On behalf of our Honduran authorities, we thank staff for their commitment with the program and its implementation as well as the Executive Directors and Management for their support. The authorities have benefited from a continuous constructive dialogue with staff and welcome the achievements made so far with their support, including the technical assistance. We also thank staff for a well-written report and supplement.
Board consideration of the first reviews was postponed in May to allow time to assess the fiscal implications of the new social protection law (SPL) approved by Congress in May. Our authorities have discussed extensively with staff the provisions approved by Congress and their implications for fiscal accounts, which they are prepared to contain. As stated in the supplementary letter, our authorities will implement the provisions of the SPL gradually to keep costs within the program targets and minimize pressures on the public finances. They will also continue to improve the targeting of the social safety net and are prepared to reduce, eliminate or phase out existing tax exemptions to help cover the long-run costs of the law. Furthermore, the design of complementary specific legislation to the SPL is being worked out including provisions to strengthen governance of the Honduran Social Security Institute and reforms of the public health law.
Program performance has been a success, all performance criteria and indicative targets for end-December 2014 and end-June 2015 were met. Program implementation has benefited from both authorities’ ownership of the program and a more positive external context than the one envisaged at program approval, favoring a more positive macroeconomic performance which was strategically used by the authorities to create additional fiscal space to increase social spending and support ongoing programs aimed at reducing poverty and inequality. The authorities are no longer requesting modification of the performance criteria for end-June 2015.
The implementation of sound macroeconomic policies supported by the program has fostered investment confidence and has been recognized by credit rating agencies. Foreign direct investment increased by 4.6 percent during the first quarter of 2015 after a contraction of 20.3 percent during the same period of 2014. In July, Standard & Poor’s Ratings Services raised its long-term foreign and local currency sovereign credit ratings to B+ from B. The outlook was set as stable. Previously, in May, Moody’s had revised the outlook from stable to positive. These actions reflect the acknowledgement of recent fiscal and other reforms that improved fiscal flexibility and will stabilize the government’s debt burden in the coming years as well as of the continued commitment of the authorities towards fiscal consolidation and structural reforms implementation.
Means employees that were hired in excess so the elimination of these positions does not affect ENEE and Hondutel operations.