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Haiti: Second Review Under the Three-Year Arrangement Under the Poverty Reduction and Growth Facility and Request for Waiver of Nonobservance of Performance Criteria

Author(s):
International Monetary Fund
Published Date:
April 2008
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Annex I. Fund Relations

(As of December 31, 2007)

I. Membership Status:

Joined September 08, 1953; Article VIII member

II. General Resources Account:

SDR Millions%Quota
Quota81.90100.00
Fund holdings of currency81.8399.92
Reserve position0.070.08
Holdings Exchange Rate

III. SDR Department:

SDR Millions%Allocation
Net cumulative allocation13.70100.00
Holdings4.7434.61

IV. Outstanding Purchases and Loans

SDR Millions%Quota
PRGF arrangements35.7043.59

V. Latest Financial Arrangements

TypeDate of

Arrangement
Expiration

Date
Amount Approved

(SDR Million)
Amount Drawn

(SDR Million)
PRGFNov 20, 2006Nov 19, 200973.7135.70
PRGFOct 18, 1996Oct 17, 199991.0515.18
Stand-ByMar 08, 1995Mar 07, 199620.0016.40

VI. Projected Payments to Fund 1/

(SDR millions; based on existing use of resources and present holdings of SDRs)

Forthcoming
20082009201020112012
Principal
Charges/Interest0.490.490.490.490.48
Total0.490.490.490.496.10

VII. Implementation of HIPC Initiative:

I. Commitment of HIPC assistanceEnhanced framework
Decision point dateNov 2006
Assistance committed by all creditors (US$ Million) 1/140.30
Of which: IMF assistance (US$ million)3.12
(SDR equivalent in millions)2.10
Completion point dateFloating
II. Disbursement of IMF assistance (SDR Million)
Assistance disbursed to the member0.12
Interim assistance0.12
Completion point balance--
Additional disbursement of interest income 2/--
Total disbursements0.12

Assistance committed under the original framework is expressed in net present value (NPV) terms at the completion point, and assistance committed under the enhanced framework is expressed in NPV terms at the decision point. Hence these two amounts can not be added.

Under the enhanced framework, an additional disbursement is made at the completion point corresponding to interest income earned on the amount committed at the decision point but not disbursed during the interim period.

Assistance committed under the original framework is expressed in net present value (NPV) terms at the completion point, and assistance committed under the enhanced framework is expressed in NPV terms at the decision point. Hence these two amounts can not be added.

Under the enhanced framework, an additional disbursement is made at the completion point corresponding to interest income earned on the amount committed at the decision point but not disbursed during the interim period.

VIII. Implementation of Multilateral Debt Relief Initiative (MDRI)

Not Applicable

IX. Exchange Arrangement

Managed floating with no predetermined path for the exchange rate. The change from a fixed to managed floating regime took place in January 1990. Haiti’s exchange system is free of restrictions on the making of payments and transfers for current international transactions. Since September 1991 all transactions have taken place at the free (interbank) market rate.

X. Safeguards Assessment

The updated safeguards assessment of the Banque de la République d’Haiti (BRH), completed on March 5, 2007, found slow progress in strengthening the BRH’s safeguards framework since the 2005 assessment and made recommendations to address remaining vulnerabilities. Priority recommendations were subsequently implemented for completion of the first review. In line with the BRH’s action plan to implement IFRS, a gap analysis was to be undertaken by end-September 2007 (PC for the second program review). Prior to Board consideration of the second program review, the IFRS analysis was undertaken and a recommended external audit committee was established.

XI. Article IV Consultation

The last Article IV consultation was concluded by the Executive Board on July 9, 2007. Haiti is on a 24-month cycle.

XII. Technical Assistance

Haiti has benefited from the following IMF technical assistance missions since 2005:

DepartmentDatesPurpose
FADApril 2005

May 2005
Public expenditure management

Tax policy and revenue administration
MCMMarch 2005

November 2005

May 2006

March 2007

November 2007
Monetary operations

Implementation of a bond auction mechanism

Accounting of the central bank

Banking law (jointly with LEG)

BRH recapitalization plan
STANovember 2005 and

May 2006

May, October and

December 2006,

April-May and

November 2007
Multisector statistics



Monetary and financial statistics
LEGMarch 2007Banking law

XI. Resident Representative

Mr. Ugo Fasano has been the Fund’s Resident Representative since October 2005.

Annex II. Relations With The World Bank Group

(As of December 31, 2007)

1. The World Bank stepped up its engagement in Haiti in March 2004, as part of a broader partnership between the Transitional Government and donors to address Haiti’s social, economic and institutional needs. The government and donors conducted a needs assessment in May 2004 which provided the basis for the Interim Cooperation Framework (ICF). This established a two-year program for reform and recovery and the structures through which it would be pursued. The ICF was presented at an international donor conference in July 2004 at the World Bank headquarters, at which donor countries and international organizations pledged US$1.1 billion for Haiti. At a subsequent conference in July 2006 in Port-au-Prince, Haiti’s new elected Government extended the ICF until September 2007 and revised it to reflect Government priorities. Donors pledged US$751 million for the period 2006–07. Additional budget support resources were mobilized during a follow-up Donors conference held in Madrid (Spain) in end-November 2006.

2. The World Bank Group’s strategy and program in Haiti for FY 2007 and FY 2008 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) for FY09-12 will be prepared during FY2008 on the basis of the full Poverty Reduction Strategy Paper (Document de Stratégie Nationale pour la Croissance et la Réduction de la Pauvreté, DSNCRP) that the Government has recently completed and submitted to the World Bank and the International Monetary Fund (IMF). World Bank and IMF staffs have prepared a Joint Staff Advisory Note (JSAN). The most recent full CAS was discussed by the Board in 1996.

3. Since January 2005, when Haiti cleared its arrears to the International Development Association (IDA), IDA has approved 11 projects for Haiti, for a total value of $199 million. This is in addition to $12 million of trust fund resources since 2004, primarily from the Post-Conflict Fund and the Low Income Countries Under Stress Trust Fund (LICUS). All assistance has been provided entirely in grant form since July 2005.

4. The IDA grants program for FY 2007 totals US$68 million. Of this, the first project (approved in July) was a US$6 million Electricity Loss Reduction Project, which aims to strengthen operational, financial, and customer management performance in key areas of the state electrical utility. A US$5 million Rural Water and Sanitation Project, to increase access to safe water and sanitation, and a US$23 million development policy grant linked to the government’s economic governance reform program (Economic Governance Reform Operation II) were approved in January 2007. In addition, a US$9 million Catastrophe Risk Insurance Project, approved in March, will finance Haiti’s entrance fee and participation for three years in the Caribbean Catastrophe Risk Insurance Facility, which will provide rapid payouts in the event of a major hurricane or earthquake. A US$25 million Education for All (EFA) Project, which aims to expand primary enrollment, was approved in April 26, 2007.

5. The three investment projects approved in FY 2005 and FY 2006 all remain active: (1) a US$12 million Emergency Recovery and Disaster Management Project (January 2005), which aims to support the rehabilitation of areas affected by recent disasters and strengthen capacity to manage disaster risks and respond to emergencies at both the national and community levels; (2) a US$38 million Community Driven Development (CDD) project (July 2005), which aims to improve access to basic social services and provide income-generating opportunities to poor people in rural and peri-urban areas; and (3) a US$16 million Transport and Territorial Development Project (April 2006), which pilots a territorial development approach in two micro-regions, through financing improvement of key roads and other infrastructure to promote rural development.

6. The Bank is also funding technical assistance, primarily through two US$2 million Economic Governance Technical Assistance Grants (ECTAG I and II, approved in June 2005 and June 2006). It has also provided support to the preparation of the PRSP. An earlier US$61 million development policy operation in support of economic governance reform (Economic Governance Reform Operation I) is now fully disbursed. A Second Economic Governance Reform Operation (EGRO II), a two-tranche US$23 million Development Policy Grant, was approved by the Board in January 2007. A first tranche of EGRO II in the amount of US$10 million has been disbursed in August 2007 in line with the Government’s budget cycle.

7. IDA’s portfolio of projects in implementation in Haiti has expanded dramatically. Since July 2007, when a resolution was reached to a year-long impasse with Haitian authorities over ratification processes for IDA grants, six projects have been declared effective. There are now 10 active projects for a total commitment of US$138 million. Of this, $33.5 million, or 24 percent, has been disbursed.

8. For FY08, two IDA projects are in preparation: a US$15 million Urban Community Driven Development Project and a US$6 million Teacher Training Project. In addition, the Bank has prepared a project for additional financing of US$7.4 million for the Emergency Recovery and Disaster Management Project to provide emergency assistance to support recovery efforts after Hurricane Noel, which caused severe flooding in Haiti in October; and is also exploring options to reallocate funds within the existing portfolio.

9. In addition, the Bank has completed seven major analytical works, including a Country Economic Memorandum (CEM), a Country Social Analysis, and a Social Protection Strategy, and a joint World Bank-IADB Public Expenditure Management and Financial Accountability Review (PEMFAR). The PEMFAR provides an analytical basis in support of the Government’s medium and longer term public finance reform program. The PEMFAR examines the linkages between public finance, growth and poverty with a view to helping policymakers in Haiti design the new generation of public finance reforms centered on policy actions to promote sustained and equitable growth and reduce poverty. Following the PEMFAR findings and policy recommendations, the Government prepared in November 2007 its action plan, which includes priorities to advancing public finance reforms in the short and medium terms. The action plan will be a unique policy matrix on which donors will base their support to the Government’s public finance reforms in the next three to five years. The Bank has also undertaken a Financial Sector Assessment Program (FSAP) jointly with the IMF in FY 2008.

10. An Interim Poverty Reduction Strategy Paper was prepared by the Government and presented to the IMF and World Bank Boards, together with the Joint Staff Advisory Note (JSAN), in November 2006 at the time of discussion of the HIPC Decision Point Document. A Preliminary HIPC Document, prepared jointly by the Bank and IMF staff in collaboration with the Government, was discussed by the Boards of the IMF and the Bank in September 2006. The final HIPC Decision Point document was discussed by both boards in November 2006. Haiti is scheduled to reach the completion point under the Enhanced HIPC framework in September 2008. World Bank and IMF staffs are closely monitoring progress in implementing the HIPC triggers.

11. The International Finance Corporation (IFC) is working to identify specific actions to promote a sound business enabling environment, while investing in projects that support the development of a sustainable private sector and income-generating activities. Recent investments have been in cellular telecommunications (Digicel—US$15 million in each of FY 2006 and FY 2007), textiles (Grupo M—US$20 million in FY 2004), and microfinance (MicroCredit National—US$0.4 million in FY 2004). In May, the IFC approved a US$2.0 million trade finance line for Capital Bank. In addition, IFC is discussing with the Government the provision of advisory support in the design and implementation of private sector participation transactions for the airport of Port-au-Prince and for state-owned telecom TELECO. Additional support is envisaged through the IFC LAC Facility and the Foreign Investment Advisory Service (FIAS), possibly in the following areas: (1) business simplification; (2) improving access to finance; (3) investment facilitation (notably textiles); and (4) training, through the SME Toolkit and Business Edge.

Annex III. Relations With The Inter-American Development Bank

(As of December 31, 2007)

1. From 2003 to 2006 the Bank operationalized its development assistance to Haiti through two successive transition strategies. Currently, the Bank is operating under a new country strategy for the period 2007-2011, a multiyear approach to support the consolidation of Haiti’s economic and social recovery.

2. As of December 2007, the IDB has 23 investment and policy-based operations for a total of US$674.9 million. The undisbursed balance, US$425 million, represents 63 percent of the portfolio total amount, underscoring portfolio implementation as a major challenge. Significant improvements have taken place, nonetheless. During the period 2004–2006 the Bank disbursed about US$163.7 million for ICF-related programs. During 2007, the Bank disbursed US$114.4 million, exceeding all disbursement target indicators. Revised projections for 2008 amount to US$ 127 million, out of which approximately US$27 million will be for budgetary support.

3. The IDB finances projects in three of the ICF’s pillars: US$77.5 million for economic governance and institutional development, US$349.5 million for economic recovery, and US$247.9 million for access to basic services. All the loans of the total approved portfolio have been ratified. This package is complemented by US$48.8 million in IDB-administered co-financing, US$16.3 million in non-reimbursable technical cooperation funding (including Multilateral Investment Fund operations), and by non-financial products that underpin program and policy preparation and implementation.

4. In March 2007 the IDB approved debt relief for all of the country’s debt with the Bank accumulated prior to Dec. 31, 2004, a total of US$525 million. This relief will be granted when the country reaches the HIPC completion point in 2009. Interim relief of US$10 million per year is effective for 2007 and 2008. As part of this debt-relief initiative, the Bank implemented the new Debt Sustainability Framework (DSF) and Performance Based Allocation System (PBA) for concessional financing, which allocates US$50 million in grants per year to Haiti from 2007 to 2009. After 2009 Haiti should be eligible to receive a mix of grants and concessional loans of which the grant element may be US$ 40 million, consistent with the DSF/PBA framework.

5. In the context of the new financial envelope granted to Haiti, the Bank and the Government jointly identified four sectors to focus the Bank’s actions in support of the country’s objectives: transport and energy infrastructure, agriculture, education and economic governance. To reduce transaction costs and obtain greater development impact, larger program interventions will be prioritized in the four sectors led by the Bank. For instance, in transport infrastructure, a top priority that the government has assigned to the Bank, an innovative program structure will be implemented through four annual contributions of US$25 million in order to secure funding over time. In terms of budgetary support, one-fourth of the total yearly grant allocation, US$12.5 million, will be destined through a new Bank instrument, the Policy-Based Grant (PBG).

Table 1.IDB Operational Program 2007–09(Grants)
NumberNameUS$ Million
2007
HA-L1017Strengthening Public Resource Management I (PBG)12.5
HA-L1019Rehabilitation of Road Infrastructure for Productive Sector I25.0
HA-L1021Supplement to Agricultural Intensification Program Artibonite12.5
2008
HA-L1023Strengthening Public Resource Management II (PBG)12.5
HA-L1024Rehabilitation of Road Infrastructure for Productive Sector II25.0
HA-L1032Rehabilitation of Peligre Hydroelectric Central12.5
2009
HA-L1029Economic Governance Program I (PBG)12.5
HA-L1028Rehabilitation of Road Infrastructure for Productive Sector III25.0
HA0033National Watershed Program12.5

6. To improve program implementation, the Bank has taken specific measures, such as special procurement procedures and delegation of authority to the Country Office Representative. These measures have contributed to the acceleration of the execution pace, yet challenges related to the country’s weak institutional capacity, small local private market, saturation of national firms, and low level of foreign firms participation, remain. Along with these measures to expedite decision-making, the Bank’s staff in the noted sectors will be increased at the Country Office to support the strengthening of the country’s execution and absorption capacity. A financial scenario that takes into account the active portfolio, lending envelope, IDB debt relief, the country’s absorptive capacity and the measures to accelerate execution, envisages disbursements of US$520 millions for the 2007-2011 period, ensuring positive net flows to the country of US$85 millions per year, on average.

7. The IDB is committed to provide a comprehensive support to the country and to the priorities set for the Bank by the authorities. The Bank’s programming will be reviewed and updated each year to meet the development objectives and their prioritization in the PRSP.

Annex IV. Statistical Issues

1. Haiti is currently working toward participation in the General Data Dissemination System (GDDS). A preparatory STA mission took place in late November, 2007, and the authorities are currently working to finalize the French version of the metadata and plans for improvement. It is expected that Haiti could participate in the GDDS by March 15, 2008. While data provision is broadly adequate for program purposes, there is a need to improve the coverage, periodicity, quality and timeliness of a number of the datasets. Further work is required to extend the coverage of government finance statistics, and improve the quality of real sector and balance of payments statistics, including trade and external debt. Also, the production of quarterly GDP data would be highly desirable for program monitoring purposes.

2. STA discussions are underway with the authorities on a medium-term statistical rehabilitation program that includes technical assistance and training, and will be reflected in the forthcoming plans for improvement in the GDDS. During the 2007 Annual Meetings, the authorities requested further technical assistance and training in government finance and monetary and financial statistics, including a short-term resident expert to assist the staff of the BRH in the implementation of recent MFS mission recommendations and the further development of Haiti’s integrated monetary database. They subsequently communicated a request for further technical assistance in real sector statistics as well. Also, the authorities have requested UNCTAD and other donors to assist with their public debt data management. STA, CARTAC and INS sponsored the participation of two Haitian staff in the December 2007 external debt statistics seminar in Tunis.

3. In response to the requests in the area of monetary and financial statistics, STA fielded a follow-up mission in November 2007 and sought a resident expert in MFS. In the absence of a suitable expert, STA has proposed to the authorities a series of five to six three-week peripatetic missions. To address training needs, STA and INS are cooperating on exceptions to the standard admissions policy for joint courses in Washington and in Tunis, permitting several Haitian staff to participate in each course or seminar offered in French. In addition, four Haitians participated in an AFRITAC-sponsored GFS seminar in French in Togo in October 2007. Further assistance is also envisaged in national accounts statistics in 2008.

1/When a member has overdue financial obligations outstanding for more than three months, the amount of such arrears will be shown in this section.

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