Press Release: IMF Approves Stand-by Credit for Haiti
March 8, 1995The International Monetary Fund today approved a stand-by credit for Haiti up to the equivalent of SDR 20 million (about $31 million) over the next 12 months to support the Government's economic and financial program for 1995-96.
Haiti has experienced a dramatic deterioration in economic and social conditions since the military coup in September 1991, accentuating the downward trend evident since the mid-1980's. Preliminary estimates suggest that real GDP may have declined by about 30 percent between 1990-94, leaving per capita income at about $260 in 1994 and confirming Haiti's position as the poorest country in the Western Hemisphere. Inflation rose from an average of 18 percent a year during 1990-93 to 52 percent in the 12-month period ending September 1994, and central government revenue fell to the equivalent of 3.3 percent of GDP in 1994 from 7.3 percent in 1990. Exports declined to under $60 million in 1994 from $266 million in 1990, reflecting the closure of Haiti's assembly industries and the effect of the trade embargo on coffee shipments, while total imports fell to $141 million from $443 million over the same period.
Medium-Term Strategy and the 1995 Program
The return to constitutional government has provided an opportunity to halt the economic and social decline and to begin a program of reforms as a prerequisite for sustainable development. The Government's medium-term strategy seeks to eliminate financial imbalances, reduce the role of the public sector, liberalize the trade regime, and eliminate regulations and restrictions that impede private investment.
The economic program for 1995, supported by the stand-by credit, aims at reducing inflation to an annual average of 15 percent and increasing the level of net international reserves by $45 million. Real GDP is projected to grow by around 4.5 percent, mainly on the basis of a large increase in public investment of 7.2 percent of GDP (from 0.6 percent in 1994) to be financed by external aid.
The centerpiece of the program is a fiscal strategy that permits a temporary widening of the fiscal deficit, financed by budgetary grants and concessional loans, to meet immediate reconstruction and rehabilitation needs, as well as poverty relief, while measures are being introduced to address the underlying fiscal imbalance. The program also provides for restrained wage and financial policies.
The structural measures incorporated in the program include a simplified tariff regime with four rates in the 0-15 percent range; a new petroleum pricing policy with automatic adjustments for changes in import costs; the first phase of a public enterprise divestment plan incorporating the sale or lease of a cement plant and a flour mill; and the reform of the state electricity company.
In addition, with technical assistance from the IMF and the World Bank, the authorities will work on a program of public sector restructuring, redefinition of the role of the state, monetary policy and bank supervision, foreign investment policy, and business deregulation. This agenda would underpin a medium-term program which could be supported by IMF loans under its enhanced structural adjustment facility (ESAF)1 and appropriate World Bank and Inter-American Development Bank financing.
Addressing Social Costs
A wide range of humanitarian aid programs (estimated at $108 million) is being financed by bilateral donors and administered by nongovernmental agencies. To complement these programs, the Government has put together an Economic and Social Fund of about $23 million, financed by the World Bank and the Inter-American Development Bank, to provide financing for small projects that are conceived by community organizations and aimed at rehabilitating the social and economic infrastructure such as schools, health facilities, sewerage and water, and irrigation systems.
The Challenge Ahead
The measures already adopted and the policy commitments made by the Government should pave the way for sustainable economic growth and a much-needed reduction in poverty. However, the balance of payments remains vulnerable in the medium-term, particularly to a slow return of foreign investment. In such a case, there would need to be a further adjustment effort and additional external assistance.
Haiti joined the IMF on September 8, 1953, and its quota2 is SDR 60.7 million (about $89 million). Haiti's outstanding use of IMF financing currently totals SDR 3.5 million (about $5 million).
Sources: Haitian authorities; and IMF estimates.
1. The ESAF is a concessional IMF facility for assisting eligible members that reform programs to strengthen their balance of payments and improve their growth prospects. ESAF loans carry an interest rate of 0.5 percent, and are repayable over 10 years, with a 5 1/2-year grace period.
2. A member's quota in the IMF determines, in particular, the amount of its weight, its access to IMF financing, and its share in the allocation of SDRs.