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Haiti: Request for a Three-Year Arrangement Under the Poverty Reduction and Growth Facility-Staff Report; Staff Press Release on the Executive Board Discussion; and Statement by the Executive Director for Haiti

Author(s):
International Monetary Fund
Published Date:
December 2006
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I. Background

1. Decline. Real income per capita has been declining by 2 percent annually over the past twenty years, with more that one half of the population now subsisting on less than one dollar a day. The proximate causes have been political and economic instability, with the macroeconomic impact of protracted political conflict, withdrawal of economic support, natural disasters, and weak infrastructure and institutions quite severe.

2. Stabilization. Since mid-2004, important progress has been made toward stabilizing the economy and improving governance and transparency in public sector operations. The Fund has supported Haiti by providing policy advice and financial assistance, initially in the context of a six-month staff monitored program (SMP), and subsequently with two consecutive annual programs with the Fund’s Emergency Post-Conflict Assistance. The programs’ key objectives were to restore macroeconomic stability and create conditions for economic growth.

3. A new start. After years of political deadlock following the disputed 2000 parliamentary elections and a two-year period of political transition, Haiti held successful presidential and parliamentary elections in February and April 2006; local and municipal elections are scheduled for December 2006. This offers the hope of boosting private sector confidence and investment, and re-energizing donor support for the hemisphere’s poorest country.

4. PRGF. In the attached Letter of Intent (LOI), the authorities request a new PRGF arrangement in support of their three-year economic program. The proposed program will provide a macroeconomic framework for the authorities’ poverty reduction strategy and for needed accompanying international assistance.

II. Economic and Policy Performance

5. Macroeconomic performance. Considering the starting point, Haiti’s performance under the SMP and the EPCA-supported programs has been very strong (Box 1). Policies implemented since mid-2004 helped restart economic growth, reestablish fiscal discipline, reduce inflation, and increase international reserves.

  • Economic activity. In FY2006, which ended last September, real GDP is estimated to have risen by 2½ percent, helped by macroeconomic stability, international economic assistance, and exports. This is an improvement over growth of 1¾ percent in the previous year, and comes despite the volatile security and political situation in an election year.
  • Fiscal performance. One of the key achievements under the EPCA-supported programs was the elimination of central bank financing of budget deficits, for the first time since 1999. This was brought about by a significant improvement in the government revenue effort and spending discipline. In the first half of FY2006, some expenditure overruns (mostly electricity-related transfers) pushed central bank financing of the budget slightly above target. Subsequently, the new authorities amended the budget to contain expenditures while revenue performance was significantly above expectations.
  • Money and inflation. The central bank’s policies aimed at reducing inflation, which had averaged 27 percent during 2003–04. Fiscal adjustment facilitated a strong reduction in base money growth and, combined with nominal exchange rate appreciation, contributed to a halving of inflation to about 12 percent by end-FY 2006 (Table 4). With inflation down, real interest rates on BRH bonds have reached five percent.
  • Remittances and external sector. The external current account, including grants, is estimated to have been broadly in balance in FY2006. After three years of rapid expansion, export growth slowed, but private remittances exceeded US$1 billion (21 percent of GDP), more than double the amount of international aid. Donor disbursements and foreign direct investment in the telecom sector also contributed to a balance of payments surplus and a moderate build-up of gross international reserves (to 1.8 months of imports). Thus, by August 2006, the gourde had appreciated in real effective terms to about 8 percentage points above its 1999 peak (Table 5).
  • Banking sector problems. Since June 2005, two banks, accounting for 11 percent of banking assets, have lost about a third of their deposits. In order to stabilize the situation, the BRH has acquired a majority stake in the larger bank, and injected about US$43 million (1 percent of GDP), mostly in liquidity support. The smaller bank has been sold to a large local bank.
  • Electricity sector. The performance of this sector, significant to both the economy and the budget, remains weak. Over the past six years, central government transfers to EDH, the electricity parastatal, have increased to 1.3 percent of GDP, or 9 percent of total government expenditure. During FY 2006, with rising international petroleum prices electricity production in Port-au-Prince declined by about a third, while fiscal transfers remained broadly unchanged. The government also provides guarantees to the EDH to facilitate its purchases of fuel.

Box 1.Haiti: Track Record of Policy Implementation, 2004–06

Overall, Haiti’s track record of macroeconomic stabilization and structural reforms since mid-2004 has been favorable. This track record has been established under the two comprehensive EPCA-supported programs (October 2004–September 2006), as well as under a Staff Monitored Program (April–September 2004).

Macroeconomic performance has improved during 2004–06. The economy has gradually recovered from the political turmoil and severe floods experienced in 2004, and GDP growth is estimated at 2.5 percent in FY2006. With increased revenues and tightened spending, the central government overall deficit (including grants) was reduced from 3.5 percent of GDP in FY2003 to a projected 1.5 percent in FY2006. This substantial adjustment has eliminated recourse to central bank financing of the central government deficit, and helped reduce end-of-period nflation from 38 percent in FY2003 to a projected 12 percent in FY2006. Net international reserves (NIR) have increased, raising import coverage from 1.2 months of imports of goods and services in FY2003 to a projected 1.8 months in FY2006. Preliminary data suggest that key end-September quantitative targets were observed.

Selected Economic and Financial Indicators(Fiscal Year Ending September 30)
2003200420052006
Proj.
(Annual percentage change, unless otherwise indicated)
GDP at constant prices0.4−3.51.82.5
Consumer prices (end-of-period)37.821.714.812.4
(In percent of GDP)
Central government overall balance (including grants)−3.5−2.4−0.7−1.4
Central bank net credit to the central government3.12.00.0−0.2
(In millions of U.S. dollars, unless otherwise indicated)
Net international reserves (program definitions)38.854.570.6125.0
Liquid gross reserves157.1207.4228.5330.2
In months of imports of the following year1.21.41.41.8

Key structural and economic governance reforms have been implemented. Regarding public financial management, key achievements included (i) approval of budgets before the start of fiscal year and their publication in the official journal; (ii) publication of information on budget execution on a monthly basis; (iii) limiting of discretionary spending through ministerial current accounts to below 10 percent of budget non-wage credits; and (iv) civil service employment verification based on attendance lists and elimination of ghost workers. To improve revenue collection, (i) information is being collected on all taxpayers in a computerized central taxpayer file; (ii) a computerized data collection system is being installed in five provincial ports; and (iii) a flexible price-setting mechanism for petroleum products has continued to be implemented, despite public pressures for price control. Financial audits of APN, TELECO, and EDH and an accounting rehabilitation of TELECO and EDH were completed. In the monetary and financial sector, (i) the external audit of the BRH accounts for FY2004 was completed and the report was published; and (ii) surveillance of cooperatives has been strengthened, including by expanding on-site inspections.

Some outstanding measures will need to be addressed during FY2007: (i) a survey of domestic payments arrears of the central government has been completed but not yet verified, and a strategy to address them has not been formulated; (ii) a mechanism for monitoring budgetary transfers to the electricity sector has been established but is not yet effective, and an independent audit of transfers has not taken place; and (iii) the audit of the Treasury accounts for FY2004 has not been completed.

Inflation and Money Growth

6. Structural reforms. Key reforms implemented under the EPCA-supported programs included:

  • Approval of budgets before the start of the fiscal year, and publication of information on their execution.
  • Passage of a new Organic Budget law and adoption of a new budget classification and chart of accounts, and preparation of the 2006 draft budget under new procedures.
  • Reduction in the use of ministerial current accounts, to below 10 percent of nonwage current expenditure credits.
  • Accounting rehabilitation and financial audits of key public sector enterprises.
  • Audits and publication of financial statements of the BRH

Other reforms, some which have not yet been fully completed, partly due to capacity constraints and the changing security situation, include the establishment of a monitoring mechanism for budgetary transfers to the electricity sector, and a survey of domestic payments arrears.

7. External assistance. Haiti’s economic and social recovery efforts have received broad international support. In July 2004, donors pledged US$1.2 billion for a two year period, and a further US$180 million in response to natural disasters, for humanitarian assistance, for elections, and to boost security. According to staff estimates, some US$960 million has been disbursed so far, of which about 20 percent has been as budget support. At the July 25, 2006 conference, donors pledged new assistance of US$750 million (16 percent of GDP) for the next fiscal year, mostly in the form of project aid.

III. The 2007–09 Program

8. Goals. The main objective of the PRGF is to set the country on a path to economic growth, rising living standards, and lower poverty. The authorities have identified infrastructure and energy, education, health, and security as priority areas. The PRGF-supported program is based on the strategy the authorities present in their I-PRSP.

9. Macroeconomic framework. The authorities’ macroeconomic goals for 2007–09 include higher per capita growth, lower inflation, and increased Haiti’s international reserves.

Selected Economic and Financial Indicators(Fiscal Year Ending September 30)
20052006200720082009
Prel.Proj.Proj.Proj.
(Annual percentage change, unless otherwise indicated)
GDP at constant prices1.82.54.04.04.0
Consumer prices (end-of-period)14.812.49.08.07.0
(In percent of GDP)
Central government overall balance (including grants)−0.7−1.4−1.9−2.9−2.9
Central bank net credit to the central government0.0−0.20.00.00.0
(In millions of U.S. dollars, unless otherwise indicated)
Net international reserves (program definition)71126156206266
Liquid gross reserves229331401494599
In months of imports of the following year1.41.82.02.32.6

Sources: Ministry of Economy and Finance; Bank of the Republic of Haiti; and Fund estimates.

Sources: Ministry of Economy and Finance; Bank of the Republic of Haiti; and Fund estimates.

  • Growth. The medium-term GDP growth objective is conservatively set at 4 percent, a rate similar to that achieved during past periods of stability, but lower than in many other countries emerging from conflict (Box 2). Growth is expected to pick up in agriculture, assembly exports, and tourism, boosted by public and private investment, sustained efforts to improve governance, strengthen institutional capacity and human capital creation, and higher and more effective social spending.
  • Inflation. The authorities’ objective is to reduce inflation to around 6 percent by FY2009, slightly below the average performance in post-conflict countries.
  • Balance of payments. The external current account deficit (excluding external grants) would stabilize at about 7–8 percent of GDP, while external grants would remain broadly unchanged and private remittances would continue to increase moderately. Donor support is expected to be largely in the form of grants, and increased foreign direct investment would reflect new investment opportunities.
  • International reserves. Gross official reserves would rise to about US$600 million, covering about 2½ months of imports by end-September 2009.

Box 2.Haiti: Growth, Poverty, and Millennium Development Goals

Over the past 40 years, Haiti’s per capita real GDP has declined by 30 percent, reflecting several episodes of political instability. Following high growth in the 1970s (annual average of about 5 percent), fueled by investment in the assembly industries and tourism, Haiti has experienced a persistent decline of per capita real GDP. However, poverty has not significantly worsened over the past 15 years, possibly due to increased remittances from abroad. At present, half of the population lives on less than one dollar a day, and three quarters on less than two dollars a day.

Per capita real GDP growth, 1965–2006

Over the long term, real output growth could increase to 4–4.5 percent, assuming improved security conditions, sustained political and macroeconomic stability, progress on economic governance, and improvements in social and economic infrastructure. For example, as infrastructure constraints, such as poor road conditions and low storage capacity, are gradually removed, agricultural production and exports could pick up. Assembly industries could benefit from the HOPE Act, which would extend preferential access to the U.S. market. However, these industries at present face a shortfall of skilled labor and high production costs. Improvements in hotel infrastructure would create favorable conditions for the tourism industry, which could initially cater to the large Haitian diaspora and later to broader international market. Even so, Haiti’s growth is likely to be insufficient for reaching the Millennium Development Goal of eradicating extreme poverty by 2015.

Average Real GDP Growth (in percent)
1995-20002001-042005-062007-11
Haiti3.8−1.12.24.0
Low income countries3.54.95.75.5
PRGF countries5.47.57.46.1
Post-conflict countries3.65.25.95.5
Progress toward the Millennium Development Goals
Target by 2015Current situationOutlook
Goals and quantitative targets within reach
Goal 2: Achieve Universal Primary Education
Net primary enrollment ratio (age 6–12)100%55%Possible with sustained external support
Goal 3: Promote Gender Equality and Empower Women
Ratio of girls to boys in primary and secondary schooling100%>100%Achieved in schooling, rest of society still not there
Goal 6: Combat HIV/AIDS, Malaria, and Other Diseases
HIV prevalence (ages 15–49)halt and reverse3.8%Possible, with sustained external support
Goals and quantitative targets unlikely to be achieved
Goal 1: Eradicate Extreme Poverty and Hunger
Population below US $1 a day27%54%Not likely, GDP per capita would need to grow 3.5% annually 1
Goal 4: Reduce Child Mortality
Under-five mortality rate (per 1,000)50117Not likely with current trends
Goal 5: Improve Maternal Health
Maternal mortality ratio (per 100,000 live births)250680Very unlikely due to severe lack of obstetricians
Goal 7: Ensure environmental sustainability
Forest area (share of total land area)reverse losses3.8%Difficult, trend in last decade is negative, and policies are weak

Source: World Bank data; and the UNDP report “A Common Vision for Sustainable Development,” available at www.ht.undp.org/OMD/

It is estimated that the poverty rate declines by two percent for each one percent increase in average per capita income, holding constant the distribution of income, in accordance with the UNDP Human Development Report 2003.

Source: World Bank data; and the UNDP report “A Common Vision for Sustainable Development,” available at www.ht.undp.org/OMD/

It is estimated that the poverty rate declines by two percent for each one percent increase in average per capita income, holding constant the distribution of income, in accordance with the UNDP Human Development Report 2003.

10. Fiscal strategy. The authorities’ medium-term fiscal strategy boosts revenues and enhances budgetary management, to allow for more poverty-reducing spending and investment, and institutional development of central and local governments (MEFP ¶12, 14–15). The authorities’ poverty reduction strategy is discussed in greater depth in the I-PRSP and the accompanying HIPC discussion point document. The aim is to reform comprehensively the procedures for budget preparation and execution, and establish a three-year framework for budget projections, consistent with medium-term poverty-reducing expenditures.

  • Revenues. Direct and indirect tax revenues will be gradually increased to raise yields closer to levels in other low-income countries. The authorities’ strategy will initially focus on establishing effective customs control through ports of entry other than Port-au-Prince, and a comprehensive reform plan for revenue administration will be prepared later (MEFP ¶11–12).
  • Expenditure policy. Government expenditure will be re-oriented from transfers and subsidies to public sector enterprises toward spending in key areas such as health, education, and security. The public investment program will center on the supporting infrastructure and will be coordinated with external donor assistance (MEFP ¶11, 14).
  • PetroCaribe. The resources from the agreement with Venezuela will be used transparently and exclusively to boost public investment and social projects (MEFP ¶11).

11. Financial sector reforms (MEFP ¶17–19). The authorities’ program will modernize markets for instruments of monetary control, and strengthen the central bank by addressing its losses and modernizing the banking law. In parallel, the central bank will divest its stake in the telecom company and other non-core operations. The financial sector reform strategy will be further developed after the FSAP in early 2007.

12. Other structural reforms and poverty reduction. The reform program will also focus on improving public financial management, public enterprise restructuring and strengthening transparency of public sector operations.

  • Public financial management. The authorities’ action plan focuses on strengthening: (i) management of government financial operations and public debt; (ii) the expenditure approval process to further reduce the use of ministerial current accounts; (iii) reporting of fiscal data to track specific expenditures, especially those that reduce poverty; (iv) the capacity to execute public investment activities; and (v) clearing the outstanding domestic payments arrears (MEFP ¶14–15).
  • Transparency of public sector operations. Audits of the central government accounts and the BRH will be completed as prescribed by the law, and the results subsequently published. Financial and management audits of key public sector enterprises will be completed this fiscal year, and there are steps to reform the electricity sector (MEFP ¶21).
  • Electricity sector. The authorities are finalizing the monitoring mechanism for transfers to the electricity sector (prior action) and competitive procedures for setting contracts for electricity production are now in place A strategy to increase electricity supply, and to increase revenues of EDH will be developed and implemented with the support of the IDB and the World Bank (MEFP ¶20).
  • Poverty reduction. Increased budgetary expenditure on education and health will be targeted to primarily benefit the poor, to improve the quality and access to the education system (e.g., more teacher training and broader access to elementary schools), and to improve access to health services (e.g., more health units and essential medication at the commune level, and introducing free access to health services for the poorest Haitians). (MEFP ¶13–14)

A. Program for FY 2007

13. Key targets. The macroeconomic framework for FY 2007 targets real GDP growth of 4 percent, inflation of 9 percent or less, and an increase in gross international reserves to nearly two months of imports by end-September 2007.

14. Budget. The fiscal strategy aims at balancing the need to avoid domestic financing while providing adequate resources for investment and poverty reduction (MEFP 11–13). In view of the risks ahead and uncertainties regarding disbursement of donor assistance, the authorities’ budget has conservative revenue assumptions. Accordingly, to strengthen revenue performance, the authorities will build on tax administration improvements, measures to combat tax evasion, and better customs enforcement. Total central government expenditure is budgeted to increase by 2½ percent of GDP, owing mostly to higher public investment, and the central government budget deficit (excluding grants) will be fully financed by external assistance. Current expenditure will expand to allow for an increase in government real wages, in part to compensate for past inflation, and new hiring for security and social services. The budget also provides 0.2 percent of GDP for a social needs program, including small investment projects in all 140 communes of Haiti, indemnity to workers laid off outside of the regular process, and payments of recently-identified wage arrears.

15. Monetary program (MEFP ¶16–17). The authorities aim to hold inflation below 9 percent in FY2007, which, given the inertia (inflation declined only moderately in the absence of central bank financing of budget deficits), is ambitious. In order to reduce inflationary expectations, the BRH will keep base money growth (indicative target) below the growth rate of nominal GDP, with net international reserves accumulation as the main source of monetary expansion. In addition, the central bank will keep its key policy interest rate (90-day bonds) positive in real terms. The BRH will enhance its mechanisms of monetary control by extending participation in the auctions to non-banking institutions, and by improving the auction mechanism for its bonds, as at present both volumes and prices are being set. The authorities have confirmed their commitment to maintain a flexible exchange rate regime. It may be noted that Haiti maintains a highly open trade regime and a capital account without significant exchange restrictions.

16. Banking issues. Since the central bank’s takeover of the larger troubled bank, its financial condition has broadly stabilized. The authorities agreed that the strategy should include an independent assessment of the financial condition of the troubled bank. They are finalizing a resolution strategy and contingency plan for this bank and plan to divest its control through a sale or merger after its management and finances are strengthened. The BRH pointed out that its handling of the bank was hampered by the legal constraints and stressed that in Haiti’s circumstances the least risky approach was of negotiated acquisition and recapitalization. The BRH agreed that the issue of conflict of interest (acting as owner and supervisor) created by its acquisition of the troubled bank should be resolved as soon as possible, in line with the resolution strategy. The authorities will also seek a thorough independent evaluation of all remaining banks, perhaps with the assistance of foreign expert examiners.

IV. Program Financing

17. External financing requirements. Haiti’s requirements are expected to remain substantial, but the already identified assistance appears adequate to close the gap over the first year of the program. Although gross financing is US$184 million, net cash support, after debt service payments, is estimated to be only US$73 million, including the Fund (Table 10). The European Union is expected to provide about half of this, and the Fund and bilateral creditors to provide the remaining half. Future financing requirements will be addressed at a donor’s conference in 2008.

External Financing, 2007

Fiscal year ending September 30, in millions of US dollars
Total External Financing184.1
PRGF Arrangement53.4
Repayment of EPCA−30.6
Prospective Debt Rescheduling (including Paris Club)47.1
Budget Support100.9
IDB29.9
WB10.0
US10.0
EU37.8
France3.8
Spain7.6
Belgium1.9
Possible HIPC Debt Relief13.3
  • Multilaterals. Total program disbursements from multilateral institutions are projected at US$119 million, with the Fund, the IDB (largely from PBL Financial Sector Loans), and the European Union being the largest providers of new financing.
  • Paris Club rescheduling. Paris Club creditors expressed their willingness to provide debt relief to Haiti, after reaching the decision point. About US$46 million in arrears under an informal payment deferral during the EPCA-supported programs would be also rescheduled.
  • HIPC. Once approved, interim assistance would start at the decision point, and is now estimated at US$13.3 million, including from Paris Club creditors.

V. External Inflows and Macroeconomic Stability

18. Aid inflows and absorption. In FY 2007, private remittances are projected at US$1.1 billion and donor assistance at US$0.6 billion, together equivalent to 28 percent of GDP. Most of these inflows will be offset by imports and a build-up in the banking system’s foreign assets. Private remittances are the main source of import financing and resident foreign currency deposits. The domestic impact of external inflows is attenuated by several factors. For example, consistent with prudential regulations, only half of these deposits may be lent domestically, 31 percent must be held as required reserves at the central bank, and the remainder must be placed in foreign assets. More than 80 percent of foreign aid is project loans and grants financing imports, while budgetary assistance is generally used to cover official debt service and government imports. Nevertheless, these inflows may have contributed to appreciation of the real exchange rate which is currently at an all-time high, but does not yet appear to have had a significant negative impact on the tradables sector. In recent years Haiti’s exports have gained market share relative to that of competitors.

Real Effective Exchange Rates

19. Aid coordination. The authorities are keen to improve aid coordination, to increase the accountability of donors and improve the predictability of aid and its effectiveness. Toward this end, the headline public investment budget includes the total amount of resources committed by donors for the next fiscal year, including for projects and social services delivered through NGOs. However, staff expects that, in line with past experience, less than half of this amount will be disbursed in FY 2007.

VI. Program Risks

20. Dimensions of risk. Although the track record established under the SMP and EPCA-supported program and the authorities’ commitment to prudent macroeconomic policies are a good basis for program implementation, important risks remain. Indeed, the new government’s ability to implement a multi-faceted development program will be tested when implementing its legislative agenda, dealing with severe administrative capacity constraints, political pressures, and variability of external assistance.

  • Security. Slow progress in addressing the most pressing social and economic problems could lead to instability in volatile areas and adversely affect security conditions, the business climate, and macroeconomic management.
  • Political risks. Expectations for rapid change need to be reconciled with the reality that the government’s policies can bring improvements only gradually. Fiscal consolidation could be jeopardized by revenue shortfalls or spending pressures to address social problems more rapidly, resulting in renewed central bank financing. Delays in approval of key legislation by parliament also are a risk.
  • External support. The authorities will need to mobilize adequate donor support for their medium-term strategy to be embodied in a full PRSP. Additional risks could arise from weak coordination of donor financing with the budget, which could undermine private sector confidence in the government and derail economic recovery.
  • Upside potential. In the near term, economic growth could be boosted if substantial improvements in political stability and security conditions elicit a strong investor response. In the longer term, growth potential could be enhanced by improvements in public infrastructure and expanding access to education.

VII. Access and Program Monitoring

21. Access. The authorities request access equivalent to SDR 73.71 million, or 90 percent of quota, over the three-year arrangement. The proposed access includes an upfront disbursement equivalent to 25 percent of quota, to be included in the first disbursement to be made available upon approval of the program, that the authorities intend to use to repay the amount outstanding under the less concessional EPCA. The remaining amounts will be evenly split into seven equal disbursements over the period of the arrangements, with the first scheduled after the approval (Table 12). The proposed access, which (including the refinancing component) is the norm for second-time PRGF use, is based on the balance of payments need, reflecting the weak gross reserves position; the strength of the fiscal program; and the comprehensive plan of structural measures.

22. Monitoring. The first-year program would cover the fiscal year October 2006–September 2007. To strengthen the likelihood of the program’s success, prior actions—relating to budget, management of banking problems, and safeguards recommendations—will be implemented before the Executive Board meeting (Table 2, MEFP). The program will be monitored by quantitative, quarterly benchmarks and semi-annual performance criteria. Conditionality has been set through September 2007, with the first test date set for end-March 2007. The staff believe that structural benchmarks and performance criteria are in the areas that are critical for macroeconomic stability. Conditionality for FY 2008 will be proposed to the Executive Board at the time of the second review under the arrangement, based on end-September 2007 performance criteria.

23. Capacity to repay the Fund. Credit outstanding to the Fund was SDR 22 million (27 percent of quota) at end-September 2006. With the proposed PRGF arrangement, obligations to the Fund will peak at SDR 74 million at end-September 2010, representing 12 percent of exports of goods and services (Table 7). Although Haiti will continue to need external financing for a number of years, its external position is set to improve over time with the provision of debt relief. The authorities’ track record of timely debt service payments has generally been very good, and the performance under the EPCA-supported programs has been favorable compared to other post-conflict countries.

24. External debt sustainability. The staff’s analysis presented in the accompanying HIPC decision point document shows that Haiti is eligible for HIPC debt relief based on end-September 2005 data. At that point, Haiti’s debt in net present value terms corresponded to 176 percent of exports of goods and services, which exceeded the HIPC Initiative’s export window’s threshold of 150 percent. External debt sustainability is expected to improve in the medium term, with delivery of HIPC interim debt relief starting at the decision point, and debt relief under the MDRI, starting at the completion point.

25. Adjusters. Given the uncertainties regarding the amount and timing of disbursements of cash budgetary assistance, two adjusters would be introduced (MEFP ¶26). The excess of external financing above the program level will reduce the ceilings on net BRH credit to the government and on BRH net domestic assets, and increase the floor on NIR. If this financing is delayed, the ceilings on BRH financing of the government, the public sector and on BRH net domestic assets will be adjusted upward and the floor on the NIR downward by the amount of the shortfall. Adjustments due to shortfalls in external financing will not exceed US$20 million.

VIII. Other Issues

26. Safeguards assessment. The program includes the authorities’ commitment to implement the key outstanding recommendations of the August 2005 safeguard assessment by the time of the first program review. These include verification of data reported for program monitoring, strengthening of internal and external audit procedures, and improvements in accounting operations, including by adopting International Financial Reporting Standard.

27. Technical assistance. The authorities have requested technical assistance from the Fund to help develop their macroeconomic program in the following areas: (i) public financial management, including for tracking of HIPC-related expenditures; (ii) reform of tax and customs codes; (iii) recapitalization of the BRH; (iv) improvement of monetary management; (v) drafts of central bank and banking law; (vi) FSAP; and (vii) quality and timeliness of data provision—particularly monetary data—to the Fund.

IX. Staff Appraisal

28. Progress. Haiti has made an impressive start in its transition away from political conflict and economic instability. The economy has been largely stabilized and significant advances were made toward creating conditions for sustainable economic growth and poverty reduction. On the political front, successful elections earlier this year offer hope for national reconciliation and lasting political stability. The international community has been strongly supporting Haiti by providing large economic and humanitarian assistance, and by helping to restore security through deployment of a U.N. stabilization force. As a result, economic growth has resumed, inflation has been significantly reduced, net international reserves have been substantially built up, and important measures have been implemented to strengthen fiscal discipline and improve governance and transparency. Nonetheless, as Haiti is only now emerging from a period of political and economic instability, the range of problems, and solutions to them, will gradually need to be found.

29. PRSP. The authorities’ new program is comprehensive and in staff’s view its objectives are realistic and consistent with the priorities set out in the I-PRSP. The program seeks to further bolster macroeconomic stability, strengthen institutions and economic governance, and accelerate reforms in the financial sector. Progress in these areas would help address some of the key impediments to Haiti’s development, breaking the vicious circle of low growth and declining per capita income experienced over the past twenty years. It would also help Haiti to reach the HIPC completion point within the program’s horizon, which, among other things, will require the authorities to further flesh out their poverty-reduction and growth strategy in a consultative process and to include it in the PRSP.

30. Fiscal policy. The authorities’ commitment to fiscal discipline anchored by zero central bank financing of budget deficits, is welcome. The budget approved by parliament allows for a significant increase in social services and domestically-financed public investment. In particular, the budget allows for new recruitment in key areas such as education and security, and increasing government wages to partly compensate for inflation of the past two years. Also, the allocation of resources for the social needs program, including for investment projects in all communes of Haiti is an important step toward more balanced regional development. The authorities need to further strengthen budget management and expenditure control, including for monitoring HIPC-related expenditures. Related technical assistance pledged by donors is welcomed.

31. Monetary policy. To reduce inflationary expectations, the authorities’ program appropriately targets growth in base money lower than of nominal GDP, with net international reserves accumulation as the main source of monetary expansion. The BRH needs to maintain its key policy rate on 90-day bonds positive in real terms and stand ready to absorb excess liquidity from the banking system. The staff supports the continuation of the floating exchange rate, welcomes the BRH’s intention to modernize the mechanisms of monetary control, its legal framework, its income position, and to relinquish non-core activities. It will also be important to implement all safeguards recommendations in a timely manner.

32. Structural reform. Building on recent progress, the reform agenda appropriately concentrates on raising fiscal revenues, improving public financial management, public enterprise restructuring, and financial sector reform. Higher tax collections are necessary to safeguard fiscal sustainability, to achieve sustainable strengthening of Haiti’s state, to increase delivery of public services, and create room for growth-enhancing public investment. Equally important will be full implementation of measures to strengthen public financial management, further reduce the use of ministerial current accounts, and strengthen capacity to manage public debt. The staff welcomes the authorities’ commitment to use concessional resources from the PetroCaribe agreement in a transparent manner and to allocate them to public investment projects. In the financial sector, key reforms include enacting of a new banking law, modernization of instruments of monetary control, and strengthening of the financial position of the central bank. Going forward, the government should complete the outstanding commitments from EPCA programs without further delay, in particular to establish a strategy to address domestic arrears, fully implement and audit a monitoring mechanism of budgetary transfers to the electricity sector, and complete the audits of the Treasury accounts and of the BRH.

33. Banks. The steps taken by the BRH to address problems in the weak banks are welcome. Given the legal constraints, the central bank’s decision to take over control of the larger problem bank through negotiated acquisition was appropriate. However, it will be important to promptly establish a strategy for final resolution of the weak bank, and to address the conflict of interest facing the central bank which acts as owner and supervisor of the bank under its control. The staff recommends completing as soon as possible a thorough evaluation of all remaining banks with the assistance of independent expert examiners.

34. Aid. The pledges of assistance announced at the July 2006 donor conference are crucial to the success of the program. The authorities should work with donors to ensure the timely disbursement of external aid, in particular in the areas most critical for reducing poverty and creating opportunities for investment and employment. Equally important is the authorities’ intention to improve aid coordination and to enhance the accountability of the government and donors for implementing the committed resources in line with Haiti’s economic and social priorities.

35. Conclusion. Based on Haiti’s overall satisfactory track record and the strength of the program, the staff supports the authorities’ request for a new three-year arrangement under the PRGF. The authorities’ demonstrated political commitment and high degree of ownership will be critical to secure durable success of Haiti’s economic reform strategy.

Haiti: Real Sector

Haiti: Fiscal Developments 1/

(in percent of GDP)

Source: Ministry of Finance; and Fund staff.

1/ Six-month data are annualized. 2006 reflects Fund staff projections.

2/ Cash balance equals revenues, budget support grants, budget loans, and change in arrears less current expenditure, domestically financed investment expenditure, and amortization of external loans.

3/ Net external financing of the budget includes budget support grants, budget loans, and change in arrears less amortization of external loans.

Haiti: Monetary Developments

Haiti: External Sector Developments

(in percent of GDP)
Table 1.Haiti: Indicative Targets, September 2005–September 2006 1/
Actual stock atCumulative flows since September 2005
end-September 2005Prog. 2/Prog. with

adjustor 3/
ActualDeviation

from prog
Prog. 2/ActualDeviation

from prog
Prog. 2/PrelimDeviation

from prog
Mar. 06June 06Sept 06
Net central bank credit to the NFPS (in millions of gourdes)21,60232−26229255347−283−63032−450−482
Of which:
Central Government21,63832−26273300347−67−41432−314−346
Rest of NFPS−3600−45−450−216−2160−136−136
Net domestic banking sector credit to the NFPS21,15932−2699125347−136−48332−543−575
(in millions of gourdes)
Net domestic assets of the central bank (in millions of gourdes)7,583−793−851−493358−1,194−1,309−115−1,211−1,699−488
Domestic arrears of the central government00000000000
Nonconcessional external loans contracted or guaranteed by the central government
(In millions of U.S. dollars)
Up to one year00000000000
Over one-year maturity00000000000
Net international reserves of central bank (in millions of U.S. dollars)71−11272664639195536
External arrears accumulation (in millions of U.S. dollars) 4/00000000000
Memorandum items: 5/
Government total revenue, excl. grants (in millions of gourdes) 6/8,5348,94112,83614,24517,23620,103
Government total expenditure, incl. ext-fin investment (in millions of gourdes)13,66513,72121,52820,86928,80029,397
Sources: Ministry of Finance, Central Bank of Haiti, and Fund staff estimates.

For program monitoring purposes, NDA is defined as currency in circulation minus NIR accrual in gourde terms. Program exchange rate of G42/USS.

Program numbers included in IMF Country Report No. 05/404.

Adjusted by US$1.4 million due to greater-than-programmed external financing

To all creditors except those who agreed on debt service deferral.

Not targets. Cumulative flows over the program period.

Fiscal revenue projections were revised upward in the supplementary budget to G 18,012 million.

Sources: Ministry of Finance, Central Bank of Haiti, and Fund staff estimates.

For program monitoring purposes, NDA is defined as currency in circulation minus NIR accrual in gourde terms. Program exchange rate of G42/USS.

Program numbers included in IMF Country Report No. 05/404.

Adjusted by US$1.4 million due to greater-than-programmed external financing

To all creditors except those who agreed on debt service deferral.

Not targets. Cumulative flows over the program period.

Fiscal revenue projections were revised upward in the supplementary budget to G 18,012 million.

Table 2:Haiti: Selected Economic and Financial Indicators Fiscal Year Ending September 30

Nominal GDP (2005): US$ 4.3 billion

Population (2005): 8.8 million

Share of pop. living with less than $1 a day (2003): 54 percent

GDP per capita (2005): US$ 490

Adult literacy (2005): 53 percent

Unemployment rate (2003): 27 percent

200420052006200720082009
Prog.Est.Proj.Proj.Proj.
change over previous year unless otherwise indicated
National income and prices
GDP at constant prices−3.51.82.52.54.04.04.0
GDP deflator21.517.69.613.98.18.07.3
Consumer prices (period average)28.316.813.314.29.28.07.5
Consumer prices (end-of-period)21.714.810.012.49.08.07.0
External sector
Exports (f.o.b.)13.421.56.75.010.310.06.6
Imports (f.o.b.)8.68.011.415.614.65.55.8
Real effective exchange rate (+ appreciation)32.4−5.7
Central government
Total revenue and grants31.054.511.220.528.46.114.6
Total revenue 1/15.930.57.023.79.218.016.9
Current expenditure−1.448.123.619.69.516.615.6
Total expenditure17.331.224.626.730.912.914.3
Money and credit
Net domestic assets 2/10.69.83.91.76.17.06.2
Credit to public sector (net) 2/4.60.10.6−0.80.00.00.0
Credit to private sector 2/3.47.93.42.26.17.06.2
Broad money (including foreign currency deposits)9.120.33.39.110.412.311.5
Velocity (GDP relative to broad money)2.52.52.62.62.72.72.7
Average interest rate on time deposits7.54.5
(percent of GDP, unless otherwise indicated)
Gross investment27.327.429.828.031.031.031.3
Gross national savings24.825.724.824.427.628.428.8
Of which: Public sector savings1.02.6−0.23.02.93.03.2
Savings-investment balance 3/−2.6−1.8−5.1−3.6−3.4−2.6−2.6
Central government overall balance (including grants)−2.4−0.7−2.3−1.4−1.9−2.9−2.9
Central government overall balance (excluding grants)−3.7−4.1−6.3−4.7−7.5−7.1−7.0
Excluding grants and externally-financed projects 4/−1.2−1.3−0.6−1.3−1.6−1.8
Central bank net credit to the central government2.00.00.2−0.20.00.00.0
External current account balance (incl. grants)−1.31.3−1.5−0.1−1.0−1.5−1.5
External current account balance (excl. official grants)−4.5−6.3−10.3−7.5−9.5−8.0−7.9
External public debt (end-of-period) 5/38.331.031.029.427.026.827.3
Total public debt (end-of-period) 6/40.634.234.433.329.829.028.9
External public debt service (in percent of
exports of goods and nonfactor services)9.18.59.28.49.38.48.0
Overall balance of payments32.754.1−5.784.433.7−64.4−72.2
Net international reserves 7/54.570.683.6125.7155.7205.7265.7
Liquid gross reserves 8/207.4228.5264.7330.8401.2494.3598.6
In months of imports of the following year1.41.41.41.82.02.32.6
Exchange rate (gourdes per dollar, end-of-period)36.843.039.1
Sources: Ministry of Economy and Finance; Bank of the Republic of Haiti; and Fund staff estimates.

Excluding grants.

In relation to broad money (including foreign currency deposits) at the beginning of the period.

External current account balance excluding official capital grants.

Excludes donor-funded projects.

External debt could decline to about 16 percent at the expected HIPC completion point in 2008, including MDRI relief and additional assistance beyond HIPC from Paris Club creditors.

Includes external public sector debt, outstanding Central Bank bonds, and credit from commercial banks to the NFPS.

Excludes commercial banks’ foreign currency deposits with the BRH.

Gross reserves excluding capital contributions to international organizations.

Sources: Ministry of Economy and Finance; Bank of the Republic of Haiti; and Fund staff estimates.

Excluding grants.

In relation to broad money (including foreign currency deposits) at the beginning of the period.

External current account balance excluding official capital grants.

Excludes donor-funded projects.

External debt could decline to about 16 percent at the expected HIPC completion point in 2008, including MDRI relief and additional assistance beyond HIPC from Paris Club creditors.

Includes external public sector debt, outstanding Central Bank bonds, and credit from commercial banks to the NFPS.

Excludes commercial banks’ foreign currency deposits with the BRH.

Gross reserves excluding capital contributions to international organizations.

Table 3a.Haiti: Central Government Operations(Fiscal year ending September 30; in millions of gourdes)
20062007200720082009
Oct-SepOct-DecJan-MarApr-JunJul-SepOct-SepOct-SepOct-Sep
Prel.Proj.Proj.Proj.Proj.Proj.Proj.Proj.
Total revenue and grants26,6248,9248,3768,3078,57134,17836,25241,541
Total revenue20,1035,9455,4185,4755,10621,94425,88730,261
Current revenue20,1035,9455,4185,4755,10621,94425,88730,261
Domestic taxes12,8784,2223,7483,7443,38115,09517,80720,816
Customs duties6,0991,6261,5741,6351,6296,4647,6258,913
Other current revenue1,12696969696386455532
Transfers from public enterprises00000000
Grants6,5212,9792,9582,8323,46512,23410,36511,281
Budget support 1/1,9096786575311,1643,030
Project grants4,6132,3012,3012,3012,3019,20310,36511,281
Total expenditure29,3979,9409,1169,09510,32038,47043,44149,673
Current expenditure19,4955,4344,9114,8896,11421,34924,89628,774
Wages and salaries6,5432,5191,9921,9921,9928,49510,56112,627
Equipment610746982
Net Operations 2/5,4321,4781,5331,4731,4785,9626,9838,070
Operations4,6031,4781,5331,4731,4785,9626,9838,070
Interest payments1,6154584274654491,7991,7511,844
External772241209248231929881974
Domestic844217217217217870870870
Transfers and subsidies5,9048068068062,0434,4624,8545,251
Expenditures on electoral process0200002000
Capital expenditure9,9034,5054,2054,2054,20517,12218,54420,899
Domestically financed1,8691,1008008008003,5004,9356,455
Foreign-financed8,0343,4053,4053,4053,40513,62213,61014,444
Current account balance
Including current grants2,5171,1891,1651,1171563,6269911,487
Excluding grants608511508585−1,0085969911,487
Overall balance
Including grants−2,774−1,016−740−788−1,749−4,292−7,188−8,131
Excluding grants−9,295−3,994−3,698−3,620−5,214−16,526−17,554−19,412
Excluding grants and externally financed projects−1,261−589−292−215−1,808−2,904−3,944−4,968
Financing2,774−8465175571,5271,7551,3651,123
External net financing3,152−7338896481,2442,0491,3651,123
Loans (net)2,8281,1278896481,2443,9081,3651,123
Disbursements4,2051,5251,3091,1051,7355,6733,2443,163
Budget support78342020506301,255
Project loans3,4221,1051,1051,1051,1054,4183,2443,163
Amortization−1,377−398−420−457−490−1,765−1,880−2,040
Arrears (net)324−1,859000−1,85900
Accumulation 3/3240000000
Reduction0−1,859000−1,85900
Internal net financing−378−113−373−90282−29400
Banking system−254−50−299−12361000
BRH−314−50−299−12361000
Commercial banks590000000
Other nonbank financing−131−64−74−79−79−29400
Arrears (net)70000000
Accumulation1910000000
Reduction−1840000000
Prospective rescheduling 4/01,8613644361,978124112
HIPC 5/00186186186559279690
Unidentified financing000000.05,4216.206
Unidentified financing (in U.S. dollars)0.00.00.00.00.00.0125.3136.0
Sources: Ministry of Finance and Economy; and Fund staff estimates

Budget support 2006 and 2007 includes grant from Canada to cover debt service to the IDB.

Includes statistical discrepancy.

Arrears accumulation in 2005–06 reflects an informal deferral of debt service to France, Italy and Spain granted until an IMF arrangement is in place.

Including clearance of arrears accumulated in agreement with Italy, France, and Spain.

HIPC debt relief.

Sources: Ministry of Finance and Economy; and Fund staff estimates

Budget support 2006 and 2007 includes grant from Canada to cover debt service to the IDB.

Includes statistical discrepancy.

Arrears accumulation in 2005–06 reflects an informal deferral of debt service to France, Italy and Spain granted until an IMF arrangement is in place.

Including clearance of arrears accumulated in agreement with Italy, France, and Spain.

HIPC debt relief.

Table 3b:Central Government Operations(Fiscal year ending September 30; in percent of GDP)
20062007200720082009
Oct-SepOct-DecJan-MarApr-JunJul-SepOct-SepOct-SepOct-Sep
Prel.Proj.Proj.Proj.Proj.Proj.Proj.Proj.
Total revenue and grants13.64.03.83.83.915.514.615.0
Total revenue10.22.72.52.52.310.010.511.0
Current revenue10.22.72.52.52.310.010.511.0
Domestic taxes6.61.91.71.71.56.87.27.5
Customs duties3.10.70.70.70.72.93.13.2
Other current revenue0.60.00.00.00.00.20.20.2
Transfers from public enterprises0.00.00.00.00.00.00.00.0
Grants3.31.41.31.31.65.54.24.1
Budget support 1/1.00.30.30.20.51.4
Project grants2.41.01.01.01.04.24.24.1
Total expenditure15.04.54.14.14.717.417.518.0
Current expenditure9.92.52.22.22.89.710.110.4
Wages and salaries3.31.10.90.90.93.94.34.6
Equipment0.00.00.00.00.30.30.4
Net Operations 2/2.80.70.70.70.72.72.82.9
Operations2.30.70.70.70.72.72.82.9
Interest payments0.80.20.20.20.20.80.70.7
External0.40.10.10.10.10.40.40.4
Domestic0.40.10.10.10.10.40.40.3
Transfers and subsidies3.00.40.40.40.92.02.01.9
Expenditures on electoral process0.00.00.00.00.00.00.00.0
Capital expenditure5.02.01.91.91.97.87.57.6
Domestically financed1.00.50.40.40.41.62.02.3
Foreign-financed4.11.51.51.51.56.25.55.2
Current account balance
Including current grants1.30.50.50.50.11.60.40.5
Excluding grants0.30.20.20.3−0.50.30.40.5
Overall balance
Including grants−1.4−0.5−0.3−0.4−0.8−1.9−2.9−2.9
Excluding grants−4.7−1.8−1.7−1.6−2.4−7.5−7.1−7.0
Excluding grants and externally financed projects−0.6−0.3−0.1−0.1−0.8−1.3−1.6−1.8
Financing1.4−0.40.20.30.70.80.60.4
External net financing1.6−0.30.40.30.60.90.60.4
Loans (net)1.40.50.40.30.61.80.60.4
Disbursements2.10.70.60.50.82.61.31.1
Budget support0.40.20.10.00.30.6
Project loans1.70.50.50.50.52.01.31.1
Amortization−0.7−0.2−0.2−0.2−0.2−0.8−0.8−0.7
Arrears (net)0.2−0.80.00.00.0−0.80.00.0
Accumulation 3/0.20.00.00.00.00.00.00.0
Reduction0.0−0.80.00.00.0−0.80.00.0
Internal net financing−0.2−0.1−0.20.00.1−0.10.00.0
Banking system−0.10.0−0.10.00.20.00.00.0
BRH−0.2−0.02−0.14−0.010.160.00.00.0
Commercial banks0.00.00.00.00.00.00.00.0
Other nonbank financing−0.1−0.03−0.03−0.04−0.04−0.10.00.0
Arrears (net)0.00.00.00.00.00.00.00.0
Accumulation0.10.00.00.00.00.00.00.0
Reduction−0.10.00.00.00.00.00.00.0
Prospective rescheduling 4/0.00.80.00.00.00.90.00.0
HIPC 5/0.00.00.10.10.10.30.10.2
Unidentified financing0.00.00.00.00.00.02.22.2
Unidentified financing (in U.S. dollars)0.00.00.00.00.00.0125.3136.0
Sources: Ministry of Finance and Economy; and Fund staff estimates

Budget support 2006 and 2007 includes grant from Canada to cover debt service to the IDB.

Includes statistical discrepancy.

Arrears accumulation in 2005–06 reflects an informal deferral of debt service to France, Italy and Spain granted until an IMF arrangement is in place.

Including clearance of arrears accumulated in agreement with Italy, France, and Spain.

HIPC debt relief.

Sources: Ministry of Finance and Economy; and Fund staff estimates

Budget support 2006 and 2007 includes grant from Canada to cover debt service to the IDB.

Includes statistical discrepancy.

Arrears accumulation in 2005–06 reflects an informal deferral of debt service to France, Italy and Spain granted until an IMF arrangement is in place.

Including clearance of arrears accumulated in agreement with Italy, France, and Spain.

HIPC debt relief.

Table 4.Haiti: Summary Accounts of the Banking System Fiscal year ending September 30, in millions of gourdes
200520062007
Sept.MarchJuneSept.Sept.Dec.MarchJuneSept
ProgEst.ProjProjProjProj
I. Central Bank
Net foreign assets 1/8,2329,68811,1519,99511,90712,50112,90413,30714,001
(In millions of U.S. dollars)191231265238283298307317333
Net international reserves (program)719811690126136141146156
Commercial bank deposits121133149148158162167171178
Net domestic assets2,3151,507101,256−742114−1,048−1,414−1,846
Credit to the nonfinancial public sector 2/21,60221,83121,31921,83121,15321,10320,80420,79221,153
Of which: Credit to the central government21,63821,91221,57121,91221,32521,27520,97620,96421,325
Liabilities to commercial banks−22,115−23,756−24,365−24,107−25,993−25,087−25,949−26,304−27,096
Of which:
Cash-in-vault and reserve deposits−16,614−17,396−17,596−18,193−18,184−18,973−19,481−20,093−20,777
BRH bonds−5,501−6,360−6,769−5,914−7,809−6,114−6,468−6,211−6,320
Other2,8273,4313,0563,5324,0984,0984,0984,0984,098
Currency in circulation10,54711,19511,16011,25111,16412,61511,85711,89312,156
II. Consolidated Banking System
Net foreign assets18,63521,66322,71721,42823,67823,67624,73725,37626,884
(In millions of U.S. dollars)433507570502605605630645681
Of which: Commercial banks NFA242277304264321307323328348
Net domestic assets49,65450,85050,91953,18650,83053,08353,25254,42255,375
Credit to the nonfinancial public sector 1/21,15921,25821,02221,26120,61620,56620,26720,25520,616
Credit to the private sector25,60926,40927,21028,32727,13129,43329,90231,08431,676
In gourdes13,00012,80213,13014,05613,13514,52114,82615,42715,669
In foreign currency12,60913,60714,08114,27113,99614,91315,07715,65616,007
In millions of U.S. dollars293319353335358379383397405
Other2,8863,1832,6873,5993,0833,0833,0833,0833,083
Broad money68,29072,51373,63674,61474,50876,75977,99079,79882,259
Currency in circulation10,54711,19511,16011,25111,16412,61511,85711,89312,156
Gourde deposits28,29229,78230,42530,38430,85631,07132,05532,82333,595
Foreign currency deposits29,45131,53632,05132,97932,48833,07334,07835,08336,508
In millions of U.S. dollars684739804768830844868892926
(Percentage change relative to broad money in September of the preceding fiscal year)
Net foreign assets10.54.46.04.17.47.48.99.94.3
Net domestic assets9.81.81.95.21.75.05.37.06.1
Credit to the nonfinancial public sector 2/0.10.1−0.20.1−0.8−0.9−1.3−1.30.0
Credit to the private sector7.91.22.34.02.25.66.38.06.1
(12-month percentage change)
Broad money20.315.313.09.39.18.57.68.410.4
Currency in circulation21.412.413.16.75.93.25.96.68.9
Base money 3/0.6−1.08.310.05.57.06.28.79.9
Gourde deposits9.67.97.47.49.19.97.67.98.9
Foreign currency deposits (US dollars)32.424.519.112.321.319.917.510.911.5
Credit to the nonfinancial public sector 2/0.31.6−3.70.5−2.6−5.2−4.7−3.70.0
Credit to the private sector21.117.914.310.65.910.713.214.216.8
Credit in gourdes19.36.52.88.11.09.215.817.519.3
Credit in foreign currency (US dollars)23.017.427.714.322.022.620.212.413.4
Memorandum items:
Share in foreign currency (in percent)
Bank deposits51.051.451.352.051.351.651.551.752.1
Credit to the private sector49.251.551.750.451.650.750.450.450.5
Sources: Bank of the Republic of Haiti; and Fund staff estimates.

Includes commercial banks’ foreign currency deposits. For program monitoring, they are excluded from net international reserves.

Excludes special accounts.

Excl. troubled bank recapitalization by the BRH, estimates of base money growth would be 9.7 and 8.6 percent, at end-Sept FY2006 and FY 2007, respectively.

Sources: Bank of the Republic of Haiti; and Fund staff estimates.

Includes commercial banks’ foreign currency deposits. For program monitoring, they are excluded from net international reserves.

Excludes special accounts.

Excl. troubled bank recapitalization by the BRH, estimates of base money growth would be 9.7 and 8.6 percent, at end-Sept FY2006 and FY 2007, respectively.

Table 5.Haiti: Balance of Payments(Fiscal year ending September 30, in millions of U.S. dollars; unless otherwise indicated)
20052006200720082009
Est.Proj.
Current account deficit (-) (excluding grants)−273.2−357.5−498.7−458.1−480.2
Trade balance (deficit -)−849.6−1,030.3−1,200.9−1,242.6−1,310.2
Exports, f.o.b.458.85481.9531.6584.9623.8
of which: Assembly industry exports396.8418.7463.7509.9544.6
Imports, f.o.b.−1,308.5−1,512.2−1,732.4−1,827.4−1,934.0
of which: Petroleum products−313.5−400.7−436.8−446.2−457.2
Services (net)−313.1−345.0−372.4−385.0−405.0
Receipts138.43149.5159.6179.0201.1
Payments−451.5−494.4−532.0−563.9−606.1
Income (net)−36.4−15.5−10.4−2.44.6
of which
Interest payments−18.1−19.6−22.1−21.1−22.7
Private transfers (net) 1/925.91,033.31,085.01,171.81,230.4
External grants328.8352.8445.9370.4388.4
Current account deficit (-) (including grants)55.6−4.7−52.9−87.7−91.8
Capital and financial accounts (deficit -)−1.589.186.623.419.6
Public sector capital flows (net)66.770.193.131.524.6
Loan disbursements99.4103.4135.175.069.3
Amortization−32.7−33.2−42.0−43.5−44.7
Banks (net) 2/−75.5−79.6−26.5−33.1−35.0
Direct investment9.545.020.025.030.0
Other 3/−2.253.60.00.00.0
Overall balance (deficit -)54.184.433.7−64.3−72.2
Financing−54.1−84.4−33.7−61.0−63.8
Change in net international reserves (increase -) 4/−13.0−92.3−49.9−70.3−81.4
Change in gross reserves−22.0−102.2−70.4−93.2−104.3
Liabilities9.010.020.522.922.9
Utilization of Fund credits, existing and prospective (net)11.110.320.522.922.9
Purchases and loans 5/15.614.853.422.922.9
Repayments 5/−4.5−4.5−32.90.00.0
Other liabilities−2.1−0.30.00.00.0
Change in arrears (reduction -) 6/ 7/−41.17.8−44.30.00.0
Prospective rescheduling 7/0.00.047.12.92.5
Prospective HIPC debt relief....13.36.515.1
Financing gap0.00.00.0125.3136.0
Memorandum items:
Current account balance, excluding grants (in percent of GDP)−6.3−7.5−9.5−8.0−7.9
Current account balance, including grants (in percent of GDP)1.3−0.1−1.0−1.5−1.5
Exports (f.o.b) growth21.55.010.310.06.6
Import (f.o.b) growth8.015.614.65.55.8
External debt as percent of exports 8/223.7220.8205.5201.3200.3
NPV of external debt as percent of exports149.9147.1137.1117.2117.8
Debt service as percent of exports8.58.49.38.48.2
Gross liquid international reserves (US$ million) 4/228.5330.8401.2494.3598.6
Gross liquid international reserves (in months
of next year’s imports of goods and services) 4/1.41.82.02.32.6
Sources: Bank of the Republic of Haiti; and Fund staff estimates.

Based on remittances transferred through authorized “transfer houses” and the BRH, estimates of such transfers channeled through other means.

Excludes commercial banks’ foreign currency deposits with the BRH.

Includes short-term capital and errors and omissions.

Includes commercial banks’ foreign currency deposits with the BRH.

Including the prospective PRGF arrangement, and assuming an upfront disbursement equivalent to 25 percent of quota to repay the less concessional purchase outstanding under EPCA.

Arrears accumulation in 2005–06 reflects an informal deferral of debt service to France, Italy and Spain granted until an IMF arrangement is in place

Assuming traditional debt relief from bilateral creditors, with rescheduling of arrears and debt service on pre-cut off date debt to bilateral creditors.

External debt could decline to about 118 percent of exports at the expected completion point in 2008 as a result of irrevocable HIPC debt relief, debt relief under the MDRI, and additional assistance beyond HIPC from Paris Club creditors.

Sources: Bank of the Republic of Haiti; and Fund staff estimates.

Based on remittances transferred through authorized “transfer houses” and the BRH, estimates of such transfers channeled through other means.

Excludes commercial banks’ foreign currency deposits with the BRH.

Includes short-term capital and errors and omissions.

Includes commercial banks’ foreign currency deposits with the BRH.

Including the prospective PRGF arrangement, and assuming an upfront disbursement equivalent to 25 percent of quota to repay the less concessional purchase outstanding under EPCA.

Arrears accumulation in 2005–06 reflects an informal deferral of debt service to France, Italy and Spain granted until an IMF arrangement is in place

Assuming traditional debt relief from bilateral creditors, with rescheduling of arrears and debt service on pre-cut off date debt to bilateral creditors.

External debt could decline to about 118 percent of exports at the expected completion point in 2008 as a result of irrevocable HIPC debt relief, debt relief under the MDRI, and additional assistance beyond HIPC from Paris Club creditors.

Table 6.Haiti: Medium-Term Scenario Fiscal year ending September 30
200120022003200420052006200720082009
Est.Proj.
Real sector (annual percentage rate)
Real GDP growth−1.0−0.30.4−3.51.82.54.04.04.0
Inflation (CPI end-of-period)11.511.437.821.714.812.49.08.07.0
Fiscal sector (in percent of GDP)
Central government overall balance (incl. grants)−2.4−3.0−3.5−2.4−0.7−1.4−1.9−2.9−2.9
Total revenue and grants8.08.49.110.213.213.615.514.615.0
Central government revenue7.68.39.08.99.710.29.910.410.9
Central government expenditure10.411.512.612.613.815.017.417.518.0
Domestic financing2.62.72.92.00.0−0.2−0.10.00.0
External financing 1/−0.20.30.60.40.71.62.12.92.9
Monetary sector
Growth in broad money5.217.239.89.120.39.110.412.311.5
External sector (in percent of GDP)
Trade balance−20.9−20.4−26.4−23.6−19.7−21.8−22.9−21.7−21.6
Services (net)−3.0−2.7−5.6−5.8−7.3−7.3−7.1−6.7−6.7
Income (net)0.0−0.4−0.5−0.4−0.8−0.3−0.20.00.1
Private transfers (net)17.318.726.425.221.521.820.720.520.3
External grants4.53.94.63.27.67.48.56.56.4
Current account (incl. official transfers)−2.0−1.0−1.5−1.31.3−0.1−1.0−1.5−1.5
Current account (excl. official transfers)−6.5−4.8−6.1−4.5−6.3−7.5−9.5−8.0−7.9
External financing gap0.00.00.00.00.00.00.02.22.2
Of which: Central government0.00.00.00.00.00.00.02.22.2
Liquid gross reserves (in millions of U.S. dollars)227.3177.7157.1207.4228.5330.8401.2494.3598.6
In months of imports of the following year2.21.51.21.41.41.82.02.32.6
Memorandum Items:
Nominal GDP (millions of gourdes)85,70094,028119,758140,387168,034196,266220,594247,766276,403
Nominal GDP (millions of dollars)3,5963,4722,9603,5384,3104,7365,2525,7276,057
Sources: Haitian authorities; and Fund staff estimates.

Including prospective rescheduling, HIPC relief, and unidentified financing.

Sources: Haitian authorities; and Fund staff estimates.

Including prospective rescheduling, HIPC relief, and unidentified financing.

Table 7.Haiti: Indicators of Fund Credit, 2004–2009 1/(In fiscal year ending September 30)
200420052006200720082009
Outstanding Fund credit, existing and prospective
In millions of SDRs7.614.822.035.750.966.1
In millions of gourdes446.18521,3632,2433,2114,183
In percent of quota9.318.026.943.662.180.7
In percent of GDP0.30.50.71.01.31.5
In percent of exports of goods and services2.23.75.17.710.012.1
Debt service to the Fund 2/ 3/ 4/
In millions of SDRs5.03.33.922.30.40.5
In millions of gourdes293.6188.1241.31,402.729.236
In percent of quota6.14.04.827.20.50.6
In percent of GDP0.20.10.10.60.00.0
In percent of exports of goods and services1.50.80.94.80.10.1
In percent of debt service due16.09.511.052.11.11.2
In percent of net international reserves13.66.84.621.40.30.3
(In millions of SDRs)
Net use of Fund credit−4.97.27.213.715.215.2
Disbursements0.010.210.235.715.215.2
Repayments4.93.03.022.00.00.0
Sources: IMF, Finance Department, and staff projections.

Includes the prospective drawing under the PRGF, with replacement of amounts outstanding under the EPCA.

Debt service to the Fund in 2007 includes the repayment using PRGF disbursements of amounts outstanding under the EPCA.

Including SDR charges.

After subsidization of GRA charges.

Sources: IMF, Finance Department, and staff projections.

Includes the prospective drawing under the PRGF, with replacement of amounts outstanding under the EPCA.

Debt service to the Fund in 2007 includes the repayment using PRGF disbursements of amounts outstanding under the EPCA.

Including SDR charges.

After subsidization of GRA charges.

Table 8.Haiti: Stock of Arrears and Projected Debt Service, 2000–2006 1/(Fiscal year ending September 30, in millions of U.S. dollars)
2000200120022003200420052006

Prel.
Total arrears6.017.850.952.179.035.444.3
Multilateral Creditors2.111.239.033.349.20.00.0
IDB0.24.019.60.00.00.00.0
IDA-WORLD BANK0.86.119.032.449.20.00.0
IMF0.20.00.00.00.00.00.0
Other (OPEC and FIDA)0.91.10.40.90.00.00.0
Bilateral Creditors3.96.611.918.829.835.444.3
US0.50.70.80.60.00.00.0
Mexico (PEMEX)0.00.00.00.00.00.00.0
Venezuela (FIV)0.00.00.00.00.00.00.0
Canada (Wheat Board)0.10.10.10.10.00.00.0
Taiwan0.00.00.00.00.00.00.0
Argentina0.00.00.00.00.00.00.0
France2.13.36.110.819.823.329.9
Italy (SACE)0.61.33.34.76.27.89.3
Spain (CESCE)0.61.31.62.73.94.35.1
ICDF (CHINE)0.00.00.00.00.00.00.0
Projected debt service63.9
Multilateral creditors53.3
IDB27.0
IDA-WORLD BANK17.3
IMF6.0
Other (OPEC and FIDA)3.1
Bilateral Creditors10.6
Sources: BRH; and staff projections

Arrears accumulation in 2005 and 2006 reflects an informal deferral of debt service to France Italy, and Spain granted in early 2005 (until a PRGF is in place).

Sources: BRH; and staff projections

Arrears accumulation in 2005 and 2006 reflects an informal deferral of debt service to France Italy, and Spain granted in early 2005 (until a PRGF is in place).

Table 9.Haiti: Donor Pledges 2006–07

(In millions of US dollars) 1/

Of which:Budget
Donor pledges 2/support
Donor support707.377.7
Bilateral390.717.5
Canada107.20.0
France28.85.0
United States192.510.0
Spain25.32.5
Other37.00.0
Multilateral316.660.2
European Union58.125.2
IDB150.025.0
World Bank61.010.0
IMF23.00.0
Other24.50.0
Sources: Donors; and staff estimates and projections.

Excluding humanitarian relief and financing of the United Nations contingent in Haiti.

Pledged at the July 2006 donor conference in Port-au-Prince.

Sources: Donors; and staff estimates and projections.

Excluding humanitarian relief and financing of the United Nations contingent in Haiti.

Pledged at the July 2006 donor conference in Port-au-Prince.

Table 10.Haiti: Budgetary Financing, by Donor and Type 1/(In millions of US dollars)
Cash Budget Support (A)Debt Service Payments (B)Paris Club (C)HIPC (D)Net Transfers Cash Basis (A+C+D−B)Project Loans and Grants (E)Net Overall Transfers (A+C+D+E−B)
2004/052005/062006/072004/072004/052005/062006/072004/072006/072006/072004/052005/062006/072004/072004/052005/062006/072004/072005/052006/052006/072004–07
Proj.Proj.Proj.Proj.Proj.Proj.Proj.Proj.Proj.Proj.
Bilateral and multilateral136.657.7100.9295.2104.258.064.0226.22.913.332.4−0.353.085.1122.2193.8324.3640.4154.6193.6377.4725.5
Bilateral creditors50.532.823.2106.610.310.610.031.02.93.840.222.219.982.357.485.6178.9321.997.6107.8198.8404.2
Canada 2/12.715.30.028.00.10.10.10.30.00.012.615.2−0.127.717.650.475.8143.830.265.775.7171.5
France 3/5.65.83.815.24.84.63.713.12.01.00.81.23.15.09.50.919.229.510.22.022.334.6
United States30.47.010.047.41.01.01.23.20.60.329.46.09.745.19.016.751.377 138.422.761.1122.2
Taiwan0.00.00.00.02.62.62.77.90.00.4−2.6−2.6−2.3−7.514.515.210.039 711.912.67.732.2
Others 3/1.84.79.416.01.82.32.26.40.32.00.02.49.511.96.82.422.631.86.84.832.143.7
Multilateral creditors86.124.877.7188.693.947.354.0195.20.09.4−7.8−22.533.12.864.8108.2145.4318.557.085.7178.5321.3
IDB39.310.029.979.121.627.032.781.30.02.717.6−17.0−0.10.628.372.799.7200.745.955.899.6201.2
EU0.00.037.837.80.00.00.00.00.00.00.30.337.837.829.122.921.073.029.122.958.9110.8
World Bank 4/46.814.810.071.769.217.318.6105.10.06.7−22.4−2.5−1.9−26.74.49.621.735.7−17.97.119.89.0
of which
Arrears clearance46.80.00.046.852.60.00.052.60.00.0−5.80.00.0−5.0
Other0.014.810.024.816.617.318.652.50.06.7−16.6−2.5−1.9−21.0
Other0.00.00.00.03.03.12.78.80.00.0−3.0−3.1−2.7−8.83.13.03.09.10.0−0.10.30.2
Memorandum item:
IMF15.614.853.483.84.86.033.44.80.00.110.88.820.139.80.00.00.00.010.88.820.139.8
Sources: Haitian authorities; and Fund staff estimates.

In fiscal years (October- September), unless otherwise noted; excludes humanitarian assistance.

Includes funds for clearance of arrears to the World Bank.

Includes informal deferral of debt service to France, Italy, and Spain granted in early 2005 (until a PRGF program is in place).

Disbursements consist of 60 percent concessional loans and 40 percent grants in 2004/05 and 2005/06, and 100 percent grants in 2006/07.

Sources: Haitian authorities; and Fund staff estimates.

In fiscal years (October- September), unless otherwise noted; excludes humanitarian assistance.

Includes funds for clearance of arrears to the World Bank.

Includes informal deferral of debt service to France, Italy, and Spain granted in early 2005 (until a PRGF program is in place).

Disbursements consist of 60 percent concessional loans and 40 percent grants in 2004/05 and 2005/06, and 100 percent grants in 2006/07.

Table 11.Haiti: Millennium Development GoalsWith selected targets to achieve between 1990 and 2015 estimate closest to date shown, +/− 2 years
1990199520002004
Goal 1: halve the rate for $1 a day (PP, % of population
Poverty headcount ratio at national poverty line (% of population53.9
Poverty headcount ratio at national poverty line (% of population)78.0
Share of income or consumption to the poorest qunitile (%)2.4
Prevalence of malnutrition (% of children under 5)272817
Goal 2: ensure that children are ale to complete primary schooling
Primary school enrollment (net, %)22
Primary completion rate (% of relevant age group)28
Secondary school enrollment (gross, %)21
Youth literacy rate (% of people ages 15-24)55
Goal 3: eliminate gender disparity in education and empower women
Ratio of girls to boys in primary and secondary education (%)95
Women employed in the nonagricultural sector (% of nonagricultural employment40
Proportion of seats held by women in national parliament (%)4.04.04.0
Goal 4: reduce under-5 mortality by two-thirds
Under-5 mortality rate (per 1,000)150137125117
Infant mortality rate (per 1,000 live births)102918174
Measles immunization (proportion of one-year olds immunized, %)31495454
Goal 5: reduce maternal mortality by three-fourths
Maternal mortality ratio (modeled estimate, per 100,000 live births)680
Births attended by skilled health staff (% of total)232024
Goal 6: halt and begin to reverse the spread of HIV/AIDS and other major
diseases
Prevalence of HIV (% of population ages 15–49)3.8
Contraceptive prevalence (% of women, ages 15–49)111827
Incidence of tuberculosis (per 100,000 people)484306
Tuberculosis cases detected under DOTS (%)22249
Goal 7: halve the proportion of people without sustainable access to basic needs
Access to an improved water source (% of population)4754
Access to improved sanitation facilities (% of population)2430
Forest area (% of total land area)4.24.03.8
Nationality protected areas (% of total land area)0.4
CO2 emissions (metric tons per capital)0.10.10.20.2
GDP per unit energy use (constant 2,000 PPP $ per kg of oil equivalent)10.47.37.06.3
Goal 8: develop a global partnership for development
Fixed line and mobile phone subscribers (per 1,000 people)7.08.01664
Internet users (per 1,000 people)0.00.03.059
Personal computers (per 1,000 people)
Youth unemployment (% of total labor force ages 15–242417
Source: World Bank
Source: World Bank
Table 12.Haiti: Proposed Schedule of Disbursements Under the the PRGF arrangement, 2006–2009
AmountDateConditions for Disbursement 1/
SDR 28,100,000November 20, 2006Executive Board approval of the three-year arrangement under the PRGF. Includes 25% of quota in access for repayment of EPCA purchases
SDR 7,600,000May 15, 2007Observance of performance criteria for March 2007 and completion of the first review under the PRGF arrangement.
SDR 7,600,000November 15, 2007Observance of performance criteria for September 2007 and completion of the second review under the PRGF arrangeme
SDR 7,600,000May 15, 2008Observance of performance criteria for March 2008 and completion of the third review under the PRGF arrangement.
SDR 7,600,000November 15, 2008Observance of performance criteria for September 2008 and completion of the fourth review under the PRGF arrangement
SDR 7,600,000May 15, 2009Observance of performance criteria for March 2009 and completion of the fifth review under the PRGF arrangement.
SDR 7,610,000November 15, 2009Observance of performance criteria for September 2009 and completion of the sixth review under the PRGF arrangement.

Other than the generally applicable conditions for the Poverty Reduction and Growth Facility (PRGF)

Other than the generally applicable conditions for the Poverty Reduction and Growth Facility (PRGF)

Table 13.Haiti: Indicators of External Vulnerability(Units as indicated)
200420052006200720082009
Prel.Proj.
Debt indicators
Total external public debt (in percent of GDP)38.331.029.527.026.927.3
Total external public debt (in percent of exports 1/)265.4223.7220.8205.5201.3200.3
External debt service (in percent of GDP)1.31.21.11.21.11.1
Amortization0.80.80.70.80.80.7
Interest0.50.40.40.40.40.4
External debt service (in percent of exports 1/)9.18.58.49.38.48.0
Amortization5.65.55.36.15.75.4
Interest3.53.03.13.22.72.6
External debt service (in percent of current central governmen13.713.410.312.311.010.2
Amortization8.58.76.58.07.56.9
Interest5.24.83.84.23.53.3
Other indicators
Exports (percent change, 12-month basis in U.S. dollars)13.421.55.010.310.06.6
Imports (percent change, 12-month basis in U.S. dollars)8.68.015.614.65.55.8
Remittances and grants in percent of gross disposable incom22.824.124.124.222.422.2
Real effective exchange rate appreciation (+) (end of period)32.4−5.7
Exchange rate (per U.S. dollar, period average)39.739.0
Current account balance (US$ million) 2/−46.155.6−4.7−52.9−87.7−91.8
Capital and financial account balance (US$ million)78.8−1.589.186.623.419.6
Public sector−6.066.770.193.131.524.6
Private sector 3/84.8−68.218.9−6.5−8.1−5.0
Liquid gross reserves (US$ million)207.4228.5330.8401.2494.3598.6
In months of imports of the following year 1/1.41.41.82.02.32.6
In percent of debt service due in the following year408433516629748867
In percent of base money35.044.855.966.277.888.5
Sources: Bank of the Republic of Haiti; and Fund staff estimates.

Goods and services.

Including grants.

Includes short-term capital, errors and omissions.

Sources: Bank of the Republic of Haiti; and Fund staff estimates.

Goods and services.

Including grants.

Includes short-term capital, errors and omissions.

Summary of Annexes

Fund relations

Haiti’s current outstanding obligations to the Fund are SDR 22.0 million, mostly on account of two Emergency Post-Conflict Assistance (EPCA) disbursements in January and October 2005. Haiti’s exchange rate regime is a managed float with no predetermined path for the exchange rate. The central bank is in the process of implementing measures to address the vulnerabilities identified in the 2006 updated Safeguards assessment. The last article IV consultation was concluded by the Executive Board on May 16, 2005 (IMF Country Report No. 05/404).

Relations with the World Bank Group1

As part of the Interim Cooperation Framework (ICF) between the transition government and donors, the Bank pledged US$147 million out of a total of US$1.1 billion. Since July 2004, the Bank’s disbursements have amounted to US$71 million. In a follow-up donor’s conference on July 25, 2006, the Bank pledged US$61 million for FY2007 out of US$751 million. A Transitional Support Strategy (TSS) was prepared in early 2004. The Bank is involved mainly in such areas as institutional capacity strengthening, governance reforms, community driven development, education, or water and sanitation.

Relations with the Inter-American Development Bank2

As part of the ICF, the IDB pledged $525 million, of which US$122 million have been disbursed. At the July 2006 donor conference, the Bank pledged US$150 million in additional assistance with the possibility of reaching up to US$225 million for the next 18 months. The IDB is involved mainly in public finance reform, road rehabilitation, agriculture, education, or local development projects.

Statistical Issues

Haiti is currently discussing its participation to the General Data Dissemination System. While data provision is broadly adequate for program purpose, there is a need to improve the timeliness and accurate reporting of statistics. Further work is required to extend the coverage of government finance statistics. Reporting requirements for commercial banks need to be improved to strengthen central bank supervision.

Letter of Intent

Port-au-Prince

November 3, 2006

Mr. Rodrigo de Rato

Managing Director

International Monetary Fund

700 19th Street, N.W.

Washington, DC 20431

Dear Mr. de Rato:

1. Over the past two years, Haiti has implemented macroeconomic policies supported by the IMF’s Emergency Post-Conflict Assistance (EPCA) that helped stabilize the economy and has carried out a reform program that contributed to improved fiscal discipline, lower inflation, and transparency. Our aim is to work together with the IMF and the rest of the international community to bring a much hoped-for new beginning for Haiti. Our ultimate objective is to boost growth on a sustainable basis, including through renewed private sector confidence and investment, as a means for improving living conditions and substantially reducing poverty in our country. We believe that the policies implemented to date and the program outlined in the attached memorandum provide a sound basis for our request for a PRGF arrangement and the decision point under the enhanced HIPC Initiative.

2. The new program (October 2006–September 2009) for which we are requesting support under a PRGF arrangement will provide a macroeconomic anchor for the needed intensive involvement of the international community in this effort. The attached Memorandum of Economic and Financial Policies outlines the medium-term and first year objectives of Haiti’s proposed program to be supported by the PRGF. Our program seeks to strengthen fiscal revenues to support more public investment and higher poverty-reducing expenditures; reduce inflation to low single digit levels; strengthen banking stability; and lay the groundwork for stronger economic growth based on private sector investment.

3. Concurrent with approval of a new PRGF arrangement, we are also requesting approval of the IMF and World Bank Executive Boards of Haiti’s decision point under the enhanced HIPC Initiative. The PRGF-supported program will provide a framework for meeting a number of the triggers needed to reach the completion point of the Initiative. We are committed to use debt relief obtained under the HIPC Initiative to boost expenditures for poverty reduction.

4. In order to facilitate the implementation of our program and address the vulnerable balance of payments position, the Government of Haiti requests assistance under the IMF’s Poverty Reduction and Growth Facility in the amount of SDR 73.71 million, or 90 percent of its quota, to be disbursed over three years. Approval of this request would result in a disbursement of SDR 28.1 million, of which SDR 20.475 million will be used for an early repurchase of past purchases under the ECPA.

5. The Government believes that the policies set forth in the attached Memorandum of Economic and Financial Policies (MEFP) are adequate to achieve the objectives of its program, but it will take any further measures that may become appropriate for this purpose. Haiti will consult with the Fund on the adoption of these measures, and in advance of any revision to the policies contained in the MEFP, in accordance with the Fund’s policies on such consultation.

6. In line with our commitment to transparency in government operations, we agree to the publication of PRGF and HIPC-related documents circulated to the IMF Executive Board.

Sincerely yours,

/s//s/
Daniel DorsainvilRaymond Magloire
Minister of Economy and FinanceGovernor
HaitiBank of the Republic of Haiti
Attachment I—Haiti: Memorandum on Economic and Financial Policies for Fiscal Year 2006–07

I. introduction

1. Haiti is facing a historical challenge of generating sustainable economic growth that should lead to lasting improvements in the living conditions of its people. The political instability of the past two decades and the recurring security problems experienced over the past three years have contributed to low growth and worsening poverty. Haiti’s social indicators, which are well below the regional averages, reflect these trends: real per capita GDP has declined by 2 percent a year on average during the period, the illiteracy rate remains high despite the efforts made to raise enrollment ratios, and access to health care, education, potable water, and electricity is very limited. Restoring growth and reducing poverty are thus among the most important tasks ahead that will require substantial efforts on our part and on the part of the international community. The reconstruction of infrastructures and the strengthening of public institutions are equally important prerequisites for resuming economic growth, improving the quality of services necessary for raising living standards, and increasing the productivity of the economy.

2. The successful presidential and parliamentary elections held earlier this year have provided our government with a strong mandate to move forward with an ambitious reform agenda to modernize the state, restore security, combat corruption, and create conditions conducive to sustainable economic growth driven by private sector investment. We intend to build on the results obtained by the transition government in the area of stabilizing the economy and improving governance and transparency in public sector operations.

3. The government’s economic and social policies will be formulated in the Poverty Reduction Strategy Paper (PRSP) that will present the principal objectives to be achieved and the various activities to be undertaken in the medium term. The Interim PRSP (I-PRSP) sets out the key components of this program that will be the subject of broad consultations with parliament, civil society, and the international partners. We intend to conclude this process at the end of the first half of fiscal year 2006–07. A three-year program supported by the IMF under the Poverty Reduction and Growth Facility (PRGF) will provide a macroeconomic anchor, critical for our strategy.

II. Recent Developments

4. During 2004–06, macroeconomic stability was significantly strengthened (see Table), and the programs supported by Emergency Post-Conflict Assistance (EPCA) have been largely on track. The cost of the destruction from the shocks experienced in 2004 (political turmoil and severe floods) has been estimated at about 5.5 percent of GDP. Those shocks contributed considerably to the 3.5 percent decline in GDP in 2004. As a result of the measures taken to reverse this decline and improve the security climate1 (fiscal consolidation, control of the fiscal deficit, stabilization of the exchange rate and payment of compensation to enterprises that had fallen victim to vandalism and looting), evidence of economic recovery was seen in the 1.8 percent increase in real GDP in FY2005. According to available estimates, growth of real GDP should continue at the rate of 2.5 percent in FY2006.

5. As a result of increased revenues and stronger expenditure controls, the central government overall deficit (including grants) is estimated to have been reduced from 3.5 percent to 1.4 percent of GDP between 2003 and 2006, and monetary financing of the fiscal deficit could therefore be curtailed. This substantial fiscal adjustment has contributed to significant reduction of the end-of-period inflation, which is expected to decline from 38 percent in 2003 to less than 12 percent in 2006. At the same time, net international reserves (NIR) increased between March 2004 and September 2006, from US$17.5 million to US$126 million. In terms of coverage of imports of goods and services, however, coverage of the gross international reserves rose slightly, from 1.3 months at the end of FY2003 to 1.8 months at the end of FY 2006.

6. In the past six months, economic and financial indicators have been favorable. Annual inflation continues to decline, the gourde has remained stable since June, and NIR are well above the target set under the EPCA-supported program. Total revenues have been higher than expected, which should allow execution of government expenditures largely as budgeted, despite shortfalls in disbursements of foreign assistance, without recourse to central bank financing. It is expected that key end-September 2006 quantitative benchmarks will be observed.

7. Structural measures have been taken over the past two years to correct the serious weaknesses identified in the areas of fiscal management and economic governance. These deficiencies impeded the efficient use of both domestic resources and external assistance. In the area of budget preparation and execution, the government recently took the following measures: (i) passage of a new law on budget preparation and execution, as well as a new budget classification and chart of accounts; (ii) approval of the 2005 and 2006 budgets before the start of the fiscal year as well as regular publication of information on the budget and its execution; (iii) preparation of the FY2006 budget according to the new budget classification; (iv) a drastic reduction of spending executed through ministerial current accounts; and (v) strengthening the external audit function through the publication of a new decree on the functioning and organization of the Supreme Audit Institution (CSCCA). Public procurement procedures were improved through: the adoption of a new decree; the creation of the National Public Procurement Commission (CNMP); the publication of government contracts; and the establishment of a supplier database. To improve financial practices and operating rules for large public enterprises, financial audits of the Ports Authority (APN), telecommunications company (TÉLÉCO), and electricity utility (Ed’H), and a rehabilitation of the accounts of TÉLÉCO and Ed’H were initiated and are largely completed. In the financial sector, the central bank (BRH) has published its financial statements for FY2004 and has already prepared the FY2005 statement, which it is preparing to publish. In addition, it has strengthened its surveillance of credit unions.

8. In addition to the results obtained over the past two years in the implementation of these structural measures, further measures were adopted and implemented over the past six months, thus strengthening the case for a PRGF-supported program. The parliament has approved a 2006/07 budget consistent with the proposed program. The government has prepared an I-PRSP and submitted it to parliament, the IMF, and the World Bank. A mechanism for monitoring subsidies to the Ed’H for electricity production has been put into place and will be operational starting October 2006. The BRH has improved its accounting methods and data reporting procedures to improve program monitoring and to strengthen the control mechanisms. For the sake of enhancing its credibility in the fight against inflation, the BRH has also prepared a note on monetary policy, aimed at informing the public about its policy formulation process. This note will be shortly published in its entirety on the BRH website.

III. Program Objectives

A. Medium-Term Strategy

9. Our program for the next three years aims at achieving annual real GDP growth of 4 percent on average (from an annual average rate of 0.3 percent for the first half of the decade), and an average inflation rate of 8.2 percent (from 14.2 percent in 2006). It also seeks to build international reserves covering 2.6 months of imports (from 1.8 months in 2006), and hold the central government overall deficit (excluding grants and externally-financed projects) to under 2 percent of GDP. In fiscal policy, our priority will be to build the capacity to collect fees and taxes, to increase poverty-reducing spending, and further improve fiscal transparency to encourage private sector investment. The BRH will conduct monetary policy so as to reduce inflation, and will at the same time strengthen banking supervision. We will pursue the reforms to improve economic governance with a view to creating conditions more apt to stimulate economic growth. Such an approach will lead to the restoration of private investor confidence, as it will be accompanied by, on the one hand, determined efforts to improve the security climate and, on the other hand, measures aimed at building on previous gains in the area of macroeconomic stability, and facilitating investment in construction and rehabilitation of the basic infrastructure.

B. Objectives for FY 2006–07

10. The objectives of the government’s program for FY 2006–07 are to attain real GDP growth of 4 percent, reduce inflation in the range of 8–9 percent (end of period), and bring NIR to US$156 million.

Fiscal policy

11. The 2006/07 budget approved by parliament at the end of September 2006 envisages an overall deficit of 1.9 percent of GDP, to be financed from external resources. On the expenditure side, priority is given to spending needed for the recovery of economic activity, notably security, job creation, provision of basic social services, energy production, and organization of local elections. We are committed to limiting government expenditure, within the framework of this budget, to the amount of revenue to be collected and external financing already identified, without recourse to BRH financing by the public treasury.

  • Projected domestic revenues total G 21,944 million (10 percent of GDP), of which G 3,358 million (1.5 percent of GDP) are taxes on petroleum products. To achieve this objective, in addition to the measures aimed at strengthening the tax administration, and combating fraud, underinvoicing, and tax evasion, we are committed to implementing the following administrative and tax measures:
    • a. Strengthening of the measures for surprise inspection of certain indirect taxes such as the turnover tax (TCA) and excise tax;
    • b. Launching of an intensive campaign to broaden the tax base through information crosschecking and sharing with the Ministry of Economy and Finance, and certain partner administrations such as customs administration (AGD), Ministry of Commerce and Industry, etc.;
    • c. Installation of the Automated Systems for Customs Data (ASYCUDA) in five provincial ports;
    • d. Strengthening of the two customs control posts, situated at the entry to Port-au-Prince;
    • e. Fighting against smuggling at border posts, in particular by improving their physical infrastructure and strengthening customs inspection patrols;
    • f. Widespread application of the procedure for filing final declarations and the requirement for the pertinent certificate to be submitted with any application made at the tax administration;
    • g. Circulation of new fiscal stamps for excise taxes on cigarettes and alcohol, as required by the new decree;
    • h. Enforcement of the latest measures described in the new decree on income tax (ISR), such as the inclusion of certain revenue sources that have been insufficiently used previously (attendance vouchers, royalties, dividends), the application of stricter sanctions, the application of the single rate of 30 percent in the calculation of corporate tax, an increase in the lump-sum tax, elimination of tax withholding, application of estimated tax withholding upon the conclusion of government contracts;
    • i. Strengthening of the process of auditing declarations within the framework of tax clearance applications;
    • j. Requirement for tax clearance as a prerequisite for all applications to the tax administration; and
    • k. Implementation of the new decree on vehicle registration and the delivery of new registration plates.
  • Total expenditures are estimated at G 60,675 million, of which G 21,944 million will be executed using domestic resources. Current expenditure is projected to reach G 21,273 million. Of this total, it is envisaged that G 8,495 million will go to the wage bill, G 4,462 million to transfers and subsidies, of which G 1,748 million for Ed’H. To make up for civil servant’ loss of purchasing power as a result of the inflation in the past two years, it is envisaged to increase their nominal wages by 17 percent. About 10.5 percent of the wage bill will be set aside for recruitment, promotion, and wage adjustments. Given the magnitude of the security problem and its impact on the confidence of economic agents, G 4,531 million will be allocated to the National Police (PNH) to enable it to increase its staffing and purchase certain materials and equipment. An additional G 125 million is envisaged for initial steps for setting up a new public security force. Domestically financed capital expenditure will be doubled, to G 3.5 billion, including spending to be executed under the program for social needs (Programme d’apaisement social—(PAS)). Taking into account the external financing of projects that is expected to reach G 35,883 million, capital expenditure will total G 39,383 million. The resources provided by the PetroCaribe agreement will finance capital spending and they will be managed in a transparent manner by the “Office of Monetization of Overseas Development Assistance Programs.” These amounts will be clearly identified in the budget in the same manner as external budgetary support.

12. At the end of FY 2006, we have experienced a large increase in fiscal revenues which thus reached 10.2 percent of GDP by September 2006, compared with the projections of 9.7 percent of GDP. An unexpected element of this increase, corresponding to 0.3 percent of GDP, largely reflects such factors as a strong increase in petroleum prices in the second half of the fiscal year, and a strong surge in activity in the telecommunications sector, in particular after a launch of a new mobile telephone company. One of the key objectives of the program is to maintain revenue effort (revenue/GDP), at about 10 percent, and gradually increase it in the following years. To achieve this goal, we are committed to implementing the following measures: (i) expand the use of the central taxpayer file to include all taxpayers identified in the tax centers of Delmas and la Croix-des-Bouquets; (ii) approve and implement a comprehensive customs control plan in the provinces; (iii) strengthening of the two customs checkpoints at the entry to Port-au-Prince to deter underinvoicing and combat the illegal importing of goods; (iv) submit to parliament and implement a new customs code; (v) maintain strict control over the granting of tax exemptions; (vi) continue full implementation of the flexible mechanism for setting petroleum product prices at the pump to ensure that they move in line with corresponding prices on the international market; and (vii) approve a draft strategic plan for the Internal Revenue Service (DGI). During the following fiscal year, all the amendments made to the tax legislation will be consolidated and published in a manual for use by tax collectors and taxpayers.

13. Improvement in the security situation and bring immediate relief to vulnerable areas is one of the priority objectives of the Public Investment Program for FY 2007. In that framework, a package of projects and interventions addressing social issues has been included in the budget, in particular addressing the following areas: (i) compensation for public sector employees improperly dismissed since February 2004 and payment of wage arrears to public sector employees (G 330 million); (iii) disarmament and demobilization of armed groups (G 50 million); and (iv) execution of investment projects aimed at improving the delivery of services in Haiti’s 140 communes.

14. In the context of 2006–07 budget execution, we are committed to keep spending within budgetary limits, in particular by: (i) setting quarterly limits on the expenditure of each ministry; (ii) strictly limiting the use of ministerial current accounts; and (iii) continuing to publish the fiscal reporting table (TOFE) monthly and budget execution information quarterly. Consistent with the program’s emphasis on poverty reduction, we will ensure that the medium-term expenditure framework is aligned with the public spending priorities identified in the I-PRSP and, eventually, in the PRSP. We will use the expenditure classification for budget preparation and execution, including for spending allocated to poverty reduction, and a quarterly report will be prepared to facilitate tracking. The tracking mechanism will permit verification whether resources released under the HIPC Initiative have been used to finance additional spending as intended.

15. Under the medium-term program, the government intends to reform comprehensively the procedures for budget preparation and execution. The MEF jointly with the BRH will implement a macroeconomic framework and budget projections for the medium-term (three-year) consistent with medium-term poverty-reducing expenditures (September 2007). Macroeconomic policy coordination will be further reinforced through the preparation of monthly liquidity projections by the Treasury and BRH for joint review, and the Ministry of Economy and Finance will implement a monthly cash plan that it will share with the BRH to improve liquidity management (March 2007). In addition, to monitor fiscal and monetary policy trends, we will establish a set of indicators monthly meetings. The government also plans to: (i) submit to parliament the draft Tax and Customs Codes to ensure uniform implementation of the existing tax laws and revision of the customs laws; (ii) prepare a plan for modernizing the information technology system of the DGI and the AGD and seek donor support to implement it; and (iii) reorganize the tax administration along functional lines, in accordance with its strategic plan.

Monetary policy

16. The BRH will strive to bring down inflation, taking into account its adverse effects on the poor and its potentially negative impact on economic growth. The monetary program for the next fiscal year envisages year-end inflation of 9 percent and an increase in NIR of US$30 million. Base money growth will be stabilized below the growth rate of nominal GDP. The program assumes that the NIR increase will be the main source of monetary expansion, with net domestic assets (as defined under the program) largely unchanged. This monetary stance will enable us to reduce the excess liquidity in the banking system and dampen inflationary expectations without an undue impact on economic recovery. To that end, the BRH will keep its key interest rate (90-day bonds) positive in real terms. The BRH remains committed to maintaining a flexible exchange rate regime.

17. To improve the transmission of monetary policy, the BRH will take action to make the weekly bond auctions more competitive. We will update the study on extending participation in the auctions to non-banking institutions, and then initiate reforms to establish auction volumes according to weekly liquidity targets, with prices to be determined according to a bidding process (currently both volumes and prices are set). We will also propose a schedule to eliminate gradually the gourde component of reserves requirements on dollar deposits; we will seek to progressively reduce the level of reserve requirements on all deposits in the following years.

18. The BRH has enhanced its accounting procedures to reduce data revision and transmission lags of final data, in line with international standards. Recommendations of the 2005 safeguards assessment will be implemented. Given the cumulative losses incurred by the central bank primarily from providing financing to the central government and its sterilization, we will prepare a plan to recapitalize the central bank. The central bank will implement a plan for a progressive elimination of its involvement in nonessential activities, in particular those related to its participation in the management and/or shareholding of certain public enterprises and institutions (see Table 2). Moreover, we will submit to parliament a new draft law aimed particularly at increasing the independence of the central bank.

Financial Sector

19. We will make every effort to solve the problems of any bank in difficulty and intensify supervision of the banking system. We will submit to parliament a draft banking law consistent with international standards, strengthening the central bank’s powers as regards corrective measures and the enforcement of prudential rules. We will request technical assistance from the IMF for updating the surveillance framework, for training the staff that are to carry out both off-site and on-site inspections. As part of the training program, we envisage participation of international experts in carrying out on-site inspections of key banks, in the context of the IDB’s financial sector loan. Additional measures will be included in the program following the Financial Sector Assessment to be conducted by the IMF and World Bank in early 2007.

Other structural reforms

20. The government of Haiti is working with donors and lenders on a program to establish a viable program for the supply of electric power, which is essential for promoting economic activity and private sector investment. Rising international petroleum prices have worsened the financial problems of the state-owned electricity company, EDH, and increased pressure on the national budget. As one of key steps toward restoring its financial equilibrium, we will ensure that public institutions pay their electricity bills to the EDH, by including an expenditure line for electricity in their budget, while seeking to limit the subsidy paid to the EDH. We will also put in place a plan to increase bill payment by private consumers. The subsidy to the EDH will now be the subject of a monitoring mechanism that will be audited by an independent firm. We will also establish a bidding system for the supply of fuel to the EDH.

21. We are determined to strengthen key state institutions, improving economic governance, and continue to enhance transparency of government financial operations. In addition to improving budgetary management, public expenditure control, and public procurement practices, we will develop a strategy to streamline the functions and operations of government ministries and key public institutions. In addition, the management of public sector enterprises will be improved and their financial reports audited, and human resource management will be substantially strengthened. Successive annual audits of the general accounts of the Public Treasury by the CSCCA will be submitted to parliament and published; the financial statements of the BRH will continue to be the subject of annual audits and their results published. Our anti-corruption unit will submit for government approval a strategic plan to combat corruption.

22. We propose to publish the LOI and MEFP for this program to keep the public informed about the government’s policies and objectives and to reaffirm our commitment to transparency and economic reform.

HIPC initiative and debt management

23. We have agreed with World Bank and IMF staff on a set of triggers for the floating completion point under the enhanced HIPC Initiative. Most of these triggers are in the sphere of fiscal management and economic governance, focusing on implementation of the legal and institutional framework introduced in the last two years. We have also submitted for IMF and World Bank Board endorsement the I-PRSP, which will serve as the basis for formulation of the PRSP and its participatory process. The objectives of the I-PRSP have been embedded in the 2006–07 budget as well as in the medium-term projections and the PAS. We will conduct broad consultations on the government’s main objectives to be formulated in the PRSP that we will complete by the second program review.

24. We will continue to adhere to the program condition that prohibits external borrowing on nonconcessional terms and the accumulation of payment arrears on external debt. Neither the government nor the central bank will guarantee nonconcessional loans with grant element of less than 35 percent (in domestic and foreign currency). This commitment excludes guarantees for the electricity sector through letters of credit/guarantee. In addition, we will improve the management of external debt and of domestic debt denominated in foreign currency, by: (i) centralizing all information on external and domestic debt in foreign currency in a single database; (ii) reconciling MEF and BRH debt data; and (iii) publishing external debt data on the MEF website. The debt data will include information by creditor of the stock, debt service due and paid.

External financing

25. Haiti faces substantial external financing needs, as reconstruction of the economic and social infrastructure requires a large volume of critical imports, whereas our gross official reserves are low (1.8 months of imports). At the July 25, 2006 conference, donors pledged new assistance totaling US$750 million over the next fiscal year, and we agreed with them on how this assistance was to be incorporated in the budget and disbursed. Most of these commitments will help meet the projected financing requirements for imports of goods and services. We are urgently seeking additional support from donors and lenders to fully finance local and legislative elections of December 2006, and the local democratic structures which will result from them. We have received assurances from Paris Club creditors of their willingness to consider our request for debt rescheduling after the IMF Executive Board meeting. In addition, we will seek to strengthen assistance coordination with the donors and lenders.

26. However, that assistance is insufficient to achieve the targeted official gross international reserves in the program. Therefore, we are requesting from the IMF financial assistance under the PRGF for the next three fiscal years. The government of Haiti requests approval of its program supported by that facility and access to assistance totaling SDR 73.71 million or 90 percent of its quota, to be disbursed over three years. Approval of this request is expected to result in a disbursement of SDR 28.1 million, of which SDR 20.475 million will be used for an early repurchase of the outstanding balances under the EPCA.

C. Program Monitoring

27. The first-year of a PRGF-supported program would cover the fiscal year 2006–07. The program will be monitored using the quarterly quantitative benchmarks and semi-annual quantitative and structural performance criteria presented in Tables 1 and 2. The formal test dates will be end-March and end-September. Quantitative targets are set on net international reserves and net domestic assets of the central bank; net domestic banking sector credit to the nonfinancial public sector; net central bank credit to the central government and to the entire nonfinancial public sector; base money (indicative benchmark); domestic arrears of the central government; external arrears accumulation; and nonconcessional external loans contracted or guaranteed by the central government. The definitions of these quantitative targets are provided in the attached Technical Memorandum of Understanding (TMU). Given the uncertainty of the amount and timing of disbursement of budgetary assistance, our program includes two adjusters (see TMU). Similarly, structural performance criteria are set for end-March and end-September and are listed in Table 3, including those constituting prior actions and indicative benchmarks. A monitoring committee composed of high-lever officials from the BRH and MEF and of the IMF resident representative in Haiti, will be created by end-November to monitor program implementation. We expect the first review of the program to be completed by May 15, 2007 and the second review to be completed by November 15, 2007.

28. The authorities will not impose restrictions on payments and transfers for international transactions, introduce new or intensify trade restrictions for balance of payments purposes, resort to multiple currency practices, or enter into bilateral payments agreements incorporating restrictive practices with other IMF members. Haiti will consult with the IMF periodically, in accordance with the IMF’s policies on such consultations, concerning the progress made by Haiti in the implementation of policies and measures designed to address the country’s balance of payments difficulties.

Table 1.Haiti: Indicative Targets and Quantitative Performance Criteria, FY 2007 1/
Actual stock atCumulative Flows since September 2006
end-September 2006Ind. targetPert criterionInd. targetPerf. criterion
Dec 06Mar 07Jun07Sept. 07
Net central bank credit to the NFPS (in millions of gourdes)21,153−50−349−3610
Of which:
Central Government21,325−50−349−3610
Rest of NFPS−1720000
Net domestic banking sector credit to the nonfinancial public sector20,616−50−349−3610
(in millions of gourdes)
Net domestic assets of the central bank (in millions of gourdes) - ceiling 1/5,8841,02759−115−273
Domestic arrears accumulation of the central government 2/00000
New contracting or guaranteeing by the central government or the BRH of nonconcessional external debt 2/ 3/ 4/
(In millions of U.S. dollars)
Up to and including one year00000
Over one-year maturity00000
Net international reserves of central bank (in millions of U.S. dollars) - floor12610152030
External arrears accumulation (in millions of U.S. dollars) 2/ 5/00000
Memorandum items:6/
Base money growth - indicative target 7/23,1721,6091,1641,6192,292
Government total revenue, excl. grants (in millions of gourdes) 8/5,94511,36416,83821,944
Government total expenditure, excl. ext-fin investment (in millions of gourdes) 8/6,53412,24517,93424,849
Sources: Ministry of Finance, Central Bank of Haiti, and Fund staff estimates.

For program monitoring purposes, NDA is defined as currency in circulation minus NIR accrual in gourde terms. Program exchange rate of G42/US$.

On a continuous basis.

Excludes guarantees granted to the electricity sector in the form of credit/guarantee letters.

Includes foreign currency denominated debt.

To all creditors except those who agreed on debt service deferral.

Not program targets.

Includes recapitalization operation of a commercial bank.

Accumulated flows over the program period.

Sources: Ministry of Finance, Central Bank of Haiti, and Fund staff estimates.

For program monitoring purposes, NDA is defined as currency in circulation minus NIR accrual in gourde terms. Program exchange rate of G42/US$.

On a continuous basis.

Excludes guarantees granted to the electricity sector in the form of credit/guarantee letters.

Includes foreign currency denominated debt.

To all creditors except those who agreed on debt service deferral.

Not program targets.

Includes recapitalization operation of a commercial bank.

Accumulated flows over the program period.

Table 2.Prior Actions and Structural Performance Criteria and Benchmarks, 2006/07
MeasuresDate

(Month-end)
1. Prior actions
  • Parliamentary approval of the 2006/07 budget in line with the program by end-September 2006 and its publication in the official journal one week before the meeting of the Executive Board to discuss the PRGF program.
Published in the Official Journal on September 29, 2006
  • Complete the I-PRSP.
Formally transmitted to the IMF and World Bank on September 29, 2006
  • Implement a monitoring mechanism for fiscal transfers to the Ed’H consistent with the electricity supply targets. Provide monthly data to the Minister of Economy and Finance and publish the amount of transfers on the Ministry’s website.
Monthly data provided to MEF, table on transfers published on October 27, 2006
  • Adoption by the BRH and MEF of a plan to deal with banking system weaknesses.
Approved on November 6, 2006
  • Strengthen the consistency of the TOFE by isolating, in the calculation of monetary financing based on Table 10R, the operations of autonomous bodies (list to be defined).
The list of agencies and the balance of each for end-September was provided on October 31, 2006. Regular reporting using the Table 10R will begin for end-October.
  • The BRH will establish procedures to communicate reliable data for program monitoring in line with the recommendations on safeguards.
The BRH established committees to review the data and its compilation process, and procedures for reporting of commercial banks were strengthened. These actions were confirmed on or prior to October 30, 2006.
  • The BRH will prepare and adopt an action plan to ensure that the key recommendations on safeguards are implemented before the first review of the program.
The BRH provided a plan on October 30.
2. Structural performance criteria
  • Approve a comprehensive plan to establish customs control in the provinces.
December 2006
  • Start implementing the plan based on an agreed timetable.
March 2007
  • Expand use of the central taxpayer file to include all taxpayers identified in the Delmas and Croix-des-Bouquets tax centers.
March 2007
  • Implementation on schedule of approved plan, referred to in prior actions, to deal with banking system weaknesses.
March 2007
  • Implement the key recommendations on safeguards in accordance with the action plan.
March 2007
  • Continue to limit spending executed through current accounts to below 10 percent of budget appropriations for nonwage current expenditures as defined in paragraph 18 of the TMU.
Quarterly
  • Prepare a plan to recapitalize the central bank.
September 2007
  • The BRH will cease certain nonessential activities related, in particular, to its participation in the management of and/or shareholding in the BPH, TÉLÉCO, and SONAPI, in the following phases:
  • Adopt a strategy for discontinuing BRH involvement in BPH management;
March 2007
  • Submit to parliament for approval the draft law on the option adopted with respect to discontinuing involvement with the BPH;
June 2007
  • Adopt a strategy for discontinuing BRH involvement with TÉLÉCO;
June 2007
  • Formulate draft laws amending the APN and SONAPI organic laws to, inter alia, change the composition of the Boards of both institutions; and
March 2007
  • Submit to parliament for approval amendments to the laws on the APN and SONAPI changing the composition of the boards of both institutions.
June 2007
  • Submit to parliament a draft banking law consistent with international standards, as described in the TMU.
March 2007
3. Structural benchmarks
  • Set quarterly limits on the expenditure of each ministry and ensure, within the ministries, that all recruitment and promotion proposals are within budget appropriations.
September 2007
  • Submit the new draft customs code to parliament.
March 2007
  • The Minister of the Economy and Finance will approve a medium-term strategic plan for the DGI, setting out the corporate vision, mission, values, goals, and objectives.
March 2007
  • Based on the existing expenditure classification, adopt a mechanism for tracking expenditure allocated to poverty reduction and produce quarterly reports on these expenditures.
March 2007
  • Formulate a plan for the settlement of domestic arrears.
March 2007
  • Complete the payment of wage and nonwage arrears.
September 2007
  • Expand the TOFE coverage by including in it the ministrie’ and deconcentrated agencie’ own resources and related expenditure.
March 2007
  • Every three months, conduct an independent confirmation audit of the mechanism for monitoring the subsidy to the Ed’H.
March 2007
Attachment II—Haiti: Technical Memorandum of Understanding

Haiti’s performance under the program (October 2006–September 2007) supported by the Poverty Reduction and Growth Facility (PRGF) will be assessed on the basis of the observance of quantitative performance criteria as well as compliance with structural performance criteria and benchmarks. This Technical Memorandum of Understanding (TMU) defines the quantitative performance criteria and indicative targets, specified in Tables 1 and 2 of the Memorandum of Financial and Economic Policies (MEFP). It also lays down the monitoring and reporting requirements. The quantitative performance criteria under the program are set for end-March and end-September 2007, and the quarterly targets for end-December 2006 and end-June 2007 are indicative.

I. Definitions

A. Net BRH Credit to the Central Government

1. The change in net BRH credit to the central government is defined as, and will be measured using:1

  • a. Change in net domestic credit to the central government from the BRH according to Table 10R of the BRH;
  • b. Change in the stock of special accounts (“Comptes Spéciaux”) included in Table 10R of the BRH will be excluded from change in net domestic credit to the central government as defined above.2

2. Changes in any other special account (as defined in footnote 2) maintained or established at the BRH will be treated as in 1.b above.

3. The changes will be measured on a cumulative basis from the stock at end-September 2006.

Ceilings for the Cumulative BRH Credit to the Central Government(In millions of gourdes)
December 2006March 2007June 2007September 2007
−50−349−3610

B. Net Domestic Banking Sector Credit to the Nonfinancial Public Sector3

4. The change in net domestic banking sector credit to the nonfinancial public sector is defined as, and will be measured using:

  • a. Change in the stock of net domestic credit of the public sector from the BRH according to Table 10R of the BRH;
  • b. Change in the stock of net domestic credit of the public sector from the Banque Nationale de Crédit (BNC) and other domestic banks;
  • c. Change in the stock of special accounts according to Table “Comptes Spéciaux” of the BRH will be excluded from the definition of net domestic banking sector credit to the nonfinancial public sector.

5. Changes in any other special account (as defined in footnote 2) maintained or established in the BRH, BNC, or BPH will be excluded.

6. The changes will be measured on a cumulative basis from the stock at end-September 2006.

Ceilings for the Cumulative Net Domestic Banking Sector

Credit to the Nonfinancial Public Sector
(In millions of gourdes)
December 2006March 2007June 2007September 2007
−50−349−3610

C. Net International Reserves4

7. The change in net international reserves will be measured using:

  • a. Change in net foreign assets (“Réserves de change nettes” of the BRH Table 10R);
  • b. Minus the change in foreign currency deposits of commercial banks at the BRH (“Dépôts à vue en US$ et en EURO des bcm à la BRH” of the BRH Table 10R); and

8. Data will be expressed in U.S. dollar terms and valued at the corresponding end-period market exchange rate.

9. For definition purposes, net international reserves are the difference between the BRH’s gross foreign assets (comprising gold, special drawing rights, all claims on nonresidents, and BRH claims in foreign currency on domestic financial institutions) and reserve liabilities (including liabilities to nonresidents of one-year maturity or less, use of Fund credit, and excluding trust funds). Swaps in foreign currency with domestic financial institutions and pledged or otherwise encumbered reserve assets (including foreign currency deposits of commercial banks at the BRH) are excluded from net international reserves; however, foreign exchange deposits held at the BRH for externally funded projects are included

10. The changes will be measured on a cumulative basis from the stock at end-September 2006.

Floor for Cumulative Change in Net International Reserves(In millions of dollars)
December 2006March 2007June 2007September 2007
10152030

D. Net Domestic Assets of the BRH

11. The change in net domestic assets of the BRH is defined as, and will be measured using:

  • a. Change in currency in circulation (“Monnaie en circulation” of the BRH Table 10R);
  • b. Minus the change in the U.S. dollar amount of net international reserves (program definition according to section C above), converted into gourdes at the program exchange rate.

12. The program definition of net domestic assets of the BRH will use a program exchange rate of G42 per U.S. dollar for the period October 2006–September 2007.

13. The changes will be measured on a cumulative basis from the stock at end-September 2006.

Ceilings for Cumulative Change in Net Domestic Assets of the BRH(In millions of gourdes)
December 2006March 2007June 2007September 2007
102759−115−273

E. Nonconcessional External and Foreign-Currency Denominated Debt

14. The definition of debt comprises all instruments, including new financial instruments that share the characteristics of debt, as set forth in paragraph No. 9 of the Guidelines on Performance Criteria with Respect to Foreign Debt (Decision No.12274-(00/85), August 24, 2000).

15. The concessional nature of debt will be determined on the basis of the commercial interest reference rates (CIRRs), as laid out by the Organization for Economic Cooperation and Development (OECD). A debt is defined as concessional if, on the date of its initial disbursement, the ratio between the present value of the debt computed on the basis of reference interest rates and the face value of the debt is less than 65 percent (equivalent to a grant element of at least 35 percent).

16. Excluded from the ceiling are short-term import-related credits, rescheduling arrangements, borrowing from the Fund, and guarantees for the electricity sector in the form of letters of credit.

17. The ceilings for contracting and guaranteeing nonconcessional debt by the central government and the BRH will be set at zero continuously throughout the program period.

F. Government Current Accounts

18. Ministerial discretionary accounts are mechanisms for channeling expenditures. In principle, the use of these accounts should be limited to unforeseen emergency outlays. The BRH will provide monthly information on the stock of these current accounts for the central government (as defined in footnote 1). The use of current accounts will be measured on a cumulative basis for each quarter during the fiscal year.

G. Arrears

19. External payment arrears are defined as overdue payments (principal and interest) to non-residents on debt contracted and guaranteed by the central government, and will be defined according to the terms of indebtedness of each creditor. The criterion of zero accumulation of external arrears will be monitored on a continuous basis.

20. Domestic arrears are defined to include: (i) any bill that has been received by a spending ministry from a supplier for goods and services delivered (and verified) and for which payment has not been made within 45 days after the due date of payment; (ii) wage, salary, and other payment to government employees, including direct and indirect allowances, that were due to be paid in a given month but remained unpaid on the 30th of the following month; and (iii) interest or principal obligations which remain unpaid 30 days after the due date of payment. This definition excludes changes in the stock of arrears on account of interest, penalties and valuation changes.

H. Base money

21. The change in base money is defined as, and will be measured using:

  • a. Change in the stock of currency in circulation from Table 10R of the BRH.
  • b. Change in the stock of reserve deposits of commercial banks at the BRH, from Table 10R, using gourde sight deposits of commercial banks (depots a vue gourdes des BCM a la BRH) and cash-in-vault of commercial banks (Encaisses des BCM).

22. The changes will be measured on a cumulative basis from the stock at end-September 2006.

II. Quarterly Adjustments

23. The quarterly performance criteria and indicative targets will be adjusted for the following amounts:

A. Adjustment for Domestic Arrears Accumulation

24. The ceilings for net BRH credit to the central government and the net domestic banking sector credit to the nonfinancial public sector will be adjusted downward for the amount of outstanding domestic arrears accumulation.

B. Adjustment for Program External Financing

25. The program ceilings on BRH credit to the government and the nonfinancial public sector, and on BRH net domestic assets and the floor on NIR reflect the assumed flow of net external financing, defined as disbursements of cash budgetary assistance, exceptional financing (including rescheduled principal and interest) and debt relief minus debt service. The adjuster will be calculated on a cumulative basis from October 1, 2006.

26. If during October 2006–September 2007 actual net external financing exceeds net programmed total external financing by more than US$5 million, the ceiling on net BRH credit to the government and of the public sector and on BRH net domestic assets will be adjusted downward, and the floor on NIR will be adjusted upward, by the amount of the difference between actual and programmed external financing in excess of US$5 million, converted into gourdes at the program exchange rate.

27. If actual external financing is lower than programmed external financing, the ceilings on BRH credit to the government and of the public sector and on BRH net domestic assets will be adjusted upward, and the floor on NIR will be adjusted downward, by the amount of the difference between actual and programmed external financing, converted into gourdes at the program exchange rate. The amount of this adjustment will be limited to US$20 million. Future disbursements under PetroCaribe to finance projects included in the domestic public investment program are not subject to this adjuster.

28. The adjuster will be calculated on a cumulative basis from October 1, 2006.

Program External Financing(In millions of U.S. dollars)
DecemberMarchJuneSeptember
2006200720072007
9.920.722.152.9
Program net disbursements

III. Draft Banking Law

29. Submit to Parliament a draft banking law in accordance with Basel Core Principles. At a minimum, the draft law shall: (i) determine clear procedures and criteria for processing applications for bank licensing; (ii) grant the BRH enforceable powers to refuse the initial or downstream acquisition of significant ownership holdings in banks if the solvency and integrity of the acquirers is not sufficiently documented; (iii) determine basic standards of bank governance and give the BRH veto powers for the appointment of board members and key managers; (iv) determine minimum capital adequacy requirements in accordance with Basel I principles while leaving flexibility for upgrading to Basel II standards; (v) provide limits on large exposures and connected lending; (vi) provide for adequate supervision of financial conglomerates on a consolidated basis; (vii) determine basic risk management standards and limits; (viii) provide the BRH with a set of specific measures for applying prompt corrective action according to the seriousness of capital insufficiency or other bank weaknesses or unsound banking practices; (ix) provide the BRH with adequate powers and legal protection for regulating and supervising bank operations; and (x) establish a framework that allows the BRH to impose reorganization and liquidation measures on banks in a timely and forceful way.

IV. Provision of Information to IMF Staff

30. To ensure adequate monitoring of the program, the authorities will provide daily, weekly and monthly monetary and fiscal indicators to IMF staff, as well as other data upon request.

A. Daily

31. Monetary Indicators: (a) Exchange rate; (b) Volume of foreign exchange transactions, of which BRH sales and purchases; (c) Gross international reserves; and (d) Net international reserves.

These data will be reported with maximum two-day lag.

B. Weekly

32. Monetary Indicators: (a) Stock of BRH bonds; (b) Deposits at commercial banks (in gourdes and U.S. dollars); (c) Credit to private sector (in gourdes and U.S. dollars); (d) Credit to central government and public sector (net); and (e) Currency in circulation.

33. Fiscal Indicators: (a) Revenues (internal, external, other) and (b) Expenditures on cash basis (wages and salaries, goods and services, external debt, current accounts).

34. These data will be reported with maximum five-day lag (four-week final).

C. Monthly

35. Table 10 R and Table 20 R.

36. Table on the “comptes courants.”

37. Table “trésorerie de devises.”

1Adapted from text prepared by the staff of the World Bank in September, 2006.
2Adapted from text prepared by the staff of the IDB in September, 2006
1In particular, in the commercial and industrial areas of the capital.
1The central government comprises the presidency, prime minister’s office, parliament, national courts, treasury, line ministries, and 10 autonomous governmental agencies. It includes expenditures financed directly by foreign donors through ministerial accounts (comptes courants).
2Special accounts are gourde accounts of the government at the BRH which can only be used with the authorization of donors. If included, movements in these accounts would appear as BRH credit to the government.
3The NFPS includes the central government, the key public enterprises (Teleco, EDH, APN, AAN, and CAMEP), and foreign-financed projects.
4The NFPS includes the central government, the key public enterprises (Teleco, EDH, APN, AAN, and CAMEP), and foreign-financed projects.

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