## _cr0565 — Selected Economic and Financial Indicators

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### I. Introduction and context
- Extended political conflict culminated in armed rebellion and change in government in March 2004; multilateral interim force succeeded on June 1 by a U.N. stabilization mission.
- Six-month Staff Monitored Program (SMP) implemented by the transition government (April–September 2004) to restore financial stability and support recovery.
- Authorities requested a purchase under the Fund’s Emergency Post-Conflict Assistance (EPCA) policy to cover October 2004–September 2005.
- Conditions for post-conflict Fund assistance met: (i) urgent balance of payments need; (ii) disrupted institutional/administrative capacity preventing an upper-tranche program; (iii) retained capacity for policy planning and implementation and demonstrated commitment; (iv) Fund assistance part of wider international support.

### II. Political, security, and social conditions
- Political/security:
  - No elected government after Parliament expired January 2004 and President Aristide resigned February 2004; transition government formed consistent with constitution.
  - Former ruling party Lavalas refuses to participate in elections.
  - Former rebel groups remain armed and challenge government authority, particularly in the provinces.
  - U.N. stabilization force deployment reached near full strength of 8,300 in December 2004 (from about 4,300 three months earlier).
  - Haiti’s National Police widely acknowledged to be undermanned and not well equipped.
  - Since October, increases in gun-related crime, kidnappings, and violent demonstrations hampered humanitarian assistance.
- Social indicators (reported):
  - Real GDP per capita declined by nearly 50 percent during 1980–2004 (constant 1995 U.S. dollars).
  - About 76 percent of Haiti’s population lives under US$2 per day.
  - Life expectancy: 53 years.
  - Half the population lives below the minimum level of dietary energy consumption.
  - HIV/AIDS affects 5 percent of the population.
  - Indicators likely worsened after real GDP decline in 2003/04 and disruptions from flooding and civil disorder.

### III. Recent economic developments and shocks
- Losses and disasters:
  - Property damage from armed conflict estimated at 5½ percent of GDP.
  - Massive floods in late May: death toll close to 2,000 and extensive housing loss.
  - Tropical Storm Jeanne in September: reported dead close to 2,000, another 1,000 missing, tens of thousands homeless; property damage from Jeanne estimated at 3½ percent of GDP.
- SMP performance (April–September 2004):
  - Performance satisfactory; end-June and end-September quantitative targets observed by wide margins.
  - Administrative capacity constraints delayed some structural commitments, but most measures implemented.
- Output and prices:
  - Real GDP estimated decline 2003/04 (Oct–Sep): 3½ percent.
  - CPI monthly changes: March +2.2 percent; April +6.5 percent; June–October monthly CPI mostly <1 percent except September +1.8 percent.
- Exchange rate and reserves:
  - Gourde stable around G37/US$.
  - BRH interventions built net international reserves (NIR) to US$56 million by end-September (US$34 million above program floor); NIR ~US$72 million by mid-December.
  - Surge of remittances April–June 2004 put upward pressure on the gourde.

### IV. Fiscal developments and public finances
- 2003/04 fiscal outcomes:
  - Revenues substantially above target due to arrears collection and tax rebound.
  - Expenditures above target because of large unprogrammed outlays despite slow emergency outlays.
  - Second half fiscal year estimated budget deficit: 1.3 percent of GDP (vs. 2.7 percent envisaged under SMP).
  - Overall budget deficit for full fiscal year estimated around 3¾ percent of GDP (vs. 5 percent expected under SMP).
  - April–September 2004 budget deficit would have been a surplus of 0.25 percent of GDP excluding unprogrammed outlays.
  - Unprogrammed outlays included foreign grant-financed outlays of G1,844 million; two September 2004 transfers: G360 million to recapitalize the Industrial Development Fund and G50 million for guarantees to small businesses affected by arson.
- 2004/05 budget strategy:
  - Authorities target overall central government deficit of 6 percent of GDP to be fully financed by external assistance.
  - Government revenue projected to more than cover current expenditures; public investment to be largely financed by external resources.
  - Authorities committed to avoid central bank financing and to take additional measures as appropriate.
- Fiscal numbers (2004/05 program):
  - Government revenue projected to rise to 9.4 percent of GDP (G15,921 million).
  - Programmed government expenditure: 15.3–15.4 percent of GDP (G26,084 million).
  - Wage bill: G6.1 billion; police allocation: G2.3 billion; capital outlays: G10.5 billion.
  - Wage bill rises by 48 percent (program narrative).
  - Emergency outlays of 0.3 percent of GDP for reconstruction and job creation programmed but not implemented in 2003/04 to be executed in 2004/05.
  - Above G200 million of domestically-financed expenditure and part of emergency outlays allocated to address floods.

### V. Monetary, financial sector, and banking system
- Monetary easing and liquidity measures:
  - BRH reduced interest rates on 91-day bonds to 7.5 percent in September (from 26 percent at end-March).
  - In August, BRH injected liquidity equivalent to 7 percent of base money.
- Banking sector indicators and behavior:
  - Commercial bank credit to private sector remains stagnant; intermediation spreads widened due to rising nonperforming loans and uncertainty.
  - Average risk-weighted capital adequacy ratio: 15.5 percent at end-September 2004.
  - Nonperforming loans: 7 percent of total loans at end-September 2004 (5.5 percent in September 2003).
- Program monetary objectives and operations:
  - Program objective: reduce inflation to 12 percent in 2004/05.
  - NDA target included; BRH targets inflation with broad money as operational target.
  - MFD Technical Assistance mission envisaged early 2005 to review monetary policy framework.
  - BRH to avoid FX intervention except to meet NIR target.
  - Target: increase gross official reserves to US$271 million by end-September 2005 (1.7 months of imports).
  - BRH to strengthen surveillance of savings cooperatives and increase on-site inspections.
  - Interim audit of BRH to be published; IMF safeguards assessment to be completed by May 2005.

### VI. Donor support and external financing
- Donor pledges and disbursements:
  - Donors pledged US$1.1 billion of new financing for July 2004–September 2006 at July 2004 conference.
  - Total disbursements of budget assistance during July–September: US$50 million (largely direct donor intervention).
  - Disbursements of grants and loans to 2004/05 budget projected at about US$350 million.
  - International community expected to provide about US$140 million largely to NGOs as part of humanitarian response.
- World Bank and arrears:
  - Authorities working with World Bank on an operation including US$61 million reform-based financing.
  - Haiti to clear arrears to World Bank (US$52 million) in early January 2005 using grant financing (US$6.4 million from Canada) and a bridge loan; World Bank expected to disburse US$46 million after Board approval and arrears clearance.
  - Bank approved seven LICUS grants totaling US$6.4 million; preparing a US$12 million grant for disaster management and rehabilitation.
- Central government external financing projected at US$350 million for 2004/05.
- Staff urged authorities to finalize bridge loan discussions, engage bilateral creditors, and accelerate project preparation and rehabilitation.

### VII. Program objectives, projections, and policy framework (2004/05)
- EPCA / Interim Cooperation Framework objectives:
  - Strengthen institutions and governance; promote economic recovery; improve access to basic services; restore security; promote national dialogue.
- Macroeconomic framework (2004/05 program targets):
  - Real GDP growth: 2.5 percent (target).
  - Consumer price inflation (end-period): about 12 percent (target).
  - NIR target: increase to US$85 million (program table shows US$85.4 million for Apr–Sept and year).
  - External current account including grants projected to remain broadly in balance.
  - Projected import increase linked to public investment financed largely by official grants; private remittances increase expected to be deposited domestically contributing to foreign asset accumulation.
- Program realism:
  - Staff and authorities agreed near-term prospects for raising growth limited because of political/economic difficulties, underinvestment in human and physical capital, and security concerns.

### VIII. Key structural measures and reforms under EPCA / SMP
- Fiscal and institutional measures and deadlines:
  - Census of employment in ministries and key public enterprises by end-March 2005 (census completed in 14 ministries and 29 autonomous entities; remaining to be completed by end-March 2005).
  - Audit of key public sector enterprises; pre-audit of Teleco completed; pre-audit of EDH to be launched by end-December 2004; audits of other enterprises to be launched by end-June 2005 (subject to donor financing).
  - Survey of central government arrears; comprehensive survey to be completed by end-March 2005 and strategy to clear arrears by end-June 2005.
  - Regularization of arrears to the World Bank and engagement with bilateral creditors.
  - Establish an effective aid coordination mechanism; donor-government meetings convened regularly.
  - Central bank safeguards assessment; interim audit finalized; IMF safeguards assessment initiated and to be completed by May 2005.
  - Reduce number of current accounts to one per ministry and agency by March 2005; limit outlays through these accounts.
  - Establish program to reinforce and use central taxpayer file based on Fiscal Identification Number by March 2005.
  - Extend pre-shipment verification to all ports of entry by September 2005.
  - Implement new CPI by June 2005 and publish audits of central government accounts (2001–04).
  - Make anti-corruption unit operational (inaugurated September 30; to become fully operational by end-December 2004).
- Programed limits and definitions:
  - Ceilings for cumulative BRH credit to central government: December 2004: -74 million gourdes; March 2005: 378 million gourdes.
  - Ceilings for cumulative net domestic banking sector credit to NFPS: December 2004: -115 million gourdes; March 2005: 297 million gourdes.
  - Cumulative change in NIR targets: December 2004: 7 million USD; March 2005: 3 million USD.
  - Ceilings for cumulative change in BRH net domestic assets: December 2004: 806 million gourdes; March 2005: 741 million gourdes.
  - Ceilings on contracting nonconcessional loans by central government set at zero throughout program period.

### IX. Program issues, access, and capacity to repay the Fund
- Proposed EPCA purchase: SDR 10.23 million (12.5 percent of quota); rate of charges subsidized to annual rate of 0.5 percent (consistent with PRGF eligibility).
- With disbursement at 12.5 percent of quota:
  - Haiti’s obligations to the Fund would peak in 2009 at 1.2 percent of exports of goods and services.
  - Fund credit outstanding would peak in 2005 at 18 percent of quota and 4 percent of exports of goods and services.
  - Debt service to the Fund would remain about 1 percent of exports of goods and services.
- External financing assumptions:
  - Program assumes clearance of external arrears and World Bank debt service through September 2005 while Haiti may continue to accumulate arrears to some bilateral creditors pending future agreements.
  - Authorities intend to request another purchase under EPCA—possibly within six months—to support balance of payments needs and catalyze concessional assistance.
  - Authorities agreed to save most external budgetary assistance exceeding program projections to build official international reserves.
- Staff assessment: Given lack of liabilities to external private creditors and informal contacts with Paris Club and bilateral creditors, an EPCA purchase not inconsistent with Fund’s arrears policy.

### X. Risks, monitoring, and program implementation
- Key risks:
  - Security concerns and lack of government control over provinces may jeopardize fair and safe elections scheduled for 2005.
  - Private sector confidence, investment, and recovery could be undermined by weak donor-budget coordination, delays in donor disbursements, continued violence and armed groups.
  - External risks from instability in private remittances and export sector; potential negative impact from end of multi-fiber agreement on exports (HERO Act partial mitigation considered but not passed).
- Monitoring:
  - Program monitored via quarterly indicative targets and structural benchmarks.
  - MEFP includes quarterly indicative targets for December 2004 and March 2005; April–September 2005 targets to be confirmed in May when another EPCA purchase expected.
  - Authorities to provide daily and weekly monetary and fiscal indicators to IMF staff with specified maximum lags.
  - Program includes adjusters for domestic arrears accumulation and for shortfalls/excesses in external cash budgetary support.
  - Projected program disbursements of cash budgetary assistance (cumulative from end-September 2004, in millions of USD): Dec 2004: 14.5; Mar 2005: 67.8; Jun 2005: 82.5; Sep 2005: 107.5.
  - Program debt service and arrears clearance (cumulative, in millions of USD): Dec 2004: 8.7; Mar 2005: 68.7; Jun 2005: 78.5; Sep 2005: 89.6.
  - Net program financing (cumulative, in millions of USD): Dec 2004: 5.8; Mar 2005: -0.9; Jun 2005: 4.1; Sep 2005: 17.9.

### XI. Staff appraisal: assessment and recommendations
- Context and positive assessment:
  - Haiti emerging from political conflict and poor economic performance; armed rebellion and devastating floods compounded damage.
  - SMP stabilization helped stabilize exchange rate, reduce inflation, and create conditions for recovery; authorities met all quantitative SMP targets and progressed on structural measures.
- Key recommended actions:
  - Ensure substantial international support used to implement social/economic agenda, strengthen security, and ensure safe/timely elections.
  - Improve budget management and expenditure control; seek technical assistance from Fund and donors.
  - BRH should stand ready to tighten monetary conditions as appropriate and intensify supervision of savings cooperatives (expand on-site inspections).
  - Publish interim BRH audit and complete IMF safeguards assessment.
  - Complete employment census, survey of central government arrears, and publish audits of government accounts without delay.
  - Strengthen transparency and anti-corruption efforts, operationalize Anti-Corruption Unit.
  - Work with donors to ensure timely release/disbursement of pledged resources; advance preparation of investment projects and finalize bridge financing to clear World Bank arrears.
  - Strengthen timeliness and quality of fiscal and monetary data reporting, including daily and weekly indicators required for program monitoring; implement new CPI and seek technical assistance for statistics.

*Source: IMF staff report excerpt, “Selected Economic and Financial Indicators,” sections I–III (pages 4–12).*

### 1. Selected Economic and Financial Indicators ...............................................................19

### 1. Selected Economic and Financial Indicators

### I. Introduction and Context
- The extended political conflict culminated in an armed rebellion and change in government in March 2004; a multilateral interim force arrived and was succeeded on June 1 by a U.N. stabilization mission.
- A six-month Staff Monitored Program (SMP) was implemented by the transition government to restore financial stability and support recovery.
- The authorities requested a purchase under the Fund’s Emergency Post-Conflict Assistance (EPCA) policy to cover October 2004–September 2005.
- Conditions for post-conflict Fund assistance are met, notably: (i) an urgent balance of payments need; (ii) disrupted institutional and administrative capacity preventing an upper-tranche program; (iii) retained capacity for policy planning and implementation and demonstrated commitment; and (iv) Fund assistance being part of wider international support.

### II. Political, Security, and Social Conditions
- No elected government in place following expiration of Parliament in January 2004 and President Aristide’s resignation in February 2004; a transition government formed consistent with Haiti’s constitution.
- Key political/security challenges:
  - Former ruling party Lavalas refuses to participate in elections.
  - Former rebel groups remain armed and challenge government authority, particularly in the provinces.
  - Deployment of the U.N. stabilization force reached near its full strength of 8,300 in December 2004 (from about 4,300 three months earlier).
  - Haiti’s National Police is widely acknowledged to be undermanned and not well equipped.
  - Since October, increases in gun-related crime, kidnappings, and violent demonstrations have hampered humanitarian assistance.
- Social indicators and impacts:
  - Real GDP per capita declined by nearly 50 percent during 1980–2004 (in constant 1995 U.S. dollars).
  - About 76 percent of Haiti’s population lives under US$2 per day.
  - Life expectancy is 53 years.
  - Half the population lives below the minimum level of dietary energy consumption.
  - HIV/AIDS affects 5 percent of the population.
  - These indicators likely worsened following a decline in real GDP in 2003/04 and disruptions from flooding and civil disorder.

### III. Recent Economic Developments and Shocks
- Losses from political conflict and floods:
  - Property damage from the armed conflict is estimated at 5½ percent of GDP.
  - Massive floods in late May resulted in a death toll close to 2,000 and extensive housing loss.
  - Tropical Storm Jeanne in September led to floods with the number of dead reported at close to 2,000, another 1,000 missing, and tens of thousands homeless; property damage from Jeanne is estimated at 3½ percent of GDP.
- Macroeconomic performance under the SMP (April–September 2004):
  - Performance was satisfactory; end-June and end-September quantitative targets were observed by wide margins.
  - Administrative capacity constraints delayed some structural commitments, but most measures were implemented.
- Output and prices:
  - Real GDP is estimated to have declined by 3½ percent in 2003/04 (October–September).
  - CPI inflation: prices surged in March and April by 2.2 percent and 6.5 percent, respectively; during June–October monthly CPI inflation remained below 1 percent except September when CPI rose by 1.8 percent.
- Exchange rate and external position:
  - The gourde remained stable at around G37/US$.
  - A surge of remittances during April–June 2004 put upward pressure on the gourde; BRH intervened to build net international reserves (NIR) to US$56 million by end-September, US$34 million above the program floor; NIR increased to about US$72 million by mid-December.

### IV. Fiscal Developments and Public Finances
- 2003/04 fiscal outcomes:
  - Revenues were substantially above target due to strengthened collection of arrears and rebound in tax revenues.
  - Expenditures were also above target because of large unprogrammed outlays and despite slow emergency outlays.
  - The second half of the fiscal year is estimated to have a budget deficit of 1.3 percent of GDP, compared with a deficit of 2.7 percent of GDP envisaged under the SMP.
  - The overall budget deficit for the full fiscal year is estimated at around 3¾ percent of GDP, compared with 5 percent of GDP expected under the SMP.
  - The April–September 2004 budget deficit would have been a surplus of 0.25 percent of GDP excluding outlays not envisaged under the SMP; unprogrammed outlays included:
    - foreign grant-financed outlays of G1,844 million; and
    - two September 2004 government transfers: G360 million to recapitalize the Industrial Development Fund and G50 million to provide guarantees for small businesses affected by arson.
- 2004/05 budget strategy:
  - Authorities target an overall central government deficit of 6 percent of GDP to be fully financed by external assistance.
  - Government revenue projected to more than cover current expenditures; public investment to be largely financed by external resources.
  - Authorities committed to avoid central bank financing and to take additional measures as appropriate.

### V. Monetary, Financial Sector, and Banking System
- Monetary easing and liquidity:
  - BRH reduced interest rates on its 91-day bonds in several steps to 7.5 percent in September (from 26 percent at end-March).
  - In August, BRH injected liquidity equivalent to 7 percent of base money.
- Banking sector:
  - Commercial bank credit to the private sector remains stagnant; banks widened intermediation spreads in response to rising nonperforming loans and uncertainty.
  - Average risk-weighted capital adequacy ratio was 15.5 percent at end-September 2004.
  - Nonperforming loans were 7 percent of total loans at end-September 2004, compared with 5.5 percent in September 2003.

### VI. Donor Support and External Financing
- At the July 2004 donors’ conference, donors pledged US$1.1 billion of new financing for July 2004–September 2006.
- Disbursements and projections:
  - Total disbursements of budget assistance during July–September were US$50 million, largely through direct donor intervention on behalf of the government.
  - Based on consultations with donors, disbursements of grants and loans to the 2004/05 budget are projected at about US$350 million.
  - The international community is expected to provide about US$140 million largely to NGOs as part of the humanitarian response.

### VII. Program Objectives, Projections, and Policy Framework
- EPCA and Interim Cooperation Framework (ICF) objectives:
  - Strengthen institutions and governance; promote economic recovery; improve access to basic services; restore security; promote national dialogue.
- Macroeconomic framework for 2004/05:
  - Target real GDP growth at 2½ percent.
  - Target decline in consumer price inflation to about 12 percent (end of period).
  - Target increase in NIR to US$85 million.
  - External current account including grants projected to remain broadly in balance.
  - Projected increase in imports linked to public investment financed largely by official grants; increase in private remittances expected to be deposited in the domestic banking system contributing to foreign asset accumulation.
- Program realism:
  - Authorities and staff agreed that despite sound policies and donor support, near-term prospects for raising growth are limited due to political/economic difficulties, underinvestment in human and physical capital, and security concerns.

### VIII. Key Structural Measures and Reforms under the EPCA
- Fiscal and institutional measures:
  - Census of employment of the ministries and key public enterprises by end-March 2005.
  - Audit of key public sector enterprises.
  - Survey of central government arrears.
  - Regularization of arrears to the World Bank and initiation of discussions with bilateral creditors on options to address arrears.
  - Establishment of an effective aid coordination mechanism.
  - Central bank safeguards assessment by the Fund.
- Policy orientation summary (Box 2):
  - Fiscal policy: increase provision of key public services and investment using government revenues and external assistance; overall deficit of 6 percent of GDP to be financed by external resources.
  - Monetary policy: aim to reduce inflation to 12 percent in 2004/05 by tightening monetary conditions and to increase official reserves to the equivalent of 1.7 months of imports of goods and services by end-2004/05.
  - External policies and structural measures as listed above.

*Source: IMF staff report excerpt, “Selected Economic and Financial Indicators,” sections I–III (pages 4–12).*

### 21.      The program adopts a conservative projection for government revenue, which is

### _cr0565 - 21.      The program adopts a conservative projection for government revenue, which is

### Fiscal policy and 2004/05 budget
- Government revenue projected to rise to 9.4 percent of GDP in 2004/05.
- During April–September 2004, government revenue increased to 9.7 percent of GDP (annual basis), in part reflecting the collection of tax arrears.
- Programmed government expenditure increases to 15.3 percent of GDP (from 12.4 percent in 2003/04).
- Budget allocations and priorities:
  - Higher wage bill (wage bill rises by 48 percent) to recruit and maintain staff in key sectors, including health and education.
  - About 1.3 percent of GDP in current and capital outlays allocated for the police force, equipment and facilities.
  - Increase in public investment targeting reconstruction work and infrastructure.
  - Emergency outlays of 0.3 percent of GDP for reconstruction and job creation that were programmed but not implemented in 2003/04.
  - Above G200 million of domestically-financed expenditure and part of emergency outlays allocated to address the impact of the floods.
- Staff concerns and government commitments:
  - Regret expressed over delays in public investment projects and emergency outlays in the previous fiscal year; stressed importance of avoiding further shortfalls, especially for high social impact projects that generate employment.
  - Authorities reiterated commitment to accelerate project implementation, particularly projects financed by government resources.
  - Authorities improving expenditure approval process by eliminating recourse to ministerial discretionary accounts, except for small emergency outlays.
  - Authorities agreed to complete a comprehensive survey of domestic payment arrears and formulate a strategy to clear them.
  - Coordination mechanism established—with donors—for externally-financed projects; institutional capacity of relevant ministries being strengthened.

### Monetary and financial sector policies
- Program objective: reduce inflation to 12 percent during 2004/05.
- Staff cautions:
  - BRH’s interest rates remain negative in real terms.
  - Excess reserves are at historical highs.
  - September–October CPI was higher than in the previous months.
- BRH response:
  - Noted declining inflation, a stable exchange rate, and sluggish economy; saw no immediate need to tighten monetary conditions but agreed to adjust interest rates and issue central bank bonds as needed.
- Operational and institutional measures:
  - Program includes a NDA target consistent with inflation and NIR objectives.
  - BRH targets inflation with broad money as the operational target.
  - A MFD Technical Assistance mission envisaged for early 2005 to review the monetary policy framework and assess the financial condition of the central bank.
  - BRH will avoid foreign exchange market intervention, except for meeting its NIR target.
  - Target to increase gross official reserves to US$271 million by end-September 2005 (1.7 months of imports).
  - BRH will continue to monitor commercial banks and strengthen surveillance of savings cooperatives, including by increasing on-site inspections.
  - Authorities will publish an interim audit of the BRH and an IMF safeguards assessment of the BRH will be completed by May 2005.

### External financing, arrears clearance, and aid coordination
- Central government 2004/05 budget external financing projected at US$350 million.
- Most assistance in project grants and loans from Canada, the European Union, the United States, the World Bank, and the IDB.
- World Bank operations and arrears:
  - Authorities working with World Bank staff on an operation including US$61 million reform-based financing.
  - To clear the way for Bank financing, in early January 2005 Haiti will clear arrears to the World Bank (US$52 million) using a combination of grant financing (US$6.4 million from Canada) and a bridge loan.
  - World Bank expected to disburse US$46 million after Board approval and arrears clearance, enabling Haiti to repay the bridge loan.
  - The Bank approved seven LICUS grants for a total of US$6.4 million.
  - The Bank is preparing a US$12 million grant to assist in building institutional capacity for disaster management and rehabilitation of flood-affected areas.
- Authorities urged to:
  - Advance preparation of investment projects and programs agreed under the ICF and speed up rehabilitation projects in areas affected by early 2004 developments and the floods.
  - Finalize discussions on a bridge loan to clear arrears to the World Bank and engage bilateral creditors to address outstanding arrears and begin data reconciliation.
- Aid coordination:
  - Donor-government meetings convened regularly to facilitate aid coordination and monitor project disbursements.
  - An effective aid-coordination mechanism is being put in place to facilitate full disbursement of external financing.

### Structural reforms and governance
- EPCA and SMP-related measures focus on government expenditure and audits of public sector enterprises.
- Specific structural actions and deadlines:
  - Complete the census of employment in the public sector by end-March 2005.
  - Complete the survey of central government arrears.
  - Reduce the number of current accounts to one per ministry and per government agency by March 2005 and limit outlays through these accounts.
  - Prepare and publish the audits of the central government accounts of 2001–04.
  - Extend pre-shipment verification to all ports of entry to Haiti by September 2005.
  - Establish by March 2005 a program to reinforce and use the central taxpayer file based on taxpayers’ Fiscal Identification Number.
  - Conduct external financial and management audits of key public sector enterprises.
  - Make the anti-corruption unit operational by end-December 2004.
  - Implement the new CPI by June 2005.
  - Publish information on implementation of the Industrial Development Fund and the victims of arson fund.
- Data issues:
  - Periodicity and coverage of economic statistics broadly adequate, but problems with timeliness.
  - Authorities committed to strengthen data reporting and reliability, especially for data required for program monitoring.

### Program issues, access, and capacity to repay the Fund
- Proposed EPCA purchase: SDR 10.23 million (12.5 percent of quota).
- Rate of charges on the proposed purchase subsidized to an annual rate of 0.5 percent, consistent with Haiti’s PRGF eligibility.
- With disbursement at 12.5 percent of quota:
  - Haiti’s obligations to the Fund would peak in 2009 at 1.2 percent of exports of goods and services.
- Fund credit and debt-service projections:
  - Haiti’s purchase would take Fund credit outstanding to a peak in 2005 of 18 percent of quota and 4 percent of exports of goods and services.
  - Debt service to the Fund would remain about 1 percent of exports of goods and services.
- External financing assumptions and intentions:
  - Program assumes clearance of external arrears and debt service to the World Bank through September 2005 and that Haiti would, pending future agreements, continue to accumulate arrears to some bilateral creditors.
  - Authorities intend to request another purchase under this facility—possibly within six months—to support balance of payments needs and catalyze concessional assistance.
  - Authorities agreed to save most external budgetary assistance exceeding program projections to build up official international reserves.
- Staff assessment on arrears policy: Given Haiti’s lack of liabilities to external private creditors and informal contacts with Paris Club and other bilateral creditors, staff considers an EPCA purchase would not be inconsistent with the Fund’s arrears policy.

### Risks, monitoring, and program implementation
- Key risks to political and macroeconomic stability:
  - Security concerns and lack of government control over provinces may jeopardize fair and safe elections scheduled for 2005.
  - Private sector confidence, investment, and recovery could be undermined by weak coordination of donor financing with the budget, delays in disbursement of donor assistance, and continued violence and presence of armed groups.
  - External risks from instability in private remittances and from the export sector.
  - Potential negative impact of the end of the multi-fiber agreement on Haiti’s export sector; partial mitigation possible from the Haiti Economic Recovery Opportunity (HERO) Act of 2004 (considered but not passed by the U.S. Congress).
- Program monitoring:
  - Program will be monitored on the basis of quarterly indicative targets and structural benchmarks.
  - MEFP includes quarterly indicative targets for December 2004 and March 2005 (Attachment II, Table 1); targets for April–September 2005 to be confirmed in May when another purchase under the EPCA is expected to be requested.
  - Main policy actions under the program listed in Attachment II, Table 2.

### Staff appraisal: assessment and recommendations
- Context and objectives:
  - Haiti emerging from political conflict and poor economic performance; armed rebellion in early 2004 and devastating floods in May and September compounded damage.
  - Transition government formed in March 2004 tasked with restoring security, rule of law, reconciliation, economic stabilization, and leading to national elections in 2005.
  - International community pledged support at the donor conference in July; authorities request Fund assistance following successful completion of the SMP in September.
- Positive assessment:
  - Macroeconomic stabilization under the SMP helped stabilize exchange rate, bring down inflation, and create conditions for recovery.
  - Authorities met all quantitative SMP targets and made progress on structural measures: approving the budget before the fiscal year, reducing discretionary ministerial accounts, advancing audits of key public sector enterprises, and the census of public sector employment.
- Key challenges and recommended actions:
  - Ensure substantial international support is used to implement social and economic agenda, strengthen security, and ensure safe and timely elections.
  - Adopt measures to improve budget management and expenditure control; utilize technical assistance from the Fund and other donors.
  - BRH should stand ready to tighten monetary conditions as appropriate and intensify supervision of savings cooperatives (including expanding on-site inspections).
  - Publish interim audit of the BRH and complete IMF safeguards assessment.
  - Complete without delay the census of employment, survey of central government arrears, and prepare and publish audits of government accounts.
  - Strengthen transparency and anti-corruption efforts, including operationalizing the Anti-Corruption Unit.
  - Work with donors to ensure timely release and disbursement of pledged resources, advance preparation of investment projects and programs, and finalize bridge financing to clear World Bank arrears.
  - Strengthen timeliness and quality of fiscal and monetary data reporting, including daily and weekly indicators required for program monitoring.
  - Implement the new consumer price index and seek technical assistance to improve economic statistics.

*Source: IMF staff report content provided in the supplied document excerpt.*

### 43.      In the staff’s view, Haiti meets the conditions for post-conflict assistance. Haiti is

### In the staff’s view, Haiti meets the conditions for post-conflict assistance. Haiti is

### Staff assessment and recommendation
- Staff view: Haiti meets the conditions for post-conflict assistance.
- Rationale:
  - Haiti is facing urgent balance of payments needs.
  - Disruption to institutional and administrative capacity prevents implementing a program supported by a Fund arrangement.
  - Authorities demonstrated under the recently completed SMP that they have been building sufficient capacity and commitment to implement the policy framework presented as a basis for Fund support.
- Recommendation: Staff supports the authorities’ request for Fund support under the post-conflict emergency assistance policy, taking into account performance under the SMP and commitment, notwithstanding risks from the political and security situation.

### Real economy and inflation (selected indicators)
- GDP at constant prices (annual percentage change, fiscal year ending September 30):
  - 2000: 1/
  - 2000: 0.9
  - 2001: -1.0
  - 2002: -0.5
  - 2003: 0.4
  - 2004: -3.5
  - 2005: 2.5
- GDP deflator (annual percentage change): 11.1, 11.6, 10.1, 25.5, 26.2, 15.0
- Consumer prices (period average): 11.5, 16.8, 8.7, 32.5, 27.1, 16.6
- Consumer prices (end-of-period): 15.3, 12.3, 10.1, 42.5, 22.5, 12.0
- Table 5 medium-term projections (selected):
  - Real GDP growth (prel.): 2001 -1.0; 2002 -0.5; 2003 0.4; 2004 1.0; 2004 (prel.) -3.5; 2005 2.5; 2006 3.0
  - Inflation (CPI end-of-period): 2001 12.3; 2002 10.1; 2003 42.5; 2004 12.0; 2004 (prel.) 22.5; 2005 12.0; 2006 10.0

### External sector and balance of payments (selected)
- Current account deficit (excluding grants, in millions of U.S. dollars): 2000 -259.9; 2001 -233.1; 2002 -168.1; 2003 -141.0; 2004 -98.0; 2005 -334.3
- Trade balance (deficit, in millions of U.S. dollars): 2000 -755.8; 2001 -750.2; 2002 -709.4; 2003 -785.4; 2004 -809.9; 2005 -1,080.0
  - Exports, f.o.b. (millions of U.S. dollars): 2000 331.0; 2001 305.2; 2002 273.2; 2003 330.4; 2004 372.7; 2005 390.7
    - Assembly industry exports (millions of U.S. dollars): 2000 257.7; 2001 251.2; 2002 220.8; 2003 278.1; 2004 319.0; 2005 334.1
  - Imports, f.o.b. (millions of U.S. dollars): 2000 -1,086.7; 2001 -1,055.4; 2002 -982.6; 2003 -1,115.8; 2004 -1,182.6; 2005 -1,470.7
    - Petroleum products (millions of U.S. dollars): 2000 -44.2; 2001 -163.8; 2002 -157.3; 2003 -146.3; 2004 -218.0; 2005 -307.8
- Services (net, millions of U.S. dollars): -96.3; -108.1; -92.6; -152.1; -204.9; -211.9
  - Receipts (millions of U.S. dollars): 172.0; 137.4; 163.7; 130.9; 131.7; 159.2
  - Payments (millions of U.S. dollars): -268.3; -245.4; -256.3; -283.0; -336.6; -371.1
- Private transfers (net, millions of U.S. dollars): 2000 578.0; 2001 623.6; 2002 649.0; 2003 810.8; 2004 931.0; 2005 979.9
- External grants (millions of U.S. dollars): 2000 221.3; 2001 160.6; 2002 135.1; 2003 137.2; 2004 113.1; 2005 357.5
- Current account deficit (including grants, in millions of U.S. dollars): -38.7; -72.5; -33.0; -3.7; 15.1; 23.2
- Overall balance (deficit, in millions of U.S. dollars): -51.9; -7.9; -68.5; -11.6; 33.2; 80.1
- Net international reserves (millions of U.S. dollars, program): 172.3; 176.2; 135.1; 125.5; 177.8; 215.8
- Gross liquid international reserves (millions of U.S. dollars): 222.3; 227.3; 177.7; 157.1; 202.9; 271.0
- Gross liquid international reserves (in months of next year's imports): 2.1; 2.2; 1.5; 1.2; 1.3; 1.7
- External debt indicators (memorandum):
  - External debt as percent of exports: 234.7; 273.3; 286.1; 284.7; 261.0; 248.9
  - Debt service as percent of exports: 7.9; 8.7; 7.9; 8.5; 9.2; 9.2

### Fiscal sector and central government operations (selected)
- Central government overall balance (in percent of GDP):
  - 2000 -2.5; 2001 -2.8; 2002 -3.2; 2003 -3.7; 2004 -3.7; 2005 -6.0
  - Including grants: -2.2; -2.4; -3.0; -3.5; -2.4; -1.2
- Total revenue (percent of GDP, excluding grants): -0.3; 3.8; 20.2; 37.3; 15.9; 27.8
- Total expenditure (percent of GDP): 13.4; 8.7; 20.6; 39.8; 18.1; 46.5
- Fiscal year (selected levels, in millions of gourdes):
  - Total revenue (2002/03 Oct-Sept Act.): 107,466
  - Total expenditure (2002/03 Oct-Sept Act.): 150,846
  - Wages and salaries (2002/03 Act.): 38,622
  - Interest payments (2002/03 Act.): 10,505
  - Capital expenditure (2002/03 Act.): 39,281
- Financing composition (selected, in millions of gourdes):
  - Grants (2002/03 Oct-Sept Act.): 17,101
  - Loans (net) (2002/03 Oct-Sept Act.): 630
  - Disbursements (2002/03 Oct-Sept Act.): 158,304

### Monetary and banking sector (selected)
- Broad money (including foreign currency deposits) (annual percentage change): 36.2; 5.2; 17.2; 39.8; 9.1; 12.8
- Credit to private sector (annual percentage change): 16.9; -3.5; 5.9; 13.0; 3.1; 7.2
- Net foreign assets (consolidated banking system, millions of gourdes): 14,285; 14,005; 12,749; 12,877; 14,802; 14,821; 15,312; 16,228
  - In millions of U.S. dollars: 339; 348; 357; 350; 400; 401; 414; 438
- Broad money levels (millions of gourdes): 57,217; 58,428; 55,292; 56,765; 59,037; 60,488; 61,807; 64,031
- Credit to private sector (millions of gourdes and U.S. dollars):
  - Gourdes: 10,982; 11,029; 11,054; 11,064; 11,073; 11,619; 12,033; 13,205
  - Foreign currency: 10,189; 9,842; 9,660; 9,889; 10,341; 10,816; 11,310; 11,827
  - In millions of U.S. dollars: 242; 245; 270; 269; 280; 293; 306; 320
- Percentage change (12-month) in broad money: 39.8; 24.4; 9.1; 9.1; 3.2; 3.5; 11.8; 12.8

### Fund credit, debt service, and financing (selected)
- Outstanding Fund credit (in financial years ending September 30):
  - In millions of SDRs: 2004 7.5; 2005 14.7; 2006 11.7; 2007 10.2; 2008 6.3; 2009 1.2
  - In millions of Gourde: 442.6; 821.5; 717.7; 668.5; 438.8; 86.9
  - In percent of quota: 9.2; 18.0; 14.3; 12.4; 7.7; 1.5
  - In percent of GDP: 0.3; 0.5; 0.4; 0.3; 0.2; 0.0
  - In percent of exports of goods and services: 2.2; 3.9; 3.1; 2.6; 1.5; 0.3
- Debt service to the Fund (selected):
  - In millions of SDRs: 5.0; 3.5; 3.5; 2.0; 4.2; 5.5
  - In millions of Gourde: 295.7; 197.7; 216.7; 131.2; 293.8; 397.7
  - In percent of quota: 6.1; 4.3; 4.3; 2.4; 5.2; 6.7
  - In percent of GDP: 0.2; 0.1; 0.1; 0.1; 0.1; 0.1
  - In percent of exports of goods and services: 1.5; 0.9; 0.9; 0.5; 1.0; 1.2
  - In percent of debt service due: 16.0; 10.2; 11.1; 5.7; 11.1; 13.9
- Net use of Fund credit (in millions of SDRs): -4.9; 7.2; -3.0; -1.5; -3.8; -5.1
  - Disbursements (in millions of SDRs): 0.0; 10.2; 0.0; 0.0; 0.0; 0.0
  - Repayments (in millions of SDRs): 4.9; 3.0; 3.0; 1.5; 3.8; 5.1
- Note: Outstanding Fund credit includes the 12.5 percent of quota prospective disbursement under the emergency post-conflict assistance.

### Arrears and projected debt service
- Total arrears (millions of U.S. dollars): 2000 6.0; 2001 17.8; 2002 50.9; 2003 52.1; 2004 78.1; 2005 ...
  - Multilateral creditors (millions of U.S. dollars): 2.1; 11.2; 39.0; 33.3; 49.2; ...
    - IDB: 0.2; 4.0; 19.6; 0.0; 0.0; ...
    - IDA-WORLD BANK: 0.8; 6.1; 19.0; 32.4; 49.2; ...
    - IMF: 0.2; 0.0; 0.0; 0.0; 0.0; ...
    - Other (OPEC and FIDA): 0.9; 1.1; 0.4; 0.9; 0.0; ...
  - Bilateral creditors (millions of U.S. dollars): 3.9; 6.6; 11.9; 18.8; 28.9; ...
- Projected debt service (excluding arrears reduction, millions of U.S. dollars): total 55.3
  - Multilateral creditors: 45.6
    - IDB: 21.6
    - IDA-WORLD BANK: 16.5
    - IMF: 4.8
    - Other (OPEC and FIDA): 2.8
  - Bilateral creditors: 9.7

### Social indicators (Millennium Development Goals, excerpt)
- Millennium Development Goals table headings and targets presented; data fields include:
  - Target years: 1990, 1995, 2001, 2002, 2015
  - Goal 1 metrics listed: Population below US$1 a day (in percent); Poverty gap ratio at US$1 a day (in percent); 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

*Source: IMF staff report (tables and text provided by Haitian authorities; Fund staff estimates).*

### 4. Prevalence of child malnutrition (percent of children under 5)26.827.517.313.4

### _cr0565 - 4. Prevalence of child malnutrition (percent of children under 5)26.827.517.313.4

### Millennium Development Goals indicators (selected, country: Haiti)
- 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 (by 2015, complete primary schooling)
- 6. Net primary enrollment ratio (percent of relevant age group): 22.1 56.1 100
- 7. Percentage of cohort reaching grade 5: (no numeric values provided)
- 8. Youth literacy rate (percent ages 15-24): 54.8 59.7 65.3 66.2

Goal 3. Promote Gender Equality and Empower Women — Target 4 (eliminate gender disparity)
- 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 98.6 100.8 101.1 100
- 11. Share of women employed in the nonagricultural sector (percent): 39.5
- 12. Proportion of seats held by women in the national parliament (percent): (no numeric values provided)

Goal 4. Reduce Child Mortality — Target 5 (reduce under-five mortality by two-thirds, 1990–2015)
- 13. Under-five mortality rate (per 1,000): 150 137 125 123 50
- 14. Infant mortality rate (per 1,000 live births): 102 91 87 79
- 15. Immunization against measles (percent of children under 12-months): 31 49 53 53

Goal 5. Improve Maternal Health — Target 6 (reduce maternal mortality by three-quarters, 1990–2015)
- 16. Maternal mortality ratio (modeled estimate, per 100,000 live births): 680
- 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 and begin to reverse spread of HIV/AIDS
  - 18. HIV prevalence among females (percent ages 15-24): 5
  - 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 and reverse incidence of malaria and other major diseases
  - 21. Prevalence of death associated with malaria: (no numeric values provided)
  - 22. Share of population in malaria risk areas using effective prevention and treatment: (no numeric values provided)
  - 23. Incidence of tuberculosis (per 100,000 people): 328 319.1
  - 24. Tuberculosis cases detected under DOTS (percent): 23 14 1.2

Target 9 — Integrate sustainable development principles
- 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
- 28. CO2 emissions (metric tons per capita): 0.2 0.1 0.2
- 29. Proportion of population using solid fuels: (no numeric values provided)

Target 10 — Halve by 2015 people without access to safe drinking water
- 30. Access to improved water source (percent of population): 53 46 76.5

Target 11 — Significant improvement for at least 100 million slum dwellers by 2020
- 31. Access to improved sanitation (percent of population): 23 28
- 32. Access to secure tenure (percent of population): (no numeric values provided)

Goal 8. Develop a global Partnership for Development
- 45. Unemployment rate of population ages 15-24 (total / Female / Male): (no numeric values provided)
- 46. Proportion of population with access to affordable essential drugs: (no numeric values provided)
- 47. Fixed line and mobile telephones (per 1,000 people): 6.9 8.4 20.7 32.5
- 48. Personal computers (per 1,000 people): (no numeric values provided)

Sources cited in table: World Bank; and Fund staff estimates.

### Status of Main Policy Actions under the Staff Monitored Program (SMP)
- Prior action: Produce fiscal and monetary indicators as stipulated in the Technical Memorandum of Understanding — Timetable: One week — Status: Completed.
Fiscal policy actions:
- 1. Agree with Fund staff on an interim budget from April–September 2004, which would contain central bank financing of the deficit to G1.2 billion — Status: Interim budget approved and published in July 2004, in line with the limit on domestic financing of G1.2 billion.
- 2. Agree with pre-shipment inspection firm (SGS) by end-July 2004 on action plan to extend SGS operations — Timetable: End-July 2004 — Status: Customs Directorate informed SGS and all customs directors that, as of October 1, all imports entering Haiti should have pre-shipment certification by SGS.
- 3. Establish program for reinforcement and use of central taxpayer file on basis of NIF — Timetable: End-September 2004 — Status: In progress. To be completed by March 2005.
- 4. Implement revenue and expenditure nomenclature for the 2004/05 budget — Status: Nomenclature was implemented in 2004/05 budget; difficult to assess implementation for capital expenditures.
- 5. Prepare draft budget for FY 2004/05 before start of fiscal year — Timetable: End-September 2004 — Status: 2004/05 budget approved in September 2004 and published in October 2004.

Monetary and Financial Sector Policy actions:
- 1. Issue central bank bonds as necessary consistent with the monetary framework — Status: Ongoing
- 2. Refrain from intervention in the foreign exchange market except for smoothing and meeting NIR target — Status: Ongoing.
- 3. Undertake an interim external audit of the BRH — Timetable: End-September 2004 — Status: An external auditing firm was hired in June. Audit to be completed by December 2004.
- 4. Initiate preparations for the IMF safeguards assessment — Status: Initiated in October 2004.

Program financing and arrears clearance:
- Develop a plan for comprehensive clearance of external arrears and present plan to World Bank — Status: World Bank arrears clearance plan agreed; contacts with bilateral creditors to be initiated before end-2004.

Governance actions (timetable and status highlights):
- Reduce number of current accounts to one per Ministry and per government agency by end-June 2004 — Status: In progress. Government has closed about 100 accounts; more than one account per agency remains. To be completed by March 2005.
- Limit outlays through current accounts to 15 percent of budgetary credits by June 2004 and to 10 percent by September 2004 — Status: Completed.
- Prepare accounts of EDH and Teleco for international audits; launch audits of AAN, APN, and CAMEP once external financing identified — Timetable: End-September 2004 — Status: Pre-audit of Teleco completed; pre-audit of EDH to be launched by end-December 2004; audits of other public sector enterprises to be launched by end-June 2005.
- Carry out census of employment in government ministries and public sector enterprises — Status: Census completed in 14 ministries and 29 autonomous public sector entities. Remaining entities to be completed by end-March 2005.
- Establish an anti-corruption unit within the Ministry of Finance — Status: Inaugurated on September 30. To become fully operational by end-December 2004.
- Publish the interim budget and regularly publish budget execution — Timetable: End-July 2004 — Status: Interim budget published in Official Journal on July 23. Quarterly budget execution will be published on BRH website by end-December 2004.

### Memorandum of Economic and Financial Policies (MEFP) — Selected points
Background and recent developments:
- Political conflict, armed uprising in early 2004, and floods of May and September caused severe economic damage.
- Property damage and disruption from political turmoil in early 2004 estimated at 5.5 percent of GDP.
- For fiscal year 2003/04 as a whole, real GDP estimated to have declined by 3.5 percent.
- September floods estimated to have caused damage of about 3.5 percent of GDP.
- Floods and demonstrations/violence in October resulted in output losses estimated at 0.5 percent of GDP.
- Donors pledged US$1.1 billion of new assistance in support of the Interim Cooperation Framework (ICF) for July 2004–September 2006.

Performance under the SMP (April–September 2004):
- Overall budget deficit was about 1.3 percent of GDP, significantly below the SMP target.
- Overall deficit for 2003/04 was about 1.3 percent of GDP below the SMP target of 5 percent of GDP.
- BRH reduced its debt by G99 million (0.1 percent of GDP) during April–September 2004; program allowed for BRH lending of G1.2 billion (0.8 percent of GDP).
- Net international reserves (NIR) of BRH increased to US$56 million at end-September 2004; by end-September, NIR was US$34 million above the program floor.
- BRH reduced interest rates on its 91-day bonds to 7.5 percent in September (from 26 percent at end-March).
- In August, BRH injected liquidity equivalent to 7 percent of base money.
- Commercial banks have been slow to increase credit; real interest rates on bank credit remain high.
- Key structural benchmarks met: interim budget approved and published July 2004; 2004/05 budget approved before fiscal year and published October 2004; outlays through current accounts kept under 10 percent for nonwage current spending by September 2004; SGS pre-shipment certification required as of October 1; Anti-Corruption Unit established in September 2004.
- Ongoing structural commitments include completion of employment census, audits of public enterprises (subject to donor financing), and implementation of nomenclature for capital expenditures (not yet implemented due to externally-financed project data availability).

Government program objectives for FY2004/05 (as stated in MEFP excerpt):
- Strengthen security and the rule of law and prepare national elections in 2005.
- Consolidate stabilization gains and create conditions for economic recovery and reconstruction of government and social infrastructure.
- Enhance governance and institutional and administrative capacity of public administration.
- Improve access to basic services.
- Create employment for the unskilled and for displaced populations.

- The government requests assistance under the IMF’s Emergency Post-Conflict Assistance policy in an amount of SDR 10.23 million, equivalent to 12.5 percent of quota, and hopes to benefit from an interest rate subsidy on the purchase.
- The government intends to request additional purchases under EPCA within the next twelve months, consistent with balance of payments needs and annual EPCA access limit of 25 percent of quota, with a view toward preparing a PRGF-supported program after national elections.

*Source: IMF staff report material as presented in the supplied content unit.*

### 9.      The government’s program for 2004/05 focuses on addressing Haiti’s economic and

### 9.      The government’s program for 2004/05 focuses on addressing Haiti’s economic and financial difficulties and laying the basis for a sustained improvement in living conditions

### A. Objectives and Macroeconomic Framework
- Principal objectives of the program:
  - (i) strengthen security and the rule of law and prepare national elections in 2005;
  - (ii) consolidate the stabilization gains and create conditions for economic recovery and reconstruction of government and social infrastructure;
  - (iii) enhance governance and institutional and administrative capacity of the government;
  - (iv) improve access to basic services; and
  - (v) create employment for the unskilled and for displaced populations.
- Macroeconomic targets for 2004/05:
  - Real GDP growth: 2.5 percent.
  - Consumer price inflation (end of period): about 12 percent.
  - Net international reserves (NIR) increasing to US$85 million.
- Commitment to policy stance:
  - Raise fiscal revenues, prioritize budget spending for key social and investment programs, and enhance transparency and accountability of public sector operations, including public sector enterprises.
  - Budget discipline emphasized to ease burden on monetary policy and allow decline in interest rates and recovery of private sector credit.

- Key indicators (as presented in the program table):
  - GDP at constant prices: FY 2003/04: -3.5; FY 2004/05 Prog.: 2.5
  - Consumer prices (12-month, end-of-period): FY 2003/04: 22.5; FY 2004/05 Prog.: 12.0
  - External current account balance (excluding grants): FY 2003/04: -2.7; FY 2004/05 Prog.: -7.5
  - Net international reserves (millions of U.S. dollars) 3/: FY 2003/04 Prel.: 56.4; Oct–Mar FY2004/05: 59.4; Apr–Sept FY2004/05 Prog.: 85.4; Year FY2004/05 Prog.: 85.4
  - Central government overall balance (excluding grants): FY 2003/04: -3.7; Oct–Mar FY2004/05 Prel.: -2.2; Apr–Sept FY2004/05 FY2004/05 Prog.: -3.8; Year FY2004/05 Prog.: -6.0
  - Central bank financing of the government: FY 2003/04: 2.0; Oct–Mar FY2004/05: 0.2; Apr–Sept FY2004/05: -0.2; Year FY2004/05 Prog.: 0.0

### B. Fiscal Policy
- Overall budget stance and financing:
  - 2004/05 budget targets an overall deficit of 6 percent of GDP to be financed by external resources.
  - Government revenues and external assistance expected to increase provision of key public services and public investment while eliminating need for central bank financing.
- Revenue and expenditure projections:
  - Revenues projected to increase to G15.9 billion (9.4 percent of GDP) in 2004/05 from 8.7 percent of GDP in 2003/04.
    - Drivers: broader tax base, better tax and customs enforcement, recovery of economic activity.
    - No new tax measures envisaged (except excise tax adjustment on tobacco products and on alcoholic and malt beverages); no new tax exemptions will be introduced.
  - Central government expenditures contained at G26.0 billion (15.4 percent of GDP).
    - Wage bill: G6.1 billion.
    - Allocation for police force, equipment and facilities: G2.3 billion.
    - Capital outlays programmed to increase to G10.5 billion.
- Central Government Budget 2004/05 (In percent of GDP) — FY 2004/05 Prog. (Year):
  - Revenue: 9.4
  - Expenditure: 15.4
    - Wages and salaries: 3.6
    - Net operations: 2.5
    - Transfers and subsidies: 2.4
    - Capital outlays: 6.2
  - Overall balance, excluding exceptional outlays: -6.0
  - Exceptional outlays (FY 2003/04): 1.2
  - Overall balance, including exceptional outlays: -6.0
  - Central bank financing (as shown): (-0.0)
  - Financing gap: 0.0

- Targeted and emergency allocations:
  - G360 million transferred to recapitalize the Industrial Development Fund.
  - G50 million allocated to provide guarantees for small businesses affected by arson in June 2004.
  - Emergency projects (largely reconstruction and job creation) totaling G445 million included in 2003/04 supplementary budget but not executed will be implemented during 2004/05.

- Budget management and procedural reforms:
  - Request technical assistance from the IMF to improve budget management and expenditure control.
  - Strengthen and unify budget formulation process using new budget nomenclature and identify strategic spending priorities.
  - Start 2005/06 budget preparation in the first quarter of CY2005 with draft completion by end-June.
  - Strengthen capacity to produce timely monthly fiscal data, improve expenditure approval process to limit recourse to ministerial current accounts, and enhance execution of public investment activities via coordination with donors.
- Contingency measures:
  - Government will consult with IMF staff on measures to offset revenue shortfalls, including expenditure cuts (primarily lowest-priority current expenditure on goods and services, transfers to public sector entities), and by deferring wage increases and new hiring.
  - Use revenue in excess of programmed levels to increase high-priority investment, maintenance and social projects.
  - Any additional external project financing exceeding programmed levels will be incorporated into the budget.

### C. Monetary and Exchange Rate Policy
- Inflation and reserve objectives:
  - Monetary program targets decline in inflation to 12 percent (end of period) in 2004/05 from 22.5 percent in 2003/04.
  - Program targets increase in official reserves to US$271 million by end-September 2005; this would leave gross official reserves at 1.7 months of imports.
- Central bank (BRH) policy actions:
  - BRH established ceilings on net domestic assets and will adjust interest rates and issue bonds as appropriate to control liquidity.
  - BRH will avoid foreign exchange market intervention, except for meeting its NIR target.
  - BRH will consult with IMF staff on foreign exchange market developments and central bank policies.
- Institutional strengthening and governance:
  - Strategic objective to strengthen BRH by addressing its losses and increasing independence.
  - Draft of a new central bank law that would establish independence to be revised by September 2005.
  - New code to transform status of insurance companies into financial institutions.
  - Markets for financial instruments, particularly monetary control instruments, to be modernized.
  - Requested MFD Technical Assistance mission to review monetary policy framework (including appropriateness of broad money as operational target) and assess financial condition of central bank.
  - Plan to complete an IMF safeguards assessment and publish interim audit of the BRH.
- Communications and supervision:
  - Since July 2004 BRH introduced monthly briefing sessions with the banking system; similar quarterly briefings for the private sector to begin shortly.
  - Draft of new banking law and central bank law to be completed by October 2005 for consideration once a new parliament is constituted.
  - BRH will continue to monitor commercial banks’ financial condition and strengthen surveillance of cooperatives, including expanding on-site inspections.
- Specific numerical targets and tables (as presented):
  - Program targets for net international reserves of central bank (in millions of U.S. dollars): SMP floor set at US$22 million; table shows various quarterly prog./actual values (e.g., end-September 2004 preliminary 56).
  - Memorandum items: Government total revenue (in millions of gourdes) Year FY2004/05 Prog.: 15,921; Government total expenditure (in millions of gourdes) Year FY2004/05 Prog.: 26,084.

### D. Structural Reforms and Governance
- Core commitments and actions:
  - Complete census of employment in ministries and other public sector entities by end-March 2005.
  - Complete comprehensive survey by end-March 2005 to identify domestic payments arrears of all ministries and key public sector entities; verify authenticity and establish strategy to clear past arrears by end-June 2005.
  - Reduce number of current accounts to one per ministry and per government agency by March 2005; limit outlays through current accounts to 10 percent of budgetary credits for nonwage current spending throughout the fiscal year.
  - Establish program for reinforcement and use of central taxpayer file based on Fiscal Identification Number by March 2005.
  - Implement pre-shipment inspection in all ports of entry to Haiti by September 2005.
  - Prepare and publish audit reports:
    - Audit report for central government accounts of 2001–03 to be prepared and published by September-2005.
    - Audit and publication of 2003/04 accounts by end-December 2005.
  - Publish budget documents and monthly data on budget execution regularly.
  - Donor-financed external financial and management audits of key public sector enterprises:
    - Pre-audit of Teleco completed; pre-audit of EDH to be launched by end-December 2004.
    - Terms of reference for hiring international financial auditing firms to be prepared by end-December 2004 with a view to launching audits of CAMEP, AAN, and APN before end-June 2005.
  - Anti-corruption unit established in September 2004 to become operational by end-December 2004.
  - Establish working group of Ministry of Economy and Finance and BRH to ensure quality and timeliness of fiscal and monetary data reporting; IMF technical assistance requested.
  - New CPI to be implemented by June 2005.

- Commitment to transparency:
  - Intend to publish the LOI and MEFP for the program to keep the public informed about government policies and objectives.

### E. Financing and Arrears Clearance
- Disaster and reserve context:
  - External position more vulnerable after Tropical Storm Jeanne.
  - Gross liquid official reserves at a precariously low level (six weeks of imports).
  - Disaster assistance and reconstruction will require large critical imports.
- Requests for assistance:
  - Requesting financial assistance from the IMF and urgently seeking additional donor support for disaster assistance.
- World Bank arrears and financing:
  - External payments arrears to the World Bank projected at US$52 million as of end-December 2004.
  - World Bank staff preparing operation with US$61 million policy-based financing to support reform measures in Interim Cooperation Framework.
    - Expected financing from this operation would compensate for resources used to pay arrears to the World Bank and meet remaining financing needs for the fiscal year.
    - First tranche of this loan envisaged to be disbursed in early January 2005.
  - Expect to finalize arrangements for needed bridge financing before the loan is submitted for Executive Board consideration.
  - Working to advance preparation of investment projects and programs for support by renewed lending from World Bank and other donors.
- Arrears regularization efforts:
  - Developing a comprehensive plan to regularize external payments arrears in consultation with IMF and World Bank staff.
  - Initiated discussions with Paris Club creditors to address outstanding arrears and start data reconciliation process.

### F. Program Monitoring
- Monitoring framework:
  - Performance monitored using quarterly indicative targets, structural indicative benchmarks and quarterly reviews.
  - Indicative targets for end-December 2004 and end-March 2005 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;
    - Nonconcessional external loans contracted or guaranteed by the central government.
  - Definitions of indicative targets provided in the attached Technical Memorandum of Understanding.
- Program adjustments and consultation:
  - Given uncertainty of amount and timing of budgetary assistance disbursement, program includes two adjusters (see TMU).
  - Main policy actions under the program are listed in Table 2, including structural indicative benchmarks.
  - Government commitments on external transactions:
    - 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 into restrictive bilateral payments agreements with other IMF members.
  - Haiti will consult with the IMF periodically concerning progress in implementing policies and measures to address balance of payments difficulties.

*Source: Government of Haiti — Program for 2004/05 (EPCA) as presented in the IMF document.*

### 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

### A. Net BRH credit to the central government — definition and measurement
- 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 2004.
- Change in the stock of donor special accounts according to Table “Comptes Spéciaux” of the BRH from the stock of end-September 2004 will be excluded from change in net domestic credit to the central government as defined above.
- 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 2004.

- Ceilings for the Cumulative BRH Credit to the Central Government (In millions of gourdes)
  - December 2004: -74
  - March 2005: 378

- Footnotes (as defined in source):
  - The central government comprises the presidency, prime minister’s office, parliament, national courts, treasury, and line ministries. It includes expenditure financed directly by foreign donors through ministerial accounts (comptes-courants).
  - Special accounts are transitory accounts of the central government for specific foreign-financed projects or external assistance.

### B. 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 2004.
- Change in the stock of net domestic credit of the public sector from the Banque Nationale de Credit (BNC) according to Table 610 of the BRH from the stock of end-September 2004.
- Change in the stock of net domestic credit of the public sector at other domestic banks.
- Change in the stock of donor special accounts according to Table “Comptes Spéciaux” of the BRH from the stock of end-September 2004 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 2004.

- Ceilings for the Cumulative Net Domestic Banking Sector Credit to the Nonfinancial Public Sector (In millions of gourdes)
  - December 2004: -115
  - March 2005: 297

- Footnote (as defined in source):
  - The NFPS includes the central government, the public enterprises (e.g., Teleco, EDH, APN, AAN, and CAMEP), and foreign-financed projects.

### C. 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 2004.
- Minus the change in U.S. dollars deposits of commercial banks at the BRH (“Dépôts à vue US$ des bcm à la BRH” of the BRH Table 10R) from the stock of end-September 2004.
- 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 2004.

- Target for Cumulative Change in Net International Reserves (In millions of dollars)
  - December 2004: 7
  - March 2005: 3

### D. Net Domestic Assets of the BRH — definition and measurement
- Change in net domestic assets of the BRH is defined as:
  - 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 G38 per U.S. dollar for the period October 2004–March 2005.
- The changes will be measured on a cumulative basis from the stock at end-September 2004.

- Ceilings for Cumulative Change in Net Domestic Assets of the BRH (In millions of gourdes)
  - December 2004: 806
  - March 2005: 741

### E. Nonconcessional Loans — definitions and limits
- 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.

### F. Government Current Accounts — reporting and use
- 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.

### II. Quarterly Adjustments — scope and mechanisms
- The quarterly indicative targets will be adjusted for specified amounts.

A. 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 downwards 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;
  - (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 2004: 0
  - March 2005: 0

B. 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 program financing, defined as gross disbursements of cash budgetary assistance less the stock of arrears to the World Bank and debt service falling due to multilateral and some bilateral creditors (Canada and the U.S.).
- If there is a shortfall in cash budgetary assistance, the floor on the NIR will be adjusted downward and the ceilings on BRH credit to the government, the nonfinancial public sector and BRH net domestic assets will be adjusted upward by the amount of this shortfall; the amount of adjustment will not exceed the amount of net program financing, converted into gourdes at the program exchange rate. The adjuster will be calculated on a cumulative basis from October 1, 2004.
- If external disbursements for cash budgetary support exceed the level of financing assumed in the program by more than US$5 million, the ceilings on BRH financing of the government and of the public sector and on BRH net domestic assets will be adjusted downward, and, accordingly, the floor on the NIR will be adjusted upward, by the amount of excess financing, converted into gourdes at the program exchange rate. The adjuster will be calculated on a cumulative basis from October 1, 2004.

- The projected external cash budgetary support on a cumulative basis from end-September 2004 (Program disbursements of cash budgetary assistance, and debt service and arrears clearance 1/) (In millions of U.S. dollars):
  - Program disbursements:
    - December 2004: 14.5
    - March 2005: 67.8
    - June 2005: 82.5
    - September 2005: 107.5
  - Program debt service and arrears clearance 1/:
    - December 2004: 8.7
    - March 2005: 68.7
    - June 2005: 78.5
    - September 2005: 89.6
  - Net program financing:
    - December 2004: 5.8
    - March 2005: -0.9
    - June 2005: 4.1
    - September 2005: 17.9

  - 1/ Includes debt service to the World Bank, IDB, Canada, and the U.S., and clearance of arrears to the World Bank.

### III. Provision of Information to IMF Staff — reporting frequency and content
- To ensure adequate monitoring of the program, the authorities will provide daily and weekly monetary and fiscal indicators to IMF staff.

A. Daily (Monetary Indicators)
- (a) Exchange rate;
- (b) Volume of foreign exchange transactions, of which BRH sales and purchases;
- (c) Gross international reserves;
- (d) Net international reserves.
- These data will be reported with maximum two-day lag (14-day final).

B. 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.
- Fiscal Indicators:
  - (a) Receipts;
  - (b) Expenditures.
- These data will be reported with maximum five-day lag (four-week final).

### Attachment IV — Haiti: Eligibility for Emergency Post-Conflict Assistance
- Impact of the conflict:
  - Major property damage took place (about 5.5 percent of GDP).
  - Security and political situation stabilized following arrival of a 3,600 strong multilateral interim force and the swearing in of a transition government in early March. On June 1, United Nations security forces took over peacekeeping operations.
- Urgent balance of payments need:
  - Official reserves remain at precariously low levels; forthcoming external assistance is not expected to contribute to raising reserves.
  - Haiti continues to accumulate arrears to external creditors, and the country’s capacity to meet other external payments obligations has been significantly weakened.
- Disruption in institutional and administrative capacity precluding a Fund-supported program:
  - Postponement of elections, absence of a legislative body and elected government; transition government will remain in place until local, parliamentary, and presidential elections, which are expected to be completed by late 2005.
  - Absence of a parliament and conditions for a broad participatory process preclude a PRGF-supported program and reforms requiring legislative action.
  - Administrative capacity disrupted in provinces; expected to recover gradually.
- Sufficient capacity for policy planning and implementation:
  - Key ministries and the central bank have largely preserved capacity to conduct normal government business.
  - Transition government displayed strong commitment to prudent macroeconomic policies and to strengthening governance in the public sector.
  - Satisfactory implementation of the SMP has reinforced this assessment; government requested technical assistance to strengthen capacity for planning and policy implementation.
- Fund support to be part of a concerted international effort:
  - The July 19–20, 2004 donors’ conference confirmed international support; donors pledged US$1,085 million of new financing, about US$160 million above the targeted amount.
  - The World Bank is preparing an operation in support of economic governance reforms and to help meet Haiti’s financing needs.
  - Resources pledged by donors appear adequate to comprehensively address the fallout of the conflict, in particular restore security, rebuild key institutions, and rehabilitate infrastructure in Haiti.

*IMF staff report: _cr0565 - 1. The change in net BRH credit to the central government is defined as, and will be*

### 2003. These operations support priority high impact investments in basic social services,

### _cr0565 - 2003. These operations support priority high impact investments in basic social services,

### IDB engagements and financing
- Fast disbursing PBL (Public Finance Reform) of US$25 million approved by the IDB Board to deepen governance reforms, improve capacity to report and control expenditures, assist implementation of a new budget nomenclature, and support the systems plan expenditure module.
- Combined reactivated (6) loans and new loans approved in 2003 (4) form an IDB portfolio of 10 projects in full implementation.
- Since reactivation of lending activities in July 2003, the IDB disbursed over US$72 million through October 2004.
- On July 20, 2004, the IDB pledged US$260 million in new financing to support implementation of the Interim Cooperation Framework.
- To operationalize the pledge, the IDB prepared a Transition Strategy for 2005/2006 to be considered by its Board before end-2004; the strategy includes special measures to strengthen local implementation capacity in a low-capacity and fragile country environment.
- The IDB is continuing close cooperation with the IMF on fiscal management and tax reform and with other major partners in Haiti within the ICF context.

### Real sector statistical progress and needs
- The Haitian Institute of Statistics (HIS) is publishing a harmonized CPI on a monthly basis, as recommended and facilitated by Fund technical assistance.
- HIS published national accounts for 1986/87 to 2002/2003 based on interim base year 1986/87.
- HIS publishes quarterly real sector activity indices including industrial production, energy, construction, and domestic and external trade.
- HIS will soon publish a new CPI rebased to August 2004 using the weights of the 2000 household survey.
- HIS carries out periodic household budgetary surveys; past complementary studies covered housing, education, and employment; a further study on transport is underway.
- HIS is preparing for the fourth population and habitat census.
- Further technical assistance may be needed to address outstanding deficiencies hindering the quality of real sector statistics.

### Government finance statistics — status and gaps
- Haiti reports monthly and annual GFS data regularly for publication in IFS, but no GFS data have been 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 due to insufficient detail and consistency problems.
- Further work required to:
  - extend coverage and breakdowns;
  - improve the link between nonfinancial and financial transactions as well as the outstanding of debt;
  - compile a functional breakdown of expenditure.
- Improvements require additional human and financial resources.
- Reporting of budgetary expenditures, especially ministerial discretionary accounts, should be improved to increase transparency.
- Need to improve timeliness of publication of accounts of public enterprises and the nonfinancial public sector.

### Monetary statistics and banking supervision
- Continuous work has improved sectorization and classification of accounts in analytical balance sheets of the Bank of the Republic of Haiti (BRH) and commercial banks.
- Efforts undertaken to strengthen reporting requirements for commercial banks to reinforce bank supervision, enforce reporting according to Basel Core Principles, and step up the fight against illicit transactions.
- These efforts have at times affected timeliness of compilation and reporting of money and banking statistics.

### Balance of payments data
- Progress has been made toward improving reliability of balance of payments data following implementation of several technical assistance mission recommendations.
- Scope for improvement remains, notably in methodology for compiling trade data, collecting trade and services data, and more systematic use of existing sources (customs, port and airport agencies, airlines, oil companies).

### Core macroeconomic and program-related indicators (selected exact figures from statements)
- CPI inflation: declined from 0.84 percent (month-over-month) in October to 0.21 percent in November 2004.
- Exchange rate: the gourde has remained stable at about G37/US$.
- Net international reserves (NIR): preliminary data indicate NIR was about US$97 million at end-December, above the program floor of US$63 million; included US$12.7 million of Canada’s contribution for clearance of arrears to the World Bank.
- Arrears to the World Bank: US$52.6 million cleared on January 4, 2005 using a combination of grant financing from Canada and Haiti’s international reserves.
- World Bank disbursement following clearance: US$46 million (Board approval on January 6).
- IMF emergency assistance approved: SDR 10.23 million (about US$15.6 million) in Emergency Post-Conflict Assistance (EPCA).
- Losses from political crisis and floods: valued at more than 5.5 percent of GDP and more than 5,600 lives.
- IDB disbursements since July 2003 through October 2004: over US$72 million.
- IDB pledge on July 20, 2004: US$260 million.
- Reactivated loans in 2003: 6; new loans approved in 2003: 4; total ongoing portfolio projects: 10.

### Policy performance and implementation actions (completed or underway)
- Pre-audit of Teleco completed; request for bids for pre-audit of the electricity company (EDH) launched.
- Terms of reference prepared and request for bids launched for international financial audits of Metropolitan Port-au-Prince Potable Water Authority, Airport Authority, and Seaport Authority.
- Anti-corruption unit set up to become operational in 2005; action plan being implemented and 25 employees nominated.
- Decree to end systematic internal control for normal expenditures by the Cour Supérieure des Comptes et du Contentieux Administratif (CSCCA) awaiting Cabinet approval.
- Publication of information on quarterly budget execution on the BRH website to be initiated by mid-January 2005.
- Interim audit of the BRH finalized.
- Listings of entities and financial benefits received from the Industrial Development Fund and the guarantee fund for small businesses affected by arson in June 2004 being compiled for publication by end-January.
- Outlays through current accounts limited to 10 percent of budgetary credits for nonwage current spending throughout the fiscal year.

### Economic governance reforms and institutional strengthening
- Transitional Government implemented high-impact reforms to strengthen institutions and promote transparency with the aim of durable practices and policies.
- Reforms include strengthening budget management and expenditure control, making public contracts bidding and awards transparent and fair, fighting corruption, increasing financial sector surveillance (including cooperatives), and stepping up the fight against illicit transactions.
- Specific measures to enhance transparency and accountability:
  - Use of a new nomenclature allowing detailed information on expenditures and receipts.
  - Closing more than one hundred discretionary current accounts and limiting remaining ones to strictly approved emergency expenditures.
  - Reinstatement of the annuity of the budget and regular publication of execution data.
  - Extension of pre-shipment inspections to strengthen customs control.
  - Establishment of an Anti-Corruption Unit at the Ministry of Economy and Finance.
  - Financial Intelligence Unit (UCREF) fully operational and issuing first reports on suspected illicit transactions.
- Public procurement: a credible and effective system has been put in place and a decree is being drafted to establish an Interim Procurement Commission to strengthen public procurement processes.

*Statement by the IMF Staff Representative; Press Release No. 05/4; Statement by Murilo Portugal and Ketleen Florestal (as included in the provided content).*

### 9.      In the state-owned enterprises (SOEs), after the appointment of new managers,

### 9.      In the state-owned enterprises (SOEs), after the appointment of new managers,

### SOE audits, accounting, and governance
- External audits of the five major enterprises are well on the way, with the help of the World Bank.
- The financial accounts of three SOEs have already been prepared according to international standards in order for them to undergo international financial audits.
- Authorities are committed to continue implementing measures under the SMP to improve public sector governance and transparency and to strengthen institutional capacity.
- Grants and loans are being secured from donors and IFIs (mainly the Inter-American Development Bank and the World Bank). Technical assistance is also being sought from the Fund.
- Legislation governing the Central Bank and the financial sector is to be modernized to reinforce Central Bank autonomy from the Government and to assert its rule over insurance companies.
- Since October 2004, an IMF safeguards assessment has been initiated at the request of the authorities.

### Public sector wages, staffing, and payroll control
- During the past decade, the continuous erosion of the purchasing power of public servants by inflation and depreciation of the national currency has had a noticeable impact on performance in both the Central Government and SOEs.
- A general wage increase was granted to Central Government employees at the beginning of the last quarter of this fiscal year to maintain and recruit quality staff.
- A census of public sector employees was completed in 14 ministries and 29 autonomous public sector entities and will be concluded for all public entities during the next few months.
- The principal objective of the census is to ensure that salaries are being paid only to those effectively working.

### Fiscal policy, cash management, and Central Bank oversight
- Under the SMP, quantitative targets were attained by eliminating all non-essential expenditures and increasing revenue mobilization.
- A cash management system was implemented, synchronizing expenditure outlays with the cashing of receipts.
- In 2004-05, a significant portion of the budget is being financed externally (in the form of grants and concessional loans to avoid increasing further the debt burden), allowing a substantial increase in capital outlays (close to a 100 percent) and eliminating the need for Central Bank financing.
- The interim audit of the BRH, covering the period of September 2003 to March -2004, has been completed, and the BRH has contracted for the audit for the second half of FY 2003/04.

### External financing, arrears clearance, and donor coordination
- Haiti urgently needs external capital inflows to ensure the recovery of its economy.
- Donor support for the Interim Cooperation Framework (ICF) was appreciated; implementation delays occurred due to security concerns, limited government financial capacity to hire high level human resources, and unfamiliarity with donors’ procedures after a prolonged absence of the international community.
- A high-level committee chaired by the Prime Minister with donor participation has been set up to speed up implementation of the ICF investment program.
- The Canadian Government offered to cover US$12.7 million of a total of US$52.6 million outstanding arrears due to the World Bank.
- Different options for covering the remaining US$40 million were considered but entailed financial costs and delays; with the guarantee that a first tranche of US$46 million of the adjustment credit and grant for the Governance Reform Operation with the World Bank would become available within 48 hours of being effective, Haiti decided to cover the remaining US$40 million with Central Bank reserves.
- On January 4, 2005, all arrears with the World Bank were cleared and for the first time since 1996, a project presented to the World Bank Board for IDA financing was approved.
- Projected debt service and the stock of arrears were estimated respectively at US$55.3 million and US$77.1 million at the end of FY 2004, while net reserves were US$56 million with a targeted increase of US$29 million under the EPCA.
- Even with the projected significant increase in external budget support, net flows will represent less than 17 percent of gross disbursements.
- A correspondence was addressed to the Paris Club Secretariat asking creditors to apply an informal deferral of debt service due until the date when an agreement with the Paris Club is reached.

### Conclusion and requests for assistance
- Haiti expresses gratitude for international community support pledged at the July 2004 donors’ conference in Washington and additional humanitarian assistance following floods.
- Haiti welcomes continued dialogue with the Fund, constructive policy advice, and looks forward to concretization of Fund technical assistance, particularly for revenue administration and speedy improvement of monetary and financial statistics.

*Source: _cr0565 - 9.      In the state-owned enterprises (SOEs), after the appointment of new managers,*

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