HONDURAS CASE STUDY:

1. HONDURAS CASE STUDY: PUBLIC EXPENDITURE ASSESSMENT AND STRATEGY FOR AN ENHANCED AGRICULTURAL AND FORESTRY SECTOR: Main Conclusions and Updated Perspectives Presented by Daniel Meza (Advisor, President’s Office, Government of Honduras) May 11, 2009 (Addis Adaba, Ethiopia)

2. OVERVIEW OF PRESENTATION • INTRODUCTION AND CONTEXT • MAIN CONCLUSIONS III) RECOMMENDATIONS IV) IMPLEMENTATION PROGRESS & EMERGING LESSONS

3. I) INTRODUCTION AND CONTEXT (1) • Introduction 1) Honduras Ag. PER Case Study: • 1 of the 6 Ag. PERs carried out (2007) by the WB/DFID • Coincided with PER & supporting formulation of the new Govt. administration’s Ag. Strategic Operation Plan (06-10) 2) Country and Macro-economic context • Key Features: rural population is 60% of total; agric. is 15% of GDP (& 40% of indirect); labor force is 45% of total; agric. is 50% of exports (50%); 4th poorest LAC(mostly rural-based); 50% of land area is forested, with strong linkage to SHs • Govt. commitment to poverty reduction (via a 2nd Generation PRSP) • Fiscal crisis severely constrained scope and pace for achieving the required progress

4. I) INTRODUCTION AND CONTEXT (2) • Sectoral Context • Persistent erratic agr. growth and pervasive rural poverty reflect cumulative structural constraints • Government’s response • Long term agricultural strategy and plan (2004-2021) • Agricultural Strategy Operational Plan (2006 – 2010) • Proposed Program-based approach (PBA) • Integrated Value chain and farmer enterprise approach(picking “winners” vis-à-vis market-based) • Transfer/target programs (commodity, fertilizers, others) • Other ( Financial subsidies, etc.) • Establishment of Forestry Conservation Institute/Forestry Law

5. INTRODUCTION AND CONTEXT (3) B) Objectives/Focus of the Honduras Ag.PER • Carry out in a participatory and analytical manner a sectoral public expenditure assessment for Honduras’ agricultural and forestry sector, as an input toward enhancing its efficiency, efficacy and equity, and to improve the prospects of achieving the priority sectoral outcomes outlined in its Strategic Operational Plan (SOP, 2006-2010), and in its updated strategy which further operationalizes the SOP, with a commodity chain focus. • Provide options and recommendations to help strengthen the processes, mechanisms and capacities of and between the Government institutions of the agricultural and forestry sector to improve the effectiveness and impacts of sectoral public expenditures

6. INTRODUCTION AND CONTEXT(4) • Conceptual Framework for APEA • “Expenditure-orientation” approach: Classifies ag. public expenditures according to “public”, “private”, and “poverty-reduction goods” • Applies quantitative and qualitative methods in order to attain an integrated assessment at 2 levels: • Formulates a “production frontier model” to assess impacts of AgPEs on ag. growth and efficiency; “fixed-effect model” to estimate impacts on rural poverty (using FAO data series 1985-2001) • Conducts assessment of the on-going agricultural public investment portfolio

7. II) MAIN CONCLUSIONS (1) (1) Honduras has a low level and share of sectoral expenditure allocations vis-à-vis the economic importance of agriculture and associated activities (about 40% of GDP), especially considering the cumulative under-investment in addressing various structural constraints and tapping its vast agricultural potential; (2) Honduras has exhibited relatively low efficiency levels in the execution of its sectoral expenditures, averaging about 60% since the year 2000 although it appears that some of the underlying causes of the low expenditure rates of the past are being currently addressed by the President’s Office and Ministry of Agriculture..

8. II) MAIN CONCLUSIONS (2) (3) A stochastic production frontier model shows that only the expenditure in public-good-type of investments promote growth and reduce poverty, whereas public expenditure in private-good-types are detrimental both to growth and poverty. (4) There is a mixed assessment on the composition and quality of sectoral expenditures, as reflected by various indicators: there are under-investments/allocations for public-good type of expenditure activities (especially agricultural research and development, phytosanitary services, property rights and land access, rural roads, forestry regulations; farmer organization, and protected areas), with increasing trends of PEs for private goods, including: input subsidies (esp. fertilizer); farmer price supports; subsidized credit (and debt refief); tractors.

9. II) MAIN CONCLUSIONS (3) (5) There are about 142 projects in the agricultural and forestry sector (as of 2007), for a total cost of about US$475 M, an average total expenditure level of about $50-80 M per year. There is a recent downward trend in expenditure levels, due to a weak pipeline of programs and projects under implementation and preparation. (6) There has been a relatively high dependency on external donor funding, with about 50-70% (varying by period) of the sectoral expenditures funded by external donors (on a grant and loan basis). The projects tend to be implemented and managed in a fragmented manner, with many of them relying on project management units, especially those which are donor funded, which are not well integrated with stated strategic programs & services. For example, one of MOA Dept’s budget is greater than the rest of MOA’s budget, and the Dept. Head is appointed as a Minister of Cabinet. (7) With many of these donor-funded projects coming to a close by 2010, the fiscal and PE challenge for MOA is to sustain it’s low share of sectoral expenditures, to assume its recurrent expenditure requirements, and to develop a pipeline of strategic programs (& decreased transfers/subsidies)

10. (III) RECOMMENDATIONS (1) • There is potential scope for retrofitting many of the on-going donor funded projects to better support the Government’s updated sectoral strategies and targets. Reviews could be carried out twice per year of the portfolio of on-going projects, taking a strategic approach to making the needed adjustments so that they are coherent and aligned with MOA’s updated strategies and outcome indicators. The results of this review should be reflected in budgetary re-allocations in each annual cycle (and the sectoral MTEF and annual budgets); (2) Public goods and services help generate a multiplier effect of expanded private sector investments and increasing public-good-type of allocations is the best strategy to promote competitiveness and to reduce rural poverty for this low-middle income country. There is a need to promote a wider constituency for promoting this approach.

11. (III) RECOMMENDATIONS (2) (3) MOA needs to strengthen the operational linkages between its sectoral planning frameworks (sectoral MTEF and annual budgets, and close coordination with the Ministry of Forestry) and the policy and expenditure guidelines of Ministry of Finance and of the Poverty Reduction Strategy/President’s Office (4) MOA needs to strengthen operational linkages between sectoral planning and budgetary activities, based on a program and performance-based management approach to budgetary allocations, supported by more effective M&E. (5) Relevant good international lessons and practices on enhanced public expenditure management could be used as inputs, with appropriate adaptations for Honduras.

12. (III) RECOMMENDATIONS (3) (6) MOA needs to disaggregate and rationalize transfer payments / subsidies to farmers, in line with sound sectoral strategies and expenditure guidelines; a study needs to be completed to assess the effectiveness and impacts of agricultural subsidies (e.g., agricultural inputs), as well as their exit and sustainability strategies (the evaluation study is on-going, and needs to be completed and used). (7) MOA should adopt a programmatic structure to its sector/agency budgets, more closely aligned to its strategies, programs and services, and sectoral goals/targets, ensuring that the composition of the budgetary allocations focuses on relevant public goods within the budgetary ceilings (and reduces the proportion of the budget for private goods, especially subsidies).

13. (III) RECOMMENDATIONS (4) (8)The active participation of key stakeholder groups (especially civil society, private sector and donors) should be an integral part of the planning and budgetary cycle for each Ministry and agency, and overall sector. (9) MOA needs to prepare and carry out an operational plan to strengthen each agency and sectoral expenditure M&E system and institutional arrangements, mobilizing the necessary funding and submitting and disseminating periodic M&E progress reports of strategic programs.

14. IV) IMPLEMENTATION PROGRESS & EMERGING LESSONS (1) • Implementation Progress of Recommendations • Overall progress is “mixed”, due to various factors • Absence of a “real” National Development Plan • Lack of Govt. ownership to the study’s recommendations and action plan • Complex political, institutional, governance and sectoral environment (including energy/food crisis), which influence public expenditure decisions • Change of technical personnel, and lack of continuity (at change of Government adminstration and during the administration) • Inadequate support by donors in H&A (PD)

15. IV) IMPLEMENTATION PROGRESS & EMERGING LESSONS(2) • Key Lessons and Challenges Ahead • Push harder toward a strategic programmatic approach for agric. , with clear outcome indicators (especially using the 2010 budget cycle in the last year of a Govt. administration) • Prepare the ground for a new Govt. administration, using the 2010 budget cycle as an opportunity for a smooth transition & key actions • Encourage donors and private sector to take more proactive role in H&A agenda and expenditure priorities and allocations

16. THANK YOU!!