Document of The World Bank FOR OFFICIAL USE ONLY Report No. 136491-HN INTERNATIONAL DEVELOPMENT ASSOCIATION INTERNATIONAL FINANCE CORPORATION AND MULTILATERAL INVESTMENT GUARANTEE AGENCY PERFORMANCE AND LEARNING REVIEW OF THE COUNTRY PARTNERSHIP FRAMEWORK FOR THE REPUBLIC OF HONDURAS FOR THE PERIOD FY16-FY20 June 7, 2019 Central America Country Management Unit The International Finance Corporation The Multilateral Investment Guarantee Agency Latin America and the Caribbean Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank Group authorization. The date of the last Country Partnership Framework was November 13, 2015 (Report No. 98367-HO) FISCAL YEAR January 1 – December 31 CURRENCY EQUIVALENTS (Exchange rate effective as of April 30, 2019) Currency Unit = Lempira HNL 24.57 = US$1.00 ABBREVIATIONS AND ACRONYMS ASA Advisory and Analytical Services AMDC The City of Tegucigalpa (Alcaldía Municipal del Distrito Central) CCT Conditional Cash Transfer COMRURAL Rural Competitiveness Project CIF Climate Investment Fund CPF Country Partnership Framework DPF Development Policy Financing DRM Disaster Risk Management ENEE National Electric Power Company (Empresa Nacional de Energia Electrica) ESG Environment, Social and Governance FONGAC Complementary Guarantee Fund FRL Fiscal Responsibility Law FY Fiscal Year GAFSP Global Agriculture and Food Security Program GDP Gross Domestic Product IDA International Development Association IDB Inter-American Development Bank IFC International Finance Corporation LAC Latin America and the Caribbean MIGA Multilateral Investment Guarantee Agency NFSP Non-financial Public Sector PLR Performance and Learning Review RF Results Framework ROI Registry of Institutional Services (Registro de Oferta Institucional) RPO Rural Producer Organization RUP Unique Registry of Participants SDR Special Drawing Rights SIAFI-GES Integrated Financial Management System SIECA Secretariat of Economic Integration in Central America (Secretaría de Integración Económica Centroamericana) SME Small and Medium Enterprises SPCR Strategic Program for Climate Resilience USAID United States Agency for International Development WB World Bank WBG World Bank Group WSS Water and Sanitation Services IDA IFC MIGA Vice President: Axel van Trotsenburg Georgina Baker Keiko Honda, Executive VP Director: Y. Seynabou Sakho Gabriel Goldschmidt Merli Margaret Baroudi Task Team Leaders: Boris Weber, Jovana Luc Grillet, Carolina Bexi Jimenez Stojanovic Cárdenas, Brenda Kühn, Mia Rodriguez TABLE OF CONTENTS I. INTRODUCTION .........................................................................................................1 II. MAIN CHANGES IN COUNTRY CONTEXT ......................................................................2 III. SUMMARY OF WBG PROGRAM IMPLEMENTATION ..................................................... 4 IV. EMERGING LESSONS ..................................................................................................9 V. ADJUSTMENTS TO THE CPF AND FUTURE WBG ENGAGEMENT .................................. 10 VI. RISKS TO THE CPF PROGRAM.................................................................................... 14 Annexes: Annex 1: Proposed CPF Results Framework ............................................................................................... 16 Annex 2: Matrix of Changes to the Original CPF Results Framework ......................................................... 18 Annex 3: Summary of Progress Towards Original CPF Results Framework ................................................ 21 Annex 4: Detailed Summary of Progress Towards Achieving CPF Objectives ............................................ 28 I. INTRODUCTION 1. This Performance and Learning Review (PLR) summarizes progress in the implementation of the World Bank Group (WBG) Country Partnership Framework (CPF) for the Republic of Honduras for the period FY16-FY20 (Report No. 98367-HN). 1 The CPF was designed around three pillars to support Honduras in its efforts (i) to foster social inclusion while (ii) bolstering conditions for growth and (iii) reducing vulnerabilities to enhance the country’s resilience. Seven inter-linked objectives that support the three and two cross-cutting themes (gender and institutional capacity) have guided the WBG’s engagement for the CPF period. The formulation of the CPF reflected the existing WBG program, the Government’s development strategy, the findings of the Systematic Country Diagnostic 2 and WBG comparative advantage. 2. The CPF is being implemented amidst a challenging country context. Following the 2017 presidential and congressional elections, the country faced social unrest and continued political polarization as the legitimacy of a second presidential term was questioned. A UN-facilitated dialogue among the opposition parties and the government concluded without formal agreement, but in some degree of consensus on a set of recommendations, particularly on electoral reforms. The governing party holds 61 out of 128 seats in Congress and counts on ad hoc support from at least one minority party, which has four legislators, allowing for the passage of reforms; emerging political fragmentation, however, may have an impact on this dynamic. The Government has outlined seven strategic priorities for its four-year term: boosting innovation, widening access to credit for households and small- and medium-sized enterprises, enhancing the country's role as a Central American logistics hub, promoting education and health (including investing in bilingual English-Spanish public education), strengthening security and defense, promoting investor confidence, and fighting corruption. In particular, the Government recognizes that it must invest in human capital and create productive opportunities to curb the outflow of Honduran migrants (Box 1). The Government has also taken a more proactive approach to addressing endemic corruption by supporting the creation of an anti-corruption commission in 2016. A persistent challenge for Honduras is the need to strengthen the voice of indigenous peoples; although the country has long-since ratified the International Labor Organization Convention 169, the legal and institutional framework to hold meaningful consultations with indigenous peoples remains to be strengthened. 3. The CPF remains a valid and effective framework for collaboration and engagement between Honduras and the WBG. In response to the authorities’ requests, this PLR proposes deepening of support across all three CPF pillars, which will further underpin the existing objectives. To date, three operations have been approved under this CPF for a total amount of US$105 million in support of critical priorities for the country (under IDA 17). Going forward, the IDA18 allocation in the amount of Special Drawing Rights (SDR) 242.4 million has been fully programmed. Five operations, all under preparation are focused on rural competitiveness, social protection, water in Tegucigalpa, early childhood education, and water security in the “Dry Corridor”. The WB and IFC will jointly work towards building a more sustainable energy sector and supporting the water sector. 4. Progress toward achieving the CPF objectives is largely on track. Of the seven objectives, six have been either achieved or are on track to be achieved and one was not achieved (Objective 7: build crime 1 The CPF was discussed by the WBG Executive Directors on December 15, 2015. 2 Report number 103239V2, 2016 the World Bank. 1 and violence prevention capacity of local government). The PLR proposes some adjustments to the Results Framework (RF), including refocusing objective 1 to reflect targeting instead of expanding social protection programs, correcting errors, adjusting indicators and targets, and adding new indicators, where possible, to reflect the CPF assistance program during the remainder of the CPF period. The PLR proposes to drop Objective 7 given that it has not been achieved and no new lending is foreseen in support of this objective for the remainder of this CPF. The WB will continue providing technical assistance on crime and violence prevention to sustain focus on this critical challenge. II. MAIN CHANGES IN COUNTRY CONTEXT Recent Economic Developments3 Box 1: Lack of opportunities continue to be one of the primary reasons for emigration Low and volatile economic growth and high inequality have created the conditions for the emergence of two mutually reinforcing cycles in Honduras: (i) a high crime-low growth cycle; and (ii) an emigration/remittance flows-low growth cycle. These continue to negatively affect the economy’s growth potential and the economic opportunities available for Hondurans. As a result, the economic benefits of growth have not been translated into greater poverty reduction and equality. Over the past decade, poverty reduction in Honduras has lagged behind that of LAC. In addition, Honduras suffers from endemic levels of violence with over 50 homicides per 100,000 inhabitants on average (United Nations Office on Drugs and Crime), placing the country among the most violent countries in the world. Additionally, as a small, open economy, Honduras is vulnerable to the vagaries of global and regional economic shifts. These dynamics intertwine to act as push factors for migration. The primary triggers of migration for many people continue to be better economic opportunities, crime and violence, and family reintegration. Natural disasters, coupled with a lack of comprehensive social protection programs, have been an additional driver of emigration. The new migration pattern of “caravanas” from the Northern Triangle countries, originating in Honduras, confirm that drivers of migration are still strong. Origin, transit and destination countries are concerned about the economic, social and humanitarian implications of these caravanas. Between October and November 2018, five caravanas, of about 16,000 people, left the Northern Triangle for the U.S. and Mexico. Forty-eight percent were Hondurans, and 39 percent Salvadorans. According to interviews with migrants, about 50 percent of migrants were traveling as a household. Migrants in the caravanas report that they are migrating in an attempt to escape from gang-related violence, in search for better economic opportunities, and/or for family reintegration. This further underscores the need for addressing drivers of migration. The WBG is proposing a three- pronged approach: (i) strengthen regional economic integration to lower costs, increase trade and make the region, including Honduras, more competitive; (ii) increase economic and social development at the national and sub-national levels; and (iii) leverage the WB convening power, which can be used to coordinate across all relevant actors in the international community, at both the policy- and implementation-level and boost the development impact of all interventions. Source: UNHCR data taken from self-reported surveys conducted to members of caravanas. 5. Real Gross Domestic Product (GDP) growth moderated to around 3.5 percent in 2018 from 4.8 percent in 2017 due to lower agricultural output and less favorable domestic factors. Output in most sectors (except services) decelerated, notably in agriculture where lower coffee and palm oil prices as well as a drought significantly affected production. This slow-down led to a decline in agricultural exports 3 Source of data for this section is the Macro Poverty Outlook, April 2019, the World Bank. 2 which was exacerbated by sub-regional trade disruptions due to a crisis in Nicaragua. In addition, slower investment activity in the aftermath of the post-electoral political crisis contributed to the growth deceleration. In contrast, private consumption remained a strong contributor to growth supported by remittances inflows mainly from the U.S., despite the tightening of the U.S. immigration policy. Family remittances increased by 10 percent year-on-year in December 2018 amid tightening of the U.S. immigration policy. Externally, strong economic activity in the US, Honduras’ main trade partner, and higher demand for Honduran exports to that market counteracted to slowdown in agricultural exports and supported growth. The Customs Union with Guatemala and El Salvador supported intraregional trade flows. 6. The external position weakened in 2018 amid higher oil prices and lower agricultural output. The current account deficit is expected to widen to 3.8 percent of GDP in 2018 (from 1.6 percent in 2017). The deficit was financed mainly by net foreign direct investment inflows of around US$1.3 billion (5.2 percent of GDP) in 2018, driven mainly of reinvested earnings into the maquila industry and telecommunications. Inflationary pressures persisted in 2018 due to strong domestic demand, higher oil and fuel prices, higher electricity tariffs, and prices of passenger transport. Average inflation stood at 4.3 percent in 2018, up from 3.9 percent in 2017, but within the tolerance band of 4+/-1 percent set by the Central Bank of Honduras. 7. The fiscal policy framework continues to be anchored in the Fiscal Responsibility Law (FRL). Its implementation was on track in 2018 with an expected non-financial public sector (NFPS) fiscal deficit of 0.9 percent of GDP in 2018 (below the FRL ceiling of 1.2 percent of GDP in 2018). Recent fiscal reforms weakened the fiscal position. Tax revenues are projected to have fallen by 1.1 percentage points in 2018 relative to 2017, reflecting the elimination of the anti-evasion tax of 1.5 percent of the corporate turnover, the extension of various amnesties (including for taxes and electricity bills), increased fuel subsidies and lower custom duties due to the customs union with Guatemala and El Salvador. Expenditures were restrained as needed to meet the NFPS deficit rule. The authorities remain committed to full compliance with the FRL of 1 percent of GDP for the NFPS deficit over the medium term and a limit of about 3 percent in the real increase for current spending through stronger fiscal consolidation of the Central Government sector (investment spending) and contained wage bill. Total public debt reached 46.4 percent of GDP in 2018 (63 percent of which is external), down from 49.2 percent of GDP in 2017. 8. The key fiscal vulnerability stems from the financial situation of the state-owned electricity company (ENEE). The deficit of ENEE, which represents the key challenge for meeting the NFPS deficit ceiling, rose markedly in 2018 as increasing oil prices drove up production costs. To rescue the country’s electricity system, reduce the debt of ENEE, and mitigate fiscal risks, the government is working on a comprehensive plan (which is a precondition for a new program of the International Monetary Fund). The plan includes measures aimed at providing short-term fiscal relief (increased electricity tariffs) and structural medium-and long-term structural measures such as reduction of technical and non-technical losses, and renegotiation of existing contracts with generators. The Government is set to propose further solutions to the crisis in the energy sector which would require a fiscal strategy to adjust spending, potentially limiting public investment and social spending, which are much needed for growth and to protect the poor and vulnerable. 3 Poverty and Shared Prosperity 9. Despite some gains, Honduras continues to struggle with high levels of poverty. Between 2005 and 2017, the poverty rate, measured at US$3.2 per day and US$5.5 per day, fell from 41.4 to 31.6 percent and from 60.8 to 52.6 percent, respectively. 4 However, the rate of extreme poverty (US$1.90 per day), at 17.2 percent in 2017 remains high and is second only to Haiti in Latin America and the Caribbean (LAC). There are serious concerns regarding the level of vulnerability. The slowing of growth in 2018, originating from declines in the labor-intensive agricultural sector, including the depressed coffee prices, is expected to affect the income of agriculture-dependent families, the majority of whom are poor. Lack of employment opportunities remains a significant obstacle to further poverty reduction, despite reforms and policies undertaken in the past 4 years Rising consumer prices are also expected to adversely affect household incomes. Moreover, Honduras is highly exposed to natural disasters and climate change, especially heavy rainfall and drought that regularly occur and disproportionately affect the poor. 10. Income inequality is among the highest in LAC, and periods of inclusive growth have been followed by contractions and regressive recoveries. This has resulted in one of the smallest middle classes in LAC (17 percent in 2016, compared with 35 percent LAC average). Between 2009 and 2011, inequality increased significantly as the macroeconomic recovery following the 2009 crisis led to some income growth at the top of the income distribution even as income fell for most households. Income for the poorest 40 percent has been recovering since 2012 and grew at an annualized rate of 2.5 percent (2012-2017), as opposed to the negative growth seen for the rest of the population. However, official data for 2018 suggests inequality has been increasing over the last three years. With a Human Capital Index of 0.49, Honduras ranks among the lowest in LAC, with only Haiti (0.45) and Guatemala (0.46) lagging. One area requiring urgent action is education quality. A child born today in Honduras, on average, is expected to complete 10 years of schooling. Yet, if these years are adjusted for what children actually learn, these 10 years really are equivalent to only 6.4 years of schooling. III. SUMMARY OF WBG PROGRAM IMPLEMENTATION Portfolio Overview 11. Over the first three years of the CPF period, the lending program was selective and strategic, in line with planned volumes. To date, three operations have been approved under this CPF for a total amount of US$105 million. In FY16, the WB approved a Development Policy Financing (P155920; DPF) in the amount of US$50 million (under IDA 17) to support fiscal sustainability and enhanced competitiveness and a Corredor Seco Food Security Project Grant (P148737; US$30 million) from the Global Agriculture and Food Security Program Trust Fund (GAFSP). In FY17, the WB approved an additional financing to a well-performing flagship Rural Competitiveness Project (COMRURAL) in the amount of US$25 million (under IDA 17). With the approval of the DPF and additional financing, Honduras had committed its entire IDA17 allocation (SDR97.8 million). In FY15, under the previous CPF, two operations were approved for a total of US$80 million. No operation was approved in FY18, in the first year of IDA18, mainly due to presidential and general elections (November 2017). IFC has provided US$452.40 million (mainly in infrastructure and the financial sector) under this CPF to the private sector. MIGA has not provided any new guarantees under this CPF. 4 Based on official poverty lines in 2017, urban poverty (US$8.5 per day/per person in 2011 purchasing power parity) stood at 60.4 percent while rural poverty (US$4.3 per day/per person in 2011 purchasing power parity) stood at 69.3 percent. 4 12. The breadth and scope of the ASA has helped define the strategic focus of the WB’s support, anchored the robust policy dialogue with the Government, and contributed to the design of proposed operations. The Strengthening Productive Inclusion for Sustainable Social Safety Nets (P166705) and the Employability and Jobs ASA (P164438) are good examples. Both ASAs informed the preparation of the Social Protection Integration Project (P152057) by identifying most effective ways to link the Government’s Active Labor Market Programs and productive inclusion programs with social safety net programs, improving the targeting of these programs, and identifying key bottlenecks in job creation with a focus on the vulnerable groups, including youth, the indigenous peoples and women. Similarly, the WB helped mobilize funds from the Public-Private Infrastructure Advisory Facility (PPIAF) to support an analytical and advisory work - Improving Access to Finance of Tegucigalpa Municipal Water Utility (P163034), which helped inform the preparation of the Tegucigalpa: Water Supply Strengthening Project (P170469) by carrying out a diagnostic of the water and sanitation service delivery and a financial assessment of the Municipal Provider and helping draft a 10-year business plan for the improved provision of the Water and Sanitation Services (WSS) in the Municipality of Tegucigalpa. To support policy reforms, the WB provided technical assistance on wage bill management. 13. The World Bank’s (WB) portfolio consolidated compared to the beginning of the CPF. With six projects closed, the WB portfolio has significantly consolidated. As of March 15, 2019, the WB’s portfolio consists of four active projects totaling US$133 million (of which US$78 million undisbursed), compared to nine projects totaling US$354 million at the beginning of the CPF. The active portfolio is focused on rural competitiveness, food security in the Dry Corridor (a TF-funded operation), and disaster risk management. There is one moderately unsatisfactory project in the portfolio, the Disaster Risk Management Project (P131094) due to limited capacity and delays in procurement. A restructuring that supports an agreed action plan to accelerate project implementation was processed in April 2019. 14. Performance has remained challenging, requiring close implementation support. Although fiscal disbursement ratios were high (above 20 percent), mainly due to mature projects closing and overall low undisbursed balances, results achieved have been mixed. Of the six projects that closed, two exited as Satisfactory, three as Moderately Satisfactory, one as Unsatisfactory. 5 Of the six projects that exited the portfolio in the period FY15-17, IEG evaluated only 66.6 percent as Moderately Satisfactory and above. This reflects the complex and challenging implementation environment in Honduras. In addition to the budgetary constraints imposed on public financing by the Ministry of Finance due to the overall fiscal adjustment reform, weak implementation and fiduciary capacity have led to delays and limited the achievement of development objectives. In this context, implementation of investment projects takes longer in Honduras than in other countries, on average 7.5 years. To address some of the weaknesses, the WB has been providing regular fiduciary trainings, it has intensified supervision efforts by having more frequent missions, ensuring fiduciary oversight, and holding regular portfolio reviews. Moreover, the CPF has identified institutional strengthening as a cross cutting theme, mandating all new operations to have a strong emphasis on capacity building. To address the issue of budgetary constraints, the Ministry of Finance and WB will work together to ensure that realistic disbursement estimates are reflected in yearly budgets in line with demands of each project. 5Satisfactory – P155920 DPF, P106680 Land Administration Project; Moderately Satisfactory- P103881 Water and Sanitation Program, P115592 Social Protection Project and P086775 Rural Infrastructure Project; Unsatisfactory - P130819 Safer Municipalities Project. 5 15. IFC and MIGA have continued to be a critical partner for the private sector. As of January 31, 2019, IFC’s active committed investment portfolio totaled US$425.39 million (US$195.79 million from IFC’s own account and US$229.6 million mobilized from other lenders and investors), second largest in Central America after Panama. Most of IFC’s activities over the past few years have been in the financial and infrastructure sectors, particularly in renewable energy. Loans for IFC’s own account amount to US$113.08 million, whereas equity/quasi-equity account for US$13.71 million, risk management amounts to US$2.58 million and trade finance and guarantees to US$66.42 million. Honduras continues to be IFC’s seventh largest contributor to the Global Trade Finance Program in LAC. MIGA has US$327 million in gross exposure across three projects in the renewable energy and transport sectors. Evolution of Partnerships and Leveraging 16. Given vast financing needs and the limited IDA allocation, joining forces with other donors is critical to achieving long-term results in Honduras. To maximize development impact, the Inter-American Development Bank (IDB) and the WB have been closely collaborating on COMRURAL, with IDB’s investments complementing with select infrastructure, such as roads, the WB’s financing for increasing productivity and competitiveness of small-scale rural producers. In education, the WB is working closely with all members of the Donor Roundtable for Education, including the United States Agency for International Development (USAID), German Development Bank-KfW, German Agency for International Cooperation-GIZ, IDB, and Japan International Cooperation Agency. The WB took the leadership in managing a Global Partnership for Education grant to support the preparation of the Education Sector Plan 2018-2030. The preparation of the Education Sector Plan was led by the Government, with WB support and broad participation of representatives of more than 40 public institutions, civil society, international organizations and the private sector. In the agriculture sector, the WB is part of the Alliance for the Dry Corridor, which relies on evidence-based research and best practices from all major food security donors in agriculture and health, including USAID, the European Union, and the Canadian International Development Agency. The WB has also coordinated closely with IDB on supporting Honduras’ Conditional Cash Transfer (CCT) program and on improving the country’s capacity to measure poverty. In partnership with the Japan Social Development Fund, the WB is focusing on early childhood development targeting historically excluded groups, such as the Garifuna afro-descendent and the indigenous peoples. As part of the “G16” Donor Coordination Group in Honduras, the WB regularly engages with multi- and bi-lateral donor partners on priority country issues, including citizen security. Finally, the WB is coordinating with donors, including with the IDB, Central American Bank for Economic Integration, and the United States on the energy sector issues. Summary of Progress Towards Achieving CPF Objectives Pillar I: Fostering Inclusion 17. Objective 1: Improve Targeting and Efficiency of Social Programs – on track. One of the most significant achievements of the WB’s support in Honduras has been the establishment of the Unique Registry of Participants (RUP) and the Registry of Institutional Services (ROI). The RUP and ROI combined, supported by the WB under the Social Protection Project (P115592) and the DPF (P155920), provide a robust foundation for the country’s social protection system. At the end of 2018, the RUP contained socioeconomic information of approximately 4.2 million individuals, about 45 percent of the population. The rural CCT Program is well-targeted and effective as evidenced in improved educational attainment. In 2015, over 80 percent of the program beneficiaries belonged to the lower five income deciles (the national poverty line for the extremely poor) and over 90 percent of the grantees were women. The number of 6 indigenous and afro-Honduran households registered in the program and receiving transfers increased from 1,504 in 2015 to 8,657 in 2018. Given the Government’s intention to maintain the same coverage of the CCT Program and the fiscal constraints, the PLR proposed to refocus objective 1 from expanding coverage to improving targeting and efficiency of social programs. The Corredor Seco Food Security Project from the GAFSP Trust Fund complemented these social protection initiatives by enhancing the food and nutritional security for a subgroup of the CCT beneficiary households in the Corredor Seco. A total of 963 children under the age of two were attending the growth monitoring program in the project area (target of 1,800). Pillar 2: Bolstering Conditions for Growth 18. Objective 2: Improve reliability of key infrastructure – achieved. IFC and MIGA are supporting the objective of increasing the reliable supply of electricity. A US$82.4 million MIGA guarantee is covering the Corporacion Multi-Inversiones (CMI) new and existing equity investments in a 24-megawatt expansion of the existing 102-megawatt Cerro de Hula wind project, the largest wind farm in Central America. The project is helping diversify Honduras’ energy mix (reducing dependence on traditional fossil fuel generation). IFC and MIGA are also working jointly to support the development, construction and operation of three solar photovoltaic power plants in the southern region. IFC is providing direct financing for US$85.9 million, while MIGA is providing an investment guarantee for CMI in the amount of US$56.7 million to cover equity investments. Together, the two WBG institutions have provided an additional 509,363 people with new or improved access to electricity by 2018, exceeding by far the 2019 CPF target of 444,000. Also, projects financed by both IFC investments and MIGA guarantees together have added 641.3 GWh of renewable energy by 2018, exceeding the 2019 CPF target of 575 Gwh. 19. MIGA’s support for the roads sector fell short of expectations. In 2015, MIGA provided political risk insurance to international lenders and project sponsor of Autopistas del Atlántico S.A for an upgrade, expansion and operation of 220 km of the Corredor Turístico toll road, as well as the rehabilitation of two bridges, under a concession agreement between the government and the project enterprise. The project enterprise has been unable to collect tolls due to political opposition to tolls, social unrest, physical violence against assets of the project and unwillingness of the users to pay tolls. Due to lack of funds, in 2018 the project enterprise stopped its construction and road maintenance activities. To date, 124 km of roads have been rehabilitated or constructed, and both bridges are nearly finished. MIGA is engaging with the government and other stakeholders to reach a resolution. In this context, the PLR proposes to drop this indicator. 20. Objective 3: Increase access to finance – achieved. In 2018, IFC’s credit lines to domestic banks to support a Small and Medium Enterprises (SME) lending portfolio, provided 66,574 people, microenterprises and SMEs with financial services, almost tripling the number at baseline in 2014 and vastly exceeding the 2019 target for this indicator (23,400). The volume of the outstanding micro and SME portfolio increased from US$444 million in 2014 to US$1,008.9 million in 2018, exceeding by far the 2019 target of US$510.0 million. Further, the COMRURAL project (P101209) is helping improve access to credit for small agricultural producers by supporting coordination with commercial banks to facilitate access to credit opportunities by establishing a Complementary Guarantee Fund (FONGAC) to support business plans as needed. FONGAC provides guarantee certificates to support commercial credit proposals of Rural Producer Organizations (RPOs) whose real estate, movable and fiduciary guarantees cannot support the loans provided by banks. To date, FONGAC has issued 18 guarantee certificates to four private financial institutions and the amount of guaranteed credit was US$560,637. Through its convening power, the WB spearheaded the creation of the very first Honduras Digital Challenge, an initiative that supports an 7 emerging ecosystem for the digital economy and fosters new opportunities, particularly among youth, and is supported by the private sector, academia and donors, including USAID and IDB. 21. Objective 4: Strengthen the regulatory framework and institutional capacity - on track. This objective encompasses a wide-ranging set of reforms, aimed at strengthening fiscal management institutions, improving the country’s overall competitiveness and investment climate, enhancing land regularization and strengthening the financial sector. The WB through the DPF (P155920) supported the creation of a budgeting module in the Integrated Financial Management System (SIAFI-GES) that specifies budget ceilings consistent with the medium-term macroeconomic and fiscal framework. The SIAFI-GES budget module has been rolled out in all institutions of the central government and in 70 percent of the decentralized institutions. Also, the WB with support from the USAID TF, provided technical assistance related to the open data initiative, open contracting and public investment. Results of this engagement were included as commitments in the recently launched Comprehensive Government Policy on Transparency, Probity and Ethics (2018-2030) and the Honduras IV Open Government Partnership Action Plan 2018-2020. The WB support also focused on addressing “red tape” related to document requirements and burdensome customs procedures that lead to extra costs and delays for exporters and importers. Previously, the time to cross these borders could take up to 19 hours and it has now been reduced to only 10 minutes. The WB helped strengthen property rights in Honduras through the establishment of a modern and decentralized national land administration system. An estimated 55 percent of Honduras’ municipalities are now linked to the national land administration system and almost 50,800 families in rural and urban areas had obtained new land titles through the project. At least 48 percent of these new titles were issued to women. For the first time in Honduras, the lands of 78 communities in La Mosquita were delineated demarcated, titled and registered following participatory and culturally acceptable processes. 22. IFC also contributed to institutional capacity building through its advisory work. The City of Tegucigalpa (AMDC) benefited from IFC’s technical advisory services. Under the IFC LAC Cities Platform, in 2015, IFC supported AMDC’s Environmental Management Unit in regulating the city’s construction sector for a more efficient use of energy and water resources. IFC is providing a new advisory project focused on: (i) developing a pilot for creating a market for integrated urban infrastructure solutions; (ii) carrying out a Municipal Financial Management Assessment that is expected to help the Municipality to improve its creditworthiness, and serve to prioritize a pool of implementable and bankable high impact infrastructure initiatives; and (iii) supporting public and private sector institutions in increasing their understanding of social and environmental best practices. Through the Sustainable Banking Initiative, IFC is providing capacity building in the area of environment and social risk management and corporate governance in financial institutions and supporting the adoption of Environment, Social and Governance (ESG) standards. To date, 15 commercial banks have benefitted from IFC’s support, and three are expected to incorporate ESG or make ESG-related improvements into their due diligence processes, which should lead to an increase in the number of loans assessed against ESG standards. 23. Objective 5: Enhance rural productivity – on track. The COMRURAL project (P101209) successfully established a business model to support increases in productivity and competitiveness in high value products, such as specialty coffee, dairy, honey, by helping small-scale producers to access credit, inputs, extension services, certifications, post-harvesting processing and markets. As a result, COMRURAL has become an integral part of the Government’s approach in linking small-scale producers to domestic and international markets. To date, COMRURAL has benefitted 7,200 small-scale rural producers, organized in 123 RPOs, and supported the development and implementation of 89 Business Plans. Each US dollar from the COMRURAL leveraged US$1.50 from private financial partners helping producers’ 8 organizations leverage substantial private financing for their business plans. Implementation of the Corredor Seco Food Security Project (P148737) has recently begun, in October 2018. So far, designs of 2,399 sub-projects have been completed and 3,200 households eligible for participation in the program have been identified. A total of 600 subprojects—400 under food security plans and 270 under household hygiene plans—have been signed and are under implementation, benefitting 4,268 households. Pillar 3: Reducing Vulnerabilities 24. Objective 6: Boost resilience to disasters and climate change – achieved. With support under the Disaster Risk Management Project (DRM; P131094), the Government has been strengthening capacities for integrated disaster risk management at national and municipal levels to respond promptly and effectively to emergencies. To date, 16 municipalities have adopted DRM Plans and Emergency Plans. To enhance resilience to climate change, the WB has coordinated with Multilateral Development Banks, IFC and other development agencies to help the country prepare its Strategic Program for Climate Resilience (SPCR). This included the selection of SPCR’s investment subprograms, such as climate risk, water security, agriculture and institutional strengthening. Additional technical assistance informing the design of the SPCR was provided by IFC to assess the potential role for the private sector in climate change adaptation. The SPCR was presented to the Climate Investment Fund (CIF) Committee for review in December 2017. 25. Objective 7: Build crime and violence prevention capacity of local government – not achieved. The achievement of this objective fell short of expectations. The WB-financed Safer Municipalities project (P130819) supported the Government to address risk factors of crime and violence through implementation of violence prevention initiatives in nine communities. These communities benefitted from psychosocial support, school-based violence prevention, family support, situational violence prevention, and community-based interventions. In addition, the adaptation of an evidence-based community approach to prevent gender-based violence (adapted from the SASA! program in Uganda) was piloted in three communities (compared to 9 planned). The implementation of the project was affected by limited institutional capacity and significant fiduciary issues which delayed implementation and achievement of development outcomes. The project closed as unsatisfactory. Nevertheless, the Safer Municipalities project provides a valuable opportunity to draw lessons for future programs that focus on strengthening violence prevention. IV. EMERGING LESSONS 26. The WB has a critical role in catalyzing transformational change in Honduras. The WB through the COMRURAL project is supporting the Government to implement a deep, systemic, and sustainable change with the potential for large-scale impact to increase economic opportunities, a major development challenge and one of the main causes of high outmigration. Identifying and addressing binding constraints and doing so in a sequenced way has shown great promise. The WB has been supporting the COMRURAL for over 10 years. The project has been widely recognized by the Government and the donor community for its innovative design that enables rural producer organizations gain access to private sector financing and strengthen their capacity. It has adapted interventions to local context, capabilities and social norms by relying on early and broad engagement with stakeholders to forge agreement on common objectives and ensuring inclusion of indigenous peoples, women and youth. Moreover, the business model became an integral part of the Government’s approach in uplifting small- scale producers into domestic or international markets. Recognizing that transforming institutions is at the core of transformational engagements, the COMRURAL II, under preparation for delivery in 2019, will enhance the countries business-enabling environment, promote competitive agribusiness development, 9 and redefine the space for public-private coordination and partnerships in agribusiness, including by drawing more systematically on the approach of “Maximizing Finance for Development. 27. Given the complexity of Honduras’ development challenges, the WBG’s engagement should aim to increase its value proposition, including by focusing more on the regional integration agenda. The WB has been supporting the joint Customs Union effort under the “Regional Central American Project to support the implementation of the World Trade Organization-Trade Facilitation Agreement” (P156050). Recognizing that trade facilitation is a foundation of Central America’s regional economic integration process and that there are many barriers to and constraints on trade at all levels in Central America, the Governments of Guatemala and Honduras, and the Secretariat of Economic Integration in Central America launched a “Customs Union” initiative in 2015. The WB has been providing technical assistance to both countries and SIECA on the development of a Central American Invoice and Declaration, helped train more than 150 companies on how to use it, and supported pilot exercises with three regional companies. The private sector can now trade 80 percent of products of free circulation between both countries faster. There is every reason to expect that faster and cheaper trade will increase the volume of trade, leading to a greater variety of more affordable goods on the market, and thereby contributing to the economic growth of both countries. Learning from this experience, the WB should aim to scale up and/or replicate this regional integration approach. In particular, the WB should develop linkages and dialogue between the country-level and regional-level interventions, identify feasible, implementable regional initiatives, and work with governments in finding solutions to regional challenges such as migration, jobs, climate change and economic vulnerability, and agricultural market development. 28. The limited institutional capacity of Honduras’ public institutions, both at the national and municipal levels, continues to pose significant challenges for project implementation. In particular, limited capacity related to fiduciary aspects delays implementation and hampers achievement of development objectives. The PLR identifies a number of recommendations to inform future WB engagement. During project preparation, the WB should work closely with the Government in project design to ensure that implementation arrangements are streamlined, well-defined, and with implementing agencies well aware of their roles and responsibilities. The WB should look to projects with good implementation and results to see how these can be replicated. Preparation and design should also ensure that any activities requiring coordination among institutions have well-established mechanisms to engage early on the involved technical and operational staff thereby providing capacity and resources for effective preparation and then implementation. Also, the WB should advance into project design many of the approvals and tasks needed for implementation readiness and provide early training to responsible staff in project agencies on WB policies and procedures, especially procurement, financial management and safeguards when applicable, so that these skills are readily available as soon as project implementation begins. The WB’s implementation support should be strong, both in terms of technical and operational quality. The WB should be prepared to reach out frequently to implementing agencies to ensure implementation stays on track from the earliest stages, including by providing repeated hands-on training on fiduciary and safeguard matters when deemed necessary. Finally, intensive implementation support will help address issues when they arise, and lead to early restructuring of projects if necessary. V. ADJUSTMENTS TO THE CPF AND FUTURE WBG ENGAGEMENT 29. Going forward, the PLR proposes to maintain the CPF’s three pillars and six objectives, which continue to be relevant to Honduras’ development challenges. In response to growing concerns regarding outmigration and recognizing the need for creating more economic and social opportunities, and reducing vulnerabilities, the Government has requested to program the entire IDA18 allocation (SDR 10 242.4; US$340 million) and seek additional resources leveraged by IDA, such as regional IDA. All investment operations are under preparation and will be delivered by the end of this CPF. IFC plans to continue its program of credit lines in the trade sector, agribusiness finance and SME lending, while looking for opportunities in other sectors, such as energy, where IFC could complement IDA work. MIGA will also be open to opportunities to support foreign investments in the financial sector. 30. The RF will remain realistic and pragmatic. The original CPF RF was designed to meet results at project level commensurate to the WBG’s engagement in the country and recognizing the country’s challenging implementation context. The original CPF RF was grounded in realism to respond to lessons learned from the implementation of previous two Country Partnership Strategies (FY07-11 and FY12-15), which have both been rated by the Independent Evaluation Group as moderately unsatisfactory mainly due to overly ambitious development objectives it was trying to achieve. In this context, the PLR proposes minor changes to the RF, including refocusing of objective 1 to reflect the WB’s support on improving targeting as opposed to expanding social protection programs, adjusting indicators and targets across the program to reflect progress in implementation, correcting errors, and adding new indicators, where possible, to reflect the CPF assistance program during the remainder of the CPF period, as outlined below. Annex 2 provides an overview of the proposed changes to the CPF RF. Pillar 1: Fostering Inclusion 31. A proposed Social Protection Integration Project (P152057) will build on earlier assistance to Honduras’ social protection sector. It will help expand support to urban areas, reaching vulnerable populations, including Indigenous and Afro-Honduran Peoples. Reforming the urban CCT and standardizing it with the rural CCT is critical as there are no other poverty reduction programs operating in the urban areas at scale. Establishing a single CCT Program will enable the Government to more efficiently and effectively operate this poverty reduction Program nationwide. In addition, the WB will help pilot an urban transition strategy to facilitate the exit of beneficiary households from the CCT Program, creating space to enroll more extreme poor households into the CCT Program, while ensuring the integration of exiting beneficiary youths into the communities as productive members of society. The PLR proposes to revise the wording of the first objective from “to expand coverage of social programs” to “improve targeting of social programs” to better capture the attribution of the WB’s engagement and reflect the Government’s commitment to maintaining the current coverage of the CCT Program due to its tight fiscal constraints. The PLR proposes to add two indicators related to the urban CCT. 32. A proposed Early Childhood Education Improvement Project (P169161) would help Honduras harness the demographic dividend of its young and growing population. It would do this by both improving the care and pedagogical practices of preschool educators throughout the country, as well as the physical learning environments in preschools serving children from selected disadvantaged regions and population groups. The project would also help strengthen the Ministry of Education’s preschool management capacities by supporting the design of a comprehensive Preschool Education Model aimed at improving child development and learning outcomes and supporting the restructuring of the Ministry of Education to make it a more efficient and more accountable organization. Given that the education project is expected to be delivered in FY20, the PLR proposes not to add an objective or related indicator related to this engagement. Pillar 2: Bolstering Conditions for Growth 11 33. The WB will scale up COMRURAL. The second phase of the COMRURAL (P168385) will continue to make value chains not only more competitive, but also more inclusive for vulnerable groups such as youth, women, indigenous and afro-descendant peoples, creating new and higher skilled employment opportunities along the value chain. The project is expected to introduce use of climate-smart practices in agriculture and reach the more disadvantaged to address issues of the “Dry Corridor” and areas specifically affected by climate change, to address equity concerns, and, concerns about push-forces on migration. COMRURAL is also expected to create the conditions to leverage resources from the private sector by investing in strategic institutional and policy measures to improve the agribusiness enabling environment and the capacity of the public sector to attract and leverage private finance. Potential synergies would be pursued to incorporate beneficiaries from the Social Protection Project and social protection programs. The proposed COMRURAL II contributes to Objective 4: Strengthen the Regulatory Framework and Institutional Capacity and Objective 5: Enhance Rural Productivity. The PLR proposes to only revise the target of the existing indicator related to volume of gross sales of rural producers given the successful implementation of the additional financing and not add any new indicators given that COMRURAL II will only be in its first year of implementation when this CPF ends in FY20. 34. The WB will support the decentralization of the largest and most complex water and sanitation sector system in the country. A Tegucigalpa: Water Supply Strengthening Project (P170469) will support the establishment of a municipal WSS service provider in Tegucigalpa (UMAPS) and resolving critical issues in the Tegucigalpa system. The proposed project will pilot disbursement-linked indicators as part of the project design that will provide incentives to ensure implementation of critical institutional reforms. IFC is exploring the possibility of providing support for the water and sanitation infrastructure in Tegucigalpa, in particular by enabling private sector participation through its LAC Cities Platform. This WB engagement directly contributes to: (i) Objective 2: Improve reliability of key infrastructure through investments in the rehabilitation of three key water treatment plants; (ii) Objective 4: Strengthen the regulatory framework and institutional capacity by supporting the establishment of an autonomous Municipal Service Provider; and (iii) Objective 6: Boost resilience to disasters and climate change by focusing on increasing the resilience of the city’s water supply sector to climate risks. Nevertheless, no new indicators will be added at the PLR stage given that the project will be in the first year of its implementation at the end of the CPF period. 35. Addressing structural issues of ENEE is critical for ensuring fiscal sustainability and will require concerted efforts from the Government, the donor community, and other IFIs. The Government is committed to ensuring ENEE’s financial sustainability by implementing a holistic plan and assessing a scope of wide-ranging actions including faster reduction in non-technical electricity losses as well as generating income through the charge for ancillary services to electricity generators. The Government is in the process of preparing a comprehensive plan to tackle these issues alongside immediate actions to restore its financial position including adjusting electricity tariffs and faster reduction in non-technical electricity losses. At the moment, the WBG, other IFIs and donors in partnership with the Government are evaluating the best way forward to address and implement structural changes in ENEE, ensuring alignment with the Government’s Plan. The WB support is expected to focus on corporate governance related issues, while other IFI’s and donors will focus on clearing arrears and addressing technical losses. However, this remains to be confirmed and as such no indicator is being added at the PLR stage. The WB will continue providing technical assistance- Towards a Cost-Reflective Tariff Regulation for the Power Sector – to support the regulatory authority in the design of a sound cost-reflective tariff setting mechanism. This support is directly linked to Objective 4: Strengthen the regulatory framework and institutional capacity. 12 36. The WB’s support under this Pillar will be further strengthened by bringing global knowledge and providing analytical and advisory services. The WB will carry out a first Reimbursable Advisory Service in Honduras to support the Municipality of San Pedro Sula (SPS) to help establish, inter alia, a framework for SPS as a competitive city, address urban mobility, and create the basis for SPS as a tourism destination. The WB will also undertake a regional ASA report Unleashing Central America’s Growth Potential (P168524) that will explore structural features that have shaped the development path of Central America and will illustrate some of the challenges going forward, including recent changes in the global economy and identify future engines of growth for Central America. The report will develop deep dives on individual country experiences, including Honduras. Pillar 3: Reducing Vulnerabilities 37. Support for the Dry Corridor 6 has emerged as a priority due to its dependence on climate variability and its impact on poverty reduction, jobs, and institution building. The WB support will help strengthen water security in the Dry Corridor area in Honduras. About 50 percent of the population in the Dry Corridor resides in rural areas, with the vast majority living below the poverty line with little access to infrastructure and services. The proposed Dry Corridor Project would finance strengthening institutional capacity for water resources management and developing infrastructure to improve water harvesting. The project is expected to reach 160,000 beneficiaries in the area. The proposed project will contribute to Objective 6: Boost resilience to disasters and climate change. However, the PLR proposes not to add any indicators related to this engagement as the approval of the related project is expected in the last year of the CPF. 38. The WBG will continue supporting Honduras on the COP 21 agenda. Under the regional programmatic approach “Supporting Central America Countries in Implementing COP 21 Commitments” (P160325) specific analytical work for Honduras has been designed and is currently being implemented to support the country in strengthening climate resilience. In the first phase, the WB supported the country’s efforts in articulating an implementation plan for its climate change objectives under the Paris Agreement (National Determined Contributions. The second phase of the WB support consists of targeted technical assistance, and capacity building through additional TF resources leveraged to support National Determined Contributions implementation, including identification and planning of adaptation priorities in the water sector, strengthening multi-level coordination in the country, and linking national adaptation planning with local planning processes. IFC has stepped up its efforts to promote green finance in Honduras through the Green Banking Academy initiative, which will contribute to greening the banking sector through knowledge and capacity building and help mobilize private sector financing for climate mitigation and adaptation. The proposed analytical work will directly contribute to Objective 6: Boost resilience to disasters and climate change. 39. Crime and violence continue to be one of the main obstacles to development and the WB will support this critical agenda with ASA in the remaining period of the CPF. Through the ASA Addressing Dimensions of Crime and Violence in Central America (P170032), the WB will help provide a deeper understanding on crime and violence and make knowledge and operational tools available for developing country engagements and integrating specific actions in the design of future operations. The WB will also produce a comprehensive analysis that will focus on and explore the linkages between migration, forced displacement and increases in violence. 6 A geographic area covering parts of Honduras, El Salvador and Nicaragua that is known for its variable rainfall 13 VI. RISKS TO THE CPF PROGRAM 40. Risk in Honduras continues to be assessed as Substantial, with six key potential risks that may impact the achievement of CPF results (Table 1). Table 1: Risks to the Honduras CPF Program Risk Categories Rating 1. Political and Governance S 2. Macroeconomic S 3. Sector strategies and policies M 4. Technical design of project or program M 5. Institutional capacity for implementation and sustainability S 6. Fiduciary H 7. Environmental and social S 8. Stakeholders M 9. Other: Crime and Violence S Overall S 41. The political and governance risk remains substantial. Political polarization has continued to deepen against the backdrop of unresolved issues from the 2009 political crisis. Emerging political fragmentation and vested interests may further diminish efforts to facilitate enhanced spaces for political dialogue; and recent public corruption cases highlight the country’s continued governance and institutional weaknesses. Although, the governing party has a majority in Congress, this polarization may delay approvals of WB-financed investment projects, or move the focus and/or funds from the implementation of WB-financed projects, limiting the achievements of the CPF. To mitigate this risk, the WB will continue to focus on areas of critical importance for the country’s development and will seek to support dialogue with all stakeholders based on shared development objectives. 42. Macroeconomic risk is substantial, and stems from both domestic and external factors. Domestically, political instability following the controversial presidential elections in late 2017 put at risk the continued implementation of the macroeconomic and structural reform program. The government’s mandate has been weakened, while the outstanding challenges in the fiscal, energy sector and citizen security require significant reform efforts ahead. The Government aims to strengthen the fiscal position through stronger consolidation of the Central Government sector by cutting investment spending and adoption of a comprehensive plan to rescue the country’s electricity system. Moreover, the fiscal situation may be impacted as the country enters into electoral mode in 2020 for the planned general elections in 2021. This may lead to limited fiscal space, which could impact the CPF program by limiting disbursements and project implementation. Externally, there is increased uncertainty related to the trade outlook in light of global trade trends. Adverse weather conditions or the reappearance of the rust leaf disease may strongly affect some part of Honduras leading to large agricultural losses. These risks may disproportionately affect poor households. To address the key fiscal vulnerability issue, the WB is engaging with the Government at the policy level on the energy sector, and is expected to directly support changes to the governance structure of ENEE. The WB is also providing support to the Dry Corridor area, which should, to an extent, mitigate the impact of droughts and floods on food security needs and is implementing DRM mitigation works in vulnerable and poor communities. 43. The risk of institutional capacity for implementation and sustainability continues to be 14 Substantial. The capacity of public institutions at national and municipal levels remains a critical challenge, that may continue to delay and impact the implementation of projects. Moreover, the PLR recognizes that absorptive capacity may be a challenge. With the IDA18 allocation tripled compared to IDA17, Honduras will have about US$400 million 7 to implement in the next five years. This high IDA committed amount reflects the WB’s robust quality work in Honduras and the fact that the Government places high trust in the WB as its major partner in addressing some of the country’s most pressing challenges. The WB is adjusting its design of instruments, for example by using disbursing against achieved results, recommending hiring international consulting firms to strengthen project implementation units, building capacity within each of the relevant institutions, and hiring more senior Project Coordinators and fiduciary teams. In addition, the WB is working on a systematic implementation capacity support plan that should identify challenges well in advance and ensure the WB provides the necessary hands-on support. 44. Due to budget management and fiduciary challenges, fiduciary risk remains high. Risks are related to: (i) substantial delays in planning and preparation of the national budget; (ii) insufficient budget allocations; (iii) weaknesses in contract management; (iv) delays in project implementation due to lack of knowledge of WB procurement procedures; and (v) limited fiduciary capacity. To mitigate these risks, the WB will continue to closely support implementing entities with timely and regular capacity building for fiduciary management, together with other related technical and operational matters, including contract management. The WB will also seek opportunities to advise the Government to further simplify and strengthen project design, and whenever possible, build on the capacity and experience developed by some Government agencies to support a more structured approach for institutional strengthening in specific operations. Other mitigating measures include use of the upgraded SIAFI-GES to facilitate the integration of planning and budgeting; upgrade of the System’s project module to simplify financial reporting (undertaken in collaboration with IDB); and a strengthened external audit approach. 45. The risk related to high crime and violence (other risk) in Honduras remains substantial. Although Honduras has managed to reduce the high homicide rate, it is still considered one of the most violent countries in the world, with a persistently high crime rate and volatile security environment. This risk may impact implementation of the portfolio and supervision efforts of the WB as some projects are implemented in municipalities with high crime and violence rates. The teams will continue to maintain intensive dialogue with sectoral counterparts and provide close implementation support. 7 IDA18 (US$340 million) plus the undisbursed balance of the existing portfolio. 15 Annex 1: Proposed CPF Results Framework CPF Indicators WBG Program Objective 1: Improve targeting of social programs Indicator 1: Percent of Households in the Bono Vida Mejor receiving - Social Protection Project (P115592) CCTs in rural areas that are extreme poor: - Social Protection Integration Project (P152057) Baseline (2014): 75.00 - Fiscal Sustainability and Enhanced Competitiveness DPF (P155920) Target (2019): 99.89 - Corredor Seco Food Security Project (P148737) Indicator 2: Percentage of Program beneficiary children aged 16-18 - Jobs Diagnostics (P166705) years that completed lower secondary education (ninth grade): Baseline (2014): Boys: 19% Girls: 22% Target (2019): Boys: 30% Girls: 30% Indicator 3: Percent of urban CCT beneficiaries who are in the bottom two quintiles of the income distribution Baseline (2019): 42 % Target (2020): 43 % Indicator 4: Number of urban CCT participants in the three prioritized municipalities of Coloma, San Pedro Sula and the Central District of Tegucigalpa who complete upper secondary school (11th grade or 12th grade) Baseline (2019): 364 of which female (2019): 204 Target (2020): 746 of which female (2020): 418 Objective 2: Improve reliability of key infrastructure Indicator 5: People provided with new or improved access to electricity: - MIGA Wind, Photovoltaic Baseline: 0 (2015) - IFC wind & photovoltaic investments Target: 467,163 (2020) - Rural Infrastructure Project (P086775) Scaling up Renewable Energy in Honduras (P131602) Objective 3: Increase access to finance 16 Indicator 6: People, microenterprises and SMEs reached with financial On-going services: IFC investments (Ficohsa 615918); Ficensa 642990; Banco Popular Baseline: 20,650 (2014) 562997) Target: 23,400 (2020) Objective 4: Strengthen the regulatory framework and institutional capacity Indicator 7: Increase in share of the public sector workforce that has - Central America Trade Facilitation Programmatic Approach been evaluated through an institutional functional review: (P156050) Baseline (2014): 0% - Support on the implementation of the World Trade Organization - Target (2019): 50% Bali Trade Facilitation Agreement in Central America (P156050) Indicator 8: Reduction in time for goods to cross borders between - Programmatic Approach on Central America Energy Assessments Guatemala and Honduras: (P155068) Baseline (2015): 19 hours - Honduras Second Land Administration (P106680) Target (2020): 10 minutes - Public Wage Bill Assessment Technical Assistance Indicator 9: Reduction in average number of days to start a business: - Power Sector Green Growth in Honduras (P156991) Baseline (2014): 14 days - Fiscal Sustainability and Enhanced Competitiveness Target (2020): 11 days DPF (P155920) Indicator 10: Increase in families with land titles: Baseline (2015): 40,000 Target (2018): 50,000 of which 48 percent to women Objective 5: Enhance rural productivity Indicator 11: Percentage increase in volume of sales of rural - Honduras Rural Competitiveness Project (P101209) producers: - Honduras Corredor Seco Food Security Project (P148737) Baseline (2015):10 percent - COMRURAL 2 (P168385) Target (2020): 27 percent - Central America Regional Agribusiness Trade Logistics – Sanitary Registration project (599066) - Rural Infrastructure Project (P086775) - Env. Sustainable Cacao Production for small-scale IP & Afro- descendant Farmers JSDF(P130418) Objective 6: Boost resilience to natural disasters and climate change Indicator 12: Municipalities adopted DRM Plans and Emergency Plans: - Disaster Risk Management Project (P131094) Baseline (2015): 0 - Forest Investment Program (P157805) Target (2020): 18 - Programmatic Approach for Enhancing Disaster Risk Management in Central America (P145227) - WSS Policy Reform – Strengthening Sanitation Planning in Honduras (P132282) 17 Annex 2: Matrix of Changes to the Original CPF Results Framework CPF Indicators Revised Indicators Rationale for Change Objective 1: Expand coverage of social programs Indicator 1: Percentage of extreme poor households that Replaced with: Percent of Households in the Bono Vida The initial indicator in the CPF receive conditional cash transfers from the Bono Vida Mejor receiving CCTs in rural areas that are extreme focused on coverage. While this Mejor: poor: has improved as well, the PLR is Baseline: 27% (2014) Baseline: 75.00 (2014) replacing and adding indicators Target: 34% (2019) Target: 99.89 (2019) to track targeting accuracy as this is directly attributable to the WB support. Added: Percent of urban CCT beneficiaries who are in the bottom two quintiles of the income distribution Adding indicators related to the Baseline: 42(2019) urban CCT to reflect the new Target: 43 (2020) engagement. Added: Number of urban CCT participants in the three prioritized municipalities of Coloma, San Pedro Sula and the Central District of Tegucigalpa who complete upper secondary school (11th grade or 12th grade) Baseline: 364 (2019) of which female (2019): 204 Target: 746 (2020) of which female: 418 (2020) Indicator 2: Percentage of Program beneficiary children No change. No change. aged 16-18 years that completed lower secondary education (ninth grade): Baseline (2014): Boys: 19% Girls: 22% Target (2019): Boys: 30% Girls: 30% Objective 2: Improve reliability of key infrastructure Indicator 3: Roads rehabilitated and/or expanded and Dropped. Due to lack of funds (tolls could under operation: not be collected due to Baseline: 0 km (2015) opposition), in 2018 the project 18 Target: 220 km (2018) enterprise stopped its construction and road maintenance activities. Two bridges have also not been completed. Indicator 4: People provided with new or improved access Revised. Revised the target to reflect the to electricity: Target: 467,163 (2020) additional number of people Baseline: 0 (2015) provided with new or improved Target: 444,000 (2019) access to electricity. Objective 3: Increase access to finance Indicator 5: People, microenterprises and SMEs reached No change. To target remains the same as with financial services: IFC due to its business model is Baseline: 20,650 (2014) not able to predict how many Target: 23,400 (2019) new clients it will reach by the end of the CPF. Objective 4: Strengthen the regulatory framework and institutional capacity Indicator 6: Increase in share of the public sector workforce No change. No change. that has been evaluated through an institutional functional review: Baseline: 0% (2014) Target: 50% (2019) Indicator 7: Reduction in average number of days to start a Revised: The platform to facilitate business: Target: 11 Days starting a business was created Baseline:14 days (2014) and is operational, but further Target: 10 days (2019) progress in its dissemination is required to achieve the target. Indicator 8: Reduction in number of days required to export Replaced with: The methodology in the doing and import: Reduction in time for goods to cross borders business was revised and no Baseline (2014): Exports: 12 days between Guatemala and Honduras: longer provides for a Imports: 16 days Baseline (2015): 19 hours comparable data to measure Target (2019): Exports: 11 days Target (2020): 10 minutes progress against the original Imports: 14 days baseline. New indicator is added which can be measured under the WB support. 19 Indicator 9: Increase in families with land titles: Revised: Added disaggregated by gender. Baseline: 40,000 (2015) Target: 50,000 (2020) of which at least 48 percent to Target: 50,000 (2017) women. Objective 5: Enhance rural productivity Indicator 10: Percentage increase in volume of sales of Revised. This seems to have been an rural producers: Target: 27 percent (2020) error in the original CPF as the Baseline:10 percent (2015) target of 60 percent is not Target: 60 percent (2019) supported with the WB engagement. Objective 6: Boost resilience to natural disasters and climate change Indicator 11: National and municipal governments that Revised. Refined the language in line gather, analyze, and utilize data and information on with what the investment climate change adaptation and mitigation, and DRM for Municipalities adopted DRM Plans and Emergency project Disaster Risk evidence-based policymaking and informed decision- Plans: Management (P131094) is making: Baseline: 0 (2015) supporting and measuring. Baseline: 0 (2015) Target: 18 (2020) Target: 16 (2019 Indicator 12: Communities implementing evidence- Dropped. Given the implementation informed interventions that address the main risk challenges, the WB-financed factors affecting them: Safer Municipalities Project Baseline: 8 (2015) closed without achieving its Target: 15 (2019) development objectives. 20 Annex 3: Summary of Progress Towards Original CPF Results Framework CPF Indicators Progress to Date Supplementary Progress Progress to Date WBG Program Indicators (SPI) Objective 1: Expand coverage of social programs Indicator 1: Percentage of Indicator 1: ACHIEVED. SPI 1: Number of SPI 1: ACHIEVED. The Closed extreme poor households that Current: 41.57% (2018) indigenous & afro- figure is reported - Social Protection Project receive conditional cash Hondurans households annually: 3,385 in 2018; (P115592) transfers from the Bono Vida registered in the Program 8,657 in 2017; 9,330 in - Fiscal Sustainability and Mejor: & financed by the Project: 2016. Enhanced Competitiveness DPF Baseline: 27% (2014) Baseline: 1,504 (2015) (P155920) Target: 34% (2019) Target: 10,00 (2019) Indicator 2: On-going ACHIEVED. SPI 2: Grievance and SPI 2: ON TRACK. A - Corredor Seco Food Security Indicator 2: Percentage of Current (2018): Boys: complaints module of Grievance Handling Project (P148737) Program beneficiary children 91.47% Girls: 93.35% Management Information Mechanism has been aged 16-18 years that System operational. (2016) established. completed lower secondary ASA education (ninth grade): SPI 3: Unique Registry of SPI 3: ACHIEVED. The - Jobs Diagnostics (P166705) Baseline (2014): Boys: 19% Participants used as targeting Registry is used for 87 Girls: 22% instrument for at least 18 social programs. Target (2019): Boys: 30% social programs. (2017) Girls: 30% SPI 4: Percentage of SPI 4: ACHIEVED. 81.8% beneficiary households in (2017) of households in 9 rural areas who receive their departments received payment through basic payments. accounts or other financial As of the beginning of this products of regulated year this figure is now 0 financial institutions: as the contract with the Baseline: 12.6% (2014) financial institution has Target: 30% (2019) not been renewed in light of the Project's closing. 21 SPI 5: Number of children SPI 5: ON TRACK. under age of two attending Current: 1,209 (2018) the growth monitoring program in GAFSP targeted areas in the Corredor Seco (disaggregated by gender): Baseline: 0 (2015) Target: 1,800 (2019) Pillar 2: Bolstering Conditions for Growth Objective 2: Improve reliability of key infrastructure CPF Indicators Progress to Date SPI Progress to Date WBG Program Indicator 3: Roads rehabilitated Indicator 3: PARTIALLY SPI 6: Rehabilitation PARTIALLY ACHIEVED. On-going and/or expanded and under ACHIEVED. of key bridges on the Both bridges are almost - MIGA Wind, Photovoltaic & operation: 124 km roads corridor finished. Tourism Corridor Guarantees Baseline: 0 km (2015) rehabilitated Baseline:0 (2015) - IFC wind & photovoltaic Target: 220 km (2018) and/or Target: 2 (2018) investments expanded - Rural Infrastructure Project (P086775) Indicator 4: People provided Indicator 4: ACHIEVED SPI 7: Expanded conventional ACHIEVED. Projects - Building Regulatory Capacity with new or improved access to MIGA (2017) – 220,763 and renewable energy (Gwh): financed by MIGA and IFC for the Extractive Industries TF electricity: IFC (2017) – 246,400 Baseline: 0 Gwh (2015) have jointly generated (P148376) Baseline: 0 (2015) Total: 467,163 Target: 575 Gwh (2019) 641.3 GWh of renewable - Korea Green Growth TF: Target: 444,000 (2019) energy as of 2018. Tackling Power Sector Barriers for Green Growth in Honduras MIGA (2017) – 207 GWh - Scaling up Renewable Energy IFC (2017) - 434.3 GWh in Honduras (P131602) Objective 3: Increase access to finance CPF Indicators Progress to date Supplementary Progress Progress to date WBG Program Indicators 22 Indicator 5: People, Indicator 5: ACHIEVED. SPI 8: Volume of micro SPI 8: ACHIEVED On-going microenterprises and SMEs Current: 66,574 (2017) and SME outstanding Current: US$1,008.9 - IFC investments (Ficohsa reached with financial services: portfolio (US$ million): million (2017) 615918); Ficensa 642990; Baseline: 20,650 (2014) Baseline: 444 (2014) Banco Popular 562997) Target: 23,400 (2019) Target: 510 (2019) Objective 4: Strengthen the regulatory framework and institutional capacity CPF Indicators Progress to date SPI Progress to date WBG Program Indicator 6: Increase in share of Indicator 6: ACHIEVED. SPI 9: Decree restructuring SPI 9: PARTIALLY Ongoing the public sector workforce that Functional reviews were ENEE issued. ACHIEVED. Although, an - Central America Trade has been evaluated through an undertaken for five (2016) Executive Decree was Facilitation Programmatic institutional functional review: Secretariats (Finance, signed on October 2014 Approach (P156050) Education, Health, (PCM No. 070-2014) and a - Support on the Baseline: 0% (2014) Security, Infrastructure) new Ministry of Energy implementation of the World Target: 50% (2019) accounting for 80 percent was subsequently created Trade Organization - Bali of the public sector in August 2017, other Trade Facilitation Agreement workforce. institutions were not in Central America (P156050) created. - Programmatic Approach on Central America Energy Indicator 7: Reduction in Indicator 7: PARTIALLY SPI 10: MiEmpresaEnLínea SPI 10: ACHIEVED. Assessments (P155068) average number of days to start ACHIEVED. electronic platform to simplify a business: Current (2018): 13 days procedures to start a business Closed operational (2017). - Honduras Second Land Baseline:14 days (2014) Administration (P106680) Target: 10 days (2019) - Public Wage Bill Assessment SPI 11: Clear and transparent SPI 11: NOT ACHIEVED. procedures adopted by OABI No engagement in this to deal with seized assets. area. (2017) 23 Indicator 8: Reduction in Indicator 8: SPI 12: New property SPI 12: ACHIEVED. Closed number of days required to NOT registration model - Power Sector Green Growth in export and import: APPLICABLE implemented in at least one Honduras (P156991). Doing Business of the major regional - Fiscal Sustainability and Baseline (2014): Exports: 12 no longer registries. (2017) Enhanced Competitiveness days measures this DPF (P155920) Imports: 16 in days but SPI 13: Fiscal Responsibility SPI 13: ACHIEVED. - Competition & Competition days hours. and Transparency Law Policy-Rapid Response in Latin Target (2019): Exports: 11 days enacted. (2017) America (P152124) Imports: 14 days SPI 14: Electronic system to SPI 14: ACHIEVED. process sanitary certifications for selected agricultural products operational. (2018) Indicator 9: Increase in families Indicator 9: ACHIEVED. Closed with land titles: Current: 50,798 (2018) SPI 15: Budget module SPI 15: ACHIEVED. - Land Administration Project implemented in line with the (P106680) Baseline: 40,000 (2015) medium-term - Fiscal Sustainability and Target: 50,000 (2017) macroeconomic and fiscal Enhanced Competitiveness framework in at least 88 DPF (P155920) central government institutions. (2018) ASA SPI 16: ON TRACK. - Towards a Cost-Reflective SPI 16: New electricity tariff Tariff Regulation for the framework approved. (2018) Power Sector (P165391) SPI 17: NOT ACHIEVED. SPI 17: OABI has the tools to carry out a financial diagnostic of seized assets. (2018) Objective 5: Enhance rural productivity CPF Indicators Progress to date SPI Progress to date WBG Program 24 Indicator 10: Percentage Indicator 10: ON TRACK. SPI 18: Number of new rural SPI 18: ON TRACK. - Honduras Rural increase in volume of sales Current: 23 percent producer organizations linked Current: 17 (2018) Competitiveness Project of rural producers: (2018) to emerging markets (e.g. (P101209) Baseline:10 percent (2015) cacao) (members - Honduras Corredor Seco Food Target: 60 percent (2019) disaggregated by gender): Security Project (P148737) Baseline:0 (2015) - Central America Regional Target: 80 (2019) Agribusiness Trade Logistics – Sanitary Registration project SPI 19: Number of rural poor SPI 19: ON TRACK. (599066) who benefit from increased Current: 0 (2018) food production and rural Closed household income generation - Rural Infrastructure Project (disaggregated by gender): (P086775) - Env. Sustainable Cacao Baseline: 0 (2015) Production for small-scale IP & Target: 5,500 (2019) Afro-descendant Farmers JSDF(P130418) Pillar 3: Reducing Vulnerabilities Objective 6: Boost resilience to natural disasters and climate change CPF Indicators Progress to date SPI Progress to date WBG Program Indicator 11: National and Indicator 11: ACHIEVED. SPI 20: National DRM and SPI 20: ACHIEVED. On-going municipal governments that Current: 16 (2019) Climate Change - Disaster Risk Management gather, analyze, and utilize Resilience Strategic Plan Project (P131094) data and information on prepared. (2017) - Communication support to climate change adaptation DRM Project TF (P131094) and mitigation, and DRM for SPI 21: National Water SPI 21: ACHIEVED. - Pilot Program for Climate evidence-based policymaking Resources Policy and Resilience (P157795) and informed decision- Strategy formulated. (2017) - Forest Investment Program making: (P157805) Baseline: 0 (2015) SPI 22: Municipalities having SPI 22: ACHIEVED. Closed Target: 16 (2019) adopted DRM Plans, Land Use - Forests and Rural Productivity Plans & Emergency Plans: TF (P064914) 25 Baseline:0 (2015) - Programmatic Approach for Target: 16 (2019) Enhancing Disaster Risk Management in Central America (P145227) - WSS Policy Reform – Strengthening Sanitation Planning in Honduras (P132282) Objective 7: Build crime & violence prevention capacity of local government CPF Indicators Progress to date SPI Progress to date WBG Program Indicator 12: Communities Indicator 12: NOT SPI 23: Neighborhoods SPI 23: NOT ACHIEVED Closed implementing evidence- ACHIEVED where gender-based Current: 3 (2019) - Safer Municipalities Project informed interventions that Current: 9 (2017) violence prevention (P130819) address the main risk interventions are being - State and Peace Building Fund factors affecting them: implemented: Grant on Baseline: 8 (2015) - Municipal Citizen Security Target: 15 (2019) Baseline: 0 (2015) (P151951) Target: 9 (2019) - Programmatic Approach to Citizen Security in Central America (P147266) 26 SPI 24: Beneficiaries reached SPI 24: NOT ACHIEVED - Community-Based Approaches through school-based Current: 3,775 (2019) to Intimate Partner Violence violence prevention initiatives (P151081) (disaggregated by gender): Baseline: 0 (2015) Target: 7,000 (2019) SPI 25: ACHIEVED SPI 25: Community public Current: 43 (2019) spaces rehabilitated and/or constructed in targeted neighborhoods utilizing the Crime Prevention Through Environmental Design approach: Baseline: 21 (2015) Target: 41 (2019) SPI 26: ACHIEVED SPI 26: Youth-at-risk Current: 911 (2019) participating in employability initiatives (disaggregated by gender): Baseline: 0 (2015) Target: 700 (2019) 27 Annex 4: Detailed Summary of Progress Towards Achieving CPF Objectives Pillar I: Fostering Inclusion Objective 1: Expand Coverage of Social Programs 46. One of the most significant achievements of the WB’s support in Honduras has been the establishment of the RUP and the Registry of Institutional Services (Registro de Oferta Institucional, ROI). The RUP and ROI combined, supported by the WB under the now closed Social Protection Project (P115592) and Fiscal Sustainability and Enhanced Competitiveness (P155920) DPF, provide a robust foundation for the country’s social protection system. At the end of 2018, the RUP contained socioeconomic information of approximately 4.2 million individuals, about 45 percent of the population. By running the Proxy-Means Test, the RUP identifies extremely poor, moderately poor, and non-poor households throughout the country, and is mandated by the Presidential Decree issued in 2014 to be the targeting instrument for all social interventions. Combined with the ROI, the Government can identify all the recipients of social programs in RUP, allowing the Government to further enhance efficiencies in its provision of social services. 47. The rural CCT Program is well-targeted and effective as evidenced in improved educational attainment. In 2015, over 80 percent of the program beneficiaries belonged to the lower five income deciles (the national poverty line for the extremely poor) and over 90 percent of the grantees were women. A second impact evaluation of the rural Bono Vida Mejor CCT completed in 2018 confirmed the positive impacts on extreme poverty and health and education indicators such as school enrollment and attendance, incidence of acute diarrhea, and on attendance in growth monitoring sessions. The percentage of extreme poor households that received cash transfers under the Bono Vida Mejor increased from 27 percent in 2014 to 41.57 percent in 2018. The number of indigenous and afro-Honduran households registered in the program and receiving transfers increased from 1,504 in 2015 to 8,657 in 2018. A total of 40,328 children (in grades 7 to 9) befitted from the Bono Vida Mejor Rural CCT program. Among them 88.5 percent attended 80 percent of the school days. The percentage of beneficiary girls aged 16 to 18 that completed lower secondary education (9th grade) increased from a baseline of 22 percent in 2014 to 93.35 percent in 2018. Similarly, 91.47 percent of beneficiary boys completed lower secondary in 2018 (from a baseline of 19 percent in 2014). 48. However, the key challenge of the CCT Program remains its low coverage of extremely poor households. In 2017, of the 681,500 extremely poor households identified by the RUP, the CCT Program in rural and urban areas covered just over a third. The Government aims to maintain the coverage of the CCT Program to 245,000 households with 208,000 of those in the rural areas and 37,000 households in the urban areas, while reforming the urban Program to align its operation with the rural Program. The integration of the rural and the urban CCT Programs is expected to generate efficiency gains in the implementation of the Program. The Government’s intention is to maintain the same coverage of the CCT Program given the tight fiscal constraints. In this context, the PLR proposed to refocus objective 1 from expanding coverage of social programs to improving targeting and efficiency of social programs (for WB’s engagement going forward in this area. The ongoing Corredor Seco Food Security Project from the GAFSP Trust Fund complemented these social protection initiatives by enhancing the food and nutritional security for a subgroup of Bono Vida Mejor beneficiary households in selected areas of the Corredor Seco. A total of 963 children under the age of two were attending the growth monitoring program in the project area, well on track to meet the Supplementary Progress Indicator target of 1,800 by 2019. 28 Pillar 2: Bolstering Conditions for Growth Objective 2: Improve reliability of key infrastructure 49. The WBG focused on improving the transport and energy sector, but results have been mixed. In 2015, MIGA provided political risk insurance for a period of up to 20 years against the risks of transfer restriction, expropriation, war and civil disturbance, and breach of contract to international lenders and project sponsor of Autopistas del Atlántico S.A. This project consisted of the upgrade, expansion and operation of 220 km of the Corredor Turístico toll road, as well as the rehabilitation of two bridges, La Democracia and Santa Rita, under a concession agreement between the government and the project enterprise. The project enterprise has been unable to collect tolls due to political opposition to tolls, social unrest, physical violence against assets of the project and unwillingness of the users to pay tolls. Due to lack of funds, in 2018 the project enterprise stopped its construction and road maintenance activities. To date, 124 km of roads have been rehabilitated or constructed, and both bridges are nearly finished. MIGA is engaging with the government and all other stakeholders to reach an amicable resolution. IFC and MIGA are also supporting the objective of increasing the reliable supply of electricity. A US$82.4 million MIGA guarantee is covering the Corporacion Multi-Inversiones new and existing equity investments in a 24- megawatt expansion of the existing 102-megawatt Cerro de Hula wind project, the largest wind farm in Central America. The project is helping diversify Honduras’ energy mix (reducing dependence on traditional fossil fuel generation). IFC and MIGA are also working jointly to support the development, construction and operation of three solar photovoltaic power plants in the southern region. IFC is providing direct financing for US$85.9 million, while MIGA is providing an investment guarantee for CMI in the amount of US$56.7 million to cover equity investments. Together, the two WBG institutions have provided an additional 509,363 people with new or improved access to electricity by 2018, exceeding by far the 2019 CPF target of 444,000. Also, projects financed by both IFC investments and MIGA guarantees together have added 641.3 GWh of renewable energy by 2018, exceeding the 2019 CPF target of 575 Gwh. Objective 3: Increase access to finance 50. The target of the CPF indicator defined to measure progress towards this objective - people, microenterprises and SMEs reached with financial services - has been surpassed. In 2018, IFC’s credit lines to domestic banks (Ficensa, Banco Popular, and Ficohsa) to support an SME lending portfolio, provided 66,574 people, microenterprises and SMEs with financial services, almost tripling the number at baseline in 2014 and vastly exceeding the 2019 target for this indicator (23,400). The volume of the outstanding micro and SME portfolio increased from US$444 million in 2014 to US$1,008.9 million in 2018, exceeding by far the 2019 Supplementary Progress Indicator target of US$510.0 million. Further, the COMRURAL project (P101209) is helping improve access to credit for small agricultural producers by supporting coordination with commercial banks to facilitate access to credit opportunities and continue building confidence and business relationships between the RPOs and domestic banks. Participation of private commercial banks in the financing of subprojects has been enabled by the establishment of a complementary guarantee fund for COMRURAL (FONGAC) to support business plans as needed. FONGAC provides guarantee certificates to support commercial credit proposals of RPOs whose real estate, movable and fiduciary guarantees cannot support the loans provided by banks. To date, FONGAC has issued 18 guarantee certificates to four private financial institutions and the amount of guaranteed credit was US$560,637. Through its convening power, the WB spearheaded the creation of the very first Honduras Digital Challenge, an initiative that supports an emerging ecosystem for the digital economy and fosters new opportunities, particularly among youth, and is supported by the private sector and academia. The initiative has gained additional support from other donors, including USAID and IDB, as 29 well as private sector sponsors and universities, showing strong potential to grow as a sustainable support mechanism for digital development. Objective 4: Strengthen the regulatory framework and institutional capacity 51. Progress under this objective has been mixed. This objective encompassed a wide-ranging set of reforms, aimed at strengthening fiscal management institutions and capacity through fiscal consolidation measures, improving the country’s overall competitiveness and investment climate to ensure competition and trade facilitation, enhancing land regularization and strengthening the financial sector. In particular, the DPF addressed two important institutional factors that affect Honduras’ fiscal performance,) its financial management system, the Integrated Financial Management System (SIAFI-GES) and its control of the public sector wage bill. The DPF supported the creation of a budgeting module in the SIAFI-GES that specifies budget ceilings consistent with the medium-term macroeconomic and fiscal framework. The SIAFI-GES budget module has been rolled out and implemented in all institutions of the central government and in 70 percent of the decentralized institutions. Moreover, the DPF supported the implementation of the approved 2016 Budget Law that specifies processes for registering public trust funds (fideicomisos) in the budget. The Government is in the process of including the fideicomisos under the budgetary framework, but the progress has been slow. Regarding public wage bill management, the Government completed five functional reviews, accounting for 80 percent of the public sector workforce (TA on Public Sector Wage Bill). The corresponding report was approved by the Government and its conclusions were shared with each participating institution. The recommendations of the institutional functional reviews have been implemented in the participating entities, with varying degrees of implementation. Also, the WB with support from the USAID TF, provided technical assistance in the area of transparency and accountability, in particular related to the open data initiative, open contracting and public investment. Results of this engagement were included as commitments in the recently launched Comprehensive Government Policy on Transparency, Probity and Ethics (2018-2030) and the Honduras IV Open Government Partnership Action Plan 2018-2020. 52. The WB supported the Government’s efforts to promote competitiveness and address governance related challenges that negatively impact the overall investment climate. The Government adopted an amended Competition Law which created a Leniency Program that provides incentives for corporations and individuals that report and cooperate in the investigation of cartel practices. In October 2015, the Competition Authority issued regulations that detail the procedures for the implementation of the Leniency Program. A total of 123 legal counsels received training to provide advice on preparing a leniency application, well exceeding the target of 30 counsels that were to be trained. To simplify regulatory procedures to start and operate a business, the Government created an electronic platform (MiEmpresaEnLínea) aimed at facilitating a number of common business tasks. The platform is operational and facilitates the following common business tasks: (i) carrying out procedures necessary to start a business, including municipal permits; (ii) acquiring environmental license, and (iii) obtaining permits needed for importing and exporting, but the reduction in the average number of days to start a business decreased by only one day from 14 days in 2014 to 13 days in 2017 and 2018. Wider dissemination of the platform may be required. The WB support also focused on addressing excessive “red tape” related to document requirements and burdensome customs procedures that lead to extra costs and delays for exporters and importers, stifling Honduras’ trade potential. A Customs Union with Guatemala and El Salvador facilitates customs procedures and greater expediency in the number of days to import and export. Already, the time for goods to cross borders between Guatemala and Honduras has been significantly reduced. Previously, the time to cross these borders could take up to 19 hours and it has now 30 been reduced to only 10 minutes 8. 53. The WB helped strengthen property rights in Honduras through the establishment of modern and decentralized land administration services based on improved institutional processes and systems. Land tenure security was, and remains, central to economic growth and poverty reduction in Honduras. Weak property rights have discouraged investment and restricted access to credit. Land tenure has also been a contentious issue, at times resulting in land conflict in particular in rural and indigenous areas. The WB-financed Land Administration Project (P106680) supported: (i) the consolidation of the national land information system as the main IT system for managing land and real estate information; (ii) the development of the cadastral surveying regulation to facilitate the delegation of cadastral work; (iii) the production of Municipal Development Plans with a Territorial Planning approach in six municipalities; and (iv) the development of the normative and procedural framework for municipalities to become associated centers of the Property Institute for cadaster, registry and property regularization purposes. An estimated 55 percent of Honduras’ municipalities are now linked to national land information system. By project completion, almost 50,800 families in rural and urban areas had obtained new land titles through the project, exceeding the CPF Indicator target of 50,000 families. At least 48 percent of these new titles were issued to women. The WB-financed project also focused on ensuring recognition of the ancestral land rights of indigenous peoples (Miskitos) and strengthening their capacity for territorial and natural resource management. For the first time in Honduras, the lands of 78 communities in La Mosquita were delineated, demarcated, titled and registered following participatory and culturally acceptable processes. In addition, the project helped demarcate the borders of three protected areas. These are the first steps in the right direction as the agenda on land tenure remains unfinished. 54. IFC also contributed to institutional capacity building through its advisory work. The AMDC benefited from IFC’s technical advisory services. Under the IFC LAC Cities Platform, an initiative that seeks to establish long-term strategic partnerships with selected urban centers to promote the creation of competitive markets, in 2015, IFC supported AMDC’s Environmental Management Unit (UGA) in regulating the city’s construction sector for a more efficient use of energy and water resources. IFC is providing a new advisory project focused on: (i) developing a pilot for creating a market for integrated urban infrastructure solutions, where the private sector partners with sub-national governments would jointly address key basic service gaps; (ii) providing tailored advisory services to the Municipality of Tegucigalpa by carrying out a Municipal Financial Management Assessment that is expected to help the Municipality to improve its creditworthiness, and serve to identify and prioritize a pool of implementable and bankable high impact infrastructure initiatives to maximize the execution of projects with the available resources, while maintaining financial sustainability; and (iii) supporting public and private sector institutions in increasing their understanding of social and environmental best practices and their implementation. Through the Sustainable Banking Initiative (SBI), IFC is providing capacity building in the area of environment and social risk management and corporate governance in Honduras' financial institutions (FIs) and supporting the adoption of Environment, Social and Governance (ESG) standards. To date, 15 commercial banks have benefitted from IFC’s support, and 3 are expected to incorporate ESG or make ESG-related improvements into their due diligence processes, for at least certain segments of their portfolios, which should lead to an increase in the number of loans assessed against ESG standards. Objective 5: Enhance rural productivity 55. The WB is supporting the GoH’s flagship project for promoting agricultural competitiveness and 8 http://blogs.worldbank.org/latinamerica/customs-union-between-guatemala-and-honduras-10-hours-15-minutes 31 exports with transformational results. The WB-financed COMRURAL successfully established a business model to support increases in productivity and competitiveness in high value products, such as specialty coffee, dairy, honey, by helping small-scale producers to access credit, inputs, extension services, certifications, post-harvesting processing and markets. As a result, COMRURAL has become an integral part of the Government’s approach in linking small-scale producers to domestic and international markets. COMRURAL is also preparing to facilitate enhanced linkage to the Alliance for the Dry Corridor (Corredor Seco, ACS). The ACS supports interventions for the vulnerable population in the Dry Corridor, characterized by the country’s highest levels of poverty and malnutrition. While the ACS supports the extreme poor and subsistence farmers to increase productivity, diversity into higher value crops, off-farm activities, and to form and strengthen producer groups, COMRURAL focuses on linking organized RPOs to markets, and will soon support RPOs that have graduated from the Corredor Seco project, having achieved a certain level of capacity. To date, COMRURAL has benefitted 7,200 small-scale rural producers, organized in 123 RPOs and 123 productive alliances, and supported the development and implementation of 89 Business Plans that include the necessary strategic investments to improve the competitiveness of RPOs in pre-identified markets, using a “productive alliance” approach. The percentage increase in the volume of gross sales of rural producers was 23 percent as of November 2018. In addition, each US dollar from the COMRURAL leveraged US$1.50 from private financial partners helping producers’ organizations leverage substantial private financing for their business plans. There is growing interest from the financial sector in Honduras to support this model, as reflected by several commercial banks entering into partnerships with COMRURAL. Implementation of the Corredor Seco Food Security Project (P148737) only recently begun, in October 2018. So far, designs of 2,399 sub-projects have been completed and 3,200 households eligible for participation in the program have been identified. A total of 600 subprojects—at least 400 under food security plans and 270 under household hygiene plans—have been signed and are under implementation, benefitting 4,268 households. Pillar 3: Reducing Vulnerabilities Objective 6: Boost resilience to disasters and climate change 56. The country has made important strides in strengthening capacity for integrated climate change resilience and disaster risk management (DRM) at national and municipal level. The WB support focused on strengthening institutions and activities to enhance resilience to climate change and natural hazards, as well as addressing land degradation and deforestation. The WB has coordinated with Multilateral Development Banks (MDBs), IFC and other development agencies to work with the Government in analyzing: (i) the objectives of its Pilot Program for Climate Resilience, (ii) proposed areas of intervention; and (iii) institutional arrangements required to prepare its Strategic Program for Climate Resilience (SPCR). This included the selection of SPCR’s investment subprograms in prioritized areas, such as climate risk, water security, agriculture and institutional strengthening. Additional technical assistance informing the design of the SPCR was provided by IFC to assess the potential role for the private sector in climate change adaptation. The SPCR was presented to the Climate Investment Fund (CIF) Committee for review in December 2017. Given significant CIF financing constraints discussions are ongoing to define a strategy to overcome the current financing gap, including a possible agreement with the Green Climate Fund to provide preferred treatment for investment projects endorsed by the CIF. Meanwhile, technical assistance has facilitated: (i) the preparation of feasibility studies for key activities in the subprograms and (ii) the National Water Resources Policy and Strategy, that incorporates water and sanitation planning into the national planning process as well as into regional and local sector planning. With support under the Disaster Risk Management Project (P131094), the Government has been strengthening capacities for integrated disaster risk management at national and municipal levels to respond promptly and effectively 32 to emergencies. In addition, the Government has advanced activities to strengthen the National System of Property Administration, the National Territorial Information System and the Registry of Norms of Territorial and Land Planning. To date, 18 municipalities have adopted DRM Plans and Emergency Plans. Objective 7: Build crime and violence prevention capacity of local government 57. The achievement of the objective related to building crime and violence prevention capacity of local government fell short of expectations. Crime and violence have become one of the main obstacles to development and the Government has adopted a more comprehensive approach to reducing it by combining focus on control and enforcement with a new emphasis on prevention through the design of its Safer Municipalities Program. This program on violence prevention recognizes that increasing capacity of local governments to undertake crime and violence prevention activities is paramount. The WB- financed Safer Municipalities project supported the Government to address risk factors of crime and violence through implementation of violence prevention initiatives in a total of nine communities (compared to 15 communities planned, from a baseline of 8 communities). These communities benefitted from psychosocial support, school-based violence prevention, family support, situational violence prevention, and community-based interventions. In addition, the adaptation of an evidence-based community approach to prevent gender-based violence (adapted from the SASA! program in Uganda) was piloted in three communities (compared to 9 planned). A total of 911 youth-at-risk benefited from temporary employment and training programs, more than 7,000 beneficiaries were reached through school-based violence prevention program 9, and 38 community public spaces were rehabilitated/constructed in targeted neighborhoods utilizing the Crime Prevention through Environmental Design approach. However, the implementation of the project was affected by limited institutional capacity and significant fiduciary issues which delayed implementation and achievement of development outcomes. The project closed as unsatisfactory. Nevertheless, the Safer Municipalities project provides a valuable opportunity to draw lessons for future programs that focus on strengthening violence prevention. 9 Data disaggregated by gender is being collected. 33 34