## _cr06338

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### I. Purpose, eligibility assessment, and prospective debt relief
- Preliminary assessment of Haiti’s eligibility for assistance under the Enhanced Heavily Indebted Poor Countries (HIPC) Initiative based on IMF/IDA staff missions through June 2006 and reconciled external debt data as of end-September 2005.
- Preliminary DSA indicates external debt burden would remain above the HIPC threshold after traditional debt relief.
- Conditions for HIPC debt relief:
  - Continue satisfactory implementation of the Emergency Post-Conflict Assistance (EPCA) supported macroeconomic program.
  - Agree on appropriate completion point triggers.
  - Finalize the I-PRSP.
- Estimated prospective debt relief (end-September 2005, NPV terms):
  - Possible HIPC debt relief: US$139 million.
  - Relief associated with the Multilateral Debt Relief Initiative (MDRI): about US$243 million.
- Expected impact: HIPC and MDRI debt relief would help accelerate progress toward the Millennium Development Goals (MDGs).

### II. Poverty, social and political indicators — key statistics and assessments
- Poverty incidence (2001 unless noted):
  - 54 percent of the population below US$1 a day.
  - 78 percent below US$2 a day.
  - Rural: 69 percent (US$1 a day); 86 percent (US$2 a day).
  - Regional poverty: Ouest region 34 percent; Nord-Est region 81 percent.
  - Income concentration: nearly half of national income goes to the richest 10 percent.
- Social and health indicators:
  - Adult illiteracy: 60 percent (1990) to 52 percent (2003).
  - Adult literacy ratio (2003): 51.9 percent.
  - Primary school net enrollment ratio (2001): 55 percent (rural enrollment lower at 23 percent).
  - HIV prevalence (UNAIDS, 2003): 5.6 percent of adults age 15–49.
  - UN Human Development Index (2005): ranked 153rd out of 177 countries.
  - Infant mortality rate (per thousand, 2003): 76.
  - Child mortality rate (per thousand, 2002): 118.
  - Maternal mortality rate (per 100,000 live births, 2000): 680.
  - Access to improved water source (% of population, 2002): 71 percent.
- Political/security context and government priorities:
  - Recent successful presidential and parliamentary elections; coalition government formed.
  - Government priorities: primary education, rapid job creation, electricity, basic services in urban slums, inclusive national development.
  - Authorities committed to economic governance reform and combating corruption.
- Development challenge summary:
  - Restored security critical for economic recovery; donor support and strengthened public institutions required.
  - HIPC debt relief would create fiscal space for poverty-related expenditures and encourage public expenditure management reforms.

### III. Recent policy track record and macroeconomic performance (selected numbers)
- IMF/IDA program status and donor support:
  - IMF approved EPCA: DR10.25 million (~US$14.7 million) October 2005; earlier EPCA SDR10.23 million (~US$15.6 million) January 2005.
  - Arrears clearance to IDA of US$53.4 million in early 2005 enabled EGRO of US$61 million and two technical assistance grants of US$2 million each.
- Macroeconomic indicators (fiscal years / projections as presented):
  - GDP at constant prices: 2002/03: 0.4; 2003/04: -3.5; 2004/05: 1.8; 2005/06 Proj.: 2.5.
  - Real GDP per capita: 2002/03: -1.7; 2003/04: -5.4; 2004/05: -0.2; 2005/06 Proj.: 0.7.
  - Consumer prices (end-of-period): 2002/03: 37.8; 2003/04: 21.7; 2004/05: 14.8; 2005/06 Proj.: 14.0.
  - Central government overall balance (including grants, percent of GDP): 2002/03: -3.5; 2003/04: -2.4; 2004/05: -0.4; 2005/06 Proj.: -1.7.
  - Broad money (changes in percent): 2002/03: 39.8; 2003/04: 9.1; 2004/05: 20.3; 2005/06 Proj.: 6.7.
  - Net international reserves (millions of U.S. dollars): 2002/03: 38.8; 2003/04: 54.5; 2004/05: 70.6; 2005/06 Proj.: 109.0.
  - Liquid gross reserves (millions of U.S. dollars): 2002/03: 157.1; 2003/04: 207.4; 2004/05: 228.5; 2005/06 Proj.: 312.5.
  - Liquid gross reserves (months of next-year imports): 2002/03: 1.2; 2003/04: 1.4; 2004/05: 1.4; 2005/06 Proj.: 1.7.
- Outcomes and risks:
  - GDP growth expected to increase to 2.5 percent in FY2006 from 1.8 percent in FY2005.
  - Fiscal consolidation: central government overall deficit reduced from 3.5 percent of GDP in FY2003 to a projected 1.1 percent in FY2006 (text), table lists -1.7 percent for 2005/06 projected.
  - Inflation reduced from 38 percent in FY2003 to a projected 14 percent in FY2006.
  - EPCA-supported program on track; key quantitative targets likely to be met.

### IV. Governance and structural reforms — implementation progress and priorities
- Main governance/public sector weaknesses identified (early 2004):
  - (i) budget formulation, execution and reporting; (ii) public procurement; (iii) public enterprise management and road maintenance; (iv) human resource management; (v) the financial sector.
- Budget and fiscal management reforms and status:
  - Passage of a new Organic Budget Law; new budget classification and chart of accounts.
  - Budgets for FY2005 and FY2006 approved before start of fiscal year; public dissemination of allocations and execution information.
  - Reduction in use of comptes courants for non-salary current public expenditures from 62 percent (Oct 2003–Mar 2004) to less than 10 percent from FY2005.
  - Slower progress: monitoring/audit of electricity sector transfers; full verification of domestic payment arrears.
- Public procurement and anti-corruption:
  - New Procurement Decree and Interim National Commission for Public Procurement (CNIMP) created in 2004.
  - Anti-Corruption Unit (ULCC) created in 2004; diagnostic survey completed March 2006; final report expected by end-July, 2006.
  - Draft law for public sector employees’ asset declaration prepared.
- Public enterprises and infrastructure:
  - 2006 financial audits launched for APN, TELECO, EDH and CAMEP; audit of APN complete with action plan; remaining audits expected by August/September.
  - Road Maintenance Fund (FER, created in 2003) strengthened in 2005–06.
- Human resources and civil service:
  - Public sector employment in 2004: 0.7 percent of the population.
  - New Civil Service Decree enacted in 2004; employment census in selected ministries completed.
- Financial sector:
  - Weaknesses in BRH monetary management and controls; BRH experienced operational losses.
  - Draft new banking law to be finalized and submitted to parliament later this year.
  - BRH financial statements for year ended September 30, 2004 published with one-year delay; 2005 statements not yet published.
  - Safeguards assessment conducted; vulnerabilities being addressed.

- Reform priorities going forward (to be reflected in I-PRSP):
  - Maintain macroeconomic stability and deepen economic governance reforms.
  - Link increased public expenditure to institutional capacity development.
  - Increase government revenues to underpin spending on security, infrastructure, health and education.
  - Specific focuses: implement legal/institutional frameworks; enhance budget management and procurement; improve public enterprise management; strengthen human resource management; reform monetary policy and BRH operations; strengthen education and health financing and accreditation.

### V. Medium-to-long-term macroeconomic framework (2006–25) — projections and fiscal targets
- Real output growth:
  - Projected to average 4.7 percent over 2006–25.
  - Short-term: strengthen sharply with improved security, external support and public investment.
  - Long-term: expected to stabilize at 5.0 percent.
- Inflation:
  - Past 10-year average: 17 percent.
  - Expected to decline gradually to 5–7 percent over the medium term from 15 percent in FY2005.
- Fiscal stance and revenues:
  - Central government overall deficit expected to average about 2.0 percent of GDP over the projection period.
  - Fiscal revenues projected to increase to about 16 percent of GDP by FY2025 (from about 9.3 percent over FY2004–06).
  - Measures to boost revenues: customs control in provinces, limit industrial tax exemptions, enhanced computerization of tax and customs administration, introduce unique taxpayer identification number.
- Investment and external accounts:
  - Investment needs to increase by about 6 percent of GDP over the projection horizon; investment reported at 27 percent of GDP in 2005 (note on possible overestimation).
  - Public investment expected to rise from about 4 percent of GDP in 2005 to about 8 percent of GDP in 2011.
  - External current account deficit (excluding grants) expected to decline from over 8 percent of GDP in 2006 to about 5.6 percent by end of projection period.
  - International reserves expected to increase from 1.6 months of imports in 2005 to over three months from 2010.

### VI. External debt reconciliation, structure, and HIPC costing (end-September 2005)
- Debt reconciliation: loan-by-loan DSA based on end-September 2005 data; reconciliation completed in June 2006 with 100 percent of multilateral and bilateral debt reconciled.
- External debt stock (prior to traditional debt relief), as of end-September 2005 (in US$ million):
  - Total: 1,332.2 (100.0 percent).
  - Multilateral: 1,097.8 (82.4 percent).
  - Bilateral: 234.4 (17.6 percent).
    - Paris Club: 188.7 (14.2 percent).
    - Other Official Bilateral: 45.7 (3.4 percent).
- NPV of debt after traditional relief (memorandum): 176 (in % of exports).
- Creditor shares and arrears:
  - IDA and IADB largest external creditors, representing approximately 38 percent and 40 percent of total claims, respectively (tables present precise creditor-level figures).
  - Outstanding debt to Italy, France and Spain includes arrears amounting to about US$35 million (stock of arrears to France, Spain, Italy estimated at US$35.4 million as of end-September 2005 and projected to increase to US$42.3 million at end-September 2006).
  - Haiti has no external commercial creditors.

- Haiti’s debt in NPV terms after full traditional relief:
  - Estimated at US$926 million (as of end-September 2005) = 176 percent of exports.
  - HIPC eligibility: above the 150 percent export threshold; required HIPC NPV debt relief = US$139 million (common reduction factor 14.95 percent).
  - Contribution estimates to US$139 million NPV relief:
    - Approximately US$119 million from multilateral creditors.
    - About US$20 million from bilateral creditors.
  - Nominal debt service relief over time under assumed modalities: about US$205 million.

### VII. Projected HIPC and MDRI assistance, timing, and modalities
- IDA:
  - Total assistance US$52.2 million (NPV), including estimated US$32.8 million related to concessional rescheduling of arrears in early 2005.
  - IDA to provide debt-service reduction on debt outstanding and disbursed as of end-September 2005 immediately after decision point approval.
- IMF:
  - Total assistance US$3.1 million (NPV).
  - IMF to extend interim assistance in the form of debt-service reduction immediately following decision point, subject to financing assurances.
  - Most IMF grant assistance expected to be disbursed at completion point covering debt service during 2009–10.
- Paris Club bilateral creditors:
  - Assumed to provide flow rescheduling on Cologne terms (90 percent NPV reduction) after decision point (assumed Oct/Nov 2006), with remaining assistance at completion point through stock-of-debt operation; rescheduling expected to translate into US$14.5 million NPV.
- MDRI:
  - Upon completion point, Haiti would qualify for MDRI debt relief from IDA covering IDA debt disbursed prior to end-December 2003.
  - Assuming completion point by end-September 2008, preliminary IDA MDRI estimates: US$465 million nominal (US$243 million NPV), excluding HIPC assistance.
  - Comparison: possible HIPC assistance US$205 million nominal (US$139 million NPV).
  - A one-year delay in reaching completion point could forgo about US$9 million in debt relief.
  - Post-MDRI NPV debt-to-exports ratio expected range: 87–94 percent over projection period.

### VIII. Debt Sustainability Analysis (DSA) baseline assumptions and projections
- Key baseline macro assumptions (2006–25):
  - Annual real GDP growth averages 4.7 percent.
  - CPI inflation decelerates from 15 percent in 2006 to 5–7 percent medium run.
  - Investment ratio increases by 6 percent of GDP in long term.
  - Public investment increases from about 4 percent of GDP in 2005 to about 8 percent in 2011.
  - Central government revenue increases from 9.6 percent of GDP in 2005 to about 16 percent by 2025.
  - External grants decline from 8 percent of GDP in 2006 to 3.5 percent by 2025.
  - External current account deficit (excluding grants) contracts from over 8 percent of GDP in 2006 to about 5.5 percent in long run.
- DSA projections and core finding:
  - With unconditional HIPC delivery, Haiti’s NPV of debt-to-exports ratio expected to fall from 150 percent (end-September 2005) to ~100 percent by 2025, staying below 150 percent during 2007–25.
  - Staff projections for end-September 2006 suggest Haiti’s NPV debt could be below 150 percent in 2007 without HIPC assistance.

### IX. Sensitivity analysis — stress scenarios and policy implications
- General finding: Haiti’s external debt position after HIPC relief is highly vulnerable to export performance, real GDP growth, and the concessionality of new borrowing.
- Scenario 1 — Lower concessionality of new borrowing:
  - Assumption: new borrowing from 2006 carries 100 basis points higher interest, combined grant element reduced to 33 percent (vs. 45 percent baseline); exports unchanged.
  - Result: NPV of debt-to-exports slowly deteriorates, stabilizing at about 120 percent from 2015.
- Scenario 2 — Lower export growth:
  - Assumption: exports grow at recent-average-minus-one-standard-deviation (average 12 percent minus 5 percentage points = 7 percent; text states reduction of about 3.5 percentage points versus baseline).
  - Result: After full HIPC, NPV debt-to-exports breaches HIPC threshold in 2014 and reaches 196 percent in 2025 (deterioration ~2.0 percentage points in 2006 to almost 100 percentage points by 2025).
- Scenario 3 — Lower GDP growth:
  - Assumption: GDP grows 2.0 percentage points lower than baseline (details by decade).
  - Result: After full HIPC, NPV debt-to-exports falls to 121 percent by 2013 then rises to 162 percent by 2025 (increase vs baseline ~0.3 percentage points in 2006 to 63 percentage points by 2025).
- Policy-relevant conclusions:
  - Priority actions to safeguard sustainability:
    - (i) re-establish internal security;
    - (ii) create a conducive environment for private investment via infrastructure and institutional strengthening to develop exportable production;
    - (iii) implement a prudent debt management strategy emphasizing grant-heavy external assistance.

### X. Decision point, completion point timing, and completion point triggers
- I-PRSP expected completed by government by August-September 2006 and presented with JSAN in October 2006 at proposed Decision Point.
- Staff proposal: Decision Point considered by IDA and IMF Boards in October 2006, together with IMF Board approval of a PRGF arrangement, conditional on:
  - (a) continued satisfactory EPCA implementation;
  - (b) understandings on completion point triggers; and
  - (c) finalization of the I-PRSP.
- Possible broad completion point triggers (floating completion point):
  1. PRSP: full PRSP prepared via participatory process and satisfactory implementation for at least one year evidenced by Annual Progress Report.
  2. Macroeconomic stability: satisfactory performance under PRGF-supported program.
  3. Public finance management and governance measures, including but not limited to:
     - (a) medium-term (three-year) macro framework and budget projections consistent with pro-poor expenditures;
     - (b) adequate budget classification; publication of reports and tracking mechanism for pro-poor expenditures;
     - (c) alignment of public spending with I-PRSP/PRSP priorities;
     - (d) strict limitation of non-salary current public expenditures through comptes courants;
     - (e) successive annual audits of Government accounts by the Supreme Audit Institution, submitted to Parliament and publicly disclosed;
     - (f) adoption and implementation of a new procurement law in line with international best practice;
     - (g) adoption and implementation of asset declaration law for public employees;
     - (h) key public enterprises current on financial audits and implementing audit recommendations.

### XI. Monitoring and use of HIPC Initiative resources; possible expenditure priorities
- Monitoring approach prior to completion point:
  - HIPC resources monitored at entity (ministries, public institutions, executing agencies) and project levels; entities coded by core mandate for poverty reduction.
  - Projects contributing to poverty reduction to be identified as defined in I-PRSP.
  - Limited HIPC resources to focus largely on health and education; infrastructure to be financed by other external resources.
- Joint IMF and IDA Assessment and Action Plan (June 2006) findings:
  - Haiti lacks a program budget but recent budget/accounting classifications allow monitoring of allocations/expenditures by institutional, sectoral, administrative and economic dimensions.
  - Functional classification in budget law annexes covers 10 broad categories (e.g., education, health).
- Possible expenditure priorities for HIPC debt relief (Box 4):
  - Education: Education for All (EFA) program; textbooks, teaching materials, uniforms; school feeding.
  - Health: drug availability; immunization programs (including mobile brigades); malaria prevention; parasite control in schools; surveys and programs on iodine and micronutrient deficiencies; equipment/supplies for maternity wards; HIV/AIDS prevention and health education; strengthen epidemiology services.
  - Water and sanitation: improving access for poor urban and rural households.
  - Environment: environmental protection and natural disaster prevention activities.
- Budget monitoring, audits, and donor support:
  - MEF publishes periodic budget execution reports on its web page for in-year monitoring and public dissemination.
  - Measures under way to become current with annual government account audits by CSCCA.
  - Interim assistance requirements: poverty-related programs/projects financed within interim assistance need to be included in FY2007 and subsequent budgets.
  - Given significant development gaps, Haiti unlikely to achieve all MDGs by 2015; with external assistance (including HIPC and MDRI) could reach some MDGs notably goal 2 and goal 7 and make progress on others.

### XII. Debt service projections, IMF/IDA delivery schedules, and discount/exchange assumptions (selected figures)
- Total external debt service (millions of U.S. dollars, selected years from Table A4):
  - Before traditional relief: 2005/06 = 60.1; 2006/07 = 63.2; 2007/08 = 67.9; 2008/09 = 78.7; 2009/10 = 77.7; 2014/15 = 96.8; 2024/25 = 123.0.
  - After HIPC and MDRI assistance: 2008/09 = 50.4; 2009/10 = 50.0; 2014/15 = 67.7; 2024/25 = 96.0.
- Selected memo items (Table A4):
  - Exports of goods and nonfactor services: 2004/05 = 659.3; 2005/06 = 721.7; 2006/07 = 783.1; 2024/25 = 2,769.1.
  - Government revenues (selected): 2004/05 = 428.9; 2005/06 = 516.3; 2006/07 = 580.6; 2024/25 = 2,846.7.
- Discount rates and exchange rates (end-September 2005, Table A3, selected):
  - United States Dollar: Discount Rate 5.05; Exchange Rate 1.00.
  - Euro: Discount Rate 4.11; Exchange Rate 0.83.
  - Japanese Yen: Discount Rate 1.85; Exchange Rate 113.15.
  - Special Drawing Rights: Discount Rate 4.35; Exchange Rate 0.69.
  - Memorandum: Paris Club cutoff date: October 1, 1993.
- Possible delivery of IMF assistance under enhanced HIPC (Table A9, FY2007–2016, selected):
  - Total IMF assistance: US$ 2.15 million in NPV terms (note: table also presents delivery schedule in percent: FY2007: 20.0; FY2008: 20.0; FY2009: 55.0; FY2010: 5.0).
  - Interim IMF assistance deposited into Haiti's Umbrella Account: 0.6 (first delivery at expected decision point in October 2006).
  - Completion point IMF assistance: 1.9 (most IMF grant HIPC assistance assumed disbursed into account at completion point in September 2008).

### XIII. Debt management capacity — status and recommended capacity-strengthening measures
- Current institutional setup:
  - Debt management responsibility shared by BRH and MEF.
  - BRH maintains a relatively complete debt database; MEF archives damaged by 2002 fire and rebuilding database with BRH support.
  - BRH updates database each payment cycle and produces monthly, quarterly and annual external debt reports; reports available to public upon request within one month after reference period.
  - BRH uses DMFAS version 5.2; consideration of upgrading contingent on donor financing and UNCTAD assessment.
- Typical procedures:
  - BRH sends MEF monthly statement of debt service due next month; MEF issues payment order at month-end; BRH debits Treasury account to pay creditors.
  - BRH cannot legally pay a creditor without disbursement information.
- Recommended capacity-strengthening measures:
  - (i) clarify by law the debt management responsibilities of BRH and MEF;
  - (ii) improve information sharing and frequent debt reconciliation exercises between BRH and MEF;
  - (iii) shorten procedures for debt service payments;
  - (iv) improve tracking of disbursements;
  - (v) acquire a modern debt reporting system;
  - (vi) provide staff training;
  - (vii) improve capacity to produce debt sustainability analyses.

*Source: IMF/IDA staff assessment as presented in the document “Preliminary assessment of the eligibility of the Republic of Haiti for assistance under the Enhanced Heavily Indebted Poor Countries (HIPC) Initiative,” based on missions through June 2006 and reconciled debt data as of end-September 2005.*

### 1. Selected Poverty and Social Indicators..........................................................................6

### 1. Selected Poverty and Social Indicators

### I. Introduction — purpose and key assessments
- Preliminary assessment of the eligibility of the Republic of Haiti for assistance under the Enhanced Heavily Indebted Poor Countries (HIPC) Initiative.
- Assessment based on IDA and IMF staff missions (most recently June 2006) and reconciliation of external debt data as of end-September 2005.
- Preliminary debt sustainability analysis (DSA) indicates Haiti’s external debt burden would remain above the HIPC Initiative threshold after application of traditional debt relief mechanisms.
- Conditions for HIPC debt relief:
  - Continue satisfactory implementation of the Emergency Post-Conflict Assistance (EPCA) supported macroeconomic program.
  - Agree on appropriate completion point triggers.
  - Finalize the I-PRSP.
- Estimated prospective debt relief (end-September 2005 NPV terms):
  - Possible HIPC debt relief: US$139 million.
  - Relief associated with the Multilateral Debt Relief Initiative (MDRI): about US$243 million.
- Expected impact: debt relief under HIPC and MDRI would help accelerate progress toward the Millennium Development Goals (MDGs).

### II. Background and eligibility context
- IMF/IDA program status:
  - IMF approved DR10.25 million (about US$14.7 million) in EPCA in October 2005; earlier EPCA of SDR10.23 million (about US$15.6 million) in January 2005.
  - IMF Directors indicated support for a rapid transition to a Poverty Reduction and Growth Facility (PRGF).
  - Discussions ongoing for a PRGF arrangement scheduled to be presented to the IMF Board in October 2006.
  - Haiti is an IDA-only country; GNI per capita US$450 in 2005 (World Bank Atlas methodology).
  - Transitional Support Strategy discussed by IDA Board on January 6, 2005; an Interim Strategy Note under preparation.
  - Haiti likely to remain IDA-only and eligible for PRGF resources for the foreseeable future.

### III. Poverty, social and political conditions — key findings
- Long-term trends and structural context:
  - Political and economic instability, recurrent deterioration in security, low growth, and high inequality and poverty have been central challenges.
  - Real income per capita declined on average by 2 percent annually over the past twenty years.
  - Marked inequalities in access to productive assets and public services; low growth has resulted in widespread poverty.
- Poverty incidence and regional disparities (2001 data for Haiti unless noted):
  - About 54 percent of the population lives below the US$1 a day poverty line.
  - 78 percent below US$2 a day.
  - Rural poverty incidence: 69 percent for US$1 a day and 86 percent for US$2 a day.
  - Regional poverty: Ouest region 34 percent; Nord-Est region 81 percent.
  - Nearly half of national income goes to the richest 10 percent of the population.
- Social indicators:
  - Adult illiteracy decreased from 60 percent in 1990 to 52 percent in 2003.
  - Adult literacy ratio (2003): 51.9 percent.
  - Primary school net enrollment ratio (2001): 55 percent; rural enrollment lower at 23 percent (rural 6–12 statistic noted earlier in text).
  - UNAIDS estimate for HIV prevalence (2003): 5.6 percent of adults age 15–49.
  - UN Human Development Index (2005): Haiti ranked 153rd out of 177 countries.
- Health and mortality:
  - Infant mortality rate (per thousand, 2003): 76.
  - Child mortality rate (per thousand, 2002): 118.
  - Maternal mortality rate (per 100,000 live births, 2000): 680.
  - Access to improved water source (% of population, 2002): 71 percent.
- Security and governance:
  - Recent successful presidential and parliamentary elections; coalition government formed and received almost unanimous parliamentary approval.
  - Government priorities include primary education, rapid job creation, electricity, basic services in urban slums, and inclusive national development.
  - Authorities committed to economic governance reform and combating corruption.
- Development challenge summary:
  - Restored security is critical for economic recovery; sustained security depends on quick, visible improvements in living conditions.
  - Strengthening public institutions and economic governance required to ensure inclusive, sustained growth.
  - Donor financial and technical support will be critical.
  - HIPC debt relief would create fiscal space for poverty-related expenditures and encourage public expenditure management reforms.

### IV. Policy track record and reform agenda
- Programs and donor support since mid-2004:
  - Interim Cooperation Framework (ICF) supported donors’ assistance.
  - Initial macroeconomic framework via Fund’s staff-monitored program (SMP) April–September 2004.
  - IMF EPCA supported macroeconomic program with disbursements January 2005 and October 2005.
  - Arrears clearance to IDA of US$53.4 million in early 2005 enabled World Bank support:
    - Economic Governance Reform Operation (EGRO) of US$61 million.
    - Two Economic Governance Technical Assistance grants of US$2 million each.
  - IDB and bilateral donors also provided significant support.
- Macroeconomic performance and indicators (selected):
  - GDP at constant prices:
    - 2002/03: 0.4
    - 2003/04: -3.5
    - 2004/05: 1.8
    - 2005/06 Proj.: 2.5
  - Real GDP per capita:
    - 2002/03: -1.7
    - 2003/04: -5.4
    - 2004/05: -0.2
    - 2005/06 Proj.: 0.7
  - Consumer prices (end-of-period):
    - 2002/03: 37.8
    - 2003/04: 21.7
    - 2004/05: 14.8
    - 2005/06 Proj.: 14.0
  - Central government overall balance (including grants, percent of GDP):
    - 2002/03: -3.5
    - 2003/04: -2.4
    - 2004/05: -0.4
    - 2005/06 Proj.: -1.7
  - Broad money (including foreign currency deposits, changes in percent of beginning-of-period broad money):
    - 2002/03: 39.8
    - 2003/04: 9.1
    - 2004/05: 20.3
    - 2005/06 Proj.: 6.7
  - Net international reserves (NIR, in millions of U.S. dollars, excludes commercial banks' foreign currency deposits with the BRH):
    - 2002/03: 38.8
    - 2003/04: 54.5
    - 2004/05: 70.6
    - 2005/06 Proj.: 109.0
  - Liquid gross reserves (in millions of U.S. dollars; gross reserves excluding capital contributions to international organizations):
    - 2002/03: 157.1
    - 2003/04: 207.4
    - 2004/05: 228.5
    - 2005/06 Proj.: 312.5
    - In months of imports of the following year:
      - 2002/03: 1.2
      - 2003/04: 1.4
      - 2004/05: 1.4
      - 2005/06 Proj.: 1.7
- Outcomes and risks:
  - Economy gradually recovered from 2004 shocks; annual GDP growth expected to increase to 2.5 percent in FY2006 from 1.8 percent in FY2005.
  - Recurring security problems adversely affected economic activity, donor project implementation, and other inflows of foreign exchange.
  - Fiscal consolidation: central government overall deficit (including grants) reduced from 3.5 percent of GDP in FY2003 to a projected 1.1 percent in FY2006 (text states 1.1 percent; table lists -1.7 percent for 2005/06 projected—both figures appear in source).
  - Reduction in recourse to central bank financing of the central government deficit.
  - End-of-period inflation reduced from 38 percent in FY2003 to a projected 14 percent in FY2006, though still high relative to comparable low-income countries.
  - NIR increased, raising import coverage from 1 1⁄4 months in FY2003 to an anticipated 1 1⁄2 months in FY2006.
  - EPCA-supported program remains on track; key end-June and end-September quantitative targets likely to be met.

*Source: IMF/IDA staff assessment as presented in the document “Preliminary assessment of the eligibility of the Republic of Haiti for assistance under the Enhanced Heavily Indebted Poor Countries (HIPC) Initiative,” based on missions through June 2006 and reconciled debt data as of end-September 2005.*

### 12.  Progress has also been achieved in the implementation of structural and economic

### 12.  Progress has also been achieved in the implementation of structural and economic governance measures, notably under the EPCA and EGRO

### Implementation progress: governance and public sector management
- Main weaknesses identified as of early 2004:
  - (i) budget formulation, execution and reporting;
  - (ii) public procurement;
  - (iii) public enterprise management and road maintenance;
  - (iv) human resource management; and
  - (v) the financial sector.
- Budget formulation, execution and reporting — recent measures and status:
  - Passage of a new Organic Budget Law and adoption of a new budget classification and chart of accounts.
  - Approval of the budgets for FY2005 and FY2006 before the start of the fiscal year and regular public dissemination of key budget allocations and execution information.
  - Preparation of the FY2006 budget according to the new budget classification.
  - Drastic reduction of discretionary spending through ministerial comptes courants.
    - The percentage of non-salary current public expenditures disbursed through comptes courants was reduced from 62 percent during October 2003–March 2004 to less than 10 percent from FY2005.
  - Strengthening of the external audit function with a decree on the organization and functioning of the Cour Supérieure des Comptes et Du Contentieux Administrative (CSCCA).
  - Slower progress on: (i) effective monitoring and independent audit of budgetary transfers to the electricity sector; (ii) full verification of a survey of domestic payment arrears and formulation of a strategy to address them.
- Public procurement — reforms since 2004:
  - Passage of a new Procurement Decree and creation of the Interim National Commission for Public Procurement (CNIMP) in 2004.
  - Preparation of standard bidding documents; publication of lists of government contracts and a supplier database.
  - Hiring of an international procurement consulting firm to strengthen CNIMP capacity.
  - Creation in 2004 of an Anti-Corruption Unit (ULCC) as an autonomous entity under the Ministry of Economy and Finance (MEF).
    - ULCC conducted a comprehensive diagnostic survey of the state of governance and perception of corruption (diagnostic survey completed in March 2006; final report expected by end-July, 2006).
    - ULCC prepared a draft law for public sector employees’ asset declaration.
  - Support for a civil society monitoring mechanism for implementation of economic governance reforms.
- Public enterprises and infrastructure:
  - Historical problems: inadequate financial and operating practices, lack of managerial accountability, siphoning of budgetary resources; deterioration in quality and reliability of services.
  - 2006 actions: financial audits launched for APN, TELECO, EDH and CAMEP; accounting rehabilitation of TELECO and EDH.
    - Audit of APN complete and an action plan being prepared; audits of the remaining three enterprises expected by August/September.
  - Road Maintenance Fund (FER, created in 2003) strengthened in 2005–06: recruitment of key staff and definition of operational procedures.
- Human resource management:
  - Public sector employment in 2004 corresponded to 0.7 percent of the population, compared with 2 percent in Africa and 7.7 percent among developed market economies.
  - New Civil Service Decree enacted in 2004.
  - A Coordination Unit in the Prime Minister’s Office overseeing implementation; a census of employment in selected ministries completed.
- Financial sector:
  - Weaknesses identified in monetary management mechanisms and financial audit and controls of the Central Bank of Haiti (BRH); BRH experienced operational losses.
  - Authorities preparing a plan to address weaknesses with IMF technical assistance.
  - A draft new banking law to be finalized and submitted to parliament later this year.
  - Financial statements of the BRH for the year ended September 30, 2004 were published with a one-year delay; the 2005 financial statements have not yet been published.
  - BRH was subject to a safeguards assessment in relation to drawings under the EPCA; vulnerabilities identified are being addressed and surveillance of credit cooperatives has been strengthened.

### Reform priorities and policy intentions going forward
- Reform agenda to be reflected in the I-PRSP under preparation; government commitment to:
  - Maintain macroeconomic stability and deepen economic governance reforms.
  - Link increased public expenditure to institutional capacity development.
  - Increase government revenues to underpin increases in spending for security, infrastructure, health and education.
- Specific governance and public sector focuses:
  - Effective implementation of recently introduced legal and institutional frameworks.
  - Further enhancement of budget management, public expenditure controls and procurement practices.
  - Improved management of public enterprises and road maintenance.
  - Strengthened human resource management and support for civil society monitoring of governance reforms.
- Financial sector reform priorities:
  - Improve monetary policy framework and instruments to reduce inflation.
  - Reform auction mechanism for central bank bonds.
  - Recapitalize the central bank and cease its non-core activities.
- Education and health sector priorities:
  - Strengthen accreditation of private providers.
  - Introduce transparent and accountable financing mechanisms for poor families to pay costs of non-public schooling.
  - Increase resources to front-line providers.
- Other reforms being defined: environment, infrastructure, agriculture and tourism.
- Implementation caveats:
  - Results will be incremental and will take time given weak institutional capacity.
  - Sustained donor support will be critical.

### Medium-to-long-term macroeconomic framework (2006–25)
- Real output growth:
  - Projected to average 4.7 percent over the period 2006–25.
  - Short-term: projected to strengthen sharply, assuming significant improvements in security conditions, continued strong external support and increased public investment.
  - Long-term: expected to stabilize at 5.0 percent.
  - Notes: past performance affected by episodes of political instability; historical annual averages noted (about 5 percent in the 1970s; 4 percent in the second half of the 1990s).
- Inflation:
  - Over the past 10 years, inflation averaged 17 percent due to extensive use of central bank financing.
  - Expected to decline gradually to 5–7 percent over the medium term from 15 percent in FY2005.
- Fiscal stance:
  - Central government overall deficit expected to average about 2.0 percent of GDP over the projection period.
  - Government expected to increase revenues and seek concessional external financing to allow for increased pro-poor spending, higher investment and institutional development of central and local governments, while maintaining debt sustainability after HIPC Initiative assistance.
- Revenues and expenditures:
  - Fiscal revenues projected to increase gradually to about 16 percent of GDP by FY2025, compared to about 9.3 percent over FY2004–06.
  - Measures to boost revenues include establishment of customs control in the provinces, limiting industrial tax exemptions and other non-industrial tax incentives, and enhanced computerization of tax and customs administration offices.
  - Government expenditures expected to be re-oriented toward strengthening institutional capacity and increasing spending in security, health and education.
  - Rebuilding social and economic infrastructure to be the core of a comprehensive public investment program expected to be financed largely by external donors.
  - Framework assumes the share of pro-poor spending in overall outlays will increase to progress toward reducing poverty and meeting the MDGs.
- Investment requirements and composition:
  - Haiti’s level of investment needs to increase markedly, by about 6 percent of GDP over the projection horizon.
  - Note: investment numbers reflect Haitian national accounts reporting, which may significantly overestimate investment as a share of GDP; investment was reported at 27 percent of GDP in 2005.
  - Initially, higher investment expected from higher public investment, especially in public infrastructure.
  - Improvement in security is pivotal to ensure higher investment and private sector development.
  - Expected improvements in agricultural production and exports and hotel infrastructure as infrastructure constraints are removed.
- External accounts and reserves:
  - External current account deficit (excluding grants) expected to decline from over 8 percent of GDP in 2006 to about 5.6 percent of GDP at the end of the projection period, largely due to improvements in net exports.
  - Import ratios projected to decline by 3.8 percentage points of GDP in the long term due to lower aid flows and increases in local production.
  - Rising exports expected to contribute approximately 0.6 percentage points of GDP to current account improvement.
  - International reserves expected to increase from 1.6 months of imports of goods and services in 2005 to over three months from 2010.

### Debt sustainability, reconciliation and external debt structure
- Debt reconciliation and data:
  - DSA prepared jointly by authorities and staffs of IDA and IMF based on loan-by-loan data as of end-September 2005.
  - Reconciliation process completed in June 2006, with 100 percent of multilateral and bilateral debt reconciled.
- External debt stock (prior to traditional debt relief), as of end-September 2005:
  - Total: 1,332 (US$ million) — 100.0 percent of total.
  - Multilateral: 1,098 — 82.4 percent of total.
  - Bilateral: 234 — 17.6 percent of total.
    - Paris Club: 189 — 14.2 percent of total.
    - Other: 4 — 3.5 percent of total.
  - Memorandum item: NPV of debt after traditional debt relief.. (in % of exports) 176
  - Sources: Haitian authorities and staff estimates.
- Composition and creditor profile:
  - Most external debt is on concessional terms with multilateral creditors representing 82.4 percent of the total.
  - IDA and the IDB are Haiti’s largest external creditors, representing approximately 38 percent and 40 percent of total claims, respectively.
  - Italy, France and Spain are the largest bilateral creditors, with 5.2 percent, 4.8 percent and 2.9 percent of total claims, respectively.
  - Haiti’s outstanding debt to Italy, France, and Spain includes arrears amounting to about US$35 million.
  - Non Paris Club creditors hold about 3.4 percent of Haiti’s total external debt.
- Relations with external creditors and arrears history:
  - Arrears cleared to multilateral creditors starting in July 2003 (examples provided for IDB, IFAD, OPEC Fund, and IDA).
  - Stock of arrears to three Paris Club creditors (France, Spain, Italy) estimated at US$35.4 million as of end-September 2005 and projected to increase to US$42.3 million at end-September 2006.
  - Haiti has no external commercial creditors.

*Source: _cr06338 - 12.  Progress has also been achieved in the implementation of structural and economic*

### 23. Haiti’s debt in NPV terms, after full application of traditional debt relief

### 23. Haiti’s debt in NPV terms, after full application of traditional debt relief

### Debt levels and HIPC eligibility
- Haiti’s debt in NPV terms, after full application of traditional debt relief mechanisms, is estimated at US$926 million (as of end-September 2005).
- This is equivalent to 176 percent of exports of goods and services.
- Haiti is eligible for debt relief under the Enhanced HIPC Initiative’s export window, having an NPV of debt-to-exports ratio above the 150 percent threshold.
- Reducing the NPV of debt-to-exports ratio from 176 percent to 150 percent requires HIPC debt relief of US$139 million in NPV terms, implying a common reduction factor of 14.95 percent.
- Contributions to the US$139 million in NPV debt relief are estimated as:
  - Approximately US$119 million from multilateral creditors.
  - About US$20 million from bilateral creditors.
- Under the assumed time profile and modalities, this translates into about US$205 million of nominal debt service relief over time.

### Projected HIPC assistance and assumptions on timing/modalities
- IDA:
  - Total assistance amounting to US$52.2 million in NPV terms, including an estimated US$32.8 million related to the concessional rescheduling of arrears in early 2005.
  - The concessional rescheduling of arrears is counted towards IDA’s contribution under the HIPC Initiative, in line with the methodology agreed with the multilateral development banks (MDBs).
  - Immediately following approval of the decision point by the Boards of IDA and the IMF, IDA would begin to provide assistance in the form of debt-service reduction on debt outstanding and disbursed as of end-September 2005.
- IMF:
  - Total assistance would be US$3.1 million in NPV terms.
  - Immediately following approval of the decision point by the Boards of IDA and the IMF, the IMF would extend interim assistance—provided that the necessary financing assurances are in place—in the form of debt-service reduction.
  - Due to relatively low levels of debt service falling due under the interim period, most IMF grant assistance is expected to be disbursed at the completion point, covering debt service during 2009–10.
- Other multilateral creditors:
  - Assumed to provide debt-service reduction starting at the decision point or the completion point, until their contributions meet the Enhanced HIPC Initiative requirement.
- Paris Club bilateral creditors:
  - Assumed to provide a flow rescheduling on Cologne terms—i.e., a 90 percent NPV reduction—after reaching the decision point (assumed to take place in October/November 2006), with delivery of the remaining required assistance at the completion point through a stock-of-debt operation.
  - The rescheduling on Cologne terms is expected to translate into US$14.5 million in NPV terms.
- Comparable treatment would be provided by non-Paris Club official bilateral creditors.
- Note: the NPV of debt-to-export ratio is calculated using a backward-looking three-year average of exports of goods and services; the 2005 observation of exports remains preliminary.

### Debt Sustainability Analysis (DSA) — baseline macroeconomic framework
Key medium-to-long term macroeconomic assumptions used in the baseline DSA scenario include:
- Annual real GDP growth averages 4.7 percent over the projection period (2006–25).
- CPI inflation is projected to decelerate from 15 percent in 2006 to 5–7 percent in the medium run.
- Investment ratio is projected to increase by 6 percent of GDP in the long term.
- Public investment is expected to increase from about 4 percent of GDP in 2005 to about 8 percent of GDP in 2011.
- Central government revenue is expected to increase gradually from 9.6 percent of GDP in 2005 to about 16 percent of GDP by 2025.
- Expenditure is expected to increase to over 20 percent in the long term with an increased share of pro-poor spending.
- The central government overall deficit and external financing requirements, before HIPC Initiative assistance, are projected to average 2 percent of GDP over the projection period.
- Official loan financing (excluding the IMF) is assumed to be mainly on concessional terms; IMF loans are expected to be on PRGF terms. Other official loan financing is assumed to be mainly on concessional rates comparable to IDA and the IDB (95 percent of total); the remaining 5 percent on less concessional terms. Resulting grant element for new disbursements is estimated at about 45 percent.
- External grants are expected to decline from 8 percent of GDP in 2006 to 3.5 percent by 2025.
- The external current account deficit (excluding external grants) is to contract from over 8 percent of GDP in 2006 to about 5.5 percent in the long run.

DSA projections and core findings:
- Assuming unconditional delivery of HIPC Initiative assistance, Haiti’s NPV of debt-to-exports ratio is expected to fall gradually from 150 percent as of end-September 2005 to approximately 100 percent by 2025.
- The ratio is projected to remain consistently below the HIPC threshold of 150 percent during 2007–25.
- External debt service as a ratio of exports is also expected to decline gradually.
- Calculations based on staff projections for end-September 2006 suggest Haiti’s debt in NPV terms could be below 150 percent of exports of goods and services in 2007 without receiving HIPC Initiative assistance.

### MDRI (Multilateral Debt Relief Initiative)
- Upon reaching the completion point under the HIPC Initiative, Haiti would qualify for MDRI debt relief from IDA, but is not expected to have eligible debt for MDRI debt relief from the IMF.
- MDRI debt relief from IDA would cover all outstanding debt disbursed from IDA prior to end-December 2003, and would start at the beginning of the quarter following confirmation of the country’s eligibility by IDA’s Executive Board. The amount of MDRI relief from IDA will depend on repayments made by the date of the completion point.
- Assuming Haiti reaches the completion point by end-September 2008, preliminary estimates indicate that MDRI debt relief from IDA could amount to US$465 million in nominal terms (US$243 million in NPV terms), excluding debt relief to be delivered under the HIPC Initiative.
- This compares with possible HIPC Initiative assistance of US$205 million (US$139 million in NPV terms).
- A one-year delay in reaching the completion point could result in Haiti forgoing about US$9 million in debt relief.
- Following the completion point and delivery of MDRI assistance, Haiti’s NPV of debt-to-exports ratio would be expected to remain within the 87–94 percent range over the projection period — a reduction of almost 40 percentage points at completion point compared to a projection including only HIPC assistance.
- The MDRI assumption stated: MDRI is assumed to have no impact on Haiti’s new borrowing over the projection period.

### Sensitivity analysis — scenarios and implications
- The sensitivity analysis tested sustainability under three scenarios. Under adverse scenarios, debt indicators could breach the HIPC threshold, highlighting vulnerability to export and GDP performance.

Scenario 1 — Lower concessionality of new borrowing:
- New borrowing starting in 2006 assumed to carry a 100 basis point higher interest rate, reducing the combined grant element to 33 percent (vs. 45 percent baseline).
- Export receipts unchanged from baseline.
- Result: NPV of debt-to-exports ratio slowly deteriorates relative to baseline, stabilizing at about 120 percent from 2015.

Scenario 2 — Lower export growth:
- Exports assumed to grow at a rate equal to the average over the last three years (12 percent) minus one standard deviation (7 percent), implying a reduction in average growth of about 3.5 percentage points versus baseline.
- Lower export growth also reduces government revenues and increases need for new financing.
- Result: After full delivery of HIPC Initiative assistance, the NPV of debt-to-exports would breach the HIPC threshold in 2014 and reach 196 percent in 2025.
- Compared to baseline, this is a deterioration of approximately 2.0 percentage points in 2006, increasing to almost 100 percentage points by 2025.

Scenario 3 — Lower GDP growth:
- GDP assumed to grow 2.0 percentage points lower than the baseline growth rate of 4.2 percent and 5.0 percent for the decades 2005–15 and 2016–25 respectively.
- Lower growth yields lower government revenues and increased borrowing needs.
- Result: After full HIPC assistance, the NPV of debt-to-exports would slowly decline until 2013, reaching 121 percent; thereafter it would gradually increase reaching 162 percent by 2025.
- Compared to baseline, this is an increase of about 0.3 percentage points in 2006, increasing to 63 percentage points by 2025.

Policy-relevant conclusions from sensitivity analysis:
- Haiti’s ability to service external debt after HIPC relief is highly vulnerable to export performance.
- A robust external debt position will also depend on real GDP growth and the composition and terms of external assistance.
- The analysis underscores the importance of strong and sustained efforts to:
  - (i) re-establish internal security;
  - (ii) provide a conducive environment for private investment, notably through infrastructure improvement and strengthening state institutions, to develop exportable production (traditional and nontraditional);
  - (iii) implement a prudent debt management strategy, including ensuring that external assistance is heavily weighted toward grants.

### Decision point, completion point timing, and completion point triggers
- The I-PRSP is expected to be completed by the government by August-September 2006 and presented to the IMF and IDA Boards, together with the Joint Staff Advisory Note (JSAN), in October 2006, at the proposed time for the Decision Point Document.
- Staffs propose the Decision Point document for Haiti be considered by the Boards of IDA and the IMF in October 2006, together with approval of a PRGF arrangement by the IMF Board, conditional on:
  - (a) continued satisfactory implementation of the EPCA-supported macroeconomic program;
  - (b) reaching understandings between staffs and the authorities on details of appropriate completion point triggers; and
  - (c) finalization of the I-PRSP.
- Possible triggers for the floating completion point (broad coverage):
  1. PRSP: Preparation of a full PRSP through a participatory process and satisfactory implementation of its recommended actions for at least one year, evidenced by an Annual Progress Report submitted by the government to the satisfaction of IDA and IMF staffs.
  2. Macroeconomic Stability: Maintenance of macroeconomic stability as evidenced by satisfactory performance under the PRGF-supported program.
  3. Public finance management and Governance, including:
     - (a) Introduction of medium-term (three-year) macroeconomic framework and budget projections consistent with medium-term pro-poor expenditures.
     - (b) Adoption of an adequate classification for budget preparation and reporting to monitor government expenditures, in particular to establish a tracking mechanism for pro-poor expenditures and publication of reports.
     - (c) Alignment of public spending priorities in accordance with I-PRSP/PRSP priorities with emphasis on pro-poor growth.
     - (d) Strictly limiting non-salary current public expenditures spent through comptes courants.
     - (e) Successive annual audits of Government accounts following acceptable audit standards completed by the Supreme Audit Institution, submitted to Parliament and publicly disclosed.
     - (f) Adoption and satisfactory implementation of a new procurement law promoting transparency and competition in line with international best practice.
     - (g) Adoption and satisfactory implementation of a law on asset declaration and disclosure for public sector employees.
     - (h) Key public enterprises (electricity, telecoms and the ports authority) are current on financial audits and have made satisfactory progress in implementing an action plan to address key audit recommendations.

*Source: _cr06338 - 23. Haiti’s debt in NPV terms, after full application of traditional debt relief*

### 4. Structural Reform: Strengthen tax policy and administration, for example, by establishing customs

### _cr06338 - 4. Structural Reform: Strengthen tax policy and administration, for example, by establishing customs control in the provinces, broadening the VAT and personal income tax base, and introducing a unique taxpayer identification number.

### Structural reform (paragraph 4)
- Strengthen tax policy and administration by:
  - establishing customs control in the provinces;
  - broadening the VAT and personal income tax base;
  - introducing a unique taxpayer identification number.

### Social sectors (paragraph 5)
- Education
  - increase public funding for education;
  - introduce a public financing mechanism for poor families to pay the costs of non-public schooling;
  - training of teachers;
  - distribution of textbooks both to public and non-public schools.
- Health
  - increase access and quality of health services and outcomes, i.e., increased child immunization rates, increased access to pre-natal care, increased number of Unités Communales de Santé providing the minimum services package, and increased supply of key drugs.
- HIV/AIDS
  - Mapping of primary new sources of the epidemic to guide future policy decisions;
  - increased awareness and prevention campaigns;
  - improved care for persons infected.

### External debt management (paragraph 6)
- Centralize all information on public external and domestic foreign currency debt in a single database.
- Publish the quarterly external debt data on a government website.
- Avoid long-term guarantees for public enterprise debt (external and in foreign currency) by the government, including the central bank.

### Complementary triggers and HIPC timeline (paragraph 36)
- Standard triggers to complement the areas above include:
  - implementation of the PRSP;
  - maintenance of macroeconomic stability measures to increase access to and quality of education, health and HIV/AIDS services and outcomes.
- Policy intent:
  - Reforms aim to strengthen conditions for pro-poor growth and facilitate progress toward the MDGs.
  - Conditional statement: Should Haiti remain on track with regards to implementation of its poverty reduction strategy and economic reforms supported by IDA and the IMF, the HIPC completion point could be reached within two years of the HIPC decision point.

### Monitoring the use of HIPC Initiative resources (paragraphs 37–39)
- Objective:
  - Secure effective use of debt relief assistance for poverty reduction and capacity to implement and monitor a shift in expenditure composition toward poverty-related objectives.
- Government intent:
  - Ensure effective use of resources made available by the HIPC Initiative while strengthening programming, management and control of public expenditure and improving service delivery in key sectors.
- Joint IMF and IDA Assessment and Action Plan (AAP) findings (June 2006):
  - Haiti does not have a budget classification by program or a fully functional budget classification, but mechanisms exist to adequately monitor use of HIPC resources.
  - The recently introduced budget and accounting classifications allow monitoring of budget allocations and expenditures following four dimensions:
    - (i) institutional (executive, legislative, judiciary and autonomous entities);
    - (ii) sectoral (economic, political, social, cultural and other);
    - (iii) administrative (ministries, central and regional departments) including development projects;
    - (iv) economic (expenditure types).
  - The budget is also presented in the annexes of the budget law following a functional classification with 10 broad categories (such as education and health). The functional classification is prepared from broad estimates from the administrative classification.
  - In the absence of a program budget, projects are individually coded within the administrative classification allowing recording and reporting on projects’ expenditures.
- Monitoring approach prior to completion point (paragraph 39):
  - Use of HIPC resources will be monitored at the entity (e.g., ministries, public institutions, and executing agencies) and project levels.
  - Entities coded in the budget classification will be identified according to their core mandate in relation with poverty reduction.
  - Individual projects contributing to poverty reduction will be identified as defined in the I-PRSP currently under preparation.
  - The relatively limited resources from HIPC initiative assistance would focus largely on health and education, while other areas, such as infrastructure, would be financed by external resources.
  - Existing mechanisms can record expenditures according to their destinations, allowing monitoring of both budget allocations and expenditures for entities and projects identified as contributing to poverty reduction.

### Possible expenditure priorities for the use of HIPC debt relief (Box 4)
- Education
  - Education for All (EFA) program.
  - Provision of textbooks, teaching material and uniforms.
  - School feeding program.
- Health
  - Improving the availability of drugs, immunization programs (including in remote areas using mobile brigades), prevention campaigns against malaria, parasite control in schools.
  - Surveys on the prevalence of iodine and micronutrient deficiencies and programs to address these deficiencies.
  - Equipment and supplies for maternity wards of health centers and hospitals.
  - HIV/AIDS prevention and general health education activities.
  - Strengthening epidemiology services.
- Water Supply and Sanitation
  - Improving access to potable water and sanitation for poor urban and rural households.
- Environment
  - Environmental protection and natural disaster prevention activities.

### Budget monitoring, audits, and donor support (paragraphs 40–41)
- The periodic budget execution reports published by the MEF on its web page provide a tool to monitor and publicly disseminate the use of resources made available by the HIPC Initiative in-year.
- Measures are being taken to become current with the audit of the annual government accounts by the CSCCA to provide external and independent validation of the budget execution reports.
- The government continues efforts to enhance programming, management and control of public expenditure with technical and financial assistance from IDA, IMF, IDB and other donors.
- Requirements for interim assistance:
  - Poverty-related programs and projects to be financed within the interim assistance need to be included in the FY2007 and subsequent budgets.
  - Authorities have defined possible expenditure priorities for the use of HIPC debt relief in line with its incoming I-PRSP, taking into account that resources from HIPC relief will be modest.
  - Priority was given to programs which will help Haiti move towards the achievement of the MDG’s.
  - Given the significant existing gaps in development indicators, Haiti is unlikely to achieve the MDGs by 2015.
  - However, with continued external financial assistance (including HIPC and MDRI relief) Haiti could reach some MDGs, notably goal 2 (achieve universal primary education) and goal 7 (Combat HIV/AIDS, malaria and other diseases) and progress towards reaching the others.
- Note:
  - The expenditure priorities for use of HIPC debt relief will be further discussed with the authorities during the preparation of the decision point document.

*Source: _cr06338 - 4. Structural Reform: Strengthen tax policy and administration, for example, by establishing customs control in the provinces, broadening the VAT and personal income tax base, and introducing a unique taxpayer identification number.*

### 42. This paper presents a preliminary assessment of Haiti’s eligibility for assistance

### 42. This paper presents a preliminary assessment of Haiti’s eligibility for assistance under the Enhanced HIPC Initiative

### Executive Directors’ questions and proposed timing
- Eligibility: Do Directors agree that Haiti is eligible for assistance under the Enhanced HIPC Initiative?
- Timing of the Decision Point:
  - Do Directors agree that Haiti could reach its Decision Point by October 2006, together with the approval of a PRGF arrangement by the IMF Board, provided that:
    - (i) the country remains on track with its macroeconomic program, supported by the EPCA;
    - (ii) understandings are reached on appropriate completion point triggers; and
    - (iii) the I-PRSP is finalized?
- Floating Completion Point:
  - What are the Executive Directors’ views on possible triggers and key policy measures (against which satisfactory performance would have to be measured) linked to the floating completion point?

### Composition of external debt and estimated HIPC costs (end-September 2005)
- Nominal stock of external debt: $1.332 million (figure caption).
- Composition by creditor group (percent of nominal stock):
  - World Bank Group: 38%
  - IMF: 2%
  - IADB Group: 40%
  - Other multilaterals: 3%
  - Paris Club: 14%
  - Other Official Bilaterals: 3%
- Total Estimated HIPC Enhanced Assistance: $139 million (end-September 2005, NPV terms)
  - Distribution (percent of estimated HIPC Enhanced Assistance):
    - World Bank Group: 38%
    - IMF: 2%
    - IADB Group: 43%
    - Other multilaterals: 3%
    - Paris Club: 10%
    - Other Official Bilaterals: 4%

### Key debt stock and creditor-level figures (end-September 2005; in millions of U.S. dollars unless otherwise specified)
- Total nominal debt stock: 1,332.2 (100.0 percent of total)
- Multilateral total: 1,097.8 (82.4 percent of total)
  - World Bank: 507.1 (38.1 percent)
  - IMF: 21.4 (1.6 percent)
  - IADB Group: 534.0 (40.1 percent)
  - IFAD: 31.7 (2.4 percent)
  - OPEC: 3.7 (0.3 percent)
- Bilateral and commercial total: 234.4 (17.6 percent)
  - Paris Club: 188.7 (14.2 percent)
    - France: 64.1 (4.8 percent)
    - Italy: 68.9 (5.2 percent)
    - Spain: 38.6 (2.9 percent)
    - United States: 15.1 (1.1 percent)
  - Other Official Bilateral (including Taiwan, People's Republic of China): 45.7 (3.4 percent)
- Notes:
  - Table A1 includes arrears and hypothetical stock-of-debt operations on Naples terms at end-September 2005 and comparable creditor actions.
  - The IADB Group used concessional resources from its Fund for Special Operations (FSO).

### Debt sustainability indicators and projected impact of debt relief (2005–25)
- NPV of Debt to Exports (time series shown in figures and tables): baseline and after various layers of relief (traditional debt relief; conditional HIPC assistance; unconditional HIPC assistance; HIPC plus MDRI).
- Debt service to exports and debt service to revenue ratios presented across scenarios (2005–2025) with specific annual figures in Table A4.
- Selected figures from Table A4 (Total external debt service, in millions of U.S. dollars):
  - Before traditional debt relief: 2005/06 = 60.1; 2006/07 = 63.2; 2007/08 = 67.9; 2008/09 = 78.7; 2009/10 = 77.7; 2014/15 = 96.8; 2024/25 = 123.0.
  - After traditional debt relief: 2005/06 = 57.4; 2006/07 = 60.5; 2007/08 = 65.2; 2008/09 = 76.4; 2009/10 = 75.3; 2014/15 = 94.4; 2024/25 = 123.5.
  - After HIPC assistance: 2005/06 = 58.2; 2006/07 = 46.3; 2007/08 = 58.2; 2008/09 = 59.6; 2009/10 = 64.3; 2014/15 = 89.1; 2024/25 = 115.9.
  - After HIPC and MDRI assistance: 2005/06 = 58.2; 2006/07 = 46.3; 2007/08 = 58.2; 2008/09 = 50.4; 2009/10 = 50.0; 2014/15 = 67.7; 2024/25 = 96.0.
- Debt service ratios:
  - Debt service to exports (selected): before traditional relief 2005/06 = 9.1; 2006/07 = 8.8; 2007/08 = 8.7; 2014/15 = 6.7; 2024/25 = 4.4.
  - Debt service to revenue (selected): before traditional relief 2005/06 = 14.0; 2006/07 = 12.2; 2007/08 = 11.7; 2014/15 = 10.0; 2024/25 = 4.3.
- Memo items (Table A4):
  - Exports of goods and nonfactor services (selected): 2004/05 = 659.3; 2005/06 = 721.7; 2006/07 = 783.1; 2024/25 = 2,769.1; three-year average = 985.9; current-year exports = 2,043.6.
  - Government revenues (selected): 2004/05 = 428.9; 2005/06 = 516.3; 2006/07 = 580.6; 2024/25 = 2,846.7; three-year average = 798.0; current-year revenues = 1,995.6.

### Net Present Value of external debt, scenarios and ratios (2005–25)
- Table A5 major figures (NPV of total debt, after traditional debt relief, conditional and unconditional HIPC, and MDRI scenarios):
  - After traditional debt-relief: NPV of total debt (selected) 2004/05 = 884.0; 2005/06 = 900.1; 2006/07 = 956.0; 2014/15 = 1,431.7; 2024/25 = 2,595.4.
  - Outstanding debt NPV (selected) 2004/05 = 884.0; 2005/06 = 867.6; 2006/07 = 848.8; 2014/15 = 642.9; 2024/25 = 326.8.
  - Memorandum: NPV of debt-to-exports ratio (total debt) 2004/05 = 168.3; 2005/06 = 152.8; 2006/07 = 145.0; 2014/15 = 113.5; 2024/25 = 100.6.
- After unconditional delivery of enhanced HIPC assistance (Table A5):
  - NPV of total debt (selected) 2004/05 = 787.9; 2005/06 = 786.1; 2006/07 = 850.8; 2014/15 = 1,350.1; 2024/25 = 2,545.1.
  - NPV of outstanding debt (selected) 2004/05 = 787.9; 2005/06 = 753.6; 2006/07 = 743.6; 2014/15 = 561.2; 2024/25 = 276.5.
  - Multilateral NPV (selected) 2004/05 = 674.6; World Bank = 298.2; IADB Group = 343.5; IMF = 17.8; Other multilateral = 20.5.

### Discount and exchange rate assumptions (end-September 2005)
- Discount rates (In percent per annum) and exchange rates (Currency per U.S. dollar) (Table A3 selected):
  - Canadian Dollar: Discount Rate 4.80; Exchange Rate 1.16
  - Euro: Discount Rate 4.11; Exchange Rate 0.83
  - Haitian Gourde (USD equivalent): Discount Rate 5.05; Exchange Rate 1.00
  - Japanese Yen: Discount Rate 1.85; Exchange Rate 113.15
  - Special Drawing Rights: Discount Rate 4.35; Exchange Rate 0.69
  - United States Dollar: Discount Rate 5.05; Exchange Rate 1.00
- Memorandum item: Paris Club cutoff date: October 1, 1993

### Sensitivity analysis (2005–25) — baseline and stress scenarios (Table A7 highlights)
- Baseline scenario (selected ratios):
  - NPV of debt-to-GDP ratio: 2004/05 = 20.2; 2005/06 = 17.0; 2006/07 = 16.0; averages 2004/05-2013/14 = 16.2; 2014/15-2024/25 = 14.0.
  - NPV of debt-to-exports ratio (percent): 2004/05 = 150.0; 2005/06 = 133.5; 2006/07 = 129.0; 2024/25 = 98.7.
  - Debt service-to-exports ratio (after HIPC assistance baseline): 2005/06 = 8.8; 2006/07 = 6.4; 2007/08 = 7.4; 2024/25 = 4.2.
- Less concessional new borrowing scenario (assumes interest rate on all debt 1 percentage point higher from 2006):
  - NPV of debt-to-exports ratio (selected): 2005/06 = 134.6; 2006/07 = 132.8; 2024/25 = 117.3.
  - Debt service-to-exports ratio (selected): 2006/07 = 6.7; 2007/08 = 7.9; 2024/25 = 5.6.
- Lower export growth scenario (assumes on average 3 percentage points lower export growth 2006–26):
  - NPV of debt-to-exports ratio shows sharp increases over time: 2006/07 = 135.9; 2008/09 = 144.1; 2024/25 = 195.9.
  - Debt service-to-exports ratio increases accordingly (selected): 2007/08 = 8.4; 2014/15 = 8.9; 2024/25 = 8.3.
- Lower GDP growth scenario (assumes 2 percentage points lower GDP growth 2006–26):
  - NPV of debt-to-exports ratio (selected): 2006/07 = 130.0; 2014/15 = 124.8; 2024/25 = 161.6.
  - NPV of debt-to-revenue ratio rises substantially (selected): 2006/07 = 172.1; 2024/25 = 213.1.
  - Debt service-to-revenue ratio increases in stress scenario (selected): 2006/07 = 9.3; 2007/08 = 10.7; 2024/25 = 9.8.

### HIPC Initiative context and comparative country data
- Table A8 provides HIPC status as of May 3, 2006, listing multiple country decision/completion points, estimated assistance levels, and shares by creditor type. (Table shows completion points reached, decision points, and preliminary documents for a range of countries; Haiti is the subject of this paper’s preliminary assessment.)

### Possible delivery of IMF assistance under the Enhanced HIPC Initiative (Table A9, FY2007–2016)
- Total IMF assistance under the enhanced HIPC Initiative: US$ 2.15 million in NPV terms (calculated on the basis of data available at the decision point), excluding interest earned on Haiti's account and on committed but undisbursed amounts as described in footnotes.
- Delivery schedule of IMF assistance (in percent of the total assistance):
  - FY2007: 20.0
  - FY2008: 20.0
  - FY2009: 55.0
  - FY2010: 5.0
- Debt service due on IMF obligations (percent of total assistance schedule, selected):
  - Debt service due on IMF obligations (in percent): FY2007 = 4.0; FY2008 = 5.5; FY2009 = 14.6; FY2010 = 12.0.
  - Principal (selected): FY2007 = 2.3; FY2008 = 3.8; FY2009 = 13.3; FY2010 = 11.4.
  - Interest and charges (selected): FY2007 = 1.8; FY2008 = 1.7; FY2009 = 1.3; FY2010 = 0.6.
- IMF assistance deposits and drawdown schedule (in millions of U.S. dollars, selected):
  - Interim assistance deposited into Haiti's Umbrella Account: 0.6 (first delivery at expected decision point in October 2006).
  - Completion point assistance: 1.9 (most of IMF's grant HIPC assistance assumed disbursed into Haiti's account at the completion point in September 2008).
  - IMF assistance—drawdown schedule from Haiti's Umbrella Account (selected): 0.6; 0.6; 1.8; 0.2 (timing aligned with FY schedule).
- Debt service due on current IMF obligations after IMF assistance (selected): 3.4; 4.9; 12.8; 11.8; 2.2; 0.3...
- Share of debt service due on IMF obligations covered by IMF assistance (in percent, selected): FY2007 = 15.4; FY2008 = 11.3; FY2009 = 12.5; FY2010 = 2.0.
- Proportion (in percent) of each repayment falling due during the period to be paid by IMF Initiative assistance from the principal deposited in Umbrella Account (selected): FY2007 = 27.4; FY2008 = 16.3; FY2009 = 12.8; FY2010 = 1.4.
- Memorandum items (based on debt service data and exchange rates as of end-September 2005):
  - Debt service due on IMF obligations (in millions of U.S. dollars, selected): 2.8; 4.3; 7.7; 3.8.
  - Debt service due on current IMF obligations after IMF assistance (in millions of U.S. dollars, selected): 2.2; 3.6; 5.9; 3.5.
  - As percent of current year exports of goods and nonfactor services (selected): 0.3; 0.5; 0.7; 0.4.

* _cr06338 - 42. This paper presents a preliminary assessment of Haiti’s eligibility for assistance_

### 5.25 percent in U.S. dollar terms, but actual interest earnings

### _cr06338 - 5.25 percent in U.S. dollar terms, but actual interest earnings

### Interest terms and accrual rules
- Stated interest benchmark: 5.25 percent in U.S. dollar terms, but actual interest earnings may be higher or lower.
- Interest accrual application:
  - Interest accrued during a calendar year will be used toward the first repayment obligation(s) falling due in the following calendar year except in the final year, when it will be used toward payment of the final obligation(s) falling due in that year.
  - Interest accrued during the interim period will be used toward the repayment of obligations falling due during 2009-11.

### Table A10 — Possible Delivery of IDA Assistance under the Enhanced HIPC Initiative, FY2007-2016 (selected series, in millions of U.S. dollars)
- I. Debt service to IDA before HIPC Initiative assistance — Principal (FY2007-FY2016):
  - 14.6, 14.9, 15.4, 16.3, 16.7, 16.9, 16.8, 16.8, 18.2, 19.6
- I. Debt service to IDA before HIPC Initiative assistance — Interest (FY2007-FY2016):
  - 3.7, 3.6, 3.5, 3.3, 3.2, 3.1, 3.0, 2.8, 2.7, 2.6
- II. Debt service to IDA after HIPC Initiative assistance — Principal (FY2007-FY2016):
  - 9.3, 14.9, 7.7, 12.0, 16.7, 16.9, 16.8, 16.8, 18.2, 19.6
- II. Debt service to IDA after HIPC Initiative assistance — Interest (FY2007-FY2016):
  - 2.4, 3.6, 1.7, 2.4, 3.2, 3.1, 3.0, 2.8, 2.7, 2.6
- III. Total IDA assistance under the HIPC Initiative (FY2007-FY2016):
  - 6.6, 0.0, 9.4, 5.2, 0.0, 0.0, 0.0, 0.0, 0.0, 0.0
- IV. Percentage of debt service to IDA covered by HIPC Initiative assistance (selected entries as presented):
  - 45.1, ....., 61.2, 31.8, ....., .....
- Memorandum Item: Total nominal assistance:
  - 21.2

- Notes on Table A10:
  - (In millions of U.S. dollars, unless otherwise indicated)
  - Source: World Bank staff estimates and projections.
  - 1/ Fiscal year ends in September.
  - 2/ Does not include the direct impact of the concessional rescheduling of arrears in early 2005.
  - 3/ Principal and interest payments due to IDA correspond to prorated projections based on the disbursed and outstanding debt as of end-September 2005, converted into U.S. dollars using the exchange rate as of end-September 2005.

### Table A11 — Selected long-term macroeconomic assumptions, 2005-25 (selected highlights)
- GDP at constant prices (annual percentage change, fiscal year ending September 30):
  - 2005: 1.8; 2006: 2.5; 2007: 4.0; 2008: 4.0; 2009: 4.5; 2010: 4.5; 2011: 5.0; 2012: 5.0; 2013: 5.0; 2014: 5.0; 2015: 5.0; 2016–2025: values repeating at 5.0
  - Averages: 2005-15: 4.2; 2016-25: 5.0
- GDP deflator (selected initial and steady values):
  - 17.6, 12.6, 10.8, 8.0, 6.8, 6.5, 5.9, 5.0, ... then 5.0 repeating
- Real GDP per capita (percentage change, local currency) (selected):
  - -0.2, 0.7, 2.2, 2.3, 2.8, 2.8, 3.3, 3.3, 3.4, 3.4, 3.4, ... ending with 3.8 repeated
  - Averages: 2005-15: 2.5; 2016-25: 3.7
- Consumer prices (end of period) (selected):
  - 14.8, 14.0, 8.0, 7.0, 6.0, 6.0, 5.0, 5.0, 5.0, ... then 5.0 repeating
  - Averages: 7.3 and 5.0 reported
- Exports of goods and non-factor services (annual percent change, selected):
  - 17.1, 10.4, 9.5, 8.5, 9.2, 9.5, 9.4, 7.0, 7.1, 7.3, 7.5, ... longer-run values around 7.4–7.6
  - Averages: 9.3; 7.4
- Imports of goods and non-factor services (annual percent change, selected):
  - 13.7, 14.3, 9.2, 6.3, 6.3, 6.2, 5.9, 5.4, 7.5, 7.5, 7.2, ... longer-run around 7.3
  - Averages: 8.1; 7.3
- Liquid gross reserves (in months of imports of goods and services) (selected):
  - 1.6, 1.9, 2.1, 2.4, 2.8, 3.1, 3.4, 3.4, 3.3, 3.3, 3.2, ... later around 3.0
  - Averages: 2.8; 3.0
- Central government overall balance (1/ Excluding grants) (selected):
  - -3.9, -5.7, -5.1, -5.1, -5.2, -5.2, -5.3, -5.2, -5.2, -5.1, -5.1, ... moving toward -4.7 to -4.9 in later years
  - Averages: -5.1; -4.9
- Central government overall balance (2/ Including grants) (selected):
  - -0.4, -1.9, -2.1, -2.0, -2.3, -2.5, -2.5, -2.5, -2.4, -2.4, -2.4, ... moving toward -1.9 to -2.1 later
  - Averages: -2.1; -2.1
- Total revenue and grants (percent of GDP, selected):
  - 13.1, 13.1, 12.7, 13.3, 13.6, 14.0, 14.6, 14.9, 15.2, 15.5, 15.8, ... rising to 18.8 by 2025
  - Averages: 14.2; 17.5
- Central government revenue (percent of GDP, excluding grants) (selected):
  - 9.6, 9.3, 9.7, 10.2, 10.7, 11.3, 11.9, 12.2, 12.5, 12.8, 13.1, ... rising to 16.0 by 2025
  - Averages: 11.2; 14.7
- Central government expenditure (percent of GDP, selected):
  - 13.5, 15.0, 14.8, 15.3, 15.9, 16.5, 17.2, 17.4, 17.7, 17.9, 18.2, ... rising to 20.7 by 2025
  - Averages: 16.3; 19.6
- Notes on Table A11:
  - Averages reported as "2005-15" and "2016-25"
  - Footnotes: 1/ Excluding grants; 2/ Including grants

### Debt management capacity — current status and recommendations
- Current institutional responsibilities and systems:
  - Debt management responsibility is shared by the Central Bank of the Republic of Haiti (Banque Centrale de la République d’Haïti, BRH) and the Ministry of Economy and Finances (Ministère de l’Économie et des Finances, MEF).
  - The BRH has a relatively complete debt database; the MEF archives were devastated by a fire in 2002 and the MEF is rebuilding its database with BRH support.
  - Overall coverage of public debt (external and domestic) is appropriate.
  - BRH updates its database at every payment cycle, keeping authorities' database broadly in line with creditors.
  - BRH uses an old version of UNCTAD’s debt management system (DMFAS, version 5.2). Both BRH and MEF are considering acquiring an updated version of DMFAS, contingent on donor financing and an assessment by a mission from UNCTAD.
  - UNCTAD would provide training to BRH and MEF staff as part of DMFAS deployment.
  - BRH produces monthly, quarterly and annual reports on external debt (transactions, stock, arrears); reports are disseminated within BRH and MEF and available to the public upon request within one month after the reference period.
- Typical debt service procedures:
  - BRH sends MEF a statement of all debt service falling due in the following month every month.
  - At the end of the month, MEF issues a payment order for the full amount of debt service for the following month.
  - BRH debits the Treasury account to pay each creditor as debt service falls due.
  - BRH cannot legally pay a creditor without information about the associated disbursement.
- Recommended capacity-strengthening measures (as listed):
  - (i) clarifying by law the debt management responsibility of the BRH and the MEF;
  - (ii) improving information sharing, including frequent debt reconciliation exercises, between the BRH and the MEF;
  - (iii) shortening the procedures for debt service payments;
  - (iv) improving the tracking of disbursements;
  - (v) acquiring a modern debt reporting system;
  - (vi) training of staff; and
  - (vii) improving the capacity to produce debt sustainability analyses.

*Source: Excerpt from Table A10, Table A11, and Appendix "DEBT MANAGEMENT CAPACITY" in the provided IMF content unit.*

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