## 1htiea2020002

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### Regional inequality and Gini-based overview
- Despite improvements in education indicators and life expectancy, income inequality in Haiti has continued to widen.
- Haiti remains among the most unequal countries in the world as measured by the Gini coefficient (SWIID and World Bank datasets).
- Drivers of persistence:
  - Concentration of resources in a small elite, including historical monopoly rights and exclusive import licenses.
  - Weakness or absence of redistribution channels—targeted transfers and a social safety net.
- Key statistics:
  - General government tax collection: 13 percent of GDP (2013-18 average).
  - Country-wide extreme poverty: declined from 31 percent in 2000 to 24 percent in 2012; rural extreme poverty remained largely unchanged.

### Role of government policy in combatting inequality
- Fiscal instruments noted: progressive income taxation, health and education spending, and a social safety net.
- Constraints in LIC context:
  - Low tax revenues and limited transfer systems reduce redistributive capacity.
- Findings:
  - Very low social spending on health and education relative to comparators and the region.
  - Top income tax rate of 30 percent applies to incomes that are over 2000 percent higher than Haiti’s per-capita GDP.
  - Social safety net is fragmented, limited in reach, and underfunded; PNPPS under development.
- Policy implications and recommendations:
  - Improve revenue collection to create fiscal space for targeted cash transfers and infrastructure spending.
  - Increase efficiency of education and infrastructure spending.
  - Broaden and better target the social safety net; continue development and implementation of the PNPPS.

### Rural–urban inequality and access gaps
- Distributional facts:
  - More than half of the population resides in rural areas; almost 70 percent of rural households are chronically poor versus 20 percent in urban areas.
  - Three quarters of the rural population work in agriculture.
  - Half of rural households have agricultural activity as their sole source of revenue.
- Service-access and connectivity gaps:
  - Access to electricity: rural 11 percent versus urban 63 percent.
  - Access to improved sanitation: rural 16 percent versus urban 48 percent.
  - World Bank Rural Access Index: 50 percent of Haiti’s surface remains poorly connected; two-thirds of rural dwellers live in poorly-connected areas.
  - Share of commercial banks' lending to the agricultural sector: below 1.0 percent of total lending.
  - Financial inclusion: 33 percent of the adult population have a bank account (World Bank FINDEX 2017).
  - Remittances: fewer rural households receive remittances compared to urban households; gap larger among the poor.
- Policy priorities:
  - Job creation and income diversification in rural areas—off-farm formal employment and agricultural productivity.
  - Expand targeted public investment in rural healthcare, clean drinking water, sanitation, and electricity.
  - Improve connectivity infrastructure and transportation to link rural areas to markets and services.
  - Promote financial inclusion: reduce participation costs, regulate microfinance/cooperatives, support fintech and mobile money while managing financial-integrity and cybersecurity risks.
  - Continue implementation of the 2015 National Financial Inclusion strategy led by BRH.

### Gender inequality: findings and implications
- Key findings:
  - Haitian women earn, on average, 32 percent less than men.
  - About one third of the earnings gap explained by age, number of children, education, and industry; two thirds unexplained, suggesting discrimination (World Bank, 2014c).
  - Gender earnings gap largest in urban areas and greater than in any other Latin American or African country.
  - Female-headed households: 62 percent are poor versus 54 percent for male-headed households.
  - Women less likely than men to have an account at a financial institution or at a mobile network.
  - Haiti’s gender equity rating dropped further in 2016 after staying low for ten years.
- Education, health, and gender-based violence:
  - Labor force participation gap: 10 percent (smallest among comparators); education gap is largest.
  - Maternal mortality ratio: five times higher than the regional average since many births take place outside healthcare facilities.
  - Gender-based violence prevalence: nearly one third of married women experience spousal violence; 13 percent of all women experience sexual violence.
- Gender-focused policy recommendations:
  - Promote equal access to education and health (including prenatal and maternal care).
  - Upgrade legal framework to reduce gender-based violence.
  - School-level interventions: teacher and administrator training to reduce social acceptability of gender-based violence.
  - Expand formal employment opportunities for women; implement the 30 percent quota reserved for women in public-sector appointments introduced in 2012 but never enforced.

### Policy advice: fiscal realignment, public spending, labor markets, and financial inclusion
- Fiscal and revenue measures:
  - Strengthen revenue collection and make income taxation more progressive.
  - Decentralize revenue collection to increase municipal capacity for local service delivery.
- Expenditure priorities:
  - Improve infrastructure, education, and health services and raise spending efficiency.
  - Scale up public investment to help meet Sustainable Development Goals, stimulate growth, and reduce the income gap.
- Social protection and transfers:
  - Targeted social-support programs and unconditional cash transfers can significantly reduce poverty.
  - Unconditional transfers may be more appropriate given limited administrative capacity.
  - PNPPS is a starting point; successful implementation requires long commitment, cross-agency cooperation, and sustainable financing.
- Labor markets and financial inclusion:
  - Preserve trade preferences supporting apparel industry formal jobs.
  - Improve business climate, reduce political uncertainty, streamline wage-setting.
  - Improve transport connectivity and deliver formal jobs to the countryside via public works and private-sector development.
  - Expand financial services availability and affordability, paired with financial literacy and fintech initiatives under appropriate supervision.

### Social protection: programs, spending, and effectiveness
- Contributory programs and spending:
  - Three contributory insurance programs: OFATMA, ONA, and DPC.
  - Social insurance contributions: about 1.2 percent of GDP in 2013 (over 90 percent from private sector worker contributions).
  - Total spending under these programs: slightly below 2 percent of GDP from 2013 to 2018.
  - ONA’s operating surplus recently turned into deficits due to governance issues and misuse of funds (CSCCA 2019).
- Coverage and targeting:
  - About 8 percent of the population received non-contributory social assistance benefits in 2012.
  - Coverage progressive by quintile but uneven; young children under-represented.
  - Social assistance transfers are regressive as amounts increase with income.
  - Estimated insured workers in 2012: 400,000 (around 10 percent of wage workers; less than 4 percent of the population).
  - Social assistance and insurance programs reduced the poverty headcount by only one percent (World Bank, 2016).
- Sectoral outcomes relative to spending:
  - Health: life expectancy rose by 9 years and child mortality declined by 8 percentage points from 1990-2016, but slower than LIC averages; health service utilization ~20 percent lower than LIC peers.
  - Education: adult literacy rate in 2013 close to 80 percent; 45 percent completed secondary school (exceeding LIC averages). Less than 15 percent of schools are public. About 70 percent of education budget allocated to salaries, skewed to administrative/non-teaching staff.
  - Challenges: low efficiency in health facilities; fraud and “ghost” schools in education; wide regional disparities.

### PNPPS (Politique Nationale de Protection et de Promotion Sociales): design and objectives
- Governance and process:
  - Led by MAST and MPCE with participation from health, education, women’s conditions ministries and four public organizations.
  - First draft submitted for national consultation in June 2019; revised draft expected to be presented to Council of Ministers by end of 2019.
- Objectives assigned by PNPPS:
  1. Break inter-generational transmission of poverty by supporting children’s health, development, and education.
  2. Create conditions so that all individuals can get out of poverty.
  3. Create conditions of equality and eliminate discrimination related to gender, age, and disability.
- Strategic priorities:
  - Four priorities: (1) childhood; (2) labor, employment and employability; (3) health and social security; and (4) resilience to shocks.
  - Schemes will prioritize rural populations living in extreme poverty and the most vulnerable.

### PNPPS implementation design choices and staff recommendations
- Design goals:
  - Reduce fragmentation and overlap; boost national ownership; build on international literature and experience.
- Preference for cash transfers:
  - Cash transfers preferred over in-kind assistance given administrative capacity constraints and leakage risks.
  - Example cost estimate: average annual transfers of US$150 to all households yields an upper bound estimate of total transfers of US$345 million (4 percent of GDP); total costs must account for administration costs.
  - Blunt demographic or geographic targeting can lower total costs to more feasible levels.
- Recommended initial schemes (unconditional cash transfers):
  1. Households with children under a certain age and/or with pregnant women.
  2. People with disabilities.
  3. Old people aged 65 and above.
- Complementary supply-side reforms:
  - Improve delivery of health and education services before conditioning transfers.
  - Coordinate public investment with development partners to improve infrastructure and service delivery.

### Rationalization, financing, and institutional arrangements for social protection
- Program rationalization:
  - Phase out small programs that do not meet PNPPS objectives.
  - Reform and transition social insurance and large social assistance programs into simplified cash-transfer schemes where appropriate.
  - Overhaul agencies with credibility undermined by mismanagement and misuse of funds.
- Financing strategy:
  - Sustainable financing should rely on domestic resources given declining development partner support.
  - Government should boost customs revenue mobilization and reduce unproductive public spending (goods, services, energy subsidies).
  - Any energy subsidy or sector reform must be preceded by mitigating measures for vulnerable groups.
- Identification systems and SIMAST:
  - SIMAST coverage: 1.2 million individuals (14 percent of the population).
  - Marginal cost of increasing coverage by one percent: US$350,000.
  - Total one-off cost for full population coverage: US$28.4 million (0.4 percent of GDP).
  - Potential shortcomings: limited coverage for dangerous urban areas; need for regular updates; financing risk.
  - Long-term vision: national coverage via modernized national identification system coordinated with other government functions.
- Institutional coordination and delivery:
  - Designate MAST as primary coordinator and reinforce its capacity.
  - Develop robust and secure delivery systems; digital financial services critical for large-scale cash transfers.
  - Past operational challenges with mobile cash transfers included lack of phones, SIM issues, lack of coverage, and provider-agent issues.
- Accountability and communications:
  - All programs should report annually on activities, coverage, resources, beneficiaries, and administration costs.
  - Medium-term reporting could be delegated to an independent organization such as ONPES.
  - Involve development partners and CSOs in oversight.
  - Proactive communications to build public support and explain link between revenue reforms and social protection.

### Illustrative PNPPS implementation timeline (high-level)
- 1–2 years:
  - Build national consensus; define financing strategy; create/strengthen independent oversight (ONPES); rationalize existing programs; extend SIMAST coverage; develop mobile cash transfer system; initiate pilot assistance project; plan improvements in rural health and education infrastructure.
- 2–6 years:
  - Continue SIMAST extension toward near 100 percent coverage; implement and scale-up cash-transfer schemes; assess/audit schemes annually.

### Electricity sector: structure, performance, and fiscal impacts
- Energy consumption and mix:
  - Per capita energy consumption: less than 100 kWh annually (lowest in the Caribbean).
  - Energy mix: 75 percent wood burning and charcoal; 20 percent petroleum products; 5 percent electricity.
  - Consumption by sector: residences 65 percent; industry 19 percent; transportation 12 percent; services 4 percent.
- Access and generation:
  - Less than 35 percent of households connected to the national grid; of those connected, only 12.5 are connected legally.
  - On-grid generation shares (2017): Sogener 6%; E-Power 4%; Haytrac 1%; PBM 6%; EDH 10%; Self-generation 73%.
  - EDH runs ten separate unconnected distribution grids with large ATC&C losses (examples: Cap-Haïtien 63.5%; Port au Prince 59.0%; St. Marc / Gonaïves 74.2%).
- Self-generation and consequences:
  - Self-generation produces more electricity collectively than official grid; EDH provides electricity for about 14 hours per day.
  - Self-generation raises oil import bill, is expensive/inefficient, causes deforestation and environmental degradation, hurts competitiveness, and reduces EDH’s viable paying client base.
- Billing, collection, and financial performance:
  - Less than half of electricity supplied to grid billed in FY2017 and FY2018.
  - Of accounts billed, about 82 percent were collected in FY2018.
  - EDH reported that in 2018 only about 45 percent of electricity generated was invoiced.
  - CRI was 38 percent in FY2018; CRI increased to over 55 percent during H1 FY2019 following SMP reforms.
  - A counterfactual CRI of 90 percent instead of 38 percent in FY2018 would translate into collection gains equivalent to 1.0 percent of GDP; EDH would still incur a deficit of 0.5 percent of GDP under that scenario.
- Tariffs, fuel mix, and costs:
  - About 90–95 percent of on-grid electricity production comes from thermal sources (diesel and heavy fuel oil).
  - Average price charged by IPPs to EDH: 14 Gourde cents/KwH (2017/18); price charged by EDH: 11 Gourde cents/KwH.
  - Commercial and industrial users paid about 20 cent per KwH more (plus fixed charges).
  - Cost to the NFPS of electricity-related losses: about HTG 10 billion over the last 5 years.
  - Since 2012, subsidies alone have raised public debt by 18 percent of GDP (including arrears).

### Fuel subsidies, distributional effects, and reform sequencing
- Retail fuel prices below cost of supply since mid-2018; administered prices rigid since 2010.
- 2017 price adjustments:
  - Gasoline increased by 19 percent (HTG35 per gallon).
  - Diesel increased by 20 percent (HTG30 per gallon).
  - Kerosene increased by 17 percent (HTG25 per gallon).
- Gap between administered and cost-recovery prices:
  - Increased from 55 percent (105 HTG per gallon) in September 2018 to 84 percent (160 HTG per gallon) in June 2019.
  - Gourde depreciation accounted for 33 percent of the increase.
  - Equivalent to monthly subsidies of 0.3 percent of GDP.
  - About 60 percent of the subsidy was forgone revenues; remainder was direct budget expenses (partly financed by arrears).
- Distributional findings:
  - Poor households spend 112 Gourdes per year on fuels (0.1 percent of annual budget).
  - Richest decile average annual expenditure on petroleum: 18,900 Gourdes (5.7 percent of total consumption).
  - The poor receive only 1.6 percent of total subsidies accruing directly to households.
  - Fuel subsidy shares by decile (percentage of total): Decile 1 0.1; Decile 2 0; Decile 3 0.1; Decile 4 0.2; Decile 5 0.6; Decile 6 0.5; Decile 7 2.1; Decile 8 2.3; Decile 9 10.8; Decile 10 83.2; Total 100.
  - Average yearly expenditure on fuels (in HTG) by decile (percentage of budget): Decile 1 0.08; Decile 2 0.03; Decile 3 0.07; Decile 4 0.09; Decile 5 0.18; Decile 6 0.14; Decile 7 0.46; Decile 8 0.41; Decile 9 1.46; Decile 10 5.68.
- Scenario: 30 percent rise in fuel prices due to subsidy reduction
  - Direct effect on average poor household real consumption: less than 0.05 percent decline.
  - Direct effect on households in the richest decile: 1.65 percent decline in consumption.
  - Indirect second-round welfare losses: bottom quintile 1.7 percent loss; top quintile above 2.8 percent loss.
- Reform lessons and sequencing:
  - Kerosene: subsidies should not be touched until late, if ever; over 50 percent of households use kerosene as main source of lighting; kerosene subsidies account for less than 10 percent of total subsidy costs.
  - Gasoline: adjust gradually after mitigating measures for transport sector.
  - Diesel: consider first in line for reform since benefits accrue to higher income groups; diesel reform is the most progressive step.
  - Priorities include advance communication, stakeholder engagement, compensating social assistance before and during subsidy reform, and moving to an automatic pricing mechanism.

### Electricity-sector reform priorities
- Strengthen performance of EDH, tariff reform, and regulation.
- Institutional and operational actions:
  - Strengthen legislative framework for SOEs; reactivate and strengthen MEF unit overseeing EDH.
  - Implement financial performance monitoring and publish annual consolidated financial reports.
  - EDH-specific: revise legislation, strengthen regulator independence, install management contracts, increase billing and collection, install remotely-controlled meters and remote payment systems starting with large customers, renovate grids to reduce technical losses.
  - Renegotiate supplier contracts awarded on transparent, competitive tenders.
- Tariff reform:
  - Prepare a plan to increase tariffs with prior consultation, communication, and mitigating measures; phase increases progressively on higher income users and larger accounts.
- Regulation:
  - Strengthen regulation to ensure transparency, level playing field, reduce theft and corruption, and reduce universal subsidies.
- Long-run strategy:
  - Crowd in private investment, transition to cleaner production mix, and expand electrification to remote off-grid areas.

### Distributional and reform communication strategy for fuel/electricity reform
- Communication and stakeholder engagement:
  - Launch clear communication strategy prior to reforms explaining rationale, end-goals, timing, and mitigating benefits.
  - Engage parliament, civil society, labor, transport sector, and oil importers.
  - Prepare visible and scalable social protection programs prior to reform.
- Macro gains from reform:
  - Present energy policy losses equivalent to 6.5 percent of GDP in FY2019 could be reallocated to social assistance, education, health, and infrastructure.

### Petrocaribe: mechanics, scale, and consequences of termination
- Petrocaribe mechanics:
  - Agreement (established 2005) allowing concessional financing from Venezuela with up-front payments ranging from 30 percent to 95 percent and the remainder loaned at 1–2 percent interest over 17 to 25 years.
- Haiti’s participation:
  - Joined March 2007; benefited from October 2007.
  - Haiti supported Venezuela in regional forums.
- Scale of debt:
  - Petrocaribe-related debt as of end-FY 2018: US$1,825.5 million (20.2 percent of GDP).
  - Entire debt accumulated between 2010–18 after Venezuela cancelled pre-2010 Petrocaribe debt of US$395 million following the 2010 earthquake.
- Uses and governance:
  - Resources used to finance investment projects and support the electricity sector.
  - Disbursements reported on BMPAD’s webpage; use did not follow treasury procurement rules.
- Consequences of termination:
  - Termination constrained investment spending and financing of the electricity sector.
  - Shock to growth hit domestic tax revenues and international reserves.

### Border security and informal trade
- Status and challenges:
  - Haiti remains unable to secure borders against illicit trade despite past efforts; contract to improve border-surveillance capabilities in 2015 was not executed.
  - Customs officers face political pressure and threat of physical violence.
  - Weaknesses: limited anti-smuggling and anti-fraud capabilities, insufficient surveillance, weak intelligence, substantial discretionary powers at borders.
- Recommended reforms:
  - Enhance anti-smuggling and anti-fraud capabilities; strengthen surveillance and intelligence.
  - Minimize discretion via risk-based inspection regime, pre-arrival online declarations, and pre-payment requirements.
  - Administrative reforms: adopt new organizational structure, streamline customs procedures, broaden ASYCUDA World usage, improve control/monitoring of exemptions, enforce cooperation agreements with the Dominican Republic for digital information exchange.
- Trade-regime reforms to formalize low-value cross-border transactions:
  - Simplify and reduce documentation/formalities; streamline transit and clearance; expedite release of goods; enhance transparency and predictability of trade regulations and fees.
  - Expected outcomes: reduce incentives for corruption, improve compliance, and lower informality.

_Italic: IMF staff summary of content unit 1htiea2020002._

### 1. Regional Inequality Comparison using Gini Coefficients  ________________________________ 4

### 1. Regional Inequality Comparison using Gini Coefficients

### A. Introduction
- Despite improvements in education indicators and life expectancy, income inequality in Haiti has continued to widen.
- Haiti remains among the most unequal countries in the world as measured by the Gini coefficient (SWIID and World Bank datasets).
- Concentration of resources in a small elite, including historical monopoly rights and exclusive import licenses, contributes to persistent inequality.
- Weakness or absence of redistribution channels—targeted transfers and a social safety net—exacerbates inequality.

Key statistics and findings:
- Haiti’s average general government tax collection: 13 percent of GDP (2013-18 average).
- Income inequality increased since 2010 (Figure references in source).
- Country-wide extreme poverty declined from 31 percent in 2000 to 24 percent in 2012; rural extreme poverty remained largely unchanged over this period.

### B. The Role of Government Policies in Combatting Inequality
- Fiscal policy instruments to promote inclusive growth: progressive income taxation, health and education spending, and a social safety net.
- In low-income countries (LICs) such as Haiti, redistributive capacity of fiscal policy is constrained by low tax revenues and limited transfer systems.
- Education and infrastructure spending can be both pro-growth and pro-equality when access is not restricted and spending is efficient.

Findings and constraints:
- Haiti has very low social spending on health and education relative to comparator countries and the region.
- Progressivity of income taxation can be improved: the top rate of 30 percent applies to incomes that are over 2000 percent higher than Haiti’s per-capita GDP.
- Haiti’s social safety net is fragmented, limited in reach, and underfunded; ongoing efforts include development of a national social protection and promotion policy (PNPPS).

Policy implications (from the source discussion):
- Improve revenue collection to create fiscal space for targeted cash transfers and infrastructure spending.
- Increase efficiency of education and infrastructure spending.
- Broaden and better target the social safety net (PNPPS underway).

### C. Income Inequality between Rural and Urban Areas
- Income inequality in Haiti is pronounced between rural and urban households.
- More than half of the population resides in rural areas, where almost 70 percent of households are chronically poor; the comparable figure for urban areas is 20 percent.
- Rural population employment and structural constraints:
  - Three quarters of the rural population work in agriculture.
  - Half of rural households have agricultural activity as their sole source of revenue.
  - Due to small farmable plots, lack of land titles, poor soil quality, and climate vulnerabilities, many rural poor cannot sustain a family through agriculture alone.

Key statistics and service access gaps:
- Only 11 percent of the rural population have access to electricity versus 63 percent in urban areas.
- 16 percent of rural population have access to improved sanitation facilities versus 48 percent in urban areas.
- World Bank’s Rural Access Index: 50 percent of Haiti’s surface remains poorly connected, with two-thirds of rural dwellers living in poorly-connected areas.
- Share of commercial banks' lending to the agricultural sector remains below 1.0 percent of total lending (despite a pickup in late 2016).
- Financial inclusion: 33 percent of the adult population have a bank account (World Bank FINDEX 2017), the second-lowest in the region after Nicaragua.
- Fewer rural households receive remittances compared to urban households; difference is especially large among the poor.

Policy recommendations and priorities:
- Job creation and income diversification in rural areas to reduce poverty—focus on off-farm formal employment and agricultural productivity.
- Expand targeted public investment in rural communities to improve access to healthcare, clean drinking water, sanitation, and electricity—these investments raise productivity and provide employment.
- Improve connectivity infrastructure and transportation to link rural areas to markets and services.
- Promote financial inclusion by reducing participation costs (fees, collateral, documentation) and bringing microfinance institutions and cooperatives under regulation and supervision.
- Support fintech and mobile money solutions to extend low-cost financial services to remote and underbanked populations, while managing financial-integrity and cybersecurity risks.
- Continue implementation of the 2015 National Financial Inclusion strategy led by BRH.

### D. Gender Inequality
- (The source document begins discussion of gender inequality at this point; content for this subsection continues beyond the supplied excerpt.)

*Source: IMF — 1. Regional Inequality Comparison using Gini Coefficients (excerpt)*

### 12.      Gender inequality is another important socioeconomic issue in Haiti that merits

### 12.      Gender inequality is another important socioeconomic issue in Haiti that merits

### Key findings on gender inequality
- Haitian women earn, on average, 32 percent less than men.
- About a third of this earnings gap can be explained by factors such as age, number of children, education, and industry of employment, while the remaining two-thirds is unexplained, suggesting some gender discrimination in the labor market (World Bank, 2014c).
- The gender earnings gap is largest in the urban areas and is greater than in any other Latin American or African country.
- In rural areas, female-headed households (of which 62 percent are poor) are much more likely to fall below the indigence poverty line than are male-headed households (54 percent are poor).
- Haitian women are less likely than men to have an account at a financial institution or at a mobile network (Demirgüç-Kunt et al, 2017).
- Haiti’s gender equity rating dropped further in 2016 after staying low and unchanged for ten years (Figure 5, chart 3).

### Education, health, and gender-based violence
- Among comparator countries, the labor force participation gap is the smallest in Haiti at 10 percent while the education gap is largest (many other countries in the region report higher rates of secondary education among girls than boys).
- While adolescent birth rates are relatively low, the maternal mortality ratio is five times higher than the regional average since many births take place outside a healthcare facility (Human Development Report; World Bank 2014c).
- Gender-based violence prevalence:
  - Nearly one third of married women experience spousal violence.
  - 13 percent of all women experience sexual violence (Figure 5, chart 2).
- Legislative progress includes criminalizing rape and domestic violence in 2005, but gender-based crime remains widespread, underreported, and uncontested.

### Social and financial inclusion statistics
- Only 10 percent of credit in Haiti comes from institutional lenders (World Bank, 2014c); most of the credit comes from family, friends, or private money lenders.
- In Latin America and the Caribbean, 28 economies already have unconditional transfer programs in place (World Bank, 2015).
- Haiti developed a National Financial Inclusion Strategy in 2014 and created a Financial Inclusion Unit at the central bank in 2017 to monitor its implementation; progress has been slow, hampered by lack of data and administrative challenges.

### Policy advice: income inequality, fiscal realignment, and public spending (E. Policy Advice)
- Fiscal and revenue measures
  - Improved revenue collection and an efficient and a more progressive income tax system are necessary to make growth more inclusive and sustainable in the long run.
  - Revenue collection needs to be strengthened and become more decentralized, as municipalities currently collect only a fraction of potential revenues, constraining their capacity for local service delivery.
- Expenditure priorities
  - Improving infrastructure as well as education and health services combined with higher spending efficiency on these growth-enhancing priorities would benefit all segments of the population.
  - Scaling up public investment in the medium term can simultaneously help Haiti meet its Sustainable Development Goals, stimulate growth, and reduce the income gap. Identifying infrastructure bottlenecks most relevant to the rural poor could be a good starting point.
- Social protection and transfers
  - Targeted social-support programs as well as unconditional cash transfers can contribute significantly to poverty reduction.
  - Given the lack of administrative capacity to effectively monitor compliance with program conditions, unconditional transfers may be more appropriate in low-income countries and fragile states, including Haiti.
  - The recently-tabled PNPPS is an excellent starting point to better coordinate existing support programs and build a broader and more efficient safety net in Haiti.
  - Successful implementation of the PNPPS will require a long-lasting policy commitment, cross-agency and intragovernmental cooperation, and a sustainable financing strategy.
- Labor markets and financial inclusion
  - A large share of full-time formal jobs in Haiti are concentrated in the apparel industry, supported by favorable terms of access to the U.S. market; maintaining these trade preferences would support formal employment in the medium term.
  - In the long run, Haiti needs to increase competitiveness by improving the business climate, reducing political uncertainty, and streamlining its wage-setting process.
  - Low employment accessibility is a barrier to inclusive growth; medium-run measures include better connectivity between residences and job sites—through improved transport efficiency, coordinated land use, and greater affordability of public transport (Lozano-Gracia et al, 2017).
  - Long-run measures include delivering formal jobs to the countryside through public works and private-sector development.
  - Improve and diversify revenue streams for those employed in agriculture and the informal sector via access to basic infrastructure and education and increased financial inclusion.
  - A comprehensive strategy to make financial services more available, affordable, and less burdensome to initiate should be accompanied by a financial literacy program and fintech-based initiatives in addition to traditional banking, all with an appropriate level of supervision.

### Gender-focused policy recommendations
- Policies to promote equal access to basic services such as education and health, including prenatal and maternal care, and upgrading the legal framework to reduce gender-based violence will strengthen Haiti’s human capital and increase its long-run growth potential.
- School-level interventions that include training for teachers and school administrators have been shown to reduce social acceptability of gender-based violence.
- Formal employment opportunities for women need to be expanded; implement the 30 percent quota reserved for women in public-sector appointments, which was introduced in 2012 but never enforced.

### Social protection spending context and trends
- Total government spending on social sectors peaked at 5.7 percent of GDP in 2013.
  - Education: 3.5 percent of GDP in 2013.
  - Health: 0.8 percent of GDP in 2013.
  - Other general social protection programs: 1.4 percent of GDP in 2013.
- Government-financed social protection spending declined sharply since 2010; many Ede Pèp programs stopped operating.
- Petrocaribe revenues ended in April 2018; revenues from the special taxes decreased to 0.3 percent of GDP from 0.5 percent of GDP per year during FY2013-FY2017.
- Development partners financed independent social programs estimated at about 0.5 percent of GDP in 2013, plus 1.9 percent of GDP for health programs and 0.5 percent of GDP for education in 2013; overall support from development partners has trended downward since 2013.
- Terminology and methodological notes:
  - Distinction between social assistance (non-contributory programs) and social insurance (contributory programs).
  - Data quality and availability are challenging; most social indicators are not likely to have improved since FY2013 given downward trends.

*Source: IMF chapter text (excerpts provided).*

### 5. Beyond government and development partner assistance, social protection is also

### 5. Beyond government and development partner assistance, social protection is also

### A. Existing contributory programs and spending
- Three contributory insurance programs provide social protection:
  - Office of Work Accidents, Illness and Maternity (OFATMA) under the Ministry of Social Affairs and Labor (MAST): work injury and disability insurance to private and public workers.
  - National Office for Old Age Insurance (ONA): private sector pension schemes.
  - Directorate for Civil Pensions (DPC) in the Ministry of Finance (MEF): public sector pensions.
- Social insurance contributions (from employers and employees) represented about 1.2 percent of GDP in 2013, over 90 percent of which came from private sector worker contributions.
- Total spending under these three programs remained slightly below 2 percent of GDP from 2013 to 2018.
- These programs have typically run surpluses historically because current demographics yield many more contributors than beneficiaries—however, ONA’s operating surplus recently turned into deficits due to governance issues, poor portfolio choices, and misuse of funds (CSCCA 2019).

### B. Coverage, targeting, and effectiveness of social spending
- Coverage and targeting
  - Only about 8 percent of the population received non-contributory social assistance benefits such as scholarships, food aid or transfers in 2012 (World Bank, 2016).
  - Coverage is progressive: the population of the two poorest quintiles are twice as likely to receive assistance relative to the top two quintiles.
  - Coverage is uneven: young children (pre-school-age) are under-represented among beneficiaries.
  - Social assistance transfers are regressive as their amount increases with income (Figure 1).
- Contributory program access and sustainability
  - It was estimated that only 400,000 workers, or around 10 percent of wage workers and less than 4 percent of the population, were insured in 2012.
  - Most households with social insurance belong to the highest consumption quintile and live in the Port-au-Prince area (World Bank, 2016).
  - The 2019 CSCCA report raised concerns about ONA’s sustainability due to weak governance, poor portfolio choices, and misuse of funds.
- Limited overall impact
  - Fragmentation: over 20 different programs supervised by nine ministries and executed by 11 public agencies and ministries.
  - Development partner support is not well coordinated and financing is volatile.
  - Monitoring, analysis and evaluation of results are generally missing.
  - Estimates from the last household survey (2012) suggest that social assistance and insurance programs contributed to reducing the poverty headcount by only one percent (World Bank, 2016).

### C. Sectoral outcomes relative to spending
- Health
  - Life expectancy rose by 9 years and child mortality declined by 8 percentage points from 1990-2016, but this is a slower pace than the average improvement in all LICs.
  - Health service utilization is about 20 percent lower on average than LIC peers.
  - Density of medical staff to hospital beds is below average despite similar levels of public spending.
  - Health facilities judged to have low efficiency due to low consultation-per-medical personnel ratios and excessive share of administrative staff.
- Education
  - Adult literacy rate in 2013 was close to 80 percent; 45 percent of the population had completed secondary school—exceeding LIC averages of 60 and 40 percent, respectively (World Bank 2016).
  - Less than 15 percent of schools are public; gains driven largely by increased access to private schools and increased public financing through school canteen programs and tuition waivers (PSUGO).
  - In 2013, government reported over 0.5 percent of GDP spent on waivers supporting approximately 1.4 million students.
  - Implementation challenges include fraud (e.g., “ghost” schools and nonexistent student beneficiaries) documented by ULCC 2013 and CCSCA 2019.
  - About 70 percent of the education budget is allocated to salaries, heavily skewed towards administrative or non-teaching staff.
  - Quality of service delivery in education is poor and disparities across regions are wide.

### D. The new national policy (PNPPS)
- Governance and process
  - Politique Nationale de Protection et de Promotion Sociales (PNPPS) led by MAST and MPCE with participation from ministries of health, education, women’s conditions and four public organizations.
  - Sub-commissions collaborated with international organizations and civil society organizations.
  - A first draft submitted for national consultation in June 2019; a revised draft was expected to be presented to the government for approval by the Council of Ministers by the end of 2019.
  - Inclusive drafting approach aimed to produce a home-grown and more effective social safety net; implementation plan should articulate short-term actions to address urgent needs and maintain momentum.
- Objectives assigned by PNPPS
  1. Breaking the inter-generational transmission of poverty by supporting children’s health, development, and education.
  2. Creating conditions so that all individuals can get out of poverty.
  3. Creating conditions of equality and eliminating discrimination related to gender, age, and disability.
- Strategic priorities and focus
  - Four strategic priorities: (1) childhood; (2) labor, employment and employability; (3) health and social security; and (4) resilience to shocks.
  - Schemes will prioritize rural populations living in extreme poverty and the most vulnerable.

### E. Policy considerations and staff recommendations
- Design goals
  - Reduce fragmentation and overlap.
  - Boost national ownership.
  - Build on international literature and experience to define implementation features.
- Preference for cash transfers
  - Given Haiti’s administrative capacity constraints, cash transfers to households preferred over complicated in-kind assistance (e.g., Panye Solidarité, Kantin Mobile) which require government procurement, logistics, and present leakage risks.
  - The May 2019 CSCCA report could not confirm FAES data on distribution of food baskets or free meals.
- Targeting approach
  - Aim for quasi universal coverage of basic needs using broad demographic or geographic targeting given limited resources and implementation capacity.
  - Recent research suggests refined targeting (e.g., income-based) is less effective where beneficiary identification is weak (Banerjee et al. 2019).
  - Example cost estimate: providing average annual transfers of US$150 to all households yields an upper bound estimate for total transfers of US$345 million (4 percent of GDP). Total costs would need to additionally account for administration costs.
  - Blunt targeting by demographic group or region can lower total costs to more feasible levels.
- Recommended initial schemes
  - Staff recommend focusing implementation of the PNPPS on three unconditional cash transfer schemes:
    1. Households with children under a certain age and/or with pregnant women.
    2. People with disabilities.
    3. Old people aged 65 and above.
  - Rationale: consistent with PNPPS strategic priorities; addresses social sensitivities toward assistance being perceived as charity; reflects limited resources and administrative capacity.
  - Lack of conditionality justified by difficulties for vulnerable households to comply with conditions and limited administrative capacity to monitor compliance.
- Complementary supply-side reforms
  - Effective social programs should be complemented by improvements in delivery of health and education services.
  - Conditions for cash transfers (e.g., school attendance or vaccinations) could be considered only after improvements in education and health infrastructure expand availability and access.
  - Policymakers should coordinate with development partners to support public investment and improvements in health and education.

*Source: IMF staff summary of the specified PDF chapter.*

### 18. Existing social programs need to be rationalized. Small programs that do not effectively

### 18. Existing social programs need to be rationalized. Small programs that do not effectively

### Rationalization of existing social programs
- Small programs that do not effectively contribute to the objectives defined in the PNPPS should be phased out.
- Social insurance programs and large or relevant social assistance programs that meet PNPPS objectives would need to be reformed and transitioned to the new simplified and more efficient cash transfer schemes.
- Rationalizing existing programs should be complemented by an overhaul of current agencies whose credibility has been undermined by allegations of mismanagement and misuse of public and donors’ funds.

### Financing strategy for the PNPPS
- The PNPPS would need to involve a sustainable financing strategy based on domestic resources.
- In the context of declining development partner support and given the questionable impact of foreign-financed programs in terms of fragmentation and on program ownership, an appropriate financing strategy has to rely on domestic resources.
- To finance social programs, the government should:
  - boost customs revenue mobilization; and
  - reduce unproductive public spending, particularly on goods, services and energy subsidies.
- Any reform to the energy sector or subsidies must be preceded by effective mitigating measures addressing the adverse impact of such a reform on key groups affected, particularly the most vulnerable (see SIP on Energy Sector).
- Short and medium-term budget formulation should include a coherent and comprehensive framework that specifies explicitly the financing sources for social spending at different horizons.

### Identification of beneficiary groups and SIMAST
- Delivering unconditional cash transfers to broad groups requires the proper identification of potential beneficiary groups.
- The development of the MAST Information System (SIMAST), a database containing detailed socio-economic information, will facilitate such identification.
- Current SIMAST coverage and costs:
  - SIMAST currently covers 1.2 million individuals (14 percent of the population).
  - The marginal cost of increasing coverage by one percent is estimated at US$350,000.
  - Total one-off cost to achieve full coverage of the population is estimated at US$28.4 million (0.4 percent of GDP).
- Potential shortcomings of SIMAST:
  - it may not be expanded to cover dangerous urban areas;
  - it will need regular updates;
  - its financing could end.
- Over the long term, national coverage based on a modernized national identification system could be envisaged and possibly coordinated down the road with other government functions like taxpayer IDs.

### Institutional coordination and delivery systems
- The national policy should designate one sole institution to coordinate and develop a robust and secure system to deliver social assistance benefits.
- The government should give the primary coordination role to the MAST since its central role in designing and executing social protection is established by the organic law 24/11/1983 and reinforce its capacity.
- Building capacity and institutions is as important as the design of social programs.
- Developing digital financial services to support financial inclusion would be critical for implementing large-scale cash-transfer schemes.
  - Operational challenges from past cash-based initiatives (ex-post assessment of the response to Hurricane Matthew) included: beneficiaries not having access to phones, not being comfortable with the system, not having SIM cards that worked with mobile money, not having coverage at disbursement sites, and provider agents not “seeing” transfer amounts on beneficiary phones.
  - The 2015 Financial Inclusion Strategy of the Banque de la République d’Haiti (BRH) aims to develop new mobile financial services which may provide reliable cash distribution channels.

### Accountability, oversight, and communications
- All existing and new programs should report systematically and annually on:
  - their activities;
  - coverage;
  - resources received and transferred;
  - beneficiaries; and
  - administration costs.
- In the medium term, reporting could be delegated to an independent organization, like the Observatoire National de la Pauvreté et de l’Exclusion Sociale (ONPES).
- Involving development partners and CSOs in oversight of the PNPPS implementation would be crucial to limit leakages and mismanagement risks.
- Proactive communications are essential:
  - build broad public support for comprehensive reforms, with a focus on social protection;
  - advance understanding of the links between unpopular revenue mobilization reforms and the sustainable development of social protection programs;
  - close monitoring of benchmarks and targets is needed and should be appropriately communicated to build trust in public institutions.

### Illustrative implementation timeline (Table 2)
- 1–2 years:
  - Build a national consensus on the PNPPS.
  - Define and develop a financing strategy to support the PNPPS.
  - Create an independent oversight agency (strengthen ONPES).
  - Rationalize existing programs.
  - Strengthen oversight, governance and sustainability of the existing programs to be retained.
  - Extend SIMAST coverage.
  - Develop a mobile cash transfer system (or an efficient alternative system).
  - Initiate a plan to improve health care and education infrastructures, in particular in rural areas.
  - Implement a pilot project for assistance to households.
- 2–6 years:
  - Continue to extend SIMAST coverage to close to 100 percent of the population.
  - Implement and scale-up cash-transfer schemes across the country.
  - Assess/audit the schemes annually (coverage, cost, incidence).

### Key statistics and fiscal context from related energy-sector discussion
- Energy-sector fiscal losses and related estimates:
  - Direct fiscal losses related to the electricity sector and fuel trade were estimated at 4.5 percent of GDP in FY2018, and at 6.5 percent of GDP in FY2019.
  - Fuel-subsidy broader economic and social losses are estimated by FAD at another 4.7 percent of GDP (“post tax”).
  - Estimated direct budget expense from retail fuel price falling below world market prices amounted to about 2.7 percent of GDP by 2018.
  - Estimated losses from the electricity sector amounted to about 1.8 and 1.9 percent of GDP in FY2018 and FY2019 respectively.
- Fuel-import and arrears indicators:
  - Fuel purchasers import about 300 million U.S. gallons per year.
  - Under Petrocaribe, Haiti received roughly 14,000 barrels of oil per day (bpd).
  - Arrears were reported at 4.8 billion gourdes in September 2019.
  - Fuel distributors were compensated by the state about 27 U.S. cents, on average, for every gallon of gasoline sold to customers.
- Electricity market structure notes:
  - The three IPPs, Haytrac, E-Power, and Sogener, generate about 11 percent of total electricity production in Haiti.
  - PBM generates about 6 percent of Haiti’s on-grid electricity.
  - EDH accounts for about 10 percent of electricity production (FY 2017/18 estimates).
  - More than 70 percent of all electricity consumed in Haiti is produced by small scale diesel-powered generators owned by households and businesses.

*Source: 1htiea2020002 - 18. Existing social programs need to be rationalized. Small programs that do not effectively*

### 0.9 bln HTG

### 1htiea2020002 - 0.9 bln HTG

### Market structure of the electricity sector
- Per capita energy consumption in Haiti is the lowest in the Caribbean at less than 100 kWh annually.
- Energy mix:
  - 75 percent of total energy consumed comes from wood burning and charcoal.
  - Petroleum products provide about 20 percent of total consumption.
  - Electricity accounts for the remaining 5 percent.
- Consumption by sector:
  - 65 percent consumed by residences.
  - 19 percent by industry.
  - 12 percent in transportation.
  - 4 percent by services.
- Grid access and legality:
  - Less than 35 percent of households are connected to the national electricity grid.
  - Of those connected, only 12.5 are connected legally.
- Providers and generation shares (2017 on-grid generation shares shown in Figure 3):
  - Sogener: 6%
  - E-Power: 4%
  - Haytrac: 1%
  - PBM: 6%
  - EDH: 10%
  - Self-generation: 73%
- EDH role and structure:
  - EDH is in charge of transmission, distribution, and some generation.
  - EDH runs ten separate unconnected distribution grids with large ATC&C losses.
  - Grids and ATC&C losses (2017):
    - Port de Paix: 21.3%
    - Cap-Haïtien: 63.5%
    - St. Marc / Gonaïves: 74.2%
    - Fort Liberté / Ouanaminthe: 16.8%
    - Mirebalais / Hinche: 49.6%
    - Port au Prince: 59.0%
    - Jacmel: 6.9%
    - Petit Goave: 57.6%
    - Les Cayes: 33.5%
    - Jérémie: 17.7%

### Self-generation and access
- Private self-generation expanded due to daily blackouts; self-generation now collectively produces more electricity than the official grid.
- Only about one quarter of households have access to electricity (billing-based measures show even lower in many areas).
- EDH provides electricity for only about 14 hours per day.
- Self-generation consequences:
  - Raises oil import bill.
  - Is relatively expensive and inefficient.
  - Causes deforestation and environmental degradation.
  - Hurts competitiveness and aggravates EDH’s financial situation by reducing viable, paying clients.

### Billing, collection, and operational performance
- Billing and collection performance:
  - Less than half of the electricity supplied to the grid was billed in FY2017 and FY2018.
  - Of the accounts billed, about 82 percent of the total sold were collected in FY2018.
  - EDH reported that in 2018 only about 45 percent of the electricity generated was invoiced (billing rate).
  - Cash recovery index (CRI) was 38 percent in FY2018; CRI increased to over 55 percent during the first half of FY2019 following SMP reforms.
  - A counterfactual CRI of 90 percent instead of 38 percent in FY2018 would translate into collection gains equivalent to 1.0 percent of GDP; EDH would still fail to cover costs and would incur a deficit of 0.5 percent of GDP under that scenario.
- Causes of weak performance:
  - Weak governance at EDH and flawed systems and controls.
  - Theft and secondary market middlemen.
  - Lack of meters for many consumers; illegal connections.
  - EDH capacity constraints to read meters or send bills.
  - Theft/skimming at collection points.
  - Non-payment by government entities, particularly municipalities.
  - Connections operated by middlemen and organized gangs.
  - Fighting electricity theft is very challenging given high levels of insecurity and corruption.

### Electricity costs and tariffs
- Generation shares by source:
  - EDH generates around 10 percent of the country’s energy; the rest comes from IPPs and PBM.
  - About 90–95 percent of Haiti’s on-grid electricity production comes from thermal sources (evenly split between diesel and heavy fuel oil).
  - The remainder is produced by EDH hydropower plants; 2018 Péligre dam renovation expected to increase hydropower share but volatile rainfall in 2019 limited output.
- Tariffs and pricing (2017/18):
  - Average price charged by IPPs to EDH: 14 Gourde cents/KwH.
  - Price charged by EDH: 11 Gourde cents/KwH.
  - Commercial and industrial users paid about 20 cent per KwH more (plus fixed charges); many opted for self-generation instead.
- Financial impact:
  - Very low revenue collection, high generation costs, and low rigid prices lead to chronic deficits at EDH.
  - Cost to the nonfinancial public sector (NFPS) of electricity-related losses has hovered around HTG 10 billion over the last 5 years.
  - CRI definition provided: [(Energy billed by EDHs) x (Consumer bills paid to EDHs)] / [(Energy purchased by EDHs) x (Total billing of consumers by the EDHs)].

### Fuel subsidies and retail fuel pricing
- Retail fuel prices have been below cost of supply since mid-2018.
- Price components should cover import cost (CIF) plus transport/distribution charges and taxes; administered prices rigid since 2010.
- 2017 price adjustments (agreement with transport unions):
  - Gasoline increased by 19 percent (HTG35 per gallon).
  - Diesel increased by 20 percent (HTG30 per gallon).
  - Kerosene increased by 17 percent (HTG25 per gallon).
  - Agreement provided for future adjustments to reach full parity in the medium term, though full pass-through parity was not achieved.
- Gap between administered and cost-recovery prices:
  - Increased from 55 percent (105 HTG per gallon) in September 2018 to 84 percent (160 HTG per gallon) in June 2019.
  - Gourde depreciation accounted for 33 percent of the increase.
  - Equivalent to monthly subsidies of 0.3 percent of GDP.
  - About 60 percent of the subsidy was forgone revenues and the remainder was direct budget expenses (partly financed by arrears accumulation to distributors).
- Composition and measurement notes:
  - Illustration shows subsidy decomposition into import price, distribution & transport, taxes, margins, and direct subsidy to distributors; part labeled "forgone taxes."
  - Box 1: estimated average cost of all post-tax externalities about HTG65 per gallon, about 40 percent of the supply cost.

### Electricity sector subsidies and fiscal impact
- The state subsidizes the electricity sector in four ways (listed in Table 2, Panel C):
  - (i) Tax revenues collected by EDH but never transferred.
  - (ii) Provision of free fuel to PBM and EDH thermal plants.
  - (iii) Payment guarantees in the form of electricity purchases from IPPs on behalf of EDH.
  - (iv) Payment of fuel purchased by Sogener, supposedly in exchange for incomplete payments by EDH for electricity supplied.
- EDH financial practices:
  - EDH routinely pays late charges on its billings from IPPs, maintains unpaid debts to IPPs, and has borrowed from state bank BNC to fund operations in the past.
  - The financing of EDH through transfers, arrears, and loans is neither clear nor transparent.
- Magnitude of costs:
  - Subsidies and EDH losses have contributed to NFPS deficits and fiscal pressure.
  - Since 2012, subsidies alone have raised public debt by 18 percent of GDP (including arrears).
  - Subsidies to the electricity sector are recorded in "total cost to NFPS of EDH"; subsidy time series and percent-of-GDP trends are shown in Figure 7.

### Socio-economic and environmental implications
- Energy subsidies consequences:
  - Higher deficits and public debt; crowding out of public spending on health, education, infrastructure, and social programs.
  - Distorts market signals, is regressive, and aggravates climate change, local pollution, congestion, and public health costs.
  - Subsidies divert resources from efficiency-enhancing investment in the energy sector and alternative energy.
- Consumption and household burden:
  - Households in Haiti spend on average US$30 /month on electricity and electricity substitutes (such as lighting, batteries); rural/urban and departmental averages vary greatly and the poorest half of the population spends much less than this average.
  - Box 2 (international comparison): Port-au-Prince, Haiti — 17,3% of household income spent on transport (2014).

*International Monetary Fund — Haiti energy sector analysis (excerpt).*

### 29.      Subsidized fuels are mainly consumed by the wealthiest households in Haiti. Poor

### 29. Subsidized fuels are mainly consumed by the wealthiest households in Haiti. Poor

### Distributional findings on fuel consumption and subsidies
- Poor households spend only 112 Gourdes per year on fuels, or 0.1 percent of their annual budget.
- Average annual expenditure on petroleum products in the richest decile is 18,900 Gourdes, or 5.7 percent of total consumption.
- The poor receive only 1.6 percent of total subsidies accruing directly to households.
- Fuel subsidies received by income decile (percentage of total): Decile 1 0.1; Decile 2 0; Decile 3 0.1; Decile 4 0.2; Decile 5 0.6; Decile 6 0.5; Decile 7 2.1; Decile 8 2.3; Decile 9 10.8; Decile 10 83.2; Total 100.
- Average yearly expenditure on fuels (in HTG) by decile (percentage of budget): Decile 1 0.08; Decile 2 0.03; Decile 3 0.07; Decile 4 0.09; Decile 5 0.18; Decile 6 0.14; Decile 7 0.46; Decile 8 0.41; Decile 9 1.46; Decile 10 5.68.

### Effects of a price increase (scenario: 30 percent rise in fuel prices due to subsidy reduction)
- Direct effect on average poor household real consumption: less than 0.05 percent decline.
- Direct effect on households in the richest decile: 1.65 percent decline in consumption.
- Indirect, second-round effects (food and transportation) lead to overall estimated welfare losses:
  - Bottom quintile of the income distribution: 1.7 percent loss.
  - Top quintile of the income distribution: above 2.8 percent loss.
- World Bank (2016) estimate: 80 percent of rural households use kerosene as the main source of fuel and would be disproportionately affected by an increase in kerosene prices.

### International experience and general reform ingredients (lessons)
- Political constraints and factors that have derailed reform include:
  - Lack of information or understanding regarding the magnitude and shortcomings of subsidies.
  - Lack of government credibility and administrative capacity.
  - Concerns about adverse impacts on the poor.
  - Concerns about adverse impacts on inflation, international competitiveness, and volatility of domestic energy prices.
- Ingredients that can increase the likelihood of implementation:
  - Develop a comprehensive and appropriately sequenced reform plan.
  - Develop a far-reaching communication strategy.
  - Include subsidy reform as part of broader reform of the energy sector, including regulation, governance, and transparency.
  - Implement mitigating measures in advance and to coincide with reforms.
  - Implement compensating social assistance before and during energy subsidy reform.
  - Move to an automatic pricing mechanism that is removed from the political process.

### Reform priorities and sequencing in the fuel sector
- General principle: pursue a gradual, sequenced, and differentiated approach to alleviate impact on the most vulnerable and ease transition.
- Product-differentiated approach:
  a) Kerosene
     - Kerosene subsidies should not be touched until late in the reform process, if ever.
     - Over 50 percent of households use kerosene as the main source of lighting; over 80 percent of rural households use kerosene as the main source of fuel (World Bank, 2016).
     - Kerosene subsidies account for less than 10 percent of total subsidy costs.
  b) Gasoline
     - Gasoline subsidies could be changed gradually, only after introducing mechanisms to mitigate impact on the transport sector.
     - Gasoline is used more by middle-income groups directly in car use and indirectly through public and quasi-public transport (tap-tap taxis).
     - In 2014, it was estimated that two thirds of public transport services used gasoline and the remainder diesel.
  c) Diesel
     - Diesel prices could be first in line for reform since most subsidy benefits accrue to higher income groups.
     - Diesel is mostly used for luxury cars and household/business power generation.
     - Reducing diesel subsidies would be the most progressive step since diesel is consumed more by the top income quartile and the price elasticity of demand is likely to be very low, if not zero.
     - Consideration should be given to supporting small and medium sized businesses that rely on self-generation during the transition.

### Longer-run pricing and institutional design
- Aim to restore an automatic fuel price mechanism and move prices toward their ‘efficient’ level in the long term.
- Future price setting should be based on market prices and provide appropriate margins for transportation and distribution.
- Preserve the current level of taxation such that foregone revenues are eliminated, followed by reduction in direct subsidies.
- Register and restructure or transparently unwind arrears to domestic suppliers.
- Revise the 1995 pricing formula and taxation structure to account for externalities and smooth short-term price fluctuations.
- Depoliticize price adjustments by adopting an automatic price adjustment mechanism.

### Stakeholder engagement, communication, and social protection
- Stakeholder consultation and consensus building are crucial; engage parliament, civil society, labor, and key segments of the private sector.
- Support from the transport sector and oil importers is essential to build support for reform.
- Prepare a visible and scalable social protection program prior to reform implementation.
  - Build a better social safety net within the framework of the new national plan.
  - Implement a few demographic-based unconditional cash transfer programs.
  - Start subsidy reduction only after identifying and launching delivery channels for mitigating measures, including after a pilot program.
- Specific targeted measures for the transport sector:
  - Develop measures to lower costs in exchange for commitments to limit or stagger tap-tap fare increases.
  - Support financing for replacing old vehicles with newer, more efficient ones.
  - Reduce administration costs and improve transportation infrastructure to optimize tap-tap routes.

### Communication strategy and macro gains from reform
- Launch a clear communication strategy prior to any reform actions that explains rationale, end-goals, trade-offs, methods, timing, and mitigating benefits.
- Emphasize that present losses caused by energy policies, equivalent to 6.5 percent of GDP in FY2019, could be reallocated to social assistance, education, health, and infrastructure.
- Use inclusive outreach methods (public forums, town halls, public service announcements) and explore innovative, locally tailored communication methods.

### Electricity sector reform priorities (summary)
- Focus areas: performance of the public utility (EDH), reform of tariffs, and regulation of the sector.
- Strengthen legislative framework for SOEs and re-activate and strengthen the MEF unit overseeing EDH and other SOEs.
- Develop and implement a financial performance monitoring system for EDH and publish annual consolidated financial performance reports.
- EDH-specific actions:
  - Revise legislation, strengthen the role and independence of the regulator, and install management contracts until governance legislation is revised.
  - Increase revenues by raising billing and collection rates, install remotely-controlled meters and remote payment systems starting with large customers, and renovate grids to reduce technical losses.
  - Renegotiate supplier contracts awarded on transparent and competitive public tenders to achieve cost reductions.
- Electricity tariff reform:
  - Prepare a plan to increase tariffs following a rationale and sequence similar to the fuel sector plan.
  - Precede tariff increases with consultation, communication, and mitigating measures; phase increases progressively on higher income users and larger accounts.
- Regulation:
  - Review and strengthen regulation to ensure a transparent and level playing field for public and private operators.
  - Remove opportunities for rent-seeking and corruption, provide systems to control and reduce theft, ensure accountability and transparency, and reduce universal subsidies.
  - Include medium-term objectives to expand the electricity grid, strengthen productivity and efficiency, and lower pollution.
- Long-run strategy: crowd in private investment, transition to a cleaner production mix, and expand electrification to remote off-grid areas.

_Italic: IMF staff summary of content unit 1htiea2020002._

### Annex II. Petrocaribe in Haiti

### Annex II. Petrocaribe in Haiti

### Overview and mechanics of Petrocaribe
- Petrocaribe was an agreement established in 2005 through which Venezuela exports oil and derivatives to Caribbean and Central American countries using concessional financing.
- Petrocaribe allowed countries to make up-front payments to Venezuela for a share of the total cost of imports.
- Up-front payments ranged from 30 percent to 95 percent of the cost, priced at market values.
- The higher the current oil price, the smaller the share the beneficiary paid up front.
- The remaining balance was loaned at 1–2 percent interest rates, with repayment periods ranging from 17 to 25 years.

### Haiti’s participation and political alignment
- Haiti joined the initiative in March 2007 and started benefiting from the agreement in October 2007.
- For about 10 years, Haiti benefited from concessional financing under the Petrocaribe Agreement.
- Haiti reliably supported Venezuela in regional forums such as the Organization of American States (OAS) and United Nations.
- Financing inflows were calculated as a proportion of Haitian purchases of oil products from PDVSA (Petroleos de Venezuela, the state-owned Venezuelan oil company).

### Scale of Petrocaribe-related debt and timing
- As of end-FY 2018, the stock of Petrocaribe-related debt was US$1,825.5 million (20.2 percent of GDP).
- This entire debt stock was accumulated between 2010–18 since Venezuela cancelled all of Haiti’s pre-2010 Petrocaribe debt (US$395 million) after the 2010 earthquake.

### Uses of Petrocaribe resources and governance issues
- Petrocaribe resources were used to finance investment projects and support the electricity sector.
- All related investment decisions were published in a resolution in the official gazette listing the projects and the amounts to be financed.
- Disbursements were reported in BMPAD’s webpage on a regular basis. The BMPAD website containing information on the projects financed with Petrocaribe resources is available at http://www.bureaudegestion.gouv.ht/index.php.
- Although the budget included information about capital spending financed with these flows, their use did not follow the same rules applied for treasury resources, including on procurement.

### Economic effects of Petrocaribe and consequences of its termination
- Petrocaribe flows served as a crucial source of financing in post-earthquake Haiti.
- Their termination last year has led to substantial fiscal strain.
- The end of Petrocaribe flows has constrained investment spending and the financing of the electricity sector.
- The shock to growth has hit domestic tax revenues and international reserves.

*International Monetary Fund — Annex II. Petrocaribe in Haiti*

### 11.      The implications of informal trade reinforce the need to strengthen border security.

### 11.      The implications of informal trade reinforce the need to strengthen border security.

### Border-security status and challenges
- Haiti made efforts to strengthen border control with the help of the UN stabilization force and in 2015 contracted with a foreign company to improve border-surveillance capabilities and enhance manpower capacity; the contract was not executed and Haiti remains unable to secure its borders against illicit trade activities.
- Custom officers in Haiti are known to have faced political pressure and the threat of physical violence (CSIS, 2019).
- Existing weaknesses include limited anti-smuggling and anti-fraud capabilities, insufficient surveillance capabilities, weak intelligence, and substantial use of discretionary powers at the border.

### Recommended security and operational reforms
- Enhance anti-smuggling and anti-fraud capabilities.
- Strengthen border security, surveillance capabilities, and intelligence.
- Minimize the use of discretion at the border by:
  - Implementing a risk-based inspections regime.
  - Requiring pre-arrival, online declarations, and tax payments.

### Administrative and institutional reforms for cross-border trade monitoring
- Implement recommendations from recent Fund technical assistance (TA), including:
  - Adopt a new organizational structure to clarify roles and responsibilities.
  - Streamline customs policies and procedures.
  - Broaden the use of ASYCUDA World to reduce the degree of discretion given to customs officers.
  - Improve control and monitoring of exemptions.
  - Enforce cooperation agreements with the Dominican Republic to facilitate the digital exchange of information between the two countries, essential to ensuring that goods cross the border legally and efficiently.
- Haiti and the Dominican Republic have signed various cooperation agreements over the years to combat contraband and customs fraud; the two countries recently revived these efforts and aim to establish joint centers for information-sharing and to conduct joint surveillance.

### Trade-regime reforms to formalize low-value cross-border transactions
- Introduce a revised trade regime consisting of simplified documentation formalities and lower trade-related fees to formalize low value cross-border transactions.
- Measures discussed in the framework of the WTO Negotiations on Trade Facilitation that could reduce informal cross-border trade include:
  - Simplifying and reducing documentation requirements and formalities.
  - Streamlining transit and clearance processes.
  - Expediting the release and clearance of goods from customs custody.
  - Enhancing transparency and predictability of trade-related regulations and fees.
- These measures are expected to lower the incentive for corruption, enhance the efficiency of controls at the border, and improve compliance with trade-related regulations.
- Additional efforts to assist traders in understanding and complying with existing trade regulations could further reduce informality.

*Source: 1htiea2020002 - 11.      The implications of informal trade reinforce the need to strengthen border security.*

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_Source: https://www.imf.org/-/media/files/publications/cr/2020/english/1htiea2020002.pdf_