quality of education. A key issue in the education sector in Honduras is the poor learning outcomes of the children who attend school, improvement in which would be an important requirement for Honduras to position itself as an economy with a high quality labor force as it competes for international investments. Given that the constraints to improving learning outcomes are institutional or policy-related, and that the Government is attempting to undertake significant reforms in the area of teacher accreditation, numbers of days of schooling, teacher census, classroom observation of the quality of teaching, etc., the Bank in this next CPS period is expecting to support education through policy dialogue and reform. This will be undertaken in the context of the proposed programmatic DPC and through technical assistance (country and Regional). The ongoing Education Quality, Governance and Institutions Project will continue to work to increase the coverage, quality, accountability and governance of the basic education system. IFC also aims to begin investing in colleges and adult education providers, building on its success in this sector elsewhere in Latin America which have focused principally on low- and middle-income groups. 24      72. Result 2.4 Consolidated and strengthened social protection system. The Government has indicated its commitment to strengthen the social protection system of Honduras to address its objective of reducing extreme poverty. The Bank is supporting the Bono 10,000 Conditional Cash Transfer (CCT) program launched in 2010 by the current administration. The program, supported by the ongoing Bank Social Protection Project, builds on successful experiences such as Oportunidades in Mexico and Bolsa Familia in Brazil. The eligible population for this Program ultimately comprises the approximately 600,000 extremely poor families with children aged 0 to 59 months, children in primary school (grades 1 to 6), and pregnant mothers. These families represent about 87 percent of all extremely poor families. Moreover, a large share of households currently benefiting from the program has indigenous background. By end-2011, the Program is expected to cover about 300,000 families living in extreme poverty. Climatic Vulnerabilities 73. Result 2.5 More effective disaster risk management (DRM). While other agencies (see Annex 6) have programmed substantial resources for DRM in Honduras, the bulk of these resources are for an emergency response. In contrast, the Bank will continue to focus on disaster preparedness, at national and at local municipality levels, via ongoing Trust Funds for the Regional CAPRA and CEPREDENAC initiatives to improve risk assessment capacity of national institutions. Moreover, the frequent overlapping of different types of risks—climatic, crime, poverty, and social exclusion—in the same localities suggest that there is need to consider an integrated Urban Vulnerability Reduction Project. The proposed project would scale up the Disaster Risk Mitigation Project (closed FY11) and Barrio Ciudad by deploying neighborhood and city-based vulnerability reduction measures. It would likely entail small to medium investments, local planning capacity building, and social interventions (see also paragraph 65, seventh bullet). Discussions are also ongoing with the Honduran authorities on whether there may be need for further restructuring of existing operations (e.g. Rural Infrastructure) to include support for reconstruction efforts following the torrential rains of mid-October 2011. Furthermore, ongoing and new operations will be reviewed to ascertain whether there are simple, high-impact DRM measures that could be incorporated (e.g. flood-proofing of roads). 74. In order to facilitate Honduras’ access to climate change resources, e.g., the Green Fund and the Adaptation Fund, the Bank team will assist Honduras to identify and/or build capacity in an appropriate implementing entity. Strategic Objective Three—Enhancing Good Governance 75. Overview. Though important reforms were supported under the preceding CAS in the governance sector and projects met their development objectives, many cross-cutting challenges persist, calling for a sustained engagement in a broader framework on good governance. Hence the third strategic objective of the proposed new CPS is enhancing good governance, focusing on improved capacity of state institutions, decentralized delivery of services, and demand-side governance approaches. 76. Result 3.1 Improved accountability in public expenditures. The Government has confirmed its strong interest in continuing efforts initiated over the past few years in modernization of public sector management systems, particularly public financial management, 25      procurement, and results monitoring and evaluation capacity. To support this area under the CPS, a key instrument will be the new Improved Public Sector Performance Project. This project represents the continuation of a long-standing engagement by the Bank in strengthening core government institutions through successive operations (including the latest PRSTAC operation which closed in December 2010). Support will also be provided via the JSDF Grant for Improving Public Accountability and IDF grants Building Trust in Public Policies and Public Institutions and Strengthening Congressional Oversight that are expected to become operational in FY12. The Bank will also continue to support the Quick Gains Initiative on procurement reforms that has already elicited significant returns to Honduras. 77. Result 3.2 Stronger decentralized structures. One of the most important ways in which the Government intends to strengthen the delivery and accountability of public services is by strengthening decentralized administrative structures such as municipalities and mancomunidades (associations of smaller municipalities). The assessment of implementation experience under the Bank’s CAS Completion Report also highlights the potential gains to be made by strengthening the capacities and role of decentralized entities. The Bank will contribute to this overall effort by analyzing the fiscal, financing, and service delivery framework of decentralized tiers of government in order to help address questions of value-for-money and financial sustainability, as well as to help inform the development of an appropriate decentralization strategy for Honduras. A key Bank instrument in this regard will be the Public Expenditure Review for Honduras which will be focused on decentralization. 78. A particular area of sustained Bank engagement in decentralized service delivery will be in the water and sanitation sector. Recent advances in decentralized implementation of services have been observed in this sector. Nonetheless, Honduras faces a number of challenges in implementing effective policies, regulation, and financing of decentralized water and sanitation systems. Accordingly, the Bank will provide support to this area through various means, including its ongoing Water and Sanitation Sector Modernization Project, the associated Global Program for Output-Based Aid (GPOBA) project in Water, a Spanish Trust Fund (SFLAC) to explore ways to strengthen integrated urban water management in the greater Tegucigalpa area, and a Water expenditure analysis (Box 3). Box 3. Expenditure Analysis for the Water and Sanitation Sector in Honduras The Bank has initiated a Water Public Expenditure Review (WaPER) to evaluate how the country is investing in the water sector and how the decentralization of water sector has had an impact on the public expenditures, equity, and efficiency of the sector. In particular, it aims to answer the following questions: (i) the absolute and relative allocations to the sector over time, including capital investment as well as recurrent expenditure, different levels of government, urban versus rural and types of investment, and sources of investment; (ii) the effects of public funding on the sector targets such as coverage and quality of service; (iii) the level of cost recovery in the sector and the analysis of both explicit and implicit subsidy; (iv) sector financing at the local government in the decentralized environment; (v) the effects of decentralization of water sector on sector investment in selected sample municipalities; and (vi) key findings and policy implication for the sector investment 26      79. The Bank will also continue to strengthen the infrastructure base of municipalities as well as their ability to manage core services through the ongoing Rural Infrastructure Project, the Power Sector Efficiency Project, and the related GEF for Rural Electrification. The IFC has also initiated support to Tegucigalpa through a risk-sharing facility with local banks to support the city’s infrastructure needs. If this arrangement is found to have succeeded, it will show the way to extend the possibility of IFC working with sub-national entities in Honduras. 80. Result 3.3 Enhanced social accountability as part of demand-driven governance. There is weak capacity of civil society to use available information to hold public service providers and policy makers more accountable. In turn, this constrains efforts to strengthen trust in public policies and institutions. The WBG, under the leadership of its Country Office in Honduras, will support this agenda through small Civil Society Grants to CSOs in areas such as participatory budgeting, developing community scorecards related to the provision of selected services, etc. The Quality of Education Project and the JSDF on Piloting New Forms of Community-Administered Education for Socially Vulnerable Communities in Honduras will support community-based school management models as means to enhance citizen oversight measures in the education sector. In addition, the WBG will ascertain how to better support mainstreaming of demand-side transparency and accountability tools in its portfolio of operations. Proposed Program of Support 81. There will be a strong degree of continuity from the preceding CAS and emphasis on implementation of the existing portfolio. Given the delays incurred in portfolio implementation due to the political crisis and subsequent pause, many projects are expected to enter into their main activity cycle during the new CPS period. Thus, implementation of the ongoing portfolio will be critical to achieving CPS results for the FY12-14 period. IFC will also continue to explore demand and expand its program in Honduras. 82. New loans will be frontloaded in FYs 12 and 13 to better respond to client demands and facilitate implementation start-up before the start of the next political cycle. At the request of the Government, IDA will frontload its support for Honduras for FY12 and FY13 given that the Government expects to require the most financing during these two years. Barring any shocks and the emergence of new financing priorities, as the fiscal stabilization measures mature over time lower financing needs are expected in FY14 (also a year of political transition). 83. An indicative lending pipeline is presented (in Table 3). It is, however, subject to change in the priorities of the Government within the framework of this CPS, and to the occurrence of shocks which may necessitate a re-ordering of priorities.2 Furthermore, should Honduras become eligible to receive IBRD resources, the financing pipeline of IDA and IBRD combined will be updated to the Board.                                                              2 The amounts shown in FY13-14 are indicative only. Actual IDA allocations will depend on: (i) the country’s own performance; (ii) its performance relative to that of other IDA recipients; (iii) the amount of overall resources available to IDA; (iv) changes in the list of active IDA-eligible countries; and (v) the amount of compensatory resources received for MDRI. 27      84. An emphasis of this CPS will be on programmatic analytical and technical services. Given the long-term nature of several of the development challenges facing Honduras (e.g. on governance, competitiveness, crime and violence), there is clear need for long-term engagement that may or may not involve direct financing. The AAA program envisaged for this CPS is also indicated in Table 3. Table 3. Proposed Program of New Lending and Knowledge Products and Services Proposed IDA Year of Name of Activity Amount Bank (US$ million) Delivery First Programmatic Reducing Vulnerabilities for 86 FY12 Growth Development Policy Credit Proposed New Improved Public Sector Performance Project 18 FY12 Lending Second Programmatic Reducing Vulnerabilities 60 FY13 for Growth Development Policy Credit Urban Vulnerability Reduction Project TBD FY13 Regional C&V Project (TBD) TBD FY13/14 Expenditure Analysis of the Water Sector (FY12) Public Expenditure Review Knowledge Products & ï‚· Special focus on the Security Sector (FY12) Services Program ï‚· Special focus on Decentralization (FY13) HONDURAS Programmatic AAA/Technical Assistance ï‚· Doing Business Reform ï‚· Crime and Violence Prevention Strategy ï‚· Education and Youth Employment ï‚· Anti-Money Laundering South-South Learning on Crime and Violence, Land Administration Planned Delivery in FY12 AAA Regional Knowledge Products & Central America Skills and Employment Generation Central Integration & Competitiveness CENTRAL AMERICA Central America: Infrastructure Strategy for Growth and Infrastructure Services Program Central America Programmatic Energy Study : Promoting Geothermal Energy Technical assistance Central America Regional Summit on Regional Integration Planned Delivery in FY13 AAA Central America Poverty Study Central America Improved Cook Stoves Framework Technical assistance Central America Regional Crime and Violence work 28      En-Gendering the Development Impact of the CPS Program 85. The existing portfolio is addressing gender issues in most operations, although there are opportunities to strengthen the focus going forward. An operation where the design is gender-informed is the Nutrition and Social Protection project, which mentions indirect gender differentiated effects on youth violence, and includes gender indicators to enable monitoring of progress on children and youth in the project. The Project also incorporates a Participatory Indigenous, Afro-descendant Peoples and Gender Plan (IPDP). Based on experience in similar programs it is expected that the conditional incentives in the Social Protection Project will lead to increased school enrolment among girls, reduced child labor, and increased use of primary health care services. In addition, by providing the cash transfers directly to mothers, the Bono Program will empower them to have more control over intra-household spending decisions as well as enhance their financial literacy being exposed to innovative payment mechanisms (e.g. mobile banking). The Barrio-Ciudad Project includes activities to reduce gender-based violence, while the programmatic DPC, as part of the support to the prevention pillar of the national citizen security strategy, will also foster initiatives to reduce gender-based violence. The Road Reconstruction & Improvement II Project will conduct a study on female participation in its micro-enterprise program. The Rural Competitiveness Project seeks to enhance women’s participation in productive activities and decision making through its capacity-building activities, particularly in rural areas of the project intervention. 86. During implementation the CPS will further elaborate ways to support the focus on gender issues. The Bank’s Country Office is participating in the Gender donor group in Honduras and will work in collaboration with other partners to identify gaps where the Bank’s input, whether technical or otherwise, may be most useful. Finally, the Country Team will continue its review of operations in the Bank’s Honduras portfolio to assess where further gender-sensitive design and/or monitoring and evaluation efforts are needed and support restructuring of the operation if needed to address identified gaps and opportunities. Box 4. Gender is Central to the Honduras Land Administration Program The second phase of the Honduras Land Administration Program APL, PATH includes a Gender Strategy, building on a Social Assessment and a Gender Audit. The Gender Strategy includes a plan to promote Miskito women’s participation in the process of recognition of their communities’ collective land rights. The strategy was prepared with support from the Gender Action Plan (GAP)-financed initiative, Improving Land Tenure for Women in Honduras which aimed to improve women’s access to land in Honduras by: (i) promoting greater attention to gender issues throughout Program activities, (ii) developing a tool to facilitate and promote joint land titling, and (iii) providing capacity building for PATH staff and for government agencies, local governments, women’s organizations and NGOs working on land administration issues. Accordingly, 13 workshops were conducted across Honduras. Gender is also reflected in Phase II’s Results Matrix: (a) total number of female beneficiaries; (b) At least 50,000 families in rural and urban areas complete process to obtain new land titles through the Project (of which at least 30% are women); (c) at least 70% of women rate modernized registry services as "satisfactory"; (d) 80 Miskito community leaders trained on alternative conflict resolution mechanisms (of which at least 20 are women); and (e) 80 community leaders trained on territorial planning and natural resource management (of which at least 20 are women). Finally, Phase II will include at least one impact study to measure the gender-equity impact of the program’s procedures. 29      Managing the Program 87. The strategic objectives and key results of the CPS outlined above have been elaborated into a full CPS results matrix (see Annex 2). Given the limited number of new interventions under this CPS, the results matrix reflects in large measure the ongoing portfolio of operations. Particular care was taken to avoid direct one-to-one or exaggerated attribution of country results to the Bank Program per se. Rather, the matrix aims to signal positive movement towards long-term development goals in areas of focus for the CPS. Regarding the new and significant set of knowledge products outlined above, the Bank team will be working closely with the Bank and LAC-wide Knowledge Task Forces to better define methodologies and approaches to measuring impact. 88. Quality assurance mechanisms for the implementation of the portfolio will be led by the Bank’s Honduras Country Office, with full support from the CMU unit at headquarters. Key tools will be close dialogue with Government and other stakeholders, CPPRs, tailored training for government implementation counterparts, and selected individual task reviews conducted proactively for projects where issues of concern are flagged during project supervision. The CMU will continue to fully finance supervision budgets of all approved projects, together with the requirements for their social, environmental, and fiduciary safeguards. Fostering Partnerships 89. There is an active international donor community in Honduras, with well-defined areas of focus for each development partner. The Bank through its Country Office participates in local sector coordination groups and the G-16 (group of 16 development partners). Also, the Bank is an active member of the donor group “Friends of Central America,â€? which seeks to coordinate donor activities in the area of citizen security in Central America. Annex 6 provides a summary overview of the financing program of the four largest international development partners in Honduras. In the context of this CPS’s focus on selectivity, the significant financial commitments and technical engagement of these partners in core development areas has helped the Bank to both coordinate its interventions and focus its new financing in fewer areas. Other key partnerships that the Bank will continue to foster is with civil society and with the private sector, through a mix of outreach mechanisms (e.g. consultations, small grants for CSOs). 90. It is also important to mention that the Bank manages significant amounts of resources for other donors in the form of Trust Funds. These resources can be substantial and for Honduras, as of October 31, 2011, they amounted to approximately US$10 million in undisbursed resources. In the proposed CPS, consistent with the revised approach of the Bank, all Trust Funds will be managed as essential parts of an integrated country strategy. 91. Finally, the Bank will also support the development of broader partnerships. A key tool in this regard will be South-South Learning, with the active participation of WBI. 30      VI. MANAGING RISKS 92. Managing fiscal risks will remain a challenge during the CPS period. While the current Government has already demonstrated commitment to taking the difficult steps to rein in the fiscal deficit, Honduras’ fiscal situation remains tenuous and vulnerable to shocks. The Bank’s lending program going forward has at its core a programmatic DPC series which has fiscal consolidation as one of its pillars, providing a framework for focused dialogue with Government on pertinent areas. Furthermore, the Bank will maintain close dialogue with the Government and the Fund to anticipate any adverse developments in this regard. 93. Violence and crime are likely to continue to escalate. Given the strength of the criminal organizations and the institutional weaknesses in Honduras, crime and violence is likely to remain the top development challenge. The actions of the Government even if in the right direction and well targeted will reasonably take time to have an impact. The Bank’s approach will be to help the Government target impact through multi-faceted interventions focused on prevention, and to bring about greater strategic coherence to bear on this objective over time. 94. There is need to closely observe the political dynamics in the country and maintain an open dialogue with all political parties. The ability of the current administration to deliver on key priorities and to maintain its stance of national reconciliation will be important to help consolidate the strength of state institutions. The Bank will monitor implementation of its Program with attention to political economy dimensions and periodically review with Government and others options designed to overcome constraints in this regard. Emphasis will be given to actions that support the enlargement of the pro-reform constituencies with a focus on demand driven good governance initiatives. 95. Honduras is one of the most vulnerable countries to climatic shocks in the world. The CPS recognizes this and proposes to mainstream disaster risk preparedness measures into its portfolio in addition to providing key technical and financial support to Honduras in terms of strengthening its capacity to engage in disaster risk management. In the context of a disaster, the Bank will revisit its planned lending program and existing portfolio to ascertain how and where adjustments need to be made to support the country’s reconstruction efforts. 31      ANNEX 1 Honduras CAS Completion Report FY07-10 and ISN November 2010 – October 2011 Country: Honduras CAS Coverage: FY07-10 (extended to FY11) Date of Progress Report: August12, 2011 CAS Completion Report completed by: Aaron Ordower3 I. Executive Overview 96. The 2007-2010 World Bank-Honduras Country Assistance Strategy (CAS) was executed under especially challenging circumstances. The country experienced costly natural disasters, a food, fuel and global financial crisis, and political conflict that was followed by President Manuel Zelaya’s removal from office. At the culmination of this CAS period, the Bank prepared an Interim Strategy Note (ISN) with an amended results framework, which provided the new government time to focus its strategic priorities. This completion report evaluates both the 2007-2010 CAS as well as the 2011 ISN based upon the amended results framework. 97. The delivery of the program is rated as moderately unsatisfactory as only some CAS results were met, while others are on the way to being met. Delivery of expected CAS results is notable in the areas of governance and transparency, strengthening of the business climate, infrastructure investments, disaster risk preparedness and the establishment of a national social protection program. Despite success in meeting expected CAS results, it is troubling to note that key national development indicators, notably involving poverty, corruption and governance, youth employment and crime and violence have worsened, indicating a need for renewed reflection on how to best contribute to national development goals. 98. Bank Group performance can be rated as moderately satisfactory given its proactive response to the evolving political and economic conditions and its attentiveness to portfolio supervision. The Bank worked with each administration to design suitable responses to the shifting challenges using budget support, specific investment loans, grant facilities and AAA. During each crisis, the Bank response to country needs as well as evolving government priorities included delivery of operations not foreseen in the original CAS. Still, the Bank remained focused on its projects in many strategic development areas. It also took steps to protect its portfolio from external shocks which enabled progress towards CAS and project result indicators in most areas of engagement.                                                              3 Grateful for the collaboration of Felipe Jaramillo, Trina Haque, Martin Ochoa, Gregor Wolf, Humberto Lopez, Sajitha Bashir, Geoff Bergen, Dante Mossi, Hector Corrales, Ezequiel Miranda, Luis Ã?lvaro Sanchez, and the extended Honduras Country Team for their assistance in the preparation of this Completion Report. 32      II. Development Outcomes 99. The exogenous shocks that affected Honduras in 2008 and 2009 negatively impacted economic performance. A tropical depression struck on October 16, 2008 as the country struggled to cope with rising food and fuel prices. Honduras was then hit particularly hard by the global financial crisis, as its economy is largely export driven, with high vulnerability to shifts in the global economy and oil prices. As a result of the crisis the economy contracted by 2.1% in 2009. The combined public sector deficit increased to 4.6% in 2009. The 2009 political turmoil further compromised the nation’s dramatic fiscal situation. 100. However, the Honduran economy slowly recovered. Increases in commodity prices and a slight increase in remittances stimulated economic recovery in Honduras in 2010. According to the Honduran Central Bank, the economy grew by 2.9% in 2010. A Standby Agreement with the IMF for $202 million was signed in October 2010 to support the country’s efforts to restore macroeconomic and fiscal stability. Economic growth for the first quarter of 2011 was 2.4%, registering an increase in inflation at 6.5%. The fiscal deficit dropped to 2.9% of GDP in 2010, and is expected to be maintained at 3.1% of GDP in 2011, according to the most recent IMF projections. The Government’s medium-term fiscal framework aims to lower the deficit to 2% of GDP by 2012. A Debt Sustainability Analysis, prepared jointly by the Bank and the IMF suggests that Honduras’ public debt is on a sustainable trajectory. 101. The compounded effects of the global financial crisis and the domestic political crisis stalled poverty reduction efforts. As a result of the various crises, the Honduran economy experienced average real GDP growth of 2.8% over the past four years, slightly higher than its population growth. The decline in remittances also negatively affected the poor. According to the National Statistics Institute, extreme poverty increased from 36.2% of the population in 2008 to 36.4% in 2009 and 39.1% in 2010. In 2009, national unemployment rose to 38.7%, yet female unemployment was notably higher at 48.4% and national youth unemployment reached 49.5%. Progress towards meeting MDGs was mixed; the country is on track to meeting many goals, but notably lacking with respect to education. While literacy rates improved from 88.9% in 2001 to 93.9% in 2007, there is a strong gender performance bias favoring women. In 2005, 35% of Hondurans lived in urban slums. 102. The worsening state of crime and violence in Honduras became the primary concern of the government and hindered the country’s economic development. In 2010, the homicide rate in Honduras reached 78 per 100,000 inhabitants, up from 50 per 100,000 inhabitants in 2007. Honduras, like its Central American neighbors has seen these rates rise systematically since 2004.4 The economic costs of crime and violence in Honduras represented about 9.6% of Honduras’ GDP or $885 million dollars per year and the Bank estimated that reducing homicide rates by 10% could boost annual economic growth by 0.7%5. Youth violence and youth gangs remain a key problem, with over 30% of homicide victims aged 15-34, and with estimates of approximately 112 gangs (with approximately 36,000 members) existing in Honduras.                                                              4 A rate of more than 10 per 100,000 inhabitants is considered an epidemic by WHO. 5 World Bank Central America Crime and Violence Study, 2011. 33      103. Recent political events highlighted the magnitude of the governance impediments in Honduras, despite some gains. In recent years, Honduras worked to improve governance conditions, particularly by focusing on strengthening its institutional framework; however, progress has been slower than expected.6 This was compounded further by an environment of conflict, insecurity, deterioration of trust in public institutions among many sectors of Honduran society, and exacerbated social tensions. The 2009 political crisis should not be understood as an isolated event; rather, it can be considered to have been a reflection of the country’s deep-seated, unresolved governance challenge. 104. The removal of President Zelaya from office tested the institutional foundations of the country. President Manuel Zelaya assumed office on January 27, 2006. He ratified the CAFTA-DR free trade agreement, maintaining the country’s strong trade ties with the US. President Zelaya also signed the Transparency and Access to Information Law, which improved openness in many aspects of Honduran government. President Zelaya was elected as a moderately left-leaning candidate, but he moved to the far-left end of the political spectrum. On June 28, 2009, President Zelaya was removed from office after he tried to conduct a national survey that, if successful, would have created an enabling environment for him to conduct a further referendum on whether or not to convene a Constitutent Assembly, possibly allowing him to be reelected. Congress approved Roberto Micheletti as interim President through what would have been the end of President Zelaya’s term. Along with most development partners, the Bank “pausedâ€? operations in Honduras during the interim period, pursuant to Operational Policy 7.30, resuming disbursements in December 2009. 105. On November 29, 2009, national elections took place and Porfirio Lobo, from the National Party, won with 55 percent of votes cast. Following his inauguration as President on January 27, 2010, Mr. Lobo named a Government of national reconciliation that included some political rivals, and quickly set about reengaging with the international community and development partners. The political situation remains a problem and the fractious nature of the unity government has posed additional challenges to the implementation of national reforms and certain government programs. However, this reconciliation has made progress and Mel Zelaya peacefully returned to Honduras in May 2011. III. Program Performance 106. During this CAS period, the country experienced notable delays delivering on the CAS agenda, but progress was made toward achieving most indicators. In each of the CAS pillars, progress was achieved which set the basis for accomplishing CAS goals. However, in certain cases, progress was underwhelming and certain indicators were not met.                                                              6 Advances made in recent years include: the approval and implementation of the Law on Transparency and Access to Information; the initial implementation of a Results-based Management System; the expansion and improvement of the use of SIAFI, as well as a public financial management (PFM) reform program. 34      CAS Pillar One: Equitable Economic Growth for Employment Generation Strengthening Fiscal Accounts and Competitiveness 107. This CAS pillar assisted in: (i) reducing public wage pressure and increasing fiscal revenues, (ii) strengthening competitiveness and effectiveness in the areas of finance, energy, water, sanitation, roads and business competitiveness, and (iii) increasing rural incomes. After the political crisis, the Bank program helped balance the fiscal accounts and addressed systemic macroeconomic challenges, including high public wage pressures and low tax revenues. The $76.3m Emergency Recovery Development Policy Credit (DPC), approved in 2011, helped the government mitigate fiscal challenges while addressing underlying structural issues. The Credit supported public sector human resource reforms, reform of the electricity utility, ENEE’s tariff structure and eliminated much of its restrictive debt. These changes were approved by the Honduran Congress and have already led to increased government revenue and an expected reduction in government wages to below 10 percent of GDP. 108. World Bank TA and IFC interventions strengthened the resilience of the financial sector. The Financial Sector Technical Assistance project launched new institutional arrangements within the Central Bank to control systemic risks and reduce the risk of money- laundering. In financial markets, IFC supported banks with trade finance facilities, special- purpose facilities to reach SMEs, housing finance, supported microfinance institutions and selectively sought equity opportunities to further capitalize local financial institutions. MIGA supported a $6.2m risk guarantee to ProCredit Holding of Germany to help capitalize its Honduran subsidiaries that provide SME loans. 109. IDA and IFC interventions supported an improved business climate in Honduras. The Trade Facilitation Project, which closed in FY10 and since March 2009, IFC Advisory Services worked to further improve the investment climate. The reforms include the creation of a one-stop shop to make foreign business registration more efficient, the simplification of municipal licensing for starting a business and for requesting a construction permit. The Government agreed upon a reform memo and action plans for prioritized investment topics with IFC. The time to start a business indicator improved dramatically, from 44 days in 2007 to 14 days in 2011. The days to process a construction permit fell from 184 in 2007 to 106 in 2011, while days to register property fell from 36 to 23 days between the same period. The Trade Facilitation project’s support for the Competition Policy Law enabled more than 35 economic concentration cases7 to be resolved by the new Commission for the Defense and Promotion of Competition. In addition, Foreign Direct Investment promotion work led to 33 new foreign investments of US$60m which created over 5,000 jobs. The establishment of national quality institutions – the Office Accreditation, the Honduran Metrology Center and the Honduran Standards Organization – led to the accreditation of 11 laboratories, 2,000 equipment calibrations and the publication of 69 standards.                                                              7 Concentration cases refer to the evaluation of the effects of mergers and acquisitions to prevent operations that are likely to lessen competition. 35      Infrastructure Sector Investments and Reforms 110. Infrastructure investments represent the largest portion of the Honduras portfolio, with significant road, electricity, water and sanitation investments made in both urban and rural areas, supported by a number of Bank instruments. WBG engagement supported sector-wide reforms and investments in urban and peri-urban areas as well as in rural Honduras. Some projects were multi-sectoral, such as the Rural Infrastructure and Barrio-Ciudad projects that invested in the road, electricity, water and sanitation sectors in the rural and urban contexts, respectively. The positive results achieved under Rural Infrastructure Project encouraged the government to scale up the project (already supported with counterpart funding from the Central American Bank for Economic Integration) as a national program. The ISN disengaged from the telecom sector given significant roadblocks to the passage of key sector legislation (though the PRS TAC project worked somewhat to influence the policy dialogue). 111. The Bank became the lead development partner in the water and sanitation sector through investments and support to a systematic multi-year and multi-instrument reform agenda. The 2006 PPIAF grant supporting the government with a plan to implement the 2003 water and sanitation decentralization law was followed by the Water and Sanitation Sector Modernization Project (PROMOSAS) that has already supported decentralization of water and sanitation utilities in 6 large municipalities. The PROMOSAS project was complemented by the Global Program for Output Based Aid (GPOBA) $4.4m grant facility, which worked in municipalities and with private providers to pay for results-based expansion of water and sanitation services and has already expanded service to more than 10,000 households. The Rural Infrastructure Project installed water connections to 26,000 persons and latrines to 12,000 rural beneficiaries, while the Barrio Ciudad project ensured 100% access to water and sanitation services in the three of the seven urban neighborhoods where the project has been completed. A GAC-financed grant promoted stronger accountability mechanisms for municipal water operators. An Spanish Trust Fund (SFLAC) grant was approved in 2010 to explore a municipal management approach to Tegucigalpa’s water sector, which is not covered by the PROMOSAS project, but whose aging infrastructure – which was heavily damaged by Hurricane Mitch in 1999 – urgently requires new investment. These impacts have been gradual, but built upon and complemented one another, and provide a clear path for sector engagement going forward. 112. Investments in the road sector represented the largest percentage of the Bank portfolio and financed the government’s highway fund, supporting maintenance of the national primary road network and expansion of the rural network. However, because of lacking government weight controls, road maintenance costs were much higher than originally envisioned. Further, because procurement challenges in this sector, many of the major contracts were not signed for the combined $73.6m project. The Rural Infrastructure project worked with mancomunidades (groupings of several smaller communities under a single project administration) across Honduras to identify and upgrade8 more than 150km of rural roads with commitments for the remaining 250km to be upgraded by project closing in 2012. IFC also worked with subnationals in the infrastructure sector and approved a $15.9 million risk-sharing facility with local banks to finance Tegucigalpa’s 2010-11 $44 million investment program in road infrastructure and public transportation improvement. If successful, this program could                                                              8 Roads upgraded to improved gravel standard. 36      scale to other communities. This subnational support was in part supported by CMU-led grants into subnational financial markets, which enabled IDA and IFC involvement in the sector. 113. In the electricity sector, the Bank supported the reform of the state-owned electricity utility, ENEE, helped expand connectivity in off-grid, rural communities and invested in public lighting as part of its slum upgrading initiative. The 2010 DPC moved the electricity agenda ahead by supporting tariff structure reform which led to $5.6m in increased revenues in 2010 and a reduction of ENEE’s debt. A GEF grant supported the installation of thousands of off-grid solar panels in homes and schools. Barrio-Ciudad’s public lighting investments led to measured improvements in perceived safety in communities across the country. The PROMEF Electricity Sector project did not have an impact during this CAS period, as it took 18 months to become effective and then struggled to define implementation arrangements. Rural Development and Productivity 114. Progress has been made toward improving property rights through an extended network of property registration offices; and, broad efforts were put in place to support rural incomes. The Bank has been involved in national land administration reform since 1995 and the Honduran Land Administration Program (PATH) project led to the registration of more than 100,000 new land parcels. After a successful intervention of improved property rights by expanding land cadastre in the PATH project, the Bank prepared a supplementary operation (APL II) and after mobilizing $32.8m additional IDA 15 resources and the project was approved by the Board on June 30, 2011. 115. The Bank supported agricultural productive projects through the Rural Competitive Program (COMRURAL) and IFC investments. COMRURAL, approved in 2008, only became effective in 2010 and therefore the indicators involving rural productive alliances were not met. Yet progress was underway, with more than 3,000 rural producers participating in approved business plans. In agribusiness, IFC is focusing on competitive export sectors as well as processed foods. IFC approved loans in the palm oil and sugar sectors, and is pursuing opportunities with coffee, dairy, and beverages. 37      CAS Pillar Two: Good Governance through State Modernization and Civic Participation 116. Transparency and public expenditure modernization systems were launched, but not yet achieving the scope expected, meaning that many of the reforms enacted lack national impact. Implementation of the governance agenda has proceeded with some notable achievements such as the passage of the Transparency and Access to Public Information law, supported by the Bank, which is amongst the most progressive in Latin America. However, enforcement of the law was limited. Despite reforms, Transparency International rated Honduras among the countries in the Region with the highest corruption. The disconnect between project performance and original project outcomes also suggests that the status of governance achievements under the CAS is still frail and that it would be prudent for the Bank to revisit how best to deliver support for the governance agenda in the new CPS. 117. The Poverty Reduction Strategy Technical Assistance Credit (PRS TAC), the keystone of the Bank’s engagement on the governance agenda, and its predecessor, the Economic and Financial Management Project were important tools for dialogue on governance. PRS-TAC contributed to the upgrading of the Ministry of Finance’s SIAFI system of public finance tracking and control, developing a web-based platform and its extension to cover the entire central government, including modules on treasury and human resources, resulting in the establishment of a single treasury account and automated payroll for civil servants. The PRS TAC project enabled the Bank to stay engaged in the reform dialogue across many sectors including: (i) the decentralization of the water sector (ii) the launching of monitoring and evaluation programs and (iii) the audit of teacher posts allocation, which initiated a debate on reform needs in the education sector.9 The consolidation of the Tribunal Superior de Cuentas established the institution as an independent entity and contributed significantly to audit-based monitoring of public resources. The project, however, fell short in delivering much in efforts to professionalize the civil service – an important project goal and persistent impediment to development. Additionally the Bank delivered “quick gainsâ€? procurement recommendations to the government in 2009 and 2011. As a result of these recommendations, the government transferred the responsibilities of the procurement agency ONCAE from Presidencia to the Ministry of Finance. 118. Honduras was one of the Governance and Anti-Corruption Country (C-GAC) pilots, and benefited from additional resources to support governance reforms. With these resources, the Bank supported the Government’s efforts in the following areas: (i) implementation of the access to information law; (ii) strengthening check and balance institutions to enhance accountability of the Executive and providing support to the Legislature to conduct its oversight role; (iii) supporting efforts to make performance information available to the public and focus the policy discussion on performance in the sectors where the Bank is engaged; (iv) supporting social monitoring activities and strengthening the voice of stakeholders representing public interest in the sectors where the Bank is engaged, and (v) sector level governance initiatives linked to projects. Several grants supported these initiatives including the                                                              9 It is also worth mentioning, that the passing of the Transparency Law and the establishment of the Institute of Access to Public Information – supported by PRS TAC –substantially advanced the transparency and accountability agenda of the country, an example being that the law enabled Congress to use the Public Audience mechanism to select Supreme Court justices. 38      Governance Strategy Note, Institutional Governance Review, Expenditure Tracking Survey, and an Enhancing Transparency and Accountability IDF grant. The IDF grant was instrumental in its support launching and financing the Access to Public Information Institute, an invaluable and underfunded tool for civil society. These instruments provided a menu of options for engaging and supporting civil society. 119. The Institutional Governance Review, completed in 2009, identified key areas and policy prescriptions for Honduras to improve the state of governance. The key challenges identified are (i) the lack of transparency around decision-making; (ii) the lack of available information to assess performance (which makes it difficult for citizens to hold policymakers accountable); and (iii) the weak organizational capacity of groups representing public interest that create conditions conducive to state capture and severely undermine socio-economic and democratic development in the country. 120. Judicial services improved and the Bank Judicial Reform program increased access of justice to the poor, minority groups and women. The project helped to modernize courthouses, giving access to the urban and rural poor, and provided for mobile tribunals in urban settings and the transition to oral proceedings for criminal cases – both successful achievements in a country that suffers from impunity and a low trust of the legal system. This model is an important mechanism to increase the credibility of democracy and rule of law amongst citizens. 121. However, crime and violence undermined good governance and the rule of law. Overall trust in criminal justice institutions and the police have declined significantly in recent years, from 51% in 2004 to 41% in 2008, and from 57% in 2004 to 44% in 2008, respectively. The Bank already has an entry point into the area of crime and violence prevention in Honduras, through the existing Barrio Ciudad slum upgrading project, which showed promising results in its integrated approach to urban upgrading and social prevention interventions. Possibilities to deepen this engagement include scaling the project up geographically or building upon it to develop a broader community security program that incorporates criminal justice reform, situational prevention and a wider set of social interventions. Crime and violence prevention could also be mainstreamed into projects from other sectors including transport, social protection, education and public sector reform. The Bank’s regional study on Crime and Violence in Central America, published in 2011, provides a guideline for further donor support in combating crime and violence in the region. CAS Pillar Three: Environmental Protection and Risk Management 122. The Bang Group delivered uneven results in its efforts to improve disaster risk management and manage environmental resources. While Natural Disaster Risk Management (DRM) schemes achieved significant results at a national and municipal planning level, challenging institutional arrangements, and in the case of the Corazón project, an international disagreement with Nicaragua, limited the effectiveness of environmental management projects. 123. The Bank helped Honduras build national capacity for disaster risk management and reduce vulnerability in 81 targeted municipalities. The Natural Disaster Mitigation 39      Project was especially well received for its participatory processes and community and municipal planning approach in one of the world’s most disaster-prone countries. This project also generated 59 community-based public works, designed to provide poor communities with mitigation from natural disaster and generated a large quantity of local jobs. It was complemented by and IDB loan scaling up the program, the Central American Probabilistic Risk Assessment (CAPRA) risk modeling TA and a larger portfolio of regional DRM TA. 124. The PATH Land Administration (Phase II APL)10 and Forests and Rural Productivity Project made modest progress in demarcating protected areas and benefiting families through sustainable natural resources management programs. Of the ten protected areas intended to be demarcated, two were demarcated and a further six delimited. The Forests and Rural Productivity project failed to address important policy issues and the underlying institutional deficiencies with the implementing agencies, ICF and SERNA. The Corazón GEF grant, designed to coordinate protection of the Corazón biosphere together with the Nicaraguan government, suffered significant setbacks, largely because of the political crisis and unwillingness of the Nicaraguan government to work with their Honduran counterparts. The Honduran Fund for Protected Areas was established, though it has not yet been capitalized. 125. Honduras piloted two of the Bank’s first carbon finance operations, which were challenging to supervise and provide lessons regarding the economic viability and operational issues working with this instrument. The Pico Bonito Forest Restoration BioCarbon project was ultimately cancelled because of safeguard issues. La Esperanza Hydroelectric Project, a 12.7 MW rural mini-hydroelectric dam and one of the WBG’s first Carbon Finance operations, was constructed in 2005 and continues to profit from sales of certified emissions reductions. Supervision responsibilities between the CMU and the Carbon Finance Unit needed to be better defined. CAS Pillar Four: Development of Human Capital 126. The Human Development portfolio, which focused on social protection, health, education and diversity initiatives, showed mixed results, with an emerging role for the Bank in supporting the design of national social protection schemes. Institutional and political challenges limited the effectiveness of education interventions and provide ongoing challenges to efforts in this sector. Overarching issues with regards to access to reliable data and monitoring of national human development statistics complicated the evaluation of Bank project impact. 127. During this CPS period, the Bank played an important role in designing and financing national social protection projects. 11 The GOH took steps to build a coherent social protection strategy and launched a conditional cash transfer program, Bono 10,000. This program targets the poorest communities in Honduras and aims to increase school enrollment and maternal health check-ups as conditions for the disbursements. The World Bank supported this project through a $43 million Social Protection Project which helps the government reach                                                              10 PATH ICR, October 18, 2010. 11 Despite a multitude of small social programs and the creation of the Ministry for Social Development under the Zelaya administration, effective social safety net programs to protect the poor and to help mitigate the impact of shocks were largely absent. 40      the poor by using well-targeted, decentralized schemes. In addition, during the 2008 food price crisis, the Bank delivered a Development Policy Credit in support of the government’s emergency food acquisition. The ongoing Nutrition and Social Protection project, which was supported with Additional Financing in May 2011, supports the government’s Mi Primer Empleo initiative, giving more than 4,800 young Hondurans access to job training (nearly 60% of the project goal). 128. Projects in the HD sectors made progress toward their development goals; however, tracking their impact was complicated by the lack of adequate data collection systems. The Community Education Project contributed to the Government meeting most of its primary education targets. A follow-up to the Health project, which closed in 2010, was prepared by the Bank but was ultimately financed by the IDB because of limited IDA resources. Many government agencies lack adequate data collection systems (particularly in Health and Nutrition), while some projects were overly complex or diffuse in design to effectively supervise (such as Nuestras Raíces).12 The current education project has a TA component that is supporting the Ministry of Education in its collection and tracking of data. Future education projects need to be carefully considered given that the situation with the government’s impasse with teachers unions constrains significant policy changes. In that context, targeted AAA may have a more meaningful impact than investment lending. Issues in the health sector remain, but given the need the need for selectivity and the IDB’s lead in the sector, it is unlikely to become a priority for limited IDA resources. Bank Performance and Rating Program Design 129. The FY07-FY10 Country Assistance Strategy (CAS) for Honduras was discussed by the Board on November 30, 2006 and was aligned with the broad framework of the PRS prepared during the Maduro administration and priorities identified by the administration of President Manuel Zelaya. The CAS identified four strategic pillars upon which to focus the new country engagement: (i) Equitable Economic Growth for Employment Generation, (ii) Good Governance through State Modernization and Civic Participation, (iii) Environmental Protection and Risk Management, and (iv) Development of Human Capital.13 130. The CAS Progress Report, May 2008, delivered a positive message on growth and advances towards meeting its development objectives. The Progress Report amended the program by ending a series of Poverty Reduction Support Credits originally envisioned in the CAS, citing the challenges of doing so in the buildup to a presidential election. It still committed to executing a Development Policy Credit in 2009 to address important structural changes (which ultimately were only pursued with the 2011 DPC). The Progress Report warned of rising food and oil prices and the risks that they would pose for the country and therefore provided for an emergency food price operation addressing agricultural technology and scaled up                                                              12 Nuestras Raices ICR, January 31, 2011. 13 The Zelaya administration never fully completed its own PRS, even though it spent nearly three years in dialogue in order to do as it hoped to benefit from additional debt relief benefits from MDRI, in addition to HIPC. 41      safety nets (which was delivered and fully disbursed). The timing of its preparation did not allow it to foresee and address the political situation that came to be the dominant issue impacting this CAS period. 131. As a response to the Honduran political and financial crisis of 2009, the Bank Group delivered an Interim Strategy Note (ISN), which was discussed by the Board along with an approximately $75m Development Policy Credit on November 9, 2010. The ISN was based upon President Porfirio Lobo’s National Plan 2010-2022, which laid out 11 strategic pillars, including economic growth, employment generation, and expanded access to education and healthcare. The ISN enabled the Bank to convert the remaining IDA 15 allocation into an important fiscal tool to help the Lobo Administration gain fiscal control of national finances and provide the government time to develop a comprehensive development plan in preparation for a new CPS. The 2011 DPC was well designed to help achieve several CAS results in Public Financial Management and Energy. Program Implementation Operational Performance 132. The Pause provided the country team the opportunity to address implementation challenges; however, disbursement ratios have not yet recovered to pre-pause levels. Although the number of projects remained essentially the same over the past six years, the number of projects with more than one risk flag significantly diminished in 2010, as the pause provided the country team a chance to take a close look at the portfolio and address implementation issues. However, the disbursement ratio of the portfolio fell dramatically from 36.7% at the end of FY 2006 to just 16.1% in FY2009 (just before the pause in operations) to a mere 12% in FY10. This could be explained by having a younger portfolio in place as the older projects closed. The Lobo administration’s government of reconciliation struggled to agree upon development priorities, which has led to delays in making operational decisions such as the restructuring of projects and in defining emerging priority areas of engagement. 133. Complicated project design made implementation costly and diminished development impact. Several projects lacked clear definition of all components at appraisal, including technical assistance. Unnecessarily complicated implementation arrangements similarly led to delays and slow disbursements, as demonstrated in Social Protection and Community Education projects. 14 The country team failed to foresee risks that ultimately materialized in approving projects with multiple, disperse sub-projects with unrealistic oversight arrangements (such as Nuestras Raíces)15. Furthermore, overly ambitious procurement plans and lacking capacity in a number of projects (e.g. Roads, PROMEF) significantly delayed implementation. Institutional strengthening components must be incorporated into all “brick and                                                              14 When designing the implementation arrangements, projects should consider the need for outside technical assistance during the implementation stages to help develop managerial capacity within the implementing entities, especially in the early stages of the project when the development of bidding documents take place. This technical assistance should be foreseen and included at appraisal, and institutional strengthening should be designed in all works projects. 15 Nuestras Raices ICR, January 31, 2011. 42      mortarâ€? projects, while governance initiatives should support transparency in a more comprehensive, streamlined fashion. Table A1.1 Project Implementation Statistics Year # Proj. # Proj. >1 risk flag # Problem Proj. Disbursement Ratio 2006 18 2 2 36.7 2007 16 11 2 20.6 2008 17 9 3 22.2 2009 16 11 3 16.1 2010 15 2 3 12 2011 11 2 2 15.8 134. The IFC and MIGA increased their portfolio in Honduras to support economic growth. After relative inactivity during the previous decade, IFC invested $38 million in FY08, $163 million in FY09, $100.9 million in FY10 and $177.1 million as of February 2011. The bulk of IFC activity over the past two years has been in financial markets, telecom, and agribusiness. MIGA supported just one project during the CAS period, a $6.2m risk guarantee approved by the MIGA Board on November 23, 2010 to ProCredit Holding (PCH) of Germany. The investment supports PCH’s 21 banks in providing SME finance to clients in Honduras. 135. The Bank delivered high quality, relevant ESW, especially focused on governance; however, the bulk of this work was delayed, postponed or poorly disseminated. Unfortunately, given the timing of their completion, the IGR and the PETS were only partially disclosed in November 2010 and were poorly disseminated. A public expenditure review was performed in 2008, but a 2010 follow up never took place. The expected Country Economic Memorandum has likewise been postponed as priority was assigned to preparing the emergency DPC. However, a procurement study focusing on the pharmaceutical industry was well received. As shown in Annex 3, the majority of AAA planned were delivered. This builds upon a larger challenge that the Bank needs to do a better job demonstrating and disseminating the results of its portfolio. Bank Group Responsiveness 136. The Bank was attentive to the evolving political economy, levels of government transparency, and transition following the pause. The food crisis hit Honduras in 2008, prompting the Bank to deliver an emergency credit not envisioned in the original CAS. After heavy rains in October 2008, the Bank approved an emergency roads credit, which materialized in the form of $25m additional financing to the Second Roads Rehabilitation and Improvement Project. The Bank lost confidence in the government’s commitment to using budget support for genuine developmental purposes, leading to a focus on specific investment lending. The Emergency Development Policy credit and support for the Bono 10,000 CCT were important responses to needs expressed by the Lobo administration. The preparation of the ISN provided the government time to prioritize in preparation for the new CPS, to focus on restarting the paused portfolio and to deliver results. 43      137. Consistent with Operational Policy (OP) 7.30, the Bank, like most development partners, paused operations in Honduras as it evaluated conditions on the ground. The situation remained fluid for much of 2009 and the Bank began to resume disbursements in December 2009, once it was clear that the conditions of OP 7.30 were fulfilled. During the pause, the Bank took a number of steps to keep PIUs in place so that the projects would quickly resume disbursements once the political crisis passed. The CMU unilaterally issued no- objections for the extension of PIU staff contracts which ensured that the staff would be paid. Significantly, project legal agreements limited the ability of the government to dismiss PIUs without specific justification based on their Terms of Reference and Bank no objection. 138. The Bank played an important role in a number of donor working groups, taking leadership roles in certain instances, with bilateral agencies leading on more politically- oriented topics. The Bank remains active in the local G16 donor group and is involved in many sector-specific working groups. A number of Bank projects were coordinated with and supported by other donors, including PRS TAC, COMRURAL, Roads and Social Protection.16 139. The Bank experimented with alternative project delivery mechanisms, several of which proved successful. There are several success stories in municipal level execution, including the Natural Disaster Mitigation, Municipal Water and Sanitation, the Community Based Education Projects, and IFC infrastructure investments. The implementation arrangements in the Rural Infrastructure Project – one central PCU under the Social Fund (FHIS) at the national level and technical units at the "mancomunidad" level – proved to be relatively effective and efficient – after a long initial gestation/learning period – reducing transaction costs and allowing communities to be involved in developing and executing an integrated vision for the provision of the infrastructure services. IV. Rating 140. The WBG program is rated moderately unsatisfactory because although it made partial progress in most of areas it experienced shortcomings deriving from project implementation. The program achieved significant progress in meeting those goals in most cases. This progress took place despite the pause and other crises described above. Notable successes were registered improving the business climate, expanding judicial services, reducing natural disaster risk, and expanding access to nutrition and basic education. Shortcomings were found in professionalization of the public sector and establishment of rural alliances, and more significant progress should have been made in roads and electricity where large percentages of the portfolio remain undisbursed. 141. The Bank performance is rated as moderately satisfactory on account of the Bank Group’s notable responsiveness to the evolving country events, deteriorating economic and political conditions, and attention to protecting PIUs while at the same time providing institutional strengthening to implementing agencies. The number of problem projects decreased as more attention was placed on supervision of the portfolio. A strong dialogue was maintained with each administration and although projects were delayed, all were brought on track, enabling them to meet or make significant progress towards meeting their objectives. The                                                              16 Partner donors included the IDB, BCIE, DFID, GTZ, SIDA, JICA and SDC (Switzerland). 44      IFC is to be recognized for its dramatically increased presence in country, which in many sectors directly complemented the Bank’s lending program. In a country with such instability, the Bank stayed focused on the development of key national sectors; though it also remained responsive enough to help the government deal with the number of crises which emerged over the CAS period. A shortcoming was the weak dissemination of analytical work which is partly explained because of the political circumstances. V. Lessons Learned and Recommendations 142. In Honduras, implementation challenges experienced in the previous CAS period provide lessons to be incorporated into the new CPS regarding project design, selectivity, and development impact. The Bank must consider how to improve project design so that projects are implemented more smoothly and better accomplish their goals. A larger challenge to address is the seeming disconnect between projects largely meeting their objectives, but static or even deteriorating conditions in the sector nationally. It should also consider a comprehensive dissemination strategy, to communicate the results achieved by the portfolio and the lessons learned for the sake of country-level development partners as well as the Bank Group as a whole. The new portfolio will need to leverage a wide range of instruments to deal with the country’s over-arching development challenges involving governance, citizen security and climate change. Strategic Recommendations 143. Though important reforms were passed in the governance sector and projects met their development objectives, many cross-cutting challenges persist, calling for a broader framework on good governance. The Bank should work with the government to develop a strategy that tackles Public Financial Management and Transparency, incorporates the findings of the 2009 IGR (including the need to strengthen social accountability and the demand for good governance), strategically leverages GAC allocations and builds upon envisioned Improving Public Sector Performance project. The IGR provides other useful lessons that can be mainstreamed into the entire Honduras portfolio.17 144. Address crime and violence by fighting youth unemployment and strengthening institutions. With San Pedro Sula and Tegucigalpa among the ten most violent cities in the world in 2010, citizen security will be the Honduran Government’s most pressing challenge during the next CPS period. The Bank needs to consider how its portfolio, even those projects that do not directly address justice issues, can play a role in reducing crime and violence. Projects need to address youth unemployment and ensure that students are incentivized to stay in school rather than join gangs. This is particularly true given slow economic growth, imploring a need for job creation and economic opportunities for young Hondurans. Strengthening weak institutions will help the government to deal with impunity and ensure provision of better services for citizens. Projects that address the quality of education and its ability to prepare graduates for the workforce, and slum upgrading are all areas of engagement that the Bank has experience implementing and can be scaled up.                                                              17 Including an analysis of municipal accounting mechanisms. 45      145. Mainstreaming Climate Change and Disaster Risk Management in new SD projects, including infrastructure, water and sanitation, agriculture and urban operations. Given Honduras’ vulnerability to climate change and extreme weather phenomena, which have already led the government to request emergency financing in the road sector and forced repairs of Bank- financed works, preparing for climate change should be mainstreamed. Through the Bank DRM engagement in-country, particularly with the CAPRA model, there is a means for this analysis to be included in project design. 146. In an era of increased selectivity, the Bank portfolio should build upon the seeds sewn in sectors where it has extensive experience and work to scale those initiatives up using a range of instruments and influence. It is important for the Bank to evaluate and take strategic actions to rationalize the existing portfolio, considering both the issues of portfolio performance, evolving country needs and potential for impact. Though there is room for engagement in a number of sectors, the Bank should focus on those sectors where conditions are appropriate for sustainable, scalable impact. A portfolio of small, disperse operations, though less risky, limits the impact of each individual project and is ultimately more expensive to supervise. There are examples of sectors where the Bank has been engaged for many years in Honduras, including Public Sector Modernization, Land Administration, Water and Sanitation, the Financial Sector and Slum Upgrading. The portfolio should build upon this experience, continue to support AAA where relevant, and encourage the government and other donors to scale up initiatives with successful track records. Operational Lessons 147. Projects should be sufficiently defined and focused at appraisal in order to avoid implementation delays. Project indicators should be sufficiently narrow to be useful tools and keep implementing agencies on track towards meeting PDOs. While multi-sector engagements may take longer to launch and begin disbursing, if sufficiently simple and defined, they have demonstrated that they can be effective models. Minimum conditions for multi-sector projects should be i) client demand, ii) a history of inter-institutional cooperation and iii) sufficiently simple project design. While implementing arrangements should seek to strengthen government’s institutional capacity, the separation of fiduciary management and technical responsibilities in two different agencies proved to be an inefficient implementation arrangement which often eroded ownership. Projects should be subject to close monitoring when early signs of weak performance are detected and targets should be established so that if not met within an agreed timeframe, project development objectives are adjusted to avoid extensions. 148. The implementation and developmental successes working directly with municipalities can help bypass some of the difficulties encountered at the national level. Municipal governments are known to have stronger citizen accountability; and while they often lack strong capacity, they provide a level of institutional continuity as many mayors are reelected and institutional experience retained. There is certainly a strong developmental prerogative to strengthening municipal governance; however, it is worth reflecting on the realities that private companies are only willing to bid on sufficiently sizable projects. This is an area for the Bank Group to explore further as it develops its new engagement with the government. The 2009 IGR lays out specific recommendations for building confidence in municipal institutions, developing municipal institutional capacity, and incentivizing good municipal reporting and transparency. 46      149. Capacity challenges in the civil service diminish development impact, though a results-based framework can help to mitigate implementation risks. Projects across all sectors struggled with implementation capacity constraints due to the endemic phenomenon of civil service and project management turnover which accompanies each new administration. For this reason, institutional strengthening has to be appropriately simple and targeted to have focused impact. Regular portfolio reviews with government is an essential tool to keep counterparts engaged in this process and should be continued. The 2009 IGR underscored that a results-focused portfolio can mitigate weak institutional capacity by focusing on specific deliverables; however, results should be sufficiently narrow and realistic. 47      Honduras CAS Completion Report Appendix 1 CPS Outcome and Status and Evaluation Lending and AAA Lessons for the new Outcome Indicators Summary Activities that CPS (baselines and contributed to the targets) outcome CPS Objective 1: Equitable Economic Growth For Employment Generation Reduce Public wage Partially achieved. Ongoing portfolio pressures18 (Ends): Progressive reduction Public wage Development Policy of total central expenditures Credit: (11) government represented 11% of TTL: Christian expenditure in salaries GDP in 2010 and are Gonzalez to less than 10.6% of expected to fall to 10% AAA - Delivered GDP by 2011. in 2011. HN Fiscal Emergency (2009 baseline: 11.1%) NLTA (10) PER (08) Improve public Achieved. Ongoing portfolio enterprise finances (Ends): Preservation of total In 2010 total central Development Policy central government government income Credit: (11) current income above was 17.3% of GDP and TTL: Christian 17.3% of GDP (was combined public sector Gonzalez 15.5% in 2009) and income was 24.5%. AAA - Delivered combined public sector 2011 figures will not be HN Fiscal Emergency income over 24.5% of available until end of NLTA (10) GDP (was 24.8% in year. PER (08) 2009). Improve tax Partially achieved. Ongoing portfolio collection (Ends): Central Government Central Government Development Policy tax revenues as a share tax revenues as a share Credit: (11) of GDP increase to of GDP were 14.8 in TTL: Christian 16.1 percent in 2011 2010 and are expected Gonzalez (baseline: 2009 14.4 to rise to 15.4% in AAA - Delivered percent) 2011. HN Fiscal Emergency NLTA (10) PER (08) OBJECTIVE 1A: Strengthening Competitiveness Strengthen Partially achieved. Ongoing Portfolio The FSTAC competitiveness and (Ends) supported objectives resilience of the Money Laundering: Financial Sector TA that were shared by financial sector: While some progress in (11) all recent Honduran Prevention of money- the prevention of anti- TTL: Juan Bucheneau administrations and                                                              18 All figures are based on the new methodology to estimate GDP that Honduras adopted in 2007. All numbers refer to Central Government figures. 48      CPS Outcome and Status and Evaluation Lending and AAA Lessons for the new Outcome Indicators Summary Activities that CPS (baselines and contributed to the targets) outcome laundering and money laundering and Development Policy the FSTAC itself has financing of terrorism. financing of terrorism Credit (11) provided some [CNBS] has been achieved, TTL: Christian stability to the actions additional capacity Gonzalez of the financial sector building measures are authorities in spite of System for Payments, required to achieve full AAA-Delivered the political turmoil Financial Supervision compliance with Remittances (09) the country has and Control of international standards. TTL: Isaku Endo experienced. Systemic Risks in place with comprehensive Control of Systemic AML/CFT Assessment coverage. Risks: The institutional (09) arrangement proposed TTL: Gabriella Ferencz by the Financial Sector Credit Reporting Policy Committee to Assessment (10) deal with systemic risks WHCRI has been adopted and IFC implemented. The procurement process to introduce a modern payment system is currently underway Improve performance Partially achieved. Portfolio (Ends) of economic services: Power Sector Energy Energy system losses: Efficiency The losses in the ENEE has initiated the Enhancement (14) energy system (ENEE) remote metering TTL: Ariel Yepez have decreased by 4% process in San Pedro Development Policy from 2005 to 2011. Sula and has started to Credit (11) Baseline: 24.6% losses reduce losses. Loses TTL: Christian in 2005. [ENEE] as of 2010 at: 22.5% Gonzalez (2% reduction). Rural Infrastructure (12) Improvement in the Subsidies: Targeting TTL: Stephen Brushett transparency, focus and measures have GEF Rural the cost of subsidies to improved with the Electrification (12) households consuming reduction of the scope TTL: Ariel Yepez less than 150 of Bono 80 in the 2008 Barrio Ciudad (12) kwh/month by 2010. budget to users that TTL: Ellen Hamilton [ENEE] consume less than 150 AAA – Delivered mwh/month. [ENEE] Energy Study (07) Extend electricity Electricity has been services to rural extended to: 7,406 households: 8,100 households through through grid and 2,500 grid extension and through the installation 1,814 households and of solar power systems 13 schools through the 49      CPS Outcome and Status and Evaluation Lending and AAA Lessons for the new Outcome Indicators Summary Activities that CPS (baselines and contributed to the targets) outcome by 2011. installation of solar Baseline (Dec 2009): power systems. Grid 5,066 grid installations extension projects 1,070 solar installations under execution will extend the electricity service to additional 2,571 households by closing date 2012. The Solar System Program (PROSOL) has been created for rural electrification with the participation of private providers -solar companies and availability of micro- financing if needed; a wind power measurement study has been completed and concluded satisfactory wind levels exist for further development Improve performance Partially achieved. Ongoing Portfolio Inclusion in the CAS of economic services: (Ends) of a critical mass of Water & Sanitation The reform is fully Water & Sanitation several projects Implementation of the implemented in 5 of the Sector involving the water Water Sector Law, 10 largest Modernization(13) sector, as well as including the transfer municipalities and is on TTL: David Michaud technical assistance of water services and track to be achieved in Rural Infrastructure and ESW work done sanitation to Municipal another 3 by 2011. (12) in parallel, and the entities, properly National institutions TTL: Stephen Brushett, existence of a Water regulated by the have been strengthened Barrio-Ciudad (12) and Sanitation ERSAPS by 2011. and the sector is TTL: Ellen Hamilton Program country regulated by ERSAPS. office in Honduras, Other Bank required Bank team to Extend and improve Instruments (Ends) coordinate better water and sanitation As of April 2011, the GPOBA Water (11) among teams but services to 9,900 OBA Facility has allowed a more households through improved and extended AAA: comprehensive OBA Facility by 2011. the water services to PIAF Grant engagement with 7,041 households. GAC Grant reform agenda. Extend water and Contracts for SFLAC Tegucigalpa sanitation connections expanding and Integrated Urban Water Reforms agenda to 9,300 rural improving water and Management results are being households and build sanitation services for achieved even if 3,100 latrines by 2011. 7,475 additional disbursements are 50      CPS Outcome and Status and Evaluation Lending and AAA Lessons for the new Outcome Indicators Summary Activities that CPS (baselines and contributed to the targets) outcome [As of Dec 2009 1,246 households are under lower than expected water connections execution. in part thanks to installed 884 latrines strong commitment to installed] Water services the reform by the extended and improved GoH. Flexible and to 4,230 rural timely re-allocation of households, and resources has been sanitation services key in improving the extended to 1,941 rural project’s households through the performance. Use of construction of latrines non-sector in 2010. implementing agency (SEFIN) in promoting the reform is crucial in managing changing institutional roles. A set of clear 'output- based' rules of the games and focus on the results of the project implementation contributed to improving transparency, efficiency, and effectiveness of the subsidy allocation. Improve performance Partially Achieved. Ongoing Portfolio Be aware when of economic services: (Ends) designing projects Roads Road Rehabilitation and that startup times can Substantial Improvement + take longer than Ensure sustainable and improvements in road Additional Financing expected, and the substantial maintenance. Road (13) TTL: Stephen capacity of the sector improvements in road Fund projected to meet Brushett, agency to implement maintenance through 54% of national Rural Infrastructure limited. Sometimes financing covering at network requirements (12) there needs to be a least 75% of the public in 2009 and 100% of TTL Stephen Brushett tradeoff between the network, including maintainable primary desire for institution 100% of the paved paved network in 2010. IFC building and timely primary network by [Fondo Vial / project 2010. [SOPTRAVI] SOPTRAVI] implementation. 51      CPS Outcome and Status and Evaluation Lending and AAA Lessons for the new Outcome Indicators Summary Activities that CPS (baselines and contributed to the targets) outcome Rehabilitation of 157 km of rural roads 400km of rural roads, rehabilitated as of by 2011 for improved August 2010. In all-season access. addition, contracts for [105km as of Dec 184km are currently 2009] under execution. Improved business Achieved. Ongoing Portfolio environment and (Ends) strengthen Trade Facilitation (11) competition Competition Policy TTL: Thomas Haven The Competition Law was approved by AAA Policy Law is being Congress and more Regional Investment effectively than 35 economic Climate Assessment implemented by 2011: concentration cases (09) -At least 4 anti-trust were resolved by the ROSC Study (08) cases presented and Comisión para la resolved by the new Defensa y Promoción IFC entity by 2011. de la Competencia (CDPC) between 2007 and May 2010. OBJECTIVE 1B: Increasing Rural Incomes Improve security of Partially achieved. Portfolio (Ends) As Bank support access to land.19 PATH Land shows, land 1.1 A transparent, Number of land Administration (10) administration reform, efficient and reliable parcels incorporated TTL: Enrique Pantoja including institutional property registration in SINAP under the and technological system measured by an parcel-based system: SFLAC: Strategic changes, is a increase in urban and 109,316 in April 2011. territorial planning tools challenging process rural land parcels [PATH] to strengthen municipal requiring a incorporated in SINAP governance programmatic and under the parcel-based committed policy and system of 120,000 by operational 2011. [Instituto de la engagement. Propiedad] Promote rural Not achieved. Rural Competitiveness The project took competitiveness in (16) almost 2 years to farm, agro-forestry TTL: Marie-Hélène become effective and off-farm Collion which significantly employment. delayed the 30 productive alliances AAA implementation. established by 2011. Regional Investment Productive alliances Climate take a long time to be Assessment(09) approved.                                                              19 Indicators and Outcomes refer to the Project area of PATH, which is Comayagua, Siguatepeque, Cortés y Tegucigalpa 52      CPS Outcome and Status and Evaluation Lending and AAA Lessons for the new Outcome Indicators Summary Activities that CPS (baselines and contributed to the targets) outcome IFC OBJETIVE 2: Good Governance Through State modernization and Civic Participation Improving the Partially achieved. Ongoing Portfolio In a broad project like effectiveness and (Ends) PRS TAC, objectives transparency of SIAFI is used for PRS TAC (11) TTL: should be flexible public spending 100% of the public Carolina Rendon enough to adapt to SIAFI is used for 100% spending by central Aid Coordination changing Government of the public spending government. Only one PHRD (09) priorities, realistic by central government decentralized agency AAA enough to be met and decentralized (ENEE) All IGR (09), PETS (10), under with the agencies and is decentralized agencies PER (08) capacities of the published on the web use SIAFI to formulate country, and page in a timely and their budget, but only a implementation has to accessible format as of few for budget be closely managed. 2008. execution. Data is sometimes published Need to reengage with delays and SIAFI and improve usability could be user interface of improved. system in next operation. The Results Based Management (RBM) System was used by all central government agencies to monitor institutional goals. The new administration is currently developing a new monitoring system based on the RBM System - it is too early to assess scope and impact. Professionalization of Not achieved. Ongoing Portfolio In a broad project like key functions and (Ends) PRS TAC, objectives agencies in public PRS TAC (11) should be flexible sector Professionalization TTL: Carolina Rendon enough to adapt to Plan: The changing Government The first phase of the Professionalization AAA priorities, realistic professionalization and plan was published on IGR (09), PETS (10) enough to be met accreditation program September 11, 2009 in PER (08) under with the has been implemented the Official Gazette. capacities of the in at least 4 central However, due to the country, and government agencies, proximity of the implementation has to and in key cross- elections, the plan was be closely managed. 53      CPS Outcome and Status and Evaluation Lending and AAA Lessons for the new Outcome Indicators Summary Activities that CPS (baselines and contributed to the targets) outcome cutting functions of only implemented in public administration the tax agency (DEI) Need to continue (financial management, but not in the rest of the working on Human human resources, public administration. Resources/Civil acquisitions and Service internal control) by Civil service bylaw professionalization 2009. [Central Civil (reglamento) was through DPC and new Service Office, DGSC] passed and government Public Service is identifying salary Project. and post scales in hopes of scaling this up. DEI Multi-sector coalition- has inacted (see above) building will be important to ensuring sustainable impact, in this, as well as the other elements in the governance reform agenda. Strengthen Partially achieved. Ongoing Portfolio Would be important Transparency (Ends) to continue through Transparency Law: IDF engagement with implementation of the Approved in Dec 2006 AAA IAIP because they are Transparency Law and fully implemented IGR (09) an important tool for in Jan 2008. Access to Other Partners public sector Transparency Law Public Information SIDA, DFID engagement and effectively Institute (IAIP) maintaining public implemented as established in August debate. A small measured by: 2007. investment has -100 % of the de oficio yielded impressive information required -Information officials results in making by the law is published named for most central government activity on the web by the and decentralized more transparent and obliged institutions by government agencies, they are highly donor 2008 and each year although many dependent. thereafter. institutions are lagging -100% of the behind. information requests -Data on the from public have been publication of de oficio responded to by the information and the obliged institutions by treatment of 2009 and each year information requests is thereafter. not yet available, but a web-based system and transparency indicators 54      CPS Outcome and Status and Evaluation Lending and AAA Lessons for the new Outcome Indicators Summary Activities that CPS (baselines and contributed to the targets) outcome are being designed for this purpose.20 Improving access, Achieved. Supreme Court was efficiency and Ongoing Portfolio an engaged accountability in the (Ends) development partner judicial sector. Judicial Reform Project with convening power Judicial channels (11) (justice sector is very The judicial channels broadened: New Peace TTL: David Varela centralized in to make justice more Courts established in Honduras). Focus on accessible have been five departments. minority groups and broadened and Rehabilitation and domestic violence diversified, particularly refurbishment of important since courts for minorities or Family and Domestic are overwhelmed with vulnerable groups, with Violence Courts in violent crime. the result that the Tegucigalpa and San number of new court Pedro Sula carried out. users from those A mobile court pilot groups has increased was operational from by 40,000 a year by January 2008. [CSJ]. end-2011. [Supreme Court, CSJ] OBJETIVE 3: Environmental Protection and Risk Management Ensuring Partially achieved. Ongoing Portfolio sustainability of (Ends) protected areas. Demarcation: GEF Corazón Grant Delimited in 6 of 8 (13) TTL: Catalina 10 protected areas protected areas, 2 Marulanda (approx. 280,000 ha) already demarcated as AAA demarcated and with of June 2010. [ICF] Environmental management plans by Assessment (08) the end of 2011. [ICF] Management Plans: Implementation of the Projects Closed: Patuca management PATH (08) plan has begun; GEF Pico Bonito Grant preparation of the (07) Tawahka management Forestry & Rural plan is in the process of Productivity (10) being contracted as of July 2010. At least 1,500 families [SERNA/ICF] benefiting from                                                              20 In 2010 and 2011 there have been advances in compliance with publication of de oficio information on web portals, although there remains much to be done (in terms of quality, display and availability of information) in order to reach expected results. Municipal Governments are in a weaker situation, and are more slowly complying with the Law, as well as several Congresspersons (many of who are not delivering de oficio information, even when it is formally requested). 55      CPS Outcome and Status and Evaluation Lending and AAA Lessons for the new Outcome Indicators Summary Activities that CPS (baselines and contributed to the targets) outcome sustainable natural 1,252 families resources management benefiting from programs sustainable production and conservation projects in protected areas as of July 2010. Reducing the impact Achieved. Ongoing Portfolio of natural disasters. (Ends) Implementation of a Plans are in place for Disaster Mitigation (11) national disaster risk 81 municipalities. AAA management system CAPRA (11) for early warning, response, risk and vulnerability assessment, and mitigation investments at the local level (81 participating municipalities by 2009). [SGJ, COPECO] OBJETIVE 4: Development of Human Capital Improving coverage, Achieved. Ongoing Portfolio efficiency and quality (Ends) of Basic Education (1st Percentage of students Community Education to 9th Grade) by completing 6th grade: (08), Education Quality - Increasing the 84% in 2009. Project (13) percentage of students [Secretaría de Proposed Portfolio completing 6th grade Educación] (Starts) (all ages) from 72% in 6th to 7th grade DPC (11) 2005 to 85% by 2010. transition rate: 86% in AAA [Secretaría de 2009, 82% in 2010. PETS (09), IGR (09), Educación] [UPEG/Secretaría de Regional Service - Increasing the 6th to Educación] Delivery Study (09), 7th grade transition rate Poverty Assessment from 70% in 2005 to (09), PER (08) 80% by 2010. [Secretaría de Educación] Improving quality Partially achieved. Ongoing Portfolio and coverage of basic (Ends) health services.21 Coverage of Health Sector Reform                                                              21 The Health Sector Project closed May 31, 2010 and the follow-up Project that was prepared will be financed by IADB. Thus the indicators for health services will not be monitored going forward. 56      CPS Outcome and Status and Evaluation Lending and AAA Lessons for the new Outcome Indicators Summary Activities that CPS (baselines and contributed to the targets) outcome Increased coverage of institutional delivery is Project (09), Nutrition institutional delivery 67% (2005-2006) and Social Protection from 57% in 2004 to [ENDESA]22 (12), Regional 75% by 2010. HIV/AIDS Project (11) [Secretaría de Salud] Social Protection (14) AAA Reduced chronic The malnutrition rate is PETS (10), IGR (09), malnutrition in children 30.15% (2005-2006) Regional Service less than 5 yrs. of age nationwide Delivery Study (09), from 33% in 2004 to [ENDESA]23 The rate Poverty Assessment 26% by 2010. is 21% among children (09), Addressing the [Secretaría de Salud] participating in AIN-C challenges of in 2011 based on HIV/AIDS in LAC (07) preliminary findings of PER (08) impact evaluations. Other Bank Instruments Reproductive Health in Reduced HIV/AIDS Central America (07), prevalence growth rate UNAIDS ASAP in pregnant women In 2004 the prevalence Initiative from 12% in 2005 to rate in pregnant women less than 10% by 2010. was 0.5% and in 2009 [Secretaría de Salud] it was 0.3%. The growth rate was negative. [Source: Asamblea General Extraordinaria de las Naciones Unidas sobre el VIH y Sida (UNGASS)] Improve the impact of Achieved. Ongoing Portfolio Need to develop social assistance to (Ends) interventions that vulnerable groups. Children zero to five in Nutrition & Social support both supply Children and at-risk 1,000 rural Protection (12) and demand. New youth are benefiting communities benefit TTL: Cornelia Tesliuc, Social Protection from effective safety from an improved Social Protection (15) project is supporting a net interventions community based TTL: Cornelia Tesliuc conditional cash nutrition intervention AAA transfer that target (AIN-C) and about Regional Service poor families with 4880 at risk youth have Delivery Study (09), children offering cash participated in training Poverty Assessment in exchange for                                                              22 ENDESA, the national health survey, is typically completed every 5 years. Given the trend the Government of Honduras would complete the next ENDESA in 2010-11, however this may be delayed pending funding. Attempts were made to measure this indicator under the Health Project, but due to staff changes in the project implementation unit performance indicators were not monitored. 23 More recent ENDESA results not available (see above). 57      CPS Outcome and Status and Evaluation Lending and AAA Lessons for the new Outcome Indicators Summary Activities that CPS (baselines and contributed to the targets) outcome to increase their (09) regular school employability. PER (08) attendance and use of Other Bank preventive health Instruments services Social Assistance – Children and Youth Innovation Fund (10) Strengthen the Achieved. Ongoing Portfolio capacity of Afro- (Ends) Honduran and Nuestras Raíces (10) indigenous groups to FHIS project cycle: TTL: Cornelia Tesliuc manage their 100% of the sub- development. projects financed by 100% of the sub- Nuestras Raices have projects financed by been incorporated into Nuestras Raices have FHIS’s project cycle by been incorporated into 2010. [FHIS] FHIS’s project cycle by 2010. [FHIS] Sustainability: 75% of At least 70% of the sub-projects were sub-projects financed declared sustainable by by Nuestras Raices 2009. declared sustainable by FHIS by 2009. [FHIS] 58      Honduras CAS Completion Report Appendix 2 Planned Lending Program and Actual Delivery CAS Plans IDA IDA FY (November 2006) US$ CAS Actual Delivered US$ Project (m) (m) PRSC 10-25 Dropped - Education Sector Investment Project 15 Forwarded to FY '08 - Rural Competitiveness APL I 30 Forwarded to FY '08 - Additional Actual Projects 2007 Natural Disaster Mitigation - Additional Financing 9 Honduras Water and Sanitation Sector Modernization Project 30 Subtotal FY '07 70 Subtotal 39 PRSC 15-30 Dropped - Utility Restructuring Project 30 Forwarded to FY '09 - Additional Actual Projects 2008 HN Education Quality and institutional Strengthening 15 Rural Competitiveness 30 Honduras Road Reconstruction and Improvement Ii 48.6 Subtotal FY '08 60 Subtotal 93.6 Subtotal FY '07 & FY '08 130 Subtotal FY '07 & FY '08 132.6 Progress Report Plans 2008 Poverty Reduction Strategy DPC 20 Dropped - 2009 Land Administration II 30 Pipeline - Utility Restructuring Project 30 Delivered 30 59      CAS Plans IDA IDA FY (November 2006) US$ CAS Actual Delivered US$ Project (m) (m) Additional Actual Projects Food Prices Crisis Supplemental to HN First Prog Fin Sec DPC 10 Additional Financing Second Road Rehabilitation and Improvement Project 25 Subtotal 70 Subtotal 35 Health Sector Decentralized Service Delivery 15 Dropped - Third Road Dropped in lieu of Additional Reconstruction & Financing to Second Road Rehab improvement Project 20 Project Public Sector 2010 Management Program 15 Pipeline Additional Actual Projects Social Protection Project 40 Subtotal 100 Subtotal 40 Subtotal FY '09 & 170 FY '10 Subtotal FY '09 & FY '10 150 Interim Strategy Period 2011 Emergency Recovery 2011 Development Policy Credit 76.3 Delivered 76.3 Nutrition and Social Protection AF 3.5 Land Administration 2 32.8 Subtotal 76.3 Total FY07-11 376.3 320.2 60      Honduras CAS Completion Report Appendix 3 Planned AAA Program and Actual Delivery CAS Plans Status (November 2006) Energy Study Delivered (renamed Energy Strategy) PPIAF Municipal Infrastructure Grant Delivered. Renamed Municipal Water Grant GPOBA Water Grant Delivered Aid Coordination Grant Delivered Governance Strategy Note Delivered Public Expenditure Review Delivered FY '08 ROSC Study Delivered FY '08 GEF Pico Bonito Grant Delivered FY 2007 Addressing the Challenges Analysis of HIV/AIDS Strategic Planning Processes and of HIV/AIDS in LAC Outcomes of Honduras (P111409) La Esperanza Hydroelectric Carbon Fund Delivered. Closes FY ’15. Additional Delivered BCF Pico Bonito Sustainable Forests Grant (Ultimately Cancelled) GVEP – GAP Fund Child TF IDF: Enhancing Transparency and Accountability PRSP 3rd Progress Report and Joint Staff Advisory Note 4 Central America Energy Studies prepared through ESMAP (all delivered FY ’11) Central America Regional Programmatic Study for the Energy Sector: General Issues and Options Managing an Electricity Shortfall Regional Power Integration Regional Integration: Structural and Regulatory Regional Energy Study Challenges Investment Climate Assessment Dropped FY Regional Land 2008 Management Study Dropped Public Expenditure Tracking Survey Delivered FY '10 Institutional Governance Review Delivered FY '10 PHRD – Regional Development in Copan Valley Delivered FY’10 PHRD – Strengthening Aid Coordination Dropped 61      CAS Plans Status (November 2006) PHRD Water and Sanitation Delivered PHRD Utility Restructuring Project Delivered GEF Climate Change Grant Dropped Environmental Assessment Delivered FY '09 PHRD Rural Productivity Delivered Unblocking Governance Reforms Delivered Price Risk Management In Honduras Delivered PRS-TAC SPTF Delivered Additional Delivered Wbi-Spain: Infrastructure Development And Reform In The Port Sector In Honduras Microenterprise Development For The Poor And Indigenous People JSDF Community Disaster Management in Tegucigalpa First - Honduras: A Roadmap For Strengthened Accounting And Auditing (First# 7100) STRAT Planning Case Study Of Honduras Expenditure Tracking Survey (in preparation) Delivered FY '10 Regional Crime and Violence Study Delivered FY ‘11 Regional Disaster Mitigation Study (in preparation) Delivered FY '11 (P101639) Regional Service Delivery FY ( in preparation) Delivered FY '10 2009 PHRD -- Natural Disaster Mitigation Delivered GAP: Improving Land Tenure For Women Delivered Additional Delivered Avian Flu Prevention TF Community Based Aquaculture In San Manuel, Honduras 62      CAS Plans Status (November 2006) PHRD-Honduras: Community-Based Education CCIG-Honduras: Pico Bonito Forest Regeneration And Sustainable Livelihoods JSDF-Honduras: Community Disaster Management In The Barrios Of Tegucigalpa Sustainable Community Based Tourism Development For Indigenous And Afro-Descendent - Honduras Rural Productivity Project Policy Notes (proposed) Dropped JSDF Children and Youth Innovation Fund Delivered IDF - Improving Transparency and Accountability for Project Rights' Administration in Honduras Delivered PHRD Adaptation to Climate Change Delivered GEF Indigenous Communities Ecosystem Management (Regional) Delivered FY GEF Corazon Binational 2010 Transboundary Biosphere Reserve Delivered GEF Rural Electrification Delievered Additional Delivered PHRD-Honduras: Natural Disaster Mitigation Community Administered Education JSDF Building Trust in Public Policies and Public Institutions SFLAC: Strategic territorial planning tools to strengthen municipal governance (underway) SFLAC: Promoting Integrated Urban Water Management in greater Tegucigalpa (underway) JSDF Employment Generation in Poor Urban Areas JSDF Piloting New Forms of Community-administered Education for Socially Vulnerable Communities in Honduras 63      ANNEX 2 Honduras CPS Results Matrix   Issues and Obstacles Expected outcomes in CPS period Milestones Bank Program Strategic Objective 1: Improving Citizen Security Government Strategic Priority: Reduce the levels of criminality in Honduras to below international averages, adopt an integrated approach to citizen security through policies aimed at preventing crime and violence, by strengthening the justice sector and ensuring the protection of human rights. Results Area 1.1: Strengthened National Capacity to Address Citizen Security The Government lacks a Outcome 1. Improved policy Establishment of a National Programmatic Development comprehensive and integrated environment for implementation of Citizen Security Council Policy Credit approach to citizen security that an integrated national citizen combines crime control with security strategy Development of risk mitigation Barrio Ciudad violence prevention and measures and social safeguards Targets (2014): [JSDF supporting Violence coordinates the actions of key School-based violence prevention Observatory and School-Based ministries, levels of government, i. A national policy on citizen toolkits launched and rolled out Violence Prevention Toolkit TBC] and non-state actors. The security provides for social in at least 200 schools presence of organized crime and prevention activities is openness of the financial system, developed, financed, combined with weak anti-money operationalized, and monitored laundering supervision capacity Introduction of a financial ii. Risk-based supervision by projection model as a tool for risk Financial Sector TAC of financial institutions leaves CNBS being carried out on the Honduras vulnerable to money based supervision basis of a financial projection laundering. model Adoption of a new Financial iii. New Financial Payments System Payments System in operation Anti-Money Laundering iv. Action Plan under Conduct of a National Risk Programmatic Technical implementation to reduce the assessment on proceeds of crime Assistance risk of recycling of proceeds of and Adoption of a related action 64      Issues and Obstacles Expected outcomes in CPS period Milestones Bank Program crime in the Honduran economy plan Financial supervision focus on risk management, internal controls and compliance functions. Throughout Honduras, people’s Outcome 2. Strengthened capacity of At least 10 municipalities have Barrio Ciudad perceptions of insecurity are very communities and local governments developed and started high. Neglected poor urban in social prevention of crime and implementation of integrated Proposed Urban Vulnerability neighborhoods have higher violence citizen security plans supported Reduction Project levels of crime and violence, by the Safer Municipalities IFC PPP for Urban Infrastructure further marginalized by weak Targets (2014): Program infrastructure connections and v. Average perception of lacking community organization. 7 neighborhood upgrading plans insecurity in the municipalities elaborated by municipalities and In most cases, municipalities where the “Safer Municipalitiesâ€? need to take a lead role in approved by FHIS Program is being implemented promoting activities necessary (Baseline 2010: 91 percent felt PPPs for municipal infrastructure for a safer environment but have insecure (UNDP 2010): Target launched weak planning and 2014: 65 percent felt insecure) implementation capacity. vi. Barrio Ciudad Project beneficiaries polled and 65% of households feel safe in their home by project close Honduras suffers from high rates Outcome 3. Improved employment Piloting of targeted training Nutrition and Social Protection of unemployment, particularly programs for young, unemployed 65      Issues and Obstacles Expected outcomes in CPS period Milestones Bank Program among youth. Unemployment opportunities for youth Hondurans (Mi Primer Empleo) Project rates for youth in urban areas is currently estimated at 9.6 Targets (2014): Labor-intensive public works JSDF for Employment Generation percent, with another 8 percent organized in poor urban in Poor Urban Neighborhoods vii. 7,100 direct beneficiaries of the neighborhoods being underemployed. Crime and Mi Primer Empleo initiative violence -- in the home, school, reached. and in the streets -- is also viii. 1,500 men aged 15-24 worked rampant, with youth being both on sub-projects financed by perpetrators and victims. Given JSDF employment generation the link between unemployment initiative and crime, as well other risky behaviors, the country has placed particular importance on providing training and job opportunities to at-risk youth. Results Area 1.2: Linking National Interventions to Regional Approaches on Citizen Security Many countries face similar Outcome 4. Strengthened regional Support SICA in elaborating a South-South Learning challenges and concerns approaches to combat crime and regional strategy and regarding citizen security, violence in Central America and strengthening regional security Strengthening of SICA IDF regional approaches and south- harmonized Honduran policies with coordination. Nordic Trust Fund on Human south coordination and learning regional best practices Rights, Crime and Violence is needed to strengthen and Support South-South learning in harmonize efforts to combat Targets (2014): conjunction with the World Bank crime and violence. Institute (e.g. Brazil, Colombia) ix. Active Honduras participation in on strategies to reduce urban Regional citizen security violence. initiatives, especially related to prevention 66      Issues and Obstacles Expected outcomes in CPS period Milestones Bank Program Strategic Objective 2: Expanding Opportunities through Reducing Vulnerabilities Government Strategic Priority: Ensure sound fiscal management. Improve equitable economic growth and strengthen social protection while increasing access to health, education and housing for the most vulnerable portions of the population. Results Area 2.1: Improved Fiscal Consolidation A more conducive Outcome 5. Improved tax Approval and implementation of Programmatic Development macroeconomic framework is administration the action plan for Large Policy Credit necessary; in particular, Taxpayers Unit redressing the large imbalances Targets (2014): in Central Government finances Approval and implementation of x. The number of large taxpayers the large taxpayer inclusion and unresolved structural filing electronically increases by weaknesses in public pension criteria at least 20 percent (baseline funds and public sector 2010= 335 large taxpayers) Large taxpayers registry enterprises. completed Outcome 6. Improved financial INMPREMA and INJUPEMP sustainability of major pensions pension reform laws approved systems (INMPREMA and and implemented INJUPEMP) Targets (2014): xi. PROHECO teachers’ pension contributions are flowing into INPREMA 67      Issues and Obstacles Expected outcomes in CPS period Milestones Bank Program Outcome 7. Improved fiscal sustainability of the public wage bill Congressional approval of law Targets (2014): de-linking salary adjustments from private sector minimum xii. Central Government’s wage bill wage level for the next four years falls by at least 0.7 percent of GDP (baseline: 2010 = 11 Implementation of a single percent of GDP) database which accounts for over 80 percent of personnel using SIARH-SIAFI and includes all teachers The National Power Utility Outcome 8. Strengthened Capacity-Building of ENEE in Power Sector Efficiency (ENEE) has massive financial institutional capacity and reduced core utility management Enhancement Project losses annually, an unsustainable losses of the national energy utility functions subsidy system and an outdated management system. Targets (2014): xiii. Reduce Electricity Loses per year in ENEE Project Area from 22.5% per year (2010) to 15% 68      Issues and Obstacles Expected outcomes in CPS period Milestones Bank Program Results Area 2.2: Improved Investment Climate and Competitiveness A majority of the rural poor in Outcome 9. Enhanced capacity of At least US$9.5m co-invested in FIRST Honduras work in the agriculture and investment opportunities for Rural Business Plans by Private sector. Rural producers must SMEs and rural productive alliances Sector. Doing Business advisory work adopt new technologies and Rural Infrastructure Project access greater market Targets (2014): Rural Competitiveness Project intelligence to more efficiently xiv. 120 rural productive alliances use available resources, thereby supported with a 20% increase in JSDF for Microenterprise ensuring the profitability and net revenues for participating Development for the Poor and competitiveness of their rural producers. Indigenous People production. Small farmer xv. At least US$1.5m in associations can participate in Financial Sector TAC microfinance loans granted to “value chainsâ€? to earn stable, rural beneficiaries of the Rural FPD Investment Climate Practice reliable and more remunerative Infrastructure Project Work market access. xvi. Operational capacity of microfinance institutions is IFC Investment Climate Advisory strengthened in conjunction with Services Bank Group-financed projects IFC MIGA Honduras struggles with regular Outcome 10. Reduced Logistics Contracts for roads maintenance Road Rehabilitation and road maintenance and other road constraints carried out by SOPTRAVI Improvement II project transport infrastructure rehabilitation; the resulting poor Targets (2014): Contracts for infrastructure Rural Infrastructure Project connectivity hinders its rehabilitation carried out by xvii. 70% of unpaved road SOPTRAVI Power Sector Efficiency competitiveness. There are also network under regular Enhancement Project significant constraints on energy maintenance (2008 baseline and ports, contributing to 33%) 69      Issues and Obstacles Expected outcomes in CPS period Milestones Bank Program tightening the logistics xviii. 152km of primary roads to constraints to accessing markets. be reconstructed, 4 bridges to be reconstructed and 800 km of rural roads to be put under regular routine maintenance xix. 445km of rural roads rehabilitated Many (particularly rural) Outcome 11. Improved land tenure Land titling activities under the PATH II – Land Administration Hondurans lack land tenure security PATH II project are implemented APL security. Weak property rights have discouraged investments Targets (2014): Capacity-building activities for TF on Strengthening the and restricted access to credit, SINAP are being implemented Recognition of Indigenous Land xx. At least 50,000 families in rural Rights in Honduras constraining SME development. and urban areas complete The property registry system, process to obtain new land titles GEF Trans-boundary Reserve SINAP, is in need of institutional (of which at least 30% are strengthening. women) xxi. The average time to register a land transaction through the modernized registries is 18 days (baseline 2011: 23 days). Results Area 2.3: Improved Quality of Education Honduras faces key Outcome 12. Improved coverage, Development of new multigrade Education Quality, Governance shortcomings in terms of governance, and accountability of teaching materials and Institutions coverage at pre- and post- the basic education system, with a primary education levels, particular emphasis on the most INPREMA reforms that IFC Education College and Adult completion rates and education disadvantaged and rural communities recognize PROHECO teachers Education Component quality, accountability and National student learning 70      Issues and Obstacles Expected outcomes in CPS period Milestones Bank Program governance. These problems are Targets (2014): assessments carried out Programmatic DPC even more acute in the light of the significant total education xxii. 1 800 new pre-school Parent-teachers associations expenditure relative to its institutions opened (baseline activated income, which ranks Honduras 2011: 400 pre-schools first among its regional constructed) neighbors. xxiii. 2,250 PROHECO (rural schools for basic education) teachers provided with new multigrade teaching materials and training (baseline: 0) xxiv. National assessment of student learning for the country in place and country participating in international assessments of student learning (TIMSS and PIRLS 2011) xxv. 25% of schools who involve parents in social audits of the schools using the 60-words-per- minute fluency test in 2nd grade in targeted areas (baseline: 0) Results Area 2.4: Consolidated and Strengthened Social Protection System Honduras’ new Conditional Cash Outcome 13. Improved coverage Household survey necessary for Social Protection Project Transfer Scheme, Bono 10k, was and governance of the national CCT program targeting completed recently launched. The Bank program (Bono 10k) Nutrition and Social Protection has supported financing the Household targeting mechanism program as well as developing Targets (2014): in rural areas fine-tuned the targeting mechanisms for the 71      Issues and Obstacles Expected outcomes in CPS period Milestones Bank Program program. xxvi. 30,000 families receiving Household targeting mechanism regular payments from Bono 10k for urban areas developed and xxvii. New social protection tested targeting mechanism for urban areas is validated and piloted xxviii. 90% of schools and 50% of health centers report compliance in accordance with payment cycles xxix. 5,000 using the SLSS information service in project areas (700 as of 2011) Results Area 2.5: More Effective Disaster Risk Management Honduras is the ninth most Outcome 14. Improved risk Training delivered to key CAPRA vulnerable country to exposure mapping and planning capacity Honduran DRM institutions on from two or more hazards and use of probabilistic risk CEPRENDENAC work is needed to strengthen Targets (2014): assessment tool IDB national capacity to mitigate risk xxx. Honduras benefits from from disasters at the national and Dialogue maintained with other CABEI regional disaster risk partners (e.g. IDB, CABEI) on municipal level. management initiatives and disaster preparedness harmonized disaster planning as coordinated by the regional institution, CEPRENDENAC. xxxi. Central American Probabilistic Risk Assessment tools used to assess, understand and communicate disaster risk in 72      Issues and Obstacles Expected outcomes in CPS period Milestones Bank Program Honduras. Strategic Objective 3: Enhancing Good Governance Create a state that is modern, transparent, efficient and competitive. Improve Honduras’ ranking in global transparency and corruption indicators. Transition public services to electronic platforms. Results Area 3.1: Improved Accountability in Public Expenditures Weak management of public Outcome 15. Improved public New functionalities added to Improved Public Sector finances and outdated financial management, procurement, SIAFI Performance Project technological systems for public and results monitoring and financial management, e- evaluation capacity Honducompras e-procurement JSDF Building Trust in Public procurement and human resource platform capacity expanded Policies and Public Institutions management. Targets (2014): Implementation of transactions- JSDF Improving Public xxxii. 100% of Central based payroll audit findings in Accountability Government and 80% of Ministries of Health and Public decentralized institutions operate Works with the updated SIAFI xxxiii. 80% publication of bidding New indicators and goals opportunities and contract award established by M&E system information through the e- procurement system xxxiv. Reduction of floating debt related to personnel expenditures in Ministries of Health and Public Works xxxv. Results monitoring being carried out regularly in 6 sector cabinets xxxvi. Timely and relevant Improved quality of information 73      Issues and Obstacles Expected outcomes in CPS period Milestones Bank Program technical inputs on budget and provision for members of policy analysis. Congress and specialized commissions Results Area 3.2: Stronger Decentralized Structures In sectors where decentralized Outcome 16. Improved financing Data collection on decentralized AAA: PER with Special Focus on management and delivery of framework for decentralized service expenditures and revenue sources Decentralization services have been initiated in delivery and analysis Honduras, promising TF on Strengthening Municipal improvements have been noted Targets (2014): Territorial Planning Capacity in the efficiency and quality of xxxvii. Assessment of municipal IFC service delivery. There is need, debt- financing potential however, to take stock of the completed fiscal, financing, and service delivery framework of decentralized tiers of government in order to help address questions of value-for-money and sustainability, as well as help inform the development of an 74      Issues and Obstacles Expected outcomes in CPS period Milestones Bank Program appropriate decentralization strategy for Honduras. Recent advances in decentralized Outcome 17. Improved efficiency CONASA establishes the new Water and Sanitation Sector implementation of services have and accountability of autonomous financial policy Modernization Project been observed particularly in the municipal water and sanitation water sector. Nonetheless, service providers SANAA operates as a technical GPOBA Honduras faces a number of assistance provider in at least one Targets (2014): region of the country SFLAC for Municipal Water challenges in implementing Decentralization in Tegucigalpa effective policies, regulation and xxxviii. At least 50% of cities above financing of decentralized water 40,000 inhabitants operate with AAA: Expenditure analysis of the and sanitation systems. sustainable and efficient Water Sector autonomous municipal water and GAC Water Decentralization sanitation service providers Trust Fund Results Area 3.3: Enhanced Social Accountability as Part of Demand-Driven Governance There is weak capacity of civil Outcome 18. Improved capacity of Capacity-building activities CMU-administered Civil Society society and the national civil society organizations to use undertaken with CSOs on the use Grants Congress to use available demand-side governance tools of demand-size governance tools information to hold public Quality of Education Project service providers and policy Targets (2014): JSDF on Piloting New Forms of makers more accountable. This xxxix. Number of CSOs involved Community-Administered contributes to limiting the in social monitoring increases in Education for Socially Vulnerable strengthening of trust in public the education, roads and social Communities policies and institutions. protection sectors xl. 25% of schools involve parents in social audits of the schools 75      Issues and Obstacles Expected outcomes in CPS period Milestones Bank Program use of the 60-words-per-minute Barrio Ciudad fluency test in 2nd grade in targeted areas Rural Infrastructure Project xli. Number of formal requests for Road Rehabilitation and public information doubles Improvement II (Social Auditing component) Nutrition and Social Protection (Social Auditing component)   76      ANNEX 3 IFC Program 150. IFC has developed a very active engagement in Honduras. After relative inactivity over the past decade, IFC committed investments for US$38 million in FY08, US$163 million in FY09, US$100.9 million in FY10 and US$250.1 million in FY11. The latter amount includes US$32 million in equity investments committed through the IFC Capitalization Fund. The Corporation’s outstanding investments in Honduras totaled US$192.4 million as of June 30, 2011. In addition, there is an undisbursed balance outstanding of $57.7 million, bringing IFC’s committed balance to US$250.1 million at the end of June 2011. The bulk of IFC activity over the past two years has been in financial markets, telecoms, and agribusiness. Loans accounted for US$134.5 million of FY11 commitments, whereas trade finance and risk guarantees accounted for US$81.6 and equity US$34million respectively. i. In financial markets, IFC is supporting banks with trade finance facilities and special purpose facilities to reach SMEs, housing finance, sustainable energy finance as well as supporting SMEs through microfinance institutions. IFC has also been selectively looking for equity opportunities to further capitalize local financial institutions. IFC relationships with Honduran financial institutions are key to executing the Corporation’s strategic objective of poverty reduction through their MSME, microfinance, and housing financing lines. The Corporation has trade finance lines totaling US$75 million to four Honduran banks. Two of these Banks Ficohsa and Atlantida are the most active in trade within the region. IFC has invested US$32 million in Banco FICOHSA common stock through the IFC Capitalization Fund (ICF). The transaction also entails a US$38 million subordinated loan through the IFC Subordinated Debt Fund (SDF), to be committed in early FY12. IFC has also SME and Housing finance loans with Ficohsa that have been complemented with advisory service support in SME finance, housing, and corporate governance. ii. IFC is pursuing more opportunities in microfinance. The Corporation holds $1.9 million in equity in Banco Popular, the country’s first and only microfinance entity to become a licensed bank. In addition to its direct investment, IFC has supported Banco Popular with advisory projects aimed at improving risk management and efficiency, and capacity building. More recently IFC Advisory Services engaged with ODEF, a leading microfinance institution targeting women and with a strong focus on rural and peri-urban micro entrepreneurs. The advisory projects focus on risk management and strategic planning. IFC is also evaluating a long term funding facility for ODEF. iii. Agribusiness clients currently accounts for about 12% of IFC’s total loan portfolio, for a total $21.6 million. Investments in this sector have enabled the Corporation to advance its poverty reduction strategy. The key partnership in this sector is with food processing concern Dinant. This company, which focuses on the low- and middle-income consumer market, provides jobs to 4,500 workers, one-third of whom are women. IFC has also made long-term loans to La Grecia, part of Central America’s leading sugar conglomerate. 77      iv. The Corporation has also been active in the retail and telecommunications industries, with loans totaling $45 million to retail developer Grupo Roble and a $70 million loan to Digicel, a cellphone provider focused on poor communities in low-income countries. v. IFC has also begun working with subnationals and infrastructure sectors. IFC approved in early FY11 a US$15.9 million risk-sharing facility with local banks to finance Tegucigalpa’s 2010-11 $44 million investment program in road infrastructure. If successful, this program could be rolled out to reach other municipalities. IFC is also financing the largest privately owned hydroelectric plant in Honduras (La Vegona), a 38.5 MW run-of-the- river project, expected to sell electricity to industrial clients as well as the state-owned utility ENEE under long-term power purchase agreements (“PPAsâ€?). Improved infrastructure is critical to strengthening regional trade links. IFC is also evaluating a potential intervention in water and waste water management sector with the private concessionary in the city of San Pedro Sula. vi. Honduras was selected as one of six pilot countries to participate in the Climate Investment Funds’ Scaling Up Renewable Energy Program in Low-Income Countries (SREP). The private sector-oriented Fund will give the country access to up to US$30 million in potential co-financing for projects to support energy efficiency, renewable energy, and access to cleaner production technology. 151. The Corporation also has a successful Investment Climate program underway in Honduras. The program favors MSMEs which opted to remain in the informal sector due to complex and expensive business registration processes. The Investment Climate program was launched as a pilot in 2005 in Tegucigalpa and San Pedro Sula to help both cities simplify issuance of municipal operating licenses. As a result, the average number of days needed to obtain an operating license fell to one day from 35 days for most businesses. IFC then expanded the program to cover issuance of operating licenses and construction permits in seven other cities (Puerto Cortes, El Progreso, La Ceiba, Roatan, Copan Ruinas, Danli and Choloma). Tegucigalpa and San Pedro Sula are also participating in this phase of project, to simplify procedures to issue construction permits. This second stage of the program is expected to be concluded by June 2011. An estimated 16,000 SMEs will have benefited from the program, generating cost savings of about $ 1.3 million. The municipal licensing simplification program was undertaken in conjunction with the Bank’s Trade Facilitation Project. 152. The IFC and FPD are supporting trade and logistics in the rural and regional contexts. At the end of April 2011, IFC Investment Climate Advisory Services and the FPD Investment Climate Practice started the implementation of the Agribusiness Trade Logistics Project which will implement short and medium term improvements in exports and import procedures and is expected to improve the Doing Business Trading Across Borders indicators and generate cost savings. In the medium term, it is expected to become a Central American regional program. Furthermore, a Bank-IFC team is starting to develop a project that aims at fostering competition in the markets of key agriculture inputs by removing entry barriers and discretionary application of regulations in the fertilizers and pesticides markets. This project is expected to contribute to the competitiveness of the agribusiness sector through lower input prices and greater quality and variety of inputs. 78      ANNEX 4 Gender Issues I. Overview 153. This Annex presents an analysis of key gender issues and resources in Honduras to provide initial guidance on gender integration in World Bank strategy areas in the country. 154. Gender refers to “the social, behavioral, and cultural attributes, expectations, and norms associated with being a woman or a man. Gender equality refers to how these aspects determine how women and men relate to each other and to the resulting differences in power between themâ€? (cited from: Upcoming WDR on Gender and Development). The integration of gender considerations into World Bank engagement involves an understanding of the relationship between men and women in society, in terms of the roles they play, the relationships of power between them, their differential access to resources and their specific and often differential development outcomes. Thus, understanding gender roles and relations can draw out key factors that can improve Bank operations by (i) anticipating the impact of gender dynamics on the effectiveness of operations and (ii) anticipating the impact of operations on the relative status and well-being of men and women. 155. In recent decades the government of Honduras has taken decisive steps to strengthen the legal and institutional framework aiming to protect and promote women’s rights and gender equality. However, laws do not automatically translate into reality and thus, gender gaps in several dimensions of development remain and persist. 156. In education, levels for women and girls have increased to the point that, on average, women now have more schooling than men which results in an inverse gender gap in education. However, girls’ successes in education do not translate into the labor market where men still clearly predominate. Women's labor force participation has increased only slowly over the last two decades and, with 40.1 percent in 2009, it continues to be one of the lowest in Latin America. Also, the unexplained gender wage gap remains large when compared to other countries in the region. 157. In terms of health, although the indicators for sexual and reproductive health have improved over the last two decades, Honduras lags behind if compared to the region – the maternal mortality ratio is still notably high, and similarly only 66.9 percent of the childbirths are attended by skilled health staff on average with alarmingly low coverage for the poorest quintile of the population. 158. Quantitative and qualitative information indicates that violence among young adult males and male violence against women continues to be high. Men are the primary victims of homicides, whereas both men’s and women’s homicide rates have increased lately and have reached a level of serious concern. 159. With regards to gender and youths, males are more likely to drop out of school, and engage in violent behavior. Both female and male youth’s risky behavior contributes to Honduras’ major development challenges. Adolescent fertility rates are very high, especially among poor women. Among boys, dropping out of school and the lack of employment 79      opportunities is linked to their involvement in gangs and acts of violence as well as in crime and drug trafficking. II. Legal and Institutional Framework24 160. Honduras has ratified the CEDAW Convention,25 and in 1995, Honduras signed the Action Platform approved at the Women’s World Conference in Beijing and ratified the Inter- American Convention on the Prevention, Punishment, and Eradication of Violence Against Women, promoted by the Organization of American States (OAS). 161. The Constitution of Honduras prohibits all forms of discrimination and federal legislation makes clear reference to equality for men and women. Honduras’ Family Code upholds equality between the spouses in every aspect of everyday life, sharing equal rights to parental authority. However, although both spouses are legally responsible for family matters, socio-economic traditions recognize men as the heads of households. 162. Honduran legislation supports financial independence for women, but also here the law does not yet translate into daily life. Concerning access to land, Article 74 of the Law on Equal Opportunities for Women stipulates that women and men are equally entitled to benefit from the Land Reform Law, yet women own only one-quarter of all plots in the country. There is no legal discrimination against Honduran women in the area of inheritance. The law favors the surviving spouse regardless of gender, provided the inheritance is necessary for their subsistence. 163. The government of Honduras has taken steps to strengthen protection of women’s physical integrity, but violence against women remains a common problem (see also the paragraph on Violence in this document). In 1994, the government established a judiciary department specializing in violence against women. Family violence and rape were criminalized in 1997, and the definition of violence was broadened to encompass psychological and economic violence. The number of complaints resulting in convictions has increased in recent years, but remains relatively low due to institutional weakness. Rape is criminalized under Honduran law and considered a “public crimeâ€? and proceedings can be initiated even if the victim does not press charges. 164. In recent years, particular pieces of legislation were passed or amended in order to promote women’s empowerment and gender equality - three key laws should be mentioned here: the Law against Domestic Violence (as explained above, 1997), the Law of the National Women’s Institute (1999), and the Law for Equality of Opportunities for Women (2000). 165. On an institutional side, the government has introduced  the Special Public Prosecutor’s Office for Women, in 1994;  special courts on domestic violence in Tegucigalpa and San Pedro Sula, in 2007;  the National Women’s Institute (Instituto Nacional de la Mujer, INAM), as the national machinery for the advancement of women, in 1999.                                                              24 All info under this paragraph is either from OECD Social Institutions and Gender Index or from CEPAL Gender Observatory. 25 But not the optional protocol to CEDAW (CEPAL Gender Observatory as accessed on 15th August 2011). 80      166. INAM has an advisory role to other Ministries, and is responsible for providing technical assistance in gender integration and acting as official coordinator for women’s issues. INAM cites the following list of responsibilities:  educating Ministries about gender as a technical issue;  coordinating gender training and research;  incorporating a focus on women’s issues and gender equity in the decentralization process;  institutionalizing the practice of gender mainstreaming into all government bodies; articulating sector-specific gender issues;  acting as government liaison with the women’s movement; and  managing donor-funded projects to promote gender equity. 167. In November 2002, the Política Nacional de la Mujer was declared by President Maduro to be a part of the official state policy. INAM is charged with providing assistance in this task. The policy targets five specific areas of concentration: Health, Education and Communication, Economy and Poverty, Violence, and Social Participation and Politics (USAID Gender Assessment Honduras 2002)26. 168. Honduras’ government has established several laws and programs to protect and promote women’s rights and gender equality so as to ensure that relevant constitutional commitments are reflected in national legislation. However, despite the legal initiatives taken by the country in recent years, the reality of many women in the country is still far from the goal of equality between men and women. Patriarchal beliefs continue to influence the ideology of public institutions and political parties, and represent the main obstacle to improving conditions for women in the country (OECD Social Institutions and Gender Index). III. Demography – Social Inequality 169. Life expectancy at birth is slightly higher for females than for males (74.86 and 70.06 years, respectively). As in other Latin American countries, Honduras’ fertility rate declined in recent decades: from 5.14 (1990) to 3.19 (2009) – but is still above the Latin America/Caribbean (LAC) average of 2.2 births per women (WDI). 170. A significant number of households are female-headed: 26 percent (WDI 2006). This pattern seems to be driven by a combination of male migration, divorce and spousal abandonment or death (Vakis 2011). However, contrary to what has been observed in many other economies, in the case of Honduras, poverty rates among female-headed households are a full ten percentage points below those of male-headed households (42.1 percent compared to 53.2 percent and 16.1 percent versus 25.9 percent in the case of extreme poverty), the gap can be partially explained by the fact that female-headed households are more likely to be located in                                                              26 According to a recent gender assessment by JICA, a lack of timely and appropriate funding for INAM has limited its technical capacity. INAM’s weakness increased with the departure of the Swedish Cooperation Agency in 2010. In recent years, INAM had apparently depended largely on Sweden’s financial and technical support. 81      urban areas, to have migrants abroad and receive remittances (World Bank Poverty Assessment 2006)27. 171. Remittances from Central American migrants have been an increasingly important source of income for families in origin countries. In Honduras, remittances account for a significant share of GDP – US$2.8 billion, or 20.1 percent of GDP (Vakis 2011, Sources: U.S. Census Bureau Foreign Born Profiles; World Bank Migration and Remittances Factbook 2008). Given migrant women’s labor force participation rates of over 50 percent, a considerable proportion of these resources come from women (Vakis 2011). 172. According to the CEPAL Gender Observatory, the percentage of the total population aged 15 and above with no incomes of their own and who are not studying, in relation to the total female or male population (aged 15 or above), is remarkably higher for the female population (both rural and urban): Rural population: female: 48.9% male: 14.5% Urban population: female: 30.6% male: 10.5% 173. Data (from: The World’s Women 2010) show that 17 percent of girls aged 15–19 are living in consensual unions. The incidence of early marriage is also very high. Adolescent fertility rates are amongst the highest in Latin America: 90.08 births per 1000 girls aged 15-19 in 2009 (WDI) – compared to 72.27 on average for LAC. 174. Gender intersects with other social variables as all men and all women do not face the same circumstances and barriers. As observed in other Central American countries, there are remarkable differences between rural and urban areas and between indigenous and non- indigenous populations in Honduras. Nine indigenous peoples are recognized by the state. Together with afro-Hondurans, they represent 7.2 percent per cent of the total population (FAO 2008 – based on data from the 2001 census). The indigenous population in particular seems to face generally more precarious living conditions, higher poverty rates and greater discrimination. IV. Education 175. Women in Central America have not only closed the education gap but in some cases are ahead of men. In Honduras, there is gender parity in terms of primary schooling. But although attendance and enrollment rates are very close at younger ages, there is a sharp drop among boys with increasing age. Ensuring parity for boys at secondary and especially at tertiary level, has become a serious challenge: Ratio of female to male primary enrollment 99.78 secondary enrollment 123.94 tertiary enrollment 151.48 Data from WDI (refers to 2008)                                                              27 While about half of all Central American migrants in the U.S. are women, the gender composition varies by country of origin, as does the migrant households’ composition. For example, women comprise over 50 percent of migrants from Honduras and they are more likely to form their own households without husbands (Vakis, 2011). 82      176. Girls are not only more likely to attend school but also more likely to graduate, and this pattern is consistent from pre-school through secondary school: Persistence to grade 5: female 80.34 % male 75.49 % Data from WDI (refers to 2007) 177. In 2007, there was no significant difference in literacy rate between men and women could be noticed, which was 83.45 percent for women and 83.75 percent for men (WDI 2007). When it comes to youths, literacy rates are slightly higher among girls (95.05 percent versus 92.7 percent for boys (WDI 2007)). 178. The repetition rate is generally considered to be an indicator of the quality of education. In Honduras, 5.3 percent of all primary students on average had to repeat in 2008 (compared to, for example, 0.77 percent in Bolivia, 3.6 percent in Mexico and 12.44 percent in Guatemala). And, also here, boys are in disadvantage: the rate of male repeaters is higher (6.03 percent) than that of female repeaters (4.53 percent) (WDI 2008). 179. School attendance does not necessarily reflect knowledge acquired - qualitative issues in terms of education are highly significant28: The fact that girls are more successful in school than boys, but less successful in the job market, can partly be understood as a reflection of the inadequacies in the educational system itself. This implies that even students who stay in school do not achieve skills that prepare them for the workplace. It is necessary to explore whether vocational training programs prepare young women for sectors that show returns to their education. V. Labor Markets 180. Between 1997 and 2006, female labor force participation (FLFP) in Latin America increased, reaching an average of 56 percent in 2009. By contrast, FLFP rates are slightly lower on average in Central America. Notably, women’s participation in the labor market in Honduras is one of the lowest in Latin America with 40.1 percent in 2009 (WDI), compared to a male labor force participation rate of 80.2 percent. In addition, FLFP in Honduras has grown less than in most other Latin American countries over the last decade (WDI). 181. According to the World Bank Poverty Assessment 2006, female labor participation is almost twice as high in urban areas than in rural areas: around half the urban working age women take part in the labor market, compared to only about a quarter of rural working age women.                                                              28 The JICA Gender Assessment 2011 mentions efforts by the Secretary of Education to address the promotion of gender equity in education through approaches to improve the quality of education such as safe school environment; elimination of discrimination in the learning materials’ contents; incorporation of strategies to deal with gender discrimination in the classroom and curriculum into teachers’ training; issues related to boys’ and girls’ retention and school performance; and teacher and non-teaching staff gender balance. 83      The World Bank‘s new report on women’s economic 182. Vakis (2011) found that opportunities in Central America Honduran women above the 80th percentile of the distribution entered the “A Gender (R)Evolution in the Making? Expanding Women’s Economic Opportunities in labor force faster than men and poorer Central America: A Decade in Reviewâ€? (Renos women. In fact, poor women’s labor Vakis, Ana Maria Muñoz, and Barbara Coello, force participation declined. LCSPP), 183. Childcare access and is available under the following link: affordability are expected to have a http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/EXT GENDER/0,,contentMDK:22924412~menuPK:7947168~pag positive impact on women’s participation ePK:210058~piPK:210062~theSitePK:336868,00.htm][[[[l in the labor force. However, and to some extent unexpectedly, Honduras is a very good performer in terms of childcare: More than 40 percent of young children in Honduras attend some form of childcare service (including public and private centers as well as intra- household provision). This is the second highest rate in the region - in Guatemala for example, less than 18 percent of children attend childcare (Vakis 2011). 184. Part-time work29 is increasing in many countries around the world, particularly for women. The World’s Women 2010 report cites Honduras as an outstanding case where the share of employed persons working part-time (less than 30 hours per week) is 35 percent for women and 16 percent for men in 2007. These levels are high, especially if compared to countries outside Europe. 185. Not only low participation rates, but also the quality of Honduran women’s participation in the labor force is a concern. According to Atal, Ñopo and Winder (2009) the gender wage gap in Honduras stands at about 5.6 percent and at 16.3 percent if controlling for age and education (data from: Encuesta Permanente de Hogares de Propositos Multiples (EPHPM) 2007), which places the country within the group of LAC-countries that register the greatest unexplained wage gaps, whereas Colombia, Guatemala and Mexico register the lowest. In fact, Honduran women face a wage gap that is not accounted for by observable characteristics (such as education or age) or choice of career. However, Vakis (2011) shows that earnings gaps between men and women have decreased dramatically and Honduras (together with El Salvador and Guatemala) are among the best performers in Central America in reducing the wage gap in over the last decade, with particularly poor women experiencing the largest gains in earnings (Vakis 2011). 186. Wage gaps may suggest cultural or social factors - such as differential preferences between men and women, the implications for labor supply and training, discrimination in the market and societal expectations that limit women's access to labor markets (World Bank Poverty Assessment 2006). Generally, it seems that gender stereotypes have a strong impact on women’s economic opportunities. Besides discrimination by employers, one major factor might be that formal and informal systems of education collaborate to reinforce gender stereotypes, influencing girls and boys in making specific choices in terms of sectors and occupations. Those choices often represent an extension of domestic tasks and of the traditionally reproductive role of women (sewing, cooking, caring) thus being both, a reflection                                                              29 Defined here as employment of less than 30 hours per week. 84      and a reinforcement of culturally defined roles. The sectors chosen by girls often represent lower incomes and less perspective for professional career. This is also demonstrated by the following table, showing the highly segregated share of male and female participants in training courses provided by the National Institution for Professional Formation (Instituto Nacional de Formación Profesional, INFOP) in 2007: Table A4.1 Vocational Training Courses offered by INFOP in 2007 Issue Male participants Female participants % % Agriculture 67 33 Fishing 99 1 Aquaculture 70 30 Agro industry 23 77 Forestry 61 39 Livestock farming 67 33 Handicrafts 17 83 Sewing and fashion 6 94 Construction 91 9 Electronic technician 94 6 Metal mechanics 88 12 Automotive mechanics 98 2 Mining 70 30 Leather work 70 30 Data processing 44 56 Hairdressing and beauty 0 100 Graphics 56 44 Social work 58 42 Health work 12 88 Maquila industry (labor intensive export sector) 56 44 Economic administration 44 56 Hotel industry and tourism 35 65 cited from: FAO 2008 187. Self-employment and microenterprise employment are the most important sources of remunerated work for poor women in most Central American countries. Close to 40 percent of employed women in Honduras is self-employed (Vakis 2011); female self-employment levels have increased in the last decade and are higher than male self-employment rates. The percentage of female firm owners is highest among firms with less than 5 employees (about 50 percent) (World Bank 2009). 188. The Duncan index for sectoral occupational segregation for Honduras is very high (almost 0.5, Source: SEDLAC, data for 2006). In Central America only Nicaragua accounts for (slightly) higher sectoral segregation (Vakis 2011). Gender-specific (occupational) segregation in the labor market in Honduras is also high: more than a third of all employed women in Honduras are employed in commerce whereas half of the employed men are in primary activities (see Figure A4.1). 85      Figure A4.1 Occupational Profile in Honduras by Gender and Sector 60.0 49.1 50.0 40.0 35.3 30.0 19.6 20.0 14.7 16.7 10.1 9.4 8.2 Honduras Female 10.0 6.8 4.4 5.1 3.2 3.1 4.1 2.4 0.3 1.0 2.2 2.8 0.5 Honduras Male 0.0 SEDLAC: data from INE 2007 189. Despite its relatively recent origins, labor-intensive goods have become a leading export sector in every Central American country except Costa Rica and Panama (Vakis 2011). The maquilas are a major provider of employment. In Honduras, approximately 70 percent of all maquila workers are women (Vakis 2011 – cited from: De Hoyos et al. 2009; Quintana et al. 2002; Gutierrez et al. 2008). 190. Another quality-of-work related issue is related to the (in)formality of employment: In Honduras, women are somewhat more likely to work in the informal sector than their male counterparts (61.4 percent vs. 53.7 percent for male30 – source: SEDLAS, based on INE 2007). 191. Youth unemployment rates are not at a particular high level if compared to other economies of the region (female: 11.24 percent, male: 5.24 percent (WDI 2005)). However, Cunningham et al (2008) show that LAC countries that have relatively low youth unemployment also have relatively higher inactivity rates, and those with high unemployment rates have lower inactivity rates. This is also the case for Honduras: The unemployment rate is very low, but the inactivity rate is quite high, leading to a jobless rate that is similar to those of other countries in the region. When it comes to adult unemployment rates, no gender gap can be noted (2.93 percent of female labor force being unemployed versus 2.86 percent of the male one in 2007 (WDI). 192. In Honduras, as in most other countries worldwide, women face a double burden of employment and domestic and care work: This is evidenced by the fact that the amount of                                                              30 Definition: Informal=salaried workers in small firms, non-professional self-employed and zero-income workers. 86      time spent in unpaid work by women is more than double that of men on average: 3.5 hours per day (female) versus 1.4 hours per day (male) in 2009 (CEPAL Gender Observatory). VI. Health 193. Gender-specific health indicators have been improving in Honduras over the last decade. However, Honduras clearly lags behind in terms of sexual and reproductive health, when compared to regional averages. 194. The Maternal mortality of 110 deaths per 100,000 live births (WDI 2008) is remarkably higher than the regional rate of 85.12. In LAC, only Haiti, Bolivia and Ecuador have higher maternal mortality ratios. Half of these deaths occur during childbirth and postpartum and, according to JICA (Gender Assessment 2011), their causes are preventable: hemorrhage, hypertension during pregnancy, and infections. However, maternal mortality was reduced from 210 per 100,000 live births in 1990. Most of the reduction happened between 1990 and 1997 and is attributed to a combination of increased skilled attendance and improved referrals of obstetric emergencies and high-risk women (Koblinsky 2003). 195. Closely related to the above is the fact that only 66.9 percent of the childbirths were attended by skilled health staff in 2006--22 percentage points below the regional average. There is a huge gap due to the place of residence of the woman, as 90 percent of births in urban areas take place in a hospital compared to only 50 percent in rural areas (PAHO 2009). Wealthy and poor populations also have clearly different access to skilled health staff: only 33 percent of women in the lowest income quintile have access to skilled health staff compared to almost complete access (99 percent) among the richest quintile (WHO Health Profile Honduras 2008). The percentage of births at home also increases among woman over 35 years of age (42 percent-- PAHO 2009). 196. Antenatal care coverage also is lower than regional average (95 percent in 2009): 91.7 percent of women in Honduras were attended by skilled health personnel at least once during their pregnancy (WDI 2006). The same is true for contraceptive prevalence, which at only 65.0 percent (WDI 2006), is 10 percentage points lower than the average in LAC. 197. The adolescent fertility rate (girls ages 15–19) also is very high with 90.08 (births per 1000) in 2009 (WDI). Similarly, CEPAL Gender Observatory states that Honduras accounts for the second highest rate in LAC, with 18.3 percent of girls aged 15-19 being mothers (in 2001). Early childbearing is especially common among the poor. Data from the last available Demographic and Health Survey (DHS 2005) show that 46.4 percent of women aged 20-24 who had a child did so before they were 20 years old, and 26.1 percent before they were 18 years old. These percentages increase in rural areas to 54.5 percent and 32.2 percent respectively. Adolescent girls in the poorest income quintile are three times more likely to become mothers than their richest counterparts (31 percent and 10 percent, respectively). Education seems to have a huge impact on whether or not adolescent girls become mothers or not: 46 percent of girls that are pregnant or mothers (age 15-19) have no education; 42 percent completed primary schooling; 11 percent have secondary schooling and only 2 percent are in tertiary education (DHS 2005). 87      198. With regards to HIV/AIDS, with 0.7 percent of the population estimated to be HIV positive, Honduras has a concentrated HIV epidemic, with particular populations showing significantly higher prevalence rates than the general population (USAID Health Profile Honduras 2010). Specifically vulnerable populations include MSM (4.8 to 9.7 percent of whom are HIV positive), female sex workers (among whom prevalence rates are as high as 5.5 percent), and the ethnic minority Garifuna community (whose rate is 4.5 percent). The percentage of sex workers who use condoms with clients is high (97 percent) in Tegucigalpa, San Pedro Sula, and La Ceiba. However, the same sex workers reported only 41 percent condom use with casual partners and 11 percent with regular partners (USAID Health Profile Honduras 2010). VII. Violence 199. Violence seems to be increasing in Honduras and poses serious concerns to policy makers and citizens. Young men in particular are involved in gang activities. High patterns of violence are evidenced by particularly high (and increasing) homicide rates: homicides increased 18.5 percent from 2009 to 2010, for a total of 6,239 victims, which causes strong concern (numbers based on Policia Preventiva/ Observatorio de la violencia, which are somewhat different from UNODC). 200. Among the homicides committed in the first six months of 2010, when analyzed by age, the most vulnerable group is between the ages of 15-44 years (80.1 percent of deaths), with an even higher prevalence between the ages of 20 to 29 years (1,069 cases). Disaggregating the data by sex, men account for 93.8 percent of homicide victims (5.854 cases). The homicide rate for men is as high as 147.6 (per 100,000) in Honduras while the homicide rate for women is 9.4 (per 100,000). There was a 6 percent increase in female homicide in 2010 compared to 2009, with 385 lives lost. Women between 25 and 29 years of age are most at risk: the homicide rate for this age group reaches 20.4 (per 100,000) (IUDPAS 2010). Figure A4.2 Homicides per age goups and sex  (Jan â€? Dec 2010) 1200 1068 1106 1000 866 800 645 632 600 422 400 322 241 200 142 105 140 90 398 36 60 69 49 39 39 243 126 21 15 18 5 12 5 0 10â€?14 15â€?19 20â€?24 25â€?29 30â€?34 35â€?39 40â€?44 45â€?49 50â€?54 55â€?59 60â€?64 65â€?69 >70 0â€?4 5â€?9 Source: IUDPAS – based on: Policia Preventiva/ Observatorio de la violencia 88      201. The rate of 82.4 homicides per 100.000 (see below) is the highest registered per country worldwide: Figure A4.3 Homicide Rates 100 82.4 80  64.8 60  41.5 38.8    40  21.7  20  10.60 13.2 0  202. As in most societies with high general levels of violence and crime, violence against women is common and represents a widespread social problem in Honduras. Violence against women is the cruelest form of expression of discrimination of women. A specific form of gender-based violence is domestic violence (based on the UN definition including physical, sexual, verbal, psychological violence), which is widespread in Honduras, and a major concerns of women’s organizations (USAID Gender Assessment Honduras 2002). 203. The Encuesta Nacional de Epidemiología y Salud Familiar (ENESF 2006) found that 15 percent of interviewed women had suffered violence once in their lifetime. The rate increased with age: From 9 percent amongst women 15-19 years old up to 21 percent for women 40-44 years old. Rates were slightly higher for women in urban areas compared to women living in rural areas (17 percent and 12 percent respectively). The level of education also correlates disproportionally with the probability of maltreatment: One in five women (20 percent) with no education experienced violence at least once in their lifetime, whereas the share was significantly lower for women with tertiary education levels (12 percent). With regards to violence by an intimate partner, 15 percent of interviewed women reported having experienced some form of violence within the last 12 months – 9 percent either physical or sexual violence. Amongst divorced or separated women, the share of physical violence within the last 12 months reached 16 percent. According to the same study, 32 percent of women who reported suffering some type of violence within the last 12 months sought help – most likely from their family or friends. Only 18 percent addressed the police and only 11 percent went to court31. VIII. Decision-Making, Political Representation and Participation 204. Traditional gender roles in Honduras place women in a subordinate position relative to men, focused on the domestic sphere and related care work. Even in intra-household decision- making on purchases for daily household needs, women do not always participate, specifically                                                              31 While it is difficult to obtain good data on GBV in general and domestic violence in particular, underreporting is a serious problem – everywhere. Increasing ´numbers´ of DV cases might actually be a positive sign – implying that women feel empowered to take the risk to speak out against their partners. 89      women in the poorest quintile of which only 59 percent report to do so (compared to 91 percent of women from the wealthiest quintile (The World’s Women 2010). 205. Similarly, involvement, participation in decision-making and representation in the public sphere and specifically in political life remains very minimal. The government has responded to this issue by introducing a 30 per cent minimum quota for women candidates for publicly elected positions in article 105 of the Law on Elections and Political Organizations. However, measures to enforce compliance with this quota seem to be lacking as criticized by the CEDAW Committee in its Concluding Comments (CEDAW 2007). 206. Thus women continue to hold less than 30 per cent of positions in all categories of elected office: ï‚· Legislative power (Proportion of seats held by women in national parliament): 18% (2010) ï‚· Local power (share of elected mayors): 3.4 % (2009) ï‚· Local power (share of elected women town councilors of the municipal government): 17.5% (2009) Data: CEPAL Gender Observatory 207. Interestingly, Honduras was an outstanding example as having a large presence of women in the judiciary: 8 women had been appointed as judges of the Supreme Court, out of a total of 15 until 2008 (CEPAL Gender Observatory). However, in 2009, only 20 percent of the judges of Supreme Court were women (CEPAL Gender Observatory).     90      Gender Issues Appendix 1 Facts and Figures – Gender indicators for Honduras (August 2011) Demography LAC-Region Fertility Rate, (births per woman)* 3.19 (2009) 2.2 (2009) 4.00 (2000) 2.65 (2000) Health and Family Planning Adolescent Fertility Rate (births p/1000 women 90.08 (2009) 72.27 (2009) 15-19)* 108.55 (2000) 83.12 (2000) Life expectancy at birth in years (2009)* Female 74.86 76.8 Male 70.06 70.5 Maternal Mortality Rate (100.000 live births), 110 86 2008* Pregnant women receiving prenatal care 91.7% (2006) 95% (2009) (2009)* Skilled birth attendance (2009)* 66.9 % (2006) 89% (2009) 85.64% (2000) Education Survival rate to final grade of primary, 2000– Female 85% Chile: 200732 Male 77% Female 98% Male 98% Mexico: Female 94% Male 91% Education enrollment ratio female to male Primary 0.99 0.97 (2008)* Secondary 1.27 1.08 Tertiary 1.51 1.26 Labor Labor force Participation Rate (% of population Female 40.1 56.0 15-64)* 2009 Male 83.0 83.0 Unemployment rate* 2007 Female 2.93 % 9.1% Male 2.86% 5.6% Unemployment by population between ages 15- Female 11.24% 18% 24*, 2008 Male 5.24% 11.8% Gender-specific labor market segregation, Employees Female 13.1% 10.91% 2005* agriculture Male 51.3% 21.82% Employees Female 23.3% 15.81 % industry Male 19.7% 27.83 % Employees Female 63.4% 73.02 % services Male 28.7% 49.94 % Political Participation Prop. of seats held by women in national 23.4% 23% parliaments, 2009* *The World Bank, GenderStats: http://go.worldbank.org/YMPEGXASH0                                                                  32 UNESCO Institute for Statistics, correspondence in June 2009, cited from The World’s Women 2010. 91      Gender Issues Appendix 2 Sources Atal, Juan Pablo, Ñopo, Hugo and Winder, Natalia. 2009. New Century, Old Disparities: Gender and Ethnic Wage Gaps in Latin America. IDB Working Paper Series No. 109. Washington, DC: Inter- American Development Bank. Castellanos, Julieta: Honduras – La violencia en cifras Access online at: http://pdba.georgetown.edu/Security/citizensecurity/honduras/documentos/violencia%20en%20cifras.pdf CDM (Centro de Derechos de Mujeres): Violencia contra las mujeres en Honduras:Una reflexión en el camino (Nov. 2005) Access online at: www.ceipaz.org/images/contenido/Violencia%20contra%20las%20mujeres%20en%20Honduras.pdf CEDAW: Concluding comments of the Committee on the Elimination of Discrimination against Women: Honduras 2007 CEDLAS and World Bank, Socio-Economic Database for Latin America and the Caribbean (SEDLAC) (2009). CEPAL. 2011. Observatory: Gender Equality in Latin America and the Caribbean. Statistics. Santiago de Chile, Chile. Access online at: http://www.eclac.org/oig/default.asp?idioma=IN Cunningham, Wendy; McGinnis, Linda; García Verdú, Rodrigo; Tesliuc, Cornelia; Verner, Dorte: Youth at Risk in Latin America and the Caribbean Understanding the Causes, Realizing the Potential. World Bank 2008 EIU: Women’s Economic Opportunities Index 2010, funded by the World Bank ENDESA: Honduras Encuesta Nacional de Demografia y Salud ENDESA 2005-2006 Access online at: http://www.measuredhs.com/hivdata/surveys/survey_detail.cfm?survey_id=455 ENESF: Encuesta Nacional de Epidemiología y Salud Familiar 2006 FAO 2008: Situation of Rural Women in Honduras Access online at: http://www.pesacentroamerica.org/biblioteca/mujeres_rurales_honduras.pdf Guttmacher Institute (2008) Asegurar un mañana más saludable en Centroamérica. Access online at: www.guttmacher.org/pubs/2008/05/29/PNG_CentralAmerica.pdf Hall, Gillette and Patrinos, Harry Anthony: Indigenous People, Poverty and Human Development in Latin America: 1994-2004, World Bank 2005 IUDPAS (Instituto Universitario de Democracia, Paz y Seguridad): Observatory of Violence in Honduras, Resultados del análisis enero-diciembre 2010. Access online at: http://iudpas.org/publicaciones/obsmujeres.html JICA 2011: Country Gender Profile Honduras. Access online at: http://www.jica.go.jp/activities/issues/gender/pdf/e10hon.pdf OECD: Social Institutions and Gender Index. Access online at: http://genderindex.org/country/honduras PAHO 2008: Health System Profile Honduras 92      UN 1993: Declaration on the elimination of violence against women. New York, United Nations UN 2006: In-depth Study on all Forms of Violence Against Women, Report of the Secretary-General, UN General Assembly 61st Session A/61/122/Add.1, UN, New York, NY. UN 2009: Human Development Report 2009. UN 2010: The World's Women 2010 - Trends and Statistics, New York, 2010. Access online at: http://www.gaportal.org/publication-world39s-women-2010-trends-and-statistics-8-dec-2010 UNIFEM: Who Answers to Women? Progress of the World’s Women 2008/2009 – Gender and Accountability. UN-Secretary General´s Database on Violence against Women Access online at: http://webapps01.un.org/vawdatabase/goodpractices.action USAID 2002: Gender Assessment Honduras USAID Health Profile Honduras 2010. Access online at: http://www.usaid.gov/our_work/global_health/aids/Countries/lac/honduras.html World Bank 2003: Marjorie A. Koblinsky: Reducing maternal mortality, learning from Bolivia, China, Egypt, Honduras, Indonesia, Jamaica and Zimbwawe. The World Bank, Washington, DC, USA, 2003. WHO 2008: Health Profile Honduras 2008 World Bank 2009: Women’s Economic Opportunities in the Formal Private Sector in Latin America and the Caribbean - A Focus on Entrepreneurship World Bank 2011: Vakis, Renos: A Gender (R)Evolution in the Making? Expanding Women’s Economic Opportunities in Central America: A Decade in Review World Bank 2011: Regional Study on Gender in LAC: Linking Labor Market Outcomes and Intra- Household Dynamics, Laura Chioda and Rodrigo Garcia-Verdu (under publication) World Bank: Genderstats. Access online at: http://wbl.worldbank.org/ExploreEconomies/Peru Zechmeister, E; Seligson, A. USAID, Latin American Public Opinion Project (LAPOP), Vanderbilt University. 2009. Public Insecurity in Central America and Mexico. Perspectives from the Americas Barometers. No.28 Access online at: http://www.ocavi.com/docs_files/file_718.pdf 93      ANNEX 5 CPS Consultations I. Introduction 208. The current CPS was developed through a participative consultation process, which included Government representatives and non-governmental actors. This Annex provides a summary of the main results from the consultations with the latter (particularly civil society sectors, local governments and members of the National Congress), which were carried out during the period between June and October of 2011 (see Box 1 for a description of the process). Box A5.1: Overview of the Consultation Process for the Honduras CPS FY 2012-2014 The consultation process for the development of the new CPS in Honduras began with: the drafting of a CPS Concept Note, which was based on the current priorities as expressed by the Government; an analysis of the national development strategy (in this case, the Country Vision and National Plan) and how support from the World Bank fits in to said strategy; as well as an evaluation of the previous CPS period and lessons learned. Once the Government provided its comments on the Concept Note, a series of complementary consultations were conducted with other donor agencies in the country (for example, IADB, CABEI, EU, USAID) in order to ensure greater complementarity of support aimed towards enhanced aid effectiveness; as well as with other stakeholders (particularly civil society sectors, local governments and members of Congress, the private sector), in order to take into account a diversity of perspectives that might strengthen the vision, orientation, and implementation of the new CPS. Between June and October of 2011, a total of 9 formal consultation sessions were held with representatives of civil society, local governments and members of Congress; 3 of these consultations were particularly focused on issues related to citizen security, crime and violence. Sessions were held in Tegucigalpa, as well as in other regions of Honduras (particularly, the Western, North Coast and Valle de Sula regions), with 15 -20 participants each. The participants represented NGOs working in social accountability, human development, environment, peace/justice, rights-based groups, etc., community – based organizations, indigenous and ethnic groups, women’s organizations, social platforms/networks, academia, private sector, think-tanks, as well as municipal authorities from urban and rural settings, and members of Congress. Conducting a series of smaller meetings, as compared to a reduced number of large forum events, allowed for greater quality of discussion. The sessions were conducted in a semi- structured manner, in which the Bank presented progress and lessons learned during the previous CPS period, as well as highlights of the emerging CPS. Participants were asked to openly provide their input regarding the priorities identified in the new CPS; the major development challenges in Honduras; the role of the Bank and any other element that should be considered during the new program. In addition to the formal consultation sessions, a series of semi-structured meetings and interviews were held during field visits to several parts of the country with stakeholders, including a sample of beneficiaries of projects financed by the Bank. Finally, two additional consultation sessions were held with civil society and government representatives (separately) regarding lessons learned and future plans for the implementation of the second phase of the World Bank’s Governance and Anti-corruption (GAC) strategy; these results have also been taken into account for the new CPS. IFC’s EVP and CEO visited Honduras on 9th - 11th of August, 2011. The main objective of the visit was to experience first-hand interaction with clients, private sector leaders and main authorities including the Major of Tegucigalpa and the President of Honduras Mr. Porfirio Lobo. This interaction was enriching and served as part of the consultation process for IFC’s strategy which entails a strong component in regional integration. 94      209. Participants commended the consultation process on the CPS, expressed appreciation of being able to engage with senior levels of Country Management directly, and underlined the importance of maintaining similar periodic dialogue sessions throughout the implementation of the CPS. Participants expressed that the World Bank has been among the most open of multilateral aid agencies in consulting their assistance strategies with civil society in Honduras. At the same time, they affirmed their strong interest in providing social monitoring and follow-up to the commitments established in the CPS; both as a partner in development, as well as a demand-side force to ensure accountability and results. Some participants also expressed that it would have been helpful to the discussion to have had access to the Completion Report of the previous CPS (or CAS), and more specific information of the new CPS (at least in draft form). Participants conveyed general agreement with the thematic priorities identified within the three pillars of the CPS, providing the following input for the Bank is taken into account. II. Participants’ Opinions Regarding the Current Context and Recommendations 210. Participants expressed strong concern over the feasibility and degree of commitment among stakeholders (especially politicians) to long term national development strategies for Honduras, highlighting the need for enhanced dialogue mechanisms at local, regional (sub-national) and national levels. Civil society expressed concern over the “discontinuanceâ€? of the Poverty Reduction Strategy (PRSP) modality on the part of Government, as well as on the part of aid agencies in Honduras. At the same time, there is a generalized perception that although there has been some degree of progress in development indicators, results have not met expectations, and the PRSP has largely failed to meet its objectives. 211. There is concern regarding the perceived limited buy-in of the current Country Vision / National Plan on the part of ministries and other authorities, as well as civil society, local governments and aid agencies; this is compounded by weaknesses in coordination of interventions and limited local ownership of new dialogue structures established by the new Plan, due in part to the limited scope of dialogue in its creation. There is potential for improvement in this regard, and interest among civil society, but participants have doubts as to whether this initiative will really become functional before the end of the current administration, and fear that the recently created Regional Development Councils will not have substantive impact on public administration and that the public will lose interest; thus generating uncertainty as to whether the new national development scheme will survive the programmed change in Government administrations (general elections are programmed for November 2013), as has been the experience with previous initiatives. The broader concern is that this would, in turn, foment increased frustration and lack of public confidence in national development plans that would seem to change with each administration. The current political/economic/social post- crisis context in Honduras requires that lessons learned during the previous period be taken into account by all stakeholders involved, and that substantive dialogue between Government and civil society be urgently strengthened around results in development. There is a demand for the Bank’s help in this sense, at national and regional (sub-national) levels, in supporting dialogue in development. 212. In virtually all consultations, participants highlighted the centrality of governance to aid effectiveness and development, and emphasized the importance of increasing support 95      in this regard in order to obtain sustainable impacts in development. Frustration was expressed on the slow progress towards strategic development goals (including those of the last CAS), despite large sums of debt relief and development aid received by Honduras during the last decade. Civil society participants attribute this to a poor governance framework, lack of political will, and to the perceived inefficiency with which projects are managed from the Central Government. Civil society thus emphasized the need for enhanced “conditionalitiesâ€? in governance and anti-corruption in Bank projects, suggesting that this would be one of the most important ways in which to ensure change, as well as a way for donor agencies to openly signal their commitment to good governance and avoid perceptions that they might be turning a “blind eyeâ€? towards corruption in the country. Without such provisions, participants question Government’s capacity or justification to take on increased debt for development, in light of the unmet expectations in results up to now, as well as the persistence of structural problems. 213. Participants also expressed broad agreement with the overall findings of the Honduras IGR (World Bank, 2009); namely, that: there is a lack of transparency in the policy-making process and lack of information regarding performance; there is a lack of effective mechanisms for the general public to reward or punish good or bad performance by elected officials, and have this serve as political capital; that broader-based citizen-interest groups are relatively weak in their advocacy efforts, as compared to groups organized around specific or focalized interests (such as teachers’ unions and business groups); and that work on these issues would represent an important step forward for governance conditions in the country. Finally, participants were adamant that governance reform strategies must include a focus on coalition-building (including political parties/movements, as well as civil society) to ensure greater impact and sustainability. 214. Top priorities identified by participants broadly for support in governance strengthening and reform include: (i) Strengthening results-based management systems, linked to SIAFI, with improved access to quality and detailed information for public expenditure tracking on the part of the general public. (ii) Strengthening transparency of public procurement systems, particularly in health and roads. CSOs affirmed that although there has been some progress in transparency in the public sector, this has been meager compared to what was expected when the Transparency Law was passed. (iii) Support to Government for operation with open/transparent budgets (nationally and locally). The Bank should increase support for citizen-led initiatives in monitoring of public budgets and improved dialogue with Government on budgets centered on results. The Bank should also support the strengthening of oversight and analytical capacities of the National Congress in public budgets. (iv) Continued support for the implementation of the Transparency Law. The Government needs continued support in reaching optimal implementation of this Law, creating a culture of transparency and accountability in public administration, and help to avoid politicization and capture of the structures designed to uphold this Law. 96      (v) Support to the Justice system: The Bank should support projects that not only strengthen aspects of modernization and increased access to services in the judicial system, but that also strengthen the independence of the Judicial Branch, dealing directly with causes of corruption and capture by specific interests. (vi) Civil service reform, nation-wide: an issue that has long been a priority, and should be met with concerted, definitive and very public action, reaching a cultural change in attitudes towards civil service. (vii) Tax reform (starting with an improved organization and administration), enhancing potential for budget programming, avoiding what is perceived as improvisation in tax policies; generating a national “fiscal pactâ€? among political actors and civil society. (viii) Support in further developing sector-wide strategies for improvement in Governance and Anti-corruption (GAC); and strengthening the cross-cutting focus on GAC in the public sector. (ix) Continued support is still required for key governmental control institutions, such as the TSC (Supreme Audit Institution) and the IAIP (Institute for Access to Public Information), as well as their linkage to citizen-led monitoring initiatives. (x) Building up a National Anti-corruption Policy and System. There is a demand for the Bank’s technical support for stakeholders in this regard. (xi) Finally, in a general sense, the Bank should to take into account an important concern among CSOs: to be careful to avoid having its projects further contribute to the concentration of political and economic power within the country. 215. Strengthening citizen security and the fight against crime and violence were identified as top priorities in development. Participants conveyed that this has become a primary issue in development for the country, as it seriously affects entrepreneurship and economic growth. Drug-trafficking continues to be a prime concern in this respect, having heavily permeated the economic activity of certain regions (for example, the North Coast region). Particularly worrisome has been the perceived increasing influence of drug-related activity and organized crime among authorities at various levels; as well as increasing violence against women. The citizen security situation is linked to impunity; there is thus a broadly sustained call (among civil society and Government agencies) for increased support for reforms in the criminal justice sector, as well as for more effective mechanisms to purge security forces of corrupt elements. Participants argue that the Bank should be strategic in using conditionality to ensure that budget support operations clearly define criteria for the allocation of resources for citizen security; however, the focus should be on prevention, rather than repression or control (in contrast to the focus on citizen security in the past, which civil society participants affirm has not worked) -- including scaling up the Barrio Ciudad model and broadening its focus on programs for youth, women and children. The Bank should support analytical work on citizen security, particularly the facilitation of the exchange of global experiences that have shown successful results in reducing crime and violence. More importantly, however, dialogue among civil society organizations, local governments, government agencies, and the international aid 97      community on thematic issues such as citizen security (e.g., round table on citizen security) should be strengthened; in general, support for more effective coalition-building. Finally, there is a clear need for continued support towards the creation of economic opportunities and social services as a means to fight crime and violence. 216. A civil society think-tank noted that there is need to verify the trend in national macro-economic indicators, due to changes in methodologies for measurement. The interest is in keeping Government accurate and “honest,â€? and ensuring quality data be used in policy formulation. 217. The need for economic growth was recognized, and its inclusion as “increasing opportunitiesâ€? within the CPS applauded; however, participants also manifested the need to ensure that this growth would contribute to improving living conditions for a wider sector of the population, and not contribute to a further concentration of economic and/or political power among elites. One participant reminded the Bank not to exclude support for smaller-scale initiatives, especially small-entrepreneurship that incorporates eco-friendly elements (eco- tourism, for example) and that could ensure more sustainable and more broadly shared wealth- production. Regarding Public-Private Partnerships (PPPs), one participant mentioned that they agreed that they can represent an important mechanism for financing reliable infrastructure in the future, recognizing that the private sector has a role to play; underscoring, however, that the Government is still ultimately responsible for infrastructure investments, particularly in rural areas, as the market would not naturally capture this type of need. 218. In measuring progress towards strategic development goals, the Bank should focus its efforts and support on achieving lasting, sustainable results in development, rather than focus on individual project indicators and/or disbursement ratios. While project/program reports may claim satisfactory results in implementation, there is a perception that improvements in living conditions among the population are limited, and that more structural problems remain as obstacles to development within the sector in question. On the part of civil society, there is a call for the Bank to take a stronger role in advising the Government on how to utilize the development cooperation it receives, rather than simply focusing how much money it can commit and disburse; ensuring enhanced governance conditions might better justify the amount of development aid (especially debt) received by Honduras. 219. Decentralization is considered as a means for making public administration more efficient, responsive, accountable, and less vulnerable to capture by interests that operate in a more centralized manner. Decentralization is a shared mid-term goal among stakeholders (decentralization, towards the municipal level, of 40% of public investment is key indicator of the Country Vision for 2038). Fears persist among some sectors at the same time, that decentralization is a “stepping stoneâ€? towards privatization of public services; however, given the broadly shared frustration of persistent inefficiencies in public administration, in recent years the demand for increased and improved decentralization has only stronger, even in more difficult thematic sectors (as an example: the recently approved Law on Incentives for Community Participation in Education). Among participants in consultation sessions, the urgency of this demand is understandably more notable among stakeholders from outside of the capital city; among these regional stakeholders, the decentralized resources of the PRSP, for example, had the greatest impact and were the most visible interventions of the PRSP among their communities. 98      In this sense, municipalities and mancomunidades (associations of municipalities) seek direct support from the Bank, both in capacity strengthening as well as in decentralized aid, claiming they are more efficient and accountable than the Central Government. Civil society shares this sentiment, and insists that a focus on decentralization and local capacity-building (among local governments and civil society) can also contribute to improved conditions for the sustainability of projects. More concretely, participants suggest that the Bank should support the development of pilot initiatives in decentralization in development with enhanced measures for good governance. 220. Recognizing progress in this regard, participants expressed that the Bank should further enhance its engagement with civil society, in four areas specifically: (i) Increasing Bank support to civil society organizations working in social accountability processes. The Bank should increase its direct support to local monitoring and social accountability processes as part of each of its projects, but in an independent manner (not necessarily tied to Government’s budget or procurement processes), linked to enhancing performance of the Bank’s portfolio. The Bank could also help CSOs with technical assistance to enhance the quality of their work on the demand side of good governance. This kind of support could include creating new facilities or windows for financing and technical support that might better accommodate the capacities of CSOs, while at the same time foment dialogue and constructive engagement with Government. The Demand for Good Governance window of the Bank’s Civil Society Fund is an interesting start. (ii) Enhancing dialogue with civil society in Bank projects. Participants recognized that the World Bank has been among the most open of multilateral aid agencies in consulting their assistance strategies with civil society; however, the Bank should make sure to enhance involvement of civil society in the discussions of development policy and reforms that the Bank will support as part of the new CPS, particularly those linked to new DPCs. For example, participants lamented that while state modernization has been a national priority for over a decade, the results obtained up to now are relatively poor. There is concern that a new loan focusing on improving public sector performance might not be as effective as expected, especially if civil society is not involved. The Bank should help enhance involvement of civil society in the strengthening of the “supply sideâ€? of good governance (that is, in fomenting linkage and accountability in projects). (iii) Fomenting coalition-building for reform. The Bank has an important role to play in providing support and/or technical assistance to ensure more meaningful policy dialogue between Government and civil society on issues of national and local development. Participants recalled the limited local buy-in and ownership of the Country Vision and National Plan, and underscored the importance of coalition-building for progress on the governance-related themes previously mentioned. The Bank also has played a strategic role among aid agencies in Honduras, and has the potential to strengthen coordination among donors in the country. (iv) The Bank should be more proactive in actions related to its recently approved Access to Information policy, and more widely disseminate information on projects and analytical work. The Bank should disseminate more timely information on progress in projects it 99      finances in the country, as well as its work in GAC, not only through its website, but also through mainstream media and alternative means (especially social media); this would help facilitate more effective social monitoring. This would allow for a greater potential in coordination of efforts, and would make civil society actors aware of certain commitments made by their Government, in order to hold them accountable for results. There is also demand for high-quality analytical work to serve as a contribution for public debate around key issues. Participants’ expressed concern that there may be valuable studies undertaken by the World Bank that are not published or shared with civil society in a timely manner. Participants also called on the Bank not only to publish these documents, but also to make their core messages accessible (more readily understandable) for non-technical audiences. I response, the Bank team committed to step up efforts at public dissemination through a variety of for a and media to ensure that it these studies are accessible and can contribute as needed to the national policy dialogue on development. 221. There is interest in having the Bank scale up social protection programs; however, it is evident that information on such interventions and strategies must be more widely disseminated for an enhanced public policy debate. There is much interest in programs such as Bono 10,000 and employment generation; however, concern was expressed over the strategic focus of such interventions, as well as inclusion and exclusion errors in Bono 10,000 (including the decision to expand it to families of police officers); many participants still see it as a handout with challenges regarding sustainability and targeting. This program could have greater impact and sustainability if it were to incorporate improved local monitoring, dissemination of results, and ensure complementarities with other actions/strategies in development, such as improvements in quality and access to public health and education services, youth entrepreneurship programs, among others. Similarly, participants made a call to strengthen engagement with civil society sectors for the development of a Social Protection strategy. 222. Participants expressed concern that in the case of investments related to the rural sector, the Bank might not be as effective as it could be. When considering rural infrastructure, the Bank should take into account the need to foment rural dynamism and synergies that might leverage economic opportunities in each respective region. Also, with regard to the PATH and related projects, the Bank could further consider the specific challenges of land-titling processes among communities with varied backgrounds or contexts (for example, the challenges in common/communal titling, and differences among ethnic groups). Finally, there is concern: specifically regarding the case of IFC’s support for bio-fuel production (in northern Honduras), given the social conflicts that have surrounded these issues, and considering the recent cancellation of other related international credits. 223. There is clear demand for support in producing and obtaining reliable data in development: Support is needed for ensuring the achievement and access to reliable and timely data at municipal and national levels; this is a challenge for policy-formulation and social accountability. 224. Some participants were concerned that infrastructure, including water and sanitation projects (but with the exception of roads), was not reflected as a priority in the new CPS. This continues to be a prime issue in development for Honduras. 100      225. There is a need to strengthen the focus of the CPS not only on education coverage among the population, but also on the quality of education delivered. Participants noted that focus has been lacking on ethics, morals and spiritual development in education, and were concerned that negligence of individual transformation and development of personal human capacities is seriously limiting the collective potential of human development at community and national scales. 226. Demand was expressed for support for the new Secretariat for Afro-Indigenous Development in Honduras, as well as the Fund for Afro-Indigenous Development, to be taken into account in within the context of future Bank loans, perhaps as a percentage of overall development resources. 227. Environment, climate change and renewable energy: There is a need to support environmental protection (particularly forests and aquifers) and climate change mitigation measures. Similarly, support is needed for renewable energy projects, and improved dialogue around this issue, as some participants lamented that rapid progress in concessions has been at the cost of sufficient dialogue with local stakeholders. 228. Infrastructure: Private sector leaders and Government highlighted the increasing need for infrastructure development taking advantage of the newly created PPP framework that facilitates private sector participation, but this requires greater knowledge and the structuring of PPPs and the preparation of feasibility studies and seed capital. 101      ANNEX 6 Selected Donor Mapping 229. Presented below is a mapping of activities supported by the four largest donors in Honduras in selected sectors: Inter-American Development Bank, Central American Bank for Economic Integration, European Union and USAID. Crime and Violence/ Security/ Justice Donor What Instruments Quantity Timeframe IDB ï‚· Citizen Security in the Sula Valley $14m Closing 2011 ï‚· Judicial Modernization Project $30m Closing 2011 CABEI N/A EU ï‚· PASS – Supporting the Security Sector in $12.1m Closing 2015 Honduras budget support (Phase 1) ï‚· Stand Alone Human Rights Investments €5m In design, to be ï‚· “Security, Justice and Human Rightsâ€? budget approved 2012 support $35.8m In design to be approved 2012 USAID ï‚· Regional Mérida Initiative Activities for $14.3m Closing 2014 Central America ï‚· Undefined Activities with FHIS on Crime Prevention and community driven development through small infrastructure initiatives. Disaster Risk Management: Donor What Instruments Quantity Timeframe IDB ï‚· Proyecto de Prevención de Desastres $19m loan Closes 2015 Naturales ï‚· Credit Line for Disaster Risk Mitigation $75m (of which Investments $19m used – see above) ï‚· Contingent Credit Line for Response to $100m Pipeline 2011 Natural Disasters ï‚· Apoyo Preparación Programa Gestión $1m preparation Closes 2011 Integral de los Riesgos de Desastres grant supporting Sistema Nacional de Gestión del Riesgo CABEI ï‚· Response to Natural Disasters (to finance $20m Planned for 2012 response, mobile hospitals EU N/A USAID ï‚· Have played a role with COPECO, Disaster No ongoing Response in Watershed Areas with Early USAID financed Warning Systems and Community initiative Preparation ï‚· US Office of Disaster Response in Costa Rica has supported regional initiatives 102      Education: Donor What Instruments Quantity Timeframe IDB ï‚· Secondary Education Investment Program $14.5m Closes 2011 Phase I and II ï‚· Higher Education Diagnostic AAA $150k Closes 2011 ï‚· Higher Education Accreditation AAA $100k Closes 2011 ï‚· Primary Education and Technological $37m Under Integration Project Preparation ï‚· Innovation in Honduras AAA $20k Closes 2011 ï‚· Supporting Education AAA TBD $100k Pipeline 2011 CABEI ï‚· Classroom Rehabilitation and Construction $30m Pipeline 2012 Project EU N/A USAID ï‚· Un Pueblo Más Saludable y con Mejor $45m Closing 2012 Educación – Education Component ï‚· Strengthening Education Quality Program $38m Closing 2014 Fiscal Management: Donor What Instruments Quantity Timeframe IDB ï‚· Fiscal Policy and Pension Reform Budget $40m Pipeline 2011 Support ï‚· Social Security Reform AAA $350k Closing 2012 CABEI ï‚· Programa Multisectorial de Emergencia $280m Closes 2014 ï‚· Bond Issuance for Debt Refinancing $300m Pipeline EU ï‚· Budget Support for Plan de Nación $81.6m Closes 2015 USAID Governance: Donor What Instruments Quantity Timeframe IDB ï‚· Fiscal and Pension Reform Budget Support $40m (TBC) Pipeline 2011 ï‚· Support to SEFIN (AAA) $500k Closes 2011 ï‚· Support towards a Results Based $1.5m Closes 2014 Management Tool ï‚· Support to Grupo Tarea para el Seguimiento $150k Closes 2011 de la Inversión Pública ï‚· Support to the National Statistics Institute $500k Closes 2012 ï‚· Apoyo a la Presidencia AAA $700k Closes 2012 $750k Closes 2012 ï‚· Support to Civil Society Organizations $150k Closes 2012 ï‚· Training for Project Management Units ï‚· Apoyo al Desarrollo de Mini-Centrales $250k Closes 2012 Hidroeléctricas (SERNA) 103      ï‚· Pre-Factibility Studies for PATUCA III $900k Closes 2012 ï‚· Support to Energy Efficiency and Biofuels $350k Closes 2011 CABEI N/A EU ï‚· PROADES – Program to Support $45.5m Closes 2013 Decentralization in Honduras ï‚· PAAPIR – Apoyo a la Administración $6.7m Closes 2015 Pública y la Integración Regional USAID ï‚· Government Transparency Initiative $29.5m Closes 2012 ï‚· More Responsible Governance Initiative $50m Closes 2014 (rule of law, human rights, good governance, strengthening civil society) $45m Closes 2012 ï‚· Health Sector Decentralization Health: Donor What Instruments Quantity Timeframe IDB ï‚· Mesoamerican Health Initiative $20m Pipeline 2011 ï‚· Hospital Construction Program $22m Pipeline 2012 ï‚· Support for Decentralized Health System $660k Pipeline 2011 Delivery (and follow up project) CABEI ï‚· Health Sector Equipment Investments $11.8m Closes 2011 ï‚· Hospital Investment Project $20m Pipeline 2012 EU N/A USAID ï‚· A More Healthy and Better Educated $45m Closes 2012 Population – Health Decentralization Activities ï‚· HIV/AIDS prevention, maternal health and $35.8m Closes 2014 reproductive health activity Infrastructure: Donor What Instruments Quantity Timeframe IDB ï‚· PPP Rural Electrification $25m Closes 2012 ï‚· Support to the Energy Sector $28.5m Closes 2012 ï‚· Multifase de Rehabilitación de Tramos del $6m Closes 2012 Corredor Turístico del PPP ï‚· Mejoramiento del Corredor Atlántico del $57m Closes 2013 PPP (Tramos de la CA-5 Norte) ï‚· Financiamiento Suplementario Mejoramiento $35m Closes 2012 Corredor Atlántico del PPP. ï‚· Programa de Infraestructura Corredor $20m Closes 2015 Logístico - San Pedro Sula $50m Closes 2016 ï‚· Programa Vial del Corredor Agrícola Tegucigalpa-Puerto Castilla $30m Closes 2015 ï‚· Proyecto de Transporte Público para el Distrito Central Tegucigalpa- Comayagüela 104      ï‚· Programa Ampliación y Modernización de $135m Closes 2016 (?) Puerto Cortés $56m Closes 2015 ï‚· Inversión en Agua y Saneamiento $27.5m Pipeline 2011 ï‚· Rural Water and Sanitation Initiative $45m Pipeline 2012 ï‚· Strengthening the Energy Sector $45m Pipeline 2012 ï‚· Patuca III Hydroelectric Project ï‚· Rural Water and Sanitation Program $3m Pipeline 2012 $4.4m Pipeline 2011 ï‚· Renewable Energy and Climate Change Investments for Indigenous and Afro- $640k Closes 2012 Descendent Communities ï‚· Preinvestment Studies for the San Pedro Sula $70k Closes 2011 Logistics Cooridor ï‚· Preparing the Rural Potable Water Project CABEI ï‚· Improving Highway CA-5 $130m Closes 2012 ï‚· Highway Construction Villa San Antonio $29m Closes 2012 Goascoran ï‚· Rural Infrastructure Project (PIR) $15m Pipeline 2011 ï‚· Expansion of the La Esperanza-Camasca $22m Closes 2013 Highway ï‚· Preisntalation of energy recovery in the $2.3m Closes 2011 Tegucigalpa landfill ï‚· Construction and Expansion of water and $16.7m Closes 2014 sanitation systems in Tegucigalpa and intermediate cities $90m Pipeline 2011 ï‚· Construction of Port #6 $50m Pipeline 2012 ï‚· New Highway Investment $200-500m Pipeline 2012 ï‚· Hydroelectric Investment EU N/A USAID N/A   105  Â