With approximately 60 percent of the population living below the poverty line in 2009, Honduras has historically been one of the poorest countries in Latin America. This reflects weak economic growth and recurrent macroeconomic imbalances, vulnerability to natural disasters, and a long legacy of periodic mismanagement. Limited institutional capacity in the public sector and the 2009 political crisis contributed to the challenge of implementing necessary reforms.
For government-wide participation and impact, project components were directly linked to the country’s development program, and the project carried out activities that cut across the water, education, and energy sectors. The Poverty Reduction Support Technical Assistance Credit (PRSTAC) project built on multi-stakeholder engagement, which included several government agencies and sectors. Sweden, Japan, the UK, and the International Development Association (IDA) together provided financing for this project.
As part of the effort to improve accountability and governance, the PRSTAC project helped achieve the following key results:
- Between 2005 and 2010, the integrated financial management system was upgraded to a web-based version, which also added modules for budget, treasury, human resources, and accounting. The country now manages all of its expenditures through a single treasury account.
- By 2010, all internal control units in government institutions were operating under the rules established by the Supreme Audit Institution, compared with just 10 percent in 2004.
- The project boosted the involvement of civil society in the development process of the country, specifically through the provision of workshops, technical assistance, and equipment. Between 2004 and 2007, about 50 social audits were conducted at community level.
- An audit of teacher posts, carried out by the Supreme Audit Institution, found an alarmingly high presence of teacher absenteeism and “phantom teachers”, constituting an estimated annual loss of US$19 million. These findings triggered public awareness and discussion, in particular among parents who subsequently demanded better delivery of education services.
- Cooperation and technical support in the water sector contributed to decentralization efforts at the municipal level, where over 50 municipalities now autonomously manage their water and sanitation services.
The International Development Association (IDA) provided US$8 million to support the project.
A US$5-million grant from the Swedish government financed activities of the Supreme Audit Institution, and project management. With its roots in the Heavily-Indebted Poor Countries initiative and the Poverty Reduction Strategy processes, donor coordination in Honduras has evolved and is now built around aid partnerships. Currently, IDA is working hand-in-hand with the Inter-American Development Bank (IADB) and Germany’s KfW in the preparation and implementation of donor-supported public sector reform projects.
As part of the donor coordination in Honduras, IDA – in coordination with the IADB and KfW – is preparing a follow-up project to consolidate achievements under the PRSTAC initiative. KfW will support the Supreme Audit Institution, while the IADB and IDA are launching projects with the Ministry of Finance and the Presidency.