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Haiti

Author(s):
International Monetary Fund
Published Date:
April 2008
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I. Recent Developments and Performance Under the Program

1. Security improved markedly throughout 2007. In Port-au-Prince, a reduction in gang-related violence and crime has contributed to a visible increase in street activity and vehicle traffic. Still, the situation remains fragile, as illustrated by an uptick in kidnappings during the recent holiday season. In October 2007, the UN Security Council extended the mandate for its stabilization mission by one year, and widened it to enable UN troops to patrol borders. This should help combat arms and drug trafficking.

2. Despite periodic political tension, democratic institutions are being strengthened. Parliament has passed key legislation, including a supplementary budget for 2007, the 2008 budget, and judicial reforms. In December 2007, the government forged a difficult agreement to replace the provisional electoral council, which had been mired in internal disputes. It is hoped that this will allow delayed elections to proceed, to renew one-third of the Senate. President Preval has continued his forceful drive to improve governance and combat corruption.

3. The macroeconomic goals of the first program year were largely met, although growth accelerated somewhat less than expected. Based on preliminary data, real GDP is estimated to have risen by 3.2 percent in FY2007 (October-September), almost one percentage point more than in FY2006 but below the original program objective of 4 percent (Figure 1). Growth was driven by private consumption, which benefited from the more stable environment and strong remittances. Public investment also contributed to growth, even though underexecution of the budget meant that fiscal stimulus was considerably less than originally envisaged. In contrast, private investment appears to have contracted, following a large investment in telecommunications in FY2006. Inflation declined to 7.9 percent, in line with the program, aided by 10 percent nominal appreciation of the gourde against the U.S. dollar.

Figure 1.Haiti - Economic Performance at a Glance

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

Haiti - Real GDP growth, sectoral contribution(in percent)
20062007
Prog.Rev.Prog.Prel.
Real GDP2.34.03.53.2
Consumption6.39.40.62.4
Private Consumption5.79.34.42.2
Public Consumption0.60.0-3.80.2
Gross Domestic Investment0.86.95.21.1
Private Investment-0.62.62.4-1.2
Public Investment1.34.32.82.2
External Sector-4.8-12.4-2.3-0.2
Exports1.12.42.8-0.6
Imports-5.9-14.7-5.10.4
Source: IMF Staff estimates based on data from the Haiti Statistical Institute and the Ministry of Economy and Finance
Source: IMF Staff estimates based on data from the Haiti Statistical Institute and the Ministry of Economy and Finance

Haiti: Real Effective Exchange Rate Index

4. Performance against targets under the PRGF-supported program was strong. As in the first program review, quantitative PCs and indicative targets for the second review (end-September 2007 test date) were met with ample margins (Table 1).

Table 1.Haiti: Indicative Targets and Quantitative Performance Criteria for FY 2007
Actual stock at end-Cumulative Flows since September 2006
Dec-06Mar-07Jun-07Sep-07
Sep-06Prog. with adjustorActualDeviation from prog w/adjustorProg. with adjustorActualDeviation from prog w/adjustorProg. with adjustorActualDeviation from prog w/adjustorProg. with adjustorPrel.Deviation from prog w/adjustor
Performance criteria
Net central bank credit to the NFPS (in millions of gourdes)21,002211-581-792333-1,845-2,178-1,031-2,208-1,1771,446-1,097-2,542
Of which:
Central Government21,176211-327-538333-1,452-1,784-634-2,002-1,3681,446-961-2,407
Rest of NFPS-1740-254-2540-394-394-398-2061910-135-135
Net domestic banking sector credit to the nonfinancial public sector (in millions of gourdes)20,118-50-747-697333-2,031-2,363-1,316-2,394-1,0781,446-1,403-2,848
Net domestic assets of the central bank (in millions of gourdes) - ceiling 1/5,6851,288-1,497-2,785740-3,819-4,559-3,344-5,258-1,913-2,833-6,054-3,221
Domestic arrears accumulation of the central government 2/0000000000000
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 year0000000000000
Over one-year maturity0000000000000
Net international reserves of central bank (in millions of U.S. dollars) - floor 5/13046561-1929497129329916263
External arrears accumulation (in millions of U.S. dollars) 4/0000000000000
Indicative target:
Change in base money23,1721,6091,502-1071,164922-2421,2391,278392,2941,758-536
Memorandum items:
Change in currency in circulation11,1591,4511,213-23869358-635261-96-357859412-448
Government total revenue, excl. grants (in millions of gourdes)5,9455,847-9811,36411,73637218,31817,360-95725,00023,197-1,803
Government total expenditure, excl. ext-fin investment (in millions of gourdes)6,5345,694-84012,24510,336-1,90818,98816,411-2,57728,07823,112-4,966
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 in gourde terms. Program exchange rate of G42/$ through end-March and G40/$ through end-Sept.

On a continuous basis.

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

Includes foreign currency denominated debt.

Including letters of credit, guarantees, and earmarked project accounts

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 in gourde terms. Program exchange rate of G42/$ through end-March and G40/$ through end-Sept.

On a continuous basis.

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

Includes foreign currency denominated debt.

Including letters of credit, guarantees, and earmarked project accounts

  • Fiscal revenues performed well, but expenditure execution fell short of expectations (Table 4). Domestic revenues for FY2007 exceeded estimates at program approval (original budget) by 0.6 percent of GDP, reflecting the expansion of the economy and improved revenue administration. However, revenue did not reach the ambitious target set at the time of the first review (linked to the supplementary budget), partly because currency appreciation reduced revenues collected at the border. Public expenditures rose significantly, but execution on a cash basis was lower than both the ambitious supplementary budget and the original budget. As a result, the overall balance (excluding grants and foreign-financed projects) for FY 2007 was close to zero, compared with a deficit of 1.3–1.4 percent of GDP envisaged at program approval and the first review. Commitments for budget support were higher than expected, but in light of the underexecution of expenditure some grants were shifted from FY2007 to FY2008. Late passage of the supplementary budget resulted in a surge of expenditure commitments that were not executed before the end of the fiscal year.
  • Base money growth remained within the indicative program target (Table 5). The accumulation of government deposits—because of budget underexecution—facilitated base money control, together with sterilization of foreign exchange purchases through central bank (BRH) bond issuances. In July, the BRH took an important step toward a quantity-based policy framework, by allowing competitive bidding in its bond auction, which led benchmark interest rates to decline from 13 percent to less than 5 percent. However, this decline did not translate into much reduction of commercial bank lending rates, and credit growth in gourdes remained flat throughout FY2007, reflecting both structural factors constraining supply and weak demand from businesses. Growth of dollar-denominated credit was more dynamic, but reportedly concentrated in a few specific sectors (e.g., exports, telecommunications). Anecdotal evidence indicates activity in the microcredit sector has remained vibrant.
  • Improvements in both the current and capital account allowed for a strengthening of international reserves well beyond program targets (Table 6). The increase in reserves was made possible by robust inflows from transfers, net lending and FDI, along with debt relief and IMF net disbursements. Overall, NIR rose by US$162 million (including letters of credit, guarantees, and earmarked project accounts) against an original program floor of US$30 million.
Table 2.Haiti: Structural Performance Criteria and Benchmarks for the First and Second Program Reviews
MeasuresDate

(Month-end)
Status
1. Structural performance criteria
  • Approve a comprehensive plan to establish customs control in the provinces.
December 2006Met
  • Start implementing the plan based on an agreed timetable.
March 2007Met
  • Expand use of the central taxpayer file to include all taxpayers identified in the Delmas and Croix-des-Bouquets tax centers.
March 2007Met
  • Implementation on schedule of approved plan, referred to in prior actions, to deal with banking system weaknesses.
March 2007Met
  • Implement the key recommendations on safeguards in accordance with the action plan.
March 2007Met
  • 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.
QuarterlyMet
  • Submit to parliament a draft banking law consistent with international standards, as described in the TMU.
March 2007Met with delay, waiver granted.
  • 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;
    • Formulate draft laws amending the APN and SONAPI organic laws to, inter alia, change the composition of the Boards of both institutions;
    • Submit to parliament for approval the draft law on the option adopted with respect to discontinuing involvement with the BPH;
    • Submit to parliament for approval amendments to the laws on the APN and SONAPI changing the composition of the boards of both institutions.




March 2007



March 2007



June 2007



June 2007




Met



Met



Met



Met
  • Adopt a strategy for discontinuing BRH involvement with TÉLÉCO
June 2007Moved to March 2008
  • Prepare a plan to recapitalize the central bank.
September 2007Moved to March 2008
  • Begin independent assessment of possible recapitalization needs and required financial and operational restructuring of BNC.
September 2007Not met, prior action for 2nd review
  • Complete a review of implementation issues for the adoption of IFRS by the BRH
September 2007Not met, prior action for 2nd review
  • Adopt detailed implementation plan for modernization of the DGI.
September 2007Met
2. Structural benchmarks
  • Submit the new draft customs code to parliament.
March 2007Met with delay
  • 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 2007Met
  • Based on the existing expenditure classification, adopt a mechanism for tracking expenditure allocated to poverty reduction and produce quarterly reports on these expenditures.
March 2007Met
  • Formulate a plan for the settlement of domestic arrears.
March 2007Met with delay
  • Expand the TOFE coverage by including in it the ministries’ and deconcentrated agencies’ own resources and related expenditure.
March 2007Met
  • Every three months, conduct an independent confirmation audit of the mechanism for monitoring the subsidy to the Ed’H.
March 2007Met with delay
  • Complete the payment of wage and nonwage arrears.
September 2007Met
  • 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 2007Met
  • Monthly monetary program data to be signed off by the Central Bank’s interdepartmental and steering committees
Monthly, starting August 2007Met
Table 3.Haiti: Selected Economic and Financial Indicators(Fiscal year ending September 30)
Nominal GDP (2006): US$ 4.8 billionGDP per capita (2006): US$ 527
Population (2006): 9.1 millionAdult literacy (2005): 53 percent
Share of pop. living with less than $1 a day (2003): 54 percentUnemployment rate (2003): 27 percent
2006200720082009
Prog.Rev.Prog.Prel.Proj.Proj.
(change over previous year unless otherwise stated)
National income and prices
GDP at constant prices2.34.03.53.23.74.0
GDP deflator16.68.19.09.09.77.5
Consumer prices (period average)14.29.29.09.09.77.5
Consumer prices (end-of-period)12.49.08.07.99.07.0
External sector
Exports (f.o.b.)7.710.311.95.616.515.6
Imports (f.o.b.)18.314.65.94.216.28.4
Real effective exchange rate (+ appreciation)13.411.3
Central government
Total revenue and grants 1/22.828.439.025.827.06.4
Total revenue excl. grants23.79.224.315.433.415.9
Current expenditure12.39.523.29.333.319.4
Total expenditure24.430.933.422.330.118.1
Money and credit
Credit to the nonfinancial public sector (net)-4.90.00.0-7.00.00.0
Credit to private sector5.516.85.110.913.213.2
Base money5.59.99.97.69.610.5
Broad money (incl. foreign currency deposits)10.010.49.74.810.811.5
(percent of GDP, unless otherwise stated)
Central government
Overall balance 1/-0.9-1.9-0.3-0.5-1.0-2.9
Overall balance (excl. grants)-4.4-7.3-6.0-5.4-5.9-6.4
Overall balance (excl. grants and externally-financed projects)0.0-1.3-1.4-0.1-1.1-1.7
Overall balance (excl. ext.-financed projects and project grants)0.60.10.20.80.2-1.7
Central bank net credit to the central government-0.20.00.0-0.40.00.0
Savings and investment
Gross investment28.931.030.928.329.630.9
Gross national savings28.521.532.128.528.328.4
Of which: Central government savings1.62.92.72.63.01.4
External current account balance (incl. official grants)-0.4-9.51.20.2-1.3-2.5
External current account balance (excl. official grants)-8.2-1.0-6.4-6.6-7.5-7.3
External public debt (end-of-period)29.727.026.025.623.022.9
Total public debt (end-of-period) 2/33.529.830.329.426.926.9
External public debt service (in percent of exports of goods and nonfactor services) 3/7.59.35.18.98.46.7
(millions of US$, unless otherwise stated)
Overall balance of payments78.733.7156.8160.257.8-102.4
Net international reserves (program) 4/92.4160.0265.0259.0299.0359.0
Liquid gross reserves 5/336.6401.2534.7544.7644.1740.0
In months of imports of the following year1.82.02.42.52.72.9
Exchange rate (gourdes per dollar, end-of-period)39.136.4
Nominal GDP (millions of gourdes)200,456196,266226,195225,560256,594286,872
Nominal GDP (millions of dollars)4,8364,7365,6556,0317,1287,572
Sources: Ministry of Economy and Finance; Bank of the Republic of Haiti; and Fund staff estimates.

From 2009 onward, budget grants are assumed zero until firm donor commitments are forthcoming.

Includes external public sector debt, outstanding Central Bank bonds, and credit from commercial banks to the NFPS. It does not reflect possible completion point debt reduction in 2009.

In line with actual debt service schedule.

Excluding commercial bank forex deposits, letters of credit, guarantees, and earmarked project accounts

Gross reserves excluding capital contributions to international organizations.

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

From 2009 onward, budget grants are assumed zero until firm donor commitments are forthcoming.

Includes external public sector debt, outstanding Central Bank bonds, and credit from commercial banks to the NFPS. It does not reflect possible completion point debt reduction in 2009.

In line with actual debt service schedule.

Excluding commercial bank forex deposits, letters of credit, guarantees, and earmarked project accounts

Gross reserves excluding capital contributions to international organizations.

Table 4a.Haiti: Central Government Operations(Fiscal year ending September 30; in millions of gourdes)
2006200720082009
Prel.Prog.Rev.Prog.Prel.Proj.Proj.
Total revenue and grants27,12334,17837,74834,12043,32546,088
Domestic revenue20,11021,94425,00023,19730,93535,859
Domestic taxes12,87815,09517,16115,74020,42223,672
Customs duties6,0996,4647,4276,8289,26010,733
Other current revenue1,1333864126291,2541,454
Grants7,01312,23412,74810,92412,39010,229
Budget support 1/1,2483,0303,4572,1223,448
Project grants5,7659,2039,2918,8018,94210,229
Total expenditure 2/28,88438,47038,47035,32245,97054,279
Current expenditure18,23621,34922,36919,93126,56431,714
Wages and salaries6,4708,4959,5098,08712,61714,458
Net Operations 2/4,5886,5937,3564,1237,5159,316
Operations4,5056,5937,3566,3227,5159,316
Interest payments1,6251,7997392,3918251,830
Transfers and subsidies5,5534,4624,7645,3305,6076,110
Capital expenditure10,64817,12216,10115,39119,40622,565
Domestically financed1,9403,5005,7093,5467,2199,008
Foreign-financed8,70813,62210,39211,84512,18813,557
Overall balance-1,761-4,292-722-1,201-2,645-8,191
Excl. grants-8,774-16,526-13,470-12,125-15,035-18,420
Excl. grants and externally financed projects-67-2,904-3,078-280-2,847-4,863
Excl. project grants and ext. financed projects1,1821263791,842601-4,863
Financing1,7614,2927221,2012,6451,569
External net financing2,5782,049-1,528-162,2351,569
Loans (net)2,1933,9082101,7092,2351,569
Disbursements3,7195,6731,7013,4083,9653,328
Budget support7761,255600364720
Project loans2,9434,4181,1013,0443,2453,328
Amortization-1,526-1,765-1,491-1,698-1,731-1,759
Arrears (net) 3/385-1,859-1,737-1,72600
Internal net financing-817-294-446-1,426-2500
Banking system-7450-446-1,42600
BRH-46200-96100
Commercial banks-2820-446-46500
Other nonbank financing-120-29400-2500
Arrears (net)4800000
Prospective rescheduling 4/01,9781,8791,8601290
HIPC 5/0559817784531864
Unidentified financing (in U.S. dollars)0.00.00.00.00.0152.0
Sources: Ministry of Finance and Economy; and Fund staff estimates

Includes grants from Canada to cover debt service to the IDB.

Commitment basis except for domestically financed capital expenditure, which is reported on cash basis from 2007 on.

Arrears accumulation in 2005-06 reflects an informal deferral of debt service to France, Italy and Spain.

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

Includes grants from Canada to cover debt service to the IDB.

Commitment basis except for domestically financed capital expenditure, which is reported on cash basis from 2007 on.

Arrears accumulation in 2005-06 reflects an informal deferral of debt service to France, Italy and Spain.

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

HIPC debt relief.

Table 4b.Haiti: Central Government Operations(Fiscal year ending September 30; in percent of GDP)
2006200720082009
Prel.Prog. 1/Rev.Prog. 1/Prel.Proj.Proj.
Total revenue and grants13.515.216.715.116.916.1
Total revenue10.09.711.110.312.112.5
Domestic revenue10.09.711.110.312.112.5
Domestic taxes6.46.77.67.08.08.3
Customs duties3.02.93.33.03.63.7
Other current revenue0.60.20.20.30.50.5
Grants3.55.45.74.84.83.6
Budget support 2/0.61.31.50.91.3
Project grants2.94.14.13.93.53.6
Total expenditure 3/14.417.117.115.717.918.9
Current expenditure9.19.59.98.810.411.1
Wages and salaries3.23.84.23.64.95.0
Net Operations 4/2.32.93.31.82.93.2
Operations2.22.93.32.82.93.2
Interest payments0.80.80.31.10.30.6
Transfers and subsidies2.82.02.12.42.22.1
Capital expenditure5.37.67.16.87.67.9
Domestically financed1.01.62.51.62.83.1
Foreign-financed4.36.04.65.34.74.7
Overall balance-0.9-1.9-0.3-0.5-1.0-2.9
Excl. grants-4.4-7.3-6.0-5.4-5.9-6.4
Excl. grants and externally financed projects0.0-1.3-1.4-0.1-1.1-1.7
Excl. project grants and ext. financed projects0.60.10.20.80.2-1.7
Financing0.91.90.30.51.00.8
External net financing1.30.9-0.70.00.90.5
Loans (net)1.11.70.10.80.90.5
Disbursements1.92.50.81.51.51.2
Budget support0.40.60.30.20.3
Project loans1.52.00.51.31.31.2
Amortization-0.8-0.8-0.7-0.8-0.7-0.6
Arrears (net) 5/0.2-0.8-0.8-0.80.00.0
Internal net financing-0.4-0.1-0.2-0.6-0.10.0
Banking system-0.40.0-0.2-0.60.00.0
BRH-0.20.00.0-0.40.00.0
Commercial banks-0.10.0-0.2-0.20.00.0
Other nonbank financing-0.1-0.10.00.0-0.10.0
Arrears (net)0.00.00.00.00.00.0
Prospective rescheduling 6/0.00.90.80.80.10.0
HIPC 7/0.00.20.40.30.20.3
Unidentified financing0.00.00.00.00.02.0
Sources: Ministry of Finance and Economy; and Fund staff estimates

GDP ratios based on most recent nominal GDP estimate.

Includes grants from Canada to cover debt service to the IDB.

Commitment basis except for domestically financed capital expenditure, which is reported on cash basis from 2007 on.

Includes statistical discrepancy.

Arrears accumulation in 2005-06 reflects an informal deferral of debt service to France, Italy and Spain.

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

GDP ratios based on most recent nominal GDP estimate.

Includes grants from Canada to cover debt service to the IDB.

Commitment basis except for domestically financed capital expenditure, which is reported on cash basis from 2007 on.

Includes statistical discrepancy.

Arrears accumulation in 2005-06 reflects an informal deferral of debt service to France, Italy and Spain.

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

HIPC debt relief.

Table 5.Haiti: Summary Accounts of the Banking System(Fiscal year ending September 30; in millions of gourdes)
2006200720082009
Prog.Rev.Prog.Prel.Proj.Proj.
I. Central Bank
Net foreign assets10,89314,00117,68016,84919,41123,241
(In millions of U.S. dollars)278333467463539612
Net international reserves (program) 1/92160265259299359
Commercial bank forex deposits158173201181217229
Net domestic assets12,27911,4627,7868,0817,9126,956
Credit to the nonfinancial public sector21,00221,15321,00219,90519,90519,905
of which: Credit to the central government21,17621,32521,17620,21420,21420,214
Liabilities to commercial banks (excl gourde deposits)-13,986-13,788-17,322-15,596-18,064-20,724
BRH bonds-7,809-6,327-9,692-9,013-10,252-12,007
Counterpart of commercial bank forex deposits-6,177-7,461-7,630-6,583-7,812-8,717
Other5,2624,0984,1063,7716,0717,774
Base Money23,17225,46325,46624,93027,32330,196
Currency in circulation11,15912,15612,01811,57012,79714,128
Commercial bank gourde deposits12,01313,30713,44813,35914,52616,069
II. Consolidated Banking System
Net foreign assets23,61726,88430,49328,15430,17634,267
(In millions of U.S. dollars)604681805774838902
Of which: Commercial banks NFA325348339311299290
Net domestic assets51,47455,37551,89550,53857,03462,973
Credit to the nonfinancial public sector20,11820,61620,11818,71518,71518,715
Credit to the private sector27,01931,67628,39929,97233,92438,416
In gourdes12,92015,66913,10413,37515,13017,134
In foreign currency14,09916,00715,29516,59718,79421,283
In millions of U.S. dollars360456522560
Other4,3373,0833,3781,8504,3945,842
Broad money75,09182,25982,38878,69287,21097,240
Currency in circulation11,15912,15612,01811,57012,79714,128
Gourde deposits31,53333,59533,96232,97536,64640,970
Foreign currency deposits32,39936,50836,40834,14737,76742,143
In millions of U.S. dollars8289269289391,0491,109
(12-month percentage change)
Currency in circulation5.88.97.73.710.610.4
Base money5.59.99.97.69.610.5
Gourde money (M2)9.97.110.44.311.011.4
Broad money (M3)10.010.49.74.810.811.5
Gourde deposits11.58.57.74.611.111.8
Foreign currency deposits10.011.512.15.410.611.6
Credit to the nonfinancial public sector-4.90.00.0-7.00.00.0
Credit to the private sector5.516.85.110.913.213.2
Credit in gourdes-0.619.31.43.513.113.2
Credit in foreign currency11.813.413.917.713.213.2
Memorandum items:
Foreign currency bank deposits (percent of total)50.752.151.750.950.850.7
Foreign curr. credit to priv. sector (percent of total)52.250.553.955.455.455.4
Sources: Bank of the Republic of Haiti; and Fund staff estimates.

Excluding commercial bank forex deposits, letters of credit, guarantees, and earmarked project accounts

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

Excluding commercial bank forex deposits, letters of credit, guarantees, and earmarked project accounts

Table 6.Haiti: Balance of Payments(Fiscal year ending September 30; in millions of US$)
2006200720082009
Prog.Rev.Prog.Prel.Proj.Proj.
Current account-19.0-52.966.910.1-93.4-186.3
Current account (excluding grants)-399.0-498.7-361.0-397.7-537.6-555.3
Trade balance-1053.8-1200.9-1086.4-1091.8-1267.6-1331.0
Exports of goods494.4531.6553.5522.1608.1703.0
of which: Assembly industry435.0463.7491.1463.1546.2638.0
Imports of goods-1548.3-1732.4-1639.8-1613.9-1875.7-2034.1
of which: Petroleum products-397.1-436.8-399.6-428.4-557.2-519.6
Services (net)-334.3-372.4-357.0-422.0-490.5-572.9
Receipts203.9159.6230.0206.7244.7275.1
Payments-538.2-532.0-587.0-628.6-735.2-848.0
Income (net)1.8-10.41.3-9.5-12.7-0.9
of which: Interest payments-16.9-22.1-19.3-19.6-23.4-18.8
Current transfers (net)1367.41530.91508.91533.31677.41718.5
Official transfers (net)380.0445.9427.9407.7444.1369.0
Private transfers (net) 1/987.41085.01081.01125.61233.31349.5
Capital and financial accounts97.786.689.9150.1151.283.9
Public sector capital flows (net)49.393.123.246.162.141.4
Loan disbursements84.5135.143.791.6110.287.9
Amortization-35.3-42.0-20.4-45.5-48.1-46.4
Banks (net) 2/-83.5-26.5-13.314.411.78.9
Private sector capital flows160.020.080.074.977.433.6
Of which
Foreign direct investment160.020.080.074.971.375.7
Errors and omissions 3/-28.10.00.014.70.00.0
Overall balance78.733.7156.8160.257.8-102.4
Financing-78.7-33.7-156.8-160.2-57.8-49.6
Change in net foreign assets 4/-87.3-49.9-178.5-184.7-76.1-72.4
Change in gross reserves-108.7-70.4-199.2-208.4-99.4-95.9
Liabilities21.520.520.723.723.423.5
Utilization of Fund credits, existing and prospective (net)10.320.520.720.823.423.5
Purchases and loans 5/14.853.453.954.223.423.5
Repayments-4.5-32.9-33.2-33.40.00.0
Other liabilities11.10.00.02.90.00.0
Change in arrears8.6-44.3-44.7-45.00.00.0
Debt rescheduling 6/0.047.149.752.78.07.9
HIPC assistance from multilateral creditors0.013.316.716.910.314.9
Financing gap0.00.00.00.00.0152.0
Memorandum items:
Current account balance (in percent of GDP)-0.4-9.51.20.2-1.3-2.5
Current account balance, excluding grants (in percent of GDP)-8.2-1.0-6.4-6.6-7.5-7.3
Goods exports (f.o.b) growth7.710.311.95.616.515.6
Goods import (f.o.b) growth18.314.65.94.216.28.4
External debt as percent of exports205.9205.5187.4211.5186.2169.0
Debt service as percent of exports7.59.35.18.98.46.7
Gross liquid international reserves (in millions of USD) 4/336.6401.2534.7544.7644.1740.0
Gross liquid international reserves (in months
of next year’s imports of goods and services) 4/1.82.02.42.52.72.9
Sources: Bank of the Republic of Haiti; and Fund staff estimates.

Based on remittances transferred through authorized “transfer houses” and BRH estimates.

Excludes commercial banks’ foreign currency deposits with the BRH.

Includes short-term capital and errors and omissions for historical period.

Includes NIR and commercial banks’ foreign currency deposits with the BRH.

Includes current PRGF arrangement, with an upfront disbursement of 25 percent of quota used to repay EPCA purchases.

In line with the Dec. 2006 Paris Club agreement, rescheduling of arrears and debt service to bilateral creditors during PRGF arrangement.

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

Based on remittances transferred through authorized “transfer houses” and BRH estimates.

Excludes commercial banks’ foreign currency deposits with the BRH.

Includes short-term capital and errors and omissions for historical period.

Includes NIR and commercial banks’ foreign currency deposits with the BRH.

Includes current PRGF arrangement, with an upfront disbursement of 25 percent of quota used to repay EPCA purchases.

In line with the Dec. 2006 Paris Club agreement, rescheduling of arrears and debt service to bilateral creditors during PRGF arrangement.

5. Following an orderly consolidation of the banking sector, financial soundness indicators remained broadly stable throughout FY2007 (Table 10). Most banks reported positive earnings and high capitalization. The absorption of ailing Socabank by the state commercial bank BNC took place ahead of schedule in mid-2007.

Table 7.Haiti: Medium-Term Scenario(Fiscal year ending September 30)
2006200720082009201020112012
Prel.Proj.Proj.Proj.Proj.Proj.
Real sector (annual percentage rate)
Real GDP growth2.33.23.74.04.04.04.0
Inflation (CPI end-of-period)12.47.99.07.06.05.05.0
Fiscal sector (in percent of GDP)
Central government overall balance (incl. grants)-0.9-0.5-1.0-2.9-3.1-3.2-3.3
Total revenue and grants13.515.116.916.116.216.516.9
Central government revenue10.010.312.112.512.713.213.6
Central government expenditure14.415.717.918.919.319.720.1
Domestic financing-0.4-0.6-0.10.00.00.00.0
External financing 1/1.31.21.12.93.13.23.3
Monetary sector
Growth in broad money10.04.810.811.511.09.89.2
External sector (in percent of GDP)
Trade balance-21.8-18.1-17.8-17.6-18.0-18.7-19.3
Services (net)-6.9-7.0-6.9-7.6-7.6-7.4-7.3
Income (net)0.0-0.2-0.20.00.10.10.2
Private transfers (net)20.418.717.317.818.218.618.6
External grants7.96.86.24.94.74.64.8
Current account (incl. official transfers)-0.40.2-1.3-2.5-2.7-2.8-2.9
Current account (excl. official transfers)-8.2-6.6-7.5-7.3-7.4-7.4-7.7
External financing gap for central government0.00.00.02.02.52.82.9
Liquid gross reserves (in millions of U.S. dollars)337545644740840929992
In months of imports of the following year1.82.52.72.93.03.13.0
Sources: Haitian authorities; and Fund staff estimates.

Including prospective rescheduling and HIPC relief. For 2009 includes the financing gap of 2.0 percent of GDP

Sources: Haitian authorities; and Fund staff estimates.

Including prospective rescheduling and HIPC relief. For 2009 includes the financing gap of 2.0 percent of GDP

Table 8.Haiti: Indicators of Fund Credit(Fiscal year ending September 30)
200620072008200920102011
Outstanding Fund credit, existing and prospective 1/
In millions of SDRs22.035.750.966.173.773.7
In millions of gourdes1,266.21,973.52,817.03,873.54,564.84,736.0
In percent of quota26.943.662.180.790.090.0
In percent of GDP0.60.91.11.41.41.4
In percent of exports of goods and services4.67.49.210.410.79.9
Debt service to the Fund 1/
In millions of SDRs3.922.60.50.50.50.5
In millions of gourdes237.11,287.028.630.131.732.9
In percent of quota4.727.60.60.60.60.6
In percent of GDP0.10.60.00.00.00.0
In percent of exports of goods and services0.84.70.10.10.10.1
In percent of debt service due14.243.31.71.71.61.6
In percent of net international reserves1.76.30.10.10.10.1
(In millions of SDRs)
Net use of Fund credit7.213.715.215.27.60.0
Disbursements10.235.715.215.27.60.0
Repayments3.022.00.00.00.00.0
Sources: IMF, Finance Department, and staff projections.

Before post-completion HIPC debt relief

Sources: IMF, Finance Department, and staff projections.

Before post-completion HIPC debt relief

Table 9:Haiti: Budgetary Financing, by Donor and Type 1/(Fiscal years ending September 30, 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)
20072008 Proj.2006-08 Average20072008 Proj.2006-08 Average2008 Proj.2008 Proj.20072008 Proj.2006-08 Average20072008 Proj.2006-08 Average20072008 Proj.2006-08 Average
Bilateral and multilateral67.4115.8125.165.171.761.43.614.820.644.110.3317.7344.4262.4338.3388.5272.7
Bilateral creditors22.142.854.910.211.410.43.64.219.731.420.9165.6170.7151.4185.2202.0172.4
Canada 2/6.86.711.10.20.20.10.10.26.96.511.151.646.365.858.552.776.9
France4.32.75.03.63.74.13.30.54.5-1.02.819.612.814.024.011.816.8
United States2.08.04.51.31.51.10.01.42.16.54.053.756.838.355.763.442.4
Taiwan0.00.00.02.73.52.70.00.0-2.7-3.5-2.712.151.412.89.447.910.2
Others9.025.46.82.52.52.40.32.39.022.85.728.63.420.537.626.226.2
Multilateral creditors45.373.035.154.960.251.00.010.50.912.7-10.7152.2173.8111.0153.1186.5100.4
IDB22.532.516.330.936.328.90.010.31.9-3.8-7.5112.865.485.0114.861.677.4
EU12.827.56.40.00.20.00.00.213.027.36.517.760.28.930.787.515.3
World Bank 3/10.013.012.421.621.219.50.00.0-11.6-8.2-7.117.837.713.76.229.56.6
of which
Arrears clearance0.00.00.00.01.00.00.00.00.0-1.00.00.00.00.00.00.00.0
Other10.013.012.421.620.219.50.00.0-11.6-7.2-7.10.00.00.00.00.00.0
Other0.00.00.02.32.62.60.00.0-2.3-2.6-2.63.810.53.51.57.90.9
Memorandum item:
IMF54.223.434.534.00.919.90.00.020.322.514.60.00.00.020.322.514.6
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.

Disbursements consist of 100 percent grants in 2007 and 2008.

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.

Disbursements consist of 100 percent grants in 2007 and 2008.

Table 10.Haiti: Indicators of External Vulnerability(Units as indicated)
2006200720082009
Prel.Proj.Proj.
Debt indicators
Total external public debt (in percent of GDP) 1/29.725.622.321.8
Total external public debt (in percent of exports 2/)205.9211.5186.2169.0
External debt service (in percent of GDP)1.11.11.00.9
Amortization0.70.80.70.6
Interest0.30.30.30.2
External debt service (in percent of exports 2/)7.58.98.46.7
Amortization5.06.25.64.7
Interest2.42.72.71.9
External debt service (in percent of current central govt. revenues)10.110.28.36.9
Amortization6.97.15.64.9
Interest3.33.12.72.0
Other indicators
Exports (percent change, 12-month basis in U.S. dollars)7.75.616.515.6
Imports (percent change, 12-month basis in U.S. dollars)18.34.216.28.4
Remittances and grants in percent of gross disposable income22.020.319.118.5
Real effective exchange rate appreciation (+) (end of period)13.4
Exchange rate (per U.S. dollar, period average)41.4
Current account balance (US$ million) 3/-19.010.1-93.4-186.3
Capital and financial account balance (US$ million) 4/97.7164.8151.283.9
Public sector49.346.162.141.4
Private sector48.4104.089.142.5
Liquid gross reserves (US$ million)336.6544.7644.1740.0
In months of imports of the following year 2/1.82.52.72.9
In percent of debt service due in the following year5177629871067
In percent of base money56.879.584.993.1
Sources: Bank of the Republic of Haiti; and Fund staff estimates.

It does not reflect completion point debt reduction in 2009.

Goods and services.

Including grants.

Includes in the private sector FDI, short-term capital, and errors and omissions in addition to bank flows.

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

It does not reflect completion point debt reduction in 2009.

Goods and services.

Including grants.

Includes in the private sector FDI, short-term capital, and errors and omissions in addition to bank flows.

6. Structural conditionality was met, except for two end-September PCs (Table 2). A detailed modernization plan for the DGI was prepared, domestic arrears were cleared, quarterly limits for budget allocations were observed, and oversight of program monitoring data was improved. However, the end-September PCs on commencing an assessment of BNC recapitalization needs and producing a report on IFRS implementation by the BRH were delayed because of difficulties in finding and hiring foreign experts for these tasks.1 The authorities intend to complete these PCs as prior actions for the review and request waivers.

7. The PRSP was completed through a participative process and formally submitted to the IMF and World Bank on November 30, 2007.2 It focuses on promoting growth through sectoral strategies for agriculture and rural development, tourism, infrastructure rehabilitation, and science and technology; and seeks to widen access to basic services such as electricity, water and sanitation, health and education. Improvements in institutional infrastructure, including a better functioning justice and penal system, are also planned. The PRSP’s macroeconomic policy framework is broadly consistent with the PRGF-supported program. However, the aggregate costs of the sectoral strategies for the next three years go beyond what is foreseen in the macroeconomic framework, and far exceed historical rates of budget execution and financing. Consultations to develop the PRSP were extensive. The authorities intend to hold a donors’ conference in the coming months to reprogram committed resources for FY2008 in line with PRSP spending priorities.

8. Progress in implementing HIPC Initiative completion point triggers has been mixed.3 Several measures have been taken or are underway, such as tracking poverty-reducing spending; passing the public procurement law; extending customs control to the provinces; increasing immunization rates; extending use of the central taxpayer file; and establishing a national HIV/AIDS plan. However, progress on a number of other triggers is less advanced, including establishing a centralized debt database; passing a law on asset declaration; and submitting audits of government accounts within legally-established timeframes.

II. Economic and Financial Policies for the Second Program Year

9. Key goals for the second program year (FY2008) are to create conditions for higher growth and consolidate stabilization gains achieved so far. Despite the progress already made, Haiti’s economy remains in a state of transition. Large-scale investment in human and physical capital is needed for higher growth and employment creation, both vital for ensuring better living conditions and durable social peace. Maintaining a stable macroeconomic and financial environment remains important in this context, to bolster private sector confidence and ensure sustainability. The program balances the need for growth and stability through a macroeconomic framework that provides room to raise priority expenditures and absorb external price shocks, while still ensuring internal and external stability.

10. Structural conditionality will be more parsimonious, acknowledging the need to focus limited capacity on implementation of the PRSP and HIPC Initiative completion point triggers. The program includes measures to strengthen revenue generation and budget execution capacity, enhance the monetary policy regime, and further develop the financial sector (MEFP Table 2).

A. Macroeconomic Framework

11. The macroeconomic framework for FY2008 foresees real GDP growth of 3.7 percent and end-year inflation of 9 percent. Projected growth was lowered from 4.5 percent at the time of the first review, reflecting the adverse impact of Hurricane Noel on agricultural output, and reduced expectations of the likely impact of the HOPE Act on apparel export growth to the U.S.. The projection implies substantial stimulus from public consumption and investment, as reflected in the authorities’ budget. Private investment is also expected to pick up as confidence rises. Haiti will face substantially higher international food and oil prices in FY2008. The inflation target was revised upward from an earlier goal of 7.5 percent to leave room for absorbing these price increases, but a cautious monetary stance should prevent them from translating into broader inflationary pressures. The program’s monetary goals will continue to be supported by a zero annual ceiling on net central bank financing to the government. In light of the sizeable overperformance in FY2007, the floor for NIR accumulation for FY2008 was set at US$40 million, increasing gross reserves coverage slightly further to 2.7 months of imports.

Haiti - Real GDP growth in 2008

(Contribution to growth, in percent)

B. Fiscal Policy

12. The authorities’ fiscal program focuses on further accelerating expenditure execution, supported by a substantial domestic revenue effort (Table 4). Expenditures (excluding foreign-financed projects) are budgeted to increase by 2.8 percent of GDP, while domestic revenues should rise 1.8 percent of GDP. This leaves an overall deficit (excluding grants and foreign-financed projects) of 1.1 percent of GDP, to be covered by external budget support.

Average Real Salary at Ministry of Finance

(1999=100)
  • Higher expenditures will be effected through almost doubling domestically-financed investment on basic infrastructure and substantially increasing the wage bill (MEFP para. 14). The FY 2008 budget accommodates civil service salary increases of 20–35 percent to allow partial recovery of past real-wage losses, as well as further hiring for social sectors and the police. Measures are underway to raise expenditure execution capacity, some of which are incorporated into program conditionality (Box 1 and MEFP para.15). The share of poverty-reducing spending in the FY2008 budget is estimated at 56 percent, up from 43 percent in FY2007.
  • Increased revenues are expected through implementing action plans to strengthen customs and tax administration (MEFP para. 12). Program conditionality contains elements of these plans, including collection of delinquent taxes and new customs posts (Benchmarks for end-March and end-September 2008). The projected further acceleration of growth and stepped up efforts to control the border should also help boost revenues.

13. In light of higher-than-usual carryover of expenditure commitments from FY2007, the authorities are dedicated to careful budget implementation. Expenditure commitments that carry over into FY2008 are estimated at 2.2 percent of GDP. To ensure resources are available, the government has identified 60 top priority investment projects for an amount of 3 billion gourdes, with lower priority project expenditures being only initiated as resources are realized (MEFP para. 11).

Box 1.Increasing Expenditure Execution Capacity

Budget execution was constrained by (i) limited project formulation and implementation capacity of spending ministries, (ii) lack of familiarity with the new procurement law; and (iii) limited capacity of local firms to handle larger construction projects.

Drawing on findings from the World Bank-IDB PEMFAR report and a EUNIDA diagnostic mission, the government is taking several steps:

  • Programming units of key spending ministries will be strengthened through deploying trained experts in project formulation and implementation (PC for end-March, 2008);
  • Internal control processes will be facilitated through the deployment of public accountants and budget comptrollers to key line ministries (Benchmark for end-March, 2008);
  • Implementation of the procurement law will be reviewed and, if necessary, revised by a recently created working group; and
  • Participation of foreign firms in public tenders is being encouraged.

C. Monetary and Financial Sector Policies

14. Monetary policy will focus on quantity management, with a market-determined policy interest rate. The indicative FY2008 target for base money growth (9.6 percent) remains below projected nominal GDP growth to help ensure that higher oil and food prices do not translate into broader inflation. The authorities remain committed to maintaining a flexible exchange rate regime, limiting exchange market intervention to smoothing operations (MEFP para. 17).

15. The authorities plan to further strengthen their monetary policy framework (MEFP paras. 18–19). Participation in BRH bond auctions will be broadened to include non-bank financial institutions (PC for end-March 2008) and a plan developed to improve liquidity forecasting (Benchmark for end-September 2008). Moreover, the BRH will institute formal communications to convey its monetary policy intentions and actions to the public (Benchmark for end-September 2008). The authorities are developing—with Fund TA—a recapitalization plan for the BRH, and—with IFC support—a plan to divest BRH ownership in the state telecommunications company (PCs for end-March 2008). Implementation of these plans should further strengthen independence in monetary policy making, important given Haiti’s history of fiscal dominance.

16. Steps to foster financial sector stability and development are planned, following recommendations from the recently concluded FSAP (Box 2 and MEFP paras. 21-22).4 These include completing an independent assessment of an additional systemically important bank (PC for end-September 2008) and improving the regulatory framework and supervision of credit unions (Benchmark for end-September 2008). The authorities also intend to remove obstacles constraining credit and private sector activity, such as reducing fees on real estate transactions, allowing co-ownership of property, and expanding collateral guarantees.

Box 2.Key FSAP Findings and Recommendations

Haiti’s financial system faces a number of stability and development challenges. Three banks hold almost 80 percent of all bank assets, and total credit represents 11 percent of GDP—well below other countries in the region. Key FSAP conclusions and recommendations include:

  • Banking soundness: Indicators of bank soundness are relatively favorable, but concentrated loan portfolios remain vulnerable to a deterioration in credit quality. The capacity of the largest public bank to manage a newly-acquired, largely non-performing loan portfolio requires careful monitoring.
  • Credit growth and access to credit: High intermediation spreads reflect primarily weaknesses in the legal and institutional frameworks, including the accounting and auditing, and insolvency and creditor rights regimes. The security situation, low competition among banks, poor governance, high reserve requirement ratios, absence of a credit registry, and crowding out by BRH bonds also weigh on the financial sector’s ability to effectively support growth.
  • Monetary policy: Effectiveness of monetary policy has been hampered by dollarization, excess liquidity, underdeveloped money markets, and uncompetitive BRH bond auctions. Allowing BRH bond interest rates to be market determined, opening up auction participation to nonbank institutions, and strengthening the framework for forecasting systemic liquidity are priorities.
  • BRH financial independence: Accumulated quasi-fiscal deficits have eroded the BRH’s capital base and need to be addressed to avoid risks for monetary control. A comprehensive plan to rehabilitate the BRH balance sheet is being developed under the PRGF-supported program.
  • Financial regulation and supervision. The new draft banking law addresses the major weaknesses in banking supervision. Its implementation will require upgrading prudential regulations and enhancing BRH independence. Basic regulatory and supervisory frameworks for nonbank financial institutions need to be introduced or strengthened.

The authorities welcomed the FSAP findings and indicated that they intend to implement most of the recommendations, including partly as conditionality under the PRGF-supported program.

D. Program Financing and Monitoring

17. The program for FY 2008 is fully financed. Total external financing for the budget is projected at US$134.2 million or US$44.1 million after debt service payments (Table 9).5 Potential resources from Venezuela’s PetroCaribe initiative are not yet reflected in program financing, since oil deliveries continue to be delayed by logistical obstacles. If these are overcome, any use of the resulting financing will be transparently channeled through the budget (MEFP para.13).

Haiti - Budget Support in FY2008(in millions of US dollars)
Total External Financing134.2
Prospective Debt Rescheduling (incl. Paris Club)3.6
Budget Support115.8
IDB32.5
WB13.0
US8.0
EU27.5
France2.7
Spain13.7
Canada6.7
Venezuela 1/9.2
Other2.4
Interim HIPC assistance14.8

Excluding potential financing under the PetroCaribe initiative

Excluding potential financing under the PetroCaribe initiative

18. The current program monitoring framework remains in place. The program will be monitored on a quarterly basis, with test dates at end-March and end-September 2008 for NIR, NDA, central bank financing, concessionality of external debt, and arrears accumulation (MEFP Table 1). Minor definitional changes have been made to NIR and central bank financing (see the TMU).

III. Debt Sustainability, Capacity to Repay, and Program Risks

19. A joint Bank-Fund external DSA indicates that Haiti’s risk of debt distress remains high, but would decline substantially with a HIPC completion point.6 Under the baseline scenario (before post-completion point stock of debt relief), the NPV of external debt-to-exports ratio remains above the indicative threshold of 100 percent in the medium term, while other debt ratios do not surpass thresholds. However, after HIPC and MDRI stock reductions of debt (including from the IDB), the NPV of external debt-to-exports ratio would fall to 44 percent. Because of Haiti’s very low level of domestic debt, these conclusions also hold for the fiscal DSA. Overall, the DSA suggests room for scaled-up external financing after HIPC/MDRI debt relief. However, a careful approach would still remain advisable, given that debt indicators deteriorate rapidly in scenarios with large volumes of additional concessional borrowing (for example through the PetroCaribe initiative) or financing on less concessional terms.

20. Haiti’s capacity to repay the Fund has improved slightly since the arrangement was approved. Higher-than-expected reserves accumulation, exports, and nominal GDP have helped lower indebtedness ratios (Table 8). Outstanding obligations to the Fund are projected to peak at SDR 74 million in 2010, or about 11 percent of exports of goods and services.

21. Risks remain significant, but the authorities’ evident commitment to the program and strong track record speak in their favor. The growth outlook could weaken because of security backlashes, political tensions, continued budget underexecution, and negative consequences for exports and remittances from a U.S. economic slowdown. Shortfalls in revenue targets or programmed donor support could create pressure to resort to central bank financing, damaging private sector confidence, and undermining inflation objectives. Even with growth, employment creation, the restoration of basic services, and social progress may be painfully slow, and could trigger social conflict. While these are real risks, the likelihood of macroeconomic imbalances from policy shortcomings appears more limited, given the authorities demonstrated commitment to prudent fiscal and monetary policies, and their proven capacity to implement structural reforms under difficult conditions. Also, risks on the fiscal side appear relatively balanced, as shortfalls could occur on both the revenue and expenditure sides. While data limitations make program development and monitoring quite difficult, data provision has been improving, including as a result of IMF TA. The authorities have decided to participate in the GDDS, which could be achieved by end-March 2008.

Net private Transfers to Haiti and US business cycle indicators

IV. Staff Appraisal

22. Macroeconomic performance and program implementation are on track. Growth has accelerated for the third year in a row, albeit somewhat less than hoped for, and inflation has declined to single digits. Quantitative targets for the second review were again met by large margins, although this partly reflected slower-than-expected government spending. Implementation of structural reforms was also satisfactory, despite some delays. The authorities’ program for FY2008 focuses appropriately on creating conditions for higher economic growth, while keeping inflation in check.

23. The key challenges for fiscal policy in the second program year will be to accelerate budget execution, while safeguarding expenditure quality and ensuring resource sufficiency. Improving the provision of basic public goods and services is essential to stimulate private sector activity and improve social conditions. Staff thus strongly supports the steps that are being taken to overcome existing bottlenecks in budget execution. At the same time, given the large carryover of expenditure commitments from the previous fiscal year, availability of resources will have to be monitored closely. Modernization plans for customs and the DGI should be diligently implemented to meet revenue targets, and donor conditions fulfilled in a timely manner to avoid delays in budget support disbursements.

24. Monetary policy implementation will have to be cautious, given uncertainty about the impact of commodity price shocks and weak monetary policy transmission. Staff welcomes the steps underway to strengthen the monetary policy framework, which include a stronger focus on quantity management and more policy communication with the public. The indicative target for base money growth, below nominal GDP growth, appears appropriate. However, the BRH will have to remain vigilant, monitoring liquidity conditions closely to ensure that international food and oil price increases do not lead to a broader acceleration of inflation. Staff welcomes the authorities’ commitment to strengthen the financial health of the BRH, and implement key FSAP recommendations.

25. Strong focus on implementing the PRSP and HIPC triggers in coming months will be important to achieve an early HIPC completion point. Given the timing of the submission of the PRSP, a completion point could be reached by end-2008, provided that all conditions are met. However, progress on completion point triggers has been uneven, and their timely implementation will require a concerted and well-coordinated effort by all ministries involved.

26. Staff supports the requested conclusion of the second program review and waivers, subject to the implementation of the two outstanding structural PCs as prior actions. Macroeconomic policies contained in the program are consistent with the central objective to boost growth while maintaining economic stability, and committed structural reforms will help further solidify economic institutions. Program risks remain significant, as the multifaceted strategy to maintain security, build infrastructure, provide basic services, fight corruption and bring about sustained growth will strain Haiti’s limited capacity. However, the authorities have shown extraordinary commitment to their program of reform, and established a track record for implementing difficult policies.

Table 11.Haiti: Financial Soundess Indicators of the Banking System(Fiscal year ending September 30; in percent unless otherwise indicated)
20032004200520062007
Size and Growth
Total assets (in millions of Gourdes)50,91655,93165,81172,51979,764
o/w central bank bonds3,8183,5445,5277,6849,008
o/w total loans17,14618,17922,06522,75024,670
Total assets (in US$ millions) 1/1,3481,4881,7511,9292,192
Total Deposits (in millions of Gourdes)43,02948,05756,77161,31166,031
Net Profits (loss) (in millions of Gourdes)175.513.5114.3414.4202.3
Credit/GDP13.512.212.310.210.9
Deposits/GDP35.834.233.830.629.2
Credit growth (net) from year before 2/33.75.15.613.79.9
Capital adequacy
Regulatory capital to risk-weighted assets 3/16.514.319.0
Capital (net worth) to assets5.45.35.05.37.0
Asset quality and composition
Loans (net) to assets31.930.531.528.228.3
NPLs to gross loans5.57.412.411.110.0
Provisions to gross loans5.46.26.19.98.5
Provisions to gross NPLs96.882.949.189.385.5
NPL less provisions to net worth1.17.842.27.06.4
Earnings and profitability (annualized)
Net Earnings/Assets (ROA)1.90.80.71.81.0
Net Earnings/Equity (ROE)35.015.112.834.214.7
Net interest income to gross interest income65.755.171.872.267.1
Operating expenses to net profits69.479.980.570.786.0
Efficiency
Interest rate spread in Gourdes 4/18.025.518.621.826.8
Interest rate spread in US dollar 4/12.110.57.87.38.9
Liquidity
Liquid assets to total assets 5/45.046.543.645.346.5
Liquid assets to deposits 5/53.054.150.554.556.1
Market Risk
Foreign currency loans to total loans (net)57.259.366.070.1
Foreign currency deposit to total deposits50.947.352.653.652.4
Source: Staff computation based on data from the Bank of the Republic of Haiti

Data for all years converted from gourdes at 12/31/06 exchange rate of 37.5917 Gourdes/US dollar.

Net credit equal to gross loans less non performing loans.

The prudential requirement is 12 percent.

Defined as the difference between average lending rate and average fixed deposit rate in the banking system.

Liquid assets include cash and central bank bonds.

Source: Staff computation based on data from the Bank of the Republic of Haiti

Data for all years converted from gourdes at 12/31/06 exchange rate of 37.5917 Gourdes/US dollar.

Net credit equal to gross loans less non performing loans.

The prudential requirement is 12 percent.

Defined as the difference between average lending rate and average fixed deposit rate in the banking system.

Liquid assets include cash and central bank bonds.

Table 12.Haiti: Proposed Schedule of Disbursements
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 7,600,000July 23, 2007Observance of performance criteria for March 2007 and completion of the first review under the PRGF arrangement.
SDR 7,600,000February 20, 2008Observance of performance criteria for September 2007 and completion of the second review under the PRGF arrangement.
SDR 7,600,000July 23, 2008Observance of performance criteria for March 2008 and completion of the third review under the PRGF arrangement.
SDR 7,600,000January 9, 2009Observance of performance criteria for September 2008 and completion of the fourth review under the PRGF arrangement.
SDR 7,600,000July 23, 2009Observance of performance criteria for March 2009 and completion of the fifth review under the PRGF arrangement.
SDR 7,610,000January 9, 2010Observance 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: Millennium Development Goals
1990199520012002200320042005
Goal 1. Eradicate Extreme Poverty and Hunger
Population below US$1 a day (in percent)53.9
Poverty gap ratio at US$1 a day (in percent)26.6
Share of income or consumption held by poorest 20 percent (in percent)2.4
Prevalence of child malnutrition (percent of children under 5)26.827.517.2
Goal 2. Achieve Universal Primary Education
School primary enrollment ratio (percent of relevant age group)22.0
Youth literacy rate (percent ages 15-24)54.8
Primary completion rate, total (% of relevant age group)28.0
Goal 3. Promote Gender Equality and Empower Women
Ratio of young literate females to males (percent ages 15-24)96.3
Share of women employed in the nonagricultural sector (percent)39.5
Proportion of seats held by women in the national parliament (percent) 1/4.04.04.03.6
Goal 4. Reduce Child Mortality
Under-five mortality rate (per 1,000)150.0137.0126.0120.0
Infant mortality rate (per 1,000 live births)102.094.088.084.0
Immunization against measles (percent of children under 12 months)31.049.054.054.054.054.054.0
Goal 5. Improve Maternal Health
Proportion of births attended by skilled health personnel23.020.024.0
Maternal mortality ratio (modeled estimate, per 100,000 live births)680.0
Goal 6. Combat HIV/AIDS, Malaria, and Other Diseases
Contraceptive prevalence rate (percent of women ages 15-49)11.018.028.0
Incidence of tuberculosis (per 100,000 people)470.4407.4342.8333.0323.6314.4305.5
Prevalence of HIV, total (% of population ages 15-49)3.8
Tuberculosis cases detected under DOTS (percent)2.029.038.945.046.757.4
Goal 7. Ensure environmental sustainability
Forest area (percent of total land area)4.24.03.8
Nationally protected areas (percent of total land area)0.3
GDP per unit of energy use (PPP $ per Kg oil equivalent)10.47.36.86.06.36.26.2
CO2 emissions (metric tons per capita)0.10.10.20.20.2
Access to improved water source (percent of population)47.054.0
Access to improved sanitation (percent of population)24.030.0
Goal 8. Develop a Global Partnership for Development
Unemployment rate of population ages 15-24 (total)23.617.9
Female24.421.1
Male23.015.1
Internet users (per 1,000 people)0.00.03.059.070.0
Fixed line and mobile telephones (per 1,000 people)6.68.121.333.055.564.264.2
Sources: World Bank Millenium Development Goals online database.
Sources: World Bank Millenium Development Goals online database.
Attachment I. Summary of Annexes1

Fund relations

1. Haiti’s current outstanding obligations to the Fund are SDR 35.7 million, which originate from drawings under PRGF arrangements. Haiti’s exchange rate regime is a managed float with no predetermined path for the exchange rate. The central bank has implemented priority recommendations of the update Safeguards assessment that was completed in March 2007, and is currently in the process of implementing other remaining recommendations. The last article IV consultation was concluded by the Executive Board on July 6, 2007 (IMF Country Report No. 07/293).

Relations with the World Bank Group2

2. The World Bank Group’s strategy and program in Haiti for FY2007 and FY2008 are set out in the Interim Strategy Note (ISN) reviewed by the Bank’s Board on January 30, 2007. A full Country Assistance Strategy (CAS) will be prepared during FY2008 on the basis of the authorities’ newly-submitted PRSP. Since January 2005, IDA has approved 11 projects for Haiti, for a total value of $199 million, and provided $12 million of trust fund resources since 2004. All assistance has been provided entirely in grant form since July 2005. 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 Bank3

3. Since 2003, the Bank has operationalized its presence in Haiti through two successive transition strategies. At the present time, the IDB has 23 loans under execution, totaling US$675 million. The balance available for disbursements is US$425 million, or 63 percent of the approved amount, underscoring portfolio implementation as a major challenge. The IDB is involved mainly in public finance reform, road rehabilitation, agriculture, education, or local development projects.

Statistical issues

4. Haiti is currently working toward participation in the General Data Dissemination System (GDDS), and it is expected that it could participate sometime in early 2008. Haiti’s data provision is broadly adequate for program purpose, but there is a need to improve the coverage, periodicity, quality and timeliness of statistics, particularly in external debt statistics, the balance of payments, and the coverage of government finance statistics. Production of quarterly GDP data would be highly desirable for program monitoring purposes.

Attachment II. Letter of Intent

Port-au-Prince

January 25, 2008

Mr. Dominique Strauss-Kahn

Managing Director

International Monetary Fund

700 19th Street, NW

Washington, DC 20431

USA

Dear. Mr. Strauss-Kahn:

The purpose of this letter is to inform you on the progress under the PRGF-supported program and to request that the third disbursement under the arrangement, in the amount of SDR 7.6 million, be made available to Haiti following the completion of the second review.

The attached Supplementary Memorandum of Economic and Financial Policies (MEFP) reviews the progress under the PRGF, and outlines the Government’s policies and objectives and macroeconomic framework for FY2008, the second program year. In the first year of the program, the Government implemented macroeconomic policies that further consolidated stability, raised domestic revenue, and significantly increased public sector spending, including for crucially-needed investment and poverty reduction. At the same time, we made strong progress in consolidating security, and deepening democratic institutions, including through establishing provincial governing structures.

Going forward, the key challenge will be setting a foundation for robust and sustainable growth and employment creation, led by private sector activity and investment, through further increases in public sector spending on infrastructure and basic services. The Government finalized on November 30, 2007 its national growth and poverty reduction strategy, DSNCRP (Document de Stratégie Nationale pour la Croissance et la Réduction de la Pauvreté) in wide consultation with civil society and the international community. The document lays out priority spending for infrastructure building, providing basic services, and promoting employment in key sectors of the economy.

For the second review, all quantitative performance criteria were met with large margins, and four out of six structural performance criteria and three benchmarks were met in time for the end-September test date. The Government requests two waivers for the nonobservance of delayed performance criteria:

  • First, lack of locally available expertise delayed the completion of a review of implementation issues for the adoption of IFRS by the BRH. Consistent with advice from the IMF’s Finance Department, the BRH is pursuing a gradual approach to adopt IFRS. As a first step, the review of implementation issues will provide a qualitative analysis of discrepancies between current accounting practices and IFRS. We intend to complete this report as a prior action for the second review.
  • Second, the commencement of an independent assessment of possible recapitalization needs and required financial and operational restructuring of the BNC was not completed prior to end-September, due to additional time needed to find an assessor and get the contract approved. We will retain an assessor as a prior action for the first review, and intend to complete the assessment by end-March 2008.

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 IMF 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.

In line with our demonstrated commitment to transparency, we agree to the publication of the staff report for the second review under the PRGF.

Sincerely,

Daniel DORSAINVIL /s/Charles CASTEL /s/
Minister of Economy and FinanceGovernor
HaitiBank of the Republic of Haiti

Attachments

Attachment III. Memorandum of Economic and Financial Policies for Fiscal Year 2008

Introduction

1. Haiti is entering its fourth year of stabilization and economic recovery, turning around a long period of stagnant growth, political turmoil and a lack of security. Wide-ranging reforms have been implemented to restore growth and stabilize the economy. There have also been encouraging improvements in security and public sector institutions, and a national dialogue concerning growth and poverty reduction has been launched. These improvements provide a foundation, not only to reduce poverty and boost living standards, but to root democratic institutions, combat corruption and entrench political stability.

2. Despite the progress achieved so far, there are considerable challenges going forward. There is a critical need for increased public sector spending to repair infrastructure, and provide basic services such as clean water, reliable energy, functional transportation networks, as well as a minimum standard of health and education. However, this spending has to be effective in an environment of low absorptive capacity, with some supply constraints. Moreover, a number of legal reforms will be needed to combat corruption, strengthen the judiciary and penal systems, and deepen the financial sector, in order to promote private sector investment, social justice and peace. These are prerequisites for creating a higher level of sustained growth, and for promoting employment creation. Haiti’s poverty reduction and growth strategy (DSNCRP) developed by a wide participatory process, lays out the priorities for achieving many of these crucial objectives.

3. The first year of Haiti’s PRGF-supported program was very successful in its focus on consolidating macroeconomic stabilization gains. The second year of the program will focus squarely on macroeconomic policies that support growth objectives and the priorities of the DSNCRP, while maintaining stability. This will be achieved through even higher quality spending of the public sector, cautious monetary policy, and financial sector reform.

Recent developments

4. The past fiscal year (FY) saw a continuation and consolidation of the macroeconomic stabilization gains achieved during 2004–06. Most of the macroeconomic program goals were met or exceeded, with all quantitative conditionality attained for end-March and end-September 2007. Economic growth, however, is likely to have fallen somewhat short of expectations. Political turmoil and natural disasters led to a 3.5 percent decline in GDP in 2004; since that time, improvements in security and political and macroeconomic stability have led to a return to positive growth, but the acceleration has been slower than anticipated. For FY2007, preliminary data suggest real GDP growth of 3.2 percent, one percentage point more than in FY2006 but below the 4 percent originally envisaged. Somewhat weaker than expected private demand and constraints on government spending execution, particularly in the first three quarters of the year, accounted partly for the lower-than-expected growth performance. Inflation declined significantly, in line with program objectives, from 12 percent at the end of FY2006 to 7.9 percent at end FY2007. The absence of domestic demand pressures and significant nominal appreciation of the gourde (10 percent)—reflecting increased stability and continued strong transfers—contributed to the reduction in inflation.

5. After a slow start, central government spending picked up strongly in the fourth quarter of FY2007. In the end, expenditure execution on a cash basis was not too far away from the original budget, but fell significantly short of the additional spending foreseen by the supplementary budget, approved by Parliament in August 2007. As a result of this and higher-than-projected tax revenues, the fiscal balance excluding grants and externally-financed projects was in balance, compared with a deficit of 1.3–1.4 percent of GDP projected at the time of program approval and the first review. There was no resort to net central bank financing to the public sector.

6. Base money growth (7.6 percent) was kept under the indicative target of the program (9.9 percent), by sterilizing significant NIR accrual with net issuance of BRH bonds. NIR increased by US$162 million, far exceeding the revised adjusted program floor of US$99 million, bringing gross reserve coverage to a level of 2.5 months of imports (up from 1.8 months at end-FY2006). At the same time, since July, interest rates in central bank auctions have been competitively determined, triggering a decline in the benchmark 91-day interest rate from 13 percent to less than 5 percent. However, the decline in the policy rate has not yet fully translated into lower private sector lending rates or increased gourde private credit growth, the latter being 3.5 percent in FY2007 as a whole.

7. Important structural reforms were implemented in FY2007. The program’s extensive structural conditionality was mostly met. In the area of fiscal reform, action plans to modernize the internal revenue service (DGI) and customs (AGD) were developed, and the use of the central taxpayer file was extended. Domestic salary and non-salary arrears were surveyed and subsequently settled. Quarterly spending limits by ministry and limits on spending through ministerial current accounts were respected. TOFE coverage was expanded by including own resources and related spending, and a mechanism was adopted for tracking expenditures related to poverty reduction. The BRH implemented its plan to resolve a troubled commercial bank ahead of time, and implemented key recommendations from the 2006 safeguards assessment update. A new draft banking law, which is in line with international best practice, was submitted to Parliament, as well as legal amendments to discontinue BRH involvement with unrelated public entities (BPH, APN, and SONAPI). Two structural performance criteria (PCs) for end-September 2007—a report on implementation issues for the adoption of international financial reporting standards (IFRS) and commencement of an assessment of recapitalization needs of the state bank BNC—are still outstanding, but we intend to complete them as prior actions for the IMF Executive Board’s consideration of the second program review.

Program objectives

Strategy for the remaining Two Years of the Program

8. The objectives through FY2009 remain broadly consistent with those at the time of program approval. Real GDP growth is targeted to accelerate to 4.0 percent in FY2009. This will be achieved through establishing a firmer foundation for private sector activity and investment through increased public sector spending on infrastructure and basic services, as well as measures to promote employment-creation in key sectors of the economy, as outlined in the newly finalized DSNCRP. In the next two years, growth should also benefit to some extent from the HOPE initiative, a scheme to provide U.S. trade preferences to Haitian garment imports, waiving rules of origin requirements. Inflation would be gradually reduced to 7 percent, anchored by prudent base money expansion, while gross international reserve coverage would rise to about three months of imports by FY2009.

9. To accommodate urgently needed spending increases, fiscal policy will aim at increasing Haiti’s domestic revenue intake, from its current level of 10.3 percent of GDP to some 12.5 percent of GDP by FY2009. Monetary policy will focus on achieving inflation targets through quantity management, while financial sector reforms will aim at strengthening prudential regulation and supervision, and deepening financial intermediation. These measures will be reinforced by further strengthening central bank independence, including through the rehabilitation of the BRH’s balance sheet.

Objectives for FY2008

10. Key macroeconomic objectives for FY2008 are to attain real GDP growth of 3.7 percent, end-period inflation of 9.0 percent, and increase NIR by US$40 million. Growth in the agricultural sector, which accounts for roughly one-quarter of GDP, is likely to be adversely affected by recent flooding. However, the secondary sector will benefit from improvements already well underway, including better and more reliable provision of electricity and improvement of the road networks. The acceleration of budget execution in the final quarter of FY2007 should continue in FY2008, supporting the growth objective, along with initial implementation of sectoral strategies of the DSNCRP.

Fiscal policy

11. The FY2008 budget envisages a deficit (excluding grants and foreign-financed projects) of 1.1 percent of GDP, to be fully financed by net external flows, including debt rescheduling and HIPC interim relief. We have received firm commitments from donors to cover our external financing needs. A small remainder (US$ 2.4 million) will be covered by miscellaneous donor inflows, which we expect to materialize during FY 2008 in line with the experience of past years. The envisaged deficit reflects strong increases in expenditures that will be met in part by ambitious increases in revenue collection. The government will continue to refrain from using BRH financing. To ensure that this is achieved, we are prioritizing investment expenditures (some 60 projects for a total amount of G3 bn.), with lower priority expenditures being initiated only as projected revenues and external financing materialize.

12. A key objective of our program is to increase the domestic revenue effort, with emphasis on combating smuggling and tax fraud. Domestic revenues are projected to increase by about 1.8 percent of GDP in FY2008 to G30,935 million (including earmarked revenues for the road maintenance fund). To achieve this, we will make implementation of action plans to strengthen customs and tax administration a priority. In addition to diligent implementation of the action plans, we will implement the following measures in the context of program conditionality:

  • Submit a new organic law for the DGI to Parliament (Benchmark for end-September 2008);
  • Establish and begin implementation of a plan for the DGI to collect delinquent taxes (Benchmark for end-March 2008); and
  • Establish three new customs control posts on major roads (Benchmark for end-September 2008).

Furthermore, we will increase the reliability of revenue data by reconciling weekly data of the BRH and BNC with that of the DGI and AGD, and continue to extend the use of the central taxpayer file to other DGI offices, especially in Carrefour and Tabarre. We will also prepare administrations procedures manuals for the DGI and AGD, and we expect parliamentary approval of the new customs code, submitted in spring 2007.

13. The Petrocaribe agreement has been ratified by Parliament, and the government is working to resolve a number of logistical issues to make it operational. The budget for FY2008 does not yet include any Petrocaribe resources. In any case, we continue to be fully committed to the transparent use of these resources, channeled through the budget.

14. The FY2008 budget envisages increasing public sector expenditures (excluding foreign-financed projects) by 2.8 percent of GDP to G33,783 million. This increase will accommodate further hiring for social sectors and the police, as well as salary increases to allow partial recovery of significant past real-wage losses, with a total increase in the wage bill of 1.3 percent of GDP. It will also facilitate almost a doubling (on a cash basis) of domestically-financed capital expenditures from the FY2007 outcome. The budget aims to increase poverty reducing expenditures from 43 percent in FY2007 to 56 percent of total expenditures in FY2008.

15. In order to boost absorptive capacity so that the budget envelope can be executed, without compromising the quality of expenditures, we are committed to undertake the following actions:

  • Implement a program to strengthen programming units of key line ministries, involving hiring and training experts in project identification and implementation (PC for end-March 2008);
  • Deploy fiscal accountants and financial comptrollers to key line ministries (Benchmark for end-March 2008); and
  • Develop and implement module for investment spending for the public financial management system SYSDEP (Benchmark end-September 2008).

In addition, we intend to take steps to subject the management of government entities’ “own resources” to the same scrutiny as fiscal revenues. We will also continue our efforts to obtain more timely and accurate data on the execution of foreign-financed projects; it will be important for donors to provide the needed information in a timely fashion.

16. Budget execution will continue to be carefully monitored to ensure that the large increase in spending is used as intended. In this context, we will continue to: (i) limit the use of ministerial current accounts to less than 10 percent of non-wage current expenditures (quarterly PC); (ii) adhere to quarterly ministerial allocations; (iii) publish the TOFE monthly; and (iv) prepare a quarterly report on tracking of poverty reduction expenditures—upgrading the existing presentation to enable a more detailed tracking of spending in priority areas—to ensure that interim HIPC relief has been used to finance additional priority spending.

Monetary policy

17. The program envisages attaining an inflation rate of 9.0 percent by end-September 2008. This rate slightly exceeds the FY2007 outcome, as a result of higher international prices for food and petrol. To ensure that these increases do not translate into broader inflationary pressures, base money growth will be kept slightly below that of nominal GDP, with an indicative target for the year of 9.6 percent. The bulk of monetary expansion will come from an increase in net international reserves, with a program floor of US$40 million. This will boost gross reserves coverage to 2.7 months’ worth of imports. Recognizing that appreciation of the real exchange rate is a reflection mainly of changing fundamentals, the BRH will maintain exchange rate flexibility, limiting interventions to purchases for the achievement of the program NIR target and temporary smoothing of excessive market volatility.

18. To improve the transmission of monetary policy, the BRH has taken steps to make the bond auction more competitive, setting bond volumes and letting prices be determined through competitive bidding. The BRH will extend participation in the bond auctions to non-bank financial institutions (PC for end-March 2008) for the purposes of ensuring that bidding remains competitive and to promote financial market development. Coordination between the MEF and the BRH will be strengthened to improve liquidity forecasting. Moreover, the BRH will institute more formal, albeit brief, communications to convey its policy intentions and monetary policy actions to the public (Benchmark for end-September 2008).

19. Building on the cessation of non-essential activities in the first program year, we will strengthen the institutional foundation for our monetary policy framework through further reinforcement of the independence of the BRH, including through strengthening its balance sheet. A strategy to divest the BRH’s interest in the state telephone company, Teleco, is currently being prepared (PC for end-March 2008), with support from the IFC. Taking into account the expected proceeds from that operation, the BRH will, together with the MEF, devise a plan for the recapitalization of the central bank (PC for end-March 2008). The plan will contain steps to revert the BRH’s quasi-fiscal losses, and put its balance sheet on a sound financial footing.

20. The BRH is committed to implement the remaining recommendations from the 2006 safeguards assessment update. Members of the Audit Committee have been selected and the committee has begun regular meetings. Because of very limited domestic auditing capacity and a number of structural and legal obstacles, implementation of IFRS will be a medium-term process, with the first step being a qualitative analysis of accounting discrepancies. This will be undertaken as a prior action to IMF Executive Board consideration of the second review. Subsequent steps will call for a quantification of the discrepancies, dual reporting, and finally, compliance with IFRS. During this time, we will identify and seek to deal with all legal and structural impediments to IFRS implementation. The BRH’s monitoring committees will continue to examine and sign off on program monitoring data, and will consider possible options for rotating the BRH auditor.

Financial sector

21. The FSAP exercise suggests that Haiti’s banking system is generally sound. At the same time, the FSAP documented a number of developmental and supervisory challenges that need to be addressed to provide a foundation for private sector activity and strengthen the resilience of the financial system. The BRH will implement key recommendations of the FSAP, and address a number of additional issues impeding effective functioning of financial markets, with a view to deepening financial intermediation. This would include approval of the draft banking law, which was submitted to Parliament in June 2007, and submission of legal initiatives to reduce mortgage fees and allow co-ownership of real estate. The BRH will support the creation of a Credit Information Bureau and a centralized public registry of personal property collateral, and is working on modernizing the payments system, through the implementation of a real time gross settlement system. To help reduce the costs of financial intermediation, the BRH intends to gradually lower the high reserve requirements. As a first step, in late October reserve requirements for commercial banks’ gourde deposits were reduced, from 31 to 30 percent. Reserve requirements for deposits in foreign currencies remain at 31 percent, but the gourde component of the requirement was reduced, from 30 to 27.5 percent.

22. The first phase of an assessment of possible needs for operational and financial restructuring of the BNC is expected to be completed in the first half of 2008. Terms of reference for the assessment have been prepared and a contract with the selected assessor will be signed as a prior action for IMF Executive Board consideration of the second program review. The BRH also intends to conduct special inspections of two other large commercial banks to ensure the systemic health of Haiti’s banking sector, one of them by September 2008 (PC). We will improve regulations on credit concentration and connected lending and their enforcement for banks, and strengthen the regulatory framework and supervision of credit unions (benchmark for end-September 2008). The BRH will also define basic requirements for transparency for other non-bank financial institutions. Finally, we have created a group to evaluate options for establishing a deposit insurance scheme.

PRSP, HIPC, and debt management

23. We have finalized our poverty reduction and growth strategy paper. It contains sectoral strategies, which are aimed at providing basic services and promoting job creation. A donors’ conference is being convened to discuss the document and mobilize support for its implementation. As needed, we will submit a supplementary budget to align budgetary spending priorities with those of the DSNCRP and program any additional resources.

24. We are working to implement the conditions stipulated for reaching the floating completion point under the enhanced HIPC initiative, in order to benefit from irrevocable HIPC and MDRI relief as soon as possible. A mechanism to track poverty-related spending has been established, and progress is being made toward the establishment of a centralized database on domestic and external public debt. Strengthening of tax administration is also ongoing, through reinforcing customs control in the provinces and the extension of the use of the central taxpayers’ file. The law on asset declaration has already been submitted to Parliament.

Program monitoring

25. The second year of the program will continue to be monitored using quarterly quantitative benchmarks and semi-annual quantitative performance criteria presented in Table 1. The test dates for the program 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 central government; net central bank credit to the central government and to the 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 an adjustor for net external financing (see TMU). Quarterly structural performance criteria are listed in Table 2, as well as prior actions and benchmarks. The PRGF monitoring committee, composed of officials from the MEF and BRH, will continue to monitor program implementation in the second year. We anticipate the third review of the program on or around July 23, 2008 and the fourth review to be completed in early 2009.

Table 1.Haiti: Indicative Targets and Quantitative Performance Criteria, FY 2008
Actual stock at end-Cumulative Flows since September 2007
Dec-08Mar-08Jun-08Sep-08
Sep-07Ind. targetTest dateInd. targetTest date
Performance criteria
Net central bank credit to the NFPS (in millions of gourdes)19,9055222931680
Central Government20,2145222931680
Rest of NFPS-3090000
Net domestic banking sector credit to the central government19,2945222931680
Net domestic assets of the central bank (in millions of gourdes) - ceiling 1/15,6056901,2901,030953
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/
(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) - floor 3/25910203040
External arrears accumulation (in millions of U.S. dollars) 2/00000
Indicative target:
Change in base money24,9301,0502,0102,1102,393
Memorandum items:
Change in currency in circulation (in millions of gourdes)11,5701,1501,7501,3501,226
Net domestic banking sector credit to the rest of the of the non-financial public sector (in millions of gourdes)-57990190900
Government total revenue, excl. grants (in millions of gourdes)7,64515,29123,34230,935
Government total expenditure, excl. ext-fin investment (in millions of gourdes)9,07117,17925,28433,782
Sources: Ministry of Finance, Central Bank of Haiti, and Fund staff estimates.

For program monitoring purposes, NDA is defined as monetary base minus NIR in gourde terms. Program exchange rate of G36/$ through end-Sept.

On a continuous basis.

Excludes letters of credit and guarantee, and earmarked projects.

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

For program monitoring purposes, NDA is defined as monetary base minus NIR in gourde terms. Program exchange rate of G36/$ through end-Sept.

On a continuous basis.

Excludes letters of credit and guarantee, and earmarked projects.

Table 2.Structural PCs and Benchmarks for the Second Program Year
  • Prior actions
  • Begin independent assessment of possible recapitalization need and required financial and operational restructuring of BNC; and
  • Complete a review of implementation issues for the adoption of IFRS by the BRH.
  • Revenue administration
  • Submit a new organic law for the DGI to Parliament (Benchmark for end-September, 2008);
  • Establish and begin implementation of a plan for the DGI to collect delinquent taxes (Benchmark for end-March, 2008); and
  • Establish three new customs control posts on major roads (Benchmark for end-September, 2008).
  • PFM
  • Strengthen programming units of key line ministries (PC for end-March, 2008);
  • Deploy fiscal accountants and financial comptrollers to key line ministries (Benchmark for end-March, 2008);
  • Limit current account spending to no more than 10 percent of non-wage current expenditure (PC on quarterly basis); and
  • Develop and implement modules on the investment program for the public financial management system SYSDEP (Benchmark for end-September, 2008).
  • Monetary policy framework
  • Prepare a plan to recapitalize the central bank (PC for March, 2008);
  • Adopt a strategy for discontinuing BRH involvement with TELECO (PC for March, 2008);
  • Extend participation in bond auction to non-bank financial institutions (PC for March, 2008);
  • Develop and begin implementation of a plan to improve systemic liquidity forecasting (Benchmark for end-September, 2008); and
  • Initiate regular central bank reporting on monetary policy goals and implementation (Benchmark for end-September, 2008).
  • Financial sector
  • Complete independent assessment of an additional systemically important bank (PC for end-September, 2008); and
  • Improve regulatory framework and supervision of credit unions (Benchmark for end-September, 2008).

26. The government 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.

Attachment IV. Technical Memorandum of Understanding

1. Haiti’s performance under the program 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 and structural performance criteria and indicative targets for the period October 2007-September 2008, specified in Table 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 2008. Targets for end-December 2007 and end-June 2008 are indicative.

Definitions

Net BRH credit to the central government1

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

  • Change in net domestic credit to the central government from the BRH according to Table 10R of the BRH for end-December 2007. For end-March, end-June, and end-September 2008, Table 10R of the BRH will be replaced by its revised version as Table 1SR of the BRH.2
  • Change in the stock of special accounts (“Comptes Spéciaux”) and seized values (Valeurs saisies UCREF) included in Table 10R of the BRH will be excluded from change in net domestic credit to the central government as defined above.3
  • Change in PetroCaribe accounts of the Bureau de Monetization will be excluded from change in net domestic credit to the central government as defined above.

3. Changes in any other special account (as defined in footnote 3) maintained or established at the BRH will be treated as in 2.b above.

4. The changes will be measured on a cumulative basis from the stock at end-September 2007.

Net domestic banking sector credit to central Government

5. The change in net domestic banking sector credit to the central government is defined as, and will be measured using:

  • Change in the stock of net domestic credit of the public sector from the BRH according to Table 10R of the BRH;
  • Change in the stock of net domestic credit of the central government from domestic banks;
  • 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 central government.

6. Changes in any other special account (as defined in footnote 3) maintained or established in the BRH, BNC, or BPH will be excluded.

7. The changes will be measured on a cumulative basis from the stock at end-September 2007.

Net international reserves

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

  • Change in net foreign assets (“Réserves de change nettes” of the BRH Table 10R for 2007 and 2008);
  • Minus the change in foreign currency deposits of commercial banks at the BRH (“Dépots à vue en US$ et en EURO des bcm à la BRH” of the BRH Table 10R).
  • Minus the change in earmarked project accounts and letters of credit and guarantee.
  • Minus the change in PetroCaribe accounts of the Bureau de Monetization.

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

10. 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 are excluded from net international reserves.

11. The changes will be measured on a cumulative basis from the stock at end-September 2007.

Net domestic assets of the BRH

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

  • Change in base money (program definition according to section H below);
  • 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.

13. The program definition of net domestic assets of the BRH will use a program exchange rate of G36 per U.S. dollar for the period October 2007-September 2008.

14. The changes will be measured on a cumulative basis from the stock at end-September 2007.

Nonconcessional external and foreign-currency denominated debt

15. 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).

16. 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 signature, 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).

17. 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.

18. 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.

Government current accounts

19. Ministerial current 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).

20. The target is calculated on a cumulative basis. The ceiling on the use of current accounts will be met if year-to-date (starting on October 1st) expenditure executed through current accounts is less than 10 percent of nonwage budget appropriations at the end of each of the two quarters preceding the end-March and end-September test dates.

Arrears

21. 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.

22. 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.

Base money

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

  • Change in the stock of currency in circulation from Table 10R of the BRH.
  • 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).

24. The changes will be measured on a cumulative basis from the stock at end-September 2007.

Quarterly adjustments

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

Adjustment for domestic arrears accumulation

26. 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.

Adjustment for net program external financing

27. The program ceilings on BRH net credit to the central government, and on BRH net domestic assets and the floor on NIR reflect an 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.

28. If actual net external financing is lower than programmed net external financing, the ceilings on BRH credit to the government 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 net external financing, converted into gourdes at the program exchange rate. The amount of this adjustment will be limited to US$40 million. The adjuster will be calculated on a cumulative basis from October 1, 2007.

Program Net External Financing(In millions of U.S. dollars)
December

2007
March

2008
June

2008
September

2008
Program net external financing21.436.237.662.9

Clarification of structural performance criteria

Prior actions

29. To complete the review of implementation issues for the adoption of IFRS by the BRH, a gap analysis disclosing the main qualitative differences between the BRH’s current accounting practices and IFRS should be undertaken, for inclusion in the next published financial statement.

30. To commence the assessment of the needed financial restructuring of the BNC, the contract with an expert assessor will be signed.

Public financial management

31. The criterion to strengthen programming units of key line ministries will involve the hiring, training, and procuring equipment for 3 experts in project planning and implementation for each of seven ministries. The seven ministries are: Public Works, Agriculture, Education, Health, Justice, Commerce, Women’s Affairs, and Environment. The Ministry of Planning will produce a list of the individuals hired and equipment procured for them.

32. The criterion to deploy fiscal accountants and financial comptrollers to key ministries will involve hiring, training and procuring equipment for their operation in each of the following ministries: Public Works, Agriculture, Education, Health, Interior, Foreign Affairs, Primature, and the President’s office.

33. The benchmark to develop and implement modules on the investment program for the public financial management system SYSDEP involves the installation of SYSDEP modules to record, and present on a monthly basis, domestically financed public investment expenditures. This reporting will be used to develop the monthly TOFE for at least September 2008.

Monetary policy and financial sector

34. The plan for improving systemic liquidity forecasting would include dates for implementing the following steps:

  • Initiating regular exchange of information between the MEF and the BRH on in/outflows of the Treasury account;
  • producing regularly the BRH’s balance sheet;
  • establishing liquidity forecasts for each autonomous factor for the coming week;
  • based on the liquidity forecasts, adjusting the size of the BRH auction in line with monetary targets; and
  • assessing and analyzing the forecast errors and finding possible corrections.

35. Completion of an independent assessment of an additional systemically important bank, would include a report on the on-site examination the bank, including an assessment of the financial condition, internal controls, and risk management practices, produced with the assistance of an independent foreign expert or team of experts, and signed and certified by the expert or experts, in accordance with terms of reference and procedures for the selection of experts that have been agreed between the BRH and the IDB.

36. As regards strengthening supervision of credit unions, the BRH should upgrade its prudential regulations and corresponding guidelines on supervisory practices regarding credit unions, and the government submit to Parliament a new draft law on credit unions. The draft law should address the following key concerns: (i) supervisory responsibilities should be limited; (ii) governance, transparency and self-regulation should be stressed; (iii) members’ responsibility to monitor management, and possibly change it, should be upheld; and (iv) the risk to overwhelm the supervisor by directly assuming the control of credit unions should be minimized.

Provision of information to IMF staff

37. 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.

Daily

38. 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.

39. These data will be reported with maximum two-day lag (14-day final).

Weekly

40. 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.

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

42. These data will be reported with maximum five-day lag preliminary data (four weeks for final data).

Monthly

43. Table 10 R and Table 20 R with a maximum of 30-day lag final data.

44. Tableau on the comptes courants with a maximum of 30-day lag final data.

45. Tableau de trésorerie de devises with a maximum of 30-day lag final data.

46. Tableau des Operations Financiere d’Etat (within 14 days).

47. Table underlying the TOFE which enables the determination of checks in circulation and balance on investment project accounts.

48. Set of external debt tables with a maximum 30-day lag final data.

49. Report of revenue collection of DGI (Rapport d’activités).

50. Tables of revenue collection of AGD (Indicateurs d’activités aux ports, Rapport analytique des perceptions douanières à l’importation).

51. Balance of PetroCaribe accounts of the Bureau de Monetization.

Quarterly

52. Report on poverty-reducing expenditures.

1

The IFRS implementation report has two main components: a description of current accounting practices of the BRH, and a qualitative assessment of how these practices deviate from IFRS. The second component requires support from a foreign expert, since domestic audit firms are unfamiliar with IFRS.

2

See www.imf.org for Haiti’s “National Strategy for Growth and Poverty Reduction (in french: Document de Stratégie Nationale pour la Croissance et la Reduction de la Pauvreté—available at www.mpce.gouv.ht)) and www.imf.org for the IMF-World Bank Joint Staff Advisory Note (JSAN) of the PRSP.

3

See IMF Country Report No. 06/440 for a complete list of triggers.

4

See www.imf.org for the complete Financial Sector Stability Assessment (FSSA).

5

Firm donor commitments have been received. A small remainder of $2.4 million (0.05 percent of GDP) is to be covered by miscellaneous budget support inflows, which staff fully expect to materialize in the course of the fiscal year in line with past experience (MEFP para.11).

6

The DSA analysis can be found in Supplement 1 to this report.

1

The full annexes are available in Supplement II to this report.

2

Adapted from text prepared by the staff of the World Bank in January 2008.

3

Adapted from text prepared by the staff of the IDB in January 2008.

1

The central government comprises the presidency, prime minister’s office, parliament, national courts, treasury, line ministries and “organismes déconcentrés.” It includes expenditures financed directly by foreign donors through ministerial accounts (comptes-courants).

2

This replacement applies to all below references to Table 10R.

3

Special accounts are 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.

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