Describes the preliminary findings of IMF staff at the conclusion of certain missions (official staff visits, in most cases to member countries). Missions are undertaken as part of regular (usually annual) consultations under Article IV of the IMF's Articles of Agreement, in the context of a request to use IMF resources (borrow from the IMF), as part of discussions of staff monitored programs, and as part of other staff reviews of economic developments.
Haiti: Concluding Statement for the 2012 Article IV ConsultationDecember 10, 2012
The economy is recovering from the earthquake, albeit at a slow pace, reflecting limited absorptive and execution capacity as well as a series of natural shocks. After contracting by 5.4 percent in FY2010, economic activity expanded by 5.6 percent in FY2011. However, real GDP growth is estimated to have slowed to 2.5 percent in FY 2012 due to drought, Hurricane Isaac, and low execution of public capital spending. Headline inflation (y/y) increased to 6.8 percent in October, up by 1.9 percent since June, primarily owing to increases in food and housing prices. With lower-than-projected domestic revenue and a drop in budget support, the government ended FY2012 with an overall deficit of 6 percent of GDP. The external position has strengthened because of increased official inflows and remittances, with gross international reserves reaching 6.3 months of imports.
The outlook remains favorable but there are serious downside risks. Growth is projected to accelerate to 6.5 percent in 2013, assuming a pickup in reconstruction and a rebound in agriculture. Inflation should remain stable, in the mid-single digits. Looking forward, maturing ongoing agricultural and industrial projects and persistence in efforts to improve the business environment will help sustain growth and strengthen the external position. However, a worsening in global economic conditions, heightened domestic political and social tensions- fueled by pervasive poverty and lack of progress in improving living standards- and natural disasters could impede the fragile recovery and constrain Haiti’s growth prospects.
The authorities and staff agreed that key priorities should be to relocate the people still in temporary shelters, rebuild the country while maintaining macroeconomic stability, and create the conditions for broad-based and inclusive growth. Macroeconomic policies and structural and institutional reforms to enhance the country’s resilience, particularly to natural disasters, will also be needed to protect long-term growth, reduce unemployment, and raise living standards. Against this background, discussions with the authorities centered on (i) expanding fiscal space for poverty-related and growth-enhancing spending, (ii) maintaining price stability and facilitating external adjustment, and (iii) moving ahead with long-awaited structural reforms to boost productivity and competitiveness, and support inclusive growth.
Fiscal policy will aim to expand fiscal space to provide more resources for poverty-related and growth-enhancing spending, while building cushions against future shocks.
- Revenue mobilization will be supported by ongoing efforts to strengthen tax and custom administration, reduce and rationalize exemptions, and expand the tax base. In particular, the mission urged the authorities to accelerate (i) the implementation of the long-awaited electronic tax filing system, to be later accompanied by an electronic payment system; and (ii) enhance customs valuation and reinforce controls over the collection chain.
- Non-priority outlays, especially ill-targeted subsidies, will be limited while pro-poor expenditures will be protected. Given the country’s urgent needs for social, security and reconstruction spending, the mission stressed that transfers to the electricity company be limited to those needed to enhance productivity gains.
- Efforts should continue to strengthen budget formulation, execution, transparency and reporting; improve internal and external controls; enhance project preparation and execution and ensure the quality of public investment; and improve public financial management.
Monetary policy will aim at price stability. The authorities will remain vigilant in monitoring inflationary pressures. Further progress to improve liquidity management, deepen the domestic financial market, strengthen market-based operations, and reduce dollarization will help strengthen monetary transmission mechanisms.
Further improvements in financial intermediation are needed to support the growth agenda. Commercial bank credit to the private sector has increased on average by about 25 percent p.a. over the last two years. However, measures to encourage access to financing are critical because credit to private sector remains low (16 percent of GDP). Nevertheless, the recent uptrend in credit signals the importance for updating financial legislation to improve regulation and supervision. A new insurance law is expected to contribute to protect consumers and support economic activity.
The Central Bank intends to continue to allow flexibility in the exchange rate. Since April 2010, the gourde has depreciated gradually against the U.S. dollar by about 8 percent. The objective of exchange rate policy continues to be to smooth out excess volatility, while keeping the Gourde in line with macroeconomic fundamentals.
Improving the business environment is urgent to raise productivity and competitiveness and lift constraints on growth. Ongoing business environment reforms to streamline the country’s numerous, complex, and cumbersome regulations and reduce production costs and alleviate the burden of doing business are welcome. However, the authorities need to vigorously pursue reform of the energy sector to reduce the high cost of electricity and improve the reliability and efficiency of energy supply.
An IMF mission visited Port-au-Prince during November 28 to December 7th 2012 to conduct the discussions for the 2012 Article IV Consultation and the fifth review under the ECF-supported arrangement. The mission met with Minister of Economy and Finance Jean Marie, Minister of Commerce Laleau, Minister of Agriculture Jacques, Minister Delegate in charge of Human Rights and the Fight Against Poverty Auguste, Governor Castel and senior financial and economic officials. The mission also met with representatives of the donor and diplomatic community and the private sector. The IMF team is grateful to the authorities for their generous hospitality and open and constructive discussions during the mission, and also to the many social partners, private sector and non-government representatives who made time to meet with the IMF team.