--- Page 1 --- MONETARY FUND INTERNATIONAL IMF Country Report No. 13/90 HAITI AND FIFTH REVIEW 2012 ARTICLE IV CONSULTATION FACILITY March UNDER THE EXTENDED CREDIT the IMF holds bilateral discussions with Under Article IV of the IMF's Articles of Agreement, 2012 Article IV consultation with Haiti, the In the context of the members, usually every year. released and are included in this package: following documents have been prepared by a staff team of the IMF, 2012 Article IV consultation, - Staff Report for the with the officials of Haiti on economic discussions that ended on December 7, 2012, time of these discussions, following Based on information available at the developments and policies. 21, 2013. The views expressed in the staff report the staff report was completed on February reflect the views of the Executive Board of are those of the staff team and do not necessarily the IMF. Informational Annex prepared by the IMF. Financial Sector Report prepared by the IMF. the views of the Executive Board as Public Information Notice (PIN) summarizing staff report that concluded the Article its March 11, 2012 discussion of the expressed during IV consultation. Statement by the Executive Director for Haiti. listed below has been or will be separately released. The document of Intent sent to the IMF by the authorities of Haiti* Letter and Financial Policies by the authorities of Memorandum of Economic Haiti* Selected Issues Paper Technical Memorandum of Understanding* *Also included in Staff Report other documents allows for the deletion of of of staff reports and The policy publication market-sensitive information. of this report are available to the public from Copies Services International Monetary Fund o Publication 700 19th Street, N.W. o Washington, D.C. 20431 (202) 623-7430 o Telefax: (202) 623-7201 Telephone: Internet: http/www.imf.org E-mail: pubications@imforg International Monetary Fund Washington, D.C. 02013 International Monetary Fund --- Page 2 --- MONETARY FUND INTERNATIONAL HAITI FOR THE 2012 ARTICLE IV CONSULTATION STAFF REPORT CREDIT FACILITY REVIEW UNDER THE EXTENDED AND FIFTH February 21, 2013 ISSUES KEY 2010 earthquake, albeit at a slower Context. The economy is recovering from the January keep inflation in the policies have helped Prudent macroeconomic pace than anticipated. However, underexecution of capital single digits and improve the external position. and absorptive capacity, coupled with spending due predominantly to limited administrative storms, has slowed down the disasters, including cholera and tropical a series of natural The business environment remains unattractive reconstruction and the economic recovery. and the political situation tense. to be firmer in 2013, assuming a rebound in agricultural Outlook. The recovery is expected Medium-term prospects are promising. The risks output and a pickup in public investment. from a further slowdown in the world outlook are on the downside, stemming mainly weak to the environment, a fragile social context, and continued economy, a volatile political capacity. policies and structural Policy discussions focused on macroeconomic Article IV discussions. foster broad-based and inclusive growth, create reforms to accelerate the reconstruction, that meeting these challenges will The authorities and staff agreed jobs and reduce poverty. and improved security conditions, optimizing require, in addition to political stability by (i) ensuring fiscal sustainability; (ii) sustainable growth-oriented fiscal policy, particularly the execution rate and the fiscal space for development goals; (ii) improving (PFM). It will expanding public financial management quality of capital spending; and (iv) strengthening external adjustment, and improving also require maintaining price stability and facilitating investments as well as environment by eliminating key impediments to private the business to growth and job creation. is broadly satisfactory. All end-June 2012 Program implementation. Program performance 2012 quantitative performance indicative targets have been observed and all end-September mixed. The authorities reforms has been criteria have been met. But progress on structural and two out of the three end-September the end-June 2012 benchmark have implemented 2012 structural benchmarks are not yet observed. 2012 benchmarks. Two end-March and improving also require maintaining price stability and facilitating investments as well as environment by eliminating key impediments to private the business to growth and job creation. is broadly satisfactory. All end-June 2012 Program implementation. Program performance 2012 quantitative performance indicative targets have been observed and all end-September mixed. The authorities reforms has been criteria have been met. But progress on structural and two out of the three end-September the end-June 2012 benchmark have implemented 2012 structural benchmarks are not yet observed. 2012 benchmarks. Two end-March --- Page 3 --- HAITI Approved By Discussions took place in Port-au-Prince Adrienne Cheasty December 7, 2012. The staff team from November 28 - (WHD) and Chris Lane Bessaha, Ms. Sulla, Mr. Brousseau comprised Mr. Loko (head), Mr. (SPR) Bouhga-Hagbe, the resident (all WHD), and Ms. Bova (FAD). Mr. Florestal (OED) joined the representative, assisted the mission. Ms. Prime Minister Lamothe, policy discussions. The mission met with Minister of Minister of Economy and Finance Jean Marie, Commerce and Industry Laleau, Minister of Jacques, Minister Delegate in charge of Human Agriculture Against Poverty Auguste, Governor Rights and the Fight economic officials. The mission Castel, and senior financial and donor and diplomatic also met with representatives of the community and the private sector. CONTENTS CONTEXT RECENT ECONOMIC DEVELOPMENTS AND A. Recent Developments: Weak OUTLOOK Recovery B. Prospects and Risks: Promising but Challenging POLICY CHALLENGES FOR SUSTAINING A A. Optimizing fiscal BROAD-BASED AND INCLUSIVE GROWTH policy for high and inclusive growth B. Maintaining price stability and facilitating external C. Strengthening the Business Environment adjustment PROGRAM IMPLEMENTATION OTHER ISSUES STAFF APPRAISAL BOXES 1. Natural Disasters 2. Strengthening Social Safety Nets and Human 3. Electricity Sector Capital FIGURE 1. Macroeconomic Developments Since the Earthquake, 2007-2012 2 INTERNATIONAL MONETARY FUND --- Page 4 --- HAITI TABLES 1. Selected Economic and Financial Indicators 2a. Central Government Operations 2b. Central Government Operations 3. Summary Accounts of the Banking System, 4. Balance of Payments 5. Financial Soundness Indicators of Individual Banks 6. Indicators of External Vulnerability 7. Indicators of Capacity to Repay the Fund 8. Proposed Schedule of Disbursements 9. 2008 FSAP Recommendations and Implementation Status ANNEX 1. External Stability and Competitiveness APPENDICES I Letter of Intent Attachment 1. Memorandum of Economic and Financial Policies Attachment 2. Technical Memorandum of Understanding-Update INTERNATIONAL MONETARY FUND 3 --- Page 5 --- HAITI Selected Abbreviations AML/CFT Anti-Money Laundering and Combating the Financing of Terrorism BRH Banque de la République d'Haïti FATF Financial Action Task Force FT Financial Terrorism GCI Global Competitiveness Index IFRS International Financial Reporting Standards MEF Ministry of Economy and Finance ML Money Laundering PCDR Post-Catastrophe Debt Relief Trust Fund PFM Public Financial Management UNDP United Nations Development Programme 4 INTERNATIONAL MONETARY FUND 5 --- HAITI Selected Abbreviations AML/CFT Anti-Money Laundering and Combating the Financing of Terrorism BRH Banque de la République d'Haïti FATF Financial Action Task Force FT Financial Terrorism GCI Global Competitiveness Index IFRS International Financial Reporting Standards MEF Ministry of Economy and Finance ML Money Laundering PCDR Post-Catastrophe Debt Relief Trust Fund PFM Public Financial Management UNDP United Nations Development Programme 4 INTERNATIONAL MONETARY FUND --- Page 6 --- HAITI CONTEXT In 2011, real per capita GDP and development challenges are daunting. of the 1. Haiti's growth level twenty years ago. Almost 80 percent about US$ 1,034, 1 25 percent below its was lives with less than US$2 per day 240 Real GDP per Capita, In PPP terms population and living standards are very 220 (Index, 1991=100) Republic (extreme poverty) 200 Dominican low. The country ranks 158 out of 187 countries 180 ---Haiti Nicaragua according to the UNDP Human Development 160 Honduras LAC Index. Unemployment is high, particularly among 140 the youth. In 2009 unemployment was estimated 120 - at around 30 percent overall, with 62 percent for the young (between 15 and unemployment 19-year-old). In addition to a persistent difficult 60 E 8 a A a E a 3 & a 8 E 2 a 0 80 security situation and political instability, as well as Sources: World Developmentindicitors natural disasters, these indicators reflect frequent institutional and structural weaknesses. deep domestic further exacerbated the country's development 2. The massive 2010 earthquake including one out of three civil servants (many in challenges. A total of 220,000 people were killed, In addition, 300,000 houses, 1,200 teachers, and over 500 health personnel. of the country's hospitals middle management), 4,200 schools, and more than 60 percent 13 out of 15 ministerial buildings, caused by the earthquake was estimated at about were damaged or destroyed. Total damage GDP. the equivalent of 120 percent of 2009 US$9 billion, authorities have adopted a tenthe aftermath of the 2010 earthquake, the Haitian the 3. In better Haiti.? This plan provides a framework for action plan for building a and reducing year for achieving sustainable economic growth reconstruction, while laying the ground Haiti: 2010-12 contributions to relief and Donors pledged about US$10 billion in recovery efforts as of December 2012 poverty. authorities' reconstruction plan 12,000 (excl. debt relief) Pledged support of the billion has been disbursed by end-December 10,000 Disbursed (US$6.4 emergency funds in the 8,000 2012). The IMF provided a three-year E 6,000 amount of US$110 million and approved 9 4,000 in July 2010 (about US$60 million), ECF arrangement 2,000 with debt relief under the Post-Catastrophe a Total together Fund (PCDR) of US$268 million. The New York Other Humanitar earthquake an Humanitarian cholera Debt Relief Trust conference recoveryfund technical Fund has also provided comprehensive assistance to help the authorities restore basic state 1 PPP based in 2005 US$. of the Republic of Haiti, March 2010. and Development of Haiti; Government 2 Action Plan for National Recovery the underexecution of capital spending due to had used US$55.8 million reflecting 3 By October 2012, the authorities capacity, and the long political transition after the earthquake. limited administrative and absorptive INTERNATIONAL MONETARY FUND 5 New York Other Humanitar earthquake an Humanitarian cholera Debt Relief Trust conference recoveryfund technical Fund has also provided comprehensive assistance to help the authorities restore basic state 1 PPP based in 2005 US$. of the Republic of Haiti, March 2010. and Development of Haiti; Government 2 Action Plan for National Recovery the underexecution of capital spending due to had used US$55.8 million reflecting 3 By October 2012, the authorities capacity, and the long political transition after the earthquake. limited administrative and absorptive INTERNATIONAL MONETARY FUND 5 --- Page 7 --- HAITI including in the fiscal, financial, monetary, and functions and undertake much-needed reforms, statistics areas. in July 2010 - made since the last Article IV consultation 4. Significant progress has been stability. Supported by the ECF safeguard macroeconomic just after the earthquake-to: in the 2010 Article IV, economic activity has rebounded arrangement and in line with policy advice to the large aid inflows and policies have contributed to smooth adjustment to and macroeconomic I). Official inflows and remittances contributed keep inflation in the single digits (Figure has significantly improved owing to strengthen the external position. Haiti's debt situation after the January 2010 earthquake. (including the Fund) additional debt relief from major partners However, the pace of the reconstruction Haiti: Total Number of Displaced 2012 Individuals 5. from July 2010 to October has been slow. Progress was made in relocating 1600 (In 2500 thousands) housed in temporary shelters, rebuilding many 1400 1370 77% since decrease 2010 in camp population people all state functions. About schools and restoring 1g10 80 percent of the debris generated by the earthquake 800 680 635 595 551 519 516 49'420 removed. Further efforts are needed to 390 3693 358 has been people provide permanent lodging to the remaining still living in tents and rehabilitating many important st 8 sf d P d 6 6 d f s 8 8 3 Ae including public buildings, schools and structures, hospitals. Business Indicators rank Haiti at environment remains unattractive. Doing out of 6. The business Index (GCI) ranks it 142 while the 2012-13 Global Competitiveness 174 out of 185 countries, and the investors' survey of the GCI, the major 144 countries. According to these indicators infrastructure, access to finance, constraints in Haiti's business environment include poor procedures to start a business, and taxation. administrative the shocks. Since the earthquake, 7. The country is extremely vulnerable to exogenous cholera and two major hurricanes suffered from natural disasters, including October 2012 country has repeatedly Hurricanes Isaac in August 2012 and Sandy in and multiple floods (Box 1). Together, at US$570 million (7.2 percent of 2012 GDP). caused at least 50 deaths and overall losses estimated severely hit. In addition to direct costs one-fourth of GDP) was again The agricultural sector (about macroeconomic management, and human capital, natural disasters complicate to physical undermine growth, and increase poverty. MONETARY FUND 6 INTERNATIONAL --- Page 8 --- HAITI Figure 1. Haiti: Macroeconomic Developments Since the Earthquake, 2007-2012 Growth has resumed Inflation remains in checkin the single digits Real GDP Growth Consumer Price Index 30 (In percent, y/y change) Headline CPI Food CPI 2007 2008 2009 2010 2011 2012 -2 -5 -4 -10 -15 -6 Capital spending has surged, largerlyfinanced by foreigng grants and some gains in domestic revenues The current account has slowlyimproved 25 Haiti: Fiscal Aggregates Haiti: Macroeconomic Developments Since the Earthquake, 2007-2012 Growth has resumed Inflation remains in checkin the single digits Real GDP Growth Consumer Price Index 30 (In percent, y/y change) Headline CPI Food CPI 2007 2008 2009 2010 2011 2012 -2 -5 -4 -10 -15 -6 Capital spending has surged, largerlyfinanced by foreigng grants and some gains in domestic revenues The current account has slowlyimproved 25 Haiti: Fiscal Aggregates Haiti: Current Account Balance (In percent of fGDP) (In percent ofGDP) D Domestic Revenue DGrants DCurrent Spending D Capital Spending -10 10 -20 Current Account Excl. -30 official transfers Current Account -40 2007 2008 2009 2010 2011 2012 2007 2008 2009 2010 2011 2012 Broad money has decelarated. . and significant increase in NIRS. Evolution of Broad Money andi Base Money 1,400 Netinternational 30 (Inpercent, y/y) Reserves Broad Money 1,200 (In millions ofUS dollars) Base Money 1,000 Spending D Capital Spending -10 10 -20 Current Account Excl. -30 official transfers Current Account -40 2007 2008 2009 2010 2011 2012 2007 2008 2009 2010 2011 2012 Broad money has decelarated. . and significant increase in NIRS. Evolution of Broad Money andi Base Money 1,400 Netinternational 30 (Inpercent, y/y) Reserves Broad Money 1,200 (In millions ofUS dollars) Base Money 1,000 2007 2008 2009 2010 2011 2012 -5 -10 2007 2008 2009 2010 2011 2012 Source: Haitian authorities and IMF Staff estimates. INTERNATIONAL MONETARY FUND 7 --- Page 9 --- HAITI Box 1. Haiti: Natural Disasters high. Over the last 20 years, the country has Haiti's exposure to natural disasters is exceptionally 6 million people and causing almost been struck by 60 natural disasters, affecting about US$ 9 billion in damages. natural disaster in Haiti's history. It affected almost The 2010 earthquake stands as the biggest about 120 percent of 2009 GDP. More recently, 4 million people and caused damage estimated at caused about $170 and $400 million in hurricanes Isaac (August 2012) and Sandy (October 2012) and rescuing systems limited in the agricultural sector). Yet, improved warning damages, (mostly disasters. compared to previous the toll on the population, In addition to direct costs to physical Natural disasters may have severe economic consequences. management, undermine growth natural disasters complicate macroeconomic and human capital, and increase poverty. In Haiti, after the 1993-2012 declined Haiti: Natural Disasters, 2010 earthquake, real GDP by 5.4 percent compared to the preAverage years earthquake projection of 2.4 percent. The type of number between People affected Damage (US$'000) of floods and storms can also be disaster of events 2 disaster 10.0 Casualties 35,000 impact output, which drought earthquake 20.0 222,570 3,700,000 8,000,000 1,000 significant for agricultural flood 31 0.6 3,059 444,958 331,620 represents about 25 percent of GDP. storm 26 0.8 230,700 5,071 2,407,164 6,587,122 8,332,620 excluding the recent earthquake, total 60 0.33 Overall, natural disasters are estimated to have Source: emdat be reduced growth performance by an average of 1 to fiscal and external accounts and slowed progress 2 percent of GDP. They also put pressure on the adequate and timely external financing has reduction. However, in most instances, toward poverty resource needs and limit contractionary macro policies helped the country address immediate could the effects of the shocks. that aggravate (NRDMS) in place needs to be further The national risk and disaster management system the policy response will have an While natural disasters can rarely be prevented, external buffers, flexibility in strengthened. the speed of recovery. Available fiscal and important impact on the impact of the shocks and macroeconomic policies, and external financing can help mitigate the human suffering and Much can also be done ex ante to reduce accelerate the recovery. communities from disaster-prone economic costs of natural disasters. These include relocating buffers against drought, and enforcing building codes, holding food inventories as of social safety nets areas, mechanisms and a comprehensive system developing emergency response Haiti will require enhancing the NRDMS, which still for the most vulnerable. Building a better institutional support, to reduce vulnerabilities, suffers from a lack of capacity, resources, and conditions for broad-based and inclusive human and physical capital and establish the protect growth. INTERNATIONAL MONETARY FUND reduce accelerate the recovery. communities from disaster-prone economic costs of natural disasters. These include relocating buffers against drought, and enforcing building codes, holding food inventories as of social safety nets areas, mechanisms and a comprehensive system developing emergency response Haiti will require enhancing the NRDMS, which still for the most vulnerable. Building a better institutional support, to reduce vulnerabilities, suffers from a lack of capacity, resources, and conditions for broad-based and inclusive human and physical capital and establish the protect growth. INTERNATIONAL MONETARY FUND --- Page 10 --- HAITI Recent publication of amendments to situation remains volatile and tense. 8. The political a measure aimed at involving Haitians living the Constitution opens the door for dual nationality, lack of majority in Parliament remains of Haiti. However, the President's abroad in the development In addition, the upcoming cycle of senatorial, for the passage of key legislation. lack of in an impediment coupled with pervasive poverty and progress municipal, and other local elections" tensions. The security situation standards could heighten social and political improving living remains challenging. reforms to reduce macroeconomic policies and structural and institutional 9. Looking ahead, and to natural disasters, and create a conducive the country's vulnerability to foreign assistance be needed to sustain high growth, reduce environment for private sector investment, will the main challenge remains to take full and raise living standards. In the near-term, available by the donor community unemployment, technical assistance and financial support made the advantage of the accelerate the reconstruction, and sustain and the IFIs, including the IMF, to build capacity, macroeconomic stability. recovery while safeguarding DEVELOPMENTS AND OUTLOOK RECENT ECONOMIC Weak Recovery A. Recent Developments: After contracting by 5.4 percent in Economic activity decelerated and inflation picked up. in real terms in 10. economic activity expanded by 5.6 percent FY2010 following the earthquake, in FY2012, reflecting a spring drought, the FY2011. Real GDP growth decelerated to 2.8 percent investment projects. Inflation Hurricane Isaac, and delays in implementing key public impact of it has picked up to 7.6 percent in December, up by remains in the single digits, although higher international food prices and reduced points since June, reflecting primarily 2.7 percentage because of Hurricanes Isaac and Sandy. domestic food supply, than expected. Revenue was slightly The overall fiscal deficit for FY2011/12 was higher a 5.7 decline in 11. to percent (12.8 percent of GDP instead of 13.5 percent, corresponding tax and customs below target and persistent inefficiencies in the nominal terms), because of lower imports lower than planned Disbursement of budget support was significantly and absorptive collection process. reflecting the country's limited administrative (US$27 million against US$55 million), to donors, including procurement and capacities and slow progress in key structural areas important for new ministries and higher spending following Hurricane Isaac, outlays million above governance. Emergency increased current spending by almost US$50 transfers to the electricity company, capital spending slightly exceeded the program target (0.6 percent of GDP). Domesticaly-frnanced transfers of resources to project accounts although some of the spending merely represents target, 2011, have been postponed several times, particularly due The elections, which were initially planned for mandate November of the Permanent Electoral Council. Then there was an are regarding the composition and the forthcoming elections. Discussions to contention form a transitional body with a mandate to solely oversee nine members of the Council. agreement to Legislative, and Judiciary to nominate the still ongoing between the Executive, INTERNATIONAL MONETARY FUND 9 (0.6 percent of GDP). Domesticaly-frnanced transfers of resources to project accounts although some of the spending merely represents target, 2011, have been postponed several times, particularly due The elections, which were initially planned for mandate November of the Permanent Electoral Council. Then there was an are regarding the composition and the forthcoming elections. Discussions to contention form a transitional body with a mandate to solely oversee nine members of the Council. agreement to Legislative, and Judiciary to nominate the still ongoing between the Executive, INTERNATIONAL MONETARY FUND 9 --- Page 11 --- HAITI and not actual project execution . Overall the 5.9 percent of GDP, against a government ended FY2012 with a deficit of programmed deficit of 3.6 percent. 12. The external position has 4 percent of GDP, from 4.6 strengthened. The current account deficit decreased to 19.6 percent in FY2011, despite the percent of GDP to 12.5 percent of GDP, due significant drop in official transfers from earthquake disaster phase, slow to the completion of the immediate postcapacities. At the same progress in structural reforms, and weak execution time, capital inflows, and absorption balance of payments recorded including FDI, continued to be The a small surplus and, strong. overall US$2.2 billion at end-December gross international reserves increased used rule of thumb of 2012, equivalent to 6 months of to 3 months of imports. imports, above the commonly13. Monetary policy has been largely since January 2011. However, passive. Key policy rates have remained in broad increase in public sector deposits unchanged money growth. Overall, broad contributed to a marked slowdown programmed level (11.2 percent). money increased by 6.9 percent in 2012, well below the 14. Bank credit growth has been continued to grow (34.5 strong. Commercial bank credit to the percent at end-October 2012, private sector has trade credit. Credit growth in gourdes y/y), fuelled by rising demand for was 1.7 times short-term (37.5 VS. 22.7 percent), reflecting higher than that in dollars in October 2012 continued Central Bank to eliminate the macroeconomic stability and recent decisions deposits. requirement to keep in gourdes 30 percent of the by the reserves for dollar 15. The banking sector remains sound and adequacy ratio of 16.8 percent at end profitable. Banks had an average capital Returns on assets and September 2012, above the regulatory equity are comfortable, and minimum (12 percent). total loans at end September 2012. non-performing loans are low, at 2.4 of dollarization Liquidity and exchange rate risks related to percent appear manageable Haiti: Financia ial Soundness Indicators of Individual Banks, the high financial in the near-term. Current (In percent unless otherwise stated) September 2010 September 2012 prudential regulations prevent Sep-10 Sep-11 banks' net Capital adequacy Mar-12 Jun-12 Sep-12 open foreign exchange Regulatory capital to risk weighted. assets position to exceed 2 percent of Asset quality and composition 13.4 16.5 16.7 16.7 16.8 equity, and the three systemic NPLS Provisions to gross to gross loans NPLS 5.7 3.7 3.6 banks in Haiti have more assets Earnings and profitability (cumulative 84.1 93.1 83.3 88.8 3.2 96.7 2.4 than Return on Assets (ROA) since begining of fiscaly year) liabilities in foreign currency. Return on equity (ROE) 1.2 1.4 1.4 1.3 1.5 However, banks' potential Doll llarization 18.4 22.2 22.2 21.7 21.9 exposures to indirect credit risk Foreign.currency Foreign currency deposits loans to total to total loans deposits (net) 60.1 55.7 53.8 51.8 may require closer Foregnicurengyloanet Sources: BRH Banking tof System pforesgneurensyd Financials deposits 31.3 44.1 32.6 62.3 63.9 64.5 62.9 51.7 oversight, Defined as the difference between average Summary and IMF estimates 34.6 357 37.3 although anecdotal evidence suggests that lending rate and average fixed deposit rate in the banking system. commercial banks in Haiti tend to grant dollar loans 5, Capital spending representing merely transfers to project accounts has not yet been translated into higher imports. 10 INTERNATIONAL MONETARY FUND f System pforesgneurensyd Financials deposits 31.3 44.1 32.6 62.3 63.9 64.5 62.9 51.7 oversight, Defined as the difference between average Summary and IMF estimates 34.6 357 37.3 although anecdotal evidence suggests that lending rate and average fixed deposit rate in the banking system. commercial banks in Haiti tend to grant dollar loans 5, Capital spending representing merely transfers to project accounts has not yet been translated into higher imports. 10 INTERNATIONAL MONETARY FUND --- Page 12 --- HAITI derive most of their income in US dollars. Vulnerabilities commercial entities that credit mainly to larger concentrated lending portfolios, relatively underdeveloped related to the remain, particularly and weak governance. risk management practices of the 2008 FSAP to further strengthen of the recommendations has 16. The implementation The January 2010 earthquake financial sector is underway, albeit with some delays. Nevertheless, some the shifted priorities and added new challenges. firm slowed down the reform process, law, () the hiring of a new audit to made with (i) the adoption of a new banking Measures progress was establishment of a T-bill market (See Table 9). conduct the audit of the BRH; and (iii), the bank and the ministry of finance, coordination between the central have also been taken to enhance with the World Bank to establish a credit liquidity management. Work is ongoing and to improve bureau and set up a collateral registry. and Risks: Promising but Challenging B. Prospects in FY2013. Real GDP is projected to grow by 17. The recovery is expected to continue and the continued execution of several assuming a rebound in the agricultural sector and tourism. 6 Inflation 6.5 percent including those aimed at promoting exports the large public investment projects, Official transfers are expected to decline reflecting should remain stable, in the mid-single digits. execution and absorption capacities in from the emergency situation, as well as weak deficit, and reduce transition would widen the external account reconstruction-related imports Haiti. Higher to 5.5 months of imports. gross liquid official reserves -Term Macroeconomic! Framework, 2010-2017 2016/17 Haiti: Medium2011/12 2012/13 2013/14 2014/15 2015/16 2010/11 (Change over previous year; unless otherwise stated) 5.6 5.6 2.8 6.5 6.3 6.1 4.0 5.8 3.5 3.0 GDP at constant prices 10.4 6.5 5.0 4.5 Consumer prices (end -of- period) (In percent of GDP; unless otherwise stated) -3.1 -3.7 -5.9 -5.3 -5.5 -4.6 -5.2 -3.4 -5.0 -4.8 Overall fiscal balance -4.6 -4.0 -17.7 5.6 -16.1 -5.3 -14.7 -13.5 -12.4 External current account balance official grants) -24.2 -16.5 16.6 19.1 20.6 21.6 22.3 External current account balance (excluding 8.9 13.2 20.4 24.2 26.7 28.6 29.7 External public debt (end- -of- -period) 12.2 15.4 Total government debt (end -of -period) 6.5 5.5 5.2 4.8 4.4 4.1 Gross reserves (In months of imports of the following year) 6.3 Sources: Haitian authonties; andFunds staff estimates andp projections. a rebound Maturing ongoing agricultural projects, Medium-term prospects are promising. goods 18. of textiles and other manufacturing construction investment, and rising exports medium term. The external in public to sustain growth in the assembled in emerging free zones are expected winding-down of reconstruction-related deficit should decline, associated with a gradual account cities are almost completed. The 128-room Royal Renovation and upgrade of the airports in Haiti's two largest hotel is scheduled to open in FY 2013. Oasis has just opened and the 106-room Best Western INTERNATIONAL MONETARY FUND 11 Maturing ongoing agricultural projects, Medium-term prospects are promising. goods 18. of textiles and other manufacturing construction investment, and rising exports medium term. The external in public to sustain growth in the assembled in emerging free zones are expected winding-down of reconstruction-related deficit should decline, associated with a gradual account cities are almost completed. The 128-room Royal Renovation and upgrade of the airports in Haiti's two largest hotel is scheduled to open in FY 2013. Oasis has just opened and the 106-room Best Western INTERNATIONAL MONETARY FUND 11 --- Page 13 --- HAITI fiscal anchor, will debt-to-GDP, the medium-term imports and improved exports. Total government remain below 30 percent (the pre-earthquake level). downside risks. On the external front, a severe shock 19. The outlook is subject to significant Risk Assessment Matrix below) could have negative spillovers (See were to global growth (about 18 percent of GDP in 2012), trade (exports predominantly through remittances and official transfers (about 12.5 percent of of GDP and mainly destined for the US), slowdown. 13.2 percent resilience during past episodes of the global GDP). However, remittances displayed some of external risk. On the domestic front, Higher food and oil prices are also a major source slow down public investment spending and political tensions could postpone or again and lack of progress heightened social tensions, fueled by pervasive poverty delay the reform agenda. Lingering could also impede the fragile recovery and living standards, and natural disasters, as in improving Haiti's debt continues to be assessed high-risk constrain Haiti's growth prospects. Finally, Report No. 12/220; February 24, 2012 (Country overall outlook. However, they believed broadly agreed with the staff's of 20. The authorities because of (i) the launching of the reconstruction key that growth could be higher than projected of Economy and Finance, and of Commerce as public buildings, including those of the Ministries in rural areas aimed at improving the (ii) the creation of four micro parks work to well as Parliament; of agricultural products; and (ii) the ongoing harvesting, stocking, and preservation system. Staff saw some merit to the strengthen the national risk and disaster management hindrance. In addition, staff but pointed out that low capacity remains a major on a authorities' views, scenario (6.5 percent) depends critically emphasized that real GDP growth under the baseline the construction of several public pick-up in reconstruction-related projects, including as key risks to the strong viewed lower aid flows and higher food prices buildings. Also, the authorities coupled with the withdrawal of many outlook. They indicated that lower official transfers reserves in the medium NGOS could lead to a more rapid decline in net international three months of international international reserves above remain, however, committed to keeping term. They imports. to breach the indicative threshold of 100 percent. 7 The PV of public external debt to exports is projected 12 INTERNATIONAL MONETARY FUND several public pick-up in reconstruction-related projects, including as key risks to the strong viewed lower aid flows and higher food prices buildings. Also, the authorities coupled with the withdrawal of many outlook. They indicated that lower official transfers reserves in the medium NGOS could lead to a more rapid decline in net international three months of international international reserves above remain, however, committed to keeping term. They imports. to breach the indicative threshold of 100 percent. 7 The PV of public external debt to exports is projected 12 INTERNATIONAL MONETARY FUND --- Page 14 --- HAITI Risk Assessment Matrix (Scale - high, medium, or low) Nature/Source of Main Impact if Realized Policy recommendations Threats Build buffers and increase flexibility in Global economic slowdown Medium macroeconomic policies to help absorb shocks Could affect Haiti through lower and and undertake the necessary adjustment. official transfers, remittances, Likelihood: Medium Delay some non-priority capital spending and exports. mobilize additional domestic financing Lower growth. through the issuance of T-bills. Slow reforms. Medium Mobilize additional domestic financing Lower external aid Political through the issuance of T-bills. instability and slow progress in Slow growth. Delay some non-priority spending. Further delay reforms. structural reforms could slow Insert buffer in budget aid inflows. Likelihood: High Consistent with past Fund advice, the Deterioration in Low authorities should accommodate the first international food and Could lead to higher inflation; food round effect and use targeted subsidies to and fuel represent more than half of the BRH should be ready to energy prices Haiti's CPI basket protect poor. monetary policy if any signs of secondLikelihood: Low Could generate social unrest and tighten round effects materialize. exacerbate political tensions. Deterioration of fiscal and external positions and slow growth. Build a national political consensus on a Heightened political High sustainable growth reform agenda. Slow the reconstruction and recovery tensions Improve transparency and governance and and weaken the business Likelihood: High environment. combat corruption. Ensure that growth is inclusive. Delay the approval of key legislation and limit progress in the reform agenda. Build financial buffers. Natural disasters High More flexibility in macroeconomic policies. Loss of human life and destruction of Likelihood: High Strengthen the national risk and disaster capacity and infrastructure. Higher volatility and deterioration in management system. macroeconomic accounts. Low growth prospects and delays in poverty reduction. 8 The Risk Assessment Matrix (RAM) shows events that could materially alter the baseline path (the scenario most likely to occur in the view of IMF staff. The RAM reflects staff views on the sources of risks at the time of discussions with the authorities." INTERNATIONAL MONETARY FUND 13 agenda. Build financial buffers. Natural disasters High More flexibility in macroeconomic policies. Loss of human life and destruction of Likelihood: High Strengthen the national risk and disaster capacity and infrastructure. Higher volatility and deterioration in management system. macroeconomic accounts. Low growth prospects and delays in poverty reduction. 8 The Risk Assessment Matrix (RAM) shows events that could materially alter the baseline path (the scenario most likely to occur in the view of IMF staff. The RAM reflects staff views on the sources of risks at the time of discussions with the authorities." INTERNATIONAL MONETARY FUND 13 --- Page 15 --- HAITI A BROADCHALLENGES FOR SUSTAINING POLICY INCLUSIVE GROWTH BASED AND policies and structural reforms to discussions focused on macroeconomic create jobs and 21. Policy broad-based and inclusive growth, to accelerate the reconstruction, foster that in addition to political stability and The authorities and staff agreed fiscal for reduce poverty. will require (i) optimizing policy improved security conditions, meeting this challenge and facilitating external inclusive growth; (ii) maintaining price stability higher and more business environment by eliminating key impediments adjustment; and (ii) and improving the investments as well as growth and job creation. to private for high and inclusive growth fiscal policy A. Optimizing can help achieve higher and more Staff and the authorities agreed that fiscal policy 9 the 22. sustainability. This will require expanding inclusive growth while ensuring medium-term rate and quality of capital spending, goals, improving the execution fiscal space for development (PFM). public financial management and strengthening deficit of 5.3 percent of GDP, down from The FY2013 budget targets an overall lower current 23. decline reflects mostly higher revenue and somewhat 5.9 percent in FY2012. The spending. in FY2013, up from 12.8 percent of GDP in Revenue is projected to reach 14.1 percent FY2012. This increase reflects reforms Haiti: Impact of Potential Reve enue Measures FY2013 (percent of GDP) in tax policy and revenue 2012 2013 A administration. Some tax reforms 12.8 14.1 1.3 0.7 Total Revenue 8.5 9.2 in FY2012 (the new excise on Domestic Revenue 3.6 3.9 0.3 approved and fees on TCA (improvedt tax collection with ther new alcoholic beverages medium- -taxpayer unit tand casinos and house games) will have implementation Tax oni income and of e-declaration) profits 3.0 3.3 0.3 effect in FY2013. Achievement (improved tax collection with ther new their full medium- -taxpayer unit ande0.3 0.6 0.3 of the 2013 Budget Law will Excises (excise on alchoolic beverages) depend on the (fees on casinos andh house games) 1.6 1.3 -0.3 importantly Other Taxes 4.2 4.7 0.5 effectiveness of the wide ranging Custom duties (improving identification and product improvements in revenue evaluation at customs) including stronger (combating evasion) 0.1 0.2 0.1 administration, Other controls and enforcement of tougher collection practices, a newly created Inclusive Growth in Haiti: the Role of Fiscal Policy." 9 See Chapter I of the Selected Issues Paper: "Building 14 INTERNATIONAL MONETARY FUND house games) 1.6 1.3 -0.3 importantly Other Taxes 4.2 4.7 0.5 effectiveness of the wide ranging Custom duties (improving identification and product improvements in revenue evaluation at customs) including stronger (combating evasion) 0.1 0.2 0.1 administration, Other controls and enforcement of tougher collection practices, a newly created Inclusive Growth in Haiti: the Role of Fiscal Policy." 9 See Chapter I of the Selected Issues Paper: "Building 14 INTERNATIONAL MONETARY FUND --- Page 16 --- HAITI which has been in place since January unit for medium-size tax payers, and an e-declaration of merchandise and a better identification and evaluation 2013 (MEFP, T 14). Improved collection at customs. control of exemptions are expected to enhance by almost 0.6 percent of GDP owing mostly to new The wage bill is expected to increase salaries for the low-earning civil servants. hiring in social sectors and security, and higher and services as well as transfers to Nevertheless, the budget targets lower levels of goods in goods and services will spending. In particular, outlays make room for higher development 15). Consistent with the authorities' remain in line with previous years' levels (MEFP,T capital spending will be intention to step up the reconstruction, domesticaly-fnanced higher than in 2012. The to around 9 percent of GDP, more than 2 percent and domestic ramped up with external resources (4.4 percent of GDP) projected deficit is fully financed of GDP). including issuance of T-bills (0.9 percent financing, the FY 2013 fiscal policy stance as broadly appropriate, but 24. Staff viewed risks. First, the highlighted several implementation of Haiti: Revenue Q1 underperformance observed in the first quarter 14 (In billions of gourdes) 2012) of the fiscal year MFY2012 FY2013 (October-December for meeting the FY2013 revenue SFY2013 poses a challenge and actual Second, weak administrative capacity 2FY2013 target. investment framework could lead projections inadequate public spending. Finally, again to underexecution of capital the continued practice of bunching expenditure near the end of the fiscal year could adversely affect spending quality and complicate liquidity and Total Domesticr revenue Customs macroeconomic management. revenue mobilization and ahead, fiscal policy will aim at further enhancing increase to about 25. Looking Domestic revenue would improving the composition of public spending. to trend down to about 6 percent of of GDP in 2017 while donor support is expected be contained 15 percent in FY2012. Current expenditures are expected to GDP, down from 10.6 percent (Box 2). Progress with reconstruction and the below 11 percent while protecting social spending spending high in the medium term. The developmental needs would maintain capital 2017. country's decrease to 3.1 percent of GDP by overall deficit is projected to gradually the fiscal space for achieving development goals Expanding The authorities indicated that the for 2013 is ambitious. 26. The revenue target months of FY2013 is partially due to Hurricane underperformance observed in the first three confident meeting the end-year target, which disrupted revenue collection. They were mobilization. Staff Sandy, commitment in stepping up efforts to increase revenue the and reiterated their of the revenue measures included in underscored the need for steadfast implementation the high reconstruction-related law. The authorities and staff agreed that, given T-Bills 2013 budget of drawing down its deposits and issuing additional needs, the government has the option INTERNATIONAL MONETARY FUND 15 revenue target months of FY2013 is partially due to Hurricane underperformance observed in the first three confident meeting the end-year target, which disrupted revenue collection. They were mobilization. Staff Sandy, commitment in stepping up efforts to increase revenue the and reiterated their of the revenue measures included in underscored the need for steadfast implementation the high reconstruction-related law. The authorities and staff agreed that, given T-Bills 2013 budget of drawing down its deposits and issuing additional needs, the government has the option INTERNATIONAL MONETARY FUND 15 --- Page 17 --- HAITI medium-term debt sustainability event of a shortfall in domestic revenue, while ensuring some in the 13). The authorities could also consider reducing and macroeconomic stability (MEFP,1 domesticallynon-priority current spending or delaying some nonh-consinuction-plsed and consistency of the (without affecting the overall execution financed capital spending investment program). their revenue target of 15 percent by 27. The authorities are aware that achieving administration reforms. This will require moving forcefully on tax policy and and rationalize will require collection and compliance, reduce decisive actions to further improve revenue and expand the tax base, including through (more than 3 percent of GDP in FY2011), staff underscored the exemptions activity (MEFP,1 21). In particular, increased formalization of economic including a shift to a VAT system. a broader reform of the tax system, and importance of launching internal audits, and training in both customs Efforts are also needed to improve controls, revenue administrations. Social Safety Nets and Human Capital Box 2. Haiti: Strengthening Index in 2011. The literacy rate ranked at 158 out of 187 countries in the UNDP Human Development four times higher Haiti than that of the Caribbean average and maternal mortality almost of remains significantly lower and health remains relatively low, at 2.1 and 1.4 percent than average. Government spending on education Health spending in Haiti has compared to 3.8 and 3.4 percent on average in the region. and safety nets GDP respectively, strengthening current transfer schemes declined since 1997 in percent of GDP. Therefore, actually in health and education, remain key priorities. for the poor while increasing spending Haiti: Millennium Development Indicators, 2010 Dominican Haiti Republic Caribbean 72.3 95.8 89.5 rates of 15-24 years old, (in percentage) percent than average. Government spending on education Health spending in Haiti has compared to 3.8 and 3.4 percent on average in the region. and safety nets GDP respectively, strengthening current transfer schemes declined since 1997 in percent of GDP. Therefore, actually in health and education, remain key priorities. for the poor while increasing spending Haiti: Millennium Development Indicators, 2010 Dominican Haiti Republic Caribbean 72.3 95.8 89.5 rates of 15-24 years old, (in percentage) 170 38 Literacy Mortality rate, infant (per 1000 live births) 1.0 Maternal mortality ratio ( per 100,000 live births) 15-49) 2.2 97.8 0.9 Prevalence of HIV, total (Percentage of population percentage) Births attended by skilled hmathnpersonnel(ins 27.4 89.5 Primary completion rate, both sexes Goals Report 2011, United Nations. Source: The Millennium Development the People"), has put great emphasis on the social assistance program known as "Ede Pep" (or "Help school for free The national and about one million children are now attending most vulnerable segments of the population The conditional cash transfer Universel Gratuit et Obligatoire). under the PSUGO (Programme de Scolarisation thousand women who have been receiving monthly (Ti-manman-cheri) has benefitted about 25 benefitted from cash transfers. program The disabled and elderly have also allowances from the government. education through access to preschool, primary and secondary Looking ahead, the authorities intend to promote strengthening vocational and technical training dedicated learning centers, expanding school feeding programs, and increasing the provision of health the creation of training centers and government fellowships through services. INTERNATIONAL MONETARY FUND --- Page 18 --- HAITI expenditure would free agreed that further restraint on recurrent 28. The authorities and social spending. This will require: resources to fund growth-enhancing projects bill. The wage bill in Haiti remains relatively low in Containing the public sector wage countries. Staff recognized the need for higher comparison to regional peers and low-income increases, maintain competitive pay to civil service wages to compensate for cost-of living of additional workers in social administrative capacity, and support the hiring improve sectors. However, it reiterated the importance Wages and GDP) Salaries 2012 to limit the rise in the civil service wage bill to 14 (percent avoid the risk of crowding out domestically12 10 financed public investment. The authorities staff concern and indicated that they will - shared hl a contain the wage bill at 5.0 percent of GDP in the medium term. In this context, they intend to R a / / a civil service reform a / near term / in the c5S / launch / aimed notably at rationalizing the public work force (elimination of ghost employees) and streamlining the public service sector. EDH. While conceding that this is a Gradually unwinding subsidies to the electricity company authorities agreed that a issue given its social and political impact, the would help reverse the challenging with the assistance of key donors, comprehensive strategy, developed transfers (MEFP,T 15), and create the financial difficulties of EDH, reduce budgetary cost (Box 3). electricity availability at a reasonable conditions for improving rate and quality of capital spending Improving the execution has been low. 10- This underperformance is 29. The execution rate of public investment of projects, low execution to various factors, including poor design and preparation attributable agencies, weak reporting, political capacity, lack of coordination between government of internal control mechanisms. volatile security, and loose enforcement uncertainty, investment, including a that weaknesses in public 30. There was a broad agreement and slowed growth. The steady rise in low execution rate, have impeded reconstruction period put pressure on the already weak investment particularly during the post-earthquake and highlighted the fragile state of institutional framework, overran current technical capacity, the Public Public investment efficiency as measured by the project management process. ranked Haiti in the lowest quartile of project Investment Management Index (PIMI)"r performance. Public Investment Policy in Support of Growth and 10 See Chapter II of the Selected Issues Paper: "A Renewed Poverty Reduction." Investment: an Index of Public Investment Efficiency" Working 11 See Dabla-Norris et al. 2011, "Investing in Public DC. The PIMI is built around four key pillars, (WP/11/37), International Monetary Fund, Washington (continued) Paper INTERNATIONAL MONETARY FUND 17 project management process. ranked Haiti in the lowest quartile of project Investment Management Index (PIMI)"r performance. Public Investment Policy in Support of Growth and 10 See Chapter II of the Selected Issues Paper: "A Renewed Poverty Reduction." Investment: an Index of Public Investment Efficiency" Working 11 See Dabla-Norris et al. 2011, "Investing in Public DC. The PIMI is built around four key pillars, (WP/11/37), International Monetary Fund, Washington (continued) Paper INTERNATIONAL MONETARY FUND 17 --- Page 19 --- HAITI Haiti: Public Investment Management Ranking Sub Indices Overall Index Selection Management Evaluation Appraisal 4.00 4.00 2.80 3.33 Highest Score 3.53 1.33 1.60 2.00 1.33 Median 1.65 0.00 1.20 1.73 1.33 Haiti 1.07 0.50 2.00 0.93 1.33 Barbados 1.19 0.00 2.40 1.33 0.67 Trinidad and Tobag 1.10 0.00 0.80 0.27 0.00 Belize Annette 0.27 Kyobe. Zack Mi ills, and Chris Papageorgiou, 2011 Source: Era Dabla Norris, Jim Brumby, of capital spending will require a strong the execution and quality framework 31. Improving to upgrade the current public investment political commitment and leadership practices, and stronger governance. enhanced transparency, better procurement through and clarify responsibilities among government In particular, there is a need to redefine strengthen the units in charge of institutions involved in public investment project management, experts), enhance the control execution within ministries (including by hiring technical Preliminary results of an project information system (MEFP,T 16). system, and promote a more dynamic and the donor community and on this issue were presented to the government the authorities analytical paper 12 Staff intends to continue working with its recommendations were well received." execution, and control while ensuring to strengthen project preparation, and donor community investment. the overall quality and consistency of public Improving public financial management commitments to improve public financial management. The authorities reiterated their towards a treasury single account the authorities highlighted ongoing progress In particular, that included closing all identified dormant (TSA), with completion of the first phase of public accountants. It is now accounts in the banking system, and the training with adequate government TSA June 2013 in a first wave of ministries important to introduce the by staff viewed the establishment of a TSA as key capacity for a rapid shift. The authorities and and the quality of public spending, cash management budget execution to improving execution rate of capital spending and improving transparency particularly by enhancing the transfers of resources to project accounts by eliminating the current practice of bunching implementation, and appraisal, project selection and budgeting, project including strategic guidance and project project evaluation and audit. in Support of Growth and the Selected Issues Paper: "A Renewed Public Investment Policy See Chapter I of Poverty Reduction." 18 INTERNATIONAL MONETARY FUND staff viewed the establishment of a TSA as key capacity for a rapid shift. The authorities and and the quality of public spending, cash management budget execution to improving execution rate of capital spending and improving transparency particularly by enhancing the transfers of resources to project accounts by eliminating the current practice of bunching implementation, and appraisal, project selection and budgeting, project including strategic guidance and project project evaluation and audit. in Support of Growth and the Selected Issues Paper: "A Renewed Public Investment Policy See Chapter I of Poverty Reduction." 18 INTERNATIONAL MONETARY FUND --- Page 20 --- HAITI needs to be made to strengthen budget near the end of the fiscal year. Continued progress internal and external and reporting, and improve formulation, execution, transparency controls (MEFP, 1 22). Box 3. Haiti: Electricity Sector transmission, Electricité d'Haïti (EDH) holds a monopoly over the purchase, the in By law, the public utility and generates about 15 percent of energy produced of electricity, the rest distribution and commercialization is produced by independent power producers, Haiti. About 75 percent of the electricity it distributes Cooperation (ati-venervebs-Cubs) Installed by power plants operated by the Tripartite load demand estimated at around 250 MW. being generated capacity of 212 MW is insufficient to meet peak energy rationing, which generation capacity and inefficient distribution grid lead to frequent There is no clear Insufficient generation users to rely on expensive back-up generators. sector. causes businesses and residential and no investment master plan for the within the Government for sector oversight, the responsibility commercial losses are estimated at about 66 percent, financial situation is critical. Technical and is stolen), 1 and the EDH's produced is high (35 percent of the energy delivered ratio of energy unpaid to energy In this context, EDH charges high utility paid bills cover less than a third of the electricity generated. with levels in the Caribbean, but industrial and tariffs amount to $0.31/kWh', at par electricity tariffs: average commercial tariffs are even higher at $0.35/kWh. the government, the IADB, of Understanding (MOU) was agreed between loss In February 2011, a Memorandum sector. On August 2, 2012, the EDH Board approved a to and USAID to help reform the electricity the external firm TETRATECH was given the authority reduction plan for the utility. On August 17, 2012, director and deputy directors were also measures to improve EDH performance. A new managing distribution and commercial losses, and implement of the company, reduce a mechanism appointed at EDH to improve management and EDH signed a MoU establishing proceeds. In addition, the government all these recent raise bill payments sector for the fiscal years 2013 to 2016. Despite for budgetary transfers to the electricity the sector financial situation remains dire. Government measures and an improvement in revenue collection, in FY2012 to US$ 142 million. transfers to EDH amounted financial situation of EDH and the sector as would include (i) an immediate analysis of the current sector over the Next steps the financial situation of EDH and of the electricity for the a whole; (ii) measures to improve to implement a financial recovery strategy medium-term; and (ii) the design of a detailed program recovery plan. More specifically, with the preparation of a financial electricity sector, starting to restore EDH's financial soundness, a plan with the support of donor partners enhancing bill EDH is developing leakages, improving the distribution network, be including reducing losses and production which would eliminate transfers by 2016, will and strengthening energy supply. This plan, collection, for adoption in April 2013. submitted to the government World Bank, and the IADB) have committed to support the Donors (including USAID, the investment plan of approximately electricity strategy through a coordinated grid rehabilitation and extension, government's the next five years, focusing on loss reduction, US$400 million over in the sector and within EDH. and technical assistance to improve capacity du sous secteur de l'Electricité en Haiti (2006 à 2011). 1 MTPTC Stratégie de développement Energy Infrastructure and Access Project, August 27, 2012. Appraisal Document on a Proposed Grant for Rebuilding 2WB Project INTERNATIONAL MONETARY FUND 19 Donors (including USAID, the investment plan of approximately electricity strategy through a coordinated grid rehabilitation and extension, government's the next five years, focusing on loss reduction, US$400 million over in the sector and within EDH. and technical assistance to improve capacity du sous secteur de l'Electricité en Haiti (2006 à 2011). 1 MTPTC Stratégie de développement Energy Infrastructure and Access Project, August 27, 2012. Appraisal Document on a Proposed Grant for Rebuilding 2WB Project INTERNATIONAL MONETARY FUND 19 --- Page 21 --- HAITI administrative capacity agreed that further strengthening 32. Staff and the authorities of public services. Staff reiterated the Fund's will be critical to improve PFM and the delivery Since October 2011, a assisting Haiti, including in capacity-building. commitment to continue to build capacity at the Treasury IMF expert has been posted at the MEF, particularly have also taken place in the long-term the creation of the TSA. Several macro-fiscal missions and help with help (i) establish and make operational a macro-fiscal recent monthsl to provide training and macro-fiscal forecasts and Ministry of Economy and Finance; and (ii) prepare of unit at the March 2013 will aim at developing tools for the analysis analyses. The next visit scheduled for of technical assistance missions have taken In addition, a series the quality of capital expenditure. administration and improve tax policy. place to help strengthen revenue fiscal risks associated with extra-budgetary 33. There was a consensus that potential monitored. In particular, the government activities need to be closely between funds and quasi-fiscal monitor the risks associated with the joint-venture should remain vigilant and closely investment The new company has been the Haitian and Venezuelan governments on public director has been with the tax administration and its managing created and registered will manage the PetroCaribe program, and appointed. Once operational, the company debt. This is not expected to PetroCaribe-related inflows will become a non-governmental as the new entity is expected to fiscal and public debt sustainability, need to worsen the medium-term and social spending. Staff reiterated the continue to finance PetroCaribe -related capital the timely publication of the annual and accountability, including through enhance transparency financial statements of the new company. budgets and the audited annual external adjustment price stability and facilitating B. Maintaining Both staff and the will continue to focus on achieving price stability. 34. Monetary policy policy stance appropriately supports the postauthorities agreed that the current monetary The recent pickup in inflation recovery while keeping inflation in single digits. the of domestic foods earthquake international food prices and disruption in supply reflects mainly higher Inflation is expected to remain in the 5-6 percent range caused by recent hurricanes and floods. international food prices will recede and the coming year, assuming that the shock from the central bank to over staff reiterated the need for domestic food production will recover. However, indicated that policy inflationary pressures. The authorities remain vigilant in monitoring including the policy rate, the required reserves could be done through available tools, tightening of central bank and Treasury bills. ratio, and the issuance transmission mechanisms and Unwinding excess liquidity will enhance monetary In line 35. The banking sector remains highly liquid. facilitate the conduct of monetary policy. authorities have taken steps to deepen the of the 2008 FSAP, the the legal with the recommendations management (MEFP, 1 17). In particular, domestic financial market and improve liquidity several initial T-bill issuances were market infrastructure is in place and and operational Government Accounting and Macro- fiscal Framework, 13 These missions are done under the project "Improving Cash Management". 20 INTERNATIONAL MONETARY FUND and Unwinding excess liquidity will enhance monetary In line 35. The banking sector remains highly liquid. facilitate the conduct of monetary policy. authorities have taken steps to deepen the of the 2008 FSAP, the the legal with the recommendations management (MEFP, 1 17). In particular, domestic financial market and improve liquidity several initial T-bill issuances were market infrastructure is in place and and operational Government Accounting and Macro- fiscal Framework, 13 These missions are done under the project "Improving Cash Management". 20 INTERNATIONAL MONETARY FUND --- Page 22 --- HAITI successful. However, there have not been regular issuances, predominantly because of the lack of financing needs by the Treasury. In this context, staff was encouraged by the recent framework agreement for securitization of the large government debt toward the BRH,14 This will help further develop the T-Bill market and gradually absorb excess reserves. Haiti: Consolidated Reserves of Banking System, 2004-2012 36. The authorities are cognizant of the 70 (In billions of gourdes) Totalr reserves -Requiredi reserves need to limit dollarization to strengthen the 60 traction of monetary policy. While declining in recent months, dollarization remains high. The authorities agreed with staff that reducing 30 dollarization will require a positive and longer track record of political and economic stability, 10 u u 80 E 8 8 8 S a a 8 08 80 8 8 0 o 10 greater flexibility in the and S & 2 $ E E 8 ê 3 S S E E de 3 E S 3 exchange rate, Sources: BRH weekly ex SS reser erves table; and Fund staff estimates. deepening of domestic financial markets to provide alternative investment opportunities instead of foreign currency deposits (MEFP, 1 Haiti: Dollarization, 1996-2012 18). (In percent) 37. Staff estimates that the exchange rate remains broadly in line with its medium-term fundamentals (Annex 1). Since 35 April 2010, the gourde has depreciated Dollar deposits over total deposits gradually against the U.S. dollar by about 8 Dollar credit over total credit percent, and returned to its pre-earthquake level. 8 6 8& 0 8 0 However, relatively higher inflation has % o 0 3 3 N s o led to the gourde's appreciation in real Sources: BRH Tables 10Ra and 20R; and Fund staff estimates. effective terms by about 7 percent. The authorities shared the staff's assessment and pointed out that the small appreciation of the gourde does not pose a threat to external competitiveness. Given the high dollarization, it was agreed that gaining competitiveness will depend critically on structural reforms to reduce supply-side bottlenecks and improve the business environment. 14 In December 2012, a convention was signed that provides the framework for the securitization of debt owed to the BRH. government INTERNATIONAL MONETARY FUND 21 BRH Tables 10Ra and 20R; and Fund staff estimates. effective terms by about 7 percent. The authorities shared the staff's assessment and pointed out that the small appreciation of the gourde does not pose a threat to external competitiveness. Given the high dollarization, it was agreed that gaining competitiveness will depend critically on structural reforms to reduce supply-side bottlenecks and improve the business environment. 14 In December 2012, a convention was signed that provides the framework for the securitization of debt owed to the BRH. government INTERNATIONAL MONETARY FUND 21 --- Page 23 --- HAITI of about six months of imports provides 38. The current level of international reserves increased after the buffer in the near term. Official transfers significantly to Haiti a good million in FY2011 before declining from US$395 million in FY2009 to US$1446 remittances, have increased earthquake private transfers, mostly workers' US$988 million in FY2012. Similarly, International Reserves, 2010-12 by US$140 million during the same period. Haiti: (in months Gross of imports Liquid of goods and services) These inflows, coupled with the slow 6.0 mLiquida assets Sliquida assets net of public sector deposits in dollars reconstruction and related imports, have 5.5 led to a rapid accumulation of gross official to about US$2.2 billion at end5.0 reserves December 2012 from US$1 billion in 4.5 December 2009. Excluding government 4.0 official reserves are still at 4 deposits, gross 2012. 3.5 months of imports at end-December level of international reserves 3.0 Dec2 2010 Dec 2011 Dec 2012 The current buffer in provides Haiti a relatively good the short-term. Preserving external stability and promoting exports. In this respect, in the long term hinges on improving competitiveness industrial Park of CARACOLIS by the recent launching of the staff was encouraged rate will help protect external stability. The 39. Greater flexibility in the exchange of the current situation, adequate reserve authorities agreed that they should take advantage for flexibility in the in line with fundamentals, to allow greater coverage and a REER broadly that the country's shallow foreign exchange exchange rate. However, they were concerned transactions or very few exchange rate volatility, as lumpy market could lead to significant also expressed concern about upside could cause jumps in the exchange rate. They reaffirmed their participants rate depreciation. The authorities inflation risks associated with exchange but wished to move cautiously and gradually commitment to the floating exchange rate regime is to allow more participants and promote foreign exchange auctions. A first step BRH interventions to single-price exchange market. At the same time the development of the interbank foreign excessive fluctuations (MEFP, market will continue to aim at smoothing in the foreign exchange 1 19). the Business Environment C. Strengthening the business environment is urgent to raise 40. The authorities agreed that improving on growth (MEFP, 1 23). The and lift constraints productivity, enhance competitiveness, indicated that weak infrastructure business community in Haiti as well as international surveys to private sector-led growth. of access to finance have been two major impediments and lack The authorities expect the park to boost exports in the north of the country. 15, CARACOI is a new industrial park and generate several thousand jobs. MONETARY FUND 22 INTERNATIONAL 19). the Business Environment C. Strengthening the business environment is urgent to raise 40. The authorities agreed that improving on growth (MEFP, 1 23). The and lift constraints productivity, enhance competitiveness, indicated that weak infrastructure business community in Haiti as well as international surveys to private sector-led growth. of access to finance have been two major impediments and lack The authorities expect the park to boost exports in the north of the country. 15, CARACOI is a new industrial park and generate several thousand jobs. MONETARY FUND 22 INTERNATIONAL --- Page 24 --- HAITI Haiti: Global Competitiveness Index Indicators, Haiti: Most problematic factors for doing (Score 1-7) Institutions 7 business, 2011 Innovation, 6 Infrastructure (Percent ofr responses) Accesst ancing sophistication/ Business Macroeconomic Taxrates, 15 Corruption environment Taxregulations Policyinstability Marketsize Health andprimary education Restrictivelabor Inadequatesupplyof Technological regulations infrastructure readiness Highereducationa and training Poorv worke ethic in Government Financialr market Goods market Haiti nationallabort force instability/coups development efficiency Inefficient Labormarket efficiency Factor- driven government bureaucracy Crim and theft economies Inadequately Source: Global Competitivenes.Report 2012-2013 educatedv workforce Source: Global Competitivenessi Report 2012-2013 Upgrading the country's infrastructure 41. Addressing the infrastructure gap is critical for growth prospects. Haiti performs Selected Infrastructure Indicators (2009-10) poorly on most infrastructure indicators. Accesst to electricity(% -DominicanfRepublic ofpopulation) Haiti Ramping up domesticaly-financed investment is Jamaica crucial to build the necessary infrastructure that 120 160 Nicaragua would unlock the country's potential. To Honduras Telephonel lines(per Road density safeguard public debt sustainability, the 100people) (km of road per 100 sq. km of land area) authorities agreed with staff to seek concessional financing for infrastructure, including PetroCaribe resources and PublicMobile subscriptions (per 100 people) 2010 Private Partnerships (MEFP, T 26). They indicated Sources: Source: World Bank, World Developmentindicators that they are finalizing the legal framework for Access to electricity IS for 2009. Road density iS for 2001 for Haiti, Dominican Republic, Honduras andf for 2009 for Jamaica and Nicaragua. PPPs (MEFP, 1 23). Deepening financial intermediation while preserving stability 42. The authorities are extremely keen to further deepen financial intermediation. Commercial bank credit to the private sector has increased on average by about 28 percent a year over the last two years, reflecting predominantly the impact of the reconstruction, large current transfers, the increased liquidity in the banking system and new measures, including the creation of a Partial Guarantee Funds in the aftermath of the earthquake. However, at about 19 percent of GDP at end-September 2012, credit to the private sector stands well below the average for LICS, due to a broad range of factors, including significant weaknesses in the legal and institutional framework, the fragile security situation, and limited competition between banks's In addition, banks restrict their lending to a limited number of economic activities and 16 An overview of Haiti's financial system and challenges was produced in the context of the pilot on strengthening financial sector surveillance in LICS (Supplement 2). INTERNATIONAL MONETARY FUND 23 aftermath of the earthquake. However, at about 19 percent of GDP at end-September 2012, credit to the private sector stands well below the average for LICS, due to a broad range of factors, including significant weaknesses in the legal and institutional framework, the fragile security situation, and limited competition between banks's In addition, banks restrict their lending to a limited number of economic activities and 16 An overview of Haiti's financial system and challenges was produced in the context of the pilot on strengthening financial sector surveillance in LICS (Supplement 2). INTERNATIONAL MONETARY FUND 23 --- Page 25 --- HAITI in financial intermediation as crucial borrowers. The authorities consider further improvements include the establishment of a credit revival agenda (MEFP, T 20). Measures of for their growth adopting a legal framework for the supervision bureau, setting up a collateral registry, changes to facilitate leasing. microfinance institutions, and implementing regulatory while essential, could also pose authorities recognized that rapid credit growth, has 43. The and the economy. Recent credit growth number of challenges for the banking system the a remains relatively sound and profitable. Nevertheless, been healthy and the banking sector credit growth may require a tightening of authorities and staff concurred that the rapid financial sector soundness. (MEFP, 1 regulations and closer supervision to preserve prudential assistance from the IMF to develop macroprudential 20). 17 The BRH has requested technical will focus on a set of prudential, regulatory, rules. In particular, an upcoming 3 day-workshop and limit macroprudential risks. Staff measures to maintain credit quality the 2008 legal, and structural of the recommendations of emphasized the need to accelerate the implementation framework. further improve the financial regulatory and supervisory FSAP to IMPLEMENTÂTION PROGRAM satisfactory. All end-June 2012 indicative targets 44. Program performance is broadly criteria were met. Full data are not yet 2012 performance were observed and all end-September indicative targets. In the structural area, the available to assess observation of end-December benchmark related to the closing of all the end-June 2012 authorities have implemented central bank and commercial banks as well dormant accounts of the central government at the creation of the fiscal policy unit with the 2012 benchmarks on the as the two end-September medium and large enterprises. The third end-September MEF and of the unit in charge of the exchange auctions has not been benchmark related to the move to single- price foreign in the FX market, which is dominated by implemented yet, mostly because of lack of competition the number of participants The authorities' objective is to start by expanding observed. The a few major players. 2012 structural benchmarks are not yet in the FX markets. Also, two end-March middle and back offices is the debt unit with fully operational of benchmark on strengthening law on the reorganization of the Ministry underway as it is linked to the passage of the organic submit to Parliament early 2013. The Economy and Finance which the government intends to to be submitted to parliament benchmark related to the public debt law is also expected laws 2013 to the second Finance has submitted the two draft in January at the same time. The Minister of Parliament by end-March 2013. Thus, the two Minister's office before submission to the Prime from end-March 2012 to end-March 2013. benchmarks would be rescheduled paper addressing this issue. The paper authorities the preliminary results of an analytical 17 Staff presented to the was well received. 24 INTERNATIONAL MONETARY FUND intends to to be submitted to parliament benchmark related to the public debt law is also expected laws 2013 to the second Finance has submitted the two draft in January at the same time. The Minister of Parliament by end-March 2013. Thus, the two Minister's office before submission to the Prime from end-March 2012 to end-March 2013. benchmarks would be rescheduled paper addressing this issue. The paper authorities the preliminary results of an analytical 17 Staff presented to the was well received. 24 INTERNATIONAL MONETARY FUND --- Page 26 --- HAITI Haiti: Remaining Benchmarks Through End- March 2013 Macrocriticality Objective Structural Benchmarks Timing Status Complete the setting- up of the debt unita at the MEF and build capacity to Strengthen the debt unit Debt prepare a medium- term debt functions; Preparation of with annual fully debt operational middle and back office Reprogrammedt to End management strategy. sustainability analyses. March 2013 from EndMarch 2012 Strengthen debt the management legalf framework for Submit to Parliament a public debt law that would establish In progress legal and institutional framework for public debt management a sound Reprogrammed March 2013 from to End- End Reduce the number of domestically -funded imprest March 2012 Inprogress Improve accounting procedures and byr ministry or institutions (for revenue collection, accounts to three enhance transparency and other transactions) and deploy the network of capital public spending, Accounting offces at the line ministries level and gradually grant accounting authority on these accounts to public accountants signature by Ministry of Economy and Finance appointed the Enhance accounting for expenditure Rollo out in all ministries the GL- software and start to record End-N -March 2013 management and imprest accounts expenditure when they are projects Ihprogress Exchange rate Improve the nol longer when the replenishment of the account effectively is made paid, and management functioning of foreign Establish End- -March 2013 Inp exchanger market unconstrained single price foreign exchange auctions progress End- -September 2012 Notr met OTHER ISSUES 45. Safeguards assessment. The authorities the 2010 follow-up review of the continue to implement the recommendations of Progress is underway to safeguards assessment (MEFP, 1 28), albeit with migrate to IFRS, including the some delays. monitor its creation of a implementation. The recent adoption of the special committee to and the MEF paves the way for the securitization framework agreement between the BRH staff urged the authorities to of central bank credit to activate the Investment government. Lastly, body and appoint a compliance officer to Committee as an independent oversight investment guidelines. monitor observation of foreign reserves policy and 46. Anti-money draft AML/CFT law laundering and combating the financing of is being finalized and should be terrorism (AML/CFT). The session (MEFP, 1 29). Staff enacted by Parliament during its encourages the spring 2013 the Financial Action Task Force authorities to ensure the new law's with (FATF) standards and to compliance as this will support efforts to combat proceed with its effective implementation corruption. 47. Data provision. Data are broadly linked to capacity constraints, still adequate for surveillance purposes, but data occur in many areas, gaps, payments and social and labor market indicators. including national accounts, balance of STAFF APPRAISAL 48. The economy is gradually macroeconomic recovering from the January 2010 policies have helped keep inflation in the earthquake. Prudent position. However, under-execution of single digits and improve the external capital spending, due predominantly to limited INTERNATIONAL MONETARY FUND 25 ruption. 47. Data provision. Data are broadly linked to capacity constraints, still adequate for surveillance purposes, but data occur in many areas, gaps, payments and social and labor market indicators. including national accounts, balance of STAFF APPRAISAL 48. The economy is gradually macroeconomic recovering from the January 2010 policies have helped keep inflation in the earthquake. Prudent position. However, under-execution of single digits and improve the external capital spending, due predominantly to limited INTERNATIONAL MONETARY FUND 25 --- Page 27 --- HAITI with persistent political tensions and instability, administrative and absorptive capacity, coupled have considerably slowed down the and a series of shocks, including cholera and tropical storms, to be firmer in 2013, led by a reconstruction and economic activity. The recovery is expected The risks to the outlook are on output and a pickup in public investment. and rebound in agricultural environment, fragile social context, downside, stemming mainly from a volatile political the weak capacity. continue. Fiscal space for poverty-related and growth-enhancing 49. Fiscal reforms should revenue and containing current spending. The spending should be secured through increasing provided there is strong resolve to is ambitious but could be achieved staff 2013 revenue target revenue collection. In this context, at customs, and strengthen to combat fraud, particularly in January 2013 and urges the authorities welcomes the launch of the e-declaration in the 2013 budget law. Looking ahead, implement rapidly the remaining measures specified administration, reduce tax efforts will need to be stepped up to further strengthen revenue the composition and the tax base. There is ample room to improve expenditure, and expand the authorities to adopt a comprehensive energy quality of spending. In particular, staff urges EDH. Recent efforts are welcome to improve sector reform to gradually reduce subsidies to account. Continued and in particular to establish a treasury single and public financial management budget formulation, execution, transparency progress needs to be made to strengthen and improve internal and external controls. reporting, investment should be a key priority. Improving the execution rate of public infrastructure that 50. investment is crucial to build the necessary Ramping up domestcaly-financed the authorities to work closely with donors to would unlock the country's potential. Staff urges and control while ensuring the strengthen project design and preparation, execution, reporting it is urgent to strengthen the of public investment. In particular, overall quality and consistency in of project assessment and of and the units charge agency in charge procurement execution (UTE) in line ministries, including by hiring programming (UEP) and of technical international experts in key spending ministries. social safety nets are essential. Recent 51. Efforts to further develop and strengthen However, targeting the through direct transfers are welcome. initiatives to alleviate poverty of the population is beneficiaries of these policies is a daunting task as a very large segment will have to be frequently vulnerable, and government resources are limited. Spending to ensure that the money highly the misuse of funds, and impact analysis conducted audited to prevent The government will have to strike a balance spent helps meet the authorities' social goals. expectations about how much between helping the poor and not creating unrealistic be waged through high and do. A sustainable fight against poverty can only government can inclusive growth. The authorities will need to remain vigilant 52. The monetary policy stance is appropriate. liquidity management, deepen inflation under check. Further progress to improve dollarization will to keep price market-based operations, and reduce the domestic financial market, strengthen monetary transmission mechanisms. help strengthen 26 INTERNATIONAL MONETARY FUND prevent The government will have to strike a balance spent helps meet the authorities' social goals. expectations about how much between helping the poor and not creating unrealistic be waged through high and do. A sustainable fight against poverty can only government can inclusive growth. The authorities will need to remain vigilant 52. The monetary policy stance is appropriate. liquidity management, deepen inflation under check. Further progress to improve dollarization will to keep price market-based operations, and reduce the domestic financial market, strengthen monetary transmission mechanisms. help strengthen 26 INTERNATIONAL MONETARY FUND --- Page 28 --- HAITI 53. The authorities' continuing commitment to exchange rate flexibility is welcome. Greater exchange rate flexibility would help absorb external shocks and increase monetary policy effectiveness. Consideration should be given to the gradual introduction of single-price foreign exchange auctions and BRH's interventions should be limited to smoothing excessive exchange rate volatility. 54. Improving the business environment is urgent to raise productivity, enhance competitiveness, and achieve higher and more inclusive growth. Measures are under way to streamline the country's numerous, complex, and cumbersome regulations, reduce the cost and alleviate the burden of doing business, and promote private sector development. However, a strong political consensus and commitment are needed to move ahead with long-awaited structural reforms to make Haiti a country open for business and attractive for investors. It will be particularly important to address the country's infrastructure gap, deepen financial intermediation while safeguarding stability, and strengthen human capital. The authorities also need to vigorously pursue reform of the energy sector to reduce the high cost of electricity and improve the reliability and efficiency of energy supply. Clarifying the property rights will also help. 55. Staff supports the completion of the fifth review of the ECF arrangement in view of Haiti's good performance SO far and the authorities' commitment to the program. 56. It is proposed that the next Article IV consultation with Haiti be held in accordance with the decision on Article IV Consultation Cycles adopted on September 28, 2010, as amended. INTERNATIONAL MONETARY FUND 27 The authorities also need to vigorously pursue reform of the energy sector to reduce the high cost of electricity and improve the reliability and efficiency of energy supply. Clarifying the property rights will also help. 55. Staff supports the completion of the fifth review of the ECF arrangement in view of Haiti's good performance SO far and the authorities' commitment to the program. 56. It is proposed that the next Article IV consultation with Haiti be held in accordance with the decision on Article IV Consultation Cycles adopted on September 28, 2010, as amended. INTERNATIONAL MONETARY FUND 27 --- Page 29 --- HAITI Table 1. Haiti: Selected Economic and Financial Indicators, 2009/10 2016/17 (Fiscal year ending September 30) Nominal GDP (2011): US$7.4 billion Population (2009): 9.9 million 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 Act. Prog. Est Prog. Prov. Prog. Proj Proj (Change over previous year; unless otherwise indicated) National income and prices GDP atconstant prices -5.4 8.6 5.6 4.5 GDP deflator 4.7 28 6.5 6.5 6.3 6.1 5.8 5.6 Consumer 6.2 6.8 5.7 7.5 53 5.3 3.8 3.6 prices (period average) 4.1 7.0 7.4 6.8 6.8 5.9 6.7 3.2 2.8 Consumer prices (end- -of- -period) 4.7 9.1 10.4 6.0 6.5 5.0 4.0 4.0 3.7 3.4 5.0 4.5 4.0 3.5 3.0 External sector Exports (fo.b.) 22 107 36.3 0.0 2.2 22.8 20.1 12.0 Imports (fo.b.) 38.3 7.2 7.3 0.0 12.4 12.0 14.5 9.0 11.5 11.0 10.0 Reale effective exchange rate (end of period; appreciation) 0.8 1.6 4.9 4.8 4.5 Money and credit Credit to the nonfinancial public sector (net) -122.7 -91.7 229.4 -0.2 41.6 -6.3 Of which: Net credit to the central government -104.3 930.9 8.0 44.7 13.2 -40.3 -32.0 3.8 2.9 Creditt to private sector -5.6 21.6 24.5 -5.2 0.5 -49.7 -43.4 16.1 4.8 Base money 18.6 29.8 18.0 21.6 18.0 17.5 17.0 Broad 31.2 15.2 6.0 9.0 -3.7 10.9 10.9 8.7 money (incl. 3 -32.0 3.8 2.9 Creditt to private sector -5.6 21.6 24.5 -5.2 0.5 -49.7 -43.4 16.1 4.8 Base money 18.6 29.8 18.0 21.6 18.0 17.5 17.0 Broad 31.2 15.2 6.0 9.0 -3.7 10.9 10.9 8.7 money (incl. foreign currency deposits) 22.7 20.3 10.4 11.2 6.9 13.0 11.8 7.4 6.7 6.4 11.0 10.0 9.5 9.0 (In percent of GDP, unless otherwise indicated) Central government Overallt balance 2.4 -6.2 -3.7 -3.6 -5.9 4.7 -5.3 -5.5 Overall balance (excluding grants and externally. financed projects) -5.0 -7.4 -4.7 -4.1 -5.9 -5.4 -6.1 -5.1 -4.6 -3.4 -3.1 Domestic revenue 11.9 11.8 13.1 13.5 12.8 14.1 -4.3 -3.2 -2.9 Grants 16.5 13.9 14.5 14.6 14.9 15.0 Expenditures 16.3 16.8 14.4 10.6 13.0 10.4 8.7 7.6 6.7 5.9 26.0 33.8 33.5 31.5 29.3 29.8 Current expenditures 11.3 11.0 31.7 28.6 26.7 25.0 24.0 Capital expenditures 11.8 11.3 11.9 10.5 11.3 10.7 10.5 10.2 14.7 22.7 21.7 20.3 17.4 21.2 18.5 18.0 16.3 14.8 102 13.8 Savings andi investment Gross investment 25.4 38.9 28.0 27.0 29.1 29.0 Ofwhich public investment 14.7 29.5 31.0 30.1 29.4 29.3 Gross national savings 21.7 20.3 17.4 21.2 18.5 18.0 16.3 14.8 13.8 12.9 34.6 23.8 22.7 25.1 23.7 25.7 Ofwhich central government savings 4.0 3.0 2.4 3.0 1.2 4.4 23.9 24.9 24.4 24.5 External current account balance (including official grants) -12.5 -4.2 -4.6 -4.3 -4.0 -5.3 3.8 3.8 4.1 4.7 4.8 External current account balance (excluding official grants) -29.8 -23.3 -24.2 -21.2 -5.6 -5.3 -5.2 -5.0 4.8 -16.5 -21.0 -17.7 -16.1 -14.7 -13.5 -12.4 Public Debt Externalp public debt (end- -of- -period) 13.2 8.8 8.9 13.1 13.0 16.4 Total government debt (end- -of- -period) 17.7 14.9 12.2 16.6 15.4 16.8 19.8 21.6 22.9 23.8 External public debt service 1.6 0.9 0.6 20.1 20.4 24.2 26.7 28.6 29.7 0.8 0.8 1.4 1.5 2.5 4.1 5.1 5.9 (nmilions of U.S. end- -of- -period) 17.7 14.9 12.2 16.6 15.4 16.8 19.8 21.6 22.9 23.8 External public debt service 1.6 0.9 0.6 20.1 20.4 24.2 26.7 28.6 29.7 0.8 0.8 1.4 1.5 2.5 4.1 5.1 5.9 (nmilions of U.S. dollars; unless otherwise indicated) Overallt balance of payments 1,028 -273 167 38 177 Netir international reserves (program definition) 2/ 1,098 772 1,178 -105 -290 -30.0 -70.0 -67.5 -63.6 Liquid gross reserves 1,221 1,302 1,057 998 968 898 831 767 1,792 1,539 2,000 2,060 2,284 1,970 2,019 Inmonths ofi imports oft the following year 5.2 4.1 6.3 5.5 6.5 1.989 1,919 1,849 1,779 Nominal GDP (millions of Gourdes) 264,039 308,335 297,687 5.0 5.5 5.2 4.8 4.4 4.1 Nominal GDP (milions ofUS dollars) 6,551 328,807 329,032 368,630 368,991 407,143 447,490 488,662 530,351 7,620 7,388 7,895 7,902 8,529 8,535 9,253 10,170 11,106 12,053 Sources: Ministry of Economy and Finance; Bank oft the Republic ofHaiti; Fund staff estimates andp projections; and World Bank es stimates. .8 4.4 4.1 Nominal GDP (milions ofUS dollars) 6,551 328,807 329,032 368,630 368,991 407,143 447,490 488,662 530,351 7,620 7,388 7,895 7,902 8,529 8,535 9,253 10,170 11,106 12,053 Sources: Ministry of Economy and Finance; Bank oft the Republic ofHaiti; Fund staff estimates andp projections; and World Bank es stimates. 1 Inpercent of exports of goods and nonfactor service es. Includes HIPC, MDRI, and PCDR debtr relief. 21 SDRa allocation (liability)is not netted out tofNIR, 28 INTERNATIONAL MONETARY FUND --- Page 30 --- HAITI Table 2a. Haiti: Central Government Operations, 2009/10 2016/17 (Fiscal year ending September 30; in millions ofg fgourdes) 2009/10 2010/11 2011/12 2012/13 2013/2014 2014/15 2015/16 2016/17 Act Prog Est Prog. PrOV Prog Proj Proj Total revenue and grants 75,004 86,794 88,801 91,786 76,802 Domestic revenue 31,425 36,459 38,893 44,516 99,386 90,197 94,115 99,146 105,326 110,980 Domestic taxes 19,393 22,133 41,970 51,411 52,002 58,848 65,200 72,663 79,560 Customs duties 24, ,460 29,387 28,076 33,861 34,032 38,743 43,644 49,941 11,394 13,512 13,672 15,000 13,721 16,908 55,422 Other current revenue 814 761 17,337 19,407 20,789 21,884 23,229 Grants 43,579 50,335 642 633 698 768 838 910 Budget support 8,966 49,907 47,270 34,831 47,975 38,195 35,268 33,946 32,663 31,419 Project grants 23,924 6,875 3,492 2,291 1,124 3,458 3,458 0 0 0 43,460 46,416 44,979 33,707 44,517 34,737 35,268 33,946 32,663 31,419 Totale expenditure 1 68,704 104,100 99,811 103,677 96,292 Current expenditure 29,849 33,997 35,231 116,861 109,838 116,488 119,650 121,987 127,386 Wages and salaries 14,563 16,590 37,089 39,008 38,537 41,538 43,386 46,852 49,850 54,171 Net Operations 21 14,809 17,066 16,706 18,671 21,139 22,800 24,388 25,410 26,518 Other current expenditures 7,040 10,237 7,525 9,822 11,406 11,401 11,235 13,029 14,320 15,637 18,244 Interest payments 1.023 8,559 39,008 38,537 41,538 43,386 46,852 49,850 54,171 Net Operations 21 14,809 17,066 16,706 18,671 21,139 22,800 24,388 25,410 26,518 Other current expenditures 7,040 10,237 7,525 9,822 11,406 11,401 11,235 13,029 14,320 15,637 18,244 Interest payments 1.023 8,559 0 0 0 1,569 1,394 1,272 1.335 1,360 External 1,625 1,625 1,450 1,879 2,205 2,515 Domestic 1,118 230 230 397 397 581 884 1,037 1,181 1,241 1,119 1,105 1,130 Transfers and subsidies 6,677 1,223 1,228 869 995 1,168 1,334 Ofw which: energy sector 4/ 3.793 7,454 11,626 8,866 9,534 6,840 7,539 6,107 6,265 6,597 6,895 Capital expenditure 3,945 8,232 4,492 4,844 1,843 2,600 2,036 1.790 1,710 2,600 Domestically financed 38,855 70,103 64,579 66,588 57,285 78,324 68,300 73,102 72,137 14,689 25,335 17,621 21,025 22,264 32,942 33,067 36,360 72,798 37,753 38,374 73,214 40,695 Ofw which: Treasury 13,475 24,102 16,431 21,025 22,264 32,942 32,705 Ofwhich: related to PetroCaribes spending 2,991 9,874 7,479 9,500 34,731 35,963 36,419 38,574 Ofv which Counterpart funds 3/ 1,214 1,233 9,276 14,442 14,442 14,817 14,808 15,407 15,981 Foreign-f financed 24,166 1,190 0 362 1.629 1,790 1,955 2,121 44,767 46,958 45,563 35,020 45,382 35,233 36,743 35,046 33,763 32,519 Overall balance 6,299 18,984 -11,010 11,891 19,491 -17,475 19,641 Excluding grants -37,279 -67,641 -60,918 -59,161 -54,322 -22,373 -20,504 16,660 -16,406 Excluding grants and externally fina anced projects -13,113 -22,873 3,959 599 -19,302 -65,450 57,836 -57,640 -54,449 49,323 47,825 -20,068 -22,603 -20,898 -19,404 15 5,560 -15,306 Adjustment (unidentified spending) 1,260 1,174 Financing -5,546 18,984 12,187 11,891 19,491 Externaln net financing 9,050 13,867 13,643 17,475 19,641 22,373 20,504 16,660 16,406 Loans (net) 9,050 13,867 14,719 15,343 15,052 16,420 17,304 15,923 15,130 14,387 Disbursements 13,644 14,719 15,343 15,052 16,420 17,304 15,923 15,130 14,387 Of which: Petrocaribe 9,356 14,079 13,721 14,743 15,470 15,560 17,110 18,384 18,009 18,009 18,009 Project loans 9,114 12,747 13,214 14,160 14,157 14,695 16,613 16,909 16,909 16,909 16,909 Amortization 3.631 1,307 543 583 1,313 864 497 1,475 1,100 1,100 1,100 Arrears (net) -306 -212 -24 -127 -508 -690 -1,080 2,085 18,009 18,009 18,009 Project loans 9,114 12,747 13,214 14,160 14,157 14,695 16,613 16,909 16,909 16,909 16,909 Amortization 3.631 1,307 543 583 1,313 864 497 1,475 1,100 1,100 1,100 Arrears (net) -306 -212 -24 -127 -508 -690 -1,080 2,085 0 0 -2,878 0 -3,621 Internal net tfinancing -14,596 5,117 -1,456 2,882 4,148 Banking system 16,904 3,884 -5,383 2,423 3,221 5,069 4,580 1,530 2,019 BRH -11,248 2,782 -2,734 55 5,780 2,537 -532 -185 2,926 1,300 -224 Excluding Petrocaribe 11,344 0 -2,926 1,300 2,116 2,116 2,704 2,360 0 Net T-bills for recapitalization -224 2,116 2,116 2,704 2.360 From PCDR account 4,000 0 2.782 1,025 1,130 1,500 Commercial banks 5,656 1,102 -2,457 1,940 1,500 2,000 2,360 0 excl. Petrocaribe 300 4,000 -2,510 -1,669 2,171 3,076 177 -532 -185 Net purchase of T-bills 300 4,000 300 300 1,416 -1,416 5.168 2,278 970 743 Nonbank financing 2,308 1,416 0 -1,416 0 5,168 2,278 970 743 Amortization 1,233 3,927 2,243 6,882 1,976 3.277 -712 2,043 2,062 2.204 Cou unterpart funds -300 -300 2,400 -157 0 -2,915 -574 -827 -935 1,214 1,233 1,190 Net purchase of T-bills 1,106 362 1,629 1,790 1.955 2.121 Arrears (net) 870 2,915 -2,340 253 108 83 0 0 HIPCI inte terim relief Unidentified financing -506 Financing gap (in U.S. dollars) 5/ Memorandum items Financing from Petrocaribe 9,113.9 13,214.3 14,160.2 14,157.2 Balance of PCDR account (in millions ofl U.S. dollars) 199 268 16,613.2 16,613.2 16,908.7 16,908.7 16,908.7 16,908. Stock ofT-t bills at end ofy year (in millions of Gourdes) 300 8,300 225 222 168 165 101 47 47 1,573 1,027 2,915 5,743 8,273 9,351 10,176 Transfers to EDHI ifom Petrocanbe resources (million ofGour na 3.538 2.499 2,243 Sources: Ministry of Finance and Economy. and Fund staff estimates and projections. 16,908.7 16,908.7 16,908. Stock ofT-t bills at end ofy year (in millions of Gourdes) 300 8,300 225 222 168 165 101 47 47 1,573 1,027 2,915 5,743 8,273 9,351 10,176 Transfers to EDHI ifom Petrocanbe resources (million ofGour na 3.538 2.499 2,243 Sources: Ministry of Finance and Economy. and Fund staff estimates and projections. V.Commitment basis except for domestically financed capital expenditure, which is reported on cash basis from 2007 onwards. Includes statistical discrepancy. Proceeds from sales ofg grants received in kind. Includes transfers from Petrocaribe resources in FY2011. "Thef financing gapi iS expected to be covered by.donori inflows. butnoformalg pledges have beenr made. INTERNATIONAL MONETARY FUND 29 --- Page 31 --- HAITI Table 2b. Haiti: Central Government Operations, 2009/10 2016/17 (Fiscal year ending September 30; in percento of GDP) 2009/10 2010/11 2011/12 2012/13 2013/2014 2014/15 2015/16 2016/17 Actual Prog. . "Thef financing gapi iS expected to be covered by.donori inflows. butnoformalg pledges have beenr made. INTERNATIONAL MONETARY FUND 29 --- Page 31 --- HAITI Table 2b. Haiti: Central Government Operations, 2009/10 2016/17 (Fiscal year ending September 30; in percento of GDP) 2009/10 2010/11 2011/12 2012/13 2013/2014 2014/15 2015/16 2016/17 Actual Prog. Est Prog Prov. Prog Proj Proj Total revenue and grants 28.4 28.1 29.8 27.9 23.3 Domestic revenue 11.9 11.8 13.1 13.5 12.8 27.0 24.4 23.1 22.2 21.6 20.9 Domestic taxes 7.3 7.2 8.2 8.9 13.9 14.1 14.5 14.6 14.9 15.0 Customs duties 4.3 4.4 4.6 8.5 9.2 9.2 9.5 9.8 10.2 10.5 Other current revenue 0.2 0.3 4.6 4.2 4.6 4.7 4.8 4.6 4.5 4.4 Grants 16.5 0.3 0.1 0.2 0.2 0.2 0.2 0.2 0.2 Budget support 3.4 16.3 16.8 14.4 10.6 13.0 10.4 8.7 7.6 6.7 5.9 Project grants 2.2 1.2 0.7 0.3 0.9 0.9 0.0 0.0 00 9.1 14.1 15.6 13.7 10.2 12.1 9.4 8.7 7.6 6.7 0.0 5.9 Total expenditure 1/ 26.0 33.8 33.5 31.5 29.3 Current expenditure 11.3 11.0 11.8 31.7 29.8 28.6 26.7 25.0 Wages and salaries 5.5 5.4 11.3 11.9 10.5 11.3 10.7 10.5 10.2 10.2 Net Operations 21 5.0 5.2 5.1 5.1 5.7 5.6 5.5 5.2 2.7 3.3 2.5 3.0 3.5 Other current expenditures 0.4 2.7 0.0 0.0 3.1 3.0 3.2 3.2 3.2 3.4 Interest payments 0.6 0.5 0.4 0.4 0.0 0.0 0.0 0.0 0.0 0.0 External 0.2 0.0 0.1 0.4 0.4 0.4 0.4 0.4 0.5 0.5 Domestic 0.4 0.4 0.4 0.1 0.1 0.1 0.1 0.1 02 0.2 0.2 Transfers ands subsidies 2.5 2.4 3.9 0.3 0.3 0.3 0.3 0.2 0.2 0.2 0.3 Ofv which: energy sector 4/ 1.4 1.3 2.8 2.7 2.9 1.9 2.0 1.5 1.4 1.4 Capital expenditure 14.7 22.7 1.4 1.5 0.5 0.7 0.5 0.4 0.3 : Domestically financed 5.6 8.2 21.7 20.3 17.4 21.2 18.5 18.0 16.3 14.8 13.8 Of which: Treasury 5.9 6.4 6.8 8.9 9.0 8.9 8.4 7.9 7.7 Ofwhich: related to PetroCa aribe spending 5.1 7.8 5.5 6.4 6.8 8.9 8.9 8.5 8.0 1.1 3.2 2.5 2.9 2.8 4.6 Ofv which: Counterpart funds 14.8 13.8 Of which: Treasury 5.9 6.4 6.8 8.9 9.0 8.9 8.4 7.9 7.7 Ofwhich: related to PetroCa aribe spending 5.1 7.8 5.5 6.4 6.8 8.9 8.9 8.5 8.0 1.1 3.2 2.5 2.9 2.8 4.6 Ofv which: Counterpart funds 3 0.5 0.4 0.4 0.0 3.9 3.6 3.3 Foreign- financed 9.2 14.5 15.8 0.0 0.0 0.1 0.4 0.4 0.4 13.9 10.6 : 12.3 9.5 9.0 7.8 Overall balance 2.4 -6.2 -3.7 3.6 5.9 4.7 Excluding grants -14.1 -21.9 -205 -18.0 -16.5 -17.8 -5.3 -5.5 -4.6 . 15.8 0.0 0.0 0.1 0.4 0.4 0.4 13.9 10.6 : 12.3 9.5 9.0 7.8 Overall balance 2.4 -6.2 -3.7 3.6 5.9 4.7 Excluding grants -14.1 -21.9 -205 -18.0 -16.5 -17.8 -5.3 -5.5 -4.6 . Excluding grants and externally financed projects -5.0 7.4 -4.7 -4.1 -5.9 15.7 -142 122 -10.1 9.0 5.4 6.1 -5.1 4.3 3.2 2. Adjustment (unidentified spending) 0.4 0.0 0.4 0.0 0.0 0.0 0.0 0.0 0.0 Financing 2.1 6.2 3.6 5.9 Externaln net financing 3.4 4.5 4.6 4.5 4.7 4.1 Loans (net) 4.5 4.6 3.6 .1 2.7 Disbursements 3.5 4.6 4.5 4.7 4.1 3.6 3.1 2.7 Of which: Petrocaribe 3.5 4.1 4.6 4.4 4.5 4.2 4.6 4.5 4.0 3.7 3.4 Project loans 1.4 0.4 4.3 4.3 4.0 4.5 4.2 3.8 3.5 3.2 Amortization -0.1 0.2 0.2 0.4 0.2 0.1 0.4 0.2 0.2 0.2 Arrears (net) 0.0 -0.1 0.0 0.0 0.0 -0.1 -0.2 -0.3 -0.5 0.6 -0.7 0.0 0.0 0.0 0.0 0.0 0.0 0.0 00 .0 Internal net financing 1.7 -0.5 0.9 1.3 0.7 Banking system 1.3 -1.8 0.2 -0.8 0.9 12 1.0 0.3 0.4 BRH 0.1 0.0 1.4 0.6 0.1 0.0 Excluding Petrocaribe 0.9 -1.0 0.4 -0.1 0.6 0.6 0.7 0.5 0.0 0.0 0.0 -1.0 0.4 -0.1 NetT T-bills for recapitalization 0.0 1.3 0.0 0.4 0.6 0.6 0.7 0.5 0.0 0.0 From PCDR account 0.9 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Commercial banks 0.0 -0.7 0.3 Excluding Petrocaribe 2.1 0.4 -0.8 -0.7 -0.8 0.5 -0.6 0.8 0.0 -0.1 0.1 -0.1 0.0 0.0 Net purchase ofT T-bills 0.1 1.3 -0.1 0.0 0.4 0.0 1.3 0.5 0.2 0.1 Nonbank financing 0.9 0.4 1.3 -0.7 0.0 -0.4 0.0 1.3 0.5 02 Amortization 0.0 -0.1 -0.1 2.1 0.5 0.9 -0.2 0.5 0.4 Counterpart funds 0.5 -0.7 0.0 0.0 0.0 -0.7 -0.1 -0.2 Net purchase of T-bills 0.4 0.4 0.0 0.0 0.3 0.1 0.4 0.4 0.4 0.0 0.0 0.0 0.0 0.0 Arrears (net) 0.0 0.0 0.0 0.2 0.8 -0.6 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 I HIPCI interimrelief 0.0 0.0 0.0 0.0 0 0.3 0.1 0.4 0.4 0.4 0.0 0.0 0.0 0.0 0.0 Arrears (net) 0.0 0.0 0.0 0.2 0.8 -0.6 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 I HIPCI interimrelief 0.0 0.0 0.0 0.0 0.0 00 0.0 0.0 0.0 0.0 0.0 Unidentified financing -0.2 0.0 0.0 0.0 0.0 Financing gap 5/ 0.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 9 Memorandumi item: Balance of PCDR account 2.6 3.6 2.8 2.8 Stock of1 bills ate end of period 0.1 2.7 0.0 0.5 2.0 1.9 11 0.5 0.4 0.4 Transfers to EDH from Petrocanben resources (million of 0.0 0.3 0.8 1.4 1.8 1.9 1.9 Gourdes) 0.8 0.7 0.0 00 0.0 0.0 0.0 Sources: Ministry of Finance and Economy, and Fund staffe estimates and projections. 0.0 Comm itment basis except for domestically financed capital expenditure, which is reported on cash basis from 2007 onwards. Includes statistic ical discrepancy. / Proceeds from sales of grants received inkind. "Includes transfers from Petrocariber resourcesi inFY2011. "Thef financing gapisexpectedt to be covere red by donor inflows, but no formal pledges have beenn made. 30 INTERNATIONAL MONETARY FUND --- Page 32 --- HAITI Table 3. Haiti: Summary Accounts of the Banking System, 2009/10- 2016/17 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 Act Prog Est Prog Prog Prov. Prog Proj Proj LCentral Bank Netf foreign assets 64,127 55,236 72,469 66,877 76,597 87,436 (nr millions ofU.S. dollars) 1,606 1,347 1,773 75,057 78,580 77,260 74,180 71,209 68,411 Net international reserves (program) 1,098 1,592 1.811 2,066 1,706 1,786 1,756 1,686 1,618 1,555 772 1,178 979 1,221 1,302 1,057 Commercial bankf forex deposits 618 689 706 725 998 968 898 831 767 702 874 761 897 897 897 897 897 Net domestica assets 23,344 -8,254 29,234 -18,669 29,471 -45,795 Netcreditto to the nonfinancialp public sector 9,520 11,811 5,276 22,806 32,400 -27,062 -20,252 -13,673 7,193 Ofwhich: Net creditt to the centralgovernment 12,376 14,652 9,049 7,244 3,685 9,693 8,161 11,199 13,915 14,215 14,215 Of which: T-bills 9,466 12,572 10,767 9,235 12,883 11,351 14,055 16,415 16,415 16,415 Ofwhich: IMF PCDR Debt Relief -10,704 4,000 0 0 7,193 Ofwhich: Net creditt to the centralgovernment 12,376 14,652 9,049 7,244 3,685 9,693 8,161 11,199 13,915 14,215 14,215 Of which: T-bills 9,466 12,572 10,767 9,235 12,883 11,351 14,055 16,415 16,415 16,415 Ofwhich: IMF PCDR Debt Relief -10,704 4,000 0 0 0 0 0 8,200 10,954 -7,572 9,510 -9,410 -7,378 Liabilities to commercial banks (excl gourde deposits) 33,907 36,756 35,191 -37,677 -36,938 -7,270 4,438 -2,079 -2,079 -2,079 BRH bonds/Open market operations -9,210 -8,500 6,328 42,736 38,693 -44,668 43,868 -42,968 -41,968 41,968 Counterpart of commercial bank forex deposits 24,697 -7,241 7,241 -5,742 -5,200 -5,200 -4,400 -3,500 -2,500 -2,500 Other 28,256 28,863 -30,437 -29,697 36,994 -33,493 39,468 39,468 -39,468 39,468 1,043 16,691 680 9,959 223 -6,745 6,194 4,106 5,607 8,801 14,080 -39,468 20,560 Base Currencyincreulation Money 40,783 46,982 43,235 48,207 47,126 41,641 52,250 46,180 50,198 53,928 57,535 61,218 17,282 19,671 18,401 20,608 20,796 20,232 Commercial bank gourde deposits 23,501 27,311 24,834 27,599 26,330 23,088 22,457 24,581 26,798 29,042 31,296 21,410 29,163 23,723 25,616 27,130 28,494 29,921 I Consolidated Banking System Net foreign assets 92,209 86,810 104,581 101,132 111,097 115,977 112,264 UOnmilionso ofUs. dollars) 2,309 2,117 2,559 109,572 109,132 106,932 104,401 102,043 Ofwhich Commercalbank:NFA 2,408 2,626 2,740 2.551 2,490 2,480 2,430 2.373 2,319 770 786 816 816 674 846 704 724 744 754 764 Net domestic assets 33,942 64,954 34,744 60,615 43,862 32,961 Credit to ther nonfinancialp public sector 3,745 352 12,336 62,780 56,945 75,701 96,385 118,231 140,626 Ofwhich: Net credit to the central government -776 912 12,308 17,466 -11,528 -15,161 -9,047 6,154 6,386 -6,571 Creditt to the private sector 40,585 na. -7,996 na. -8,636 -11,571 8,189 11,626 -5,846 3,308 3,841 -4,026 Ingourdes 49,370 50,526 59,028 59,929 65,573 70,705 79,736 94,089 110,555 129,349 150,691 Inf foreign.currency 21,708 25,472 28,086 32,196 35,358 38,048 40,541 47,191 56,799 68,074 81,240 96,537 Inr millions ofl US. 11,626 -5,846 3,308 3,841 -4,026 Ingourdes 49,370 50,526 59,028 59,929 65,573 70,705 79,736 94,089 110,555 129,349 150,691 Inf foreign.currency 21,708 25,472 28,086 32,196 35,358 38,048 40,541 47,191 56,799 68,074 81,240 96,537 Inr millions ofl US. dollars 18,877 23,898 22,440 26,832 24,571 27,525 30,164 32,545 37,290 42,481 48,109 Other 473 583 549 639 581 650 686 740 847 965 1,093 54,154 1,231 2,898 15,935 -3,446 675 -3,759 -15,145 3,602 7,631 9,340 -8,016 4,732 -3,494 Broad money 126,151 151,763 139,324 161,747 154,960 148,938 Currencyi incirculation 17,282 19,671 18,401 20,608 175,043 166,517 184,834 203,317 222,632 242,669 Gourde deposits 48,513 20,796 20,232 23,088 22,457 24,581 26,798 29,042 31,296 Foreign currency deposits 57,221 52,164 60,405 55,392 54,933 64,124 61,250 67,731 74,323 80,979 87,650 60,355 74,871 68,760 80,733 78,772 73,774 In millions ofU.S. dollars 1,511 1,826 92,058 82,809 92,522 102,196 112,612 123,722 1,682 1,922 1,862 1,743 2,092 1,882 2,103 2,323 2,559 2,812 (12- -month percentage change) Currencyi incirculation 28.5 13.8 6.5 12.0 13.0 9.9 11.0 Baser money 312 152 6.0 11.0 9.4 9.0 8.4 7.8 Gourde money (M2) 20.4 112 9.0 -3.7 109 10.9 8.7 7.4 6.7 6.4 Broadn money(M3) 16.9 7.2 14.8 11.0 6.5 11.4 11.4 103 9.5 8.8 8.1 22.7 20.3 10.4 16.1 11.2 6.9 13.0 11.8 11.0 10.0 9.5 9.0 Gourde deposits 17.8 25.0 7.5 15.8 10.2 5.3 Foreign.currencye deposits (US. dollars) 25.3 24.1 13.9 11.5 11.5 10.6 9.7 9.0 8.2 17.4 14.6 7.3 169 12.2 11.7 10.5 10.2 9.9 Credit to the nonfinancial public sector -122.7 -91.7 229.4 -107.4 -0.2 41.6 Creditto the private sector -5.6 21.6 24.5 -6.3 -13.2 -40.3 -32.0 38 29 16.8 18.6 29.8 Crediti in gourdes 13.0 17.3 29.4 14.6 25.9 18.0 21.6 18.0 17.5 17.0 16.5 Crediti foreign currency(U.S. 7 229.4 -107.4 -0.2 41.6 Creditto the private sector -5.6 21.6 24.5 -6.3 -13.2 -40.3 -32.0 38 29 16.8 18.6 29.8 Crediti in gourdes 13.0 17.3 29.4 14.6 25.9 18.0 21.6 18.0 17.5 17.0 16.5 Crediti foreign currency(U.S. dollars) -20.7 26.6 18.9 19.6 35.5 147 24.0 20.4 19.9 19.3 18.8 9.5 22.7 22.8 18.2 14.6 13.9 13.3 12.6 Memorandum items: Foreign.currency bank deposits (percent toftotal) 55.4 56.7 56.9 57.2 58.7 57.3 58.9 57.5 Foreigncurr. credit to priv. sector (percento oftotal) 46.5 48.4 44.4 45.5 410 42.0 57.7 57.9 58.2 58.5 Commercial Banks' CredittoP Private Sector (percentofGDP)2/ 14.6 152 162 16.3 42.7 41.6 411 40.7 402 39.8 175 191 18.4 20.8 223 23.9 25.7 27.7 Sources: Bank oft the Republic ofHaiti; andFund staff estimates and projections. 1/Excluding commercialt bank forex deposits, letters of credit, guarantees, earmarked project accounts and U'S.dollar- denominated bank reserves. The NIR has relative to that toft the previous program, with the SDR allocationn no longer netted out asa liability. This table reports NIR under the new definition. The revised definition been for 2009/10 changed reflects the IMF debt relief of SDR 17811 million approved on July 21, 2010. projection 2/GDPr ratio calculated usingn nominal programfi figure for 2009 (numerator) and actual nominal GDP (denominator). INTERNATIONAL MONETARY FUND 31 --- Page 33 --- HAITI Table 4. Haiti: Balance of Payments, 2009/10 2016/17 (In millions of US dollars ona fiscal year basis; unless otherwise indicated) 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 Act Est Prog. Prog. Prov. Prog Proj Proj. Current account (including grants) -821 -339 -375 -341 -316 453 -479 488 Current account (excluding grants) -1,953 -1,785 1,905 1,677 -1,303 1,787 -528 -556 -576 1,512 -1,490 -1,499 -1,498 -1,490 Trade balance 2,247 -2,246 -2,438 2,246 1,855 -2,433 -2,080 -2,237 Exports of goods 768 943 768 785 -2,278 2,314 -2,347 943 943 1,056 1,178 1,307 1,438 Ofv which: Assembly industry 714 891 716 716 Imports of goods -2,810 -3,014 3,381 885 991 1,102 1,215 1,337 Ofv which: Petroleump products -546 -3,014 2,640 3,376 3,023 3,293 -3,456 3,621 -3,785 -815 -815 -815 -871 -871 -912 -940 -967 -994 Services (net) 1,035 -891 -864 -838 -897 813 -890 746 Receipts 249 308 308 262 341 288 352 -759 393 -771 -782 Payments -1,274 1,140 1,172 -1,146 1,158 1,154 -1,178 1,098 436 479 -1,152 1,207 -1,262 Income (net) 3,785 -815 -815 -815 -871 -871 -912 -940 -967 -994 Services (net) 1,035 -891 -864 -838 -897 813 -890 746 Receipts 249 308 308 262 341 288 352 -759 393 -771 -782 Payments -1,274 1,140 1,172 -1,146 1,158 1,154 -1,178 1,098 436 479 -1,152 1,207 -1,262 Income (net) 33 43 40 56 Ofwhich: Interest payments -7 -4 35 22 10 -9 -13 -20 -24 -27 Current transfers (net) 2,439 2,757 2,894 2,700 2,368 2,434 Official trans sfers (net) 1,132 1,446 2,753 2,460 2,488 2,519 2,554 1,530 1,336 988 1,334 1,033 1,002 971 942 914 Ofw which: budget support 87 114 55 Private transfers (net) 1,307 1,311 1,364 1,364 1,380 1,419 1,402 1,458 1,516 1,577 1,640 Capital and financial accounts 594 194 379 559 348 189 458 458 488 512 Capital transfers (HIPC/MDRUPCDR) 2/ 1,360 Debt stock reduction (HIPC/MDRI) 2/ -334 0 0 Public sector capital flows (net) 340 351 351 366 351 383 Loan disbursements 396 365 347 331 Amortization 1/ 354 372 360 396 418 409 409 409 -6 13 -21 -44 -62 -79 Foreign direct investment (net) 181 101 101 169 112 112 112 Banks (net) -83 -30 -30 109 112 112 112 Other items (net) -96 -14 -30 -30 -20 -20 -10 -10 -231 -46 -85 -88 -279 -33 -3 35 76 Errors and omissions -88 -66 0 0 Overall balance 1,028 167 -181 38 177 -105 -290 -30 -70 -68 -64 Financing -1,028 -167 181 -38 -177 Change in net foreign assets 1,031 -167 105 290 30 70 68 64 181 -38 -293 Changei in gross reserves -828 105 280 30 70 68 64 -211 157 -60 -289 Liabilities 90 265 30 70 70 70 Utilization of Fund credits(net) -203 24 23 15 15 0 177 -105 -290 -30 -70 -68 -64 Financing -1,028 -167 181 -38 -177 Change in net foreign assets 1,031 -167 105 290 30 70 68 64 181 -38 -293 Changei in gross reserves -828 105 280 30 70 68 64 -211 157 -60 -289 Liabilities 90 265 30 70 70 70 Utilization of Fund credits(net) -203 24 23 15 15 0 23 23 23 Other liabilities -57 0 -27 0 0 Debtr rescheduling and debt relief Memorandum items: Current account (in percent of GDP) -12.5 4.6 -4.5 4.3 -4.0 -5.3 Excluding official transfers 5.6 -5.3 -5.2 -5.0 -4.8 29.8 -24.2 22.9 -212 16.5 -21.0 Exports of goods, f.o.b (percent change) 2.2 36.3 23.9 0.0 -17.7 -16.1 -14.7 135 -12.4 Imports of goods, fo.b (percent change) 38.3 7.3 2.2 22.8 20.1 12.0 11.5 11.0 10.0 Debts service (in percent ofe exports of goods and services) 1.6 0.6 15.1 0.7 0.0 12.4 12.0 14.5 9.0 4.9 4.8 4.5 Gross 0.8 0.8 1.4 1.5 2.5 liquidi international reserves (in millions ofl U.S. dollars) 21 1,792 2,000 1,843 2,060 2,284 4.1 5.1 5.9 (inmonths of nextyear's imports of goods and services) 5.2 6.3 4.7 5.5 1,970 2,019 1,989 1.919 1,849 1,779.1 6.5 5.0 5.5 52 4.8 4.4 4. Sources: Bank of the Republic of Haiti; and Funds staff estimates and projections. 1/1 Includes HIPC/MDRI debtrelieft beginning in 2010. HIPC/MDRI interim debt relief in 2009'is reflected below thel line. 2/1 Includes operations under the HIPC/MDRII in 2009, PCDR in 2010, and debt cancellations by IDB, World Bank, and Venezuela in 2010- 11. 3/In2 2009, including an SDR allocation of $101 million. 4/Includes NIRa andc commercialt banks' foreign currency deposits with the BRH. 32 INTERNATIONAL MONETARY FUND 1 Includes HIPC/MDRI debtrelieft beginning in 2010. HIPC/MDRI interim debt relief in 2009'is reflected below thel line. 2/1 Includes operations under the HIPC/MDRII in 2009, PCDR in 2010, and debt cancellations by IDB, World Bank, and Venezuela in 2010- 11. 3/In2 2009, including an SDR allocation of $101 million. 4/Includes NIRa andc commercialt banks' foreign currency deposits with the BRH. 32 INTERNATIONAL MONETARY FUND --- Page 34 --- HAITI Table 5. Haiti: Financial Soundness Indicators of Individual Banks, September 2010 - September 2012 (In percent; unless otherwise stated) Sep-10 Sep-11 Mar-12 Jun-12 Sep-12 Size and growth 3453.6 3767.5 3858.0 3945.0 4029.9 Asset volume (in US$ millions ) 2985.8 3316.2 3394.2 3475.1 3469.5 Deposit volume (in US$ millions ) fiscal 27.8 11.6 4.2 7.5 10.8 Asset growth since beginning of year 21.5 34.0 Credit growth (net) since beginning of fiscal year -11.7 31.5 11.2 Capital adequacy 13.4 16.5 16.7 16.7 16.8 Regulatory capital to risk-weighted assets 23.8 14.7 13.6 13.9 13.3 Assets to regulatory capital Asset quality and composition 21.3 25.1 26.8 28.4 33.0 Loans (net) to assets 5.7 3.7 3.6 3.2 2.4 NPLS to gross loans 4.8 4.4 3.0 2.8 2.3 Provisions to gross loans 84.1 93.1 83.3 88.8 96.7 Provisions to gross NPLS 3.2 1.1 2.6 1.7 0.4 NPLS less provisions to net worth Earnings and profitability (cumulative since beginning of fiscal year) 1.2 1.4 1.4 1.3 1.5 Return on Assets (ROA) 18.4 22.2 22.2 21.7 21.9 Return on equity (ROE) 92.4 Net interest income to gross interest income 87.4 91.4 92.2 92.3 69.2 67.8 65.6 66.1 66.7 Operating expenses to net profits Efficiency 8.2 7.4 1/ 9.6 8.9 8.2 Interest rate spread Liquidity 2/ 51.0 49.5 48.2 48.5 45.5 Liquid assets to total assets 2/ 59.0 56.3 54.7 55.0 52.8 Liquid assets to deposits Dollarization 60.1 55.7 53.8 51.8 51.7 Foreign currency loans to total loans (net) Foreign currency deposits to total deposits 44.1 62.3 63.9 64.5 62.9 Foreign currency loans to foreign currency deposits 31.3 32.6 34.6 35.7 37.3 Sources: BRH Banking System Financial Summary; and IMF estimates 1/ Defined as the difference between average lending rate and average fixed deposit rate in the banking system. 2/ Liquid assets comprise cash and central bank bonds. INTERNATIONAL MONETARY FUND 33 .8 51.8 51.7 Foreign currency loans to total loans (net) Foreign currency deposits to total deposits 44.1 62.3 63.9 64.5 62.9 Foreign currency loans to foreign currency deposits 31.3 32.6 34.6 35.7 37.3 Sources: BRH Banking System Financial Summary; and IMF estimates 1/ Defined as the difference between average lending rate and average fixed deposit rate in the banking system. 2/ Liquid assets comprise cash and central bank bonds. INTERNATIONAL MONETARY FUND 33 --- Page 35 --- HAITI Table 6. Haiti: Indicators of External Vulnerability, 2008/09 - 2012/13" (Units as indicated) 2008/09 2009/10 2010/11 2011/12 2012/13 Est. Proj. Debt indicators Total external public debt (in percent of GDP) 19.0 13.2 8.9 13.0 16.8 Total external public debt (in percent of exports) 21 133.7 107.6 64.6 98.2 116.5 of 0.6 0.2 0.1 0.1 0.2 External debt service (in percent GDP) 0.4 0.1 0.0 0.0 0.1 Amortization Interest External debt service (in percent of exports) 2/ 3.9 1.6 0.6 0.8 1.5 External debt service (in percent of current central govt. revenues) 4.9 1.7 0.6 0.9 1.5 Other indicators Exports (percent change, 12- -month basis in U.S. dollars) 11.6 -13.7 26.8 2.9 17.6 Imports (percent change, 12-month basis in U.S. dollars) -1.7 45.6 1.7 -8.6 10.6 Remittances and grants in percent of gross disposable income 19.9 27.1 27.1 22.9 22.1 Real effective exchange rate appreciation (+) (end of period) 2.1 0.8 1.6 40.7 40.3 40.3 41.6 43.2 Exchange rate (per U.S. dollar, period average) Current account balance (millions of US dollars) 3/ -226.3 -820.7 -338.8 -315.8 -479.2 Capital and financial account balance (millions of US dollars) 501.2 991.5 594.3 559. 2 188.9 287.9 218.2 339.5 365.9 382.9 Public sector 213.3 773.3 254.8 193.3 -193.9 Private sector of US 947.5 1792.0 1999.7 2284. 1 2019.1 Liquid gross re eserves (millions dollars) In months of imports of the following year 2/ 2.8 5.2 6.3 6.5 5.5 In percent of debt service due in the following year 7283 30685 218.2 339.5 365.9 382.9 Public sector 213.3 773.3 254.8 193.3 -193.9 Private sector of US 947.5 1792.0 1999.7 2284. 1 2019.1 Liquid gross re eserves (millions dollars) In months of imports of the following year 2/ 2.8 5.2 6.3 6.5 5.5 In percent of debt service due in the following year 7283 30685 127.4 175.5 189.1 232.1 192.4 In percent of base money Sources: Bank of the Republic of Haiti; and Fund staff estimates and projections. 1/ Reflects HIPC/MDRI relief. 2/ Goods and services. 3/1 Including grants. 4/1 Includes in the private sector FDI, short- term capital, and errors and omissions in addition to bank flows. 34 INTERNATIONAL MONETARY FUND --- Page 36 --- HAITI Table 7. Haiti: Indicators of Capacity to Repay the Fund, 2012/13-2022/23 (Units as indicated) 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 Fund obligations based on existing credit (in millions of SDRs) Principal 0.0 0.0 0.0 1.6 4.3 5.2 5.2 5.2 3.6 1.0 Interest 0.0 0.0 0.0 0.1 0.1 0.1 0.0 0.0 0.0 0.0 0.0 0.0 Fund obligations based on existing and prospective credit (in millions of SDRS) Principal 0.0 0.0 0.0 1.6 4.3 6.7 8.2 8.2 6.6 Interest 0.0 0.0 0.0 0.1 0.1 0.1 0.1 0.0 0.0 3.9 0.0 1.5 0.0 Total obligations based on existing and prospective credit In millions of SDRs 0.0 0.0 0.0 1.7 4.4 6.8 8.3 8.2 6.6 3.9 In millions of U.S. dollars 0.0 0.0 0.0 2.6 6.6 10.3 1.5 In percent of 12.5 12.5 10.0 6.0 2.2 exports 0.0 0.0 0.0 0.2 0.3 0.5 0.6 0.5 0.4 0.2 government revenues 0.0 0.0 0.0 0.2 0.33 0.4 0.4 0.3 0.2 0.1 reserves 0.0 0.0 0.0 0.1 0.4 0.6 0.7 0.7 0.1 0.0 debt service 0.0 0.0 0.0 3.0 5.9 7.6 7.9 0.5 0.3 0.1 quota 0.0 0.0 0.0 7.0 5.1 2.8 1.0 2.1 5.3 8.3 10.1 10.0 8.0 4.8 1.8 Outstanding Fund credit (end of period) In millions of SDRS 41.0 41.0 41.0 39.3 35.1 28.3 20.1 12.0 5.4 In millions of U.S. 0.3 0.1 quota 0.0 0.0 0.0 7.0 5.1 2.8 1.0 2.1 5.3 8.3 10.1 10.0 8.0 4.8 1.8 Outstanding Fund credit (end of period) In millions of SDRS 41.0 41.0 41.0 39.3 35.1 28.3 20.1 12.0 5.4 In millions of U.S. dollars 62.3 62.3 62.3 59.7 53.2 43.0 1.5 0.0 In percent of 30.6 18.1 8.2 2.2 0.0 exports 5.1 4.4 4.0 3.4 2.8 2.1 1.4 0.8 government revenues 5.2 4.7 4.2 3.6 2.9 2.2 0.3 0.1 0.0 1.4 0.7 reserves 3.1 3.1 3.2 3.2 3.0 2.3 1.7 0.3 0.1 0.0 debt service 348.6 1.0 0.4 0.1 0.0 179.0 97.2 67.7 47.3 31.6 19.2 10.2 4.2 1.1 0.0 quota 50.0 50.0 50.0 48.0 42.8 34.6 24.6 14.6 6.6 1.8 0.0 Memorandum items: Exports 1/2/ 1.2 1.4 1.6 1.7 1.9 2.1 2.2 2.4 2.6 Government revenues 1/3/ 1.2 1.3 1.5 1.7 2.8 3.0 Reserves 1/4 4/ 1.8 2.0 2.3 2.5 2.7 2.9 3.2 2.0 2.0 1.9 1.8 Debt service 1/ 1.8 1.8 1.8 1.8 1.8 1.8 1.8 0.0 0.0 0.1 0.1 0.1 0.1 0.2 0.2 0.2 Quota (in millions of SDRS) 81.9 81.9 81.9 81.9 81.9 0.2 0.2 GDP 1/ 81.9 81.9 81.9 81.9 81.9 81.9 8.5 9.3 10.2 11.1 12.1 13.0 14.0 15.1 16.2 17.4 18.7 Sources: Haitian authorities; and Fund staff projections. 2 0.2 Quota (in millions of SDRS) 81.9 81.9 81.9 81.9 81.9 0.2 0.2 GDP 1/ 81.9 81.9 81.9 81.9 81.9 81.9 8.5 9.3 10.2 11.1 12.1 13.0 14.0 15.1 16.2 17.4 18.7 Sources: Haitian authorities; and Fund staff projections. Note: Data covers Haiti's fiscal year, which runs from October 1 to September 30. 1/In billions of U.S. dollars. 2/1 Exports of goods and services 3/Central government domestic revenues. 4/ Gross liquid international reserves, end of period. INTERNATIONAL MONETARY FUND 35 --- Page 37 --- HAITI Table 8. Haiti: Proposed Schedule of Disbursements, 2010-2013 Amount Availability Date Conditions for Disbursement Status SDR 8,190,000 July 21, 2010 Executive Board approval of the three- year arrangement Completed under the ECF. SDR 8,190,000 January 15, 2011 Observance of performance criteria for September 2010 and Completed completion of the first review under the ECF arrangement. SDR 4,914,000 July 15, 2011 Observance of performance criteria for March 2011 and Completed completion of the second review under the ECF arrangement 21 SDR 4,914,000 January 15, 2012 Observance of performance criteria for September 2011 and Completed completion of the third review under the ECF arrangement. 2/ SDR 4,914,000 July 15, 2012 Observance of performance criteria for March 2012 and Completed completion of the fourth review under the ECF arrangement. SDR 4,914,000 January 15, 2013 Observance of performance criteria for September 2012 and completion of the fifth review under the ECF arrangement. SDR 4,914,000 July 15, 2013 Observance of performance criteria for March 2013 and completion of the sixth review under the ECF arrangement Other than the generally applicable conditions for the Extended Credit Facility 2 The second and third reviews were combined. (ECF) arrangement. 36 INTERNATIONAL MONETARY FUND 2012 and Completed completion of the fourth review under the ECF arrangement. SDR 4,914,000 January 15, 2013 Observance of performance criteria for September 2012 and completion of the fifth review under the ECF arrangement. SDR 4,914,000 July 15, 2013 Observance of performance criteria for March 2013 and completion of the sixth review under the ECF arrangement Other than the generally applicable conditions for the Extended Credit Facility 2 The second and third reviews were combined. (ECF) arrangement. 36 INTERNATIONAL MONETARY FUND --- Page 38 --- HAITI Table 9. 2008 FSAP Recommendations and Implementation Status FSAP Recommendations Implementation Status BRH's financial sustainability: prepare for recapitalization and BRH' S financial situation has strenghened because of the increase government transfers improved macroeconomic situation, the adoption of the new banking law, the absence of government deficit financing and the recent agreement on the debt between BRH and the MEF Enhance competition in BRH bond auction system Through development of the T-Bills market the competition in BRH bond auction system has been enhanced Adopt and implement new banking law and upgrade regulations Banking Law was passed recently Conduct special inspections of the three largest banks, and prepare BNC restructuring strategy Successful inspection was conducted Broaden scope and set up centralized public registry of personal property collateral Ongoing Private Sector Development Project (WB) Strengthen BRH's independence through recapitalization and Significantly strengthened through the new banking law and legal reform improved capitalization Develop treasury securities market Treasury securities market will be further strenghend through the Public debt law expected to be submitted parliament by end-march 2013 Complete transition of BRH accounting toward IFRS and In progress commission BRH audit by new audit firm BRH audit has been committed Strengthen judicial capacity for contract enforcement Reforms underway Implement BNC restructuring strategy Guarantee was executed by BNC in 2011 Reduce cost of establishing collateral Ongoing with PCGF and movable collateral. Pillar one of the PCGF has been completed Increase competition in audit sector OCPAH working with French Accounting Board towards capacity Building Improve framework for systemic liquidity forecasting TA is being provided and exercises are being conducted Improve regulation and supervision of credit unions In progress Establish basic transparency requirements and regulation for other nonbank financial institutions Law for supervision of microfinance has been drafted Set up working group to assess options for deposit insurance scheme Currently under consideration Start improving banks' accounting practices in line with long term New Accounting Law and framework drafted IFRS compliance goal being by OCPAH with TA of IFI's executed by French Accounting Board takes this into account Require full publication of banks' annual accounts Required under the New Banking Law Upgrade IT infrastructure and increase risk focus of banking supervision Being upgraded under the Payment System TA Support orderly expansion of microfinance sector New Law for microfinance has been drafted and is under consideration Conduct actuarial assessments of all defined benefit pension schemes Public DB scheme will be supervised by insurance regulator under the new insurance law Facilitate establishment of a private credit bureau Work is ongoing jointly with WB and IFC Modernize insolvency legislation A commercial court to be established Develop strategy for the transition of bank accounting toward New Accounting Law and framework being drafted IFRS by OCPAH with TA of IFI's executed by French Accounting Board takes this into account Adopt simple and easily enforceable accounting system for New Accounting Law and framework being drafted by private enterprises OCPAH with TA of IFI's executed by French Accounting Board takes this into account INTERNATIONAL MONETARY FUND 37 Facilitate establishment of a private credit bureau Work is ongoing jointly with WB and IFC Modernize insolvency legislation A commercial court to be established Develop strategy for the transition of bank accounting toward New Accounting Law and framework being drafted IFRS by OCPAH with TA of IFI's executed by French Accounting Board takes this into account Adopt simple and easily enforceable accounting system for New Accounting Law and framework being drafted by private enterprises OCPAH with TA of IFI's executed by French Accounting Board takes this into account INTERNATIONAL MONETARY FUND 37 --- Page 39 --- HAITI Stability and Competitiveness Annex 1. External from 12.5 percent of GDP in 2010 to Haiti's current account deficit has declined 1. remained high at 23.5 percent of GDP at end-September 4 percent in 2012. The trade deficit both aid-related imports and Haiti: Current Account Vulnarability to Transfers 2012, due to high increased sharply (In percent ofGDP) low exports. Official transfers 30 IICA ICA excl. officialt axis) transfers the from 6 percent of GDP in 20 KOfficialtransfers (net) 80 FDI(righta 2.5 after earthquake have declined to RT 2009 to 19.6 percent 2011. They 12.5 percent in 2012 reflecting the transition ATUT A - 2012 1.5 situation, as well as weak 2009 2010 from the emergency in Haiti. In -10 execution and absorption capacities -20 official transfers are projected 0.5 the medium-term, -30 of GDP. Remittances remained at 7 percent in relatively high and stable (about 18 percent 2012). both to about 15 percent of GDP remains low compared 2. Haiti's level of exports at exports remain highly concentrated Caribbean and Latin America average. Moreover, the for about Exports (OnpercentofGDP with textile exports accounting JLAC of the total, almost entirely to the DHaiti Caribbean 95 percent its share of textiles in US 30 United States. Although has increased, mainly due to the textile imports HELP Act, Haiti would benefit from export diversification. Direct Investment in Haiti has 3. Foreign low increased in the last decade, but remains compared to other countries in the region. climate for private domestic and foreign Improvements in the ease of doing business and the the main sources of foreign investment are critical for competitiveness. Among direct role and innovation is important for improving productivity technology, FDI often plays a key framework that harnesses Haiti needs to continue developing a legal law and and competitiveness. and accountability in the rule of entrepreneurship by promoting transparency property rights and continue investing FDI (np percent tof GDP) protecting 5.0 GLAC in infrastructure to attract FDI 4.5 € Haiti Caribbean 4.0 The real exchange rate in Haiti is assessed 3.5 3.0 4. in line with its medium-term 2.5 to be broadly CGER 2.0 fundamentals based on the standard 1.5 Haiti's real effective exchange rate approach. stable since the 2010 0.5 (REER) has remained broadly 0.0 2009 FDI (np percent tof GDP) protecting 5.0 GLAC in infrastructure to attract FDI 4.5 € Haiti Caribbean 4.0 The real exchange rate in Haiti is assessed 3.5 3.0 4. in line with its medium-term 2.5 to be broadly CGER 2.0 fundamentals based on the standard 1.5 Haiti's real effective exchange rate approach. stable since the 2010 0.5 (REER) has remained broadly 0.0 2009 It has appreciated only by 7 percent earthquake. and despite the large inflows of remittances INTERNATIONAL MONETARY FUND --- Page 40 --- HAITI of the nominal effective exchange rate and external aid. This reflects a moderate depreciation relatively higher inflation compared to key partners. to the Equilibrium real 5. According approach, RealExchangef Rate Assessment effective exchange rate (EREER) the current REER is close to the equilibrium value estimated from a set of fundamentals, REER EREER including GDP per capita relative to trading current transfers, terms of trade, and 100 partners, the REER, and investment as a share openness, of GDP. Results show a modest undervaluation as of end-September 2011; the recent appreciation of the REER reflects predominantly d e e $ 1 response to movements in e o d d an equilibrium fundamentals. balance approach, improved exports, particularly 6. According to the Macroeconomic of textiles, and a gradual winding-down Macroeconomic Balance reconstruction-related imports would reduce Estimation Method Fixed Effect Hybrid Pooled the current account balance deficit to about Current account (6GDP) -4.59 -4.59 4 percent of GDP by 2017. The underlying Observed 2011 -3.98 -3.98 current account is slightly below the current Projected M-T(2017) -4.14 -3.89 when this is estimated using the Estimated "Norm" account norm -0.060 coefficients of the fixed effect regression, EasticiyofCAtof REER -0.060 a small undervaluation of the REER suggesting The macroeconomic REER overvaluation (end-2011) -2.74% 1.42% of about 2.7 percent. Implied with coefficients from the balance approach instead to a slight overvaluation of hybrid pooled regression points 1.42 percent. as well as of FDI are critical for external Diversification and increase of exports and real 7. in Haiti. Given the high dollarization sustainability and enhanced competitiveness competitiveness in Haiti is aligned with the fundamentals, improving exchange rate broadly In order to reduce supply-side predicated on structural reforms to boost productivity. diversification, legal and the business environment and promote export bottlenecks, improve improvements in infrastructure are needed. regulatory reforms as well as significant INTERNATIONAL MONETARY FUND 39 pooled regression points 1.42 percent. as well as of FDI are critical for external Diversification and increase of exports and real 7. in Haiti. Given the high dollarization sustainability and enhanced competitiveness competitiveness in Haiti is aligned with the fundamentals, improving exchange rate broadly In order to reduce supply-side predicated on structural reforms to boost productivity. diversification, legal and the business environment and promote export bottlenecks, improve improvements in infrastructure are needed. regulatory reforms as well as significant INTERNATIONAL MONETARY FUND 39 --- Page 41 --- HAITI I. Letter of Intent Appendix February 14, 2013 Mrs. Christine Lagarde Managing Director International Monetary Fund Washington D.C. 20431 United States of America Dear Mrs. Lagarde: is slower than planned, as a result of several factors, 1. The economic recovery process in and October 2012, a drop in of tropical storms Isaac and Sandy August adverse including the passage capacities. Notwithstanding these and absorptive external aid, and weak administrative by an arrangement under the Extended conditions, implementation of our program supported Credit Facility (ECF) remains broadly on track. 2012 indicative targets and met all end-September 2012 2. We observed all end-June the end-June 2012 benchmark criteria. In the structural area, we have implemented at the central bank or performance accounts of the central government related to the closing of all dormant 2012 benchmarks on the creation of the commercial banks as well as the two end-September the medium and large enterprises. The unit with the MEF and the unit in charge of auctions fiscal policy related to the move to single-price foreign exchange third end-September benchmark the number of participants yet. Our objective is to start by expanding The has not been implemented 2012 structural benchmarks are not yet observed. in the FX markets. Also, two end-March middle and back offices is the debt unit with fully operational benchmark on strengthening of the Ministry of the of the organic law on the reorganization underway as it is linked to passage is related to the public debt law. Both draft laws Economy and Finance. The second benchmark be submitted to the Parliament by endreviewed by the Prime Minister's office and will are being March 2013. will continue to play a pivotal role in supporting the 3. The ECF-supported program macroeconomic stability and achieving broad-based reconstruction and recovery, maintaining is committed to creating more room for and inclusive growth. In this context, the government price stability and facilitating spending; maintaining poverty-related and growth-enhancing macroeconomic policies; and moving through prudent and well-coordinated to external adjustment and competitiveness, and support ahead with key structural reforms to boost productivity sustained growth. 40 INTERNATIONAL MONETARY FUND office and will are being March 2013. will continue to play a pivotal role in supporting the 3. The ECF-supported program macroeconomic stability and achieving broad-based reconstruction and recovery, maintaining is committed to creating more room for and inclusive growth. In this context, the government price stability and facilitating spending; maintaining poverty-related and growth-enhancing macroeconomic policies; and moving through prudent and well-coordinated to external adjustment and competitiveness, and support ahead with key structural reforms to boost productivity sustained growth. 40 INTERNATIONAL MONETARY FUND --- Page 42 --- HAITI technical assistance we intend to make full use of all available 4. To meet these objectives, the IMF PCDR, a share of which will be allocated and financial resources, including those freed by reforms aimed at broadening the tax to increase the domestic revenue intake through further we have agreed on the need to administration. In this vein, base and modernizing the revenue and operating an electronic tax declaration customer service at DGI by launching improve system. public financial management, and The reform agenda will also focus on enhancing for an 5. the financial sector, and creating the conditions economic governance, strengthening We will also strengthen the coordination with environment for private investment for appropriate of aid flows through the new mechanism our partners and improve the efficiency provides for an alignment of and harmonization of aid. This mechanism and coordination goals and government investment programs, international funds on national development all aid. the national budget as the main vehicle for channeling relies on and in view of the progress made in implementing the 6. In support of these policies requests the completion of the supported by the ECF arrangement, the government to program of the sixth disbursement for an amount equivalent fifth review and the approval which will assess performance based on endSDR 4.914 million. The upcoming sixth review, March 2013 targets, is envisaged for July 2013. and will provide update the IMF on economic and policy developments its 7. We will regularly The will continue for adequate monitoring of the program. government the data needed to take any further measures as deemed policy dialogue with the IMF and is prepared with the Fund ahead of the adoption its objectives. We will consult appropriate to meet program outlined in the MEFP, in accordance with and any revisions to the measures of these measures the Fund's policies on such consultation. this letter, the attached Memorandum of authorizes the IMF to publish 8. The Government the placement of these Policies, and the related Staff Report, including Economic and Financial the IMF Executive Board's conclusion of the policy documents on the IMF website, following review. Sincerely yours, /s/ /s/ Charles CASTEL Marie Carmelle JEAN MARIE Governor Minister of Economy and Finance Bank of the Republic of Haiti Ministry of Economy and Finance INTERNATIONAL MONETARY FUND 41 of these measures the Fund's policies on such consultation. this letter, the attached Memorandum of authorizes the IMF to publish 8. The Government the placement of these Policies, and the related Staff Report, including Economic and Financial the IMF Executive Board's conclusion of the policy documents on the IMF website, following review. Sincerely yours, /s/ /s/ Charles CASTEL Marie Carmelle JEAN MARIE Governor Minister of Economy and Finance Bank of the Republic of Haiti Ministry of Economy and Finance INTERNATIONAL MONETARY FUND 41 --- Page 43 --- HAITI AND FINANCIAL POLICIES OF ECONOMIC ATTACHMENT 1. MEMORANDUM Introduction Economic and Financial Policies (MEFP) supplements and 1. This Memorandum of it since July 2010. It reviews recent economic updates the MEFPS that have preceded and structural program under developments and progress in implementing our macroeconomic the IMF Board on July 21, 2010. It Extended Credit Facility (ECF) arrangement, approved by the reforms that we will pursue during policies and structural also sets out macroeconomic FY2012/2013. and recent economic developments Political background Prime Minister Lamothe and his are encouraging. 2. Recent political developments favoring an acceleration of the cabinet are pressing ahead with an agenda The current reform-minded economic management and governance. reconstruction and key reforms to improve from large segments of and reform-minded and is gaining support for dual cabinet is forward-looking amendments opens the door of constitutional the population. The recent publication involvement of the Haitian living abroad in the nationality and will pave the way for a greater of the need for the upcoming of the country. Nonetheless, we also are aware to be development of one third of the Senate and all municipal governments't election cycle for the renewal lessen tensions. The security situation in the best security conditions SO as to political organized remains our main priority. and 12-month inflation has recovery has been weaker-than-plamned 3. The economic sectors. It remained buoyant in the risen. Economic activity has been uneven across output was weaker, as a and commerce sectors. In contrast, agricultural At the manufacturing, energy, of Hurricane Isaac at the end of August. result of the spring drought and the passage has remained modest, due in in the construction sector and transportation and the late same time, activity investment caused by the political stalemate part to the low execution rate of public the economy has grown only by On balance, for the year as a whole, approval of the budget. inflationary pressures from international a target of 4.5 percent. In contrast, up 2.8 percent, against inflation to 7.6 percent through end-December 2012, food prices have pushed headline 2.7 percentage points since June 2012. The overall fiscal deficit outcome for FY2012 is highe-sham-programmed 4. The fiscal of 3.6 percent. This deficit reached 5.9 percent of GDP, against a program target a drop in grants, and slightly domestic revenue, underperformance reflected lower-than-planned the intake reached 12.8 percent of GDP, spending. On the revenue side, account of lower customs duties. higher-than-planned objective of 13.5 percent, mainly on compared with a program of the 0.7 percent of GDP target by 0.4 percentage Disbursement of budget support fell short 142 municipal councils, 565 sector of 1/3 of the Senate (10 new senators), 1 The new cycle seeks the renewal officers, and several city delegates. 42 INTERNATIONAL MONETARY FUND slightly domestic revenue, underperformance reflected lower-than-planned the intake reached 12.8 percent of GDP, spending. On the revenue side, account of lower customs duties. higher-than-planned objective of 13.5 percent, mainly on compared with a program of the 0.7 percent of GDP target by 0.4 percentage Disbursement of budget support fell short 142 municipal councils, 565 sector of 1/3 of the Senate (10 new senators), 1 The new cycle seeks the renewal officers, and several city delegates. 42 INTERNATIONAL MONETARY FUND --- Page 44 --- HAITI in key structural areas, including procurement and points, partly because of slow progress stemming from external aid delays in some donors' disbursement process and absorptive capacities. governance, and the country's limited administrative conditionality and complexity, points of GDP, as a result of slightly exceeded the target by 0.6 percentage Current spending caused by Hurricane Isaac. Domesticaly-frnanced capital some additional spending for damages of GDP. above the target of 6.4 percent spending was slightly at low and stable inflation. Broad money growth 5. Monetary policy continued to aim of 11.2 percent, due to a larger-thanhas moderated to 6.9 percent, against a program target decline in bank net credit to government. programmed sector remains sound. Credit While credit has grown at a fast pace, the banking short-term 6. end-September, with demand boosted by grew by 29.8 percent year-on-year through projects weaker than planned given delays trade credits and long-term borrowing for investment Minister during the first half of 2012. Work the budget and appointing a new Prime to the in adopting bureaus and insurance law has been submitted is ongoing on establishing credit financial sector is relatively liquid and profitable. Parliament. Key indicators suggest that the recorded a surplus in FY2012. Consequently, gross 7. The overall balance of payments 2012 (6 months of imports of international reserves rose to US$2.2 billion at end-December below targets. Textile exports Both merchandise exports and imports were the goods and services). of the US demand and imports. At the same time, affected by the drop Since April were negatively accounts outcome were better than programmed. current and capital and financial the U.S. dollar by about 8 percent. 2010, the gourde has depreciated gradually against track. We have met all end-June indicative targets 8. Our program remains broadly on criteria. In the structural area, we have and observed all end- September 2012 performance benchmarks. The implementation of the completed two out of the three end-September 2012 of a single auction system 2012 benchmark related to the implementation end-March third end-September regarding the two outstanding in the FX is underway. We have also made progress on the debt The benchmark strengthening 2012 structural benchmarks on debt management. underway as it is linked to the passage of middle and back offices is unit with fully operational of Economy and Finance. The second of the Ministry the organic law on the reorganization Both draft laws are being reviewed by the Prime benchmark is related to the public debt law. end-March 2013. At the same time, Office and will be submitted to the Parliament by Minister's financial management and making headway have continued our efforts in improving public we the business environment. on improving for 2013 The government program priority is to challenges in the period ahead. Our overriding 9. We are facing significant reduction and provide housing to the increase spending linked to poverty have been create jobs, shelters although more than 1 million people 350,000 people still living in temporary 16/6. We must also pursue our efforts to particularly in the context of the project relocated, INTERNATIONAL MONETARY FUND 43 ister's financial management and making headway have continued our efforts in improving public we the business environment. on improving for 2013 The government program priority is to challenges in the period ahead. Our overriding 9. We are facing significant reduction and provide housing to the increase spending linked to poverty have been create jobs, shelters although more than 1 million people 350,000 people still living in temporary 16/6. We must also pursue our efforts to particularly in the context of the project relocated, INTERNATIONAL MONETARY FUND 43 --- Page 45 --- HAITI the conditions for maintain macroeconomic stability, while creating rebuild the country, and build resilience against shocks through sustainable (broad-.based and inclusive) growth, consolidation. Our macroeconomic appropriate macroeconomic policies and environmental these challenges, as we seek to and structural and institutional reform agenda mirror growth, policies particularly to natural disasters, protect long-term enhance the country's resilience, shock to global growth is a major and raise living standards. A significant the reduce unemployment, for exports, foreign aid, and remittances, although risk, which would have consequences Other risks are higher food and energy prices, latter has displayed some resilience in the past. investment spending and the and social tensions that could delay public heightened political reform agenda. unchanged compared with earlier Medium-term projections remain broadly investment, 10. projects, a rebound in public construction estimates. Maturing ongoing agricultural goods assembled in emerging free zones and rising exports of textiles and other manufacturing by improvements in infrastructure sustain in the medium term supported are expected to growth Domestic revenue collection should continue and services as well as in the business environment. down. Tight control on current spending while donor support is expected to trend to improve, levels of capital outlays, and the promotion of innovative and appropriate and sustainable the fiscal position in the medium term. The partnerships are expected to improve of public-private would decline, associated with a gradual winding-down external account deficit reconstruction-relatedi imports and improved exports. country by 2030. For that goal is to transform Haiti into an emerging 11. Our long-term reforms and investments aimed at enabling we are committed to undertake appropriate and reinforcing the purpose, developing small and medium enterprises environment, Consultative a business-friendly toward this long-term goal, a "Presidential rule of law. To ensure a steady progress has been set up. Council for Economic Growth and Investment" A. Macroeconomic Policies continue in FY2013. Real GDP growth is projected to 12. The recovery is expected to in public investment spending, the in FY2013, on the assumption of a rebound in reach 6.5 percent exports and tourism, and a rebound implementation of several projects to promote continued remain stable, in the mid-single digits. Higher reconstruction-related agriculture. Inflation should deficit, and reduce gross liquid reserves to imports would widen the external account 5.5 months of imports. cities are almost completed. The 128-room Royal 2 Renovation and upgrade of the airports in Haiti's two Western largest hotels is scheduled to open in FY 2013. Oasis five star hotel is open and the 106-room Best 44 INTERNATIONAL MONETARY FUND in reach 6.5 percent exports and tourism, and a rebound implementation of several projects to promote continued remain stable, in the mid-single digits. Higher reconstruction-related agriculture. Inflation should deficit, and reduce gross liquid reserves to imports would widen the external account 5.5 months of imports. cities are almost completed. The 128-room Royal 2 Renovation and upgrade of the airports in Haiti's two Western largest hotels is scheduled to open in FY 2013. Oasis five star hotel is open and the 106-room Best 44 INTERNATIONAL MONETARY FUND --- Page 46 --- HAITI Fiscal policy fiscal space, fiscal policy will aim at Within the framework of an expanded cushions 13. spending, while building increasing poverty-related and growth-enhancing efforts to further increase domestic future shocks. In this context, we will step up We are targeting a against and the quality of public spending. revenue, and improve the composition higher than the one projected at of GDP, only about 2 billion gourdes fiscal deficit of 5.3 percent current spending outlays. The deficit is fully the time of the fourth ECF review, reflecting higher and domestic financing, including issuance financed with external resources (4.4 percent of GDP) needs, the government has of T-bills (0.9 percent of GDP). Given the high reconstruction-related additional T-Bills in the event of a shortfall of drawing down its deposits and issuing the option medium-term debt sustainability and macroeconomic in domestic revenue, while ensuring current spending or delaying some We will also consider reducing some non-priority stability. domesticall-/fnanced capital spending. nonreconstnuction-ebated ratio. Our revenue target is In 2013, we will continue improving our tax-to-GDP The will 14. points above the 2012 outcome. improvement 14.1 percent of GDP, 1.3 percentage the full impact of the FY2012 measures result from () the expected economic rebound; (ii) and house games); and (ii) tighter beverages, fees on casinos (higher excise tax on alcoholic tighter controls, and (iv) a set of new measures comprising control on tax exemptions; the implementation of the e-declaration, and improvements in tax collection made possible by all imports into the country. In valuation and inspect actions by the customs to strengthen medium and large enterprises and unit for NGOS addition, the newly created tax payer unit for compliance, making headway in instrumental in expanding the taxpayer net, improving will be the strict application of those in effect, and strengthening rationalizing exemptions and ensuring of State in charge of tax reform is collection network. The appointment of a Secretary tax reform our tax coordination and ensuring a good command of the also a step forward in improving plan. spending. As part of a cautious the composition of current public 15. We will improve offset the increase in the wage bill by current spending under control, we will to effort to keep to 3 of GDP, and further reducing subsidies limiting spending on goods and services percent from 1.5 percent of GDP in FY2012, in order company to 0.7 percent of GDP, down and the electricity projects poverty-related that will be allocated to fund growth-enhancing of the to free resources subsidies are anticipated to result from the pursuit spending. Lower electricity sector the World Bank, IDB and USAID, to improve the restructuring plan seeking, with support from losses. We have made some progress on the financial management of EDH, and reduce technical to improve current transfer transfers, and we are planning social front through direct budgetary effects of natural disasters on the poor schemes and safety nets, notably to alleviate the at 11.3 percent of GDP, against an Current spending is projected segments of the population. outcome of 11.9 percent of GDP the year before. INTERNATIONAL MONETARY FUND 45 the World Bank, IDB and USAID, to improve the restructuring plan seeking, with support from losses. We have made some progress on the financial management of EDH, and reduce technical to improve current transfer transfers, and we are planning social front through direct budgetary effects of natural disasters on the poor schemes and safety nets, notably to alleviate the at 11.3 percent of GDP, against an Current spending is projected segments of the population. outcome of 11.9 percent of GDP the year before. INTERNATIONAL MONETARY FUND 45 --- Page 47 --- HAITI and investment framework to improve capacity 16. We are upgrading the public the impact on growth. In this context, enhance project management, and maximize to increase to 9 percent of GDP, a capital spending is projected and domesticaly-/fnanced More funds will be allocated to social growth-inducing 2.2 percent of GDP rise in FY2013. undertake a reform of the investment projects. To boost capital spending efficiency, we will the mandate of the UEPS The first phase will aim at (i) defining framework in two phases. all phases of project management and strengthen (Analytical and Programming Units) to include increasing procurement capacity; resources; (ii) enhancing the SYSGEP; (iii) them with adequate involved in project management; and (v) (iv) clarifying the roles of the government agencies with the introduction of the Treasury Single reforming capital expenditure procedures, in line of international experts to will start in 2014 with the assignment Account. The second phase execution and control procedures. This new UEPS, and the introduction of new disbursement, and harmonization of aid the new mechanism for coordination framework will be supported by funds to national development goals and which provides for an alignment of international national budget as the main vehicle for government investment programs, and relies on the will seek to unify the public all aid. As a result, the new investment framework channeling investment projects into one coherent program. Monetary and exchange rate policies Consumer price inflation is policy will continue to aim at price stability. food 17. Our monetary in FY2013 as the shock from international prices expected to be in the 5-6 percent range we will remain vigilant against recedes and domestic food production recovers. Nevertheless, materialize. We are also taking round effects and take appropriate steps should they and second strengthening market based operations steps towards improving liquidity management, macroprudential regulatory mechanisms. developing additional actions aimed at framework through 18. We will enhance our monetary Measures in this context include reducing excess liquidity and lessening dollarization. market infrastructure is in place a domestic T-bill market (the legal and operational debt to the developing securitizing the large government and two initial T-bill issuances were successful), management. We are also using reserve BRH to boost the T-Bill market, and improving liquidity reduction of dollarization, our agenda to control liquidity in the system. On the macroeconomic requirements track record of political and maintaining aims at establishing a longer positive rate, and deepening of domestic financial higher flexibility in the exchange and financial stability, opportunities to foreign currency deposits. markets to provide alternative investment going forward. Our interventions in 19. We will allow greater exchange rate flexibility while not resisting market will continue to aim at smoothing out excess volatility, in the the trend over the past two years, our interventions fundamental trends. While on a declining bilateral active or passive (via a window) FX market are conducted on an ad hoc basis through of the FX market. We are planning transactions, Our main objective is to improve the functioning first we will allow more foreign exchange auctions; as a step, to introduce a system of single price interbank foreign exchange market. and promote the development of the participants 46 INTERNATIONAL MONETARY FUND flexibility while not resisting market will continue to aim at smoothing out excess volatility, in the the trend over the past two years, our interventions fundamental trends. While on a declining bilateral active or passive (via a window) FX market are conducted on an ad hoc basis through of the FX market. We are planning transactions, Our main objective is to improve the functioning first we will allow more foreign exchange auctions; as a step, to introduce a system of single price interbank foreign exchange market. and promote the development of the participants 46 INTERNATIONAL MONETARY FUND --- Page 48 --- HAITI intermediation are needed to support the 20. Further improvements in financial banks' credit to the private sector in agenda. At about 19.1 percent of GDP, commercial of factors, including the growth for LICS. This reflects a broad range 2012 was well below the average between banks. While the banking sector fragile security situation, and limited competition in credit to the private sector signals sound and profitable, the recent uptrend We will remains relatively to improve regulation and supervision. the importance for updating financial legislation risks and financial stability issues aimed at closely monitoring systemic establish a committee insurance law is expected to contribute to improve through macroprudential surveillance. A new bureaus will enable increasing lending to consumers; and creation of credit business and protect sustain and diversify the economy. SMES, a goal which is high on our agenda to growth B. Structural Reforms Revenue administration and tax policy from the newly-created Unit for the 21. For the medium-term, and with support reform of the tax system, including a Analysis of Fiscal Policy, we will outline a broader As a result, we are and actions for streamlining tax expenditure. shift to a VAT system 2017. Other actions will include ratio to percent by planning to raise the revenue-to-GDP the efficiency and controls of revenue improving the coverage for taxpayers; strengthening tax system; and moving putting together a more equitable and business-friendly collection; towards the CARICOM external tariff system. Public financial management the management of public finances. 22. We remain committed to continue improving reform and we are taking steps toward of the budget remains a critical The rehabilitation transparency and reporting, and improving strengthening budget formulation, execution, framework has been external controls. An update of the legal and regulatory and then internal and by the Government during the coming weeks prepared and is expected to be approved law for the MEF that will This legal package includes a new organic transmitted to Parliament. General of Budget, the creation of a new Directorate enable the revamping of the Directorate which will include the Debt Unit, provisions to General of Treasury and Public Accounting, of a central structure tasked with customs administration, and the establishment the improve tax and developments. In doing sO, we are guided by economic analysis, and oversight of economic channeled through the budget with a view to principle that all public resources and spending are Accordingly, we including for pension and education purposes. preempt extra-budgetary outlays, between the Haitian and Venezuelan will ensure that the creation of the upcoming joint-venture into fiscal risks. A MoU has been signed on public investment does not translate due the Public Treasury to BRH governments MEF and BRH to lock in the total amount of debt by in between the set of to ensure better cash management and the modalities of payment, plus a provisions introduction of a treasury single account, we the TSA. Regarding the order to fully implement for closing all identified dormant government have completed the first phase that called and drafting a manual of accounts in the banking system, training of public accountants, INTERNATIONAL MONETARY FUND 47 A MoU has been signed on public investment does not translate due the Public Treasury to BRH governments MEF and BRH to lock in the total amount of debt by in between the set of to ensure better cash management and the modalities of payment, plus a provisions introduction of a treasury single account, we the TSA. Regarding the order to fully implement for closing all identified dormant government have completed the first phase that called and drafting a manual of accounts in the banking system, training of public accountants, INTERNATIONAL MONETARY FUND 47 --- Page 49 --- HAITI 2013 a first pilot of the TSA at the procedures. As a next step, we intend to introduce by January 2013 with adequate capacity for a it to a first wave of ministries in June MEF before extending multi-year budgeting and medium term rapid move. We will then gradually introduce reform, while we are taking steps to expenditure frameworks as part of an ambitious budgetary is intended to improve (UEP) and Studies units in every ministry. This measure create Planning public investment spending efficiency. Other reforms aimed at improving the business We remain committed to our reform agenda and lift 23. in this area are crucial to raise productivity and competitiveness environment. Reforms is the establishment of public-private constraints on growth. At the core of our agenda industries, and tourism. A special partnerships in key areas, like infrastructure, utilities, export within the MEF to ensure a private partnership has been established management unit for public In addition to putting in place the institutional steady implementation of those partnerships. of Commerce and Industry is also preparing framework to attract such investments, the Ministry burden of doing business. One of the to reduce the cost and alleviate the a range of measures Electronique" aimed at reducing the process key objectives is the creation of a "Guichet Unique of procedures. for new firms to a 10-day period through a simplification of registration the of action is the energy sector. We will vigorously implement 24. Another key area the electricity company's technical, seeking to stabilize and gradually upgrade team and current plan functions. We have already strengthened the management commercial and financial framework. The next step is to adopt a comprehensive plan enhanced the legal and institutional the needs of the country. In the and distribution of electricity to cover to rationalize to enhance production of the independent power producers interim, we will closely monitor the activities the of electricity services through transfers and increase access as well as quality rehabilitation of the budgetary are planned, including for the EDH and other supply chains. New investments water plant in the southern and the construction of a new electricity Peligre dam and plant region. natural shocks is critical to protect growth the country's resilience to international 25. Strengthening with the World Bank and other poverty. We will work closely and overcome national risk and disaster management system (NRDMS). partners to further strengthen our Financial sector development intermediation in support of the growth 26. We will continue to improve financial standards, we anticipate credit ratio remaining low by regional agenda. With the credit-to-GDP in the coming years. While the banking sector to grow faster than the economy an to the private we will further strengthen its resilience through sector is relatively sound and quite profitable, We are also exploring ways to of the financial legislation on regulation and supervision. Furthermore, update the fast growing microfinance industry. increase lending to SMES and to regulate law and the setting up of a regulatory passage by Parliament of an insurance the expected 48 INTERNATIONAL MONETARY FUND to improve financial standards, we anticipate credit ratio remaining low by regional agenda. With the credit-to-GDP in the coming years. While the banking sector to grow faster than the economy an to the private we will further strengthen its resilience through sector is relatively sound and quite profitable, We are also exploring ways to of the financial legislation on regulation and supervision. Furthermore, update the fast growing microfinance industry. increase lending to SMES and to regulate law and the setting up of a regulatory passage by Parliament of an insurance the expected 48 INTERNATIONAL MONETARY FUND --- Page 50 --- HAITI trade and consumption. In relation to will provide the impetus for economic growth, of the authority credit bureau. A continued strengthening the latter, we are taking steps to create a private same time contribute to expand Partial Credit Guarantee Fund will at the operations of the welcome the selection of the country as a pilot In this connection, we Board of financial intermediation. of LICS, as called for by the Executive for enhanced surveillance of financial systems sector. case agenda to further develop Haiti's financial the IMF. This will help us outline a reform External debt management Action will be taken reform agenda in 2013. 27. We will continue our debt management in 2013 by Parliament of the law and institutional sides. The expected adoption the on both the legal of the Ministry of Economy and Finance will open related to the administrative reorganization that will have authority over the new for the creation of a Directorate General of Treasury of Debt with fully operational way the of the current Directorate debt unit that will take over authority have completed the work on the draft and back office functions. On the legal side, we 2013. We middle when it reconvenes in January public debt law which we intend to submit to Parliament In the interim, we will continue work on a medium-term debt strategy. will also complete resources to limit them to growth-enhancing exercising caution in the use of PetroCaribe to maintain debt sustainability. investment projects and resort only to concessional financing Safeguard assessments and AML/CFT of the January 2010 28. We will continue to implement the recommendations under to () adopt the IFRS, including follow-up mission. Work is way the Safeguards assessment to monitor its implementation and (ii) reconstitute the establishment of a special committee and appointing a compliance officer to oversight body Investment Committee as an independent monitor observation of investment guidelines. legal framework with FATF of our AML/CFT 29. We are committed to ensure compliance for adoption. This law enhances We have submitted a revised draft law to Parliament We have also standards. Financial Action Task Force (CFATF) standards. compliance with the Caribbean of the AML/CFT framework, particularly of critical aspects made headway in the implementation evasion, preventing financial sector abuse, in the context of combating corruption, countering tax include the publication by the Central identification of citizens. These measures that are in and improving that will establish mechanisms and procedures Bank of two decisions and guidelines institutions (passed by Parliament on May line with the new law on banks and other financial identify their customers and fund and help financial institutions (i) properly 14th, I 2012), laundering and the financing of terrorism. beneficiaries and (ii) prevent money Social policies in strengthening its social policies is continuing to make progress 30. The government segments of the population. In the aftermath mechanisms of the vulnerable in addition and protection recently in the education and health sectors and of recent ad hoc initiatives launched INTERNATIONAL MONETARY FUND 49 (passed by Parliament on May line with the new law on banks and other financial identify their customers and fund and help financial institutions (i) properly 14th, I 2012), laundering and the financing of terrorism. beneficiaries and (ii) prevent money Social policies in strengthening its social policies is continuing to make progress 30. The government segments of the population. In the aftermath mechanisms of the vulnerable in addition and protection recently in the education and health sectors and of recent ad hoc initiatives launched INTERNATIONAL MONETARY FUND 49 --- Page 51 --- HAITI to the cash program to help women with children, we are now working on a comprehensive and a coherent institutional framework to protect the most vulnerable segments of the population and combat extreme poverty. This work will benefit from the ongoing social and demographic surveys, including two household surveys, a survey on living standards, a joint demographic and health survey, and a multi-indicator cluster survey. The completion of these surveys is expected for the first quarter of 2013, and this will pave the way for producing a comprehensive strategy by mid-2013. A census, supported by donors, is expected to be launched by IHSI. Program monitoring 31. Our program will be monitored using the definitions, data sources, and frequency of monitoring set out in the accompanying revised TMU. The government will make available to Fund staff all data appropriately reconciled and on a timely basis, as specified in the TMU. Table 1 shows the quantitative performance criteria for monitoring program execution in 2011/12 and 2012/2013. Structural benchmarks, with corresponding dates and status of implementation are identified in Tables 2a and 2b. Structural conditionality for the remainder of the program, including new dates for the implementation of the four benchmarks outstanding are in Table 2c. It is proposed to reschedule to end-March 2013 (from End-March 2012) the two benchmarks on (i) strengthening the debt unit with fully operational middle and back offices functions; and (ii) submission to Parliament of a public debt law. The sixth review under the ECF arrangement, assessing end-March 2013 performance criteria, is expected to be completed by mid-July 2013. 50 INTERNATIONAL MONETARY FUND --- Page 52 --- Table 1. Haiti: Indicative Targets and Quantitative Performance Criteria, September 2011 - September 2013 (In millions of gourdes, unless otherwise indicated) Cumulative Flows from September 2009 Actual Sept. 2012 Dec. 2012 Dec. 2012 Dec. 2012 Mar. 2013 June 2013 Sept. 2013 stock at Indicative end- Sept. PC Indic ative targets adjusted Actual target for lower Actual PC Indicative Indicative budgetary target target grants in Q1 L Quantitative performance criteria Net central bank credit to the non- financial public sector ceiling 21,549 -12,090 -17,864 Central Government 21 -13,776 -13,160 -15,823 -13,163 -12,551 -11,938 Rest of non- financial public sector 23,118 -7,742 -13,883 -11,904 -11,289 -11,545 -11,375 -10,846 -10,317 Net domestic assets of the central bank ceiling 3/ -1,569 -1,954 -3,981 -1,871 -1,871 -4,278 -1,788 -1,704 -1,621 Net international reserves of central bank (in millions of U.S. dollars) floor 14,448 -5,383 -24,874 -13,251 -12,635 -13,988 -10,323 -7,395 -4,467 416 563 886 749 636 723 682 641 I. Continuous performance criteria Domestic arrears accumulation of the central government bank ceiling 3/ -1,569 -1,954 -3,981 -1,871 -1,871 -4,278 -1,788 -1,704 -1,621 Net international reserves of central bank (in millions of U.S. dollars) floor 14,448 -5,383 -24,874 -13,251 -12,635 -13,988 -10,323 -7,395 -4,467 416 563 886 749 636 723 682 641 I. Continuous performance criteria Domestic arrears accumulation of the central government New contracting or guaranteeing by the public sector of nonconcessional external or foreign currency debt (In millions of U.S. dollars) 4/ Up to and including one year Over one year maturity Public sector external arrears accumulation (in millions of U.S. dollars) III. Indicative targets Change in base money ceiling 31,080 17,128 10,561 Net domestic credit to the central government ceiling 5/ 17,328 17,328 11,469 18,609 19,890 21,171 19,540 -6,710 -22,532 -22,221 -21,605 -21,552 -21,615 -21,010 -20,404 Poverty reducing expenditures floor 6/ 24,313 24,506 31,175 31,175 29,777 36,446 41,717 46,988 Memorandum items Change in currency in circulation 13,448 7,161 Net domestic credit to the rest of the non- financial public sector 6,784 7,921 7,921 9,646 8,494 9,067 9,640 Government total revenue, excluding grants 1,641 -2,032 -4,254 -1,948 -1,948 -4,157 -1,865 -1,782 -1,698 A Government total expenditure, excluding externally- financed investment 29,881 117,269 112,289 127,253 127,253 122,643 139,283 151,969 166,245 42,096 162,735 155,263 171,677 171,677 171,669 188,152 Sources: Ministry of Finance, Bank of the Republic of Haiti, and Fund staff estimates. 207,199 226,645 1/ For performance under the program prior to September 2011, please see the previous staff report. 2/E Excluding spending of resources freed by IMF PCDR debt relief. 3/ For program monitoring purposes, NDA is defined as monetary base minus program NIR in gourde terms. period. June 2010 September 2013. Program exchange rate of G40.0 per U.S. dollar for the 4/ Excludes guarantees granted to the electricity sector in the form of credit/guarantee letters. 5/This includes central bank, commercial bank, and non-bank financing to the government. It includes net T- bill issuance for government 6/ Poverty reducing expenditures consist of domestically- -financed spending in health, education, and agriculture. financing. - E debt relief. 3/ For program monitoring purposes, NDA is defined as monetary base minus program NIR in gourde terms. period. June 2010 September 2013. Program exchange rate of G40.0 per U.S. dollar for the 4/ Excludes guarantees granted to the electricity sector in the form of credit/guarantee letters. 5/This includes central bank, commercial bank, and non-bank financing to the government. It includes net T- bill issuance for government 6/ Poverty reducing expenditures consist of domestically- -financed spending in health, education, and agriculture. financing. - E --- Page 53 --- HAITI Table 2a. Haiti: Status of Implementation of Structural Reform Measures in 2010 Macro-criticality Objective Structural Benchmarks Status Prior Actions Completion of the audit of foreign reserves to confirm the levels Safeguards assessment Improve reliability of program data of end- -September 2009 and end- September 2010 level of Completed unencumbered reserves. End- September 2010 1-Improve the tracking of Publish regular reports on povertyContinue publishing quarterly reports on poverty-reducing poverty-reducing expenditures reducing spending on the MEF la expenditures on the MEF website, including domesticallyMet website. financed health, education and agricultures spending. Start publishing central government monthly transfers to Strengthen the transparency of 2a investment project accounts, project by project, including Met with delay 2-Strengthen fiscal discipline and expenditure policy. PetroCaribe projects. transparency by improving 2b Start publishing central government monthly transfers by budget preparation, expenditure beneficiary entity. Met control and cash management Improve control of budget 2c Start preparing monthly consolidated Treasury balances (TMU execution and fiscal reporting. 138). Met with delay Improve cash management 2d Prepare an inventory of all government and donor accounts at the BRH and BNC (TMU 139). Met with delay Prepare quarterly reports with monthly data on the Strengthen operation of tax and 3a performances of the tax system and the tax administration, customs administrations. including the cost of exemptions and revenue collected in the Met provinces (TMU 140). 3-Raise government rever nue Enhance the transparency of the tax 3b Start publishing a quarterly report that identifies all fiscal exemption policy. expenditure by beneficiary sectors. Met Introduce a new tax code that Set up a working group that would be tasked to prepare a study would increase revenue and 3c to simplify the tax system, increase revenue, improve tax rationalize the tax system. productivity, custom and fiscal administration, establish a work Met with delay program with specific deadlines (TMU137). 4-Improve the monetary policy Improve timeliness of external Completion and framework and its effectiveness audits of the BRH; enforce rotation 4a publication of externally audited financial Met lof external auditors. statements for 2008/09. 52 INTERNATIONAL MONETARY FUND that Set up a working group that would be tasked to prepare a study would increase revenue and 3c to simplify the tax system, increase revenue, improve tax rationalize the tax system. productivity, custom and fiscal administration, establish a work Met with delay program with specific deadlines (TMU137). 4-Improve the monetary policy Improve timeliness of external Completion and framework and its effectiveness audits of the BRH; enforce rotation 4a publication of externally audited financial Met lof external auditors. statements for 2008/09. 52 INTERNATIONAL MONETARY FUND --- Page 54 --- HAITI Table 2b.Haiti: Status of Implementation of Structural Reform Measures in 2011 Macro-criticality Objective Structural Benchmarks Timing Status Continued benchmarks Continue publishing reports listed under la, End- March 2a. 2b, 2c, 3a, 3b Met Start preparing and publishing monthly cash Improve cash management 2f plans including PetroCaribe spending and End- March Strengthen fiscal discipline and financing needs. Met transparency by improving budget preparation, expenditure control and cash management Improve the tracking of investment Start producing quarterly reports with spending and improve ability to 2g monthly data of investment expenditure End- March make multi- year investment based on SYSGEP and publish them on the Met projections. MEF website. Improve the monetary policy Enforce rotation of external Select an international firm to conduct ISA framework and its effectiveness auditors to audit BRH accounts. compliant external audit for the FY 2011 audit, End- July 2011 Met with delay for a period of 3 to 6 years. Strengthen foreign exchange Adoption of a global reserves management reserves management policy by the investment committee, covering End- -June 2011 Met allf foreign exchange reserves. Improve the transparency of government transfers to the energy 2h Identify and consolidate all sources of sector transfers to EDH in regular monthly reports. End- June 2011 Met Launch the bids for the selection and hiring of 2i thei international consulting agency that will assist UCP and other project implementation End- June 2011 Met units in the government 2j Prepare a plan of action / operational manual Strengthen fiscal discipline and describing: transparency by improving budget a. Modalities to recruit staff with project preparation, expenditure control and Enhance the quality of spending of management skills and responsibility for cash management investment projects, including those ordering payments for project work orders. financed with PetroCaribe resources b. A defined set of information, project lists and PCDR debt relief. and accounts to be regularly published online End- September toe ensure full transparency on project Met with delay. execution and planning. C. Clear practices to ensure the coordination between the UCP, the Procurement Commission (CNMP) and the Ministry of External Cooperation and Planning (MPCE), in full compliance with national budget execution rules. Continued benchmarks Continue publishing reports listed under la, End- September 2a, 2b, 2c, 2h, 3a, 3b Met INTERNATIONAL MONETARY FUND 53 CDR debt relief. and accounts to be regularly published online End- September toe ensure full transparency on project Met with delay. execution and planning. C. Clear practices to ensure the coordination between the UCP, the Procurement Commission (CNMP) and the Ministry of External Cooperation and Planning (MPCE), in full compliance with national budget execution rules. Continued benchmarks Continue publishing reports listed under la, End- September 2a, 2b, 2c, 2h, 3a, 3b Met INTERNATIONAL MONETARY FUND 53 --- Page 55 --- HAITI Table 2c. Haiti: Status of Structural Conditionality through end-l -March 2012 and Proposed Measures Through End-March 2013 MacroObjective Structural Benchmarks Timing Status criticality Complete the setting- -up of the debt Reprogrammed to End junit at the MEF and build capacity to Strengthen the debt unit with fully operational middle and back office March 2013 from Endprepare a medium- term debt functions; Preparation of annual debt sustainability analyses. March 2012 Debt strategy. management Inprogress Reprogrammed to End Strengthen the legal framework for Submit to Parliament a public debt lawt that would establish a sound March 2013 from Enddebt management. legal and institutional framework for public debt management March 2012 In progress Tax policy andIncrease revenue Increase the excise tax on cigarettes and alcohol End-March2012 Met revenue Puti in place within the Directorate General of Taxes a unit in charge administration Improve revenue collection of medium & large enterprises End- September 2012 Met Macro fiscal Improve overall macroeconomic Puti in place the fiscal policy unit within the MEF End- September 2012 Met management management Close all dormant accounts of the central government at the central Cash Improve cash management and bank or commercial banks andestablish the list of accounts used by management enhance transparency in spending publice entities End-June2012 Met Reduce the number of domesticall-fundedi imprest accounts to three by ministry or institutions (for revenue collection, capital spending, Improve accounting procedures and and other transactions) and deploy the network of public accounting enhance transparency offices at the line ministries level and gradually grant signature Accounting authority on these accounts to public accountants appointed by the Ministry of Economy and Finance End-March2013 Inprogress Roll outi in all ministries the GL- -software and start to record projects Enhance accounting for expenditure andi imprest accounts expenditure when they are effectively paid, and management no longer when the replenishment of the accountis made. End-March 2013 In progress Continued Improve coordination between fiscal Start publishing on the BRH website reports 10R, 20R and 610R ona basis End-March2 2012 Met benchmark and monetary policy monthly Notr met. The authorities intend to expand and modernize the foreign exchange market, taking into Exchange rate Improve the functioning of foreign Establish unconstrained single price foreign exchange auctions account local market management exchange market specificities and constraints, before establishing the single price foreign exchange End- September 2012 auctions. 54 INTERNATIONAL MONETARY FUND Continued Improve coordination between fiscal Start publishing on the BRH website reports 10R, 20R and 610R ona basis End-March2 2012 Met benchmark and monetary policy monthly Notr met. The authorities intend to expand and modernize the foreign exchange market, taking into Exchange rate Improve the functioning of foreign Establish unconstrained single price foreign exchange auctions account local market management exchange market specificities and constraints, before establishing the single price foreign exchange End- September 2012 auctions. 54 INTERNATIONAL MONETARY FUND --- Page 56 --- HAITI MEMORANDUM OF UNDRSTANOING-UPOATE ATTACHMENT 2. TECHNICAL by the Extended Credit Facility (ECF) will 1. Haiti's performance under the program supported performance criteria as well as on the basis of the observance of quantitative (TMU) be assessed This Technical Memorandum of Understanding compliance with structural benchmarks. of certain structural benchmarks, and defines the quantitative performance criteria, specification 2013, specified in Tables 1 and 2 of indicative targets for the period September, 2010-September, It also lays down the monitoring and and Financial Policies (MEFP). the Memorandum on Economic reporting requirements. Institutional Definitions comprises the presidency, prime minister's Central government. The central government It 2. line ministries and "organismes déconcentrés." office, parliament, national courts, treasury, donors through ministerial accounts (comptes financed directly by foreign includes expenditures courants). public sector includes the central government Non-financial public sector. The non-financial sector enterprises 3. local governments and public plus non-budgetary autonomous organizations, holds a controlling stake of more than (enterprises and agencies in which the government 50 percent of the shares). the the non-financial public sector and sector. The total public sector comprises 4. Total public of Haiti (BRH). central bank, the Bank of the Republic Quantitative targets Credit to the Non-Financial Public Sector Net BRH central bank credit to the central public sector equals net 5. Net BRH credit to the non-financial of the non-financial public sector. plus net central bank credit to the rest government is defined as, and will be measured The change in net BRH credit to the central government 6. using: from the BRH according to Change in net domestic credit to the central government Table 10R of the BRH. de projets" ") included in Table 10R of the Change in the stock of project accounts ("Comptes central as defined in net domestic credit to the government BRH will be excluded from the change above. INTERNATIONAL MONETARY FUND 55 non-financial public sector. plus net central bank credit to the rest government is defined as, and will be measured The change in net BRH credit to the central government 6. using: from the BRH according to Change in net domestic credit to the central government Table 10R of the BRH. de projets" ") included in Table 10R of the Change in the stock of project accounts ("Comptes central as defined in net domestic credit to the government BRH will be excluded from the change above. INTERNATIONAL MONETARY FUND 55 --- Page 57 --- HAITI spéciaux") and seized values ("Valeurs Change in the stock of Special Accounts ("Comptes from the change in net domestic included in Table 10R of the BRH will be excluded saisies UCREF") defined above. 1 credit to the central government as rest of the non-financial public sector, is defined The change in net central bank credit to the 7. as, and will be measured using: (i.e, net credit to the non-financial public in "créances nettes sur le secteur public" a. Change net credit to the central government), in "créances nettes sur l'état" (ile. sector) minus the change according to table 10R of the BRH. 2009. basis from the stock at end September will be measured on a cumulative 8. The changes Financing to the Central Government A. Net Domestic will comprise the change in net banking financing to the central government which 9. Net domestic below) plus the change in nonbank financing sector credit to the central government (defined net issuance of Treasury bills and other amortization, counterpart funds,2 and the sector credit includes to non-banks. Net domestic banking securities by the central government government is defined as, and will be measured, using: to the central government central from the BRH stock of net domestic credit to the government a. The change in the stock of net domestic credit of the Table 10R of the BRH, plus, the change in the according to Table 20R of the BRH, which will include the from domestic banks according to central government securities by the central government for net issuance of treasury bills and other government of the BRH are excluded Securities issued for the recapitalization government financing purposes. from this definition. in 6.b above, will accounts ("Comptes de projets"), as defined b. The change in the stock of project Government. banking sector credit to the Central from the change in net domestic be excluded and seized values in the total stock of Special Accounts ("Comptes Spéciaux") C. The change from the change in net domestic in 6.C above, will be excluded ("Valeurs Saisies UCREF"), as defined banking sector credit to the Central Government. central government sight deposits at the refer to U.S. dollar-denominated the form of wheat, 1 Special Accounts ("Comptes Spéciaux") with the proceeds of the sales of in-kind aid (in and BRH. The balance of these accounts increases these proceeds are earmarked to finance specific projects maize, rice, etc.) received by the Haitian government; without the explicit authorization of respective donors. cannot be used by the Central Government from sales of grants received in kind. 2 Counterpart funds are proceeds 56 INTERNATIONAL MONETARY FUND banking sector credit to the Central Government. central government sight deposits at the refer to U.S. dollar-denominated the form of wheat, 1 Special Accounts ("Comptes Spéciaux") with the proceeds of the sales of in-kind aid (in and BRH. The balance of these accounts increases these proceeds are earmarked to finance specific projects maize, rice, etc.) received by the Haitian government; without the explicit authorization of respective donors. cannot be used by the Central Government from sales of grants received in kind. 2 Counterpart funds are proceeds 56 INTERNATIONAL MONETARY FUND --- Page 58 --- HAITI basis from the stock at end-September 2009. The will be measured on a cumulative 10. changes B. Net International Reserves international reserves will be measured using: 11. The change in net nettes" of the BRH Table 10R); in net foreign assets ("Réserves de change a. Change banks at the BRH ("Dépôts à vue in foreign currency deposits of commercial b. Minus the change "CAM transfer" of the BRH Table 10R). dollars U.S. et en Euros des BCM à la BRH", and the en de projets") as defined in 6.b in the stock of project accounts ("Comptes C. Minus the change above. Spéciaux") in dollars and Euros in the stock of Special Accounts ("Comptes d. Minus the change UCREF"), the latter as defined in 6.c and seized values ("Valeurs Saisies (and excluding gourdes), above. allocation ("Allocations DTS") in the stock of the Special Drawing Rights (SDR) e. Plus the change from the BRH Table 10R. end-period dollar terms and valued at the corresponding 12. Data will be expressed in U.S. rate from the BRH Table 10R. market exchange reserves (NIR) are the difference between the For definition purposes, net international SDR holdings, and 13. monetary gold, all claims on nonresidents, BRH's gross foreign assets (comprising financial institutions) and reserve liabilities (including BRH claims in foreign currency on domestic of Fund credit, and excluding the full SDR of one-year maturity or less, use and liabilities to nonresidents with domestic financial institutions allocation, and trust funds). Swaps in foreign currency from NIR. encumbered reserve assets are excluded pledged or otherwise 2009. basis from the stock at end-September The changes will be measured on a cumulative 14. Assets of the BRH C. Net Domestic BRH is defined as, and will be measured using: The in net domestic assets of the 15. change are reported in Table 10R as part of ("Lettres de crédit" and "Lettres de garantie") 3 Letters of credit and guarantee netted out of NIR. extérieurs"), and therefore are already BRH foreign liabilities ("'Engagements INTERNATIONAL MONETARY FUND 57 2009. basis from the stock at end-September The changes will be measured on a cumulative 14. Assets of the BRH C. Net Domestic BRH is defined as, and will be measured using: The in net domestic assets of the 15. change are reported in Table 10R as part of ("Lettres de crédit" and "Lettres de garantie") 3 Letters of credit and guarantee netted out of NIR. extérieurs"), and therefore are already BRH foreign liabilities ("'Engagements INTERNATIONAL MONETARY FUND 57 --- Page 59 --- HAITI definition according to Section I below); a. The change in base money (program amount of net international reserves (program definition b. Minus the change in the U.S. dollar exchange rate. converted into gourdes at the program according to section C above), exchange rate domestic assets of the BRH will use a program 16. The program definition of net March 2013. of G 40.0 per U.S. dollar for the period June 2010basis from the stock at end-September 2009. The changes will be measured on a cumulative 17. Funds D. PetroCaribe-Related balance of Petro Caribe funds totaled 18. As of October 2012, the outstanding 334 million dollars held at the BNC state bank. inflows through a to channel new PetroCarbe/AlBA-related 19. The authorities are planning of which is well advanced.4 Until the statutes of Venezuela-Haiti corporation, the creation binational in the "Journal Officiel" (Le Moniteur), PetroCarbe-related the new societé mixte are published external debt of the central government. These resources inflows will continue to constitute direct and, for program purposes, will be fully are under the direct control of the central government, They will be treated as budget support reflected in the fiscal tables underpinning the program. accounts in the banking or entirely deposited in government loans, whose proceeds are partly PetroCaribe resources (up to US$400 million in FY (PetroCaribe deposits). Spending from will also be fully system of PetroCaribe deposits in the banking system, 2012), financed with a drawdown reflected in program tables. of the company will be ratification of the societé mixte, the annual budgets annual financial 20. Following before the beginning of the fiscal year. Audited published on the MEF website months of the end of each financial year. statements will be published within six Denominated Debt Public Sector External and Foreign-Currency E. Non Concessional loans, suppliers' credits, and all forms of debt, including 21. The definition of debt comprises liabilities, which are created under a contractual leases, that constitute current, i.e. not contingent form of assets (including currency) or services, arrangement through the provision of value in the in the form of assets (including which require the obligor to make one or more payments Executive Board and in the future, as set forth in point 9 of IMF currency) or services, at some point Board Decision No. 14416-(09/91) of August Decision No. 6230-(79/140), as amended by Executive 31, 2009. 4 ALBA refers to "Alternativa Boliviarana de las Americas". 58 INTERNATIONAL MONETARY FUND form of assets (including currency) or services, arrangement through the provision of value in the in the form of assets (including which require the obligor to make one or more payments Executive Board and in the future, as set forth in point 9 of IMF currency) or services, at some point Board Decision No. 14416-(09/91) of August Decision No. 6230-(79/140), as amended by Executive 31, 2009. 4 ALBA refers to "Alternativa Boliviarana de las Americas". 58 INTERNATIONAL MONETARY FUND --- Page 60 --- HAITI by the public sector of new non to the contracting and guaranteeing The 22. A ceiling applies maturities of one year of more. ceiling concessional debt in foreign currency with original for which value has not yet been to debt and commitments contracted or guaranteed been extended and which, applies debt for which official guarantees have received. This covers private sector. liability of the public therefore, constitute a contingent of a debt arises from any explicit legal obligation of the guarantee in 23. For program purposes, by the debtor (involving payments sector to service a debt in the event of nonpayment the public cash or in kind). element of at least 35 debt is concessional if it includes a grant 24. For program purposes, a element of a debt is the difference between the present percent, calculated as follows: the grant of the nominal value of the of debt and its nominal value, expressed as a percentage the future stream of value (PV) is calculated by discounting debt.5 The PV of debt at the time of its contracting specific commercial interest debt service due on this debt, based on the currency payments of for Economic Cooperation and Development reference rates (CIRRS) as laid out by the Organization CIRR will be used to debt with a maturity of at least 15 years, the ten-year-average than 15 (OECD).6 For a element. For debt with maturity of less years, calculate the PV of debt and hence, its grant and six-month averages, the same CIRR will be used. To both the ten-year the six-month average used by the OECD need to be added (0.75 percent for differing repayment periods as those margin for repayment periods of less than for 20 to 29 years, and 1.25 percent for for 15 to 19 years, 1.15 percent 15 years, percent 30 years or more). import-related credits, rescheduling arrangements, 25. Excluded from the ceiling are short-term bills, and guarantees for the electricity non-resident purchases of treasury borrowing from the Fund, sector in the form of letters of credit. debt by the total public and guaranteeing of non concessional the 26. The ceilings for contracting million continuously throughout defined in paragraph 4) will be set at US$ thirty-three sector (as program period. F. Arrears of the Central Government (principal and interest) to nonarrears are defined as overdue payments 27. External payment the central government, and will be defined residents on debt contracted and guaranteed by The criterion of zero accumulation of terms of indebtedness of each creditor. according to the basis. external arrears will be monitored on a continuous 5 The element calculator can be found at grace -T grant account all aspects of the loan agreement, including maturity, 6 The grant element calculations will take into and management fees. schedule, upfront commissions, period, payment INTERNATIONAL MONETARY FUND 59 (principal and interest) to nonarrears are defined as overdue payments 27. External payment the central government, and will be defined residents on debt contracted and guaranteed by The criterion of zero accumulation of terms of indebtedness of each creditor. according to the basis. external arrears will be monitored on a continuous 5 The element calculator can be found at grace -T grant account all aspects of the loan agreement, including maturity, 6 The grant element calculations will take into and management fees. schedule, upfront commissions, period, payment INTERNATIONAL MONETARY FUND 59 --- Page 61 --- HAITI defined to include: (i) any bill that has been Domestic arrears of the central government are (and verified) and 28. from a supplier for goods and services delivered received by a spending ministry within 90 days after the due date of payment; (ii) wage, for which payment has not been made including direct and indirect allowances, that salary, and other payment to government employees, unpaid on the 30th of the following month; and were due to be paid in a given month but remained 30 days after the due date of payment. This which remain unpaid (ii) interest or principal obligations on account of interest, penalties and valuation definition excludes changes in the stock of arrears changes. G. Base Money is defined as, and will be measured using: 29. The change in base money in circulation from Table 10R of the BRH. in the stock of currency a. The change banks at the BRH, from Table 10R, in the stock of reserve deposits of commercial b. The change vue en des BCM a la BRH) and of commercial banks (dépôts a gourdes using gourde sight deposits cash-in-vault of commercial banks (encaisses des BCM). basis from the stock at end September 2009. The changes will be measured on a cumulative 30. Expenditures H. Poverty-Reducing will be measured as the sum of domestically31. The growth in poverty reducing expenditure health, and education. This will be a for the Ministries in charge of agriculture, financed spending 2009. flow measured on a cumulative basis from end-September Quarterly Adjustments below: targets will be adjusted as indicated criteria and indicative 32. The quarterly performance for Domestic Arrears Accumulation I. Adjustment and the net domestic banking The ceilings for net BRH credit to the central government amount of outstanding 33. will be adjusted downwards for the sector credit to the central government domestic arrears accumulation. for PetroCaribe-related Inflows J. Adjustment PetroCarbe-related funds is legally bi-national company expected to administer 34. Until the deposits will be considered as central established, any drawdown of PetroCaribe-related government spending for program purposes. will include movements in for net domestic credit to the central government between the 35. The ceiling and will be adjusted for the difference PetroCaribe accounts in the banking system 60 INTERNATIONAL MONETARY FUND be adjusted downwards for the sector credit to the central government domestic arrears accumulation. for PetroCaribe-related Inflows J. Adjustment PetroCarbe-related funds is legally bi-national company expected to administer 34. Until the deposits will be considered as central established, any drawdown of PetroCaribe-related government spending for program purposes. will include movements in for net domestic credit to the central government between the 35. The ceiling and will be adjusted for the difference PetroCaribe accounts in the banking system 60 INTERNATIONAL MONETARY FUND --- Page 62 --- HAITI and programmed stock of these deposits actual stock of PetroCaribe deposits in the banking system central on BRH net The ceilings for net BRH credit to the government, at the in the banking system. also include movements in PetroCaribe accounts domestic assets, and the floor for NIR will actual stock of PetroCaribe deposits at the will be adjusted for the difference between the be calculated on a BRH. They of these deposits at the BRH. The adjustor will BRH and the programmed stock cumulative basis from October 1, 2009. Cash Grants in Second Half of FY2012 K. Adjustment for Budgetary BRH net credit to the central government, net domestic 36. The performance criteria ceilings on assets, and the floor on NIR reflect expected and on BRH net domestic financing to the government, of G4.7 billion (about budgetary donor grants of the equivalent $22 million, Spain $22 million, World Bank $27 FY2012 (USA, $13 million, France $114 million) during budgetary donor grants total million, and IDB $25 million). For FY2013, expected France $13 million, and Spain $7 million. If including IDB $30 million, IDA$20 million, criteria ceilings will be $80 million, than these performance actual grant inflows are lower (higher) programmed, criterion floor will be adjusted downward and the performance adjusted upward (downward), between actual and programmed inflows. (upward), by the amount of the difference basis from October 1, 2009. The will be calculated on a cumulative 37. adjuster Clarification of Structural Conditionality L. Fiscal Sector of the following items related to 38. As specified in Tables 2a and 2b, the publications 2c, 3a, 3b, and 2h. Publication should continue over the program period: la, 2a, 2b, benchmarks will with no gaps or unjustified delays. the regular basis (i.e. monthly or quarterly), occur on specified revenue will involve designing and The structural benchmark on raising government 2011). These 39. indicators for DGI and AGD (by end-December implementing monitorable performance (DGI) and a set of information by industry (AGD) and taxpayer segment be should include detailed TA The reports should "tax effort" and efficiency, in line with recommendations. ratios to verify published monthly on the MEF website. of a fiscal policy unit within the MEF benchmark related to the establishment 40. The structural service within the MEF tasked 2012) will require the creation of a separate balances and the (end-September measures and simulating their impact on budget exclusively with analyzing fiscal be clearly delimited within the MEF, by as a whole. The perimeter of this unit should be shared with the economy of the Minister or the Director General (to appropriate written communication of the unit, its staffing and its duties. IMF) nominating the officer in charge within the Directorate General of Taxes The structural benchmark related to putting in place act (to be 41. 2012) will require an official a unit in charge of medium enterprises (end-September the DGI tasked with dealing with medium shared with the IMF) setting up a separate unit within INTERNATIONAL MONETARY FUND 61 EF, by as a whole. The perimeter of this unit should be shared with the economy of the Minister or the Director General (to appropriate written communication of the unit, its staffing and its duties. IMF) nominating the officer in charge within the Directorate General of Taxes The structural benchmark related to putting in place act (to be 41. 2012) will require an official a unit in charge of medium enterprises (end-September the DGI tasked with dealing with medium shared with the IMF) setting up a separate unit within INTERNATIONAL MONETARY FUND 61 --- Page 63 --- HAITI issues related to this segment of taxpayers, which will follow and streamline the administrative to this unit and the act Adequate staffing and office space should be provided in charge of it and its immediate taxpayers. include the nomination of the person establishing the unit should aides. of of dormant accounts and the establishing benchmark related to the closing of 42. The structural 2012) entails compiling a census accounts of all account of used by public entities (end-June set of rules a list banks, and the creation of a permanent both at the Central Bank and in commercial list and set of rules to be shared with the IMF). the closing of dormant accounts (both and rules on how the sums governing since last activity, threshold on balances These would include time lags should be transferred to the Treasury. the debt unit (end-March 2013) will require 43. The structural benchmark on strengthening to such unit; nominating the officer in permanently providing adequate office space and staffing from the Minister or the Director of it and setting up its tasks with an official communication of its services, produce annual charge be shared with the IMF); the MEF should, by coordination the BRH and the General (to them available to the Fund, all MEF services, debt sustainability analyses and make MPCE. debt law (end-March 2013) will require The structural benchmark on submitting a public law in line with international 44. (and sharing with the IMF) of a draft debt transmission to Parliament of development partners' TA. standards and with the recommendations the number of domesticall-funded imprest 45. The new structural benchmark on reducing collection, one for capital spending, to three by ministry or institutions (one for revenue on these accounts current spending) and granting signature power one for other transactions, including the MEF (end-March 2013) will imply the identification accounts to public accountants appointed by authorized to sign. On this basis, the the names of the officials currently of all the accounts as well as in the benchmark and provide signature authorities will reduce the number of accounts as specified accountants designated by the ministry of finance. power to public GL-software in the offices benchmark on rolling-out, for all ministries, the 46. The new structural record and imprest accounts expenditure accountants, and starting to projects is made of the government more when the replenishment of the account when they are effectively paid and not any of the software and ensuring it is 2013) requires providing to all ministries a copy at level. (end-March follow on the recording of expenditure payment adequately installed. It also requires a up Monetary Policy and Financial Sector M. will involve the development exchange rate management 47. The benchmark on strengthening encompassing reform of the foreign exchange of an exchange rate management strategy also market by end September 2012. Provision of Information 62 INTERNATIONAL MONETARY FUND more when the replenishment of the account when they are effectively paid and not any of the software and ensuring it is 2013) requires providing to all ministries a copy at level. (end-March follow on the recording of expenditure payment adequately installed. It also requires a up Monetary Policy and Financial Sector M. will involve the development exchange rate management 47. The benchmark on strengthening encompassing reform of the foreign exchange of an exchange rate management strategy also market by end September 2012. Provision of Information 62 INTERNATIONAL MONETARY FUND --- Page 64 --- HAITI 48. To ensure adequate monitoring of the program, the authorities will provide daily, weekly, and monthly monetary and fiscal indicators to IMF staff, details of any loan contract or guarantee to be ratified by a non-financial public sector entity, including public enterprises, before signature, as well as other data upon request. N. Daily The exchange rate. O. Weekly 49. Monetary Indicators: (a) Stock of BRH bonds; (b) Deposits at commercial banks (in gourdes and U.S. dollars); (c) Credit to the private sector (in gourdes and U.S. dollars); (d) Credit to central government and the public sector (net); (e) Currency in circulation, (f) base money, (g) details of inflows and outflows of gross foreign exchange reserves, (h) volume of foreign exchange transactions, of which BRH sales and purchases; (i) gross international reserves; and (d) net international reserves (NIR). The NIR data will be reported using the following table format: Haiti: Net International Reserves BRH, End-December 2012 (In millions of U.S. dollars) A. Gross Foreign Exchange Reserves 2,185.2 B. Gross Liabilities 275.9 C. Net Foreign Assets (=A-B) 1,909.3 D. FX deposits of commercial banks and CAM transfer at the BRH 963.7 E. Project accounts 8.8 F. Special accounts in U.S. dollars and euros 3.1 G. Seized values 0.0 H. SDR allocation (liability) 118.5 J. NIR (=C-D-E-F-G+H) 1,052.2 Source: Haitian authorities; and Fund staff estimates. 50. Fiscal Indicators: (a) Revenues (internal, external, other) and (b) Expenditures on a cash basis (wages and salaries, goods and services, external debt, current accounts). 51. These data will be reported with a maximum five-day lag for preliminary data (four weeks for final data). P. Monthly Monthly data Table 10 R and Table 20 R with a maximum 30-day lag for final data. Tableau on the comptes courants with a maximum 30-day lag for final data. INTERNATIONAL MONETARY FUND 63 --- Page 65 --- HAITI "Project Accounts", 1 by donor, with a maximum 30-day lag for final data Tableau de trésorerie de devises with a maximum 30-day lag for final data. Tableau des Operations Financières de l'Etat (within 20 days after end of month). Table underlying the TOFE which enables the determination of checks in circulation and the balance on investment project accounts (TOFE-extension). Set of external debt tables with a maximum 30-day lag for final data. Report of revenue collection of the DGI (Rapport d'activités), with a maximum 30-day for lag final data. The aide memoire table, which includes monetary policy indicators (foreign exchange interventions, Gourde and foreign currency credit and deposits, monetary financing). Tables of revenue collection of AGD (Indicateurs d'activités aux ports, Rapport analytique des perceptions douanières à l'importation), with a maximum 30-day lag for final data. Balance of Bureau de Monetization accounts, including spending from "fonds de contrepartie" and those movements related with flows linked to the ALBA-PetroCaribe agreement. Balance of PetroCaribe/ALBA-related deposits at commercial banks and the BRH, with a maximum 30-day lag for final data. ourde and foreign currency credit and deposits, monetary financing). Tables of revenue collection of AGD (Indicateurs d'activités aux ports, Rapport analytique des perceptions douanières à l'importation), with a maximum 30-day lag for final data. Balance of Bureau de Monetization accounts, including spending from "fonds de contrepartie" and those movements related with flows linked to the ALBA-PetroCaribe agreement. Balance of PetroCaribe/ALBA-related deposits at commercial banks and the BRH, with a maximum 30-day lag for final data. Haiti. PetroCaribel Deposits September December March June September December March June September December 2009 2009 2010 2010 2010 2010 2011 2011 2011 2011 March 2012 June 2012 September 2012 r December Total deposits in; gover rnment: accounts int the banking system Cumulative flows (Gmins) 1804.3 1520.7 2309.4 3204.9 3779.8 3975.9 6144.0 5518.1 6145.6 6773.2 in US dollars (USS mins) 42.4 43.2 62.4 84.3 99.0 102.1 155.6 137.9 153.0 163.3 7400.7 8028.3 8373.6 180.5 193.1 198.7 Stocks (Gmins) 3713.2 5517.5 5233.9 6022.5 6918.1 7493.0 7689.1 9857.2 9231.3 9858.8 10486.4 in US dollars (USS mlns) 88.9 131.3 132.1 151.3 173.2 187.9 191.0 244.4 226.8 241.9 252.2 11113.9 11741.5 12086.8 269.4 282.0 at Deposits in; gover nmer nts accounts the BRH 287.6 Cumulative flows (Gmlns) -90.3 -93.0 -96.1 -96.0 -96.0 -96.0 -96.0 -96.0 -96.0 -96.0 in US dollars (USS mins) -2.2 -2.1 -2.2 -2.2 -2.2 -2.2 -2.2 -2.3 -2.3 -2.3 -96.0 96.0 -96.0 Stocks (Gmins) 171.0 80.7 78.0 74.9 75.0 75.0 75.0 75.0 75.0 75.0 -2.3 -2.3 -2.3 in US dollars (USSmins) 4.1 1.9 2.0 1.9 1.9 1.9 1.9 1.9 1.8 1.8 75.0 75.0 75.0 75.0 Deposits in; gover rnment accounts in commercial banks 1.8 1.8 1.8 1.8 Cumulative flows (Gmins) 1894.6 1613.7 2405.4 3300.9 3875.8 4071.9 6240.0 5614.1 6241.6 6869.2 in US dollars (USS mlns) 44.6 45.4 64.6 86.5 101.2 104.3 157.8 140.2 155.3 165.6 7496.7 8124.3 8469.6 182.8 195.4 201.0 Stocks (Gmins) 3542.2 5436.8 5155.9 5947.6 6843.1 7418.0 7614.1 9782.1 9156.2 9783.8 10411.3 in USdollars (USSmins) 84.8 129.4 130.1 149.4 171.3 186.0 189.1 242.6 224.9 240.1 250.4 11038.9 11666.4 12011.8 267.6 280.2 285.8 Sources: Haitian Authorities and IMF Staff festimates and projections Quarterly 52. 8.0 7614.1 9782.1 9156.2 9783.8 10411.3 in USdollars (USSmins) 84.8 129.4 130.1 149.4 171.3 186.0 189.1 242.6 224.9 240.1 250.4 11038.9 11666.4 12011.8 267.6 280.2 285.8 Sources: Haitian Authorities and IMF Staff festimates and projections Quarterly 52. Report on poverty-reducing expenditures, with a maximum 30-day lag for final data. 64 INTERNATIONAL MONETARY FUND --- Page 66 --- HAITI R. Other Information 53. The authorities will share with staff the by-laws of the new binational (Venezuela-Haiti) entity (as soon as they are enacted), including any and all needed information to assess the nature of such new entity; the authorities will also share with staff the financing terms of any financing received by such entity, including any and all information needed to assess whether any financing flows received by such new entity constitute public debt (direct and/or contingent) of any form. INTERNATIONAL MONETARY FUND 65 --- Page 67 --- MONETARY FUND INTERNATIONAL HAITI REPORT FOR THE 2012 ARTICLE IV STAFF AND FIFTH REVIEW UNDER THE February 21, 2013 CONSULTATION CREDIT TACUIN-IPORMATONAL EXTENDED ANNEX The Western Hemisphere Department (In collaboration with Prepared By other departments) CONTENTS FUND RELATIONS DEVELOPMENT BANK RELATIONS WITH THE INTER-AMERICAN RELATIONS WITH THE WORLD BANK GROUP STATISTICAL ISSUES --- Page 68 --- HAITI FUND RELATIONS January 31, 2013 Article VIII Membership Status: Joined: September 08, 1953; General Resources Account: SDR Million %Quota 81.90 100.00 Quota Fund holdings of currency (Exchange Rate) 81.83 99.92 Reserve Tranche Position 0.07 0.08 SDR Million %Allocation SDR Department: Net cumulative allocation 78.51 100.00 68.83 87.67 Holdings Outstanding Purchases and Loans: SDR Million %Quota 31.12 38.00 ECF Arrangements Latest Financial Arrangements: Date of Expiration Amount Approved Amount Drawn Type Arrangement Date (SDR Million) (SDR Million) ECF Jul 21, 2010 Jul 20, 2013 40.95 31.12 ECF 1/ Nov 20, 2006 Jan 29, 2010 180.18 180.18 ECF 1/ Oct 18, 1996 Oct 17, 1999 91.05 15.18 1/ Formerly PRGF. Projected Payments to Fund 2/ (SDR Million; based on existing use of resources and present holdings of SDRs): Forthcoming 2.46 4.26 Principal 0.01 0.01 0.09 0.08 0.08 Charges/Interest 0.01 0.01 0.09 2.54 4.33 Total 2/ When a member has overdue financial obligations outstanding for more than three months, the amount of such arrears will be shown in this section. Implementation of HIPC Initiative: Enhanced I Commitment of HIPC assistance Framework Nov 2006 Decision point date Assistance committed 1/ 140.30 by all creditors (US$ Million) 3.12 Of which: IMF assistance (US$ million) 2.10 (SDR equivalent in millions) Jun 2009 Completion point date II. Disbursement of IMF assistance (SDR Million) 2.10 Assistance disbursed to the member 0.29 Interim assistance 2 INTERNATIONAL MONETARY FUND arrears will be shown in this section. Implementation of HIPC Initiative: Enhanced I Commitment of HIPC assistance Framework Nov 2006 Decision point date Assistance committed 1/ 140.30 by all creditors (US$ Million) 3.12 Of which: IMF assistance (US$ million) 2.10 (SDR equivalent in millions) Jun 2009 Completion point date II. Disbursement of IMF assistance (SDR Million) 2.10 Assistance disbursed to the member 0.29 Interim assistance 2 INTERNATIONAL MONETARY FUND --- Page 69 --- HAITI 1.81 Completion point balance Additional disbursement of interest income 2/ 0.23 2.34 Total disbursements 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 cannot 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. Implementation of Multilateral Debt Relief Initiative (MDRI): Not Applicable Implementation of Post-Catastrophe Debt Relief (PCDR): Date of Board Decision Amount Committed Amount Disbursed Catastrophe Date (SDR million) (SDR million) Jan 12, 2010 Jul 21, 2010 178.13 178.13 Decision point - point at which the IMF and the World Bank determine whether a country qualifies for assistance under the HIPC Initiative and decide on the amount of assistance to be committed. Interim assistance amount disbursed to a country during the period between decision and completion points, up to 20 percent annually and 60 percent in total of the assistance committed at the decision point (or 25 percent and 75 percent, respectively, in exceptional circumstances). Completion point - point at which a country receives the remaining balance of its assistance committed at the decision point, together with an additional disbursement of interest income as defined in footnote 2 above. The timing of the completion point is linked to the implementation of pre-agreed key structural reforms (i.e., floating completion point). INTERNATIONAL MONETARY FUND 3 ursed to a country during the period between decision and completion points, up to 20 percent annually and 60 percent in total of the assistance committed at the decision point (or 25 percent and 75 percent, respectively, in exceptional circumstances). Completion point - point at which a country receives the remaining balance of its assistance committed at the decision point, together with an additional disbursement of interest income as defined in footnote 2 above. The timing of the completion point is linked to the implementation of pre-agreed key structural reforms (i.e., floating completion point). INTERNATIONAL MONETARY FUND 3 --- Page 70 --- HAITI Exchange Arrangement float" classified as "managed is floating. It was previously Haiti's de jure exchange rate arrangement 2008, at which the new classification system in the old classification system through end-April Prior to the earthquake, the gourde was on became effective placing Haiti in the "floating" category. within a narrow band since April 1, 2008. trend against the US dollar and remained IMF has been a depreciating 10, 2010, the de facto classification Consequently, from April 1, 2008 to January effective April 1, 2008. During the period reclassified to a crawl-like arrangement, months but then reclassified back retrospectively to "other managed" for a few after the earthquake, it was changed to "crawl-like" again. regime took place in January 1990. Haiti's exchange The change from a fixed to managed floating and transfers for current international system is free of restrictions on the making of payments taken place at the free (interbank) market Since September 1991, all transactions have transactions. rate. Safeguards Assessment 2011. The assessment noted that assessment was concluded in January framework An update safeguards from the earthquake, elements of the safeguards despite the serious setback resulting assessment also concluded that within the central bank remain in place. However, the safeguards external audit and reserves emerged, particularly, in the areas of governance, recommended new vulnerabilities these vulnerabilities, the safeguards assessment management. In order to address of a formal selection policy in the area of rotation of the external auditors, as well the adoption of a global reserves management policy recommended the adoption external audit. The assessment internally as well as reserves managed externally. and guidelines, to cover both reserves managed bodies including through the aim to strengthen the oversight Compliance Other recommendations Committee, and the appointment of an independent reconstitution of the Investment Officer. Article IV Consultation Executive Board on July 21, 2010. Haiti is on a The last Article IV consultation was concluded by the of the prime minister in late The political crisis triggered by the resignation 24-month cycle. 2012 delayed the 2012 Article IV consultation. February INTERNATIONAL MONETARY FUND --- Page 71 --- HAITI Technical Assistance Haiti has benefited from the following IMF technical assistance missions since 2005: Department Dates Purpose FAD October 2012 Macro-fiscal component (2/5) October 2012 Tax policy administration October 2012 Public accounting (3/4) September 2012 Revenue administration September 2012 Tax policy administration September 2012 Extension accounting resident advisor July 2012 Seminar on cash management July 2012 Improve cash and treasury management (5/8) July 2012 Macro-fiscal component (1/2) July 2012 Public accounting (2/4) July 2012 Tax policy administration May 2012 Public accounting (1/4) May 2012 Improve cash and treasury management April 2012 Tax administration organization tax collection March 2012 Macro-fiscal framework (3/3) March 2012 Public accounting (2/5) March 2012 Public financial management March 2012 Improve cash and treasury management March 2012 Public accounting (1/5) January 2012 Macro-fiscal framework (1/3) January 2012 Macro-fiscal framework (4/5) January 2012 Tax policy administration January 2012 General tax policy October 2011 Seminar on public accounting October 2011 Macro-fiscal framework September 2011 Accounting resident advisor June 2011 Macro-fiscal framework May 2011 Macro-fiscal framework February 2011 Cash management and government accounting January 2011 Macro-fiscal framework October 2010 Macro-fiscal unit development July 2010 Tax policy aspects of recovery June 2010 Macro-fiscal unit development June 2010 Tax and customs administration INTERNATIONAL MONETARY FUND 5 General tax policy October 2011 Seminar on public accounting October 2011 Macro-fiscal framework September 2011 Accounting resident advisor June 2011 Macro-fiscal framework May 2011 Macro-fiscal framework February 2011 Cash management and government accounting January 2011 Macro-fiscal framework October 2010 Macro-fiscal unit development July 2010 Tax policy aspects of recovery June 2010 Macro-fiscal unit development June 2010 Tax and customs administration INTERNATIONAL MONETARY FUND 5 --- Page 72 --- HAITI CARTAC November 2010 Improving macro-fiscal framework MCM October 2012 Foreign exchange auction July 2011 Strengthening debt management June 2011 Modeling monetary transmission April 2011 Foreign exchange auction STA March 2011 National accounts February 2011 Monetary and Financial Statistics LEG June 2012 Fiscal law (review of fiscal procedure code) Resident Representative Mr. Jacques Bouhga Hagbe has been the Fund's Resident Representative since July 1, 2010, replacing Mr. Graeme Justice. 6 INTERNATIONAL MONETARY FUND --- Page 73 --- HAITI Haiti: Table of Common Indicators Required for Surveillance Date of latest Frequency of Date received Frequency of Frequency of observation Data' Reporting' Publication' Exchange Rates Jan. 11, 2013 Jan. 12, 2013 D D D International Reserve Assets and Reserve Liabilities of the Monetary Authorities" Dec. 12, 2012 Dec. 20, 2012 M M M Reserve/Base Money Jan. 13, 2013 Feb 4, 2013 W W W Broad Money Oct, 2012 Dec 20, 2012 M M M Central Bank Balance Sheet Dec. 12, 2012 Dec. 20, 2012 M M M Consolidated Balance Sheet of the Banking System Dec. 12, 2012 Dec. 20, 2012 M M M Interest Rates Dec 31, 2012 Jan. 7, 2013 W W W Consumer Price Index Oct. 2012 Nov. 20, 2012 M M M Revenue, Expenditure, Balance and Composition of Financing' - General Dec. 2012 Jan. 15, 2013 M M M Government" Revenue, Expenditure, Balance and Composition of Financing' - Central Dec. 2012 Jan. 15, 2013 M M M Government Stocks of Central Government and Central Government-( Guaranteed Debt Dec. 2012 Jan. 15, 2013 M M M External Current Account Balance Nov. 28, 2012 Q Q Q Exports and Imports of Goods and Services Nov. 28, 2012 Q Q Q GDP/GNP Dec. 30, 2012 A A A Gross External Debt Nov. 28, 2012 A A NA International Investment Positiono Mar. 31, 2012 A A A Any reserve assets that are pledged or otherwise encumbered should be specified separately. Also, data should comprise short- term liabilities linked to a foreign currency but settled by other means as well as the notional values of financial derivatives to and receive foreign currency, including those linked to a foreign currency but settled by other means. pay to Both market based and officialy-determined. including discount rates, money market rates, rates on treasury bills, notes and bonds. Foreign, domestic bank, and domestic nonbank financing. 4. The general government consists of the central government (budgetary funds, extra budgetary funds, and social security funds) and state and local governments. Including currency and maturity composition. 6 Includes external gross financial asset and liability positions vis-à-vis nonresidents. 7 Daily (D); weekly (W); monthly (M); quarterly (Q); annually (A); irregular (I); and not available (NA). INTERNATIONAL MONETARY FUND 7 officialy-determined. including discount rates, money market rates, rates on treasury bills, notes and bonds. Foreign, domestic bank, and domestic nonbank financing. 4. The general government consists of the central government (budgetary funds, extra budgetary funds, and social security funds) and state and local governments. Including currency and maturity composition. 6 Includes external gross financial asset and liability positions vis-à-vis nonresidents. 7 Daily (D); weekly (W); monthly (M); quarterly (Q); annually (A); irregular (I); and not available (NA). INTERNATIONAL MONETARY FUND 7 --- Page 74 --- HAITI WITH THE INTER-AMERICAN RELATIONS DEVELOPMENT BANK (As of October 2012) presence for 50 years, the IDB has a Haiti's multilateral donor, with an uninterrupted IDB has mobilized As largest and Government of Haiti. Consequently, the strong commitment to the people to the multiple needs of the country after financial and human resources to respond the Bank extensively unprecedented 2010. In the aftermath of the shock, engaged the earthquake of January 12th, humanitarian relief efforts, reconstruction and with the Government and other donors in social services. rehabilitation activities, as well as the delivery of basic beyond the financing of key recovery and The Bank also assumed additional responsibilities plans and active roles in the design and development investments, including support for sector-wide mechanisms such as the Haiti implementation of the earthquake recovery institutional of three Partner Entities. Reconstruction Fund (HRF), for which it acts as one Government's Action Plan for National Recovery and is positioned to support the and the GOH The Bank uniquely sectors and focus its resources, the Bank Reconstruction. In order to identify priority past experience and areas of sector analysis of its project pipeline, carried out a comprehensive GOH and other international and Haitian comparative advantage, relationships with key and reputation with respect to other stakeholders, as well as the Bank's comparative strength donors. Developments since the Earthquake Key the IDB Board of Governors also agreed to cancel Haiti's In the months following the earthquake, million constituted about 40% of the outstanding debt with the Bank, which at US$479 to convert the undisbursed portion external liabilities. The IDB Governors also agreed resources for critical Government's US$186 million into grants, thereby freeing up public of loans, totaling some the 2009 E-HIPC/MDRI initiative when the IDB investments. These decisions were preceded by for the Government to undertake vital US$511 million in debt relief, clearing the way granted some public investments. than US$2.3 billion in new grants for the 2010-2020 The Bank also pledged to provide Haiti more plans. This decision sealed the Bank's period to fund its recovery efforts and long-term development These resources will finance investments term commitment with Haiti's reconstruction plan. and and to establish long recovery, to tackle extreme poverty inequality, vital for Haiti's post-earthquake as well as institutional and social development. the platform for long term economic growth critical areas of support for recovery and development, as On the basis of an analysis of the most its on six sector programmatic areas: consultations with the GOH, the Bank focuses projects well as MONETARY FUND 8 INTERNATIONAL plans. This decision sealed the Bank's period to fund its recovery efforts and long-term development These resources will finance investments term commitment with Haiti's reconstruction plan. and and to establish long recovery, to tackle extreme poverty inequality, vital for Haiti's post-earthquake as well as institutional and social development. the platform for long term economic growth critical areas of support for recovery and development, as On the basis of an analysis of the most its on six sector programmatic areas: consultations with the GOH, the Bank focuses projects well as MONETARY FUND 8 INTERNATIONAL --- Page 75 --- HAITI education, transport, water and sanitation, energy, agriculture, and private sector development. These are areas where the Bank has a track record in project design and implementation, established teams in the field and headquarters and where it can contribute greatest value-added and have solid relationships with relevant executing agencies. Since the earthquake, the Bank has approved 22 operations totaling US$650 million as follows: US$30 million for temporary housing, US$15 million for emergency report to the cholera outbreak, $112 million in budget support, US$42 million for investments in the agriculture sector, US$15 million for water and sanitation for Port-au-Prince, US$31 million for private sector development, US$34 million for investment in the energy sector, US$105 million for the infrastructure of the Caracol Industrial Park, US$162 million for transport infrastructure, US$100 million for education, and US$3 million for an e-government platform. The close collaboration of the Bank's enhanced field presence with Haitian executing agencies has improved absorptive capacity. In 2009 disbursements reached US$127 million. In 2010, despite the impact of the earthquake, disbursements reached a Bank record for Haiti of US$177 million, a level maintained in 2011 with US$175 million. Portfolio Indicators As of October 2012 the IDB's active portfolio consisted of 34 investment projects for a total of US$1.05 billion, of which 55% has already disbursed. The IDB has a comprehensive program in key strategic sectors, such as transport (US$352 million or 34% of the portfolio), agriculture (US$181 million or 17%) water and sanitation (US$103 million or 10% of the portfolio), education (US$100 million or 10%), and private sector development (US$136 million or 13%). The Technical Cooperation (TC) portfolio has been an important complement to the Bank's operational program. As of October 2012, the TC program consists of 52 operations totaling US$29 million. INTERNATIONAL MONETARY FUND 9 has a comprehensive program in key strategic sectors, such as transport (US$352 million or 34% of the portfolio), agriculture (US$181 million or 17%) water and sanitation (US$103 million or 10% of the portfolio), education (US$100 million or 10%), and private sector development (US$136 million or 13%). The Technical Cooperation (TC) portfolio has been an important complement to the Bank's operational program. As of October 2012, the TC program consists of 52 operations totaling US$29 million. INTERNATIONAL MONETARY FUND 9 --- Page 76 --- HAITI Main Portfolio Indicators Projects Bank-Administered Technical Funds Cooperations Number of Operations 34 Approved Amount 1,048 Available Balance The IDB administers a total of US$282 million from other donors. This figure includes over US$126 million from CIDA for projects in transport and education, US$70 million from the Spanish Water Fund for water and sanitation and cholera containment, and nearly US$18 million in soft loans from OFID for projects in the transport and water and sanitation sectors. 10 INTERNATIONAL MONETARY FUND --- Page 77 --- HAITI THE WORLD BANK GROUP RELATIONS WITH (As of December 2012) FY2013-2014 Interim Strategy Note (ISN) The World Bank and the IFC have jointly prepared a Action Plan for National Recovery and priorities, as expressed in the 2010 The ISN aligned with Government approved by Parliament in May 2012. Development of Haiti and the Government Program 2012. The strategy has four main pillars: (i) discussed by the Bank's Board on September 27, human was resilience; (ii) sustainable reconstruction; (iii) building reducing vulnerability and increasing also aims to strengthen governance and inclusive growth. The strategy Interim capital; and (iv) promoting activities to be implemented in the context of the government capacity. The resources and following the 2010 earthquake to Haiti's transition from the immediate recovery Strategy support longer-term reconstruction and development. million for Haiti under various projects and programs Since 2010 the WBG has committed $378m (IDA) and more than $148 million from trust financed by the International Development Association Fund, $22 million from the Education for $90 million from the Haiti Reconstruction and Food funds (including Fund, and $10 million from the Global Agriculture All Fast Track Initiative Catalytic 2011, IDA provided a special allocation of $500 Program, to name the largest). In July $295 million of which Security Window to Haiti for the FY2012-2014 period, has million from its Crisis Response of Haiti to date. All IDA and trust fund assistance has been made available to the Government been provided to Haiti in grant form since 2005. with substantial investments in Bank portfolio consists of 15 active projects, The World (DRM), education, energy, housing, community-driven infrastructure, disaster risk management new IDA projects are envisioned to support development (CDD), and agriculture. In FY2013-2014 and provide budget support in invest in health service delivery and systems, in Finance, regional development, The World Bank collaborates with the IFC Energy, the framework of the IMF program. the facilitation of private sector investment. Further Economic Zones for World Bank works and to develop Integrated and Private Sector Development. The joint activities are planned in DRM, Mining, States, France, Spain, Brazil, the EU and IDB donors including Canada, the United closely with major Education, Energy, Housing and Health. in many areas, including Public Sector Management, critical to the World Bank Group's objective to help strengthen Close collaboration with the IMF is spending oversight, and improve the systems, enhance public These Haiti's public financial management the reduction of public transfers over time. financial viability of the electricity sector, including 2012, the World Bank's Board of by IDA financial resources. End September objectives are supported Rebuilding Energy Infrastructure and Access project; Executive Directors approved: (i) a $90 million Infrastructure and Institutions Emergency $35 million Additional Financing operation for the to and (ii) public sector management, while continuing support Recovery project, aimed at strengthening of aviation safety equipment. In the rehabilitation of roads and the installation Policy debris management to consider a $20 million Development late FY13 the Board of Directors is expected contributions from Spain and France to the Haiti Operation. This is expected to be co-financed by INTERNATIONAL MONETARY FUND 11 supported Rebuilding Energy Infrastructure and Access project; Executive Directors approved: (i) a $90 million Infrastructure and Institutions Emergency $35 million Additional Financing operation for the to and (ii) public sector management, while continuing support Recovery project, aimed at strengthening of aviation safety equipment. In the rehabilitation of roads and the installation Policy debris management to consider a $20 million Development late FY13 the Board of Directors is expected contributions from Spain and France to the Haiti Operation. This is expected to be co-financed by INTERNATIONAL MONETARY FUND 11 --- Page 78 --- HAITI Reconstruction Fund in the amount of US$20 million, and aims to strengthen economic governance, the public procurement framework, and underpin reconstruction and growth. In addition, since 2010, the Bank has provided technical assistance to improve accounting and auditing practices, nutritional security, and social safety nets, including support for the first comprehensive household income and expenditure survey since 2001. Over the FY2013-2014 period, the Bank will provide technical assistance on governance, poverty measurement, energy, gender, trade, insurance, education, social protection, and social safeguards. With a committed portfolio of $55million to date, IFC has supported and made possible some of the flagship private sector investments of the last decade in Haiti, financing first-time access to mobile telephony in the country (DIGICEL), investing in the local financial sector (SOGEBANK) and financing E-Power, the first Independent Power Producer with an internationally tendered Purchase Power Agreement in Haiti. IFC has also helped the Government structure the partial privatization of the national telecom operator, which led to the largest private investment in the country, a US$100m investment over 3 years by Vietnamese company VIETTEL. Since the earthquake, IFC has supported key job-creation activities in the garment (CODEVI, 6,500 workers today), mining (EURASIAN), hospitality (OASIS Hotel), and financial sectors (Capital Bank Trade Line). Recent catalytic investments include Private Equity (LEOPARD Capital) and Clean Water distribution (DLO Haiti). IFC has also significantly stepped-up its advisory effort in critical areas such as investment climate, access to finance, and access to skills. 12 INTERNATIONAL MONETARY FUND , a US$100m investment over 3 years by Vietnamese company VIETTEL. Since the earthquake, IFC has supported key job-creation activities in the garment (CODEVI, 6,500 workers today), mining (EURASIAN), hospitality (OASIS Hotel), and financial sectors (Capital Bank Trade Line). Recent catalytic investments include Private Equity (LEOPARD Capital) and Clean Water distribution (DLO Haiti). IFC has also significantly stepped-up its advisory effort in critical areas such as investment climate, access to finance, and access to skills. 12 INTERNATIONAL MONETARY FUND --- Page 79 --- HAITI STATISTICAL ISSUES As of December 27, 2012 I Assessment of Data Adequacy for General: Data provision has serious Surveillance accounts, fiscal data, and external sector shortcomings that severely hamper surveillance. Most statistics. affected areas are: national National Accounts: Notwithstanding Haitian statistical system was severely affected improvement in recent years, weaknesses remain in the of the earthquake with limited by the January 2010 earthquake and is still quality of data. The in implementing the administrative capacity. As a result, limited suffering from the aftermath recommendations of the 2009 IMF-CARTAC progress has been made by the authorities accounts-initially expected to be accomplished mission. In particular, the rebasing of the postponed. Constant price GDP data during 2011 as recommended the 2009 national reflect are, therefore, still being by mission-has been adequately the structural economic published using a base year of has experienced over the recent changes resulted from the various civil 1986/87, which does not decades and thus conflicts and natural are estimates of the informal sector introduced major uncertainty in policy disasters Haiti highly desirable for (growing sector in Haiti). Also, the production of analysis. Equally problematic program monitoring purposes. quarterly GDP data would be Prices and Labor Statistics: CPI is 2000 household survey compiled by the Haitian Institute of statistics on and structure, and using 2004 as the information which is based on comprises 287 products. No labor statistics reference year. The index follows a the are disseminated. Laspeyres Government Finance methodology Government Statistics: Staff receives data from the Financial Operations" (TOFE) for Ministry of Finance in the format of a data suffers from weaknesses, program monitoring and surveillance. The national monthly "Table of of major such including limited coverage, high presentation of the categories as net lending, and aggregation, misclassifications, and the accounts of public financing debt. There is a need to non-reporting enterprises, as well as of the accounts of the improve the timeliness of expenditures, especially on the ministerial nonfinancial public sector. The publication of Monetary and Financial discretionary accounts should be reporting of budgetary and Statistics: Continuous work on improved to increase classification of accounts in the analytical monetary statistics has helped to transparency. commercial banks. However, balance sheets of the Bank of the improve the sectorization unions into there is a need to both Republic of Haiti and the depository corporations' expand institutional coverage of MFS to (BRH) survey, and improve the include credit and External sector statistics: The compilation timeliness of the reported data to the Fund. saving timeliness of essential data. In addition, system suffers from deficiencies with the scope, coverage of current and financial large errors and omissions over the recent source data, and well as the accounts transactions. Special periods suggest insufficient coverage and classification of the large attention should be given to customs data humanitarian aid. A staff of the Central Bank of Haiti post-earthquake private inflows, including NGOS and official coverage as Washington. attended the 2012 balance of payments statistics course in II. Data Standards and Participant in the Fund's General Data Quality Dissemination: System (GDDS). Participant in the Fund's General Data Dissemination (GDDS). System Haiti III. Reporting to STA currently does not report monthly or annual fiscal Statistics (IFS) or in the Government Finance data to STA for publication in the quarterly balance of Statistics Yearbook (GFSY) International Financial disseminated payments data to STA. Currently, 2010 IIP respectively. Haiti reports annual IIP and in the IFS. data and Q3 2011 balance of payments data are INTERNATIONAL MONETARY FUND 13 (GDDS). Participant in the Fund's General Data Dissemination (GDDS). System Haiti III. Reporting to STA currently does not report monthly or annual fiscal Statistics (IFS) or in the Government Finance data to STA for publication in the quarterly balance of Statistics Yearbook (GFSY) International Financial disseminated payments data to STA. Currently, 2010 IIP respectively. Haiti reports annual IIP and in the IFS. data and Q3 2011 balance of payments data are INTERNATIONAL MONETARY FUND 13 --- Page 80 --- HAITI 14 INTERNATIONAL MONETARY FUND --- Page 81 --- MONETARY FUND INTERNATIONAL HAITI AND FIFTH REVIEW UNDER 2012 ARTICLE IV CONSULTATION REVIEW SECTOR CREDIT FACILITY-RINANCIAL February 21, 2013 THE EXTENDED SYSTEM IN HAITI FOR INCLUSIVE DEEPENING FINANCIAL GROWTH (IMF) and the The Western Hemisphere Department Prepared World Bank by enhanced surveillance of financial Haiti has been selected to be one of the pilot cases for Executive Board in May the International Monetary Fund's (IMF) systems, called for by sector surveillance in low-income Board stressed the need to widen the scope of financial 2012. The account for the interplay between financial countries (LICs) in Article IV consultations to better in line with the recommendation of macro-stability and the effectiveness of monetary policy, deepening, the 2011 Triennial Surveillance Review. with banks playing a dominant role, being highly concentrated. Haiti has a small financial sector (FCs) are growing fast and are key players in Microfinance institutions (MFIs) and Financial Cooperatives particularly in rural services to the lower to mid-income segment of the population, A providing financial with well below regional average. deeper industry is relatively small penetration areas. The insurance and inclusive growth financial sector will be critical for a broad-based 2012 Article IV consultation with Haiti." Following has been undertaken as part of the This study Program (FSAP) conducted in 2008, the current up on the last Financial Sector Assessment assesses its soundness and vulnerabilities, and review presents a description of Haiti's financial system, banks, financial cooperatives, to financial deepening. The note covers identifies some impediments remittances. Other issues, such as consumer protection, microfinance institutions, insurance, housing and finance are topics for further research. The financial literacy, as well as leasing, factoring and agricultural with the need to look in depth into review lays the ground for an FSAP to be conducted, specifically of the recent reforms in the financial sector. implementationparticularly on financial cooperatives and The results of the study are limited by data availability, which is a prerequisite for the institutions, insurance, and remittances, improving microfinance and deepen the financial sector. formulation of appropriate policies to consolidate Nolvia Saca Saca (IMF), Juan Buchenau, Caroline sector Cerruti, and the 1 Prepared by Boileau Loko, Olga Sulla, Alain Brousseau, The authorities welcomed the review of the financial Jane C. Hwang, and Karina Baba (World Bank). discussion of the issues in this report. --- Page 82 --- HAITI CONTENTS SELECTED ABBREVIATIONS OVERVIEW OF THE FINANCIAL SYSTEM BANKING SECTOR A. Economic Relevance and Recent Trends B. Banking Sector Regulation and Supervision C. Strengths and Vulnerabilities of the Banking System D. Banking System Policy Recommendations FINANCIAL COOPERATIVES AND MICROFINANCE INSTITUTIONS A. Economic Relevance and Recent Trends B. Concerns and Challenges for the Growth of the Sector C. Recent Developments in Regulation D. Policy Recommendations INSURANCE A. Economic Relevance and Recent Trends and Challenges B. Policy Recommendations HOUSING FINANCE A. Economic Relevance and Recent Trends and Challenges B. Policy Recommendations REMITTANCES A. Economic Relevance and Recent Trends and Challenges B. Policy Recommendations SUMMARY OF THE POLICY RECOMMENDATIONS REFERENCES BOXES 1. Macroeconomic Challenges of a Shallow Financial System 2. Credit Growth: Excessive or Catching up? 3. SME Financing 2 INTERNATIONAL MONETARY FUND . Recent Developments in Regulation D. Policy Recommendations INSURANCE A. Economic Relevance and Recent Trends and Challenges B. Policy Recommendations HOUSING FINANCE A. Economic Relevance and Recent Trends and Challenges B. Policy Recommendations REMITTANCES A. Economic Relevance and Recent Trends and Challenges B. Policy Recommendations SUMMARY OF THE POLICY RECOMMENDATIONS REFERENCES BOXES 1. Macroeconomic Challenges of a Shallow Financial System 2. Credit Growth: Excessive or Catching up? 3. SME Financing 2 INTERNATIONAL MONETARY FUND --- Page 83 --- HAITI FIGURES 1. Mortgage Loans 2. Remittances TABLES 1. Recommendations 2. 2008 FSAP Recommendations and Implementation Status 3. Financial System 4. Financial Soundness Indicators of Individual Banks, September 2010-12 5. Banking System, September 2012 INTERNATIONAL MONETARY FUND 3 --- Page 84 --- HAITI Selected Abbreviations ECF Extended Credit Facility FC Financial Cooperative FSAP Financial Sector Assessment Program IMF International Monetary Fund KNFP Konsèy Nasyonal Finansman Popilè LIC Low-Income Country MFI Microfinance Institution MSME Micro, Small, and Medium- Size Enterprise NPL Nonperforming Loan ROE Rate of return 4 INTERNATIONAL MONETARY FUND --- Page 85 --- HAITI OF THE FINANCIAL SYSTEM OVERVIEW role. The sector consists of small financial sector with banks playing a dominant 1. Haiti has a (FCs), microfinance institutions (MFIs); and other commercial banks, credit unions, financial cooperatives funds) (Table 3). Banks dominate the financial financial institutions (insurance companies, pension limited role in financial nonbank and volume of loans and deposits, but play a more sector in Haiti in terms of assets Database (FINDEX) survey, 2 22 percent of the inclusion. According to the WB Global Financial Inclusion account with a formal financial interviewed in Haiti's in 2011 had a deposit persons over 15 years of age results of level of LIC countries, but about half of the level institution. This level is comparable to the survey of respondents to the FINDEX survey Latin American country. About 8 percent reached by the average reported having a loan with a financial institution. concentrated and lacks competition. The banking system 2. Haiti's banking system is relatively banks, and two foreign banks. Three banks control includes nine banks, two public, five domestic private Most banks lend to less than three than 80 of total assets as well as of total deposits. with difficulty more percent framework, and a weak collateral system, thousand clients, reflecting weaknesses in the legal characterized by a few large 5). This reflects also the structure of the economy in obtaining land titles (Table of which operate in the informal sector, whose well-known firms and a multitude of smaller firms, many is harder to obtain and credit risk harder to assess. financial information in limited role In Haiti. Their share of total lending was 7.3 percent 3. Foreign banks play a very market share generally observed in emerging markets September 2012, much lower than the 50 percent banks about 60 percent of all loans countries. 3 In comparison, in the ECCU, foreign provide to the and developing banks in Haiti tend to be niche players, and have few spillovers to the private sector. Foreign system, suggesting some threshold effect' development and efficiency of the domestic banking Cooperatives (FCs) are growing fast and are Microfinance institutions (MFIS) and Financial of the 4. financial services to the lower to mid-income segment important players in providing institutions are playing a key role in increasing financial population, particularly in rural areas. These number of depositors as the banks, and provide inclusiveness in the country; they already serve a similar about customers, as well as about the supply loans to a much larger share of the population. Information is fragmented and scarce. demand of financial services to the lower to mid income segments and 2 See: - 3 WP/12/10. 4 Claessens and Lee, 2003. INTERNATIONAL MONETARY FUND 5 the lower to mid-income segment important players in providing institutions are playing a key role in increasing financial population, particularly in rural areas. These number of depositors as the banks, and provide inclusiveness in the country; they already serve a similar about customers, as well as about the supply loans to a much larger share of the population. Information is fragmented and scarce. demand of financial services to the lower to mid income segments and 2 See: - 3 WP/12/10. 4 Claessens and Lee, 2003. INTERNATIONAL MONETARY FUND 5 --- Page 86 --- HAITI Challenges of a Shallow Financial System: Box 1. Haiti: Macroeconomic usually operates through four channels: mechanism of monetary policy The transmission conditions and real interest rates. The interest rate channel: through the impact on liquidity the effect on stock market values and asset prices. The assets channel: through the impact of monetary developments on the The exchange rate channel: works through exchange rate and aggregate demand and supply. through the response of credit aggregates and lending The credit or banking lending channel: rates to change in policy instruments in Haiti because of the country's low level of financial These four channels have been undermined market for government securities, the absence of both a stock market and a secondary in the intermediation, rate, and structural excess liquidity dollarization and limited flexibility in the exchange high banking system. constrain fiscal policy through several channels: The shallow domestic debt markets can Countries with shallow government securities Increasing uncertainties and costs of funds. of foreign financing and donor to changes in the availability markets are more vulnerable budget and financing more uncertain, flows, which in turn makes formulation of government costly for Haiti, given particularly for long-run public investment projects. This is particularly Also, the absence of a investment in energy, water, transportation. the need for infrastructure debt servicing costs and result in a higher secondary market may increase government liquidity premium for government securities. Haiti, like other countries in the Caribbean, is Limiting scope for counter-cyclical fiscal policy. natural disasters. Hence, counter-cyclical highly vulnerable to external shocks and frequent deficits in response to external and the government's ability to finance large studies fiscal policy However, theoretical and empirical shocks and/or natural disasters are very important. such as Haiti tend to have pro-cyclical suggest that countries with shallow financial systems of developed and and Schmidt Hebbel (2008), using a large sample fiscal policies. Calderon institutions or lack of access to international and developing countries, found that poor fiscal policies. credit markets hinder the conduct of countercyclical domestic constrains fiscal policy in a way that can overturn standard Keynesian The lack of financial depth financial constraints on its When a country faces quantitative fiscal policy prescriptions. crowd out private investment. borrowing, higher government spending may by Nolvia Saca Saca, Monetary and Capital Markets Department. This Box was prepared MONETARY FUND 6 INTERNATIONAL ), using a large sample fiscal policies. Calderon institutions or lack of access to international and developing countries, found that poor fiscal policies. credit markets hinder the conduct of countercyclical domestic constrains fiscal policy in a way that can overturn standard Keynesian The lack of financial depth financial constraints on its When a country faces quantitative fiscal policy prescriptions. crowd out private investment. borrowing, higher government spending may by Nolvia Saca Saca, Monetary and Capital Markets Department. This Box was prepared MONETARY FUND 6 INTERNATIONAL --- Page 87 --- HAITI limited role. Until very recently, the insurance industry is relatively small and plays a very is not 5. The and, therefore, financial information and unsupervised insurance sector was largely unregulated its size and growth. The insurance sector currently reported to the supervisor, making it difficult to assess and casualty policies are the most prevalent nine non-life insurers and two life insurers. Property comprises and life insurance products are very limited. in the market, much needed but limited role in supporting Overall, the financial system plays an increasing 6. of development challenges, including significant economic growth. This reflects a broad range security situation, and limited competition and institutional frameworks, the fragile been a weaknesses in the legal absence of a functioning credit registry. The result has between banks, poor governance, and the income countries and limited access to low level of credit compared to other low and middle market 141 out of relatively Economic Forum report ranks Haiti's financial development credit. The 2012-13 World 144 countries. and will be critical to sustain broad-based and inclusive growth 7. A deeper financial sector financial sector deepening increase longbuild a better Haiti. Sustainable credit growth and subsequent in the allocation of capital, better growth. The transmission channels include improvement financial term economic of financial intermediation. By easing pooling of savings and raising the efficiency and ultimately a risk sharing, to higher investment and consumption constraints, increased bank lending can contribute higher standard of living (Box 1). BANKING SECTOR Relevance and Recent Trends A. Economic contribution to Haiti's economic development, albeit 8. Banks are making an increasing by 12 Haiti: Commercial Bank Credit to Private Sector, 2004-2012 20.0 starting from a low base. After dropping 35 mCredit itgrowthyy.(LJS -credit (percent of GDP)(RHS) 19.0 between December 2009 and April 2010 percent 2010 earthquake), commercial 25 18.0 (because of the January rebounded strongly 17.0 banks' credit to the private sector 16.0 by more than 25 percent both in 2011 and 2012, 15.0 the highest growth rates in the Latin America 14.0 among of well above at and Caribbean region. This pace growth, 2004 2005 >006 209 2008 2009 2011 2012 13.0 the real growth of the economy and inflation rate, 12.0 reflects predominantly the impact of the Sources: -10 BRHT Table 20R; andl IMF estimates reconstruction, large current transfers, and the including the establishment of a increased liquidity in the banking system, as well as several measures, remains well below the level in LICS. fund. However, private sector credit to GDP partial guarantee Volatile World," 2001, World Bank Policy Research Report. 5 "Finance for Growth: Policy Choices in a - INTERNATIONAL MONETARY FUND 7 .0 the real growth of the economy and inflation rate, 12.0 reflects predominantly the impact of the Sources: -10 BRHT Table 20R; andl IMF estimates reconstruction, large current transfers, and the including the establishment of a increased liquidity in the banking system, as well as several measures, remains well below the level in LICS. fund. However, private sector credit to GDP partial guarantee Volatile World," 2001, World Bank Policy Research Report. 5 "Finance for Growth: Policy Choices in a - INTERNATIONAL MONETARY FUND 7 --- Page 88 --- HAITI inherent to the business climate, in Credit to Private Sector Comparison 9. Obstacles rights, tend (In percent of GDP) particular the lack of protection of creditors' ofucs banks' reluctance to take risks and increase 70 to reinforce involvement in financing the economy is lending. Banks' the 50 also constrained by delays in creating or operationalizing Medi lian information databases, such as a credit bureau, a 30 Emerging Lov ICs) Mec necessary centralized registry of bad debts, and a central registry of lait 10th rcentiled ofucs balance sheets. Other factors that hamper corporate include the limited scope of 2 E 3 E 8 a 8 8 a 8 8 8 8 8 E financial intermediation collateral and delays in Sources: BRH Banking Supervision Reports; andl IMF estimates mechanisms for guaranteeing developing electronic financial services. is urgent to meet Haiti's to the banking sector development 10. Removal of the impediments needs. On the demand side, the scale of infrastructure large infrastructure and other development demand to replace or expand roads, ports, needed in Haiti is very significant There is growing water investment networks, as well as housing, schools, hospitals, airports, electrical grids, and telecommunication for further increase in credit to the private sector. and sanitation. On the supply side, there is room and available liquidity in the banking supply, less than 50 percent of deposits Credit to the private sector represents excess reserves in the banking system, a key With liquidity historically very high, especially system. to finance appears to be poor banking intermediation. constraint to access while essential, could also pose a number of 11. Nevertheless, a deeper banking system, entail risks that can be grouped into two challenges for the economy. Boosting credit growth may imbalances (macro risk); and (ii) risks to categories: () the emergence or worsening of macroeconomic (credit risk). A rapid expansion of bank sector stability owing to deteriorating bank asset quality to financial by stimulating aggregate demand compared potential credit to the private sector affect macro stability fuels consumption and import demand. In overheating pressures, as bank lending amount of output and by creating risk assessment may also suffer due to the vast addition, during periods of rapid credit growth, when new loans are used to service loans extended. Lending booms can facilitate "ever-greening", I in an new banks neglect to further diversify their loan portfolios existing debt. At the same time, may And finally, the perceived risk of loans may be environment in which they can service existing clients. assessments are based on the current strong underestimated during lending booms because the risk in credit should be monitored values of underlying collateral.s Thus, any expansion economy and rising situation and financial system. closely to limit risks to the macroeconomic Systemic Banking Crisis, IMF Occasional Paper 224 6 Hoelscher, David S., and Marc Quintyn, 2003, "Managing (Washington: International Monetary Fund). INTERNATIONAL MONETARY FUND same time, may And finally, the perceived risk of loans may be environment in which they can service existing clients. assessments are based on the current strong underestimated during lending booms because the risk in credit should be monitored values of underlying collateral.s Thus, any expansion economy and rising situation and financial system. closely to limit risks to the macroeconomic Systemic Banking Crisis, IMF Occasional Paper 224 6 Hoelscher, David S., and Marc Quintyn, 2003, "Managing (Washington: International Monetary Fund). INTERNATIONAL MONETARY FUND --- Page 89 --- HAITI Growth: Excessive or "Catching up?" Box 2. Haiti: Credit demand-side factors. On the supply rapid credit growth in Haiti reflects a mix of supply-and over recent The ongoing to fund loans while continued macroeconomic stability side, domestic liquidity boosted banks' ability increase in local currency loans. Econometric contributed to improve confidence and encourage a sharp in Haiti. We apply the years whether there is an indication of excess credit growth toanalysis aims at identifying boom, namely examining deviations of credit used in the literature to identify a credit methodology most widely GDP from its statistically measured long-term trend. an HP filter on the level of credit-to-GDP and trend of credit in Haiti is identified by applying the trend and a "deviation" The long-term the actual level of each series is compared to real credit. Once the trend is determined, 1.5 standard errors of the "deviation", which covers 90 Next, this "deviation" is compared to a threshold of the threshold. is derived. boom is then identified when the "deviation" is above percent of the credit cycle episodes A credit covers the data from 1955 to 2012 on an annual basis. Our sample and real credit trend approach show that credit-to-GDP The results of the application of the long-term trends starting in 2011 and are "deviation" of the actual series from their long-term that credit exhibit slight positive deviations are minor to date, they signal the possibility slightly above the thresholds in 2012. While the be treated with caution given the limitations of excessive. Although these results should growth could be becoming heightened attention to the credit market rapid credit growth in Haiti requires the HP filter methodology, the side of the policy makers. developments and financial indicators on Real Credit to Private Sector Credit to Private Sector (In millions ofgourdes constant terms of 2005) (n percent ofGDP) Actual Trend Actual Trend that credit exhibit slight positive deviations are minor to date, they signal the possibility slightly above the thresholds in 2012. While the be treated with caution given the limitations of excessive. Although these results should growth could be becoming heightened attention to the credit market rapid credit growth in Haiti requires the HP filter methodology, the side of the policy makers. developments and financial indicators on Real Credit to Private Sector Credit to Private Sector (In millions ofgourdes constant terms of 2005) (n percent ofGDP) Actual Trend Actual Trend a 8 INTERNATIONAL MONETARY FUND 9 --- Page 90 --- HAITI and Supervision B. Banking Sector Regulation have taken place in the legal and regulatory 12. A number of important improvements framework is based on the core principles of BaselI. The environment in Haiti. The Haitian supervisory has been used to analyze and Asset, Management Earning, and Liquidity) approach through an on CAMEL (Capital, institutions. The supervisory works are conducted monitor the risk profile of the supervised with the applicable rules and unit. The latter ensures that the banks are in compliance banks and and off-site basis the regulatory reports submitted by the prudential norms analyzing on a regular The on-site unit performs a more detailed annual discussing relevant issues with their key personnel. of the banks. management and compliance analysis of the financial information, institutions was enacted in May 2012. The law 13. A new law on banking and other financial five new categories of financial institutions: for the Central Bank to regulate and supervise and makes provision institutions; credit card companies; fiduciary institutions investment corporations; factoring has been put in place to adapt the currently financial institutions. An ad hoc committee rules and development of the new law and to put in place required applicable prudential norms to the provisions The new law has reinforced the power of the regulations for the newly regulated financial institutions. intervention in case of a potential crisis or a Central Bank to deal with problem banks by allowing direct while performing their duties. In better to the bank supervisors bank run. The law also gives protection operate through their branches but according to the new law foreign banks can no longer addition, the same fiscal year as local banks. through subsidiaries and must adopt were enacted by the Central Bank in June New circulars pertaining to money laundering for anti-money 14. in prevention and compliance programs 2012. They require the banks to put place of FATF and particularly take by the 40+9 recommendations laundering. These circulars are mainly inspired AML Evaluations of Haiti. of 2008 World Bank into account the recommendations The of the areas of focus of the financial regulators. Leasing sector development has become framework 15. with other authorities to create a legal and regulatory Central Bank has been recently working order to increase access to finance for SMES considered sector in Haiti in that can back up a strong leasing to be the backbone of the Haitian economy. Three limits have been credit concentration have been significantly improved. 16. Regulations on maximum ratio of 10% is applied individually to loan portfolio of the banking system: () a 20% is placed on the capital; (ii) a maximum ratio of applied to connected parties with regard to regulatory ratio of 25 % of total loans granted but not connected to the bank; (iii) a maximum to loans granted to each related party to each sector. banking loan portfolio is applied to loans granted 10 INTERNATIONAL MONETARY FUND --- Page 91 --- HAITI of the Banking System and Vulnerabilities C. Strengths Haiti: Financial Soundness Indicators of Individual Banks, September 2010 September 2012 Reported banking (In percent; unless otherwise stated) 17. Sep-10 Sep-11 Mar-1 12 Jun-1 12 Sep-12 soundness indicators are 16.7 16.7 16.8 currently favorable and banks' Capital Regulatory adequacy capital to risk- weighted assets 13.4 16.5 remains high (Table Asset quality and composition 5.7 93.1 3.7 83.3 3.6 88.8 3.2 96.7 2.4 profitability NPLS to gross loans 84.1 4). otherwise stated) 17. Sep-10 Sep-11 Mar-1 12 Jun-1 12 Sep-12 soundness indicators are 16.7 16.7 16.8 currently favorable and banks' Capital Regulatory adequacy capital to risk- weighted assets 13.4 16.5 remains high (Table Asset quality and composition 5.7 93.1 3.7 83.3 3.6 88.8 3.2 96.7 2.4 profitability NPLS to gross loans 84.1 4). The banking sector has Provisions to gross NPLS (cumulatives since beginning of fiscal year) 14 1.4 1.3 1.5 strengthened its capital base. Earings Return on and Assets profitability (ROA) 18.4 1.2 22.2 22.2 21.7 21.9 Banks had an average capital Return on equity (ROE) 55.7 53.8 28.4 51.7 ratio of 16.8 percent at Dollarization Foreignc currency loans to totall loans (net) 44.1 60.1 62.3 63.9 64.5 62.9 37.3 adequacy the Foreign currency deposits to total deposits deposits 31.3 32.6 34.6 35.7 end September 2012, above Foreign currency Banking loans System to foreign Financials currency Summary and Tables 10R and 20R: andIMF estimates system, regulatory minimum (12 percent). Sources Defined BRH ast the difference between averagel lendingr rate and averagef fixed deposit ratei intheb bankings Non-performing loans have been 2012, while provisioning for NPLS markedly. They reached 2.4 percent at end September ROE of 22 percent. declining of the banks remains high, with an average increased to about 97 percent. Profitability banks and about 8 percentage points than double that of the largest 100 European This level is more higher than the ECCU banking system. related to the concentrated lending portfolios, high Vulnerabilities remain. They are particularly practices and 18. relatively underdeveloped credit risk management financial dollarization, and in some cases weak governance. Allocation, September 2008-September Haiti: Credit Sectoral Credit growth has been rapid across 19. (in percentage) all the sectors, however, credit remains 2008 2009 2010 2011 2012 concentrated in large businesses mostly 28.6 27.1 24.6 27.4 24.7 activities. Overall, 25 Trade 15.3 16.7 16.2 15.7 16.01 involved in commercial Industries 13.7 13.5 14.7 14.8 percent of all credit goes to trade, followed by Real estate 12.6 17.1 18.1 14.9 13.3 industry at 16 percent, and real estate at 14 Services 18.0 9.9 11.7 12.2 11.0 10.5 Few loans have been granted to the Consumption 2.2 1.8 1.7 3.9 4.0 percent. although it represents a Telecommunications 13.4 11.9 13.7 12.5 16.6 agricultural sector, Other D'activité of the economy. The banking system Source: BRH Risques Par Secteur quarter lends only to a few large and well-established firms and lending to SMES is limited. The ratio of credit in dollars to total the share of credit in dollars remains high. 20. While declining, in 2008. Despite a gradual reduction as the credit rose from 12 percent in 1996 to 57 percent in Latin America, at 42 percent in credit in dollars remains among the highest macroeconomy improved by a strong rebound in gourde-denominated 2012. of the economy. The banking system Source: BRH Risques Par Secteur quarter lends only to a few large and well-established firms and lending to SMES is limited. The ratio of credit in dollars to total the share of credit in dollars remains high. 20. While declining, in 2008. Despite a gradual reduction as the credit rose from 12 percent in 1996 to 57 percent in Latin America, at 42 percent in credit in dollars remains among the highest macroeconomy improved by a strong rebound in gourde-denominated 2012. The decline in dollar credit has been compensated 22 percent while credit in local currency 2008 and 2012, credit in dollars has increased by recent credit. Between continued macroeconomic stability and has more than doubled (up by 124 percent), reflecting in gourdes 30 percent of the reserves the Central Bank to eliminate the requirement to keep financial dollarization decisions by rate risks related to the high for dollar deposits. However, liquidity and exchange prevent banks' net open foreign manageable in the near-term. Current prudential regulations banks in Haiti have more appear 2 percent of equity, and the three systemic exchange position from exceeding INTERNATIONAL MONETARY FUND 11 dollars has increased by recent credit. Between continued macroeconomic stability and has more than doubled (up by 124 percent), reflecting in gourdes 30 percent of the reserves the Central Bank to eliminate the requirement to keep financial dollarization decisions by rate risks related to the high for dollar deposits. However, liquidity and exchange prevent banks' net open foreign manageable in the near-term. Current prudential regulations banks in Haiti have more appear 2 percent of equity, and the three systemic exchange position from exceeding INTERNATIONAL MONETARY FUND 11 --- Page 92 --- HAITI assets than liabilities in foreign currency. However, banks' potential exposures to indirect credit risk may require closer oversight, although anecdotal evidence suggests that commercial banks in Haiti tend to grant dollar loans mainly to larger commercial entities that derive most of their income in US dollars. 12 INTERNATIONAL MONETARY FUND --- Page 93 --- HAITI Box 3. Haiti: SME Financing Resources potentially available for credit to SMES financing include commercial banks' SME are significant in Haiti. Existing sources of formal cooperatives credit departments; micro-finance SME (FCs) IFIs and NGOS. Loans are extended institution (MFIs); financial percent per year. Overall local up to 5 years, at rates varying between 12 to deposits in the banking loans at about $ 1.2 billion. Therefore there system represent the equivalent of $ 3.5 is ample liquidity in the billion, with potentially allocated for SME financing. There banking sector which could be addressed. are, nevertheless, several bottlenecks that need to be Measures to enhance SME financing The Government, financial system and development the SME agenda and liberate SME agencies need to work together, in order to advance and focus on SME financing in Haiti. Banks, FCs and MFIs need to continue financing, with more financial, organizational putting emphasis Policy Actions and human resources. Maintain monetary and fiscal conducive Maintain political policies to economic growth and low inflation. stability and create economic medium term (1-3 years). policy certainty SO that SMES can plan over the shortInformation Provision Introduce a fully functional Credit Registry. Extend the National Identity program to facilitate compliance programs by financial access to credit as well as the implementation of institutions. Conduct a national census of MSMES, both urban and activity nation-wide and attack the issue of rural, and identify/formalize enterprises to map SME Training poor data availability. Organize short-term training seminars for both Introduce business/financial start-up entrepreneurs and established SMES. literacy and Organize short and medium-term entrepreneurship courses in secondary and university curriculums. in both urban and rural training programs for SME credit officers of banks, segments (banks and MFIS should work MFIs, and credit unions simplifying forms/applications and on increasing core SME reducing turnaround). competencies, Guarantees Promote the use of guarantee funds for co-insurance equipment with insurance companies of SME stocks and Reinforce access to insurance with the introduction of provincial cities. fire-fighting capacities in both Port-au-Prince and Collateral Continue work on the use of movable assets as collateral; mechanisms of re-possession. Reduce the time accelerate secure transaction reforms and equipment liens (collateral required and fees for the registration of leased improve registry. assets and Take necessary measures to facilitate the use of etc.) land as collateral also for MSME loans (land titling, cadastre Funding Use donor funds to leverage local funds agricultural/rural through guarantee mechanisms, lending and for quasi-equity and particularly for start-up SMES, for avoid having various financing/guarantee equity participations in SMES; centralize donor efforts and programs that risk confusion and a loss of efficiency. INTERNATIONAL MONETARY FUND 13 ateral required and fees for the registration of leased improve registry. assets and Take necessary measures to facilitate the use of etc.) land as collateral also for MSME loans (land titling, cadastre Funding Use donor funds to leverage local funds agricultural/rural through guarantee mechanisms, lending and for quasi-equity and particularly for start-up SMES, for avoid having various financing/guarantee equity participations in SMES; centralize donor efforts and programs that risk confusion and a loss of efficiency. INTERNATIONAL MONETARY FUND 13 --- Page 94 --- HAITI System Policy Recommendations D. Banking framework have in the regulatory and supervisory 21. A number of areas fori improvement been identified. and ensure effective making progress on the 2008 FSAP recommendations a. Continuing law. implementation of the new banking registry of security collateral, a land registry on establishing a credit registry, a centralized b. Focusing and deposit insurance scheme. pertaining to corporate governance and consolidated explicit rules and regulation attention. C. Establishing and/or financial conglomerates require regulatory supervision of financial groups d. Improving risk focus of the supervision. data collection and the production of key riskIT infrastructure allowing for automated e. Upgrading focused statistics. stimulating competition in the banking system. f. Continuing the conduct of of the banking regulations per se, including This review did not assess in -depth quality for the next FSAP. and on-site supervision, an area of importance stress testing AND MICROFINANCE COOPERATIVES FINANCIAL INSTITUTIONS' Relevance and Recent Trends A. Economic Institutions (MFIs) play a strategic role for Financial Cooperatives (FCs) and Microfinance the demand for 22. inclusiveness. According to market estimates, potential economic growth and financial In addition, the donor organizations microcredit in Haiti could reach up to 1.7 million households. and 10,000 small and medium-sized 375,000 microenterprises estimated that there are approximately reliable. This report took into consideration selected is limited and not fully Haiti Anne 2010I Information about these institutions from the "Recensement de L'Industrie de la Microfinance en the numbers figures and general trends observed to note that there are significant differences between obtained from 2011" (USAID / HIFIVE, 2012). It is important reasons. For example, the results of the USAID study were obtained from USAID and BRH for different which had to use as a starting point an outdated census of institutions. from part of the and inference methodology, BRH collects information a sampling institutions in this census might no longer exist. Secondly, that do not report to the Some of these institutions), but there are other institutions trends of this sector (85 credit unions and microfinance the numbers should be analyzed with caution, the general financial authorities. In general, although report were confirmed by different stakeholders. microfinance institutions in Haiti. Financial Services, one of the largest 8 Business plan prepared by Fonkoze 14 INTERNATIONAL MONETARY FUND to use as a starting point an outdated census of institutions. from part of the and inference methodology, BRH collects information a sampling institutions in this census might no longer exist. Secondly, that do not report to the Some of these institutions), but there are other institutions trends of this sector (85 credit unions and microfinance the numbers should be analyzed with caution, the general financial authorities. In general, although report were confirmed by different stakeholders. microfinance institutions in Haiti. Financial Services, one of the largest 8 Business plan prepared by Fonkoze 14 INTERNATIONAL MONETARY FUND --- Page 95 --- HAITI creation and is not being fully served by Demand for microcredit contributes significantly to job and high levels of businesses. unstable incomes, lack of quality collateral the formal banking system, due to low and 300 credit unions in the the authorities estimate that there are approximately informality. In contrast, 14 microfinance institutions provide licensed. In addition, only country, only 85 of which are formally (bank subsidiaries and NGOs). financial services to the MSMES and unbanked population a similar number of depositors as banks, FCs and MFIs report rapid growth rates, reaching 17.5 of banks' total 23. number of borrowers. Accounting for about percent but with a significantly larger much faster than banks in 2011. The microcredit portfolio loan portfolio, these organizations grew 10.6 billion in 2011. FCs gross 2.7 times the Latin American average reaching gourds increased by 46 percent banks but a much larger number of borrowers and MFIS serve a similar number of depositors as the to serve low to mid income customers is The clear orientation of FCs and MFIS by (286,000 versus 12,500). smaller than those provided size of loans and deposits, which are significantly reflected in the average banks. is role in rural areas. The formal banking system 24. FCs and MFIs play a particularly important branches operate. In contrast, 80 percent of where 57 percent of its 157 in concentrated in Port-au-Prince, outside of Haiti's capital. FCs and MFIS operating branches of FCs and MFIs are located more than 400 often with only one branch. 10 rural areas are in most cases small entities, Haiti: Providers of Financial Services in 2011 Non-Bank Financial Institutions Banks subsidiaries Banks' Credit Unions Total Total NGOS 0.0 642,292 1,053,085 1,081,775 410,793 19.2 19.7 Number of depositors 1/ 15+) 7.5 0.0 11.7 Percentage of active population with an account (age 206,890 22,956 56,570 286,416 12,500 Number of borrowers n.a. n.a. 10.6 154.0 2/ n.a. 2.4 4.0 135.5 Assets (billion of gourds) 1.6 0.0 7.0 40.1 Deposits (billion of gourds) 3.6 1.5 2.0 Gross Loans (billion of gourds) 0.0 3.7 3.8 125.3 9.6 3,206.0 Average deposits (thousands of gourds) 17.4 63.2 35.0 24.6 22.2 Average loan (thousands of gourds) n.a. 32.2 n.a. 16.6 Return on Equity (ROE) (in percent) estimates Source: USAID Recensement del lindustrie de la microfinance en Haiti, ,2010-1 itandIMFe YForb banks, assumingt two bank accounts per client. 2/1 Without PetroCaribe are account basedon statistics sthatr mayd differ from those of fbyBRH. Notet thatt thesedataa enterprises have more than 10 but fewer than 10 workers and small and medium-sized Microenterprise employs fewer than 100 employees. de la Microfinance en Haiti Anne 2010-2011" (USAID 10 Figures based on findings of the "Recensement de L'Industrie methodology. 2012). Estimates were inferred from a sampling / HIFIVE, INTERNATIONAL MONETARY FUND 15 2/1 Without PetroCaribe are account basedon statistics sthatr mayd differ from those of fbyBRH. Notet thatt thesedataa enterprises have more than 10 but fewer than 10 workers and small and medium-sized Microenterprise employs fewer than 100 employees. de la Microfinance en Haiti Anne 2010-2011" (USAID 10 Figures based on findings of the "Recensement de L'Industrie methodology. 2012). Estimates were inferred from a sampling / HIFIVE, INTERNATIONAL MONETARY FUND 15 --- Page 96 --- HAITI entities have better information and small FCs and MFIS, the larger 25. In contrast to the many well According to the USAID studylt systems and appear to be profitable and capitalized. a ROE, driven by the accounting a ROE of 20.6 percent, while small FCs reported negative found thirteen larger FCs reported and low productivity ratios. A similar situation is lack of economies of scale, high cost of capital and MFIs, larger entities also benefit from the MFIs. In contrast to the many small and rural FCs among existing technical assistance programs. for the Growth of the Sector B. Concerns and Challenges authorities. The sector's outreach among lower 26. MFIs are currently not regulated by financial the authorities, as most of them have should be closely monitored by income segments and rapid growth absence of a regulatory framework for MFIS is particularly yet to achieve operational self-sufficiency.) The deposits from large numbers of low-income customers, worrisome, as some of these institutions are taking institutions fail. who could be severely hurt and left unprotected, if these framework needs to be revised to regulated, the existing legal 27. Although FCs are formally entities. Following the collapse in 2001 proper oversight of a large number of heterogeneous 12 a Law for Savings and ensure that were disguised pyramid like schemes, of many so-called "credit cooperatives" for the first time the BRH as the was issued in July 2002. This Law established, National des Credit Cooperatives the prerogatives of the Conseil prudential supervisor for cooperatives, while maintaining between these two agencies are not well Coopératives (CNC) license these entities. However, the processes of FCs. In addition, to certain according to BRH, significant delays for the registration which also monitors coordinated, creating, information is delegated to the existing federation, extent, the collection of financial to intervene. In practice, BRH is obtaining non-licensed credit unions, but which does not have powers and networks, as the number of FCs, members of the Le Levier Desjardins financial information from a small is not known). BRH performs on-site supervision of these entities is not licensed(the total number majority of FCs known to have a delicate financial position. of the group in a context of rapid growth, of smaller cooperatives, a 28. The inadequate management framework. In addition to poor financial ratios, significant increases the urgency for a stronger legal and credit processes. According to the assessment number of small FCs lack sound financial management in financial management while 76 conducted by USAID, 53 percent of the FCs required improvements processes. deficient loan origination and management percent were categorized as having Developments in Regulation C. Recent has been developed as well as a draft A to modernize the Law for Cooperatives last two years, the 29. proposal to be submitted to Parliament. Over the Law for Microfinance, but they are yet Agency (CIDA), have worked from the Canadian Development financial authorities, with technical support which has not been modernize the 2002 Law for Savings and Credit Cooperatives, with on a proposal to draft Law for Microfinance Institutions was prepared presented to Parliament yet. In addition, a financial information of the FCs it oversees. 11 BRH does not publish yet schemes that operated disguised as cooperatives. that depositors lost USD 200 million in fraudulent LIt is estimated 16 INTERNATIONAL MONETARY FUND Over the Law for Microfinance, but they are yet Agency (CIDA), have worked from the Canadian Development financial authorities, with technical support which has not been modernize the 2002 Law for Savings and Credit Cooperatives, with on a proposal to draft Law for Microfinance Institutions was prepared presented to Parliament yet. In addition, a financial information of the FCs it oversees. 11 BRH does not publish yet schemes that operated disguised as cooperatives. that depositors lost USD 200 million in fraudulent LIt is estimated 16 INTERNATIONAL MONETARY FUND --- Page 97 --- HAITI framework, which is in the Agency (AFD) to establish a regulatory as support from the French Development the current draft Law does not recognize joint-liability of consultation. According to some MFIs, - lending methodologies, process This gap should be addressed as joint liability a relevant guarantee for lending". communnautaire, groupe solidaire and mutual mutual and community groups (banque such as solidarity, solidarite) are common in Haiti. D. Policy Recommendations microfinance and cooperative sector, the of the 30. For the long-term development Government of Haiti should consider: revised Law for Cooperatives, aiming to simplify the licensing a. Acceleration of the approval of the the faculties of BRH to intervene in failing (by leaving it in the hands of BRH), improving to the size of process 14 prudential and reporting requirements commensurate institutions, establishing of information about the sector. each FC15 and increasing the transparency for the Law for MFIS and establish a regulatory framework, b. Acceleration of the approval process and those which do not mobilize deposits and differentiating between deposit- -taking institutions and provisions for consumer provisions on the use of joint -liability as a collateral including protection. understand the sector. Develop an action plan to a census of FCs and MFIS to better FCs and C. Conducting the quality of financial information about registered expand the collection and improve MFIs. of small financial cooperatives, as a a study of options to promote the consolidation broader palette of d. Conducting that could translate into lower cost and a way to achieve scale and soundness services for the final client FCs and MFIS to the financial infrastructure. If minimum e. Facilitation of access of qualifying and MFI should be able to participate in the payments standards are met, at least the largest FCs Entities with qualifying information systems system to be able to provide a wider range of services. being set up by BRH. Their should also participate in the credit registry that is currently soundness and to deepen the financial would contribute significantly to enhance the served by FCs and incorporation vast of borrowers are currently as the majority system as a whole, especially MFIs. 13 The draft Microfinance Law was not available to the team. institution involves both BRH and CNC. 14, Currently, intervention and closure of a failing the heterogeneity of the FC sector, a revised the Law was not available to the team. Given and reporting requirements 1The draft of Cooperative following international best practice, that applicable regulations of the smaller FCs, is properly Law should also ensure, the size of each cooperative and that supervision, especially are commensurate to while larger FCs are supervised directly by the BRH. delegated to qualified institutions, INTERNATIONAL MONETARY FUND 17 Microfinance Law was not available to the team. institution involves both BRH and CNC. 14, Currently, intervention and closure of a failing the heterogeneity of the FC sector, a revised the Law was not available to the team. Given and reporting requirements 1The draft of Cooperative following international best practice, that applicable regulations of the smaller FCs, is properly Law should also ensure, the size of each cooperative and that supervision, especially are commensurate to while larger FCs are supervised directly by the BRH. delegated to qualified institutions, INTERNATIONAL MONETARY FUND 17 --- Page 98 --- HAITI INSURANCE Relevance and Recent Trends and Challenges A. Economic and unsupervised. the insurance sector in Haiti was largely unregulated from 31. Until very recently, does not contain any prudential requirements apart The sector has been regulated by a 1981 law that and are not published. As a Financial statements are not reported to the supervisor nine non-life licensing and reporting. size of the insurance sector which currently comprises result, it is difficult to assess the at about 0.5 percent of GDP, which and two life insurances. Axco reports estimate gross premiums for growth. insurers, in Latin America, suggesting the potential is low compared to an average of 2-3 percent in the market, and life insurance products are very Property and casualty policies are the most prevalent limited. the Haitian insurance sector accelerated the need for reform. Although that 32. The 2010 earthquake mostly due to reinsurance (it is estimated assumed the bulk of its obligations following the earthquake, been The earthquake highlighted the covered 75 percent of claims), some claims have not paid. to ensure that reinsurers and the need to regulate and supervise it adequately lack of transparency of the sector, The MEF has embarked on an extensive reform to insurers will be able to meet their future obligations. drafted two bills which are in the process of being overhaul the insurance regulatory framework, and has Autonome de Supervision et de (Loi Cadre sur l'Assurance and Loi sur l'Organisme in line submitted to Parliament requirements for insurance companies, Controle des Assurances). The draft bills set up prudential supervisor. A consultation process on standards, and establish a dedicated independent by the with international the industry, under a specific working group supported the insurance bills has taken place involving Council (GTA - Groupe de Travail sur les Assurances). Presidential develop. The 2010 earthquake Without insurance, the private sector cannot adequately have increased 33. but at the same time, premiums significantly increased the demand for insurance products, of such products. The constrained under the cost of reinsurance), limiting the affordability and the availability of credit. (mostly market is a hindrance to private sector growth development of the insurance This is particularly the case for mortgage Most bank loans in Haiti require insurance prior to being granted. house, and life insurance on the both property and casualty insurance on the A proper loans, which require but cannot develop without insurance. borrower. Housing finance is a key area for reconstruction, attract new investments of the insurance sector would enhance transparency, regulation and supervision affordability and the provision of new servicest, and increase competition in the sector, facilitating which make the new insurance products such as micro-insurance, Initiatives are under way to develop to ensure a sound development. and supervision of the sector an urgent priority regulation of the insurance sector. In The MEF has also taken steps to begin effective supervision assigned to the 34. insurance within the MEF. Four staff have been August 2012, a unit was set up to oversee of the bills makes it very restrictive for foreign branches as to 161t is important to note however that the current be wording to post the same minimum capital (cautionnement) not provide services in Haiti, given that they would required do not have such requirements because branches are local companies. International best practices usually niche services that cannot be provided by local firms. standalone entities, and they usually provide 18 INTERNATIONAL MONETARY FUND also taken steps to begin effective supervision assigned to the 34. insurance within the MEF. Four staff have been August 2012, a unit was set up to oversee of the bills makes it very restrictive for foreign branches as to 161t is important to note however that the current be wording to post the same minimum capital (cautionnement) not provide services in Haiti, given that they would required do not have such requirements because branches are local companies. International best practices usually niche services that cannot be provided by local firms. standalone entities, and they usually provide 18 INTERNATIONAL MONETARY FUND --- Page 99 --- HAITI December 2012, a guideline on reporting was completed after unit, and have received training. In the industry to submit their financial statements by consultation with the industry, and the MEF requested Sector Reform and Strengthening Initiative) 2013. These efforts are supported by a FIRST (Financial and support the early insurance regulation and supervision, Grant managed by the World Bank to strengthen in the draft laws with the preparation of establishment of the new insurance supervisor envisaged examination manuals and training. guidelines B. Policy Recommendations the Government of Haiti should development of the insurance sector, 35. For the long-term consider: to the of the insurance bills by Parliament, to give legitimacy a. Working towards a rapid approval rules for the industry; supervisor and clarify prudential new insurance with the industry: the MEF has requested the the reporting process in cooperation the situation of b. Completing by early January. This process is key to () assess financial statements of the industry disasters, (i) build up supervisory capacity on the the sector and its capacity to face future natural and (iv) define actions to strengthen analysis of financial statements, (ii) prepare new regulations, will be essential in the process; consolidate the sector. Cooperation of the industry and this includes appointing the Board and Managing supervisory capacity and processes: staff for C. Building-up the law is approved, securing the increase in permanent Director of the Supervisor once the staff and drafting guidelines and manuals; the unit and an office building, training preparing an action plan to supervise public authority (OASCA) is established, Once the supervisory insurers such as ONA, OAVCT and OFATMA. HOUSING FINANCE and Recent Trends and Challenges A. Economic Relevance with residential mortgage loans accounting for The mortgage system in Haiti is very small, to those of countries 36. in Haiti is similar of GDP, 17, the size of the housing finance system (2.5 percent). roughly 1 percent Malawi (0.5 percent), Uganda (1.1 percent), and Kenya within the same income range, such as finance system is however relatively small with to countries in the region, Haiti's housing and for When compared Republic's being 4.2 percent, for Guatemala 5.9 percent the same indicator for the Dominican had 650 outstanding mortgage loans. 18 In 2011, it was estimated that the country Bolivia 6.6 percent construction of rental housing is similarly restricted. Financing for the development and if commercial mortgage loans were to be included. 17 This figure would be 2.4 percent for 6.8 percent of GDP in Latin America and the 18 Based on estimated averages, home mortgage loans accounted Caribbean. INTERNATIONAL MONETARY FUND 19 When compared Republic's being 4.2 percent, for Guatemala 5.9 percent the same indicator for the Dominican had 650 outstanding mortgage loans. 18 In 2011, it was estimated that the country Bolivia 6.6 percent construction of rental housing is similarly restricted. Financing for the development and if commercial mortgage loans were to be included. 17 This figure would be 2.4 percent for 6.8 percent of GDP in Latin America and the 18 Based on estimated averages, home mortgage loans accounted Caribbean. INTERNATIONAL MONETARY FUND 19 --- Page 100 --- HAITI devastated the capital and economic center 37. In January 2010, the 7.0 magnitude earthquake to the government, Haiti needs to housing deficit. According of Haiti, aggravating the long-existing needs and future demand over the next decade. build 500,000 new homes to address current housing should play a critical role in the country's long-term Housing finance - whether mortgage or microfinance estimated damages to the housing sector in the order reconstruction. The Post Disaster Needs Assessment at USD 200 million. The contributions by donors are estimated the of USD 2.3 billion, while programmed billion in liquid assets, which could be mobilized if banking system, at the same time holds USD 1.8 right conditions and incentives were available. products, the three largest providers hold While all nine commercial banks offer mortgage bank in Haiti, had 38. loans. Sogebel, the only specialized mortgage roughly 67 percent of home mortgage terms of commercial mortgage loans, three banks market participation with 29 percent In the largest and the largest provider, Unibank, 56 percent. concentrate roughly 90 percent and lack of land titles are significant demand Low and informal incomes, limited savings households who have 39. of formal housing finance. Banks only serve side constraints for the expansion which reduces the pool of qualifying borrowers titles and formal proof of income, land and property titles and informal employment is predominant significantly, as few properties have of banks' mortgage loans to a On the other side, current loan terms limit the affordability interest rates 40. requirements are 30 percent, small segment of the population. On average, down-payment 7 to 10 years. Banks require a debt-torate loans are 10 to 12 percent and maturities typically in on adjustable and households have to secure three monthly payments income ratio of usually only up to 20 percent taxes, mortgage registration fees, fees and mortgage costs (related to mortgage advance, while upfront insurance costs and bank fees) are relatively hight. taxes were recently reduced in the new Banking Law. Mortgage 20 INTERNATIONAL MONETARY FUND --- Page 101 --- HAITI Flgure 1. Haltk Mortgage Loans CBNA Share of Residential Loans CAPITALEK Share of Commercial Loans (sapotcentefiotalboang (Asap percentoftotal loans BUH SCOTIA BPH BUH SOGEBK EPH CAPITALBK CBNA BNC BNC SCOTIA SOGEBEL UNIBK SOGEBK SOGEBEL UNIBK 0% 5% 10% 15% 20% 25% 30% 35% 0% 10% 20% 30% 40% 50% 60% 100% 9,000 Evolution of Mortgage Loans Evolution of Mortgage Loans (Inpercent) (Inmillions ofgcurdes) 80% 78% 8,000 7,000 GResidentialloans GResidentialloans 60% 48% DCommerdalloans Commercal Loans 40% 5,000 24% 20% £4,000 20% N 3,000 0% 15% 20% 25% 30% 35% 0% 10% 20% 30% 40% 50% 60% 100% 9,000 Evolution of Mortgage Loans Evolution of Mortgage Loans (Inpercent) (Inmillions ofgcurdes) 80% 78% 8,000 7,000 GResidentialloans GResidentialloans 60% 48% DCommerdalloans Commercal Loans 40% 5,000 24% 20% £4,000 20% N 3,000 0% 2,000 -20% -16%-15% 1,000 -40% 2010 2011 Source: BFH INTERNATIONAL MONETARY FUND 21 --- Page 102 --- HAITI microfinance products with flexible short-term housing 41. MFIS and FCs are slowly introducing of low to mid income customers. MFIS and FCs are that are adequate to the needs and transaction costs collateral requirements base, the high credit risk high challenged by the short-term nature of their funding these institutions lack the loans, which push interest rates up. In addition, related to small size of the loans for housing and home expertise needed for the sound provision of longer-term the of technical technical assistance for development improvements. More recently, IFC and USAID have provided FCs and MFIs. Under these microfinance products as well as liquidity funding for some role in financing home housing be to play in the short term a growing circumstances, FCs and MFIs can expected lending. before taking on, at a later stage, mortgage improvements and expansion, have tried to increase the supply of housing loans 42. The Government and donor agencies launched a mortgage program, Kay Pam, of measures. In 2011, the Government with through a variety workers. In 2012, the program had only 29 active clients targeting civil servants and other salaried loan size of USD 115,000. The small loans in the amount of USD 3.3 million, with an average structure of the subsidy program, outstanding borrowers' lack of proper land titles, the uptake is attributed to potential mechanisms for housing. In addition, right after the as well as to the absence of adequate savings resources raised in Gourdes to finance housing earthquake, the BRH eliminated reserve requirements on from 25 to 50 percent, as a way to encourage banks and increased the allowable sector concentration ratio supply of loans for housing, the lending. In the absence of a functioning home to increase mortgage available large amounts of grant funds to subsidize Government of Haiti and donors have made technical assistance to financial institutions and reconstruction and repair. In addition, donors are providing 20 the emergence of partial credit guarantee schemes. supporting loan portfolios, such have contributed to increasing the mortgage 43. While these measures to the expansion of mortgage portfolios growth is from a very low level. Significant impediments of the loan growth, with BPH and of public banks has contributed to large part is remain. The participation mentioned above, mortgage lending on the middle class. Besides the shortcomings bureau, BNC focusing tools ie. by the absence of a credit lengthy constrained by inadequate financial risk management tools (other than adjustable rate foreclosure procedures, the absence of interest rate risk management of the sector. which place the risk on the client) which will hamper expansion mortgages B. Policy Recommendations finance system, the Government of Haiti development of the housing 44. For the long-term should consider: property and land rights, such as: a modern Establishing the necessary conditions to guarantee rights; the a. and reforms of the legal framework to enforce property property registration system of an affordable system for creation of a modern physical land cadastre; the development fund that is managed by FDI, which targets 20 The BRH has supported the establishment of a partial credit guarantee the scope of DCA guarantees to include housing. MSMES and housing. In addition, USAID expanded productive MONETARY FUND 22 INTERNATIONAL of the housing 44. For the long-term should consider: property and land rights, such as: a modern Establishing the necessary conditions to guarantee rights; the a. and reforms of the legal framework to enforce property property registration system of an affordable system for creation of a modern physical land cadastre; the development fund that is managed by FDI, which targets 20 The BRH has supported the establishment of a partial credit guarantee the scope of DCA guarantees to include housing. MSMES and housing. In addition, USAID expanded productive MONETARY FUND 22 INTERNATIONAL --- Page 103 --- HAITI and the definition of property valuation standards and registration of titles and mortgages; methods. lending by banks to unlock the available liquidity in b. More direct measures to stimulate mortgage 21 Credit risk is one of the main deterrents to mortgage the banking system for housing purposes. information system, and stimulate the development lending. Government could improve the credit Current general loan insurance for all or for a subgroup of loans or borrowers. measures of mortgage initial attempt, but may require adaptation. Additional portfolio guarantees are an and other mechanisms to manage shortcomings in foreclosure procedures should address existing risks. another main constraint and the transaction costs of mortgage lending. These are while C. Addressing high taxes and fees to incentivize lending GOH should consider adjustments to mortgage taxes and controls on rental housing broadening the base on which they are levied. In addition, of a rental market. constraints to the development should be reviewed as they are significant If linked to credit, this could contribute to a well designed household subsidy system. and increasing d. Developing enhancing the affordability of households more inclusive housing finance system by lower middle income households. 22 Downbanks' interest in mortgage lending to middle and both household and financial mortgage payment assistance, could leverage payment and monthly and reduce total subsidy amounts per housing solution. sector resources for the housing sector that lenders make the lending decisions should be designed in such a way and Such subsidy programs Procedures should be simple and transparent programs and operate on market principles. could also contribute to expand the formal housing should be well monitored. Such programs gained in the implementation of the disaster resilience A review of experience to stock and improve reconstruction and repair could provide valuable lessons current subsidy programs on home scheme for home improvement and acquisition are develop and implement a modern incentive important provided by FCs and MFIs could play an important finance and micro mortgage products in the e. Housing monitored. Unlike banks, FCs and MFIs are interested expanding role, but should be closely their interest rates are rather high, ranging from 20 to provision of housing microfinance. However, and economies of scale and are not calculated in a standard way. While competition as well as 30 percent, are needed to establish a APR disclosure, may help drive costs down, regulations addition, FCs and MFIS will require access to longerIn appropriate consumer protection programs. term funds to be able to grant longer-term housing loans. authorities should also initiate activities to promote the 21 While the banking system is currently highly liquid, the the resources for housing finance that will be needed in the development of capital markets in order to mobilize longer term. subsidies have been captured by housing suppliers and that market has demonstrated that supply-side market prices. If well designed and Past experience such as interest rates subsidies, negatively distort and acquisitions of new other forms of subsidies, could potentially unlock the market of home improvements could help address other oriented, an incentive system income segments. In addition, the design of such system houses for middle and lower resilience and adherence to building codes. policy issues, such as disaster INTERNATIONAL MONETARY FUND 23 that will be needed in the development of capital markets in order to mobilize longer term. subsidies have been captured by housing suppliers and that market has demonstrated that supply-side market prices. If well designed and Past experience such as interest rates subsidies, negatively distort and acquisitions of new other forms of subsidies, could potentially unlock the market of home improvements could help address other oriented, an incentive system income segments. In addition, the design of such system houses for middle and lower resilience and adherence to building codes. policy issues, such as disaster INTERNATIONAL MONETARY FUND 23 --- Page 104 --- HAITI REMITTANCES Relevance and Recent Trends and Challenges A. Economic and consistent source of remittances have represented an important 45. Over the last decade, in 2012 the country received approximately USD 1.6 income for Haiti. According to the IMF's estimates, of the Haiti's GDP, surpassing the which accounted roughly for 19 percent This number billion in remittances, aid and foreign direct investment. participation of other sources of incomes, such as foreign taken into account 23 On average, between larger if the informal remittances were could be considerably 22 percent of GDP, which is the highest 2005 and 2010, the inflows of remittances represented USD 3.7 billion or 57 percent of the Similarly, the savings of the Haitian diaspora of participation in the region. be further leveraged to support the reconstruction GDP, is among the highest in the region and could 24 and infrastructure as well as social projects? housing if channeled through source for financial deepening 46. Remittances could provide a substantial the deposit base would be If they increased savings rather than consumption, In addition, the the financial system. therefore stimulating sustained credit growth. strengthened and the maturities extended, to increase access to additional would increase if they were leveraged development impact of remittances and other development projects. financial services and to raise financing for infrastructure for the financial system, remittances are an 47. Aside of being an important source of funding than can be leveraged to increase financial service for large segments of the population for instance, facilitate access to important dedicated financial products, that could, financial access to finance. Promoting of remittances could contribute to deepen the loans for housing by the senders and/or recipients spurring economic growth. sector, while simultaneously remittance more than a third of the Haiti's adults received regular on 48. According to the IADB, this source of income. It is estimated that, and the majority of recipients strongly rely on receiving remittances. 25 The payments accounted for 60 percent of the income of households other income average, remittances households do not have any World Bank estimated that 55 percent of remitance-receiving Most Haitian remittance households earn less than USD 500 a year. and that 27 percent of recipient such as food and clothing. However, a significant recipients spend the transfers to address basic needs, savings, health care, housing and also invest part of the remittances in education, amount of recipients limited offer of public and private services. business, but are constrained by the for roughly 30 percent of received remittances (Orozco, 23 It is estimated that informal remittances could account 2010). The destinations are: USA (45 percent), DR (45 24 In 2010, the stock of Haitian emigrants reached and one other million. (2 percent) top (Orozco and Burgess,2010). percent), Canada (5 percent), France (3 percent), Haiti Country Profile. Additional Manuel Orozco (Inter-American Dialogue) for an internal Haitian transnational Migrants and 25 Estimates prepared by studies: "A commitment amidst shared hardship: in Haiti" (Orozco, 2006). information from his published 2010) and "Understanding the remittance economy Remittances(Orozco and Burgess, 24 INTERNATIONAL MONETARY FUND the stock of Haitian emigrants reached and one other million. (2 percent) top (Orozco and Burgess,2010). percent), Canada (5 percent), France (3 percent), Haiti Country Profile. Additional Manuel Orozco (Inter-American Dialogue) for an internal Haitian transnational Migrants and 25 Estimates prepared by studies: "A commitment amidst shared hardship: in Haiti" (Orozco, 2006). information from his published 2010) and "Understanding the remittance economy Remittances(Orozco and Burgess, 24 INTERNATIONAL MONETARY FUND --- Page 105 --- HAITI Figure 2. Haiti: Remittances 50% 50% External Resource flows to Haiti Remittances Inflows 45% (ny pecent ofGDP) 46% (Inpercent) 40% 37% 40% Migrantremittancei inflows Net foreign directinvestment 30% 35% 2004 Coup 2008 2010 Net ODA received d'Etat Financial Earthquake 30% 29% 20% 29 C - 15% 15% Crisis 25%, 12% 24% 25% 22%, 20% 21%21 2295215 10% 20% 18% 16% 0% 15% 14% a a 12%12% < E 10% 10% 8% 8% -10% 6% 5% 5% 5% 3% 2% 2% 20% 0% 0% 0% 0% 0% 1% 1% 0% 1% 1% -259 0% a - S a -30% 2 E 2 2 2 Remittance Inflows, 2005-2010 Diaspora Savings, 2009 (npercentofGDP) (In percent of GDP) 9 R 2 N S 0 S n - - E a € 1 E a # a 8 2 10 32 33 I D 28 29 & E a a 3 a 13 - I u 6 s 4 4 c3 A a V Source: IMF World Development Indicators, World Bank Migration and Remittances Unit INTERNATIONAL MONETARY FUND 25 ittance Inflows, 2005-2010 Diaspora Savings, 2009 (npercentofGDP) (In percent of GDP) 9 R 2 N S 0 S n - - E a € 1 E a # a 8 2 10 32 33 I D 28 29 & E a a 3 a 13 - I u 6 s 4 4 c3 A a V Source: IMF World Development Indicators, World Bank Migration and Remittances Unit INTERNATIONAL MONETARY FUND 25 --- Page 106 --- HAITI corridor. In 2011, more than 77 is the largest remittances' 49. The United States - Haiti corridor United States, according to BRH's statistics. Thus, of the inflows of remittances were sent from the rate. In 2009, in the midst percent situation, especially to its unemployment Haiti is vulnerable to the US economic for the first time. Other corridors include: France (6 of the financial crisis, inflows of remittances flattened Canada (6 percent), DR (2 percent), and others (8 percent). percent), only three percent of the Dominican Republic - Haiti is reported to provide number of 50. The corridor to be considerably larger. With an estimated reported remittance volume but it is likely for Haitian migrants. The total volume migrants, the Dominican Republic is a significant destination that the 450,000 Republic is estimated to be considerably larger of remittances coming from the Dominican informal remittances that enter the country. It is for most of the reported three percent, as it is responsible from the Dominican Republic are sent to rural estimated that nearly 54 percent of remittances inflows and other urban areas (23 percent each),2 while roughly 23 percent are sent to the capital areas, limits the availability in the Dominican Republic - Haiti corridor 51. The high level of informality of transactions and the protection of consumers. of data, while raising concerns about the security levels of informality in DR-Haiti corridor are experts, the main reasons behind higher the According to industry the undocumented status of migrants and geographic proximity, lower amounts per transaction, Republic -Haiti corridor. Informality is not as of informal networks in rural areas in the Dominican market, which has existence due to its nature and the number of companies in the high in the US - Haiti corridor transaction amounts are lower in the Dominican helped push costs down. In addition, the average reported available on formal remittance flows, the to the latest information - Haiti Republic - Haiti corridor. According Haiti was USD 120, and in the Dominican Republic remittance transaction from the US to to be smaller than this average remittances from the Dominican Republic are likely corridor, USD 70. Informal amount. different migration patterns. The differences between the corridors are explained by 52. The consists by Haitians living in border areas, working Haitian Diaspora in the Dominican Republic mainly informal The number of the mostly the service industry and in the economy: the predominantly in sugar cane, Republic increased significantly since undocumented immigrants looking for work in the Dominican in the US has a better financial On the other hand, in general, the Haitian Diaspora and better income 2010 Earthquake. education of many of the Haitian emigrants situation due to the higher level of formal Dominican Republic corridors is the profile of 27. Another difference between the US and the husband/wife (30 percent), opportunities? Haitians in the US are sending money to their dependents: from the Dominican the recipients: while the beneficiaries of remittances parents (22 percent) and children (24 percent); republic are largely the parents (52 percent). Republic who rely on remittances from Haiti 26 Of note, there are roughly 6,500 of Haitian students in the Dominican de estudiantes extranjeros en la Republica for tuition and living costs, see: "Encuesta sobre gastos to Dominicana" pay (Banco Central de la Republica Dominicana, 2012). whose economic interests were into the US were mainly upper and middle class families, profile of emigrants 27 Initially, Haitian migrants and economic scenario. After the 1970s, the demographic at risk due to the uncertain political amount of poor and less educated refugees arriving. has changed significantly with a substantial 26 INTERNATIONAL MONETARY FUND 6,500 of Haitian students in the Dominican de estudiantes extranjeros en la Republica for tuition and living costs, see: "Encuesta sobre gastos to Dominicana" pay (Banco Central de la Republica Dominicana, 2012). whose economic interests were into the US were mainly upper and middle class families, profile of emigrants 27 Initially, Haitian migrants and economic scenario. After the 1970s, the demographic at risk due to the uncertain political amount of poor and less educated refugees arriving. has changed significantly with a substantial 26 INTERNATIONAL MONETARY FUND --- Page 107 --- HAITI the formal remittance service providers transfer operators (MTOs) are primary locations. 53. Money with 134 payout institutions to offer 411 payment (RSPS). There are only seven RSPS partnering 48 percent of the payment points. With 30 concentrated with Western Union holding is The market is highly type. The network of MFIS (15 percent) locations, banks are the largest payer their percent of the payout living in more remote areas as 96 percent of payout particularly important for reaching recipients locations are located outside Port-au-Prince. B. Policy Recommendations to help reduce the costs of competition in the market would be an important step cost of a. Promoting of transactions. Over the last year, the average remittances and to improve the security between the third quarter of 2011 and funds to Haiti has decreased from USD 7.7 to 5.7 America, Haiti still has sending countries in the Caribbean and Central 2012. However, compared to other one of the highest remittance fees. remittance tax on remittances flows and considering alternatives b. Assessing the impact of a recent USD 1.5 tax on remittances from the Haitian Diaspora to the current flat fee. A flat fee (such as the for smaller transactions. In addition to established in June 2011) could have negative implications incentives to send remittances, drives household income a remittance tax usually reduces inclusion. reducing efforts to link remittances to financial resources underground and impedes and operation of the Haiti - Dominican Republic remittance in depth the structure Based C. Studying and to design a strategy for its formalization. corridor to better understand its characteristics establish mechanisms to issue licenses to the Government could on the results on this analysis, and communication campaigns to deal sound providers and define appropriate policy measures with any problems. of remittances in Haiti could contribute to improve d. Assessing the legal and regulatory framework The Law on Money Laundering, amended in transparency, competition and financial inclusion. AML, which improved the quality of Law of 2012 include provisions on 2008, and the new Banking controls. However, the quality of information and information collected, IT systems and internal only recently, credit unions started transparency still need to be further improved. In addition, network of credit unions and MFIS as well remittance services.28 Given the broad branch a mechanism to providing inclusion, the Government should consider creating as the potential for financial offer of the remittance services. As done in many credit unions and MFIs expand the (including encourage review of all legal statutes concerning remittances other countries, an in-depth framework. AML/CFT), could help develop a coherent regulatory started a remittances pilot, through 15 service points, credit unions affiliated with Le Levier the World Council of Credit 28 In September 2011, 7 Network (IRnete), a platform owned and operated by with the International Remittances Unions (WOCCU). INTERNATIONAL MONETARY FUND 27 of the remittance services. As done in many credit unions and MFIs expand the (including encourage review of all legal statutes concerning remittances other countries, an in-depth framework. AML/CFT), could help develop a coherent regulatory started a remittances pilot, through 15 service points, credit unions affiliated with Le Levier the World Council of Credit 28 In September 2011, 7 Network (IRnete), a platform owned and operated by with the International Remittances Unions (WOCCU). INTERNATIONAL MONETARY FUND 27 --- Page 108 --- HAITI SUMMARY OF THE POLICY RECOMMENDATIONS 54. In summary, the main findings of the study are: (i) banks dominate the financial sector in Haiti in terms of assets and volume of loans and deposits, but play a limited role in financial inclusion, lending to few sectors and clients; (ii) a significant part of the nonbank system is not regulated and information on their activity is scarce; (ii) microfinance institutions (MFIS) and Financial Cooperatives (FCs) are growing fast and are playing a key role in increasing financial inclusiveness, particularly in the rural areas; and (iv) the insurance sector and the housing finance system are relatively limited. Accordingly, key recommendations that is and adequately enforced; are to: () assess the existing banking legislation up-to-date, implemented, (i) put in place the needed legislation and framework for the nonbank system; (ii) and address the lack of information on the nonbank system. Several recommendations could be implemented through an update of the 2008 FSAP. 28 INTERNATIONAL MONETARY FUND --- Page 109 --- HAITI Table 1. Haiti: Recommendations BANKING SECTOR Re- assess the implementation of the reformsthat have been put in place since 2008 FSAP Establish a credit registry, a centralized registry of security collateral, a land registry and deposit insurance scheme Develop explicit rules and regulation pertaining to corporate govemance and consolidated: supervision off financial groups and/or financial conglomerates Upgrade IT infrastructuret to allow the automated data collection andt the production ofl fkey risk-focused statistics Enhance bank supervsiont through stress testing and on-site supervision NON- BANKING FINANCIAL INSTITUTIONS Establish systematic collection of supervisory data, particularly on insurance, financial cooperatives, microfinance institutions and remittances FINANCIAL COOPERATIVES AND MICROFINANCE INSTITUTIONS Accelerate the approval of the revised Law for Cooperatives, aiming at: the simplification of licensing and supervision, increased faculties of BRH toi intervene, andt transparency of the sector Acceleratet the approval of the Law for MFIS and establish a regulatoryframework, differenting deposit and non-deposittaking institutions and incuding provisions on the use of joint -liability Carry out a census of FCs and MFIsand develop an action plant to expand the availability and quality of financial information Study optionsto promote the consolidation of small financial cooperatives Facilitate accessof qualying FCsand MFIsto the financial infrastructure (payment system and credit registry) INSURANCE Accelerate the approval of the Law for Insurance Complete the reporting process in cooperation with the industry Build-up servisory capacity and processes Prepare an action plan to supervise public insurers HOUSING FINANCE Establish the necessary conditions to guarante tee property, land and mortgage rights Improve credit information system Study the development of mortgage insurance and adjust existing guarantees mechanism Address shortcomings in risk management of financial providers Adjust of the structure of taxes andf fees relate tedi to morto gage loans Develop and establish a household subsidy system linked to credit Strenghten disclosure requirements for housing microfinance loans including interest rates, terms and conditions, redress mechanism if any REMITTANCES Develop policies to promote competition and transparency among remittance providers Assess the impact oft fthe tax on remittances and consider alt temativesto the current flat fee. Conduct a comprehensive assessment of the legal andr regulatory framework of remittances industry Studyi in depth the structure and operation of the informal remittance corridor Dominican Republic- Haiti INTERNATIONAL MONETARY FUND 29 gage loans Develop and establish a household subsidy system linked to credit Strenghten disclosure requirements for housing microfinance loans including interest rates, terms and conditions, redress mechanism if any REMITTANCES Develop policies to promote competition and transparency among remittance providers Assess the impact oft fthe tax on remittances and consider alt temativesto the current flat fee. Conduct a comprehensive assessment of the legal andr regulatory framework of remittances industry Studyi in depth the structure and operation of the informal remittance corridor Dominican Republic- Haiti INTERNATIONAL MONETARY FUND 29 --- Page 110 --- HAITI Table 2. Haiti: 2008 FSAP Recommendations and Implementation Status FSAP Recommendations Implementation Status BRH's financial sustainability: prepare for recapitalization and BRH' S financial situation has strenghened because of increase government transfers the improved macroeconomic situation, the adoption of the new banking law, the absence of government deficit financing and the recent agreement on the debt between BRH and the MEF Enhance competition in BRH bond auction system Through development of the T-Bills market the competition in BRH bond auction system has been enhanced Adopt and implement new banking law and upgrade regulations Banking Law was passed recently Conduct special inspections of the three largest banks, and prepare BNC restructuring strategy Successful inspection was conducted Broaden scope and set up centralized public registry of personal property collateral Ongoing Private Sector Development Project (WB) Strengthen BRH's independence through recapitalization, and Significantly strengthened through the new banking law and legal reform improved capitalization Develop treasury securities market Treasury securities market will be further strenghend through the Public debt law expected to be submitted parliament by end -March 2013 Complete transition of BRH accounting toward IFRS and In progress commission BRH audit by new audit firm BRH audit has been committed Strengthen judicial capacity for contract enforcement Reforms underway Implement BNC restructuring strategy Guarantee was executed by BNC in 2011 Reduce cost of establishing collateral Ongoing with PCGF and movable collateral. Pillar one of the PCGF has been completed Increase competition in audit sector OCPAH working with French Accounting Board towards capacity Building Improve framework for systemic liquidity forecasting TA is being provided and exercises are being conducted Improve regulation and supervision of credit unions In progress Establish basic transparency requirements and regulation for other nonbank financial institutions Law for supervision of microfinance has been drafted Set up working group to assess options for deposit insurance scheme Currently under consideration Start improving banks' accounting practices in line with long term New Accounting Law and framework drafted IFRS compliance goal being by OCPAH with TA of IFI's executed by French Accounting Board takes this into account Require full publication of banks' annual accounts Required under the New Banking Law Upgrade IT infrastructure and increase risk focus of banking supervision Being upgraded under the Payment System TA Support orderly expansion of microfinance sector New Law for microfinance has been drafted and is under consideration Conduct actuarial assessments of all defined benefit pension schemes Public DB scheme will be supervised by insurance regulator under the new insurance law Facilitate establishment of a private credit bureau Work is ongoing jointly with WB and IFC Modernize insolvency legislation A commercial court to be established Develop strategy for the transition of bank accounting toward New Accounting Law and framework being drafted IFRS by OCPAH with TA of IFI's executed by French Accounting Board takes this into account Adopt simple and easily enforceable accounting system for New Accounting Law and framework being drafted private enterprises by OCPAH with TA of IFI's executed by French Accounting Board takes this into account 30 INTERNATIONAL MONETARY FUND Facilitate establishment of a private credit bureau Work is ongoing jointly with WB and IFC Modernize insolvency legislation A commercial court to be established Develop strategy for the transition of bank accounting toward New Accounting Law and framework being drafted IFRS by OCPAH with TA of IFI's executed by French Accounting Board takes this into account Adopt simple and easily enforceable accounting system for New Accounting Law and framework being drafted private enterprises by OCPAH with TA of IFI's executed by French Accounting Board takes this into account 30 INTERNATIONAL MONETARY FUND --- Page 111 --- HAITI Table 3. Haiti: Financial System 9 Commercial Banks 2 state banks: Banque Nationale de Crédit (BNC), Banque Populaire Haitienne (BPH) 4 private domestic banks: Unibank (UNIBK), Sogebank (SOGEBK) Banque de I'Union Haitienne (BUH) Capital Bank (CAPITALBK) 2 foreign banks: Citibank (CBNA) Scotia Bank (Scotia) 1 saving and mortgage bank: Société Générale Haïtienne de Banque d'Epargne et de Logement (SOGEBL) 85 Credit Unions Of which : 46 supported by Desjardins Of which: 25 being part of the federation Le Levier 14 Microfinances Institutions Of which : Sogebank' S microfinance subsidiaries (Sogesol, Sogefac, Sogecarte) 11 Insurance Companies Of which : 2 life insurance companies 16 Exchange Bureaux accredited by the central bank 7 Money Tranfers Institutions Sogexpress (Western Union) Caribbean Center SA (CCSA) CAM Unitransfer SA Unibank/Moneygram Capital Transfer (Western Union) Caribbean World Trading (CWT/Rapid Transfe/Moneygram) BUH/Moneygram Source: Bank of the Republic of Haiti; and Recensement de l'industrie de la microfinance en Haiti, année. 2010-2011, USAID, September 2012. INTERNATIONAL MONETARY FUND 31 companies 16 Exchange Bureaux accredited by the central bank 7 Money Tranfers Institutions Sogexpress (Western Union) Caribbean Center SA (CCSA) CAM Unitransfer SA Unibank/Moneygram Capital Transfer (Western Union) Caribbean World Trading (CWT/Rapid Transfe/Moneygram) BUH/Moneygram Source: Bank of the Republic of Haiti; and Recensement de l'industrie de la microfinance en Haiti, année. 2010-2011, USAID, September 2012. INTERNATIONAL MONETARY FUND 31 --- Page 112 --- HAITI Table 4. Haiti: Financial Soundness Indicators of Individual Banks, September 2010 September 2012 (In percent; unless otherwise stated) Sep-10 Sep-11 Mar-12 Jun-12 Sep-12 Size and growth 3453.6 3767.5 3858.0 3945.0 4029.9 Asset volume (in US$ millions ) 2985.8 3316.2 3394.2 3475.1 3469.5 Deposit volume (in US$ millions ) Asset growth since beginning of fiscal year 27.8 11.6 4.2 7.5 10.8 -11.7 31.5 11.2 21.5 34.0 Credit growth (net) since beginning of fiscal year Capital adequacy 13.4 16.5 16.7 16.7 16.8 Regulatory capital to risk-weighted assets 13.3 23.8 14.7 13.6 13.9 Assets to regulatory capital Asset quality and composition 25.1 26.8 28.4 33.0 Loans (net) to assets 21.3 5.7 3.7 3.6 3.2 2.4 NPLS to gross loans 4.8 4.4 3.0 2.8 2.3 Provisions to gross loans 84.1 93.1 83.3 88.8 96.7 Provisions to gross NPLS 3.2 1.1 2.6 1.7 0.4 NPLS less provisions to net worth Earnings and profitability (cumulative since beginning of fiscal year) 1.2 1.4 1.4 1.3 1.5 Return on Assets (ROA) 18.4 22.2 22.2 21.7 21.9 Return on equity (ROE) 87.4 91.4 92.2 92.3 92.4 Net interest income to gross interest income 66.7 69.2 67.8 65.6 66.1 Operating expenses to net profits Efficiency 7.4 1/ 9.6 8.9 8.2 8.2 Interest rate spread Liquidity 51.0 49.5 48.2 48.5 45.5 Liquid assets to total assets 52.8 59.0 56.3 54.7 55.0 Liquid assets to deposits Dollarization Foreign currency loans to total loans (net) 60.1 55.7 53.8 51.8 51.7 44.1 62.3 63.9 64.5 62.9 Foreign currency deposits to total deposits 37.3 31.3 32.6 34.6 35.7 Foreign currency loans to foreign currency deposits Sources: BRH Banking System Financial Summary; and IMF estimates. 1/ Defined as the difference between average lending rate and average fixed deposit rate in the banking system. 2/ Liquid assets comprise cash and central bank bonds. 32 INTERNATIONAL MONETARY FUND net) 60.1 55.7 53.8 51.8 51.7 44.1 62.3 63.9 64.5 62.9 Foreign currency deposits to total deposits 37.3 31.3 32.6 34.6 35.7 Foreign currency loans to foreign currency deposits Sources: BRH Banking System Financial Summary; and IMF estimates. 1/ Defined as the difference between average lending rate and average fixed deposit rate in the banking system. 2/ Liquid assets comprise cash and central bank bonds. 32 INTERNATIONAL MONETARY FUND --- Page 113 --- HAITI Table 5. Haiti: Banking System, September 2012 Share of total Share of total Percentage banking banking Number of of total loans system system bank Number of lent to large Ownership assets deposits accounts loans borrowers Domestic bank 91.3 91.7 2,142,069 34,685 UNIBK Private 31.3 31.6 879,506 2,745 36.6 BNC Public 24.4 24.9 352,425 26,043 28.7 SOGEBK Private 26.9 26.3 605,668 1,241 37.3 CAPITALBK Private 5.5 5.4 96,400 1,125 26.9 BUH Private 1.9 2.2 184,821 3.3 BPH Public 1.2 1.2 23,249 2,895 51.5 Mortgage bank 2.5 2.2 10,844 SOGEBL Private 2.5 2.2 10,844 8.3 Foreign banks 6.2 6.1 24,964.0 1,708.0 CBNA Private 3.3 3.2 2,839 99.2 SCOTIA Private 2.9 2.8 22,125 1,618 19.7 Banking system 100.0 100.0 2,177,877 36,850 Sources: BRH Banking Supervision Reports; and IMF estimates. 1 Excludes loans made byr microfinance: subsidiaries. INTERNATIONAL MONETARY FUND 33 3 Foreign banks 6.2 6.1 24,964.0 1,708.0 CBNA Private 3.3 3.2 2,839 99.2 SCOTIA Private 2.9 2.8 22,125 1,618 19.7 Banking system 100.0 100.0 2,177,877 36,850 Sources: BRH Banking Supervision Reports; and IMF estimates. 1 Excludes loans made byr microfinance: subsidiaries. INTERNATIONAL MONETARY FUND 33 --- Page 114 --- HAITI REFERENCES "Encuesta de gastos de estudiantes extranjeros en Banco Central de la Republica Dominicana, 2012, la Republica Dominicana" Federal Funds Rate and Channels of Monetary Transmission" Bernanke, B. and A. Blinder, 1992, "The American Economic Review, Vol.82, pp.901-921. the Black Box: The Credit Channel of Monetary Transmission," and M. Gertler, 1995, "Inside Journal of Economic Perspective, Vol. 9, pp. 27-48. and Financial Depth", NBER Working Paper 2004, "Fiscal Policy Caballero, RJ., and A. Krishnamurthy, No 10532 (Cambridge, Massachusetts). and Fiscal Policies: The Role of 2008, "Business Cycles Calderon C., and K. 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Housing 34 INTERNATIONAL MONETARY FUND Paper No. 8249 (Cambridge, Massachusetts: America and the World", NBER Working National Bureau of Economic Research). Growth in Latin America: Financial Development or Credit Harbo N. and Sulla O., 2013, "Credit Paper, forthcoming. Boom" I IMF Working Action Plan for Development of a Govemment-of-Hatited Hedstrom, Pamela, 2011, "Support Analysis of the Enabling Environment for Expanding theAvailability of Housing Finance, Finance in Haiti", USAID Publication, October. Housing 34 INTERNATIONAL MONETARY FUND --- Page 115 --- HAITI Finance for the Poor", Paper prepared for Hoek Smit, Marja C., 2009, "Subsidizing Housing Development Initiatives Group, January. Subsidies" in, Loic Chiquier and Michael Lea eds., Hoek-Smit, Marja C., 2009, "Housing Finance World Bank, June. Housing Finance in Emerging Market Economies, Systemic Banking Crisis," IMF Occasional Hoelscher, David S., and Marc Quintyn, 2003, "Managing International Monetary Fund). 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Terrier Gilbert, Rodrigo Valdes, Camilo Tovar, Jorge Chan-Lau, Carlos Fernandez Valdovinos, Mercedes Garcia-Escribano, Carlos Medeiros, Man-Keung Tang, Mercedes Vera Martin, and Chris Walker, 2011, "Policy Instruments to Lean Against the Wind in Latin America, IMF Working Paper No. 11/159. Vibe Christensen, Benedicte, 2011, "Have Monetary Transmission Mechanisms in Africa Changed?" BIS Papers No. 56. World Bank, 2001, "Finance for Growth: Policy Choices in a Volatile World" World Bank Policy Research Report. 36 INTERNATIONAL MONETARY FUND --- Page 117 --- FUND EXTERNAL MONETARY RELATIONS INTERNATIONAL DEPARTMENT Notice Public Information International Monetary Fund Notice (PIN) No. 13/41 700 19hh Street, NW Public Information D. C. 20431 USA IMMEDIATE RELEASE Washington, FOR April 2, 2013 with 2012 Article IV Consultation Executive Board Concludes IMF Haiti Monetary Fund (IMF) Executive Board of the International On March 11, 2013, the with Haiti." 1 concluded the Article IV consultation Background to safeguard made since the January 2010 earthquake it has picked up to Significant progress has been remains in the single digits, although food prices and reduced macroeconomic stability. Inflation reflecting primarily higher international The external position has 7.6 percent in December, caused by Hurricanes Isaac and Sandy. $2.2 billion (6 months of imports) domestic food supply international reserves reaching improved owing to additional strengthened, with gross Haiti's debt situation has significantly 2010 earthquake. 2012. the Fund) after the January at end-December partners (including debt relief from major has been slow, due to and economic recovery tensions, difficult However, the pace of the reconstruction capacity, persistent socio-political the country remains administrative and absorptive In addition, weak and a weak business environment. contracting by 5.4 percent in FY2010 in security situation, shocks. After 5.6 in real terms highly vulnerable to exogenous economic activity expanded by percent in FY2012, reflecting a following the earthquake, slowed markedly to 2.8 percent FY2011. However real GDP growth bilateral discussions with the IMF holds and financial IV of the IMF's Articles of Agreement, visits the country, collects economic and policies. On 1 Under Article usually every year. A staff team the country's economic developments the basis for discussion by the members. and discusses with officials a report, which forms Director, as Chairman to of the information, the staff prepares of the discussion, the Managing is transmitted return to headquarters, Board. At the conclusion Directors, and this summary up can be found here: Executive the views of Executive used in summings the Board, summarizes An explanation of any qualifiers E country's authorities. and financial IV of the IMF's Articles of Agreement, visits the country, collects economic and policies. On 1 Under Article usually every year. A staff team the country's economic developments the basis for discussion by the members. and discusses with officials a report, which forms Director, as Chairman to of the information, the staff prepares of the discussion, the Managing is transmitted return to headquarters, Board. At the conclusion Directors, and this summary up can be found here: Executive the views of Executive used in summings the Board, summarizes An explanation of any qualifiers E country's authorities. --- Page 118 --- Isaac, and delays in implementing key public spring drought, the impact of Hurricane investment projects. to be firmer in FY2013 and medium-term prospects are The recovery is expected risks. Growth is projected to accelerate to 6.5 promising, albeit with serious downside and a rebound in agriculture. Inflation percent in 2013, assuming a pickup in reconstruction In the medium term, maturing ongoing should remain stable, in the mid-single digits. in efforts to improve the business agricultural and industrial projects and persistence the external position. However, a environment will help sustain growth and strengthen weak capacity, heightened domestic worsening in global economic conditions, continued poverty and lack of progress in improving political and social tensions- fueled by pervasive the fragile recovery and constrain standards- and natural disasters could impede living Haiti's growth prospects. Executive Board Assessment the authorities' continued commitment to prudent The Executive Directors commended environment and exogenous shocks. Inflation has policies despite the challenging domestic has strengthened, and the country's debt remained in single digits, the external position extremely vulnerable to natural disasters; situation has improved. However, Haiti remains has been slow; and the and economic recovery from the 2010 earthquake encouraged the reconstruction challenges are daunting. Directors country's growth and development support to improve administrative and authorities to take full advantage of external and sustain the recovery while absorptive capacity, accelerate the reconstruction, safeguarding macroeconomic stability. and growth-enhancing spending Directors underscored that fiscal space for poverty-related current spending. They should be secured through increasing revenue and containing administration, reduce tax called for additional reforms to further strengthen revenue of a VAT system. Efforts are and expand the tax base, including the adoption investment in health expenditures, social safety nets and to increase also needed to further strengthen in enhancing public financial and education. Directors welcomed recent progress of a treasury single account. They management, in particular towards the establishment budget formulation, execution, of continued efforts to strengthen stressed the importance controls. transparency and reporting, and improve rate of public investment is critical to build the Directors noted that improving the execution growth potential. They urged the infrastructure that would unlock the country's and necessary with donors to improve project preparation management, the authorities to work closely investment. Many Directors also stressed while ensuring the overall quality of public of procedures amongst donors, and importance of better coordination and harmonization Haiti's domestic priorities. A few Directors closer alignment of external assistance with establishment budget formulation, execution, of continued efforts to strengthen stressed the importance controls. transparency and reporting, and improve rate of public investment is critical to build the Directors noted that improving the execution growth potential. They urged the infrastructure that would unlock the country's and necessary with donors to improve project preparation management, the authorities to work closely investment. Many Directors also stressed while ensuring the overall quality of public of procedures amongst donors, and importance of better coordination and harmonization Haiti's domestic priorities. A few Directors closer alignment of external assistance with --- Page 119 --- professionals could from NGOs in hiring experienced considered that competition negatively impact public sector capacity. potentially stance of monetary policy but encouraged the Directors endorsed the current neutral in liquidity management, inflation in check. Further improvements will authorities to keep price operations, and reducing dollarization help financial market deepening, market-based Directors also emphasized that moving strengthen monetary transmission mechanisms. with efforts to deepen the foreign towards greater exchange rate flexibility, together shocks and increase monetary policy exchange market, would help absorb external authorities' commitment to move gradually effectiveness. In this regard, they welcomed the the interbank foreign exchange exchange auctions after deepening to single price foreign market. of structural reforms to improve competitiveness, Directors underscored the importance and inclusive growth. Efforts should business environment, and foster higher enhance the infrastructure bottlenecks, strengthening focus on streamlining regulations, removing Directors commended the planned financial intermediation. human capital and deepening in order to lower the looked forward to decisive implementation energy sector reform. They and efficiency of energy supply, and reduce high cost of electricity, improve the reliability the burden on the budget. remains relatively sound and profitable. Recent Directors noted that Haiti's banking sector close monitoring going forward. has been healthy, but will require strong credit growth the 2008 Financial Sector Directors were encouraged by progress in implementing the microfinance and cooperative recommendations and regulating Assessment Program the regulatory and supervisory the need to further improve sectors, and underscored framework. IMF's efforts to promote transparency of the IMF's Public Information Notices (PINS) form part of the policies. With the consent of the country and of economic developments and of Article IV consultations views 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 Executive Board discussions of general policy matters, Acrobat PINS are also issued after case. The staff report (use the free Adobe decided by the Executive Board in a particular Article IV Consultation with Haiti is also available. Reader to view this pdf file) for the 2012 the country and of economic developments and of Article IV consultations views 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 Executive Board discussions of general policy matters, Acrobat PINS are also issued after case. The staff report (use the free Adobe decided by the Executive Board in a particular Article IV Consultation with Haiti is also available. Reader to view this pdf file) for the 2012 --- Page 120 --- Haiti: Selected Economic Indicators, 2010/11 - 2012/13 2010/11 2011/12 2012/13 Proj. Output 5.6 2.8 6.5 Real GDP growth (%) 1/ Employment Unemployment (%) Prices 10.4 6.5 5.0 Inflation (%) Central government finances 29.8 23.3 24.4 Revenue and grants (% GDP) 13.1 12.8 14.1 Domestic revenue (% GDP) 16.8 10.6 10.4 Grants 33.5 29.3 29.8 Expenditures (% GDP) 11.8 11.9 11.3 Current expenditures 21.7 17.4 18.5 Capital expenditures -3.7 -5.9 -5.3 Overall balance (% GDP) 12.2 15.4 20.4 Total government debt (% GDP) Money and credit Broad money (incl. foreign currency deposits) (% 10.4 6.9 11.8 change) 24.5 29.8 21.6 Credit to private sector (% change) 3-month BRH bond interest rate (%) 3.5 3.7 3.6 Balance of payments External current account balance (including official -4.6 -4.0 -5.6 grants) (% GDP) External current account balance (excluding official -24.2 -16.5 -17.7 grants) (% GDP) Foreign direct investment (FDI) (% GDP) 2.4 2.1 1.3 Reserves (months of imports of the following year) 6.3 6.5 5.5 8.9 13.0 16.8 External debt (% GDP) Exchange rate Real effective exchange rate (% change) (+ 1.6 appreciation) Nominal GDP (millions of Gourdes) 297,687 329,032 368,991 7,388 7,902 8,535 Nominal GDP Sources: Ministry of Economy and Finance; Bank of the Republic of Haiti; IMF staff estimates and projections; and World Bank estimates. 1/1 The projections for 2013 will be updated when more information is available about the impact of Hurricane Sandy. 5 8.9 13.0 16.8 External debt (% GDP) Exchange rate Real effective exchange rate (% change) (+ 1.6 appreciation) Nominal GDP (millions of Gourdes) 297,687 329,032 368,991 7,388 7,902 8,535 Nominal GDP Sources: Ministry of Economy and Finance; Bank of the Republic of Haiti; IMF staff estimates and projections; and World Bank estimates. 1/1 The projections for 2013 will be updated when more information is available about the impact of Hurricane Sandy. --- Page 121 --- Executive Director for Haiti, Ms. Florestal, Statement by Mr. Nogueira Batista, Advisor Mr. Goverament-Provided Goverment-Provided Advisor, and Robergeau, March 11, 2013 Haiti suffered two new natural disasters (a hurricane 1. During the period under review in disaster Although there have been significant improvements these and a spring drought). the country remains very vulnerable to preparedness and risk management, had to be reallocated to emergency responses, shocks. Scarce public resources infection. Damages in the agricultural including those related to spikes in cholera on imports and prices. material losses with ensuing pressures sector led to significant of agricultural output led to a slowdown The deceleration of exports and the shrinking in GDP growth. in per capita terms. Inflation spiked but 2. GDP continued to grow, albeit modestly, international reserves were considerably remained at single digits. Gross liquid months of imports at end 2012. The strengthened and reached the equivalent of six stability and meet all authorities have managed to maintain macroeconomic Commendable progress was also performance criteria under the ECF. quantitative achieved on the structural reform agenda. would like to thank IMF staff and management for 3. On behalf of our authorities, we particularly with the technical dialogue and their continuous support Our the constructive staff for the set of excellent reports. assistance missions. We also commend inclusion of Haiti in the pilot program of pleased with the authorities are particularly find to be a helpful addition to the Article IV financial sector reviews which they report. Investment, growth and donor coordination and long term goal is to achieve sustainable and inclusive 4. The authorities' medium sector needs to play a central role. Therefore, the growth. In their strategy, the private business climate both by targeted measures Government is determined to improve the environment. bottlenecks and by maintaining a stable macroeconomic human to remove institutional capacity, scale up investments in Reforms initiated to strengthen infrastructures should also have a positive capital, and build economic and social impact on private sector initiatives. of the national development agenda include 5. Key challenges for the implementation and ensuring that donors assistance is securing reliable concessional resources portion of the US$ 9.04 billion aligned with domestic priorities. A significant since the earthquake of reported to have been disbursed by the donor community Moreover, much of the donor 2010 did not go through Haiti's national budget. that were not originally part of resources did go through the budget financed projects scale up investments in Reforms initiated to strengthen infrastructures should also have a positive capital, and build economic and social impact on private sector initiatives. of the national development agenda include 5. Key challenges for the implementation and ensuring that donors assistance is securing reliable concessional resources portion of the US$ 9.04 billion aligned with domestic priorities. A significant since the earthquake of reported to have been disbursed by the donor community Moreover, much of the donor 2010 did not go through Haiti's national budget. that were not originally part of resources did go through the budget financed projects --- Page 122 --- the Government after the 2010 earthquake. The the national action plan presented by structures that compete with public channeling of donor resources through parallel personnel adds to Haiti's development institutions for funding and qualified challenges. constitute the bulk of the public investment program (PIP) of 6. Donor-financed projects goals remains crucial. This is one and their alignment with national development under the leadership of the Minister the key mandates ofthe newly created structure the Interim Haiti Recovery of Planning and External Cooperation to replace of procedures within the donor Commission. Greater coordination and harmonization the sectoral distribution and community would also be instrumental. Information on and disbursements of geographic location of externally financed operations the Government on a timely partners needs to be made available to are development is other way to make sure that scarce development resources basis. There no into the national development plan. efficiently allocated and integrated is also weakened by the heterogeneity of donors' 7. Haiti's absorptive capacity of executing units. The time national procurement regulations and the multiplication spend receiving missions from institutions, including line and coordinating ministries, the PIP and the could have been more efficiently used in implementing abroad, structural reform agenda. and harmonization of donor 8. Our authorities look forward to the streamlining rules and institutions in the use of and the increased reliance on Haiti's faced by procedures time, they are convinced that the difficulties donor resources. At the same professionals are amplified by the public sector in hiring and retaining experienced NGOS and international organizations. the high salaries and fringe benefits offered by institutions under its human resource The public sector cannot compete with these With support from Canada and the management framework and financial constraints. including through changes in the action for reforming the public service, IDB, an plan ofthe Prime Minister's office. salary scale, is being elaborated under the leadership Taxes and fiscal administration and the issues note summarize well the assessments and 9. The staff report assistance missions and other development recommendations of Fund technical and administrative capacities of partners. Strengthening the organizational structure and for improving the the tax offices seems critical for attaining fiscal objectives forward in this direction quality of services offered to taxpayers. A significant step can be declared online. It ofthe e-declaration through which taxes also be was the launching the electronic liquidation of taxes will is expected that by the end ofthe year hired to support the Ministry renowned firm is being possible. Also, an internationally in its efforts to strengthen the organizational of Economy and Finance (MEF) ofthe tax offices. structure and administrative capacities administrative capacities of partners. Strengthening the organizational structure and for improving the the tax offices seems critical for attaining fiscal objectives forward in this direction quality of services offered to taxpayers. A significant step can be declared online. It ofthe e-declaration through which taxes also be was the launching the electronic liquidation of taxes will is expected that by the end ofthe year hired to support the Ministry renowned firm is being possible. Also, an internationally in its efforts to strengthen the organizational of Economy and Finance (MEF) ofthe tax offices. structure and administrative capacities --- Page 123 --- in Haiti explains to a large extent the 10. The size of the informal economy with regional peers that of indirect taxation and makes comparisons authorities are preponderance economies less relevant. Nonetheless, the have mainly formal base. A medium tax payer unit was recently determined to enlarge the income tax low custom tariffs, fiscal created to contribute to this end. Despite the comparatively international demand and depend largely on trade and are thus vulnerable to to internal revenues have been initiated to shift the burden of taxation price volatility. Reforms of the TCA (Taxe sur le Chiffres d'Affaires) sources of revenue. The transformation also The timing of the official to a TVA (Taxe sur la Valeur Ajoutée) should help. hinge on the speed at which the launching of the TVA and its success will however system in the fiscal authorities are able to put in place an adequate information administration. ofCARICOM membership, including 11. As Haiti complies with the requirements increases in the average tariff rates are adoption of the common external tariff (CET), is uncertain, given that Staff observes that the overall impact on revenues from expected. from reduction or elimination of tariffs on imports revenue losses would result imports are presently coming CARICOM countries. However, since most ofHaiti's that the net US and the Dominican Republic, we expect from countries such as the tariffs with those of CARICOM effect on fiscal revenues of aligning the country's be positive, at least in the short-term. will probably levels. The authorities started to tackle this have reached alarming 12. Tax expenditures first by ensuring that NGOS and problem through a two-pronged approach: and, second, by limiting or international institutions comply with legislation including to firms executing eliminating certain exemptions and exonerations, of 2012 underscores the sector. The Executive Order August contracts for the public tax and seeks to ensure and duties ofthose who are granted exemptions obligations of national development plans. participate in the realization that beneficiaries Energy sector reduction ofthe Treasury's authorities remain mindful that an orderly With 13. The Haitian Electricité d'Haîti (EDH) is imperative. subsidies to the public utility company for social expenditures and the the ensuing savings, fiscal space will be generated However, they are also ofjob creation and growth enhancing projeets. capacity funding financial situation and production conscious that the strengthening of EDH's adopted a set of measures to phasewill occur only gradually. Hence, the government soundness at EDH. The phasing out the subsidies and achieve sustainable financial with a target date of 2016 for transfers to EDH has been initiated at endout ofbudget also between EDH and the MEF complete elimination. An MOU was signed ofthe electric company to 2012. It includes a commitment by the management 2013 on which an agreement will a financial sustainability plan by end-March present have to be reached by the end ofthe year. 's adopted a set of measures to phasewill occur only gradually. Hence, the government soundness at EDH. The phasing out the subsidies and achieve sustainable financial with a target date of 2016 for transfers to EDH has been initiated at endout ofbudget also between EDH and the MEF complete elimination. An MOU was signed ofthe electric company to 2012. It includes a commitment by the management 2013 on which an agreement will a financial sustainability plan by end-March present have to be reached by the end ofthe year. --- Page 124 --- mandate that includes minister for energy was appointed with a specific 14. A delegate the sector and preparing a financial recovery program the responsibility of overseeing EDH's financing needs. However, the and an investment master plan that addresses institution for the Public Works continues to be the lead oversight Ministry of electricity sector. and control over the operations of the 15. Additionally, to enhance transparency, equity metersthat allow EDH to independent power producers (IPPS), long-distance power have been installed at five monitor the quantity of electricity produced and consumed, drafted by EDH A standard contract is also being out of a total of six IPP plants. terms ofthe agreements with all six IPPs management with a view ofharmonizing the by the end of 2013. firm Tetratech in the reform of EDH, subsequent to 16. The involvement ofthe external a valuable step. Success with the development partners, represents an agreement between donors, EDH and the authorities. depends on an effective cooperation Financial sector been initiated to enhance access to credit. Many 17. Several reforms have already legislative changes such as the Law on challenges remain including completing Institutions (MFIS). A top (FCs) and the Bill for Microfinance Financial Cooperatives is the drafting of a law to cover financial priority ofthe BRH's regulatory agenda from the World Bank and IDB, a leasing and factoring. In addition, with support credit bureau will be launched soon. recommendations for the long-term development 18. Our authorities welcome the policy are determined to establish a ofthe microfinance and cooperative sectors. They ofthe current commensurate with the needs and diversity regulatory framework sectors are preponderant in the rural areas. players. The microfinance and cooperative activities make them and active involvement in financing productive IT and Their presence inclusion agenda. FCs and MFIs meeting minimum central to the financial have access to the credit bureau. regulatory requirements will also the need to address the problem of insufficient information 19. The authorities recognize intend to hasten the process of drafting and on the nonbank financial sector. They The informal sector of the economy relies approving regulation covering the sector. institutions. As informality is provided by nonbank mostly on microfinance availability of quality data will become reduced, the need for timely progressively more pressing. in financing productive IT and Their presence inclusion agenda. FCs and MFIs meeting minimum central to the financial have access to the credit bureau. regulatory requirements will also the need to address the problem of insufficient information 19. The authorities recognize intend to hasten the process of drafting and on the nonbank financial sector. They The informal sector of the economy relies approving regulation covering the sector. institutions. As informality is provided by nonbank mostly on microfinance availability of quality data will become reduced, the need for timely progressively more pressing. --- Page 125 --- Remittances cognizant of the importance of remittances in 20. The Haitian authorities are fully for the most vulnerable. They welcome providing a reliable source of income framework, promote competition in the recommendations to strengthen the regulatory transactions. As mentioned in the transfer market, reduce costs and secure money flows was introduced about a year ago. staff report, a flat fee on remittance Bank since the introduction of the measure Preliminary data compiled by the Central number of transactions or on show evidence of negative effects either on the fee do not alternatives to the current flat Hence, suggestions to consider the total amount. appear somewhat premature. sector also calls for an in-depth study ofthe structure 21. The issues note on the financial corridor in the flow of remittances. and operation of the Haiti-Dominican Republic would gain from being authorities are of the view that such a project The Haitian countries. In addition, given conducted jointly by the central banks ofthe respective the authorities are more of the US-Haiti and France-Haiti corridors, to the importance ofthese channels and derive adequate lessons inclined to start with the assessment be applied to support financial inclusion. Monetary, credit and exchange rate policy accommodative stance adopted since the 22. The Central Bank has maintained the since January 2011. earthquake, leaving interest rates on its paper unchanged Central Bank slightly with 12-month inflation above 7 percent, the ratios 5 However, raising banks' reserve requirement by tightened the monetary policy stance, on liabilities in local and points to a maximum of34 and 39 percent 1st, 2013. percentage This measure became effective on February foreign currency, respectively. towards greater exchange rate The Central Bank is committed to move gradually 23. increase in the volume of transactions, the foreign flexibility. Despite the recent given the small number of exchange market remains quite shallow and constrained, modernization of the foreign The Central Bank considers the expansion and players. of a single price foreign exchange market a prerequisite to the establishment will be instrumental in Ongoing TA and the Fund's support exchange auction system. for the change in auction type. the sequencing of measures deciding on appropriate free auctions to allocate foreign currency NGOS and exporters already hold frequent to local banks in a wholesale-like market. Conclusion and social infrastructure offer enormous 24. The building and reconstruction of economic investors as attested by the which are being seized by some business opportunities forward, domestically financed capital continuation of growth in FDI last year. Going --- Page 126 --- investment is to be allocated primarily to projects that will upgrade the stock of infrastructure and foster private sector investments. Transformational projects, those that can change the dynamics of development in Haiti, require the mobilization of important resources. Thus, the use of Private Public Partnerships (PPP) is a useful complement to the conventional sources of development finance. Our authorities would welcome technical support for the finalization of a consistent framework for PPPs.