## 1htiea2020001 - Haiti: IMF Staff Report excerpts ## Source details **Canonical URL:** [1htiea2020001 - Haiti: IMF Staff Report excerpts](https://www.imf.org/-/media/files/publications/cr/2020/english/1htiea2020001.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2020/english/1htiea2020001.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2020/english/1htiea2020001.pdf.json) --- ### Summary outlook and risks - Baseline: potential growth projected to remain below 1.5 percent over the medium term; baseline medium-term potential growth: "1.4 percent". - Short-term growth and projection: - Output contracted by 1.2 percent in FY2019. - Growth projected at -0.4 percent in FY2020 under limited political stabilization. - Inflation: - Pushed above 20 percent (y/y) in FY2019. - Projected to ease to 17.5 percent (y/y) by end-2020. - Projected to fall to below 10 percent by 2025; consumer prices (end-of-period) series: 15.4; 13.3; 20.1; 17.5; 14.5; 12.0; 11.0; 10.0. - External current account and reserves: - Current account deficit shrunk from 3.9 percent of GDP in FY2018 to 2.0 percent of GDP in FY2019. - Net international reserves fell to US$649 million in September (FY2019 reference); program-definition NIR series: 830; 677; 649; 541; 569; 586; 594; 600 (US$ million). - Public finances and debt: - NFPS deficit in FY2019 estimated at 3.8 percent of GDP (up from 2.9 percent in FY2018). - Public debt rose by 7 percentage points to 47 percent of GDP at end-September. - About 58 percent of public debt is external; public sector debt (end-2019) US$3.7 billion (47 percent of GDP). - Debt structure (end-2019, fiscal-year basis): Total External Debt US$2,147.9 million (27.4 percent of GDP); Total Domestic Debt US$1,541.4 million (19.6 percent of GDP); BRH advances US$960.2 million (12.2 percent of GDP). - Energy sector fiscal cost and arrears: - Total government support to the energy sector rose from 4.6 to 6.5 percent of GDP (Box figures: 4.6 and 6.5 percent of GDP in FY2018 and FY2019 respectively (SIP); main text: "4.5 percent in 2018 and 6.4 percent in 2019"). - Domestic arrears surged to 3.7 percent of GDP; external arrears to a foreign oil company reached 0.4 percent of GDP at end-September. - Risks: - Downside risks remain elevated: prolongation of political instability, extreme natural disaster, drop in remittances, contraction in exports because of trade tensions. - External risks include oil price shocks, reduction in remittances (e.g., termination of "Temporary Protected Status"), and potential loss of trade preferences (e.g., U.S. HOPE Act). *International Monetary Fund. Discussions were held in Washington, D.C. and in Haiti during November 8–22, 2019. Report approved December 20, 2019.* ### Recent macroeconomic developments - Political and program context: - 2018 SMP expired in August 2018; program agreed ad referendum in March 2019 could not proceed after resignation of Prime Minister Céant and failure to ratify a replacement. - Political crisis prevented government from passing budget laws for FY2019 and FY2020; dissolution of parliament created an "institutional void". - Revenue and spending: - Revenues fell by 22 percent in real terms in FY2019. - Government cut domestically-financed capital spending by two-thirds and spending on goods and services by 10 percent (nominal). - Overall government spending contracted by 3.0 percentage points of GDP despite energy-related transfers. - Monetary developments and BRH actions: - BRH sterilized part of monetary financing by raising interest rates on BRH bonds by 400-1000 basis points in June (depending on maturity). - Base money grew by 26 percent during the fiscal year. - BRH cut rates on BRH bonds by 500–700 basis points on November 15 to support the private sector. - Pacte limiting BRH financing of FY2020 deficit to 10 billion gourdes (about 1.2 percent of GDP) signed on November 27 between BRH and ministry of finance. - Banking sector: - Private sector credit to GDP stabilized around 19.7 percent. - Return on equity declined from 23.9 percent in September 2018 to 21.1 percent in June 2019. - Regulatory capital to risk-weighted assets was 21.7 percent in June 2019 (regulatory minimum 12 percent). - Prudential limit on banks’ net open foreign exchange position is 2.0 percent of equity. ### Fiscal stance, energy sector impact, and short-term measures - Fiscal outcomes and targets: - NFPS deficit: 3.8 percent of GDP in FY2019 (from 2.9 percent in FY2018). - Staff project NFPS deficit of 3.4 percent of GDP in FY2020 absent budget guidance; staff recommend NFPS deficit target of 2.0 percent of GDP in medium term. - Staff project reducing fiscal deficit to 3.1 percent of GDP by 2021 under short-term measures and further stabilization thereafter. - Energy sector losses (Box 3 FY2018 components, percent of GDP): - Fuel: 2.7 percent of GDP. - EDH and others: 1.8 percent of GDP, comprised of: - Sales tax collected by EDH but not transferred: 0.1 - Free fuel to EDH and PBM power plants: 0.6 - Electricity purchase from IPPs on behalf of EDH: 1.0 - Subtotal EDH subsidy: 1.7 - Free fuel to Sogener power plants: 0.1 - Total Energy Sector FY2018: 4.6 - Short-term measures proposed to contain energy subsidies and fiscal losses: - Rise in price of aviation gasoline; conversion of public transportation vehicles to propane. - Temporary suspension of subsidies to EDH; collection of amounts alleged due the government by power producers for over-invoicing. - Ministry of finance proposed ending most customs duties exemptions to boost revenue. - Pacte limits BRH financing to 10 billion gourdes (about 1.2 percent of GDP) for FY2020. - Box 2 near-term measures summary: - Fiscal: prepare and publish a notional 2020 budget; remove customs duties exemptions; further rationalize non-essential spending; prepare arrears resolution plan. - Monetary: enforce new Pacte de Gouvernance; reduce base money growth. - Governance: set up steering committee under 2009 National Anti-Corruption Strategy; strictly enforce asset declaration system. - Social Protection: formally adopt PNPPS; set up robust cash-transfer distribution system; launch cash-transfer pilot (for families with young children). - Energy: overhaul EDH management and performance; renegotiate IPP contracts transparently. ### Policy recommendations and priorities - Main objective: stabilize the macroeconomic situation in an unstable political context. - Fiscal policy recommendations: - Contain fiscal deficit and its monetary financing by the central bank. - Improve domestic revenue collection; redirect current spending to create space for social and capital expenditures. - Strengthen DGI and AGD; implement tax administration reforms and tax policy modernization (new Tax Code, Procedure Code, excise reform, municipal taxation, reductions in tax expenditures; eventual transition to a VAT properly sequenced). - Reallocate current expenditure to growth-enhancing capital and social spending; rationalize public-sector wage bill; enforce spending controls; expand TSA coverage. - Adopt a medium-term fiscal framework (MTFF) with NFPS deficit target as anchor; staff stand ready to provide TA. - Monetary and institutional recommendations: - Strengthen BRH autonomy and legal framework to reduce fiscal dominance. - Transition to a quantitative monetary target as fiscal dominance declines. - Develop a secondary market for government securities; advance transition to IFRS; improve foreign reserve management and monetary statistics. - Limit FX intervention to disorderly market conditions and smoothing volatility. - Governance and anti-corruption: - Revamp anti-corruption priorities; establish steering committee with independent civil society representatives. - Implement asset declaration system for senior officials with verification, sanctions, and public access. - Strengthen AML measures and beneficial ownership transparency. - Reduce barriers to entry, guarantee property rights, remove monopolies and rent-seeking opportunities. - Social policy: - Finalize and adopt PNPPS; focus on a limited number of unconditional, quasi universal cash transfer programs; design and launch pilot with World Bank coordination. - Expand SIMAST beneficiary registry; ensure distribution mechanism subject to transparent monitoring and independent oversight. - Implementation support: - Capacity development, enhanced cooperation with development partners, and outreach to raise ownership. - Conditional opportunity: - Political resolution and an appointed government able to implement reforms could attract international support and lead to higher investment and potential growth. ### External position, scenarios, and authorities’ views - External current account: - Projected to shrink to 0.9 percent of GDP in 2020 as demand and imports remain weak (current account series: -1.0; -3.9; -2.0; -0.9; -1.1; -1.5; -2.1; -2.4 percent of GDP). - External position assessment: - Haiti’s external position assessed moderately weaker than medium-term fundamentals and desired policies; positive policy gap suggests desired policies would worsen, not improve, the current account deficit. - Risks and scenarios: - Internal downside: continuation of political instability and security problems; little economic reform; extreme natural disasters. - Internal upside: resolution of crisis, appointment of reform government, return of international support leading to higher investment and growth. - External downside: oil price shocks; reduction in remittances; cancellation of trade preferences (e.g., U.S. HOPE Act) hurting exports and FDI in the textile sector. - Authorities’ views: - Broad agreement with staff baseline growth projection and risk assessment. - Requested presentation of alternative, more positive macro scenarios. - Emphasized severity and unprecedented duration of crisis and need for external support. - Agreed that political resolution and resumption of activity in early-2020 could lead to a rebound and higher growth than staff forecast. - Highlighted job creation and boosting growth as priorities. ### Monetary, exchange rate, and financial sector policies - Financing gap and Pacte: - Staff estimate a financing gap of 3.1 percent of GDP in 2020—met by arrears accumulation under the baseline. - Staff judged arrears accumulation preferable to massive monetary financing given lower inflation and lower macro and financial stability risk, but noted negative consequences of arrears (shortages, interruptions in electricity, lower growth). - Medium-term monetary framework: - Quantitative monetary target to become policy anchor as fiscal dominance declines. - BRH requested TA for secondary market development, IFRS transition, amendments to central bank law, reserve management improvements, and monetary statistics strengthening. - Financial intermediation and inclusion: - Credit to private sector about 19 percent of GDP; only 33 percent of adults have an account at a formal financial institution (Findex). - 75 percent of bank lending goes to only 20 borrowers. - Emphasize fintech and mobile banking development; support BRH National Financial Inclusion Strategy (2015). - Safeguards assessment: - Updated safeguards assessment of BRH in 2019 noted significant safeguards risks; fiscal dominance strained BRH financial position. - Recommendations include legal reforms, transition to IFRS, revamp reserves management, and strengthen monetary statistics reporting. ### Governance, transparency, and PFM - Governance weaknesses: - Persistent corruption and weak governance; 18 presidents and four coups d’état since 1986 noted. - Draft law to strengthen ULCC was never submitted to parliament; steering committee for 2009 anti-corruption strategy never established. - Asset declaration compliance low historically; prosecution and sanctioning of corruption limited. - PFM findings and recommendations: - TSA extended to 18 ministries since 2014, but over 900 accounts remained outside TSA as of March 2019. - Use of lettres de virement grew to around 16 percent of total budget spending in early FY2019, undermining cash management. - Recommend full TSA coverage, elimination of exceptional spending procedures, medium-term budget framework, improved public accounting, and audits by CSCCA. - Customs and tax administration: - Customs processes allow discretion and uneven enforcement; possible customs duties exemptions costing at least 0.8 percent of GDP. - Recommendations: interconnect DGI and AGD systems, increase ASYCUDA use, establish reference price list, long-term expert presence at AGD. ### Social safety net (PNPPS) - Objectives and design: - Goals: reduce program overlap and boost coverage, effectiveness, and ownership. - Diagnosis: existing programs "complex and ineffective, with inadequate coverage, overlaps and weak delivery systems." - Staff recommendations: eliminate some programs; give MAST primary coordination; focus on limited unconditional, quasi universal cash transfer programs; design and launch pilot with World Bank coordination. - Funding: PNPPS should be based on a sustainable funding strategy with primary funding from domestic budget resources; external flows to launch pilot and complement PNPPS. - Transfer distribution and monitoring: - Expand SIMAST coverage for beneficiary identification; choose transfer distribution mechanism rapidly drawing lessons from post‑Hurricane Matthew programs; ensure regular transparent monitoring with independent non-government representatives. - Social indicators and needs: - Over 58 percent of the population live below national poverty line (US$2.41/day). - Real per capita income stagnated since 2015 at around US$870 (2018). - Life expectancy 63 years; literacy 62 percent; about 63 percent access to safe water (2015). - WFP estimates 3.7 million people (one in three) need food assistance; OCHA warned number could reach 4.2 million by March with 1.2 million at "emergency levels". ### Energy sector: access, governance, and fiscal costs - Access and losses: - Only 39 percent of Haitians have access to electricity. - For grid customers (EDH), "more than half are not billed." - EDH losses amount to about 2 percent of GDP per year; total energy sector fiscal losses sizable (see energy sector losses above). - Market and fiscal issues: - End of government import monopoly and fixed retail fuel prices since early 2015 led to efficiency losses; retail fuel prices in Haiti about 50 percent lower than in Dominican Republic encouraging smuggling. - State subsidizes electricity through foregone tax revenues, free fuel, payment guarantees for IPPs, and unclear transfers, arrears and loans. - Recommendations: - Gradual and comprehensive sector reform: overhaul EDH management and oversight; review IPP costs and contracts; sequence fuel subsidy reform targeting higher-income groups first; ensure offsetting social programs and clear communications plan; diversify toward renewable energy and off-grid solutions. - Suggested Climate Change Policy Assessment to identify adaptation, financing, and risk management strategies. ### Debt sustainability, risks, and stress tests - Debt stocks and key figures (end-FY2019): - Public sector debt US$3,689.3 million; 47.0 percent of GDP. - External public debt accounts for 58.2 percent of total outstanding public debt (27.4 percent of GDP). - External technical arrears to Venezuela about US$260 million (as of September 30, 2019) are being resolved. - DSA findings: - Risk of external debt distress: High. - Overall risk of debt distress: High (model-based rating moderate but judgment raised to high due to fragility and frequent natural disasters). - Baseline projects breaches of indicative thresholds from FY2034 onward for external debt metrics (PV of external debt-to-exports projected to breach 180 percent in FY2034). - Under baseline, public debt projected to remain below 47 percent of GDP until 2025; PV public debt projected to reach 35.6 percent of GDP in FY2025. - Stress tests: - Natural disaster shock (Hurricane Matthew-like, damages of 25 percent of GDP) has largest negative impact: PV debt-to-GDP could rise substantially (e.g., to 54 percent by 2040 under certain stress scenarios). - Shock to non-debt flows (decline in current transfers and FDI by one standard deviation) would push PV external debt persistently above 180 percent of exports and increase debt service-to-revenue above 18 percent for more than 10 years. - Authorities’ views on debt: - Agreed with DSA and highlighted IFRS-9 implications for BRH advances to government and need to develop market for government debt securities to reduce BRH financing. ### Capacity development, TA, and IMF engagement (Annex I & Annex Figure) - Country Engagement Strategy: - Two-step concept: (1) build consensus around basic economic principles and objectives owned by government and stakeholders; (2) encourage stakeholders to spell out commitments in writing (round table/commitment device). - IMF role: initiate dialogue, assemble partners, formalize cooperation with World Bank and IDB via tripartite working group. - Condition for Fund financing: a government able to commit to and implement policies for stability and sustainability. - Possible instruments: RCF/SMP combination as bridge to ECF, adapted to Fragile and Conflict States guidance and including social protection actions. - Technical assistance priorities and missions (selected): - FAD: tax administration, TSA, tax policy, public financial management, energy subsidy reform (multiple missions since 2013). - MCM: IFRS transition, banking supervision, reserve management (missions and requests). - STA: GDP rebasing, monetary statistics, GFS improvements. - LEG/FIN: anti-corruption law advice, AML/CFT support, safeguards follow-up. - TA strategy: - Resident long-term experts recommended to improve ownership and implementation; partnership frameworks in place since May 2017 for fiscal reform and PFM; similar partnership considered for social protection. - Safeguards: - August 2019 safeguards assessment concluded safeguards risks at BRH remained high; recommendations include legal amendments, IFRS transition, modernization of internal audit, and reserve management reforms. ### Statistical issues and data priorities - Major priorities: national accounts rebasing; labor indicators; fiscal and external sector data coverage and timeliness; monetary statistics timeliness and SRF quality. - Recent and planned statistical work: - CPI rebased and published November 2018; supply and use tables for 2011-12 compiled. - World Bank-funded resident advisor for SUTs and rebasing; revised GDP estimates expected around May or June 2020. - Reporting and adequacy: - Haiti participates in the General Data Dissemination System but data provision has serious shortcomings; fiscal, monetary and external data broadly adequate but need improvements. - Haiti does not currently report Financial Soundness Indicators (FSIs) to the Fund for dissemination. - Table of Common Indicators Required for Surveillance shows recent observation dates for key series (e.g., exchange rates November 2019; international reserve assets September 2019; CPI September 2019; GDP 2018). ### Staff appraisal and priorities reiterated - Immediate priority: stabilize macroeconomic situation; prepare and implement a notional budget for FY2020 with measures to boost domestic revenues and contain non-priority spending. - Key staff-recommended actions: - Implement recent TA actions to strengthen tax administration and customs computerization; consolidate large taxpayer registry; reduce tax expenditures. - Mobilize domestic revenues and limit expenditures to close financing gap; avoid excessive BRH monetary financing. - Adopt MTFF anchored on NFPS deficit target; expand TSA; prepare arrears resolution plan. - Strengthen BRH autonomy, transition to IFRS, improve reserve management and monetary statistics. - Update anti-corruption strategy, set up steering committee with independent civil society, implement asset declaration system and AML/KYC improvements. - Adopt PNPPS by Council of Ministers, design limited cash-transfer pilots, expand SIMAST. - Advance medium-term regulatory reforms to strengthen property rights, reduce monopolies and barriers to entry, and accompany reforms with infrastructure investment. *Source: IMF staff report excerpts (content unit: 1htiea2020001).* ### 1.4 percent over the medium term. Downside risks, both domestic and external, ### 1htiea2020001 - 1.4 percent over the medium term. Downside risks, both domestic and external, ### Summary outlook and risks - Baseline projection: potential growth projected to remain below 1.5 percent over the medium term. - Short-term growth: output is estimated to have contracted by 1.2 percent in FY2019. - Near-term projection in baseline: growth would remain negative at -0.4 percent in FY2020 under limited political stabilization. - Inflation: pushed above 20 percent (y/y) in FY2019; projected to ease to 17.5 percent (y/y) by end-2020, and fall to below 10 percent by 2025. - External current account: current account deficit estimated to have shrunk from 3.9 percent of GDP in FY2018 to 2.0 percent of GDP in FY2019. - External position: net international reserves fell to US$649 million in September (FY2019 reference). - Public debt: public debt rose by 7 percentage points to 47 percent of GDP at end-September; about 58 percent of public debt is external. - Fiscal deficit: NFPS deficit in FY2019 estimated at 3.8 percent of GDP (up from 2.9 percent of GDP in FY2018). - Energy sector fiscal support: estimated total government support to the energy sector increased from 4.6 to 6.5 percent of GDP. - Domestic arrears: surged to 3.7 percent of GDP; external arrears (to a foreign oil company) reached 0.4 percent of GDP at end-September. - Risks: Downside risks, both domestic and external, remain elevated. Specific risks cited include prolongation of political instability, extreme natural disaster, drop in remittances, and/or a contraction in exports because of trade tensions. ### Recent macroeconomic developments - Political and program context: - The 2018 SMP expired in August 2018; a program agreed ad referendum in March 2019 could not proceed after resignation of Prime Minister Céant and failure to ratify a replacement. - Political crisis prevented the government from passing budget laws for FY2019 and FY2020. - Revenue and spending: - Revenues fell by 22 percent in real terms in FY2019. - Government slashed domestically-financed capital spending by two-thirds and cut spending on goods and services by 10 percent in nominal terms. - Despite energy-related transfers, government spending contracted by 3.0 percentage points of GDP. - Monetary developments: - BRH sterilized part of monetary financing by raising interest rates on BRH bonds by 400-1000 basis points in June (depending on the maturity). - Base money grew by 26 percent during the fiscal year. - BRH cut rates on BRH bonds by 500–700 basis points on November 15 to support the private sector. - Banking sector: - Ratio of private sector credit to GDP stabilized at around 19.7 percent. - Return on equity declined from 23.9 percent in September 2018 to 21.1 percent in June 2019. - Regulatory capital to risk-weighted assets was 21.7 percent in June 2019 (regulatory minimum 12 percent). - Prudential limit on banks’ net open foreign exchange position is 2.0 percent of equity. ### Fiscal stance and energy sector impact - Fiscal outcomes: - NFPS deficit: 3.8 percent of GDP in FY2019 (from 2.9 percent in FY2018). - Public debt: 47 percent of GDP at end-September (increase of 7 percentage points). - The debt of the government to the central bank included 12.2 percent of GDP. - Energy sector losses and policy: - Electricity losses (in millions of gourdes) and fuel losses (in millions of gourdes) series presented; total losses of the energy sector (% of GDP) rose from 4.6 to 6.5 over the period noted. - Short-term measures proposed to contain energy subsidies: rise in the price of aviation gasoline; conversion of public transportation vehicles to propane; temporary suspension of subsidies to EDH; collection of amounts alleged due the government by power producers for over-invoicing. - Ministry of finance proposed ending most customs duties exemptions to boost revenue collection and reiterated plan to present a budget for 2020 despite end of parliamentary session. - On November 27, the BRH and ministry of finance signed a new Pacte limiting financing of the deficit for FY2020 to 10 billion gourdes (about 1.2 percent of GDP). ### Policy recommendations and priorities - Main policy recommendation: stabilize the macroeconomic situation in an unstable political context. - Fiscal policy: - Continue efforts to contain the fiscal deficit and its monetary financing by the central bank. - Improve domestic revenue collection and redirect current spending to create space for social and capital expenditures. - Short-term measures to contain energy subsidies combined with further spending cuts to reduce the fiscal deficit to 3.1 percent of GDP by 2021 where it would stabilize thereafter. - Monetary and institutional: - Steps to strengthen the central bank’s autonomy and legal framework to help reduce fiscal dominance. - Governance and social policy: - Strengthen the social safety net. - Medium-term energy sector reform. - Steps to tackle corruption and improve governance. - Implementation support: - Capacity development, enhanced cooperation with other development partners, and outreach with non-government stakeholders in Haiti to raise ownership and support implementation. - Conditional opportunity: - Political resolution and an appointed government able to implement fundamental reforms could attract international support and lead to higher investment and potential growth. ### Background and structural constraints - Fragility and governance: - Haiti’s recent history marked by political instability, weak governance and widespread corruption; 18 presidents and four coups d’état since 1986. - Reliance on UN peacekeeping forces since disbanding the army in 1995; UN presence downsized in October (planned) to a smaller, mostly administrative office. - Poverty and human development: - Over 58 percent of the population live below the national poverty line (US$2.41/day). - Real per capita income stagnated since 2015 at around US$870 (2018). - Life expectancy 63 years; literacy 62 percent; about 63 percent of the population with access to safe water (2015). - Natural disasters and environment: - Some 82 natural disasters hit Haiti during 1990-2017, including a devastating earthquake in 2010. - Growth constraints and opportunities: - Annual GDP growth averaged 1.4 percent from FY2015 through FY2018. - Growth opportunities cited: construction, agriculture, environmental remediation, tourism, mining, telecom, light manufacturing, alternative energy, and services. - Development of potential contingent on political stability and policy continuity. *International Monetary Fund. Discussions were held in Washington, D.C. and in Haiti during November 8–22, 2019. Report approved December 20, 2019.* ### 3.0 percent of GDP (Table 2). The external current account deficit would shrink to 0.9 percent of ### 1htiea2020001 - 3.0 percent of GDP (Table 2). The external current account deficit would shrink to 0.9 percent of ### External position and macro outlook - The external current account deficit would shrink to 0.9 percent of GDP in 2020 as demand and imports remain weak. - The external sector assessment suggests that Haiti’s external position at present is moderately weaker than medium-term fundamentals and desired policies (Annex III). - The positive policy gap means desired policies would worsen, not improve, the current account deficit, suggesting significant structural competitiveness problems. ### Risks and scenarios - Risks are on the downside, but stability could bring important upsides (Annex II). - Internal downside risks: - Continuation of political instability and security problems. - Little economic reform. - Extreme natural disasters. - Internal upside scenarios: - Resolution of the current crisis. - Appointment of a government committed to reform. - Return of support from the international community leading to higher investment and potential growth. - External risks: - Vulnerability to oil price shocks. - Reduction in remittance flows, possibly triggered by the termination of “Temporary Protected Status” of Haitian nationals in the U.S. or a slowdown in the U.S. and Canada. - In an adverse scenario, cancellation of trade preferences (for example the U.S. HOPE Act) would hurt Haitian exports and could lead to FDI outflows in the textile sector. ### Authorities’ views (general) - Authorities broadly agreed with staff’s baseline growth projection and risk assessment. - They requested presentation of alternative, more positive macro scenarios. - They emphasized the severity and unprecedented duration of the current crisis and the need for external support. - They highlighted deterioration of the security situation and growing role of armed gangs. - They agreed that resolution of the political situation and resumption of activity in early-2020 could lead to a rebound and support higher growth than staff forecast. - They emphasized creating jobs and boosting growth as priority objectives of any reform program. ### Policy discussions — Macroeconomic stability (focus and approach) - Discussions focused on: - Immediate policies to limit economic deterioration and build capacity, strengthen governance, and tackle corruption. - Medium-term policies requiring improvements in political stability. - Emphasis on short-term measures feasible under current political and security conditions, supported with capacity building technical assistance (TA) from the Fund. - In addition to fiscal and monetary policy reforms, staff recommended focusing on strengthening the social safety net and reforming the energy sector. ### A. Fiscal policy — immediate priorities and medium-term framework - Immediate priority: - Prepare and publish a budget framework for FY2020; government needs a notional budget with a deficit target consistent with financing constraints. - Notional budget should include measures to stabilize domestic revenues by strengthening tax administration and reducing tax expenditures. - Exemptions under the three main taxes—income, sales (taxe sur le chiffre d’affaires), and import duties—amount to at least 2.6 percent of GDP. - Framework should include a plan for resolution of the stock of budget arrears. - In absence of budget guidance or obvious financing sources, staff project a deficit of the NFPS of 3.4 percent of GDP in FY2020. - Gross financing needs, including debt amortization, would be met by domestic debt issuance, the central bank up to the limit under the Pacte, and further arrears accumulation (¶23-24, Tables 2a-b). - Medium-term: - Staff recommend a deficit target for the NFPS of 2.0 percent of GDP. - Target consistent with staff estimates that BRH financing of about 1.2 percent of GDP would not increase inflation in the medium term, assuming the money base grows at the same rate as nominal GDP. - Net project loans of about 0.8 percent of GDP per year would cover remaining financing needs under this framework. - Staff estimate that a target of 2.0 percent of GDP would allow the debt ratio to decrease slightly over the medium term. - Revenue mobilization and tax administration reforms: - Significantly increase domestic revenue collection. - Strengthen the Directorate General of Taxes (DGI) and the Customs Administration (AGD). - Establish function-based organizational structures, enhance data exchange and use of third-party information, consolidate registry of large taxpayers, reduce tax expenditures. - Advance computerization of customs operations and increase use of online tax payments (see Annex IV). - Tax policy modernization: - Follow through with implementation of the tax reform roadmap adopted in March 2018. - Draft and advance adoption of the new Tax Code and Procedure Code. - Measures needed include excise tax reform, improvement of framework for municipal taxation, and reductions in tax expenditures. - Consider eventual transition from the current sales tax to a VAT, properly sequenced and implemented. - Expenditure reprioritization and PFM: - Reallocate current expenditures to growth-enhancing capital and social spending. - Rationalize public-sector wage bill and spending on goods and services (spending on goods and services represents 20 percent of total spending). - Adjust public workforce with attrition, adopt a price reference list for procurement, and better enforce spending controls (¶22). - Eliminate transfers to the loss-making energy sector over time after mitigating measures for the poor (Section C). - Continue expanding coverage of the Treasury Single Account (TSA) to all ministries, autonomous agencies, and public enterprises. - End recourse to “exceptional” spending procedures that undermine cash management. - Adopt a medium-term fiscal framework (MTFF) with the NFPS deficit target as the main anchor. - Fund stands ready to continue providing TA in these areas. - Authorities’ views on fiscal: - Determined to put in place an appropriate budget but face technical difficulties to obtain parliamentary approval. - Formulating a budget framework to be adopted by the government for programming expenditures and cash management. - Security problems and “peyi lok” impede taxpayers from delivering tax payments and officials from going to work; progress on revenue reforms was stopped. - Concur with need to raise domestic revenues and noted short-term suggestions to strengthen tax administration. - Highlighted measures underway to reduce monetary financing of the NFPS deficit, including exploring options to reduce transfers to the energy sector, negotiating temporary reduction in transfers to EDH, and seeking refunds from independent power producers (IPPs) related to alleged sur-facturation (over-invoicing). - Prefer to set a range for the medium-term deficit target to account for uncertainty. - Box 2. Near-term Measures to Restore Macroeconomic Stability — Fiscal and related measures - Fiscal: - Prepare and publish a notional budget for 2020, as announced in October. - Remove customs duties exemptions and reduce tax exemptions. - Further rationalize non-essential spending. - Prepare a plan for the resolution of arrears. - Monetary: - Enforce the new Pacte de Gouvernance between the BRH and the ministry of finance. - Reduce base money growth. - Governance: - Set up the steering committee envisaged under the 2009 National Anti-Corruption Strategy, with independent representatives from civil society. - Strictly enforce the asset declaration system for senior public officials. - Social Protection: - Formally adopt the PNPPS. - Set up a robust cash-transfer distribution system. - Design and launch a cash-transfer pilot-program (for families with young children). - Energy Sector Reform: - Overhaul the management and performance of EDH, including billing and collection. - Renegotiate contracts with independent producers in a transparent manner. ### B. Monetary, exchange rate, and financial sector policies - Financing gap and Pacte: - While the Pacte aims to address fiscal dominance, a financing gap will persist. - Staff estimate there would remain a financing gap of 3.1 percent of GDP in 2020—met by arrears accumulation under the baseline (Table 2). - Staff judged arrears accumulation (vs. massive monetary financing) the least-worst option given lower inflation and less erosion of purchasing power and lower macro and financial stability risk. - Negative consequences of arrears accumulation include shortages of goods like fuel, interruptions in public services like electricity, lower growth, and erosion of confidence in fiscal policy. - Critical for fiscal authorities to mobilize revenues in near-term and limit expenditures. - Medium-term monetary framework: - A quantitative monetary target should become the policy anchor as fiscal dominance declines. - BRH requested TA to help develop a secondary market for government debt securities and should advance transition to IFRS, amendments to the central bank law, improvements in foreign reserve management and foreign exchange regulation, and strengthening monetary statistics. - Foreign exchange intervention: - Interventions should be limited to instances of disorderly market conditions. - BRH has allowed exchange rate to adjust in an orderly fashion and used reserve sales and prudential measures to limit banks’ forex liquidity risk. - Intervention should be limited to smoothing volatility or stabilizing market expectations in the short term, given large and rapid exchange rate pass-through to consumer prices. - Financial intermediation and inclusion: - Credit to the private sector represents about 19 percent of GDP. - Only 33 percent of the adult population has an account at a formal financial institution (Findex). - 75 percent of bank lending goes to only 20 borrowers. - Weaknesses include legal and institutional framework, contract enforcement, and limited competition between banks. - Develop fintech and mobile banking, invest in infrastructure connectivity to raise access to finance and promote financial inclusion. - These efforts could be supported by BRH as part of its 2015 National Financial Inclusion Strategy. - Safeguards assessment: - An updated safeguards assessment of the BRH in 2019 noted significant safeguards risks. - Fiscal dominance has strained BRH’s financial position; legislative reforms required to strengthen autonomy and governance and curb financing of the government. - Steps needed: transition to IFRS, revamp foreign reserves management, tighten controls over monetary statistics reporting. - BRH requested Fund TA to prepare legislative amendments to the central bank law. - Authorities’ views on monetary and financial policies: - Concurred with staff’s assumptions on composition of deficit financing and intend to keep BRH financing at levels agreed under the Pacte to avoid excess liquidity creation. - Expect financing gap would be smaller and risk of arrears addressed via efforts underway and controls in place. - Medium-term strategy aims to crowd in domestic private financing by accelerating reforms to deepen the market for government securities. - BRH’s reaction function currently puts more weight on the exchange rate than on money supply due to high dollarization of deposits complicating quantitative money targeting. - Continue to view excessive exchange rate fluctuations as undesirable and agree with staff on need to intervene as needed to avoid excess volatility. - Committed to continuing transition to risk-based supervision and advancing reforms to promote financial inclusion, particularly raising access to finance for small business and moving forward with Fintech innovations. ### C. Governance and transparency - Governance weaknesses persist despite prior commitments to combat corruption (Annex IV). - Progress achieved in PFM but: - Draft law to strengthen anti-corruption unit (ULCC) was never submitted to parliament. - Steering committee to monitor implementation of 2009 anti-corruption strategy was never established. - Anti-corruption framework not adequately deterring corruption; agencies lack legal powers and financial means; prosecution and sanctioning of corruption limited. - Staff recommendations: - Revamp anti-corruption priorities and set up the steering committee with independent civil society participation. - Implement asset declaration system for senior public officials in line with international best practices, including verification, sanctions for omissions and false reporting, and public access to declarations. - Strengthen AML measures to support anticorruption efforts, including banks’ due diligence on politically exposed persons and enhanced transparency of beneficial ownership information. - Regulatory reforms: - Reduce barriers to entry and rigidities that create rent-seeking and corruption opportunities. - Better guarantee property rights and reduce business and import monopoly powers. - Stimulate competition, increase foreign investment, and promote private sector growth. - Accompany regulatory efforts with select infrastructure projects to improve power grid and telecommunications network. - Authorities’ views on governance: - Agreed that rooting out corruption is a priority essential for sustainable growth. - Highlighted progress since 2009 national strategy and recognized implementation challenges. - Preparing a new strategy for the next decade and agreed on reforms to strengthen property rights, reduce red tape, and create a level playing field. ### D. The social safety net - Progress on the PNPPS: - Staff commend progress despite political turmoil. - PNPPS is a national initiative led by ministry of social affairs and labor (MAST), ministry of planning and external cooperation, involving ministries of health, education, women’s condition, and other public organizations. - A draft was submitted for national consultation in June 2019 and a revised draft was expected to be presented for approval by the Council of Ministers by end-2019. - Staff view: - The inclusive and comprehensive approach is a good starting point to prepare a home-grown, more effective social safety net—a prerequisite for the success of other structural reforms. - Staff urge the authorities to follow through with the timetable for finalizing the PNPPS. *Source: IMF staff report excerpts (content unit: 1htiea2020001).* ### 33. The goals of the PNPPS are to reduce program overlap and boost coverage, ### 1htiea2020001 - 33. The goals of the PNPPS are to reduce program overlap and boost coverage, ### Social protection (PNPPS) — objectives and design - Goals: reduce program overlap and boost coverage, effectiveness, and ownership. - Diagnosis: existing array of programs is "complex and ineffective, with inadequate coverage, overlaps and weak delivery systems." - Staff recommendations: - Eliminate some programs and give MAST the primary coordination role. - Focus on a limited number of unconditional, quasi universal cash transfer programs that are simple in design and have proven effective in other low-income countries. - In coordination with the World Bank, design and launch a new pilot program as soon as possible. - Continue expanding the coverage of the beneficiary information system (SIMAST) to identify beneficiary groups and improve delivery of health and education services. - Base the PNPPS on a sustainable funding strategy as external support is phased out; funding for social protection should come primarily from domestic budget resources, while external flows may launch a pilot program and complement the PNPPS. ### Transfer distribution systems and monitoring - Effective transfer programs require a strong benefit distribution system. - Methods for distribution should be clarified quickly by drawing on lessons from post‑Hurricane Matthew programs and successful examples in other countries, adapted to prevailing technological and financial infrastructures. - Haiti could draw on expertise from the World Bank and other partners. - The chosen mechanism should be subject to regular and transparent monitoring and evaluation involving independent, non-government representatives to reduce risks of mismanagement. ### Authorities' views on social policy and financial inclusion - Authorities: poverty reduction is the number one priority and prerequisite for future reforms. - They agree lack of coordination has caused overlap and inefficiencies. - They state strengthening the social safety net should be accompanied by employment programs and stronger growth. - Expressed concern: unconditional cash transfers could hinder targeting of scarce resources and lead to unintended consequences. - BRH emphasized the 2015 national financial inclusion strategy could support job creation, raise access to credit for entrepreneurs, and facilitate payments with Fintech advances. ### Energy sector — access, governance, and fiscal costs - Access: Only 39 percent of Haitians have access to electricity. - For grid customers (EDH), "more than half are not billed." - Many rely on diesel or charcoal-powered self-generation. - Governance failures at EDH and flawed controls have led to large losses from theft at collection points, middlemen, non-payment by government entities, and illegal connections. - Fuel market: end of government import monopoly and fixed retail fuel prices since early 2015 (one exception in 2017) have led to efficiency losses and resource misallocation. - Fiscal recommendation: initiate gradual and comprehensive reform of the sector given growing fiscal cost of energy subsidies. - Direct fiscal losses estimated: - "4.5 percent in 2018 and 6.4 percent in 2019" (main text). - Box 3 states "4.6 and 6.5 percent of GDP in FY2018 and FY2019 respectively (SIP)." - Box 3 detailed FY2018 components (as reported): - Fuel: 2.7 percent of GDP - EDH and others: 1.8 percent of GDP, comprised of: - (i) Sales tax collected by EDH but not transferred: 0.1 - (ii) Free fuel to EDH and PBM power plants: 0.6 - (iii) Electricity purchase from IPPs on behalf of EDH: 1.0 - Subtotal: EDH subsidy: 1.7 - (iv) Free fuel to Sogener power plants: 0.1 - Total Energy Sector: 4.6 - Regional price disparity and smuggling: retail fuel prices in Haiti are now about 50 percent lower than in neighboring Dominican Republic, encouraging smuggling and increasing Haiti’s budgetary burden. - EDH financing: state subsidizes electricity through foregone tax revenues, free fuel to thermal plants, payment guarantees for IPP purchases, and payment of fuel purchased by Sogener; financing through transfers, arrears, and loans is "neither clear nor transparent." - Staff recommendations for energy reform: - Overhaul management and oversight of EDH. - Review costs, prices, and purchases from IPPs when contracts expire. - Sequence fuel subsidy reform to affect higher income groups, preceded by targeted measures to offset impacts on key groups (particularly the transportation sector). - Include a clear communications plan stating the rationale, timing and end-goals. - Ensure offsetting social programs are in place before reforms with redistributive implications. - Include diversification toward renewable, cleaner energy sources in reform plans. - Opportunities: transition to cleaner energy mix and off-grid electricity can increase private sector financing for biomass, solar and wind and extend electricity to rural areas. - Suggested Climate Change Policy Assessment to identify adaptation, financing, and risk management strategies. ### Statistical issues - Improving quality of economic data is essential; biggest priorities: national accounts and labor indicators. - Fiscal and external sector data need improved coverage and timeliness. - With Fund-supported TA, authorities should produce revised monetary statistics and reduce publication lags. - Priority: improve timeliness and quality of Standard Reporting Forms (SRFs) for monetary statistics—with calculation of foreign exchange reserves consistent with IMF guidelines. ### Staff appraisal — macroeconomic context and priorities - Current situation: - "Growth is expected to be negative in 2019 and 2020." - "Inflation is running at about 20 percent." - External budgetary assistance has nearly dried up, domestic revenues have fallen sharply, and budget arrears have risen. - Baseline medium-term potential growth: "1.4 percent" under stabilization without fundamental reform. - Immediate priority: stabilize the macroeconomic situation. - Fiscal authorities should implement a budgetary framework for 2020 including measures to boost domestic revenues and contain non-priority spending. - Recommended fiscal measures: - Implement actions from recent TA to develop tax administration capacity: improve data sharing, use third-party data to detect fraud, consolidate register of large taxpayers, and continue computerization of customs operations. - Financing gap: authorities face a daunting challenge to close the financing gap; monetary and fiscal coordination, revenue mobilization, and expenditure restraint are critical. - Longer-term fiscal priorities: - Shift resources toward social programs and investment. - Strengthen PFM: adopt reference prices, tighter spending controls, and gradually reduce transfers to the energy sector. - Expand coverage of the TSA to all ministries and public entities, enforce proper accounting and audits, and prepare a resolution plan for arrears. - Adopt a medium-term budget framework anchored around a target for the NFPS deficit. - Monetary policy and central bank reforms: - Continue to allow the exchange rate to adjust in an orderly fashion. - When fiscal dominance is addressed, set a quantitative growth target for the money supply to resist pressures to monetize the deficit or support the exchange rate for reasons other than smoothing excess volatility. - BRH should advance institutional reforms in foreign reserve management, transition of financial reporting to IFRS, amendment of the central bank law, and improvement of monetary statistics. - Staff urged acceleration of financial technology development to deepen financial intermediation and access. - Governance and anti-corruption measures: - Update the anti-corruption strategy, set up the steering committee with independent civil society representatives, and implement the asset declaration system in line with international best practices. - AML measures should insist on verification and "know your customer" rules. - Regular audits of public companies and administrations by the High Court of Auditors should be enforced and published. - Government encouraged to present a new draft law to parliament (when possible) to strengthen the anti-corruption framework. - Social protection operational recommendations reiterated: - Adopt PNPPS by the Council of Ministers. - Introduce limited cash transfer programs under MAST and wind down existing programs not aligned with PNPPS objectives. - Expand SIMAST coverage as the basis for beneficiary identification. - Clarify distribution methods quickly and coordinate with mobile and financial infrastructure development. - Regulatory and structural reforms: - Medium-term regulatory reforms to strengthen property rights, remove import and industry monopolies, lower barriers to entry and raise investment. - Accompany regulatory reforms with infrastructure projects and public investment to improve the electric power grid and telecommunication network. - Statistical continuity: staff urge continued efforts to improve the quality, coverage, and timeliness of statistical data. *Source: https://www.imf.org/-/media/files/publications/cr/2020/english/1htiea2020001.pdf* ### 51. It is recommended that the next Article IV consultation take place on the standard ### 51. It is recommended that the next Article IV consultation take place on the standard 12-month cycle. ### Real sector developments (2013–19) - Inflation reached 20 percent in August (y/y). - Sectoral contributions to recent growth: - Services and agriculture accounted for most of the growth in recent years. - Most sectors contracted in FY2019. - Net transfers, including remittances, reached 40 percent of GDP in FY2019. - GNI per capita has stagnated since 2000, though HDI has improved slightly. - Fuel consumption is projected to have declined in FY2019 due to supply and demand constraints. - Unemployment is recorded at 13.5 percent. - Data notes: - 1/ Data are in fiscal years, ending September 30. - 2/ Data for 2019 is only available until August 2019. - 3/ Modeled ILO estimate. ### Fiscal sector developments (2013–19) - Fuel tax revenues have turned negative as the difference between world prices and fixed retail prices has widened. - Public investment is projected to fall below 5 percent of GDP in FY2019. - NFPS deficit has deteriorated since FY2017, accompanied by increasing domestic arrears while BRH financing has been contained. - Tax revenue collection is structurally low and has fallen, limiting the resources available for social spending. - Fiscal figures (selected): - Nominal GDP (2018): US$9.7 billion - GDP per capita (2018): $890 - Percent of population below poverty line (2012): 58 - Fiscal projections and aggregates (FY2017–24, selected lines as reported): - Total revenue and grants: 97,906; 109,107; 99,931; 116,654; 144,212; 174,553; 202,057; 231,485 (FY2017–FY2024) - Domestic revenue: 77,459; 82,089; 79,067; 87,184; 113,250; 139,758; 163,350; 187,628 - Domestic taxes: 53,450; 56,858; 53,299; 60,322; 79,804; 99,328; 117,031; 133,497 - Grants: 20,447; 27,018; 20,864; 29,469; 30,962; 34,795; 38,707; 43,858 - Total expenditure: 96,429; 119,965; 118,296; 135,624; 164,514; 194,378; 228,043; 260,342 - Current expenditure: 67,062; 80,516; 91,923; 100,251; 115,374; 134,989; 156,523; 175,921 - Capital expenditure: 29,367; 39,449; 26,374; 35,374; 49,140; 59,388; 71,520; 84,421 - Central government balance including grants: 1,477; -10,858; -18,365; -18,970; -20,302; -19,824; -25,987; -28,857 - Overall balance of NFPS, including grants: -4,997; -18,277; -27,969; -29,372; -31,476; -32,558; -40,850; -44,895 - Financing, NFPS: 8,329; 27,477; 29,925; 29,372; 31,476; 32,558; 40,850; 44,895 - Memo items: - Total costs of EDH to public sector: 9,941; 11,662; 14,060; 15,654; 16,905; 19,203; 21,833; 25,477 - Forgone fuel taxes and fuel direct subsidies: 10,469; 17,222; 33,331; 39,903; 39,133; 38,401; 38,401; 38,401 - Health, education and agriculture spending: 17,317; 20,744; 18,314; 17,372; 23,364; 27,782; 32,595; 37,909 - Fiscal ratios (percent of GDP, FY2017–24, selected): - Total revenue and grants: 17.7; 17.3; 13.6; 13.4; 14.2; 15.1; 15.5; 15.9 - Domestic revenue: 14.0; 13.0; 10.8; 10.0; 11.1; 12.1; 12.5; 12.9 - Capital expenditure: 5.3; 6.2; 3.6; 4.1; 4.8; 5.1; 5.5; 5.8 - Overall balance of NFPS, including grants: -0.9; -2.9; -3.8; -3.4; -3.1; -2.8; -3.1; -3.1 ### Monetary sector developments (2013–19) - Dollarization of deposits is increasing. - Resumption of credit growth in dollars has fueled dollar credit growth; gourde deposit growth has stalled. - The BRH raised the rates on central bank CDs in June, and has tried to contain NFPS financing, which helped prevent a large drop in NIR. - Selected monetary aggregates and banking system (FY2017–24, selected figures): - Base money: 80,834; 101,716; 123,341; 146,246; 171,035; 194,908; 219,527; 245,492 - Currency in circulation: 38,471; 47,201; 60,700; 71,973; 84,172; 95,921; 108,037; 120,815 - Commercial bank gourde deposits: 42,364; 54,514; 62,641; 74,273; 86,863; 98,987; 111,490; 124,677 - Net international reserves (program definition): 830; 677; 649; 541; 569; 586; 594; 600 (US$ million) - NFAs and NIR of BRH (US$ million): 908; 823; 767; 827; 830; 677; 649; 0 (as listed) - Banking system consolidated (selected): - Credit to the private sector: 110,788; 124,628; 137,574; 156,791; 182,405; 207,071; 232,510; 259,339 (gourdes and foreign currency split reported) - Broad money: 268,438; 305,222; 362,909; 430,303; 503,240; 573,480; 645,919; 722,316 - Foreign currency deposits (in millions of US$): 2,393; 2,298; 2,000; 2,066; 2,161; 2,251; 2,337; 2,429 - Dollarization metrics: - Foreign currency deposits as percent of total private deposits: 61.9; 59.2; 59.1; 59.5; 59.8; 60.1; 60.2; 60.4 ### External sector developments (2013–19) - Trade balance as a share of GDP sank to its lowest point in 7 years. - Remittances estimated at 35 percent of GDP (US$ 3,043 millions) in FY2019. - With weak imports, the current account deficit shrunk to 2.0 percent of GDP in FY2019. - Net financial flows declined in FY2019, led by a drop in FDI. - The gourde depreciated until June, then leveled off. Import coverage by gross reserves has been largely stable since mid-2017. - Balance of payments (selected FY2017–24 figures, US$ millions): - Current account (including grants): -84; -373; -174; -75; -93; -136; -200; -235 (FY2017–FY2024) - Current account (excluding grants): -469; -759; -422; -274; -363; -410; -480; -530 - Exports of goods: 991; 1,078; 1,200; 1,244; 1,272; 1,307; 1,351; 1,408 - Imports of goods: -3,618; -4,484; -4,380; -4,279; -4,350; -4,494; -4,680; -4,880 - Remittances (current transfers, net): 2,883; 3,469; 3,509; 3,572; 3,621; 3,709; 3,816; 3,959 - Gross international reserves (US$ million): 2,086; 2,086; 2,178; 2,145; 2,207; 2,255; 2,292; 2,331 - Net international reserves (program definition, US$ million): 830; 677; 649; 541; 569; 586; 594; 600 - Current account (in percent of GDP): -1.0; -3.9; -2.0; -0.9; -1.1; -1.5; -2.1; -2.4 - Current account excluding official transfers (in percent of GDP): -5.6; -7.9; -4.8; -3.2; -4.1; -4.5; -5.1; -5.4 - Projected average oil price (U.S. dollars per barrel, APSP): 52.8; 68.3; 60.6; 58.0; 55.3; 54.6; 54.7; 55.2 - Debt service (percent of exports of goods and nonfactor services): 5.9; 6.1; 6.9; 7.9; 7.9; 7.9; 8.0; 8.0 ### Social indicators - Poverty headcount ratio, 2012 (percent of population): Urban 40.6; Overall 58.5; Rural 74.9 (as presented in figure labels). - Clean water and sanitation (2017): Basic sanitation and basic drinking water coverage levels shown in figure. - GINI Index (last available data across countries) and literacy, infant mortality, life expectancy, Human Capital Index (HCI) comparisons are presented in the figures. - Data sources: UNICEF, WHO, World Bank, Global Poverty Working Group and IMF staff calculations. - Notes include definitions and country groupings used in the figures. ### Financial soundness (June 2017–June 2019) - Asset volume (in US$ millions): 4828.1; 4841.4; 4878.0; 4955.6; 4838.5; 4734.2; 4646.8; 4514.3; 4218.5 (quarterly points listed Jun-17 to Jun-19). - Deposit volume (in US$ millions): 3858.9; 3882.5; 3868.2; 3940.1; 3881.5; 3848.9; 3764.5; 3638.1; 3412.1 - Asset growth (in gourde terms) since beginning of fiscal year: 10.7; 11.9; 2.0; 5.7; 5.9; 8.3; 7.8; 13.0; 18.9 - Credit growth (net, in gourde terms) since beginning of fiscal year: 2.7; 9.7; 4.6; 10.5; 12.1; 17.3; 9.5; 11.4; 19.8 - Nonperforming loans (NPLs) to gross loans: 3.8; 2.9; 2.8; 4.0; 3.6; 2.5; 2.9; 4.3; 7.4 - Regulatory capital to risk-weighted assets: 29.3; 25.3; 25.5; 24.9; 23.0; 23.4; 22.5; 22.2; 21.7 - Foreign currency loans to total loans (net): 45.9; 48.8; 47.8; 44.7; 45.5; 46.8; 48.9; 51.3; 51.3 - Foreign currency deposits to total deposits: 63.1; 63.9; 63.3; 61.5; 60.5; 61.3; 63.5; 65.4; 68.4 ### Key projections and macro balances (FY2019–24, selected) - Real GDP growth (GDP at constant prices): 1.1; 1.5; -1.2; -0.4; 0.9; 0.7; 1.1; 1.2 (years aligned as in table rows). - GDP deflator (percent change): 13.4; 12.8; 17.3; 19.0; 15.9; 13.1; 11.4; 10.4 - Consumer prices (period average): 14.7; 12.9; 17.3; 19.0; 15.9; 13.1; 11.4; 10.4 - Consumer prices (end-of-period): 15.4; 13.3; 20.1; 17.5; 14.5; 12.0; 11.0; 10.0 - External public debt (medium and long-term, end-of-period): 24.2; 23.5; 27.4; 25.4; 24.2; 23.3; 23.1; 23.2 (percent of GDP) - Total public sector debt (end-of-period): 38.3; 39.9; 47.0; 46.1; 44.9; 44.1; 43.9; 43.7 (percent of GDP) - Net international reserves (program definition, US$ million): 830; 677; 649; 541; 569; 586; 594; 600 - Gross international reserves (US$ million): 2,086; 2,086; 2,178; 2,145; 2,207; 2,255; 2,292; 2,331 - Nominal GDP (millions of U.S. dollars): 8,409; 9,658; 8,708; 8,533; 8,842; 9,135; 9,454; 9,798 *International Monetary Fund staff compilation from national authorities and IMF staff calculations.* ### Annex I. Country Engagement Strategy ### Annex I. Country Engagement Strategy ### Background and rationale - Past Fund-supported arrangements with Haiti have been disappointing: an ECF arrangement approved in 2015 lapsed because of failure to complete the first review and an SMP ended in August 2018 with incomplete progress. - Despite extensive international assistance and financial aid following the 2010 earthquake, foreign interventions have so far failed to deliver change; proliferation of development and humanitarian projects and partners has contributed to fragmentation, uncoordinated and inefficient delivery, and a loss of policy ownership. - Haiti’s fragility warrants a careful and tailored approach. Sources of fragility identified: - high susceptibility to natural disasters; - weak institutions and little national ownership of policies; - weak business regulations and judiciary contributing to concentration of economic power and rent-seeking; - insufficient means to maintain security and order. ### Recurring causes of failed reform efforts - Stocktaking (including the 2015 Ex-Post Assessment) identified factors that undermined past efforts: - reform programs did not match Haiti’s fragility and limited capacity, and multiple not always well-coordinated projects were initiated by international partners; - Haitian ownership of the relief and reform agenda was lacking; - investment in, and empowerment of, all Haitians was inadequate (ISE 2014); - accountability and transparency in the use of public funds was weak or absent. ### Concept and two-step approach - Concept: raise awareness and build consensus and commitment among internal stakeholders in Haiti around basic economic principles that underpin economic stability and policy continuity; develop an alternative “commitment device” leveraging active civil society. - Approach: - Step 1: Build consensus around a basic set of generic economic principles and objectives, consistent with Haiti’s limited capacity, that could attract universal support. Consensus should be owned by the government, endorsed by key stakeholders (private sector, labor, civil society, and eventually the opposition), and supported by the international community. - Step 2: Encourage policymakers and stakeholders to spell out their engagements in writing. An international forum or round table in Haiti could initiate dialogue and develop this as a form of “commitment device.” A Poverty Reduction and Growth Strategy document could provide an opportunity for discussion among domestic stakeholders of more detailed reform proposals. ### IMF role, coordination, and timing - IMF role: - Initiate a dialogue among stakeholders and assemble foreign partners. - Strengthen coordination between international financial institutions by formalizing cooperation with the World Bank and the IDB through a tripartite working group at the mission chief/country director level, meeting at least quarterly. - Timing: - Informal outreach in Haiti and with external partners should begin soon. - Staff initiated discussions during the Article IV consultation; preliminary feedback was positive though many flagged the challenges. - The Resident Representative would be critical in promoting the process on the ground. ### Potential Fund support and adaptation to fragility - Condition for Fund financing support: a government in place that can commit to and implement policies to put Haiti on a path toward economic stability and sustainability. - Possible financing instruments: - An RCF/SMP combination, contingent on the determination of an urgent balance of payments need, could provide a bridge to an ECF arrangement. - The combination of facilities would need to be appropriately adapted to the Fragile and Conflict States guidelines and should include rapid implementation of broader social protection policies to alleviate social distress and bolster public support and ownership of reform. ### Economic reform priorities and capacity building - Four key objectives of the reform strategy: - restoring macroeconomic stability; - strengthening governance and transparency; - building a social safety net; - reforming the energy sector. - Capacity building: - Fund technical assistance (TA) is critical for ongoing capacity building, should support program conditions, and be informed by experience and lessons from past TA. - TA allows continuous IMF engagement during periods of political crisis when lending cannot move forward. - Including efforts to monitor and trace resource use could help mobilize development assistance (see Annex IV). ### Outreach and communications - Outreach and communications are key to advance the strategy and raise understanding of key issues; a coordinated approach with the government would be important. - The Resident Representative will have a key role in outreach with stakeholders and raising public awareness, particularly highlighting: - the purpose of the strategy—to build consensus on the need for macro stability and policy continuity; - reforms that strengthen the social safety net and fight corruption. - Haiti’s active civil engagement and relatively free media are assets; it will be important to harness effective modes of news transmission particular to Haiti, including radio and social media. *Annex I. Country Engagement Strategy* ### 1.7 percent of GDP average over the past ten years, FDI inflows to Haiti are lower than the regional ### 1.7 percent of GDP average over the past ten years, FDI inflows to Haiti are lower than the regional ### Capital and Financial Flows — Findings and Medium-Term Assessment - Net direct investment inflows: Haiti averaged 1.7 percent of GDP over the past ten years (Net Direct Investment Inflows, Percent of GDP; average over 2014-18). - FY2019: financial flows remained largely stable as a share of GDP, reflecting lower disbursement for public projects and a rise in non-banking sector inflows. - Medium-term assessment: - Under the baseline, the political crisis would abate and FDI and external financing associated with public investment projects would recover somewhat. - These flows, combined with a sustainable level of current account deficit, would support a modest improvement in the overall balance of payments. - Capital and financial account dynamics (components described in text/figures): - Public sector disbursements (gross), public sector amortization, direct investment, banking sector, nonbanking and other flows determine the capital and financial account balance (Percent of GDP). ### Real Exchange Rate Assessment - EBA-lite REER index model: Gap = -1.9 (In percent). - Of which: - contributions from identified policy gaps = -1 - contributions from natural disasters and conflicts = 0.1 - unexplained residual = -0.01 - Source: IMF staff estimates. ### Foreign Reserves — Stocks and Adequacy - Gross international reserves as of September 2019: about US$2.18 billion. - Equivalent coverage: about 4.8 months of next year’s projected imports of goods and services. - Exchange rate regime: - De jure: floating. - De facto: classified as “crawl-like”. - Central bank (BRH) operations: - BRH intervenes in the foreign exchange market mostly to manage volatility, provide market liquidity, and build up reserves. - Reserve adequacy: - IMF’s reserve adequacy estimate for low-income economies suggests that 2¾–4 months of current import coverage would be adequate. - At 4.8 months of prospective import coverage, gross reserves for FY2019 are assessed to be adequate under current assumptions. - The adequacy assessment is sensitive to the assumed unconditional probability of a large shock; higher reserves would serve as an important buffer but are not substitutes for policy adjustments and structural reforms. ### Governance Reform — Context and Key Findings - Severe governance vulnerabilities; corruption perceived as high and widespread. - Asset declaration compliance (2008–February 2018): - Out of 232 presidents and ministers over the period, less than half submitted an asset declaration at the beginning of their tenure and only 11 percent did so at the end of their tenure, as required by law. - Of the tax controllers, 99 percent did not submit asset declarations. - 97 percent of senators and 93 percent of congressmen did not submit asset declarations. - Anti-corruption enforcement: - Since creation of the ULCC in 2004, only 39 cases have been prosecuted by the justice system. - In 2018 UCREF reported receiving about 400 reports of suspicious financial activity, but referred less than twelve to the judiciary. - According to CFATF, Haiti has not recorded any successful prosecution or conviction for money-laundering offences for the past five years (2014–18). - Petrocaribe findings: - CSCCA investigation detailed misuse of 77 percent (US$1.6 billion) of total funds received under the Petrocaribe program, highlighting widespread mismanagement and misuse. ### Priorities for Reform — Anti-corruption and Transparency (Recommendations) - Strengthen legal and institutional framework for anti-corruption: - Enhance independence and resources of ULCC and other control bodies. - Update anti-corruption strategy and ensure implementation. - Bring draft anti-corruption legislation into line with the United Nations Convention against Corruption by strengthening independence, authority, and transparency of the anti-corruption agency. - Grant the new office power to prosecute crimes in addition to investigating them. - Asset declaration system: - Properly implement asset declarations for senior public officials in line with international best practices: verify accuracy, sanction failure and false reporting, and allow public access to declarations. - Transparency measures: - CSCCA should progressively audit and publish all annual consolidated financial statements made available by the ministry of finance. - All CSCCA reports should be systematically published (as was done for Petrocaribe reports). - Wages and benefits of all public officials and high civil servants should be publicly available. ### Public Financial Management (PFM) — Findings and Recommendations - Capacity constraints in the ministry of Economy and Finance; long-term expert presence recommended to implement TA recommendations. - Treasury Single Account (TSA): - TSA extended to 18 ministries since 2014, covering more than half of total public expenditure. - As of March 2019, over 900 accounts remained at the central bank (BRH) and at the Banque Nationale de Crédit; about 74 accounts open at the BRH by various ministries and public institutions could be merged rapidly into the TSA. - Reduce use of exceptional spending procedures: - Use of lettres de virement grew from 8.1 percent of total budget spending in 2015–16 to around 16 percent of total budget spending in early FY2019, jeopardizing monitoring of public spending. - Implement a medium-term budget framework and investment plan to improve fiscal management, spending prioritization, and monitoring of investment projects. - A Public Investment Management Assessment is suggested to guide public investment process reform. ### Customs Collection — Findings and Recommendations - Current customs processes allow considerable discretion and uneven enforcement; large revenue leakages persist at AGD. - Example of data inconsistency: AGD records imports from the Dominican Republic at one half of the level of exports to Haiti recorded by the Dominican Republic. - World Bank preliminary estimates: numerous customs duties exemptions may be costing the Haitian government the equivalent of 0.8 percent of GDP in customs duties. - Recommended measures (implemented swiftly): - Improve interconnectivity of information systems of DGI and AGD for data sharing and verification. - Increase use of ASYCUDA software to automatically input manifests and manage goods in customs bond. - Connect Haitian and Dominican Republic customs administrations (both use ASYCUDA). - Establish a reference price list to systematically assess customs duties. - Due to limited staff capacity at AGD, presence of a long-term or peripatetic expert is essential. ### Governance of State-owned Enterprises (SOEs) and EDH — Findings and Recommendations - SOE governance weaknesses: - Rules in Décret du 17 mai 2005; board members appointed by Council of Ministers after Senate approval. - Reporting obligations limited and often not enforced; SOE accounts not consolidated in government financial statistics. - Public Electricity Utility (EDH): - EDH losses amount to about 2 percent of GDP per year. - Causes: weak management and governance, large share of accounts not billed, payments not collected, high administrative costs, informal connections to the grid, lack of transparency in purchase agreements (including “take-or-pay” clauses). - Under 2018 SMP, EDH improvements: publication of utility’s first full budget, billing rate rose from 40 to 50 percent, some supply contracts put out to public bid. - Recommendations: - Timely adoption and publication by EDH of an annual budget with cash flow projections and a multi-year plan to raise invoicing and collection rates. - Implementation of staff-level agreement structural benchmarks on contracts with private electricity suppliers. ### Business Environment and Competition - Haiti performs weakly on costs of starting a business, protection of minority investors, and reducing market dominance (Doing Business; Global Competitiveness Report). - Lack of legal framework for competition discourages investment and drives rent-extraction. - Reported consumer prices, including food products, are 40 to 50 percent higher in Haiti than in other countries in the region. ### Tax Code and Tax Administration (DGI) - Draft tax code needs parliamentary approval and publication to clarify tax rules and improve compliance. - Planned TA missions: draft tax procedure code, build capacity for enforcement (large taxpayers’ unit), review derogatory regimes and tax exemptions. - DGI reorganization required before major reforms (e.g., VAT): - DGI organizational structure not aligned with key functions; monitoring function lacking. - Day-to-day operations not effectively controlled: unreliable taxpayers’ register; stock of arrears unknown. - Draft organic law to reorganize the DGI awaits submission to parliament. ### Central Bank Governance and Operations - 2019 safeguards assessment identified needs to reinforce BRH autonomy, accountability, and governance. - Weaknesses in institutional and financial autonomy, governance arrangements, financial reporting practices, audit mechanisms, and reserves management. - Recommended improvements include comprehensive legal reforms and transition to International Financial Reporting Standards (IFRS); first steps toward IFRS transition were initiated in 2019. ### AML/CFT — Findings and Recommendations - July 2019 CFATF Mutual Evaluation Report graded Haiti a low level of effectiveness of its AML/CFT regime. - Key findings: - Haiti has not conducted any ML/TF risk assessment geared toward identifying and understanding its ML/TF risks. - Absence of ML/TF risk assessment means authorities have not taken measures to mitigate ML/TF risks. - Technical compliance with FATF recommendations is weak: low effectiveness ratings for all immediate outcomes; partially compliant or non-compliant with 38 out of 40 FATF recommendations. - Risks: - Non-compliance could cause pressure on correspondent banking relationships, increasing financial intermediation costs for trade and remittances. - Recommended action: - Swift steps to ensure compliance with FATF standards and effective implementation of AML/CFT framework. - World Bank advising the authorities in the AML/CFT area. *Source: IMF staff estimates and assessments as presented in the provided IMF chapter/section.* ### Annex Figure 1. Haiti: IMF Contributions to Governance Reforms ### Annex Figure 1. Haiti: IMF Contributions to Governance Reforms ### Capacity Development Strategy — overview and priorities - Institutional capacity in Haiti is low; extensive TA from FAD, MCM, and CARTAC on tax administration, tax policy, public financial management, banking supervision, and price and national accounts statistics has been provided over the past two years, but implementation of TA recommendations has been relatively slow due in part to acute capacity constraints and political instability. - The establishment of a Treasury Single Account (TSA) has been ongoing since the first TA mission in June 2014 and is still not complete. - Reorganization of the tax administration, first proposed in 2014, has not progressed despite follow-up missions in 2015, 2017, and early 2019. - Resident long-term experts and authority-prepared roadmaps (note de cadrage and feuille de route) would: - improve ownership, - make TA more effective, - assist coordination of TA and hands-on transfer of knowledge, - build capacity more intensively than mission-based support. - Authorities’ TA priorities: - (i) reform tax policy with a new tax code; - (ii) strengthen revenue collection; - (iii) improve public financial management and fiscal accountability; - (iv) develop and strengthen local markets for foreign exchange and government debt securities; - (v) improve data compilation and reporting (monetary, price, and national accounts statistics). - Staff proposal for Fund TA focus: - tax and customs administration; - public financial management including governance of state enterprises; - reform of the energy sector and reduction in fiscal losses; - expenditure policy (including social spending). - Additional capacity development needed in the event of approval of a new financing arrangement: - foreign reserve management; - transition of the central bank’s financial reporting to IFRS; - amendments to the central bank law; - foreign exchange regulation and development; - anti-corruption legislation; - improving timeliness and quality of the Standard Reporting Forms (SRFs) for monetary statistics — with calculation of foreign exchange reserves consistent with IMF guidelines. - A partnership framework (cadre de partenariat) has been in place since May 2017 with the Haitian government and financial and technical partners in fiscal reform and public financial management; a similar partnership is being considered for social protection. ### Technical assistance by function — FAD (Tax, PFM, Energy, Expenditure) - Tax and Customs Administration - Objectives: - Strengthen DGI and AGD core functions to improve performance and meet government revenue goals; - Improve performance management and governance (leadership, data integrity, transparency, accountability); - Prepare groundwork to introduce a VAT. - Progress-to-date: No progress since 2017. Request for financing of a long-term expert by the Revenue Mobilization Trust Fund. - Risks: Weak and inadequate governance, inability to identify clear priorities and lack of political will in the absence of Fund program to implement relevant strategies. - Public Financial Management - Objectives: - Fully implement the Treasury Single Account and improve cash management; - Improve public accounting; - Improve financial control over expenditure execution; - Strengthen internal and external controls by Inspection Générale des Finances and Cour des Comptes (CSCCA) respectively; - Introduce a medium-term budget framework; - Introduce pluriannual investment programming. - Progress-to-date: Mixed progress since departure of long-term expert in March 2018. Delays in reform implementation. Ground rules for preparation and execution of the budget need improvement and adherence before introducing further reforms. - Risks: Weak capacity and political instability hinder implementation of Fund recommendations. - Tax Policy - Objectives: - Undertake consultations on the new tax code; - Draft tax procedure code; - Review derogatory regimes (investment code and SEZs). - Progress-to-date: The tax code draft is complete and needs to be submitted to parliament. Reform of derogatory regimes and of the tax-related funding of the Fonds National d’Education and Fonds d’Entretien Routier to be tackled separately. - Risks: Given the currently dysfunctional parliamentary process, implementation risk is high. Internal and external review process may lead to inconsistencies or changes in policy directions. - Energy Sector Reform - Objective: Prepare roadmap for the elimination of fuel price subsidies. - Progress-to-date: Workshop organized in June 2018. - Risks: Complex reform. High risk of mismanagement and corruption. High reputational risk for the Fund in case of failure. Strong vested interests. - Public Investment Management - Objective: Conduct a public investment management assessment. - Progress-to-date: Team proposal. - Expenditure Policy - Objectives: - Assess effectiveness of social spending; - Identify measures to rationalize spending. - Progress-to-date: Team proposal. ### Technical assistance by function — MCM, STA, LEG, FIN - MCM - Transition to IFRS - Objective: Gap analysis and preparation of a roadmap for IFRS. - Progress-to-date: Mission scheduled for July 2019. - Risks: Low capacity may delay implementation. - Debt Management and Market Development - Objectives: Evaluate current state of debt issuance; identify and address gaps in the regulatory framework. - Progress-to-date: Request by BRH. - Risks: Political instability may hinder necessary coordination with the ministry of finance. - Monetary Operations and Liquidity Management - Objective: Diagnostic of the legal and operational frameworks. - Progress-to-date: Request by BRH. - FX Market - Objective: Regulatory framework and dollarization pressures; easing of supply pressures. - Progress-to-date: Request by BRH. - Banking Supervision - Objective: Transition to risk-based supervision. - Progress-to-date: Medium-term, donor-financed project. - Risks: Contingent on appointment of long-term expert. - STA - Real Sector Statistics - Objective: GDP and price index rebasing. - Progress-to-date: Rebased CPI was published in November 2018. Supply and use tables for 2011-12, a benchmark for the new base year, have been compiled. - Monetary Statistics - Objectives: - Reconcile current monetary statistics sent to the IMF for surveillance purposes with information available in the standardized reporting forms; - Review computation of gross and net foreign reserves. - Progress-to-date: The possibility for the Fund to provide TA was discussed with the authorities in March. - Risks: Improving the timeliness and quality of the SRFs should be a prerequisite for approval of a new program. - LEG and FIN - Anti-corruption - Objective: Provide advice on the draft of the new anti-corruption legislation. - Progress-to-date: Comments sent by LEG on the draft law. - Risks: Lack of traction with the authorities. - AML-CFT - Objectives: - Clarify roles and objectives of each actor of the AML regime; - Prepare law on countering the financing of terrorism. - Progress-to-date: CATF Mutual Evaluation report, prepared by the World Bank, was published in June 2018. Any TA needs coordination with the World Bank. - Safeguards - Objective: Follow through on recommendations of the 2019 Safeguards Assessment. - Note: Necessary for future Fund financing. ### Fund relations and statistical snapshot (selected figures as of December 4, 2019) - Membership Status: Joined September 8, 1953; Article VIII. - General Resources Account: - Quota 163.80 SDR Million 100.00 percent of Quota - Fund holdings of currency 143.26 SDR Million 87.46 percent of Quota - Reserve Tranche Position 20.54 SDR Million 12.54 percent of Quota - SDR Department: - Net cumulative allocation 78.51 SDR Million 100.00 percent of Allocation - Holdings 33.04 SDR Million 42.09 percent of Allocation - Outstanding Purchases and Loans: - RCF Loans 30.71 SDR Million 18.75 percent of Quota - ECF Arrangements 33.06 SDR Million 20.19 percent of Quota - Latest Financial Arrangements (Type | Approval Date | Expiration Date | Amount Approved (SDR Million) | Amount Drawn (SDR Million)): - ECF | May 18, 2015 | November 17, 2016 | 49.14 | 7.02 - ECF | July 21, 2010 | December 24, 2014 | 40.95 | 40.95 - ECF1/ | November 20, 2006 | January 29, 2010 | 180.18 | 180.18 - 1/ Formerly PRGF. As the arrangement fell off track shortly after, no reviews were completed and the ECF was cancelled in November. - Projected Payments to Fund (SDR Million; based on existing use of resources and present holdings of SDRs): - 2019 Principal 6.22; Charges/Interest 0.39; Total 6.61 - 2020 Principal 8.89; Charges/Interest 0.52; Total 9.41 - 2021 Principal 7.14; Charges/Interest 0.52; Total 7.66 - 2022 Principal 11.48; Charges/Interest 0.52; Total 12.00 - 2023 Principal 9.02; Charges/Interest 0.52; Total 9.54 - Exchange rate arrangement: - Haiti’s currency is the gourde. - The de jure exchange rate regime is floating. - The de facto exchange rate arrangement has been classified as a crawl-like arrangement since April 2008, except for disruptions from January through February of 2010 and between March 2017 and June 2018. *Prepared by Western Hemisphere Department; STAFF REPORT FOR THE 2019 ARTICLE IV CONSULTATION—INFORMATIONAL ANNEX (December 20, 2019).* ### 2016. As a result, no key reforms were implemented and the majority of the 2016 safeguards recommendations ### 1htiea2020001 - 2016. As a result, no key reforms were implemented and the majority of the 2016 safeguards recommendations ### Safeguards Assessment - Last assessment of the BRH completed in August 2019 in connection with the request for an RCF arrangement in early-2019. - Assessment conclusion: safeguards risks at the BRH remained high. - Recommendations: - Complete amendments to the BRH Law to strengthen the central bank’s autonomy, enhance its accountability, transparency and decision-making structure, and establish independent oversight by the Board. - Reinforce membership and operational modalities of the Audit Committee. - Strengthen financial reporting practices by implementing IFRS with IMF TA support. - Complete the modernization of the internal audit function. - Strengthen governance and accountability arrangements in reserve management, including regarding the Investment Committee composition and strict segregation of operational responsibilities. - Prepare a medium-term plan for updating the BRH investment policy and transitioning to strategic asset allocation and portfolios consistent with the principles of safety and liquidity incumbent upon a central bank. - Implementation status: Initial advances were made on some recommendations, but progress stalled after the worsening of the political and security crisis mid-2019; risks remain as to the adequacy of safeguards for Fund resources. ### Article IV Consultations - Last concluded Article IV consultation: March 20, 2015 (IMF Country Report No. 13/90). - Current consultation discussions held in Washington, D.C. and in Haiti during November 8-22, 2019. - IMF team: Nicole Laframboise (head), Frederic Lambert, Rand Ghayad, Paola Aliperti (all WHD), Matthieu Bellon (FAD), Chiara Fratto (SPR); Ahmed Zorome (Resident Representative) and Gabriel Duvalsaint (local economist) assisted; Patricia Alonso-Gamo (WHD) joined concluding meeting. - Meetings with: acting central bank Governor Jean Baden Dubois and Acting Minister of Finance Joseph Jouthe, senior officials, private sector, civil society, other IFIs, and academics. - Recommendation: Next Article IV consultation take place on the standard 12 month cycle. ### Resident Representative - Mr. Ahmed Zorome has been the Fund’s Resident Representative since September 26, 2019, replacing Mr. Gaston Mpatswe. ### Technical Assistance (since November 2012) - Departments and selected missions (dates and purposes preserved as listed): - FAD - February 2019: Scoping mission on Revenue Administration - January 2019: Strengthening the TSA - January 2019: Consultation of new Tax Code - February 2018: Tax Policy - January 2018: Treasury Management - July 2017: Tax Administration - May 2017: Tax Administration - April 2017: Treasury Single Account - November 2016: Income Tax Reform - December 2015: Cash and Debt Management - October 2015: Tax Policy - March 2015: Tax Administration - November 2014: Tax Administration - October 2014: Tax Administration - August 2014: Tax Administration - July 2014: Energy Subsidy Reform - June 2014: Mining Taxation - April 2014: Cash and Treasury Management - February 2014: Tax Administration - November 2013: Tax Administration - July 2013: Public Financial Management - June 2013: Tax Administration - April 2013: Cash and Treasury Management - April 2013: Value-Added Tax - March 2013: Public Accounting - March 2013: Macro-fiscal - January 2013: Tax Administration - FIN - March/April 2019: Safeguards Assessment Mission - MCM - July 2019: Develop program to transition to IFRS - November 2018: Drafting a Banking Chart of Accounts - November 2018: Banking Supervision & Regulation - September 2018: Banking Supervision & Regulation - July 2018: Banking Supervision & Regulation - May 2018: Banking Supervision & Regulation - March 2018: Banking Supervision & Regulation - January 2018: Banking Supervision & Regulation - October 2017: Banking Supervision & Regulation - August 2017: Banking Supervision - August 2016: Stress-Testing for the Banking System - June 2016: Banking Supervision - July 2015: Credit Union Supervision & Risk Based Supervision - November 2014: Credit Union Supervision - August 2014: Reserve Management Guidelines - May 2014: Foreign Exchange Market - February 2014: Credit Union Supervision - April 2013: Macroprudential Policies - STA - April 2019: CARTAC: National Accounts-Review Progress on Rebasing GDP - January 2019: Cash management and Fiscal Reporting - May 2018: Government Finance Statistics - February 2018: Consumer Price Index - Rebasing - October 2017: National Accounts - March 2018: Consumer Prices/Producer Prices - November 2016: Balance of Payments Statistics and IIP - July 2016: National Accounts - June 2016: Development of Financial Health Indicators - May 2016: Consumer Price Index - April 2016: Remittances & Reserves - May 2015: National Accounts Statistics - November 2014: Automatic Data Exchange System for Customs - June 2014: National Accounts Statistics - June 2013: Consumer Price Index - June 2013: National Accounts - LEG - June 2013: Drafting of a general tax code ### Statistical Issues (as of December 9, 2019) - Assessment of Data Adequacy for Surveillance: - General: Data provision has serious shortcomings that significantly hamper surveillance; most affected are the national accounts and labor indicators. Fiscal, monetary and external sector data are broadly adequate but need improvements in coverage and timeliness. - National Accounts and Real Sector: - Base year: 1986/1987 base year of constant price GDP data does not adequately capture structural shifts since then. - CARTAC provided TA on SUTs for 2012 and rebasing GDP with six missions since 2013. - World Bank funded a resident advisor for SUTs and rebasing; revised GDP estimates expected to be released around May or June 2020. - Other shortcomings: incomplete and untimely reporting on agricultural sector performance; lack of quarterly GDP data. - Price and Labor Statistics: - Monthly CPI compiled based on 2012 Household Living Conditions Survey structure, using 2017/18 as the reference year; index follows Laspeyres methodology and comprises 287 products. - Four CARTAC missions (May 2016 to August 2018) helped finalize expenditure weights and compilation system. - Estimates of inflation of local and imported goods are not consistent with the headline survey. - Only labor statistic published: employment index (December 2018 latest available). - Government Finance Statistics: - Staff receive a monthly “Table of Government Financial Operations” (TOFE). - Weaknesses include limited coverage, high aggregation, misclassifications, non-reporting of major categories (net lending, financing, Petrocaribe-related operations), and incomplete information on debt service. - Need to improve timeliness of accounts of autonomous agencies and public enterprises, particularly EDH, to establish nonfinancial public sector accounts. - Authorities encouraged to establish a plan for migrating to the GFSM 2001/2014 framework. - Data on local governments and comprehensive gross public debt (domestic and external public debt of the NFPS) is lacking. - Monetary and Financial Statistics: - Monthly accounts of central bank and consolidated banking sector balance sheets broadly adequate but with inconsistencies between central bank and commercial bank accounts. - Need to expand institutional coverage to include credit unions and cooperatives; improve timeliness of data reported to the Fund. - Priority: improve timeliness of monetary statistics reported through the Standard Reporting Forms—with calculation of foreign exchange reserves in line with IMF guidelines. - Haiti reports several Financial Access Survey (FAS) indicators including commercial bank branches per 100,000 adults and ATMs per 100,000 adults (UN Target 8.10 of the SDGs). - Haiti does not currently report Financial Soundness Indicators (FSIs) to the Fund for dissemination. - External Sector Statistics: - Balance of payments data broadly adequate but with deficiencies in scope, source data, and timeliness. - Large errors and omissions and gaps between data reported by Haiti and partners indicate incomplete coverage of current and financial account transactions. - Need attention to customs data coverage, classification of official and private flows, and recording of private sector external assets and liabilities. - Consistency needed between quarterly and annual data. - CARTAC mission (April 2018) noted progress but important work remains on trade data coverage and implementing the business survey (direct investment and private external debt). - Data Standards and Quality: - Haiti participates in the Fund’s General Data Dissemination System. - No data ROSC is available. - Reporting to STA: - Haiti currently does not report monthly or annual fiscal data to STA for publication in the IFS or GFSY. - Haiti reports annual IIP and quarterly balance of payments to STA, although these suffer from a lack of consistency. ### Table of Common Indicators Required for Surveillance (as of December 2019) — selected entries - Exchange Rates: Date of Latest Observation November 2019; Date Received November 2019; Frequency of Data D; Frequency of Reporting D; Frequency of Publication D. - International Reserve Assets and Reserve Liabilities of the Monetary Authorities: Date of Latest Observation September 2019; Date Received November 2019; Frequency of Data M; Frequency of Reporting M; Frequency of Publication I. - Reserve/Base Money: Date of Latest Observation September 2019; Date Received November 2019; Frequency of Data M; Frequency of Reporting M; Frequency of Publication I. - Broad Money: Date of Latest Observation August 2019; Date Received November 2019; Frequency of Data M; Frequency of Reporting M; Frequency of Publication I. - Central Bank Balance Sheet: Date of Latest Observation September 2019; Date Received November 2019; Frequency of Data M; Frequency of Reporting M; Frequency of Publication I. - Consolidated Balance Sheet of the Banking System: Date of Latest Observation August 2019; Date Received November 2019; Frequency of Data M; Frequency of Reporting M; Frequency of Publication I. - Interest Rates: Date of Latest Observation November 2019; Date Received November 2019; Frequency of Data W; Frequency of Reporting W; Frequency of Publication M. - Consumer Price Index: Date of Latest Observation September 2019; Date Received November 2019; Frequency of Data M; Frequency of Reporting M; Frequency of Publication M. - Revenue, Expenditure, Balance and Composition of Financing – General Government: Date of Latest Observation September 2019; Date Received November 2019; Frequency of Data M; Frequency of Reporting M; Frequency of Publication M. - GDP/GNP: Date of Latest Observation 2018; Date Received Dec 2018; Frequency of Data A; Frequency of Reporting A; Frequency of Publication A. - External Current Account Balance: Date of Latest Observation Q1 2019; Date Received July 2019; Frequency Q; Frequency of Reporting Q; Frequency of Publication Q. ### Debt Sustainability Analysis (Joint Bank-Fund DSA) - Risk of external debt distress: High - Overall risk of debt distress: High - Granularity in the risk rating: Debt is sustainable. - Application of judgment: Yes — High probability of protracted and substantial threshold breaches from FY2034. - Notes: - DSA prepared in accordance with the revised joint Bank-Fund DSF for LICs. - Haiti’s risk assessed high despite a model-based “moderate” rating; judgement changes rating to “high” due to high probability of threshold breaches under the baseline scenario from FY2034, institutional fragilities, and exceptional vulnerability to natural disasters. - Haiti is an FCV country; tailored stress tests suggest debt risk rating over FY2019-2029 is very vulnerable to large natural disaster shocks which are statistically very frequent. - Nevertheless, moderate level of public debt and broadly stable debt trajectory over the next ten years point to a sustainable public debt. ### Public Debt Coverage and Background on Debt - Coverage: - Gross public debt used for the DSA covers the central government, local governments, extrabudgetary autonomous organisms, the state-owned electricity company Electricité d’Haiti (EDH), and advances by the central bank to the government. - No data available on guaranteed debt to other SOEs, and non-guaranteed SOE debt. - Domestic public debt calculation: - Sum of claims of the overall banking sector (including the central bank) to the non-financial public sector (NFPS) plus suppliers’ credits and domestic arrears reported by the authorities. - Banking claims data from the 10R and 20R tables reported by the BRH. - PSUGO and social security funds (Pension civile and ONA) consolidated with the rest of the NFPS. - Calculation does not include T-bills and bonds held outside of the banking sector due to absence of data. - External debt data: - Come from the BRH and include debt to multilateral and bilateral creditors and payment arrears to a foreign oil company. - External debt defined on a residency basis. - Key stock figures (end of FY2019): - Public sector debt totaled US$3.7 billion (47 percent of GDP). - External public debt accounts for 58.2 percent of total outstanding public debt (27.4 percent of GDP). - Of external public debt, 86 percent is debt arising from oil imports financed by Venezuela’s Petrocaribe. - Domestic public debt amounts to US$1.5 billion, mostly in the form of central bank advances to the government. - External technical arrears to Venezuela of about US$260 million (as of September 30, 2019) are in the process of being resolved. - Debt evolution and context: - Haiti benefited from about US$1 billion in debt relief after the 2010 earthquake, including US$268 million from the IMF (Post-Catastrophe Debt Relief Trust Fund) and US$36 million from the World Bank. - External public debt fell from 19 percent at end-FY2009 to less than 9.0 percent of GDP in FY2011. - Since then, debt increased steadily, mostly driven by disbursements related to the PetroCaribe agreement and by unremunerated advances from the central bank. - Government obtained funding from domestic suppliers (US$123 million) in FY2018 and signed a loan from Taiwan Province of China (US$150 million) in January 2019, although the latter has not been disbursed. *Prepared by staffs of the International Monetary Fund and the World Bank. December 20, 2019.* ### 6. Fiscal policy and public borrowing have been more conservative than was projected in the last ### 6. Fiscal policy and public borrowing have been more conservative than was projected in the last ### Background on macroeconomic forecasts - Baseline scenario: conservatively assumes a low growth, sub-optimal equilibrium with enough short-term political resolution to permit some stability but not enough to implement ambitious reforms; allows some resumption in activity and external financing. - FY2017: NFPS posted a primary deficit of only 0.7 percent of GDP compared to the 4.1 percent of GDP projected in the 2016 DSA. - Present value of public debt stood at 30.4 percent of GDP in September 2018. - Real GDP: - Estimated to have dropped in FY2019 amidst a protracted political crisis. - Growth for FY2020 is projected to stay negative at around -0.4 percent. - Medium-term potential growth projected at 1.5 percent, accounting for high probability of natural disasters. - Inflation: - After peaking above 20 percent y/y in 2019, inflation is expected to stabilize and gradually converge to a single digit over the medium term. - Assumption: stable real exchange rate vis-à-vis the U.S. dollar over the longer term; nominal bilateral exchange rate driven by the inflation differential vis-à-vis the United States. - NFPS deficit: - Estimated at 3.8 percent of GDP in FY2019. - Projected to contract to 3.1 percent of GDP by FY2025, constrained by lack of financing and limited additional credit from the BRH. - Beyond 2025, projected to widen to 4.1 percent of GDP on average to account for likely impact of natural disasters. - Resulting deficit increase expected to be mostly externally financed through concessional multilateral or bilateral financing. - Current account: - Estimated to have shrunk to 2 percent of GDP in FY2019 owing to weak import growth and higher remittances. - Expected to widen in the longer term as remittance inflows normalize and the impact of natural disasters ensues. - Fiscal and debt coverage changes: The present value of public debt reported in the 2016 DSA is not directly comparable to the current number since coverage of debt has changed to include the central bank’s advances to the government. ### Structure of public debt (end-2019, fiscal-year basis) - Total External Debt: US$2,147.9 million; 58.2 percent of total debt; 27.4 percent of GDP. - Multilateral creditors: US$177.4 million; 4.8 percent of total debt; 2.3 percent of GDP. - o/w IMF: US$79.8 million; 2.2 percent of total; 1.0 percent of GDP. - o/w OPEC: US$49.3 million; 1.3 percent of total; 0.6 percent of GDP. - o/w IFAD: US$48.3 million; 1.3 percent of total; 0.6 percent of GDP. - o/w IDA: US$0.0 million; 0.0 percent of total; 0.0 percent of GDP. - Bilateral creditors: US$1,923.4 million; 52.1 percent of total debt; 24.5 percent of GDP. - Venezuela: US$1,853.0 million; 50.2 percent of total; 23.6 percent of GDP. - o/w PetroCaribe: US$1,826.2 million; 49.5 percent; 23.3 percent of GDP. - o/w BANDES: US$26.8 million; 0.7 percent; 0.3 percent of GDP. - Taiwan, Province of China: US$70.4 million; 1.9 percent; 0.9 percent of GDP. - Other borrowing: US$47.0 million; 1.3 percent; 0.6 percent of GDP. - Total Domestic Debt: US$1,541.4 million; 41.8 percent of total debt; 19.6 percent of GDP. - BRH: US$960.2 million; 26.0 percent of total; 12.2 percent of GDP. - Other creditors: US$581.2 million; 15.8 percent; 7.4 percent of GDP. - Total Debt: US$3,689.3 million; 100.0 percent of debt; 47.0 percent of GDP. ### Financing and baseline assumptions - Future gross financing needs assumed to be met both internally—by rollover of central bank advances to the government—and externally. - Central bank advances are not remunerated. - Remaining internal financing: short-term treasury bills held by commercial banks; share of T-bills assumed to increase in the long-term as the domestic financial market deepens. - Projected internal financing is assumed to be exclusively in domestic currency. - External debt financing contracted or guaranteed is assumed to be mostly concessional. - Assumption: IDA18 allocation to Haiti will be replenished to similar levels every IDA cycle. - Credibility and realism: - Realism tool shows differences between past and projected debt dynamics coming in part from impact on external debt of a lower current account deficit and FDI balance and for total public debt from a lower primary deficit, suggesting previous vintages were pessimistic. - Current baseline projects debt-creating flows above those actually observed in the past 5 years; past observations may reflect improvements in debt coverage and measurement. - Projected fiscal adjustment: - Falls outside the top quartile of distribution of past adjustments of the primary fiscal deficit, suggesting a reasonable and credible pace of adjustment. - Growth forecast for 2020 and 2021 driven by assumed political stabilization unrelated to projected fiscal adjustment: - Baseline growth projection assumes near-zero growth in FY2020 as stabilization allows modest recovery in second half of year; growth would further recover in 2021. - This growth path is largely independent of expected fiscal adjustment which would result from resumption of activity supporting higher revenue collection. ### Country classification and stress tests - Composite indicator for debt carrying capacity: 2.86, resulting in a “medium” classification. - Haiti’s debt carrying capacity would be classified as weak if remittances as a share of GDP were not so high. - Remittances-to-GDP above the 15.5 percent cut-off (on average over 2013-22) brings the index above the 2.69 cutoff value. - Thresholds under “medium” classification: - Present value of external debt: up to 40 percent of GDP or 180 percent of exports of goods and services before model-based risk of distress increases. - Present value of public debt: can reach 55 percent of GDP before risk increases. - Benchmarks for external debt service: 15 percent of exports of goods and services and 18 percent of fiscal revenues. - Natural disaster stress test: - One-off major natural disaster shock modeled similar to Hurricane Matthew (2016): damages of 25 percent of GDP. - Damages and estimated losses following the 2010 earthquake were estimated at 120 percent of FY2009 GDP (not used as the main shock due to lower statistical frequency). ### Debt sustainability — External Debt (findings and projections) - Baseline projection (20-year horizon) projects breaches of indicative thresholds from FY2034 onward. - Present value of external debt-to-GDP projected to increase from 15.8 percent in FY2020 to 21.8 percent in FY2030, and up to 44.2 percent in FY2040 on account of external borrowing to finance (re)construction of infrastructure. - Present value of debt-to-exports projected to increase from 87.8 percent in FY2020 to up to 237.3 percent in 2040, breaching the 180 percent threshold in FY2034. - External debt service-to-revenue ratio remains one percentage point below the threshold of 18 percent in 2040 thanks to large share of external debt on concessional terms. - Historical scenario: replacing baseline macro variables with their 10-year historical average implies earlier and more prolonged threshold breaches for all indicators. - Stress tests: - Shock to non-debt flows (decline in both current transfers and FDI inflows by one standard deviation) would bring PV of external debt persistently above the 180-percent-of-exports threshold and debt service-to-revenue above 18 percent for more than 10 years. - Natural disaster shock has the largest negative impact, bringing PV debt-to-GDP to 54 percent by 2040. ### Debt sustainability — Public Sector (findings and projections) - Under baseline, public debt is sustainable in the near term: - Total public debt projected to remain below 47 percent of GDP until 2025. - Present value public debt would reach 35.6 percent of GDP in FY2025, around 20 percentage points below the corresponding benchmark. - Stress tests: - Under the most extreme natural disaster scenario, PV public-debt-to-GDP ratio would exceed 55 percent the year of the shock and after 2035. ### Risk rating and vulnerabilities - Debt outlook subject to several risks: - Public debt expected to grow as share of GDP over medium to long term given weak potential growth (accounting for average annual impact of natural disasters) and marginal decline in financing needs. - PV external public debt-to-GDP and debt-to-exports ratios projected to breach indicative benchmarks in FY2036 and FY2034 respectively under baseline. - A drop in remittances or a natural disaster shock similar to Hurricane Matthew would imply earlier breaches, as would the historical scenario. - Overall risk assessment: - Model-based rating: moderate risk for both external and overall public debt distress. - Judgment applied to raise assessment to high risk for both measures due to fragility, conflict, violence, and exceptional exposure to natural hazards and climate change. ### Authorities’ views - Authorities agreed with the debt sustainability analysis and assessment. - BRH highlighted: - Implications of transition to IFRS-9 for accounting of central bank’s advances to the government and interest payments. - Efforts to develop market for government debt securities to progressively reduce BRH financing of the government. - IFRS-9 compliance would require higher remuneration of BRH’s claims on the government and establishment of a timetable for domestic debt payments. - Authorities emphasized: - Achieving growth will require higher levels of investment, particularly in infrastructure. - High public investment can increase the stock of debt, but if investments are productive they would positively impact debt sustainability through higher growth, income and exports. - While Haiti needs concessional funding, authorities were skeptical that sufficient concessional resources would be made available to finance productive investments that could generate strong and inclusive growth. *Source: IMF staff estimates and projections as presented in the submitted chapter.* ### 1990. The size of 3-year adjustment from program inception is found on the horizontal axis; the ### 1htiea2020001 - 1990. The size of 3-year adjustment from program inception is found on the horizontal axis; the ### Fiscal Adjustment and Possible Growth Paths - 3-Year Adjustment in Primary Balance (Percentage points of GDP): horizontal axis shows range from -4.5 to 8.0 (with tick labels including -4 .5-4 .0-3 .5-3 .0 -2 .5-2 .0-1 .5-1 .0-0 .5 0. 00. 5 1. 01. 52. 02. 53. 03.54. 04.55. 05.56. 06.57. 07.58. 0). - "Projected 3-yr adjustment" and “3-year PBadjustment greater than 2.5 percentage points of GDP in approx. top quartile” are indicated. - Distribution: vertical axis labeled "percent of sample". - Baseline and multipliers shown: Baseline, Multiplier = 0.2, Multiplier = 0.4, Multiplier = 0.6, Multiplier = 0.8. - Time series reference for projected adjustments includes years 2014 through 2021 and projections 2016–2025 in various charts. ### External Debt Sustainability Framework, Baseline Scenario, 2017–40 (Table 1, selected lines) - External debt (nominal) (Residency-based; of which: public and publicly guaranteed (PPG)): 2017: 24.2; 2018: 23.5; 2019: 27.4; 2020: 25.3; 2021: 24.1; 2022: 23.3; 2023: 23.2; 2024: 23.3; 2025: 23.2; 2030: 31.8; 2040: 60.3; 2020–2025 and later projections include many intermediate values (all figures in percent of GDP). - No Change in external debt (yearly changes in percent of GDP): -3.2, -0.7, 3.9, -2.0, -1.2, -0.8, -0.1, 0.2, -0.2, 2.4, 0.1. - Identified net debt-creating flows: -4.9, -0.4, 3.7, 0.1, -0.5, -0.2, 0.3, 0.5, 0.4, 0.8, 0.5, 1.6, 0.4. - Non-interest current account deficit: 0.8, 3.7, 1.8, 0.6, 0.8, 1.3, 1.9, 2.2, 2.2, 2.7, 2.2, 3.6, 2.0. - Deficit in balance of goods and services: 36.0, 40.3, 42.9, 43.3, 42.6, 42.7, 43.0, 43.4, 43.5, 43.9, 43.5, 38.0, 43.4. - Exports: 19.8, 18.4, 18.9, 18.0, 17.8, 17.7, 17.7, 17.8, 17.7, 17.8, 17.8, 18.6. - Imports: 55.8, 58.7, 61.8, 61.3, 60.4, 60.4, 60.7, 61.2, 61.2, 61.7, 62.1. - Net current transfers (negative = inflow): -34.3, -35.9, -40.3, -41.9, -40.9, -40.6, -40.4, -40.4, -40.5, -40.2, -39.6, -33.7, -40.5. - of which: official transfers: -4.6, -4.0, -2.8, -2.3, -3.0, -3.0, -3.0, -3.0, -3.1, -3.0, -3.0. - Net FDI (negative = inflow): -4.5, -1.1, -0.9, -0.9, -1.3, -1.5, -1.6, -1.7, -1.7, -1.8, -1.9, -1.8, -1.6. - Endogenous debt dynamics: -1.2, -2.9, 2.8, 0.3, 0.0, 0.0, 0.0, 0.0, -0.1, 0.0, 0.2. - Contribution from nominal interest rate: 0.2 (multiple years), rising to 0.4 and 1.1 in later projection years. - Contribution from real GDP growth: -0.3, -0.3, 0.3, 0.1, -0.2, -0.2, -0.2, -0.3, -0.3, -0.4, -0.9. - Contribution from price and exchange rate changes: -1.1, -2.8, 2.3, (ellipsis for later years). - Residual (includes exceptional financing, changes in gross foreign assets, valuation adjustments): 1.7, -0.3, 0.2, -2.2, -0.8, -0.6, -0.4, -0.3, -0.6, 1.6, -0.4, -0.7, 0.0. - of which: exceptional financing: -1.7, -0.9, -1.1, 0.0, 0.0, 0.0, 0.0, 0.0, 0.0, 0.0, 0.0. - Sustainability indicators: - PV of PPG external debt-to-GDP ratio (selected values shown in projections): 16.1, 15.8, 15.2, 14.8, 14.8, 15.0, 15.2, 21.8, 44.2. - PV of PPG external debt-to-exports ratio (selected): 85.0, 87.8, 85.6, 83.9, 83.9, 84.5, 85.6, 122.4, 237.3. - PPG debt service-to-exports ratio: 5.7, 6.1, 6.9, 7.9, 7.8, 7.7, 7.6, 7.4, 7.2, 7.7, 15.5. - PPG debt service-to-revenue ratio: 8.0, 8.7, 12.1, 14.1, 12.5, 11.3, 10.7, 10.2, 9.8, 9.4, 17.2. - Gross external financing need (Million of U.S. dollars): -210.9, 356.5, 192.7, 101.3, 82.6, 104.5, 154.5, 179.7, 178.8, 280.3, 593.4. - Key macroeconomic assumptions (selected): - Real GDP growth (in percent): 1.2, 1.5, -1.2, -0.4, 0.9, 0.7, 1.1, 1.2, 1.4, 1.5, 1.5, 1.4, 1.1. - GDP deflator in US dollar terms (change in percent): 4.2, 13.2, -8.7, -1.6, 2.7, 2.5, 2.4, 2.4, 2.7, 2.2, 2.2, 1.7, 2.4. - Effective interest rate (percent) 4/: 0.7, 1.0, 0.9, 0.8, 0.9, 0.9, 1.0, 1.0, 1.1, 1.5, 1.8, 0.5, 1.1. - Growth of exports of G&S (US dollar terms, in percent): 3.6, 6.9, -7.3, -6.9, 2.4, 2.8, 3.4, 4.3, 3.6, 3.8, 4.3, 5.3, 3.0. - Growth of imports of G&S (US dollar terms, in percent): 11.7, 20.9, -5.1, -2.8, 2.0, 3.3, 4.1, 4.4, 4.1, 3.8, 3.9, 7.9, 3.6. - Grant element of new public sector borrowing (in percent): values shown for projection years include 42.4, 40.0, 37.3, 36.2, 36.2, 32.8, 32.3, ...36.0. - Government revenues (excluding grants, in percent of GDP): 14.0, 13.0, 10.8, 10.0, 11.1, 12.1, 12.5, 12.9, 13.0, 14.6, 16.8. - Aid flows (in Million of US dollars) 5/: 1186.1, -2965.9, -6550.8, 305.1, 321.5, 326.6, 332.7, 346.7, 364.8, 435.2, 606.2. - Grant-equivalent financing (in percent of GDP) 6/: projection values include 3.5, 3.5, 3.6, 3.7, 3.8, 3.8, 4.4, 4.3, ...3.9. - Nominal GDP (Million of US dollars) (selected): 8,409; 9,658; 8,708; 8,533; 8,842; 9,135; 9,454; 9,798; 10,199; 12,773; 18,473. - Nominal dollar GDP growth: 5.4, 14.9, -9.8, -2.0, 3.6, 3.3, 3.5, 3.6, 4.1, 3.8, 3.8, 3.1, 3.6. - Memorandum items: - PV of external debt (in percent of GDP) repeated: 16.1, 15.8, 15.2, 14.8, 14.8, 15.0, 15.2, 21.8, 44.2. - In percent of exports: 85.0, 87.8, 85.6, 83.9, 83.9, 84.5, 85.6, 122.4, 237.3. - PV of PPG external debt (in Million of US dollars): 1401.4, 1348.5, 1347.5, 1356.3, 1401.2, 1471.6, 1545.8, 2783.9, 8156.3. - (PVt-PVt-1)/GDPt-1 (in percent): -0.6, 0.0, 0.1, 0.5, 0.7, 0.8, 2.6, 2.1. ### Public Sector Debt Sustainability Framework, Baseline Scenario, 2017–40 (Table 2, selected lines) - Public sector debt (coverage: general government) (in percent of GDP): 2017: 38.3; 2018: 39.9; 2019: 47.0; 2020: 46.1; 2021: 44.9; 2022: 44.1; 2023: 43.9; 2024: 43.7; 2025: 43.4; 2030: 49.0; 2040: 70.3; later projections include 35.5, 45.1. - Of which: external debt (percent of GDP): same series as Table 1 (24.2, 23.5, 27.4, 25.3, ...). - Change in public sector debt (percent of GDP): -2.5, 1.6, 7.0, -0.9, -1.2, -0.8, -0.2, -0.2, -0.3, 1.3, 1.4. - Identified debt-creating flows: -5.4, 0.5, 5.1, -0.6, -0.9, -0.6, 0.0, 0.0, -0.2, 1.3, 1.4, 2.2, 0.3. - Primary deficit (percent of GDP): 0.7, 2.6, 3.4, 3.0, 2.7, 2.5, 2.8, 2.7, 2.7, 2.9, 2.9, 3.4, 2.9. - Revenue and grants (percent of GDP): 17.7, 17.3, 13.6, 13.4, 14.2, 15.1, 15.5, 15.9, 16.1, 17.6, 19.8, 19.2, 15.9. - of which: grants: 3.7, 4.3, 2.8, 3.4, 3.0, 3.0, 3.0, 3.0, 3.1, 3.0, 3.0. - Primary (noninterest) expenditure (percent of GDP): 18.4, 19.9, 17.0, 16.4, 16.9, 17.5, 18.3, 18.6, 18.8, 20.5, 22.7, 22.6, 18.9. - Automatic debt dynamics (contribution to change in debt ratio): -6.0, -2.1, 1.8, -3.6, -3.7, -3.1, -2.8, -2.7, -2.8, -1.7, -1.5. - Contribution from interest rate/growth differential: -2.1, -2.3, -2.1, -3.2, -3.3, -2.7, -2.6, -2.5, -2.4, -1.6, -1.3. - Contribution from average real interest rate: -1.6, -1.7, -2.5, -3.3, -2.9, -2.4, -2.1, -2.0, -1.8, -0.9, -0.3. - Contribution from real GDP growth: -0.5, -0.6, 0.5, 0.2, -0.4, -0.3, -0.5, -0.5, -0.6, -0.7, -1.0. - Contribution from real exchange rate depreciation: -4.0, 0.8, 16.3, ... - Residual: 2.9, 1.1, 1.9, -0.7, -0.7, -0.6, -0.4, -0.4, -0.7, -0.1, -0.2, -0.8, -0.4. - Sustainability indicators: - PV of public debt-to-GDP ratio (selected): 37.5, 37.4, 36.8, 36.2, 36.0, 35.8, 35.6, 35.3, 39.2, 54.6. - PV of public debt-to-revenue and grants ratio (selected): 274.8, 278.8, 258.9, 240.0, 232.4, 225.6, 220.8, 223.2, 275.4. - Debt service-to-revenue and grants ratio (selected): 72.6, 73.1, 108.2, 134.8, 136.7, 132.0, 129.1, 126.0, 122.8, 106.3, 56.8. - Gross financing need (percent of GDP): 13.5, 15.2, 18.1, 21.1, 22.1, 22.4, 22.8, 22.7, 22.5, 21.6, 14.1. - Key macro/fiscal assumptions (selected): - Real GDP growth (in percent): see Table 1 series: 1.2, 1.5, -1.2, -0.4, 0.9, 0.7, 1.1, 1.2, 1.4, 1.5, 1.5, 1.4, 1.1. - Average nominal interest rate on external debt (in percent): 0.7, 0.9, 1.0, 0.9, 0.9, 1.0, 1.0, 1.1, 1.1, 1.5, 1.9, 0.5, 1.2. - Average real interest rate on domestic debt (in percent): -11.2, -10.6, -13.4, -15.3, -12.7, -10.5, -9.5, -8.7, -7.9, -4.1, -2.9, -6.7, -8.1. - Real exchange rate depreciation (in percent): -14.7, 0.8, 16.3, ... later years shown. - Inflation rate (GDP deflator, in percent): 13.4, 12.8, 17.3, 19.0, 15.9, 13.1, 11.4, 10.4, 9.4, 5.0, 5.0, 9.2, 9.9. - Growth of real primary spending (deflated by GDP deflator, in percent): -4.8, 9.5, -15.4, -3.6, 3.9, 4.3, 5.3, 3.0, 2.6, 0.4, -0.8, 0.5, 2.9. - Primary deficit that stabilizes the debt-to-GDP ratio 5/: 3.1, 0.9, -3.7, 3.9, 3.9, 3.3, 3.0, 2.9, 3.0, 1.6, 1.5, 0.1, 2.7. - PV of contingent liabilities (not included in public sector debt): 0.0 across shown years. ### Sensitivity Analysis and Stress Tests (Tables 3 and 4, selected highlights) - Table 3: Sensitivity Analysis for Key Indicators of Public and Publicly Guaranteed External Debt, 2020–40. - Baseline PV of debt-to-GDP ratio (selected series): 16, 15, 15, 15, 15, 17, 18, 20, 22, 24, 27, 31, 34, 37, 39, 42, 43, 44, 44. - A. Alternative scenario A1 (key variables at historical averages in 2020-2030) increases many indicators (examples): PV of debt-to-GDP moves to values like 16, 17, 18, 19, 20, 21, 23, 24, 27, 29, 31, 35, 38, 42, 45, 49, 52, 55, 57, 59, 60 (selected). - B. Bound tests B1–B6 and C. Tailored tests C1–C2 show a range of breaches against thresholds (bold values in original indicate breaches). - Thresholds indicated (various): 40, 180, 15, 18 depending on indicator. - Table 4: Sensitivity Analysis for Key Indicators of Public Debt, 2020–40. - Baseline PV of Debt-to-GDP ratio (percent of GDP) series: 37, 37, 36, 36, 36, 35, 36, 37, 39, 39, 40, 41, 42, 43, 45, 47, 49, 51, 53, 55. - A1, B1–B6, C1–C2 scenarios produce varied paths, with some scenarios showing sharp increases (e.g., natural disaster scenario C2 producing values like 431, 384, 359, 338, ... for a stress test presented in table cells). - Public debt benchmark shown as 55 (across many years) for one comparison. - Projections for associated ratios (PV of Debt-to-Revenue Ratio, Debt Service-to-Revenue Ratio, Gross financing need) are presented in detail in table cells. ### Key Macroeconomic and Fiscal Statistics (selection) - Real GDP growth (in percent): 1.2; 1.5; -1.2; -0.4; 0.9; 0.7; 1.1; 1.2; 1.4; 1.5; 1.5; 1.4; 1.1 (historical and projection series repeated across tables). - Inflation rate (GDP deflator, in percent): 13.4; 12.8; 17.3; 19.0; 15.9; 13.1; 11.4; 10.4; 9.4; 5.0; 5.0; 9.2; 9.9. - Government revenues (excluding grants, percent of GDP): 14.0; 13.0; 10.8; 10.0; 11.1; 12.1; 12.5; 12.9; 13.0; 14.6; 16.8. - Aid flows (Million of US dollars): 1186.1; -2965.9; -6550.8; 305.1; 321.5; 326.6; 332.7; 346.7; 364.8; 435.2; 606.2. - Nominal GDP (Million of US dollars): 8,409; 9,658; 8,708; 8,533; 8,842; 9,135; 9,454; 9,798; 10,199; 12,773; 18,473. ### Statement by the Staff Representative - Executive Board Meeting date: January 24, 2020. - Text: "This statement provides information that has become available since the staff report was finalized. This information does not alter the thrust of the staff appraisal." *Sources: Country authorities; and staff estimates and projections.* ### 1. Dissolution of parliament. It was not possible to hold parliamentary elections by end- ### 1. Dissolution of parliament. It was not possible to hold parliamentary elections by end- ### Political/institutional developments - Parliamentary elections could not be held by end-October 2019 due to failure to approve a new electoral law, absence of a budget, and no agreement on the composition of the Provisional Electoral ɋouncil. - President Moïse announced that the mandates of all deputies in the legislature and two-thirds of the senate had formally expired on January 13th, leaving the country without a legislative body and creating an "institutional void". - There is disagreement regarding the number of departing senators and the term of their mandate as determined by the constitution. - Pending acceptance by these departing senators that their mandate has ended, and based on precedent, it is understood that the president would rule by decree. - The next presidential election is due in December 2021. ### Social unrest and domestic operations - Public demonstrations waned towards the end of 2019 and schools and businesses have re-opened. - Employees of the Haitian Institute of Statistics (IHSI) have been on strike since October 2019 to protest the dismissal of the head of the institution, halting its activities and the publication of economic indicators. - The country experienced several weeks of “peyi lok” (country lockdown) in 2019, halting economic and social activities and contributing to severe disruption. ### Fiscal policy and public finances - Staff have received no indication that the authorities have prepared or published a notional budget for FY2020, as recommended by staff. - President Moïse announced on January 13th that he would allocate the 2020 salaries of the departed senators and deputies, which he valued at 1.16 billion gourdes (US$11.7 million), to build 10 schools. - The authorities drafted a framework consistent with the Fund’s baseline scenario of no external budget support to reestablish the budget as a binding fiscal constraint. - The total FY20 budget envelope is to be shrunk by up to 20 percent in comparison to the preceding year due to the sharp drop in fiscal revenues linked to the contraction of economic activity. - Measures taken to stave off fiscal deterioration include renewing the “Pacte de Gouvernance” (cash management agreement) between the Ministry of Economy and Finance and the Central Bank, actions to rein in tax expenditures, strengthen tax collection, control accumulation of domestic arrears, and improve public financial management. - To facilitate tax collection, payment of taxes through banks was recently tested in pilot form and will become effective once a few technical issues are solved. - To quell leakages at the border with the Dominican Republic, exchange of information between customs offices started in September 2019; a training session for custom officers of both countries was scheduled for February 2020. ### Food security and humanitarian situation - WFP reports that 3.7 million people in Haiti (one in three) need food assistance. - OCHA warned that this number could reach 4.2 million by March, with some 1.2 million likely to experience “emergency levels”. - Drivers of deterioration in food security include supply disruptions related to social unrest during 2019, high inflation and depreciation of the gourd against the U.S. dollar, and a drought in 2018 that lasted until mid-2019 and led to a decline in agriculture production by about 12 percent in many parts of the country. ### Macroeconomic performance and financial sector - For the first time since the 2010 earthquake, GDP is estimated to have contracted in 2019. - Inflation reached 20 percent yoy in 2019, pushed by a 32 percent depreciation of the currency. - The banking sector and microfinance institutions (MFIs) are confronting a rapid increase of NPLs due to plunging activity. - Anecdotal evidence indicates a wave of migration of skilled labor, which may constrain human capital availability. - The Central Bank (BRH) continued interventions to reinvigorate financial markets, ease inflation pressures from exchange rate volatility, and maintain adequate international reserves: - Net international reserves remained above 700 million US dollars. - Gross reserves still represent over 5 months of imports. - The Central Bank has been recalibrating its policy stance to balance exchange rate stability and price stability; the exchange rate is treated as a key policy indicator due to strong pass-through to inflation. ### Structural reforms, governance, and anti-corruption - The authorities identified key priorities: curbing economic deterioration, reforming the energy sector, strengthening governance, and developing social safety nets. - The authorities transferred fuel purchasing responsibility to the private sector; the administration committed to make regular payments to petroleum suppliers to reduce arrears. - EDH (electricity utility) is taking steps to improve financial performance, including cutting clients in payment arrears off the grid, supported by Ministry directives for timely payments by public entities. - Within anti-corruption efforts: - A legal expert was appointed head of the anti-corruption unit (ULCC). - On January 10, the ULCC issued a press release noting a rapid increase in compliance with asset declaration by government officials and set January 31st as the deadline to comply. - The ULCC is moving forward with at least two high-profile investigations. - The ULCC organized an open-door day to promote understanding of its work. ### Financial sector regulation, AML/CFT, and financial inclusion - Significant progress on safeguards assessment recommendations and IFRS compliance technical assistance; seven draft regulations shared with the banking sector covering Basel II-related capital requirements, internal control, governance, cross-ownership of capitals, and equity share limits of banks in non-financial institutions. - The Central Bank will implement measures to establish a risk-based supervision framework with ongoing MCM TA support. - With regard to AML/CFT, Haiti is working toward closing gaps identified in the Fourth round mutual evaluation (summer 2018) with a comprehensive risk-sensitive strategy; the goal is technical compliance by the November 2020 progress report deadline, though progress was delayed by the country lockdown and postponement of TA delivery by the World Bank. - The authorities are implementing the national financial inclusion strategy adopted in 2015; fintech use is being promoted and a web-based platform for economic agents to access costs of financial services was recently launched. - The National Financial Education Plan is expected to be adopted in the near term. ### Social protection and recovery needs - Adoption of a comprehensive recovery plan with wide-ranging domestic and external support is essential to secure macroeconomic stability and sustainable, inclusive growth. - Strong domestic resource mobilization will be decisively pursued but will not be enough; predictable, timely and effective donor support is needed to implement a sustainable program of economic growth and stability and to mitigate short-term negative impacts on the most vulnerable. - Strengthening social safety nets should be central to macroeconomic and structural programs: - A central registry of beneficiaries has been constructed within the Ministry of Social Affairs to support an upcoming cash transfer program and improve targeting. - Fund guidance for fragile situations emphasizes creating social safety nets to mitigate potential negative impacts of reform measures as an essential prerequisite. ### Debt and IMF engagement - Haiti was assessed to be at moderate risk of debt distress but with a weak debt carrying capacity. - Authorities expect that mobilizing domestic resources and targeted measures, supported by grant resources from international partners, will enable a path toward sustainable and inclusive growth. - Authorities welcome the Fund’s medium-term engagement framework (Country Engagement Strategy, CES) and emphasize the CES should: - Facilitate strong Fund engagement during episodes of increased fragility to avoid stop-and-go approaches. - Address country team composition and experience, streamline and realistically time and sequence conditionality to match institutional capacity, and fine-tune TA delivery modalities to ensure effective knowledge transmission and domestic ownership of reform. - Strong IMF technical and financial engagement is seen as paramount to signal to other partners that Haiti can progress and needs urgent support. *Statement by Mr. Bevilaqua, Executive Director for Haiti and Mr. Saraiva, Alternate Executive Director, and Ms. Florestal, Advisor to the Executive Director — Haiti, January 24, 2020* --- _Source: https://www.imf.org/-/media/files/publications/cr/2020/english/1htiea2020001.pdf_