## EXECUTIVE SUMMARY

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---

### Background and Mission
- On January 12, 2010, a 7.0 magnitude earthquake struck Port‑au‑Prince, causing extensive casualties and unprecedented damage concentrated in the capital and nearby cities. About 3 million people (a third of Haiti’s population) were affected; the UN estimates about one million people are in need of shelter.
- Local hospitals and most schools in Port‑au‑Prince were damaged or destroyed. The central bank sustained some damage but restored a basic manual payments system.
- The mission for the 2009 Article IV consultation and the sixth and last review of the ECF, and discussions on a new three‑year ECF arrangement, took place in Port‑au‑Prince from December 2-15, 2009. The staff team comprised Ms. Deléchat (head), Ms. Medina Cas, and Ms. Touré (all WHD), Ms. Riad (SPR), Mr. Bouhga‑Hagbe (FAD), and Mr. Vandepeute (MCM), assisted by Mr. Justice, Resident Representative, and joined by Mr. Perez (OED) for part of the policy discussions.
- Staff met with President Préval, Prime Minister Bellerive, Finance Minister Baudin, Central Bank Governor Castel, and other government and private sector representatives.

### Recent Economic Performance (FY 2009 and Q1 FY 2010)
- FY 2009 outcomes:
  - Growth reached 2.9 percent.
  - Annual inflation bottomed out at minus 4.7 percent in September 2009.
  - Fiscal deficit (excluding grants and externally financed projects) was contained at 4.4 percent of GDP.
  - External current account deficit fell to 3.2 percent of GDP from 4.5 percent in FY 2008.
  - Reserve coverage rose to 3.7 months of imports in September 2009 (after the SDR allocation).
  - Financial sector: credit and deposits grew strongly; liquidity improved; all banks posted positive earnings.
- First quarter FY 2010 (Oct–Dec 2009):
  - 12‑month inflation rose to minus 0.8 percent in November (from minus 4.7 in September).
  - Central bank foreign exchange interventions: sold US$11.8 million (net) in the quarter; net international reserves declined by US$16 million during the quarter.
  - End‑December fiscal outturn: a small overall surplus due to strong revenues (except petroleum taxes) and lower spending on wages and investment.

### Impact of the Earthquake — Preliminary Assessment and Projections
- GDP and output:
  - Staff’s very preliminary estimate: GDP could decline by at least 13 percentage points to - 10 percent in FY 2010 as a result of the earthquake.
  - Pre‑earthquake projections for 2010 had pointed to positive growth of about 3.6 percent and annual inflation of 8 percent.
  - First‑quarter (Oct–Dec) 2009 growth is estimated to have been in line with the pre‑earthquake annual projection of about 3.6 percent.
  - Largest GDP drop expected in the second quarter (Jan–Mar 2010); manufacturing activity would be hit the most (all but one textile plants are located in Port‑au‑Prince; textile exports represent 90 percent of total exports).
  - Agriculture would be affected due to widespread damages to production systems and distribution disruptions.
  - Gradual recovery expected in the second half of the fiscal year driven by reconstruction; recovery strength depends importantly on the speed of disbursement of foreign aid.
- Inflation and exchange rate:
  - On a very preliminary basis, inflation is projected to rise significantly, perhaps to about 10-20 percent, owing to severe shortages and a sharp initial depreciation of the gourde.
- Fiscal impact and public finances:
  - About 85 percent of total revenues are collected in the capital area, where most large enterprises are located; revenue administration infrastructure was destroyed or seriously damaged, and staff losses occurred.
  - Reconstruction needs will lead to substantial increases in government spending; actual spending depends importantly on availability of external aid.
  - Very preliminary staff projection: overall deficit for FY 2010 could rise to about 5.8 percent of GDP (projections assume most budget financing needs would be covered by grants).
- External sector:
  - Destruction of production and trade infrastructure could lead to a large decline in exports while reconstruction‑related imports will likely increase.
  - Remittances could increase significantly from FY 2009 as the diaspora responds, provided transfers and payments systems can be restored promptly.
  - External current account deficit (excluding grants) could reach almost 20 percent of GDP owing to a sharp widening in the trade balance.

### Proposed Augmentation and Financing Needs
- Authorities’ request:
  - Requesting an augmentation of SDR 65.52 million (80 percent of quota) along with the sixth and last ECF review to support immediate balance‑of‑payments needs arising from the disaster.
  - Authorities are requesting a waiver for contracting a nonconcessional loan.
- Rationale and Fund role:
  - The augmentation would help cover the projected balance of payments gap for FY 2010 and limit the decline in reserves due to the surge in import needs and the drastic loss in export production capacity.
  - Maintaining a prudent level of reserves is critical to address uncertainties in the trade balance and to meet temporary increases in private sector demand for foreign exchange without severe market disruptions.
- Access, exceptional access, and ECF status:
  - The arrangement was approved in 2006 in an amount of 90 percent of quota; access was raised to 140 percent of quota following two augmentations in the wake of the 2008 shocks.
  - The ECF has been extended until May 31, 2010.
  - The sixth review and augmentation purchases would bring total Fund disbursements to 137 percent of quota, above the normal annual access limit of 100 percent of quota under the new framework effective January 7, 2010. Exceptional access is justified by very large balance of payments needs resulting from the earthquake, the authorities’ commitment to implement strong policies in consultation with the Fund and the international community, and Haiti’s capacity to repay the Fund.
- Remaining financing gap and other resources:
  - After the proposed Fund augmentation, the remaining financing gap for FY 2010 could reach about US$100 million.
  - Contributions announced to date (January 20, 2010) amount to over US$1.2 billion, of which US$632 million would be earmarked for recovery.
  - Authorities have about US$150 million in accumulated PetroCaribe financing intended for relief and reconstruction.
  - Staff’s balance of payments projections assume the disbursement of US$144 million in budget support grants that had been committed before the earthquake.

### Performance under the ECF Arrangement and Program Implementation
- Overall assessment:
  - Economic performance in FY 2009 was strong relative to expectations: growth close to 3 percent and deflation owing to unwinding food and fuel shocks.
  - Performance for the sixth and last ECF review was broadly satisfactory: all end‑September quantitative performance criteria were met; sufficient progress on structural reforms, although only two out of seven benchmarks were met on time.
  - The authorities are requesting a waiver for contracting a nonconcessional loan.
- ECF specifics:
  - The authorities requested the augmentation to support immediate balance‑of‑payments needs arising from the disaster; the augmentation complements already substantial international support, with humanitarian relief and recovery commitments totaling almost US$1.2 billion.
  - The conclusion of the Article IV consultation and discussions on a possible new program will take place when estimates of damages and balance of payments needs have been firmed up and a revised policy framework has been agreed.

*Source: _cr1035 - EXECUTIVE SUMMARY*

### Haiti has a good track record of timely servicing its obligations to the Fund.

### Debt service and sustainability
- Debt service to the Fund is projected to peak at about 5 percent of domestic revenues and 5.9 exports of goods and services, respectively, in 2016, and should remain manageable through 2020.
- Updated joint Bank‑Fund debt sustainability analysis (DSA) indicates:
  - PetroCaribe resources received in FY 2009 and the economic repercussions of the earthquake will adversely affect the debt trajectory.
  - Haiti remains at high risk of debt distress (Country Report No. 09/288).
  - LIC DSA updates incorporated:
    - (i) a worsened macroeconomic outlook post‑earthquake;
    - (ii) a lower discount rate of 4 percent that raises the present value of debt;
    - (iii) new debt to Venezuela under the PetroCaribe agreement of approximately US$295 million (previously treated as a private liability);
    - (iv) the Fund’s augmentation.
  - Based on these revisions, the external debt‑to‑exports ratio would exceed the 100 percent ceiling between 2010 and 2025.
  - Stress tests show public and external debt vulnerability to shocks; a combined shock to growth, exports and non‑debt creating flows could push the NPV of debt‑to‑exports ratios up to 180 percent and keep those ratios above the threshold throughout the projection period.
- Authorities’ commitments:
  - seek foreign financing on highly concessional terms;
  - continue strengthening debt management;
  - consult with Fund staff on all external financing issues.

### Nature and impact of Fund financing
- The proposed Fund financing, including the augmentation, would imply a somewhat higher level of gross debt but should not be regarded as increasing Haiti’s debt vulnerability in isolation.
- Fund support is described as a critical element of broader international efforts to limit earthquake damage and to set a foundation for subsequent economic recovery.
- The counterfactual to Fund support is characterized as a scenario with a more prolonged downturn and higher risk of debt distress.

### Donor response to the earthquake (selected figures)
- United Nations issued a flash appeal amounting to US$562 million for emergency humanitarian assistance over the next six months.
- International community response: almost US$1.2 billion already committed.
- Immediate pledges for humanitarian assistance already exceed US$540 million and another US$632 million was pledged to cover economic recovery needs.
- Selected UN table figures (USD Million):
  - Sub‑total Humanitarian: 112.4 / 140.2 / 272.5 / 17.4 / 542.5
  - Sub‑total Recovery: IMF: 100.0 / 100; World Bank: 100.0 / 100; European Union: 432.0 / 432; Sub‑total Recovery: 632.0 / 632.0
  - Total Humanitarian and Recovery: 112.4 / 140.2 / 904.5 / 17.4 / 1,174.5
  - Notes: 1/ As of January 15, 2010. 2/ Figures are estimates and unlikely to capture all contributions made.

### Immediate government needs in economic management
- Fiscal measures and PFM systems:
  - Significant steps taken to restore public financial management (PFM) systems and procedures with technical assistance support.
  - Main servers supporting information and payments systems seem unaffected despite building damages.
  - Temporary technical units established to assure minimum government services; technical units urgently require computers, office and communication equipment, and generators.
  - Priority PFM areas: basic payroll, basic treasury functions, basic audit service and expenditure monitoring, procurement functions for major purchases, IT services, and revenue administration.
  - Fund staff stands ready to support cash planning and the revision of the FY 2010 budget.
- Financial system and payments:
  - Payments system broadly functioning; banks expected to reopen soon in Port‑au‑Prince, though security, cash distribution, and branch/communications damage remain concerns.
  - Central bank building suffered some damage but is still standing and functional.
  - Communication infrastructure badly damaged, including landline and fiber optic cable.
  - Remittances stopped when the earthquake struck, but have restarted at operational locations.
  - Initially, daily drawings from banks limited to US$2,500 per person.
  - Central bank preparing a list of institutions that should receive emergency liquidity.
  - Portfolios of banks, particularly microfinance institutions, are expected to deteriorate significantly; microfinance institutions generally do not have insurance on their loans.
  - Fund staff will propose a short assessment and offer assistance with payments systems, deposit protection, liquidity management and control of inflation.

### Performance under the ECF arrangement (through end‑December 2009)
- Program performance through end‑December 2009 was broadly satisfactory, although the zero ceiling on contracting non‑concessional external debt was breached.
- Quantitative and fiscal outcomes:
  - All quantitative performance criteria for end‑September were met, although budget support fell short by US$50 million, and 90 percent of disbursements occurred during the last week of the fiscal year.
  - Temporarily higher central bank financing was reflected in slightly higher base money growth relative to the indicative target.
- Non‑concessional loan breach:
  - In the last quarter of 2009 the authorities contracted a non‑concessional sovereign loan of US$33 million with the Development Bank of Venezuela (BANDES) to rehabilitate the Cap Haitian airport.
  - The grant element of this loan (30.2 percent element) is below the required concessionality levels (35 percent).
  - Staff supports a waiver on the continuous performance criterion on contracting of non‑concessional debt, given remedial actions taken.
- Structural conditionality:
  - Satisfactory overall progress toward meeting structural conditionality.
  - Two structural benchmarks met on time: implementation of an electricity tariff structure aimed at gradual cost recovery; two benchmarks met with delay.
  - Remaining measures: full operationalization of the debt unit at the Ministry of Finance awaited IMF technical assistance recommendations; central bank recapitalization plan moving ahead; banking law awaiting Senate approval.

### Staff appraisal and policy conclusions
- Pre‑earthquake context:
  - During FY 2009, economic growth was almost 3 percent, the highest in the Caribbean region, while annual inflation was negative.
  - Fiscal and current account deficits remained contained. Remittances supported domestic demand.
- Earthquake impact and international response:
  - Damages and losses are unprecedented: casualties could reach 200,000 people; about 3 million people severely affected and in need of water, medicine, food, shelter and security.
  - International community response prompt: total pledges for assistance already reaching US$1.2 billion, of which about US$600 million for recovery.
  - Emphasis that humanitarian and non‑humanitarian relief pledged must be timely delivered, coordinated, and sustained over the medium‑term to rebuild Haiti.
- Institutional and fiscal consequences:
  - The earthquake’s impact on revenue collections and financial infrastructure is expected to be significant; critical human capital, physical and administrative organization have been lost.
- Fund role and recommendations:
  - A concerted international effort is needed for reconstruction and recovery; the Fund is fully committed to participate with financial and technical support, coordinated with development partners.
  - Proposed augmentation under the program would assist Haiti with immediate balance‑of‑payments needs, help maintain an adequate reserves cushion for reconstruction imports, and complement international community efforts.
  - Staff supports conclusion of the sixth review and waiver of the missed performance criterion, and the authorities’ request for an augmentation under the Extended Credit Facility.
  - Remedial commitments by authorities (accepted by staff):
    - seek new project financing on concessional terms only;
    - consult with staff ahead of time on external financing issues;
    - strengthen debt management.
  - Although Haiti remains at high risk of debt distress, the proposed augmentation under the ECF is considered essential to support the significant additional balance of payments need.

*Source: IMF staff and United Nations material reproduced in the chapter titled "Haiti has a good track record of timely servicing its obligations to the Fund."*

### EXECUTIVE SUMMARY

### EXECUTIVE SUMMARY

### Background and Mission
- On January 12, 2010, a 7.0 magnitude earthquake struck Port-au-Prince, causing extensive casualties and unprecedented damage concentrated in the capital and nearby cities. About 3 million people (a third of Haiti’s population) were affected; the UN estimates about one million people are in need of shelter. Local hospitals and most schools in Port-au-Prince were damaged or destroyed. The central bank sustained some damage but restored a basic manual payments system. (Box 1)
- The mission for the 2009 Article IV consultation and the sixth and last review of the ECF, and discussions on a new three-year ECF arrangement, took place in Port-au-Prince from December 2-15, 2009. The staff team comprised Ms. Deléchat (head), Ms. Medina Cas, and Ms. Touré (all WHD), Ms. Riad (SPR), Mr. Bouhga-Hagbe (FAD), and Mr. Vandepeute (MCM), assisted by Mr. Justice, Resident Representative, and joined by Mr. Perez (OED) for part of the policy discussions. Staff met with President Préval, Prime Minister Bellerive, Finance Minister Baudin, Central Bank Governor Castel, and other government and private sector representatives.

### Recent Economic Performance (FY 2009 and Q1 FY 2010)
- FY 2009 outcomes:
  - Growth reached 2.9 percent, fueled by strong agricultural and manufacturing output.
  - Annual inflation bottomed out at minus 4.7 percent in September 2009.
  - Fiscal deficit (excluding grants and externally financed projects) was contained at 4.4 percent of GDP.
  - External current account deficit fell to 3.2 percent of GDP from 4.5 percent in FY 2008.
  - Reserve coverage rose to 3.7 months of imports in September 2009 (after the SDR allocation).
  - Financial sector: credit and deposits grew strongly; liquidity improved; all banks posted positive earnings.
- First quarter FY 2010 (Oct–Dec 2009):
  - 12‑month inflation rose to minus 0.8 percent in November (from minus 4.7 in September).
  - Central bank foreign exchange interventions: sold US$11.8 million (net) in the quarter; net international reserves declined by US$16 million during the quarter.
  - End-December fiscal outturn: a small overall surplus due to strong revenues (except petroleum taxes) and lower spending on wages and investment.

### Impact of the Earthquake — Preliminary Assessment and Projections
- GDP and output:
  - Staff’s very preliminary estimate: GDP could decline by at least 13 percentage points to - 10 percent in FY 2010 as a result of the earthquake.
  - Pre-earthquake projections for 2010 had pointed to positive growth of about 3.6 percent and annual inflation of 8 percent.
  - First-quarter (Oct–Dec) 2009 growth is estimated to have been in line with the pre-earthquake annual projection of about 3.6 percent.
  - Largest GDP drop expected in the second quarter (Jan–Mar 2010); manufacturing activity would be hit the most (all but one textile plants are located in Port-au-Prince; textile exports represent 90 percent of total exports).
  - Agriculture (the main growth driver) would be affected due to widespread damages to production systems in and around the earthquake area and distribution disruptions.
  - Gradual recovery expected in the second half of the fiscal year driven by reconstruction; recovery strength depends importantly on the speed of disbursement of foreign aid.
- Inflation and exchange rate:
  - On a very preliminary basis, inflation is projected to rise significantly, perhaps to about 10-20 percent, owing to severe shortages and a sharp initial depreciation of the gourde.
- Fiscal impact and public finances:
  - About 85 percent of total revenues are collected in the capital area, where most large enterprises are located; revenue administration infrastructure (buildings, computer systems) was destroyed or seriously damaged, and staff losses occurred.
  - Reconstruction needs will lead to substantial increases in government spending; actual spending depends importantly on availability of external aid.
  - Very preliminary staff projection: overall deficit for FY 2010 could rise to about 5.8 percent of GDP (projections assume most budget financing needs would be covered by grants).
- External sector:
  - Destruction of production and trade infrastructure (factories, port, roads) could lead to a large decline in exports while reconstruction-related imports will likely increase.
  - Remittances could increase significantly from FY 2009 as the diaspora responds, provided transfers and payments systems can be restored promptly.
  - External current account deficit (excluding grants) could reach almost 20 percent of GDP owing to a sharp widening in the trade balance.

### Proposed Augmentation and Financing Needs
- Authorities’ request:
  - Requesting an augmentation of SDR 65.52 million (80 percent of quota) along with the sixth and last ECF review to support immediate balance-of-payments needs arising from the disaster.
  - Authorities are requesting a waiver for contracting a nonconcessional loan.
- Rationale and Fund role:
  - The augmentation would help cover the projected balance of payments gap for FY 2010 and limit the decline in reserves due to the surge in import needs and the drastic loss in export production capacity.
  - Maintaining a prudent level of reserves is critical to address uncertainties in the trade balance and to meet temporary increases in private sector demand for foreign exchange without severe market disruptions.
- Access, exceptional access, and ECF status:
  - The arrangement was approved in 2006 in an amount of 90 percent of quota; access was raised to 140 percent of quota following two augmentations in the wake of the 2008 shocks.
  - The ECF has been extended until May 31, 2010.
  - The sixth review and augmentation purchases would bring total Fund disbursements to 137 percent of quota, above the normal annual access limit of 100 percent of quota under the new framework for concessional lending to low‑income countries effective January 7, 2010. Exceptional access is justified by very large balance of payments needs resulting from the earthquake, the authorities’ commitment to implement strong policies in consultation with the Fund and the international community, and Haiti’s capacity to repay the Fund.
- Remaining financing gap and other resources:
  - After the proposed Fund augmentation, the remaining financing gap for FY 2010 could reach about US$100 million.
  - Contributions announced to date (January 20, 2010) amount to over US$1.2 billion, of which US$632 million would be earmarked for recovery. It is unclear how much of these committed funds are additional resources or what share would be allocated as budget support.
  - Authorities have about US$150 million in accumulated PetroCaribe financing intended for relief and reconstruction.
  - Staff’s balance of payments projections assume the disbursement of US$144 million in budget support grants that had been committed before the earthquake.

### Performance under the ECF Arrangement and Program Implementation
- Overall assessment:
  - Economic performance in FY 2009 was strong relative to expectations: growth close to 3 percent and deflation owing to unwinding food and fuel shocks.
  - Performance for the sixth and last ECF review was broadly satisfactory: all end-September quantitative performance criteria were met; sufficient progress on structural reforms, although only two out of seven benchmarks were met on time.
  - The authorities are requesting a waiver for contracting a nonconcessional loan.
- ECF specifics:
  - The authorities requested the augmentation to support immediate balance-of-payments needs arising from the disaster; the augmentation complements already substantial international support, with humanitarian relief and recovery commitments totaling almost US$1.2 billion.
  - The conclusion of the Article IV consultation and discussions on a possible new program will take place when estimates of damages and balance of payments needs have been firmed up and a revised policy framework has been agreed.

*Source: _cr1035 - EXECUTIVE SUMMARY*

### 11. Haiti has a good track record of timely servicing its obligations to the Fund.

### 11. Haiti has a good track record of timely servicing its obligations to the Fund.

### Debt service and sustainability
- Debt service to the Fund is projected to peak at about 5 percent of domestic revenues and 5.9 exports of goods and services, respectively, in 2016, and should remain manageable through 2020 (Table 7).
- The updated joint Bank-Fund debt sustainability analysis (DSA) indicates:
  - PetroCaribe resources received in FY 2009 and the economic repercussions of the earthquake will adversely affect the debt trajectory.
  - Haiti remains at high risk of debt distress (Country Report No. 09/288).
  - The LIC DSA was updated to incorporate:
    - (i) a worsened macroeconomic outlook post-earthquake;
    - (ii) a lower discount rate of 4 percent that, all things equal, raises the present value of debt;
    - (iii) new debt to Venezuela under the PetroCaribe agreement of approximately US$295 million (that was previously treated as a private liability);
    - (iv) the Fund’s augmentation.
  - Based on these revisions, the external debt-to-exports ratio would exceed the 100 percent ceiling between 2010 and 2025.
  - Stress tests show public and external debt vulnerability to shocks; a combined shock to growth, exports and non-debt creating flows could push the NPV of debt-to-exports ratios up to 180 percent and keep those ratios above the threshold throughout the projection period.
- The authorities are committed to:
  - seeking foreign financing on highly concessional terms;
  - continue strengthening debt management;
  - consult with Fund staff on all external financing issues.

### Nature and impact of Fund financing
- The proposed Fund financing, including the augmentation, would imply a somewhat higher level of gross debt but should not be regarded as increasing Haiti’s debt vulnerability in isolation.
- Fund support is described as a critical element of broader international efforts to limit earthquake damage and to set a foundation for subsequent economic recovery, affecting medium-term growth, fiscal revenue, exports, and debt sustainability.
- The counterfactual to Fund support is characterized as a scenario with a more prolonged downturn and higher risk of debt distress.

### Donor response to the earthquake (Box 2)
- The United Nations issued a flash appeal amounting to US$562 million, half of which in food aid, intended for emergency humanitarian assistance over the next six months; priority needs: food, medical supplies, shelter, and security.
- International community response: almost US$1.2 billion already committed.
- United Nations to coordinate a more comprehensive post-disaster needs assessment and hold a donor conference in Montreal, scheduled on January 25.
- Immediate pledges for humanitarian assistance already exceed US$540 million and another US$632 million was pledged to cover economic recovery needs.
- Haiti Earthquake Relief and Recovery Efforts—Financing Needs and Pledges (USD Million) (selected figures from UN table):
  - Total requirements: 562 (US$ mn) shown at top of table.
  - A. Humanitarian: Funding needs 2/575.0
    - Government disbursed/committed/pledged/in-kind/Total: 66.3 / 92.7 / 222.8 / 8.8 / 390.7
    - Private 1/: 40.0 / 17.7 / 32.3 / 4.8 / 94.7
    - UN: 5.1 / 25.8 / 1.0 / 3.4 / 35.3
    - NGO 1/: 1.0 / 4.0 / 16.4 / 0.4 / 21.8
    - Of which: UN Flash Appeal 61.6 / 46.4 / 49.9 / 1.0 / 157.9
    - Sub-total Humanitarian: 112.4 / 140.2 / 272.5 / 17.4 / 542.5
  - B. Recovery:
    - IMF: 100.0 / 100
    - World Bank: 100.0 / 100
    - European Union: 432.0 / 432
    - Sub-total Recovery: 632.0 / 632.0
  - Total Humanitarian and Recovery: 112.4 / 140.2 / 904.5 / 17.4 / 1,174.5
  - Notes: 1/ As of January 15, 2010. 2/ Figures are estimates and unlikely to capture all contributions made. 3/ Funding needs as estimated by UN Flash Appeal.

### Immediate government needs in economic management (Box 3)
- Authorities, in consultation with IMF staff and partners, are restoring capacity for fiscal and monetary policy to address emergency needs and support reconstruction and recovery.
- Fiscal measures and PFM systems:
  - Significant steps taken to restore public financial management (PFM) systems and procedures with technical assistance support.
  - Main servers supporting information and payments systems seem unaffected despite building damages.
  - Temporary technical units established to assure minimum government services; a first assessment of immediate needs prepared.
  - Technical units urgently require computers, office and communication equipment, and generators.
  - Technical assistance partners working on a joint proposal to support PFM efforts.
  - Priority PFM areas: basic payroll for government employees, basic treasury functions, basic audit service and expenditure monitoring, procurement functions for major purchases, IT services, and revenue administration.
  - Fund staff stands ready to support cash planning and the revision of the FY 2010 budget.
  - Medium-term technical assistance to focus on strengthening budget preparation and execution, particularly of reconstruction expenditures.
- Financial system and payments:
  - Payments system broadly functioning; banks expected to reopen soon in Port-au-Prince, though security, cash distribution, and branch/communications damage remain concerns.
  - Central bank building suffered some damage but is still standing and functional.
  - Communication infrastructure badly damaged, including landline and fiber optic cable.
  - Remittances stopped when the earthquake struck, but have restarted at operational locations.
  - Difficulties in delivering cash to bank branches and money transfer houses; for the time being these institutions appear to have enough cash to function.
  - Initially, daily drawings from banks limited to US$2,500 per person.
  - The central bank is preparing a list of institutions that should receive emergency liquidity.
  - Portfolios of banks, particularly microfinance institutions, are expected to deteriorate significantly; microfinance institutions generally do not have insurance on their loans.
  - Fund staff will propose a short assessment to better understand immediate needs and priorities; assistance available with payments systems, deposit protection, liquidity management and control of inflation.

### Performance under the ECF arrangement (through end-December 2009)
- Program performance through end-December 2009 was broadly satisfactory, although the zero ceiling on contracting non-concessional external debt was breached.
- Quantitative and fiscal outcomes:
  - All quantitative performance criteria for end-September were met, although budget support fell short by US$50 million, and 90 percent of disbursements occurred during the last week of the fiscal year.
  - Temporarily higher central bank financing was reflected in slightly higher base money growth relative to the indicative target.
- Non-concessional loan breach:
  - In the last quarter of 2009 the authorities contracted a non-concessional sovereign loan of US$33 million with the Development Bank of Venezuela (BANDES) to rehabilitate the Cap Haitian airport.
  - The grant element of this loan (30.2 percent element) is below the required concessionality levels (35 percent).
  - Prior to the earthquake, authorities had initiated discussions with the IDB on a grant to raise the concessionality element of this project and reiterated commitment to seek financing on highly concessional terms.
  - Staff supports a waiver on the continuous performance criterion on contracting of non-concessional debt, given remedial actions taken.
  - Staff will closely monitor Haiti’s debt dynamics to ensure future financing takes primarily the form of grants and highly concessional lending (Table 8).
- Structural conditionality:
  - Satisfactory overall progress toward meeting structural conditionality.
  - Two structural benchmarks met on time: implementation of an electricity tariff structure aimed at gradual cost recovery, and two benchmarks were met with delay.
  - Progress on remaining measures: full operationalization of the debt unit at the Ministry of Finance awaited IMF technical assistance recommendations; central bank recapitalization plan moving ahead as part of establishing a domestic T-bill market; banking law awaiting Senate approval (Table 9).

### Staff appraisal and policy conclusions
- Pre-earthquake economic context:
  - The January 2010 earthquake struck while Haiti’s economy had been weathering the global crisis relatively well.
  - During FY 2009, economic growth was almost 3 percent, the highest in the Caribbean region, while annual inflation was negative.
  - Fiscal and current account deficits remained contained. Remittances supported domestic demand.
- Earthquake impact and international response:
  - Damages and losses are unprecedented in human and economic terms: casualties could reach 200,000 people; about 3 million people severely affected and in need of water, medicine, food, shelter and security.
  - International community response prompt: total pledges for assistance already reaching US$1.2 billion, of which about US$600 million for recovery.
  - Emphasis that humanitarian and non-humanitarian relief pledged must be timely delivered, coordinated, and sustained over the medium-term to rebuild Haiti.
- Institutional and fiscal consequences:
  - The earthquake’s impact on economic institutions may have undone many recent achievements.
  - Performance under the ECF-supported arrangement had been broadly satisfactory; Haiti received US$1.2 billion in HIPC and MDRI debt relief in June 2009.
  - The earthquake’s impact on revenue collections and financial infrastructure is expected to be significant; critical human capital, physical and administrative organization have been lost.
- Fund role and recommendations:
  - A concerted international effort is needed for reconstruction and recovery; the Fund is fully committed to participate with financial and technical support, coordinated with development partners.
  - Proposed augmentation of access under the program would assist Haiti with immediate balance-of-payments needs, help maintain an adequate reserves cushion for reconstruction imports, and complement international community efforts.
  - Staff supports conclusion of the sixth review and waiver of the missed performance criterion, and the authorities’ request for an augmentation under the Extended Credit Facility.
  - Staff regrets the signing of a non-concessional loan but considers the waiver justified by authorities’ remedial efforts and forward-looking commitments:
    - seek new project financing on concessional terms only;
    - consult with staff ahead of time on external financing issues;
    - strengthen debt management.
  - Although Haiti remains at high risk of debt distress, the proposed augmentation under the ECF is considered essential to support the significant additional balance of payments need.

*Source: IMF staff and United Nations material reproduced in the chapter titled "Haiti has a good track record of timely servicing its obligations to the Fund."*

### 1. Starting a Business

### 1. Starting a Business

### Overview
- Content unit lists related topics with numeric entries exactly as provided.

### Items and exact figures
- 1. Starting a Business
  - 180107
  - 95156135
- 2. Closing a Business
  - 155146
  - 7093116
- 3. Registering Property
  - 129112
  - 14324102
- 4. Obtaining Credit
  - 13571
  - 87474
- 5. Protecting Investors
  - 16557
  - 93132112
- 6. Paying Taxes
  - 9970
  - 165109111
- 7. Trading Across Borders
  - 14436
  - 99119100

*Source: _cr1035 - 1. Starting a Business (PDF).*

### 8. Enforcing Contracts

### 8. Enforcing Contracts

### Financial Sector Overview
- The financial sector in Haiti was underdeveloped and largely insulated from the global financial sector crisis.
- Financial intermediation remained low; banks remained highly liquid; after a post-hurricane downturn, profitability indicators had recovered; the financial system was well capitalized; interest rates were uncompetitive.
- Key snapshot figures (fiscal year ending September 30):
  - Nominal GDP (2008): US$6.95 billion
  - GDP per capita (2008): US$712
  - Population (2008): 9.76 million
  - Adult literacy (2008): 53 percent
  - Share of population living with less than $1 a day (2003): 54 percent
  - Unemployment rate (2003): 27 percent

### Macroeconomic Outcomes and Projections
- GDP and prices (change over previous year unless otherwise stated):
  - GDP at constant prices: 3.3; 0.8; 2.0; 2.9; -10.0
  - GDP deflator: 7.2; 13.8; 6.3; 3.2; 11.6
  - Consumer prices (period average): 9.0; 14.4; 5.1; 3.4; 8.4
  - Consumer prices (end-of-period): 7.9; 19.8; 1.0; -4.7; 15.0
- External sector (percent changes / balances):
  - Exports (f.o.b.): 5.7; -6.2; 0.1; 12.4; -29.7
  - Imports (f.o.b.): 4.5; 30.2; -0.8; -3.3; 12.3
  - Real effective exchange rate (+ appreciation): 15.3; 2.9; ...; 1.0; ...
- Money and credit:
  - Credit to the private sector: 10.8; 25.2; 12.8; 14.7; -8.6
  - Base money: 7.6; 13.9; 9.3; 9.5; 1.1
  - Broad money (incl. foreign currency deposits): 4.8; 17.7; 10.0; 11.0; 6.7
- Savings and investment:
  - Gross investment: 25.0; 26.0; 38.2; 23.4; 26.8
  - Gross national savings: 24.8; 21.5; 34.9; 20.2; 20.4
- External current account balance:
  - Including official grants: -0.3; -4.5; -3.3; -3.2; -6.4 (in percent of GDP)
  - Excluding official grants: -6.9; -11.7; -13.4; -10.6; -19.1 (in percent of GDP)

### Fiscal Operations (Central Government)
- Selected flows (millions of gourdes; fiscal year ending September 30):
  - Total revenue and grants: 34,713; 37,901; 49,062; 47,717; 76,853; 46,679
  - Domestic revenue: 23,197; 26,849; 29,041; 29,881; 34,925; 17,045
  - Domestic taxes: 15,740; 18,026; 19,663; 19,954; 23,873; 11,207
  - Grants: 11,517; 11,052; 20,021; 17,836; 41,928; 29,634
  - Total expenditure: 34,248; 45,680; 62,497; 59,534; 88,198; 62,275
  - Current expenditure: 18,864; 26,935; 32,595; 30,641; 31,700; 31,490
  - Capital expenditure: 15,385; 18,745; 29,902; 28,894; 56,498; 30,785
  - Overall balance: 465; -7,778; -13,435; -11,817; -11,345; -15,596
  - Overall balance (excl. grants): -11,052; -18,831; -33,456; -29,653; -53,273; -45,230
- Fiscal ratios (percent of GDP):
  - Total revenue and grants: 15.8; 15.1; 18.4; 17.9; 28.7; 17.4
  - Total revenue: 10.6; 10.7; 10.9; 11.2; 13.0; 6.4
  - Total expenditure: 15.6; 18.2; 23.4; 22.3; 32.9; 23.2
  - Overall balance: 0.2; -3.1; -5.0; -4.4; -4.2; -5.8

### Banking System and Financial Soundness Indicators
- Size and growth (selected levels and ratios, fiscal year ending September 30):
  - Total assets (millions of gourdes): 72,519; 79,764; 100,302; 107,913
  - Total deposits (millions of gourdes): 61,311; 66,031; 84,725; 92,460
  - Total loans (millions of gourdes): 22,750; 24,670; 31,187; 35,405
  - Net profits (millions of gourdes): 414.4; 202.3; 483.7; 359.8
  - Credit/GDP: 10.2; 10.9; 10.8; 13.3
  - Deposits/GDP: 30.6; 29.2; 34.6; 37.8
  - Credit growth (net): 13.7; 9.9; 29.3; 14.2
- Capital adequacy:
  - Regulatory capital to risk-weighted assets: 14.3; 19.0; 12.6; 16.4 (prudential requirement is 12 percent)
  - Capital (net worth) to assets: 5.3; 7.0; 6.1; 6.7
- Asset quality and composition:
  - Loans (net) to assets: 28.2; 28.3; 29.1; 30.9
  - NPLs to gross loans: 11.1; 10.0; 9.7; 8.5
  - Provisions to gross loans: 9.9; 8.5; 6.4; 5.9
  - Provisions to gross NPLs: 89.3; 85.5; 66.4; 69.6
  - NPL less provisions to net worth: 7.0; 6.4; 15.6; 12.6
- Profitability and efficiency:
  - Return on Assets (ROA): 1.8; 1.0; 2.0; 1.4
  - Return on Equity (ROE): 34.2; 14.7; 30.9; 20.5
  - Net interest income to gross interest income: 72.2; 67.1; 80.0; 87.3
  - Operating expenses to net profits: 70.7; 86.0; 73.5; 74.1
- Liquidity:
  - Liquid assets to total assets: 45.3; 46.5; 35.4; 46.9
  - Liquid assets to deposits: 54.5; 56.1; 41.9; 44.4
- Market risk and currency composition:
  - Foreign currency loans to total loans (net): 66.0; 70.1; 69.3; 68.9
  - Foreign currency deposits to total deposits: 53.6; 52.4; 58.2; 56.9

### Balance of Payments and External Vulnerability
- Balance of payments (fiscal year ending September 30; in millions of U.S. dollars):
  - Current account: -15.2; -295.3; -213.9; -210.3; -392.1
  - Current account (excluding grants): -406.8; -769.0; -875.4; -697.7; -1,163.9
  - Trade balance: -1,096.0; -1,617.0; -1,600.1; -1,486.0; -1,900.3
  - Exports of goods: 522.5; 490.2; 490.8; 551.2; 387.5
  - Imports of goods: -1,618.4; -2,107.2; -2,090.9; -2,037.2; -2,287.8
  - Current transfers (net): 1,517.1; 1,726.4; 1,850.5; 1,727.7; 2,089.9
  - Official transfers (net): 391.6; 473.7; 661.5; 487.4; 771.8
  - Private transfers (net): 1,125.5; 1,252.7; 1,189.0; 1,240.3; 1,318.1
- Capital and financial accounts:
  - Capital and financial accounts: 178.6; 336.7; 156.6; 243.7; 87.9
  - Public sector capital flows (net): 46.1; 319.7; 49.6; 263.8; 143.3
  - Loan disbursements: 91.6; 363.5; 98.0; 186.4; 153.7
  - Amortization: -45.5; -43.8; -48.4; -24.0; -10.4
- Reserves and financing:
  - Overall balance: 163.4; 41.5; -57.4; 33.4; -304.2
  - Net international reserves (program): 269; 288; 238; 315; 517 (in millions of U.S. dollars)
  - Gross liquid international reserves: 544.7; 707.8; 754.7; 947.5; 867.6 (in millions of U.S. dollars)
  - Gross liquid international reserves (months of imports of the following year): 2.3; 2.9; 3.0; 3.7; 3.4
- Memorandum items:
  - Current account balance (in percent of GDP): -0.3; -4.5; -3.0; -3.2; -6.4
  - Current account balance, excl. grants (in percent of GDP): -6.9; -11.7; -12.4; -10.6; -19.1
  - Goods exports (f.o.b) growth: 5.7; -6.2; 0.1; 12.4; -29.7
  - Goods imports (f.o.b) growth: 4.5; 30.2; -0.8; -3.3; 12.3
  - Debt service as percent of exports: 8.3; 8.2; 9.3; 3.9; 3.7

### IMF Extended Credit Facility (ECF) Disbursements and Fund Obligations
- Schedule of ECF disbursements (selected amounts and dates):
  - SDR 28,100,000 — November 20, 2006 — Executive Board approval of the three-year arrangement under the ECF. Includes 25% of quota in access for repayment of EPCA purchases.
  - SDR 7,600,000 — July 23, 2007 — Observance of performance criteria for March 2007 and completion of the first review.
  - SDR 7,600,000 — February 20, 2008 — Observance of performance criteria for September 2007 and completion of the second review.
  - SDR 23,980,000 — June 23, 2008 — Observance of performance criteria for March 2008 and completion of the third review.
  - SDR 23,980,000 — February 11, 2009 — Observance of performance criteria for September 2008 and completion of the fourth review.
  - SDR 15,790,000 — June 29, 2009 — Observance of performance criteria for March 2009 and completion of the fifth review.
  - SDR 73,130,000 — January 27, 2010 — Observance of performance criteria for September 2009 and completion of the sixth review. Includes the seventh disbursement of the ECF of SDR 7,610,000 and an additional access of 80% of quota or SDR 65,520,000 for post earthquake emergency.
- Fund obligations and outstanding credit (selected projections, in millions of SDRs and U.S. dollars):
  - Total obligations based on existing and prospective credit (in millions of SDRs, selected years): 0.19; 0.27; 0.03; 0.03; 1.01; 8.37; 16.30; 29.12; 36.36; 33.46; 28.29; 20.27; 7.35
  - In millions of U.S. dollars (selected years): 0.30; 0.41; 0.05; 0.05; 1.61; 13.33; 25.96; 46.40; 57.92; 53.30; 45.07; 32.29; 11.72
  - Outstanding Fund credit (in millions of SDRs, selected years): 67.3; 105.0; 178.1; 178.1; 177.4; 169.5; 153.6; 124.9; 88.9; 55.6; 27.5; 7.3; 0.0
  - Outstanding Fund credit (in millions of U.S. dollars, selected years): 104.8; 165.6; 283.9; 283.7; 282.6; 270.0; 244.1; 198.5; 141.2; 88.4; 43.7; 11.6; 0.0

### Indicative Targets, Performance Criteria, and Structural Benchmarks
- Indicative targets and performance criteria (cumulative flows since September 2008; selected items, in millions of gourdes and U.S. dollars):
  - Net central bank credit to the NFPS (actual stock at end-Jun 09): 20,541; indicative target: 3,500; actual deviation from program with adjustor shown in table (detailed quarterly figures provided).
  - Net international reserves of central bank (in millions of U.S. dollars) - floor: 288; target deviations reported.
  - Indicative target: Change in base money (in millions of gourdes) - ceiling: 28,392; test dates and deviations reported.
  - Memorandum: Government total revenue, excl. grants (in millions of gourdes): target and actual figures given (e.g., 29,041; 29,881).
- Structural benchmarks for the Sixth PRGF Review (benchmarks, test date, status):
  - Provide, along with normal monthly budget execution tables, execution of emergency spending, by normal budget classification. Quarterly during the arrangement period, starting on March 31, 2009 and until all off-budget emergency spending is executed — Met with delay.
  - Limit to 10 percent nonwage current spending through current accounts. Quarterly (evaluated at end-March and end-September 2009) — Met.
  - Legislative passage of new banking law. End-September 2009 — Not met.
  - Implement first stage of BRH recapitalization plan. End-September 2009 — Not met.
  - Set up and train debt management unit in MEF — both to use centralized external debt database, but also to manage domestic Treasury debt in context of BRH recapitalization. End-September 2009 — Not met.
  - Legislative passage of customs code. End-September 2009 — Met with delay.
  - Publish and implement a new electricity tariff structure that would increase and maintain electricity prices at cost-recovery levels. End-September 2009 — Met.

### Indicators of External Vulnerability and Debt
- Debt and external indicators (selected):
  - Total external public debt (in percent of GDP): 28.2; 15.2; 20.2
  - Total external public debt (in percent of exports): 222.7; 106.8; 197.8
  - External debt service (in percent of GDP): 0.7; 0.2; 0.4
  - External debt service (in percent of exports): 8.2; 3.9; 3.7
  - Remittances and grants in percent of gross disposable income: 20.8; 20.8; 25.5
  - Liquid gross reserves (in millions of U.S. dollars): 707.8; 947.5; 867.6
  - Liquid gross reserves (in months of imports of the following year): 2.9; 3.7; 3.4

*Source: _cr1035 - 8. Enforcing Contracts (IMF staff report content provided).*

### 1. This letter describes the progress made under the PRGF-supported program and

### _cr1035 - 1. This letter describes the progress made under the PRGF-supported program and

### Program requests and immediate financing
- Request that the seventh and last disbursement under the arrangement, in the amount of SDR 7.61 million, be made available to Haiti, following the completion of the sixth review.
- Request an immediate augmentation of access under the arrangement of SDR 65.52 million (80 percent of quota) in light of the earthquake’s expected negative impact on Haiti’s external position.
- Request that the full amount of this augmentation be made available immediately, upon completion of the sixth review.

### Macroeconomic and program performance
- Under the current PRGF-supported arrangement, macroeconomic and financial policies have helped stabilize the economy and restore growth despite successive shocks and the global slowdown, but standards of living are improving very slowly and growth is insufficient to make significant inroads into poverty reduction.
- Progress with essential structural reforms allowed for delivery of HIPC/MDRI debt relief in June 2009.
- Haiti’s economy remains highly vulnerable to climatic conditions and commodity prices; low domestic revenues make growth prospects heavily dependent on external concessional support and private investment.
- Overall performance for the sixth and last PRGF review was satisfactory:
  - All quantitative performance criteria evaluated at end-September 2009 have been met.
  - Good progress in implementing structural conditionality, including a new electricity tariff structure aimed at cost recovery.
  - Contracted a loan for rehabilitation of the Cap Haitian airport (critical for development of the north); concessionality fell to 30.2 percent grant element, short of the 35 percent grant element required by the program, prompting a request for a waiver for non-observance of the continuous performance criterion on contracting external debt on nonconcessional terms.
  - Engagement with the Inter-American Development Bank (IDB) to improve overall financing terms for the airport project.

### Earthquake impact and immediate needs
- On January 12, 2010, Haiti was struck by a 7.0 magnitude earthquake, described as the worst disaster in over 200 years.
- The capital and surrounding areas, home to more than one third of the country’s population and key economic and government infrastructure, were the most affected; surrounding cities were also destroyed.
- Damages to transport and production infrastructures are expected to severely cripple exports and hold back economic growth.
- United Nations estimate of immediate financing requirements to address the emergency is US$562 million, about half of which is needed in the form of food assistance.
- Indications are that the earthquake damage is far worse than that associated with the 2008 hurricanes, which destroyed 15 percent of GDP.
- Government has already received additional emergency humanitarian support from development partners but indicates that much more financial and technical support will be needed to rebuild the country.
- Government has requested assistance to rapidly restore basic public financial management functions to ensure full accountability of funds provided by IMF and other donors and their effective use.

### Debt stock and recent relief
- Public debt as of end-September 2009 is estimated at about 24.8 percent of GDP.
  - External creditors: 16.6 percent of GDP.
  - Domestic debt (credit from the central bank, BRH): about 8.2 percent of GDP.
- HIPC and MDRI debt relief at completion point in June 2009 reduced Haiti’s debt stock in nominal terms by an estimated US$1.1 billion, with annual debt service savings of more than US$50 million in the first ten years following completion point.
- MDRI stock of debt reduction estimated at US$841 million (US$446 million from IDA and US$395 million from the IADB).

### External debt sustainability assessment (LIC DSA) — key findings
- Updated LIC DSA shows Haiti’s risk of debt distress remains high due to deterioration of the macroeconomic outlook and new borrowing.
- Baseline scenario: PV of external debt-to-exports breaches the relevant policy-dependent threshold over a prolonged period (2010-2025), reaching a peak of about 155 percent in 2011 before declining steadily below 100 percent over the projection period.
- Compared to the completion point DSA:
  - Exports as a percent of GDP are expected to drop sharply in 2010 and recover only gradually to their pre-earthquake level by 2020.
  - Imports are expected to increase significantly in 2010 and decline only gradually to 2009 levels by 2015.
  - External current account deficit expected to be significantly higher over the medium-term compared to the previous DSA.
  - GDP growth and government revenues expected to be significantly lower, with GDP contracting by about 13 percentage points in 2010 and only recovering to its pre-earthquake level by 2015.
  - These factors account for about 15 percentage points of the increase in the PV of debt-to-exports ratio compared to the completion point.
- Higher borrowing in 2009 (notably concessional trade financing from Venezuela under PetroCaribe) raised the PV of external debt by more than 45 percentage points of exports in FY2010; accumulated PetroCaribe financing of US$295 million contributed substantially.
  - Financing under the PetroCaribe arrangement treated as government liabilities; based on current terms—1 percent interest, 2 years grace, and 25 years maturity—the associated concessionality element is 44.5 percent.
- Comparative indicator note: the augmentation of Fund access under the ECF would raise the PV of debt-to-export ratio by about 12 percentage points in 2010 and would not affect the duration of the breach above the policy-related threshold.
- Sensitivity analysis:
  - Haiti is most vulnerable to a combined shock to growth, exports, prices and non-debt creating flows; such combined shocks could push the PV of debt-to-exports ratio up to 160 percent before declining in FY 2015, although the ratio would remain above the threshold for the projection period.
  - Less favorable terms on new borrowing would also cause the debt-to-exports ratio to remain above 150 percent beyond 2020.
- Staff view: the Fund augmentation does not materially worsen debt dynamics and is a critical element of international efforts to limit earthquake damage and catalyze broader support; the counterfactual to Fund support would likely be a more prolonged downturn and higher risk of debt distress.

### Public debt sustainability analysis — key findings and scenarios
- Baseline public debt indicators:
  - PV of public debt-to-GDP rises from 25 percent in FY2009 to 41 percent in FY 2020, before declining to 39 in FY2030.
  - Increase reflects primarily an increase in domestic borrowing; external debt declines to 17 percent of GDP in 2030.
  - PV of debt-to-revenue ratio starts at 242 percent in FY 2010, but declines rapidly below the threshold of 200 percent by 2014 and declines steadily thereafter.
- Alternative/shock scenarios:
  - If the primary balance is fixed at its relatively high level of FY 2009, the PV of public debt-to-GDP ratio would grow to 80 percent over the projection period versus stabilizing at about 35 percent under the baseline.
  - The most extreme shock (weaker growth for the debt stock indicators and lower non-debt creating flows for the debt service measure) would also raise debt above the baseline, though less pronounced than the fixed FY 2009 primary balance scenario.

### Debt management and capacity
- The earthquake likely severely disrupted existing debt management systems; technical and financial support will be needed to recover data, set up a working computer system, and rehabilitate physical infrastructure.
- Prior to the earthquake, debt management capacity had improved since the decision point in December 2006:
  - BRH and the MEF had completed installation of UNCTAD DMFAS system, version 5.3, improving availability, quality and security of debt data.
  - Debt reporting by the government had improved.
  - Progress had been made in establishing a debt unit at the Ministry of Finance, though finalization of the draft operations manual and legal/institutional framework depended on planned technical assistance by UNCTAD and CEMLA.

### Policy commitments and transparency
- The government is committed to designing and implementing measures to address immediate earthquake needs and support subsequent recovery while restoring and maintaining macroeconomic stability and financial sustainability in line with program objectives.
- Government will continue to consult closely with the IMF in accordance with Fund policies and with the international community, and has expressed interest in a successor IMF-supported arrangement.
- In line with commitment to transparency, the government agrees to publication of all ECF-related documents circulated to the IMF Executive Board.

*Source: INTERNATIONAL MONETARY FUND and INTERNATIONAL DEVELOPMENT ASSOCIATION—HAITI, Sixth Review Under the Extended Credit Facility, Request for Waiver of Performance Criterion and Augmentation of Access; Joint IMF/World Bank Debt Sustainability Analysis; January 25, 2010.*

### 12.      Haiti’s risk of external debt distress remains high even after HIPC and MDRI

### Haiti’s risk of external debt distress remains high even after HIPC and MDRI

### Key findings and assessment
- The present-value (PV) of debt-to-exports ratio "breaches the 100 percent threshold for a prolonged period," even though other debt indicators remain below their relevant thresholds.
- The Fund augmentation is described as "a critical element in supporting a broader international effort to respond to the needs in the aftermath of the earthquake and lay the foundation for a subsequent economic recovery."
- The analysis underscores the importance for donors to meet Haiti’s large and immediate financing needs through grants and highly concessional loans.

### Debt dynamics and stress-test summary (2010–2030)
- Time horizon of debt indicator projections and stress tests: 2010–2030.
- The most extreme stress tests identified in the figures correspond to:
  - Combination shock (figure b and d and e)
  - Terms shock (figure c)
  - One-time depreciation shock (figure f)
- Figures and tables present baseline, historical, and most extreme-shock paths for indicators including:
  - Rate of debt accumulation
  - PV of debt-to-GDP ratio
  - PV of debt-to-exports ratio
  - PV of debt-to-revenue ratio
  - Debt service-to-exports ratio
  - Debt service-to-revenue ratio

### Quantitative pointers from the DSA tables and figures
- Projection window shown repeatedly: 2010, 2015, 2020, 2025, 2030 (figures and charts).
- Table A1 / Table A4 (selected macro and fiscal assumptions and long-term projections):
  - Real GDP growth (in percent) series includes values: 3.3, 0.8, 2.9, 0.8, 2.0, -10.0, 1.0, 2.5, 3.5, 3.5, 4.5, 4.5, 0.8, 5.0, 5.0, 5.0.
  - GDP deflator (in percent) series includes values: 3.16, 11.60, 13.60, 9.10, 7.50, 6.50, 5.00, 5.00, 5.00, 5.00, 5.00, 5.00, 7.33, 5.00.
  - Consumer prices (period average) series includes values: 3.43, 8.40, 13.06, 8.85, 7.50, 6.50, 6.50, 6.50, 6.50, 6.50, 6.50, 6.50, 7.68, 6.50.
- Table 1a / Table A2 (public sector and external DSA highlights):
  - Public sector debt (percent of GDP) historical and projected values include: 34.9, 37.7, 24.8, 29.9, 33.0, 35.3, 36.7, 38.0, 38.8, 41.8, 39.4.
  - PV of public sector debt (in percent of GDP) values include: 9.4, 8.2, 19.6, 23.6, 26.7, 28.8, 30.2, 31.3, 32.1, 35.2, 34.5.
  - PV of public sector debt-to-revenue and grants ratio (in percent): 59.0, 54.4, 109.9, 147.7, 156.9, 171.7, 171.4, 172.4, 170.9, 184.4, 169.9.
  - PV of public sector debt-to-revenue ratio (in percent): 88.3, 76.8, 175.5, 371.1, 276.9, 280.1, 265.8, 258.3, 246.1, 241.8, 196.9.
  - PV of external debt (in percent of GDP) series shown in external DSA: ......, 11.4, 15.4, 15.7, 16.2, 16.5, 16.7, 16.7, 15.3, 11.7 (as presented in the tables).
  - PV of PPG external debt (in percent of exports) series: ......, 80.4, 151.2, 152.9, 144.0, 142.8, 139.8, 138.8, 115.6, 74.0.
  - PV of PPG external debt (in percent of government revenues) series: ......, 102.2, 242.6, 163.1, 157.9, 145.3, 137.5, 127.8, 105.4, 66.5.
  - Debt service-to-revenue and grants ratio (in percent) series includes values: 10.6, 7.1, 5.4, 4.4, 5.3, 6.7, 8.1, 9.2, 9.2, 11.8, 11.7.
  - Debt service-to-revenue ratio (in percent) series includes values: 15.8, 10.1, 8.5, 11.2, 9.4, 11.0, 12.5, 13.8, 13.2, 15.5, 13.6.
  - Gross financing need (percent of GDP) values include: 10.3, 11.7, 12.5, 15.6, 13.4, 16.9, 18.3, 19.4, 19.5, 23.3, 24.9.
- External sector and external DSA (selected values):
  - Exports of goods and non-factor services (USD) series includes values such as: 12.02, -33.29, 6.42, 15.54, 8.57, 8.44, 7.17, 8.75, 9.22, 9.18, 9.14, 9.10, 9.06, 9.02, 8.98, 8.95, 8.92, 8.88, 8.85, 8.82, 8.79, 8.76, 4.91, 8.92 (as presented in the table).
  - Imports of goods and non-factor services (USD) series includes values such as: 0.38, 6.58, 0.28, 1.08, 1.31, 1.21, 1.44, 6.00, 6.50, 6.50, 6.50, 6.50, 6.49, 6.49, 6.49, 6.48, 6.48, 6.48, 6.90, 6.90, 6.90, 6.90, 3.74, 6.64 (as presented in the table).
  - External current account balance series (two measures shown): 
    - External current account balance 1/ series includes: -10.64, -19.07, -16.99, -14.17, -12.33, -10.91, -9.59, -9.74, -8.84, -8.31, -7.93, -7.54, -7.16, -6.78, -6.39, -6.01, -5.63, -5.25, -4.88, -4.67, -4.43, -4.20, -11.79, -5.72.
    - External current account balance 2/ series includes: -3.21, -6.23, -7.38, -5.28, -3.60, -2.38, -1.62, -2.08, -1.38, -1.20, -1.14, -1.06, -0.97, -0.87, -0.76, -0.64, -0.50, -0.35, -0.20, -0.17, -0.11, -0.04, -3.23, -0.52.
  - Liquid gross reserves (in months of imports of G&S) series includes values: 3.70, 3.38, 3.53, 3.78, 4.04, 4.28, 4.41, 4.51, 4.61, 4.61, 4.61, 4.61, 4.61, 4.61, 4.61, 4.61, 4.61, 4.61, 4.61, 4.61, 4.61, 4.61, 4.17, 4.61.

### Sensitivity and stress-test scenarios (selected)
- Table A3 and Table A5 present sensitivity analyses for PV debt-to-GDP, PV debt-to-exports, PV debt-to-revenue, and debt service ratios under alternative scenarios and bound tests for 2010–2030.
- Examples of bound tests and alternative scenarios included:
  - A1. Key variables at their historical averages in 2010-2030.
  - A2. New public sector loans on less favorable terms in 2010-2030.
  - B1. Real GDP growth at historical average minus one standard deviation in 2011-2012.
  - B2. Export value growth at historical average minus one standard deviation in 2011-2012.
  - B3. US dollar GDP deflator at historical average minus one standard deviation in 2011-2012.
  - B4. Net non-debt creating flows at historical average minus one standard deviation in 2011-2012.
  - B5. Combination of B1–B4 using one-half standard deviation shocks.
  - B6. One-time 30 percent nominal depreciation relative to the baseline in 2011.
- The sensitivity tables show that under multiple adverse scenarios the PV of debt-to-exports and PV of debt-to-revenue can rise substantially (values in the tables range into the hundreds of percent for several scenarios and years).

### Policy implications and recommendations
- Continued international financial support is needed after HIPC and MDRI to address:
  - Immediate post-earthquake financing needs.
  - The foundation for a subsequent economic recovery.
- Donors should prioritize grants and highly concessional loans to meet Haiti’s large and immediate financing needs, given that the PV of debt-to-exports remains well above the 100 percent threshold for a prolonged period.
- The Fund augmentation plays a critical supporting role within a broader international effort.

*Source: INTERNATIONAL MONETARY FUND — Haiti: Sixth Review Under the Extended Credit Facility, Request for Waiver of Performance Criterion and Augmentation of Access — Informational Annex (January 22, 2010). The overlay summarizes the section titled “Haiti’s risk of external debt distress remains high even after HIPC and MDRI.”*

### Annex I. Fund Relations

### Annex I. Fund Relations

### I. Membership Status
- Joined: September 08, 1953
- Article VIII member

### II. General Resources Account
- Quota: 81.90 (SDR Million) — 100.00 percent of quota
- Fund holdings of currency: 81.83 (SDR Million) — 99.92 percent of quota
- Reserve Position: 0.07 (SDR Million) — 0.08 percent of quota
- Holdings Exchange Rate: (no numeric value provided)

### III. SDR Department
- Net cumulative allocation: 78.51 (SDR Million) — 100.00 percent allocation
- Holdings: 68.92 (SDR Million) — 87.79 percent allocation

### IV. Outstanding Purchases and Loans
- ECF Arrangements: 105.00 (SDR Million) — 128.21 percent of quota

### V. Latest Financial Arrangements
- ECF
  - Date of Arrangement: Nov 20, 2006
  - Date of Expiration: Jan 31, 2010
  - Amount Approved (SDR Million): 114.66
  - Amount Drawn (SDR Million): 107.05
- PRGF
  - Date of Arrangement: Oct 18, 1996
  - Date of Expiration: Oct 17, 1999
  - Amount Approved (SDR Million): 91.05
  - Amount Drawn (SDR Million): 15.18
- Stand-By
  - Date of Arrangement: Mar 08, 1995
  - Date of Expiration: Mar 07, 1996
  - Amount Approved (SDR Million): 20.00
  - Amount Drawn (SDR Million): 16.40

### VI. Projected Payments to Fund (without HIPC Assistance) 1/
- Based on existing use of resources and present holdings of SDRs (SDR Million):
  - Forthcoming payments by year:
    - 2010:
      - Principal: 3.57
      - Charges/Interest: 0.55
      - Total: 0.55
    - 2011:
      - Principal: 10.30
      - Charges/Interest: 0.55
      - Total: 0.55
    - 2012:
      - Principal: 15.85
      - Charges/Interest: 0.55
      - Total: 4.12
    - 2013:
      - Charges/Interest: 0.52
      - Total: 10.82
    - 2014:
      - Charges/Interest: 0.45
      - Total: 16.31
- Footnote 1/: When a member has overdue financial obligations outstanding for more than three months, the amount of such arrears will be shown in this section.

### VII. Implementation of HIPC Initiative — Enhanced Framework
I. Commitment of HIPC assistance
- Decision point date: Nov 2006
- Assistance committed by all creditors (US$ Million)1/: 140.30
- Of which: IMF assistance (US$ million): 3.12
  - (SDR equivalent in millions): 2.10
- Completion point date: June 2009

II. Disbursement of IMF assistance (SDR Million)
- Assistance disbursed to the member: 2.10
  - Interim assistance: 0.29
  - Completion point balance: 1.81
- Additional disbursement of interest income2/: 0.23
- Total disbursements: 2.34

- Footnote 1/: Assistance committed under the original framework is expressed in net present value (NPV) terms at the completion point, and assistance committed under the enhanced framework is expressed in NPV terms at the decision point. Hence these two amounts can not be added.
- Footnote 2/: Under the enhanced framework, an additional disbursement is made at the completion point corresponding to interest income earned on the amount committed at the decision point but not disbursed during the interim period.

### VIII. Implementation of Multilateral Debt Relief Initiative (MDRI)
- Not Applicable

### IX. Exchange Arrangement
- De jure exchange regime: managed float with no predetermined path for the exchange rate
- De facto classification: “crawl-like” arrangement as the Gourde has remained within a narrow band relative to an identifiable depreciation trend against the U.S. dollar since April 1, 2008
- Previous change in classification from fixed to managed floating: January 1990
- Exchange system: free of restrictions on the making of payments and transfers for current international transactions
- Since September 1991, all transactions have taken place at the free (interbank) market rate

### X. Safeguards Assessment
- Update assessment of the Banque de la République d’Haiti (BRH) concluded: September 2008
- Progress noted in implementing safeguards recommendations; further improvements needed
- Qualitative analysis between currently used accounting principles and IFRS did not reveal major differences and suggests gradual adoption of IFRS by the BRH is feasible
- Audit Committee Charter adopted: March 2007; Committee constituted: February 2008
- Capacity of Audit Committee needs strengthening
- Remaining vulnerabilities:
  - Foreign reserves management
  - Timely conduct of external audits
  - Timely production of audited financial statements
- Note: Conclusions of the recent update assessment continue to be valid for the third augmentation of access

### XI. Article IV Consultation
- Last Article IV consultation concluded by the Executive Board: July 9, 2007
- Consultation cycle: 24-month cycle
- Conclusion of the 2009 Article IV postponed in the wake of the January 12, 2010 earthquake until estimates of damages and balance of payment needs are firmed up

### XII. Technical Assistance
- Haiti benefited from the following IMF technical assistance missions since 2005 (Department / Dates / Purpose):
  - FAD
    - April 2005 — Public expenditure management
    - May 2005 — Tax policy and revenue administration
    - November 2006 — Public expenditure management
    - September 2009 — Public financial management
    - November 2009 — Tax and Customs administrations
  - CARTAC
    - April 2008 — Customs administration
    - November 2009 — National accounts statistics
  - MCM
    - March 2005 — Monetary operations
    - November 2005 — Implementation of a bond auction mechanism
    - May 2006 — Accounting of the central bank
    - March 2007 — Banking law (jointly with LEG)
    - November 2007 — BRH recapitalization plan
    - March 2008 — FSAP and ROSC on Banking Supervision
    - November 2009 — Insurance sector
    - December 2009 — Development of domestic debt market
  - STA
    - November 2005 and May 2006 — Multisector statistics
    - May, October and December 2006, April-May and November 2007 — Monetary and financial statistics, Government Finance statistics; GDDS workshop
  - LEG
    - March 2007 — Banking law

### XIII. Resident Representative
- Resident Representative: Mr. Graeme Justice
- Start date as Resident Representative: July 1, 2009

*Annex I. Fund Relations (As of December 31, 2009).*

### 2010. With the approval of this additional financing, a total of US$114 million will be

### _cr1035 - 2010. With the approval of this additional financing, a total of US$114 million will be

### Executive summary and Managing Director statement
- The powerful earthquake of January 12 struck Haiti’s capital and neighboring cities, affecting 3 million people or about one-third of the country’s population.
- Casualties number in the tens of thousands; staff notes that casualties from the earthquake could reach 200,000 people.
- Last year Haiti’s economy grew by almost 3 percent, the second highest growth rate in the Western Hemisphere.
- In June 2009, Haiti received US$1.2 billion in HIPC/MDRI debt relief.
- The Fund’s augmentation under the Extended Credit Facility (ECF) provides urgently needed cash resources to acquire emergency imports without depleting reserves.
- The Fund will assist in assessing economic impact and in preparing and implementing a plan for medium-term reconstruction and economic recovery, and is providing immediate technical support in economic management.

### Immediate financing: amounts, terms, and recent disbursements
- With the approval of this additional financing, a total of US$114 million will be disbursed by the end of this week.
- The emergency IMF assistance is:
  - interest-free
  - repayments of principal are only due after a 5.5 years grace period
  - not subject to any additional policy conditions
- Completion of the review and the augmentation will bring total disbursements under the IMF program with Haiti to SDR 180 million (about US$281 million).
- The authorities are requesting an augmentation equivalent to US$100 million under the Extended Credit Facility.

### Damage, human capital loss, and sectoral impact
- The earthquake destroyed key economic and government infrastructure; all three branches of government lost their main headquarters.
- Vital business infrastructures were severely damaged: port, airports, banks, transports, and communication.
- Significant human capital lost, including numerous experts from private and public sectors and prominent figures of Haiti’s intelligentsia.
- The disaster struck central parts of economic activity including the second tourist destination (Jacmel).

### Preliminary macroeconomic projections and staff calculations
- Staff’s very preliminary calculations indicate:
  - GDP will fall by as much as 10 percent
  - inflation will shoot up to 15 percent in FY 2100
  - exports are expected to decline by about 30 percent
  - the current account deficit (excluding official grants) will rise to almost 20 percent of GDP
  - revenues (excluding grants) will collapse, falling by 43 percent in FY2010 (staff estimate)
  - as much as 85 percent of revenues were collected in the capital area
  - the central government’s deficit (excluding grants and externally financed projects) will almost double as a proportion of GDP

### Macroeconomic context and recent performance before the earthquake
- During fiscal year 2009, ending September:
  - GDP growth accelerated to almost 3 percent, the highest in the Caribbean (according to staff)
  - the current account deficit fell from almost US$300 million in FY 2008 to US$210 million in FY 2009
  - international reserves rose from 2.9 to 3.7 months of imports, due in part to the SDR allocation
  - inflation was minus 0.8 percent in the 12 months to November
- In crisis period prior to the earthquake:
  - exports increased by 12 percent
  - remittances held up remarkably well
- Budget support shortfall: staff notes that budget support fell short by US$ 50 million in FY 2009; 90 percent of disbursements occurred during the last week of the fiscal year.
- Haiti met all quantitative performance criteria for end-September (pre-earthquake).

### Authorities’ emergency response and immediate priorities
- The government produced a needs assessment and an emergency plan for immediate resumption of economic and financial activities.
- A crisis committee composed of ministers is working under the leadership of the Prime Minister.
- Temporary measures already taken include:
  - rationing of electricity and fuel
  - reestablishment of traffic at Port-au-Prince’s port and airport
  - partial resumption of payment systems, transfer houses, and remittance distribution (several transfer houses reopened cashiers on the 20th and 21st of January)
- The emergency plan aims to:
  - make the payment system function again
  - mitigate the banking sector’s losses
  - get the credit market rolling
  - ensure the customs office and internal revenue service use exceptional procedures to facilitate trade and economic activity
  - make the port partially operational
- Security and public safety have been given the utmost priority to allow gradual resumption of vital commercial activities (distribution of water, reopening of certain supermarkets, sale of food products).

### Donor coordination, reconstruction planning, and policy recommendations
- The international community has pledged more than a billion dollars for relief and recovery; more than half of the UN’s initial flash appeal of $575 million has already been contributed and pledged.
- The Executive Board of the IMF can help ensure commitments materialize into fast disbursements aimed at financing the authorities’ defined priorities.
- The good track record over the past five years should encourage donors to use the budget as a means to channel their assistance.
- It is essential that disbursements match pledges this year; authorities should not have to resort to monetary financing because of shortfalls in committed external budget support.
- National ownership is crucial: the Haitian government has designed its short-term relief strategy and is developing its recovery plans; the IMF and donors should stand ready to support Haiti’s home grown plan.
- The Fund welcomes work with donors to try to cancel all the country’s debt, including the augmentation that is being submitted to Board consideration.

### Financing history and concessionality waiver request
- Haiti’s original three-year PRGF arrangement was approved in November 2006 in an amount equivalent to SDR 73.71 million (about US$115 million).
- June 2008 augmentation under PRGF: SDR 16.38 million (about US$25.6 million).
- February 2009 augmentation under PRGF: SDR 24.57 million (about US$38.4 million).
- Haiti is requesting a waiver for non-observance of the performance criterion on external debt on non-concessional terms due to a recently contracted loan for the rehabilitation of Cap Haitian:
  - staff-calculated degree of concessionality of this loan is 30.2 percent
  - the program benchmark for concessionality is 35 percent
  - the difference is not large; Haiti remains committed to seeking financing on concessional terms
  - prior to the earthquake, authorities had been in discussions with the IDB to improve the financing terms for the Cap Haitian project

*International Monetary Fund*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2010/_cr1035.pdf_