Fiscal Responsibility Law

OBJECT.- The purpose of this Law is to establish guidelines for better management of public finances ensuring consistency over time of budgetary policy and to guarantee fiscal consolidation, debt sustainability and poverty reduction with fiscal responsibility, prudence and transparency. FISCAL RESPONSIBILITY: These are the policies and commitments of fiscal discipline and adjustment that aim to prevent discretionary execution of spending and borrowing in order to achieve macroeconomic stability, the security of the Financial System, an increase in private investment and consequently to improve the social conditions of the poorest in a responsible manner.

SCOPE OF APPLICATION.- This Law must be applied to the Non-Financial Public Sector (SPNF). CHAPTER II FISCAL RESPONSIBILITY RULES

MULTI-YEAR FISCAL PERFORMANCE RULES.- The General Budget of Income and Expenditures of the Republic, the Budget Provisions and its other budget annexes, budget modifications and budget execution of the Public Sector, must be subject to the following rules: 1) MACROFISCAL RULES FOR THE NON-FINANCIAL PUBLIC SECTOR (SPNF).

• a)

  For purposes of this Law, an annual ceiling is established for the deficit of the global balance of the Non-Financial Public Sector (SPNF), equal to one percent (1.0%) of the Gross Domestic Product (GDP), which must be applied gradually as follows: - It may not be greater than one point six percent (1.6%) in the year 2016; - It may not be greater than one point five percent (1.5%) in the year 2017; - It may not be greater than one point two percent (1.2%) in the year 2018; and, - It may not be greater than one percent (1%) for the year 2019 onwards. For the determination of compliance with this rule, the nominal Gross Domestic Product (GDP) published in the Medium-Term Fiscal Framework must be used;

• b)

  The annual increase in nominal current spending of the Central Administration cannot be greater than the average annual growth of the real Gross Domestic Product (GDP) of the last ten (10) years plus the projection of inflation preceding the following year. For the determination of compliance with this rule, the inflation projection contained in the Medium-Term Fiscal Framework must be used; and,

• c)

  New floating debt at the close of the fiscal year, as of the approval of this Law, may in no case exceed zero point five percent (0.5%) of the Gross Domestic Product (GDP) in nominal terms. 2) RULES ON TAX EXEMPTIONS In order to maintain the financial balance of the General Budget of Income and Expenditures of the Republic, all draft laws that seek a grant or expansion of tax incentives or benefits resulting in tax cuts, in which, the Drafting Commission of the National Congress must request from the State Department of Finance (SEFIN) the Technical Opinion that contains the estimate of the budgetary and financial impact, during the time of budgetary policy and to guarantee fiscal consolidation, debt sustainability and poverty reduction with fiscal responsibility, prudence and transparency. FISCAL RESPONSIBILITY: These are the policies and commitments of fiscal discipline and adjustment that aim to prevent discretionary execution of spending and borrowing in order to achieve macroeconomic stability, the security of the Financial System, an increase in private investment and consequently to improve the social conditions of the poorest in a responsible manner.

SCOPE OF APPLICATION.- This Law must be applied to the Non-Financial Public Sector (SPNF). CHAPTER II FISCAL RESPONSIBILITY RULES

MULTI-YEAR FISCAL PERFORMANCE RULES.- The General Budget of Income and Expenditures of the Republic, the Budget Provisions and its other budget annexes, budget modifications and budget execution of the Public Sector, must be subject to the following rules: 1) MACROFISCAL RULES FOR THE NON-FINANCIAL PUBLIC SECTOR (SPNF).

• a)

  For purposes of this Law, an annual ceiling is established for the deficit of the global balance of the Non-Financial Public Sector (SPNF), equal to one percent (1.0%) of the Gross Domestic Product (GDP), which must be applied gradually as follows: - It may not be greater than one point six percent (1.6%) in the year 2016; - It may not be greater than one point five percent (1.5%) in the year 2017; - It may not be greater than one point two percent (1.2%) in the year 2018; and, - It may not be greater than one percent (1%) for the year 2019 onwards. For the determination of compliance with this rule, the nominal Gross Domestic Product (GDP) published in the Medium-Term Fiscal Framework must be used;

• b)

  The annual increase in nominal current spending of the Central Administration cannot be greater than the average annual growth of the real Gross Domestic Product (GDP) of the last ten (10) years plus the projection of inflation preceding the following year. For the determination of compliance with this rule, the inflation projection contained in the Medium-Term Fiscal Framework must be used; and,

• c)

  New floating debt at the close of the fiscal year, as of the approval of this Law, may in no case exceed zero point five percent (0.5%) of the Gross Domestic Product (GDP) in nominal terms. 2) RULES ON TAX EXEMPTIONS In order to maintain the financial balance of the General Budget of Income and Expenditures of the Republic, all draft laws that seek a grant or expansion of tax incentives or benefits resulting in tax cuts, in which, the Drafting Commission of the National Congress must request from the State Department of Finance (SEFIN) the Technical Opinion that contains the estimate of the budgetary and financial impact,

EXCEPTION RULES.- This Law must have the following exception rules: 1 Due to national emergency declared, by natural catastrophe that may seriously affect the national economy (defined as damage equal to or greater than the equivalent of one percent (1.0%) of the annual Gross Domestic Product (GDP) and upon prior request of the Executive Branch, the National Congress must suspend, for a maximum of two (2) years, the application of any of the rules indicated in Article 3 of this Law; for such purpose, the Executive Branch must establish in its request for exception the following: a) The numerical limits of fiscal deficit and maximum current spending to be applied in the referred period in relation to those established in the macrofiscal rules indicated in numeral 1) of subsection a) and b) of Article 3 of this Law. These limits must be authorized by the National Congress of the Republic in the law that for such purpose must be issued; and, b) The actions conducive to compliance with the macrofiscal rule indicated in numeral 1) of subsection a) of Article 3 of this Law. 2) In case the economy is going through an economic recession, defined as the fall in real Gross Domestic Product (GDP) for two (2) consecutive quarters and with prior joint report of the Central Bank of Honduras (BCH) and the State Department of Finance (SEFIN), compliance with the provisions of the macrofiscal rule indicated in Article 3 numeral 1) subsection a) for the corresponding year is not mandatory, without in any case the deficit being able to exceed two point five percent (2.5%) of the Gross Domestic Product (GDP). This exception can be maintained in effect for a maximum period of two (2) consecutive years, while there is conclusive evidence that the real Gross Domestic Product (GDP) remains below the level prior to the real Gross Domestic Product (GDP) that motivated the exception; and, 3) In the cases established in the exception rules contained in this Article 4 numeral 1) subsections a) and b) preceding, the fiscal deficit of the following years must be reduced annually by at least zero point five percent (0.5%), of the Gross Domestic Product (GDP) until reaching the limit established in the analytical rule indicated in Article 3 numeral 1) subsection a) of this Law. CHAPTER III FISCAL TRANSPARENCY

MEDIUM-TERM FISCAL FRAMEWORK (MMFMP).- The Medium-Term Fiscal Framework is a dynamic management tool that guides the making of strategic decisions on fiscal policy. This must include multi-year fiscal projections of income, spending and financing, which express indicative global facts of such variables; this tool must be kept updated annually, with a fiscal projection of four (4) years and must comprise, at a minimum:

• 1)

  The declaration of fiscal policy principles, subscribed by the State Department of Finance (SEFIN), in which the guidelines of economic policy and the objectives of medium-term fiscal policy must be presented, including policy measures and estimated results of the policy Central Administration, of Local Governments, of other entities of the General Government, of Public Enterprises and of the Non-Financial Public Sector. The estimates of financing of the Non-Financial Public Sector (SPNF) and its components during the period of validity of the Framework must also be presented;

• 2)

  The targets of fiscal policy to be achieved within the following four (4) years, which must respect what is provided in Articles 2, 3, 5, 7 and 11 of this Law; and, 3) The provisions for the next four (4) consecutive or subsequent years, corresponding to:

  • a)

    The main macroeconomic variables, among which the following must be included mandatorily: nominal Gross Domestic Product (GDP), real Gross Domestic Product (GDP) growth, average inflation and end of period, exports and imports of goods, provided by the Central Bank of Honduras (BCH);

  • b)

    The projections of income and fiscal spending of the Non-Financial Public Sector (SPNF). The spending report must include an economic classification of spending;

  • c)

    The medium-term public investment plan, with its respective amounts and sources of financing;

  • d)

    A quantification of tax expenditures for the four (4) years under analysis and its projection of income by expiration;

  • e)

    The level of public debt derived from the budget in the medium term considered, including any guarantee of entities of the Non-Financial Public Sector (SPNF) and a projection of the debt payment profile of short and long term;

  • f)

    The indicators that evaluate the sustainability of public debt in the medium and long term;

  • g)

    Evaluation of compliance with the targets of the previous year; and,

  • h)

    Annex of Fiscal Risks; evaluation of contingent liabilities and other risks for the year and their respective mitigation plans.

An Inter-Institutional Committee is created comprised of the State Department of Finance (SEFIN), State Department of General Government Coordination (SCGG) and the Central Bank of Honduras (BCH), for the preparation and implementation of the Medium-Term Fiscal Framework.

APPROVAL AND PUBLICATION OF THE MEDIUM-TERM FISCAL FRAMEWORK.- The State Department of Finance (SEFIN), must submit to the Central Bank of Honduras (BCH), no later than April 15 of each year, the draft Medium-Term Fiscal Framework, so that it may issue, within the following ten (10) calendar days, technical opinion on such Framework and its compatibility with the provisions of balance of payments and international reserves and with its monetary policy. For such purpose the Central Bank of Honduras (BCH) must submit the indicators of the close of the previous year no later than February 15 of each year to the State Department of Finance (SEFIN).

The Medium-Term Fiscal Framework must be approved by the President of the Republic in Cabinet, the last business day of the month of April of each year and must be published in full, together with the Report of the Central Bank of Honduras (BCH) referred to in the preceding paragraph, within the following two (2) business days in the electronic media available to it and must be sent for corresponding publication in the Official Gazette "La Gaceta".

The President of the Republic in Cabinet may, at the request of the State Department of Finance (SEFIN) and with the prior technical opinion of the Central Bank of Honduras (BCH), modify the Medium-Term Fiscal Framework, in which case he must issue a complementary document justifying the modifications to the Medium-Term Fiscal Framework approved in the month of April. In this review, the Executive Branch cannot increase the limits on deficit or non-financial spending referred to in Article 3 of this Law, except in the cases provided for in Article 4 of the same rule. The modifications to the Medium-Term Fiscal Framework must be approved and published following the procedure established in the preceding Article.

The Executive Branch must meet on the date mandated by the Constitution of the Republic no later than September 15 of each year with the National Congress, the Medium-Term Fiscal Framework, together with the Draft Law of the Budget of Income and Expenditures of the Republic, which must be consistent with such Framework.

MEDIUM-TERM FISCAL FRAMEWORK.- The State Department of Finance (SEFIN), must publish each year the Medium-Term Fiscal Framework. This must include the macroeconomic projections, comprising all the assumptions on which they are based, which must be in four (4) years, the year for which the budget is being prepared and the following three (3) years.

CORRECTIVE MEASURES.- Once the General Budget of Income and Expenditures of the Republic is approved, the State Department of Finance (SEFIN), must effect the quarterly breakdown of the income and spending corresponding to the total of public entities under the scope of the said Law.

DECLARATION ON COMPLIANCE WITH FISCAL RESPONSIBILITY.- Before June 30 of each year, the State Department of Finance (SEFIN), must submit to the National Congress of the Republic and must publish a Declaration on Compliance with Fiscal Responsibility of the previous year, in which it must evaluate the income, the spending, the fiscal result and its financing and the other macroeconomic targets established in the Medium-Term Fiscal Framework of the corresponding year. In case there are significant deviations between what was approved in the Medium-Term Fiscal Framework and the results of the year, it must justify the differences and the corrective measures adopted.

Within sixty (60) calendar days following the conclusion of each semester of the year, the Secretary of State in the Office of Finance (SEFIN) must publish a report on the degree of progress in relation to the goals set forth in the Medium-Term Macro Fiscal Framework, with emphasis on compliance with said goals and the rules established in Article 3 of this Law. In the event that the comparison between the goals of the Medium-Term Macro Fiscal Framework and semi-annual execution presents a deviation between what was programmed in the fiscal goals and what was executed, the report must contain the corresponding explanations and the corrective measures to be adopted, with the prior approval of the Council of Ministers at the proposal of the Inter-institutional Committee created in Article 6 of this Law.

REGISTRATION IN THE REGISTRY OF EXEMPTED PARTIES.- To enjoy exemptions, exonerations and customs franchises, all legal entities must register annually in the Registry of Exempted Parties in the Secretary of State in the Office of Finance (SEFIN). Once legal entities are registered, the General Directorate of Customs Franchises Control (DGCFA) must maintain the records and update them annually. The Secretary of State in the Office of Finance (SEFIN) is empowered to, in the event of recurrence of failure to register for two (2) consecutive or alternate years in said Registry, proceed immediately to notify the institutions that administer special regimes and the tax administration for the cancellation of the beneficiary's status. The institutions that administer the regimes must be directly responsible for carrying out such cancellations, in which case, if after fifteen (15) business days have elapsed for the same and the cancellation has not been completed and the beneficiary and the Secretary of State in the Office of Finance (SEFIN) have not been notified, the public servant responsible for the omission must be directly liable, being sanctioned in accordance with the applicable legal framework.

DEADLINE FOR REGISTRATION IN THE REGISTRY OF EXEMPTED PARTIES.- Legal entities must register in the Registry of Exempted Parties administered by the Secretary of State in the Office of Finance (SEFIN), no later than ninety (90) days from the publication of the Regulations of this Law in the Official Gazette "La Gaceta". The failure to submit the registration application within said deadline must be considered as the first non-compliance indicated in the preceding Article.

NON-SIMULTANEITY OF TAX BENEFITS.- In accordance with the provisions set forth in Decree No. 113-2011 dated June 24, Two Thousand Eleven, containing the Law on Efficiency in Public Income and Expenditure, any legal entity cannot enjoy more than one tax benefit covered by a Special Law that contains provisions of a tax nature. Legal entities that are enjoying more than one tax benefit prior to the date of effectiveness of this Law must choose the tax benefit they wish to enjoy from said date, proceeding immediately to registration in the corresponding registry of exonerations. The Secretary of State in the Office of Finance (SEFIN), once the registration described above is completed, must proceed to notify the institutions that manage, administer and verify the operations of the beneficiaries and the tax administration.

TAX EXEMPTIONS AND EXONERATIONS.- The Secretary of State in the Office of Finance (SEFIN), starting from the Office of Finance (SEFIN), from the 2017 fiscal period, must annually begin with the publication of exemptions and exonerations on the web portal, corresponding to the previous fiscal period. Such publication must contain at a minimum the following information:

• 1)

  Special Regime and/or Economic Sector;

• 2)

  Authorizing Law;

• 3)

  Exonerated Tax (type and amount);

• 4)

  Number of Beneficiaries;

• 5)

  Jobs Generated (direct and indirect);

• 6)

  Projects;

• 7)

  Amount of Capital Investment; and, 8) Exports (in applicable cases).

SYSTEMATIZATION.- The Secretary of State in the Office of Finance (SEFIN), governing body of the Single Window, created by Executive Decree PCM-052-2013 dated November 5, 2013, is instructed to implement a system based on Information Technologies so that through these, it executes the online systematization of the procedures for the authorization of exemptions, exonerations and customs franchises. Said platform must be linked to the Tax Administration for the shared use and exchange of information in real time; likewise, it must be mandatory for the following to be incorporated: Secretaries of State in the Offices of: Economic Development, Agriculture and Livestock, Energy, Natural Resources, Environment and Mines and Development and Social Inclusion, Honduran Tourism Institute, the Touristic Free Zone of the Bay Islands, Property Institute, National Electric Power Company and any other State entity that is linked or related to the corresponding authorization.

SWORN STATEMENT OF FISCAL SACRIFICE.- The Tax Administration is instructed to, within the mandatory deadline of ten (10) business days, enable the Declaration of Fiscal Sacrifice contained in Article 34 of Decree No. 113-2011 dated June 24, Two Thousand Eleven and published on July 08, Two Thousand Eleven of the Law on Efficiency in Public Income and Expenditure. The beneficiaries described in Article 17 of this Law have the formal obligation to submit said statement by May 30 of each year starting in 2017.

CRITERIA FOR INTERPRETATION.- Every legal provision, present and future, relating to the organization, functioning, administration and execution of resources or any other matter referred to any entity of the Non-Financial Public Sector (SPNF) must be adjusted to this Law, it being understood that everything approved beyond what is regulated herein must be understood as subject to this Law.

PROHIBITIONS.- It is expressly prohibited: 1) The creation of expenses that are not included in the General Budget or are not subject to the general rules of budget execution; and, 2) The approval of any legal or administrative rule that interferes with the correct execution of the Medium-Term Macro Fiscal Framework and in particular, with the fiscal rules indicated in Article 3 of this Law. Credits cannot be negotiated with institutions, markets or formal financial institutions that use as collateral patrimonial guarantees, disposals or conditions among other rights and fiscal decisions, such as national reserves and natural resources.

TRANSPARENCY IN PUBLIC FINANCE INFORMATION.- The Secretary of State in the Office of Finance (SEFIN) must publish quarterly, through electronic means, information on income, expenses and financing of the Central Administration, General Government and Non-Financial Public Sector (SPNF), forty-five (45) days after the end of each month. The Central Bank of Honduras (BCH) must provide the Secretary of State in the Office of Finance (SEFIN) with the information that is required for compliance with this Article no later than twenty (20) days after the end of each month. The institutions of the Non-Financial Public Sector (SPNF) have the obligation to attend the calls for public hearings for the fulfillment of the performance of this Law when so called by the Budget Commission or any body within the National Congress. CHAPTER IV TEMPORARY AND FINAL PROVISIONS

For the purposes of incorporating the information of the Municipalities in the fiscal balance of the Non-Financial Public Sector (SPNF), the same must be done gradually until completing one hundred percent (100%) in the year 2019 as follows: For municipalities Category A and B in the year 2018 and for municipalities Categories C and D in the year 2019 using the system defined by the Secretary of State in the Office of Finance (SEFIN) for the management of public finances of the municipalities.

The Secretary of State in the Office of Finance (SEFIN) through the Fiscal Contingencies Unit (UCF) must be in charge of identifying, assessing and evaluating fiscal risks within a period of three (3) years, after which it must publish a report of said risks using the mitigation plans for the same.

All trusts financed with public resources created until the promulgation of this Law and new ones must be managed within the General Budget of Income and Expenditure of the Republic without the purpose of said trusts being affected.

The Secretary of State in the Office of Finance (SEFIN) must be responsible for monitoring compliance with this Law.

The Secretary of State in the Office of Finance (SEFIN) must issue the regulatory provisions that are necessary for the application of this Law, within a period not to exceed ninety (90) calendar days, which must contain the definitions that must be used for the application of this Law.

This Decree shall enter into force as of the day of its publication in the Official Gazette "La Gaceta". Done in the City of Tegucigalpa, municipality of the Central District, in the Hall of Sessions of the National Congress, on the seventh day of the month of April of two thousand sixteen. Executive Power EXECUTIVE DECREE NUMBER PCM-020-2016 THE PRESIDENT OF THE REPUBLIC IN COUNCIL OF STATE SECRETARIES, CONSIDERING: That in accordance with Article 245 numeral 2 of the Constitution of the Republic, it is the responsibility of the President of the Republic to direct the general policy of the State and represent it. CONSIDERING: That it is an attribution of the President of the Republic, as established by Article 245 of the Constitution of the Republic, to administer public finances, to enact extraordinary measures in economic and financial matters when the national interest so requires, to direct the economic and financial policy of the State, to create and maintain public services and to take the necessary measures for their proper functioning. CONSIDERING: That in accordance with Article 11 of the General Law of Public Administration, the President of the Republic has under his charge the supreme direction and coordination of centralized and decentralized public administration, being able in the exercise of his functions to act through the Council of Ministers. CONSIDERING: That the Law for the Establishment of a Vision of Country and the adoption of a Plan of Nation for Honduras, recognizes and establishes clearly and expressly the need to strengthen the institutions of the Public Sector, making investments in Technology, the creation of Information Systems and the training of qualified Human Resources. CONSIDERING: That the National University of Agriculture (UNA), is a Higher Education institution