In 2002 the International Monetary Fund (IMF) published its original Report on Observance of Standards and Codes (ROSC) for fiscal transparency in Honduras. The ROSC found that while Honduras complied with some elements of the Code of Good Practices on Fiscal Transparency, there were many areas where improvements could be achieved. In 2005, the IMF returned to Honduras to carry out a fiscal ROSC Update, in which it reported that significant progress in fiscal transparency had been achieved. Nonetheless, more needs to be done. Specifically, the 2005 ROSC called for greater clarification of the allocation of fiscal roles and responsibilities across and within the government, greater coverage and quality in the budget, and greater public availability of budget documentation. Efforts by the Honduran authorities to further increase fiscal transparency are continuing building upon previous reform initiatives. The 2006 Open Budget Index assigned an openness rating of 38% to the Honduran budget process, which corresponds to a descriptive rating of "minimally open." However, according to a 2006 IMF report, the Honduran government clearly recognizes the need to improve the quality and dissemination of its fiscal and other data.

General Overview

In 2002, the International Monetary Fund (IMF) published its original Report on Observance of Standards and Codes (ROSC) on Fiscal Transparency, following up in 2005 with a fiscal ROSC Update. The original ROSC found that Honduras had improved its fiscal transparency and procedures. It rated Honduras as "compliant" (p. 1) with at least some of the Code of Good Practices on Fiscal Transparency. Nonetheless, the 2002 ROSC identified several areas that needed improvement before Honduras could be considered fully compliant with the Code. For instance, more work was needed to clarify the allocation of fiscal roles and responsibilities across all levels of and agencies within the government. Also, the original ROSC called for greater public access to fiscal information and improvements in the preparation, presentation, and audit of the annual budget. Finally, the 2002 ROSC suggested that Honduras strengthen its systems of fiscal analysis and enhance "the enforcement capacity of the internal and external audit bodies" (p. 1). The 2005 ROSC Update saw progress in many of the areas that were found deficient in the original ROSC. As of 2005, there had been significant improvements in the budget process, with enhanced coverage, better budget classification, and improved timeliness. Dissemination of fiscal information to the public was also increased, and the regulations covering procurement and employment had been improved. In addition, the 2005 ROSC noted that Honduras had recently experimented with multiyear budgeting and had implemented "a more appropriate regulatory framework for internal control and external audits" (p. 7). However, the 2005 ROSC reiterated the original report's call for better delineation of roles and responsibilities within the fiscal process, and found that budget documentation could be further expanded.

In a 2006 report titled "Honduras: Request for a Three-Year Arrangement Under the Poverty Reduction and Growth Facility and Interim Assistance Under the Enhanced Initiative for Heavily Indebted Poor Countries," the IMF stated that "fiscal transparency is being enhanced, and red tape curtailed" (p. 19). Current efforts build upon previous reform initiatives in, for instance, procurement, the tax system, internal controls, and budget transparency. The Honduran government has also announced new initiatives, e.g., "to limit political appointments, enforce permanently the ban on intra-year unfunded expenditure appropriations (thereby sharply restricting the ability of interest groups to loosen budget discipline), upgrade fiscal accounting and statistics, improve fiscal control of the National University, and establish dedicated tax courts" (p. 19). The report further stated that the Honduran government recognized the need to improve the quality and dissemination of its fiscal and other data. According to the report, Honduras has committed to implementing IMF recommendations in this regard and "is planning upgrades in the timeliness and quality of data in most sectors (including the public finances, national income accounts, and balance of payments), which should permit improvements in program monitoring and surveillance" (p. 21). In 2006 the Law of Transparency and Public Access to Information was passed, addressing overall transparency in the public sector. The passing of the transparency law set the basis for the Central Bank of Honduras (CBH) to provide open access to its information. The CBH website, through its transparency portal "Transparencia Banco Central de Honduras", provides access not only to laws and regulations but also to financial statements, budgets, policies, government suppliers, employees' salaries, and other information relevant for effective transparency.

Writing for the International Budget Project's "Open Budget Index (OBI)," Fernan Nunez Lagos found the Honduran budget process to be minimally open, and gave it a score of 38%. The OBI is based on the quality and availability of seven key budget documents: the Pre-Budget Statement, Executive's Budget Proposal, Citizens' Budget, In-year Report, Mid-year Review, Year-end Report, and Auditor's Report. Of these documents, Honduras produces six of these - it does not produce a Citizens' Budget. Of the six that are produced, neither the Pre-Budget Statement nor the Mid-year Review is made available to the public. Of the four that are publicly available, Lagos found that the document only offered 45% of the information the public would require for a comprehensive understanding of the government's financial activities. The other budget documents are insufficiently detailed, and the Auditor's Report does not include information regarding the implementation of any recommendations contained therein. Finally, Lagos notes that no public hearings are held on the budget. As of May 7, 2008, Honduras is not yet listed as a subscriber on the IMF's Special Data Dissemination Standard (SDDS) website. Rather, it participates in the less stringent General Data Dissemination System (GDDS), and posts its metadata on the GDDS website.

The Principles

Clarity of roles and responsibilities.

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The IMF's 2002 ROSC complained of Honduras's lack of clarity regarding roles and responsibilities across and within all levels of government. According to the ROSC, Honduras does make a distinction between the public and private sectors, but the IMF found that the lines of demarcation separating the central government and the broader public sector, including what are known as "decentralized entities" (p. 4), were not sufficiently clear. A particular problem was the failure to extend the definition of central government to include noncommercial decentralized entities, which violates the standards set by the Government Finance Statistics Manual (GFSM). According to the 2002 ROSC, the allocation of roles and responsibilities across the three branches of government were contained in the Honduran Constitution, which grants functional and financial autonomy to the decentralized entities. The original ROSC went on to add that "financial relations between the central government and the non financial public enterprises are clear, but some of these enterprises routinely conduct fiscal activities on behalf of the government" (p. 8). While acknowledging the transparency of the transfers and subsidies received by these enterprises, the 2002 ROSC nonetheless cautioned that the requirement that such entities follow the procurement standards of the central government could create "an obstacle for institutions that conduct commercial activities" (p. 8).

The 2002 IMF ROSC praised the sound budgetary principles embodied in Honduras's legal and administrative framework, and added that the system of taxation is explicitly covered in law. However, the report expressed concern that the budget legislation is not always followed, noting that "tax laws are rather complex and contain many exceptions" (p. 10). The tax regime is further complicated by the broad interpretative and discretionary enforcement powers accorded to the Executive Directorate for Revenue. According to the ROSC, this "opens the way for tax evasion and could foster corruption" (p. 10) a situation that is only exacerbated by an official penchant for using newly issued directives in order to extend special treatment to particular sectors or taxpayers. Finally, the 2002 ROSC notes that government officials are not subject to any official code of ethics, although certain laws, such as the 2002 Law Against the Illicit Enrichment of Civil Servants, do provide the means for prosecuting illegalities committed by government officials.

The 2005 ROSC Update reported that, for the central and general government and nonfinancial public sector, there was no consolidated data. The Update did record some improvement in defining the public sector, noting that the 2004 Organic Budget Law changed the definition of general government and public sector to accord with the GFSM of 2001. The Update added that the Secretariat of Finance (SoF) began including consolidated nonfinancial public sector information in its annual reports as of 2003. The ROSC Update further noted that "the Organic Budget Law also mandates all public sector entities to establish mechanisms to facilitate information exchanges in electronic or hard-copy media" (p. 2). Nonetheless, the law still contains some deficiencies. The Update specifically mentions problems "with the provisions to govern public availability of information on in-year budget execution reports, government debt and financial assets, contingent liabilities and tax expenditures" (p. 2). Overall, the 2005 ROSC found that, with the new Organic Budget Law, "great strides have been made in coordinating preparation of the budgets of the central government and the noncommercial decentralized entities and in timing their Congressional presentation and approval to coincide" (p. 3). In sum, however, the assessments do not provide explicit information to allow the assignment of a level of compliance for this principle.

Open budget processes

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The IMF's 2002 ROSC found that Honduras's budget preparation and presentation processes were lacking in transparency. By the time of the 2005 ROSC Update, however, improvements had been achieved. According to the Update, "the authorities have begun, starting with the 2003 budget, to prepare a budget policy document containing forecasts of the main macroeconomic parameters, the objectives and priorities of fiscal policy for the following year, and rules for the preparation of preliminary draft budgets by each institution" (p. 4). The document is also posted on the SoF website. However, the ROSC Update noted that no fiscal sustainability analysis was included. The Update mentioned experimental efforts to produce a multiyear budget, which began with the 2003 budget. At the time of the Update, this budget policy document was "of no legal standing," and was "designed to show Congress how the fiscal aggregates will evolve in the medium term" (p. 4). To address concerns raised in the 2002 ROSC regarding the budget classification, the Integrated Financial Management System was expanded to all the central government's secretariats, and the decentralized agencies were to eventually receive remote access to the system as well. The 2005 ROSC Update reported that, by the end of 2004, interface between the Integrated Financial Management System and the Public Sector Investment System had been completed. Finally, the 2005 ROSC Update reported that an attempt to address the ambiguities in the public procurement law so decried by the original ROSC had been made with the passage of the National Public Procurement Law. According to the 2005 Update, the new law "establishes principles of disclosure and transparency in procurement and prevents contracts from being commonly divided up. The allocation of procurement responsibilities... was intended to resolve ambiguities and increase transparency" (p. 6). However, the report added that the intended effects had not been achieved. In sum, however, the assessments do not provide explicit information to allow the assignment of a level of compliance for this principle.

Writing for the International Budget Project's "Open Budget Index" (OBI), Fernan Nunez Lagos found the Honduran budget process to be minimally open, and gave it a score of 38%. The OBI is based on the quality and availability of seven key budget documents: the Pre-Budget Statement, Executive's Budget Proposal, Citizens' Budget, In-year Report, Mid-year Review, Year-end Report, and Auditor's Report. Of these documents, Honduras produces six - it does not produce a Citizens' Budget. Of the six that are produced, neither the Pre-Budget Statement nor the Mid-year Review is made available to the public. Of the four that are publicly available, Lagos found that the document only offered 45% of the information the public would require for a comprehensive understanding of the government's financial activities. The other budget documents are insufficiently detailed, and the Auditor's Report does not include information regarding the implementation of any recommendations contained therein. Finally, Lagos notes that no public hearings are held on the budget.

Public availability of information.

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The IMF's 2002 fiscal ROSC found a number of areas wherein public availability of information could be improved. It called for the publication of the budgets of the entire public sector, as well as the reports on budget execution and settlement. The 2005 ROSC Update noted that the SoF had made great strides in expanding the budget information it makes publicly available via its website. For instance, there is now public access to the Annual General Budget of the Republic, published by the Budget Technical Directorate; and quarterly budget execution reports are now available for public viewing. The annual budget of the General Directorate of Decentralized Entities is also published online, with semi-annual execution reports and quarterly personnel reports. Every six months, the Public Credit Directorate produces its report on public debt. In addition, "the General Accounting Office of the Republic publishes the balance sheet and statement of public sector quarterly outturn, [and] the Public Investment Directorate publishes the status of execution of the public investment program quarterly" (p. 3). The SoF's annual report is also publicly available. Still, the 2005 ROSC Update took issue with the degree of coverage and consistency in the central government data, especially with regard to statistics of the nonfinancial public sector. To address this, there is a plan to improve the Integrated Financial Management System. According to the 2005 report, "this work plan was developed with the assistance of the Statistics Department of the IMF and aims to improve quality, compilation, and dissemination of nonfinancial public sector data" (p. 3). As of May 7, 2008, Honduras is not yet listed as a subscriber on the IMF's SDDS website. Rather, it participates in the less stringent GDDS, and posts its metadata on the GDDS website

The 2005 ROSC Update also found that provisions in the 2004 Organic Budget Law haves led to improvements in revenue disclosure. According to the report, the law now requires that the budget include all self-generated revenues and foreign grants received by central government institutions and decentralized entities. Most expenditures funded by such sources are also included in the budget, with the exception of those foreign grants which are made under conditions that require extra-budget management. The 2005 ROSC did find continuing problems regarding the handling of certain institutional budgets. The National Congress, Supreme Court of Justice, and Attorney General's Office, for instance, do not yet provide reports on budget structure or execution. In sum, however, the assessments do not provide explicit information to allow the assignment of a level of compliance for this principle. .

Independent assurances of integrity.

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The IMF's 2002 ROSC found that the General Comptroller's Office (GCO) "enjoys functional and administrative independence and is responsible for both internal and external audit of fiscal accounts" (p. 14) based on provisions of both the Constitution and the Organic Law of the General Comptroller Office of the Republic. Both the comptroller and his or her deputy are elected by the National Congress. Their service is restricted to a single five-year term. They can be removed from office only by a 2/3 vote, and only if they have demonstrably committed a serious offense. The GCO's budget is subject to congressional approval. According to the 2002 ROSC, the GCO has never audited the final accounts, but should focus on doing so. By the time of the 2005 ROSC Update, the GCO had been incorporated into the Supreme Court of Audit (SCA) via provisions of the Organic Law of the Supreme Court of Audit. Under the law, the GCO and the Administrative Ethics Directorate were combined within the SCA, which is empowered to set internal control, internal audit, and government audit standards. Beginning with the 2003 budget, the SCA began the practice of final accounts audits. For this activity, the SCA drew upon private audit firms for assistance. The Law now requires that the SoF and decentralized entities send their final accounts to the SCA within six months of the end of the corresponding fiscal year, after which the SCA has 45 business days in which to prepare its findings and present them to the National Congress. In addition, according to the 2005 ROSC Update, the SCA is required by law "to present to the National Congress a report on the activities and performance of the previous year within the first 40 days following the end of the fiscal year" (p. 7). In sum, however, the assessments do not provide explicit information to allow the assignment of a level of compliance for this principle. As of May 7, 2008, Honduras is not yet listed as a subscriber on the IMF's SDDS website. Rather, it participates in the less stringent GDDS, and posts its metadata on the GDDS website.