## _cr05404 ## Source details **Canonical URL:** [_cr05404](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2005/_cr05404.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2005/_cr05404.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2005/_cr05404.pdf.json) --- ### Background - Transition government formed in March 2004; United Nations stabilization mission (MINUSTAH) deployed since June 2004. - Donors pledged US$1.1 billion of financial assistance through September 2006. - Elections scheduled for November–December 2005; delayed to November 20 and December 11, 2005. - SMP covered April–September 2004; EPCA-supported program (October 2004–September 2005) approved January 10, 2005. - Authorities requested a second EPCA purchase to cover October 2005–September 2006 with indicative targets through March 2006; new government expected in early 2006. ### Recent economic developments — key findings and indicators - Growth - Growth projection for 2004/05 (October–September) lowered to 1½ percent; downside risks noted. - Inflation - Consumer prices rose by about 6¼ percent during April-August. - End-September objective: reduce 12-month inflation rate to 15 percent (objective at risk). - Exchange rate and reserves - Gourde depreciated by about 10 percent during May-September 2005. - In real effective terms, the gourde remains 19 percent above the March 2004 level. - Net international reserves (NIR) fell to US$49 million by end-July; gross reserves equivalent to two weeks of imports. - Two IDB disbursements helped NIR rebound to about US$75 million in mid-September. - During August–September 2005, the IDB disbursed two budget support loans totaling about US$25 million. - Fiscal developments - Elimination of central bank financing of the budget underway; earlier in the year the government borrowed from the central bank. - Supplementary budget for April–September 2005 would have required G1.5 billion (0.9 percent of GDP); authorities scaled back or canceled several programs including a new private sector support program (0.3 percent of GDP). - Exceptional revenues (0.5 percent of GDP) were one-time payments for new licenses by cellular phone companies and petroleum and other tax arrears. - Total donor budgetary financing (grants and loans) during October 2004–June 2005 was US$196 million, US$44 million lower than programmed. - Monetary and financial sector - Liquidity growth excessive; gourde deposit rates negative in real terms; decline in gourde term deposits and rapid growth in currency in circulation and dollar deposits. - Commercial banks: non-performing loans rose from 8.3 percent in December 2004 to 9.6 percent in June 2005. - Capital adequacy ratio at end-June was 15.7 percent. - BRH absorbed G2.1 billion of liquidity by end-June and raised interest rates on BRH 91-day bonds from 7 percent to 13 percent; increased again to 15.6 percent in August. - Interest rates remained negative in real terms; base money increased by 5¼ percent during July-September 2005. - By end-March 2005, excess reserves of the banking system reached 25 percent of required reserves (reserve requirements are 31 percent of deposits at commercial banks). - Program performance - Most quantitative targets for end-June were missed. - Key structural measures implemented with delays; positive structural actions include limiting discretionary ministerial spending below 10 percent of budgetary credits and transmission of central government accounts for 2002/03 to CSCCA for audit. ### Economic and political risks - Security: government authority not fully established in some provinces; kidnappings and violent crime continue, particularly in Port-au-Prince. - Political process: security concerns, voter registration delays, and low participation may undermine elections. - External position: sluggish donor support, weaker remittances and visitor inflows, and rising world oil prices increased exchange rate pressures and created large medium-term financing gaps. ### Policy discussions and program stance - Authorities committed to maintaining financial stability during political transition and reviving economic activity. - Proposed October 2005–September 2006 program intended to avoid central bank financing of the budget over time and strengthen Haiti’s external position. - Program for October 2005–March 2006 assumes use of net BRH financing (corresponding to a cash surplus accumulated during 2004/05), while leaving end-March 2006 stock of BRH credit to central government below its end-March 2004 level. - Main focus: policy corrections in light of deteriorated macroeconomic and security environment and donor delays; authorities agreed to modify 2005/06 fiscal plans to match available resources and to tighten monetary policy. - Rationale for continued Fund engagement: a second EPCA would help discipline policies during political transition, provide a framework for donor support, and facilitate a possible move to a PRGF arrangement in 2006. ### Key macroeconomic policy issues — fiscal policy and reforms - Supplementary budget (April–September 2005) implemented without recourse to central bank financing. - Central government outlays limited to high-priority areas: wage bill, interest payments, necessary funding of public sector entities, and G220 million for domestically funded public investment. - Budget provided G178 million of transfers for fuel purchases for EDH to ensure power supply in Port-au-Prince of maximum 12 hours a day. - Agreed policy: postpone the new program of support to the private sector and payments to victims of cooperatives fraud given tight budget constraints. ### Fiscal policy and 2005/06 budget — agreed macro parameters and fiscal stance - Budget macroeconomic parameters: - Real GDP growth: 2.5 percent - CPI inflation: decline to 10 percent - Overall deficit (excluding grants): 6.3 percent of GDP, to be fully financed by external assistance - Revenue and expenditure targets: - Revenues targeted at 9.3 percent of GDP; mission agreed projection is conservative. - Expenditure ratio would rise to 15.6 percent of GDP, from 14.1 percent of GDP this year. - 2005/06 budget assumes a 26 percent increase in the government wage bill, of which 10 percentage points reflect carry-over of the 2004/05 salary increase; remainder for new hiring and inflation adjustments. - Wage and payroll measures: - Authorities agreed not to further increase wages and salaries during the next fiscal year until payrolls are adjusted according to results of the census of public sector employment and adequate budgetary resources are available. - Central bank and arrears measures: - Budget includes resources to strengthen the position of the central bank and to prepare a strategy to address domestic arrears based on the survey to be completed by December 2005. - Remaining financing gap: - Authorities requested additional donor support to close remaining financing gap for April–September 2006 estimated at US$30.6 million or 0.7 percent of GDP. ### Revenue strengthening and expenditure management measures - Tax policy and administration measures: - Pre-shipment verification will be extended to all ports of entry and borders of Haiti. - Use of central taxpayer file on the basis of Fiscal Identification Number (NIF) will be introduced. - Expenditure-side commitments: - Ensure all new recruitment and promotions are within budget allocations of the spending ministries. - Limit discretionary spending through ministerial current accounts to below 10 percent of budget non-wage credits. - Complete by the Anti-Corruption Unit their investigation of corruption in the check distribution process by December 2005. ### Monetary and financial sector policies and BRH recapitalization - Monetary stance concerns: - Base money growth appeared excessive; mission recommended BRH absorb excess liquidity to bring real interest rates to positive levels. - Authorities’ commitments: - BRH acted to absorb liquidity and raised interest rates; committed to take further steps to raise interest rates to levels positive in real terms. - Financial sector reform and instruments: - Authorities requested Fund assistance to develop a financial sector reform strategy and to re-establish a price-based bond auction mechanism. - Revised drafts of a new central bank law and of a banking law are under preparation. - Working on a medium-term strategy to reduce reserve requirements and enable more efficient financial intermediation. - BRH losses and recapitalization strategy: - MFD recommended converting government outstanding liabilities to the BRH into government bonds and that future credit to the government bear market-based interest rates. - A recapitalization strategy is being prepared; increased payments by the Treasury to the BRH have been included in the 2005/06 budget. - Fund providing technical assistance to develop a plan for more fundamental recapitalization over the medium term. - Note: BRH losses reflect interest on BRH credit to the central government being below interest on BRH’s interest bearing liabilities. ### Governance, transparency, and sectoral accountability actions - Public sector employment census: reports completed in 68 ministries and other public sector entities; public sector payrolls being adjusted accordingly. - Survey of domestic arrears: public announcements for registration made; program for settlement to be developed during 2005/06. - Transparency: budget execution information and list of beneficiaries of government-backed scheme to be published in local newspapers and on government website. - Transfers to EDH: monitoring mechanism in place; monthly reports and independent audit to begin by end-October 2005; competitive acquisition procedures to be applied in electricity sector. - Audits: central government accounts for 2002/03 to be published after CSCCA audit; followed by audit of 2003/04 accounts. - Consumer price index: new index introduced in June 2005 to better capture price developments beyond Port-au-Prince. ### External sector, donor support, and financing gap - NIR targets and constraints: - Authorities committed to increasing NIR to US$84 million by end-September 2006. - External assistance pledged would help cover external debt-service, fuel purchases, and other priority needs but would not allow further increase in NIR through March 2006. - Mission stressed need for BRH to maintain steady pace of foreign exchange purchases to avoid shortfall in revised NIR targets. - Donor disbursements and financing gap: - Two IDB loans (US$24.5 million) recently disbursed. - Conditions for disbursements from the World Bank (US$14.5 million) and the IDB (US$10 million) expected before end-2005 largely completed. - Authorities agreed to seek additional assistance to fill financing gap of US$30.6 million estimated for the second half of the fiscal year. - Note: Gap could be covered from resources from the European Union, the IDB, and the World Bank; Haiti will continue to accumulate arrears to some bilateral creditors until a PRGF program is in place. ### Program issues, Fund access, and monitoring - Proposed Fund purchase under EPCA: - Proposed purchase: SDR 10.245 million (12.5 percent of quota). - Rate of charge: subsidized to an annual rate of 0.5 percent. - Proposed access consistent with revised EPCA policy and Haiti’s financing needs during July 2005-March 2006. - Capacity to repay and debt indicators: - Haiti current on debt-service to the Fund since early 1990s. - Taking into account January 2005 purchase, proposed October purchase in line with annual access limit under EPCA (25 percent of quota). - Fund credit outstanding would peak in 2006 at 27 percent of quota and 5¼ percent of exports of goods and services. - Debt service to the Fund would remain below 2 percent of exports of goods and services. - Program monitoring and targets: - Economic program covers October 2005-September 2006. - Financial program and quarterly targets agreed for December 2005 and March 2006; targets for April–September 2006 to be confirmed with new government by March 2006. - Staff to monitor execution based on quarterly indicative targets, structural benchmarks, and quarterly staff visits. - Technical assistance and safeguards: - Large TA needs remain in public finance and monetary management. - Safeguards assessment of BRH completed in August 2005; identified vulnerabilities in financial reporting, internal audit and controls; staff proposed measures and BRH has started implementing some recommendations. ### Staff appraisal — judgments and recommendations - Political and security context: - Critical need to improve security conditions to ensure fair and safe elections and implement agreed agenda; UN decision to increase stabilization force welcomed. - Fiscal discipline and governance: - Stringent fiscal discipline and good governance crucial to foster private-sector recovery and assure donors. - Staff welcomes decision to avoid central bank financing and to limit spending to high priority areas. - Monetary policy and BRH operations: - BRH needs to ensure monetary conditions are tight enough to protect inflation and external objectives; steps to absorb excess liquidity and raise interest rates should be more forward-looking. - Encouraged to re-establish price-based bond auction mechanism. - Transparency, payroll, and revenue measures: - Census of employment has helped strengthen governance and should yield savings; full-fledged census recommended when feasible. - Steps to address domestic arrears, publish budget execution, and publish audits are welcomed. - Rapid progress in extending customs control to all border points important to improve revenue. - Donor financing and capacity constraints: - Staff supports mobilizing additional donor financing and accelerating disbursement of pledged assistance. - Large financing gap of US$30.6 million remains for 2005/06; authorities and donors encouraged to fill this gap on a highly concessional basis. - Data reporting: - Further improvements needed in data reporting; technical assistance supported; implementation of new CPI an important achievement. ### Staff assessment and recommendation on EPCA eligibility - Staff view: "Haiti continues to meet the conditions for post-conflict assistance." - Rationale: - "Haiti’s balance of payments needs remain urgent." - "Present institutional and administrative capacity is not sufficient to implement a program that could be supported by a Fund arrangement." - Performance under SMP and EPCA demonstrates sufficient capacity and commitment to implement the program. - Proposed purchase "would support a macroeconomic framework to underpin a broader international support to Haiti." - Recommendation: Staff supports the authorities’ request for Fund assistance under the post-conflict emergency assistance policy. ### Macroeconomic outlook and selected projections (annual unless stated) - Real GDP growth (annual): 2001 -1.0; 2002 -0.5; 2003 0.5; 2004 -3.8; 2005 1.5; 2006 2.5; 2007 4.0; 2008 4.0; 2009 4.0. - Inflation (CPI end-of-period): 2001 12.3; 2002 10.1; 2003 42.5; 2004 22.5; 2005 15.0; 2006 10.0; 2007 8.0; 2008 7.0; 2009 6.0. - Central government overall balance (including grants) (percent of GDP): 2001 -2.4; 2002 -3.0; 2003 -3.5; 2004 -2.4; 2005 -0.6; 2006 -2.3; 2007 -1.6; 2008 -1.7; 2009 -1.6. - Liquid gross reserves (in millions of U.S. dollars): 2001 227.3; 2002 177.7; 2003 157.1; 2004 206.9; 2005 223.6; 2006 264.7; 2007 306.1; 2008 386.4; 2009 510.1. - Current account (excluding official transfers, percent of GDP): 2001 -6.5; 2002 -4.9; 2003 -4.8; 2004 -2.8; 2005 -7.5; 2006 -10.3; 2007 -8.9; 2008 -8.7; 2009 -7.4. ### Key fiscal and monetary tables — selected figures (program and outturn highlights) - Central government budget (2005/06 projections): - Revenue: 9.3 percent of GDP - Expenditure: 15.6 percent of GDP - Wages and salaries: 3.9 percent of GDP - Capital outlays: 6.0 percent of GDP - Central government overall balance (excluding grants): -6.3 percent of GDP - Net external financing of the budget: 5.5 percent of GDP - Net international reserves (program targets and preliminary stocks): - Preliminary stock end-September 2005: 65 (millions of U.S. dollars) - Target increase to US$84 million by end-September 2006. - Banking and monetary aggregates (selected period entries): - Broad money (Sep.): 56,761 (millions of gourdes); Sep. (prog.) 70,535. - Credit to the private sector (Sep.): 21,142; Sep. (proj.) 27,346. - Net domestic assets (Sep.): 44,078; Sep. (proj.) 51,529. - Net international reserves (program entries include 55; 46; 57; 96; 47; 184). ### Program monitoring, targets and definitions (indicative ceilings and floors) - Ceilings for cumulative BRH credit to central government (millions of gourdes): December 2005: 0; March 2006: 380. - Ceilings for cumulative net domestic banking sector credit to NFPS (millions of gourdes): December 2005: 0; March 2006: 380. - Targets for cumulative change in NIR (millions of U.S. dollars): December 2005: 15; March 2006: -1. - Ceilings for cumulative change in net domestic assets of BRH (millions of gourdes): December 2005: -1,217; March 2006: -970. - Nonconcessional external loans ceilings by central government: zero throughout the program period. - Program adjusters: - Adjustments for domestic arrears accumulation and for deviations in net disbursements of cash budgetary assistance (details and thresholds specified in TMU). - Provision of information: daily and weekly monetary and fiscal indicators to IMF staff with specified reporting lags and itemization (exchange rate, BRH sales/purchases, gross and net international reserves, stock of BRH bonds, deposits, credit, currency in circulation, etc.). ### Supplementary developments and provisional updates (October 2005) - Provisional data indicate weakening of fiscal position from that described earlier due to: - Exceptional bonus to public employees equivalent to 70 percent of monthly salaries (G284 million). - Payments for road construction contracts (G60 million). - Result: stock of net credit from BRH to central government at end-September 2005 exceeded program by G348 million (0.2 percent of GDP). - Authorities committed corrective measures to reduce expenditures by about G300 million in first half FY2005/06. - Net international reserves reported about US$68 million at end-September; gourde depreciated to about G43/US$ from about G42/US$ since mid-September. - BRH tightened policy in early October: increased bond rates by about 300 basis points on all maturities and increased stock of bonds to eliminate excess liquidity. - Executive Board approved SDR 10.23 million (about US$14.7 million) in Emergency Post-Conflict Assistance (EPCA) to Haiti on October 19, 2005. ### Millennium Development Goals — selected indicators for Haiti (as reported) - Population below US$1 a day (in percent): 76 - Poverty gap ratio at US$1 a day (in percent): 55 - Prevalence of child malnutrition (percent of children under 5): 26.8 27.5 17.3 13.4 - Net primary enrollment ratio (percent of relevant age group): 22.1 56.1 100 - Under-five mortality rate (per 1,000): 150 137 125 123 118 50 - Maternal mortality ratio (per 100,000 live births): 1,000 1,100 680 250 - Fixed line and mobile telephones (per 1,000 people): 6.9 8.4 20.7 32.5 55.2 - Sources: World Bank; UN Statistics Division; and Fund staff estimates. _Italic: Source: IMF staff report content as provided in the source document._ ### 1. Indicative Targets, September 2004–September 2005 ................................................17 ### 1. Indicative Targets, September 2004–September 2005 ### Background - Transition government formed in March 2004; United Nations stabilization mission (MINUSTAH) deployed since June 2004. - Donors pledged US$1.1 billion of financial assistance through September 2006. - Elections scheduled for November–December 2005; delayed to November 20 and December 11, 2005 due to slow voter registration. - A Staff Monitored Program (SMP) covered April–September 2004. Authorities requested Emergency Post-Conflict Assistance (EPCA); EPCA-supported program (October 2004–September 2005) approved by the Executive Board on January 10, 2005. - Authorities requested a second EPCA purchase to cover October 2005–September 2006 with indicative targets through March 2006; new government expected in early 2006. ### Recent economic developments — key findings and indicators - Growth: - Growth projection for 2004/05 (October–September) lowered to 1½ percent; downside risks noted. - Inflation: - Consumer prices rose by about 6¼ percent during April-August. - End-September objective: reduce 12-month inflation rate to 15 percent (objective at risk). - Exchange rate and reserves: - Gourde depreciated by about 10 percent during May-September 2005. - In real effective terms, the gourde remains 19 percent above the March 2004 level. - Net international reserves (NIR) fell to US$49 million by end-July; gross reserves equivalent to two weeks of imports. - Two IDB disbursements helped NIR rebound to about US$75 million in mid-September. - During August–September 2005, the IDB disbursed two budget support loans totaling about US$25 million. - Fiscal developments: - Use of central bank financing of the budget is being eliminated; earlier in the year the government borrowed from the central bank. - Supplementary budget for April–September 2005 would have required G1.5 billion of additional financing (0.9 percent of GDP); authorities scaled back or canceled several programs including a new private sector support program (0.3 percent of GDP). - Exceptional revenues (0.5 percent of GDP) were one-time payments for new licenses by cellular phone companies and petroleum and other tax arrears. - Total donor budgetary financing (grants and loans) during October 2004–June 2005 was US$196 million, US$44 million lower than programmed. - Monetary and financial sector: - Liquidity growth excessive; gourde deposit rates negative in real terms; decline in gourde term deposits and rapid growth in currency in circulation and dollar deposits. - Commercial banks: non-performing loans rose from 8.3 percent in December 2004 to 9.6 percent in June 2005. - Capital adequacy ratio at end-June was 15.7 percent. - Monetary tightening: BRH absorbed G2.1 billion of liquidity by end-June and raised interest rates on BRH 91-day bonds from 7 percent to 13 percent; increased again to 15.6 percent in August. - Interest rates remained negative in real terms; base money increased by 5¼ percent during July-September 2005. - By end-March 2005, excess reserves of the banking system reached 25 percent of required reserves (reserve requirements are 31 percent of deposits at commercial banks). - Program performance: - Most quantitative targets for end-June were missed. - Key structural measures implemented with delays: census of employment completed only in September (past end-March due date); notifications of registration of domestic arrears published but initial notification had short reporting deadline. - Positive structural actions: discretionary ministerial spending limited to below 10 percent of budgetary credits; central government accounts for 2002/03 transmitted to CSCCA for audit; systematic pre-audit of government spending eliminated as of July 1. ### Economic and political risks - Security: government authority not fully established in some provinces; kidnappings and violent crime continue, particularly in Port-au-Prince. - Political process: security concerns, voter registration delays, and low participation may undermine elections scheduled for late 2005. - External position: sluggish donor support, weaker remittances and visitor inflows, and rising world oil prices increased exchange rate pressures and created large medium-term financing gaps. ### Policy discussions and program stance - Authorities committed to maintaining financial stability during political transition and reviving economic activity. - Proposed October 2005–September 2006 program intended to avoid central bank financing of the budget over time and strengthen Haiti’s external position. - Program for October 2005–March 2006 assumes use of net BRH financing (corresponding to a cash surplus accumulated during 2004/05), while leaving end-March 2006 stock of BRH credit to central government below its end-March 2004 level. - Main focus: policy corrections in light of deteriorated macroeconomic and security environment and donor delays. - Authorities agreed to modify 2005/06 fiscal plans to match available resources and to tighten monetary policy to preserve macroeconomic stability. - Significant amendments to previously set quantitative objectives recognized as necessary. - Rationale for continued Fund engagement: - A second EPCA would help discipline policies during political transition, provide a framework for donor support, and facilitate a possible move to a PRGF arrangement in 2006. ### Key macroeconomic policy issues — fiscal policy and reforms - Supplementary budget (April–September 2005) implemented without recourse to central bank financing. - Central government outlays limited to high-priority areas: wage bill, interest payments, necessary funding of public sector entities, and G220 million for domestically funded public investment. - Budget provided G178 million of transfers for fuel purchases for the electricity company (EDH) to ensure power supply in Port-au-Prince of maximum 12 hours a day. - Agreed policy: postpone the new program of support to the private sector and payments to victims of cooperatives fraud given tight budget constraints. *Source: IMF staff report text (sections I–IV of the content unit "1. Indicative Targets, September 2004–September 2005")* ### 18. The authorities and staff agreed on a 2005/06 central government budget that ### _cr05404 - 18. The authorities and staff agreed on a 2005/06 central government budget that ### Fiscal policy and 2005/06 budget - Budget macroeconomic parameters: - Real GDP growth: 2.5 percent - CPI inflation: decline to 10 percent - Overall deficit (excluding grants): 6.3 percent of GDP, to be fully financed by external assistance - Revenue and expenditure targets: - Revenues targeted at 9.3 percent of GDP - Mission agreed the revenue projection is conservative given risks related to the security/political situation and donor support - Authorities view target as consistent with historical trends and attainable, especially once customs controls are extended to all border points - Expenditure ratio would rise to 15.6 percent of GDP, from 14.1 percent of GDP this year - Increase mainly reflects increases in externally-financed projects, including in social sectors, and recent wage increases - The 2005/06 budget assumes a 26 percent increase in the government wage bill, of which 10 percentage points reflect the carry-over effect of the 2004/05 salary increase, and the remainder is for new hiring (police in particular) and inflation adjustments - Wage and payroll measures: - Authorities agreed not to further increase wages and salaries during the next fiscal year until payrolls are adjusted according to the results of the census of public sector employment and adequate budgetary resources are available - Central bank and arrears measures: - Budget includes resources to strengthen the position of the central bank - Budget includes resources to prepare a strategy to address domestic arrears based on the survey to be completed by December 2005 - Remaining financing gap: - Authorities requested additional donor support to close the remaining financing gap for April–September 2006 estimated at US$30.6 million or 0.7 percent of GDP ### Revenue strengthening and expenditure management measures - Tax policy and administration: - Pre-shipment verification will be extended to all ports of entry and borders of Haiti - Use of central taxpayer file on the basis of tax payers’ Fiscal Identification Number will be introduced - Expenditure-side commitments: - Ensure all new recruitment and promotions are within budget allocations of the spending ministries - Limit discretionary spending through ministerial current accounts to below 10 percent of budget non-wage credits - Complete by the Anti-Corruption Unit their investigation of corruption in the check distribution process by December 2005 - These measures were recommended by the April 2005 FAD technical assistance mission on public financial management ### Monetary and financial sector policies - Monetary stance concerns and recommendations: - Base money growth appeared excessive and—coupled with interest rates that were negative in real terms—threatened the program’s inflation objective and exchange rate stability - Mission recommended the BRH absorb excess liquidity sufficiently to bring real interest rates to positive levels - Authorities’ actions and commitments: - BRH recognized need to stem pressures on the exchange rate and by end-June acted to absorb liquidity by issuing bonds and raised interest rates - Authorities indicated commitment to taking further steps, as needed, to raise interest rates to levels positive in real terms - Financial sector reform and instruments: - Authorities requested Fund assistance in developing a strategy for financial sector reform - Re-establish a price-based bond auction mechanism as recommended by the MFD technical assistance mission - Revised drafts of a new central bank law to establish independence of the central bank and of a banking law are under preparation - Working on a medium-term strategy to reduce reserve requirements and enable more efficient financial intermediation - BRH losses and recapitalization strategy: - MFD mission recommended converting government outstanding liabilities to the BRH into government bonds and that all future credit to the government bear a market based interest rate - A strategy for recapitalization of the central bank is being prepared; increased payments by the Treasury to the BRH have been included in the 2005/06 budget - The Fund is providing technical assistance to develop a plan for a more fundamental recapitalization of the central bank over the medium term - Note: These losses reflect the fact that the interest rate on BRH credit to the central government is below the interest rate on the BRH’s interest bearing liabilities ### Governance and transparency actions - Implemented and ongoing actions: - Census of public sector employment: reports completed in 68 ministries and other public sector entities, including ministries of health and education, and the national police; public sector payrolls are being adjusted accordingly - Authorities recognize a full-fledged census should be implemented as soon as security conditions and resource availability permit - Survey of domestic arrears: public announcements issued for registration of unpaid claims on the central government and a program for their settlement will be developed during 2005/06 - Transparency of government operations: information on budget execution and list of beneficiaries of a government-backed scheme for businesses affected in early 2004 conflict and June 2004 fires will continue to be published in local newspapers and on the government’s website - Transfers to EDH: monitoring mechanism in place in consultation with World Bank staff; monthly reports on transfers and associated electricity output will be published; independent audit of these reports will begin by end-October 2005; competitive acquisition procedures will be applied in the electricity sector - Audits of public sector accounts: report for central government accounts of 2002/03 will be published after audit by CSCCA is completed; followed by audit of 2003/04 accounts - Consumer price index: a new price index was introduced in June 2005 to better capture price developments beyond the Port-au-Prince area - Petroleum pricing: - Mission urged implementation of a flexible price-setting mechanism for petroleum prices - Authorities agreed delaying adjustment would have negative fiscal and resource allocation effects and reiterated commitment to implement the mechanism as envisaged - Data reporting and reliability: - Committee established last May met regularly and recommended steps to improve reporting of data required for program monitoring - Internal audit mechanism strengthened; process established to improve timeliness of monetary reporting - A plan will be agreed with Fund staff based on a comprehensive review of fiscal and monetary data collection and reporting, leading to regular and automated data transmissions to the Fund ### External sector - Net international reserves (NIR) targets and constraints: - Authorities and mission agreed to revise downward original NIR targets - Authorities committed to increasing NIR to US$84 million by end-September 2006 - External assistance pledged to date would help cover external debt-service obligations, fuel purchases for maintaining electricity supply, and other priority government needs, but would not allow further increase in NIR during the period to March 2006 - Mission stressed need for BRH to maintain a steady pace of foreign exchange purchases to avoid shortfall in revised NIR targets - Donor disbursements and financing gap: - Two IDB loans (US$24.5 million) recently disbursed - Conditions for disbursements from the World Bank (US$14.5 million) and the IDB (US$10 million) expected before end-2005 have been largely completed - Authorities agreed to work closely with donors to avoid procedural delays and to seek additional assistance to fill financing gap of US$30.6 million estimated for the second half of the fiscal year - Authorities requested donor assistance in preparation of capital investment projects for 2005/06 and to address capacity constraints in line ministries - Steps being taken to strengthen aid coordination and improve flow of information about on-going and planned projects - Note: This gap could be covered from resources that would become available to Haiti from the European Union, the IDB, and the World Bank. Haiti will continue to accumulate arrears to some bilateral creditors until a PRGF program is in place, based on an informal agreement confirmed in the context of the first EPCA purchase in January 2005 (IMF Country Report No. 05/65) ### Program issues, Fund access, and monitoring - Proposed Fund purchase under EPCA: - Proposed purchase: SDR 10.245 million (12.5 percent of quota) - Rate of charge: subsidized to an annual rate of 0.5 percent, consistent with Haiti’s PRGF eligibility - Proposed access consistent with revised EPCA policy and Haiti’s financing needs during July 2005-March 2006, taking into account resources pledged by other donors - Capacity to repay and debt indicators: - Haiti has been current on its debt-service obligations to the Fund since the early 1990s - Taking into account Haiti’s purchase of 12.5 percent of quota under the EPCA in January 2005, the proposed purchase in October is consistent with the annual access limit under the EPCA (25 percent of quota) - Fund credit outstanding would peak in 2006 at 27 percent of quota and 5¼ percent of exports of goods and services - Debt service to the Fund would remain below 2 percent of exports of goods and services - Program monitoring and targets: - Economic program covers fiscal year October 2005-September 2006 - Financial program and quarterly targets agreed for December 2005 and March 2006 - Targets for April–September 2006 to be confirmed with the new government by March 2006 either as interim targets in PRGF negotiations or alternative monitoring arrangement - Staff will monitor execution based on quarterly indicative targets, structural benchmarks, and quarterly staff visits - Quarterly indicative targets for end-December 2005 and end-March 2006 set as presented in Table 1 of the MEFP - Attachment II presents policy actions to be implemented by March 2006, including those to be introduced as structural benchmarks - Technical assistance and safeguards: - Large technical assistance needs remain in public finance and monetary management - Fund preparing technical assistance to strengthen financial position of the central bank - Multi-topic statistical mission planned later this year to improve data reporting to the Fund and for program monitoring - Safeguards assessment of the Banque de la République d’Haiti completed in August 2005 - Identified vulnerabilities in financial reporting, internal audit and controls - Staff proposed measures including strengthening accounting function, procedures for compilation/reporting/verification of monetary data, and improvements in BRH’s Internal Audit Unit - BRH indicated it has already started implementing some recommendations; progress will be monitored by staff ### Staff appraisal — key judgments and recommendations - Political and security context: - Haiti is in a crucial period of political transition and economic stabilization; deterioration in the security situation earlier this year delayed election preparations and negatively affected the economy and donor inflows - Critical need to improve security conditions to ensure fair and safe elections and implement agreed social and economic agenda - The UN decision to increase its stabilization force in Haiti is welcomed - Fiscal discipline and governance: - Stringent fiscal discipline and good governance are crucial to foster private-sector recovery and assure donors of effective use of assistance - Staff welcomes authorities’ decision to avoid central bank financing of the budget and to limit spending to high priority areas - Staff supports authorities’ and donors’ commitments for the 2005/06 budget to increase social services and public investment using external assistance while avoiding central bank financing over time - Monetary policy and BRH operations: - BRH needs to ensure monetary conditions are tight enough to protect inflation and external objectives - Steps taken to absorb excess liquidity and raise interest rates were welcome but should be more forward-looking and pre-emptive - Authorities encouraged to re-establish a price-based bond auction mechanism to provide clearer policy signals - Staff welcomes authorities’ intention to cover BRH losses and develop a recapitalization plan, and encourages publication of the BRH audit - Transparency, payroll, and revenue measures: - Census of employment in key ministries has helped strengthen governance and should yield budgetary savings by removing ghost workers - Full-fledged census should be implemented once security and resources allow - Steps to address domestic arrears, publish budget execution, and publish audits for 2002/03 and 2003/04 accounts are welcomed - Important to ensure government transfers to EDH are linked to electricity supply targets and that all new electricity contracts are based on open and competitive bids - Rapid progress in extending customs control to all border points is important to improve revenue performance - Donor financing and capacity constraints: - Staff supports efforts to mobilize additional donor financing and accelerate disbursement of pledged assistance - Priority to ensure policies are consistent with donor agreements so budgetary assistance can be disbursed as envisaged - Donor support needed to alleviate capacity constraints within line ministries for capital project preparation and implementation - A large financing gap of US$30.6 million remains for 2005/06; authorities and donors encouraged to work together to fill this gap on a highly concessional basis - Data reporting: - Further improvements needed in data reporting to the Fund for program monitoring and surveillance - Staff welcomes committee to strengthen data reporting and supports technical assistance to improve Haiti’s economic statistics - Implementation of the new consumer price index is an important achievement *IMF staff report content as provided in the source document.* ### 42. In the staff’s view, Haiti continues to meet the conditions for post-conflict ### _cr05404 - 42. In the staff’s view, Haiti continues to meet the conditions for post-conflict assistance ### Staff assessment and recommendation - Staff view: "Haiti continues to meet the conditions for post-conflict assistance." - Rationale: - "Haiti’s balance of payments needs remain urgent." - "Present institutional and administrative capacity is not sufficient to implement a program that could be supported by a Fund arrangement." - "Performance to date under the SMP and the EPCA-supported program demonstrates that the authorities have sufficient capacity and commitment to implement the program they are presenting as a basis for Fund support." - The proposed purchase from the Fund "would support a macroeconomic framework to underpin a broader international support to Haiti." - Recommendation: Taking into account the authorities’ commitment, performance under the SMP and the EPCA, the catalytic role of Fund resources, and notwithstanding risks from the political and security situation, "the staff supports the authorities’ request for Fund assistance under the post-conflict emergency assistance policy." ### Macroeconomic outlook and projections (selected indicators) - Real GDP growth (annual): 2001 -1.0; 2002 -0.5; 2003 0.5; 2004 -3.8; 2005 1.5; 2006 2.5; 2007 4.0; 2008 4.0; 2009 4.0. - Inflation (CPI end-of-period): 2001 12.3; 2002 10.1; 2003 42.5; 2004 22.5; 2005 15.0; 2006 10.0; 2007 8.0; 2008 7.0; 2009 6.0. - Central government overall balance (including grants) (percent of GDP): 2001 -2.4; 2002 -3.0; 2003 -3.5; 2004 -2.4; 2005 -0.6; 2006 -2.3; 2007 -1.6; 2008 -1.7; 2009 -1.6. - Total revenue and grants (percent of GDP): 2001 8.0; 2002 8.5; 2003 9.1; 2004 10.2; 2005 13.4; 2006 13.3; 2007 14.4; 2008 14.9; 2009 16.0. - Central government revenue (percent of GDP): 2001 7.6; 2002 8.3; 2003 9.0; 2004 8.9; 2005 9.8; 2006 9.3; 2007 10.5; 2008 11.2; 2009 12.2. - Central government expenditure (percent of GDP): 2001 10.4; 2002 11.5; 2003 12.6; 2004 12.6; 2005 14.1; 2006 15.6; 2007 16.0; 2008 16.6; 2009 17.6. - Liquid gross reserves (in millions of U.S. dollars): 2001 227.3; 2002 177.7; 2003 157.1; 2004 206.9; 2005 223.6; 2006 264.7; 2007 306.1; 2008 386.4; 2009 510.1. - Liquid gross reserves (in months of imports of the following year): 2001 2.2; 2002 1.5; 2003 1.2; 2004 1.3; 2005 1.3; 2006 1.4; 2007 1.6; 2008 1.9; 2009 2.4. - Current account (including official transfers, percent of GDP): 2001 -2.0; 2002 -1.0; 2003 -0.1; 2004 0.4; 2005 0.5; 2006 -1.5; 2007 -0.9; 2008 -0.3; 2009 0.5. - Current account (excluding official transfers, percent of GDP): 2001 -6.5; 2002 -4.9; 2003 -4.8; 2004 -2.8; 2005 -7.5; 2006 -10.3; 2007 -8.9; 2008 -8.7; 2009 -7.4. ### Balance of payments & external sector (selected amounts) - Current account deficit (excluding grants) (in millions of U.S. dollars): 2002 -168.1; 2003 -141.0; 2004 -97.9; 2005 -325.5; 2006 -453.5. - Trade balance (deficit) (in millions of U.S. dollars): 2002 -709.4; 2003 -785.4; 2004 -809.9; 2005 -1,131.0; 2006 -1,277.5. - Exports, f.o.b. (in millions of U.S. dollars): 2002 273.2; 2003 330.4; 2004 372.7; 2005 415.9; 2006 443.7. - Assembly industry exports (in millions of U.S. dollars): 2002 220.8; 2003 278.1; 2004 319.0; 2005 349.6; 2006 373.0. - Imports, f.o.b. (in millions of U.S. dollars): 2002 -982.6; 2003 -1,115.8; 2004 -1,182.6; 2005 -1,546.9; 2006 -1,721.2. - Petroleum products (in millions of U.S. dollars): 2002 -157.3; 2003 -146.3; 2004 -218.0; 2005 -329.0; 2006 -421.3. - Private transfers (net) (in millions of U.S. dollars): 2002 649.0; 2003 810.8; 2004 931.0; 2005 1,042.9; 2006 1,095.0. - External grants (in millions of U.S. dollars): 2002 135.1; 2003 137.2; 2004 113.1; 2005 348.0; 2006 388.8. - Overall balance (deficit -) (in millions of U.S. dollars): 2002 -68.5; 2003 -10.9; 2004 33.0; 2005 50.7; 2006 -5.7. ### Fiscal accounts (selected central government figures) - Total revenue and grants (in millions of gourdes) (2004/05 EPCA I): 11,037 (EPCA I), 11,660 (Prel. EPCA I), Oct.-Sept total 24,059 (EPCA I), 22,065 (Prel.). - Total revenue (in millions of gourdes) (2004/05 EPCA I): 7,979 (EPCA I), 7,774 (Prel.); Oct.-Sept total 15,921 (EPCA I), 16,103 (Prel.). - Total expenditure (in millions of gourdes) (2004/05 EPCA I): 11,764 (EPCA I), 11,303 (Prel.); Oct.-Sept total 26,084 (EPCA I), 23,118 (Prel.). - Current expenditure (in millions of gourdes) (2004/05 EPCA I): 8,021 (EPCA I), 7,790 (Prel.); Oct.-Sept total 15,611 (EPCA I), 15,801 (Prel.). - Capital expenditure (in millions of gourdes) (2004/05 EPCA I): 3,744 (EPCA I), 3,513 (Prel.); Oct.-Sept total 10,473 (EPCA I), 7,317 (Prel.). - Overall balance including grants (in millions of gourdes) (Oct.-Sept): EPCA I -2,024; Prel. -1,053. - Financing: External net financing (Oct.-Sept totals) EPCA I 2,187; Prel. 1,429. ### Banking sector and monetary aggregates (selected) - Consolidated banking system broad money (in millions of gourdes): Sep. 56,761; June 65,136; Sep. (prog.) 70,535. - Net foreign assets of consolidated banking system (in millions of gourdes): Sep. 12,683; June 17,257; Sep. (proj.) 19,007. - Credit to the private sector (in millions of gourdes): Sep. 21,142; June 23,812; Sep. (proj.) 27,346. - Net domestic assets (in millions of gourdes): Sep. 44,078; June 47,879; Sep. (proj.) 51,529. - Net international reserves (program) (in millions of U.S. dollars): program entries include 55; 46; 57; 96; 47; 184 (table formatting as in source). ### IMF engagement indicators - Outstanding Fund credit (in millions of SDRs): 2004 7.6; 2005 14.8; 2006 22.0; 2007 20.5; 2008 17.9; 2009 12.8. - In percent of quota: 2004 9.3; 2005 18.1; 2006 26.9; 2007 25.0; 2008 21.9; 2009 15.6. - In percent of GDP: 2004 0.3; 2005 0.5; 2006 0.7; 2007 0.6; 2008 0.5; 2009 0.3. - Debt service to the Fund (in millions of SDRs): 2004 5.0; 2005 3.3; 2006 3.4; 2007 1.9; 2008 2.9; 2009 5.5. - Net use of Fund credit (in millions of SDRs): 2004 -4.9; 2005 7.2; 2006 7.2; 2007 -1.5; 2008 -2.6; 2009 -5.1. - Note: "Includes the 12.5 percent of quota disbursement under the emergency post-conflict assistance." ### External debt, arrears, and donor support (selected) - Stock of arrears (in millions of U.S. dollars): 2000 6.0; 2001 17.8; 2002 50.9; 2003 52.1; 2004 78.1; 2005 34.7 (Est./Proj. as in table). - Multilateral creditors arrears and bilateral creditors figures as provided in Table 8. - Donor pledges and disbursements (Jul 2004–Sept. 2006, in millions of U.S. dollars): Total donor support 1,084.6; Jul-Sept. 2004 54.2; FY 2004/05 Estimate 270.0; FY 2005/06 Prov./Proj. 307.8/632.0 (table entries). - Bilateral total 366.4; Multilateral total 718.2. - Memo: "Budgetary support...12.0 130.0 50.2 192.2" (table format preserved from source). - Budgetary financing by donor/type is detailed in tabular form (Table 10) for 2003/04, 2004/05, 2005/06 with cash budget support, debt service payments, project loans and grants, and net transfers. *Source: IMF staff report content and accompanying tables as provided in the supplied PDF content.* ### 1. Population below US$1 a day (in percent)76 ### 1. Population below US$1 a day (in percent)76 ### Millennium Development Goals — Key indicators (Haiti) - 1. Population below US$1 a day (in percent): 76 - 2. Poverty gap ratio at US$1 a day (in percent): 55 - 3. Share of income or consumption held by poorest 20 percent (in percent) - Target 2: Halve, between 1990 and 2015, the proportion of people suffering hunger. - 4. Prevalence of child malnutrition (percent of children under 5): 26.8 27.5 17.3 13.4 - 5. Population below minimum level of dietary energy consumption (in percent): 65.0 60.0 49.0 32.5 Goal 2. Achieve Universal Primary Education — Target 3. Ensure that, by 2015, children will be able to complete a full course of primary schooling. - 6. Net primary enrollment ratio (percent of relevant age group): 22.1 56.1 100 - 7. Percentage of cohort reaching grade 5 - 8. Youth literary rate (percent ages 15-24) 1/: 54.8 59.7 65.3 66.2 66.2 Goal 3. Promote Gender Equality and Empower Women — Target 4. Eliminate gender disparity in primary and secondary education preferably by 2005 and to all levels of education by 2015. - 9. Ratio of girls to boys in primary and secondary education (percent): 94.6 100 - 10. Ratio of young literate females to males (percent ages 15-24): 96.3 98.6 100.8 101.1 101.1 100 - 11. Share of women employed in the nonagricultural sector (percent): 39.5 - 12. Proportion of seats held by women in the national parliament (percent) 1/: 44 Goal 4. Reduce Child Mortality — Target 5. Reduce by two-thirds, between 1990 and 2015, the under five mortality rate. - 13. Under-five mortality rate (per 1,000): 150 137 125 123 118 50 - 14. Infant mortality rate (per 1,000 live births): 102 91 81 79 76 - 15. Immunization against measles (percent of children under 12 months): 31 49 53 53 53 Goal 5. Improve Maternal Health — Target 6. Reduce by three-quarters, between 1990 and 2015, the maternal mortality ratio. - 16. Maternal mortality ratio (modeled estimate, per 100,000 live births): 1,000 1,100 680 250 - 17. Proportion of births attended by skilled health personnel: 23 19.5 23.8 Goal 6. Combat HIV/AIDS, Malaria, and Other Diseases — Target 7. Halt by 2015, and begin to reverse, the spread of HIV/AIDS. - 18. HIV prevalence among females (percent ages 15-24): 5.5 5.6 - 19. Contraceptive prevalence rate (percent of women ages 15-49): 11 17.6 28.1 - 20. Number of children orphaned by HIV/AIDS: 200,000 Target 8. Halt by 2015, and begin to reverse, the incidence of malaria and other major diseases. - 21. Prevalence of death associated with malaria - 22. Share of population in malaria risk areas using effective prevention and treatment - 23. Incidence of tuberculosis (per 100,000 people): 60 43 34 30 93 86 - 24. Tuberculosis cases detected under DOTS (percent): 23 14 1.2 46 24 Target 9. Integrate the principles of sustainable development into policies and programs. Reverse the loss of environment resources. - 25. Forest area (percent of total land area): 5.7 3.2 - 26. Nationally protected areas (percent of total land area): 0.4 0.4 0.4 - 27. GDP per unit of energy use (PPP $ per Kg oil equivalent): 7.7 6.2 6.4 6.4 - 28. CO2 emissions (metric tons per capita): 0.2 0.1 0.2 0.2 - 29. Proportion of population using solid fuels Target 10. Halve by 2015 proportion of people without access to safe drinking water. - 30. Access to improved water source (percent of population): 53 46 71 76.5 Target 11. Achieve by 2020 significant improvement for at least 100 million slum dwellers. - 31. Access to improved sanitation (percent of population): 23 28 34 - 32. Access to secure tenure (percent of population): 66.2 Goal 8. Develop a Global Partnership for Development 2/ — Target 16. Develop and implement strategies for productive work for youth. - 45. Unemployment rate of population ages 15-24 (total), Female, Male Target 17. Provide access to affordable essential drugs. - 46. Proportion of population with access to affordable essential drugs Target 18. Make available new technologies, especially information and communications. - 47. Fixed line and mobile telephones (per 1,000 people): 6.9 8.4 20.7 32.5 55.2 - 48. Personal computers (per 1,000 people) - Sources: World Bank; UN Statistics Division; and Fund staff estimates. - 1/ Data for 2004 are the same as 2003 data. - 2/ Targets 12-15 and indicators 33-44 are excluded because they cannot be measured on a country specific basis. *Source: Haiti: Millennium Development Goals table in the supplied document.* ### Transitional government cover letter — summary of requests and achievements - The transition government reports implementation of a prudent macroeconomic policy during its first year in office and measures to strengthen institutions and governance following armed conflict in early 2004. - The government requests continued international assistance to consolidate stabilization and address structural issues and external vulnerabilities. - Achievements and program participation: - Implemented a Staff Monitored Program (April 2004–September 2004) followed by an EPCA-supported program. - Met all quantitative targets under both programs for the period April 2004–March 2005 and made progress on key structural measures; expects to meet most program objectives by end-September 2005. - Implemented an Interim Cooperation Framework (ICF) for July 2004–September 2006. - Donor disbursements have been slower than anticipated; security remains a prime concern. - Assistance request: - Government requests assistance under the IMF’s EPCA policy in an amount of SDR 10.245 million, equivalent to 12.5 percent of quota. - EPCA-supported program would extend until March 2006; negotiations on a PRGF expected to begin in early 2006. - Commitments: - Avoid central bank financing of the government’s budget. - Strengthen Haiti’s external position. - Delay consideration of salary adjustments until completion of public employment census. *Signed by Henri Bazin, Minister of Economy and Finance, and Raymond Magloire, Governor, Bank of the Republic of Haiti.* ### Memorandum of Economic and Financial Policies (MEFP) — Background and recent developments - I. Background - Extended political conflict culminating in March 2004 affected economic, social, and political situation. - International community pledged US$1.1 billion for July 2004–September 2006 to support ICF objectives. - SMP implemented April–September 2004; EPCA program covered October 2004–September 2005. - II. Recent economic developments and performance under the program - Economic recovery weaker than expected due to delayed donor disbursements and insecurity. - Revised 2004/05 macroeconomic framework: real GDP growth targeted at 1.5 percent; decline in consumer price inflation at about 15 percent (end of period); increase in NIR at US$65 million. - Consumer prices increased by 6.2 percent during April–August 2005. - Net international reserves (NIR) of BRH declined to below US$50 million in July; rebounded to about US$73 million by mid-September 2005 after recent budgetary assistance disbursements. - Government released a supplementary budget in June 2005 increasing and reprioritizing expenditures for June–September 2005; subsequently implemented budget adjustments and capital expenditure reductions in response to weak revenue and lack of external financing. - Most quantitative EPCA benchmarks were missed for end-June 2005; several end-September targets not expected to be met, largely due to exogenous shocks. All structural benchmarks under EPCA implemented. - Structural reforms and administrative measures already implemented: - Employment census completed in 68 ministries and public sector entities; elimination of more than 1,000 workers from public sector payrolls. - Survey of domestic arrears underway; three notices inviting public to register claims published by July 2005. - Discretionary current account spending limited to 4 percent of budgetary credits for nonwage spending (program ceiling: 10 percent). - Anti-Corruption Unit operational since last November. - Pre-audits initiated for Teleco and EDH; requests for audits of CAMEP, AAN, and APN published. - Arrears to World Bank cleared; selected Paris Club creditors granted informal deferral of debt-service obligations. - IMF safeguards assessment and external audit of BRH accounts completed. - Strengthened surveillance of cooperatives by BRH. - BRH developed formal internal procedures for reporting monetary program data to the IMF consistent with the Technical Memorandum of Understanding. - Central government accounts for 2002/03 submitted to the Cour Supérieure des Comptes et du Contentieux Administratif (CSCCA) for audit. - Executive order ending systematic a priori controls by the CSCCA approved; controls eliminated as of July 1, 2005. - MEF-BRH working group on program monitoring met regularly since November 2004. - List of businesses and financial benefits received from the Industrial Development Fund (FDI) and Banque National de Credit (BNC) published on the MEF website. - New CPI (with August 2004 base) introduced in June 2005. ### The post-conflict program for October 2005–March 2006 — objectives and macro framework - Objectives: - Complete political transition and reinforce security; prepare national elections. - Create conditions for economic recovery and reconstruction of government and social infrastructure. - Enhance governance and institutional capacity of government. - Create employment for the unskilled and displaced populations. - Improve access to basic services. - Macroeconomic framework targets for 2005/06: - Real GDP growth: 2.5 percent - Inflation: 10 percent - Net international reserves (NIR): US$84 million - Central government budget deficit to be financed without recourse to BRH credit. - Net external financing of the budget: 5.5 percent of GDP - Domestic revenues: 9.3 percent of GDP - Dependencies: - Success of stabilization policy is highly dependent on improvement in security conditions, smooth political transition following elections, and timely donor assistance. - Budget preparation: - Draft budget to be submitted to Council of Ministers for approval by end-September 2005. ### Fiscal policy, revenue measures, and key indicators - Fiscal policy context: - Budget and macro framework based on GDP growth of 2.5 percent and inflation of 10 percent. - Revenues projected to increase to G17.2 billion (9.3 percent of GDP). - Revenue and administration measures to achieve projections: - Update income tax law and vehicle registration tax. - Simplify customs procedures and strengthen customs inspection brigades. - Make operational two customs control points along national highways to Port-au-Prince (from Gonaïves and Saint-Marc in north; Miragoane and Petit-Goave in south). - Continue fight against fiscal fraud and tax evasion. - Reinforce business tax verification and control procedures for delivery of fiscal discharges (quitus fiscal). - Intensify pursuit of tax delinquents and apply law on recovery of tax arrears. - Require taxpayers to produce income tax returns as condition for administrative formalities. - Reinforce administrative structures of DGI and AGD. - Selected numerical program targets and indicators (fiscal year ending September 30) - Key macro and external indicators (2004/05 preliminary; 2005/06 projections where shown): - GDP at constant prices: 1.5 ...... 2.5 - Consumer prices (12-month, end-of-period): 15.0 ...... 10.0 - External current account balance (excluding grants): -7.6 ...... -10.3 - Net international reserves (millions of U.S. dollars) 1/: 64.5 79.2 64.0 83.6 - Central government overall balance (including grants): -0.6 -0.6 -0.4 -2.3 - Central government overall balance (excluding grants): -4.3 -1.7 -1.2 -6.3 - Central bank financing of the government: -0.2 0.0 0.2 0.2 - Central government budget composition (In percent of GDP) - Revenue: 9.8 2.3 2.3 9.3 - Expenditure: 14.1 4.0 3.6 15.6 - Wages and salaries: 3.5 1.2 0.9 3.9 - Net operations: 2.3 0.6 0.5 2.5 - Transfers and subsidies: 2.5 0.6 0.6 2.3 - Capital outlays: 4.5 1.4 1.4 6.0 - Overall balance, including grants: -0.6 -0.6 -0.4 -2.3 - Overall balance, excluding grants: -4.3 -1.7 -1.2 -6.3 - Central bank financing: -0.2 0.0 0.2 0.2 - Financing gap: 0.0 0.0 0.0 0.7 1/ Excludes commercial banks' foreign currency deposits with the BRH. *Source: Text and tables in the supplied document.* ### 14. Key assumptions for budget expenditures in 2005/06 are as follows: (i) total central ### _cr05404 - 14. Key assumptions for budget expenditures in 2005/06 are as follows: (i) total central ### Budget assumptions for 2005/06 - Total central government expenditures will be contained at 28.8 billion (15.6 percent of GDP), without any recourse to central bank financing. - Wages and salaries will increase to G7.1 billion (3.9 percent of GDP, from 3.5 percent in 2004/05). - Goods and services (net operations) will increase to G4.5 billion. - Transfers and subsidies to public and non-profit entities will amount to G4.2 billion, allowing for a decline in real terms based on expected improvement in their efficiency. - Transfers to the EDH are programmed at G178 million per month to cover the supply of fuel consistent with planned electricity production. - Capital expenditures will increase to G11.0 billion (6.0 percent of GDP from 4.5 percent in 2004/05), of which domestically-funded projects and counterpart funds for foreign-financed projects will amount to G1.7 billion. - The budget will include resources to recapitalize the BRH, as discussed below. ### Public financial management and revenue administration - Authorities commit to improving public financial management and revenue administration and welcome recommendations of recent IMF Fiscal Affairs Department missions. - Taxpayer identification and customs measures: - Ensure each taxpayer has a unique Fiscal Identification Number (NIF). - Reinforce the use of a central taxpayer file based on the NIF starting in October 2005 and agree on a strategy to monitor progress. - Start implementing in October 2005 an operational plan to implement pre-shipment verification to all ports of entry and borders of Haiti. - Budget formulation and transparency: - Use the new budget nomenclature for all revenues and for current expenditures. - Limit the post “autres interventions publiques” to 2 percent of domestically-financed spending. - Keep discretionary spending through ministerial current accounts below 10 percent of budget non-wage credits. ### Budget execution and cash management - Abolish periodic daily programming; use the monthly Tableau des Opérations Financières de l’Etat (TOFE) for decisions on cash spending and approval of spending requisitions. - Establish a list of priority and non-priority expenditures and rank expenditures within these categories to limit approvals if short-term revenue under-performs. - Authorities consulting with IMF staff on significant modifications to budget implementation. ### Monetary and exchange rate policy objectives and instruments - Strategic objective: bring inflation down to single-digit levels and reduce external vulnerability by increasing net international reserves. - For 2005/06 targets: - Decline in inflation to 10 percent (end-of-period). - Increase in net international reserves of the BRH to US$84 million. - BRH policy measures: - Establish ceilings on net domestic assets. - Adjust interest rates and issue bonds, as appropriate, to control liquidity; interest rates will be raised to positive levels in real terms. - Introduce a weekly price-based auction for its bonds tailored to Haiti and establish a formal quarterly macroeconomic forecasting model and weekly liquidity forecasts starting in December 2005 (in consultation with IMF and with technical assistance). - Avoid foreign exchange market intervention, except for meeting its quarterly program NIR target. - Consult with IMF staff on foreign exchange market developments and central bank policies. ### BRH losses, recapitalization, and institutional measures - Recognize need to address BRH losses and increase its independence. - Near-term measures: - Central government will agree with the BRH on monthly payments for outstanding credit that would cover BRH operational costs. - Government and BRH will finalize by end-December 2005 a recapitalization plan for the central bank. - If the central government budget cannot accommodate full recapitalization cost, government will seek donor assistance or implement the plan over 2-3 years, consistent with available resources. - As a first step, agreement reached on an increased level of payments by the Treasury to the BRH. - Legal and governance reforms: - A revised draft of a new central bank law to establish independence has been prepared. - A revised draft banking law submitted to commercial banks for comments; both drafts envisaged to be finalized by the time a new parliament is constituted. - BRH to consult with IMF staff and request technical assistance if needed. - Accounting and internal control strengthening: - Centralize accounting reconciliation or make accounting staff functionally responsible to Finance Department. - Instruct International Operations Department to record all off-balance sheet items in BRH’s accounting system. - Develop a formal timetable and detailed instructions for the monthly financial closing process. - Communication and oversight: - Continue monthly briefing sessions between BRH and the banking sector; introduce quarterly briefings for the private sector. - BRH Board approved in August 2005 the internal audit charter. - Continue monitoring the financial condition of commercial banks and strengthen oversight of weakened banks. - Strengthen surveillance of cooperatives, including by expanding on-site inspections. ### Structural reforms and governance actions - Commit to improving public sector governance and transparency, addressing institutional weaknesses, and continuing structural measures. - Specific actions and timelines: - By end-December 2005 verify authenticity of identified domestic payment arrears of the central government and prepare a definitive strategy to clear them by March 2006. - Electricity sector accountability: - Mechanism for continuous monitoring of use of budgetary transfers to EDH consistent with targets for electricity supply operational starting in October 2005. - Publish monthly information on government transfers and associated electricity production; independent audit of this mechanism by end-October 2005. - Apply competitive acquisition procedures to existing contracts upon expiry and convert protocols into contracts by end-December 2005. - Complete pre-audit of EDH by end-December 2005. - Audit of FY 2004/05 EDH accounts: request for manifestation of interest launched on July 8, 2005; audit to begin by January 15, 2006 and be completed within three months. - Teleco audits: - Complete 2003/04 pre-audit of Teleco by December 2005. - Initiate 2004/05 audit of Teleco by March 2006, with projected completion date of June 2005. - Public enterprise audits and reviews: - Bids for technical audit of CAMEP received; firm for technical and financial audit of CAMEP to be selected by mid-October 2005 and audit initiated shortly thereafter. - Firm for financial audit of APN to be selected by mid-October 2005. - Financial audit of AAN carried out by a domestic firm due to lack of donor financing. - Continue publishing information on budget execution and list of beneficiaries of government-backed programs for businesses affected by early 2004 conflict and June 2004 fires on a quarterly basis. - Continue fully implementing flexible price-setting mechanism for petroleum products (based on 1995 law, reinstated in 2003) to align domestic prices with international oil prices and protect central government revenue base. - Publish audit report for central government accounts of 2003/04 by December 2005 and publish completed audits of the BRH for 2003/04. - Implement a full-fledged census of employment once security situation allows and resources are available (current census largely based on attendance lists). ### Transparency commitment - Intend to publish the LOI and MEFP for the program to inform the public about government policies and objectives and reaffirm commitment to transparency and economic reform. ### External financing needs and donor engagement - Haiti faces substantial external financing needs for reconstruction and critical imports while BRH gross liquid official reserves remain low. - To help meet financing requirements and increase BRH reserves: - Request a second purchase under the IMF’s emergency assistance. - Urgently seek additional donor support to meet financing requirements. - Donor engagement priorities: - Seek donor support especially for fuel supplies and for elections; seek additional budgetary support to help cover Haiti’s 2005/06 remaining external financing requirements. - Request donor assistance in preparation of capital investment projects for 2005/06, acknowledging capacity constraints in line ministries. - Work with donors to streamline and render their procedures more flexible to accelerate disbursements. - Strengthen aid coordination with donors and improve flow of information about on-going and planned projects to enhance aid coordination with the budget. - External debt data reconciliation process begun in consultation with IMF and World Bank staff. ### Program monitoring and targets - Performance monitored using quarterly indicative targets, structural indicative benchmarks, and quarterly reviews. - Indicative targets relate to: - Net international reserves and net domestic assets of the central bank. - Net domestic banking sector credit to the nonfinancial public sector. - Net central bank credit to the central government and total nonfinancial public sector. - Domestic arrears of the central government. - External arrears accumulation. - Nonconcessional external loans contracted or guaranteed by the central government. - Definitions of targets provided in the Technical Memorandum of Understanding (TMU); data for program monitoring provided to Fund staff per section III of TMU. - Program includes two adjusters due to uncertainty of amount and timing of budgetary assistance disbursements. - Government commitments on payments and trade practices: - Will not impose restrictions on payments and transfers for international transactions. - Will not introduce new or intensify trade restrictions for balance of payments purposes. - Will not resort to multiple currency practices or enter bilateral payments agreements incorporating restrictive practices with other IMF members. - Will consult periodically with the IMF on progress in implementing policies and measures to address balance of payments difficulties. ### Key illustrative indicative target values (Table 1 summary) - Net central bank credit to the NFPS (in millions of gourdes): - Preliminary stock at end-September 2005: 21,257 - Cumulative flows since September 2005: Program/Actual Dec. 05: 0; March 06: 380 - Of which Central Government: - Preliminary stock at end-September 2005: 21,279 - Cumulative flows since September 2005: Program/Actual Dec. 05: 0; March 06: 380 - Rest of NFPS: - Preliminary stock at end-September 2005: -23 - Cumulative flows since September 2005: Program/Actual Dec. 05: 0; March 06: 0 - Net domestic banking sector credit to the nonfinancial public sector (in millions of gourdes): - Preliminary stock at end-September 2005: 20,779 - Cumulative flows since September 2005: Program/Actual Dec. 05: 0; March 06: 380 - Net domestic assets of the central bank (in millions of gourdes): - Preliminary stock at end-September 2005: 8,120 - Cumulative flows since September 2005: Program Dec. 05: -1,217; March 06: -970 - Domestic arrears of the central government: - Cumulative flows since September 2005: Program/Actual Dec. 05: 0; March 06: 0 - Nonconcessional external loans contracted or guaranteed by the central government (in millions of U.S. dollars): - Up to one year: 00 (Program/Actual Dec. 05: 0; March 06: 0) - Over one-year maturity: 00 (Program/Actual Dec. 05: 0; March 06: 0) - Net international reserves of central bank (in millions of U.S. dollars): - Preliminary stock at end-September 2005: 65 - Cumulative flows since September 2005: Program/Actual Dec. 05: 15; March 06: -1 - External arrears accumulation (in millions of U.S. dollars): - Cumulative flows since September 2005: Program/Actual Dec. 05: 0; March 06: 0 - Memorandum items (cumulative flows over the program period): - Government total revenue (in millions of gourdes): Program/Actual Dec. 05: ... ; March 06: 4,192; 8,491 - Government total expenditure (in millions of gourdes): Program/Actual Dec. 05: ... ; March 06: 7,367; 13,970 ### Prior actions and main policy actions (summary) - Prior actions completed include: - Completion of the census of employment in specified ministries for Port-au-Prince metropolitan area. - Publication in national newspapers of an announcement giving those with outstanding overdue claims thirty (30) days to register. - Publication of quarterly information on budget execution and list of beneficiaries of a government-backed program for affected businesses. - Development of formal procedures within the BRH for compilation and reporting of monetary program data to the IMF consistent with the TMU. - Selected policy actions and statuses: - Prepare 2005/06 budget according to new budget nomenclature for all revenues and current expenditures: Completed, except for externally-financed projects. - Limit "autres interventions publiques" to 2 percent of domestically financed spending: Completed. - Limit discretionary spending through ministerial current accounts below 10 percent of budget non-wage credits: Achieved at 4 percent of budgetary credits for non-wage spending. - Complete comprehensive survey to identify domestic payment arrears (as of end-September 2004) and verify authenticity by end-December 2005, with clearance strategy by end-March 2006: Survey underway. - CSCCA to launch audit of treasury accounts for 2003/04 by end-September 2005 and publish by December 2005: Audit started. - Extend computerized data collection at customs: Ongoing. - Implement pre-shipment verification to all ports and borders by September 2005: Ongoing; implementation may be delayed due to insecurity. - Reinforce use of central taxpayer file based on NIF by October 2005: Strategy worked out. - Government and BRH to agree on broad parameters of BRH recapitalization plan by end-December 2005: Ad hoc committee working; payments to BRH increased as first step. - Reinstate conventional (price-based) auction for BRH bonds: Timing of technical assistance being finalized. - Strengthen surveillance of cooperatives and expand on-site inspections: Surveillance strengthened. - Revise draft central bank law by September 2005: Draft revised. - Complete external audit of 2003/04 BRH annual accounts by end-September 2005 and publish: Completed; report to be published in BRH annual report. - BRH Board to approve internal audit charter by September 2005: Approved in August 2005. - Anti-Corruption Unit to launch and complete investigation of check distribution process by specified dates: Investigation launched by a private firm. - Complete 2003/04 pre-audits of EDH and Teleco by December 2005 and initiate 2004/05 audit of Teleco by March 2006: Ongoing. - Launch 2004/05 audits of CAMEP, AAN, and APN by end-December 2005: Firms for CAMEP and APN to be selected by mid-October 2005; AAN audit carried out by domestic firm. - Continue flexible price-setting mechanism for petroleum products: Ongoing. - Implement and publish new CPI by June 2005, with August 2004 base: Completed. - Continue progress on data reconciliation with Paris Club creditors: Ongoing. - Publish monthly list of donor disbursements per ICF by main category: Ongoing. - Continue regular working group meetings of Ministry of Economy and Finance and BRH: Ongoing. - Prepare plan to improve reporting of data required for program monitoring in consultation with FIN, MFD and STA within one month after STA mission: Timing of STA mission being discussed. _Italic: Source — IMF staff report content provided in the supplied PDF excerpt._ ### 1. The change in net BRH credit to the central government is defined as, and will be ### 1. The change in net BRH credit to the central government is defined as, and will be measured using: ### Definition and measurement of net BRH credit to the central government - Change in net domestic credit to the central government from the BRH according to Table 10R of the BRH from the stock of end-September 2005. - Change in the stock of donor special accounts according to Table “Comptes Spéciaux” of the BRH from the stock of end-September 2005 will be excluded from change in net domestic credit to the central government as defined above.15 - Changes in any other special account (as defined in footnote 2) maintained or established at the BRH will be treated as in 1.b above. - The changes will be measured on a cumulative basis from the stock at end-September 2005. ### Clarifications - The central government comprises the presidency, prime minister’s office, parliament, national courts, treasury, and line ministries. It includes expenditures financed directly by foreign donors through ministerial accounts (comptes-courants).14 - Special accounts are transitory accounts of the central government for specific foreign-financed projects or external assistance.15 ### Ceilings for the Cumulative BRH Credit to the Central Government (In millions of gourdes) - December 2005: 0 - March 2006: 380 --- ### Net Domestic Banking Sector Credit to the Nonfinancial Public Sector ### Definition and measurement - Change in the stock of net domestic credit of the public sector from the BRH according to Table 10R of the BRH from the stock of end-September 2005. - Change in the stock of net domestic credit of the public sector from the Banque Nationale de Crédit (BNC) and other domestic banks from the stock of end-September 2005. - Change in the stock of donor special accounts according to Table “Comptes Spéciaux” of the BRH from the stock of end-September 2005 will be excluded from the definition of net domestic banking sector credit to the nonfinancial public sector. - Changes in any other special account (as defined in footnote 2) maintained or established in the BRH, BNC, or BPH will be excluded. - The changes will be measured on a cumulative basis from the stock at end-September 2005. ### Definition note - The NFPS includes the central government, the public enterprises (e.g., Teleco, EDH, APN, AAN, and CAMEP), and foreign-financed projects.16 ### Ceilings for the Cumulative Net Domestic Banking Sector Credit to the Nonfinancial Public Sector (In millions of gourdes) - December 2005: 0 - March 2006: 380 --- ### Net International Reserves (NIR) ### Definition and measurement - Change in net international reserves (“Réserves de change nettes” of the BRH Table 10R) from the stock of end-September 2005. - Minus the change in U.S. dollars deposits of commercial banks at the BRH (“Dépôts à vue US$ des bcm à la BRH” and “Dépots à vue en EURO des bcm à la BRH” of the BRH Table 10R) from the stock of end-September 2005. - Data will be valued at the corresponding end-period market exchange rate. - For definition purposes, net international reserves are the difference between the BRH’s gross foreign assets (comprising gold, special drawing rights, all claims on nonresidents, and claims in foreign currency on domestic financial institutions) and reserve liabilities (including liabilities to nonresidents of one-year maturity or less, use of Fund credit, excluding trust funds, and any revolving credit from external financial institutions). - Swaps in foreign currency with domestic financial institutions and pledged or otherwise encumbered reserve assets are excluded from net international reserves. - The changes will be measured on a cumulative basis from the stock at end-September 2005. ### Target for Cumulative Change in Net International Reserves (In millions of dollars) - December 2005: 15 - March 2006: -1 --- ### Net Domestic Assets of the BRH ### Definition and measurement - Change in currency in circulation (“Monnaie en circulation” of the BRH Table 10R). - Minus the change in the U.S. dollar amount of net international reserves (program definition according to C above), converted into gourdes at the program exchange rate. - The program definition of net domestic assets of the BRH will use a program exchange rate of G42 per U.S. dollar for the period October 2005-March 2006. - The changes will be measured on a cumulative basis from the stock at end-September 2005. ### Ceilings for Cumulative Change in Net Domestic Assets of the BRH (In millions of gourdes) - December 2005: -1217 - March 2006: -970 --- ### Nonconcessional Loans - The definition of debt comprises all instruments, including new financial instruments that share the characteristics of debt, as set forth in paragraph No. 9 of the Guidelines on Performance Criteria with Respect to Foreign Debt (Decision No.12274-(00/85), August 24, 2000). - Concessional loans are those loans that provide a grant element of at least 35 percent based on the corresponding OECD’s Commercial Interest Reference Rates (CIRRs). - The indicative target limits exclude conventional short-term import-related credits. - The ceilings for contracting nonconcessional loans by the central government will be set at zero throughout the program period.17 --- ### Government Current Accounts - Ministerial discretionary accounts are mechanisms for channeling expenditures. In principle, the use of these accounts should be limited to unforeseen emergency outlays. - The BRH will be providing monthly information to the Fund staff on the stock of these current accounts for the central government. Central government is as defined in footnote 1. - The Ministry of Economy and Finance will be providing monthly information to the Fund staff on transfers to these current accounts for the central government. Central government is as defined in footnote 1. --- ### Quarterly Adjustments ### Adjustment for Domestic Arrears Accumulation - The ceilings for net BRH credit to the central government and the net domestic banking sector credit to the nonfinancial public sector will be adjusted downward for the amount of domestic arrears accumulation. - Domestic arrears are defined to include: - (i) any bill that has been received by a spending ministry from a supplier for goods and services delivered (and verified) and for which payment has not been made within 45 days after the due date of payment; - (ii) wage, salary, and other payment to government employees, including direct and indirect allowances, that were due to be paid in a given month but remained unpaid on the 30th of the following month; and - (iii) interest or principal obligations which remain unpaid 30 days after the due date of payment. - This definition excludes changes in the stock of arrears on account of interest, penalties and valuation changes. ### Programmed Flow of Domestic Arrears of the Central Government (In millions of gourdes) - December 2005: 0 - March 2006: 0 ### Adjustment for External Cash Budgetary Support - The program ceilings on BRH credit to the government and the nonfinancial public sector, and on BRH net domestic assets and the floor on NIR reflect the assumed flow of net disbursements of cash budgetary assistance, defined as gross disbursements of cash budgetary assistance less debt service falling due to multilateral and some bilateral creditors (Canada and the U.S.). - If during October 2005–March 2006 actual net disbursements of cash budgetary assistance exceed programmed net disbursements by more than US$5 million, the ceiling on net BRH credit to the government and of the public sector and on BRH net domestic assets will be adjusted downward, and the floor on NIR will be adjusted upward, by the amount of the difference between actual and programmed net disbursements in excess of US$5 million, converted into gourdes at the program exchange rate. - If actual net disbursements are lower than programmed net disbursements, the ceilings on BRH credit to the government and of the public sector and on BRH net domestic assets will be adjusted upward by 50 percent of the amount of this shortfall, and the floor on NIR will be adjusted downward, converted into gourdes at the program exchange rate. The amount of this adjustment will be limited to US$5 million. - The adjuster will be calculated on a cumulative basis from October 1, 2005. ### Program disbursements of cash budgetary assistance, and debt service and arrears clearance (In millions of U.S. dollars) - Program disbursements - December 2005: 28.2 - March 2006: 28.2 - Program debt service1/ - December 2005: 10.7 - March 2006: 21.7 - Program net disbursements - December 2005: 17.5 - March 2006: 6.5 1/ Includes debt service to the World Bank, IDB, Canada, and the U.S. --- ### Provision of Information to IMF Staff ### Reporting requirements and frequency - To ensure adequate monitoring of the program, the authorities will provide daily and weekly monetary and fiscal indicators to IMF staff. ### Daily monetary indicators (reported with maximum two-day lag (14-day final)) - (a) Exchange rate - (b) Volume of foreign exchange transactions, of which BRH sales and purchases - (c) Gross international reserves - (d) Net international reserves ### Weekly monetary indicators - (a) Stock of BRH bonds - (b) Deposits at commercial banks (in gourdes and U.S. dollars) - (c) Credit to private sector (in gourdes and U.S. dollars) - (d) Credit to public sector (net) - (e) Currency in circulation *Source: IMF document _cr05404 - 1. The change in net BRH credit to the central government is defined as, and will be* ### 32. Fiscal Indicators: (a) Receipts and (b) Expenditures. ### 32. Fiscal Indicators: (a) Receipts and (b) Expenditures. ### Fund relations — key resource and SDR positions - Membership status: Joined September 8, 1953; Article VIII. - Quota: 81.90 SDR Million (Percent of Quota: 100.00). - Fund holdings of currency: 92.06 SDR Million (Percent of Quota: 112.41). - Reserve position in Fund: 0.07 SDR Million (Percent of Quota: 0.08). - SDR department: - Net cumulative allocation: 13.70 SDR Million (Percent of Allocation: 100.00). - Holdings: 0.05 SDR Million (Percent of Allocation: 0.34). ### Outstanding purchases, loans, and financial arrangements - Outstanding purchases and loans (SDR Million; Percent of Quota): - PRGF Arrangements: 4.55 SDR Million (5.56 percent of Quota). - Emergency Post-Conflict Assistance: 10.23 SDR Million (12.49 percent of Quota). - Financial arrangements (Type / Approval Date / Expiration Date / Approved (SDR Million) / Drawn (SDR Million)): - PRGF — 10/18/96 to 10/17/99 — Approved 91.05 — Drawn 15.18. - Stand-by — 03/08/95 to 03/07/96 — Approved 20.00 — Drawn 16.40. - Stand-by — 09/18/89 to 12/31/90 — Approved 21.00 — Drawn 15.00. ### Projected obligations to the Fund (SDR million; based on existing use of resources and present holdings of SDRs) - Forthcoming principal and charges/interest by year: - 2005: - Principal: 1.52 - Charges/interest: 0.20 - Total: 1.72 - 2006: - Principal: 3.04 - Charges/interest: 0.78 - Total: 3.81 - 2007: - Principal: 0.00 - Charges/interest: 0.77 - Total: 0.77 - 2008: - Principal: 3.84 - Charges/interest: 0.72 - Total: 4.56 - 2009: - Principal: 5.12 - Charges/interest: 0.53 - Total: 5.65 ### Exchange arrangements - Regime: Managed floating with no predetermined path for the exchange rate. - Regime change: The change from a fixed to managed floating regime took place in January 1990. - Payments and transfers: Haiti's exchange system is free of restrictions on the making of payments and transfers for current international transactions. - Market practice: Since September 1991 all transactions have taken place at the free (interbank) market rate. ### Safeguards assessment - Assessment completed August 5, 2005, on the Banque de la République d’Haiti (BRH) in relation to drawings under the Emergency Post Conflict Assistance facility. - Identified vulnerabilities in the safeguards framework, in particular in the areas of: - financial reporting, - internal audit, - controls. - Status: The BRH is in the process of implementing proposed measures to address the identified vulnerabilities. ### Article IV consultation and resident representation - Last Article IV consultation concluded by the Executive Board on May 16, 2005. - Cycle: Haiti is on the standard 12-month cycle. - Resident representative: Mr. Mounir Rached has been the Fund’s Resident Representative since October 2002. ### Technical assistance — overview and recent missions - Long-term macroeconomic advisor: Worked in the president’s office from May 1999 to February 2001. - Selected technical assistance missions since 1997 (Department / Dates / Purpose): - TGS — October 1997; February 1999 — Information technology. - FAD — March 1997–September 1998; November 1997; October 1998; June 1999; August–September 2004; April 2005; May 2005 — Exemptions system and investment code; Direct taxation and exemption system; Large taxpayer unit; Industrial exemptions; Public expenditure management; Public expenditure management; Tax policy and revenue administration. - MFD — October 1995–April 1998; January 1997; August 1997; July 1998; August–October 1998; June–July 1999; October 2000; June 1999; January 2000; October 2000; May 2001; January 2002; July–August 2002; March 2005 — Banking supervision; Role of the central bank; Banking law and monetary policy; Banking law; Banking supervision; Central bank organization; Dollarization and policy and response; Banking supervision; Money laundering; Banking supervision; Banking supervision; Money laundering; Monetary Operations. - STA — January 1996–October 1997; June 1996; July 1996; February 1999; March 2000; February 1997; March 1998; August 1998; November 1996; March 2000 — Real sector statistics; Money and banking statistics; Balance of payments statistics. - LEG — March, June, and September 2000 — Banking and central bank laws. - INS — April 2002 — Course on financial programming. ### Relations with the World Bank — substantive engagement and financings - Post-March 2004: World Bank stepped up engagement as part of Government/multi-donors partnership; joint government-donors needs assessment in May 2004 informed the Interim Cooperation Framework (ICF). - Donor pledges: At donors conference July 19-20, 2004, donor countries and international organizations pledged US$1.1 billion in fresh resources to support the ICF. - World Bank commitments and grants: - Exceptional IDA allocation complemented with $3.5 million in small grants from the Post-Conflict Fund and $6.4 million from the trust fund for Low Income Countries Under Stress (LICUS). - Transitional Support Strategy (TSS) for July 2004–June 2006; TSS discussed by Bank’s Board on January 6, 2004. - Fast-disbursing Economic Governance Reform Operation (EGRO): US$61 million approved. - Emergency recovery and disaster management project: US$12 million approved. - Technical assistance grant: US$2 million for institutional capacity strengthening. - US$38 million grant approved July 28 for Community Driven Development project. - Planned grants later in fiscal year: US$16 million (regional/communal-level multi-sectoral investment projects); US$6 million (electricity sector short to medium term); US$2 million technical assistance grant for institutional capacity building. - Grant conversion: 51 percent of US$75 million fiscal year 2004/05 financing converted to grant under IDA 13; under IDA 14 all fiscal year 2005/06 financing of US$62 million converted to grant. - Disbursements since July 2004: about $52 million, of which more than $46 million in budget support on account of the EGRO. - EGRO second tranche: about $15 million scheduled for disbursement in the last quarter of calendar year 2005. - IFC investments in Haiti: - US$400,000 equity investment in Micro Credit National. - US$20 million investment in Grupo M to finance start-up of an industrial park/free trade zone in Ouanaminthe, Haiti. ### Relations with the Inter-American Development Bank (IDB) - Transition Strategy of Re-engagement (2003-2004): 10 projects totaling US$400 million in full implementation. - Follow-up Transition Strategy (2005-2006): 12 new operations totaling US$270 million approved March 2005 to operationalize pledge of US$263 million (July 2004). - Of these, 7 operations approved for a total of US$202 million; remaining operations in advanced readiness for approval. - Current portfolio: 15 active projects totaling US$532 million, and a TC program of about 38 operations amounting to about US$14 million. - Disbursements to date: over US$110 million. - IDB focus areas: economic governance and anti-corruption, rehabilitation of basic infrastructure and services, agricultural intensification, water supply and sanitation, health, education, local development, disaster prevention and environmental management, fiscal management and tax reform and administration (in coordination with IMF and World Bank). - Operational approach: implementation support and institution-building strategy, strengthened country office, focus on results, streamlined procedures, special measures and expertise to strengthen local capacities, high-level implementation and monitoring review missions. ### Statistical issues — real sector, government finance, monetary accounts, balance of payments - Real sector statistics: - Haitian Institute of Statistics (HIS) publishes a harmonized CPI on a monthly basis. - National accounts published for 1986/87 to 2003/2004 based on interim base year 1986/87. - HIS publishes quarterly real sector activity indices (industrial production, energy, construction, domestic and external trade). - HIS rebased CPI to a more recent period (August 2004) using weights of the 2000 household survey. - HIS conducting household budgetary surveys periodically; a study on transport is underway; preparatory work for the fourth population and habitat census is ongoing. - Further technical assistance may be needed to address outstanding deficiencies. - Government finance: - Haiti reports monthly and annual GFS data regularly for publication in IFS. - No GFS data published in the GFS Yearbook for the past 15 years. - Data provided in 2001 via the Central Bank were not published in the 2001 GFSY owing to insufficient detail and consistency problems. - Needed improvements: extend coverage and breakdowns; improve link between nonfinancial and financial transactions and outstanding debt; compile functional breakdown of expenditure; improve reporting of ministerial discretionary accounts; improve timeliness of publication of accounts of public enterprises and nonfinancial public sector. - Constraints: lack of human and financial resources. - Monetary accounts: - Continuous work has improved sectorization and classification in analytical balance sheets of BRH and commercial banks. - Strengthened reporting requirements for commercial banks to support supervision, Basel Core Principles compliance, and anti-illicit transaction efforts. - These efforts have at times affected timeliness of money and banking statistics. - Balance of payments: - Progress has been made in improving reliability. - Further improvements needed: methodology for compiling trade data; collecting trade and services data; more systematic use of existing sources (customs, port and airport agencies, airlines, oil companies). ### Table of Common Indicators Required for Surveillance (as of September 14, 2005) — selected entries - Exchange Rates: Date of latest observation Sept. 2005; Date received Sept. 2005; Frequency of Data D; Frequency of Reporting D; Frequency of Publication M. - International Reserve Assets and Reserve Liabilities of the Monetary Authorities 1/: Date of latest observation Sept. 2005; Date received Sept. 2005; Frequency D; Reporting D; Publication M. - Reserve/Base Money: Date of latest observation Jul. 2005; Date received Aug. 2005; Frequency M; Reporting M; Publication M. - Broad Money: Date of latest observation Jul. 2005; Date received Aug. 2005; Frequency M; Reporting M; Publication M. - Central Bank Balance Sheet: Date of latest observation Jul. 2005; Date received Aug. 2005; Frequency M; Reporting M; Publication M. - Consolidated Balance Sheet of the Banking System: Date of latest observation Jul. 2005; Date received Aug. 2005; Frequency M; Reporting M; Publication M. - Interest Rates 2/: Date of latest observation Aug. 2005; Date received Sept. 2005; Frequency W; Reporting W; Publication M. - Consumer Price Index: Date of latest observation Jul. 2005; Date received Aug. 2005; Frequency M; Reporting M; Publication M. - Revenue, Expenditure, Balance and Composition of Financing 3/ – General Government 4/: NA for Date of latest observation; NA for Date received; NA frequencies. - Revenue, Expenditure, Balance and Composition of Financing 3/ – Central Government: Date of latest observation Aug. 2005; Date received Sept. 2005; Frequency M; Reporting M; Publication M. - Stocks of Central Government and Central Government-Guaranteed Debt 5/: Date of latest observation Sep. 2004; Date received Nov. 2004; Frequency A; Reporting I; Publication A. - External Current Account Balance: Date of latest observation Sep. 2004; Date received Nov. 2004; Frequency A; Reporting I; Publication A. - Exports and Imports of Goods and Services: Date of latest observation Sep. 2004; Date received Nov. 2004; Frequency A; Reporting A; Publication NA. - GDP/GNP 7/: 2004 observation; Date received Jan. 2005; Frequency A; Reporting A; Publication A. - Gross External Debt: Date of latest observation Sep. 2004; Date received Nov. 2004; Frequency A; Reporting I; Publication A. - Frequency notation key: - D = Daily; W = Weekly; M = Monthly; Q = Quarterly; A = Annually; I = Irregular; NA = Not Available. - Footnotes retained in source: - 1/ Includes reserve assets pledged or otherwise encumbered as well as net derivative positions. - 2/ Both market-based and officially-determined, including discount rates, money market rates, rates on treasury bills, notes and bonds. - 3/ Foreign, domestic bank, and domestic non-bank financing. - 4/ The general government consists of the central government (budgetary funds, extra budgetary funds, and social security funds) and state and local governments. - 5/ Including currency and maturity composition. - 7/ Data collected for the fiscal year, ending September 30. ### Supplementary information (Western Hemisphere Department; October 18, 2005) - Purpose: Supplement provides additional information available since issuance of the staff report. - Key development: Weakening of the central government’s position at end-September 2005 relative to earlier expectations. - Authorities’ response: Committed to implement additional measures to ensure that the objectives of the program are met. - Staff appraisal: The thrust of the staff appraisal remains unchanged, conditional on the authorities’ commitments. - Topic highlighted at supplement end: Fiscal developments. *Source: _cr05404 - 32. Fiscal Indicators: (a) Receipts and (b) Expenditures., IMF PDF (as of August 31, 2005; Supplement dated October 18, 2005).* ### 2. Provisional data indicate a weakening of the fiscal position from that described ### 2. Provisional data indicate a weakening of the fiscal position from that described ### Fiscal developments and corrective measures - Provisional data show a weakening of the fiscal position relative to the staff report, mainly due to expenditure overruns in late September. - Exceptional bonus to public employees equivalent to 70 percent of monthly salaries (G284 million). - Payments for road construction contracts (G60 million). - As a result, the stock of net credit from the central bank (BRH) to the central government at end-September 2005 exceeded the level anticipated under the program by G348 million (0.2 percent of GDP). - Authorities committed to corrective measures: - Reduce expenditures in the first half of FY2005/06 by about G300 million by delaying recruitment and limiting salary increases, reducing subsidies (in particular for electricity production), and eliminating low-priority outlays. - The 2005/06 budget approved on September 30, 2005 is described as consistent with program understandings. - Budget gap for April–September 2006 is US$24 million, which is US$6.6 million lower than projected by staff, largely reflecting higher revenue assumptions. - Staff projects the external financing gap for April–September to be about US$31 million. ### Monetary developments - Net international reserves (NIR) are reported as about US$68 million at end-September, slightly above staff report estimates. - Exchange rate: the gourde depreciated to about G43/US$, from about G42/US$ since mid-September. - Since early October, the BRH tightened monetary policy: - Increased interest rates on its bonds by about 300 basis points on all maturities, taking them to positive levels in real terms (adjusted by 12-month inflation). - Increased its stock of bonds to eliminate remaining excess liquidity in the banking system. ### Political developments and elections financing - Elections delayed by three weeks: presidential and legislative elections scheduled for November 20 and local and municipal elections for December 11 were reported to be delayed by three weeks due to logistical problems (statement by Prime Minister Latortue). - Indications that donor financing for the elections may fall short of earlier pledges; unless closed by donors, authorities may be forced to use domestic resources. ### Revised tables and program targets - Recent data necessitate amendments to tables in the main staff report: - Indicative targets for December 2005 and March 2006 adjusted to incorporate slippages to end-September 2005 and effects of offsetting measures. - Monetary and fiscal projections amended accordingly (MEFP Table 1; staff report Tables 3a-3d and 4). - Table 1 excerpts (as presented): - Net central bank credit to the NFPS (in millions of gourdes): Preliminary stock at end-September 2005: 21,604; EPCA II Prog. Dec. 2005: -348; Actual Dec. 2005: 32; Prog. March 2006: (blank in source) Actual March 2006: (blank) - Of which: Central Government: 21,627; -348; 32 - Rest of NFPS: -23; 0; 0 - Net domestic banking sector credit to the nonfinancial public sector (in millions of gourdes): 21,126; -348; 32 - Net domestic assets of the central bank (in millions of gourdes): 7,942; -1,039; -793 - Net international reserves of central bank (in millions of U.S. dollars): 65; 15; -1 - Memorandum items: - Government total revenue (in millions of gourdes): ...; 4,235; 8,534 - Government total expenditure (in millions of gourdes): ...; 7,062; 13,665 ### Staff appraisal - Recent fiscal developments do not alter the broad thrust of the staff appraisal. - Recent expenditure slippages and shortfall in the 2004/05 budget outturn relative to earlier estimates were characterized as unfortunate. - Authorities committed to additional measures to help contain central bank financing of the budget; staff notes these measures will add to an already challenging fiscal situation and underscore the importance of more rigorous expenditure discipline and governance. - Effective program implementation will require close consultation with Fund staff on economic developments and any revisions to policies in the MEFP, as stated in the authorities’ Letter of Intent. - Staff continues to support the authorities’ request for Fund assistance under the EPCA policy. ### Selected aggregated fiscal and monetary figures from tables (as reported) - Cumulative flows since September 2005 (selected lines, in millions of gourdes unless otherwise noted): - Total revenue and grants: multiple period entries include 11,037; 11,660; 6,357; 4,479; 6,666; 6,090; 24,059; 22,230 - Total revenue: 7,979; 7,774; 3,985; 3,428; 3,957; 5,066; 15,921; 16,268 - Domestic taxes: 5,877; 5,254; 2,751; 2,297; 2,723; 3,215; 11,351; 10,765 - Customs duties: 2,098; 2,048; 1,231; 943; 1,231; 1,170; 4,560; 4,161 - Grants: 3,058; 3,886; 2,371; 1,051; 2,708; 1,024; 8,138; 5,961 - Total expenditure: 11,764; 11,303; 6,968; 5,588; 7,351; 6,739; 26,084; 23,630 - Current expenditure: 8,021; 7,790; 3,800; 3,654; 3,790; 4,807; 15,611; 16,251 - Capital expenditure: 3,744; 3,513; 3,168; 1,934; 3,561; 1,933; 10,473; 7,380 - Overall balance including grants: -727; 357; -611; -1,109; -686; -649; -2,024; -1,401 - Financing: 727; -357; 611; 1,109; 686; 649; 2,024; 1,401 - External net financing (selected entries): 430; -265; 692; 276; 1,065; 1,418; 2,187; 1,429 - Net BRH financing lines and arrears accumulation/reduction figures appear in tables as reported. ### Banking system summary (Table 4 highlights) - Central Bank (selected figures, in millions of gourdes unless noted): - Net foreign assets: 6,564; 7,898; 8,554; 7,978; 8,386; 9,189 - Net domestic assets: 2,121; 2,756; 1,677; 1,860; 1,340; 1,055 - Credit to the nonfinancial public sector: 21,581; 21,604; 21,256; 21,636; 21,951; 21,636 - Currency in circulation: 8,685; 10,653; 10,231; 9,838; 9,726; 10,244 - Consolidated Banking System (selected figures, in millions of gourdes unless noted): - Net foreign assets: 12,683; 17,186; 17,501; 17,323; 17,702; 19,006 - Net domestic assets: 44,078; 49,351; 48,899; 49,781; 50,566; 51,528 - Credit to the nonfinancial public sector: 21,097; 21,126; 20,778; 21,158; 21,473; 21,158 - Credit to the private sector: 21,142; 25,200; 25,096; 25,597; 26,068; 27,345 - In gourdes: 10,893; 13,058; 12,849; 13,182; 13,338; 13,906 - In foreign currency: 10,249; 12,142; 12,247; 12,415; 12,730; 13,439 - Broad money: 56,761; 66,537; 66,400; 67,104; 68,268; 70,535 - Gourde deposits: 25,824; 28,470; 28,545; 29,306; 29,952; 30,282 - Foreign currency deposits: 22,252; 27,414; 27,624; 27,960; 28,590; 30,008 - Percentage change relative to broad money (selected): - Net foreign assets: -1.5; 7.9; 0.5; 0.2; 0.8; 2.7 - Net domestic assets: 10.6; 9.3; -0.7; 0.6; 1.8; 3.3 - Broad money (12-month percentage change): 9.1; 17.2; 11.2; 6.7; 4.8; 6.0 - Memorandum items: - Base money (excl. BRH bonds): 21,837; 22,046; 21,339; 21,178; 21,325; 21,878 - End-of-period gourdes per U.S. dollar: 37; 42; ........ - Net international reserves in percent of broad money: 11.6; 11.9; 12.9; 11.9; 12.3; 13.0 ### IMF Executive Board press release highlights (Press Release No. 05/234, October 19, 2005) - Executive Board approved SDR 10.23 million (about US$14.7 million) in Emergency Post-Conflict Assistance (EPCA) to Haiti, adding to SDR 10.24 million (about US$14.7 million) provided in January 2005. - EPCA designed to help countries with urgent balance of payments financing needs after conflict; fast-disbursing and coupled with IMF policy advice and technical assistance. - Deputy Managing Director and Acting Chair Mr. Agustín Carstens noted: - Authorities implemented the 2004/05 budget without net recourse to central bank financing and tightened monetary policy amid difficult conditions and donor delays. - Structural measures implemented include completion of a census of employment in key ministries and public sector entities, progress toward completing a survey of domestic arrears, and stricter control over discretionary ministerial accounts. - Government’s 2005/06 program aims to strengthen the fiscal position while avoiding central bank financing, strengthen Haiti’s external position, and advance structural reforms. - Specific commitments include: more comprehensive census of public employees when feasible; implementing a program to settle domestic arrears; continuing to publish budget execution and list of beneficiaries of government programs; moving ahead with audit of public sector enterprises; implementing monitoring mechanism of fuel purchases; ensuring new electricity production contracts are based on open and competitive bids. - Additional international assistance will be required to support the 2005/06 program, the electoral process, and longer-term development; success under EPCA could provide a basis for a possible PRGF-supported program and HIPC debt relief. - Statement by Eduardo Loyo, Executive Director for Haiti, and Ketleen Florestal, Advisor to Executive Director (October 14, 2005): - Authorities thanked management and staff for engagement and technical assistance, noted the Statistics Department’s efforts, and reiterated the authorities’ request for an FSAP. *Source: IMF staff report and accompanying tables as provided in the supplied content.* ### 1. Recent macroeconomic developments ### 1. Recent macroeconomic developments ### Macroeconomic stabilization and program performance - Under the Emergency Post-Conflict Assistance (EPCA) covering the period from October 2004 until September 2005, the Haitian authorities made substantial progress in stabilizing the economy and strengthening institutions, notwithstanding adverse external shocks and a problematic security situation. - Benchmarks and targets were largely met during the first two quarters of the program. - In the second quarter of 2005 (third quarter of the program and of the fiscal year), following low levels of revenue collection and lower than expected external financial assistance, the Government temporarily resorted to financing from the Central Bank. - Concerns about Central Bank financing delayed disbursement of budget support and caused deviation from quantitative targets provisionally agreed with the Fund for end-June. - Corrective measures taken: - Expenditure controls. - Record tax revenues in August and September, attributed in particular to administrative efforts and to the collection of arrears from cellular phone companies. - Postponement to the first quarter of the new fiscal year of the disbursement of US$ 15 million from a World Bank structural adjustment loan. - Outcome: - Government reversed earlier Central Bank financing more than in full by the close of FY05. - Observance of modified program targets during the last quarter of the fiscal year was achieved through fiscal adjustments and the disbursement of the second tranche of an IDB Policy-Based Loan. ### Monetary policy and external pressures - Monetary policy was tightened to mop up excess liquidity and ease pressure on the exchange rate. - Pressure on the exchange rate was exacerbated by: - Sharp increase in oil prices. - Delays in the disbursement of external assistance. - Central Bank interest rate actions: - Increased interest rates on its paper first by 2, and then by 5 further percentage points, respectively, in June and in August 2005. - On October 10, the rate on its 91-day bond was raised from 15 to 18 percent per year. - Inflation and real rates: - Consumer price inflation is projected, under the program, to be 10 percent in the fiscal year extending from October 2005 to September 2006. - The 91-day bond rate of 18 percent per year is described as firmly in positive territory in real terms relative to the projected inflation. - Foreign exchange and NIR targets: - The Central Bank found it difficult to intervene in the foreign exchange market to meet quarterly NIR targets. - During the last quarter of the program these targets had to be relaxed in consultation with the Fund. --- ### 2. Progress with structural reforms ### Implemented measures and governance actions - All programmed structural measures have been implemented, including key policy actions delayed during the first two quarters of FY05. - Public sector employment and arrears: - Completed a census of employment in the National Police, Ministry of Health and Ministry of Education for the Port-au-Prince metropolitan area. - Census of domestic arrears: significant amount of claims on the government have been registered in the Ministry of Economy and Finance following publication of three notices inviting public registration. - A Ministry task force is verifying authenticity of claims. - A strategy to deal with domestic arrears, including a payment schedule, will be laid out once the outstanding stock is officially determined. - Electricity sector (EDH): - A mechanism for continuous monitoring of the use of budgetary transfers has been put in place, including an independent audit to be carried out by a private firm. - Competitive acquisition procedures will be adopted to replace existing contracts at their expiration and to convert protocols for electricity supply into contracts by end-December 2005. - Anti-Corruption Unit: - Created by ministerial decree and operational since September 2004. - Mandate includes corruption prevention and awareness, information dissemination and administrative investigation. - Several corruption cases identified by the Unit have been referred to the judicial authorities for prosecution. - Unit completed, in partnership with IDA, a comprehensive diagnostic survey on corruption practices to inform a medium term anti-corruption strategy. ### Central Bank (BRH) strengthening - Losses and recapitalization: - Losses of the central bank were estimated at 1 percent of GDP in 2004 and have been reduced by more than two thirds. - Ministry of Economy and Finance agreed to begin making payments to the BRH on outstanding credits that will at least cover the bank’s operational costs. - A recapitalization plan, which includes conversion of subsidized credit to the government into interest-bearing bonds, is to be implemented starting this fiscal year. - Governance and oversight: - In line with the Fund’s Safeguards Assessment report, the board of the BRH approved in August 2005 the bank’s internal audit charter to increase effectiveness of the Internal Audit Department. - The accounting function is being strengthened and the central bank continues publishing interim and annual audit reports. - A new Central Bank Law consolidating central bank independence and reinforcing the bank’s ability to supervise the financial system has been drafted. --- ### 3. The new EPCA ### Program objectives and time frame - Authorities seek Board approval for a program to continue reforms initiated under the previous EPCA for the six-month period ending in March 2006, when the next government is due to take office. - Goal: consolidate institutional and macroeconomic framework established during the past two years. - Underlying reform theme: improve transparency, accountability and efficiency in the management of public affairs. ### Fiscal and governance reform agenda (high-level measures) - Continued reinforcement of budget management and expenditure controls, including: - Review of the computerized system of public expenditure management. - Return to the regular practice of producing an annual audit. - Reestablishing the annuity of the budget: for the second year in a row, the budget for FY05 was adopted by the Council of Ministers before the beginning of the fiscal year. - Eliminating recourse to central bank financing: target of zero central bank financing to establish a tradition of fiscal discipline. - Reinforcing customs controls and fighting fraud and corruption at the Internal Revenue Service (DGI) to bring tax collection closer to potential. - Substantially reducing use of current accounts in execution of public expenditures and making residual use stringently regulated and transparent. - Involving the public in the budgeting process, with data dissemination through the internet and the press and consultations with civil society and donors. - Improving transparency and efficiency in procurement: - Creation of a National Procurement Board (CNMP). - Publication of results of all tendered contracts. - Enhancing transparency in management of public enterprises through financial and management audits and reestablishment of sound accounting practices. - Safeguarding key social and investment expenditures and improving their efficiency: - Creation of a private/public partnership office with a mandate covering mechanisms of subsidization of private educational institutions in poor communities. --- ### 4. Donor support ### Current situation and financing needs - Economic recovery weaker than expected due to: - Impact of insecurity on business confidence. - Delays in donor project disbursements. - Weaknesses in institutional and administrative capacity. - Stronger budgetary assistance is deemed crucial for sustained improvement of social conditions and the fight against extreme poverty. - Over time, increases in tax revenues are expected to decrease dependency on donor funds. - Authorities are seeking donor support to cover remaining financing gap for FY06. - Donors’ meeting scheduled in Brussels on October 20-21. - The financing gap of the second half of the fiscal year is estimated at present at more than US$ 30 million. - Appreciation expressed for additional support from Canada, France and Spain to close the financing gap of the first six months of FY06, and for the US$7 million to be disbursed by the United States in the second half of the new fiscal year. - Haiti is thankful to the European Union for recent unblocking of a significant amount of funds, some of which is hoped to go towards closing the financing gap of the second half of the fiscal year. ### Political context and implementation priorities - Parliamentary and presidential elections are scheduled to take place by mid-December 2005; new President to be sworn in on February 7, 2006. - Haitian National Police and the United Nations Mission for the Stabilization of Haiti are working together to improve security and prepare for fair and safe elections. - Strengthening donor coordination, streamlining procedures and improving implementation support are crucial for effective and timely disbursement of external assistance. - Donor efforts to strengthen local capacities for project preparation and execution are welcomed. - Recommendations for near-term IMF/World Bank cooperation: - Expedite steps necessary for a PRGF program and progress to the decision point under HIPC. - Renewed efforts in drafting the I-PRSP, which has been initiated by the Haitian authorities. *Source: _cr05404 - 1. Recent macroeconomic developments* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2005/_cr05404.pdf_