Agreement 697-2018

To approve the following Budget Policy Guidelines for 2019: I. PRIORITIES OF THE GOVERNMENT PLAN PROPOSAL The Government Plan 2018-2022 denotes a strong aspiration to achieve "accelerated and sustained economic growth, articulated with a social policy that guarantees all Honduran men and women opportunities, their rights and freedoms as citizens, within the framework of fulfilling the objectives and goals of the Country Vision and the strategic guidelines of the Nation Plan". The Plan develops a series of fundamental aspects, through which the main guidelines of the public policies that will serve to orient the governmental management of the period 2018-2022 can be visualized. These largely coincide with the structural aspects that characterize the economy and social context of the country, although certain innovative approaches are also incorporated, especially on economic growth issues. The identification of the priorities that will guide public management in the next four years (2018-2022) is carried out through the review of the key components of the government proposal, which includes: three basic principles; a general objective and four specific objectives; seven pillars of the Plan and a set of action lines in each of these; and five cross-cutting lines: Human Rights, Gender Equality, Values and Practices of Democracy, Environmental Sustainability and Territorial Planning and Development. Basic Principles: • Create and expand economic opportunities through accelerated and sustained growth; • Ensure equal access to opportunities for all members of society. • Provide adequate social safety nets.

Objectives: The three basic principles are to be operationalized through a general objective and three specific objectives: General Improve the living conditions of all Hondurans in an environment of peace and tranquility through an inclusive economic growth strategy that allows the transformation of the country's productive matrix for more efficient and sustainable use of productive resources, particularly strengthening the skills and abilities of the youngest population preparing them for life and work. Specific • Expand employment for all Honduran men and women, multiplying what is being done, and especially so that young people enter the labor market with dignified jobs and fair wages. • Expand the benefits of a Better Life, reaching the last needy family in Honduras, improving their living conditions, their homes and their incomes; including our indigenous and Afro-Honduran peoples, so that no one is excluded. • Ensure that the Honduran people have levels of security and coexistence equal to those of first-world countries. Continuing the fight against crime in all its forms and that our people live without fear; with full respect for human rights. • Finish reorganizing and strengthening the State and its institutions so that it is more efficient, transparent and with public servants who have a commitment to service to the people. We will be a country of order with clear rules and simple procedures. Plan Pillars: The pillars of the Plan aim together to improve the living conditions and productivity of all Honduran men and women in an environment of peace and tranquility through a medium-term inclusive economic growth strategy and supported by an economic takeoff platform called Plan 20/20 that allows the transformation of the country's productive matrix for more efficient and sustainable use of productive resources. The pillars are as follows: • Innovate to grow. • Access to credit. • Honduras as a logistics platform. • Education and health to grow. • Security and defense. • Stability and confidence in the country. • Transparency and accountability. Cross-Cutting Lines: • Human rights Human rights, not only because they constitute an obligation contracted in the international sphere or a pretext invoked for short-term political and electoral purposes, but as a central element of the philosophical and moral vision of Christian humanism that commands our Government action and therefore the design and execution of the Government Plan.

• Gender equality The need to advance in the recognition and full integration of Honduran women in all spheres of national life, under conditions of equal opportunities is recognized. This will imply, in some cases, the design of positive discrimination programs and proactive measures that guarantee the effective enjoyment of conditions of equality in economic, social and political matters. • Values and practices of democracy We vindicate in all pillars the function of promoting and defending the values and practices of democracy. Political, economic and social democracy. For the defense of the rule of law and as the governing matrix of the covenant of coexistence among Honduran men and women. • Environmental sustainability We propose economic growth and development in harmony with the environment. We are committed to the conservation of our natural resources, linking the economic, social and environmental aspects in decision-making, preserving for future generations water, forests and productive lands. • Territorial planning and development We will guarantee the articulation of human, economic, social and environmental capital in each territory. We will enhance the productive sectors that generate the most employment in each region of the country, using land according to its vocation and taking advantage of the potential of each territory. The territorial approach appeals to the availability of natural resources in each territory, but also to the capacity of its population to build and mobilize its resources. Priorities Defined in the Proposal: From the Strategic Proposal of the Government Plan, elements that are key in said proposal can be extracted, which are presented in the following matrix identified as Presidential Priorities:

It is important to note that the government plan proposal assigns a fundamental role to economic growth, converting it almost to the center of the general, sectoral and cross-cutting strategies that make up said plan, although not as the ultimate goal, but as the most effective means to achieve social benefits, inclusion, security and environmental sustainability. Economic growth is defined as the main variable, which depends on raising the country's productivity and an economic takeoff platform (Plan Honduras 20/20). The limitations of productivity and therefore economic growth are identified and processed through a macroeconometric model. Furthermore, it is proposed that growth should respond to a model that ensures that its fruits are distributed more fairly. With these purposes, the following policy measures are proposed: • Promote economic growth from job creation with social inclusion, preserving fundamental macroeconomic balances and the environment. • Promote innovation and the development of new economic activities; diversify the productive matrix and achieve more stable international insertion; and greater value addition in the productive chains of each territory. • Strengthen and modernize State institutions to improve the quality of public administration, public security and the quality of public services. • Increase the country's social returns through investment in productive infrastructure, human capital and social policy. OTHER FRAMEWORKS FOR DEVELOPMENT POLICY PRIORITIES The priorities of the current President of the Republic, identified from the key issues raised in the form of principles, objectives, pillars, cross-cutting axes and programs, largely coincide with the priorities defined in other national planning instruments, whether medium or long-term, such as:

1. Strategic Government Plan 2014-2018 The formulation of the Strategic Government Plan 2014-2018 has as its main reference points: The "Law for the Establishment of a Country Vision and the Adoption of a Nation Plan" (LVPPN); and the Plan for All for A Better Life. Likewise, the Plan had to be materialized in the implementation of a set of actions, programs and projects with the purpose of achieving fourteen major results, aligned with the four strategic objectives, as presented in the following table. Country Vision and Nation Plan The LVPPN emerged as part of the political agreements reached after the mid-2009 crisis, under the leadership of the National Congress and with the consensual support of the five legally registered political parties at that time and the respective presidential candidates. With this agreement and the approval of the Law (in force at the beginning of 2010), the commitment was made to adopt the axes proposed in the Country Vision to guide the nation's development process, as well as to give it continuity and sustainability during seven government periods, regardless of which party came to power. The main components of the LVPPN are as follows: • A Country Vision, comprised of four national objectives • A Honduras without poverty, educated and healthy, with consolidated social protection systems. • A Honduras that develops in democracy, with security and without violence.

• A productive Honduras, generating opportunities and jobs that sustainably uses its resources and reduces its environmental vulnerability sustainably. • A modern, transparent, responsible, efficient and competitive State. • A Nation Plan that covers a first phase of the Country Vision (2010-2022) and is made up of strategic guidelines, • Sustainable development of the population. • Democracy, citizenship and governance. • Reduction of poverty, asset creation and equal opportunities. • Education and culture as means of social emancipation. • Health as a foundation for improving living conditions. • Security as a requirement for development. • Regional development, natural resources and environment. • Productive infrastructure as an engine of economic activity • Macroeconomic stability as a foundation for domestic savings. • Country image, competitiveness and development of productive sectors. • Adaptation and mitigation to climate change Furthermore, 23 national goals were defined, derived from the Country Vision objectives and 65 indicators within the framework of the Nation Plan. 2030 Agenda for Sustainable Development The General Assembly of the United Nations Organization (UN) adopted on September 25, 2015 the 2030 Agenda for Sustainable Development, considered an action plan in favor of people, the planet and prosperity, which also intends to strengthen universal peace and access to justice. Member States of the United Nations approved a resolution in which they recognized that the greatest challenge of the current world is the eradication of poverty and affirm that without achieving it there can be no sustainable development. The Agenda proposes 17 Objectives with 169 integrated and indivisible targets that cover the economic, social and environmental spheres. These Objectives were developed over more than two years of public consultations, interaction with civil society and negotiations between countries. Through a participatory process, a National Agenda of the Sustainable Development Objectives was determined, prioritizing seven of the 17 international objectives based on criteria such as: • Adaptation to the country's economic, social, environmental and political reality. • Greater linkage to the Country Vision, the Nation Plan and the Strategic Government Plan 2014-2018. • Implementation viability based on national resources and external cooperation. • Existence of statistical information sources for objectives and indicators. The objectives of the National Agenda are as follows: • End poverty in all its forms and ensure minimum levels of social protection. • Guarantee the availability of water, sanitation energy, affordable and sustainable for all • Guarantee a healthy life and promote well-being for all

• Guarantee inclusive, quality education with access to new technologies. • Promote sustained, inclusive and sustainable economic growth. • Manage the sustainable management of natural resources. • Achieve a more just, peaceful and inclusive society with modern and transparent institutions. INTEGRATION OF PRIORITIES FOR 2018-2022 The review and analysis of the above content allows for important conclusions in the process of preliminary identification of the priorities of national planning for the government period 2018-2022 and its subsequent validation, based on the sectoral diagnoses to be conducted shortly. These priorities are classified in each of the sectors in which planning is divided, passing through the subsectors, cross-cutting axes and the different components or areas of action 1. Sectors and Strategic Objectives The different components of the government plan proposal relate directly or indirectly to the sectoralization of the National Development Planning System (SNPD) referenced in the objectives of the Country Vision, the Nation Plan, as well as in the reforms to the General Law of Public Administration1 and Executive Decree 266-2013, through which seven Sectoral Cabinets (GS)2 are created. Currently, PCM-009-2018 modifies the previously mentioned Sectoral Cabinets and prioritizes five major sectors. 1 Decree 266-2103, which contains the Law to Optimize Public Administration, Improve Services to Citizens and Strengthen Government Transparency 2 The GS are; 1) Governance and Decentralization; 2) Development and Social Inclusion; 3) Economic Development; 4) Productive Infrastructure; 5) Economic Conduct and Regulation; 6) Security and Defense; and, 7) International Relations. These sectors and their respective objectives are as follows: • Economic Development Sector3: Increase employment for all Honduran men and women, especially so that young people enter the labor market with dignified jobs. • Productive Infrastructure Sector: Strengthen and modernize productive infrastructure to position the country as a regional logistics hub and enhance productive development. • Social Development Sector: Improve the living conditions of the poorest population through expanded social investment in programs and projects of a Better Life. • Prevention and Security Sector: Improve security and coexistence for the Honduran people within a framework of full respect for human rights. • Governance and Institutional Development Sector: Reorganize and strengthen the State and its institutions so that they are more efficient and transparent with accountability and public servants with greater commitment to service to the people. Additionally, five cross-cutting axes are considered as part of the priorities: promotion and respect for human rights; gender equality; participatory democracy; environmental sustainability; and decentralization and territorial planning. Sectors and Components Since most of the sectors cover a rather broad part of public management and therefore of centralized and decentralized institutions, it is considered convenient to identify areas or subsectors that can be addressed separately and at the same time as an integral part of the sector. In the following table, it is observed how the five sectors mentioned above are articulated with the seven pillars of the government plan proposal and with the most relevant components corresponding to both each pillar and its corresponding sector:

TECHNICAL APPROACH TO PRIORITIES Once the diagnoses have been conducted for each sector and subsector, as well as for the different components or key variables corresponding to each, the development of the strategic approach will proceed, aimed at providing solution options to the problems found in each of the mentioned levels. In the strategic approach, presidential priorities become policies, actions, programs and projects. Thus the process of translating a political statement into a technically stipulated priority is initiated. To this end the following activities are important: • Identify which component of the value chain each commitment refers to. Campaign commitments may allude to expected results or impacts, or alternatively refer to interventions such as provision of goods or services, monetary transfers, infrastructure works, among others. • Clarify the variable to which reference is made. Each campaign commitment involves a variable or aspect of reality that will be modified by the fulfillment of the commitment, for example: health, education or employment; as well as the value of the goal or expected result at the end of the period. • Formulate the indicators that would account for the behavior of the respective variable. Frequently, statements of political commitments do not refer to indicators, so this is a task of analysis by the technical team of the General Government Coordination Secretariat that may consult with specialists from institutions of the sectors involved. As progress is made in the integration of the final Strategic Plan, certain variations may occur as a response to the results of the diagnosis and during the socialization and validation processes of the Plan. Subsequently, indicators will be defined to guide the execution, monitoring and evaluation of the PEG with their respective goals. II. PLANNING AND BUDGET GUIDELINES WITH GENDER APPROACH Public Administration entities in order to achieve substantive equality of opportunities between men and women will promote, in a cross-cutting manner, the application of the II Plan for Equality and Gender Equity in Honduras 2010-2022 (II PIEGH), the National Plan Against Violence Toward Women 2014-2022 and the Sustainable Development Objectives (SDO), through the incorporation of the gender approach in the design, implementation and evaluation of policies, plans and budgets of the Public Administration. To this end, departments and entities must consider in the planning and budget process the following:

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  In their Institutional Strategic Plan at the level of objectives and results, reflect the commitment to reduce gaps of substantive inequality between men and women and promote a culture of equality;

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  In their Operating Plan in the program structure (program, subprogram, activity, work) and in the public value chain and production (products and/or actions), contemplate concrete actions for achieving gender equality, aiming at the implementation of the II PIEGH from each public entity;

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  Generate information disaggregated by gender (sex, ethnicity, age, department, municipalities, among others) from the programs, projects, services and activities carried out by public entities; and, 4. Define and apply indicators that make it possible to visualize progress in the implementation of the II PIEGH, the National Plan Against Violence Toward Women 2014-2022 and the SDO. The National Institute of Women as the Governing Body of Policies in favor of women's rights and gender equity will issue the technical and operational guidelines for the formulation of planning and budgets with a gender approach in coordination with the entities that govern the planning processes (General Government Coordination Secretariat through the Presidential Directorate of Strategic Planning, Budget and Investment) and budgeting (Secretariat of State in the Office of Finance). Likewise, the National Institute of Women will coordinate with the Directorate of Childhood, Adolescence and Family (DINAF) for the definition of guidelines focused on Childhood and Adolescence. In order to comply with Executive Decree PCM 031-2016 which creates the Woman City Program, the following institutions: Secretariat of Economic Development, Secretariat of Labor and Social Security, Secretariat of Education, Secretariat of Agriculture and Livestock, National Agricultural Development Bank, National Institute of Professional Training, Secretariat of Development and Social Inclusion, National Registry of Persons, Secretariat of Health, Secretariat of Security, Directorate of Childhood, Adolescence and Family, National Autonomous University of Honduras, Public Ministry and the National Institute of Women itself must bear the costs for the operation of the module within their competence in each Woman City Center, this includes the payment of inputs and assigned personnel, the above in accordance with the details of the operation protocols of each module, for which they must consider these expenses in their budget formulation in a differentiated manner and must be established in their annual planning. III. FISCAL OBJECTIVES In accordance with the Fiscal Responsibility Law (Decree No. 25-2016, published May 4, 2016), fiscal policy aims to establish guidelines for better management of public finances ensuring consistency over time of budget policy and guarantee fiscal consolidation, debt sustainability and poverty reduction with responsibility, prudence and fiscal transparency. Fiscal Responsibility being understood as: "Policies and commitments of fiscal discipline and adjustment that aim to prevent discretionary execution of spending and borrowing to achieve macroeconomic stability, financial system security, an increase in private investment and consequently improve the social conditions of the poorest in a responsible manner".4 Declaration of Principles of Fiscal Policy:5 1 Economic Policy Guidelines: a) Strengthen economic growth above its long-term trend, based on gross capital formation and increased productivity. b) Prioritize and maintain macroeconomic stability. c) Prioritize Social Inclusion and the reduction of the gap in social indicators. d) Reduce the infrastructure gap through a simplified, transparent and effective system for executing investment projects. Fiscal Policy Guidelines:

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    Safeguard the commitment to fiscal sustainability to generate spaces that allow for gradual reduction of public debt, increase social spending and reduce the infrastructure gap.

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    Promote a public investment program based on a medium-term perspective that contemplates improvements in efficiency and subsequent maintenance costs.

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    Ensure the sustainability of tax revenues without increasing or creating new taxes.

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    Improve management of public assets and liabilities that contemplates analysis of fiscal risks.

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    Make public spending more efficient and predictable.

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    Prudent borrowing in accordance with the Fiscal Responsibility Law and Borrowing Policy.

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    Ceilings: In accordance with what is established in the Fiscal Responsibility Law, the following ceiling applies: a. The maximum annual ceiling for the deficit of the Global Balance of the Non-Financial Public Sector (SPNF) for the year 2019 is 1% of GDP. b. The annual increase in nominal current spending of the Central Administration cannot exceed the average annual growth of real GDP over the last 10 years plus the projection of average inflation for the following year. Consistent with the Article IV review conducted by the International Monetary Fund (IMF) in May 2018, where they stated that fiscal policy should be prudent in order to contain vulnerabilities in the medium term, also strengthen income mobilization based on gradual elimination of tax expenditures and implementation of structural reforms to maintain firm control of the wage bill and improve the quality of public spending. After analyzing the sustainability of public debt and fiscal sustainability and based on new fiscal projections, the growth of primary current spending2 of the Central Administration should not exceed 7.2% for the year 2019 as shown in the following table: Considering that the average GDP growth over the last 10 years is 3.2% and that the average inflation projected for 2020 is 4.0, it is concluded that Primary Current Spending should not grow above 7.2% (3.2+ 4.0) with respect to the execution of primary current spending in 2018. 6 Primary current spending: Primary current spending is obtained by subtracting the payment of debt interest from the same year from total current spending.

    c. New payment arrears at the close of the fiscal year may not exceed in any case zero point five percent (0.5%) of Gross Domestic Product (GDP) in nominal terms. The maximum value that new payment arrears will have at the close of fiscal year 2019 will be: L3,149.5 million. Nominal GDP = L 629,900.0 million x 0.5% = L3,149.5 million. Payment arrears are considered when the deadline for payment exceeds 45 business days from the date of registration of the signing of the accrual of obligations in SIAFI. IV. GENERAL GUIDELINES OF BUDGET POLICY a) Macroeconomic Framework 2019 The macroeconomic framework for fiscal year 2019 has been developed by the Central Bank of Honduras (BCH) in coordination with the Secretariat of Finance and maintaining consistency with the Government Program and the Fiscal Responsibility Law. The macroeconomic framework expected for fiscal year 2019 is as follows:

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    Real GDP growth projected for 2019 is estimated between 3.8% - 4.2%.

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    The projected nominal GDP is L629,900.0 million.

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    A currency depreciation of 5% is considered.

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    Inflation is expected to have moderate behavior with a target of 4.0% ± 1 for the year 2019 (year-over-year inflation). Based on the macroeconomic parameters noted above, the following fiscal targets have been determined: It is important to mention that the fiscal deficit of the Central Administration of 2.9% of GDP for 2019 includes investment in projects under Public-Private Partnership (PPP) mechanisms. The fiscal deficit of the Central Administration for the formulation of the 2019 budget is 2.1% of GDP without PPP. b) Fiscal Deficit Ceiling According to the Medium-Term Macrofiscal Framework (MMFMP). The MMFMP defines global deficit ceilings that include spending on investments in projects financed under Public-Private Partnership (PPP) mechanisms and spending managed in trusts. However, the global ceilings recorded on the SIAFI-GES platform for the formulation of the 2019 Budget Draft and multi-year 2020-2022 exclude the estimation of PPP spending and some trusts since both are recorded during the year as spending is executed. The fiscal deficit ceilings defined in the MMFMP are maximum amounts that can be reached; however, the budget and its execution may have different amounts as long as they are less but never greater than the ceilings defined in the MMFMP. c) Income Policy: Based on the projected macroeconomic framework and incorporating the tax and customs legislation in force and statistical information on tax collection in previous years, income projections for fiscal year 2019 were made, obtaining a tax burden of the Central Administration that reaches 17.6% (Tax Revenue/GDP). This projection contemplates downward adjustments from the exemption of VAT on inputs and capital goods to the agricultural sector, the Customs Union with the Republic of Guatemala, the impact of 1.5 of gross income and the change from worldwide income to territorial income under the Tax Code by Decree No. 170-2016 among others. For the formulation of the Draft Budget for Income and Expenditures for 2019 for the Central Administration, no new reforms to the Honduran tax regime are considered, priority is given to improving fiscal collections through the expansion of the tax base and greater fiscal presence. For fiscal year 2019, the formulation of own income generated by Central Administration Institutions through the provision of services will continue as well as income from Security Fee and the Better Life Program; a process initiated in the formulation of the 2016 Budget, which will contribute to improving management in the handling of public resources and transparency in their use. Actions in Matters of Income: Considering that the current administration will not apply tax reforms in the short and medium term, tax policy actions will focus on expanding the tax base. Among the main activities to be developed in matters of Tax Administration are:

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    Improve tax collection through greater efficiency in management and greater geographic coverage and fiscal presence

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    Increase the base of potential taxpayers through support for census programs and detection of non-filing taxpayers.

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    Strengthen information systems, taxpayer registration, data crossing and verification, and cooperation agreements and information exchange with other countries.

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    Recovery of tax debts.

    d) Spending Policy: As for the spending and investment policy and priorities to be considered in the formulation of the Budget of Expenditures for fiscal year 2019, it must respond to what is established in the Government Plan 2018-2022, the public policies and national plans approved in favor of vulnerable sectors, such as women, youth, children and adolescents, to guarantee the enjoyment of their rights and a life without discrimination, the 20/20 plan and the Alliance for the Prosperity of the Northern Triangle, focusing its actions on improving the living conditions of the most vulnerable population through the generation of incentives for medium, small and micro-enterprises. The Government will allocate its resources as a priority to social programs such as "Better Life", which includes conditional cash transfers, improvement of social housing conditions by providing roofing, flooring, eco-stove and family garden, as well as school uniforms and supplies with a gender approach and human rights for women in order to reduce inequality gaps between men and women. The Government has proceeded to renovate the institutional framework for the formulation of the public investment program so that it reflects the long-term objectives of the Country Vision and Nation Plan towards 2038. The President in Council of Secretaries of State sets the program priorities while the General Coordinator of Government and Sector Coordinator Secretaries ensure that projects are designed, financed and executed in competitive processes according to established priorities and objectives. Under the new framework, public administration institutions play a key role in implementing the public investment program. For the above reasons, it is important to ensure that public spending is effective, meaning it achieves high levels of efficiency and effectiveness, for which spending projections must be calculated based on the human and material resources required to achieve the objectives and goals of the operating plan contained in the programs and projects. Actions in the Area of Public Spending

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    Strengthen allocations of Public Spending linked to comprehensive development of the population toward social sectors, citizen security, labor training and productive infrastructure, considering a gender perspective.

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    Suppress consumption spending that does not contribute to the generation of goods and services ensuring that spending reflects the country's real needs.

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    The level of both current and capital spending will be maintained within the fiscal target established in the Fiscal Responsibility Law

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    Continue the process of minimizing short-term borrowing contracting and ensuring medium-term solvency.

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    The Government has decided to develop large-scale Investment projects through Public-Private Partnerships using efficiency schemes in the distribution of risks assumed by the State and Private sector. The government will apply good international practices regarding recording of liabilities (NICSP standards). e) Employment and Wage Policy: Employment Policy: Through Legislative Decree the Law to Optimize Public Administration, Improve Public Services to Citizens and Strengthening of Government Transparency was approved. In that sense, the President of the Republic in council of Secretaries of State approved Executive Decree PCM-028-2014 through which he integrated the Commission for the reform of Centralized and Decentralized Public Administration which has among its functions to issue mandatory compliance guidelines and supplementary to said Decree and other legal provisions concerning reduction of public spending on Human Resources. In that sense, the survey of a Human Resource Data Registry of public administration was declared a matter of national interest, creating the Registry and Control System of Servers (SIREP) which has two (2) modules: 1) the Server Registration Module which contemplates relevant fields for the reform process and 2) the Payroll Loading and Validation Module, both important in order to achieve a reliable, uniform and ordered data registry of all human talent in Public Administration. The objective of the registry is to know the number of employees working in public administration, in that sense any registration of new positions or new hiring within Public Administration must be registered in SIREP and follow the procedures stipulated in this system, similarly registrations must continue to be made in the Human Resources Administration System (SIARH) of SIAFI for Administrative personnel of the Central Administration and in the case of Teaching personnel of the Secretariat of Education it must be done through the Teaching Human Resources Administration System (SIARHD). Executive Decree PCM-021-2016 indicates that another objective of SIREP is to order the process of human talent registration which must be reliable, uniform, ordered and relevant, therefore the information contained in SIREP cannot be used for purposes not related to said objective or with strengthening the same. Likewise it is of strict and mandatory compliance that institutions maintain the server registry updated and its different types of validated payrolls in SIREP month by month; for this all institutions must notify the Secretariat of State in the Office of Finance through their human talent units of new entries, increases and decreases of servers; new entries and increases must present evidence of available budget allocation in order to regulate in each public institution. The main objectives in the handling of the Employment Policy are:

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    Stabilize the payroll as a maximum figure at the same levels of employment recorded (number of positions) as of May 2018, with the exception of hiring new military police.

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    The appointment of personnel by contract and by daily wage must comply with the standards established in the annual Budget Law and likewise be validated under the procedure established by SIREP which includes verification of budget availability among other controls.

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    Hiring of natural persons under the category of professional services must be registered in SIREP and validated only if it has budget availability during the validity period of the hiring among other controls. For the purposes of proper formulation in the spending items related to hiring or appointment of personnel the following definitions are proposed:

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    Permanent Personnel (Expense Item 11100) As its name indicates an exclusive spending item for payment of payroll of personnel who hold permanent positions in the different institutions of Public Administration. They are allocations for remuneration to permanent personnel (except salaries for teaching personnel which are classified in line item 112. basic education salaries) who has been appointed in accordance with existing laws and regulations for payment of work performed. It does not include additions for characteristics of the individual employee or circumstances of the position or function (except for seniority).

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    Daily Wages (Expense Item 12200) Item 12200 daily wages will be exclusive for paying personnel whose salary is established per day or per hour and in no case should it be used to pay personnel who perform administrative or technical functions.

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    Special Contracts (Expense Item 12910) This contracting modality shall not exceed 90 days in the fiscal period and has the purpose of providing professional technical services on a personal title and individual character both for institutional strengthening and special projects that complement the proper activity of each institution and obligate monthly payments includes contracting to cover absence of personnel by the enjoyment of acquired rights in accordance with current regulations such as: 1. Maternity 2. Leave due to illness 3. Annual vacation 4. Scholarships of 90 days or less 5. Paid leaves of 90 days or less. Such hiring must have backing that justifies it which can be requested by the regulatory entities in matters of human resources administration.

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    Professional Services Contracts (Expense Item 24000) As established in Article 200 of the Civil Service Law Regulation as part of the current regulations "Professional and Technical Services contracts may be entered into with natural persons when the assigned work cannot be performed by regular or career employees either due to the specialty of the work or for another qualified reason this modality may also be used to recruit qualified personnel required for the execution of special projects. Prior to the signing of contracts it must be proven that the candidates meet the required suitability and capacity requirements for which a copy of the titles diplomas or certificates that correspond must be attached as well as the curriculum vitae with the professional background and necessary experience and their remuneration should be adjusted as much as possible to those of career public servants who perform similar tasks". For the purposes of Budget Formulation they will be allocations for professional services provided by companies professionals and specialists without employment relationship with the institution. Includes legal or recognized fees of experts specialists technicians artists and athletes without employment relationship and consulting and advisory services related to studies research analysis audits computerized systems legal services accounting and audit services training services information technology services studies advice and research such as interpretations of technical economic and social matters; social research statistics scientific technical economic related to engineering or architecture and other professional services of equal nature among others Provided by companies foundations NGOs Includes contracts for professional services provided on a personal basis that do not obligate monthly payments. Professional services also include medical sanitary and social services services to third parties hired for the conduct of studies research and other technical-professional activities to facilitate the operation of the institution or that form part of an investment project. Likewise what is established in Article 94 of the State Contracting Law must be considered which indicates: "A Consulting Contract is one by which a natural or legal person in exchange for a price is obligated to provide specific services to the Administration to the extent and scope that it determines for conducting studies designs advice coordination or technical direction location of works preparation of terms of reference and budgets programming or technical supervision of works or other work of the same nature ..". Therefore personnel who perform support functions shall not be hired under this modality. Wage Policy: In recent years wage policy has been very effective as it has prevented this budget line from generating distortions in the level of fiscal deficit. In that sense wage policy will continue to be consistent with the level of income collection under a program that avoids budget deficits and regulates cash flow. The target for 2019 will be a wage bill of the Central Administration with respect to Gross Domestic Product (Wage Bill/GDP) of 8.1% as the maximum level. Salary increases if any occur will be made respecting as a ceiling the level of inflation recorded at the close of fiscal year 2018. In the cases of institutions that have Work Collective Contracts already negotiated the percentage established in the hiring will be considered; when the Collective Contract is already expired and the negotiation of the economic clause has not been carried out the level of inflation recorded at the close of fiscal year 2018 will be applied. In all hiring salary equality between men and women will be maintained for equal work equal remuneration appealing to Article 128 numeral 3 of the Constitution of the Republic. f) Goods and Services: Spending will grow at a maximum level equivalent to the inflation projected for 2019 (3.9% data provided by BCH) and the following guidelines will be observed:

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    The projection of requirements for goods and services will be based on demands originating from the programs and activities established in the respective operating plans.

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    Every acquisition of goods and services or contracting of works and consultancies must be disclosed in the national system of purchases and contracting "HONDUCOMPRAS".

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    Spending for the following concepts: fuel lubricants minor tools cellular telephony travel allowances and travel expenses rental of premises and vehicles and for ceremony and protocol must be adjusted to the approved allocations and what is established for spending in their Operating Plans.

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    For the Spending Subgroup 24000 Professional Services the corresponding concepts within said spending group must be considered and in accordance with the product to be received.

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    The granting of travel allowances and other overseas travel expenses will be limited and in cases warranting attending unavoidable missions for the Government of the Republic should be limited to two people per institution at the same destination and must be authorized by the President of the Republic or by the Secretary of State in the Office of the Presidency exceptions to the above are trips that do not imply expenses for the State and those whose financing comes from sponsoring organizations.

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    With regard to travel allowances and other travel expenses within the country these are restricted to strictly necessary personnel and the time required for the mission the official authorizing them being responsible for compliance with this provision for purposes of monitoring and control must present together with the POA-Budget a travel plan which must contain the objective of the trip number of employees costs and time of completion among others that are considered essential for its monitoring.

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    Annual Plans for Procurement and Contracting (PACC) must be prepared in a way that there is a relationship and consistency between said plan operational planning (POA) and the budget. g) Procurement and Contracting Guidelines: The reference framework is based on the following principles: efficiency transparency publicity agility promptness free competition equality and equity. To standardize the applicability of these principles the prohibitions and authorizations established by these Budget Policy Guidelines must be observed when preparing the PACC and the following procurement policy guidelines for Public Sector institutions: Formulation of the Annual Procurement and Contracting Plan: 1. Each contracting body must prepare the Annual Plan of Procurement and Contracting (PACC) as established in Art. 5 of the State Contracting Law (LCE). The Plan will be uploaded to the electronic module of HonduCompras and the website of each Institution (if it exists) to ensure that information reaches potential bidders. 2. For the preparation of the PACC what is established in the national and international contracting regulations must be observed depending on the origin of financing and other supplementary laws. 3. For Execution the Budgetary Norms established in the General Provisions of the Budget of the Current Fiscal Year must be observed. 4. The institutions of the State must verify the validity and conditions of the contracts entered into as well as their effective compliance to properly schedule the respective processes or the approval of extensions in accordance with what is established in Art. 122 of the LCE. 5. The existence of products must be verified in order to adjust on a realistic basis the volumes to be purchased and the period in which they will be needed. 6. The dates established for the execution of procurement processes must allow for a buffer of time for contingencies to ensure their timeliness. 7. Fracturing of purchases is prohibited and the minimization of non-competitive processes is urged in the first case to strictly comply with the Law and in general to seek economies of scale. 8. It will be understood that there is intent to fracture purchases when in the PACC purchases of the same good or service have been scheduled to be carried out in consecutive or successive monthly periods and through non-competitive contracting modalities. 9. According to the dates when works goods or services to be contracted are needed institutions may begin procurement and contracting processes with proper advance notice for the purpose of having them available at the beginning of fiscal period 2019. It must be considered that there is budget allocation for fiscal year 2019 if the estimated value of the acquisition or contracting of that fiscal year does not exceed the value of the budget allocation of 2018. 10. The coordination of the preparation execution and modification of the PACC is the responsibility of the Administrative Manager or whoever acts in that capacity and of the highest authority of the institution. 11. Adjust the acquisition of office materials and supplies and other goods to what is strictly necessary for the normal development of work avoiding purchases intended to form inventories of non-critical supplies establishing in the specifications the decentralized and fractioned delivery according to monthly consumption volumes and the location of the different organizational units as appropriate. 12. For the Fiscal Year being formulated (2019) continue

This Executive Agreement shall be executed immediately and must be published in the Official Gazette "La Gaceta". Given in the City of Tegucigalpa municipality of Central District on the 28th day of June of the year two thousand eighteen (2018). COMMUNICATE AND PUBLISH MARTHA VICENTA DOBLADO ANDARA GENERAL COORDINATOR SECRETARY OF GOVERNMENT BY LAW EXECUTIVE AGREEMENT SIGNATURE DELEGATION NO. 023-2018 ROCIO IZABEL TABORA MORALES SECRETARY OF STATE IN THE OFFICE OF FINANCE