Mission Concluding Statement 

Haiti -- 2005 Article IV Consultation, Statement by IMF Staff

March 16, 2005

An IMF mission visited Port-au-Prince during March 6-16 for the 2005 Article IV consultation discussions with the Haitian authorities. The discussions covered a broad range of issues, but focused on the government's near-term economic program, as well as the policies and structural reforms that will be necessary to support macroeconomic stability and growth over the medium term. The mission will present its findings to Fund management upon its return to Washington D.C., and it is expected that the Executive Board will conclude the review of the Haitian economy in May.

Based on data provided by the authorities, real GDP declined by 3.8 percent in 2003/04 (October-September), reflecting the impact of the civil unrest and armed rebellion in early 2004, and of the massive floods in May and September. However, since March 2004 good progress has been achieved toward restoring financial and economic stability. The authorities successfully implemented the six-month Staff-Monitored Program that ended last September, and-drawing on the Interim Cooperation Framework (ICF) agreed with donors in July 2004-the authorities established a stabilization program for 2004/05 supported by the IMF's Emergency Post-Conflict Assistance (EPCA).

The government's program for 2004/05 seeks to build on macroeconomic stability that has been achieved and to revive economic growth. The program aims to achieve real GDP growth of 2.5 percent, a decline in consumer price inflation to about 12 percent (end of period), and a build-up of net international reserves (NIR) of the Banque de la Republique d'Haiti (BRH) to US$85 million. Under the 2004/05 budget, government revenue and external assistance are expected to enable the increased provision of key public services and investment, while supporting a strengthening of public sector governance and transparency.

The mission found that the EPCA program (see IMF Press Release No. 05/4) is broadly on track, and all end-December targets were observed and most of the structural measures are being implemented as envisaged. External trade has returned to pre-crisis levels, the gourde remains stable, monthly inflation is on the decline, and net international reserves of the BRH have increased. Welcome progress has also been made on the structural front: the budget that was approved before the start of the fiscal year was published, discretionary expenditures from current accounts were substantially reduced, the pre-audit of key public sector enterprises and the census of public sector employment are underway, and the interim audit of the BRH has been completed. The mission has encouraged the authorities to put in place strong measures to implement the reforms envisaged in the current program, in particular to complete the census of employment in the public sector and the survey of domestic arrears of the government, and to strengthen public sector management and transparency.

The mission discussed with the authorities the measures to protect the fiscal objectives of the EPCA program, and in particular to safeguard priority outlays on social and security sectors. In response to the revenue shortfall (0.3 percent of GDP) that emerged during October 2004-January 2005, the government adopted measures to avoid slippages. The mission also encouraged the authorities to bolster the budget execution process and to use fully the resources available within the parameters agreed under the EPCA program. There was agreement between the authorities and the IMF team that accelerated disbursement of donor assistance is necessary to boost economic recovery, create employment, and expand provision of key social services. The government and donors are encouraged to enhance aid coordination and implement projects agreed under the ICF as soon as possible.

Monetary policy will continue to be geared towards reducing inflation to 12 percent during this fiscal year. The BRH remains committed to a flexible exchange rate policy, and will avoid foreign exchange market intervention, except for meeting its NIR target. The central bank stands ready to issue BRH bonds and raise interest rates as appropriate to achieve the program's inflation and external targets, and protect financial stability.

The authorities and the mission also discussed the key assumptions for the budget for 2005/06 and the macroeconomic policy framework for the medium term. Under the preliminary assumptions, the 2005/06 budget will be based on GDP growth of 3 percent, and inflation of no more than 10 percent. With domestic revenues-at 9¾ percent of GDP-expected to cover recurrent expenditures, the overall deficit would rise to 7¾ percent of GDP, which would be fully covered by concessional external loans and grants.

The mission recommended an early start to the budget preparation process to allow proper planning and coordination with donors. This policy framework underpinning the 2005/06 budget should help the newly-elected government sustain macroeconomic stability and create conditions for continued engagement of the international community. For the medium term, an accelerated implementation of structural reforms with a substantial increase in external support would boost investment in domestic infrastructure, human capital and raise real output growth to 4-5 percent a year.

The authorities intend to request the second purchase under the EPCA in mid-2005. Fund staff will continue a close dialogue and technical cooperation with the authorities as they proceed with the implementation of their economic program. The mission would like to thank the authorities for the productive and friendly discussions held during its stay in Haiti.