--- Page 1 --- August 2007 @ 2007 International Monetary Fund IMF Country Report No. 07/293 First Review Under the Three-Year Arrangement Haiti: 2007 Article IV Consultation, Facility and Requests for Waiver of Under the Poverty Reduction and Growth Criteria-Staff Report; Public Nonobservance and Modification of Performance Executive Board Discussion; and Information Notice and Press Release on the Statement by the Executive Director for Haiti the IMF holds bilateral discussions with Under Article IV ofthe IMF's Articles of Agreement, discussion ofthe 2007 Article IV usually every year. In the context of a combined under the Poverty members, with Haiti, the first review under the three-year arrangement and modification of consultation and requests for a waiver of nonobservance in this Reduction and Growth Facility documents have been released and are included package: performance criteria, the following Under the the combined 2007 Article IV Consultation, First Review for The staff report for Reduction and Growth Facility and Requests Three-Year Arrangement Under the Poverty Criteria, prepared by a staff team and Modification of Performance ofHaiti on Waiver of Nonobservance that ended on May 16, 2007, with the officials ofthe IMF, following discussions available at the time oft these economic developments and policies. Based on information 2007. The views expressed in the staff discussions, the staff report was completed on July 6, reflect the views of the Executive are those of the staff team and do not necessarily report Board of the IMF. the views of the Public Information Notice (PIN) and Press Release, summarizing staff report on issues A during its July 23, 2007, discussion ofthe Executive Board as expressed and the IMF arrangement, respectively. related to the Article IV consultation by the Executive Director for Haiti. A statement listed below have been or will be separately released. The documents Letter of Intent sent to the IMF by the authorities of Haiti* Policies by the Memorandum of Economic and Financial Supplemental authorities of Haiti* Selected Issues Paper and Statistical Appendix Technical Memorandum ofUnderstanding* *Also included in Staff Report documents allows for the deletion of market-sensitive of publication of staff reports and other The policy information. are invited and may be sent the publication policy, reader comments To assist the IMF in evaluating by e-mail to puhicatienpslicod@tntans from Copies of this report are available to the public International Monetary Fund o Publication Services 700 19th Street, N.W. o Washington, D.C. 20431 (202) 623-7430 0 Telefax: (202) 623-7201 Telephone: o Internet: htp-/wwww.imt.org E-mail: publications@imi.org Price: $18.00 a copy International Monetary Fund Washington, D.C. reader comments To assist the IMF in evaluating by e-mail to puhicatienpslicod@tntans from Copies of this report are available to the public International Monetary Fund o Publication Services 700 19th Street, N.W. o Washington, D.C. 20431 (202) 623-7430 0 Telefax: (202) 623-7201 Telephone: o Internet: htp-/wwww.imt.org E-mail: publications@imi.org Price: $18.00 a copy International Monetary Fund Washington, D.C. --- Page 2 --- --- Page 3 --- INTERNATIONAL MONETARY FUND HAITI First Review Under Staff Report for the 2007 Article IV Consultation, Reduction and Growth Arrangement Under the Poverty the Three-Year for Waiver of Nonobservanee and Facility and Requests Criteria Modification of Performance for the 2007 Consultation with Haiti Prepared by the Staff Representatives by Caroline Atkinson and Mark Plant Approved July 6, 2007 Article IV consultation in May 2005, Executive Directors Developments. At the time of the last stability and implementing structural welcomed progress toward restoring macroeconomic policy and absorb excess liquidity. They reforms, but underscored the need to tighten monetary and expenditure control. Many forward to measures to improve budget management the political also looked implemented. Moreover, ofthese and other key recommendations were subsequently returned to positive- albeit still economic situation stabilized further, and the economy along with Haiti's and November 2006, a new PRGF arrangement was approved, modest growth. In HIPC Initiative. decision point under the enhanced Hartelius, and Ms. Redifer Messrs. Bauer (Head), El-Masry, during Discussions. A team, comprising Funke (FAD), and Ms. Goretti (PDR), visited Haiti (all WHD), Mr. Sacasa (MCM), Ms. in the policy discussions. The mission, which May 2-16, 2007. Ms. Florestal (OED) participated held discussions with Prime Minister by Mr. Fasano (Resident Representative), Bellerive, was supported and Finance Dorsainvil, Minister of Planning Alexis, Minister ofthe Economy (BRH) Magloire, and other members of the Governor of the Bank ofthe Republic ofHaiti the mission also met with donor representatives, economic team. As part of its outreach activities, civil society, and the banking and business communities. Article VIII status. Haiti has a managed float with no Exchange rate regime and Haiti has accepted the obligations of Art. VIII, predetermined path for the exchange rate. is free of restrictions on the making of payments Sections 2, 3, and 4, and its exchange system and transfers for current transactions. surveillance purposes, but further Haiti's economic statistics are broadly adequate for I). Statistics. quality and timeliness are desirable (Annex improvements in coverage, periodicity, to the publication of the staff The authorities have consented Article IV cycle and publication. that Haiti remain on the 24-month Article IV report and related documents. It is proposed consultation cycle. Art. VIII, predetermined path for the exchange rate. is free of restrictions on the making of payments Sections 2, 3, and 4, and its exchange system and transfers for current transactions. surveillance purposes, but further Haiti's economic statistics are broadly adequate for I). Statistics. quality and timeliness are desirable (Annex improvements in coverage, periodicity, to the publication of the staff The authorities have consented Article IV cycle and publication. that Haiti remain on the 24-month Article IV report and related documents. It is proposed consultation cycle. --- Page 4 --- Contents Page Executive Summary I. Background: A Stabilizing Economy and Society II. Policy Discussions: Creating Conditions for Durable Growth A. Medium-Term Outlook and Challenges B. Domestic Revenue Mobilization C. Monetary Policy Framework D. Competitiveness. E. PRSP and HIPC. III. PRGF-Supported Program: First Review. .18 A. Macroeconomic Framework for Remainder of FY 2007. B. Macroeconomic Framework for FY 2008. .22 C. Capacity to Repay, Program Risks, and DSA. .23 IV. Staff Appraisal Figure 1. Economic Situation at a Glance. Tables 1. Indicative Targets and Quantitative Performance Criteria, FY 2007 2. Selected Economic and Financial Indicators 3a. Central Government Operations 3b. Central Government Operations .30 4. Summary Accounts of the Banking System 5. Balance of Payments. 6. Medium-Term Scenario .33 7. Indicators of Fund Credit 8. Budgetary Financing, by Donor and Type. 9. Millennium Development Goals. .36 10. Proposed Schedule of Disbursement under the PRGF Arrangement, 2006-2009 11. Indicators of External Vulnerability .38 12. Aggregate Financial Soundness Indicators ofthe Banking System, 2001-07 Boxes 1. Growth Outlook in Haiti 2. Banking Sector Developments, Annexes Summary of Annexes. I. Fund Relations II. Relations with The World Bank Group --- Page 5 --- III. Relations with The Inter-American Development Bank IV. Statistical Issues. Attachments I. Letter ofIntent. II. Supplemental Memorandum on Economic and Financial Policies. III. Technical Memorandum of Understanding --- Page 6 --- EXECUTIVE SUMMARY Background institutions. in stabilizing the economy and restoring political Haiti has made remarkable progress and growth has resumed, albeit at a modest pace, Inflation has declined, the currency has stabilized, by the authorities. thanks to the pursuit of prudent macroeconomic policies date PCs for the first review (test program is broadly on track. Quantitative were fulfilled on The PRGF-supported and most structural PCs and benchmarks end-March) were met with large margins, for nonobservance of one structural PC. time. The authorities are requesting a waiver Focus of discussions stabilization gains and achieve discussions centered around Haiti's challenge to consolidate in social Policy external stability and bring about significant improvement of higher growth, to underpin issues relating to this challenge: (i) the mobilization outcomes. Discussions focused on three policy goods and services, and reduce domestic revenues to scale up the provision of essential public coherent monetary policy framework to donor support; (ii) the transition toward a more reliance on stability; and (iii) external competitiveness. help entrench macroeconomic Main policy recommendations execution, particularly in term, the key priority is to step up the slow pace of budget the central In the short expenditure quality. In addition, domestically financed investment, without compromising under the indicative program targets, fully use the available room for base money growth bank should to avoid an overly tight monetary stance. stable domestic revenue efforts will be essential to provide In the medium term, strengthened be achieved through a carefully sequenced combination funding for priority expenditures. This could and adjusting, in due course, tax rates administration, broadening the tax base, of improving revenue and fees. the authorities' near term focus should be on To clarify the monetary policy framework, This would require modification of BRH bond controlling inflation via the supply of base money. while leaving interest rates to be volumes in line with base money supply targets, auctions to set bidding process. The proposed focus on money supply market-determined through a competitive evolve in the longer term to allow for a transition to formal would be an interim step, while conditions inflation targeting. the that the Haitian gourde is misaligned. However, Staff analysis does not suggest, on balance, from rising private remittances and equilibrium real exchange rate appreciation economy experiences pressures should be mainly countered through to other transfers. Resulting competitiveness competitiveness problems. Attempts microeconomic interventions to address widespread non-price and ineffective over time. The observed equilibrium appreciation would likely be costly to resist the rate regime, limiting interventions authorities should therefore maintain a floating exchange and smoothing out seasonal fluctuations. rebuilding reserves in line with PRGF program objectives, the that the Haitian gourde is misaligned. However, Staff analysis does not suggest, on balance, from rising private remittances and equilibrium real exchange rate appreciation economy experiences pressures should be mainly countered through to other transfers. Resulting competitiveness competitiveness problems. Attempts microeconomic interventions to address widespread non-price and ineffective over time. The observed equilibrium appreciation would likely be costly to resist the rate regime, limiting interventions authorities should therefore maintain a floating exchange and smoothing out seasonal fluctuations. rebuilding reserves in line with PRGF program objectives, --- Page 7 --- ECONOMY AND SOCIETY I. BACKGROUND: A STABILIZING of economic decline. Over the past 40 years, 1. Haiti has suffered from a long period year. The country experienced GDP contracted on average by 0.7 percent per of real per capita notably sharp growth swings, periodic episodes considerable macroeconomic volatility, rate movements, and accelerating balance of payments difficulties, disruptive exchange political strife (15 governments in which resulted from a combination of extreme and inflation, commodity price declines, aid volatility, the last 20 years), external shocks (including Against this background, it is not disasters), and unsound macroeconomic policies. ofthe natural country in the hemisphere, with 54 percent surprising that Haiti remains the poorest living on less than one U.S. dollar a day. population been considerable progress in recent years in there has 2. Encouragingly, stabilizing the economy. The transitional Real GDP growth and inflation' that took over following 5 (yly percent change) government President Aristide's departure in February Real GDP 2004 and the government of President Préval 2 that took office in early 2006, have E1 fiscal and monetary implemented prudent declined, -1 policies. As a result, inflation has -2 stabilized, and gross reserves -3 CPI, end-of-period the currency real per capita GDP -4 (right scale) increased. Most notably, -5 2001 2003 2005 2007 has begun to recover, although its growth 1997 1999 rate still remains modest (74 ofa percentage 1/Fiscal Sources: years. Ministry of Economy and Finance and Fund staff estimates point in fiscal year (FY) 2006).' institutions there have been positive steps toward restoring political 3. Similarly, in public sector operations. President and improving governance and transpareney corruption as central tenets ofhis Préval has espoused good governance and the fight against the democratic election of a new his tenure, Haiti has witnessed administration. So far during increased reliance on and local authorities, and experienced parliament and municipal Stepped up operations to combat criminal gangs political compromise and coalition building. months, even though still occasionally have also restored a sense of relative security in recent interrupted by episodes of heightened crime. 1 Haiti's fiscal year runs from October to September. . Similarly, in public sector operations. President and improving governance and transpareney corruption as central tenets ofhis Préval has espoused good governance and the fight against the democratic election of a new his tenure, Haiti has witnessed administration. So far during increased reliance on and local authorities, and experienced parliament and municipal Stepped up operations to combat criminal gangs political compromise and coalition building. months, even though still occasionally have also restored a sense of relative security in recent interrupted by episodes of heightened crime. 1 Haiti's fiscal year runs from October to September. --- Page 8 --- additional support from the Haiti has received 4. On the basis of its performance, mobilization of donor support under an interim international community. After the early with multilateral lenders, Haiti framework in 2004 and the clearance of arrears debt relief on cooperation in late 2006, and the Paris Club agreed to grant reached its HIPC decision point extended preferential tariffs for Haiti's terms. In addition, the United States its most generous of the Haitian Hemispheric Opportunity largest export sector, through the approval Encouragement (HOPE) Act. Partnership use of stabilization process through the sequenced Haiti's 5. The IMF supported 6-month staff monitored program, the IMF instruments and facilities. After a successive different Post-Conflict Assistance (EPCA) for two approved support under Emergency These provided a framework 2004 to September 2006. programs programs, from September record leading to the new three-year PRGF for economic stabilization and a track November 2006. and HIPC decision point, approved in arrangement Response to Key Policy Recommendations of Authorities' Previous Article IV Consultations Authorities' Policy Response Key IMF Recommendations The FY 2007 budget was approved within the newly elected annual budget in close consultation with political constitutionally specified time frame by the at Prepare and align donor support with budget priorities. Parliament. Donor financing was sought and in obtained 2006, in parties conference held in Madrid July an line international with priorities set out in the draft budget. The authorities have kept spending from current accounts Improve budget management and expenditure control below 10 percent of nonwage current expenditure through March 2007. mechanisms. appropriations New financing has been obtained as grants or on donors. of nonconcessional debt and move terms, including from non-Paris Club Avoid accumulation concessional financing. concessional credit to toward grant- or highly excess The central bank has discontinued providing in September Tighten monetary policy with a view to absorbing central bank government since the first EPCA program policy have helped liquidity in the banking system and avoiding 2004. This and a concerted from sterilization over 30 percent in financing. reduce excess 2004 reserves to about 1 percent currently. September The authorities have indicated their interest in introducing implementation of auctioning mechanism for the and expanding the auction but taken no action sO far. Rapid placement of central bank bonds. A census of government employees has been performed fiscal transparency by completing the survey of in FY2 2005. A survey of wage arrears has been completed Improve domestic arrears and the census of government execution. and plan for their clearance is being and a implemented. plan for their employees, and publishing data on budget Inventory of nonwage arrears clearance is underway. The authorities have taken advantage of extensive and timeliness of economic statistics, assistance from the Fund's 's Statistics Department Improve the quality the use of Fund technical assistance. technical their economic data, particularly in monetary including through toi improve However, further improvementsi in and fiscal statistics. quality and timeliness are needed. data coverage, ars has been completed Improve domestic arrears and the census of government execution. and plan for their clearance is being and a implemented. plan for their employees, and publishing data on budget Inventory of nonwage arrears clearance is underway. The authorities have taken advantage of extensive and timeliness of economic statistics, assistance from the Fund's 's Statistics Department Improve the quality the use of Fund technical assistance. technical their economic data, particularly in monetary including through toi improve However, further improvementsi in and fiscal statistics. quality and timeliness are needed. data coverage, --- Page 9 --- Figure 1. Haiti - Economic Situation at a Glance Growth has picked up since 2005 after a period of Increased revenues and higher external economic decline. budget support have improved the fiscal cash balance.. Contributions to real GDP growth 10 14 (In percent of GDP) 8 (In percent) /ZNet exports 8 12 ON Net budget support 6 C Investment 10 OTotal revenue C Consumption Real GDP growth 2 6 -2 -4 4 0 -6 -6 -2 Cash balance' -2 -8 8 -4 2001 2002 2003 2004 2005 2006 2007 2001 2002 2003 2004 2005 -4 2006 2007 ..which has facilitated a reduction of central bank The current account has been kept in balance 55 financing and inflation. despite a marked real exchange rate appreciation.. (In percent) (Billions of 30 10 (Inp of gourdes) percent GDP) Index Stock of central bank financing 25 0 + (1988=100) 70 (right scale) D 20 -10 15 -20 10 -30 Current account Real effective exchange rate, Annual inflation 5 -40 increase = depreciation Current account exc. (right scale) and 0 + grants remittances 0 -50 Oct-00 Oct-01 Oct-02 Oct-03 Oct-04 Oct-05 Oct-06 2001 2002 2003 2004 2005 2006 which has enabled the central bank to start ..mainly through strong inflows of remittances... rebuilding its international reserves. 1,600 (In millions of fU.S. .dollars) 1,600 140 2.5 (In millions of U.S.dollars) (In month of imports) 1,400 1,400 120 Gross international reserves or Net private transfers (right scale) 1,200 1,200 2.0 A DE External grants 1,000 1,000 Net international 1.5 2005 2006 which has enabled the central bank to start ..mainly through strong inflows of remittances... rebuilding its international reserves. 1,600 (In millions of fU.S. .dollars) 1,600 140 2.5 (In millions of U.S.dollars) (In month of imports) 1,400 1,400 120 Gross international reserves or Net private transfers (right scale) 1,200 1,200 2.0 A DE External grants 1,000 1,000 Net international 1.5 reserves 1.0 400 40 200 20 0.5 2001 2002 2003 2004 2005 2006 2001 2002 2003 2004 2005 2006 0.0 'Cash balance equals revenues, budget support grants, budget loans, and change in arrears less current expenditure, domestically financed investment expenditure, and amortization of external loans. Sources: Ministry of Economy and Finance; Bank of the Republic of Haiti; and Fund staff estimates. --- Page 10 --- CREATING CONDITIONS FOR DURABLE GROWTH II. POLICY DISCUSSIONS: already achieved, the challenge for Haiti 6. With significant stabilization progress economic expansion. Economic its incipient recovery into a sustainable in is to convert and bring about significant improvement growth is needed to underpin external stability there is a risk that civil conflict will social outcomes. Without tangible social progress, resurface and hard-won progress will be lost. A. Medium-Term Outlook and Challenges that the current path could lead to an 7. The authorities and staff agreed that the medium- and long-term favorable outlook for growth. There was a sense overall last year remained broadly appropriate. growth projections determined in PRGF negotiations GDP to a rate of about 4 percent in framework envisaged an acceleration of real growth of This similar to growth rates achieved during past periods the medium and longer term, domestic and external stability (Box 1). that meeting the growth objectives would 8. However, there was also agreement obstacles. Alleviating these constraints require overcoming significant and widespread sector investment and support higher for a crowding-in of private would create conditions levels of productivity to underpin growth: situation has to be improved further, SO that In the short term, the still fragile security can take root across the country and recent successes in the combat of criminal gangs help boost confidence. will be important to create a more predictable Further consolidating economic stability donor and IFI support. However, by itself business environment and ensure continued this will not yet be a sufficient condition for raising growth. is constrained by a number of structural and In addition, medium-term growth shortages, notably in the construction sector; institutional bottlenecks, including supply basic utility services, particularly dilapidated infrastructure; inadequate and costly and health services; low financial electricity; poor coverage and quality of education Moreover, spending and intermediation; and difficult enforcement of property rights. by a significant remains limited, as evidenced implementation capacity of the government in the first half ofFY 2007. underexecution ofbudgeted expenditures continued this will not yet be a sufficient condition for raising growth. is constrained by a number of structural and In addition, medium-term growth shortages, notably in the construction sector; institutional bottlenecks, including supply basic utility services, particularly dilapidated infrastructure; inadequate and costly and health services; low financial electricity; poor coverage and quality of education Moreover, spending and intermediation; and difficult enforcement of property rights. by a significant remains limited, as evidenced implementation capacity of the government in the first half ofFY 2007. underexecution ofbudgeted expenditures --- Page 11 --- of these obstacles and noted that they are 9. The authorities were cognizant supply side bottlenecks, the important steps to remove them. To alleviate in tenders, and taking of domestic firms public authorities are seeking to broaden participation of infrastructure projects. particularly in the area public at facilitate entry of foreign suppliers, administration and project management capacity In addition, they are building up financial welcomed these steps, but noted it execution. The mission line ministries to raise expenditure could play out in full. In terms ofaddressing would likely take some time until their effects pointed to the creation of the center microeconomic impediments to growth, the authorities They also intend to improve window for investors. for investment facilitation, a one-stop through outright privatization or other competitiveness of remaining state-owned enterprises these were steps in the right direction. modalities of private sector participation. Staff agreed of donor assistance to overcome about the importance 10. There was agreement assistance. Coordination was deemed including through technical critical bottlenecks, that aid and domestically financed important in this context, SO foreign on particularly and have a stronger impact government expenditures could be mutually reinforcing had recently taken steps to outcomes. The authorities noted that they economic and social including through more frequent and regular the coordination effort, lead more effectively with the Prime Minister. meetings of local donor representatives the Article IV discussions focused selectively on 11. Against this general backdrop, and stability over the medium issues that are important to support growth three policy term: additional revenue to support higher spending on First, in the fiscal area, generating the country for a transition to less critical social and infrastructure needs and prepare dependence on volatile foreign assistance; framework to provide for a stable lowSecond, strengthening Haiti's monetary policy inflation environment; and particularly in light of the Third, assessing the evolution of external competitiveness, and over the longer term. of the Haitian gourde in recent years real appreciation the Article IV discussions focused selectively on 11. Against this general backdrop, and stability over the medium issues that are important to support growth three policy term: additional revenue to support higher spending on First, in the fiscal area, generating the country for a transition to less critical social and infrastructure needs and prepare dependence on volatile foreign assistance; framework to provide for a stable lowSecond, strengthening Haiti's monetary policy inflation environment; and particularly in light of the Third, assessing the evolution of external competitiveness, and over the longer term. of the Haitian gourde in recent years real appreciation --- Page 12 --- Box 1. Growth Outlook in Haiti Haiti's real GDP growth could increase to 4 percent in the medium to long term, similar to rates achieved during past periods of domestic and external stability. This forecast assumes continued growth improvements in security conditions, sustained political and macroeconomic stability, and in social and economic infrastructure. As infrastructure constraints are gradually removed, agricultural improvements and exports could pick up. The textile assembly industry is likely to benefit from the Haitian Hemispheric production Opportunity Partnership Encouragement (HOPE) Act, which will extend preferential access to the U.S. market over the next three to five years. Over time, improvements in security and the rehabilitation of infrastructure would create favorable conditions for the tourism industry, which could initially transport cater to the Haitian Diaspora and cruise tourism, and later to broader international markets. Nevertheless, owing to the significant structural obstacles that need to be overcome, Haiti' s growth performance is likely to remain for some time below the rates recorded by other low-income countries. Average real GDP growth (in percent) 1995-2000 2001-04 2005-06 2007-11 Haiti 3.8 -1.1 2.1 4.0 Low income countries/1 3.5 4.9 5.8 5.9 PRGF countries/2 5.1 7.8 7.7 6.9 Post-conflict countries/3 3.8 5.2 6.1 5.7 1/1 PRGF eligible with 2005 GNI lower than US$1000 2/1 PRGF countries as of April 2007. 3/ Country with EPCA between 1988 and 2007 Source: Staff estimates and WEO Available indicators do not point to a significant acceleration of growth SO far in FY 2007. Staff has developed a monthly expenditure approach GDP estimator, as well as activity indicators based on real real money growth, construction activity, and total imports. These indicators suggest a continued credit, of the economy, but at rates only marginally higher than in 2006. As a consequence, staffhas lowered expansion its forecast for FY 2007 to 3.5 percent from 4 percent, with the balance of risks to this forecast still growth tilted toward the downside. remaining Real GDP Growth 3.0 Expenditure Approach Estimator and National Accounts 2.0 1.0 2 smt 0.0 2. Estimated, Expenditure. Approach -3.0 HP filtered trend of estimated growth National Accounts Sep- -01 Mar-02 Sep-02 Mar-03 Sep-03 Mar 04 Sep-04 lar- -05 Sep-05 Mar Sep-06 M lar Source: Staff estimates For FY 2008, on the other hand, staff anticipates the economy will benefit from an extra from the HOPE Act. The HOPE Act is likely enter into force in July 2007, allowing Haiti to export garments push made from third-country textiles free ofduty to the United States. Orders from U.S. customers have begun to accumulate in anticipation of HOPE, and staffe estimates that exports could increase by as much as US$150 million next owing to the Act. Given a value added in the textile assembly industry of about 20 could year 4.5 percent in FY2008, before returning to the projected long-term trend of about 4 percent, growth in rise to percent subsequent years. . The HOPE Act is likely enter into force in July 2007, allowing Haiti to export garments push made from third-country textiles free ofduty to the United States. Orders from U.S. customers have begun to accumulate in anticipation of HOPE, and staffe estimates that exports could increase by as much as US$150 million next owing to the Act. Given a value added in the textile assembly industry of about 20 could year 4.5 percent in FY2008, before returning to the projected long-term trend of about 4 percent, growth in rise to percent subsequent years. --- Page 13 --- B. Domestic Revenue Mobilization revenue to fund higher levels of essential government 12. Increasing domestic over the medium term. The for Haiti, particularly expenditure is a key challenge mission noted that at about Revenue Collections in Middle- -Income of GDP, Western 2005-06) Hemisphere 1/ Countries (In percent 10 percent of GDP, Haiti's revenue effort is relatively Nontax revenue low, possibly reflecting a large 25 Indirect taxes informal sector and weak administrative capacity. It underscored that more Direct domestic revenues would taxes provide fiscal space for higher 5 levels of public spending on de de a a a 3 2 E 1 E a essential goods and services, I 8 a E e dependence on a a while reducing Haitic data for 2005/0 volatile aid flows.? Include sul and stated their intention to raise The authorities agreed with this assessment that had 13. of GDP. They pointed to initial steps domestic revenues to at least 15 percent and improving revenue mainly on reforming the income tax system first half of been taken, boost revenues by 30 percent in the administration. These measures had helped domestic revenues by more than fiscal year (y/y), and are on course to raise the current 1 percent of GDP in FY 2007 as a whole. SO far and proposed The mission welcomed the strong revenue performance level. 14. to help attain the authorities' targeted actions to raise revenue in coming years combination of that this could be achieved through a carefully sequenced Staff noted broadening ofthe tax base, and selective improvements in revenue administration, adjustments to tax rates:' the scope to create fiscal space through expenditure re-allocation the 2 Because of the small size ofthe government, and defense outlays are very low in Haiti. Similarly, fairly limited at present. For example, security standards. appears bill- I-at about 3V percent of GDP- is very low by international wage in mobilizing domestic revenues in Haiti's 3 A more detailed discussion ofthe challenges and opportunities Selected Issues Paper. environment is presented in the companion post-conflict roadening ofthe tax base, and selective improvements in revenue administration, adjustments to tax rates:' the scope to create fiscal space through expenditure re-allocation the 2 Because of the small size ofthe government, and defense outlays are very low in Haiti. Similarly, fairly limited at present. For example, security standards. appears bill- I-at about 3V percent of GDP- is very low by international wage in mobilizing domestic revenues in Haiti's 3 A more detailed discussion ofthe challenges and opportunities Selected Issues Paper. environment is presented in the companion post-conflict --- Page 14 --- should be the first step in this three-pronged Strengthening revenue administration basic functions and tax strategy. Efforts should initially focus on strengthening such as, for the inland revenue modernization, procedures, followed by more far-reaching For the customs (DGI), moving to a functional model of tax administration. should be the first step, authority effective controls in the provinces authority (AGD), establishing at all locations, including through followed by the strengthening of procedures controls, and applying the more risk management, shifting to post-release plans to introducing the authorities have already prepared WTO valuation system. Along these lines, which should be diligently implemented. customs and to modernize the DGI, strengthen This to distribute the tax burden more evenly. Broadening the tax base will be important controls at the border, combating evasion through stronger requires, among other things, informally into the tax net, and bringing potentially large taxpayers currently operating of export sector inputs, while the turnover tax (i.e., VAT) exemption eliminating credits. 4 In addition, investment incentives introducing a tax refund system for excess revenues could be used more fully by could be streamlined. Also, the potential of nontax the profitability of stateadjusting fees and charges for past inflation and improving rationalize the tax system and Finally, there is significant scope to of owned enterprises. a front-loaded elimination administration resources for better uses, through release tax insignificant revenue. "nuisance" taxes that deliver standards should also Adjusting some of the tax rates that are low by international to narrow the gap and The taxation of diesel could be raised be considered in due course. Once revenue administration reduce the distortions vis-à-vis other petroleum products. the VAT rate currently at and customs controls have been sufficiently strengthened, levels ofthe region. excise tax rates could be raised closer to average 10 percent-and measures could raise revenues by at 15. Staff estimates that the above-mentioned Actions to strengthen the DGI in over a number of years. least 3 percent of GDP, phased of GDP, and the proposed increases in and AGD could yield about 1 percentage point points of GDP in revenue, if the VAT selective tax rates could generate about 1% percentage While the immediate impact of raised to the regional average of 14 percent. increase tax rate were would be limited, these measures would likely measures to broaden the tax base could help make the reforms more buoyaney over time, and their progressive nature politically palatable. d'affaires" (TCA), is akin to a value-added tax 4 The turnover tax, officially known as "taxe sur le chiffre (VAT). AGD could yield about 1 percentage point points of GDP in revenue, if the VAT selective tax rates could generate about 1% percentage While the immediate impact of raised to the regional average of 14 percent. increase tax rate were would be limited, these measures would likely measures to broaden the tax base could help make the reforms more buoyaney over time, and their progressive nature politically palatable. d'affaires" (TCA), is akin to a value-added tax 4 The turnover tax, officially known as "taxe sur le chiffre (VAT). --- Page 15 --- of tax administration: and tax policy measures Summary of revenue impact Expected additional Time frame of revenue yield implementation (years) (percent of GDP) Direct taxes 1.00 1-3 Broaden tax base Indirect taxes 1.00 2-3 VAT: raise tax rate to 14% Not determined 2-3 Introducing VAT refund mechanism 0.5-1 Petroleum: simplify taxation, increase government 0.40 take on diesel to 25% 0.60 1-2 Adjust other excises (alcohol, etc.) Neutral 1-3 Eliminate nuisance taxes 1.00 1-3 Strengthen tax and customs administration Non-tax revenue Not determined 3-4 Improve management of SOE Not determined 1-2 Adjust fees and charges to inflation Source: IMF Staff estimates with the proposed approach, placing most 16. The authorities broadly agreed the tax base. In this tax administration and broadening be emphasis on strengthening experience ofthe large taxpayer unit could context they thought that the modernization their intention to increase the to other units. The authorities also expressed cautioned usefully applied of reducing evasion. The authorities use ofincome tax withholding, as a means be taken in the context of a comprehensive that decisions to increase selected tax rates should that social implications of the review of the tax system, among other things, to ensure well taken by staff. Another revenue considered, a point that was envisaged changes are duly in tariff revenue if Haiti adopts included in estimates, could be an increase source, not yet CARICOM's common external tariff. with measures to enhance revenue, public 17. There was agreement that together would also need to be and budget execution capacity In financial management impulse on the economy. strengthened. Otherwise, there could be a contractionary resistance, and would thus revenue effort was likely to face less taxpayer and addition, a higher by a visible increase in the provision be more sustainable over time, if accompanied efforts to improve and services. Continuing the authorities' ongoing quality of public goods which have been supported by IMF technical public financial management systems, assistance, would therefore be important. 5 Haiti rejoined CARICOM in June 2006. Review (PEMFAR) Management and Financial Accountability 6 Aj joint IDB-World Bank Public Expenditure additional recommendations for longer-term public expenditure is currently underway, which is set to provide reform and institutional development. less taxpayer and addition, a higher by a visible increase in the provision be more sustainable over time, if accompanied efforts to improve and services. Continuing the authorities' ongoing quality of public goods which have been supported by IMF technical public financial management systems, assistance, would therefore be important. 5 Haiti rejoined CARICOM in June 2006. Review (PEMFAR) Management and Financial Accountability 6 Aj joint IDB-World Bank Public Expenditure additional recommendations for longer-term public expenditure is currently underway, which is set to provide reform and institutional development. --- Page 16 --- C. Monetary Policy Framework conducts monetary policy in a The Bank ofthe Republic of Haiti (BRH) is 18. tools. The money supply regulated by challenging environment with limited policy for bond auctions fixed, the policy BRH bonds, but with both volumes and prices creating an issuing bonds) has little impact on market interest rates, interest rate (91-day BRH dollarization is high and financial markets ineffective transmission mechanism. Furthermore, market for BRH bonds, nor with no interbank money market, secondary are shallow, standing facilities. over the past the BRH has made significant progress 19. Despite this environment, inflation rose sharply to 38 percent at year-end, three years in reducing inflation. In 2003, by the government. Monetary of increasing central bank borrowing to the mainly as a consequence result of central bank financing later primarily as a discontinuing in control was restored, and inflation declined gradually to 8.3 percent government and sterilizing excess liquidity, May 2007. that the central bank's current The authorities and the mission agreed Under the 20. can result in inconsistent policy signals. approach to monetary management rate reduced while framework- which mixes Policy conflict: policy interest current and inflation base money tightened elements of monetary (In. perçent) and exchange rate (In billions of gourdes) targeting, policy BRH 90-day interest rate (right scale) management- -monetary instruments are used sometimes in conflicting ways, making it difficult for 16 market participants to infer the central 15 Ww Base money bank 's monetary stance. For example, in 14 recent months, the BRH has lowered its 13 key policy interest rate on several Jul-06 Oct-06 Jan-07 Apr-07 occasions, while at the same time Jan-06 Apr-06 allowing a slower pace of base money Money multipliers (over base money) 2.5 2.5 growth. 2.0 2.0 M2 multiplier 21. To clarify the monetary 1.5 policy framework, the mission 1.5 a stronger near-term focus 1.0 proposed 1.0 inflation via the supply on controlling M1 multiplier 0.5 of base money. Empirical analysis 0.5 points to a strong historical relationship 0.0 between monetary aggregates and 0.0 2000 2001 2002 2003 2004 2005 2006 2007 2.5 growth. 2.0 2.0 M2 multiplier 21. To clarify the monetary 1.5 policy framework, the mission 1.5 a stronger near-term focus 1.0 proposed 1.0 inflation via the supply on controlling M1 multiplier 0.5 of base money. Empirical analysis 0.5 points to a strong historical relationship 0.0 between monetary aggregates and 0.0 2000 2001 2002 2003 2004 2005 2006 2007 --- Page 17 --- exchange rate pass-through to inflation, but inflation. 7 There is also evidence of a significant broad money is most strongly related little indication of an impact from interest rates. While (M2) is also very between inflation and gourde money to inflation, the relationship of being under more direct control ofthe with the latter having the advantage whole the conclusion significant, multipliers, these findings as a support BRH. Given stable base money inflation in Haiti in the period control can be an effective way of containing that monetary immediately ahead. the authorities to steer the money supply principally 22. The mission advised BRH bond auctions would be the BRH bond auctions. Under this approach, targets, while through in line with the central bank's base money supply modified to set volumes through a competitive bidding process, thereby interest rates would be market determined ceasing to be an instrument of central bank policy. should be seen as an mission stressed that the focus on money supply 23. The policy regime in the future. However, interim step toward a more advanced monetary current of development of suitable for the stage the proposed simple framework appears the BRH should take steps to encourage financial Haiti's financial system. In the meantime, channel as a means of transitioning, over and strengthen the interest rate market deepening the longer term, to an inflation targeting regime. framework, but pointed out The authorities generally supported the proposed that 24. that would need to be addressed first. They emphasized implementation issues would be essential to ensure competitive pricewidening participation in bond auctions concentrated in a few large banks. They also bidding, given that BRH bond holdings are given that the market-clearing argued for a gradual introduction of competitive pricing, of bonds would need to could be low, and banks holding large quantities interest rate quite Furthermore, the central bank would need to adjust to the resulting drop in earnings. requested technical assistance for this strengthen its liquidity forecasting, and the authorities these issues, but encouraged the importance of addressing from the IMF. Staffa Tacknowledged the authorities to move forward as quickly as possible. central bank autonomy would also be 25. There was agreement that strengthening BRH should help make monetary policy Rehabilitating the balance sheet of the limits on central important. considerations, while establishing effective of financial In this more independent future fiscal dominance. bank financing to the government should help preclude enable the to borrow securities market to government context, development of a treasury dual of strengthening central bank from the private sector would serve the purposes directly financial markets. independence and deepening transmission mechanism in Haiti is and discussion of inflation and the monetary A more detailed analysis Selected Issues Paper. provided in the companion should help make monetary policy Rehabilitating the balance sheet of the limits on central important. considerations, while establishing effective of financial In this more independent future fiscal dominance. bank financing to the government should help preclude enable the to borrow securities market to government context, development of a treasury dual of strengthening central bank from the private sector would serve the purposes directly financial markets. independence and deepening transmission mechanism in Haiti is and discussion of inflation and the monetary A more detailed analysis Selected Issues Paper. provided in the companion --- Page 18 --- D. Competitiveness substantially both recently and over Haiti's real exchange rate has appreciated 26. the current account has remained relatively the long term. Despite this appreciation, transfers financing an increasing trade inflow of private and public balanced, due to a strong and has become very concentrated, was deficit. The existing export sector, which is small of economic sanctions in from the collapse induced by the imposition for and able to recover partly real effective exchange rates (REERS) textiles the early 1990s, and competitor-based less to competitors in these sectors indicate that Haiti has lost ground agricultural exports 8 Moreover, analysis of tradables VS. nontradables than the overall REER would suggest. the relative price of nontraded goods has been inflation does not provide clear evidence that by itself does not rule out the the decade. However, this evidence increasing over past distribution costs render the distinction problem, because high existence of a competitiveness when using CPI data. In any case, there was between tradables and nontradables difficult observed real appreciation exerts between the authorities and staff that the sectors. agreement on both the export and the import-substitution considerable competitive pressure Haiti's share of U.S. apparel imports REER and Current Account 140 1.0 (In percent of total U.S. apparel Index (1988=100) 120 REER, scale) increasesdepreciation Index (1988=100) 120 0.8 imports) Real effective exchange rate, (right increase-deprecdation 100 0.6 (right scale) Hait's market a 0.4 share -10 0.2 -20 Current account with transfers -30 balance (% GDP) without transfers 20 0.0 1991 1993 1995 1997 1999 2001 2003 2005 -40 1986 1991 1996 2001 2006 1971 1976 1981 suggests that the appreciation of real exchange rate analysis 27. While equilibrium than implied by fundamentals, this the last few years has been somewhat stronger is misaligned. First, binding to conclude that the currency evidence is not sufficient interpretation ofthe results. and quality call for a cautious limitations in data availability capture the impact on the utilized econometric model cannot adequately Moreover, the structural changes, such as the macroeconomic equilibrium real exchange rate of recent mission. Finally, a number of other stabilization and the arrival of a large UN support current account, do not provide the evolution of export shares and the indicators, including clear evidence of a currency misalignment. is provided in the companion Selected Issues A more detailed assessment of Haiti external competitiveness Paper. evidence is not sufficient interpretation ofthe results. and quality call for a cautious limitations in data availability capture the impact on the utilized econometric model cannot adequately Moreover, the structural changes, such as the macroeconomic equilibrium real exchange rate of recent mission. Finally, a number of other stabilization and the arrival of a large UN support current account, do not provide the evolution of export shares and the indicators, including clear evidence of a currency misalignment. is provided in the companion Selected Issues A more detailed assessment of Haiti external competitiveness Paper. --- Page 19 --- mission viewed the observed appreciation Overall, both the authorities and the 28. with little scope for a macroeconomic policy largely as an equilibrium phenomenon, REER exhibits a trend suggests that Haiti' S equilibrium response. The staff's analysis transfers, mostly private remittances from appreciation due to strongly increasing current offset this trend through and still growing diaspora. Secking to appreciation time. The mission Haiti's large be and in all likelihood ineffective over market intervention would costly exchange rate regime, noting that it advised the authorities to maintain a floating reserves therefore should continue to be limited to replenishing disinflation. Intervention had supported and smoothing out seasonal fluctuations. in line with PRGF program objectives, should be bolstered by addressing 29. There was agreement that competitiveness While the level of the real exchange rate non-price competitiveness problems. remain stable, the widespread sustainability, as long as transfers does not imply a problem for external and their impact on the exchange rate may hold dependence of the economy on transfer flows sectors. To ease the of more robust export and import-substitution business back the development the authorities to improve Haiti's burden on these sectors, the mission encouraged including as a result of unreliable and which imposes very high costs on firms, should also environment, infrastructure, and legal uncertainties. Steps expensive utilities, insecurity, poor that contribute to the large intermediation be taken to identify and address structural rigidities The authorities and the of banks and to reduce borrowing costs in the economy. issues in greater detail and margins FSAP exercise should study these mission agreed that the ongoing system and reduce intermediation in the banking advise on how to increase competition spreads. E. PRSP and HIPC timetable. The authorities aim A full PRSP is being developed under an ambitious 30. 2007. They have established a coordinating to complete the PRSP by end-September representatives of civil society, the committee headed by the Prime Minister, involving has laid out a timetable for the community, and local governments. The committee the business with outreach workshops across country. consultation process, which has commenced with the formulation ofthe PRSP, but Staff welcomed the intention to advance quickly at the expense of the the authorities to ensure that this would not come encouraged process. document's s quality and a broad participatory HIPC completion point triggers. First have been taken in implementing 31. steps of a mechanism to track poverty-reducing The authorities have completed the adoption classifications, and are implementing expenditures on the basis of existing expenditure public to extend customs control to the provinces. a plan with outreach workshops across country. consultation process, which has commenced with the formulation ofthe PRSP, but Staff welcomed the intention to advance quickly at the expense of the the authorities to ensure that this would not come encouraged process. document's s quality and a broad participatory HIPC completion point triggers. First have been taken in implementing 31. steps of a mechanism to track poverty-reducing The authorities have completed the adoption classifications, and are implementing expenditures on the basis of existing expenditure public to extend customs control to the provinces. a plan --- Page 20 --- PROGRAM: FIRST REVIEW III. PRGF-SUPPORTED program has been strong, although 32. Performance under the PRGF-supported In the attached letter and has fallen somewhat short of expectations. the authorities growth and Financial Policies (MEFP), supplementary Memorandum of Economic of the first review. All under the program and request completion outline the progress for the end-March test date were met with significant quantitative performance criteria (PCs) on time: and most structural conditionality was implemented margins, lower than anticipated, while domestic Budget execution was significantly of central bank financing to the This led to a stock revenues exceeded expectations. lower than foreseen in the program. central government G1.8 billion transfer inflows to step up their The central bank used the opportunity of strong of net international exchange purchases, resulting in an accumulation to an endforeign (USS218 million compared reserves (NIR) far higher than programmed injection from the reserves million). The large liquidity March PC ofUS$129 the contractionary impact of the fiscal purchases was more than compensated for by base money growth slightly thus allowing the authorities to keep bonds. overperformance, without further issuing sterilization below its indicative program target, PCs and three out of six structural benchmarks Seven out of eight structural benchmarks were subsequently were met for end-March. Missed end-March waiver of nonobservance of the PC on implemented. The authorities are requesting a end-March, which was delayed to submission of a new banking law to Parliament by assistance and an internal enable the draft law to benefit from IMF technical in late June as a prior The draft law was submitted to Parliament PCs for consultation process. review. The authorities also met two structural action for completing the first review. which are conditions for the second program end-June, faster than anticipated pace, growth is below While inflation has declined at a activity continues to expand, Available indicators suggest that economic stimulus projections. less than expected. In the absence of significant but its pace is picking up to have been mostly sustained by exports from government spending, growth appears and private investment. to benefit from IMF technical in late June as a prior The draft law was submitted to Parliament PCs for consultation process. review. The authorities also met two structural action for completing the first review. which are conditions for the second program end-June, faster than anticipated pace, growth is below While inflation has declined at a activity continues to expand, Available indicators suggest that economic stimulus projections. less than expected. In the absence of significant but its pace is picking up to have been mostly sustained by exports from government spending, growth appears and private investment. --- Page 21 --- Framework for Remainder of FY 2007 A. Macroeconomic authorities agreed on some revisions to the macroeconomic 33. Staff and the In light of the weaker than expected performance SO framework for the current fiscal year. from 4.0 percent to 3.5 percent. While estimate for FY 2007 was reduced that far, the growth risk to this forecast, the authorities are hopeful there remains considerable downside half of the fiscal year will inject new stimulus accelerated government spending in the second 2007 was reduced Similarly, the inflation target for end-September Recent oil for economic activity. achieved in March and April. from 9 percent to 8 percent, a level that was already but this is likely to be offset by the increases are creating some inflation pressures, price on prices of imported goods. impact of exchange rate appreciation review were modified to reflect better outcomes. targets for the second of 34. Program and the prospects for continued strength In light of the still low reserves coverage annual floor for NIR accumulation was raised remittances and scheduled budget support, the growth targets, this NIR million." With unchanged money from US$30 million to US$135 for net domestic assets, which would decrease in the ceiling increase dictates a one-for-one US$65 million) in BRH bonds ifthe require the issuance of up to G2.5 billion (about accumulated SO far are fully budget is fully executed (i.e. government deposits out from this sterilization government Staff believes that the risk of private sector crowding structural drawn down). demand still remains significantly constrained by would be limited, because credit through an ex-ante limit on the potential volume of sterilization impediments. Also, reducing given the country's substantial government budget execution would not be desirable, spending needs. for the authorities in the budget execution will be the key challenge for 35. Accelerating budget provides significantly remaining months of the fiscal year. The supplementary funded from higherpublic investment, which are mainly higher expenditures, particularly debt relief. If the authorities can overcome spending than-anticipated domestic revenue and ofGDP for the fiscal year, could increase by up to 3 percent constraints, total expenditure financed projects) of 1.4 percent of GDP. leaving a deficit (excluding grants and externally support, with no recourse to This deficit is fully financed by identified external budget central bank financing on a year-over-year basis. tightening of the monetary 36. Staff expressed concern about the unprogrammed available room under the the authorities to fully use the was stance and encouraged While base money growth through end-March program to expand base money. fell well below program targets, in broadly in line with expectations, it subsequently in the second half of the year. Under the anticipation of the pick up in government spending for budget support shortfalls was increased from 9 At the same time, the ceiling on the program adjustor US$20 million to US$50 million. on a year-over-year basis. tightening of the monetary 36. Staff expressed concern about the unprogrammed available room under the the authorities to fully use the was stance and encouraged While base money growth through end-March program to expand base money. fell well below program targets, in broadly in line with expectations, it subsequently in the second half of the year. Under the anticipation of the pick up in government spending for budget support shortfalls was increased from 9 At the same time, the ceiling on the program adjustor US$20 million to US$50 million. --- Page 22 --- the flow of information between the circumstances, staff urged the authorities to improve in order to avoid of finance for purposes of liquidity planning, weak BRH and the ministry policy. In light of contained inflation risk, episodes of excessively restrictive monetary focus on managing money intention to shift the monetary policy credit, and the general of gradual reductions in administered BRH supply, staff supported the authorities' policy historical standards, and still interest rates remain high in real terms by bond rates. Current levels. However, for the rest of the fiscal year, appear to be well above market equilibrium with BRH bonds justifies a cautious approach to the possible need for large-scale sterilization further interest rate reduction. structural conditionality were 37. A number of adjustments to the program's for the fall, the authorities In order to benefit from IMF technical assistance planned to March 2008. agreed. a central bank recapitalization plan requested to move the PC on developing divest the BRH's ownership in Teleco, to align the timing of a plan to They also requested with the development of a recapitalization strategy. originally required by end-June 2007, basis in late June. by the Executive Board on a lapse-of-time These changes were approved to further advance in the areas of revenue Two PCs will be added for end-September The authorities will adopt a detailed administration reform and safeguards implementation. on obstacles the DGI, and complete a technical report implementation plan for modernizing Standards (IFRS) at the central bank. In International Financial Reporting control of monthly to implementing benchmark to ensure stronger quality addition, they agreed on a structural monetary data. Performance Criteria and Benchmarks Summary of Proposed Changes to Structural Proposal Measures 1. Structural performance criteria Reset test date from September 2007 to March 2008 1 Prepare a plan to recapitalize the central bank. Reset test date from June 2007 to March 2008 1 for discontinuing BRH involvement with TÉLÉCO. than complete the Adopt a strategy Modify the PC to commence rather 2007 assessment of possible recapitalization by end-September Commence an independent financial and operational restructuring of BNC. assessment needs and required of the DGI. Introduce as a new PC for the third disbursement 2007 test date Adopt detailed implementation plan for modernization (second review), with end-September in line with the Introduce as a new PC for the third disbursement 2007 test date. Review of the feasibility of IFRS implementation (second review), with end-September BRH action plan. 2. Structural benchmarks Introduce as new monthly structural benchmark from Monthly monetary program data to be signed off by the Central August 2007. Bank' 's interdepartmental and steering committee. 1/ These PCs were approved by the Executive Board on a lapse-of-time basis. bursement 2007 test date Adopt detailed implementation plan for modernization (second review), with end-September in line with the Introduce as a new PC for the third disbursement 2007 test date. Review of the feasibility of IFRS implementation (second review), with end-September BRH action plan. 2. Structural benchmarks Introduce as new monthly structural benchmark from Monthly monetary program data to be signed off by the Central August 2007. Bank' 's interdepartmental and steering committee. 1/ These PCs were approved by the Executive Board on a lapse-of-time basis. --- Page 23 --- system is advancing, and the to resolve weaknesses in the banking 38. The plan and solvency after its orderly banking sector shows improved performance state-owned Banque Nationale de Crédit consolidation in 2006 (Box 2). In early 2007, which was under financial distress. As absorbed all assets and liabilities of Socabank, a assessment of (BNC) address financial sector weaknesses, thorough part of the authorities' plan to needs for recapitalization, and bank is to be undertaken to determine any international the merged Because the identification ofa qualified financial and operational restructuring. that this assessment is time consuming, the authorities are requesting as assessor has proven rather than being completed by that date, being allowed to commence by end-September intend for this assessment to be completed no required under the program. The authorities later than end-March 2008. Box 2. Banking Sector Developments consolidation in 2006 and 2007. In this process, the Haiti's banking sector underwent further increased, with the three largest banks now number ofl banks declined from 13 to 9 and concentration holding almost 80 percent of total assets. the assets and liabilities of Socabank, In March 2007, BNC, a large state-owned bank, acquired period of distress for Socabank, bank. This halted a prolonged to 50 and previously Haiti's fourth-largest loan (NPL) ratio of close percent, which had significant negative capital, a nonperforming of BNC after the merger was reported to be outflows. The capital adequacy ratio (CAR) exceeded the system' S deposit while its liquid balances to deposits substantially 26 percent at end-March, average. but NPLS are high. All high solvency, strong liquidity, and good earnings, of March 2007. The Most banks report well above the 12 percent regulatory minimum as but one bank reported CARs has been around 54 percent over the past few years. aggregate ratio of liquid assets to deposits than doubled during FY 2006, and rose to 2.0 percent in Aggregate annualized return on assets more high, representing on average 12 percent of the first half of FY 2007. However, NPLS were also fairly total assets. A banks underscores the need for careful supervision. of the largest of the financial The systemic importance ongoing, with a dual focus on the soundness to joint Bank-Fund FSAP is currently conclusions and recommendations will be presented sector and its developmental needs. The FSAP review. Executive Board at the time of the second program the IMF 6, and rose to 2.0 percent in Aggregate annualized return on assets more high, representing on average 12 percent of the first half of FY 2007. However, NPLS were also fairly total assets. A banks underscores the need for careful supervision. of the largest of the financial The systemic importance ongoing, with a dual focus on the soundness to joint Bank-Fund FSAP is currently conclusions and recommendations will be presented sector and its developmental needs. The FSAP review. Executive Board at the time of the second program the IMF --- Page 24 --- Framework for FY 2008 B. Macroeconomic discussed the broad outlines for the FY 2008 39. The authorities and the mission authorities' draft budget envisages an framework. The budget and macroeconomic ofGDP from strengthened tax administration increase in domestic revenues by 0.9 percent Expenditures (excluding foreignoffset by somewhat lower budgetary grants. justice, efforts, partly ofGDP, focused on education, health, financed projects) would rise by 0.6 percent As in the current fiscal infrastructure and tourism development. public security, agriculture, to central bank financing. Firmly committed year, the budget does not foresee any recourse and, based on historical patterns, the budget support already amounts to 1.2 percent ofGDP, for a small remainder assured that additional donor commitments authorities feel reasonably further in the paragraph below). Other key of0.3 percent of GDP will be forthcoming (see framework are a real GDP growth rate of assumptions of the preliminary macroeconomic NIR accumulation ofUS$70 million; further decline in inflation to 7.5 percent; 4.5 percent; a lower that expected nominal GDP growth. and base money growth that is slightly 2008 will be finalized at the time of the second 40. Firm quantitative targets for FY framework is still subject to change. For program review, since the outlined indicative after the completion of the the authorities intend to convene a donors meeting discuss new instance, spending priorities and pledges. PRSP, presumably in early 2008, to realign with Venezuela and recently signed an Second, Haiti has ratified the Petrocaribe agreement receive substantial benefits under ALBA terms, and could thus potentially agreement for under these initiatives. 10 These developments would concessional financing for oil purchases framework, along with other relevant in due course into the to invest have to be incorporated The authorities indicated their intention information that might become available. transparently through the Petrocaribe funds and spend only the investment proceeds through the the intention to channel the resulting investment spending budget. Staff welcomed would require strong safeguards. the budget, and noted that the authorities' approach to 14,000 barrels of crude oil and refined products 10 Under the Petrocaribe agreement, Haiti could import 40 up of each shipment could be financed by a from Venezuela per day. At current oil prices, up to percent element of these loans amounts to about 50 percent). bilateral 25-year loan at a 1 percent interest rate (the US$140 grant million per year (2.5 percent ofFY 2007 GDP) For Haiti, this would imply a loan volume of up to budget. Staff welcomed would require strong safeguards. the budget, and noted that the authorities' approach to 14,000 barrels of crude oil and refined products 10 Under the Petrocaribe agreement, Haiti could import 40 up of each shipment could be financed by a from Venezuela per day. At current oil prices, up to percent element of these loans amounts to about 50 percent). bilateral 25-year loan at a 1 percent interest rate (the US$140 grant million per year (2.5 percent ofFY 2007 GDP) For Haiti, this would imply a loan volume of up to --- Page 25 --- Risks, and DSA C. Capacity to Repay, Program the Fund and the risks to the program are broadly 41. Haiti's capacity to repay last November. Credit from the time of the approval of the arrangement 34.3 of quota. unchanged 2007 was SDR 28.1 million or percent outstanding to the Fund at end-May 74 million in 2010, or about 9 percent obligations to the Fund will peak at SDR their track record of Outstanding The authorities have continued good of exports of goods and services. indebtedness should continue to improve with timely debt service payment, and external substantial, are the absence of a meaningful time. The key risks to the program, which remain which could lead to domestic acceleration and improvements in social conditions, growth and put external support into question. instability analysis (LIC DSA) Bank-Fund low-income country debt sustainability 42. A joint be for the second program review." conducted in November 2006, and will updated and was risk of debt distress is high, even after full delivery ofHIPC 12 It indicated that Haiti's reduced by MDRI relief from IDA.' The bilateral debt relief, but would be significantly that have taken place since last LIC DSA will reflect a number of developments forthcoming November: post-completion point debt relief and In early 2007, the IDB committed MDRI-type for the next two years. Using unchanged announced the move to grant-only financing the relief provided by the IDB from the November 2006 LIC DSA exercise, points. assumptions ratio by over 30 percentage alone would reduce the NPV of debt-to-exports of goods and non-factor services are of the HOPE Act, exports reduce As a consequence than assumed last November. This would projected to rise faster in coming years another 10 percentage points. ratio approximately by the NPV ofdebt-to-export with Venezuela, which Haiti ratified in Finally, the volume of the Petrocaribe agreement barrels of oil products per day. Thus, the May 2007, was increased from 7,000 to 14,000 to 2.5 percent of GDP per year, concessional lending of up agreement could provide ratio. upward pressure on the NPV of debt-to-export putting decline of ofthese developments will likely result in a significant DSA. The combined impact short and medium term in the updated LIC Haiti's) NPV of debt-to-exports ratio in the of use of the is less certain, as it will depend on the intensity The longer-term impact Petrocaribe facility. that a full LIC DSA should be produced once per year. 11 Applicable guidance indicates 12 See Country Report No. 06/440. of up agreement could provide ratio. upward pressure on the NPV of debt-to-export putting decline of ofthese developments will likely result in a significant DSA. The combined impact short and medium term in the updated LIC Haiti's) NPV of debt-to-exports ratio in the of use of the is less certain, as it will depend on the intensity The longer-term impact Petrocaribe facility. that a full LIC DSA should be produced once per year. 11 Applicable guidance indicates 12 See Country Report No. 06/440. --- Page 26 --- IV. STAFF FAPPRAISAL economic and political stabilization over the 43. Haiti has achieved substantial for the implementation of sound The authorities are to be commended of past three years. which have led to a sharp reduction in inflation, stabilization monetary and fiscal policies, The restoration of political and constitutional the exchange rate, and resumption of growth. elections, the recent improvements in the order, exemplified by peaceful and transparent governance are all welcome situation, and the government's s drive to promote good security and encouraging. is broadly on track, although growth is 44. The PRGF-supported program targets for the first review were met by large somewhat below projected levels. Quantitative spending. While inflation has margins, partly because of slower-han-expected government fiscal stimulus in the early than expected, the absence of meaningful declined more rapidly part of the fiscal year has held back growth. of structural reforms. is also being made in the implementation 45. Progress in the areas of revenue administration, public Structural conditionality under the program been mostly on time. The and central bank reform has implemented, in the banking financial management, that have been taken to address weaknesses mission also welcomes steps system. of the PRGFConditions are in place for continued strong implementation is 46. for the remainder of the current fiscal year fully supported program. The program supplementary budget. In addition, two PCs financed, including after the recently approved indicative macroeconomic framework for for the second review have already been met. An consistent with program objectives. the coming fiscal year has also been drawn up, in the short term is to step up budget 47. The key issue for economic management taken by the authorities to overcome execution. Staff supports the steps that are being although realistically their impact administrative capacity constraints and supply bottlenecks, have to be vigilant that efforts to will take some time to fully materialize. The authorities which should remain in do not affect either its quality or its allocation, accelerate spending identified in the interim PRSP. line with the priorities monitor liquidity conditions closely, to avoid an 48. The authorities also have to about the recent deceleration in base overly tight monetary policy stance. Staff cautions for under the program that the BRH fully use the space provided money growth, and suggests uncertainties about the timing of budget execution to expand money supply. In light ofthe between the monetary and fiscal during the remainder of the fiscal year, close coordination which can also exacerbate authorities is advisable to avoid episodes of liquidity squeeze, exchange rate appreciation pressures. identified in the interim PRSP. line with the priorities monitor liquidity conditions closely, to avoid an 48. The authorities also have to about the recent deceleration in base overly tight monetary policy stance. Staff cautions for under the program that the BRH fully use the space provided money growth, and suggests uncertainties about the timing of budget execution to expand money supply. In light ofthe between the monetary and fiscal during the remainder of the fiscal year, close coordination which can also exacerbate authorities is advisable to avoid episodes of liquidity squeeze, exchange rate appreciation pressures. --- Page 27 --- the consolidation of recent toward the medium term, and beyond sustained 49. Looking remains the achievement of higher, stabilization gains, Haiti's main challenge in economic activity has yet has resumed, but a more robust pick up growth. Modest growth factors such as supply and government capacity to set in. A weak growth response caused by rate appreciation beginning to affect bottlenecks, continued security problems, or exchange main downside risks to the sectors, represents one of the export and import-competing more broadly. and to domestic and external stability program, outcome will require overcoming many deep-seated of 50. Avoiding a low-growth infrastructure, inadequate supply bottlenecks. Among them are the dilapidated services. It will structural and coverage of education and health basic utility services, and poor quality from the international community- -to focus be important for the authorities- with support the ongoing PRSP process. to address these issues, including through on ways the task of generating funding for priority expenditures 51. Against this backdrop, effort becomes central. Staff applauds the through a strengthened domestic revenue the authorities' intention to raise SO far this year and supports could strong revenue performance of GDP. Progress toward this goal over the medium term to at least percent administration, revenue combination of improving revenue be achieved through a carefully sequenced in due course tax rates and fees. Staff broadening the tax base and burden, and adjusting rates could best be made in the authorities that decisions on adjusting tax agrees with the review, and should take into account their social context of a comprehensive tax policy ramifications. also strive to clarify their monetary policy framework, 52. The authorities should environment conducive to economic activity. to help consolidate a stable low-inflation policy has successfully supported The current, somewhat eclectic, approach to monetary to sustain further progress and disinflation in recent years, but may not be most adequate enable needed deepening of financial markets. staff encourages the authorities In light of Haiti's weak interest rate channel, would 53. supply for the time being. This require to focus on the control of base money and allow interest rates to be modifying central bank bond auctions to set volumes should also be strengthened in due determined. Central bank independence borrowing. The competitively recapitalization and more effective limits on government believes that course through will be needed is well taken, but staff authorities' view that some interim steps framework. implementation of the proposed these should not overly delay of financial markets. staff encourages the authorities In light of Haiti's weak interest rate channel, would 53. supply for the time being. This require to focus on the control of base money and allow interest rates to be modifying central bank bond auctions to set volumes should also be strengthened in due determined. Central bank independence borrowing. The competitively recapitalization and more effective limits on government believes that course through will be needed is well taken, but staff authorities' view that some interim steps framework. implementation of the proposed these should not overly delay --- Page 28 --- that the Haitian gourde is The staff's analysis does not suggest, on balance, rate, which 54. equilibrium real exchange misaligned. However, Haiti is facing an appreciating and other external transfers to support is a reflection of its strong dependence on remittances sector has SO far held up, its consumption. While Haiti's small and concentrated could export be hampered by these real and much needed diversification further expansion appreciation pressures. microeconomic should mainly be fostered through 55. External competitiveness for improvement. Attempts to resist the interventions, which offer significant scope and ineffective over time. The appreciation would likely be costly intervention to observed equilibrium rate regime, limiting authorities should therefore maintain a floating exchange and smoothing out seasonal reserves in line with PRGF program objectives replenishing widespread non-price competitiveness fluctuations. They should also focus on addressing difficult business environment, including the remaining insecurity, a generally problems, and the structural bottlenecks described above. legal uncertainties, staff is hopeful that the challenges and risks remain, 56. In sum, while significant to bring about domestic and external authorities can build on their accomplishments standards of living. This will require both stability, sustained growth, and improved well-coordinated support from the international continued strong policy implementation and track record and the prospects for continued community. Based on the authorities' solid for completion of the first review implementation of the program, staff supports the requests and modification of a structural waiver for non-observance, under the PRGF arrangement, PC. Article IV consultation be conducted on the 24-month 57. It is proposed that the next cycles in program countries. subject to the provisions of the decision on consultation cycle, --- Page 29 --- & S 0 8 à 8 0 0 . - a a a S 3 3 0 3 8 0 D 0 15 2 8 2 a 3 : 8 a & 8 E 0 8 8 8 g --- Page 30 --- Table 2. Haiti: Selected Economic and Financial Indicators Fiscal year ending September 30 Nominal GDP (2006): US$ 4.8 billion GDP per capita (2006): US$ 527 Population (2006): 9. 1 million Adult literacy (2005): 53 percent Share of pop. living with less than $1 a day (2003): 54 percent Unemployment rate (2003): 27 percent Prel. Proj 2005 2006 2007 2008 2009 (change over previous year unless otherwise indicated) National income and prices 1.8 2.3 3.5 4.5 4.0 GDP at constant prices 17.6 16.6 9.0 7.8 7.3 GDP deflator 16.8 14.2 9.0 7.8 7.3 Consumer prices (period average) 14.8 12.4 8.0 7.5 7.0 Consumer prices (end-of-period) External sector 21.3 7.7 11.9 26.1 12.7 Exports (f.o.b.) 8.0 18.3 5.9 17.6 13.0 Imports (f.o.b.) -5.8 13.4 Real effective exchange rate (+ appreciation) Central government 54.2 23.1 39.0 16.7 3.1 Total revenue and grants 1/ 30.5 23.7 24.3 22.1 11.8 Total revenue excl. -of-period) External sector 21.3 7.7 11.9 26.1 12.7 Exports (f.o.b.) 8.0 18.3 5.9 17.6 13.0 Imports (f.o.b.) -5.8 13.4 Real effective exchange rate (+ appreciation) Central government 54.2 23.1 39.0 16.7 3.1 Total revenue and grants 1/ 30.5 23.7 24.3 22.1 11.8 Total revenue excl. grants 46.4 12.3 23.2 16.4 15.7 Current expenditure 30.4 24.8 33.4 19.7 17.3 Total expenditure Money and credit 0.3 -4.9 0.0 0.0 0.0 Credit to public sector (net) 21.1 5.5 5.1 10.0 13.7 Credit to private sector 0.6 5.5 9.9 8.1 10.0 Base money 20.3 10.0 9.7 10.0 11.1 Broad money (including foreign currency deposits) (percent of GDP, unless otherwise indicated) Central government -0.6 -0.8 -0.3 -0.8 -3.0 Overall balance (including grants) 1/ -4.1 -4.4 -6.0 -6.1 -7.0 Overall balance (excluding grants) 0.0 -1.4 -1.1 -1.6 Overall balance (excluding grants and externally-financed projects) -1.2 0.0 0.0 0.0 Central bank net credit to the central government 0.0 -0.2 Savings and investment 27.4 28.9 30.9 32.2 33.5 Gross investment 30.1 28.9 32.1 32.0 31.3 Gross national savings 1.5 1.6 2.7 3.0 1.4 Ofi which: Central government savings External current account balance (incl. official grants) 2.6 0.0 1.2 -0.2 -2.2 External current account balance (excl. official grants) -5.0 -7.9 -6.4 -7.2 -8.8 30.9 29.3 26.0 23.9 23.1 External public debt (end-of-period) 34.0 33.1 1 30.3 28.1 27.0 Total public debt (end-of-period) 2/ 17.5 8.5 5.1 6.0 6.4 External public debt service (in percent of exports of goods and nonfactor services) (millions of US$, unless otherwise indicated) 56.2 87.7 156.8 76.5 -59.8 Overall balance of payments 70.4 130.3 265.3 335.3 410.3 Net international reserves (program) 3/ 228.5 335.5 534.7 652.3 776.7 Liquid gross reserves 41 1.3 1.8 2.4 2.6 2.9 In months of imports of the following year Exchange rate (gourdes per dollar, end-of-period) 43.0 39.1 284,283 Nominal GDP (millions of gourdes) 168,034 200,456 226,195 254,845 Nominal GDP (millions of dollars) 4,310 4,836 5,655 6,371 6,933 Sources: Ministry of Economy and Finance; Bank of the Republic of Haiti; and Fund staff estimates. 3 1.8 2.4 2.6 2.9 In months of imports of the following year Exchange rate (gourdes per dollar, end-of-period) 43.0 39.1 284,283 Nominal GDP (millions of gourdes) 168,034 200,456 226,195 254,845 Nominal GDP (millions of dollars) 4,310 4,836 5,655 6,371 6,933 Sources: Ministry of Economy and Finance; Bank of the Republic of Haiti; and Fund staff estimates. 1/ From 2009 onward, budget grants are assumed zero until firm donor commitments are forthcoming. 21 Includes external public sector debt, outstanding Central Bank bonds, and credit from commercial banks to the NFPS. 3/ Excludes commercial banks' foreign currency deposits with the BRH. 41 Gross reserves excluding capital contributions to international organizations. --- Page 31 --- Table 3a: Central Government Operations Fiscal year ending September 30, in millions of gourdes Prel. EBS/06/141 Proj. Total revenue and grants 22,056 27,160 34,178 37,748 44,035 Revenue 16,255 20,110 21,944 25,000 30,516 45,386 Domestic taxes 10,653 12,878 15,095 17,161 34,126 Customs duties 21,663 24,226 4,275 6,099 6,464 7,427 8,385 Other current re evenue 1,328 1,133 9,377 Grants 5,800 7,051 12,234 12,748 13,519 Budget support 1/ 2,361 1,253 3,030 3,457 3,274 11,260 Project grants 3,440 5,797 9,203 9,291 10,244 11,260 Total expenditure 23,111 28,845 38,470 38,470 Current expenditure 16,161 18,156 21,349 22,369 46,059 54,044 Wages and salaries 5,700 6,470 8,495 26,045 30,123 Net Operations 2/ 9,509 11,866 13,646 4,306 4,505 5,962 7,356 7,461 9,041 Operations 3,388 4,505 5,962 7,356 7,461 Interest payments 1,132 1,627 1,799 9,041 Transfers and subsidies 5,023 5,553 4,462 1,717 1,751 Capital expenditure 4,764 5,001 5,686 6,949 10,689 17,122 16,101 20,014 Domestically financed 2,144 1,940 3,500 5,709 7,200 23,921 Foreign-financed 4,805 8,749 13,622 10,392 12,814 15,321 8,600 Overall balance Including grants -1,055 -1,685 -4,292 -722 -2,024 -8,658 Excluding grants -6,856 -8,735 -16,526 -13,470 Excluding grants and externally financed projects -2,050 -2,904 -3,078 -15,543 -19,918 -2,729 -4,597 Financing 1,055 1,685 4,292 2,024 External net financing 1,064 2,509 2,049 2,053 Loans (net) -1,528 1,311 2,053 2,737 2,123 3,908 1,311 Disbursements 4,010 3,729 5,673 1,701 3,170 2,053 4,061 Budget support 2,645 1,255 ,918 -2,729 -4,597 Financing 1,055 1,685 4,292 2,024 External net financing 1,064 2,509 2,049 2,053 Loans (net) -1,528 1,311 2,053 2,737 2,123 3,908 1,311 Disbursements 4,010 3,729 5,673 1,701 3,170 2,053 4,061 Budget support 2,645 1,255 Project loans 1,365 2,951 4,418 1,101 2,570 Amortization -1,274 -1,606 -1,765 -1,491 4,061 Arrears (net) 3/ -1,673 -1,859 -1,858 -2,008 -1,737 Internal net financing -9 -824 -294 -446 Banking system -50 -752 -446 BRH -21 -462 Commercial banks -29 -290 -446 Other nonbank financing -120 -294 Arrears (net) Prospective rescheduling 4/ 1,978 1,879 HIPC 5/ Unidentified financing Unidentified financing (in U.S. dollars) 0.0 0.0 0.0 0.0 0.0 6,282 153.2 Sources: Ministry of Finance and Economy; and Fund staff estimates 1/ Budget support 2006 and 2007 includes grants from Canada to cover debt service to the IDB. 2/ Includes statistical discrepancy. 31 Arrears accumulation in 2005-06 reflects an informal deferral of debt service to France, Italy and Spain until the IMF arrangement was in place. granted 4/ Including clearance of arrears accumulated in agreement with Italy, France, and Spain. 5/1 HIPC debt relief. 0.0 0.0 0.0 6,282 153.2 Sources: Ministry of Finance and Economy; and Fund staff estimates 1/ Budget support 2006 and 2007 includes grants from Canada to cover debt service to the IDB. 2/ Includes statistical discrepancy. 31 Arrears accumulation in 2005-06 reflects an informal deferral of debt service to France, Italy and Spain until the IMF arrangement was in place. granted 4/ Including clearance of arrears accumulated in agreement with Italy, France, and Spain. 5/1 HIPC debt relief. --- Page 32 --- Table 3b: Central Government Operations Fiscal year ending September 30, in percent of GDP Prel. EBS/06/141 Proj. Total revenue and grants 13.1 13.5 15.1 16.7 17.3 Revenue 16.0 9.7 10.0 9.7 11.1 12.0 Domestic taxes 6.3 6.4 6.7 7.6 12.0 Customs duties 2.5 3.0 2.9 3.3 8.5 8.5 Other current revent ue 0.8 0.6 0.2 0.2 3.3 3.3 Grants 0.2 0.2 3.5 3.5 5.4 5.6 5.3 Budget support 1/ 1.4 0.6 1.3 1.5 1.3 4.0 Project grants 2.0 2.9 4.1 4.1 4.0 4.0 Total expenditure 13.8 14.4 17.0 17.0 18.1 Current expenditure 9.6 9.1 9.4 9.9 10.2 19.0 10.6 Wages and salaries 3.4 3.2 3.8 4.2 4.7 Net Operations 2/ 2.6 2.2 2.6 3.3 4.8 Operations 2.9 3.2 2.0 2.2 2.6 3.3 2.9 Interest payments 0.7 0.8 0.8 0.3 3.2 Transfers and subsidies 3.0 2.8 2.0 0.7 0.6 Capital expenditure 2.1 2.0 2.0 4.1 5.3 7.6 7.1 7.9 8.4 Domestically financed 1.3 1.0 1.5 2.5 2.8 3.0 Foreign-financed 2.9 4.4 6.0 4.6 5.0 5.4 Overall balance Including grants -0.6 -0.8 -1.9 -0.3 -0.8 -3.0 Excluding grants -4.1 -4.4 -7.3 -6.0 -6.1 -7.0 Excluding grants and externally financed projects -1.2 0.0 -1.3 -1.4 -1.1 -1.6 Financing 0.6 0.8 1.9 0.3 0.8 External net financing 0.6 1.3 0.9 -0.7 0.8 Loans (net) 1.6 1.1 0.5 0.7 Disbursements 1.7 0.1 0.5 0.7 2.4 1.9 2.5 0.8 1.2 1.4 Budget support 1.6 0.4 0.6 0.3 0.2 Project loans 0.8 1.5 2.0 0.5 1.0 Amortization -0.8 -0.8 -0.8 -0.7 -0.7 1.4 Arrears (net) 3/ -1.0 0.2 -0.8 -0.8 0.0 -0.7 0.0 Internal net financing 0.0 -0.4 -0.1 -0.2 0.0 Banking system 0.0 -0.4 0.0 -0.2 0.0 0.0 BRH 0.0 0.0 -0.2 0.0 0.0 0.0 Commercial banks 0.0 -0.1 0.0 -0.2 0.0 0.0 Other nonbank financing 0.0 -0.1 -0.1 0.0 0.0 Arrears (net) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Prospective rescheduling 4/ H 0.0 0.0 -0.2 0.0 0.0 0.0 Commercial banks 0.0 -0.1 0.0 -0.2 0.0 0.0 Other nonbank financing 0.0 -0.1 -0.1 0.0 0.0 Arrears (net) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Prospective rescheduling 4/ 0.0 0.0 0.9 0.8 0.1 HIPC 5/ 0.1 0.0 0.2 0.4 0.2 0.0 Unidentified financing 0.0 0.0 0.0 0.0 0.0 2.2 Unidentified financing (in U.S. dollars) 0.0 0.0 0.0 0.0 0.0 153.2 Sources: Ministry of Finance and Economy; and Fund staff estimates 1/1 Budget support 2006 and 2007 includes grant from Canada to cover debt service to the IDB. 2/1 Includes statistical discrepancy. 3/ Arrears accumulation in 2005-06 reflects an informal deferral of debt service to France, Italy and Spain until the IMF arrangement was in place. granted 4/ Including clearance of arrears accumulated in agreement with Italy, France, and Spain. 5/ HIPC debt relief. --- Page 33 --- Table 4. Haiti: Summary Accounts of the Banking System Fiscal year ending September 30, in millions of gourdes Prel. EBS/06/141 Proj. I. Central Bank 8,226 11,276 14,001 17,680 21,462 25,717 Net foreign assets (In millions of U.S. dollars) Net international reserves (program) Commercial bank forex deposits 1/ 13,740 11,896 11,462 7,786 6,066 4,555 Net domestic assets 21,602 21,002 21,153 21,002 21,002 21,002 Credit to the nonfinancial public sector 21,176 21,176 of which: Credit to the central government 21,638 21,176 21,325 21,176 -20,553 Liabilities to commercial banks (excl gourde deposits) -10,695 -13,986 -13,788 -17,322 -19,042 -5,501 -7,809 -6,327 -9,692 -10,429 -10,836 BRH bonds -7,461 -7,630 -8,612 -9,716 Counterpart of commercial bank forex deposits -5,194 -6,177 4,106 2,833 4,880 4,098 4,106 4,106 Other 21,966 23,172 25,463 25,466 27,528 30,272 Base Money 10,547 11,159 12,151 12,018 12,982 14,285 Currency in circulation 11,419 12,013 13,312 13,448 14,547 15,987 Commercial bank gourde deposits II. Consolidated Banking System 18,630 24,000 26,884 30,493 35,866 41,660 Net foreign assets 106 4,106 Other 21,966 23,172 25,463 25,466 27,528 30,272 Base Money 10,547 11,159 12,151 12,018 12,982 14,285 Currency in circulation 11,419 12,013 13,312 13,448 14,547 15,987 Commercial bank gourde deposits II. Consolidated Banking System 18,630 24,000 26,884 30,493 35,866 41,660 Net foreign assets 1,072 (In millions of U.S. dollars) Of which: Commercial banks NFA 49,660 51,091 55,359 51,895 54,737 59,016 Net domestic assets 21,159 20,118 20,616 20,118 20,118 20,118 Credit to the nonfinancial public sector 31,241 35,520 Credit to the private sector 25,609 27,019 31,660 28,399 15,418 13,000 12,920 15,654 13,104 13,682 In gourdes 12,609 14,099 16,007 15,295 17,559 20,102 In foreign currency 2,892 3,955 3,083 3,378 3,378 3,378 Other 68,290 75,091 82,243 82,388 90,602 100,677 Broad money 10,547 11,159 12,151 12,018 12,982 14,285 Currency in circulation 28,292 31,533 33,584 33,962 36,685 40,369 Gourde deposits 29,451 32,399 36,508 36,408 40,936 46,022 Foreign currency deposits 928 1,041 1,163 In millions of U.S. dollars (12-month percentage change) 21.4 5.8 8.9 7.7 8.0 10.0 Currency in circulation 0.6 5.5 9.9 9.9 8.1 10.0 Base money 12.5 9.9 7.1 10.4 8.0 10.0 Gourde money (M2) 20.3 10.0 9.5 9.7 10.0 11.1 Broad money (M3) 9.6 11.5 6.5 7.7 8.0 10.0 Gourde deposits 32.4 21.0 11.8 12.1 12.2 11.6 Foreign currency deposits (US dollars) 0.3 -4.9 2.5 0.0 0.0 0.0 Credit to the nonfinancial public sector 21.1 5.5 17.2 5.1 10.0 13.7 Credit to the private sector 19.3 -0.6 21.2 1.4 4.4 12.7 Credit in gourdes 23.0 23.0 -2.7 13.9 13.8 13.0 Credit in foreign currency (US dollars) Memorandum items: bank deposits (percent of total) 51.0 50.7 52.1 51.7 52.7 53.3 Foreign currency of total) 49.2 52.2 50.6 53.9 56.2 56.6 Foreign curr. credit to priv. sector (percent Sources: Bank of the Republic of Haiti; and Fund staff estimates. 1/ For program monitoring purposes, NDA is defined differently: as currency in circulation minus NIR at the program exchange rate. 13.0 Credit in foreign currency (US dollars) Memorandum items: bank deposits (percent of total) 51.0 50.7 52.1 51.7 52.7 53.3 Foreign currency of total) 49.2 52.2 50.6 53.9 56.2 56.6 Foreign curr. credit to priv. sector (percent Sources: Bank of the Republic of Haiti; and Fund staff estimates. 1/ For program monitoring purposes, NDA is defined differently: as currency in circulation minus NIR at the program exchange rate. --- Page 34 --- Table 5. Haiti: Balance of Payments Fiscal year ending September 30, in millions of US$ Prel. Proj. Current account 114.0 -0.7 66.9 -12.0 -153.2 Current account (excluding grants) -214.0 -380.7 -361.0 -460.2 -611.2 Trade balance -849.6 -1053.8 -1086.4 -1230.6 Exports of goods 458.9 494. .4 553.5 698.0 -1392.0 of which: Assembly industry 396.8 435.0 491.1 631.0 786.3 Imports of goods -1308.5 -1548.3 -1639.8 713.1 of which: Petroleum products -1928.5 -2178.3 -313.5 -397.1 -399.6 -450.3 -466.6 Services (net) -313.2 -335.7 -357.0 -400.2 Receipts -452.9 Payments 138.3 197. 2 230.0 290.1 326.8 -451.5 -532.8 -587.0 -690.3 -779.7 Income (net) -36.5 6.6 1.3 of which: Interest payments -33.4 -4.4 2.2 -19.4 -19.3 -22.4 -22.7 Current transfers (net) 1313.3 1382.2 1508.9 Official transfers (net) 1623.2 1689. .6 Private transfers (net) 1/ 328.0 380.0 427.9 448.2 458.0 985.3 1002.2 1081.0 1175.0 1231.6 Capital and financial accounts -57.8 88.4 89.9 88.5 93.4 Public sector capital flows (net) 31.3 50.9 23.2 Loan disbursements 42.8 50.1 Amortization 102.1 90.2 43.7 79.2 2 99.0 Banks (net) 2/ -70.8 -39.2 -20.4 -36.4 -49.0 Foreign direct investment -75.5 -83.5 -13.3 -34.3 -36.7 26.0 160.0 Errors and omissions 3/ 80.0 80.0 80.0 -39.6 -39.1 0.0 0.0 0.0 Overall balance 56.2 87.7 156.8 76.5 -59.8 Financing -56.2 -87.7 -156.8 Change in net foreign assets 41 -12.9 -97.0 -76.5 -93.4 Change in gross reserves -178.5 -94.6 -101.3 Liabilities -22.1 -106.9 -199. 80.0 -39.6 -39.1 0.0 0.0 0.0 Overall balance 56.2 87.7 156.8 76.5 -59.8 Financing -56.2 -87.7 -156.8 Change in net foreign assets 41 -12.9 -97.0 -76.5 -93.4 Change in gross reserves -178.5 -94.6 -101.3 Liabilities -22.1 -106.9 -199. .2 -117.6 -124.4 Utilization of Fund credits, existing and prospective 9.2 9.9 20.7 23.1 23.1 Purchases and loans 5/ (net) 11.1 10.3 20.7 23.1 23.1 15.6 14.8 53.9 23.1 Repayments -4.5 -4.5 -33.2 23.1 Other liabilities 0.0 0.0 Change in arrears -1.9 -0.5 0.0 0.0 0.0 Debt rescheduling 6/ -43.3 9.3 -44.7 0.0 0.0 HIPC interim assistance from multilateral creditors 0.0 0.0 49.7 7.8 7.9 0.0 0.0 16.7 10.2 0.0 Financing gap 0.0 0.0 0.0 0.0 153.2 Memorandum items: Current account balance (in percent of GDP) 2.6 0.0 1.2 Current account balance, excluding grants (in percent of GDP) -5.0 -7.9 -6.4 -0.2 -2.2 Goods exports (f.o.b) growth 21.3 -7.2 -8.8 Goods import (f.o.b) growth 7.7 11.9 26.1 12.7 External debt as percent of exports 8.0 18.3 5.9 17.6 13.0 Debt service as percent of exports 222.7 205.1 187.4 154.4 144. 1 Gross liquid international reserves (in millions of USD) 4/ 228.5 17.5 8.5 5.1 6.0 6.4 Gross liquid international reserves (in months 335.5 534.7 652.3 776.7 of following year's imports of goods and services) 4/ 1.3 1.8 2.4 2.6 2.9 Sources: Bank of the Republic of Haiti; and Fund staff estimates. 1/ Based on remittances transferred through authorized "transfer houses" and BRH estimates. liquid international reserves (in millions of USD) 4/ 228.5 17.5 8.5 5.1 6.0 6.4 Gross liquid international reserves (in months 335.5 534.7 652.3 776.7 of following year's imports of goods and services) 4/ 1.3 1.8 2.4 2.6 2.9 Sources: Bank of the Republic of Haiti; and Fund staff estimates. 1/ Based on remittances transferred through authorized "transfer houses" and BRH estimates. 2/1 Excludes commercial banks' foreign currency deposits with the BRH. 3/1 Includes short-term capital and errors and omissions. 4/ Includes NIR and commercial banks' foreign currency deposits with the BRH. 5/ Includes current PRGF arrangement, with an upfront disbursement equivalent to 25 percent of quota used to 6/ In line with the Dec. 2006 Paris Club agreement, rescheduling of arrears and debt service to bilateral creditors repay EPCA purchases. arrangement. during the PRGF --- Page 35 --- Table 6. Haiti: Medium-Term Scenario Fiscal year ending September 30 Prel. Proj. 2005 2006 2007 2008 2009 2010 2011 Real sector (annual percentage rate) 4.5 4.0 4.0 4.0 Real GDP growth 1.8 2.3 3.5 14.8 12.4 8.0 7.5 7.0 6.0 5.0 Inflation (CPI end-of-period) Fiscal sector (in percent of GDP) -0.6 -0.8 -0.3 -0.8 -3.0 -3.5 -3.3 Central government overall balance (incl. grants) 17.3 16.0 16.6 17.2 Total revenue and grants 13.1 13.5 16.7 Central government revenue 9.7 10.0 11.1 12.0 12.0 12.6 13.3 Central government expenditure 13.8 14.4 17.0 18.1 19.0 20.1 20.5 0.0 -0.4 -0.2 0.0 0.0 0.0 0.0 Domestic financing 0.6 1.3 0.5 0.8 3.0 3.5 3.3 External financing 1/ Monetary sector 20.3 10.0 9.7 10.0 11.1 10.5 9.6 Growth in broad money External sector (in percent of GDP) -19.2 -19.3 -20.1 -20.6 -20.5 Trade balance -19.7 -21.8 -7.3 -6.9 -6.3 -6.3 -6.5 -6.7 -6.6 Services (net) -0.8 0.1 0.0 -0.1 0.0 0.2 0.3 Income (net) 22.9 20.7 19.1 18.4 17.8 17.8 17.8 Private transfers (net) 7.6 7.9 7.6 7.0 6.6 6.6 6.6 External grants official 2.6 0.0 1.2 -0.2 -2.2 -2.7 -2.5 Current account (incl. transfers) -5.0 -7.9 -6.4 -7.2 -8.8 -9.3 -9.1 Current account (excl. official transfers) 0.0 0.0 2.2 2.2 1.9 External financing gap 0.0 0.0 Of which: Central government 0.0 0.0 0.0 0.0 2.2 2.4 2.1 Liquid gross reserves (in millions of U.S. dollars) 228.5 335.5 534.7 652.3 776.7 890.4 993.2 In months of imports of the following year 1.3 1.8 2.4 2.6 2.9 3.1 3.2 Sources: Haitian authorities; and Fund staff estimates. 1/1 Including prospective rescheduling, HIPC relief, and unidentified financing. 0.0 0.0 0.0 2.2 2.4 2.1 Liquid gross reserves (in millions of U.S. dollars) 228.5 335.5 534.7 652.3 776.7 890.4 993.2 In months of imports of the following year 1.3 1.8 2.4 2.6 2.9 3.1 3.2 Sources: Haitian authorities; and Fund staff estimates. 1/1 Including prospective rescheduling, HIPC relief, and unidentified financing. --- Page 36 --- Table 7. Haiti: Indicators of Fund Credit Fiscal year ending September 30 Prel. Proj. Outstanding Fund credit, existing and prospective 50.9 66.1 In millions of SDRs 14.8 22.0 35.7 In millions of gourdes 1,359 2,264 3,243 4,226 18.0 26.9 43.6 62.1 80.7 In percent of quota 0.5 0.7 1.0 1.3 1.5 In percent of GDP 3.7 4.7 6.9 7.8 9.0 In percent of exports of goods and services Debt service to the Fund 1/2/31 3.9 22.6 0.5 0.5 In millions of SDRs 3.3 30.7 In millions of gourdes 188.1 1 237.1 1,367.5 In percent of quota 4.0 4.7 27.6 0.6 0.6 In percent of GDP 0.1 0.1 0.6 0.0 0.0 In percent of exports of goods and services 0.8 0.8 4.4 0.1 0.1 In percent of debt service due 4.6 9.8 86.0 1.3 1.1 In percent of net international reserves 2.1 1.7 6.4 0.1 0.1 (In millions of SDRs) 7.2 7.2 13.7 15.2 15.2 Net use of Fund credit 10.2 10.2 35.7 15.2 15.2 Disbursements 3.0 3.0 22.0 0.0 0.0 Repayments Sources: IMF Finance Department and staff projections. 1/1 Debt service to the Fund in 2007 includes the repurchase of outstanding EPCA obligations using the upfront 25% of quota PRGF disbursement. 21 Including SDR charges. 3/ After subsidization of GRA charges. 7.2 13.7 15.2 15.2 Net use of Fund credit 10.2 10.2 35.7 15.2 15.2 Disbursements 3.0 3.0 22.0 0.0 0.0 Repayments Sources: IMF Finance Department and staff projections. 1/1 Debt service to the Fund in 2007 includes the repurchase of outstanding EPCA obligations using the upfront 25% of quota PRGF disbursement. 21 Including SDR charges. 3/ After subsidization of GRA charges. --- Page 37 --- --- Page 38 --- Table 9. Haiti: Millennium Development Goals With selected targets to achieve between 1990 and 2015 estimate closest to date shown, +/- 2 years 1990 1995 2000 2004 2005 2006 Goal 1: Halve share of people on less than $1 a day (PP, % of population) Poverty headcount ratio at national poverty line (% of population) 53.9 Poverty headcount ratio at national poverty line (% of population) 78.0 Share of income or consumption to the poorest quintile (%) 2.4 Prevalence of malnutrition (% of children under 5) 27 28 17 Goal 2: Ensure that children are able to complete primary schooling Primary school enrollment (net, %) Primary completion rate (% of relevant age group) Secondary school enrollment (gross, %) Youth literacy rate (% of population ages 15-24) Goal 3: Eliminate gender disparity in education and empower Wo men Ratio of girls to boys in primary and secondary education (%) Women employed in the nonagricultural sector (% of nonagricultural employment Proportion of seats held by women in national parliament (%) 4.0 4.0 4.0 3.6 2.4 Goal 4: Reduce under-five mortality by two-thirds Under-five mortality rate (per 1,000) 150 137 125 117 120 Infant mortality rate (per 1,000 live births) 102 91 81 74 84 Measles immunization (proportion of one-year olds immunized, %) 31 49 54 54 54 Goal 5: Reduce maternal mortality by three-fourths Maternal mortality ratio (modeled estimate, per 100,000 live births) Births attended by skilled health staff (% of total) 23 20 24 Goal 6: Halt and begin to reverse the spread of HIVIAIDS and other major diseases Prevalence of HIV (% of population ages 15-49) 3.8 3.8 Contraceptive prevalence (% of women, ages 15-49) 11 18 27 Incidence of tuberculosis (per 100,000 people) 306 305 Tuberculosis Co cases detected under DOTS (%) 2 22 49 57 Goal 7: Ensure environmental sustainability Access to an improved water source (% of population) Access to improved sanitation facilities (% of population) Forest area (% of total land area) 4.2 4.0 3.8 3.8 Protected areas (% of total land area) 0.4 CO2 emissions (metric tons per capital) 0.1 0.1 0.2 0.2 GDP per unit energy use (constant 2,000 PPP $ per kg of oil equivalent) 10.4 7.3 7.0 6.3 Goal 8: Develop a global partnership for development Fixed line and mobile phone subscribers (per 1,000 people) 7.0 8.0 16 64 Internet users (per 1,000 people) 0.0 0.0 3.0 59 70 Personal computers (per 1,000 people) Youth unemployment (% oft total labor force ages 15-24) 0.2 GDP per unit energy use (constant 2,000 PPP $ per kg of oil equivalent) 10.4 7.3 7.0 6.3 Goal 8: Develop a global partnership for development Fixed line and mobile phone subscribers (per 1,000 people) 7.0 8.0 16 64 Internet users (per 1,000 people) 0.0 0.0 3.0 59 70 Personal computers (per 1,000 people) Youth unemployment (% oft total labor force ages 15-24) Source: World Bank --- Page 39 --- Table 10. Haiti: Proposed Schedule of Disbursements Under the PRGF arrangement, 2006-2009 Amount Date Conditions for Disbursement 1/ SDR 28,100,000 November 20, 2006 Executive Board approval of the three-year arrangement under the PRGF. Includes 25% of quota in access for repayment of EPCA purchases SDR 7,600,000 July 23, 2007 Observance of performance criteria for March 2007 and completion of the first review under the PRGF arrangement. SDR 7,600,000 December 15, 2007 Observance of performance criteria for September 2007 and completion of the second review under the PRGF arrangement. SDR 7,600,000 July 23, 2008 Observance of performance criteria for March 2008 and completion of the third review under the PRGF arrangement. SDR 7,600,000 December 15, 2008 Observance of performance criteria for September 2008 and completion of the fourth review under the PRGF arrangement. SDR 7,600,000 July 23, 2009 Observance of performance criteria for March 2009 and completion of the fifth review under the PRGF arrangement. SDR 7,610,000 December 15, 2009 Observance of performance criteria for September 2009 and completion of the sixth review under the PRGF arrangement. Source: IMF 1/ Other than the generally applicable conditions for the Poverty Reduction and Growth Facility (PRGF) 8 Observance of performance criteria for September 2008 and completion of the fourth review under the PRGF arrangement. SDR 7,600,000 July 23, 2009 Observance of performance criteria for March 2009 and completion of the fifth review under the PRGF arrangement. SDR 7,610,000 December 15, 2009 Observance of performance criteria for September 2009 and completion of the sixth review under the PRGF arrangement. Source: IMF 1/ Other than the generally applicable conditions for the Poverty Reduction and Growth Facility (PRGF) --- Page 40 --- Table 11. Haiti: Indicators of External Vulnerability Fiscal year ending September 30, units as indicated Prel. Proj. 2005 2006 2007 2008 2009 Debt indicators of 30.9 29.3 26.0 23.9 23. 1 Total external public debt (in percent GDP) 222.7 205.1 187.4 154.4 144. 1 Total external public debt (in percent of exports 1/) External debt service (in percent of GDP) 2.4 1.2 0.7 0.9 1.0 1.6 0.8 0.4 0.6 0.7 Amortization 0.8 0.4 0.3 0.4 0.3 Interest service of 17.5 8.5 5.1 6.0 6.4 External debt (in percent exports 1/) 5.7 2.6 3.7 4.4 Amortization 11.9 5.6 2.8 2.5 2.3 2.0 Interest External debt service (in percent of current central gov. revenues) 27.6 11.4 6.4 7.7 8.8 18.7 7.6 3.3 4.8 6.0 Amortization 8.9 3.8 3.1 2.9 2.8 Interest Other indicators Exports (percent change, 12-month basis in U.S. dollars) 21.3 7.7 11.9 26.1 12.7 Imports (percent change, 12-month basis in U.S. dollars) 8.0 18.3 5.9 17.6 13.0 Remittances and grants (in percent of gross disposable income) 25.0 23.6 22.4 21.5 20.7 Real effective exchange rate appreciation (+) (end of period) -5.8 13.4 Exchange rate (per U.S. dollar, period average) 39.0 41.4 Current account balance (US$ million) 2/ 114.0 -0.7 66.9 -12.0 -153.2 -57.8 88.4 89.9 88.5 93.4 Capital and financial account balance (US$ million) 42.8 50.1 Public sector 31.3 50.9 23.2 Private sector 3/ -89.1 37.4 66.7 45.7 43.3 228.5 335.5 534.7 652.3 776.7 Liquid gross reserves (US$ million) 2.4 2.6 2.9 In months of imports of the following year 1/ 1.3 1.8 In percent of debt service due in the following year 390 844 909 910 44.8 56.6 84.0 94.8 107.8 In percent of base money Sources: Bank of the Republic of Haiti; and Fund staff estimates. 1/ Goods and services. 2/ Includes grants. 3/ Includes short-term capital, errors and omissions. .3 776.7 Liquid gross reserves (US$ million) 2.4 2.6 2.9 In months of imports of the following year 1/ 1.3 1.8 In percent of debt service due in the following year 390 844 909 910 44.8 56.6 84.0 94.8 107.8 In percent of base money Sources: Bank of the Republic of Haiti; and Fund staff estimates. 1/ Goods and services. 2/ Includes grants. 3/ Includes short-term capital, errors and omissions. --- Page 41 --- --- Page 42 --- SUMMARY OF ANNEXES Fund relations to the Fund are SDR 28.1 million, which originate float Haiti's current outstanding obligations Haiti's exchange rate regime is a managed from drawings under PRGF arrangements. The central bank has implemented priority path for the exchange rate. March 2007, with no predetermined assessment that was completed in recommendations of the update Safeguards recommendations. The last of implementing other remaining and is currently in the process the Executive Board on May 16, 2005 (Country article IV consultation was concluded by Report No. 05/206). Relations with the World Bank Group' for FY 2007 and FY 2008 are set out Bank strategy and program in Haiti 2007. A full The World Group's reviewed by the Bank's Board on January 30, in the Interim Strategy Note (ISN) during FY 2008. Since January 2005, Assistance Strategy (CAS) will be prepared million. This is in addition Country 11 projects for Haiti, for a total value of$199 been entirely in IDA has approved since 2004. All assistance has provided The to $12 million of trust fund resources for FY 2007 totals US$68 million. form since July 2005. The IDA grants program governance grant mainly in such areas as institutional capacity strengthening, Bank is involved education, or water and sanitation. reforms, community driven development, Development Bank? Relations with the Inter-American its presence in Haiti through two successive Since 2003, the Bank has operationalized the IDB has 20 loans under execution, totaling transition strategies. At the present time, is US$458 million, which million. The balance available for disbursements in finance US$624.9 amount. The IDB is involved mainly public represents 73 percent ofthe approved education, or local development projects. reform, road rehabilitation, agriculture, Statistical Issues in the General Data Dissemination System. Haiti is currently working toward participation there is a need to improve the data is broadly adequate for program purpose, is to extend the While provision timeliness of statistics. Further work required periodicity, quality and of real sector and balance coverage, finance statistics, and improve the quality GDP data coverage of government external debt. Also, the production of quarterly of payments statistics, including monitoring purposes. would be highly desirable for program oft the World Bank in May 2007. 1 Adapted from text prepared by the staff the staff of the IDB in May 2007 2 Adapted from text prepared by need to improve the data is broadly adequate for program purpose, is to extend the While provision timeliness of statistics. Further work required periodicity, quality and of real sector and balance coverage, finance statistics, and improve the quality GDP data coverage of government external debt. Also, the production of quarterly of payments statistics, including monitoring purposes. would be highly desirable for program oft the World Bank in May 2007. 1 Adapted from text prepared by the staff the staff of the IDB in May 2007 2 Adapted from text prepared by --- Page 43 --- ANNEX I. FUND RELATIONS (As of May 31, 2007) I. Membership status: Joined September 8, 1953; Article VIII. II. General resources account SDR Million Percent of Quota 81.90 100.00 Quota 81.83 99.92 Fund holdings of currency 0.08 Reserve position in Fund 0.07 III. SDR department: SDR Million Percent of Allocation Net cumulative allocation 13.70 100.00 5.01 36.54 Holdings IV. Outstanding purchases and loans: SDR Million Percent of Quota 28.10 34.31 PRGF Arrangements V. Financial arrangements: Amount Amount Type of Approval Expiration Approved Drawn Arrangement Date Date (SDR Million) (SDRmillion) PRGF 11/20/06 11/19/09 73.71 28.10 PRGF 10/18/96 10/17/99 91.05 15.18 Stand-by 03/08/95 03/07/96 20.00 16.40 VI. Projected Payments to Fund (without HIPC Assistance)"/ (SDR Million; based on existing use ofresources and present holdings of SDRS) Forthcoming Principal 0.33 0.51 0.51 0.51 0.51 Charges/Interest Total 0.33 0.51 0.51 0.51 0.51 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. VII. Projected Payments to Fund: (with Board-approved HIPC Assistance) (SDR Million; based on existing use of resources and present holdings of SDRs) Forthcoming Principal 0.29 0.51 0.51 0.51 0.51 Charges/Interest 0.29 0.51 0.51 0.51 0.51 Total .51 0.51 0.51 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. VII. Projected Payments to Fund: (with Board-approved HIPC Assistance) (SDR Million; based on existing use of resources and present holdings of SDRs) Forthcoming Principal 0.29 0.51 0.51 0.51 0.51 Charges/Interest 0.29 0.51 0.51 0.51 0.51 Total --- Page 44 --- VIII. Implementation of HIPC Initiative I. Commitment ofHIPC assistance Enhanced framework Decision point date November, 2006 Assistance committed by all creditors (USS million) 1/ 140.30 Ofwhich: IMF assistance (US$ million) 3.12 (SDR equivalent in millions) 2.10 Completion point date Floating II. Disbursement ofIMF assistance (SDR Million) Assistance disbursed to the member 0.04 Interim assistance 0.04 Completion point balance Additional disbursement of interest income 2/ Total disbursements 0.04 1/ 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. 21 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. IX. Exchange arrangements: 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 update safeguards assessment ofthe 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. Implementation of priority recommendations, comprising a special audit of the monetary data, the formalization of an action plan to fully implement IFRS, and the establishment of an audit committee were part of the conditionality for the first review oft the PRGF arrangement. The proposed audit committee will inter alia monitor the implementation of remaining safeguards recommendations. --- Page 45 --- XI. Article IV Consultation The last Article IV consultation was concluded by the Executive Board on May16, 2005. Haiti is on a 24-month cycle. XII. Technical assistance Technical assistance missions since 2005: Department Dates Purpose FAD April 2005 Public expenditure management May 2005 Tax policy and revenue administration MFD March 2005 Monetary operations November 2005 Implementation of a bond auction mechanism May 2006 Accounting ofthe central bank March 2007 Banking law (jointly with LEG) STA November 2005 and Multisector statistics May 2006 May, October and Monetary and financial statistics December 2006, April-May 2007 LEG March 2007 Banking law XI. Resident representative Mr. Ugo Fasano has been the Fund's Resident Representative since October 2005. revenue administration MFD March 2005 Monetary operations November 2005 Implementation of a bond auction mechanism May 2006 Accounting ofthe central bank March 2007 Banking law (jointly with LEG) STA November 2005 and Multisector statistics May 2006 May, October and Monetary and financial statistics December 2006, April-May 2007 LEG March 2007 Banking law XI. Resident representative Mr. Ugo Fasano has been the Fund's Resident Representative since October 2005. --- Page 46 --- WITH THE WORLD BANK GROUP ANNEX II. RELATIONS (As of May 31, 2007) in Haiti in March 2004, as part of a broader The World Bank stepped up its engagement and donors to address Haiti' 's social, partnership between the Transitional Government and donors conducted a needs assessment economic and institutional needs. The government Cooperation Framework (ICF). This which the basis for the Interim which it in May 2004 provided reform and recovery and the structures through established a two-year program for donor conference in July 2004 The ICF was presented at an international would be pursued. which donor countries and international organizations at the World Bank headquarters, at conference in July 2006 in Port-au-Prince, US$1.1 billion for Haiti. At a subsequent 2007 and revised it to pledged Government extended the ICF until September Haiti's new elected US$751 million for the period 2006-07. reflect Government priorities. Donors pledged in Haiti for FY 2007 and FY 2008 are set out The World Bank Group's strategy and program the Bank' S Board on January 30, 2007. A full in the Interim Strategy Note (ISN) reviewed by during FY2008 on the basis of the full Assistance Strategy (CAS) will be prepared to during Country (PRSP) that the Government plans complete Poverty Reduction Strategy Paper discussed by the Board in 1996. 2007. The most recent full CAS was when Haiti cleared its arrears to the International Development million. Since January 2005, 11 projects for Haiti, for a total value of$199 Association (IDA), IDA has approved since 2004, primarily from the Postto $12 million of trust fund resources All This is in addition Countries Under Stress Trust Fund (LICUS). Conflict Fund and the Low Income form since July 2005. assistance has been provided entirely in grant 2007 totals US$68 million. Ofthis, the first project The IDA grants program for FY Loss Reduction Project, which aims to (approved in July) was a US$6 million Electricity performance in key areas of the strengthen operational, financial, and customer management and Sanitation Project, to increase access electrical utility. A US$5 million Rural Water linked to the state and a US$23 million development policy grant to safe water and sanitation, (Economic Governance Reform reform program Risk government's S economic governance 2007. In addition, a US$9 million Catastrophe Operation II) were approved in January Haiti's entrance fee and participation for Insurance Project, approved in March, will finance Facility, which will provide rapid in the Caribbean Catastrophe Risk Insurance Education for All three years hurricane or earthquake. A US$25 million payouts in the event of a major enrollment, was approved in April 26, 2007. (EFA) Project, which aims to expand primary 2005 and FY 2006 all remain active: (1) a The three investment projects approved in FY Project (January 2005), Recovery and Disaster Management US$12 million Emergency of areas affected by recent disasters and strengthen which aims to support the rehabilitation to emergencies at both the national and capacity to manage disaster risks and respond Driven Development (CDD) project community levels; (2) a US$38 million Community basic social services and provide income- (July 2005), which aims to improve access to and peri-urban areas; and (3) a opportunities to poor people in rural (April 2006), which pilots a generating and Territorial Development Project of US$16 million Transport through financing improvement territorial development approach in two micro-regions, infrastructure to promote rural development. key roads and other at both the national and capacity to manage disaster risks and respond Driven Development (CDD) project community levels; (2) a US$38 million Community basic social services and provide income- (July 2005), which aims to improve access to and peri-urban areas; and (3) a opportunities to poor people in rural (April 2006), which pilots a generating and Territorial Development Project of US$16 million Transport through financing improvement territorial development approach in two micro-regions, infrastructure to promote rural development. key roads and other --- Page 47 --- through two US$2 million Economic The Bank is also funding technical assistance, primarily T and II, approved in June 2005 and Governance Technical Assistance Grants (ECTAG of the PRSP. An earlier June 2006). It is also providing support to the preparation of economic governance reform US$61 million development policy operation in support disbursed. Since July 2004, the Governance Reform Operation I) is now fully US$80 million (end- (Economic disbursements to Haiti have amounted to roughly World Bank' 's total March 2007). six major analytical works, including a Country In addition, the Bank has completed Social Analysis, and a Social Protection Economic Memorandum (CEM), a Country Management and Financial Strategy. A joint World Bank-IADB Public Expenditure will provide the Government with Accountability Review (PEMFAR), in progress, reform and institutional development. recommendations for longer-term public expenditure Program (FSAP) jointly with The Bank will also undertake a Financial Sector Assessment the IMF in FY 2008. jointly by the Bank and IMF staff in collaboration A Preliminary HIPC Document, prepared the Boards ofthe IMF and the Bank in September with the Government, was discussed by document was discussed by both boards in November 2006. The final HIPC Decision Point Paper was prepared by the Government and 2006. An Interim Poverty Reduction Strategy with the Joint Staff Advisory Note presented to the IMF and World Bank Boards, together ofthe HIPC Decision Point Document. in November 2006 at the time of discussion (JSAN), specific actions to Finance Corporation (IFC) is working to identify that the The International environment, while investing in projects support promote a sound business enabling and activities. Recent private sector income-generating development of a sustainable (Digicel- - US$15 million in each of investments have been in cellular telccommunications LUS$20 million in FY 2004), and microfinance FY 2006 and FY 2007), textiles (Grupo M in FY 2004). In May, the IFC approved a (MicroCredit National - US$0.4 million Bank. In addition, IFC is discussing with the US$2.0 million trade finance line for Capital and implementation of private Government the provision of advisory support in the design and for state-owned telecom transactions for the airport of Port-au-Prince and the Foreign sector participation is envisaged through the IFC LAC Facility TELECO. Additional support in the following areas: (1) business Investment Advisory Service (FIAS), possibly investment facilitation (notably textiles); (2) improving access to finance; (3) simplification; through the SME Toolkit and Business Edge. and (4) training, is discussing with the US$2.0 million trade finance line for Capital and implementation of private Government the provision of advisory support in the design and for state-owned telecom transactions for the airport of Port-au-Prince and the Foreign sector participation is envisaged through the IFC LAC Facility TELECO. Additional support in the following areas: (1) business Investment Advisory Service (FIAS), possibly investment facilitation (notably textiles); (2) improving access to finance; (3) simplification; through the SME Toolkit and Business Edge. and (4) training, --- Page 48 --- DEVELOPMENT BANK WITH THE INTER-AMERICAN ANNEX III. RELATIONS 31, 2007) (As of May its presence in Haiti through two successive Since 2003, the Bank has operationalized the IDB has 20 loans under execution, totaling transition strategies. At the present time, disbursements is US$458 million, which US$624.9 million. The balance available for the main challenge for the country and 73 percent ofthe approved amount. Hence, represents the Bank is the implementation of the portfolio. pillars: US$65 million for economic The IDB finances projects in three of the ICF's key for economic recovery, and and institutional development, US$312 million governance million for access to basic services. US$247.9 US$163.7 million for ICF-related 2004-2006 the Bank disbursed about During the period the Bank disbursed the period January 1st to May 31*, 2 2007, programs. During the January to June target (105 percent). US$27.4 million exceeding, one month in advance, 105.2 million and targets for 2007 and 2008 are respectively US$ will be Revised US$27.4 and US$27.5 million respectively US$ 160.5 million. From these amounts, for budgetary support. ofUSS 624.9 million, US$ 100.5 million representing Out of the total approved portfolio effect (legislative ratification or and one increase are pending legal the four new operations table shows the programs that were approved during official publication). The following current government: Approved During the Preval's S Government (2006-2011) Table. IDB Programs Ratification I expected date USS Million Date of approval Ratified Number Name Rural Water and Sanitation Program 15.0 20/09/2006 21/05/2007 HA-L1007 Rural Supply Chain Development Program 17.8 24/10/2006 Ratified HA-L1003 Financial Sector Reform Support Program 25.0 06/12/2006 21/05/2007 HA-L1008 Rehabilitation of Electricity Distribution 18.1 06/12/2006 HA-L1014 System in Port au Prince in 13/12/2006 21/05/2007 Support Human Resource Management 10.0 HA-L1018 Public Sector Infrastructure Rehabilitation 14.6 08/03/2007 21/05/2007 Transport HA-L1010 Program (increase) 100.5 has been working on this issue with the presidents of both Note: Total * The Parliament did not ratify this program submitted last month. again for The ratification Government on May 21, 2007. chambers of Parliament. The program will be of the programs are the weak in order to accelerate the implementation firms; The main challenges market and the saturation of the national institutional capacity; the small local private To the delivery ofits aid, of foreign private firms. improve and the low level of participation measures and the delegation of the Bank has taken specific measures, as special procurement Bank is currently working on the To go further, the authority to the Representative. the of performance contracts of additional measures such as establishment culture of results-based implementation units in order to promote a between the MEF and the executing of the programs are the weak in order to accelerate the implementation firms; The main challenges market and the saturation of the national institutional capacity; the small local private To the delivery ofits aid, of foreign private firms. improve and the low level of participation measures and the delegation of the Bank has taken specific measures, as special procurement Bank is currently working on the To go further, the authority to the Representative. the of performance contracts of additional measures such as establishment culture of results-based implementation units in order to promote a between the MEF and the executing --- Page 49 --- the Bank needs strong support ofthe Government. With management. However, to succeed, presentations of business ofthe Bank, the Government should: organize with the support attract foreign firms to the country; expand agreements in Haiti in order to the human capital, etc. opportunities technical institutions in order to improve foreign universities and investment and policy-based loans, are Ongoing Bank interventions, combining technical assistance and non program of non-reimbursable complemented with a sustained and implementation and program and policy preparation financial products to underpin increase country knowledge. his vision for of President Préval in carrying out The IDB is working with the government and calls for national unity on a development Haiti, which looks beyond electoral terms For example, in collaboration with sustainable and inclusive economic growth. Prince agenda based on Trade and Investment Conference in Port Au the OAS the IDB will sponsor the Foreign the development of a single three-year 2007). Also, the IDB has offered to support future support could (September reforms, on the basis of which budget matrix of economic governance be extended. and Performance elaborated a New Debt Sustainability Framework (NDS) to The Bank has that Haiti will receive yearly grants up Based Allocation System (PBA) that considers 2009, Haiti would be eligible to receive a US$50 million from 2007 to 2009, inclusive. After (FSO). In terms of the and loans from the Fund of Special Operations mix of grants rules similar to those ofthe International allocation for Policy Based operations, Additionally, in 2006 the Bank approved a Development Association (IDA) shall be applied. million. The interim debt relief will debt relief to Haiti under the HIPC initiative ofUSS60.4 relief will be effective when Haiti reaches be US$20 million for 2007-2008. The complete the Completion Point. 17, 2007 to formalize the 2007-2008 and the Government (GOH) met on April The Bank Strategy, currently under and strategic priorities for the new Country the work program 2007 will continue supporting key pillars preparation. The new operations for the period The agreed 2007extended ICF as well as the priorities of the Haitian government. of the 2008 lending program is as follows: (US (US Million) Million) Strengthening Public Resource 12.5 Strengthening Public Resource 12.5 HA-L1023 Management II Road HA-L1017 Managementl Rehabilitation for of Productive 25.0 Rehabilitation of Road Infrastructure 25.0 HA-L1024 Infrastructure Sector II HA-L1019 for Productive SectorI National Watershed Management 12.5 Supplementary Financing for 12.5 HA-0033 Program 50.0 HA-L10221 Agriculture HA0016 50.0 TOTAL TOTAL (US Million) Million) Strengthening Public Resource 12.5 Strengthening Public Resource 12.5 HA-L1023 Management II Road HA-L1017 Managementl Rehabilitation for of Productive 25.0 Rehabilitation of Road Infrastructure 25.0 HA-L1024 Infrastructure Sector II HA-L1019 for Productive SectorI National Watershed Management 12.5 Supplementary Financing for 12.5 HA-0033 Program 50.0 HA-L10221 Agriculture HA0016 50.0 TOTAL TOTAL --- Page 50 --- ANNEX IV. STATISTICAL ISSUES purposes, but further adequate for surveillance Economic statistics are broadly timeliness are desirable. Haiti is taking improvements in coverage, periodicity, and System. in the General Data Dissemination steps to begin participation assistance (TA) mission recommended that the Real sector: A March 2000 STA technical base year for national accounts and a Institute of Statistics (IHSI) establish a new 2004 and Haitian a new CPI rebased to August revised CPI. In 2004, the IHSI began publishing household survey. Also, the IHSI has made using expenditure weights derived from a 2000 Fund TA missions to improve the recommendations ofs several for the progress in implementing annual national accounts period quality of real sector statistics, and it has published 1986/1987. The IHSI publishes 1986/1987 to 2005/2006 based on the interim base year indices of industrial production, limited quarterly data on economic activity, including trade. Preparations are underway for a construction, and domestic and external Further TA may be energy, ofthe informal sector, as well as a limited household survey. of the real sector survey that continue to affect the quality needed to address the deficiencies GDP data would be highly desirable for program statistics. Also, the production of quarterly monitoring purposes. STA missions since November 2005 that Government finance: In the course of three two-tiered action plan was developed. finance statistics (GFS) issues, a and fiscal data, and included government the consistency of monetary One set of short-term measures to improve longer-term improvements to extend the another intended to develop more fundamental, operations and to develop and breakdowns of central and general government the improvements coverage classifications of expenditure. While longer-term have functional and economic many ofthe shorter-term measures require additional human and financial resources, Committee established following the been advanced or completed by the Interministerial monthly and annual GFS on a 2005 multisector statistics mission. Haiti reports for in November However, no data have been provided publication regular basis for publication in IFS. the lack ofhuman and financial resources. the GFS Yearbook for the past 15 years due to in the 2001 GFSY owing to insufficient Data provided in 2001 to STA were not published the timeliness of dissemination problems. There is a need to improve of balance sheets detail and consistency the broader dissemination finance statistics and to encourage of government of units in the nonfinancial public sector. and income statements 2005 multisector statistics mission, the Monetary accounts: Following the November to improve the sectorization and authorities fully implemented STA recommendations banks. This includes a move to classification of accounts of the BRH and the commercial formats consistent with the standards automation of inputs, and a change in reporting Statistics. The BRH reports its greater established under the Manual of Monetary and Financial communicates the data to WHD. Until database monthly to STA which and integrated monetary supplemental data, together with clarifications recently, WHD has sometimes required reporting forms was recently information from the BRH. Reporting via standardized the 2007 further disseminated electronically starting with July initiated, and monetary data will Financial Statistics on Monetary and edition of the Supplement to the International and the commercial formats consistent with the standards automation of inputs, and a change in reporting Statistics. The BRH reports its greater established under the Manual of Monetary and Financial communicates the data to WHD. Until database monthly to STA which and integrated monetary supplemental data, together with clarifications recently, WHD has sometimes required reporting forms was recently information from the BRH. Reporting via standardized the 2007 further disseminated electronically starting with July initiated, and monetary data will Financial Statistics on Monetary and edition of the Supplement to the International --- Page 51 --- Financial Statistics. The BRH has also created two interdepartmental committees to provide better oversight on the quality of data for program monitoring, and a special external audit of program monitoring data was undertaken on data as ofs September 30, 2006. Balance of payments: Although progress has been made towards increasing the reliability of balance of payments data, further improvements, notably in the area of external debt data, are needed. In particular, further efforts need to be undertaken in order to centralize all information on external debt in foreign currency in a single database, by reconciling MEF and BRH debt data. Furthermore, notwithstanding the improvement in the quality and coverage oft trade statistics, there is still scope for improvements in the compiling methodology and collection of trade data, notably by making a more systematic use of existing sources such as customs, port and airport authorities, airlines, and oil companies. --- Page 52 --- Haiti: Table of Common Indicators Required for Surveillance (As of June 26, 2007) Date of Date Frequency Frequency Frequency latest received of of of observation Data Reporting Publication Exchange Rates April 07 May 07 D D M International Reserve Assets and Reserve Liabilities April 07 May 07 D D M oft the Monetary Authorities" Reserve/Base Money April 07 May 07 M M M Broad Money April 07 May 07 M M M Central Bank Balance Sheet April 07 May 07 M M M Consolidated Balance Sheet of the Banking System April 07 May 07 M M M April 07 May 07 W W M Interest Rates" Consumer Price Index April 07 May 07 M M M Revenue, Expenditure, Balance and Composition of N/A N/A N/A N/A N/A Financing General Govemment" Revenue, Expenditure, Balance and Composition of April 07 May 07 M M M Financing 3 Central Government Stocks of Central Government and Central Dec 06 May 07 M M M Govemmen:(Gvarnteed Debt External Current Account Balance Sept 06 May 07 A V A Exports and Imports of Goods and Services Sept 06 May 07 M M M GDP/GNP Sept 06 May 07 A A A Gross External Debt Sept 04 Nov 04 M M M 'Includes reserve assets pledged or otherwise encumbered as well as net derivative positions. and ?Both market-based: and officially-determined, including discount rates, money market rates, rates on treasury bills, notes bonds. Foreign, domestic bank, and domestic nonbank financing. and social funds) and state and 4The general government consists of the central government (budgetary funds, extra budgetary funds, security local governments. *Including currency Daily and maturity (D), weekly composition. (W), monthly (M), quarterly (Q), annually (A), irregular (I); and not available (NA). 'Includes reserve assets pledged or otherwise encumbered as well as net derivative positions. and ?Both market-based: and officially-determined, including discount rates, money market rates, rates on treasury bills, notes bonds. Foreign, domestic bank, and domestic nonbank financing. and social funds) and state and 4The general government consists of the central government (budgetary funds, extra budgetary funds, security local governments. *Including currency Daily and maturity (D), weekly composition. (W), monthly (M), quarterly (Q), annually (A), irregular (I); and not available (NA). --- Page 53 --- ATTACHMENTI. LETTER OF INTENT Port-au-Prince July 4, 2007 Mr. Rodrigo de Rato Managing Director International Monetary Fund 700 19th Street, N.W. Washington, DC 20431 U.S.A. Dear Mr. de Rato: arrangement under the Poverty Executive Board approved a three-year 1. The IMF's for Haiti in November 2006. The purpose of this Reduction and Growth Facility (PRGF) PRGF and to request that the letter is to inform you on the progress under the arrangement of SDR 7.6 million, be made disbursement under the arrangement, in the amount second the completion of the first review. available to Haiti, following Memorandum of Economic and Financial Policies 2. The attached Supplementary and updates the Government's polices and (MEFP) reviews the progress under the PRGF, The MEFP also outlines the objectives for the period through September 2007. for FY 2008 (October 2007Govemment's preliminary macroeconomic framework macroeconomic policies that 2008). Over the past years, Haiti has implemented strides in September the economy. We have also made significant have contributed to stabilizing forward, the key challenge will be to build strengthening security and reducing crime. Going economic growth that can substantially these and bring about strong and sustained We will on gains and reduce poverty in our country. improve the living conditions of our population international community to reach these goals. work with the IMF and the continue to together criteria criteria and all but one structural performance 3. All quantitative performance observed with comfortable margins. The for the first review under the PRGF were of the performance criterion on Government requests a waiver for the nonobservance end-March 2007, because the delivery of submission to Parliament of a draft banking law by including the banking assistance and the consultative process with stakeholders, technical than originally branch, proved more time-consuming community and the legislative law to Parliament on June 29, 2007 anticipated. The Government submitted the draft banking of the first review. action ahead of the Executive Board's consideration as a prior sector by BNC is well under way, and under our banking 4. The absorption of Socabank needs for recapitalization and financial assessment of possible action plan an independent to be conducted by end-September. However, restructuring of BNC was and operational banking assistance and the consultative process with stakeholders, technical than originally branch, proved more time-consuming community and the legislative law to Parliament on June 29, 2007 anticipated. The Government submitted the draft banking of the first review. action ahead of the Executive Board's consideration as a prior sector by BNC is well under way, and under our banking 4. The absorption of Socabank needs for recapitalization and financial assessment of possible action plan an independent to be conducted by end-September. However, restructuring of BNC was and operational --- Page 54 --- identifying and retaining international experts for this assessment has proven time consuming, and we therefore request a modification of the PC to allow for the commencement of the assessment by end-September 2007. We intend to complete this assessment no later than end-March 2008. 5. The Government is currently developing a full Poverty Reduction Strategy Paper (PRSP) in consultation with its development partners and civil society. We intend to finalize the PRSP in the coming months SO it can be considered by the Executive Boards ofthe IMF and the World Bank during the last quarter ofthis year. We would like to underscore that a number of the priorities set forth in the interim PRSP will be integrated into the 2007/08 budget, and are already being implemented. 6. The Government believes that the policies set forth in the attached Memorandum of Economic and Financial Policies (MEFP) are adequate to achieve the objectives ofits program, but it will take any further measures that may become appropriate for this purpose. Haiti will consult with the Fund on the adoption of these measures, and in advance of any revision to the policies contained in the MEFP, in accordance with the Fund's policies on such consultation. 7. In line with our demonstrated commitment to transparency, we agree to the publication of the PIN, selected issues papers, and combined staff report for the 2007 Article IV consultation and first review under the PRGF. Sincerely yours, Is/ Isl Daniel Dorsainvil Raymond Magloire Minister of Economy and Finance Governor Haiti Bank of the Republic of Haiti Attachments will consult with the Fund on the adoption of these measures, and in advance of any revision to the policies contained in the MEFP, in accordance with the Fund's policies on such consultation. 7. In line with our demonstrated commitment to transparency, we agree to the publication of the PIN, selected issues papers, and combined staff report for the 2007 Article IV consultation and first review under the PRGF. Sincerely yours, Is/ Isl Daniel Dorsainvil Raymond Magloire Minister of Economy and Finance Governor Haiti Bank of the Republic of Haiti Attachments --- Page 55 --- MEMORANDUM ON ECONOMIC AND FINANCIAL POLICIES HAITI: SUPPLEMENTAL) 2006 September 2007), Haiti has made 1. During the first half ofFY 2007 (October and economic recovery. On the further progress on its path of institutional reconstruction in late 2006 have further consolidated the political front, the successful communal elections in the combat of gang-related violence return to constitutional order, while recent successes situation in Port-au-Prince, boosting in the security have led to a tangible improvement stabilization has also been encouraging, as evidenced by confidence. Economic and financial fronts in the first six months of the PRGF-supported on several that Haiti is our strong performance challenges still lie ahead, we are confident program. Thus, while substantial sustainable growth and development that will slowly rising to the challenge of generating in the living conditions of our reduction and lasting improvements lead to poverty population. supplements that of of Economic and Financial Policies (MEFP) 2. This Memorandum commitments and changes to the November 3, 2006. It describes additional policy 2007, and outlines the Government's macroeconomic framework for the second half ofFY noted, our policy framework for FY 2008. Unless explicitly preliminary macroeconomic November 2006 MEFP remain valid. commitments from the A. Performance to Date Under the Program program has been strong. Quantitative Performance under the PRGF-supported were met 3. indicative targets for end-December and end-March performance criteria (PCs) and declined from 12.4 percent in September 2006 to (Table 1). Inflation the with significant margins to be broadly maintained through in 2007, a level that we now expect 8.3 percent May we have been able to accumulate substantially end ofthe current fiscal year. In addition, (US$218 million international reserves (NIR) than originally programmed higher net million, adjusted for shortfalls in budget support), compared to an end-March PC of US$128 purchases made possible by the continued as a result of significantly higher foreign exchange direct investments in the telecommunications strength of remittances inflows, large foreign ofFY 2007. and lower imports during the first semester sector, structural reform agenda. All We have also made good progress on our ambitious 2). The 4. criteria (PC) for end-March were met on time (Table but one structural performance submission of a new banking law to Parliament was only missed structural PC action for this review. The submission of the law implemented on June 29, 2007, as a prior assistance, and ensure a more inclusive and to benefit from additional technical financial was delayed draft law within the Government and with relevant comprehensive review ofthe of this PC is being requested. A program waiver for nonobservance sector participants. have also made good progress on our ambitious 2). The 4. criteria (PC) for end-March were met on time (Table but one structural performance submission of a new banking law to Parliament was only missed structural PC action for this review. The submission of the law implemented on June 29, 2007, as a prior assistance, and ensure a more inclusive and to benefit from additional technical financial was delayed draft law within the Government and with relevant comprehensive review ofthe of this PC is being requested. A program waiver for nonobservance sector participants. --- Page 56 --- for the Remainder of FY 2007 B. Objectives of the economy. However, it Available indicators point to a continued expansion set in, in 5. of growth expected for this year has already fully is not clear that the acceleration sector, and delays in central bottlenecks in the private part because of supply-side disbursements of external support (see 47). As a government budget execution and 3.5 rather than the originally in FY 2007 could turn out at percent, consequence, growth expected 4 percent. Fiscal our capacity to mobilize committed to further strengthening 6. We remain strongly than 30 in the first half of Customs and tax revenue rose by more percent domestic revenue. combat evasion and smuggling. Our mediumFY06/07, partly due to stepped up efforts to further tax and revenue focuses, as a first step, on strengthening term strategy to increase and begun to implement a plan to administration. In this context, we have prepared and customs (PCs for end-December 2006 end-March extend customs control to the provinces ofthe DGI (benchmark for and approved a strategic plan for the modernization file to include the respectively) also the use ofthe central taxpayers end-March 2007). We have expanded for end-March 2007), and will extend its tax centers of Delmas and Croix-des-Bouquets (PC point trigger). To further further in the course ofthis year (floating HIPC completion use of the DGI, we will prepare a detailed implementation advance the modernization process plan (new PC for end-September 2007). to raise the central government' S expenditure execution, 7. We intend to take actions first half of the fiscal year. The slower in the which fell short of program expectations of both bottlenecks in the public administration expenditure execution was the consequence in construction and public works. constraints ofthe private sector, most notably to and supply accountants to line ministries strengthen To overcome these problems, we are deploying with procurement rules and and support them in their compliance capacity financial management project formulation and implementation documentation. We are also strengthening in line ministries. To overcome private of programming units through the strengthening strengthening Haitian private firms and sector supply constraints, we are actively which has already resulted in the encouraging foreign participation in government tenders, constraints can be new actors. Overall, we are confident that these a entry of some that expenditure execution has experienced progressively overcome, and we are encouraged marked pick-up in March and April. budget to account for higher We have submitted to Parliament a supplementary the 8. to sectors that reflect more closely than expected revenues and to reallocate expenditures I-PRSP, including security, revenue ofthe Government, as established in the is consistent with the priorities The supplementary budget generation and investment in infrastructure. the absence of central bank established under the program for FY 2007, notably goals . Overall, we are confident that these a entry of some that expenditure execution has experienced progressively overcome, and we are encouraged marked pick-up in March and April. budget to account for higher We have submitted to Parliament a supplementary the 8. to sectors that reflect more closely than expected revenues and to reallocate expenditures I-PRSP, including security, revenue ofthe Government, as established in the is consistent with the priorities The supplementary budget generation and investment in infrastructure. the absence of central bank established under the program for FY 2007, notably goals --- Page 57 --- budget management and ensure a central To further strengthen financing to the government. the coverage ofthe TOFE to include of public expenditures, we have expanded agencies and high quality of ministries and deconcentrated the own resources and related expenditures for end-March 2007). We will continue information about checks in circulation (benchmark months. We have also adopted a the quality of this information in forthcoming for endto improve allocated for poverty reduction (benchmark mechanism for tracking expenditure and begun to produce quarterly reports on March 2007 and HIPC completion point trigger) devised plans for the settlement of the evolution of these expenditures. Finally, we have end-March 2007), which are to be for domestic wage and non-wage arrears (benchmark 2007 (benchmark). cleared by end-September shortly to Parliament, in line with We intend to submit our FY 2008 budget ofGDP, 9. foresees domestic revenues of 12 percent Constitutional requirements. The budget financed investment of of 10.2 percent of GDP, and domestically share current expenditures fully financed, except for a small 2.8 percent of GDP. This budget is already assured, based on historical patterns, that of GDP) for which we feel reasonably within the indicative (0.3 percent The draft budget remains firm donor commitments will be forthcoming. both in terms ofthe overall deficit framework set forth in the PRGF program document, and the absence of recourse to central (excluding grants and foreign financed projects) target bank financing. and its extension, the recently signed The recently ratified PetroCaribe agreement of 10. promise to provide Haiti with significant amounts ALBA agreement with Venezuela intends to create an investment fund for the concessional trade financing. The Government the income proceeds of the fund components ofthese agreements, transferring only that the investment financing will put in place arrangements to ensure to the budget. The Government to Parliament on the flows, manner, and to report regularly fund is run in a transparent earnings, and uses oft the investment fund. Monetary and Financial Sector during the first half ofFY 2007 have helped 11. Prudent fiscal and monetary policies December 2006, the Bank of the Republic reduce inflation to 8.3 percent by end-May. Since rate on BRH bonds on four occasions. ofHaiti (BRH) has reduced its main (90-day) interest interest rates on loans once lags are these reductions to induce lower market below We expect remains committed to keep base money growth allowed to work out. The BRH under the program' S indicative target GDP growth, and will use the available space The BRH nominal the end ofthe fiscal year. faster expansion of base money through a for a somewhat rates positive in real terms and to maintaining remains committed to keeping interest flexible exchange rate regime. in implementing its plan to relinquish 12. The BRH has made good progress BRH participation in the activities. Draft laws to eliminate involvement in non-essential We expect remains committed to keep base money growth allowed to work out. The BRH under the program' S indicative target GDP growth, and will use the available space The BRH nominal the end ofthe fiscal year. faster expansion of base money through a for a somewhat rates positive in real terms and to maintaining remains committed to keeping interest flexible exchange rate regime. in implementing its plan to relinquish 12. The BRH has made good progress BRH participation in the activities. Draft laws to eliminate involvement in non-essential --- Page 58 --- (PC for end-March 2007) and were management of APN and SONAPI have been prepared BRH has also adopted a strategy to (PC for end-June 2007). The submitted to Parliament of BPH (PC for end-March 2007), and discontinue its involvement in the management 2007). We will adopt a strategy submitted a law to this effect to Parliament (PC for end-June for central bank involvement in TELECO together with a plan for discontinuing BRH recapitalization by end-March 2008 (PCs). of the safeguards the recommendations 13. We remain committed to fully implement (PC for March 2007), recommendations have already been implemented action plan, assessment. Key audit committee, formalization of an IFRS including establishment of an external submitted for program monitoring purposes. and a special external audit of monetary data (October 2005- September 2006) are The BRH's audited financial statements for FY2006 website before the Board meeting for finalized, and we intend to post them on the BRH we will being of our action plan toward the implementation ofIFRS, for the first review. As part of IFRS by the BRH (new PC issues for the adoption produce a review of implementation benchmark that will further improve 2007). We will also establish a monthly monitoring end-September data that is submitted to the IMF for program quality control of monetary purposes. performance and solvency after its orderly 14. The banking sector shows improved the continued compliance of all consolidation in 2006, and we remain committed to ensure The absorption of established by our prudential regulations. banks with the requirements of our plan to carry out on-site inspections with Socabank by BNC is well underway. As part assessment of possible experts for key banks, an independent the support of finternational of BNC will be commenced by endrecapitalization needs and required restructuring international assessor can be once the bank is fully integrated and an appropriate later than end-March September, PC). We intend to complete this assessment no soundness identified (modified assessment of financial sector 2008. We look forward to the results of an in-depth The FSAP will also focus on how joint Bank/Fund FSAP. to be conducted by an upcoming and intermediation costs reduced, in order to the domestic financial sector can be broadened private sector activity and investment. support Macroeconomic framework fiscal year, we have agreed to revise the program's 15. For the remainder ofthis performance SO far in the fiscal quantitative framework to reflect the better-than-expected have to increase the floor on NIR accumulation to date, we agreed year. In light ofthe strong million. With unchanged indicative NIR accumulation up to US$135 million from US$30 ceiling on NDA accumulation totargets, this implies a reduction in the execution, base money growth expenditure G4,279 million from G273 million. Due to slower-han-expected first half of the fiscal year. However, has been strongly negative in the central bank financing in the second half ofthe program year, confident that spending can be accelerated we are have to increase the floor on NIR accumulation to date, we agreed year. In light ofthe strong million. With unchanged indicative NIR accumulation up to US$135 million from US$30 ceiling on NDA accumulation totargets, this implies a reduction in the execution, base money growth expenditure G4,279 million from G273 million. Due to slower-han-expected first half of the fiscal year. However, has been strongly negative in the central bank financing in the second half ofthe program year, confident that spending can be accelerated we are --- Page 59 --- without compromising on the quality of expenditures, and the target for zero central bank financing has therefore been left unchanged. 16. For FY 2008, we have agreed on an indicative macroeconomic framework, which builds on the forthcoming budget (419). This indicative framework foresees an annual NIR accumulation of at least US$70 million, and base money growth somewhat below nominal GDP growth. Quarterly quantitative PCs for FY 2008 will be agreed with the IMF at the time ofthe second program review later this year. PRSP, HIPC completion point triggers 17. Progress is being made in the process of developing a full PRSP. The institutional framework for the process, which includes a preparatory commission and a technical secretariat, has been put in place and a broad participatory process is currently underway. We intend to move diligently forward in the process, and aim to complete the PRSP by endSeptember 2007. However, we will ensure that this ambitious timetable will not compromise the participatory process and the quality of the document. We are working toward the implementation ofthe HIPC completion point triggers, and have SO far completed and put in place a mechanism to track poverty-related expenditures (48). --- Page 60 --- 0 8 e O 8 0 6 à 0 O 8 N è 8 8 E 0 0 - 3 3 8 O o 1S D 8 3 P 0 0 49 0 S 2 2 3 8 0 8 a 8 2 D 0 0 - B0 0 8 8 0 o --- Page 61 --- Table 2. Structural Performance Criteria and Benchmarks Measures Date Status (Month-end) 1. Structural performance criteria Approve a comprehensive plan to establish customs control in the provinces. December 2006 Met Start implementing the plan based on an agreed timetable. March 2007 Met Expand use of the central taxpayer file to include all taxpayers identified in March 2007 Met the Delmas and Croix-des-Bouquets tax centers. Implementation on schedule of approved plan, referred to in prior actions, to March 2007 Met deal with banking system weaknesses. Implement the key recommendations on safeguards in accordance with the March 2007 Met action plan. Continue to limit spending executed through current accounts to below Quarterly Met 10 percent of budget appropriations for nonwage current expenditures as defined in paragraph 18 of the TMU. Submit to parliament a draft banking law consistent with international March 2007 Prior action' standards, as described in the TMU. 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 March 2007 Met management; Formulate draft laws amending the APN and SONAPI organic laws to, March 2007 Met inter alia, change the composition of the Boards of both institutions; Submit to parliament for approval the draft law on the option adopted June 2007 Met with respect to discontinuing involvement with the BPH; Adopt a strategy for discontinuing BRH involvement with TÉLÉCO; March 2008 Submit to parliament for approval amendments to the laws on the APN June 2007 Met and SONAPI changing the composition of the boards of both institutions. Begin independent assessment of possible recapitalization needs and September 2007 required financial and operational restructuring of BNC. Complete a review of implementation issues for the adoption of IFRS by the September 2007 BRH Adopt detailed implementation plan for modernization of the DGI. September 2007 Prepare a plan to recapitalize the central bank. March 2008 1/ Completed on June 29, 2007. to parliament for approval amendments to the laws on the APN June 2007 Met and SONAPI changing the composition of the boards of both institutions. Begin independent assessment of possible recapitalization needs and September 2007 required financial and operational restructuring of BNC. Complete a review of implementation issues for the adoption of IFRS by the September 2007 BRH Adopt detailed implementation plan for modernization of the DGI. September 2007 Prepare a plan to recapitalize the central bank. March 2008 1/ Completed on June 29, 2007. --- Page 62 --- Measures Date Status (Month-end) 2. Structural benchmarks March 2007 Met with delay Submit the new draft customs code to parliament. The Minister of the Economy and Finance will approve a medium-term March 2007 Met strategic plan for the DGI, setting out the corporate vision, mission, values, goals, and objectives. Based on the existing expenditure classification, adopt a mechanism for March 2007 Met tracking expenditure allocated to poverty reduction and produce quarterly reports on these expenditures. Formulate a plan for the settlement of domestic arrears. March 2007 Met with delay Expand the TOFE coverage by including in it the ministries' and March 2007 Met deconcentrated agencies' own resources and related expenditure. three months, conduct an independent confirmation audit of the March 2007 Met with delay Every mechanism for monitoring the subsidy to the Ed'H. Complete the payment of wage and nonwage arrears. September 2007 Monthly monetary program data to be signed off by the Central Bank' 's Monthly, starting August 2007 interdepartmental and steering committee. Set quarterly limits on the expenditure of each ministry and ensure, within September 2007 the ministries, that all recruitment and promotion proposals are within budget appropriations. --- Page 63 --- ATTACHMENT III. HAIT-TECHNICAL MEMORANDUM OF UNDERSTANDING 1. Haiti's performance under the program (April 2007-September 2007) supported by the Poverty Reduction and Growth Facility (PRGF) will be assessed on the basis of the observance of quantitative performance criteria as well as compliance with structural performance criteria and benchmarks. This Technical Memorandum of Understanding (TMU) defines the quantitative and structural performance criteria and indicative targets, specified in Tables 1 and 2 of the Memorandum of Financial and Economic Policies (MEFP). It also lays down the monitoring and reporting requirements. The quantitative performance criteria under the program are set for end-September 2007, and the quarterly targets for endJune 2007 are indicative. I. DEFINITIONS A. Net BRH Credit to the Central Government's 2. The change in net BRH credit to the central government is defined as, and will be measured using: a. Change in net domestic credit to the central government from the BRH according to Table 10R of the BRH; b. Change in the stock of special accounts ("Comptes Spéciaux") and seized values (Valeurs saisies UCREF) included in Table 10R ofthe BRH will be excluded from change in net domestic credit to the central government as defined above. 16 3. Changes in any other special account (as defined in footnote 2) 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 2006. 15 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). 16 Special accounts are accounts of the government at the BRH which can only be used with the authorization of donors. Ifi included, movements in these accounts would appear as BRH credit to the government. 2.b above. 4. The changes will be measured on a cumulative basis from the stock at end-September 2006. 15 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). 16 Special accounts are accounts of the government at the BRH which can only be used with the authorization of donors. Ifi included, movements in these accounts would appear as BRH credit to the government. --- Page 64 --- Nonfinancial Public Sector"? Banking Sector Credit to the B. Net Domestic credit to the nonfinancial public sector is 5. The change in net domestic banking sector defined as, and will be measured using: domestic credit of the public sector from the BRH in the stock of net a. Change according to Table 10R of the BRH; domestic credit of the public sector from the b. Change in the stock of net other domestic banks; Banque Nationale de Crédit (BNC) and accounts according to Table "Comptes in the stock of special C. Change will be excluded from the definition of net domestic Spéciaux" of the BRH sector credit to the nonfinancial public sector. banking defined in footnote 2) maintained or in any other special account (as 6. Changes or BPH will be excluded. established in the BRH, BNC, basis from the stock at endThe changes will be measured on a cumulative 7. September 2006. C. Net International Reserves international reserves will be measured using: 8. The change in net ("Réserves de change nettes" of the BRH a. Change in net foreign assets Table 10R); deposits of commercial banks at the b. Minus the change in foreign currency des bcm à la BRH" ofthe BRH BRH ("Dépôts à vue en US$ et en EURO Table 10R). dollar terms and valued at the corresponding end9. Data will be expressed in U.S. period market exchange rate. reserves are the difference between the net international 10. For definition purposes, special drawing rights, all claims on BRH's gross foreign assets (comprising gold, domestic financial institutions) and nonresidents, and BRH claims in foreign currency on maturity or less, use of liabilities to nonresidents of one-year reserve liabilities (including enterprises (Teleco, EDH, APN, AAN, central the key public 17 The NFPS includes the government, and CAMEP), and foreign-financed projects. U.S. period market exchange rate. reserves are the difference between the net international 10. For definition purposes, special drawing rights, all claims on BRH's gross foreign assets (comprising gold, domestic financial institutions) and nonresidents, and BRH claims in foreign currency on maturity or less, use of liabilities to nonresidents of one-year reserve liabilities (including enterprises (Teleco, EDH, APN, AAN, central the key public 17 The NFPS includes the government, and CAMEP), and foreign-financed projects. --- Page 65 --- in foreign currency with domestic financial Fund credit, and excluding trust funds). Swaps assets are excluded from net institutions and pledged or otherwise encumbered reserve held at the BRH for externally reserves; however, foreign exchange deposits international funded projects are included. basis from the stock at endThe changes will be measured on a cumulative 11. September 2006. D. Net Domestic Assets of the BRH of the BRH is defined as, and will be measured 12. The change in net domestic assets using: of the BRH in circulation ("Monnaie en circulation" a. Change in currency Table 10R); in the U.S. dollar amount of net international reserves b. Minus the change converted into gourdes at definition according to section C above), (program the program exchange rate. domestic assets ofthe BRH will use a program 13. The program definition of net 2007-S September 2007. For the rate of G40 per U.S. dollar for the period April date the endexchange and the end-September test only, purposes of the June indicative target rate of G40 per U.S. dollar. stock ofNIR will also be valued at the exchange September 2006 basis from the stock at endThe changes will be measured on a cumulative 14. September 2006. Denominated Debt External and Foreign-Currency E. Nonconeessional including new financial instruments The definition of debt comprises all instruments, on 15. forth in No. 9 oft the Guidelines the characteristics of debt, as set paragraph that share Debt (Decision No.12274-(00/85), Performance Criteria with Respect to Foreign August 24, 2000). debt will be determined on the basis of the commercial 16. The concessional nature of for Economic Cooperation reference rates (CIRRS), as laid out by the Organization date of the interest debt is defined as concessional if, on the signature, and Development (OECD). A on the basis of reference interest rates the present value of the debt computed of at least ratio between debt is less than 65 percent (equivalent to a grant element and the face value of the 35 percent). Respect to Foreign August 24, 2000). debt will be determined on the basis of the commercial 16. The concessional nature of for Economic Cooperation reference rates (CIRRS), as laid out by the Organization date of the interest debt is defined as concessional if, on the signature, and Development (OECD). A on the basis of reference interest rates the present value of the debt computed of at least ratio between debt is less than 65 percent (equivalent to a grant element and the face value of the 35 percent). --- Page 66 --- short-term import-related credits, rescheduling 17. Excluded from the ceiling are for the electricity sector in the form borrowing from the Fund, and guarantees arrangements, of letters of credit. nonconcessional debt by the central 18. The ceilings for contracting and guaranteeing throughout the program period. and the BRH will be set at zero continuously government F. Government Current Accounts for channeling expenditures. In Ministerial discretionary accounts are mechanisms The 19. should be limited to unforeseen emergency outlays. principle, the use of these accounts oft these current accounts for the central monthly information on the stock BRH will provide government (as defined in footnote 1). G. Arrears (principal and interest) to External payment arrears are defined as overdue payments and will be 20. contracted and guaranteed by the central government, non-residents on debt of each creditor. The criterion of zero defined according to the terms of indebtedness basis. arrears will be monitored on a continuous accumulation of external bill that has been received by a Domestic arrears are defined to include: (i) any and for 21. for goods and services delivered (and verified) spending ministry from a supplier 45 days after the due date of payment; (ii) wage, which payment has not been made within including direct and indirect salary, and other payment to government employees, but remained unpaid on the 30th ofthe allowances, that were due to be paid in a given month which remain unpaid 30 days after following month; and (iii) interest or principal obligations in the stock of arrears on account This definition excludes changes the due date of payment. and valuation changes. of interest, penalties H. Base money is defined as, and will be measured using: 22. The change in base money in circulation from Table 10R ofthe a. Change in the stock of currency BRH of commercial banks at the BRH, from b. Change in the stock of reserve deposits banks (depots a vue gourdes Table 10R, using gourde sight deposits of commercial banks (Encaisses des BCM). and cash-in-vault of commercial des BCM a la BRH) basis from the stock at end-September The changes will be measured on a cumulative 23. 2006. --- Page 67 --- II. QUARTERLY ADJUSTMENTS 24. The quarterly performance criteria and indicative targets will be adjusted for the following amounts: A. Adjustment for Domestic Arrears Accumulation 25. The ceilings for net BRH credit to the central government and the net domestic banking sector credit to the nonfinancial public sector will be adjusted downward for the amount of outstanding domestic arrears accumulation. B. Adjustment for External Financing 26. The program ceilings on BRH credit to the government and the nonfinancial public sector, and on BRH net domestic assets and the floor on NIR reflect an assumed flow of external financing, defined as disbursements of cash budgetary assistance, exceptional financing (including rescheduled principal and interest) and debt relief. The adjuster will be calculated on a cumulative basis from October 1, 2006. 27. If actual external financing is lower than programmed external financing, the ceilings on BRH credit to the government and oft the public sector and on BRH net domestic assets will be adjusted upward, and the floor on NIR will be adjusted downward, by the amount of the difference between actual and programmed external financing, converted into gourdes at the program exchange rate. The amount of this adjustment will be limited to US$50 million. Future disbursements under PetroCaribe to finance projects included in the domestic public investment program are not subject to this adjuster. Program External Financing" (In millions ofU.S. dollars) December March June September is lower than programmed external financing, the ceilings on BRH credit to the government and oft the public sector and on BRH net domestic assets will be adjusted upward, and the floor on NIR will be adjusted downward, by the amount of the difference between actual and programmed external financing, converted into gourdes at the program exchange rate. The amount of this adjustment will be limited to US$50 million. Future disbursements under PetroCaribe to finance projects included in the domestic public investment program are not subject to this adjuster. Program External Financing" (In millions ofU.S. dollars) December March June September Program net disbursements 9.9 20.7 23.4 63.5 18 Actual program net disbursements for end-December and end-March were US$3.6 and US$4.5 million, respectively, causing program adjustments ofUS$6.2 million and $16.2 million, respectively. --- Page 68 --- PERFORMANCE CRITERIA III. CLARIFICATION OF STRUCTURAL plan for the modernization of the DGI A. Implementation plan for the modernization of the DGI, as 28. Adoption of a detailed implementation by the Minister of Economy and agreed under the program, would comprise approval elements: at least the following Finance of a document containing objectives and their order of priority; a. Main strategic objectives, in accordance with the b. Actions planned to reach each ofthe strategic outlined prioritization; level and detailed results from each results, both at the broad strategic C. Expected planned action; schedule, including milestones and checkpoints; d. Implementation assistance needs in specific areas (e.g., for organizational restructuring, e. Technical auditing, and training); the required resources for the implementation plan, f. Budget plan, presenting identified (e.g., budget allocations and available resources that have already been resource needs. and possible sources to cover remaining donor funding), leader who will oversee and coordinate 29. The document should also identify a project whose members will be responsible for process, as well as a project team the implementation actions in critical areas. issues for IFRS B. Implementation issues for the adoption of IFRS by the BRH involves 30. The review ofi implementation between BRH accounting the completion of a report (i) outlining current differences constraints to IFRS migration, legal or and IFRS requirements; (ii) identifying any with the practices of any technical solutions compatible structural; (iii) establishing the legal feasibility and IFRS, and (iv) in the event that the legal obligations under the central bank charter for all other areas the specific changes to technical solutions in (iii) are not feasible, outline and can be pursued, irrespective of policies and disclosures that will be required accounting should be shared with Fund staff by end-September the result of the legal review. The report 2007. IFRS migration, legal or and IFRS requirements; (ii) identifying any with the practices of any technical solutions compatible structural; (iii) establishing the legal feasibility and IFRS, and (iv) in the event that the legal obligations under the central bank charter for all other areas the specific changes to technical solutions in (iii) are not feasible, outline and can be pursued, irrespective of policies and disclosures that will be required accounting should be shared with Fund staff by end-September the result of the legal review. The report 2007. --- Page 69 --- C. Assessment of BNC Socabank shall be conducted by assessment of BNC after absorbing 31. The independent though they could enlist local experts international experts, independent from local interests, and the terms of reference for the The for the selection oft the assessor(s) shall cover to assist. procedures staff. At the minimum, the assessment assessment shall be agreed on with Fund the following aspects: needs of financial condition and sustainability, and potential a. the bank's current recapitalization and financial restructuring; and effectiveness of the bank' S main organiationalopestional b. the adequacy with special emphasis on the structures and processes, including governance, of credit risk and other relevant risks; management action plan to address any identified capital C. the formulation of a short-term restructuring needs; and shortfalls and urgent financial and operational further analysis and or action over a longerd. identification of any issues requiring term horizon. will entail signing of a contract with the "Commencement". of the assessment 32. international assessor. Benchmark for Program Monitoring Data D. Monthly committees will review the monthly data reported 33. The interdepartmental and steering in the 10R report), including to the IMF (NIR, NDA and net credit to government to its submission to the IMF. with the TMU, and sign off on the data prior compliance PROVISION OF INFORMATION TO IMF STAFF IV. the authorities will provide daily, 34. To ensure adequate monitoring off the program, to IMF staff, as well as other data upon and monthly monetary and fiscal indicators weekly request. A. Daily (a) Exchange rate; (b) Volume of foreign exchange Net 35. Monetary Indicators: Gross international reserves; and (d) ofwhich BRH sales and purchases; (c) transactions, international reserves. with maximum two-day lag (14-day final). 36. These data will be reported --- Page 70 --- B. Weekly 37. 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. 38. Fiscal Indicators: (a) Revenues (internal, external, other) and (b) Expenditures on cash basis (wages and salaries, goods and services, external debt, current accounts). 39. These data will be reported with maximum five-day lag preliminary data (four weeks for final data). C. Monthly 40. Table 10 R and Table 20 R. 41. Tableau on the comptes courants 42. Tableau de trésorerie de devises. 43. Tableau des Operations Financiere d'Etat (within 14 days). 44. Checks in cirulation. 45. Analysis ofinternal revenue collection (DGI). 46. Analysis of external revenue collection (AGD). D. Quarterly 47. Table tracking poverty-reducing expenditures. , current accounts). 39. These data will be reported with maximum five-day lag preliminary data (four weeks for final data). C. Monthly 40. Table 10 R and Table 20 R. 41. Tableau on the comptes courants 42. Tableau de trésorerie de devises. 43. Tableau des Operations Financiere d'Etat (within 14 days). 44. Checks in cirulation. 45. Analysis ofinternal revenue collection (DGI). 46. Analysis of external revenue collection (AGD). D. Quarterly 47. Table tracking poverty-reducing expenditures. --- Page 71 --- FUND EXTERNAL MONETARY RELATIONS INTERNATIONAL DEPARTMENT Notice Public Information International Monetary Fund (PIN) No.07/86 700 19th Street, NW C. 20431 USA Public Information Notice Washington, D. FOR IMMEDIATE RELEASE July 25, 2007 with Haiti 2007 Article IV Consultation Executive Board Concludes IMF concluded the Monetary Fund (IMF) Executive Board of the International On July 23, 2007, the with Haiti. 1 Article IV consultation departure in February Background following President Aristide's that took over and significantly improved governance The transitional government fiscal and monetary policies, efforts were supported by a statf-monitored 2004 implemented prudent sector operations. These Post Conflict Assistance and transparency in public arrangements under the Emergency inflation was reduced to single program and two successive mid-2004 and late 2006. As a result, and gross reserves more than (EPCA) facility between in 2003, the currency stabilized, 2003 to US$335 million digits, from almost 40 percent (1.2 months of imports) at end-FY GDP has begun to doubled from US$157 million 2006. Most notably, real per capita Based on its strong months of imports) at end-FY point in FY 2005/06). and Growth (1.8 at a modest rate (% of a percentage under the Poverty Reduction recover, albeit record, a new arrangement decision point were approved macroeconomict track Indebted Poor Countries (HIPC) Facility (PRGF) and the Heavily and for Haiti in November 2006. stability and improve governance has efforts to restore political who took office in May 2006, There have also been significant President Préval, transparency in public sector operations. discussions with the IMF holds bilateral and financial the IMF's Articles of Agreement, collects economic On 1 Under Article IV of A staff team visits the country, developments and policies. the members, usually every year. with officials the country's which economic forms the basis for discussion by of the information, and discusses the staff prepares a report, the Managing Director, as Chairman to the return to headquarters. At the conclusion of the discussion, and this summary is transmitted Executive Board. the views of Executive Directors, Board, summarizes country's authorities. o www.imf.org 202-623-7100 Fax 202-623-6772 Washington, D.C. 20431 Telephone economic On 1 Under Article IV of A staff team visits the country, developments and policies. the members, usually every year. with officials the country's which economic forms the basis for discussion by of the information, and discusses the staff prepares a report, the Managing Director, as Chairman to the return to headquarters. At the conclusion of the discussion, and this summary is transmitted Executive Board. the views of Executive Directors, Board, summarizes country's authorities. o www.imf.org 202-623-7100 Fax 202-623-6772 Washington, D.C. 20431 Telephone --- Page 72 --- as central tenets of his and the fight against corruption in the last few espoused good governance situation in Port-au-Prince has improved markedly in Haiti administration. The security the United National Stabilization Mission months, following joint operations by that succeeded in arresting numerous suspected (MINUSTAH) and the National Police these successes, the security situation remains criminals and gang leaders. Notwithstanding to sustained political and social stability, holding fragile and continues to be a binding constraint in economic growth. back private sector investment and a pick-up Executive Board Assessment They commended the Haitian Directors agreed with the thrust of the staff appraisal. in the economy Executive efforts and significant achievements stabilizing in sharp authorities for their determined last November, which have resulted a under the PRGF-supported program approved reserves, and the return to positive albeit reduction in inflation, a recovering of international by improvements in security conditions, Directors were also encouraged and still modest- -growth. and ongoing efforts to strengthening governance progress in restoring political stability, combating corruption. consolidate stabilization gains challenge going forward will be to the Directors viewed that the key Prospects for an acceleration of growth over while establishing higher, sustained growth. the of private sector investment but this will depend on promotion medium-term are positive, observed that an improved security situation, infrastructure and increased productivity. Directors better education and health services, enhancements, a more reliable energy supply, institutions would contribute to achieving this financial intermediation and legal to address these problems and strengthened by the authorities' initial steps investors objective. They were encouraged the creation of a one-stop window for improve the business climate, including through state-owned enterprises. Continued and by their plans to improve the efficiency of remaining technical assistance, will be critical to building international support, including Fund and donor needed to achieve these objectives. the capacity needed to finance mobilization will create the space Directors observed that further revenue commended the authorities for recent of In this light, they tax and higher levels priority expenditures. ongoing efforts to strengthen and modernize increases in tax collection and welcomed with measures to broaden tax bases and adjust customs administration. These steps, together Directors observed that rates and fees, could help raise domestic revenue significantly. review of the tax some taxes should be taken in the context of a comprehensive of decisions to raise They also noted the importance and with due consideration to social implications. In light of the current system and budget execution capacity. in strengthening public financial management urged the authorities to exercise caution limited capacity for budget implementation, they approaching new loan financing. ize increases in tax collection and welcomed with measures to broaden tax bases and adjust customs administration. These steps, together Directors observed that rates and fees, could help raise domestic revenue significantly. review of the tax some taxes should be taken in the context of a comprehensive of decisions to raise They also noted the importance and with due consideration to social implications. In light of the current system and budget execution capacity. in strengthening public financial management urged the authorities to exercise caution limited capacity for budget implementation, they approaching new loan financing. --- Page 73 --- reduction in inflation in recent Directors welcomed the somewhat fastec-than-anticipated available space for base money growth in the authorities to use the for months, and encouraged expenditure has posed challenges ahead. As the underexecution of government between monetary and the period close coordination short-term liquidity management, they encouraged stance. Directors observed that, to avoid unwanted tightening of the monetary in recent fiscal authorities has successfully supported disinflation while the current approach to monetary policy framework would contribute to further of the monetary policy years, the development environment and enabling needed financial deepening. consolidating a stable low-inflation rate does not appear to be misaligned. Directors viewed that, on balance, the real exchange real exchange rate, reflecting strong noted that Haiti faces an appreciating equilibrium that the authorities They and other external transfers. Directors agreed dependence on remittances with interventions limited to the accumulation should maintain a floating exchange rate regime, out seasonal fluctuations. While in line with program targets and smoothing sectors, of reserves on the country's export and import-substitution acknowledging the resulting pressure by addressing widespread structural the authorities to boost competitiveness they encouraged constraints. implementation of the are in place for the continued strong Directors agreed that conditions noted that two performance criteria for the next PRGF-supported program. In this regard, they macroeconomic framework for the coming been met and that an indicative review have already had already been drawn up. fiscal year, consistent with program objectives, will be held on the 24-month cycle, subject to that the next Article IV consultation It is expected consultation cycles in program countries. the provisions of the decision on of the IMF's (PINS) form part of the IMF's efforts to promote transparency Public Information Notices and policies. With the consent of the country of economic developments of Article IV consultations views and analysis concerned, PINs are issued after Executive Board discussions level, of post-program (or countries) of its surveillance of developments at the regional program engagements. with member countries, assessments of member countries with longer-term unless otherwise monitoring, and of ex post Board discussions of general policy matters, PINS are also issued after Board Executive in a particular case. decided by the Executive provisions of the decision on of the IMF's (PINS) form part of the IMF's efforts to promote transparency Public Information Notices and policies. With the consent of the country of economic developments of Article IV consultations views and analysis concerned, PINs are issued after Executive Board discussions level, of post-program (or countries) of its surveillance of developments at the regional program engagements. with member countries, assessments of member countries with longer-term unless otherwise monitoring, and of ex post Board discussions of general policy matters, PINS are also issued after Board Executive in a particular case. decided by the Executive --- Page 74 --- Haiti: Selected Economic and Financial Indicators Fiscal Year Ending September 30 2003 2004 2005 2006 2007 Prel. Proj. (Annual percentage change, unless otherwise indicated) Domestic economy 0.4 -3.5 1.8 2.3 3.5 GDP at constant prices 37.8 21.7 14.8 12.4 8.0 Consumer prices (end-of-period) 30.7 27.3 27.4 28.9 30.9 Gross domestic investment (in percent of GDP) of 29.1 25.7 30.1 28.9 32.1 Gross national savings (in percent GDP) (In percent of GDP) Public finances -3.5 -2.4 -0.6 -0.8 -0.3 Central government overall balance (including grants) Central government overall balance (excluding grants) -3.6 -3.8 -4.1 -4.4 -6.0 -0.2 1.3 1.5 1.6 2.7 Public sector savings (Annual percentage change) Money and credit 22.8 12.8 0.3 -4.9 0.0 Credit to the public sector (net) 33.4 9.2 21.1 5.5 5.1 Credit to the private sector 36.2 21.6 0.6 5.5 9.9 Base money deposits) 39.8 9.1 20.3 10.0 9.7 Broad money (including foreign currency (Annual percentage change, unless otherwise indicated) External sector 21.4 13.5 21.3 7.7 11.9 Exports (f.o.b.) 13.6 8.6 8.0 18.3 5.9 Imports (f.o.b.) Current account balance (including official grants, in percent of GDP) -1.6 -1.6 2.6 0.0 1.2 Current account balance (excluding official grants, in percent of GDP) -6.2 -4.4 -5.0 -7.9 -6.4 44.4 36.2 30.9 29.3 26.0 External public debt (end-of-period, in percent of GDP) External public debt service (in percent of exports of goods 8.5 9.5 17.5 8.5 5.1 and services) Net international reserves (in millions of U.S. dollars) 1/ 38.8 54.5 70.4 130.3 265.3 Liquid gross reserves (in millions of U.S. dollars) 157.1 207.4 228.5 335.5 534.7 1.2 1.4 1.3 1.8 2.4 In months of imports of the following year -5.9 32.5 -5.8 13.4 Real effective exchange rate (appreciation +) Sources: Ministry of Economy and Finance; Bank of the Republic of Haiti; and Fund staff estimates. 1/1 Excludes commercial banks' foreign currency deposits with the BRH. 265.3 Liquid gross reserves (in millions of U.S. dollars) 157.1 207.4 228.5 335.5 534.7 1.2 1.4 1.3 1.8 2.4 In months of imports of the following year -5.9 32.5 -5.8 13.4 Real effective exchange rate (appreciation +) Sources: Ministry of Economy and Finance; Bank of the Republic of Haiti; and Fund staff estimates. 1/1 Excludes commercial banks' foreign currency deposits with the BRH. --- Page 75 --- INTERNATIONAL MONETARY FUND EXTERNAL RELATIONS DEPARTMENT Press Release No. 07/168 FOR IMMEDIATE July 24, 2007 RELEASE International Monetary Fund Washington, D.C. 20431 USA IMF Executive Board approves First Review Under Haiti's approves USS 11.7 million PRGF agreement and The Executive Board disbursement review ofHaiti's economic ofthe International Monetary Fund (PRGF) arrangement. program under the Poverty Reduction completed on July 23rd the first immediately available Completion for of the review makes SDR7.6 and Growth Facility 20, 2006 (see Press Release disbursement. The PRGF million (USS 11.7 million) USS 113 million). No. 06/258) in the amount arrangement was approved on November equivalent to SDR73.7 million The Executive (about Board also approved observance of a performance criterion Haiti's request for a program waiver parliament, as well as a number of requiring submission of a new for delayed structural performance criteria modifications and additions to the banking law to program. associated with the forthcoming quantitative and second review of the Following the Executive Board and Acting Chair, said: discussion, Mr. Murilo Portugal, Deputy Managing Director "Haiti has made commendable Significant economic reforms have progress on its path of economic and improved markedly, The been implemented, and the social stabilization. governance, including through government is also building on earlier security situation has financial management. A full transparency in public sector efforts to improve participatory process. poverty reduction strategy is being operations and improved public developed, based on a broad "Haiti's performance under the deserve credit on achieved positive PRGF-supported program has been review were met, but growth results. All strong and the authorities the program has lagged performance criteria associated year, a significant slightly behind with the first this, the authorities pick-up in the rate expectations. For the are putting in place of budget execution will be remainder of measures to strengthen administrative important. For Washington, D.C. capacity and 20431 0 Telephone 202-623-7100 Fax 202-623-6772 e www.imt.org the deserve credit on achieved positive PRGF-supported program has been review were met, but growth results. All strong and the authorities the program has lagged performance criteria associated year, a significant slightly behind with the first this, the authorities pick-up in the rate expectations. For the are putting in place of budget execution will be remainder of measures to strengthen administrative important. For Washington, D.C. capacity and 20431 0 Telephone 202-623-7100 Fax 202-623-6772 e www.imt.org --- Page 76 --- is finalizing a draft budget that is supply-side constraints. The government ofthe PRGF overcome macroeconomic framework for the second year consistent with the indicative arrangement. will be to secure a sustained increase in "Over the medium term, Haiti's main challenge reduce and promote social low inflation, in order to poverty, growth, while consolidating that the conditions to overcome existing stability. Higher growth can be achieved provided To address these issues, the bottlenecks continue to improve. structural and institutional sector investment, including the recent authorities are taking steps to invigorate private to improve the efficiency of remaining window for investors, and plans creation of a one-stop modalities of private participation. state-owned enterprises through various relatively low level to allow for a "Domestic revenues will be raised from the current the tax and Enhancing and modernizing sustainable increase in priority expenditures. undertaking, will contribute to this administrations, which the authorities are already customs base. public financial management capacity effort, as will the broadening of the tax Improved in support of poverty reduction. that additional resources are well spent, will help ensure regime will help to consolidate a stable "The further development ofHaiti's monetary policy policy in the short term on environment. This will entail focusing monetary rate channel. low-inflation of developing a more effective interest supply management, with a view money of an appreciating real exchange rate competitiveness, against the background bottlenecks "To strengthen transfers, the existing structural and institutional caused by growing international costs of doing business in Haiti and, in will need to be addressed. This will lower the high general, help to promote private sector activity. of growth over the medium term, and for "Overall, prospects are positive for an acceleration Mr. Portugal said. of the PRGF program, continued strong implementation rate channel. low-inflation of developing a more effective interest supply management, with a view money of an appreciating real exchange rate competitiveness, against the background bottlenecks "To strengthen transfers, the existing structural and institutional caused by growing international costs of doing business in Haiti and, in will need to be addressed. This will lower the high general, help to promote private sector activity. of growth over the medium term, and for "Overall, prospects are positive for an acceleration Mr. Portugal said. of the PRGF program, continued strong implementation --- Page 77 --- Jr., Executive Director for Haiti and Statement by Paulo Nogueira Batista, Director Advisor to Executive Ketleen Florestal, July 13, 2007 for all the support provided to and staff need to be commended thrust of 1. Fund Management balanced report, which reflects well the Haiti. Our authorities are appreciative of the own appraisal ofkey last May and the authorities' the discussions held in Port-au-Prince issues paper provides useful inputs to forward. The selected and issues and challenges going oft the current exchange rate domestic discussions regarding the appropriateness further the tax ongoing authorities' deliberations on how to improve monetary policies, and the the Fund whether it is through TAS proper (e.g. system. The technical support provided by or through constructive public officials' ? training through the Institute) for which STATS, LEG/MFD, Haiti is invaluable. The Safeguard Assessment dialogues with the team working on in supporting the Central Bank's follow mission last March has been helpful FSAP, there was a up its mission and mandate. The its capacity to carry out effectively the efforts to strengthen in shaping the reform agenda for launched last month, will be instrumental which was strengthening oft the financial sector. accomplishments and ofthe it is important to take stock ofHaiti's has been 2. At this juncture, framework. Growth has resumed, inflation transformation ofthe macroeconomic increases, and the external position has level despite petroleum price reduced to a single digit Salutary outcomes have been The banking sector has been strengthened. Good become stronger. which had been in difficulty during the past year. public found for all the three banks, and are becoming the norm. The practices have been adopted the financial management the avoidance of central bank financing, current accounts, restricted use of discretionary and harmonized national procurement annuity of the budget, the observance of transparent implementation are noteworthy examples. rules, and the regular publication of data on budget Problems are raised, discussed and More importantly, Haiti is being effectively governed. in partnership with the private sector within the public sector but regularly addressed not just and other stakeholders. launched earlier this year has been an opportunity for the 3. The PRSP drafting process of what needs to be done to reach the MDGs Government to perform an in-depth assessment of with inputs from different portion of the population out poverty Boards of the and to pull a significant which will be submitted to the The final document, segments of the population. months, will embody Haiti's development World Bank and ofthe IMF in the upcoming and should become donors' will be the outcome of a wide participatory process agenda as it assistance strategies. reference in designing future . launched earlier this year has been an opportunity for the 3. The PRSP drafting process of what needs to be done to reach the MDGs Government to perform an in-depth assessment of with inputs from different portion of the population out poverty Boards of the and to pull a significant which will be submitted to the The final document, segments of the population. months, will embody Haiti's development World Bank and ofthe IMF in the upcoming and should become donors' will be the outcome of a wide participatory process agenda as it assistance strategies. reference in designing future --- Page 78 --- successive programs supported by the Fund has been solid under 4. Haiti's performance to conclude the first review including the PRGF for which the authorities are requesting macro stability and has been achieved in consolidating hometoday. Considerable progress capacity constraints, the comprehensive improving governance. Despite important fashion. With the help ofthe reform agenda is moving forward in a timely in grown structural through the UN forces, considerable improvements international community, mostly The medium-term outlook is promising, restoring order and security have been achieved. of the need to push lie ahead. The authorities are convinced however, several challenges consider the acceleration of economic recovery forward with the reform agenda, but they the of the reforms. critical to ensure permanence during the first half of the fiscal Economic expansion has been slower than envisaged and a longer 5. in the public investment program mostly because of delays implementing in the speed of year stance from private investors. A noticeable increase period of a "wait and see" during the second half of the fiscal year disbursements ofthe investment budget is observed been addressed. Line ministries bottlenecks, which were identified earlier, have as several in following budget procedures and the capacity have acquired a certain degree of expertise (foreign and domestic) have rules. New suppliers to comply with new stringent procurement bottlenecks and facilitate the execution of public been actively sought to alleviate supply have been by valuable TAS efforts supplemented infrastructure projects. The authorities' Canada, the EU) have consented to help from several donors, some of which (USAID, the human resource constraint. finance the return of qualified expatriates to alleviate business in Haiti constitutes a serious constraint to growth. 6. The high cost of doing made to address the inefficiencies in the With the assistance of donors, efforts are being The work ofthe CEMEP, the institution communication, and transportation sectors. in the energy, of public enterprises that had been responsible for the modentratsefrhativatioe with the immediate task of The CEMEP is entrusted recent past, has been relaunched. involvement of the state in the public enterprises. The designing the means for the decreased (EDH) are at the top ofthe list. (Téléco) and the electricity company Telecom company the other factors constraining private Administrative and legal bottlenecks are among which has been inaugurated recently, initiative. The Center for Investment Facilitation (CFI), Chief priorities in the CFI's will be instrumental in improving the business environment. and the review of the legal reduction of steps for company registration work program are the steps for Haiti to take full for investment and trade. These are important framework advantage ofthe HOPE Act. and other financial services are also important factors 7. The limited access to credit policy (through the gradual decrease of constraining growth. The recent easing of monetary through a reduction of its total interest rates on the Central Bank Paper and, more recently, Several other impediments to should help stimulate private investment. stock of fbonds) addressed such as the absence of a credit registry, the private credit growth are being duction of steps for company registration work program are the steps for Haiti to take full for investment and trade. These are important framework advantage ofthe HOPE Act. and other financial services are also important factors 7. The limited access to credit policy (through the gradual decrease of constraining growth. The recent easing of monetary through a reduction of its total interest rates on the Central Bank Paper and, more recently, Several other impediments to should help stimulate private investment. stock of fbonds) addressed such as the absence of a credit registry, the private credit growth are being --- Page 79 --- collateral, and the poor registry of property. Accordingly, pertinent difficulties to realize Parliament. These include a draft law on legislations have been drafted and/or submitted to that credit growth is not Concurrently, the Central Bank wants to ensure and a chattel mortgage. ofthe portfolios oft the banking system accompanied by a deterioration in the quality Central Bank is upgrading its weakening of the financial system. Accordingly, the activities. Draft capacity and releasing itself from non-essential monitoring and regulatory BRH in the Port Authority been submitted to Parliament to eliminate participation laws have and the state-owned bank BPH. (APN), the Industrial Park (SONAPI), today were enacted in the nineteen eighties. 8. The laws governing banking activity that have occurred in the banking have become inadequate in view of the changes financial market during the They innovations introduced in the system and insufficient to cover submitted to Parliament this past month. The decades. A new draft Banking Law was authority to past herein seek to give the Central Bank strengthened changes that were introduced extend its power over a wider portion ofthe non-bank regulate the banking system and accommodates the financial innovations fashioned financial institutions. The draft legislation the past two decades. The banking changes that have taken place during is by the technological infrastructures to combat money laundering system's obligation to have the appropriate also reinforced in the draft law. well in achieving HIPC completion point triggers. 9. The authorities are advancing tracked through a new mechanism adopted during Poverty-reducing expenditures are being declaration of public officials has the fiscal year. Draft legislation on asset the first half of extend customs control to the provinces adopted been submitted to Parliament. The plan to in its The PRSP first half ofthe fiscal year is moving forward implementation. during the of intense consultations with stakeholders drafting process is approaching its final phase will continue to be While efforts to boost fiscal revenues throughout the country. be needed to carry forward identified strengthened, donors' assistance will inevitably donor conference will be held early It is the Government's hope that a programs and projects. needs for the first year of implementation ofthe in FY08 to address additional financing PRSP. implementation ofthe coordination will be crucial to the successful 10. Enhanced donor role in supporting the Government's PRSP. We encourage the Fund to play an amplified external assistance. More predictable and efficiency in the supply of efforts to ensure greater of the Government's S fiscal, monetary, will enhance the effectiveness reliable disbursements and exchange rate policies. touch on the three policy issues raised Before concluding, we would like to briefly issues As noted 11. and covered in detail in the selected paper. during the Article IV discussions with the need to raise domestic revenues to fund in the staff report, the authorities concur have already launched an aggressive in the medium term. They higher levels of Fexpenditures play an amplified external assistance. More predictable and efficiency in the supply of efforts to ensure greater of the Government's S fiscal, monetary, will enhance the effectiveness reliable disbursements and exchange rate policies. touch on the three policy issues raised Before concluding, we would like to briefly issues As noted 11. and covered in detail in the selected paper. during the Article IV discussions with the need to raise domestic revenues to fund in the staff report, the authorities concur have already launched an aggressive in the medium term. They higher levels of Fexpenditures --- Page 80 --- to broaden the tax base. These fiscal agencies and have taken measures plan to strengthen the first half of the fiscal year (30 percent actions have yielded commendable results during fiscal year, they will pursue efforts to increase in revenues). During the second halfofthis administration with an emphasis on through additional improvements in tax be to boost revenues contraband. In time, due consideration will given combating tax evasion and fighting of a review of the but only within the context comprehensive selected increases in tax rates, social impacts and considered taken full account of undesirable tax system and after having At the present time, the authorities changes to adhere to CARICOM policies. in the necessary the present system of cross-subsidies petroleum are studying the possibility of modifying and equity. taxation with a view to increasing efficiency product the limitations of the policy tools presently at its 12. The Central Bank is cognizant of is to support its efforts for the technical assistance the Fund providing disposal and is grateful with staff that the slow pace ofl base the monetary policy framework. It concurs the to improve certain extent the easing of monetary policy through money growth has offset to a and that, in theory, this could have led market decreased interest rates on Central Bank paper stance. However, in practice, have difficulties inferring the bank' s monetary participants to with the banking system and financial market the Central Bank is in continuous dialogue and formal meetings are always held to explaining its policy stance and objectives, Central Bank 's operators Market participants are very aware ofthe discuss changes in policy. valuable inputs in final decisions. constraints and often provide of the exchange rate, even if it is considered an 13. The recent accelerated appreciation concerns. Indeed, in the short term, it is equilibrium phenomenon, provides cause for some of remittances, and may in the purchasing power of recipients associated with a decrease the authorities will not seek to offset the adversely affect the export sector. However, instead into ways to bolster market interventions, but are looking appreciation trend through energy policies and increased planned via the implementation of appropriate competitiveness investment expenditures, for example. public to thank our colleagues for their 14. Finally, we would like to seize this opportunity criteria relating to the last month the rephasing ofthe performance its support in approving involvement in Teleco and adopting a strategy for Central-Bank' 's relinquishing ofits recapitalization.