--- Page 1 --- MONETARY FUND INTERNATIONAL IMF Country Report No. 14/105 HAITI UNDER THE EXTENDED CREDIT FACILITY, SEVENTH REVIEW OF PERFORMANCE FOR WAIVER OF NONOBSERVANCE REQUESTS CRITERIAApril OF PERFORMANCE CRITERION, AND MODIFICATION STATEMENT BY THE REPORT; PRESS RELEASE; AND STAFF EXECUTIVE DIRECTOR FOR HAITI Credit Facility, Requests for Waiver context of the Seventh Review Under the Extended Criteria, the In the Criterion, and Modification of Performance of Nonobservance of Performance and are included in this package: following documents have been released a staff team of the IMF for the Executive Board's The Staff Report prepared by that ended on January 24 2014, with consideration on March 26, 2014, following discussions underpinning the IMF developments and policies the officials of Haiti on economic Based on information available at the time of arrangement under the Extended Credit Facility. March 12, 2014. these discussions, the staff report was completed on by the Chair of the Executive Board. A Press Release including a statement by the Executive Director for Haiti A Statement listed below have been or will be separately released. The documents Letter of Intent sent to the IMF by the authorities of Haiti* Technical Memorandum of Understanding Debt Sustainability Analysis* *Also included in Staff Report allows for the deletion of of staff reports and other documents The policy of publication market-sensitive information. of this report are available to the public from Copies International Monetary Fund o Publication Services 700 19th Street, N.W. e Washington, D.C. 20431 (202) 623-7430 e Telefax: (202) 623-7201 Telephone: Internet: http/www.imf.org E-mail: pubications@imforg Price: $18.00 a copy International Monetary Fund Washington, D.C. 02014 International Monetary Fund --- Page 2 --- MONETARY FUND INTERNATIONAL HAITI CREDIT FACILITY, SEVENTH REVIEW UNDER THE EXTENDED OF FOR WAIVER OF NONOBSERVANCE OF REQUESTS AND MODIFICATION PERFORMANCE CRITERION, March 12, 2014 PERFORMANCE CRITERIA KEY ISSUES the Extended Credit Facility (ECF) in an amount Program. A three-year arrangement under on July 21, 2010. The million (50 percent of the quota) was approved of SDR 40.95 2, 2013, with no augmentation of access. was extended for one year on August arrangement on August 29, 2014. The program expires GDP growth was 4.3 percent (vs. Macroeconomic performance in FY2013 was favorable. to 4.5 percent (y/y), and headline inflation fell from 6.5 percent 3.4 percent in the program) International reserves remained at over five amid a modest depreciation of the gourde. reflecting larger-thanHowever, the overall fiscal deficit widened, months of imports. and subsidies to the electricity sector. programmed investment spending satisfactory. All but one Performance under the ECF-supported program was broadly well as one out of the three criteria (PC) for end- September 2013 were met as of repos performance made in key structural reforms. A contracting indicative targets, and progress was continuous PC on the contracting or by the Central Bank led to the breaching of the external debt with maturities up to guaranteeing by the public sector of non-concessional waiver for the nonobservance of the Staff supports the granting of a and including one year. PC. macroeconomic stability and sustaining The program for FY2014 aims at consolidating to reach 3-4 percent, and inflation reform. GDP growth is expected progress in structural more than five months of in single digits, with gross official reserves covering of to remain continued prudent monetary policy, the stabilization imports. Supporting policies include reforms in the areas of public overall fiscal balance, and the continuation of structural sector. the reserve management, and the electricity financial management, international and foreign assistance, stem from Haiti's dependence on remittances Risks to the program in Venezuela, as well as from the fragile including increasing vulnerability to developments socio-political environment. of the seventh staff recommend the completion In view of the program performance, modification of performance criteria, and the review under the ECF arrangement, the granting of a waiver. prudent monetary policy, the stabilization imports. Supporting policies include reforms in the areas of public overall fiscal balance, and the continuation of structural sector. the reserve management, and the electricity financial management, international and foreign assistance, stem from Haiti's dependence on remittances Risks to the program in Venezuela, as well as from the fragile including increasing vulnerability to developments socio-political environment. of the seventh staff recommend the completion In view of the program performance, modification of performance criteria, and the review under the ECF arrangement, the granting of a waiver. --- Page 3 --- HAITI Approved By Discussions were held in Port-au-Prince during November 5-15 and A. Cheasty (WHD) during January 20-24. The staff team consisted of Messrs. Di Bella and B. Traa (SPR) (head), Ntamatungiro, Norton (all WHD), Ms. Bova (FAD), Mr. Daan (STA), and Mr. Camard (resident representative). It met with Prime Minister Lamothe; Minister of Economy and Finance Laleau; Central Bank Governor Castel; other senior government officials; representatives of the private sector; and development partners. Ms. Florestal (OED) participated in the policy discussions. CONTENTS CONTEXT AND PROGRAM PERFORMANCE MACROECONOMIC DEVELOPMENTS, OUTLOOK, AND RISKS SEVENTH REVIEW DISCUSSIONS A. Fiscal Policy B. Debt Sustainability C. Monetary, Exchange Rate, and Financial Sector Policies OTHER ISSUES STAFF APPRAISAL BOXES 1. Apparel Exports to the U.S. 2. Foreign Assistance and Growth 3. Petrocaribe in Haiti 4. The Electricity Sector: A Drag on the Budget and a Bottleneck to Growth 5. Public Investment and Growth FIGURES 1. Program Performance, 2012-13 2. Recent Economic Developments, 2009-13 3. Fiscal Developments, 2009-13 4. Monetary and Financial Market Developments, 2009-13 TABLES 1. Selected Economic and Financial Indicators, 2009/10-2013/14 2a. Central Government Operations, 2009/10-2013/14 2b. Central Government Operations, 2009/10-2013/14 INTERNATIONAL MONETARY FUND --- Page 4 --- HAITI 3. Summary Accounts of the Banking System, 2009/10-2013/14 4. Balance of Payments, 2009/10-2013/14 5. Financial Soundness Indicators of Individual Banks, September 2010- September 2013 6. Indicators of Public Debt and External Vulnerability, 2009/10-2013/14 7. Proposed Schedule of Disbursements, 2014 8. Indicators of Capacity to Repay the Fund, 2012/13-2023/24 9. Indicative Targets and Quantitative Performance Criteria, September 2013-June 2014 10. Prior Actions and Structural Benchmarks through June 2014 ANNEXES 1. Risk Assessment Matrix 2. Debt Sustainability Analysis APPENDIX 1. Letter of Intent ATTACHMENT 1. Technical Memorandum of Understanding-Update a INTERNATIONAL MONETARY FUND 3 2013/14 7. Proposed Schedule of Disbursements, 2014 8. Indicators of Capacity to Repay the Fund, 2012/13-2023/24 9. Indicative Targets and Quantitative Performance Criteria, September 2013-June 2014 10. Prior Actions and Structural Benchmarks through June 2014 ANNEXES 1. Risk Assessment Matrix 2. Debt Sustainability Analysis APPENDIX 1. Letter of Intent ATTACHMENT 1. Technical Memorandum of Understanding-Update a INTERNATIONAL MONETARY FUND 3 --- Page 5 --- HAITI PROGRAM PERFORMANCE CONTEXT AND to normal, some aspects of life are slowly returning 1. Four years after the earthquake While the number of people living in camps against the backdrop of a stable security situation. shortage, and many buildings have not reduced, there remains an acute housing force has been sharply staffed and trained by the U.N. stabilization been rebuilt. The national police is being yet mandate has been extended through October 2014." (MINUSTAH), whose second half of 2013 have eased somewhat. Tensions in the political environment in the a period of 2. by the Senate in September 2013, during The draft budget for FY2014 was rejected parliamentary elections. between the President and the Parliament over long-delayed and the discussions the of a new electoral law in early December Political dialog resumed after passing discussions have resumed, with the aim to to hold legislative elections in 2014. Budget end-March 2014. agreement win approval in Parliament by budget that would rapid arrive at a consensus 2013 were observed. The net criteria at end-September central 3. Most quantitative performance net credit to the government from the international reserve (NIR) floor and the ceiling on domestic financing to the central observed. The indicative target on net L The bank (BRH) were central government deficit.? government was not observed, given the larger-thun-progammed sector of non-concessional external or by the public zero ceiling on the contracting guaranteeing breached in the context of the contracting by debt with maturities up to and including one year was Preliminary and incomplete (repos) for reserve management. in the BRH of repurchase operations indicative targets may not be observed, particular information for December suggests that some the central government. in the placement of treasury bills by due to some delays by the ECF is adequate in the key structural areas targeted 4. Staff's view is that progress constraints and inadequate physical the completion of the review. Capacity The authorities are to support challenges to structural reforms. infrastructure continue to pose significant the Fund is collaborating, including through working to overcome crucial impediments, and were implemented, including the assistance. Some actions of the structural agenda (DGI), and the technical taxpayer office by the tax department allocation of office space to the medium-sized Investment Program (PIP) by the Ministry of establishment of a task force to review the Public and on Treasury Single was observed in strengthening debt management, Finance. Some progress to meet the corresponding structural implementation, although not enough of Account (TSA) action involving the establishment Accounting benchmarks. With respect to the latter, a prior The proposed modification of endimplemented (paragraph 21). Center No. 1 was successfully BRH credit to the central government reflects updated March 2014 performance criterion on external grants and net Treasury bill projections of the timing of budget financing, including operations worldwide, though with remains one of the largest U.N. peace-keeping 1 MINUSTAH (in Haiti since 2004) plans to significantly reduce its size in the coming years. that the program did not reflect the base expansion was not observed given 2 The indicative target on monetary in February and June 2013 on bank reserves. effect of the increases in legal reserve requirements INTERNATIONAL MONETARY FUND BRH credit to the central government reflects updated March 2014 performance criterion on external grants and net Treasury bill projections of the timing of budget financing, including operations worldwide, though with remains one of the largest U.N. peace-keeping 1 MINUSTAH (in Haiti since 2004) plans to significantly reduce its size in the coming years. that the program did not reflect the base expansion was not observed given 2 The indicative target on monetary in February and June 2013 on bank reserves. effect of the increases in legal reserve requirements INTERNATIONAL MONETARY FUND --- Page 6 --- HAITI criterion on BRH net domestic modification of the performance placement. In turn, the proposed assets reflects updated monetary base projections. OUTLOOK, AND DEVELOPMENTS, MACROECONOMIC RISKS Economic Activity continued to advance in (percento change, y/y) 5. Economic activity in the 16 DReal GDP weather events early -Construction FY2013, despite negative farm output pushed 12 Agriculture -Apparel lexports to U.S. (right axis) fiscal year. Better-than-expected higher than the headline real GDP growth to 4.3 percent, 3J 2.9 in the sixth review. Non-farm real 3.4 percent projected saw strong increased by 4.2 percent, as services output investment continued to support -10 growth, public 5.5 construction, and increased apparel exports pushed 2009 2010 2011 2012 2013 Sources: IHSL Global Trade Atlas; andl IMF staff estimates. manufacturing. Inflation declined and the gourde depreciated Inflation (percent change, y/y) 6. of controlled -E Exchanger rate depreciation (HTG/USS) 25 moderately. Against the backdrop food 25 Headline domestic oil prices and broadly stable international -Food Administeredprices inflation decreased to 4.5 percent (y/y) at end15 prices, 3 The gourde FY2013, from 6.5 percent at end-FY2012. by 3.4 percent (y/y) against the U.S. dollar depreciated September, in the context of increased -10 through -10 -15 intervention by the Central Bank. -15 2010 2011 2012 2013 2014 account deficit deteriorated to 2009 Sources: IHSL: andIMFs staff estimates. 7. The current and of GDP (from 5.4 percent in FY2012), 6.5 percent by inflows from Venezuela. External Developments was financed mainly (percento of GDP) Goods exports increased by 11 percent as apparel 90 mGoods exports mGoods mTransfers imports and income U.S. continued to grow in the context of 75 iServicesbalance CAI balance (right axis) sales to the increased by the HELP/HOPE acts (Box 1). Imports in oil and food. 4 Remittances 30 - mainly - nearly percent, . increased significantly and the service balance Net official transfers decreased, as post- -15 u improved. assistance declined (Box 2). -30 earthquake humanitarian inflows 45 The deficit continued to be mainly financed by -60 2009 2010 2011 2012 2013 the context of the Petrocaribe Sources: National Authorities; andl IMF staff estimates. from Venezuela in FDI flows and a initiative (Box 3), as well as by some various shocks (including Hurricanes Isaac and in reaching record highs in the first half of 2013, following maize prices are about 30 percent lower than Sandy), After food prices fell back to near five-year averages. food Bean availability and in most of the country. January 2013, due to good crop yields. This improved countries. This likely explains part of lower than those declared by partner 4 Official import figures are significantly in Haiti's balance of payments. the large errors and omissions INTERNATIONAL MONETARY FUND 5 iative (Box 3), as well as by some various shocks (including Hurricanes Isaac and in reaching record highs in the first half of 2013, following maize prices are about 30 percent lower than Sandy), After food prices fell back to near five-year averages. food Bean availability and in most of the country. January 2013, due to good crop yields. This improved countries. This likely explains part of lower than those declared by partner 4 Official import figures are significantly in Haiti's balance of payments. the large errors and omissions INTERNATIONAL MONETARY FUND 5 --- Page 7 --- HAITI decrease in net foreign assets. in FY2013 due to a gasoline price The fiscal deficit increased to 6.7 percent of GDP domestic tax 8. to the electricity sector. While freeze that dented revenues and on transfers spending was larger than programmed to were slightly below program targets, current levels of revenues state-owned electricity company (EDH). Larger-than-expected finance the deficit of the capital spending up. domestcaly-financed public investment pushed and increased intervention in the foreign 9. The BRH tightened monetary policy exchange market pressures, the BRH increased exchange market in FY2013. In response to foreign million in FY2012). The BRH also tightened net dollar sales in FY2013 to US$120 million (from US$72 although the return on Central policy through an increase in legal reserve requirements, market were mainly monetary in real terms. Pressures in the foreign exchange Bank bonds remained negative fiscal deficit and rapid private sector credit the consequence of the langer-than-proganmed international reserves declined by Compared with their level in FY2012, gross remain adequate at about growth. end-FY2013, and at end-December 2013 they US$262 million through 5 months of prospective imports., policies and some dereflected government 10. The evolution of monetary aggregates well capitalized and profitable. The dollarization, while the banking system remained in reserve deposits, mainly nearly 16 percent on account of a surge monetary base grew by by about 7 percent, with dollar deposits reflecting higher legal requirements. Broad money grew increased by 16 percent in FY2013 (y/y), less than in gourdes. Credit to the private sector low at less than 3 percent. Credit growing loans remained down from 30 percent in FY2012. Non-performing According to the BRH, all banks maintain dollarization fell, but deposit dollarization remains high. ratios above 12 percent, the regulatory minimum. capital adequacy and the current account deficit to 11. For FY2014, staff expect GDP growth, inflation, Non-farm real GDP is projected to grow by similar to those observed last year. remain at levels remittance-fueled consumption, and apparel about 4 percent, supported by public investment, Given projected declines in international with headline GDP expected to rise by 3-4 percent. liberalization of exports, rate depreciation, and only a gradual oil and food prices, modest exchange (eop). The current account deficit (as a share domestic oil prices, inflation would reach 5-6 percent would offset a continued decline in would decrease somewhat as a lower trade deficit in the of GDP) formal sector will continue to increase, in particular official transfers. Employment in the remain broadly stable as a share of GDP.S sector. Credit to the private sector is expected to apparel for implementation are subject outlook and the conditions policy 12. The macroeconomic Annex I-Risk Assessment Matrix). In particular, to a number of downside risks (See excludes the effect of the contracting of repurchase operations for 5 This comparison of gross reserve levels The recording of repos has the effect of increasing gross international international reserve management purposes. reserves. a proposal to change a number of import 6 The budget for FY2014 that was rejected by the Senate incorporated the possible impact of any changes in domestic prices. ongoing discussions closely to assess tariffs. Staff is following INTERNATIONAL MONETARY FUND outlook and the conditions policy 12. The macroeconomic Annex I-Risk Assessment Matrix). In particular, to a number of downside risks (See excludes the effect of the contracting of repurchase operations for 5 This comparison of gross reserve levels The recording of repos has the effect of increasing gross international international reserve management purposes. reserves. a proposal to change a number of import 6 The budget for FY2014 that was rejected by the Senate incorporated the possible impact of any changes in domestic prices. ongoing discussions closely to assess tariffs. Staff is following INTERNATIONAL MONETARY FUND --- Page 8 --- HAITI On the external front, future aid flows the slow progress in are not assured as a number of donors are concerned could also strengthening governance and at suffer if the recovery in advanced transparency. Official flows and remittances Venezuela remains economies falters. The macroeconomic challenging, casting doubts about situation in commodity price shocks could also stress the Petrocaribe's 'S sustainability. Finally, domestic economic environment. On the domestic front, reform momentum could be lower than could suffer if political tensions resume, Tax programmed if progress in revenues Offices (MTO and LTO) strengthening the Medium and slows, or if international oil Large Taxpayers freeze continues, which would lower prices increase while the domestic increase in excise and custom duties and price transfers. In addition, if the pace at which potentially result in an levels of the second half of FY2013, the central Petrocaribe support is spent remains at the percent of GDP, This would reduce the government fiscal deficit could increase by 1 the size of fiscal buffers would be government's room to maneuver in the face of reduced. Ongoing budget shocks, as accommodation of spending pressures. At the discussions may result in a further end-March may result in same time, failure to pass the FY2014 under-execution of the Public budget by downside risks to growth. Investment Program (PIP), with some SEVENTH REVIEW DISCUSSIONS The mission assessed end-September targets and in including on the Treasury Single Account, progress implementing structural measures, investment tax administration, public debt framework It also agreed on fiscal and management and the public path for the structural reform agenda to monetary policies for FY2014 and on an achieve ECF objectives. updated A. Fiscal Policy 13. The overall fiscal deficit increased to 6.7 percent of GDP in FY2013 (vis-à-vis 4.8 Central Government FY2012 and 5.5 percent in 35 (percent of GDP) percent in the program), as 30 mDomestic revenue changes in the oil-price mechanism dented 25 mPrimary Domestically- domestic expenditures (exc. grant- financedi investment) 24 revenues and significant subsidies 20 -Overallt balance( -financedinvestment (righta taxis) expenditure high. Domestic kept current those revenues (excluding earmarked for the National Education L NEF) were 12.2 percent of GDP in FY2013, Fund, below the slightly program target. This outcome some reflected -10 over-performance of custom duties, which was 2009 2010 2011 2012 2013 more than offset by weaker income tax Sources: MEF; andIMF staff estimates. domestic revenue shortfall vis-à-vis collection given delays in strengthening the LTO." the program was offset by The Nigher-thun-programmed budget IMF technical assistance indicates that more separation of operation and strategy units, the consistent implementation of about percent of tax payers within the cleaning of the tax register at recommendations the LTO, and (including the GDP. LTO), could have resulted in revenue gains of improving compliance to about 0.3 - 0.4 percent of (continued) INTERNATIONAL MONETARY FUND 7 ; andIMF staff estimates. domestic revenue shortfall vis-à-vis collection given delays in strengthening the LTO." the program was offset by The Nigher-thun-programmed budget IMF technical assistance indicates that more separation of operation and strategy units, the consistent implementation of about percent of tax payers within the cleaning of the tax register at recommendations the LTO, and (including the GDP. LTO), could have resulted in revenue gains of improving compliance to about 0.3 - 0.4 percent of (continued) INTERNATIONAL MONETARY FUND 7 --- Page 9 --- HAITI combined with higher import prices have grants. Fixed prices of oil products at the pump FY2012. In turn, current support of GDP in foregone revenues compared with cost around 1 percent in the program) on the back of larger-thanreached 11.8 percent of GDP (10. 9 percent by around 0.3 spending EDH. spending was higher than programmed programmed transfers to Capital public investment. levels of domestcaly-financed percent of GDP, given larger-than-expected as during FY2013 did not improve expected. 14. The electricity sector's performance transfers of around 0.6 percent of GDP, and offFinancial support to EDH comprised on-budget of 0.9 percent of GDP in the form of transfers financed with Petrocaribe-related resources (BMPAD, an budget In addition, the Bureau de Monetisation fuel provision for energy generation. Petrocaribe resources), accumulated agency of the Ministry of Finance that manages for unpaid oil bills autonomous vis-à-vis independent power producers (IPPs) claims of about 0.8 percent of GDP (Box 4). 8 15. The budget continued to be mainly Government Finance and by concessional (percentof GDP) financed by external grants The use of the latter to mUse mNet of T bill PetroCa issuance Caribe deposits at commercial banks resources from Venezuela. PetroCa Caribei inflows (righta axis) investment and EDH's financing gap finance public external debt and a decrease in has resulted in rising In deposits in the banking system. central government bills in FY2013 turn, net issuance of treasury of GDP, of which 0.8 percent amounted to 1.3 percent of GDP were placed at commercial banks. Staff 2009 2010 2011 2012 2013 creditor position Sources: BRH; MEF: BMPAD; and IMF staff estimates. estimates the central government's sector increased by 0.9 percent vis-à-vis the electricity of GDP. Parliament, but the governmenti is has not yet been passed by all 16. The FY2014 budget end-March. In the meantime, the Constitution maintains building consensus for approval by (Budget reconduit). Staff urged the expenditure limits the same as in the FY2013 budget that delays in ministries' envelope agreed at the sixth review, and stressed authorities to retain the budget in particular of investment. The authorities passing the budget will complicate spending execution, similar to the original version. Reflecting explained that the revised FY2014 budget would be broadly will result in an overall deficit of 6.7 percent and expenditures in FY2014, fiscal accounts NEF revenue of GDP (0.2 percent of GDP lower than programmed). (both domestic and domestic revenues. Revenues 17. Staff urged the authorities to increase in line with expectations. Higher-thanfor the first quarter of FY2014 were broadly efforts in at customs) (mainly from the European Union) and programmed budgetary support grants arrears with IPPS. Part of those arrears (about US$13 8 These unpaid oil bills were the counterpart of EDH's payment and thus, were paid through a reduction of central million, 0.2 percent of GDP), triggered government guarantees, government deposits at the BRH. INTERNATIONAL MONETARY FUND domestic revenues. Revenues 17. Staff urged the authorities to increase in line with expectations. Higher-thanfor the first quarter of FY2014 were broadly efforts in at customs) (mainly from the European Union) and programmed budgetary support grants arrears with IPPS. Part of those arrears (about US$13 8 These unpaid oil bills were the counterpart of EDH's payment and thus, were paid through a reduction of central million, 0.2 percent of GDP), triggered government guarantees, government deposits at the BRH. INTERNATIONAL MONETARY FUND --- Page 10 --- HAITI to offset the loss (vis-à-vis the program) associated strengthening tax administration are expected (about 1 percent of GDP). In this of the price freeze of petroleum products the current with the continuation need for technical assistance to replace regard, staff and the authorities agreed on the focused subsidies and gradual increases mechanism with a framework that allows for more from the World Bank) oil price to have a proposal ready (with assistance in fuel prices. The authorities expect by June 2014. to ensure that public debt is essential 18. Staff argued that containing expenditure buffers. Staff urged the authorities to resist and to preserve needed fiscal bill remains sustainable in the revised FY2014 budget as the original already to further increase the wage bill in wages and the hiring pressures rise with respect to FY2013 (due to an increase to accommodated a significant In addition, staff emphasized the need health service workers, and security forces)." to of teachers, sector. With respect public transfers and subsidies, in particular to the electricity resources. contain investment plans in line with prospective investment, staff advised the authorities to keep capital spending at a level consistent staff recommended setting Petrocaribe-financed to be an In particular, at commercial banks, which has proved Petrocaribe-related deposits those with preserving This would help to contain fiscal risks, including effective buffer against shocks in recent years. concessional flows (see DSA of Venezuela-related relating to weather events or a 'sudden-stop' decreases its presence in the country, plans to Annex). The authorities explained that as MINUSTAH on the wage bill; they agreed on the national police will likely result in renewed pressures fiscal buffers. With expand and shared staff views on the importance of in the need to contain subsidies; that Haiti's needs are SO pervasive (in particular respect to the latter, they however pointed out to be through the medium-term. needs will continue significant infrastructure) that capital spending risks and of monitoring and containing quasi-fiscal 19. Staff stressed the importance sector. Staff discussed prospective transfers to liabilities, particularly in the electricity in tackling structural contingent to contain them. Staff stressed that progress the electricity sector and ways environment for growth and would free up resources problems in the sector would create a better time-bound targets (in terms of theft reduction for social spending. This will require setting clear, index) for EDH management, in collection, and as a result in the cash-recovery committed to and improvements transfers. The ministry of finance coupled with a progressive reduction in government as to have a better grasp on fiscal strengthen the monitoring of the electricity sector, SO consolidation plans. Staff also urged better information upon which to base contingencies, as well as in the sector, in order to better control the authorities to monitor cross debts among participants the creation of contingent liabilities. flows, Treasury deficit for FY2014 will be financed by Venezuela-related 20. The overall at the banking system. Net external financing and by decreases in deposits include further bill net placements, in Petrocaribe flows. Domestic financing will will be around 4 percent of GDP, mostly Debt Relief (PCDR) resources bills (0.9 percent of GDP), use of Post-Catastrophe Staff issuance of treasury deposits (1.7 percent of GDP). of GDP), and a decrease in central government (0.8 percent bill during FY2014 reflects the effect of an of the increase in the wage 9 As described in the sixth ECF review, part appropriate reclassification of spending. INTERNATIONAL MONETARY FUND 9 in Petrocaribe flows. Domestic financing will will be around 4 percent of GDP, mostly Debt Relief (PCDR) resources bills (0.9 percent of GDP), use of Post-Catastrophe Staff issuance of treasury deposits (1.7 percent of GDP). of GDP), and a decrease in central government (0.8 percent bill during FY2014 reflects the effect of an of the increase in the wage 9 As described in the sixth ECF review, part appropriate reclassification of spending. INTERNATIONAL MONETARY FUND 9 --- Page 11 --- HAITI bills (of about 3 months) could result in increasingly cautioned that the short maturity of treasury their average maturity. This, in turn, could large roll-over needs unless further placements increase of treasury bills at end-January 2014 source of fiscal vulnerability. The stock create an additional amounted to 1.3 percent of GDP. and infrastructure to progress in the face of persistent capacity 21. Despite impediments the ECF structural agenda. Staff argued that constraints, the authorities advanced could promote further governance and making the budget process more transparent tax administration, strengthening the authorities to continue to strengthen donor flows. In this regard, staff urged of the public investment framework. In transparency, and effectiveness and the governance, particular, the tax department (DGI) allocated Strengthening Tax Administration. In September, structural benchmark). The to the medium-sized taxpayer office (end- September tax base and increase space office should contribute to broadening the establishment of the new the LTO to ensure better control and revenues. Work is also proceeding to strengthen Staff argued that broadening the compliance, and to resolve some office space constraints. decline in aid flows. tax base would help offset the projected medium-term The Debt Unit (DU) was relocated from the Budget Strengthening Debt Management. mandate in designing the Directorate to the Treasury, which now has a stronger Office is fully staffed, the Middle and financing strategy. While the DU's Back end-December benchmark government's functional, and thus the corresponding Front offices are not yet co-hosted by the authorities and staff in was not met. A workshop on Debt Sustainability, DSAS, and discussed officials' capacity to deliver independent the January 2014, strengthened Office of Technical Assistance (OTA) and the DU's work program. The U.S. Treasury's also the authorities in this area. World Bank are assisting Program (PIP). A task force was a task force to review the Public Investment Setting up the framework for implementing public set up at the Ministry of Finance to analyze by the analysis of a decisions. The work of the task force will be complemented during investment (financed by the French government), and will begin group of international experts structural benchmark). This analysis will help assess the first quarter of 2014 (end-December few years did not result in higher economic the large investment budget of the past why growth (Box 5). revised the timetable for the Single Account (TSA). Staff and the authorities end-FY2014, as Treasury in order to have its first phase in place by implementation of the TSA, of the structural benchmark sixth ECF review. 11 This requires a re-definition envisaged at the a public debt law (which assigns debt management 10, In February 2013, the President sent to Parliament the Ministry of Finance (that elevates the Treasury to the Ministry of Finance), and a law reorganizing debt Approval of these laws is still responsibilities directorate in charge of cash and management). Department to a general pending. entity will be allowed to hold a maximum 11 timetable comprises three phases: (i) by end-2014, each government (i) from October 2014 onwards, the The the total number of accounts to 200; of three accounts, which will help reducing (continued) 10 INTERNATIONAL MONETARY FUND 2013, the President sent to Parliament the Ministry of Finance (that elevates the Treasury to the Ministry of Finance), and a law reorganizing debt Approval of these laws is still responsibilities directorate in charge of cash and management). Department to a general pending. entity will be allowed to hold a maximum 11 timetable comprises three phases: (i) by end-2014, each government (i) from October 2014 onwards, the The the total number of accounts to 200; of three accounts, which will help reducing (continued) 10 INTERNATIONAL MONETARY FUND --- Page 12 --- HAITI benchmark for end-June 2014. Progress towards for end-March 2014, and a new structural but is only at a preliminary stage in advanced in a number of ministries, the TSA is quite that full TSA implementation in the more advanced others. Staff agreed with the authorities introduction in the remaining ministries ministries should proceed as soon as possible. TSA ministries responsible for the largest should proceed in stages, with priority given to those Public Works, Education, and the Ministries of Planning, share of spending (including TSA implementation in a number of Health). Accordingly, key measures to fast-track Center No. 1 (comprising the Ministries of ministries were implemented and Accounting (prior action). The Commerce, and Environment) is now fully operational some Finance, Tourism, in all remaining ministries, although Prime Minister has prioritized TSA implementation lack of office in particular due to the (chronic post-earthquake) delays are to be expected, end-March, the authorities have committed space for the additional Accounting Centers. By of Planning, Public Works and implement Accounting Center No. 2 (Ministries TSA endto fully of all expenditure covered by the by Agriculture), and to have around 80 percent June 2014. B. Debt Sustainability main challenge is to balance the Haiti's risk of debt distress remains high. The country's a than 22. social and investment needs. While stronger need for fiscal consolidation with large and progress in addressing social needs, warranted fiscal adjustment may compromise GDP growth Following significant postdeficit could affect macroeconomic stability. the DSA's too large a primary US$268 million by the Fund, 4 percent of FY2010 GDP), earthquake debt relief (including build up debt over the medium-term, the baseline scenario suggests that Haiti will significantly base and low revenue. 12 sustainability of which will be challenged by Haiti's narrow export should result in a stronger fiscal swift progress in the implementation of reforms debt accumulation. While the debt Alternatively, more conducive to growth, and lower value of position, an environment conditions, to a decrease in the in the baseline is vulnerable to shocks to borrowing would be reduced and profile decline in growth rates, the risk of debt distress the gourde, and to a reform is accelerated (DSA Annex). in implementation vulnerabilities contained in case progress growth inflows could jeopardize 23. In particular, a sudden stop of Petrocaribe-related medium term. A sudden stop of and deteriorate public debt indicators in the in GDP growth, as it prospects fiscal adjustment and a decrease Petrocaribe flows would lead to a substantial and of the electricity sector's deficit. constrain financing of investment spending would severely baseline government deposits (and Domestic tax revenues would fall below projections, the shock, and EDH's deficit would likely reserves) would decrease to partially cushion international three per sector entity; and (ii) by end- September 2015, all will number of accounts will be reduced further under to the main Treasury account at the central bank. The authorities as well as government accounts will be consolidated including through a resident advisor financed by Canada, continue to receive assistance from the Fund, from the U.S. Treasury's OTA. is mainly driven by further disbursements of 12 Debt buildup in the baseline scenario during the next few years Petrocaribe-related flows at current terms (Box 3). INTERNATIONAL MONETARY FUND 11 decrease to partially cushion international three per sector entity; and (ii) by end- September 2015, all will number of accounts will be reduced further under to the main Treasury account at the central bank. The authorities as well as government accounts will be consolidated including through a resident advisor financed by Canada, continue to receive assistance from the Fund, from the U.S. Treasury's OTA. is mainly driven by further disbursements of 12 Debt buildup in the baseline scenario during the next few years Petrocaribe-related flows at current terms (Box 3). INTERNATIONAL MONETARY FUND 11 --- Page 13 --- HAITI blackouts, and collection improvements). Staff fall (through a combination of higher tariffs, longer Petrocaribe flows with other bilateral concessional believe that it would be difficult to fully substitute of (relatively expensive) This would result in the accumulation resources, at least in the short-term. through the medium term. domestic debt, and thus, in worse public debt indicators Rate, and Financial Sector Policies C. Monetary, Exchange the last few years. In the last rate has drifted slowly upwards during 24. The real exchange suggested that after sharply appreciating in the Article IV Consultation (March 2013) staff analysis flows, the gourde has depreciated against aftermath of the earthquake on a surge of aid Meanwhile a immediate around 3 percent per year over the past three years. the dollar in nominal terms by to remain broadly unchanged in real of inflation differentials has allowed the gourde of the real exchange narrowing the last two years. Staff argued that the sustainability effective terms during reforms to boost competitiveness. the medium-term will depend on structural rate over Staff recommended that foreign exchange Real Effectivel Exchange Rate 25. intervention should aim at keeping the 115 (2007=100) market exchange rate aligned with economic 1 - fundamentals, while avoiding unwarranted that the still-large fiscal deficit 105 volatility. Staff argued expected for FY2014 may result in renewed downward pressure on the exchange rate. Staff also 95 noted that the supply of foreign exchange will likely 90 2012 2013 2014 aid flows decline. Against 2008 2009 2010 2011 be reduced as gradually to balance the use of Source: IMF staff calculations this backdrop, staff sees a need the exchange rate as a nominal anchor, and mix should be composed of a reserve buffers. Staff argued that the policy preserving international relieve and if needed, further monetary parsimonious use of foreign exchange reserves to pressures, intervention in the foreign exchange This would strengthen the credibility of BRH's in legal reserve policy tightening. Staff acknowledged that the increase market and of monetary policy more generally. credit growth, and advised that as reserve requirements in FY2013 contributed to slowing private in policies should occur through requirements are already high, any further needed tightening which remain negative in real terms. increases in rates of BRH bills, the authorities to in a number of structural areas, but urged 26. Staff recognized progress actions. In particular, of pending speed up implementation Rate Market. BRH staff explained that Strengthening the functioning of the Exchange and depth of the foreign committed to increase the transparency, efficiency, they are that the of an electronic platform exchange market. BRH staff also argued implementation a technical expert that will assist contribute to that end, and have requested the Fund will the BRH in its design and implementation. in the Assessment Recommendations. Progress Implementation of Safeguard recommendations continues, although slowly implementation of the safeguard assessment audited financial statements and will in some areas. The BRH has published its FY2012 MONETARY FUND 12 INTERNATIONAL ngthening the functioning of the Exchange and depth of the foreign committed to increase the transparency, efficiency, they are that the of an electronic platform exchange market. BRH staff also argued implementation a technical expert that will assist contribute to that end, and have requested the Fund will the BRH in its design and implementation. in the Assessment Recommendations. Progress Implementation of Safeguard recommendations continues, although slowly implementation of the safeguard assessment audited financial statements and will in some areas. The BRH has published its FY2012 MONETARY FUND 12 INTERNATIONAL --- Page 14 --- HAITI publish the FY2013 statements by accelerate the full end-July 2014. Staff encouraged the authorities adoption of IFRS following steps that to BRH and the Ministry of Finance to set have been initiated between the Moreover, the mission up a committee to monitor its urged the BRH to the implementation. from investment operations, and to strengthen Investment Committee's autonomy policy and observation of investment appoint a compliance officer to monitor foreign reserves guidelines. Strengthening International Reserve BRH will request (before June 2014) Fund Management. Staff and authorities agreed that the reserve management guidelines. support to conduct an assessment of Haiti's This assistance will result in foreign circumstances. recommendations tailored to AML/CFT. In November 2013, the President several outstanding Caribbean Financial promulgated the AML/CFT law which addresses further action on the part of the authorities Action Task Force (CFATF) recommendations but report moved Haiti to the second will likely be needed. The sixth follow-up CFTAF the AML/CFT framework stage of enhanced follow-up. Effective would also help strengthening implementation of Laws on Financial governance. Cooperatives, and on and another on Financial Microfinance Institutions (MFIS). A Law on MFIS of Finance has launched Cooperatives are still pending approval at Parliament The a campaign to win their enactment. Ministry 27. Staff underlined the need to that stress testing should be strengthen bank supervision. In particular, staff implemented more suggested portfolios were mainly allocated to commercial systematically. Authorities noted that banks' accounting for less than 20 credit, with consumer and credit percent of the total, and that risks were mortgage lending concentration could represent a risk, and noted that contained. Staff emphasized that concentrated (with the top three banks the banking system also remains Authorities accounting for about 80 of underscored that banks remain profitable. percent assets and deposits). financial deepening could be Staff and authorities agreed that further was needed. supportive of growth, but that careful monitoring of attendant risks OTHER ISSUES 28. Poverty Reduction three-year investment Strategy Paper (PRSP). The authorities have recently program as part of the published a which establishes a framework for "Strategic Plan for the Development of Haiti" growth and poverty (PSDH), finalizing a document that elaborates reduction. The Ministry of Social on the Affairs is new PRSP progress report, based on the poverty reduction objectives laid out in the PSDH. A had been circulated to the Board in PSDH, was circulated to the Board. The last early 2012. progress report 29. Improving economic data remains assistance from the IMF to strengthen essential. The government has requested technical inter alia, revising the base national accounts and external statistics. This year and improving source data would entail Strengthening external accounts would require (including on the informal sector). investment, trade, remittances, improving data collection for inward direct foreign aid, and services. INTERNATIONAL MONETARY FUND 13 A had been circulated to the Board in PSDH, was circulated to the Board. The last early 2012. progress report 29. Improving economic data remains assistance from the IMF to strengthen essential. The government has requested technical inter alia, revising the base national accounts and external statistics. This year and improving source data would entail Strengthening external accounts would require (including on the informal sector). investment, trade, remittances, improving data collection for inward direct foreign aid, and services. INTERNATIONAL MONETARY FUND 13 --- Page 15 --- HAITI Fund-supported program. They indicated interest in a follow-up 30. The authorities them to consolidate gains in macroeconomic would permit envisage that a follow-up program reform agenda focused on lifting obstacles stabilization, while allowing them to pursue a structural (and final) ECF review would be a indicated that the mission to discuss the eight for growth. Staff these issues. The current ECF expires in August 2014. good opportunity to start discussing STAFF APPRAISAL in FY2013 was better than performance is broadly satisfactory. GDP growth The breach of the 31. Program and external reserve buffers remained adequate. expected, inflation decreased, debt by the public sector resulted performance criterion on the contracting of non-concessional of a waiver of nonobservance is unintentional oversight. Staff believe that the granting on from an corrective action. There has been progress warranted given the implementation of timely has been in part constrained by capacity reforms since the sixth review, although its pace structural and infrastructure limitations. higher growth. Consistent of reforms should support 32. Speeding up the implementation would contribute to debt sustainability, of the structural agenda progress in the implementation strengthen the control over fiscal policy, promote improve competitiveness and growth prospects, effective social and growth-enhancing additional donor support, and lay the basis for more to further job expansion and Sustained trade access to the U.S. should contribute information of spending. activities (Box 1). More readily-available increased investment in export-related should allow for better projects (both government and donor-financed), effectiveness of investment investment on growth (paragraph 39). coordination, and a higher impact of public are subject outlook and the conditions for policy implementation 33. The macroeconomic external front, slow progress in strengthening governance downside risks. On the a further to significant recovery in advanced economies, or and transparency, a slower-than-expected could all result in lower external grants situation of Venezuela, to the deterioration in the macroeconomic shocks could also be a source of stress, particularly and concessional flows. Commodity price and renewed spending On the domestic front, reform fatigue in tax administration, This energy bill. spending) could further worsen the fiscal picture. pressures (including for Petrocaribe-related in case of shocks. On the structural front, reform would reduce fiscal buffers and the room to react momentum could slow if political tensions resume. to flows would be detrimental 34. In particular, a sudden stop of Venezuela-related result in decreases in public investment and and debt sustainability. The shock would prospects. The growth sector's deficit, thereby jeopardizing growth this problems to finance the electricity would also worsen Haiti's debt indicators. Mitigating resulting lower concessionality in financing 36), containing expenditure growth (in risk requires increasing domestic revenues (paragraph decisively in reducing EDH's deficit (paragraph 35), and advancing particular of transfers) (paragraph 37). and in the next few years needs to slow debt 35. Fiscal policy during FY2014 external debt continues to be at a high risk of debt accumulation. The DSA highlights that Haiti's reform The challenge could be contained by swifter implementation. distress, but that vulnerabilities 14 INTERNATIONAL MONETARY FUND debt indicators. Mitigating resulting lower concessionality in financing 36), containing expenditure growth (in risk requires increasing domestic revenues (paragraph decisively in reducing EDH's deficit (paragraph 35), and advancing particular of transfers) (paragraph 37). and in the next few years needs to slow debt 35. Fiscal policy during FY2014 external debt continues to be at a high risk of debt accumulation. The DSA highlights that Haiti's reform The challenge could be contained by swifter implementation. distress, but that vulnerabilities 14 INTERNATIONAL MONETARY FUND --- Page 16 --- HAITI needed social and investment spending and will be to strike a balance between in the next few years deficit to keep it consistent with debt sustainability. Against the imperative of reducing the primary is in line with that agreed at the sixth ECF it is crucial that the revised FY2014 budget domestic debt should this backdrop, remain contained. Increases in short-term review, and that spending pressures and fiscal buffers should be preserved. be limited to those agreed within the ECF, expenditures were is essential. About one half of central government 36. Increasing revenues but some of these flows will decline in the external flows during the last three years, the tax base financed by reduced if risk events materialize. Enlarging medium term and some may be drastically through an effective MTO and LTO), and through strengthened tax administration (in particular revenue base that could offset evasion at customs are crucial to build a domestic the fuel freeze has been combating the continuation of price expected decreases in external flows. Moreover, with a framework that allows for more 1 percent of GDP), and its replacement too costly (around increase in prices is urgent. focused subsidies and a gradual fiscal risks that sector is a drag on the budget and poses contingent most of the 37. The electricity transfers (in particular to the electricity sector) explained need to be contained. Higher deficit for FY2013, and transfers are projected to deviation vis-à-vis the program in the primary problems in the sector, in particular in the remain elevated in FY2014. Progress in tackling structural and would free up resources for EDH, would create a better environment for growth, performance should be state-owned time-bound targets aimed at improving social spending. In this regard, clear, efforts of the World Bank, the IDB and the U.S. established for EDH management. Staff supports the in this area. accounts is vital for Centralization of government 38. The TSA needs to be implemented. The authorities have made headway control, and for more effective policy implementation. lack of capacity and spending but efforts have sometimes been constrained by on TSA implementation, forward to include the larger line ministries (Planning, adequate physical infrastructure. Pushing TSA will result in better coordination, stronger Public Works, Education, and Health) in the It will be important that the control, and more efficient cash and debt management. Parliament. expenditure the ministry of finance are passed by public debt law and the law reorganizing will increase and transparency of the budget process 39. Strengthening the governance higher donor flows. Despite large of fiscal policy and could promote be the effectiveness the past few years, growth has continued to relatively increases in public investment during and outcomes should shed light on the modest. The analysis of public investment decisions In particular, given that about one low impact of the relatively large investment budget. projects, more apparent of donor-managed and donor-financed half of public investment is composed and geographical location should contribute to readily-available information of project effectiveness and a higher impact of public coordination (among donors and with the government) improved investment on growth (Box 2). should focus on smoothing Bank intervention in the foreign exchange market 40. Central aligned over time with fundamentals. volatility while ensuring that the exchange rate remains decline in total external aid flows may fiscal deficit expected for FY2014, and a gradual will need to The still-large rate. Monetary policy implementation result in renewed pressures on the exchange INTERNATIONAL MONETARY FUND 15 and geographical location should contribute to readily-available information of project effectiveness and a higher impact of public coordination (among donors and with the government) improved investment on growth (Box 2). should focus on smoothing Bank intervention in the foreign exchange market 40. Central aligned over time with fundamentals. volatility while ensuring that the exchange rate remains decline in total external aid flows may fiscal deficit expected for FY2014, and a gradual will need to The still-large rate. Monetary policy implementation result in renewed pressures on the exchange INTERNATIONAL MONETARY FUND 15 --- Page 17 --- HAITI anchor with the need to preserve buffers that could balance the use of the exchange rate as nominal should take into consideration in the face of shocks. The use of reserves to relieve pressures it should be be used rate market, and if further tightening is needed, long-term trends in the exchange requirements are already high. Strengthening implemented through interest rates as legal reserve faster transmission of policy signals. rate market will contribute to a the functioning of the exchange Progress in recommendations: should be implemented. 41. Pending safeguard assessment Central Bank's FY2012 audited financial statements this area has been observed; in particular, the FY2013 will be published by July 2014. Accelerating and those corresponding to is An were published, of the Investment Committee important. and the autonomy the IFRS adoption strengthening guidelines will help staff and authorities identifying assessment of foreign reserve management On bank supervision, staff believes that parameters of optimal reserve levels and their composition. in view of credit concentration. should be performed more systematically, stress testing action in the coming months. In particular, financial issues will require at 42. Some pending the fact that the AML/CFT law promulgated the CFTAF increased scrutiny over Haiti, and despite it is likely that further action will be end-2013 addresses some of the CFTAF recommendations Microfinance Institutions are still pending needed. Also the draft laws on Cooperatives and on approval in Parliament. review under the ECF arrangement, recommend the completion of the seventh of 43. Staff and the granting of a waiver of nonobservance the modification of performance criteria, performance criterion 16 INTERNATIONAL MONETARY FUND --- Page 18 --- HAITI Table 1. Haiti: Selected Economic and Financial Indicators, 2009/10 2013/14 (Fiscal year ending September 30) Nominal GDP (2013): US$8.5 billion Population (2013): 10.3 million GDP per capita (2013): $820 Percent of population below poverty line of US$1. .25 per day (2006- 2011): 62 2009/10 2010/11 2011/12 2012/13 2013/14 Prog. Prog. Act. Act Prov. (EBS/13/100) Est. (EBS/13/100) Proj. (Change over previous year; unless otherwise indicated) National income and prices 1/ GDP, at constant prices -5.5 5.5 2.9 3.4 4.3 GDP deflator 4.5 4.0 Consumer 5.5 7.5 5.3 5.3 6.6 prices (period average) 4.1 7.4 6.8 7.1 3.8 5.1 Consumer prices (end of -period) 4.7 6.8 4.4 4.1 10.4 6.5 6.0 4.5 5.0 5.7 External sector Exports (goods, valued in dollars, f.o.b.) 2.2 36.3 2.2 17.1 11.4 Imports (goods, valued in dollars, f.o.b.) 48.1 6.8 14.8 7.5 Real effective exchange rate (end of period; + appreciation) 7.9 -4.2 6.7 7.7 3.3 2.0 2.1 2.4 0.7 n.a. 4.5 5.0 5.7 External sector Exports (goods, valued in dollars, f.o.b.) 2.2 36.3 2.2 17.1 11.4 Imports (goods, valued in dollars, f.o.b.) 48.1 6.8 14.8 7.5 Real effective exchange rate (end of period; + appreciation) 7.9 -4.2 6.7 7.7 3.3 2.0 2.1 2.4 0.7 n.a. Money and credit (valued in gourdes) Credit to private sector (in dollars and gourdes) -5.6 24.5 29.8 21.6 Base money (currency in circulation and gourde deposits) 31.2 6.0 16.2 18.0 8.0 Broad money (incl. foreign currency deposits) 22.7 -3.7 8.9 15.7 8.5 7.1 10.4 6.9 8.0 6.6 7.8 8.5 (In percent of GDP; unless other rwise indicated) Central government Overall balance (including grants) 2.2 -3.6 -4.8 -5.5 Domestic revenue 6.7 -6.9 -6.7 Grants 11.8 12.8 12.8 12.3 12.7 13.0 13.2 Expenditures 12.1 9.1 10.6 8.4 8.1 6.8 7.4 Current expenditures 21.7 25.5 28.2 26.2 27.5 26.7 27.3 Capital expenditures 11.2 11.6 11.9 10.9 11.8 11.5 12.5 10.5 13.9 16.3 15.3 15.6 15.3 14.9 Savings and investment Gross investment Ofwhich: public investment 25.4 27.9 29.5 25.7 30.0 28. .6 29.2 10.5 13.9 16.3 15.3 Gross national savings 23.9 23.6 15.6 15.3 14.9 Ofv which: central government savings 24.1 19.9 23.6 22.9 23.3 3.9 2.4 1.2 2.1 External current account balance (including official grants) 1.5 4.3 -5.4 1.9 2.0 1.9 External current account balance (excluding official grants) 29.3 -23.5 -5.8 -6.5 -5.7 -5.8 -17.9 -16.0 -15.3 -14.3 13.6 Public Debt 3/ External public debt (medium and long- -term, end- of- period) 13.0 8.7 13.5 17.3 Total public sector debt (end of -period) 13.0 8.7 14.4 17.4 20.7 19.8 External public debt service 5/ 20.4 19.5 24.5 22.9 0.6 0.1 0.6 1.5 1.6 2.5 2.4 (In millions of U.S. Debt 3/ External public debt (medium and long- -term, end- of- period) 13.0 8.7 13.5 17.3 Total public sector debt (end of -period) 13.0 8.7 14.4 17.4 20.7 19.8 External public debt service 5/ 20.4 19.5 24.5 22.9 0.6 0.1 0.6 1.5 1.6 2.5 2.4 (In millions of U.S. dollars; unless otherwise indicated) Overall balance of payments 1,027 -290 -281 Net international reserves (program definition) 6/ 1,100 1,175 -260 -68 Liquid gross reserves 7/ 1,303 1,219 738 1,124 In months of imports of the following year 8/ 1,792 2,000 2,184 2,019 2,242 1,759 1,940 Nominal GDP (millions of Gourdes) 4.9 5.7 5.9 5.8 6.0 4.7 4.9 Nominal GDP (millions of US$) 266,952 302,854 328,061 358,272 364,811 388,727 398,705 6,620 7,516 7,890 8,287 8,458 8,835 8,980 Sources: Ministry of Economy and Finance; Bank of the Republic of Haiti; Fund staff estimates and and World Bank estimates. 1/$ Staff assume a range of 3.0-4.0 percent for FY2014 growth; a point projection of 4.0 percent is assumed projections; for FY2014. 2/ Figures for FY2014 are based on the draft budget. 3/ Debt ratios differ slightly from those in the DSA given the use of average, instead of end- of- -period, rates. 4/ Excludes central bank repurchase operations in FY2013. exchange 5/1 In percent of exports of goods and nonfactor services. Includes debt relief 6/1 Includes SDR allocation. 7/ Excludes gold; includes transactions related to BRH repurchase operations. 8/The projected import coverage ratio for FY2014 would amount to 5.1months of imports considering total gross reserves. 17 INTERNATIONAL MONETARY FUND --- Page 19 --- HAITI Table 2a. Haiti: Central Government Operations, 2009/10 2013/14 (Fiscal year ending September 30; in millions of gourdes) 2009/10 2010/11 2011/12 2012/13 2013/2014 Act. Act. Prov. Prog. Est. Prog. Proj Total revenue and grants 63,822 66,321 76,774 74,254 Domestic revenue 75,855 77,254 82,249 31,425 38,893 41,970 44,000 46,475 Domestic taxes 50,642 52,679 19,393 24,460 28,076 29,987 29,242 Customs duties 11,394 34,597 34,597 13,672 13,721 13,398 14,230 15,378 Other current revenuel/ 15,378 Grants 3,002 667 2,704 32,397 27,428 34,803 30,254 29,380 26,612 Budget support 8,966 3,492 1,123 2,594 29,570 Project grants 3,791 1,980 4,573 12,742 23,935 33,681 27,660 25,589 24,632 24,997 Total expenditure 2/ 58,002 Current expenditure 77,352 92,490 93,915 100,208 103,976 109,036 29,849 35,232 39,006 39,121 43,158 44,655 Wages and salaries 49,801 14,563 14,809 16,706 20,923 20,007 Goods and services 23,700 23,700 7,040 7,525 11,406 11,465 11,320 Interest payments 1,569 13,820 13,820 External 1,272 1,359 1,625 1,711 1,476 1,755 ,036 29,849 35,232 39,006 39,121 43,158 44,655 Wages and salaries 49,801 14,563 14,809 16,706 20,923 20,007 Goods and services 23,700 23,700 7,040 7,525 11,406 11,465 11,320 Interest payments 1,569 13,820 13,820 External 1,272 1,359 1,625 1,711 1,476 1,755 Domestic 1,118 1,119 1,130 1,228 1,304 Transfers and subsidies 1,205 1,184 6,677 11,626 9,534 5,108 Ofv which: energy sector 3/ 3,793 10,120 5,659 10,526 8,233 4,844 2,600 5,652 2,500 Capital expenditure 28,153 42,120 53,484 54,794 5,741 Domestically financed 57,051 59,321 59,234 14,689 17,642 19,252 26,638 31,190 33,214 Of which: Treasury 13,475 16,431 33,923 19,252 26,286 31,190 33,214 Ofwhich: related to PetroCaribe spending 2,991 7,479 9,264 33,923 Foreign- -financed 14,442 14,450 14,442 15,151 13,464 24,478 34,232 28,157 25,861 26,107 25,312 Overall balance including grants 5,819 -11,031 -15,716 Excluding grants 19,661 -24,353 -26,722 -26,787 26,577 38,458 -50,520 -49,915 -53,733 -53,334 Excluding grants and externally financed projects -13,113 13,980 -16,288 -56,357 -21,759 -27,873 -27,227 -31,045 Adjustment (unsettled payment obligations) 3,713 -35 -149 Financing -2,107 10,996 15,861 19,661 24,204 External net financing 9,530 26,722 26,787 Loans (net) 16,341 15,454 16,420 16,636 17,304 16,076 9,530 16,341 15,454 16,420 16,636 17,304 16,076 Disbursements 9,836 16,419 15,581 17,110 17,425 Of which: Petrocaribe 18,384 17,214 9,114 13,216 15,029 16,613 17,153 16,909 16,899 Project loans Amortization 1,475 315 -306 -77 -127 -789 -1,080 Arrears (net) -1,138 Internal net financing -11,637 5,345 3,241 Banking system 7,568 9,418 10,711 -13,945 -7,180 3,474 1,787 10,489 BRH 7,743 11,537 -11,248 -2,929 -427 2,305 2,332 of which PCDR 5,200 5,200 Commercial banks 1,130 1,729 1,587 3,000 3,000 2,697 4,251 -3,048 8,157 Of which: T-bills 2,543 6,337 -300 1,654 2,875 Nonbank financing"* 5,010 1,875 2,308 1,835 3,882 1,454 -2,921 Of which: T-bills 1,675 825 Arrears (net) 5,200 5,200 Commercial banks 1,130 1,729 1,587 3,000 3,000 2,697 4,251 -3,048 8,157 Of which: T-bills 2,543 6,337 -300 1,654 2,875 Nonbank financing"* 5,010 1,875 2,308 1,835 3,882 1,454 -2,921 Of which: T-bills 1,675 825 Arrears (net) 1,103 1,800 1,875 1,875 Memorandum items Balance of Petrocaribe deposits 6,539 10,490 13,538 at BRH 15,709 8,555 18,176 4,900 at commercial banks 6,539 10,490 Balance of PCDR account (in millions of US$) 13,538 15,709 8,555 18,176 4,100 Social spending (in millions of Gourdes) 133 138 2,638 9,700 13,774 14,150 14,350 Nominal GDP (millions of Gourdes) 266,952 15,500 15,500 302,854 328,061 358,272 364,811 388,727 398,705 Sources: Ministry of Finance and Economy; and Fund staff estimates and projections. 1/T The outturn for FY2013 and projections for FY2014 include revenues of the National Education Fund (NEF). 2/ Commitment basis, except for domestically' financed spending, which is reported on the basis of project account replenishments. 3/Iti includes transfers from Petrocaribe resources from FY2011 onwards. 4/Iti includes Treasury bills, the increase in outstanding debt of IPPS vis- -à- vis BMPAD, increases in central government claims vis- -à- vis EDH, net checks circulation, and payments of judiciary sentences and other domestic claims. in INTERNATIONAL MONETARY FUND 18 FY2013 and projections for FY2014 include revenues of the National Education Fund (NEF). 2/ Commitment basis, except for domestically' financed spending, which is reported on the basis of project account replenishments. 3/Iti includes transfers from Petrocaribe resources from FY2011 onwards. 4/Iti includes Treasury bills, the increase in outstanding debt of IPPS vis- -à- vis BMPAD, increases in central government claims vis- -à- vis EDH, net checks circulation, and payments of judiciary sentences and other domestic claims. in INTERNATIONAL MONETARY FUND 18 --- Page 20 --- HAITI Table 2b. Haiti: Central Government Operations, 2009/10 2013/14 (Fiscal year ending September 30; in percent of GDP) 2009/10 2010/11 2011/12 2012/13 2013/2014 Actual Est. Prov. Prog. Proj. Prog. Proj. Total revenue and grants 23.9 21.9 23.4 20.7 Domestic revenue 20.8 19.9 20.6 11.8 12.8 12.8 12.3 12.7 Domestic taxes 7.3 8.1 13.0 13.2 Customs duties 8.6 8.4 8.0 8.9 8.7 4.3 4.5 4.2 3.7 Other current revenuel 3.9 4.0 3.9 0.2 0.3 0.1 0.2 Grants 0.8 0.2 0.7 Budget 12.1 9.1 10.6 8.4 8.1 6.8 7.4 support 3.4 1.2 0.3 0.7 1.0 0.5 1.1 Project grants 4.8 7.9 10.3 7.7 7.0 6.3 6.3 Total expenditure 2/ 21.7 25.5 28.2 Current expenditure 11.2 26.2 27.5 26.7 27.3 11.6 11.9 10.9 Wages and salaries 5.5 11.8 11.5 12.5 Goods and services 4.9 5.1 5.8 5.5 6.1 5.9 2.6 2.5 3.5 3.2 3.1 Interest payments 0.6 0.4 0.4 3.6 3.5 External 0.5 0.5 0.4 0.4 0.2 0.1 0.1 0.1 0.1 Domestic 0.4 0.4 0.3 0.1 0.1 Transfers and subsidies 0.3 0.4 0.3 0.3 2.5 3.8 2.9 Of which: energy sector 3/ 1.4 2.8 1.5 2.6 1.4 2.7 1.5 0.7 1.5 0.6 Capital expenditure 10.5 13.9 16.3 15.3 1.4 Domestically financed 15.6 15.3 14.9 5.5 5.8 5.9 7.4 8.5 Of which: Treasury 5.0 5.4 5.9 8.5 8.5 Ofv which: related to PetroCaribe spending 1.1 2.5 7.3 8.5 8.5 8.5 Foreign-financed 2.8 4.0 4.0 3.7 3.8 5.0 8.1 10.4 7.9 7.1 6.7 6.3 Overall balance including grants 2.2 3.6 -4.8 -5.5 Excluding grants -10.0 -12.7 -6.7 -6.9 -6.7 Excluding grants and externally financed projects -4.9 -4.6 -15.4 -13.9 -14.7 -13.7 14.1 5.0 -6.1 -7.6 -7.0 -7.8 Adjustment (unsettled payment obligations) 1.4 0.0 0.0 0.0 0.0 0.0 0.0 Financing -0.8 3.6 4.8 5.5 External net financing 3.6 6.6 6.9 6.7 5.4 4.7 4.6 Loans (net) 4.6 4.5 4.0 3.6 5.4 4.7 4.6 4.6 4.5 Disbursements 3.7 5.4 4.7 4.8 4.8 4.0 Of which Petrocaribe 3.4 4.4 4.7 4.3 Project loans 4.6 4.6 4.7 4. 6.9 6.7 5.4 4.7 4.6 Loans (net) 4.6 4.5 4.0 3.6 5.4 4.7 4.6 4.6 4.5 Disbursements 3.7 5.4 4.7 4.8 4.8 4.0 Of which Petrocaribe 3.4 4.4 4.7 4.3 Project loans 4.6 4.6 4.7 4. 3 4.2 0.3 0.2 0.2 0.1 0.1 0.4 Amortization 0.1 Arrears (net) -0.1 0.0 0.0 -0.2 -0.2 -0.3 -0.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Internal net financing -4.4 1.8 0.1 0.9 2.1 2.4 2.7 Banking system -5.2 -2.4 -1.1 0.5 2.9 BRH 4.2 2.0 2.9 of which PCDR 1.0 -0.1 0.6 0.6 1.3 1.3 0.0 0.0 0.3 0.5 0.4 Commercial banks 0.8 0.8 Of which: T- -bills -1.0 -1.4 -0.9 -0.1 2.2 0.7 1.6 0.1 0.1 0.0 0.5 0.8 1.3 Nonbank financing 0.9 0.6 1.2 0.4 0.5 Of which: T-bills 0.0 -0.8 0.4 -0.2 0.0 0.0 0.3 Arrears (net) 0.5 0.5 0.5 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Memorandum item: Balance of Petrocaribe deposits 2.4 3.5 4.1 4.4 from BRH 2.3 4.7 1.2 from commercial banks 0.0 0.0 0.0 0.0 0.0 0.0 0.2 2.4 3.5 4.1 4.4 Balance of PCDR account 4.0 2.3 4.7 1.0 Socials spending 3.6 3.1 3.2 2.5 2.3 1.4 1.0 3.2 4.2 3.9 3.9 4.0 3.9 Sources: Ministry of Finance and Economy; and Fund staff estimates and projections. 1/The outturn for FY2013 and projections for FY2014 include revenues of the National Education Fund (NEF). 2/ Commitment basis, except for domestically financed spending, which is reported on the basis of project account replenishments. 3/Iti includes transfers from Petrocaribe resources from FY2011 onwards. 4/Iti includes Treasury bills, the increase in outstanding debt of IPPS vis- à- vis BMPAD, increases in central government claims vis EDH, circulation, and payments ofj judiciary sentences and other domestic claims. -à-vis net checksi in 19 INTERNATIONAL MONETARY FUND turn for FY2013 and projections for FY2014 include revenues of the National Education Fund (NEF). 2/ Commitment basis, except for domestically financed spending, which is reported on the basis of project account replenishments. 3/Iti includes transfers from Petrocaribe resources from FY2011 onwards. 4/Iti includes Treasury bills, the increase in outstanding debt of IPPS vis- à- vis BMPAD, increases in central government claims vis EDH, circulation, and payments ofj judiciary sentences and other domestic claims. -à-vis net checksi in 19 INTERNATIONAL MONETARY FUND --- Page 21 --- HAITI Table 3. Haiti: Summary Accounts of the Banking System, 2009/10- 2013/14 2009/10 2010/11 2011/12 2012/13 2013/14 Prog. Prog. Act. Est. Prov. (EBS/13/100) Proj. (EBS/13/100) Proj. L Central Bank Net foreign assets 64,169 72,470 87,474 78,576 78,484 (In millions of US$) 1,607 67,136 77,929 Net international reserves (program) 1/ 1,773 2,067 1,786 1,794 1,526 1,730 1,100 1,175 1,303 1,219 Commercial bank forex deposits 738 1,124 897 718 Net domestic assets -23,386 -29,235 -45,833 -33,234 Net credit to the nonfinancial public sector 9,443 5,196 30,323 -17,940 -26,359 Of which: Net credit to the central government 3,403 8,350 4,848 13,884 12,985 Of which: T-bills 12,299 9,386 8,953 11,540 11,285 16,740 16,485 Ofv which: IMF PCDR Debt Relief -10,704 -10,865 Liabilities to commercial banks (excl gourde deposits) -33,907 -10,086 -7,036 8,498 -3,209 -5,498 BRH bonds/Open market operations -35,191 -42,736 -44,668 -35,951 -43,868 -38,301 Counterpart of commercial bank forex 9,210 6,328 -5,742 5,200 -5,945 -4,400 -5,945 Other deposits -24,697 -28,863 -36,994 -39,468 30,006 -39,468 -32,356 1,078 -6,501 3,084 12,044 -1,042 Base Money 40,783 43,235 41,641 45,342 48,161 Currency in circulation 49,196 51,571 Commercial bank gourde deposits 17,282 18,401 20,232 22,457 21,352 23,559 23,336 23,501 24,834 21,410 22,885 26,809 25,637 28,235 I Consolidated Banking System Net foreign assets 92,251 104,581 116,015 109,568 (n millions of US$) 101,122 99,008 98,204 Ofv which: Commercial banks NFA 2,310 2,559 2,741 2,490 2,312 2,250 2,180 20,232 22,457 21,352 23,559 23,336 23,501 24,834 21,410 22,885 26,809 25,637 28,235 I Consolidated Banking System Net foreign assets 92,251 104,581 116,015 109,568 (n millions of US$) 101,122 99,008 98,204 Ofv which: Commercial banks NFA 2,310 2,559 2,741 2,490 2,312 2,250 2,180 724 450 Net domestic assets 33,900 34,743 32,923 51,272 Credit to the nonfinancial public sector -3,822 12,415 -17,768 57,714 74,374 74,133 Of which: Net credit to the central government -853 -13,318 4,610 -5,242 9,863 Credit to the private sector 8,076 11,873 -9,783 2,172 -2,041 13,709 In gourdes 40,585 50,526 65,573 79,736 76,192 94,089 82,287 In foreign 21,708 28,086 38,048 47,191 45,500 56,799 currency 18,877 22,440 27,525 50,122 In millions of USS 32,545 30,692 37,290 32,165 Other sector 8,076 11,873 -9,783 2,172 -2,041 13,709 In gourdes 40,585 50,526 65,573 79,736 76,192 94,089 82,287 In foreign 21,708 28,086 38,048 47,191 45,500 56,799 currency 18,877 22,440 27,525 50,122 In millions of USS 32,545 30,692 37,290 32,165 Other 847 714 2,863 -3,367 14,881 -15,146 -13,868 -14,473 -18,017 Broad money 126,151 139,324 148,938 160,840 158,836 Currency in circulation 17,282 18,401 173,382 172,337 Gourde deposits 20,232 22,457 21,352 23,559 23,336 Foreign currency deposits 48,513 52,164 54,933 61,250 60,307 67,731 66,036 In millions of US$ 60,355 68,760 73,774 77,133 77,177 82,092 82,965 1,511 1,682 1,743 1,753 1,764 1,866 1,841 (12- -month percentage change) Currency in circulation 28.5 6.5 9.9 11.0 Base money 31.2 6.0 5.5 7.7 9.3 Gourde money (M2) -3.7 8.9 15.7 8.5 7.1 Broad money (M3) 20.4 7.2 6.5 11.4 8.6 9.1 9.4 22.7 10.4 6.9 8.0 6.6 7.8 8.5 Gourde deposits 17.8 7.5 5.3 8.4 9.8 10.6 Foreign currency deposits 25.3 13.9 7.3 4.6 4.6 9.5 6.4 7.5 Credit to the private sector -5.6 24.5 29.8 Credit in gourdes 21.6 16.2 18.0 8.0 Credit in foreign currency 13.0 29.4 35.5 24.0 19.6 20.4 10.2 20.7 18.9 22.7 18.2 11.5 14.6 4.8 Memorandum items: Foreign currency bank deposits (percent of total) 55.4 56.9 57.3 Foreign curr. credit to priv. sector (percent of total) 46.5 44.4 55.7 56.1 54.8 55.7 42.0 41.6 40.3 Commercial Banks' Credit to Private Sector (percent of GDP) 14.4 15.9 41.2 39.8 19.2 21.5 20.1 23.4 Sources: Bank of the Republic of Haiti; and Fund staff estimates and projections. 19.9 1/ Excluding commercial bank forex deposits, letters of credit, guarantees, earmarked project accounts and U.S.dollar -denominated bank notr netted out of NIR. reserves. The SDR allocation is INTERNATIONAL MONETARY FUND 20 41.6 40.3 Commercial Banks' Credit to Private Sector (percent of GDP) 14.4 15.9 41.2 39.8 19.2 21.5 20.1 23.4 Sources: Bank of the Republic of Haiti; and Fund staff estimates and projections. 19.9 1/ Excluding commercial bank forex deposits, letters of credit, guarantees, earmarked project accounts and U.S.dollar -denominated bank notr netted out of NIR. reserves. The SDR allocation is INTERNATIONAL MONETARY FUND 20 --- Page 22 --- HAITI Table 4. Haiti: Balance of Payments, 2009/10 2013/14 (In millions of US$ on fiscal year basis; unless otherwise indicated) 2009/10 2010/11 2011/12 2012/13 2013/14 Prog. Prog. Act. Est. Prov. (EBS/13/100) Proj. (EBS/13/100) Proj. Current account (including grants) -102 -323 -426 -480 -547 Current account (excluding grants) -1,942 1,769 1,414 -507 -523 -1,329 -1,297 1,267 -1,223 Trade balance -2,447 -2,546 -2,294 -1,898 -2,444 -1,855 Exports of goods -2,443 Of which: Assembly industry 1,055 Imports of goods -3,010 3,314 3,079 Of which: Petroleum products -2,817 -3,318 -2,910 -3,383 -546 -770 -808 -841 -909 Services (net) -824 -568 -929 -447 Receipts -954 Payments -1,277 1,119 1,117 -1,233 1,095 -1,302 -1,130 Income (net) Of which: Interest payments -6 -9 -9 -13 -13 Current transfers (net) 3,147 2,757 2,368 2,280 2,283 Official transfers (net) 2,241 2,316 Of which: budget support 1,840 1,446 Private transfers (net) 1,307 1,311 1,380 1,431 1,533 1,481 1,616 Capital and financial accounts Capital transfers 1/ 1,360 Debt stock reduction 21 -431 -486 -65 Public sector capital flows (net) Loan disbursements Amortization -2 -6 -13 -15 -21 -26 Foreign direct investment (net) Banks (net) 3/ Other items (net) -307 -83 -30 -20 -96 -36 -278 -244 -124 Errors and omissions 4/ -104 -417 Overall balance 1,027 -290 -260 -68 Financing -1,027 -159 -288 Change in net foreign assets 1,032 65 Public sector capital flows (net) Loan disbursements Amortization -2 -6 -13 -15 -21 -26 Foreign direct investment (net) Banks (net) 3/ Other items (net) -307 -83 -30 -20 -96 -36 -278 -244 -124 Errors and omissions 4/ -104 -417 Overall balance 1,027 -290 -260 -68 Financing -1,027 -159 -288 Change in net foreign assets 1,032 -166 -294 Change in gross reserves -829 -210 -290 Liabilities -203 Utilization of Fund credits(net) -146 -332 Other liabilities S/ -57 -26 -337 Debt rescheduling and debt relief Memorandum items: Current account (in percent of GDP) -1.5 -4.3 -5.4 -5.8 -6.5 Excluding official transfers -29.3 -5.7 -5.8 Exports of goods, f.o.b (percent change) -23.5 -17.9 -16.0 -15.3 14.3 -13.6 2.2 36.3 2.2 17.1 11.4 Imports of goods, fo.b (percent change) 48.1 6.8 14.8 7.5 Debt service (in percent of exports of goods and services) 0.6 0.1 -4.2 6.7 7.7 3.3 2.0 Gross liquid international reserves (in millions of US$) 6/ 1,792 0.6 1.5 1.6 2.5 2.4 (in months of nexty year's imports of goods and services) 4.9 2,000 2,184 2,019 2,242 1,759 1,940 5.7 5.9 5.8 6.0 4.7 4.9 Sources: Bank of the Republic of Haiti; and Fund staff estimates and projections. 1/1 Includes IDB, IMF (PCDR), Venezuela, World Bank debt relief in 2010- 2011; and assumption of IFAD debt cancellation in 2014. 2/1 Debt relief by Venezuela, World Bank (2010), IDB (2011), projected cancellation of debt by IFAD(2014). IMF/PCDR debt relief in 2010 reflected below 3/ Change in net foreign assets of commercial banks. the line. 4/ Errors and omissions for FY2013 likely reflects underreported imports. 5/1 Includes repurchase operations contracted in FY2013 and unwound in FY2014. 6/ Excludes gold; includes repurchase operations contracted in FY2013 and unwound in FY2014. INTERNATIONAL MONETARY FUND 2014. 2/1 Debt relief by Venezuela, World Bank (2010), IDB (2011), projected cancellation of debt by IFAD(2014). IMF/PCDR debt relief in 2010 reflected below 3/ Change in net foreign assets of commercial banks. the line. 4/ Errors and omissions for FY2013 likely reflects underreported imports. 5/1 Includes repurchase operations contracted in FY2013 and unwound in FY2014. 6/ Excludes gold; includes repurchase operations contracted in FY2013 and unwound in FY2014. INTERNATIONAL MONETARY FUND --- Page 23 --- HAITI Table 5. Haiti: Financial Soundness Indicators of Individual Banks, September 2010 September 2013 (In percent; unless otherwise stated) Sep-10 Sep-11 Sep-12 Dec-12 Mar-13 Jun-13 Size and growth Sep-13 Asset volume (in US$ millions ) 3453.6 3767.5 4029.9 4173.8 4074.2 3968.6 Deposit volume (in US$ millions ) 2985.8 3316.2 3469.5 3487.3 3376.8 4022.0 Asset growth (in gourde terms) since beginning of fiscal year 27.8 11.6 10.8 4.1 3331.9 3329.6 Credit growth (net, in gourde terms) since beginning of fiscal year -11.7 31.5 34.0 5.7 2.8 1.9 3.2 8.9 13.4 19.9 Capital adequacy Regulatory capital to risk-weighted assets 13.4 16.5 16.8 16.3 15.5 Assets to Regulatory Capital 17.1 17.3 23.8 14.7 13.3 14.1 15.7 14.7 12.0 Asset quality and composition Loans (net) to assets 21.3 25.1 30.4 30.9 32.2 NPLS to gross loans 33.8 35.3 5.7 3.7 2.4 2.4 2.6 3.0 Provisions to gross loans 4.8 3.4 2.3 2.1 2.1 2.4 Provisions to gross NPLS 2.0 1.8 84.1 93.1 96.7 86.1 81.3 NPLS less provisions to net worth 3.2 68.4 72.2 1.1 0.4 1.6 2.5 4.7 3.3 Earnings and profitability (cumulative since beginning of fiscal year) Return on Assets (ROA) 1.2 1.4 1.4 1.2 1.4 Return on equity (ROE) 18.4 1.8 1.5 Net interest income to gross interest income 22.2 21.9 18.2 21.3 26.7 21.9 87.4 91.4 92.4 93.2 93.3 92.9 Operating expenses to net profits 69.2 67.8 66.7 67.2 64.4 61.0 93.0 65.1 Efficiency Interest rate spread 1/ 9.6 8.9 7.8 7.6 7.4 7.5 7.5 Liquidity Liquid assets to total assets 2/ 51.0 49.5 45.5 42.8 Liquid assets to deposits 2/ 42.2 43.2 41.6 59.0 56.3 52.8 51.3 50.9 51.4 50.2 Dollarization Foreign currency loans to total loans (net) 60.1 55.7 51.7 48.0 47.8 Foreign currency deposits to total deposits 60.3 62.3 45.5 48.2 Foreign currency loans to foreign currency 62.9 62.8 59.1 58.5 55.1 deposits 24.6 25.5 29.0 28.2 31.4 31.3 Sources: BRH Banking System Financial Summary, and IMF estimates. These indicators refer only to the nine licensed banks in in Haiti; thus 37.3 figures in this table may not exactly match the information in Table 3, which includes non- bank financial institutions. operation Defined as the difference between average lending rate and average fixed deposit rate in 2/ the banking system. Liquid assets comprise cash and central bank bonds. INTERNATIONAL MONETARY FUND 22 .1 deposits 24.6 25.5 29.0 28.2 31.4 31.3 Sources: BRH Banking System Financial Summary, and IMF estimates. These indicators refer only to the nine licensed banks in in Haiti; thus 37.3 figures in this table may not exactly match the information in Table 3, which includes non- bank financial institutions. operation Defined as the difference between average lending rate and average fixed deposit rate in 2/ the banking system. Liquid assets comprise cash and central bank bonds. INTERNATIONAL MONETARY FUND 22 --- Page 24 --- HAITI Table 6. Haiti: Indicators of Public Debt and External Vulnerability, 2009/10 - 2013/14 (Units as indicated) 2009/10 2010/11 2011/12 2012/13 2013/14 Est. Proj. Debt indicators Total external public debt (in percent of GDP) 1/ 13.0 8.7 13.5 Total external public debt (in percent of exports) 2/ 84.9 17.4 19.8 50.1 80.0 96.9 108.8 Total public debt (in percent of GDP) 13.0 8.7 14.4 Total public debt (in millions of US$) 19.5 22.9 1,171 1,270 1,778 2,158 o/w domestic debt O/w Petrocaribe 1,235 o/w other external debt 1,595 External debt service (in percent of GDP) 0.1 0.0 0.1 Amortization 0.3 0.4 0.1 0.0 0.0 0.2 Interest 0.3 0.0 0.0 0.1 0.1 External debt service (in percent of exports) 21 0.6 0.1 0.1 External debt service (in percent of current central govt. revenues) 0.7 0.2 0.6 1.6 2.4 0.9 2.3 3.2 Other indicators Exports (percent change, 12- -month basis in US$) -1.7 29.1 1.7 Imports (percent change, 12-month basis in US$) 52.9 1.1 14.1 7.5 3.1 5.1 Remittances and grants in percent of gross disposable income 32.1 26.7 2.3 22.9 21.1 20.4 Exchange rate (per U.S. dollar, period average) 40.3 40.3 41.6 43.1 44.4 Current account balance (millions of US$) 3/ -102 -323 -426 -547 Capital and financial account balance (millions of US$) 4/ -523 Liquid gross reserves (millions of US$) 5/ 1,792 2,000 2,184 2,242 1,940 In months of imports of the following year 2/ 4.9 5.7 5.9 In percent of debt service due in the following year 93,334 6.0 4.9 23,209 8,854 5,823 3,015 In percent of base money 175.5 189.1 222.0 203.6 169.5 Sources: Bank of the Republic of Haiti; and Fund staff estimates and projections. 1/ Reflects debt relief. Debt ratios differ slightly from those in the DSA given the use of average, instead of end 2/ Goods and services; excludes gold. -of-period, exchange rates. 3/1 Including grants. 4/ Includes in the private sector FDI, capital transfers, and errors and omissions in addition to bank flows. 5/ Includes the impact of central bank repurchase operations in FY2013. 23 INTERNATIONAL MONETARY FUND 189.1 222.0 203.6 169.5 Sources: Bank of the Republic of Haiti; and Fund staff estimates and projections. 1/ Reflects debt relief. Debt ratios differ slightly from those in the DSA given the use of average, instead of end 2/ Goods and services; excludes gold. -of-period, exchange rates. 3/1 Including grants. 4/ Includes in the private sector FDI, capital transfers, and errors and omissions in addition to bank flows. 5/ Includes the impact of central bank repurchase operations in FY2013. 23 INTERNATIONAL MONETARY FUND --- Page 25 --- HAITI Table 7. Haiti: Proposed Schedule of Disbursements, 2014 1/ Amount Availability Date Conditions for Disbursement 21 SDR 1,638,000 March 26, 2014 Observance of performance criteria for September 2013 and completion of the seventh review under the ECF arrangement. SDR 1,638,000 August 10, 2014 Observance of performance criteria for March 2014 and completion of the eighth review under the ECF arrangement. Memorandum Prospective Total Access under the ECF arrangement: SDR 40,950,000 3/ The first six reviews of the program were sucessfully completed with total disbursements of 37.674 million SDR; the second and third were combined. reviews 2/ Other than the generally applicable conditions for the Extended Credit Facility (ECF) arrangement. The first two disbursements were each in the amount of SDR 8.19 million; the disbursements associated with the second through fifth reviews were each of SDR4.914 million; the disbursement associated with the sixth review was SDR1.638 million. INTERNATIONAL MONETARY FUND 24 ,950,000 3/ The first six reviews of the program were sucessfully completed with total disbursements of 37.674 million SDR; the second and third were combined. reviews 2/ Other than the generally applicable conditions for the Extended Credit Facility (ECF) arrangement. The first two disbursements were each in the amount of SDR 8.19 million; the disbursements associated with the second through fifth reviews were each of SDR4.914 million; the disbursement associated with the sixth review was SDR1.638 million. INTERNATIONAL MONETARY FUND 24 --- Page 26 --- HAITI Table 8. Haiti: Indicators of Capacity to Repay the Fund, 2012/13-2023/2024 (Units as indicated) 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2023/2024 Fund obligations based on existing credit (in millions of SDRs) Principal 0.0 0.0 1.6 4.3 6.7 7.5 7.5 5.9 4.1 0.0 Interest 0.0 0.1 0.1 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 1.6 4.3 6.7 7.5 8.2 6.6 Interest 4.8 0.7 0.7 0.0 0.1 0.1 0.1 0.1 0.1 0.1 0.0 0.0 0.0 0.0 Total obligations based on existing and prospective credit In millions of SDRs 0.0 0.1 1.7 4.4 6.8 7.6 8.2 6.6 In millions of US$ 0.0 0.2 2.7 6.9 10.8 4.8 0.7 0.7 In percent of 12.1 13.1 10.4 7.6 1.0 1.0 exports 0.0 0.0 0.1 0.3 0.5 0.5 0.5 0.4 0.3 0.0 government revenue 0.0 0.0 0.2 0.4 0.5 0.4 0.3 0.2 0.0 reserves 0.0 0.0 0.1 0.3 0.4 0.5 0.5 0.1 0.0 0.0 debt service 0.3 0.2 0.0 0.0 0.0 0.2 3.0 5.8 7.4 6.7 6.1 4.2 2.7 quota 0.0 0.1 2.1 5.3 8.3 9.3 10.1 8.0 5.8 0.3 0.8 0.3 0.8 Outstanding Fund credit (end of period) In millions of SDRS 41.0 41.0 39.3 35.1 28.3 20.8 12.6 6.1 1.3 In millions of US$ 63.4 64.0 62.0 55.9 45.2 0.7 0.0 33.1 20.1 9.7 2.1 In percent of 1.0 0.0 exports 3.9 3.6 3.3 2.8 2.1 1.4 0.8 0.4 0.1 0.0 0.0 government revenues 5.3 5.0 4.5 3.7 2.8 1.9 1.1 0.5 0.1 0.0 reserves 3.3 3.1 2.9 2.4 1.8 1.2 0.7 0.3 0.1 0.0 quota 50.0 50.0 48.0 42.8 34.6 25.4 15.4 7.4 1.6 0.0 0.0 0.8 0.0 Memorandum items: Exports 1.6 1.8 1.9 2.0 2.2 2.3 2.5 Government revenues 1/3/ 1.2 1.3 1.4 2.7 2.9 3.1 3.3 Res .0 quota 50.0 50.0 48.0 42.8 34.6 25.4 15.4 7.4 1.6 0.0 0.0 0.8 0.0 Memorandum items: Exports 1.6 1.8 1.9 2.0 2.2 2.3 2.5 Government revenues 1/3/ 1.2 1.3 1.4 2.7 2.9 3.1 3.3 Res erves 1/4/ 1.5 1.6 1.8 1.8 1.9 2.1 2.2 2.4 1/ 1.9 2.0 2.1 2.3 2.5 2.7 2.8 3.0 3.2 3.4 Debt service 0.0 0.1 0.1 0.1 0.1 0.2 0.2 0.2 0.3 3.6 Quota (in millions of SDRs) 81.9 81.9 81.9 81.9 0.3 0.4 GDP 1/ 81.9 81.9 81.9 81.9 81.9 81.9 81.9 9.0 9.5 10.1 10.7 11.3 12.0 12.7 13.4 14.1 14.9 15.7 Sources: Haitian authorities; and Fund staff projections. Note: Data covers Haiti's fiscal year, which runs from October 1to September 30. 1/In billions of U.S. dollars. 2/ Exports of goods and services. 3/ Central government domestic revenues. 4/Grossl liquidi international reserves, end of period. INTERNATIONAL MONETARY FUND --- Page 27 --- Table 9. Haiti: Indicative Targets and Quantitative Performance Criteria, September 2013 June 2014 Cumulativel Flows from September 2009 Actual Sep. 2013 Dec. 2013 Mar. 2014 stock at Jun. 2014 end- Sept. Indicative Proposed 09 PC Adjusted Actual Adjusted 5/ Estimate PC Proposed Indicative target PC target Indicative target (In millions of gourdes, unless otherwise indicated) 1.Quantitative performance criteria Net central bank credit to the non- financial public sector ceiling (including PCDR) Central Government 1/ 21,379 -13,199 -12,809 -16,530 -11,816 -10,184 -10,819 10,432 -11,063 -9,049 22,947 -11,578 -9,763 Rest of non- financial public sector -11,188 -11,663 -10,278 -8,646 -6,703 -8,978 -9,063 7,678 -1,569 -1,621 1,621 4,868 -1,538 -1,538 -4,116 1,454 -2,000 -1,371 -7,763 -2,000 Net domestic assets of the central bank ceiling 14,447 9,036 -10,152 15,061 -5,472 -4,112 10,431 -709 215 2,135 3,459 Net international reserves of central bank (in millions of U.S. dollars) floor 416 582 610 804 517 483 735 422 422 375 375 I. Continuous performance criteria Domestic arrears accumulation of the central government 4,116 1,454 -2,000 -1,371 -7,763 -2,000 Net domestic assets of the central bank ceiling 14,447 9,036 -10,152 15,061 -5,472 -4,112 10,431 -709 215 2,135 3,459 Net international reserves of central bank (in millions of U.S. dollars) floor 416 582 610 804 517 483 735 422 422 375 375 I. Continuous performance criteria Domestic arrears accumulation of the central government New contracting or guaranteeing by thep public sect tor of nonconcessional external or foreign currency debt (In millions of U.S. dollars) 2/ Up to and including one year 3/ 0 33 33 334 33 33 410 33 33 33 Over one- year maturity 0 301 0 377 0 0 33 0 Public sector external arrears accumulation (in millions of U.S. 0 33 33 33 33 33 33 33 dollars) 33 33 33 III. Indicative targets Changei in base money ceiling 31,080 14,262 14,262 17,082 15,225 15,225 18,955 16,189 17,095 17,153 18,459 Net domestic credit to the central government ceiling 1/ 19,370 -19,271 -18,881 -14,580 -16,917 -15,285 -13,695 -14,562 10,830 12,208 -8,210 Poverty reducing expenditures floor 38,656 38,656 38,856 42,531 42,531 42,731 46,406 46,606 50,281 50,481 Memorandum items Changei in currency in circulation Net domestic credit to ther rest of the non financial public sector 13,448 9,009 9,009 7,904 9,285 9,285 11,569 9,560 9,456 9,836 Government total revenue, excluding grants 1,641 1,894 1,894 5,142 -1,811 -1,811 4,597 1,727 2,500 -1,644 9,284 Government total expenditure, excluding externally- financ edi investment 29,881 156,289 156,289 158,685 169,962 169,962 172,908 182,623 186,078 -2,500 42,096 218,739 218,739 226,618 235,944 235,944 247,677 248,752 268,193 265,156 194,331 198,411 287,587 Sources: Ministry of Finance, Bank of thel Republic of Haiti, andl Fund staff estimates. VA Adjusted targets exclude the use of IMF PCDR debt relief 2/8 Excludes guarantees to the electricity sector in the form of credit/guarantee letters. The US$33 million in non- -concessional external 3/1 Figures for September 2013 and Dece cember 2013 reflect the contracting of repos for international reserve lending of over one- year maturity refers to a BANDES (Venezuela) loan for airport construction. 4/ Poverty reducing expenditures consist of domestically- financed spending in health, education, and management; these operations were fully unwound by end- February 2014. 5/ Adjusted figures for December 2013 are preliminary, based on available and incomplete information. agriculture. - - of credit/guarantee letters. The US$33 million in non- -concessional external 3/1 Figures for September 2013 and Dece cember 2013 reflect the contracting of repos for international reserve lending of over one- year maturity refers to a BANDES (Venezuela) loan for airport construction. 4/ Poverty reducing expenditures consist of domestically- financed spending in health, education, and management; these operations were fully unwound by end- February 2014. 5/ Adjusted figures for December 2013 are preliminary, based on available and incomplete information. agriculture. - - --- Page 28 --- HAITI Table 10. Haiti: Prior Actions and Structural Benchmarks throuah June 2014 1/ Measure Timing Status Comments Operationalize the first accounting center (Poste Comptable No. 1) comprising the Ministries of Finance, Commerce, Tourism, and PA Met Environment (TMU, paragraph 17) Allocate offices to the medium sized taxpayer unit. SB End- September 2013 Met Progress observed: debt Strengthen the debt unit with fully operational middle and back office SB End- December 2013 Not met unit moved to Treasury; functions; Preparation of annual debt sustainability analyses. back office operational. Set up a a task force of experts to review the public investment SB End-December 2013 Met framework. Progress observed: first Roll out in all ministries the general ledger (GL) software and start to accounting center record projects and imprest accounts expenditure when they are SB End-December 2013 Not met operational and effectively paid, and no longer when the replenishment of the account is advanced work towards operationalizing second made. accountina center Reduce the number of domestically- funded imprest accounts to three by ministry or institutions (for revenue collection, capital spending, and other transactions) and deploy the network of public accounting offices SB End March 2014 at thel line ministries level and grant signature authority on these accounts to public accountants appointed by the Ministry of Economy and Finance. 2/ Operationalize the second accounting center comprising the Ministries SB End- -March 2014 oft the Plan, Public Works, and Agriculture (TMU, paragraph 18) 3/ Operationalize the accounting centers SO that at least 80 percent of SB End June 2014 budgetary expenses are collectively covered (TMU, paragraph 19) 3/ 1/ PA: Prior Action; SB: Structural Benchmark 2/ These SBs were reformulated into a PA and two new SBs. 3/ New proposed SBs. INTERNATIONAL MONETARY FUND --- Page 29 --- HAITI Figure 1. Haiti: Program Performance, 2012-13 Performance Criteria 1/ andgiven base money performance this resulted in lowerThel PC onnet international reserves was met with large than-programmedr net domestic assets ofthe BRH. margins.. 1500 15 Reserves Net Domestic Assets Net International 1400 (US$ millions) 1400 10 (billions, gourdes) a Actual * Adjusted target 1300 5 -5 -5 900 -10 Actual 4 Adjusted target -10 800 -15 -15 Sep 12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 the central thecontracting ofr repos by the BRH led totheb breachof While the PC on net BRH credittot government thecontinuous PC on non-concessional: shorttermdebt. was observed.. 18 500 Central Government Contracting of FNon Concessional Debt Net BRH Credit to the (US$ millions, cummulative since Sep-09) 16 (billions, gourdes) 16 400 Actual I Actual Adjusted target Continuous target Dec-12 Mar-13 Jun-13 Sep- -13 Dec-13 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Sep-12 Indicative Targets and a larger-than-espectedcentralgovermment deficit led The indicativetarget onbase money wasnot observed toh Ngheribonpogumnedinet domestic financing. given noeprogonmnedixreuse in reserve requirements.. 60 18 Net Dom. Financing to Central Govemment Monetary Base - Actual (billions, gourdes) 55 (billions.gourdes) 55 14 e Adjusted target 2 Actual Adjusted target 50 10 13 Jun-13 Sep-13 Dec-13 Sep-12 Indicative Targets and a larger-than-espectedcentralgovermment deficit led The indicativetarget onbase money wasnot observed toh Ngheribonpogumnedinet domestic financing. given noeprogonmnedixreuse in reserve requirements.. 60 18 Net Dom. Financing to Central Govemment Monetary Base - Actual (billions, gourdes) 55 (billions.gourdes) 55 14 e Adjusted target 2 Actual Adjusted target 50 10 45 6 40 2 35 -2 -2 30 -6 -6 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Source: National Authorities; and IMF staff estimates. 1/. June and December are indicative. INTERNATIONAL MONETARY FUND 28 --- Page 30 --- HAITI Figure 2. Haiti: Recent Economic Developments, 2009-13, 1/ Despitel elarger apparel exports, the trade deficit increased... andgiven essentially flat transfers, this resulted in a widened.current account deficit for FY2013. Exports and Imports 40 100 1000 L(US$ millions; and percent ofGDP) Current Account 75 (percent ofGDP) Current account (right-axis) Current transfers (net) (signreversed) -20 -40 -25 -2 -60 Exports -50 -4000 Imports -6 Services balance, % ofGDP(right axis) -80 -75 Trade balance, % ofGDP (right axis) 100 100 -10 2009 2010 2011 2012 2013 2014 2009 2010 2011 2012 2013 The deficit was largeyfnoncedbyconcesionalfiows from Venezuela.. and decreases in net foreign assets oft the BRH. Financing (USS millions) International Reserves 4200 (US$ millions) Gross international reserves, months imports 10 (right axis)2/ Net international reserves Net foreignassets. 1800-1400-1000 -600 -200 200 600 1000 1400 1800 1200 D Foreign directinvestment (net) Changei in net foreign assets D Errors and omissions Other flows Hmm PetroCaril ibe financing 2009 2010 2011 2012 2013 MedersteÉRdepreciation. at fall in food prices, and fixed Aslprieescontributedto decreasing inflation... while the real exchange ratecontinued. its slow drift upwards. 28 Inflation (percent change, y/y) Core Exchange Rates, Jan. 2009 Dec. 2013 Headline Nominal effective exchangerate (2005: =100) Food Real effective exchurgeratec00s-100) Administeredprices Gourde per U.S. dollar (rightaxis) -2 -7 -12 2009 2010 2011 2012 2013 2010 2011 2012 2013 Source: National Authorities; and IMF staff estimates. 1/ Data are in fiscal years unless noted otherwise. 2/ Gross international res erves reflects central bank repurchase operations in 2013. 9 INTERNATIONAL MONETARY FUND --- Page 31 --- HAITI Figure 3. Haiti: Fiscal Developments, 2009-13 1/ in FY2013... .ond decreases of fuel taxes and despiteaccounting NEF Revenues (excluding project grants) decreased revenues. 35 20 Taxes Taxes ongoods and services Domestic Revenue and Budget Support (percent ofGDP) D Custom duties 30 (percent ofGDP) D Other ODomestic revenue 25 15 D Income tax OBudget supportgrants 10 5 0 0 0 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013 Domestcalty-financedprinayepenenditurest increased on large .in part reflecting increasedPetrocoriber financed investment subsidies and capitalspending.- ondtransferstoEDH. Domestic Revenue and Budget Support (percent ofGDP) D Custom duties 30 (percent ofGDP) D Other ODomestic revenue 25 15 D Income tax OBudget supportgrants 10 5 0 0 0 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013 Domestcalty-financedprinayepenenditurest increased on large .in part reflecting increasedPetrocoriber financed investment subsidies and capitalspending.- ondtransferstoEDH. 50 10 Primary domestically-financed expenditure Petrocaribe balance (percent ofGDP) (percent of FGDP) DWages and salaries 40 8 Investment OGoods and services Transfers to EDH Loans to electridtysector OTransfers and subsidies 30 6 Inflows Dom. -financed capitalexp. Debt (right axis) 20 4 10 2 0 0 2009 2010 2011 2012 2013 exceededt that in the The deficit was largely financedt by Venezuela -related flows and a Asa result, the central government deficit deposit decrease at commercial banks. program. 32 8 Revenue and Expenditure (2013) Financing (percent ofGDP) 6 (percent ofGDP) BProgram DActual 24 4 16 2 0 a 8 -2 D Central bank -2 D Commerdal banks 0 -4 D Other domestic financing 4 D Foreignloans -6 -6 DExternal amortization -8 Domestic Current Capital Balance -8 -8 Revenue Grants expenditure expenditure 2009 2010 2011 2012 2013 Source: National Authorities; and IMF staff estimates. 1/ Data are in fiscal years unless noted otherwise. INTERNATIONAL MONETARY FUND 30 --- Page 32 --- HAITI Figure 4. Haiti: Monetary and Financial Market Developments, 2009-13 1/ Base money rose in FY2013) following an increase in reserve .but the increase in broadi money was more moderate. requirements.. 50 46 Contributions to Broad Money Growth Contributions to Base Money Growth (percentagepontsyhyl 70 (percentagepoints y/y) Broad money Base money Currencyi incirculation 40 30 Currencyin Bank reserves circulation Requiredgourderesene: rate(right axis) Gourde deposits 30 14 -5 20 -2 -2 -20 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013 reduced banks' excess and have served to cool credit growth in FY2013 after the Higher reserverequirements strong increased observed in FY2012. reserves... Credit Growth Loan- to- Deposit Ratio (percent) (percent) Private sector credit/GDP (righta axis) Excess reservesa as share oft total deposits (right axis) Gourde credit growth Loan to deposits (excluding government deposits) 20 Dollar credit growth Loan to deposits (including government deposits) Overall credit growth 0 -30 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013 Meanwhitledepositsremainedi heowilydoliarized.eredit real lending bank rates decreased, and policyrates dollarization edged up ate end2013.. remained negativei in real terms. 65 30 65 Dollarization of deposits and credit Reall Interest Rates (percent) 60 25 (percent) Real BRH 91 dayrate (right axis) 55 20 Real Averagelending Rate in Gourdes 50 15 2011 2012 2013 2009 2010 2011 2012 2013 Meanwhitledepositsremainedi heowilydoliarized.eredit real lending bank rates decreased, and policyrates dollarization edged up ate end2013.. remained negativei in real terms. 65 30 65 Dollarization of deposits and credit Reall Interest Rates (percent) 60 25 (percent) Real BRH 91 dayrate (right axis) 55 20 Real Averagelending Rate in Gourdes 50 15 TIII 45 10 Deposits -5 Credit 40 5 -10 35 2010 2009 2010 2011 2012 2013 Source: National Authorities; and IMF staff estimates. 1/ Data arei in fiscal years unless noted otherwise. 31 INTERNATIONAL MONETARY FUND --- Page 33 --- HAITI Box 1. Apparel Exports to the U.S. Haiti's labor supply is projected to expand comprise 61 percent of the briskly, in particular in urban areas. population, and increases in People aged 15-65 be the largest in Haitian history, with people of working age in the next 15 an average of 126 years will year. Rapid urbanization will result in thousand people entering the labor market production base will be crucial very rapid growth of labor supply in cities. An per in generating employment expanding The apparel opportunities for Haiti's young industry has provided population. (2012) reports that opportunities for formal employment for some employment in import time. Lundhal in the early 1990s, but decreased processing activities (mainly apparel) peaked at over recovered strongly thereafter due to political 45,000 recently to about 33,000. instability. Employment has The industry is concentrated in most of the recent Port-au-Prince, but two newer parks outside growth. The state-owned Parc Industriel the capital explain Prince's airport and port), together with smaller Metropolitain (SONAPI, near Port-au70 percent of the industry's direct parks in Carrefour and Shodecosa, account for expansion since the earthquake: employment. However, the activity in two parks explain most of the CODEVI (Compagnie de Développement at Industriel) Haitian Ouanaminthe, on the Dominican border (rolling 12- Apparel month sum) Exports to the United States employs 7,000 people, and its location allows it to 1000 900 Volume, Haiti apparel exports to Haiti, SME millions (RHS) rely on Dominican total exports to world, USS millions infrastructure. The IFC provided 800 "Apparelto US, USSr millions US$13 million to finance its construction. parks explain most of the CODEVI (Compagnie de Développement at Industriel) Haitian Ouanaminthe, on the Dominican border (rolling 12- Apparel month sum) Exports to the United States employs 7,000 people, and its location allows it to 1000 900 Volume, Haiti apparel exports to Haiti, SME millions (RHS) rely on Dominican total exports to world, USS millions infrastructure. The IFC provided 800 "Apparelto US, USSr millions US$13 million to finance its construction. CARACOL near Cap-Haitien (Haiti's second largest 500 city) was constructed with support from the U.S. and the IDB (which together may eventually invest 300 US$350 million). Opened in late 2012, its major 200 Sep-08 Sep- -09 tenant is a Korean firm which Sep- -10 Sep- 11 Sep-1 12 Sep- 13 employed 1,600 people last September, but with plans to expand employment to 3,500 by July 2014. (percent Haitian oft Apparel total U.S. imports) Exports to United States Apparel production is mainly 2.5 About 90 exported to the U.S. percent of Haiti's goods exports consist of 1(2006) Hop 1(2008) HELP P(2010) apparel items sold to the U.S. (Figure). The 1.5 Volume is based on the processing for industry Value textiles. As it is re-export of imported concentrated in the low end of the market, Haiti benefits from only a narrow slice of the 0.5 value-added chain. Haiti has long 1989Q1 Sources: 1992Q1 U.S. 1995Q1 1998Q1 2001Q1 2004Q1 2007Q1 2010Q1 2013Q1 benefitted from regional trade Departmento of Commerce (OTEXA); IMFS staff estima ates. preferences, but political instability has set back the countries have benefitted from duty-free sector. Since 1983 Haiti and other Caribbean made of U.S. materials access to the U.S. market of certain apparel (most recently under the Caribbean Basin exports that are However, international sanctions Trade Partnership Act of against Haiti in the early 1990s cut 2000). exports almost to zero, and the INTERNATIONAL MONETARY FUND 32 2013Q1 benefitted from regional trade Departmento of Commerce (OTEXA); IMFS staff estima ates. preferences, but political instability has set back the countries have benefitted from duty-free sector. Since 1983 Haiti and other Caribbean made of U.S. materials access to the U.S. market of certain apparel (most recently under the Caribbean Basin exports that are However, international sanctions Trade Partnership Act of against Haiti in the early 1990s cut 2000). exports almost to zero, and the INTERNATIONAL MONETARY FUND 32 --- Page 34 --- HAITI Box 1. Apparel Exports to the U.S. (concluded) industry has not yet recovered its previous market share (Figure). More recently, the U.S. has granted more flexible trade preferences are contained in the Haitian preferences specific to Haiti. These trade (HOPE) Act (as amended in 2008), and Hemispheric Opportunity through Partnership allow for the 2010 Haiti Economic Lift Encouragement duty-free import of most woven and knit Program (HELP) Act. These laws annual quota of 70 million apparel regardless of source (each square meters equivalent, SME), and subject to an Dominican ports. There are also separate allow Haiti to export through value-added (later to rise to 60 quotas for apparel exports that have at least 50 free-trade percent) from Haiti, the U.S., or a percent agreement or unilateral preferences. While the third-country with which the U.S has a through FY2020, the value-added woven and knit apparel quotas extend quota extends through FY2018. Apparel exports and employment and still-unused quotas grew significantly after the passing of the may support growth going HOPE/HELP acts, by 21 percent (real terms) in FY2013, while forward. Apparel exports to the U.S. direct increased only a fraction of various quotas, what employment rose by about 6 percent. Exports are still to increase value provides space for further growth added, as two-thirds of apparel (Table). There is also space cotton t-shirts and underwear, exports (by volume) were in the categories of instead of higher value items Haiti's Use of fU.S. Trade Preferencesi in FY2012, (such as wool suits). Knit millions SME T-shirts apparel from regional or U.S. fabric from U.S. yarn Program CBTPA Quota Limit Exports Fill Rate, % Sustained trade access to the Knit made of regionalf fabric from U.S. yarn CBTPA 970 128 13.2 U.S. Apparel (nos sourcer requirements) HOPE 54.9 should contribute to Woven Apparel (no source requirements 34.6 further job Value- Added HOPE 30 42.2 expansion and Other Trade Preference Quotas HOPE 327 18 5.4 increased investment. Total HOPE n.a. 22 n.a. Although the extension of n.a n.a. 271 n.a. preferences under the HELP act making these preferences more permanent strengthened incentives for investors, would provide for employment, with minimal effect on the U.S.3 Access stronger incentives to expand contribute to increases in labor to the world's largest consumer market should productivity and allow for higher Department of Labor "Better Work" initiative should wages. Supervision under the U.S. conditions and compliance with various contribute to a gradual improvement in labor productivity should also allow Haiti laws, including on minimum wages. Increases in labor to climb the value added chain. support the sector by ensuring that the real Macroeconomic policies can infrastructure and public service exchange rate remains close to equilibrium. provision is also crucial, in Improving competitive prices. particular of electricity at regionally Lundhal, M. (2012), The Political Economy of Disaster, Chapter 8. Data sources include the U.S. Office of Textiles and Haitian authorities. Apparel (OTEXA); ADIH (a Haitian industry association), and "Rebuilding Haiti's Competitiveness and Private Sector", Subcommittee on International Policy and Trade by Testimony for the House Financial Services Nancy Birdsall, March 16, 2010. INTERNATIONAL MONETARY FUND 33 also crucial, in Improving competitive prices. particular of electricity at regionally Lundhal, M. (2012), The Political Economy of Disaster, Chapter 8. Data sources include the U.S. Office of Textiles and Haitian authorities. Apparel (OTEXA); ADIH (a Haitian industry association), and "Rebuilding Haiti's Competitiveness and Private Sector", Subcommittee on International Policy and Trade by Testimony for the House Financial Services Nancy Birdsall, March 16, 2010. INTERNATIONAL MONETARY FUND 33 --- Page 35 --- HAITI Box 2. Foreign Assistance and Growth after the earthquake, around 95 US$7.5 billion in official grants in the three years aid and Haiti received disbursed US$2.4 billion in humanitarian percent of FY2012 GDP. Official donors Donors also provided US$1.1 billion in debt US$3.9 billion in recovery and development assistance. Private donations (mostly channeled by the IMF, World Bank, IDB, and Venezuela). relief (including billion, according to UN estimates." through NGOS) amounted to US$3 Total Official Grants to Haiti, 2010-12, US$ millions Estimated 2010 2011 2012 2010-2012 1,185 0 n.a. 1,185 Debt Relief 1,858 581 n.a. 2,439 Humanitarian Aid 1,412 1,194 1,275 3,881 Other (including project grants) 1,275 7,506 4,455 1,776 Total of Planning, IMF Staff Calculations. Data presentedi in Source: OECD, UN, Breakdown Haiti Ministry for 2012 aid not yet available but assumed to be calendar years. non-Humanitarian aid. overwhelmingly In particular, Haiti's of this effort has been below expectations. The impact on GDP growth rebound in economic activity after the earthquake, ECF originally foresaw a sharp over that period current arrangement of around 8 percent. Actual growth annual average growth in FY2011-13 projecting averaged 4 percent per year. may be partly explained by the Grants and GDP Growth, 1998-2013 This performance aid (one-third of Foreign (percent change) composition of aid. Humanitarian saved thousands of lives through the total aid) shelter; 10 % provision of food, medicine, and temporary perspective, however, most from a macroeconomic of these flows resulted in increases in consumption imports. Anecdotal evidence suggests that good private donations were also mostly for postforeign grants as share of GDP % relief. In addition, debt relief (16 percent -10 Changei earthquake fiscal space over many years, 4 Sources: National -2 Authorities, 0 andl IMF staff estimates. of total aid) increases of and its impact on growth depends on the type service. In turn, development assistance, that will be financed by the forgone debt (as e.g. for public spending as it includes financing for economic projects which should hae a greater impact on growth commitments remained significant as of endrepresented about half of total aid. Aid 2,3 infrastructure), aid (including grants and budget support). 2012 (US$3.8 billion), almost all in development firms and a low involvement of the Haitian government, Some problems in donor coordination suggest that aid disbursed by some donors NGOS may have also played a role. Some analysts the intended and and sub-grants before reaching have had to pass multiple layers of sub-contracts sector may have prolonged may problems, circumventing the public groups. In addition, despite capacity effectiveness. In some cases, when aid was such problems weighing negatively on government involvement of Haitian firms and NGOS was through private corporations and foreign NGOS, location of a channeled evaluation and of the geographic absence of readily available data on the impact low. The INTERNATIONAL MONETARY FUND 34 also played a role. Some analysts the intended and and sub-grants before reaching have had to pass multiple layers of sub-contracts sector may have prolonged may problems, circumventing the public groups. In addition, despite capacity effectiveness. In some cases, when aid was such problems weighing negatively on government involvement of Haitian firms and NGOS was through private corporations and foreign NGOS, location of a channeled evaluation and of the geographic absence of readily available data on the impact low. The INTERNATIONAL MONETARY FUND 34 --- Page 36 --- HAITI Box 2. Foreign Assistance and Growth (concluded) number of donor-funded programs made it difficult to assess what projects were working and what were not, as well as it complicated coordination." Strengthening planning, coordination, evaluation and transparency should contribute to increasing the impact of aid on growth. Increased transparency and more-readily available information of project-related spending (from both the government and donors) should allow for better coordination, including from a geographical perspective. More consistent project evaluation will help identifying what is working and what is not, and increase the impact of aid on growth. Although aid flows will decline in the medium term, they will keep up in the next couple of years. In this regard, while some donors are scaling back, other key donors are maintaining or even increasing their commitments. For instance, the U.S. increased its disbursements to Haiti in FY2013, and the government has requested to Congress a similar sum for FY2014. The European Union has also recently made a significant commitment in project grants and budget support under the 11th European Development Fund. Data on aid to Haiti remains challenging as there is no single current, reliable source on total official assistance. The Ministry of Planning maintains a project database that depends on donor reporting, but it is usually not up-todate and includes some inconsistencies with data from donors. The website of the UN special envoy also tracks aid commitments and disbursements by donor, but it does not provide a breakdown by year and is not updated past 2012. Data in this box is from those sources, and from the OECD Development Assistance Committee. Clements, M., S. Radelet, and R. Bhavnani (2004), "Counting chickens when they hatch: The short-term effect of Aid on Growth", Working Paper No. 44, Center for Global Development. 3 See website of the UN Secretary General's Special Advisor at Htg/bowelecsoestontattorg/nustancc-taxterz Ramachandran, V., and J. Walz (2012), "Haiti: Where has all the money gone?" Policy Paper No. 4, Center for Global Development. 5 The U.S. disbursed US$197 million to Haiti in FY2012, US$271 million in FY2013, and has made a budget request of US$300 million for FY2014 Gng/bomsloregnauistegnaistanxregoretbdedeta/tuspol INTERNATIONAL MONETARY FUND 35 soestontattorg/nustancc-taxterz Ramachandran, V., and J. Walz (2012), "Haiti: Where has all the money gone?" Policy Paper No. 4, Center for Global Development. 5 The U.S. disbursed US$197 million to Haiti in FY2012, US$271 million in FY2013, and has made a budget request of US$300 million for FY2014 Gng/bomsloregnauistegnaistanxregoretbdedeta/tuspol INTERNATIONAL MONETARY FUND 35 --- Page 37 --- HAITI Box 3. Petrocaribe in Haiti financing to Haiti in the context of the Since 2007, Venezuela has provided concessional of Haitian purchases of oil Financing inflows are calculated as a proportion According to Petrocaribe Agreement. the state-owned Venezuela oil company). products from PDVSA (Petroleos de Venezuela, barrel (of imported oil products), 60 percent at prices above US$100 per the terms of the agreement, interest, 25-year maturity and 2-year grace." of the oil bill is financed with terms including 1 percent resources for the The sale of these oil products in the domestic market creates considerable debt was US$ 1.2 billion (14.6 percent As of end-FY2013, the stock of Petrocaribe-related Venezuela cancelled government. has been accumulated after the 2010 earthquake: of GDP). This entire debt stock million in 2010. Petrocaribe debt stock of US$395 the pre-earthquake Bureau de Monétisation du Programme agency of the Ministry of Finance, (the Haitian An autonomous these resources on behalf of the BMPAD), manages d'Aide au Développement, Haitian fuel purchasers and the Venezuelan role between government. BMPAD plays an intermediary commercial bank (BNC) at BMPAD accounts at the state-owned supplier. The proceeds are deposited and at the BRH.? projects and to support the Petrocaribe resources have been used to finance investment will be financed using these Whenever the government decides that new projects official electricity sector. and the amounts to be financed in the resources, it publishes a resolution listing these projects webpage on a regular basis. 3 Disbursements into the projects are reported in BMPAD's financed with these flows, their use gazette. includes information about capital spending Although the budget resources, including on procurement. does not follow the same rules applied for treasury increased. While in the first years of the agreement Petrocaribe-financed spending has recently of Petrocaribe flows has resulted in a net increase in BMPAD deposits, the absorption (the disbursements two This is due both to new investment projects increased significantly over the past years. and also to transfers to the electricity sector pipeline of ongoing projects is about US$420 million), BMPAD deposits have amounted to about US$160 million). As a consequence, US$300 (which in FY2013 million at end-FY2013 (2.2 percent of GDP), from decreased significantly and stood at US$195 million a year prior. Haiti and a source of financing in post-earthquake Petrocaribe flows have served as a crucial A sudden stop of Petrocaribe flows sudden stop would lead to a substantial fiscal adjustment. of the electricity sector (See DSA constrain investment spending and the financing and would severely domestic tax revenues. Both BMPAD deposits Annex). The shock to growth would also impact In EDH's deficit would would decline to partially cushion the shock. particular, international reserves of higher tariffs, longer blackouts, decrease given the lack of financing, through a combination contain likely this risk requires increasing domestic revenues; and collection improvements. Mitigating in reducing EDH's deficit; and growth (in particular of transfers); advance decisively expenditure preserve fiscal buffers. INTERNATIONAL MONETARY FUND 36 spending and the financing and would severely domestic tax revenues. Both BMPAD deposits Annex). The shock to growth would also impact In EDH's deficit would would decline to partially cushion the shock. particular, international reserves of higher tariffs, longer blackouts, decrease given the lack of financing, through a combination contain likely this risk requires increasing domestic revenues; and collection improvements. Mitigating in reducing EDH's deficit; and growth (in particular of transfers); advance decisively expenditure preserve fiscal buffers. INTERNATIONAL MONETARY FUND 36 --- Page 38 --- HAITI Box 3. Petrocaribe in Haiti (concluded) The agreement allows for the financing of up to 14,000 barrels per day (on an annual basis). Haiti currently exceeds this level of imports. The portion that is paid in cash represents a suppliers' credit that must be settled ent allows for the financing of up to 14,000 barrels per day (on an annual basis). Haiti currently exceeds this level of imports. The portion that is paid in cash represents a suppliers' credit that must be settled within 90 days. Shipping charges are prepaid and the cash and loan portions are determined based on FOB prices on a shipment- -byshipment basis. Interest is capitalized during the grace period. 2 Since November 2012, domestic oil purchasers are paid in gourds. This contributed to a decrease in the dollarization of commercial bank deposits. 3 The BMPAD website containing information on the projects financed with Petrocaribe resources is available at hitp/bwoowbureaudegestiongozht//indesphp INTERNATIONAL MONETARY FUND 37 suppliers' credit that must be settled within 90 days. Shipping charges are prepaid and the cash and loan portions are determined based on FOB prices on a shipment- -byshipment basis. Interest is capitalized during the grace period. 2 Since November 2012, domestic oil purchasers are paid in gourds. This contributed to a decrease in the dollarization of commercial bank deposits. 3 The BMPAD website containing information on the projects financed with Petrocaribe resources is available at hitp/bwoowbureaudegestiongozht//indesphp INTERNATIONAL MONETARY FUND 37 --- Page 39 --- HAITI the and a Bottleneck to Growth The Sector: A Drag on Budget Box 4. Electricity to the budget, and has set back efforts at sector is a bottleneck to growth, a drag of this The electricity and limit the access reduction. High electricity prices hurt Haiti's competitiveness, and theft is poverty Electricity reaches only 30 percent of the population essential service by the poor. (either in the form of subsidies or loans) represented widespread. Transfers to the electricity sector of GDP in FY2013, 20 percent of domestic revenues. nearly 2.5 percent in the sector. EDH Electricite d'Haiti) is the most important player A state-owned company (EDH, generation. A number of private transmission, and some electricity is in charge of distribution, share of total supply. Electricity generation independent power producers (IPPs) generate a significant provided by PBM, a joint-venture of includes the second largest city (Cap Haitien) is mostly (either diesel that is based on oil-derivatives Venezuela, Cuba and Haiti. Most of the electricity generation On top of this, contracts for the provision fuel oil), what contributes to large generation costs. for the final or heavy markups over cost, which make electricity prices of electricity to EDH incorporate large for wind-based and hydro-electric generation. In consumer even more onerous. Haiti has potential (in Peligre), SO it becomes fully is repairing the largest dam in the country particular, the government operational. technical and non-technical losses in problems originate in large to that Financial sustainability in nine grids, the largest of which corresponds distribution. The electricity system is organized by grid, but the largest financial theft and collection rates vary including Port-au-P Prince. Electricity index for FY2013 is estimated at in the grid including the capital. The cash-recovery Financial losses originate recovered by EDH for every dollar of energy produced). hours [30] percent (i.e., 30 cents were initiative) allowed increasing service from Venezuela (in the context of the Petrocaribe losses, a sudden stop of support but given lack of progress in reducing non-technical and reducing blackouts, blackouts (DSA Annex). these resources will likely result in increased subsidies and loans. During FY2013, onTransfers to the sector include on-budget and off-budget transfers (financed with to EDH amounted to 0.6 percent of GDP, while off-budget budget transfers of GDP. Moreover, an IPP exercised guarantees against Petrocaribe-related flows) reached 0.9 percent EDH for US$13 million (0.2 percent of GDP). In the central government for unpaid electricity sold to IPP (for 0.8 percent of GDP), which in turn addition to that, EDH has run arrears against another private that manages the flows received for fuel provided by BMPAD (an autonomous agency stopped paying in the context of Petrocaribe). reforms in the electricity sector as a priority. Although some The government has targeted electricity prices with some has been observed (e.g- the government has begun renegotiating clear, time-bound targets (in progress is essential to regain sustainability. In particular be IPPs), faster progress and in the cash-recovery index) should terms of theft reduction, improvements in collection IDB and the U.S. have all been supporting the established for EDH management. The World Bank, the government's efforts in this regard. INTERNATIONAL MONETARY FUND 38 Petrocaribe). reforms in the electricity sector as a priority. Although some The government has targeted electricity prices with some has been observed (e.g- the government has begun renegotiating clear, time-bound targets (in progress is essential to regain sustainability. In particular be IPPs), faster progress and in the cash-recovery index) should terms of theft reduction, improvements in collection IDB and the U.S. have all been supporting the established for EDH management. The World Bank, the government's efforts in this regard. INTERNATIONAL MONETARY FUND 38 --- Page 40 --- HAITI Box 5. Public Investment and Growth in Haiti over the past ten years. This is Public investment (as a share of GDP) rose significantly (public investment was over in the aftermath of the 2010 earthquake due in part to reconstruction of GDP in FY2012), but the increase began 16 percent Public Capital Expenditure earlier. (percent of GDP) investment is apparent 18 16 - -Haiti -Averaget Non- Fragile African LIC This acceleration in public Low Average Fragile AfricanLIc with the experience in other 14 Dominican Republic when compared The behavior of public sector 12 Jamaica Nicaragua Income countries (LICs). across a set of fixed capital formation since 1980 gross that only a few countries comparator countries suggests investment (in experienced larger accelerations in public the 1980s-90s) than that observed in Haiti. More recently, 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 investment has been high in Ethiopia (over Sources: WDI Database; andIMF staff estimates. public but without the acceleration. Rwanda 2000s 20 percent of GDP), (from about 5 percent of GDP in the early large increases in public investment also experienced what is still lower than in Haiti. to 10-13 percent over the past few years) investment was initially Public Investment and GDP Growth, 1996-2013 The increase in public (percent change) financed by a surge in grants, but began to increasingly rely on Petrocaribe financing since 10 & FY2011. Grants (excluding humanitarian aid) rose o5 from almost zero in FY2003 to a peak of 12 percent Grants are projected to fall to of GDP in FY2010. 8 308 around 7 percent of GDP in FY2014 (as the crisis donors Changei in public investme nent as share ofGDP % response passes and non-traditional withdraw), but this level of grants would nonetheless -10 2 1 Authorities: 0 and IMF staff estimates than the 2013 level observed in Sources: National be equal or higher all but four IDA-only African countries (namely, official external debt increased by 4.5 percent Burundi, Comoros, Malawi, and Rwanda). Moreover, net This is a sharp contrast (almost all of which is related to Petrocaribe). little of GDP per year over FY2011-13 African countries have, until recently, contracted countries: fragile and IDA-only but still well with comparator had the highest net official borrowing, new external official debt; in the region Nicaragua below Haiti). advancing structural reforms, of public investment will require Increasing the yield on growth revenue mobilization. Given that the it will involve further efforts at domestic donors and half while sustaining (with about half managed by implementation of public investment is not centralized essential to increase the impact on growth. strengthening coordination remains successes and by the government), evaluation of projects should allow identifying Moreover, a more systematic ex- post from donors) should support data (including correcting errors, while more readily-available INTERNATIONAL MONETARY FUND 39 the region Nicaragua below Haiti). advancing structural reforms, of public investment will require Increasing the yield on growth revenue mobilization. Given that the it will involve further efforts at domestic donors and half while sustaining (with about half managed by implementation of public investment is not centralized essential to increase the impact on growth. strengthening coordination remains successes and by the government), evaluation of projects should allow identifying Moreover, a more systematic ex- post from donors) should support data (including correcting errors, while more readily-available INTERNATIONAL MONETARY FUND 39 --- Page 41 --- HAITI Box 5. Public Investment and Growth (concluded) analysis (Box 2). Moreover, Haiti's revenue mobilization remains low. Domestic revenue rose from about 9 percent of GDP a decade ago to about 12-13 percent of GDP in recent years. This puts Haiti at the lower end of its comparator groups. As external Revenue excluding grants grants are likely to gradually decrease, sustaining the 40 (percent of GDP) large levels of public investment will require expanding 35 Dominica Haiti can Republic Average Jamaica Fragile African LIC the tax base (including by focusing fuel subsidies), and 30 Nicaragua Average Non Fragile African LIC strengthening tax and customs administration to combat 25 evasion. 1 Haiti is compared with countries in the region 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 (Nicaragua, Sources: WEO; WDI Database; andI IMF staff estimates. Dominican Republic and Jamaica), and 30 IDA-only African LICS for which data is available. This latter group is divided between "fragile" and "non-fragile" LICS, as defined by the World Bank (itg/StemeourcesworidbankonuExnucus@eoucesUCU5B60VCAU5177E 126362384864Aamonisedistofragletstesfniapdb The spike in grants to African LICs during the past decade reflects debt relief. The net debt series comprises Public and Publically Guaranteed Debt from Official Creditors, Net Debt Transfers on Debt, as reported in the World Development Indicators Database. 40 INTERNATIONAL MONETARY FUND between "fragile" and "non-fragile" LICS, as defined by the World Bank (itg/StemeourcesworidbankonuExnucus@eoucesUCU5B60VCAU5177E 126362384864Aamonisedistofragletstesfniapdb The spike in grants to African LICs during the past decade reflects debt relief. The net debt series comprises Public and Publically Guaranteed Debt from Official Creditors, Net Debt Transfers on Debt, as reported in the World Development Indicators Database. 40 INTERNATIONAL MONETARY FUND --- Page 42 --- a Annex I. Risk Assessment Matrix Overall Level of Concern Policy Response Nature/Source of Risk Likelihood of realization Expected Impact if Risk is Materialized (High, Medium, or Low) (High, Medium, or Low) Medium Medium in the United Remit ttance and apparel export growth Strengthen business climate to make full use of The recovery in investment would decline, hurting domestic demand advantages in HOPE/HELP acts, including by 1. Weaker Recovery in the U.S. States is more subdued than expected, Formal employment enhancing the efficiency of electricity sector and reducing growth and the growth outlook. of the PIP. Increase exchange rate flexibility. would stagnate. High Keep Petrocaribe-related deposits at adequate Petrocaribe-related High flows decrease A sudden stop of Petrocaribe resources levels by adjusting spending plans to available 2. Venezuela's macroeconomic significantly or their financial terms would likely cut GDP growth by at least2.5 resources. Promote domestic revenue situation worsens worsen. pp. Financing of the PIP and of EDH's deficit mobilization. Achieving financial sustainability would be severely constrained. of EDH. Medium Resist spending pressures and stick to the Medium with effect general budget envelope agreed at the time of the Thel Executive and Congress do not agree on The PIP is under- -executed some 3. Discussions on the FY2014 the FY2014 Budget,in on GDP growth. Budget discussions for sixth ECF review. Continue strengthening revenue a revised version for administration, and enlarge revenue base. budget stall particular due to election-related: spending FY2015 are delayed. pressures. High Broaden the tax base. Maintain financial buffers Medium flows decrease, a gap in and incr ease flexibility of exchange rate policyto 4. Progress in strengthening Refor m fatigue and capacity and Donor opening help absorb shocks. Build a national consensus transparency and governance infrastructure constraints slows fiscal and external accounts. Public on a sustainable reform agenda. falters nstitutional strengthening. investment decreases and the growth outlook deteriorates. High Maintain financial buffers and Increase Medium of nature push up oil Inflation wouldi increase, and the current flexibility of exchange rate policy. Eliminate Geopolitical or events blanket subsidies, focusing them on the poor. 5. Commodity Prices Increase and food prices. account and the growth outlook would Enhance efficiency of the electricity sector. deteriorate. High Increase flexibility of exchange rate policy and Negative weather events have resulted in maintain fiscal buffers. Strengthen ther national Although weather events are unpredictable, infrastructure destruction and and risk management system. Strengthen 6. Negative weather events Haiti's geographical location makes it prone loss of life, effectiveness of fiscal policy to reach the poor to be affected by weather -related shocks. disruption of production, in particular of fast. Focus transfers and subsidies. agriculture. Promote domestic revenue mobilization. Medium High Maintain financial buffers and increase Following the effort after the ear rthquake, Public invest tment decreases and the growth flexibility of exchange rate policy. Continue 7. Donor Fatigue donor flows gradually decrease, in outlook deteriorates. Fiscal and external implementation of structural reforms. particular from bilateral sources. ac ccounts also deteriorate. High Promotei inclusive political and economic Medium of structural reform institutions and open discussions on the reform Political tensions negatively affect the Thei implementation lifted agenda. Strengthen the business climate and 8. Reform Fatigue implementation of structural reforms and of falters, constrains to growth are not enhance poverty reduction efforts. fiscal consolidation. with vulnerabilities remaining entrenched. flexibility of exchange rate policy. Continue 7. Donor Fatigue donor flows gradually decrease, in outlook deteriorates. Fiscal and external implementation of structural reforms. particular from bilateral sources. ac ccounts also deteriorate. High Promotei inclusive political and economic Medium of structural reform institutions and open discussions on the reform Political tensions negatively affect the Thei implementation lifted agenda. Strengthen the business climate and 8. Reform Fatigue implementation of structural reforms and of falters, constrains to growth are not enhance poverty reduction efforts. fiscal consolidation. with vulnerabilities remaining entrenched. --- Page 43 --- HAITI Analysis Annex II. Debt Sustainability (DSA), in accordance with the revised joint This annex conducts a Debt Sustainability Analysis low-income countries (LICS): Haiti's risk of debt framework (DSF) for Bank-Fund debt sustainability risks has recently increased? The country's main distress remains high and the likelihood of some social and investment needs. needed fiscal adjustment while protecting which challenge is to undertake build up of external and public debt, Policies under the baseline scenario lead to a significant reforms. The country's external debt of structural highlights the need to a swifter implementation conditions and the exchange rate, while profile is particularly vulnerable to shocks on borrowing debt. In particular, a sudden have major negative impacts on public declines in the rate of growth and deteriorate the indicators of Petrocaribe inflows could jeopardize growth prospects stop of public debt. Background changes in recent years Haiti's external debt structure has undergone significant 1. The share of debt owed to traditional development and borrowing terms have improved. share of non-Paris Club bilateral debt has partners has dropped owing to debt relief, while the After benefitting from HIPC and continued disbursements from Venezuela. from the increased reflecting the earthquake of 2010, including MDRI, Haiti received additional debt relief following the IDB (US$486 million), the IFAD (that million)?, the World Bank (US$36 million), Venezuela IMF (US$268 funds to service debt through 2020), established a debt relief account with sufficient waived interest payments and postponed (US$395 million), and Taiwan Province of China (that of debt relief, Haiti's debt stock principal repayments by five years). Following the delivery and multilateral development bilateral development partners declined substantially, as major basis. Major new disbursements banks have all shifted to providing assistance on a grants-only with Venezuela, which have recently those related to the concessional Petrocaribe agreement are increase in the debt stock. led to a gradual debt amounted to US$1,627 million, Haiti's stock of public sector 2. At end-2013, by external debt on concessional percent of GDP), composed almost exclusively (19.5 of the Low-Income Country Debt Sustainability "Review of Some Aspects the Debt 1 World Bank and IMF (2009). SM/09/216; BUFF/09/146); World Bank and IMF (2012), done "Revisiting jointly by IMF and Framework." (DA/SecM2009-0397 Income Countries," (SM/12/10). This full DSA was Sustainability Framework for Low World Bank staffs. Haiti is classified as a weak performer based on its 2 Thresholds are set according to the country's CPIA ranking. Bank's 'S Country Policy and Institutional Assessment (CPIA) 2010-12 average score of 2.90 in the World CPIA ratings below 3.25), the three- year (defined as those with three-year average and 27 percent when framework. For weak performers are PV debt-to- -GDP ratio of 30 percent included, indicative thresholds for external debt sustainability percent and 80 percent when remittances are included; PV debt-to-exports ratio of 100 and 12 percent with remittances are debt service-to-exports ratio of 15 percent PV debt-to-revenue ratio of 200 percent, ratio of 25 percent. remittances; and debt service-to-revenue Trust allows the Fund to provide debt relief the Post-Catastrophe Debt Relief (PCDR) 3 Established in June 2010, disasters. when LICS are hit by catastrophic natural INTERNATIONAL MONETARY FUND 42 external debt sustainability percent and 80 percent when remittances are included; PV debt-to-exports ratio of 100 and 12 percent with remittances are debt service-to-exports ratio of 15 percent PV debt-to-revenue ratio of 200 percent, ratio of 25 percent. remittances; and debt service-to-revenue Trust allows the Fund to provide debt relief the Post-Catastrophe Debt Relief (PCDR) 3 Established in June 2010, disasters. when LICS are hit by catastrophic natural INTERNATIONAL MONETARY FUND 42 --- Page 44 --- HAITI million, of which US$136 million (Text Table 1). External debt amounted to US$1,475 to Venezuela terms million to bilateral debt, mainly to multilateral debt, and US$1,339 US$152 million, mostly in the corresponded Petrocaribe debt). Domestic debt was about (US$1,235 million of banks and about US$45 million is a publicly bills largely held by commercial EDH form of treasury contracted by the state-owned electricity company guaranteed debt to a commercial bank (Electricité d'Haiti). with the private sector appear in creditor and debtor positions 3. Other outstanding sector remains a net creditor to the sector. The non-financial public banks favor of the public Petrocaribe deposits with commercial consolidated banking system, mainly reflecting sector maintains a debtor position US$200 million at end-2013). In addition, the public EDH for about (about (IPPs), for arrears accumulated by vis-à-vis independent power producers arrears to the central government of US$80 US$96 million; in turn the IPPS have accumulating million, for the provision of fuel. 1. Haiti: Structure of External Public Debt at end-2013 Text Table in percent of US$ millions total debt GDP 1/ 1474.8 100.0 17.4 Total 135.9 9.2 1.6 Multilateral creditors 57.8 3.9 0.7 IMF 0.0 0.0 0.0 World Bank 64.5 4.4 0.8 IFAD 0.1 0.0 0.0 IDB 13.5 0.9 0.2 OPEC 1338.9 90.8 15.8 Official bilateral creditors 1249.1 84.7 14.8 Venezeula 1235.0 83.7 14.6 PetroCaribe 14.1 1.0 0.2 BANDES 89.8 6.1 1.1 Taiwan, Province of China Sources: Haitian authorities; and Fund that staff in Tables estimates. la and 3a given the use of average, 1/ The debt ratio differs slightly from instead of end- -of period, exchange rates. Outlook, 2014-2034 A. Macroeconomic fiscal adjustment with is to balance the need for a gradual a 4. Haiti's main challenge fiscal adjustment may result in and investment needs. A stronger than warranted social large social GDP growth and slower progress in addressing better debt profile at the cost of lower macroeconomic stability. In deficit could compromise needs. Conversely, too large a primary assumptions: the baseline scenario is based on the following particular, of about 3.5 percent, starting Projections include an annual average real GDP growth to 3 percent by growth rate in 2014 and then declining progressively from 4 percent 2034. rate vis-à-vis the US dollar. A stable real exchange of the central increase in domestic revenues Fiscal projections include a gradual nearly 13 percent in 2013), while foreign to 18 percent of GDP by 2034 (from government INTERNATIONAL MONETARY FUND 43 assumptions: the baseline scenario is based on the following particular, of about 3.5 percent, starting Projections include an annual average real GDP growth to 3 percent by growth rate in 2014 and then declining progressively from 4 percent 2034. rate vis-à-vis the US dollar. A stable real exchange of the central increase in domestic revenues Fiscal projections include a gradual nearly 13 percent in 2013), while foreign to 18 percent of GDP by 2034 (from government INTERNATIONAL MONETARY FUND 43 --- Page 45 --- HAITI to about 2 percent of GDP (from 8 percent in 2013). grants will gradually decrease is projected to decline slowly from 27 Primary expenditure of the central government with capital expenditure percent of GDP in 2013 to about 22 percent in 2034, stabilize at 10-11 percent of (domestically and externally financed) also decreasing to balance of the central 2034. This would involve an adjustment in the primary with GDP by points of GDP during the projection period, government of about 4.5 percentage of GDP in 2013 to nearly 2 deficit decreasing from more than 6 percent from the primary deficit of EDH is assumed to gradually decrease nearly percent in 2034. In turn, the The deficit in 2034 (about 2 of GDP in 2013 to balance by 2022. primary that 1 percent with debt stabilization. This suggests provided percent of GDP) would be consistent GDP growth of 5 percent -in US$ the value of other parameters is maintained (namely 1.8 percent -in US$ termsnominal interest rate of about terms-and an average decreasing if fiscal consolidation prevailing in 2034), the debt ratio would begin continued beyond 2034, a reasonable assumption. improving trade deficit (from For the external outlook, projections consider a gradually increasing FDI (from 1.4 of GDP in 2013 to 16 percent in 2034), and gradually 34 percent 2034). The projections further assume percent of GDP in 2013 to 4.5 percent by in nominal terms but fall as a share of Petrocaribe debt inflows that remain fairly steady financing of GDP to 1.6 percent by 2034), at prevailing GDP (from 4.7 percent transfers (both official and remittances) concessional terms. As the country develops, in 2013 to 11 percent in 2034. from 27 percent of GDP would decline gradually, and domestic needs will be covered by a combination of external which 5. Gross financing about 8.5 percent of GDP per year, debt. Gross financing needs are projected to average of GDP) and by domestic debt (about 3 external debt flows (about 5.5 percent Petrocaribe will be financed by external borrowing would be composed by percent of GDP). The DSA assumes that external bilateral borrowing at concessional of GDP on average) and additional bills flows (2.5 percent Domestic borrowing would comprise only treasury terms (3.2 percent of GDP on average). rate (in US$ terms). For 2014-16, withdrawals with 1-5 year maturities, and 5 percent interest of 2.5 percent of GDP. the PCDR account are also projected, for a total amount from will be able to secure the concessional financing needed but to 4 The baseline scenario assumes that the country deficit over several years, and that structural reforms proceed, smooth out the adjustment of the primary slowly. MONETARY FUND 44 INTERNATIONAL Domestic borrowing would comprise only treasury terms (3.2 percent of GDP on average). rate (in US$ terms). For 2014-16, withdrawals with 1-5 year maturities, and 5 percent interest of 2.5 percent of GDP. the PCDR account are also projected, for a total amount from will be able to secure the concessional financing needed but to 4 The baseline scenario assumes that the country deficit over several years, and that structural reforms proceed, smooth out the adjustment of the primary slowly. MONETARY FUND 44 INTERNATIONAL --- Page 46 --- HAITI Text Table 2. DSA 2014 vs. DSA 2012 Average Average 2013-17 2018-31 2012 Current Previous Current Previous Current Previous DSA DSA DSA DSA DSA DSA (annual percentage change, unless otherwise indicated) 5.9 4.1 4.5 3.5 7.8 2.8 6.8 4.6 5.3 3.0 5.0 Real GDP 7.7 Consumer prices (period average) of GDP, unless otherwise indicated) 20.6 19.8 20.7 (in percent 29.5 25.3 24.0 13.4 16.6 16.0 Total reve enue and grants 13.6 12.8 28.5 14.6 26.6 22.4 24.2 Of which: Revenue 36.9 28.0 18.5 14.6 12.2 11.5 Primary expenditure expenditure 25.9 16.3 -5.1 4.9 -6.5 -3.4 4.5 Of which: Capital -7.7 -5.4 -4.5 -5.9 -4.2 -5.0 Overall balance -4.5 16.9 14.6 18.5 14.1 21.3 Current account balance 15.0 -43.3 -49.8 -32.0 -44.6 Exports of goods and services -54.6 -53.2 Imports of goods and services and Fund staff estimates and projections. Source: Haitian authorities; from 19.5 percent of GDP in 2013 to DSA that public debt will grow of 6. The projects external debt will grow from nearly 18 percent of GDP in 2034. In turn, in the near about percent 2034. External debt would grow fairly rapidly GDP in 2013 to 53 percent of GDP in of GDP per year by the end of would fall to around percent term but the pace of accumulation will also decline gradually but will period; the grant element of new borrowing the projection remain above 35 percent (Tables 1 to 3). with macroeconomic assumptions The main differences in the medium-term 7. DSA are as follow (Text Table 2), respect to the previous to 4.5-5 percent in to grow at a slower pace (3.5 percent) as opposed GDP is assumed historical growth trend and international the previous DSA, on account of the country's would be slightly higher. Inflation experience (See Box 1 on growth projections). on account of the recent revenue increases would be more gradual would Government levels in the short-term in revenue collection, and capital spending performance remain sustained. be more moderate but would in part trends and would expand in the long-term Exports would be higher given recent advantageous conditions for apparel HELP and HOPE initiatives, which provide due to the also remain at higher levels for all the projection exports to the U.S. Imports would infrastructure, as well as Haiti's status as a reflecting the country's needs to rebuild period net oil and food importer. to calculate differences relate to the use of a new discount rate (5 percent) at 21 Other major in the analysis; the latter stood the grant element, and the inclusion of remittances in 2013 and are projected percent of exports of goods and services) percent of GDP (106 to decline to 10 percent of GDP in 2034. Rates Used in External Debt Analysis for Low-Income Countries," SSee Board paper "Unification of Discount (SM/13/271). INTERNATIONAL MONETARY FUND 45 rebuild period net oil and food importer. to calculate differences relate to the use of a new discount rate (5 percent) at 21 Other major in the analysis; the latter stood the grant element, and the inclusion of remittances in 2013 and are projected percent of exports of goods and services) percent of GDP (106 to decline to 10 percent of GDP in 2034. Rates Used in External Debt Analysis for Low-Income Countries," SSee Board paper "Unification of Discount (SM/13/271). INTERNATIONAL MONETARY FUND 45 --- Page 47 --- HAITI Outlook, 2014-34 B. Debt Sustainability under the baseline scenario. Three The risk of external debt distress remains high the ratios of PV 8. would be breached starting from 2021-22, including thresholds for external debt 1). The ratio of debt service to revenue would of debt to GDP, to exports and to revenue (Figure band around the threshold at the end breach the threshold but would reach the 10 percent remain below the not While the ratio of debt service to exports would of the projection period. period, it would be on an upward trend. threshold during the projection terms and in the external position is vulnerable to changes in borrowing 9. Haiti's in the interest rate over the entire projection period exchange rate. An increase by 200bps and the debt service ratios to exports and to would cause the thresholds for the PV to exports, nominal depreciation of the gourde breached very rapidly. In case of a 30 percent revenue to be would breach the associated thresholds occurred in 2015, the PV of debt-to-GDP and to revenue as early as 2017-18. time and show sensitivity to growth Public debt indicators would deteriorate over 2034. In 10. debt to GDP would reach 46 percent by shocks (Figure 2). The ratio of the PV of public be an trend, reaching 206 debt-to-revenue would on increasing turn, the ratio of the PV of public ratio would reach 33 period, while debt service-to-revenue percent at the end of the projection levels in response to shocks to 2034. All debt indicators would increase to very high percent by growth and to the primary balance. of Petrocaribe Inflows C. A 'Sudden Stop' to a substantial Petrocaribe flows would lead, in the short-term, 11. A sudden stop of This scenario assumes a sudden stop of and a decrease in GDP growth. and fiscal adjustment which would severely impact investment spending Petrocaribe flows starting in FY2014/15, the shock to growth would impact domestic of the electricity sector. In addition, would be the financing below the baseline. The impact on the economy tax revenues, which would decrease of Petrocaribe deposits in 2015-16 in domestic revenues, a drawdown cushioned by a decrease reserves, and assumed additional bilateral (of about 2.2 percent of GDP) and international the deficit of EDH would likely (on concessional terms). In particular, blackouts, external borrowing through a combination of higher tariffs, longer decrease, given the lack of financing, in collection. and some improvement MONETARY FUND 46 INTERNATIONAL addition, would be the financing below the baseline. The impact on the economy tax revenues, which would decrease of Petrocaribe deposits in 2015-16 in domestic revenues, a drawdown cushioned by a decrease reserves, and assumed additional bilateral (of about 2.2 percent of GDP) and international the deficit of EDH would likely (on concessional terms). In particular, blackouts, external borrowing through a combination of higher tariffs, longer decrease, given the lack of financing, in collection. and some improvement MONETARY FUND 46 INTERNATIONAL --- Page 48 --- HAITI in lower investment and higher debt costs, concessional flows will result in 12. The lower in investment and the temporary shortages which will constrain GDP growth. The decrease in 2015-16 (by 3 and 2.5 would cause GDP growth to fall sharply over the provision of electricity and to remain lower than the baseline the percent points below the baseline respectively), would also decline on impact, to recover medium term. With lower GDP growth, tax collection gradually thereafter. Text Table 3. Sudden-Stop of Venezuela Flows (in percent of GDP, unless otherwise noted) 2017 2018 2019 2014 2015 2016 Baseline 4.0 4.0 4.0 4.0 4.0 4.0 Real GDP growth (percent) 22.9 28.2 33.1 38.0 42.3 45.9 5.7 5.2 Public Debt 7.1 6.8 6.5 6.1 Primary Deficit NFPS 13.2 13.5 13.8 14.1 14.4 14.7 Central Government Revenue (excl. grants) 26.6 26.4 26.1 25.8 25.6 Central Government Primary Spending 26.9 1.3 1.2 1.1 1.0 1.0 of which, Transfers to Electricity Sector 1.4 14.4 14.1 13.9 13.5 13.0 14.9 of which, Public Investment Alternative Scenario: Sudden Stop 1.0 1.5 3.0 3.5 3.5 4.0 34.5 37.5 40.4 Real GDP growth (percent) 22.9 26.7 30.5 Public Debt 7.1 5.3 5.0 4.5 4.1 4.1 Primary Deficit NFPS 13.2 12.8 13.0 13.3 13.6 13.8 Central Government Revenue (excl. grants) 24.6 24.4 24.1 23.8 23.9 Central Government Primary Spending 26.9 0.8 0.7 0.6 0.5 0.5 of which, Transfers to Electricity Sector 1.4 12.9 12.6 12.4 12.0 11.8 14.9 of which, Public Investment Source: IMF staff estimates and projections unchanged, but its composition of debt would remain broadly about 13. The stock public total public debt would reach in favor of less concessional debt. By 2034, that debt would would change However, it is assumed external of GDP (similar than in the baseline). flows would not 63 percent of GDP lower than in the baseline (as Petrocaribe be about 13 percentage points while domestic debt would be higher. be substituted 1-to-1 by other concessional debt), financial system, such increase in deepening of the domestic Importantly, without a strong sector, further constraining growth. domestic debt may crowd out credit to the private The ratios debt distress would remain high. Under this scenario the risk of external the end of 14. would breach their respective thresholds by of PV of debt to exports and to revenue thresholds would be breached in case of sharp period. In four cases out of five the would be somehow the projection terms. Public debt indicators depreciations and changes in the borrowing domestic borrowing. In given the higher content of non concessional worse than in the baseline would reach 59 percent by 2034 (as opposed the ratio of the PV of public debt to GDP to and the debt particular, the ratio of the PV of public debt revenue to 54 percent under the baseline); with respect to the baseline. service would also deteriorate significantly INTERNATIONAL MONETARY FUND 47 period. In four cases out of five the would be somehow the projection terms. Public debt indicators depreciations and changes in the borrowing domestic borrowing. In given the higher content of non concessional worse than in the baseline would reach 59 percent by 2034 (as opposed the ratio of the PV of public debt to GDP to and the debt particular, the ratio of the PV of public debt revenue to 54 percent under the baseline); with respect to the baseline. service would also deteriorate significantly INTERNATIONAL MONETARY FUND 47 --- Page 49 --- HAITI Policies, Lower Vulnerabilities D. Stronger should result in a stronger fiscal in the implementation of reforms that (i) the 15. Swift progress conducive to growth. This scenario assumes position and in an environment more faster than in the baseline; (ii) the state-owned electricity company is reduced deficit of the improves vis-a-vis the baseline; and (ii) effectiveness and efficiency of public investment due to the elimination of the fuel price than in the baseline, in part domestic revenues are higher deficit of the NFPS with respect to the baseline of freeze. This results in a decrease in the primary effectiveness of public investment and the about 1.5 percent of GDP by 2017. The increased to have a positive impact of GDP in the electricity sector are assumed term. better performance points through the medium which is assumed to increase by 0.2 percentage growth, Text Table 4. Stronger Policies, Lower Vulnerabilities (in percent of GDP, unless otherwise noted) 2017 2018 2019 2014 2015 2016 Baseline 4.0 4.0 4.0 4.0 4.0 4.0 Real GDP growth (percent) 22.9 28.2 33.1 38.0 42.3 45.9 Public Debt 7.1 6.8 6.5 6.1 5.7 5.2 Primary Deficit NFPS 13.2 13.5 13.8 14.1 14.4 14.7 Central Government Revenue (excl. grants) 26.6 26.4 26.1 25.8 25.6 Central Government Primary Spending 26.9 1.3 1.2 1.1 1.0 1.0 of which, Transfers to Electricity Sector 1.4 14.4 14.1 13.9 13.5 13.0 14.9 of which, Public Investment Active Scenario 4.0 4.0 4.2 4.2 4.2 4.2 Real GDP growth (percent) 22.9 27.6 31.2 34.2 36.8 38.9 3.9 3.6 Public Debt 7.1 6.2 5.3 4.2 Primary Deficit NFPS 13.2 13.6 14.0 14.4 14.7 15.0 Central Government Revenue (excl. grants) 26.3 25.6 25.0 24.8 24.6 Central Government Primary Spending 26.9 1.0 0.5 0.0 0.0 0.0 of which, Transfers to Electricity Sector 1.4 13.9 13.6 13.4 13.0 12.5 14.9 of which, Public Investment Source: IMF staff estimates and projections considerably vis-à-vis the baseline The stock of public debt would decrease GDP 63 percent in 16. debt would reach nearly 43 percent of (against scenario. By 2034, total public 7 percent of GDP, implying better baseline). In turn, domestic debt would reach only would not be crowd the than in the baseline. Credit to the private sector financing terms, on average, out, lifting a possible constraint to growth. would be reduced and vulnerabilities 17. The risk of debt distress in this scenario 2025 and would decrease thereafter, Both external and public debt would peak by contained. breached by the end of the projection period. with no thresholds MONETARY FUND 48 INTERNATIONAL nearly 43 percent of (against scenario. By 2034, total public 7 percent of GDP, implying better baseline). In turn, domestic debt would reach only would not be crowd the than in the baseline. Credit to the private sector financing terms, on average, out, lifting a possible constraint to growth. would be reduced and vulnerabilities 17. The risk of debt distress in this scenario 2025 and would decrease thereafter, Both external and public debt would peak by contained. breached by the end of the projection period. with no thresholds MONETARY FUND 48 INTERNATIONAL --- Page 50 --- HAITI E. Conclusions 18. The updated DSA suggests that Haiti's risk of debt distress remains high, and that the likelihood of some risks has recently increased. The debt is also vulnerable to shocks to growth, borrowing terms and the exchange rate. A sudden stop of Petrocaribe financing would jeopardize growth prospects and reduce the grant element of new borrowing, thereby worsening the indicators of public debt. A stronger and faster implementation of structural reforms (including improving the performance the electricity sector, the effectiveness of public investment, and the focusing of subsidies), would result in lower debt accumulation. through the medium term, and in the containment of vulnerabilities. It is therefore crucial that Haiti maintains prudent macroeconomic policies; strengthens the effectiveness of public investment, debt management, and PFM more generally, improves the sustainability of the electricity sector, and continues the implementation of structural reforms to improve the investment climate, in order to boost exports and growth. 19. The authorities broadly concurred with the main findings of the DSA. Staff and the authorities discussed the main assumptions and conclusions of the updated DSA, as well as main risks affecting surrounding the baseline. The authorities agreed with the need to increase the yield on growth of public investment, and more generally to contain the primary deficit of the non-financial public sector. They agreed on the need to speed up the implementation of reforms, but highlighted that a number of constrains have slowed down the process. 6 6 Discussions were held on a Seminar on Debt Sustainability that was co-hosted by IMF staff and the Haitian authorities in Port- -au-Prince, during January 2014. INTERNATIONAL MONETARY FUND 49 updated DSA, as well as main risks affecting surrounding the baseline. The authorities agreed with the need to increase the yield on growth of public investment, and more generally to contain the primary deficit of the non-financial public sector. They agreed on the need to speed up the implementation of reforms, but highlighted that a number of constrains have slowed down the process. 6 6 Discussions were held on a Seminar on Debt Sustainability that was co-hosted by IMF staff and the Haitian authorities in Port- -au-Prince, during January 2014. INTERNATIONAL MONETARY FUND 49 --- Page 51 --- HAITI GDP Growth Projections Box 1. Per Capita Per Capita GDP Growth, %, 1993-2012 performance during the past Average Haiti's growth By percentile (number of observations) two decades has been poor. In per capita Non-Resource Rich All Countries LICS terms, GDP growth in the twenty years Percentile (164) (61) LICS (40) of about - through 2013 was actually negative, 1993-2012 -0.9 This situates Haiti's performance Memo: Haiti -0.2 -0.8 -0.8 0.9 percent. 5% 0.2 in the bottom 5th percentile of comparator 10% 0.4 0.3 0.7 including countries of all levels of 25% 1.1 0.7 groups, low-income countries (LICS), 50% 1.9 1.5 1.5 development, 2.3 and non-resource rich LICS (See Table)." Memo: Haiti Proj. 2014-2034 2.6 exacerbated problems with 75% 3.1 2.3 Political instability 4.4 4.4 3.9 growth, but average per capita GDP growth 90% 5.6 5.6 4.5 even excluding crisis years. 95% was negative capita GDP growth for all comparator suggest that the median per Data for 164 countries the past twenty years. While the median per fell in the 1.5 - 2.0 percent range during median rate was 1.5 percent for both groups for all countries was 1.9 percent per year, the LICS capita GDP growth Per Capita Growth Performance Across LICS and non-resource rich LICS. (20- year average per capita growth rates) Non- -Resource RichLICs BAIILICS that Haiti will be able to sustain 3.8% growth 2012 This DSA assumes through projectedin DSA positive and significant per capita growth the medium term. Concretely, average per-capita GDP for 2014-2034 is assumed at 2.3 percent, i.e., growth above the median growth observed for nonsomewhat resource rich LICS during the past twenty years, but 3.5 4.5 More This would 0.5 1.5 2 2.5 close to the median for all country groups. Sources: IMF staff estimates. be the result of a projected average real GDP growth Although Haiti's achieving such growth and population growth of 1.2 percent. more rate of 3.5 percent the current growth baseline is nonetheless rates would constitute a major shift from the past, conservative than that included in previous DSAS." experience would be possible provided political shift with respect to historical and the This significant inclusive institutions are strengthened, stability are maintained, and macroeconomic: for catch-up growth, positive institutional business climate is improved. Given the large space which combined with the increases large increases in total factor productivity, In this change could generate growth rates of the magnitudes assumed. projected in other factors, could easily generate population growth and increases in the baseline GDP growth rates are the result of expected and low (but positive) regard, the back of relatively large levels of public investment), capital stock (mainly on in structural reforms could yield larger contribution of total factor productivity. Stronger progress have been observed in LICS countries that (Section D). Relative large increases in TFP increases in TFP significantly improve their policy performance. 50 INTERNATIONAL MONETARY FUND factor productivity, In this change could generate growth rates of the magnitudes assumed. projected in other factors, could easily generate population growth and increases in the baseline GDP growth rates are the result of expected and low (but positive) regard, the back of relatively large levels of public investment), capital stock (mainly on in structural reforms could yield larger contribution of total factor productivity. Stronger progress have been observed in LICS countries that (Section D). Relative large increases in TFP increases in TFP significantly improve their policy performance. 50 INTERNATIONAL MONETARY FUND --- Page 52 --- HAITI Box 1. Per Capita GDP Growth Projections (concluded) Data on per capita growth rates for 164 countries (including 61 LICS and 40 non-resource rich LICS) were obtained from the World Development Indicators database. The distinction between all LICS and non-resource rich LICS is based on Macroeconomic Policy Frameworks for Resource-Rich Developing Countries" (IMF, 2012) 2 Population projections are those of IHSI and United Nations. 3 The previous DSA (2012) assumed an average per capita GDP growth rate of 3.8 percent per year over 2012-2032. INTERNATIONAL MONETARY FUND 51 Data on per capita growth rates for 164 countries (including 61 LICS and 40 non-resource rich LICS) were obtained from the World Development Indicators database. The distinction between all LICS and non-resource rich LICS is based on Macroeconomic Policy Frameworks for Resource-Rich Developing Countries" (IMF, 2012) 2 Population projections are those of IHSI and United Nations. 3 The previous DSA (2012) assumed an average per capita GDP growth rate of 3.8 percent per year over 2012-2032. INTERNATIONAL MONETARY FUND 51 --- Page 53 --- Table la. Haiti: Public Sector Debt Sustainability Framework, Baseline Scenario, 2011-2034 (In percent of GDP, unless otherwise indicated) Actual Estimate Projections 2011 2012 2013 Average Standard 2014 2015 2014-19 2020-34 Deviation 2016 2017 2018 2019 Averade 2024 2034 Public sector debt 1/ Averane o/w foreign-currency denominated 8.9 14.4 19.5 22.9 28.2 33.1 38.0 45.9 8.9 13.8 17.7 20.1 24.6 28.7 32.3 42.3 35.7 38.6 57.4 63.4 Change in public sector debt 48.8 53.3 Identified debt -creating flows -4.2 5.5 5.1 3.4 5.3 4.9 4.9 4.3 3.6 3.6 1.4 5.4 1.6 0.0 Primary deficit 5.4 5.2 4.7 4.3 3.7 3.2 4.1 2.7 6.3 2.4 1.8 1.6 -0.1 Revenue and grants 15.8 25.3 20.8 6.3 6.1 5.9 5.6 5.3 4.9 5.7 3.5 1.9 3.0 of which: grants 5.9 12.5 8.1 20.6 20.5 20.5 20.5 20.6 20.7 20.8 20.2 Primary (noninterest) expenditure 19.8 28.0 7.4 7.0 6.7 6.4 6.2 6.0 4.8 2.0 Automatic debt dynamics 27.1 26.9 26.6 26.4 26.1 25.8 25.6 -0.5 -1.3 -0.9 24.3 22.0 Contribution from interest rate/growth differential 0.5 13.1 -0.7 0.9 -1.0 -1.2 -1.4 -1.6 1.7 -2.0 -1.9 of which: contribution from average real interest rate -0.1 13.4 -0.1 -0.9 -1.0 -1.2 -1.4 -1.6 -1.7 -2.0 1.9 of which: contribution from real GDP growth -0.4 -0.2 -0.6 -0.2 -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 Contrib bution from real exchange rate depreciation 0.0 -14.5 -0.2 -0.8 -0.9 1.1 -1.3 -1.5 -1.6 -1.9 1.8 Other identified debt- creating flows 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Privatization receipts (negative) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Recognition of implicit or contingent liabil lit ties 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Debt relief (HIPC and other) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Other (specify, e.g. 0.0 0.0 0.0 0.0 0.0 Recognition of implicit or contingent liabil lit ties 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Debt relief (HIPC and other) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Other (specify, e.g. bank recapitalization) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Residual, 0.0 0.0 0.0 0.0 0.0 including asset changes -7.7 4.1 -0.2 0.0 0.0 0.0 0.0 0.0 0.0 2.0 0.1 0.2 0.6 0.5 0.4 0.1 0.1 Other Sustainability Indicators PV of public sector debt o/w foreign- -currency denominated 12.4 15.5 19.2 22.7 26.4 29.5 32.2 46.1 o/w external 10.6 12.7 15.6 18.3 20.7 22.9 24.9 40.8 36.0 PV of contingent liabilities (not included in public sector debt) 10.6 12.7 15.6 18.3 20.7 22.9 24.9 32.1 32.1 36.0 Gross financing need 4.1 3.2 8.1 PV of public sector debt to- revenue and grants ratio (in percent) 59.8 9.1 12.2 12.0 13.6 14.9 15.1 PV of public sector debt to- -revenue ratio (in percent) 75.3 93.8 110.9 128.8 143.6 155.7 17.0 18.5 4/ 97.9 196.3 228.9 o/w external 117.5 142.4 165.0 187.5 205.6 219.4 255.9 254.1 Debt service- to- rev venue and grants ratio (in percent) 0.2 1.8 83.5 96.4 115.9 132.7 147.1 159.5 169.8 201.6 198.5 Debt service- to- revenue ratio (in percent) 6/ 2.6 2.4 13.6 9.6 12.3 15.4 14.8 0.3 3.6 4.2 23.1 31.6 Primary deficit that stabilizes the debt- to GDP ratio 8.2 8 3.7 20.6 14.2 17.9 22.0 20.9 1.1 2.9 0.8 1.0 0.7 1.0 1.3 30.1 1.9 35.1 9 Key macro peconomic and fiscal assumptions Real GDP growth (in percent) 3.1 2.9 4.3 Average nominal interest rate on forex debt (in percent) 0.5 0.8 1.5 2.3 4.0 4.0 4.0 4.0 4.0 4.0 4.0 3.5 3.0 3.3 Average real interest rate on domestic debt (in percent) 0.9 1.1 0.7 1.0 1.3 1.3 1.2 1.3 1.3 1.2 1.3 1.3 1.3 Real exchange rate depreciation (in percent, + indicates depreciation) -0.3 -65.7 1.7 -0.1 1.6 1.8 1.9 2.1 2.3 1.6 2.6 2.7 2.6 Inflation rate (GDP deflator, in percent) 3.7 -10.0 22.9 0.1 Growth of real primary spending (deflated by GDP deflator, in percent) 28.5 19.4 6.6 14.1 7.3 5.1 5.0 5.0 5.0 5.0 5.0 5.0 Grant element of new external borrowing (in percent) 14.5 1.5 11.7 16.0 3.3 3.0 3.0 3.0 3.0 3.0 3.0 2.5 5 0.1 Growth of real primary spending (deflated by GDP deflator, in percent) 28.5 19.4 6.6 14.1 7.3 5.1 5.0 5.0 5.0 5.0 5.0 5.0 Grant element of new external borrowing (in percent) 14.5 1.5 11.7 16.0 3.3 3.0 3.0 3.0 3.0 3.0 3.0 2.5 5 .0 2.0 5.0 5.0 2.3 Sources: Haitian authorities; and staff estimates and projections. 0.0 0.0 37.5 36.7 36.5 36.4 36.3 36.2 36.6 36.1 35.9 1/ Public sect tor debt includes gross debt of the central government, the central bank and nonfinancial public sect tor institutions. 2/1 Includes the primary deficit of nonfinancial public sector institutions (other than the central government), essentially the state- owned 3/ Gross financing need is defined as the primary deficit plus debt service plus the stock of short term debt at the end of the last electricity company EDH. 4/ Revenues excluding grants. period. 5/ Debt service iS defined as the sum of interest and amortization of medium and long term debt. 6/Historical averages and standard deviations are generally derived over the past 10 years, subject to data availability. a --- Page 54 --- HAITI Table 2. Haiti: Sensitivity Analysis for Key Indicators of Public Debt 2014-2034 Projections 2014 2015 2016 2017 2018 2019 2024 2034 PV of Debt-to-GDP Ratio Baseline 16 19 23 26 30 32 41 46 A. Alternative scenarios A1. Real GDP growth and primary balance are at historical averages 18 19 21 A2. Primary balance is unchanged from 2014 23 24 26 31 40 17 22 26 31 35 39 57 86 A3. Permanently lower GDP growth 1/ 17 24 30 36 42 47 70 105 B. Bound tests B1. Real GDP growth is at historical average minus one standard deviations in 2015-20 17 B2. Primary balance is at historical minus 25 34 48 54 79 111 average one standard deviations in 2015-201 17 19 21 28 33 38 58 B3. Combination of B1-B2 using one half standard deviation shocks 35 39 57 86 A3. Permanently lower GDP growth 1/ 17 24 30 36 42 47 70 105 B. Bound tests B1. Real GDP growth is at historical average minus one standard deviations in 2015-20 17 B2. Primary balance is at historical minus 25 34 48 54 79 111 average one standard deviations in 2015-201 17 19 21 28 33 38 58 B3. Combination of B1-B2 using one half standard deviation shocks B4. One- time 30 percent real depreciation in 2015 19 21 29 36 42 66 99 B5. 10 percent of GDP increase in other 17 29 33 38 43 47 63 88 debt-creating flows in 2015 17 30 36 42 47 52 69 90 PV of Debt-to-Revenue Ratio 2/ Baseline 65 81 97 113 126 137 174 206 A. Alternative scenarios A1. Real GDP growth and primary balance are at historical averages A2. Primary balance is 87 93 101 107 113 134 186 unchanged from 2014 69 99 118 A3. Permanently lower GDP growth 1/ 177 259 418 69 107 135 165 191 214 315 505 B. Bound tests B1. Real GDP growth is at historical average minus one standard deviations in 2015-20 69 112 148 B2. Primary balance is at historical average minus one standard deviations in 2015-201 182 212 239 351 533 B3. Combination of B1-B2 using one half standard deviation shocks 69 88 98 127 152 175 265 398 B4. One time 30 percent real depreciation in 2015 69 87 95 129 159 186 298 475 B5. 10 percent of GDP increase in other 69 131 151 174 194 212 289 427 debt-creating flows in 2015 69 137 163 191 215 235 316 436 Debt Service-to-Revenue Ratio 2/ Baseline 2 14 10 13 16 16 24 33 A. Alternative scenarios A1. Real GDP growth and primary balance are at historical averages A2. Primary balance is unchanged from 2014 15 10 13 16 14 22 35 2 15 11 14 17 17 29 A3. Permanently lower GDP growth 1/ 2 15 11 15 19 19 33 57 B. Bound tests B1. Real GDP growth is at historical average minus one standard deviations in 2015-20 2 16 12 16 20 B2. Primary balance is at historical average minus one standard deviations in 2015-201 2 15 21 36 59 B3. Combination of B1 B2 using one half standard deviation shocks 10 13 17 16 29 47 2 16 10 13 B4. One- time 30 percent real depreciation in 2015 17 17 32 54 B5. 10 percent of GDP increase in other debt flows 2 16 14 18 23 24 40 65 creating in 2015 2 15 13 16 20 22 33 51 Sources: Haitian authorities; and staff estimates and projections. 1/ Assumes that real GDP growth is at baseline minus one standard deviation divided by the square root of the length of the 2/ Revenues are defined inclusive of grants. projection period. 53 INTERNATIONAL MONETARY FUND 30 percent real depreciation in 2015 17 17 32 54 B5. 10 percent of GDP increase in other debt flows 2 16 14 18 23 24 40 65 creating in 2015 2 15 13 16 20 22 33 51 Sources: Haitian authorities; and staff estimates and projections. 1/ Assumes that real GDP growth is at baseline minus one standard deviation divided by the square root of the length of the 2/ Revenues are defined inclusive of grants. projection period. 53 INTERNATIONAL MONETARY FUND --- Page 55 --- HAITI Table 3a. Haiti: External Debt Sustainability Framework, Baseline Scenario, 2011-2034 1/ (In percent of GDP, unless otherwise indicated) Actual Historical% Standard b/ Projections Average Deviation 2014-2019 2020- 2034 2011 2012 2013 2014 2015 2016 2017 2018 2019 1/ Average 2034 Average External debt (nominal) 8.9 13.8 17.7 20.1 24.6 28.7 32.3 35.7 38.6 o/wpublic and publicly guaranteed (PPG) 8.9 13.8 17.7 20.1 28.7 48.8 53.3 in Change external debt -4.0 4.9 3.9 24.6 32.3 35.7 38.6 48.8 53.3 Identified net debt-creating flows 2.4 4.5 4.1 3.7 3.3 3.0 1.4 -0.1 0.7 1.9 4.2 3.5 3.3 3.0 2.5 Non-i -interest current account deficit 3.4 5.3 6.4 2.7 2.3 2.0 1.5 0.4 -0.7 Deficit in balance of goods and services 40.7 36.3 34.2 5.7 5.5 5.4 5.2 5.0 4.7 4.4 4.7 4. 0.7 1.9 4.2 3.5 3.3 3.0 2.5 Non-i -interest current account deficit 3.4 5.3 6.4 2.7 2.3 2.0 1.5 0.4 -0.7 Deficit in balance of goods and services 40.7 36.3 34.2 5.7 5.5 5.4 5.2 5.0 4.7 4.4 4.7 4. Exports 32.0 31.1 30.2 29.3 28.3 27.4 23.6 16.3 13.4 16.9 18.0 18.2 18.5 18.7 19.0 19.2 19.5 Imports 54.2 53.2 52.2 50.3 49.6 48.9 46.9 21.2 25.0 Net current transfers (negative inflow) -36.7 -35.9 -32.9 -31.6 6.7 48.2 47.6 44.7 41.3 o/w official -29.4 -28.6 -27.8 -26.9 -26.1 -25.4 21.4 -13.0 -19.2 -12.5 -8.9 -7.8 -7.0 -6.7 -6.4 -18.9 Other current account flows (negative net inflow) -0.6 4.9 5.0 3.0 -6.2 -6.0 -4.8 -2.0 Net FDI (negative inflow) -2.4 -2.0 3.0 3.0 2.9 2.8 2.7 2.3 1.4 -1.4 -1.4 1.0 -1.7 -1.7 -1.8 -2.0 Endogenous debt dynamics 2/ -0.3 -1.4 -0.8 -2.1 -2.3 -3.0 -4.5 3.5 Contribution from nominal interest rate 0.1 -0.5 -0.5 -0.6 -0.7 -0.8 -0.9 -1.0 -0.9 Contribution from real GDP growth 0.1 0.1 0.2 0.2 0.3 0.3 0.4 0.4 0.6 0.7 -0.7 -0.2 -0.6 -0.7 -0.8 -0.9 -1.1 Contribution from price and exchange rate changes 0.3 -1.3 -0.4 -1.2 -1.3 -1.6 -1.5 Residual (3-4 4) 3/ -4.8 3.0 -0.2 -1.1 1.2 1.1 1.2 1.3 1.4 o/we exceptional financing 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 1.0 0.6 4/ 0.0 PV of external debt 11.4 In percent of exports 13.6 16.6 19.4 21.9 24.3 26.4 34.1 38.2 PV of PPG external debt 63.1 74.4 89.9 103.5 115.6 126.3 135.7 161.3 153.0 In percent of exports 11.4 13.6 16.6 19.4 21.9 24.3 26.4 34.1 38.2 In percent of . 4 In percent of exports 13.6 16.6 19.4 21.9 24.3 26.4 34.1 38.2 PV of PPG external debt 63.1 74.4 89.9 103.5 115.6 126.3 135.7 161.3 153.0 In percent of exports 11.4 13.6 16.6 19.4 21.9 24.3 26.4 34.1 38.2 In percent of . 63.1 74.4 89.9 103.5 115.6 126.3 135.7 161.3 government revenues 89.3 102.6 123.0 140.8 156.0 169.2 153.0 Debt service- -to- exports ratio (in percent) 0.6 0.7 1.0 2.5 180.2 213.8 210.6 PPG debt service -to- exports ratio (in percent) 0.6 0.7 1.0 3.7 4.9 5.9 6.7 7.7 10.7 13.1 PPG debt service to- -revenue ratio (in percent) 0.8 0.9 1.4 2.5 3.7 4.9 5.9 6.7 7.7 10.7 13.1 Total gross financing need (Millions of U.S. 8 210.6 PPG debt service -to- exports ratio (in percent) 0.6 0.7 1.0 3.7 4.9 5.9 6.7 7.7 10.7 13.1 PPG debt service to- -revenue ratio (in percent) 0.8 0.9 1.4 2.5 3.7 4.9 5.9 6.7 7.7 10.7 13.1 Total gross financing need (Millions of U.S. dollars) 3.4 5.0 6.6 7.9 9.0 10.2 14.2 18.0 82.8 273.5 435.3 398.9 425.3 454.3 465.2 475.0 Non-i -interest current account deficit that stabilizes debt ratio 7.5 0.4 2.4 3.2 1.0 1.4 1.6 470.8 572.9 903.1 1.7 1.8 3.0 4.8 Key macroeconomic: assumptions Real GDP growth (in percent) 5.5 2.9 43 1.5 3.4 4.0 4.0 4.0 4.0 4.0 GDP deflator in US dollar terms (change in percent) -2.5 16.8 2.8 8.0 12.5 2.1 1.9 1.9 4.0 4.0 3.5 3.0 3.3 Effective interest rate (percentgs 1.9 1.9 1.9 2.0 1.9 1.9 1.9 Growth of 0.5 0.8 0.9 1.1 0.7 10 1.3 1.3 1.2 1.3 1.3 exports of G&S (US dollar terms, in percent) 26.8 32.1 14.1 13.1 12.4 7.5 7.5 7.5 7.4 7.4 1.2 1.3 1.3 1.3 Growth of imports of G&S (US dollar terms, in percent) -0.3 3.1 5.1 12.7 13.9 2.3 4.6 7.4 7.4 7.2 6.9 7.1 Grant element ofr new public sector borrowing (in percent) 4.6 4.6 4.6 4.5 4.2 4.5 4.3 4.4 Government revenues (excluding grants, in percent of GDP) 11.2 12.8 12.7 37.5 36.7 36.5 36.4 36.3 36.2 36.6 36.1 35.9 36.0 Aidt flows (in Millions of US dollars) 7/ 13.2 13.5 13.8 14.1 14.4 14.7 16.0 18.2 16.6 o/w Grants 663.2 1211.5 1064.7 1058.7 1237.7 1283.5 1326.9 1384.0 1443.2 1626.3 1836.3 o/w Concessional loans 438.4 987.5 685.1 666.0 666.4 677.9 684.8 703.3 721.6 761.4 224.8 224.0 379.6 392.7 571.2 605.6 642.0 680.7 721.6 524.7 Grant- -equivalent financing (in percent of GDP) 8/ 5.8 12.5 8.1 9.1 9.2 8.9 8.6 864.9 1311.6 Grant-e equivalent financing (in percent of external financing) 8/ 100.0 100.0 100.0 8.4 8.2 6.8 3.8 5.9 76.8 70.8 70.0 69.2 68.7 68.1 66.0 54.2 62.5 Memorandum items: Nominal GDP (Millions of US dollars) 7516.0 7889.7 8458.4 8980.0 9520.6 10093.6 Nominal dollar GDP growth 13.5 5.0 7.2 10700.7 11344.3 12026.7 15725.1 26232.9 PV of PPG exte ternal debt (in Millions of US dollars) 6.2 6.0 6.0 6.0 6 .2 62.5 Memorandum items: Nominal GDP (Millions of US dollars) 7516.0 7889.7 8458.4 8980.0 9520.6 10093.6 Nominal dollar GDP growth 13.5 5.0 7.2 10700.7 11344.3 12026.7 15725.1 26232.9 PV of PPG exte ternal debt (in Millions of US dollars) 6.2 6.0 6.0 6.0 6 .0 6.0 6.0 5.5 5.0 5.3 947.5 1200.1 1557.4 1927.5 2312.7 2715.6 (PVt-PVt-1 1)/GDPt-1 1 (in percent) 3132.5 5285.3 9881.4 Gross workers' remittances (Millions of US dollars) 1375.6 1473.8 1552.7 3.0 4.0 3.9 3.8 3.8 3.7 3.7 2.9 1.8 2.6 PV.off PPGe external debt (in percent of GDP emittances) 9.6 1612.3 1781.0 1778.0 1885.1 1947.1 2009.7 2293.1 2650.6 PV Voff PPG external debt (in percent of exports remittances) 11.5 14.0 16.5 18.6 20.7 22.6 29.8 34.7 Debts service of PPG external debt (in percent of exports remittance 31.3 0.5 37.5 44.6 53.3 59.9 66.8 73.1 95.5 108.9 1.2 1.8 2.5 3.0 3.5 4.1 6.4 9.3 Sources: Haitian authorities; and staff estimates andp projections. 1/1 Includes both public and private sector external debt 2/1 Derived as Ir g pl*g1/0+g*p-gp) times previous period debt ratio, with nominal interest rate; g real IGDP growth rate, and p growth rate of GDP deflator 3/1 Includes exceptional financing (ie, changes in arrears and debt relief); changes in gross foreign assets; and valuation adjustments. For also includes cont in U.S. dollar terms. 4/A Assumes that PV of private sector debt IS equivalent to its face value. projections ibution from price and exchange rate changes. 5/ Current- -year interest payments divided by previous period debt stock 6/H Historical averages and standard deviations are generally derived over the past 10; years, subject to data availability. 7/0 Defined as grants, concessional loans, and debt relief. 8/ Grant -equivalentf financing includes grants provided directly to the government andt throughr newt borrowing (diference betweent the face value andt the PV of fnew debt). INTERNATIONAL MONETARY FUND 54 --- Page 56 --- HAITI Table 3b.Haiti: Sensitivity Analysis for Key Indicators of Public and Publicly Guaranteed External Debt, 2014-2034 (n percent) Projections 2014 2015 2016 2017 2018 2019 2024 2034 PV of debt- -to- GDP+ remittances ratio Baseline 11 14 16 19 21 23 30 35 A. Alternative Scenarios A1. Key variables at their historical averages in 2014-2034 1/ 11 12 13 14 A2. New public sector loans on less favorable terms in 2014- 2034 2 11 15 18 15 16 20 24 21 24 27 39 51 B. Bound Tests B1. Real GDP growth at historical average minus one standard deviation in 2015-2016 11 14 18 20 23 B2. Export value growth at historical average minus one standard deviation in 2015-2016 3/ 11 14 18 20 25 32 38 B3. 12 13 14 A2. New public sector loans on less favorable terms in 2014- 2034 2 11 15 18 15 16 20 24 21 24 27 39 51 B. Bound Tests B1. Real GDP growth at historical average minus one standard deviation in 2015-2016 11 14 18 20 23 B2. Export value growth at historical average minus one standard deviation in 2015-2016 3/ 11 14 18 20 25 32 38 B3. US dollar GDP deflator at historical average minus one standard deviation in 2015-2016 11 15 18 22 24 30 35 B4. Netr non- -debt creating flows at historical average minus one standard deviation in 2015-2016 4/ 11 17 22 20 23 23 25 33 38 BS. Combination of B1- B4 using one -half standard deviation shocks 25 27 32 35 B6. One- time. 30 percent nominal depreciation relative to the baseline in 20155 5/ 16 21 23 25 26 33 37 11 18 22 24 27 30 39 47 Medeseenuneaueon ratio Baseline 36 45 52 59 66 72 95 109 A. Alternative Scenarios A1. Key variables at their historical averages in 2014- 2034 1/ 37 39 43 45 49 A2. New public sector loans on less favorable terms in 2014- 2034 2 37 47 59 69 53 72 85 79 88 124 161 B. Bound Tests B1. Real GDP growth at historical average minus one standard deviation in 2015-2016 37 44 53 59 66 B2. Export value growth atl historical average minus one standard deviation in 2015-2016 3/ 37 48 63 70 72 94 107 B3. US dollar GDP deflator at historical average minus one standard deviation in 2015-2016 37 44 53 77 83 105 119 B4. Net non- debt creating flows at historical average minus one standard deviation in 2015-20164/ 37 56 73 59 66 72 94 107 BS. Combination of B1- -B4 using one -half standard deviation shocks 75 81 86 104 110 B6. One- time 30 percent nominal depreciation relative to the baseline in 2015 5/ 49 62 66 72 78 97 107 37 44 53 59 66 72 94 107 PVof debt- to- -revent ratio Baseline 103 123 141 156 169 180 214 211 A Alternative Scenarios A1. Key variables att their historical averages in 2014-2034 1/ 103 106 109 113 A2. New public sector loans on less favorable terms in 2014- 2034 2 117 122 141 138 130 156 179 199 217 278 311 B. Bound Tests B1. Real GDP growth at historical average minus one standard deviation in 2015-2016 103 129 156 173 B2. Export value growth at historical average minus one standard deviation in 2015-2016 3/ 103 127 155 187 200 237 233 B3. US dollar GDP deflator at historical average minus one standard deviation in 2015-2016 169 182 191 219 209 B4. Netr non- debt creating flows at historical average minus one standard deviation in 2015-20164 4/ 103 145 129 158 175 190 202 240 236 B5. Combination of B1-B4 using one- -half standard deviation shocks 182 196 206 213 232 213 B6. One- time 30 percent nominal depreciation relative to the baseline in 20155/ 103 139 179 194 207 216 243 229 103 172 197 218 236 251 298 294 5 INTERNATIONAL MONETARY FUND debt creating flows at historical average minus one standard deviation in 2015-20164 4/ 103 145 129 158 175 190 202 240 236 B5. Combination of B1-B4 using one- -half standard deviation shocks 182 196 206 213 232 213 B6. One- time 30 percent nominal depreciation relative to the baseline in 20155/ 103 139 179 194 207 216 243 229 103 172 197 218 236 251 298 294 5 INTERNATIONAL MONETARY FUND --- Page 57 --- HAITI Table 3b. Haiti: Sensitivity Analysis for Key Indicators of Public and Publicly Guaranteed External Debt, 2014-2034 (concluded) (In percent) Debt service-to-exports-remittances ratio 2 3 3 4 4 6 9 Baseline A. Alternative Scenarios A1 Key variables at their historical averages in 2014-2034 1/ 1 2 2 3 3 3 2 3 4 5 6 9 15 A2. New public sector loans on less favorable terms in 2014-20342 B. Bound Tests B1. Real GDP growth at historical average minus one standard deviation in 2015-2016 2 3 3 6 9 B2. Export value growth at historical averager minus one standard deviation in 2015-2016 3/ B3. US dollar GDP deflator ath historical average minus one standard deviation in 2015-2016 7 101 9 B4. Netr non-debt creating flows at historical average minus one standard deviation in 2015-20164 4/ 7 9 B5. Combination ofB B1- B4 using one- half standard deviation shocks 6 9 B6. One- time 30 percent nominal depreciation relative to thel baseline in 2015 5/ 2 3 4 4 Debt service- -to-revenue ratio 3 5 7 8 9 10 14 18 Baseline A. Alternative Scenarios historical in 2014-2034 1/ 3 5 7 7 7 9 10 A1. Key variables at their averages 7 10 12 14 21 29 A2. New public sector loans on less favorable terms in 2014-2034 2 B. Bound Tests B1. Real GDP growth at historical average minus one standard deviation in 2015-2016 3 5 7 9 10 11 16 20 B2. Export value growth at historical average minus one standard deviation in 2015-2016 3/ 7 8 10 11 15 18 3 5 9 10 12 16 21 B3. US dollar GDP deflator at historical average minus one standard deviation in 2015-2016 minus standard deviation in 2015-2016 4/ 9 11 13 16 19 B4. Netr non- debt creating flows at historical average one standard deviation shocks 7 9 11 13 17 20 B5. Combination of B1 -B4 using one- half B6. One- time 30 percent nominal depreciation relative to the baselinei in 20155/ 3 7 9 11 13 14 20 26 Memorandum item: 34 34 34 34 34 34 34 Grant element assumed onr residual financing (ie, financing required above baseline) 6/ Sources: Haitian authorities; and staff estimates and projections. 1/ Variables include real GDP growth, growth of GDP deflator (inl U.S. dollar terms), non-interest current account in percent of GDP, and non- debt creating flows. than in the baseline, while and maturity periods are the same as in thel baseline. 2/A Assumes that the interest rate on new borrowingi isby 21 percentage points higher grace level after the shock (implicitly 3/E Exports values are assumed to remain permanently at the lower level, but the current account asa share of GDP is assumed tor return toi its baseline assuming an offsetting adjustmenti ini import levels). 4/1 Includes official andp private transfers and FDI 5/ Depreciationi is defined as percentage decline in dollar/local currency rate, such thati it never exceeds 100 percent. 6/A Applies to all stress scenarios except for A2 (less favorable financing) in which the terms on all new financing are as specified in footnote 2. INTERNATIONAL MONETARY FUND 56 the shock (implicitly 3/E Exports values are assumed to remain permanently at the lower level, but the current account asa share of GDP is assumed tor return toi its baseline assuming an offsetting adjustmenti ini import levels). 4/1 Includes official andp private transfers and FDI 5/ Depreciationi is defined as percentage decline in dollar/local currency rate, such thati it never exceeds 100 percent. 6/A Applies to all stress scenarios except for A2 (less favorable financing) in which the terms on all new financing are as specified in footnote 2. INTERNATIONAL MONETARY FUND 56 --- Page 58 --- HAITI Figure 1. Haiti: Indicators of Public and Publicly Guaranteed External Debt under Alternatives Scenarios, 2014-2034 1/ a. Debt Accumulation, b. PV of debt- to-GDP-remittances ratio 40 50 39 45 37 35 36 30 - - - - - 34 15 33 10 32 5 a Rate of Debt Accumulation Grant-equivalent financing (% of GDP) Grant element of new borrowing (% right scale) C. PV of debt-to- exports-remittances ratio d. PV debt of to-revenue ratio 250 1 200 - 0 - - - - - - - - - - 80 - - 0 2014 e. Debt service-to-exports-remitances ratio f. Debt service-to-revenue ratio - - - - - - Baseline Historical scenario M ost extreme shock 1/ - Threshold Sources: Haitian authorities; and staff estimates and projections. 1/ The most extreme stress test is the test that yields the highest ratio in 2024. In figure b. it corresponds to a One- -time depreciation shock; in C. to a Terms shock; in d. to a One- time depreciation shock; in e. to a Terms shock and in figure f. toa Terms shock 57 INTERNATIONAL MONETARY FUND --- Page 59 --- HAITI Figure 2. Haiti: Indicators of Public Debt Under Alternative Scenarios, 2014-2034 1/ Baseline Fix Primary Balance M ost extreme shock Growth Historical scenario PV of Debt-to-GDP Ratio 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 PV of Debt-to-Revenue Ratio 2/ - 0 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 Debt Service-to-Revenue Ratio 2/ Debt Under Alternative Scenarios, 2014-2034 1/ Baseline Fix Primary Balance M ost extreme shock Growth Historical scenario PV of Debt-to-GDP Ratio 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 PV of Debt-to-Revenue Ratio 2/ - 0 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 Debt Service-to-Revenue Ratio 2/ - - 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 Sources: Haitian authorities; and staff estimates and projections. 1/ The most extreme stress test is the test that yields the highest ratio in 2024. 2/ Revenues are defined inclusive of grants. INTERNATIONAL MONETARY FUND 58 --- Page 60 --- HAITI Appendix I. Letter of Intent March 11, 2014 Christine Lagarde Managing Director International Monetary Fund Washington, D.C. Mme Managing Director: recovering over the past year, growth increased, 1. The Haitian economy continued macroeconomic stability has been essential in and inflation fell. Our commitment to preserving sustainable economic growth. Implementation for reconstruction and providing an environment on track. All but one end-September 2013 of the ECF-supported program remains broadly operations conducted by the BRH in the performance criteria were met. Due to some repurchase criterion on the contracting or the continuous performance and context of reserve management external debt with maturities up to guaranteeing by the public sector of non-concessional which had no impact on debt sustainability, including one year was breached. These operations, a waiver for the breaching of this unwound in February 2014. On this basis, we request with the one were fully Work on the structural agenda has advanced, continuous performance criterion. observed in the met on schedule and good progress benchmark for end-September is committed to pursue end-December benchmarks. The Haitian government to implementation of Our utmost priority is to create sustainable jobs and the ongoing reforms under the program. macroeconomic and structural by fostering higher growth though appropriate reduce poverty policies and adequate financing. and Outlook for 2014 Recent Developments in FY2013 despite damage from Economic growth accelerated to 4.3 percent and 2. sector rebounded supported by emergency spending Hurricane Sandy." The agricultural exports and construction was strong. favorable climatic conditions, and growth in apparel stable commodity prices and fell to about 4.5 percent, against the backdrop of relatively remained Inflation production. The depreciation of the gourde a better-than-expected agricultural intervention in the exchange rate market by the moderate (at 3.4 percent), in part helped by The current account deficit increased to 6.5 Central Bank (BRH) which increased vis-à-vis FY2012. and lower official grants, which were of GDP, mainly on the back of higher imports percent otherwise noted, years refer to the fiscal year 1 The Haitian fiscal year runs October 1 to September 30. Unless 30 of the calendar year in question. ending on September MONETARY FUND 59 INTERNATIONAL a better-than-expected agricultural intervention in the exchange rate market by the moderate (at 3.4 percent), in part helped by The current account deficit increased to 6.5 Central Bank (BRH) which increased vis-à-vis FY2012. and lower official grants, which were of GDP, mainly on the back of higher imports percent otherwise noted, years refer to the fiscal year 1 The Haitian fiscal year runs October 1 to September 30. Unless 30 of the calendar year in question. ending on September MONETARY FUND 59 INTERNATIONAL --- Page 61 --- HAITI in the form of Petrocaribe loans, apparel exports. Financing came mainly partially offset by higher assets of the BRH. some FDI and a decrease in net foreign unchanged at 3 - 4 is to remain broadly 3. For FY2014 real GDP growth projected and reconstruction spending. driven by continued growth of assembly exports while the external current percent, to remain contained at under 6 percent (eop), Inflation is expected about 5.8 percent of GDP, which would allow gross account deficit should decline slightly to an adequate buffer against remain above 5 months of imports. This would provide to reserves to acknowledges that the outlook is subject temporary shocks. In this context, the government we believe domestic risks may risks, in particular on the external side. In addition, and of downside constraints in the implementation of the reform agenda come in the form of unexpected disasters remains a source of concern. We growth supporting policies. Vulnerability to natural these shocks, and recognize the importance remain committed to strengthening preparedness to to remain at comfortable the form of government deposits at banking system), of buffers (in levels. Fiscal Policy of GDP in FY2013 (vs. 5.5 percent The fiscal deficit increased to about 6.7 percent revenue on 4. mainly on the back of higher transfers and foregone projected in the program), company (EDH) almost doubled with respect fuel taxes. Transfers to the state-owned electricity financed with Petrocaribe-related funds. Fiscal (to G5.8 billion), and were largely sixth review. In to the program, lines was broadly as programmed in the while performance in other budgetary 3.9 of GDP (in line with the program), particular, poverty related spending reached percent reached 8.5 percent of GDP (1.1 percentage public investment financed with domestic resources flows from Venezuela, and the Financing included concessional points above the program). of GDP that were mostly placed at of short-term treasury bills for 1.3 percent issuance commercial banks, among other. of GDP. A aims to contain the fiscal deficit to 6.7 percent 5. The program for FY2014 in June 2013 but was rejected by the Senate. The draft budget for FY2014 was sent to Parliament the will be approved by confident that a revised budget, in line with program, government is shortfall in oil-related taxes (excises and Parliament around end-March 2014. The revenue efforts in the collection of GDP will be offset with additional customs duties) of about 1 percent budget support grants. The of other domestic revenues and higher-than-progamned revenues over the course of the year, will monitor closely the evolution of domestic that the fiscal deficit government any necessary measures to ensure and it remains committed to implement maintain poverty-related spending at 3.9 meets the program target. We would meanwhile redouble its efforts to contain budgetary percent of GDP. Moreover, the government will while ensuring that electricity bills of subsidies, particularly to the electricity company (EDH), Debt Relief (PCDR) resources will government institutions remain current. Post-Catastrophe The deficit will be financed mostly by continue to be used for the development of infrastructure. and the banking system (2.7 percent of concessional resources (4.0 percent of GDP) external GDP). 60 INTERNATIONAL MONETARY FUND -related spending at 3.9 meets the program target. We would meanwhile redouble its efforts to contain budgetary percent of GDP. Moreover, the government will while ensuring that electricity bills of subsidies, particularly to the electricity company (EDH), Debt Relief (PCDR) resources will government institutions remain current. Post-Catastrophe The deficit will be financed mostly by continue to be used for the development of infrastructure. and the banking system (2.7 percent of concessional resources (4.0 percent of GDP) external GDP). 60 INTERNATIONAL MONETARY FUND --- Page 62 --- HAITI and revenue administration. The We remain committed to improving tax policy are essential for 6. evasion and broadening the tax base understands that fighting agenda, as postgovernment mobilization. This will allow us to pursue our development tax domestic revenue therefore adopt measures aimed at expanding the earthquake assistance decreases. We will border, including through greater use compliance, and enhancing control at the further the base, improving In particular, we will strengthen of IT in both the customs and tax administrations. with assistance from the IMF Fiscal Affairs operations of the large taxpayers office, including taxpayers office, to which new office We will also strengthen the new medium-size trade at Department will (by June 2014) a new facility for controlling has been provided, and we open and we are working space We started to examine Haiti's mining potential the most-used border post. legal framework for the sector. together with donors to create an adequate that current pump prices of petroleum products 7. The government recognizes sustainable in the long-term, and we are committed to generate revenue losses. This is not World Bank) a medium term plan to gradually develop by end-June 2014, (with the help of the net that delivers targeted petroleum prices, while designing a social safety increase domestic we are committed to curbing cash subsidies assistance to the most vulnerable. In the short-run, in the program. and securing the level of oil-related revenue envisaged for oil products restore the financial will redouble its efforts to gradually for 8. The government reduction of transfers would free resources sustainability of the electricity sector. A gradual build buffers. In this regard, the Ministry of infrastructure and priority spending, and would help the sector's end-March 2014), monthly reports describing Finance will begin producing (by the strong efforts of other multilateral and This action is expected to support the sector's performance. performance. the World Bank and the IDB), to improve bilateral donors (in particular Financing external budget support grants. Budget 9. The program will be in part financed by include US$46 million is at about US$103 million. Commitments support for FY2014 projected from the IDB, US$20 million from Spain, and US$10 from the European Union, US$27 million million from France. investment spending and resources will primarily finance 10. Petrocaribe-related committed to using these resources in a manner transfers to the electricity sector. We are social return rates will be favored in stability. Projects with high consistent with macroeconomic the allocation of Petrocaribe resources. Monetary and exchange rate policies and adequate continues to be geared to maintaining price stability 11. Monetary policy fiscal deficit, and a somewhat international reserve buffers. Given the larger-than-programmed 2013, the BRH increased (in increase in credit to the private sector through early its intervention in significant on deposits and expanded February and June 2013) legal reserve requirements fluctuations in the gourde. Given the the exchange rate market in order to avoid unwarranted domestic prices, the BRH stands ready to between the exchange rate and In order strong pass-through its policy stance as needed to ensure price stability. use all available tools and to adjust INTERNATIONAL MONETARY FUND 61 , and a somewhat international reserve buffers. Given the larger-than-programmed 2013, the BRH increased (in increase in credit to the private sector through early its intervention in significant on deposits and expanded February and June 2013) legal reserve requirements fluctuations in the gourde. Given the the exchange rate market in order to avoid unwarranted domestic prices, the BRH stands ready to between the exchange rate and In order strong pass-through its policy stance as needed to ensure price stability. use all available tools and to adjust INTERNATIONAL MONETARY FUND 61 --- Page 63 --- HAITI the BRH will continue to enhance the the effectiveness of monetary policy, to strengthen particularly by improving liquidity management, strengthening monetary policy framework, macro-prudential regulatory mechanisms. Further market-based operations, and by developing of the domestic T-Bill market), will also financial deepening (through e.g. the development tool for managing liquidity. provide an additional of the exchange rate remain committed to strengthening the functioning and 12. We increase the number of participants in the market market. In this regard, the BRH intends to market. To this end, the BRH will of the interbank foreign exchange to promote the development seek technical assistance from the IMF. the recommendations of the January 13. We will continue to implement will the FY2013 financial statements of Safeguards assessment follow-up mission. We publish adoption of the IFRS, including the 2014. Work is underway to accelerate the the BRH by end-July monitor its We will strengthen establishment of a special committee to implementation. oversight body and appoint a of the Investment Committee, as an independent International reserve autonomy observation of investment guidelines. compliance officer to monitor from the IMF. management will be strengthened with support Financial sector developments sector, which has nearly sector remains sound. Credit to the private 14. The banking months, following the tightening of monetary policy doubled since early 2010, slowed in recent (y/y) through end- September 2013. 2013. Broad money grew by about 7 percent weaknesses. The in February of the banking system do not reveal potential Financial soundness indicators the monitoring of the financial system (banks, banking supervision department has strengthened inspections, including with transfer agencies and foreign exchange bureaux) by intensifying the BRH benefited from technical money laundering. In this context, are respect to the fight against Technical Assistance (OTA). Joint inspections assistance from the U.S. Treasury's Office of at the BRH. and inspectors from the supervision department carried out by OTA experts as well as to employees of banks, transfer Moreover, training was provided to inspectors, officers. bureaux, especially to enforcing agencies and foreign exchange financial financial intermediation while safeguarding 15. We will continue to promote in monitoring systemic risks and financial stability. The BRH continues to boost its capacities (MFIs) and financial cooperatives are frameworks for microfinance institution stability. The legal the conducted Financial Sector for submission to Parliament. In line with recently for the and ready authorities plan to adopt a new legal framework operations Assessment, the which will be submitted to Parliament during FY2014. supervision of insurance companies, framework Parliament has recently approved a new AML/CFT legal 16. The Haitian by the executive in November consistent with FATF standards. The law was promulgated Caribbean Financial Action Task Force and it addresses a number of recommendations by framework the would also help strengthening Effective implementation of the AML/CFT (CFATF). governance. MONETARY FUND 62 INTERNATIONAL the and ready authorities plan to adopt a new legal framework operations Assessment, the which will be submitted to Parliament during FY2014. supervision of insurance companies, framework Parliament has recently approved a new AML/CFT legal 16. The Haitian by the executive in November consistent with FATF standards. The law was promulgated Caribbean Financial Action Task Force and it addresses a number of recommendations by framework the would also help strengthening Effective implementation of the AML/CFT (CFATF). governance. MONETARY FUND 62 INTERNATIONAL --- Page 64 --- HAITI Poverty reduction Plan for the Development of has recently finalized a new Strategic be 17. The government Implementation of this new strategy will Haiti (PSDH) for the period 2014-2016. in particular by improving the living instrumental in attaining Haiti's economic potential of this strategy will need of high levels of conditions of the Haitian people. The implementation finance with domestic resources investment, which the government plans to increasingly public as international aid gradually declines. public services, believes that poverty reduction requires adequate 18. The government in the living conditions of the Haitian in education and health. Improvement of in particular investment in economic infrastructure, the modernization people will require continued schools and the continued development of agriculture, the establishment of professional sector will help improve their quality and manufacturing. Increased competition in the service of formal and the that these efforts will support the increase employment efficiency. We expect The Ministry of Commerce and Industry is emergence of small and medium enterprises. tools to complement the work in this area. developing relief to the most vulnerable segments of The will continue to provide of school 19. government the access to education to all, the provision the population. Social policies emphasize nets are important for social stability, and are These social safety canteens, and gender equality. growth. private investment and medium-term essential in promoting Structural reforms committee, in October 2013, which The Minister of Finance established a steering and 20. of reforms in public financial management will coordinate the implementation to have a detailed medium-term action plan domestic revenue mobilization. We expect end-April 2014. We recently completed measures likely to deliver prompt results) by other reform plans will be (prioritizing and associated action plan. These and a public finance IT master plan pending measures, including the strategy. We are reviewing consolidated into a comprehensive for consistency with our new strategy. draft organic budget law recently sent to Parliament, will be pursued in parallel the most urgent elements of existing reform program Nevertheless, with the preparation of the action plan. of a is fully committed to steadfast implementation 21. The Haitian government Minister has requested all line ministries and treasury single account (TSA). The Prime TSA in order to improve the effectiveness of institutions to fast track the implementation of the and cash management. Unexpected spending (in particular of investment), budgetary controls, accounts and the roll-out of the general constraints have slowed down the closing process of the Treasury has identified and (GL) software in a number of line ministries. However, the of the Ministries of ledger of ministries. Moreover, operations closed dormant accounts in a number under the control of the Accounting Center Finance, Commerce, Tourism and Environment are This accounting center is fully with the economic sector (Poste Comptable No. 1). its IT system to the charged 2013 (prior action). The BRH is also adapting operational since December INTERNATIONAL MONETARY FUND 63 of the general constraints have slowed down the closing process of the Treasury has identified and (GL) software in a number of line ministries. However, the of the Ministries of ledger of ministries. Moreover, operations closed dormant accounts in a number under the control of the Accounting Center Finance, Commerce, Tourism and Environment are This accounting center is fully with the economic sector (Poste Comptable No. 1). its IT system to the charged 2013 (prior action). The BRH is also adapting operational since December INTERNATIONAL MONETARY FUND 63 --- Page 65 --- HAITI accounts will continue in line with the of identification and closing of dormant TSA. The process full establishment of the TSA. various steps planned for the that the TSA becomes has updated its action plan to ensure 22. The government the Accounting Center No. 2 by the end of FY2015. Under this action plan, will become operational by operational the Ministry of the Plan, Public Works and Agriculture) of all (comprising The government plans to have at least percent March 2014 (new structural benchmark). structural benchmark). The government center by June 2014 (new spending under an accounting of the establishment of the TSA, namely () the intends to start FY2015 with the second phase to three in all remaining institutions reduction of the number of domestically-funded accounts of account centers at the institutional bodies); (ii) the full deployment (ministries or independent expenditure accounts to public accountants level and granting control over operational and, (ii) the release of a manual of appointed by the Ministry of Economy and Finance; must be housed, the centers appropriately for public accountants. As all accounting procedures locations for their deployment. government will identify appropriate execution, to budget formulation, 23. The TSA will also contribute strengthened software will allow the recording of The implementation of GL transparency, and reporting. paid, and not when the account expenditures when they are effectively will project and imprest fully the Minister of Finance account is replenished. Until the TSA becomes operational, line ministries with their request of documentation submitted by monitor closely the supporting will be executed in line with the existing normal Expenditures project account replenishments. procedures. Pending approval of the debt and cash management remains a priority. 24. Improving the has introduced organizational law of the Ministry of Finance, government to new organic law. This has enabled the Ministry of Finance begin changes permitted under the existing and cash management within a single strengthening the debt unit, and to integrate debt the Debt Unit and to staffing the Directorate. We remain committed to further strengthening middle and front offices during the rest of FY2014. investment framework to increase intends to improve the public the 25. The Government spending. A group of experts and officials from the execution rate and quality of capital established the Public Finance Reform Ministry of Finance and the Ministry of Planning investment was launched with the to lead reforms in this area. A review of public Meanwhile Committee (structural benchmark for end-December 2013). assistance of the French government entities to submit draft procurement and execution we have required all ministries and public needed to help set up and fiscal year. Technical assistance is urgently plans for the new units (UEPS) in main spending ministries. Discussions strengthen project and program evaluation partners are well advanced. on this with our development Other reforms environment is believes that improving the business 26. The Haitian government Reforms in this area are needed to raise essential to promote growth and job creation. direct investment. Efforts in 2014 include and attract foreign productivity and competitiveness 64 INTERNATIONAL MONETARY FUND procurement and execution we have required all ministries and public needed to help set up and fiscal year. Technical assistance is urgently plans for the new units (UEPS) in main spending ministries. Discussions strengthen project and program evaluation partners are well advanced. on this with our development Other reforms environment is believes that improving the business 26. The Haitian government Reforms in this area are needed to raise essential to promote growth and job creation. direct investment. Efforts in 2014 include and attract foreign productivity and competitiveness 64 INTERNATIONAL MONETARY FUND --- Page 66 --- HAITI framework to attract foreign investment, including a the establishment of a new institutional The government has also started preparing a clear framework for public-private partnerships. donor assistance, notably from the World and another on mining, with new law on cadastre, is also preparing a range of measures to Bank. The Ministry of Commerce and Industry administrative procedures. We remain modernize the business environment and streamline investment in tourism, as well as the committed to export promotion and diversification, modernization and development of agricultural production. resilience to natural shocks is critical to protect 27. Strengthening the country's disaster managing system that Ahead of Hurricane Sandy, we put in place a stronger including the World Bank, to growth. We continue to work with our partners, helped alleviate its impact. systems. national risk and disaster management further strengthen To this end, we will continue to publish on 28. We are fully committed to transparency. budget execution, and of Finance's website data on government operations, the Ministry benchmarks defined in the ECF, including financing in line with the continuous structural the Ministry of Finance will continue financed with Petrocaribe resources. In addition, beneficiary entity. We spending basis) on central government transfers by we publishing data (on a monthly accounts, on a project by project basis. Also, will also publish transfers to investment project expenditures on a quarterly basis, as will continue to provide information on poverty-reducing and customs administrations, including describing the performances of the tax well as reports collected in the provinces. the cost of exemptions and revenue that better economic data will improve policy 29. The government is convinced technical assistance to strengthen national formulation. We have therefore requested IMF revision of the base year and improve and external statistics. We plan to implement a of annual accounts sector), which would improve our estimates source data (including on the informal external accounts, we aim at improving data GDP at current and constant prices. With respect to foreign aid, and services. collection for inward direct investment, trade, remittances, Program monitoring data sources, and frequency will be monitored using the definitions, 30. Our program revised Technical Memorandum of of monitoring set out in the accompanying available to Fund staff all data appropriately (TMU). The government will make Understanding in the TMU. Table 1 shows the quantitative reconciled and on a timely basis, as specified in FY2013 and FY2014. Structural execution performance criteria for monitoring program a reformulation of the benchmark benchmarks for the remainder of the program, including review under the ECF arrangement, treasury account are in Table 2. The eighth 2014. towards a single criteria, is expected to be completed by August assessing end-March 2014 performance for recorded in relation to the ECF and the framework 31. In view of progress requests the approval of the implementing the remaining policies, the government performance criteria, and the modification of end-March seventh review of the program, believe that the policies described in this letter are the disbursement of SDR1.638 million. We stand to take additional measures the objectives of our program and we ready sufficient to meet INTERNATIONAL MONETARY FUND 65 expected to be completed by August assessing end-March 2014 performance for recorded in relation to the ECF and the framework 31. In view of progress requests the approval of the implementing the remaining policies, the government performance criteria, and the modification of end-March seventh review of the program, believe that the policies described in this letter are the disbursement of SDR1.638 million. We stand to take additional measures the objectives of our program and we ready sufficient to meet INTERNATIONAL MONETARY FUND 65 --- Page 67 --- HAITI that may be needed for that purpose. We will consult with the Fund in advance of any revisions to the policies described in this letter, as well as the adoption of additional measures, in accordance with IMF policies on such consultations. Sincerely yours, /s/ Is/ Charles Castel Wilson Laleau Governor Minister Central Bank of Haiti Ministry of Economy and Finance 66 INTERNATIONAL MONETARY FUND --- Page 68 --- & Table 1: Indicative Targets and Quantitative Performance Criteria, September 2013 June 2014 Cumulative Flows from September 2009 Actual Sep. 2013 Dec. 2013 Mar. 2014 Jun. 2014 stock at end- Sept. Indic cative Proposed 09 PC Adjusted Actual Adjusted 5/ Estimate PC Proposed Indicative target PC target Indicative target (In millions of gourdes, unless otherwise indicated) I Quantitative performance criteria Net central bank credit to the non financial public sect ctor ceiling (including PCDR) 21,379 12,809 Central Government 1 -13,199 -16,530 11,816 -10,184 -10,819 10,432 -11,063 9,049 Rest of non- financial public sector 22,947 -11,578 11,188 -11,663 10,278 8,646 6,703 -8,978 9,063 -9,763 1,569 -1,621 1,621 4,868 -1,538 1,538 -4,116 1,454 -2,000 -7,678 -1,371 -7,763 -2,000 Net domestic assets of the central bank ceiling 14,447 -9,036 -10,152 15,061 -5,472 -4,112 -10,431 -709 215 2,135 3,459 Net international reserves of central bank (in millions of U.S. dollars) floor 416 582 610 804 517 483 735 422 422 375 375 II Continuous performance criteria Domestic arrears accumulation of the central government 0 0 New contract cting or guaranteeing by the public sector 0 0 0 of nonconce cessional external or foreign currency debt (In millions of U.S. dollars) 2/ Upt to and lincluding one year 3/ 33 33 334 33 33 410 33 33 33 Over one- year maturity 0 0 0 301 0 0 377 0 0 0 33 Public sector external arrears accumulation (in millions of U.S. dollars) 0 33 33 33 33 33 33 33 33 33 33 0 0 0 0 0 0 of nonconce cessional external or foreign currency debt (In millions of U.S. dollars) 2/ Upt to and lincluding one year 3/ 33 33 334 33 33 410 33 33 33 Over one- year maturity 0 0 0 301 0 0 377 0 0 0 33 Public sector external arrears accumulation (in millions of U.S. dollars) 0 33 33 33 33 33 33 33 33 33 33 0 0 0 0 0 0 0 0 III. Indicative targets Changei in base money ceiling 31,080 14,262 14,262 17,082 15,225 15,225 18,955 16,189 17,095 17,153 18,459 Net domestic credit to the central government ceiling 1/ 19,370 19,271 18,881 -14,580 16,917 15,285 13,695 -14,562 -10,830 12,208 4/ -8,210 Poverty reducing expenditures floor 38,656 38,656 38,856 42,531 42,531 42,731 46,406 46,606 50,281 50,481 Memorandum items Changei in currency in circulation 13,448 9,009 9,009 Net domestic credit to the rest of the non financial public sector 7,904 9,285 9,285 11,569 9,560 9,456 9,836 9,284 Government total revenue, excluding grants 1,641 1,894 1,894 -5,142 -1,811 1,811 -4,597 -1,727 -2,500 1,644 Government total expenditure, excluding externally- financedi investment 29,881 156,289 156,289 158,685 169,962 169,962 172,908 182,623 186,078 194,331 -2,500 42,096 218,739 218,739 226,618 235,944 235,944 247,677 248,752 268,193 265,156 198,411 287,587 Sources: Ministry of Finance, Bank of the Republic of Haiti, and Fund staff estimates. 1/ Adjusted targets exclude the use of IMF PCDR debt relief. 2/E Excludes guarantees to the electricity sector in the form of credit/guarantee letters The US$33 million in non-concessional ext te nal of 3/F Figures for September 2013 and December 2013 reflect the contract cting of repos for international reserve lending over one- year maturity refers to a BANDES (Venezuela) loan for airport construction. 4/F Poverty reducing expenditures consist of domestically- financed spending in health, education, management; these operations were fully unwound by end- February 2014. 5/A Adjusted figures for December 2013 are preliminary, based on available andi incomplete information. and agriculture. sector in the form of credit/guarantee letters The US$33 million in non-concessional ext te nal of 3/F Figures for September 2013 and December 2013 reflect the contract cting of repos for international reserve lending over one- year maturity refers to a BANDES (Venezuela) loan for airport construction. 4/F Poverty reducing expenditures consist of domestically- financed spending in health, education, management; these operations were fully unwound by end- February 2014. 5/A Adjusted figures for December 2013 are preliminary, based on available andi incomplete information. and agriculture. --- Page 69 --- HAITI Table 2: Prior Actions and Structural Benchmarks through 2014 1/ Measure Timing Status Comments Operationalize the first accounting center (Poste Comptable No. 1) comprising the Ministries of Finance, Commerce, Tourism, and PA Met Environment (TMU, paragraph 17) Allocate offices to the medium- sized taxpayer unit. SB End September 2013 Met Progress observed: debt Strengthen the debt unit with fully operational middle and back office SB End- December 2013 Not met unit moved to Treasury; functions; Preparation of annual debt sustainability analyses. back office operational. Set up a a task force of experts to review the public investment SB End Dec cember 2013 Met framework. Progress observed: first Roll out in all ministries the general ledger (GL) software and start to accounting center record projects and imprest accounts expenditure when they are SB End December 2013 Not met operational and towards effectively paid, and nol longer when the replenishment of the account is advanced work operationalizing second made. accountina center Reduce the number of domestically-1 funded imprest accounts to three by ministry or institutions (for revenue collection, capital spending, and other transactions) and deploy the network of public accounting offices SB End March 2014 at the line ministries level and grant signature authority on these accounts to public accountants appointed by the Ministry of Economy and Finance. 2/ Operationalize the second accounting center comprising the Ministries SB End- March 2014 3/ oft the Plan, Public Works, and Agriculture (TMU, paragraph 18) Operationalize the accounting centers SO that at least 80 percent of SB End-J -June 2014 budgetary expenses are collectively covered (TMU, paragraph 19) 3/ 1/ PA: Prior Action; SB: Structural Benchmark 2/ These SBs were reformulated into a PA and two new SBs. 3/1 New proposed SBs. INTERNATIONAL MONETARY FUND 68 2/ Operationalize the second accounting center comprising the Ministries SB End- March 2014 3/ oft the Plan, Public Works, and Agriculture (TMU, paragraph 18) Operationalize the accounting centers SO that at least 80 percent of SB End-J -June 2014 budgetary expenses are collectively covered (TMU, paragraph 19) 3/ 1/ PA: Prior Action; SB: Structural Benchmark 2/ These SBs were reformulated into a PA and two new SBs. 3/1 New proposed SBs. INTERNATIONAL MONETARY FUND 68 --- Page 70 --- HAITI Memorandum of Undenstanding-Updiate Attachment I. Technical (EBS/10/139, Attachment III; of the Technical Memoranda of Understanding 1. All aspects I; EBS/12/93, Appendix III; EBS/13/14, Attachment EBS/11/63, Appendix I; EBS/12/22, Appendix 2010; May, 2011; April, 2012; August, 2012; Attachment 2) issued on August, incorporated 2; and EBS/13/100, remain valid, except for new revisions March, 2013; and, August, 2013, respectively, indicated below. in the March 2014 Letter of Intent and those performance criteria and indicative The will be monitored by quantitative criteria under 2. program Table 1 of the Letter of Intent. The quantitative performance targets as shown in for end-June 2014 are indicative. The are set for end-March 2014. The targets 2009. the program basis from the stock at end-September changes will be measured on a cumulative Letter of Intent. benchmarks are shown in Table 2 of the Structural Definitions will comprise the change in net 3. Net domestic financing to the central government nonbank financing. Net domestic banking sector credit to the central government plus the in the stock of net banking is defined as the sum of: (i) change sector credit to the central government from the BRH (as defined in paragraph 6 in domestic credit to the central government of net domestic credit of the central Attachment 2); and (ii) the change in the stock The latter includes EBS/13/100, to Table 20R of the BRH. government from domestic banks according (including through the net issuance of commercial bank lending to the central government of the change in central government deposits securities), net treasury bills and other government of the BRH are excluded from Securities issued for the recapitalization (including Petrocaribe). net issuance of Treasury bills and other government this definition. Nonbank financing includes the net change in checks issued and not securities by the central government to non-banks, net including for debt sector, and any other payments cashed, financing to the electricity recognition. 1/ International Reserves, BRH, End-September 2013 Table 1: Net (In millions of U.S. dollars) 2,479.1 A. Gross Foreign Exchange Reserves 685.5 B. Gross Liabilities 1,793.5 C. Net Foreign Assets (=A-B) and CAM transfer at the BRH 686.3 D. FX deposits of commercial banks 5.6 E. Project accounts 2.7 F. Special accounts in U.S. dollars and euros 0.0 G. Seized values 120.4 H. SDR allocation (liability) 1,219.4 J. NIR (-C-D-E-F-G+H) Source: Haitian authorities; and Fund staff estimates. 1/ Figures are still preliminary. 69 INTERNATIONAL MONETARY FUND abilities 1,793.5 C. Net Foreign Assets (=A-B) and CAM transfer at the BRH 686.3 D. FX deposits of commercial banks 5.6 E. Project accounts 2.7 F. Special accounts in U.S. dollars and euros 0.0 G. Seized values 120.4 H. SDR allocation (liability) 1,219.4 J. NIR (-C-D-E-F-G+H) Source: Haitian authorities; and Fund staff estimates. 1/ Figures are still preliminary. 69 INTERNATIONAL MONETARY FUND --- Page 71 --- HAITI (NIR) are defined as in paragraph 11 in EBS/13/100, 4. Net international reserves 2013 is as included in Table 1. Attachment 2. Their stock at end-September assets of the BRH is rate to calculate the change in net domestic 5. The program exchange 2014. U.S. dollar for the period June 2010 - September G40.0 per by the Bureau de Monetisation (BMPAD) are Petrocaribe-related resources managed BMPAD has also 6. Nationale de Credit (BNC). Since September 2013, with deposited at the Banque associated with investment projects financed accounts at the BRH. The payment of expenses at the BNC to the dollarflows involves the transfer of resources from accounts involve making Petrocaribe at the BRH. Given that most projects denominated account of the Treasury the BRH are used as transitory accounts to payments in foreign currency, BMPAD accounts at transfer reaches the Treasury account at gourdes for dollars when needed, before the account at the BRH exchange Transfers affect the balance of the dollar-denominated Treasury of service the BRH. made when there is supporting documentation only temporarily, as they are only whenever a transfer is made from a BMPAD rendered concerning an investment project (i.e., there is a payment order that treasury account at the BRH, account into the dollar-denominated effect on NIR and NCG associated with such follows almost immediately after). Thus, any relevant for program monitoring minor and of limited duration, and thus, not at transfers are affected changes in the stock of BMPAD deposits On the other hand, NCG can be by deposits totaled purposes. balance of all Petrocaribe the BRH. As of September 2013, the outstanding US$197 million (Table 2)." Table 2. PetroCaribe Deposits December March June September September September 2013 dollar-denominated effect on NIR and NCG associated with such follows almost immediately after). Thus, any relevant for program monitoring minor and of limited duration, and thus, not at transfers are affected changes in the stock of BMPAD deposits On the other hand, NCG can be by deposits totaled purposes. balance of all Petrocaribe the BRH. As of September 2013, the outstanding US$197 million (Table 2)." Table 2. PetroCaribe Deposits December March June September September September 2013 accounts in the banking system Total deposits in government Cumulative flows (G mlns) 4917 111 in US dollars (US$ mins) Stocks (G mins) in US dollars (US$ mins) Deposits in qovernment accounts at the BRH -96 Cumulative flows (G billion) Stocks (G mins) in US dollars (US$mins) banks Deposits in aovernment accounts in commercial Cumulative flows (G mins) Stocks (G mlns) in US dollars (US$ mlns) Haitian Authorities and IMF Staff estimates and projections Sources: market exchange rate. The authorities will deposits are converted into US dollars at the the Treasury account Gourde-denominated resources into dollar-denominated provide information of transfers of Petrocaribe-related at the BRH. See paragraph 21. INTERNATIONAL MONETARY FUND --- Page 72 --- HAITI Petrocaribe-related resources (either new inflows or 7. For the duration of the program, to be under the direct control of the at the banking system) will be considered and reflected those deposited transactions are recorded in the budget, central government, and thus any related support loans, and any documentation. The program considers any inflows as budget at the in program through the drawdown of Petrocaribe deposits spending of these resources (including as appropriate. spending or on-lending, banking system) as central government No.6230-(79/140), Point 9, as of debt is set out in Executive Board Decision a 8. The definition Debt will be understood to mean 31, 2009 (Decision No. 14416-09/91): the revised on August created under a contractual arrangement through current, i.e., not contingent, liability, currency) or services, and which requires the provision of value in the form of assets (including currency) or services, in the form of assets (including obligor to make one or more payments will discharge the obligor of the principal according to a specific schedule; these payments Debts can take a number of forms, the and/or interest liabilities incurred under the contract. 5 Under the definition of debt set out credits", and leases. primary ones being loans', I suppliers' arising from the failure to make penalties, and judicially-awarded damages above, arrears, that constitutes debt are debt. payment under a contractual obligation that is contracted or guaranteed by the sector external debt is defined as all debt 9. Public debt for which official guarantees have been extended total public sector. This covers private of the public sector. For program purposes, therefore, constitute a contingent liability sector to and which, legal obligation of the total public the guarantee of a debt arises from any explicit payments in cash or in kind). in the event of nonpayment by the debtor (involving service a debt element of at least 35 debt is concessional if it includes a grant 10. 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 future stream value (PV) is calculated by discounting the debt. The PV of debt at the time of its contracting ?Decision available at of an undertaking that the obligor made on the basis - of money to the obligor by the lender loans, and buyers' credits) Loans are advances deposits, bonds, debentures, commercial is will repay the funds in the future (including to fully collateralized loans, under which the obligor exchanges of assets that are equivalent the collateral from the buyer in the future and temporary the funds, and usually pay interest, by repurchasing required to repay and official swap arrangements). after (such as repurchase agreements the obligor to defer payments until sometime credits are contracts where the supplier permits Suppliers' which the goods are delivered or services are provided. more the date on that the lessee has the right to use for one or the is provided Leases are arrangements under which property shorter than the total expected service life of the property, while (at the specified period(s) of time that are usually of this guideline, the debt is the present value lessor retains the title to the property. For the purpose to be made during the period of the agreement, excluding inception of the lease) of all lease payments expected repair, or maintenance of the property. those payments necessary for the operation, 6 The element calculator can be found at the loan including maturity, grace - grant calculations will take into account all aspects of agreement, The grant element commissions, and management fees period, payment schedule, upfront INTERNATIONAL MONETARY FUND 71 ) of time that are usually of this guideline, the debt is the present value lessor retains the title to the property. For the purpose to be made during the period of the agreement, excluding inception of the lease) of all lease payments expected repair, or maintenance of the property. those payments necessary for the operation, 6 The element calculator can be found at the loan including maturity, grace - grant calculations will take into account all aspects of agreement, The grant element commissions, and management fees period, payment schedule, upfront INTERNATIONAL MONETARY FUND 71 --- Page 73 --- HAITI rate used for this purpose is 5 of debt service due on this debt. The discount of payments consult with IMF staff on the terms and concessionality The government undertakes to any external debt. percent. before contracting or guaranteeing of all proposed new loan agreements debt of public sector external debt applies equally to 11. This definition of non-concessional The quantitative performance criteria less than one year and to debt of one year or more. (i) normal import-related commercial nonconcessional public external debt exclude: (ii) drawings on the concerning of less than one year; (ii) rescheduling agreements; debts having a maturity bills; and (v) and existing (as of end-September 2013) purchases of treasury IMF; (iv) non-resident form of letters of credit. The ceilings for contracting guarantees to the electricity sector in the total public sector are set at zero continuously of non concessional debt by the and guaranteeing / throughout the program period. Quarterly Adjustments targets will be adjusted as indicated performance criteria and indicative 12. The quarterly below: Adjustment for Domestic Arrears Accumulation central the net domestic banking 13. The ceilings for net BRH credit to the government, assets of the central bank will be central and the net domestic sector credit to the government, domestic arrears accumulation. downwards for the amount of outstanding adjusted Adjustment for the use of Petrocaribe-related resources central reflects expected changes The for net domestic credit to the government for the 14. ceiling system. The ceiling will thus be adjusted deposits in the banking and the in Petrocaribe-related of Petrocaribe deposits in the banking system difference between the actual stock Table 2. The ceiling for net BRH credit to the programmed stock of these deposits, as shown in deposits at the BRH. Such in the change of Petrocaribe central government reflects projections the actual stock of Petrocaribe deposits at the targets will be adjusted for the difference between in Table 2. The adjustor will be stock for these deposits, as shown FY2014 BRH and the programmed from October 1, 2009. The upward adjustment during calculated on a cumulative basis market exchange rate. calculated at the will be limited to US$50million, Adjustment for Budgetary Support Grants net domestic credit to the The ceilings on BRH net credit to the central government, reflect expected 15. assets, and the floor on NIR central government, and on BRH net domestic with the Development Bank of Venezuela (BANDES) for 7 Excluding the debt of US$33 million contracted in 2009 airport construction. MONETARY FUND 7 2 INTERNATIONAL 1, 2009. The upward adjustment during calculated on a cumulative basis market exchange rate. calculated at the will be limited to US$50million, Adjustment for Budgetary Support Grants net domestic credit to the The ceilings on BRH net credit to the central government, reflect expected 15. assets, and the floor on NIR central government, and on BRH net domestic with the Development Bank of Venezuela (BANDES) for 7 Excluding the debt of US$33 million contracted in 2009 airport construction. MONETARY FUND 7 2 INTERNATIONAL --- Page 74 --- HAITI US$103 million during FY2014 (US$27 million from budgetary donor grants of the equivalent of and US$10 million from France, US$46 million from the EU, US$20 million from Spain, criteria ceilings the IDB, lower than these performance Table 3). If actual grant inflows are programmed, floor will be adjusted downwards by the and the performance criterion be will be adjusted upwards inflows. This adjustor will applied amount of the difference between actual and programmed in the disbursements of deviations are temporary and only reflect delays are provided the The adjustor will not be applied if the deviations programmed, already identified, amounts. with donors to determine whether any Staff and the authorities will consult Staff not temporary. disbursements and in amounts) can be considered temporary. deviations (in the timing of are to be disbursed within FY2014, or will consider that deviations are temporary if amounts will consult with Fund staff on the of FY2015, at the latest. The authorities during the first quarter support grants, including those arising from appropriateness to spend (or save) any budgetary debt relief, in excess of those programmed. Quarterly Budget Support Disbursements Table 3: Projected (cummulative flows, in millions of U.S. dollars) Dec- 13 Mar-14 Jun-14 Sep-14 Donor European Union IDB Spain France Total Debt Relief (PCDR) Investment Spending financed with Post-Catastrophe Adjustment for resources and net domestic financing to The ceilings on BRH net credit to the central government projects 16. of PCDR resources for G3 billion on investment the central government reflect spending for a Post Catastrophe Debt Relief Trust with the characteristics defined in EBS/10/141-Proposal shares. The ceilings will be adjusted upwards spending is projected in four equal will Fund. Quarterly (lower) than programmed. The authorities (downwards) if cumulated spending is higher financed with PCDR resources. share with Fund staff the details of the expenditures Clarification of Structural Conditionality Center No. 1. The operational the TSA's Accounting 17. Prior Action on making the Ministries of Finance, Center No. 1 (Poste Comptable No. 1) comprises GL-software in all Accounting The prior action entails: (i) rolling-out Commerce, Tourism, and Environment. and imprest accounts expenditure when ministries included in PC-1; (ii) begin recording projects of the account is made; (ii) paid and no longer when the replenishment that they are effectively accounts to three in each ministry and by institutions reduce domestically-funded imprest action of the BRH; (iv) granting depend on such ministries, what requires the appropriate appointed by the MEF. The MEF will authority on this accounts to public accountants signature INTERNATIONAL MONETARY FUND 73 i) rolling-out Commerce, Tourism, and Environment. and imprest accounts expenditure when ministries included in PC-1; (ii) begin recording projects of the account is made; (ii) paid and no longer when the replenishment that they are effectively accounts to three in each ministry and by institutions reduce domestically-funded imprest action of the BRH; (iv) granting depend on such ministries, what requires the appropriate appointed by the MEF. The MEF will authority on this accounts to public accountants signature INTERNATIONAL MONETARY FUND 73 --- Page 75 --- HAITI needed to confirm that the PC-1 is share with Fund staff any dispositions or communications Board meeting that will discuss operational at least 5 business days prior to the Executive written communication by the fully will also share with Fund staff the seventh review. The authorities intention to fast track the implementation of the TSA, PM's Office to line Ministries specifying the the MEF the role of coordinating body in this regard. and giving operational the TSA's End-March 2014 Structural Benchmark on making No. comprises the 18. Center No. 2 (Poste Comptable 2) Accounting Center No. 2. The Accounting benchmark entails the same Public Works, and Agriculture. The structural Ministry of Planning, 17, but applicable to PC-2. actions as described in paragraph the first phase of TSA End-June 2014 Structural Benchmark on extending The 19. least 80 of total central government spending. implementation to cover at percent Accounting Centers throughout will advance in the implementation of remaining least 80 of central government the coverage of the TSA to at percent FY2014, with a view of extending will implement the actions specified in government spending. To this end, the government and PC-2. The Ministry of Finance will paragraph 17, to ministries not included in PC-1 basis. in this regard to IMF staff on a monthly communicate progress Studies and Provision of Information Reports, authorities will provide daily, weekly, adequate monitoring of the program, the 20. To ensure indicators to IMF staff as described in EBS/10/139, Attachment and monthly monetary and fiscal undertakes to consult with As described in paragraph 10, the government III and its updates. of all proposed new loan agreements before IMF staff on the terms and concessionality any external debt. contracting or guaranteeing financed with treasury and Petrocaribe-related 21. Quarterly Report on Investment Fund staff a copy of a quarterly report on the resources. The authorities will share with effective implementation and cash implementation of the PIP that differentiates between gourde amounts) of projects accounts and provides a breakdown (by advances to project bidding, sole-source procurement amendment awarded by type of contract award (competitive monitor and inform on the percentage of total contract, etc.). The report will closely available to the to existing documentation is made contracts and of contract amounts for which supporting as a device to require Finance. The Ministry of Finance will use this information Ministries of before authorizing a replenishment of project further information from spending ministries will be implemented vis-d-vis investment accounts, until the TSA is adopted. A similar procedure report will be shared with resources. The quarterly spending financed with Petrocaribe-related The first report (corresponding to the first Fund staff one month after the end of the quarter. March 2014. The report will begin to be FY2014) will be shared with staff at the end of quarter of in the third quarter of FY2014. posted at the MEF website, beginning The Minister of Finance (in collaboration with EDH), 22. Monthly Report on EDH finances. sector, that includes a Fund staff, on a monthly basis, a report on the electricity will share with 74 INTERNATIONAL MONETARY FUND ending financed with Petrocaribe-related The first report (corresponding to the first Fund staff one month after the end of the quarter. March 2014. The report will begin to be FY2014) will be shared with staff at the end of quarter of in the third quarter of FY2014. posted at the MEF website, beginning The Minister of Finance (in collaboration with EDH), 22. Monthly Report on EDH finances. sector, that includes a Fund staff, on a monthly basis, a report on the electricity will share with 74 INTERNATIONAL MONETARY FUND --- Page 76 --- HAITI monthly cash flow of EDH; and also, a monthly report describing the stock of cross debts between the different agents in the sector. The first of such reports will be shared with Fund staff at the end of March 2014, and will comprise FY2013 and the first quarter of FY2014. 23. Analysis on Fuel Price Subsidy. With assistance from the World Bank, the government is committed to develop by June 2014, a medium term plan to gradually increase the price of petroleum prices, while designing a social safety net that delivers targeted assistance to the poor. The study will be shared with Fund staff by end-July 2014. INTERNATIONAL MONETARY FUND 75 --- Page 77 --- COM MONETARY FUND INTERNATIONAL International M onetary Fund D.C. 20431 USA W ashington, Press Release No. FOR IM M EDIATE RELEASE M arch 26, 2014 Review under Haiti's ECF arrangement Executive Board Completes Seventh M illion Disbursement IMF's and AI pproved US$ 2.5 Fund (IM F) completed the Board of the International M onetary by the Extended Credit On M arch 26, the Executive under its program supported an immediate seventh review ofHaiti's performance Completion of the review will enable million), bringing total Facility (ECF) arrangement SDR 1.638 million (about US$2.5 39.312 million (about disbursement equivalent to to date to the equivalent of SDR disbursements under the program US$60.7 million). of the continuous for waivers of nonobservance Board also approved requests of short-term non-concesional The Executive criterion on the contracting or guaranteeing arch performance criteria. performance modifications to end-M Press Release No. 10/299) external debt and approved on July 21, 2010 (see of about SDR 178 ECF arrangement was approved debt to the Fund Haiti's the full relief oft the country's outstanding together with then to US$268 million). million (equivalent Shinohara, Deputy on Haiti, Mr. Naoyuki the Executive Board's S discussion Following Director and A cting Chair, said: M anaging has been satisfactory despite program maintain performance under the Fund-supported and policies puti cin place have helped "Haiti's Reform measures Growth has strengthened, headline difficult circumstances. structural reforms. the overall fiscal stability and advance remained adequate. However, to the macroeconomic international reserves spending and subsidies inflation fell, and gross lasger-tnan.programmedl investment financial management, in deficit widened, reflecting also made on reforming public electricity sector. Progress was of the Treasury Single A ccount. particular in the implementation stability and sustaining macroeconomic for FY2014 aims at consolidating will be supported by continued prudent "The program reforms. These objectives progress in structural e www.imf.org 202-623-7100 e Fax 202-623-6772 Washington, D.C. 20431 Telephone international reserves spending and subsidies inflation fell, and gross lasger-tnan.programmedl investment financial management, in deficit widened, reflecting also made on reforming public electricity sector. Progress was of the Treasury Single A ccount. particular in the implementation stability and sustaining macroeconomic for FY2014 aims at consolidating will be supported by continued prudent "The program reforms. These objectives progress in structural e www.imf.org 202-623-7100 e Fax 202-623-6772 Washington, D.C. 20431 Telephone --- Page 78 --- monetary policy, the stabilization of the overall fiscal balance, and the continuation of structural reforms in the areas of public financial management, international reserve management, and the electricity sector. A dvancing these reforms is essential to contain fiscal risks and address continuing vulnerabilities. "The authorities have adopted a medium-term poverty reduction strategy, with special emphasis on job creation in manufacturing, tourism and agriculture, social inclusion, and improved governance. This would contribute to the establishment of an environment conducive to economic growth and to reducing Haiti's dependence on foreign assistance. 99 --- Page 79 --- Executive Director for Haiti, Ms. Florestal, Statement by Mr. Nogueira Batista, Government-Provided Advisor Government-Provided Advisor, and Mr. Simon, M arch 26, 2014 authorities we would like to thank staff for maintaining a 1. On behalf our Haitian commendable efforts to understand the domestic constructive dialogue. The staff S has made post-earthquake context and ensuing constraints. balanced and rich in information. Our authorities 2. The staff report is relatively of the constraints inherent to the way foreign particularly appreciate the highlighting have stated on previous occasions, the fact that assistance is being delivered in Haiti. As we directly executed by NGOS and private aid is provided largely outside the budget and often observing that "some analysts suggest that firms weakens coordination and efficiency. After multiple layers of sub-contracts and subaid disbursed by some donors may have had to pass asserts that circumventing the public grants before reaching the intended group", 2 staff rightly effectiveness. W e welcome staff's sector may have weighed negatively on government for some time and hope that this will recognition of a point the authorities have been making contribute to a better coordinated delivery of aid. performance and recent macroeconomic 3. The staff report covers extensively program on the structural agenda for Hence, we will focus primarily and financial developments. achieving sustainable and inclusive growth. Recent developments and outlook better than in spite of the impact of 4. Growth performance in FY 13 was programmed Sandy that led to extensive several external shocks including the devastating cyclone maintained with inflation subdued damages in the agricultural sector. M acro stability was of domestic petroleum prices stable international prices of basic goods, the freezing The due to central bank to limit the depreciation of the gourde. and the measures taken by the quickly picked up as a result of the supply of locally grown agricultural products of the sector. Stronger exports also played an government' s timely measures in support important part in keeping economic recovery on track. substantial investments, public and private. However, 5. Haiti's development requires abundant since the tragedy of 2010 is being external support which had been relatively on a concessional basis, an increasingly phased out. PetroCaribe funds have been financing, fiscal years. Our authorities are very significant part of public investments during the past ourde. and the measures taken by the quickly picked up as a result of the supply of locally grown agricultural products of the sector. Stronger exports also played an government' s timely measures in support important part in keeping economic recovery on track. substantial investments, public and private. However, 5. Haiti's development requires abundant since the tragedy of 2010 is being external support which had been relatively on a concessional basis, an increasingly phased out. PetroCaribe funds have been financing, fiscal years. Our authorities are very significant part of public investments during the past --- Page 80 --- from V enezuela but are conscious of the need to appreciative of the support they receive balance the use of loans with debt diversify sources of financing and to carefully the V enezuelan the possibility R tecently, they have explored with government sustainability. of the PetroC Caribe debt in kind through exports of goods. of repaying part late of the FY 14 budget that could prevent constraining factor is the approval That 6. Another its growth and investment policies. said, the government from fully implementing and results at the level of tax collection and combat fraud are redoubling efforts to increase customs receipts are already being felt. constraint may be the inability of the 7. The other binding aspect of the financing that the domestic market government to increase the maturity of treasury bills with considering tenors of six months or more. to the issuance of instruments seems unresponsive in achieving sustainable structural change Challenges under the program is broadly satisfactory 8. Asindicated in the staff report, performance by capacity and infrastructure although progress on structural reforms is constrained also need to be factored in to better project limitations. Some elements of the political context FY 14 budget is only approaching approval future outcomes. For example, the in and understand following a negative vote by Parliament September now - six months into the fiscal year 2013 and several subsequent negotiation rounds. reforms in public financial management depend on 9. Some important structural The new organic law for the M inistry of parliamentary approval of draft legislation. adoption of strengthened structures for Economy and Finance is essential for the complete A ccount (STA). A revision of the debt management and the roll out of the Single Treasury The revision will seek to rationalize the Directorate of Budget is also necessary. of the budget law creating increase transparency in the execution expenditures and simplify procedures, and managers. and strengthen the responsibility of accountants the Government is moving forward with 10. Pending the adoption of new legislation, the flexibility offered by the existing public financial management reforms using all ahead of the new organic law for the administrative and legal framework. For example, has been achieved towards M inistry of Economy and Finance, commendable progress endeavor that requires careful adopting the single treasury account (STA), a complex and all public sector entities. planning and strong coordination betwe een the Ministry sector entity will be reduced to only Beginning in A pril, the number of accounts per public another one for investment. The entire three: one for expenditure, one for resources and 2014 at which time the number of is projected to be completed by end of J une 534, to the process in local currency will shrink to 237 from according accounts of public entities Ministry of Economy and Finance. and Finance, commendable progress endeavor that requires careful adopting the single treasury account (STA), a complex and all public sector entities. planning and strong coordination betwe een the Ministry sector entity will be reduced to only Beginning in A pril, the number of accounts per public another one for investment. The entire three: one for expenditure, one for resources and 2014 at which time the number of is projected to be completed by end of J une 534, to the process in local currency will shrink to 237 from according accounts of public entities Ministry of Economy and Finance. --- Page 81 --- and the business environment Public private partnerships tax collection and reduce dependency on 11. While efforts are being intensified to improve investments need to play a crucial role external assistance, the government knows that private Hence, different models of and is continuing to devise ways to promote their Thesei participation. include the adoption of innovative public private partnerships are being formalized. firms. One key challenge in the agricultural schemes to encourage the creation of agricultural large parcels of land that can allow for sector in Haiti is the limited number of sufficiently goods. Small farmers are being economies of scale and the production of competitive as well as some production units to facilitate access to credit encouraged to constitute larger increase efficiency. of micro-parks with mixed ownership 12. Another initiativeis the promotion s chosen four priority sectors including agro- (private/public) particularly in the government' of public services (e.g., water and The idea is to pool the supply industry and manufacturing. and administrative buildings. In this model, electricity) as well as that of plants, machinery skills will be provided by the technical assistance to upgrade managerial and production of the country arein preparation. Six such micro-parks in different regions government. overhaul of the "doing business" 13. The Haitian government is also planning a complete environment and promote legal apparatus to improve and modernize the business of the private sector, Following an extensive dialogue with representatives renowned entrepreneurship. Republic has designated a high level task force comprising all the President of the law to review the code of commerce and lawyers specializing in business and commercial This task force also has to draft new legislative other legislation related to doing business. the appropriate framework for mining, a proposals. Simultaneously, legislation to create is also being drafted with the support of sector with recently discovered significant potential, donors. Phasing out electricity and petroleum subsidies subsidies to the electricity company and to the 14. As underlined in the staff report, levels. Forgone taxes from the consumption of petroleum products have reached prohibitive months of this fiscal year are estimated of domestic petroleum prices for the first six more than half of freezing of Finance to have reached 2.8 billion gourdes representing to by the Ministry the fiscal year. To eliminate fully the subsidy the Treasury bonds to be issued during have to be raised by substantial amounts. In practice, petroleum consumption, prices would measures to attenuate the impact on the poor only a gradual adjustment with accompanying of the W orld Bank, the authorities are can be considered. With the technical support and start as soon as feasible a gradual increase finalizing plans to establish targeted subsidies of prices at the pump. the first six more than half of freezing of Finance to have reached 2.8 billion gourdes representing to by the Ministry the fiscal year. To eliminate fully the subsidy the Treasury bonds to be issued during have to be raised by substantial amounts. In practice, petroleum consumption, prices would measures to attenuate the impact on the poor only a gradual adjustment with accompanying of the W orld Bank, the authorities are can be considered. With the technical support and start as soon as feasible a gradual increase finalizing plans to establish targeted subsidies of prices at the pump. --- Page 82 --- (Electricité d'Haîti - EDH) consume 15. Subsidies to the public electricity company billion gourdes for this fiscal year). Even SO, another significant part of budget resources (2.5 Hence, the government's of electricity is limited, unreliable and expensive. of EDH on the supply it seeks to eliminate the heavy burden objectiveis two-prong. On the one hand, constrains growth and On the other, it aims to ensure that energy no longer and the the budget arrive at a situation in which the private sector development. The goal is to at a reasonable cost. The primary population at large have reliable access to electricity soundness. This necessarily implies challengei in the short term is to bring EDH to financial (IPPs) - a point terms with the independent power producers the renegotiation of contractual staff report. These contracts were negotiated we believe could have been emphasized in the the authorities to be very unfavorableto administrations and are perceived by under previous the State. convinced that for the longer term, a new strategic model is 16. The Haitian authorities are the State no longer bears all the risks. One avenue needed. It would have to be one in which distribution of electricity to increase competition is the decentralization of the production and A high level by low efficiency and high concentration. in a sector now characterized the Prime M inister to boost energy sector reform. commission has recently been created by WB and IMF. commission includes representatives of USAID,IDB, This Exchange rate and monetary policy stance adopted since 2011. Two 17. The central bank has retained the accommodative: the evolution of commodity contributed to the continuation of this stance: first, rates factors have easing and the low interest the international market and, second, quantitative of prices on circumstances have changed and in light practiced by the Federal Reserve. However, the central bank decided to begin recent fluctuations in the foreign exchange market interest rates and reserve its stance with the tools at its disposal including tightening requirements. its commitment to an improvement in the 18. The central bank wishes to reaffirm the market's shallowness and the functioning of the foreign exchange market. However, auction. To overcome number of actors are barriers to the adoption of a single-price the limited technical assistance to determine these difficulties the Fund has agreed to provide the deepening of the foreign exchange feasibility of an electronic platform that would favor market. Financial Sector --- Page 83 --- 19. The various measures initiated to improve access to credit are starting to bear fruit. The law against money laundering and the financing of terrorism has been adopted by Parliament and promulgated in November 2013. The authorities are confident that the new Al M L/CFT legal framework is consistent with FATF standards and will be a major step in strengthening governance in the financial sector. Its adoption in conjunction with a new legal framework for microfinance and credit unions offers better perspectives for the expansion of credit and financial deepening. The approval of the draft microfinance law and the new insurance law will also be instrumental in improving the management of risks and consumer protection.