## _cr11106

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### Executive Summary
- Program implementation
  - Program on track despite post-earthquake environment and electoral delays.
  - All performance criteria for the first review met; all structural benchmarks implemented, albeit with some delays.
  - Staff recommends completion of the first review under the ECF given good performance and authorities’ commitment.
- Macroeconomic outcomes
  - Economy recovering; essential state functions restored.
  - End-January 2011 net international reserves exceeded 5 months of imports.
  - Twelve month inflation remained in single digits during most of 2010, rising to 7.2 percent in March 2011.
- FY 2011 outlook
  - Real GDP expected to grow by 8.6 percent assuming strong reconstruction efforts.
  - International food prices could push inflation to about 9 percent.
  - Balance of risk tilted to the downside.
- Key program orientations
  - Widen fiscal space for reconstruction while safeguarding macro stability.
  - Monetary policy to keep inflation in single digits; ready to tighten if second-round effects occur.
  - Maintain exchange rate flexibility.
  - Prioritize structural reforms to improve business climate and bring EDH to financial sustainability.

### External support and PCDR
- Donor pledges and disbursements
  - Donors at March 2010 New York conference pledged about US$9.4 billion for recovery and reconstruction.
  - Donors committed US$2.3 billion for humanitarian relief; as of February 2011, US$1.5 billion disbursed.
  - Additional cholera pledges US$125.3 million; US$55.4 million disbursed.
  - New York conference: total development pledges (excluding humanitarian relief) US$5.5 billion for 2010-11; nearly US$1 billion in debt relief within that total.
  - Subsequent pledges raised total by close to US$1 billion.
- Disbursement status (as of February 2011)
  - Debt relief almost completely delivered but less than 31 percent of total programmable cash pledges for 2010-11 disbursed.
  - Cash disbursements: US$237.8 million in budget support grants; US$241.1 million to HRF; US$900 million in other grants and loans.
  - HRF disbursed US$31.1 million (13 percent of available amount); additional US$132 million made available but not yet disbursed.
  - Private NGOs and International Red Cross contributed over US$2.7 billion.
- PCDR
  - PCDR debt stock relief equivalent to US$268 million (4 percent of GDP) approved July 21, 2010; resources lodged in escrow at the central bank.
  - Sectoral allocation of PCDR resources (US$ million): Infrastructure projects 95; Social housing 50; Financial sector 110; Other 13; Total 268.
  - Only two major projects (Bowen Field and Fort National Housing) have started.
  - Action plan: strengthen UCP at MEF; hire international consulting agency; associate CNMP to project management; reinforce coordination with MPCE; share implementation summaries with IMF staff.
  - Complementary TA planned for capital spending and project management.

### Macroeconomic framework and projections
- Growth and inflation projections
  - Real GDP growth projection for FY 2011 revised to 8.6 percent (from 9.8 percent in original program).
  - Revision assumes pickup in reconstruction in March–September 2011.
  - Inflation target revised to 9 percent (from 8.6 percent).
  - In late March 2011 authorities raised retail petroleum prices by 27 percent on average.
- External account
  - External current account deficit forecast to reach 4.2 percent of GDP in FY 2011 due to reconstruction-related imports, to be financed by donor flows and some decline in NIRs.
- Risks from international price rises
  - Continued rise in international food and fuel prices could seriously deteriorate conditions.
  - Haiti’s CPI basket: about 50 percent food components and about 3 percent fuel component.
  - Depreciation of the Gourde since January may reinforce inflationary pressures.
- Uncertainties
  - Slow reconstruction; delays in donor disbursements; poor quality of capital spending; weak absorptive capacity; natural disasters; political instability.

### Fiscal framework and public financial management (FY 2011)
- Fiscal aggregates and financing
  - Fiscal deficit (excluding grants and externally-financed projects) expected to widen to 7.4 percent of GDP (from 5.2 percent in FY 2010).
  - Domestically-financed investment budgeted to increase by 2.7 percent of GDP, financed mainly by accrued PetroCaribe resources and PCDR-freed resources.
  - Current expenditure budgeted at 11 percent of GDP (about ½ percentage point below FY 2010 outcome).
  - Domestic revenue budgeted to remain at 11.8 percent of GDP.
  - Total identified budget support commitments amount to US$169 million.
- Temporary revenue measures (limited to FY 2011) and estimated impact
  - Measures include reductions/exemptions and incentives (mortgage registration fees halved; exemption of capital goods for productive sector; exemptions on prefabricated housing up to G 0.5 million; 10 percent tax rebate on real estate revenues; others).
  - Estimated revenue losses from these measures (in effect January 2011): about G 0.8 billion.
  - Offsetting measure: car registration fee introduced October 2010 expected to yield about 0.4 percent of GDP a year.
- Priority spending
  - Priority social expenditures to be raised by at least 30 percent in FY 2011 compared with FY 2010.
- PCDR and PetroCaribe usage
  - Use of freed PCDR resources (US$68 million), PetroCaribe-related resources (US$245 million), and increased Treasury-financed investment (US$275 million) to raise domestically-financed investment from 5.5 percent of GDP in FY 2010 to 8.2 percent in FY 2011.
  - Preliminary data suggest total transfers to EDH could amount to as much as 3 percent of GDP in FY 2011.
- PFM reforms and benchmarks
  - Strengthen procurement, budget preparation and execution, cash management, publish monthly cash plans including PetroCaribe spending, consolidate off-budget transfers to EDH in monthly reports by June 2011 (structural benchmark).
  - By end-September 2011: prepare manual of operations and procurement plan; publish implementation reports for PCDR-funded projects.
  - By end-March 2012: adopt comprehensive action plan to improve public investment spending.

### Monetary and exchange rate policies
- Targets and stance
  - Monetary program for FY 2011 targets a 15.2 percent increase in money growth and a 21.6 percent increase in credit to the private sector.
  - BRH stands ready to tighten policy if second-round effects materialize.
- Market development and operations
  - Gradually develop market for government securities and rely on open-market operations based on T-bills rather than BRH bonds.
  - MEF and BRH to agree by May 2011 on securitizing outstanding government debt to the central bank.
  - Regular publication of quarterly monetary policy notes to boost transparency.
- Exchange rate management
  - Authorities committed to maintaining exchange rate flexibility; plan to improve functioning of FX market with Fund TA.
  - Plan to develop regular foreign exchange auctions (replace fixed-price sales); BRH interventions to smooth excessive volatility.
  - Current de facto exchange arrangement classified “crawl like”.
  - Program exchange rate: G40.0 per U.S. dollar for period June 2010 – March 2012.

### Financial sector, safeguards, and debt management
- Private Credit Guarantee Fund (PCGF)
  - First pillar (restructuring viable bank loans) launched December 2010 and operational.
  - Second pillar (supporting new SME lending) not yet launched; plan to use up to US$70 million of PCGF resources across pillars.
  - Staff emphasizes fee structure, ring-fencing of PCGF resources, and avoidance of moral hazard.
- Banking supervision and insurance
  - FY 2011 actions: inspect all banks; enhance prudential legislation consistent with Basel rules; establish a credit information bureau.
  - Audit and assess insurance companies; set up regulatory/supervisory framework in FY 2011.
- BRH safeguards and independence
  - 2010 safeguards assessment update: safeguards framework still in place; vulnerabilities remain in external audits and reserves management.
  - Key recommendations: appoint external audit firm other than statutory auditor for NIRs reviews; rotate external auditors; adopt global reserves management policy; strengthen Audit Committee oversight; appoint independent compliance officer for Investment Committee.
  - NIRs review: end-September 2009 NIRs should be decreased by US$2.2 million; end-September 2010 confirmed with small discrepancies in encumbered reserves.
  - Authorities to select reputable international firm by end-July 2011 for BRH audit starting FY 2011; adopt global reserves management policy by end-June 2011; aim to publish annual audited financial statements within six months after fiscal year end.
  - Sign memorandum on partial securitization of government’s debt to BRH by end-May 2011 (structural benchmark); submit new central bank law to Parliament by December 2011.
- External debt and PetroCaribe implications
  - PetroCaribe concessional financing projected at US$230-285 million a year; accumulated “loan portion” reached US$570.7 million at end-January 2011.
  - Since PetroCaribe start, Haiti imported about 13.1 million barrels (end-January 2011) amounting to about US$1.2 billion.
  - In aftermath of January 2010 earthquake, Venezuela cancelled US$395 million of Haitian debt.
  - At end-January 2011, PetroCaribe account balance about US$180 million; accounts receivable US$49.2 million.
  - Staff encourages investing future PetroCaribe resources in safe long-term assets and spending only the difference between present value of assets and debt owed to Venezuela.
  - Debt management capacity to be rebuilt: strengthen debt directorate; draft public debt law by end-March 2012; develop medium-term debt management strategy.

### Structural reforms, PRSP, and business climate
- Structural priorities
  - Improve business climate and promote private sector-led growth.
  - Enhance economic governance.
  - Bring EDH to financial sustainability (interim management contract, rehabilitation of distribution network, new power plant for industrial park).
  - Reforms on land titles, governance, legal framework, cadastre development, and public‑private partnership framework.
- PRSP update
  - Updated PRSP to be ready by September 2011; revisiting operational definition of poverty outlays; Fund and World Bank staff to assist.

### Program monitoring, conditionality, and reviews
- Monitoring framework
  - Program monitored using quarterly quantitative benchmarks and semi-annual reviews based on semi-annual quantitative performance criteria and structural benchmarks.
  - New performance criteria agreed for end-September 2011 and end-March 2012.
  - Performance criteria cover net international reserves; net domestic assets of BRH; net BRH credit to central government and nonfinancial public sector; public sector external arrears accumulation; non-concessional external loans (all PCs).
  - Indicative targets include base money; net domestic financing by central government; domestic arrears accumulation; a floor on poverty-reducing spending.
  - TMU provides definitions and program adjustors; TMU update attached to MEFP.
- Structural conditionality highlights
  - Transparency of transfers to EDH: consolidate all transfers including PetroCaribe off-budget transfers in regular monthly reports (by end-June 2011).
  - Hire international consulting agency to assist UCP (by end-June 2011).
  - Prepare operational manual and procurement plan for PCDR projects (by end-September 2011).
  - Adopt comprehensive action plan to improve public investment quality (by end-March 2012).
  - Select international firm for BRH SIA-compliant audits (by end-July 2011).
  - Adopt global reserves management policy (by end-June 2011).
  - Develop exchange rate management strategy (by end-December 2011).
- Review timeline
  - Staff expects second review completed by end‑September 2011.
  - Proposed ECF disbursement schedule includes SDR 8,190,000 on January 15, 2011 (first review), and further scheduled disbursements through July 15, 2013 conditional on reviews.

### Program performance and staff appraisal
- FY 2010 outcomes
  - FY 2010 real GDP contraction estimated at about 5 percent (vs. program projection of -8.5 percent).
  - Fiscal deficit (excluding grants and externally-financed projects) 5.2 percent of GDP (vs. programmed 6.8 percent).
  - Domestic revenues 11.8 percent of GDP (program objective 10 percent).
  - Domestically-financed investment rose to 5.5 percent of GDP from 4.1 percent in FY 2009, driven by stepped-up budget support (US$225 million).
  - Overall balance including grants recorded a surplus of about 2 percent of GDP; PCDR resources accounted for 4 percent of GDP.
  - External current account deficit 2.3 percent of GDP; net international reserves about $1.1 billion.
  - Banks liquid and profitability improved; non-performing loans 4.3 percent of total loans at end-December 2010.
- Program implementation
  - All end-September performance criteria met; indicative target on base money exceeded due to higher commercial bank gourde deposits.
  - Indicative target on poverty-related spending not fully observed.
  - All end-December 2010 indicative targets met except poverty-related spending and base money targets.
  - End-March 2011 performance criteria appear within reach.
- Staff appraisal summary
  - Program performance satisfactory; staff supports continued Fund engagement and recommends completion of first ECF review.
  - Staff underscores need to speed up reconstruction, strengthen revenue mobilization, improve PFM, be alert to inflationary second-round effects, enhance BRH independence, and maintain structural reform momentum.

### Selected key macroeconomic and fiscal indicators (as presented)
- Nominal GDP (2009): US$6.63 billion
- GDP per capita (2009): US$661
- Population (2009): 9.9 million
- Adult literacy (2008): 53 percent
- Share of population living with less than $1 a day (2003): 54 percent
- Unemployment rate (2003): 27 percent

- Selected projections (fiscal years ending September 30):
  - GDP at constant prices: 2.9 -8.5 -5.1 8.6 8.8 7.2
  - GDP deflator: 4.1 8.0 4.3 6.2 7.5 6.3
  - Consumer prices (period average): 3.4 4.9 4.1 7.0 7.4 5.9
  - Consumer prices (end-of-period): -4.7 8.5 4.7 9.1 6.5 5.4
  - Credit to the private sector: 14.7 -7.7 -5.6 21.6 24.6 24.5
  - Base money: 9.5 15.0 31.2 15.2 14.5 12.4
  - Broad money: 11.0 11.4 22.7 20.3 18.5 15.0
  - Overall balance (central government): -4.4 -2.9 2.1 -6.2 -6.1 -4.0
  - Overall balance (excl. grants): -11.0 -17.3 -15.5 -21.9 -20.0 -15.4
  - Net international reserves (program): 416.9 568.8 1,109.7 772.2 829.2 793.2
  - Liquid gross reserves: 947.5 1,076.2 1,792.0 1,539.0 1,589.0 1,589.0
  - In months of imports of the following year: 2.8 3.1 5.2 4.1 4.0 4.0

- Central government operations (selected gourdes series; selected years shown in source):
  - Total revenue and grants (selected values): 47,717 64,208 71,618 78,551 90,524 95,247 86,794 96,242 102,514
  - Domestic revenue (comparable series): 29,881 26,258 30,717 31,425 33,991 36,000 36,459 46,100 55,865
  - Grants (series): 17,836 37,950 40,901 47,125 56,532 48,528 50,335 50,142 46,648
  - Total expenditure (series): 59,534 71,915 87,859 72,964 102,825 105,247 104,100 118,151 119,136
  - Domestically financed capital expenditure (series): 10,959 13,579 19,637 14,689 16,023 26,571 25,335 29,695 27,295
  - Overall balance (series): -11,817 -7,707 -16,241 5,587 -12,301 -10,000 -18,984 -21,909 -16,622
  - Of which: Petrocaribe (budget support row): 5,963 10,293 8,685 9,114 9,530 10,045 12,747 18,643 19,527

### Policy recommendations and priorities (staff)
- Speed up reconstruction and transition from disaster recovery to policies for high and sustained growth and poverty reduction.
- Strengthen revenue mobilization and restrain current expenditure to create space for reconstruction and poverty-related spending.
- Limit temporary tax relief measures to FY 2011 and step up revenue collection.
- Strengthen public procurement, budget preparation, spending execution, and absorptive capacity to improve capital spending quality.
- Remain alert to inflationary second-round effects and be prepared to tighten monetary policy.
- Enhance BRH independence and fully implement safeguards assessment recommendations; adopt global reserves management policy.
- Maintain flexible exchange rate policy and improve FX market functioning with Fund TA (weekly two-way FX auctions).
- Maintain momentum on structural reforms: financial sector robustness, economic governance, insurance sector modernization.
- Prioritize bringing EDH to financial sustainability and improve transparency of transfers to EDH.
- Work with international community to develop comprehensive, targeted, and sustainable social policies and safety nets.
- Complete first ECF review (staff recommendation).

*Source: IMF staff report and mission documentation contained in the provided content unit.*

### 2011. The missions met with the Minister of Economy and Finance, the Governor of the

### _cr11106 - 2011. The missions met with the Minister of Economy and Finance, the Governor of the Central Bank, other senior economic and financial officials, and representatives of the diplomatic and donor communities.

### Executive Summary
- Program implementation
  - The program is on track despite the difficult post-earthquake environment and delays in the electoral agenda.
  - All performance criteria for the first review were met and all structural benchmarks were implemented, albeit with some delays.
  - Staff recommends the completion of the first review under the ECF, in light of the good performance and the authorities’ strong commitment to the program.
- Macroeconomic outcomes and indicators
  - Economy recovering; essential state functions restored.
  - End-January 2011 net international reserves exceeded 5 months of imports.
  - Twelve month inflation remained in the single digits during most of 2010, rising to 7.2 percent in March 2011.
- FY 2011 outlook and projections
  - Real GDP is expected to grow by 8.6 percent, assuming concerted strong efforts to speed up reconstruction.
  - International food prices would push up inflation to about 9 percent.
  - Balance of risk is tilted to the downside.
- Fiscal framework for FY 2011
  - Higher public investment expected to widen the fiscal deficit (excluding grants and externally-financed projects) to 7.4 percent of GDP, up from 5.2 percent in FY 2010.
  - Authorities committed to increasing domestic revenue and strengthening public procurement and administrative and absorptive capacity.
- Monetary and exchange rate policies
  - Monetary policy geared toward keeping inflation in the single digits.
  - Authorities stand ready to tighten policy if second-round effects develop.
  - Continued exchange rate flexibility will be critical to absorb external shocks.
- Structural reforms
  - Focus on improving the business climate and promoting private sector-led growth.
  - Bringing the public electricity company EDH to financial sustainability is a priority.
- Publication and staff
  - Authorities consented to publication of the staff report, Letter of Intent and Memorandum of Economic and Financial Policies for FY 2011.
  - Missions: November 2010 (Mrs. Deléchat head; Ms. Martin; Ms. Touré; Mr. Gamba; Ms. Riad; Mr. Terrier participated); March 2011 (Mr. Loko head; Mr. Bessaha; Ms. Touré; Mr. Gamba; Mr. Nielsen); both assisted by resident representative Mr. Bouhga-Hagbe; Ms. Florestal joined policy discussions.

### Background
- External assistance and Fund support
  - Donors at the March 2010 New York conference pledged about US$9.4 billion to help recovery and reconstruction.
  - IMF provided emergency funds of US$110 million within two weeks after the earthquake.
  - IMF approved a three-year arrangement under the Extended Credit Facility (ECF) in July 2010, together with debt stock relief under the Post Catastrophe Debt Relief Trust Fund (PCDR) in an amount of US$268 million.
- Reconstruction status and challenges
  - Reconstruction under way but slower than envisaged due to domestic rigidities (electoral delays), a hurricane, cholera outbreak, and external shocks.
  - About 680,000 people (about 7 percent of the population) still living in temporary shelters with inadequate sanitary and security conditions.
- Political context
  - Second rounds of presidential and parliamentary elections held on March 20.
  - Newly-elected president Mr. Martelly expected to be sworn in on May 14 and form a new government in the following weeks; he expressed support for the ECF-supported program and strengthening relations with the Fund.
  - Risks: potential political instability and protracted government formation because the new president does not have a parliamentary majority.

### External Support in the Aftermath of the January 2010 Earthquake (key figures)
- Humanitarian relief
  - Donors committed US$2.3 billion for humanitarian relief; as of February 2011, US$1.5 billion disbursed.
  - Additional cholera pledges amounted to US$125.3 million, of which US$55.4 million have been disbursed.
- New York conference pledges (March 31, 2010)
  - Total development pledges (excluding humanitarian relief) amounted to US$5.5 billion for years 2010-11, with additional pledges for outer years, totaling US$9.4 billion.
  - Of the US$5.5 billion pledged, nearly US$1 billion were in the form of debt relief.
  - Subsequent pledges raised the total by close to US$1 billion.
- Disbursement status (as of February 2011)
  - Debt relief almost completely delivered but less than 31 percent of total programmable cash pledges for 2010-11 have been disbursed.
  - Cash disbursements: US$237.8 million in budget support grants; US$241.1 million in grants to the Haiti Reconstruction Fund (HRF); US$900 million in other grants and loans.
  - HRF disbursements slow: as of February 2011, HRF had disbursed US$31.1 million (13 percent of available amount in the HRF), including US$29.5 million for projects and US$1.6 million for HRF fees; an additional US$132 million made available to HRF but not yet disbursed.
- Private contributions
  - Private NGOs and the International Red Cross contributed over US$2.7 billion.

### Recent Economic Developments and Program Implementation
- Growth and inflation
  - FY 2010 real GDP contraction estimated at about 5 percent, compared with initial projection of a decline of 8.5 percent.
  - Recovery taking hold; twelve month inflation rose to 7.2 percent in March 2011.
- Fiscal outcomes FY 2010
  - Fiscal deficit (excluding grants and externally-financed projects) lower than programmed: 5.2 percent of GDP compared with 6.8 percent programmed.
  - Domestic revenues 11.8 percent of GDP compared with program objective of 10 percent.
  - Domestically-financed investment rose to 5.5 percent of GDP from 4.1 percent in FY 2009, driven by stepped-up budget support (US$225 million).
  - Overall balance including grants recorded a surplus of about 2 percent of GDP, against a 2.9 percent deficit under the program; PCDR resources accounted for 4 percent of GDP.
- External position and banking sector
  - External current account deficit 2.3 percent of GDP in FY 2010 (slightly wider than program 2.1 percent).
  - Net international reserves rose to about $1.1 billion, more than programmed.
  - Banks remain liquid and profitability improved; private sector credit picked up since September; non-performing loans 4.3 percent of total loans at end-December 2010.
  - Real effective exchange rate appreciated by 6 percent on average over the past twelve months.
- Program implementation
  - All end-September performance criteria were met; indicative target on base money was exceeded due to higher commercial bank gourde deposits.
  - Indicative target on poverty-related spending not fully observed.
  - All end-December 2010 indicative targets met except poverty-related spending and base money targets.
  - End-March 2011 performance criteria appear within reach.
  - Structural benchmarks for end-September 2010 implemented, albeit with some delays; reforms continued in tax and customs administration and cash management.

### Policy Discussions
- Program objectives for FY 2011
  - Consolidate macroeconomic stability while supporting recovery and reconstruction.
  - Medium-term challenge: switch from disaster recovery mode to policies ensuring high and sustained growth, reducing poverty and vulnerability to external shocks.
  - Authorities fully committed to program policies and objectives; president-elect expressed support for Fund involvement.
- Fiscal policy and reforms
  - Fiscal policy aims to strengthen revenue and restrain current expenditure to create space for reconstruction and poverty-related spending.
  - Authorities committed to increase domestic revenue, strengthen public procurement, and improve budget preparation, spending execution and quality.
- Monetary and exchange rate policies
  - Monetary policy stance remains appropriate; geared toward keeping inflation in single digits.
  - Authorities ready to tighten policy if second-round effects from higher international prices develop.
  - Continued exchange rate flexibility deemed critical; need reforms to improve functioning of the foreign exchange market and give market operators a greater say in day-to-day exchange rate determination.
- Structural reform priorities
  - Improve business climate and promote private sector-led growth.
  - Enhance economic governance.
  - Bring public electricity company EDH to financial sustainability.
- Staff recommendation
  - Completion of the first review under the ECF arrangement recommended based on good performance and strong authorities’ commitment.

### Program Monitoring and Staff Appraisal (high-level)
- Program monitoring
  - Performance criteria, indicative targets, and structural benchmarks tracked; most targets achieved with noted exceptions (poverty-related spending, base money).
  - Fiscal and monetary indicators to be monitored closely as reconstruction and donor disbursements progress.
- Staff appraisal
  - Program performance satisfactory; staff supports continued Fund engagement and recommends first review completion.

*Source: IMF staff report and associated mission documentation contained in the provided content unit.*

### 7.      The macroeconomic framework for FY 2011 has been revised to reflect recent

### 7.      The macroeconomic framework for FY 2011 has been revised to reflect recent

### Macroeconomic framework and projections
- Real GDP growth projection for FY 2011 revised to 8.6 percent, from 9.8 percent envisaged in the original program.
- Revision assumes a pickup in reconstruction activities in the second half of this fiscal year (March-September 2011).
- Inflation target revised to 9 percent (from 8.6 percent in the original program) to take into account the surge in international food and fuel prices (MEFP, ¶9).
- In late March 2011, the authorities raised the retail prices of petroleum products by 27 percent on average.
- External current account deficit forecast to reach 4.2 percent of GDP during this fiscal year, on account of higher reconstruction–related imports, to be financed by donor flows and some decline in net international reserves (NIRs).

### Risks from international food and fuel price rises
- Continued rise in international fuel and food prices could seriously deteriorate economic and social conditions.
- Recent increase in domestic petroleum prices did not lead to any significant social unrest, but further increases in world oil prices could:
  - intensify inflationary pressures;
  - be reinforced by depreciation of the Gourde against the U.S. dollar since January, stemming from lower donor disbursements and higher food and oil imports;
  - generate social unrest and exacerbate political instability, thereby negatively affecting growth.
- Haiti’s CPI basket composition noted: about 50 percent of food components and about 3 percent of fuel component.
- Illustration provided of estimated impact of one percent increase in fuel and food prices for 2011 on headline inflation showing distinct first-round and second-round impacts for food prices and fuel prices (chart present in source).

### Uncertainties to the outlook
- Key uncertainties include:
  - slow pace of reconstruction activities;
  - delays in the disbursements of international assistance;
  - poor quality of capital spending;
  - weak administrative and absorptive capacity;
  - natural disasters;
  - political instability that could hold reforms back.

### Fiscal policy and reforms (FY 2011 budget)
- FY 2011 budget supports reconstruction objectives within sustainable public financing.
- Fiscal deficit (excluding grants and externally-financed projects) expected to widen to 7.4 percent of GDP, from 5.2 percent in FY 2010.
- Domestically-financed investment spending budgeted to increase by 2.7 percent of GDP, financed mainly by accumulated PetroCaribe resources and those freed up by the PCDR.
- Current expenditure budgeted to decline to 11 percent of GDP, about ½ percentage points below the FY 2010 outcome; this requires holding the line on wages despite new hires in priority sectors, and containing transfers and subsidies to public enterprises.
- Domestic revenue budgeted to remain at 11.8 percent of GDP, notwithstanding a set of temporary policy measures in support of the reconstruction.
- Total identified budget support commitments amount to US$169 million.

### Revenue mobilization and PFM improvements
- Higher domestic revenue emphasized as critical for fiscal sustainability and increased spending on infrastructure and social programs.
- Authorities’ reform agenda aims to broaden the tax base and improve tax and customs administrations (MEFP, ¶13).
- Staff stressed limiting to FY2011 the recently-adopted temporary tax relief measures aimed at promoting private sector-led reconstruction, since these measures move away from rationalizing and gradually reducing exemptions.
- Program efforts targeted at improving public financial management (PFM), economic governance, and quality of public spending:
  - address weaknesses in budget preparation, monitoring and control, and cash management (consistent with IMF technical assistance recommendations, MEFP, ¶14);
  - enhance government capability to undertake poverty-related spending;
  - put in place procedures to ensure proper monitoring of investment spending in collaboration with the Ministry of Planning and External Cooperation (MPCE);
  - identify and consolidate all off-budget transfers to EDH, including from PetroCaribe resources, in monthly budget execution reports (MEFP, ¶11);
  - work on a revised legal framework for Public-Private Partnerships and decentralization.

### Efficient use of international aid and PCDR modalities
- Efficient use of international aid flows is a key priority to enhance reconstruction spending quality and effectiveness.
- Agreement reached on modalities of use of resources freed up by the PCDR (Box 2; and MEFP, ¶11).

### PCDR resources and action plan (Box 2)
- PCDR debt stock relief equivalent to US$268 million (4 percent of GDP) approved July 21, 2010; resources lodged in an escrow account at the central bank for execution.
- Sectoral allocation of PCDR resources shown in source: Infrastructure projects 95; Social housing 50; Financial sector 110; Other 13; Total 268 (In million of US dollars).
- Only two major projects (Bowen Field and Fort National Housing projects) have started.
- Action plan elements agreed to build capacity, better monitor project execution, and ensure efficient use of PCDR resources:
  - Strengthen Project Coordination Unit (UCP) at the Ministry of Economy and Finance (MEF) with multidisciplinary experts in project management;
  - Select, in line with national procurement procedures, an international consulting agency to assist UCP and other project implementation units;
  - Associate the Procurement Commission (CNMP) closely to project management, particularly procurement processes;
  - Reinforce coordination mechanisms between UCP, CNMP, and MPCE to better define responsibilities, speed up implementation, ensure continuous scrutiny of project cycle phases, and adhere to national accounting and budget execution procedures;
  - Share information regularly with IMF staff on summary notes related to projects with relatively advanced implementation.
- Complementary technical assistance program in capital spending and project management intended to enhance effectiveness, efficiency, and quality of public investment, including projects financed with PetroCaribe resources.

### Monetary and exchange rate policies
- Monetary policy geared toward containing inflation within single digit levels.
- Monetary program for FY 2011 targets a 15 percent increase in money growth and a 21½ percent increase in credit to the private sector.
- Bank of the Republic of Haiti (BRH) stands ready to tighten monetary policy if any signs of second round effects of rising international food and oil prices materialize (MEFP, ¶13).
- Authorities will gradually develop a market for government securities and rely on open-market operations based on T-bills rather than BRH bonds.
- MEF and BRH expected to reach an agreement by May 2011 on modalities for securitizing outstanding government debt to the central bank.
- Regular publication of quarterly monetary policy notes expected to raise understanding of monetary policy actions, boost transparency, and help guide inflation expectations.
- Authorities committed to maintaining flexibility in the exchange rate; plan to improve functioning of the foreign exchange market with Fund technical assistance (MEFP, ¶13).
  - Plan to develop regular foreign exchange auctions (instead of sales with fixed prices and quantity).
  - BRH interventions will aim at smoothing excessive volatility.
  - Staff stressed importance of closely coordinating monetary and exchange rate policy.
- Current de facto exchange arrangement classified “crawl like”.

### Financial sector measures and safeguards
- Private Credit Guarantee Fund (PCGF):
  - First pillar (restructuring viable bank loans impacted by the earthquake and financing business recovery) launched in December 2010 and operational.
  - Second pillar (support new lending to small and medium-sized enterprises) not launched.
  - Staff emphasized ensuring fee structure and coverage provide adequate incentives to banks and avoid moral hazard; ensure PCGF resources are fully ring-fenced and separate from central bank’s own assets (MEFP, ¶16).
- Strengthening banking regulation and supervision, reinforcing the insurance sector, and strengthening BRH’s independence are priorities (MEFP, ¶17-19), in line with 2008 FSAP recommendations.
  - Presentation of a new central bank law to parliament by December 2011, enshrining BRH’s independence, should remain a priority.
- 2010 update safeguards assessment found BRH’s safeguards framework still in place despite earthquake damage; operational controls remained in place.
  - Vulnerabilities remain in external audits and foreign reserves management.
  - Key recommendations include:
    - appointment of an external audit firm other than the statutory auditor to conduct a review of NIRs as of September 30, 2009 and 2010;
    - rotation of external auditors through appointment of a reputable international firm for the FY 2011 audit;
    - adoption of a global reserves management policy covering all foreign exchange reserves (both internally and externally managed);
    - full oversight of the Audit Committee;
    - appointment of an independent compliance officer by the Investment Committee.
- Authorities committed to implementing safeguards assessment recommendations (MEFP, ¶20):
  - NIRs review conducted satisfactorily; confirmed level of reserves at end-September 2010 with only small discrepancies in encumbered reserves.
  - Complete NIRs review for end-September 2009 concluded NIRs should be decreased by US$2.2 million due to capacity constraints and fragmentation of NIR compilation; end-September 2009 program targets would still be met.
  - Steps being taken to address shortcomings in line with recommendations of IMF STA mission (Statistics Department TA mission took place during February 21–24, 2011).
  - BRH should produce timely audited financial data and enhance communication and verification during NIRs compilation.
  - Authorities will select a reputable international firm by end-July 2011 to conduct an external audit of BRH for the term starting from FY 2011.
  - Authorities will adopt a global reserves management policy covering all foreign exchange reserves.
  - Authorities indicated aim to publish annual audited financial statements within a period of six months after the end of each fiscal year.

### Debt management
- Government committed to preserve external debt sustainability.
- PetroCaribe-related concessional financing projected to rise rapidly (projected at US$230-285 million a year).
  - With rising fuel prices and imports-related reconstruction activities, the ratio of debt-to-exports could exceed the threshold in the near future, as Haiti export capacity remains weak (Box 3).
- Authorities intend to limit use of PetroCaribe resources to growth-enhancing investment projects.
- Staff encouraged exploring avenues for investing future PetroCaribe resources in safe long-term financial assets and to spend only the difference between the present value of those assets and the debt owed to Venezuela (MEFP, ¶12).
- Debt management capacity needs to be rebuilt:
  - strengthen existing debt directorate capacity;
  - draft a public debt law establishing legal and institutional framework for public debt management;
  - develop a medium-term debt management strategy (MEFP ¶21).

### Other structural reforms
- Electricity sector reforms:
  - Authorities signed a Memorandum of Understanding with IaDB and the U.S. government on modernization of the energy sector.
  - Memorandum includes implementation of an interim management contract to improve financial management of the electricity company (EDH); rehabilitation of distribution network to reduce technical losses; construction of a new power plant for an industrial park in Northern Haiti.
  - The World Bank expected to join the group of donors.
- Reforms to improve the business climate are ongoing:
  - Key reforms address land titles, strengthen governance and the legal framework to improve Haiti’s image for business and foreign investment (MEFP, ¶22-25).
  - Authorities recognize acceleration of these reforms critical to develop regional economic hubs, connect local and foreign markets, and create jobs in the provinces.

### Box 3: PetroCaribe factual details and implications
- Under the May 2006 PetroCaribe Agreement, Venezuela supplies fuel products to meet Haiti’s domestic consumption, estimated at about 14,000 barrels a day.
- Oil import bill divided into a “cash portion” and a “loan portion”:
  - “Cash portion” must be paid to Venezuela within ninety (90) days, with no interest charges for the first thirty days and a two percent annual interest thereafter; a portion of proceeds received by the Bureau de monetization used to service the “cash portion”.
  - Remainder converted into a concessional “loan portion” from Venezuela to Haiti; grace period fixed at two years; amount of loan portion, interest rate, and maturity vary with international prices:
    - When oil price exceeds US$40 a barrel, thirty percent of the value of fuel products is converted into a loan with a maturity of twenty three years (23), at an interest rate of one percent.
    - When oil price is below US$40 a barrel, maturity of the loan reduced to fifteen (15) years, and interest rate is 2 percent.
- Import and financial flows:
  - Since the PetroCaribe agreement went into force, Haiti imported about 13.1 million barrels of fuel products (end-January 2011), amounting to about US$1.2 billion.
  - Accumulated “loan portion” reached US$570.7 million at end-January 2011.
  - In aftermath of January 2010 earthquake, Venezuela cancelled US$395 million of debt owed by Haiti.
  - At end-January 2011, PetroCaribe account showed a balance of about US$180 million.
  - Accounts receivable amounted to US$49.2 million.
- Implications for debt sustainability:
  - Continued accumulation of PetroCaribe borrowing (projected at US$230-285 million a year) could pose some risk for external debt sustainability if resources are not invested or spent efficiently.
  - Pressures on debt could ease if Venezuela converts a large share of future PetroCaribe inflows into grants, as committed at the June 2, 2010 donor summit in the Dominican Republic.

*Source: _cr11106 - 7.      The macroeconomic framework for FY 2011 has been revised to reflect recent*

### 24.      The Poverty Reduction Strategy Paper (PRSP) update is under way. The

### _cr11106 - 24.      The Poverty Reduction Strategy Paper (PRSP) update is under way. The

### PRSP update
- The authorities have indicated that the updated version of the PRSP will be ready by September 2011, building upon progress made so far.
- In that context, the authorities are revisiting the appropriateness of the operational definition of poverty outlays.
- Fund and World Bank staff will work closely with the authorities on this update.

### Program monitoring (Section IV)
- The program will continue to be monitored using quarterly quantitative benchmarks and semi-annual reviews based on semi-annual quantitative performance criteria and structural benchmarks.
- New performance criteria have been agreed for end-September 2011 and end-March 2012.
- Quantitative targets are set on:
  - net international reserves,
  - net domestic assets of the central bank,
  - net central bank credit to the central government and to the entire nonfinancial public sector,
  - public sector external arrears accumulation,
  - non-concessional external loans contracted or guaranteed by the public sector (all performance criteria).
- Indicative targets include:
  - base money,
  - net domestic financing by the central government,
  - domestic arrears accumulation of the central government,
  - a floor on poverty-reducing spending (indicative targets) (Table 1).
- The definitions of these quantitative targets and program adjustors are provided in the Technical Memorandum of Understanding (TMU), an update of which is attached.
- Structural conditionality (MEFP, Table 2) will be more parsimonious and is further defined in the TMU.
- Staff expects the second review to be completed by end-September 2011.

### Staff appraisal (Section V) — main findings
- Overall assessment:
  - The program is on track and the economy is recovering despite the challenging international and domestic environments.
  - Growth has resumed, inflation remains in check, and the fiscal and external positions have strengthened.
  - The authorities are pressing ahead with their reform agenda.
- Risks and actions:
  - The outlook remains favorable, but downside risks could weigh on the economy.
  - Concerted strong efforts by the authorities and the international community are needed to speed up reconstruction and facilitate the transition from disaster recovery to policies aimed at ensuring high and sustained growth and reducing poverty.
- Fiscal policy:
  - Staff supports the broad thrust of fiscal policy which aims to strengthen revenue and restrain current expenditure to make space for reconstruction and poverty-related spending.
  - The adjustment in domestic fuel prices to limit subsidies and current spending is welcomed.
- Public investment and capacity:
  - The surge in domestically-financed investment is described as ambitious and challenging.
  - Steps needed: increase domestic revenue; strengthen public procurement; strengthen administrative and absorptive capacity to improve the quality of capital spending, including budgeting and execution.
- Monetary and exchange-rate policy:
  - The monetary policy stance remains appropriate.
  - Recent increase in inflation was driven by the surge in international food and fuel prices.
  - Authorities should remain alert and tighten monetary policy if there were signs of second round effects from higher international prices.
  - Staff welcomes authorities’ willingness to enhance BRH’s independence and plans to fully implement the safeguards assessment recommendations.
  - Staff supports the authorities’ flexible exchange rate policy to help manage capital inflows and sustain reconstruction.
  - Staff encourages timely implementation of recommendations of the recent updated safeguards assessment.
- Structural reforms and financial sector:
  - Authorities need to maintain momentum on structural reforms to promote sustainable broad-based private sector growth.
  - Key pillars: a robust financial sector, better economic governance, and a modern insurance sector.
  - Bringing EDH to financial sustainability should be high on the authorities’ agenda.
  - Addressing longstanding structural weaknesses will help improve competitiveness and achieve high and sustained growth.
- Social policy and poverty:
  - Staff urges the authorities to work with the international community to develop comprehensive, well targeted, and sustainable social policies and safety nets.
  - Poverty remains pervasive, notably in rural areas, and the country is highly vulnerable to natural disasters.
  - Staff welcomes the authorities’ commitment to increase poverty-related spending and improve access to basic social services.
  - Authorities should take advantage of current technical assistance on PFM to enhance capacity to meet poverty-related spending targets.
- Program review recommendation:
  - Staff recommends the completion of the first ECF review, in light of the good performance so far and the authorities’ strong commitment to the program.

### Key macroeconomic and fiscal indicators (as presented)
- Nominal GDP (2009): US$6.63 billion
- GDP per capita (2009): US$661
- Population (2009): 9.9 million
- Adult literacy (2008): 53 percent
- Share of pop. living with less than $1 a day (2003): 54 percent
- Unemployment rate (2003): 27 percent

- Selected projections and estimates (from Table 1 and Tables 2a/2b; fiscal year ending September 30):
  - GDP at constant prices: 2.9 -8.5 -5.1 8.6 8.8 7.2
  - GDP deflator: 4.1 8.0 4.3 6.2 7.5 6.3
  - Consumer prices (period average): 3.4 4.9 4.1 7.0 7.4 5.9
  - Consumer prices (end-of-period): -4.7 8.5 4.7 9.1 6.5 5.4
  - Exports (f.o.b.): 12.4 -12.1 2.6 10.7 10.5 10.3
  - Imports (f.o.b.): -3.6 15.5 38.2 7.2 12.4 4.5
  - Credit to the private sector: 14.7 -7.7 -5.6 21.6 24.6 24.5
  - Base money: 9.5 15.0 31.2 15.2 14.5 12.4
  - Broad money (incl. foreign currency deposits): 11.0 11.4 22.7 20.3 18.5 15.0
  - Overall balance (central government): -4.4 -2.9 2.1 -6.2 -6.1 -4.0
  - Overall balance (excl. grants): -11.0 -17.3 -15.5 -21.9 -20.0 -15.4
  - External public debt (end-of-period): 18.7 22.0 12.0 8.8 13.1 16.3
  - Total public debt (end-of-period): 26.9 30.7 16.0 14.9 20.3 25.0
  - Net international reserves (program): 416.9 568.8 1,109.7 772.2 829.2 793.2
  - Liquid gross reserves: 947.5 1,076.2 1,792.0 1,539.0 1,589.0 1,589.0
  - In months of imports of the following year: 2.8 3.1 5.2 4.1 4.0 4.0
  - Exchange rate (gourdes per dollar, end-of-period): 41.8 ... 39.9 .........

- Central government operations (selected figures, in millions of gourdes):
  - Total revenue and grants (2011/12 Est. to 2012/13 Prog.): 47,717 64,208 71,618 78,551 90,524 95,247 86,794 96,242 102,514
  - Domestic revenue (comparable series): 29,881 26,258 30,717 31,425 33,991 36,000 36,459 46,100 55,865
  - Grants (series): 17,836 37,950 40,901 47,125 56,532 48,528 50,335 50,142 46,648
  - Total expenditure (series): 59,534 71,915 87,859 72,964 102,825 105,247 104,100 118,151 119,136
  - Current expenditure (series): 30,640 30,660 29,238 30,562 36,007 33,979 33,997 39,699 44,987
  - Capital expenditure (series): 28,894 41,255 58,256 42,402 66,818 70,907 70,103 78,452 74,149
  - Domestically financed capital expenditure (series): 10,959 13,579 19,637 14,689 16,023 26,571 25,335 29,695 27,295
  - Overall balance (series): -11,817 -7,707 -16,241 5,587 -12,301 -10,000 -18,984 -21,909 -16,622
  - External net financing (series): 8,141 9,859 8,232 9,050 9,530 10,792 13,867 19,075 19,495
  - Of which: Petrocaribe (budget support row): 5,963 10,293 8,685 9,114 9,530 10,045 12,747 18,643 19,527

- Fiscal ratios (selected percent-of-GDP figures from Table 2b):
  - Total revenue and grants: 17.7 24.4 26.8 29.4 28.5 30.9 28.1 26.7 24.9
  - Domestic revenue: 11.1 10.0 11.5 11.8 10.7 11.7 11.8 12.8 13.6
  - Capital expenditure: 10.7 15.6 21.8 15.9 21.0 23.0 22.7 21.8 18.0
  - Domestically financed capital expenditure: 4.1 5.1 7.3 5.5 5.0 8.6 8.2 8.2 6.6
  - Overall balance: -4.4 -2.9 -6.1 2.1 -3.9 -3.2 -6.2 -6.1 -4.0
  - Excl. grants: -11.0 -17.3 -21.4 -15.5 -21.7 -22.5 -21.9 -20.0 -15.4

### Policy recommendations and priorities (extracted from staff commentary)
- Speed up reconstruction and facilitate the transition from disaster recovery to policies aimed at ensuring high and sustained growth and reducing poverty through concerted efforts by authorities and the international community.
- Strengthen revenue mobilization and restrain current expenditure to create fiscal space for reconstruction and poverty-related spending.
- Continue adjustment of domestic fuel prices to limit subsidies and current spending.
- Increase domestic revenue and strengthen public procurement, administrative capacity, and absorptive capacity to improve capital spending quality, including budgeting and execution.
- Remain alert to inflationary second-round effects from international food and fuel prices and be prepared to tighten monetary policy if necessary.
- Enhance BRH’s independence and fully implement safeguards assessment recommendations.
- Maintain a flexible exchange rate policy to manage capital inflows and sustain reconstruction.
- Maintain momentum on structural reforms to promote sustainable broad-based private sector growth, strengthen the financial sector, improve economic governance, and develop a modern insurance sector.
- Prioritize bringing EDH to financial sustainability.
- Work with the international community to develop comprehensive, well targeted, and sustainable social policies and safety nets; use PFM technical assistance to enhance capacity to meet poverty-related spending targets.
- Complete the first ECF review given good performance and strong authorities’ commitment.

*Sources: Haitian authorities; and IMF staff calculations.*

### 178.1 million approved on July 2010, 21.

### _cr11106 - 178.1 million approved on July 2010, 21.

### Balance of Payments (Table 4: Haiti: Balance of Payments, 2008/09-2012/13)
- Current account (2008/09–2012/13): -226, -139, -155, -323, -553, -658 (in millions of U.S. dollars; fiscal years ending September 30).
- Current account (excluding official transfers): -621, -1,865, -1,945, -1,773, -1,974, -1,992.
- Trade balance: -1,481, -1,869, -2,243, -2,384, -2,691, -2,772.
- Exports of goods: 551, 485, 565, 626, 691, 763.
  - Of which: Assembly industry: 511, 437, 528, 583, 645, 713.
- Imports of goods: -2,032, -2,353, -2,809, -3,010, -3,382, -3,534.
  - Of which: Petroleum products: -385, -434, -544, -630, -756, -792.
- Services (net): -394, -1,365, -1,030, -793, -755, -767.
  - Receipts: 379, 266, 237, 340, 372, 411.
  - Payments: -772, -1,631, -1,267, -1,133, -1,127, -1,178.
- Income (net): 13, -521, 29, 24, 22.
  - Interest payments 1/: -18, -13, -11, -4, -8, -13.
- Current transfers (net): 1,635, 3,099, 3,097, 2,826, 2,869, 2,858.
  - Official transfers (net): 395, 1,726, 1,790, 1,450, 1,421, 1,334.
    - Of which: budget support...255, 225, 169, 555.
  - Private transfers (net): 1,241, 1,373, 1,307, 1,376, 1,448, 1,524.
- Capital and financial accounts: 501, 122, 877, 505, 375, 43.
  - Capital transfers 2/: 1,069, 0, 1,360, 486, ...... 
  - Debt stock reduction 2/: -1,092, 0, -434, -486, ...... 
  - Public sector capital flows (net) 3/: 288, 151, 132, 342, 464, 461.
    - Loan disbursements: 225, 161, 140, 347, 475, 485.
    - Amortization 1/: -38, -11, -8, -5, -11, -24.
  - Foreign direct investment (net): 388, 115, 0, 107, 103, 112.
  - Banks (net) 4/: 57, -110, -307, -67, -30, -30.
  - Other items (net): 142, 0, -24, -333, 0, 0.
- Errors and omissions: -383, 0, 32, 0, 0, 0.
- Overall balance: -108, -171, 1,042, -273, -16, -116.
- Financing and reserves:
  - Change in net foreign assets: -491, 5, -1,045, 273, -34, 16.
  - Change in gross reserves: -259, -129, -828, 253, -500.
  - Use of Fund credits (net) 5/: 61, 123, -146, 211, 515.
- Financing gap: ............, 50, 100.
- Memorandum items:
  - Current account (in percent of GDP): -3, -2, -2, -4, -6, -7.
  - Excluding official transfers: -9, -29, -29, -23, -23, -20.
  - Exports of goods, f.o.b (percent change): 12, -12, 3, 11, 10, 10.
  - Imports of goods, f.o.b (percent change): -4, 16, 38, 71, 24.
  - Debt service (in percent of exports of goods and services): 6, 32, 12, 3.
  - Gross liquid international reserves (in millions of U.S. dollars): /5 94, 81, 1,076, 1,792, 1,539, 1,589, 1,589.
  - (in months of next year's imports of goods and services): 2.8, 3.1, 5.2, 4.1, 4.0, 4.0.
- Sources: Bank of the Republic of Haiti; and Fund staff estimates and projections.
- Notes:
  - 1/ Includes HIPC/MDRI debt relief beginning in 2010. HIPC/MDRI interim debt relief in 2009 is reflected below the line.
  - 2/ Includes operations under the HIPC/MDRI in 2009, PCDR in 2010, and debt cancellations by IDB, World Bank, and Venezuela in 2010-11.
  - 3/ In 2009, including an SDR allocation of $101 million.
  - 4/ Includes NIR and commercial banks' foreign currency deposits with the BRH.
  - 5/ In 2010, the difference between program and actual is the PCDR.

### Financial Soundness Indicators (Table 5: Haiti: Financial Soundness Indicators of the Banking System, 2008/09-2010/11)
- Size and Growth (selected series; fiscal year ending September 30; amounts in gourdes unless noted):
  - Total assets (in millions of gourdes): 107,913; 114,183; 120,512; 127,514; 137,937; 140,814.
    - Of which: central bank bonds: 9,552; 6,552; 8,339; 8,591; 9,249; 9,099.
    - Of which: total loans: 35,405; 35,880; 31,264; 31,370; 30,901; 32,457.
  - Total assets (in millions of U.S. dollars) 1/: 2,583; 2,674; 3,042; 3,204; 3,454; 3,531.
  - Total Deposits (in millions of gourdes): 92,460; 98,351; 104,073; 110,839; 119,253; 122,261.
  - Net Profits (loss) (in millions of gourdes): 359.8; 274.6; 39.6; 285.8; 862.7; 465.8.
  - Credit/GDP: 13.3; 13.7; 11.9; 11.9; 11.8; 12.4.
  - Deposits/GDP: 37.8; 36.9; 39.0; 41.5; 44.7; 45.8.
  - Credit growth (net) from year before 2/: 14.2; 15.2; 0.9; (2.6); (12.7); (9.5).
- Capital adequacy:
  - Regulatory capital to risk-weighted assets 3/: 16.4; 11.7; 10.7; 11.3; 13.4; 16.4.
  - Capital (net worth) to assets: 6.7; 6.9; 6.5; 6.2; 6.2; 6.5.
- Asset quality and composition:
  - Loans (net) to assets: 30.9; 29.6; 24.0; 22.6; 21.3; 22.1.
  - NPLs to gross loans: 8.5; 8.6; 12.3; 11.7; 5.7; 5.4.
  - Provisions to gross loans: 5.9; 5.8.
  - Provisions to gross NPLs: 69.6; 66.7; 59.8; 69.8; 84.1; 77.5.
  - NPL less provisions to net worth: 12.6; 13.0; 15.4; 15.3; 3.2; 4.3.
- Earnings and profitability (annualized):
  - Net Earnings/Assets (ROA): 1.4; 1.0; 0.1; 0.9; 2.6; 1.3.
  - Net Earnings/Equity (ROE): 20.5; 14.5; 2.0; 14.6; 41.9; 21.0.
  - Net interest income to gross interest income: 87.3; 86.6; 87.9; 88.5; 86.6; 90.9.
  - Operating expenses to net profits: 74.1; 76.2; 75.4; 72.8; 57.7; 68.0.
- Efficiency and liquidity:
  - Interest rate spread in gourdes 4/: 19.5; 19.1; 20.5; 20.0; 20.0; 20.0.
  - Interest rate spread in U.S. dollar 4/: 10.9; 11.4; 9.9; 11.5; 11.4; 11.4.
  - Liquid assets to total assets 5/: 46.9; 54.4; 48.4; 48.4; 51.0; 51.1.
  - Liquid assets to deposits 5/: 44.4; 49.5; 49.5; 49.5; 51.3; 51.5.
- Market risk:
  - Foreign currency loans to total loans (net): 68.9; 64.4; 66.7; 62.5; 60.1; 59.7.
  - Foreign currency deposit to total deposits: 56.9; 60.1; 59.8; 59.5; 60.3; 60.5.
- Sources: Fund staff computations based on data from the Bank of the Republic of Haiti.
- Notes:
  - 1/ Data for all years converted from gourdes.
  - 2/ Net credit equal to gross loans less non performing loans.
  - 3/ The prudential requirement is 12 percent.
  - 4/ Defined as the difference between average lending rate and average fixed deposit rate in the banking system.
  - 5/ Liquid assets include cash and central bank bonds.

### External Vulnerability and Debt Indicators (Table 6: Haiti: Indicators of External Vulnerability, 2007/08-2012/13)
- Total external public debt (in percent of GDP): 28.1; 18.7; 12.0; 8.8; 13.1; 16.3.
- Total external public debt (in percent of exports 2/): 222.7; 133.7; 99.0; 69.4; 108.1; 138.5.
- External debt service (in percent of GDP): 0.7; 0.4; 0.1; 0.1; 0.1; 0.2.
- External debt service (in percent of exports 2/): 8.2; 3.9; 2.3; 0.9; 1.8; 3.2.
- External debt service (in percent of current central govt. revenues): 10.2; 5.1; 2.4; 1.0; 1.7; 2.8.
- Other indicators (selected):
  - Exports (percent change, 12-month basis in U.S. dollars): 6.8; 11.6; -13.7; 20.4; 10.1; 10.3.
  - Imports (percent change, 12-month basis in U.S. dollars): 19.7; -1.7; 45.3; 1.7; 8.8; 4.5.
  - Remittances and grants in percent of gross disposable income: 20.7; 19.7; 31.8; 27.0; 24.6; 22.2.
  - Liquid gross reserves (US$ million): 707.8; 947.5; 1,792.0; 1,539.0; 1,589.0; 1,589.0.
    - In months of imports of the following year 2/: 3.0; 2.8; 5.2; 4.1; 4.0; 4.0.
    - In percent of debt service due in the following year: 1958; 5043; 19823; 8069; 4247; 2558.
    - In percent of base money: 99.6; 127.4; 175.5; 134.3; 121.7; 108.2.
- Sources: Bank of the Republic of Haiti; and Fund staff estimates and projections.
- Notes:
  - 1/ Reflects HIPC/MDRI relief.
  - 2/ Goods and services.
  - 3/ Including grants.
  - 4/ Includes in the private sector FDI, short-term capital, and errors and omissions in addition to bank flows.

### Social and Millennium Development Indicators (Table 7: Haiti: Millennium Development Goals)
- Employment to population ratio, 15+, total (%): 56.0, 54.0, 55.0, 55.0, 56.0.
- Employment to population ratio, ages 15-24, total (%): 37.0, 39.0, 44.0, 46.0, 48.0.
- GDP per person employed (annual % growth): -10.0, -18.0, -1.0, -4.0, 0.0.
- Malnutrition prevalence, weight for age (% of children under 5): 24.0, 13.9, 18.9, 18.9.
- Prevalence of undernourishment (% of population): 63.0, 60.0, ..., 58.0.
- Primary completion rate, total (% of relevant age group): 29.0.
- Proportion of seats held by women in national parliaments (%): ...4.0, 4.0, 4.0, 4.0.
- Immunization, measles (% of children ages 12-23 months): 31.0, 49.0, 55.0, 58.0, 58.0.
- Mortality rate, infant (per 1,000 live births): 105.0, 98.0, 78.0, 62.0, 57.0.
- Mortality rate, under-5 (per 1,000): 152.0, 141.0, 109.0, 84.0, 76.0.
- Births attended by skilled health staff (% of total): 23.0, 20.0, 24.0, 24.0, 26.0, 26.0.
- Contraceptive prevalence (% of women ages 15-49): 10.0, 18.0, 28.0, 28.0, 32.0, 32.0.
- Pregnant women receiving prenatal care (%): 71.0, 68.0, 79.0, 85.0, 85.0.
- Improved sanitation facilities (% of population with access): 29.0, 27.0, 24.0, 19.0, 19.0.
- Improved water source (% of population with access): 52.0, 54.0, 56.0, 58.0, 58.0.
- Aid per capita (current US$): 24.0, 92.0, 24.0, 54.0, 73.0.
- Debt service (PPG and IMF only, % of exports, excluding workers' remittances): 9.0, 50.0, 8.0, 17.0, 6.0.
- Internet users (per 100 people): 0.0, 0.0, 0.2, 6.5, 10.4.
- Mobile cellular subscriptions (per 100 people): 0.0, 0.0, 1.0, 5.0, 33.0.
- Source: World Development Indicators.

### IMF Arrangement and Disbursement Schedule (Tables 8–9: Proposed Schedule of Disbursements; Indicators of Capacity to Repay the Fund)
- Proposed ECF disbursements (availability dates and amounts):
  - SDR 8,190,000 — July 15, 2010 — Executive Board approval of the three-year arrangement under the ECF.
  - SDR 8,190,000 — January 15, 2011 — Observance of performance criteria for September 2010 and completion of the first review under the ECF arrangement.
  - SDR 4,914,000 — July 15, 2011 — Observance of performance criteria for March 2011 and completion of the second review under the ECF arrangement.
  - SDR 4,914,000 — January 15, 2012 — Observance of performance criteria for September 2011 and completion of the third review under the ECF arrangement.
  - SDR 4,914,000 — July 15, 2012 — Observance of performance criteria for March 2012 and completion of the fourth review under the ECF arrangement.
  - SDR 4,914,000 — January 15, 2013 — Observance of performance criteria for September 2012 and completion of the fifth review under the ECF arrangement.
  - SDR 4,914,000 — July 15, 2013 — Observance of performance criteria for March 2013 and completion of the sixth review under the ECF arrangement.
  - 1/ Other than the generally applicable conditions for the Extended Credit Facility (ECF) arrangement.
- Capacity-to-repay indicators, selected projections (2011–2023):
  - Fund obligations based on existing and prospective credit — Principal (in millions of SDRs): 0.0, 0.0, 0.0, 0.0, 0.0, 2.5, 4.8, 6.7, 8.2, 8.2, 5.7, 3.4, 1.5 (years 2011–2023 as tabulated).
  - Total obligations based on existing and prospective credit — In millions of SDRs: 0.1, 0.2, 0.2, 0.2, 0.2, 4.3, 6.6, 8.5, 10.0, 10.0, 5.8, 3.5, 1.6.
  - Total obligations based on existing and prospective credit — In millions of U.S. dollars: 0.1, 0.2, 0.3, 0.3, 0.3, 6.7, 10.2, 13.2, 15.5, 15.5, 9.1, 5.5, 2.4.
  - Outstanding Fund credit (end of period) — In millions of SDRs: 21.3, 31.1, 41.0, 41.0, 41.0, 38.5, 33.7, 27.0, 18.8, 10.6, 4.9, 1.5, 0.0.
  - Outstanding Fund credit (end of period) — In millions of U.S. dollars: 33.3, 48.6, 63.9, 63.8, 63.7, 59.8, 52.4, 42.0, 29.3, 16.5, 7.6, 2.3, 0.0.
- Memorandum items (selected):
  - Exports of goods and services 1/: 966, 1,064, 1,174, 1,293, 1,421, 1,535, 1,643, 1,759, 1,883, 2,015, 2,157, 2,309, 2,472 (years 2011–2023).
  - Debt service 1/: 9.0, 19.1, 37.4, 62.1, 88.2, 119.9, 128.3, 137.4, 147.0, 157.4, 168.5, 180.3, 193.0.
  - Government domestic revenues 1/: 901, 1,122, 1,359, 1,536, 1,728, 1,889, 2,021, 2,164, 2,316, 2,479, 2,654, 2,840, 3,040.
  - Gross International Reserves, end of period 1/: 1,593, 1,643, 1,643, 1,643, 1,643, 1,643, 1,643, 1,643, 1,643, 1,643, 1,744, 1,867, 1,998.
  - Gross Domestic Product 1/: 7,620, 8,771, 9,998, 11,286, 12,267, 13,130, 14,054, 15,044, 16,103, 17,236, 18,449, 19,748, 21,138.
- Sources: Haitian authorities; and Fund staff projections.
- Note: 1/ In millions of U.S. dollars.

### Executive Letter of Intent (April 25, 2011 — Appendix I)
- Government assertions and program status:
  - Government reports progress in restoring basic government functions and initiating reconstruction; macroeconomic situation improved due to prudent policies and donor support.
  - All quantitative performance criteria for end-September 2010 were met.
  - The indicative target on poverty-related spending was not fully observed.
  - All end-December 2010 indicative targets and end-March 2011 performance criteria are expected to be met.
- Program objectives and challenges for FY 2011:
  - Accelerate the reconstruction, improve public services, strengthen economic governance, support recovery while maintaining macroeconomic stability.
  - Facilitate transition from disaster recovery to policies aimed at high and sustained growth, reducing poverty and vulnerability to external and natural shocks.
- Request to IMF:
  - Government requests completion of the first review and approval of the second disbursement of an amount equivalent to SDR 8.19 million.
  - Second program review to assess end-March 2011 performance criteria and structural benchmarks in July 2011.
  - Third review (assessing end-September 2011) envisaged for November 2011.
- Commitment to monitoring and consultation:
  - Government will regularly update the IMF and provide necessary data; will consult with the Fund ahead of any revisions to the MEFP.
  - Government consents to publication of the letter of intent, the attached MEFP, and the staff report on the first ECF review.
- Signed by:
  - Ronald Baudin — Minister of Economy and Finance, Republic of Haiti.
  - Charles Castel — Governor, Bank of the Republic of Haiti.

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

### APPENDIX II. MEMORANDUM OF ECONOMIC AND FINANCIAL POLICIES

### APPENDIX II. MEMORANDUM OF ECONOMIC AND FINANCIAL POLICIES

### I. Introduction
- MEFP supplements and updates the July 2010 MEFP and covers the second half of FY 2011 (March-September 2011).
- Political update:
  - President-elect Mr. MARTELLY to be sworn in on May 14.
  - New government expected to be seated in June.
- Contextual constraints noted: difficult post-earthquake environment, slow aid disbursements, low capacity, cholera epidemic outbreak, delays in electoral agenda.

### II. Recent Economic Developments
- Output and inflation:
  - GDP growth estimated to have contracted by about 5 percent in FY 2010, about 3.5 percentage points less than anticipated in the program.
  - Inflation rose to 7.2 percent (y/y) in March 2011.
- Fiscal performance (FY 2010, excluding grants and foreign-financed projects):
  - Fiscal deficit: 5.2 percent of GDP (lower than programmed 6.8 percent).
  - Revenue exceeded program target by about 20 percent.
  - Wage bonus of G 1.2 billion (0.5 percent of GDP) granted in August.
  - Domestically-financed investment increased from 4.1 percent of GDP in FY 2009 to 5.5 percent of GDP (on account of higher revenue and stepped-up disbursement of budget support of US$225 million).
  - No new net central bank financing; first issuance of T-bills on September 28.
  - Fuel price freeze costs foregone revenues: US$26 million (0.3 percent of GDP) from March to September 2010 and US$85 million (1.1 percent of GDP) from October 2010 to February 2011.
  - Domestic fuel prices raised by 27 percent on average on March 22, 2011.
- External position:
  - External account deficit (including official grants): 2.3 percent of GDP.
  - Net international reserves increased to US$1.1 billion at end-January 2011, from US$0.4 billion at end-September 2009.
  - Private capital inflows and capital transfers from IDB, IMF, World Bank, Canada, France, Italy, and Venezuela contributed to capital account improvement.
- Monetary and financial sector:
  - Credit to private sector picked up in Q1 FY 2011.
  - System-wide NPLs fell to 5.6 percent of total loans after a large write-off at BNC in September.
  - Financial sector profitability increased.
  - First pillar of the Partial Credit Guarantee Fund (PCGF) launched in December 2010; operations to restructure small loans affected by the earthquake.
  - Comprehensive assessment of insurance sector under way; initiatives to strengthen legal and monitoring framework.

### III. Performance under the Program
- Overall assessment: program implementation satisfactory.
- Quantitative performance criteria (end-September):
  - Net central bank credit to the non-financial public sector: G1.3 billion (ceiling was G0.4 billion of positive financing).
  - Base money grew by 31.2 percent at end-September 2010 (y/y):
    - 12.1 percent due to higher growth in currency in circulation.
    - 19.2 percent due to higher growth in gourde deposits.
  - Execution of poverty-reducing expenditures was below the indicative floor.
- Structural benchmarks:
  - All end-September 2010 structural benchmarks implemented (some with delays).
  - Benchmarks on publication of poverty-related spending, government transfers, fiscal expenditures, and externally-audited financial statements of the BRH met on time.
  - Publication of investment spending by project observed on October 20.
  - Benchmarks on publication of monthly consolidated Treasury balances, list of government and donor accounts at the BRH and BNC, and composition and work program of the working group for revenue administration reform were observed in March 2011.
- End-December 2010 indicative targets:
  - All met except poverty-related spending and base money targets (poverty-related spending missed with a lower margin).
- Outlook:
  - Compliance with end-March 2011 performance criteria believed to be within reach.

### IV. Government Program for the Second Half of FY 2011

A. Macroeconomic policies

Fiscal policy
- Overall objectives: consolidate economic recovery while safeguarding macroeconomic stability; manage large aid inflows, international food and fuel price shocks, and coordinate fiscal, monetary, and exchange rate policies.
- Main macroeconomic objectives for FY 2011:
  - Real GDP growth rate of about 8.6 percent.
  - Inflation target of about 9 percent.
  - Current account deficit of 4 percent of GDP.
  - Fiscal deficit, excluding grants and externally-financed projects, of 7.4 percent of GDP.
  - Level of reserves equivalent to about 4.1 months of imports.
- Downside risks highlighted: delays in new government formation at Parliament level; further increases in international fuel and food prices; delays in disbursements of international assistance; sanitary challenges (cholera epidemic); continued administrative capacity weaknesses.
- FY 2011 fiscal projections and measures:
  - Fiscal deficit (excluding grants and externally-financed projects) projected to widen to 7.4 percent of GDP (up from 5.2 percent in FY 2010).
  - Revenue projected to remain at 11.8 percent of GDP despite temporary reconstruction-facilitating measures (limited to FY 2011). Specific temporary measures include:
    - Reduction by half in registration fees for mortgage registration.
    - Exemption of capital goods for the productive sector from custom duties.
    - Exemption of insurance payments from taxes if proceeds are invested.
    - 10 percent tax rebate on revenues from real estate.
    - Exemption on imports of prefabricated housing of up to G 0.5 million from customs duties.
    - Deduction by landlords of higher expenses from taxable income up to the amount of rent declared before the earthquake.
    - Subtraction by private firms of donations to non-profits from tax payments.
  - Estimated revenue losses from these measures (in effect January 2011): about G 0.8 billion.
  - Offsetting measures: stepped up revenue collection efforts; car registration fee introduced in October 2010 expected to yield about 0.4 percent of GDP a year over the program period.
  - Budget support from international donors expected to reach G 6.9 billion or 2.2 percent of GDP.
  - Current expenditure budget limited to 11 percent of GDP (down from 11.4 percent in FY 2010):
    - Wage bill unchanged at 5.4 percent of GDP.
      - Wage bill provisions include: regularize past appointments, pay salaries for new recruitments (justice, education, health), adjust low and intermediate salaries to legally-prescribed minimum and eliminate disparities.
    - Transfers reduced by 0.1 percentage points of GDP to 2.4 percent of GDP.
      - Close monitoring of transfers (notably to electricity company EDH).
      - All transfers for EDH to be consolidated in monthly reports by June 2011 (structural benchmark).
      - Interim management contract to be signed with an international private firm for EDH.
    - Operations projected at 2.8 percent of GDP (lower by 0.2 percentage points of GDP).
  - Priority social expenditures to be raised by at least 30 percent in FY 2011 compared with FY 2010, focusing on public services, social safety nets, education, health, transportation, and communication infrastructure.
  - Use of freed resources and PetroCaribe:
    - Partial use of resources freed by PCDR debt relief (US$68 million), PetroCaribe-related resources (US$245 million), and increase in Treasury-financed investment projects (US$275 million) to raise domestically-financed investment from 5.5 percent of GDP in FY 2010 to 8.2 percent in FY 2011.
    - Expanded public investment program to reflect national action plan priorities.
    - Measures to enhance quality of spending and project management for PCDR-funded projects:
      - Created escrow account at the central bank for PCDR spending.
      - Prepared roadmap guiding management of these projects.
      - Designated Project Coordination Unit (UCP) at MEF to oversee implementation.
      - Drafted terms of reference to hire an international firm to assist UCP.
      - Shared project summaries (including Bowen Field and Fort National housing projects) with IMF staff.
    - Structural benchmarks and implementation timetable:
      - By end-June 2011: select international consulting agency to assist UCP (structural benchmark).
      - Start strengthening UCP staffing, associate Procurement Commission (CNMP) to project management, reinforce coordination between UCP, CNMP, and MPCE.
      - By end-September 2011: prepare manual of operations (structural benchmark) and procurement plan; publish regular implementation reports for PCDR-funded projects.
      - By end-March 2012: adopt comprehensive action plan to improve overall public investment spending (structural benchmark) with donor technical assistance.
      - Explore consolidation of multi-sectoral project management units under MEF authority.
    - PetroCaribe resources usage and debt sustainability:
      - PetroCaribe-related spending directed to growth-enhancing investment within programmed envelope after the earthquake (total of 4.3 percent of GDP over FY 2010 and FY 2011).
      - Explore avenues to invest future PetroCaribe resources in safe long-term assets.
      - Note: preliminary data suggest total transfers to EDH could amount to as much as 3 percent of GDP in FY 2011.

Monetary and exchange rate policies
- Monetary program targets for FY 2011:
  - 15.2 percent increase in money growth.
  - 21.6 percent increase in credit to the private sector.
- Policy stance:
  - BRH ready to tighten policy to pre-empt monetary-driven inflationary pressures and second-round effects from rising international food and oil prices.
  - Develop market for government securities and rely on open-market operations based on T-bills rather than BRH bonds.
- Exchange rate management:
  - Maintain exchange rate flexibility amid large capital inflows.
  - By end-December 2011: develop an exchange rate management strategy encompassing reform of the foreign exchange market (structural benchmark).
  - With Fund technical assistance, design weekly two-way FX auctions for market participants to buy and sell foreign exchange.
- Transparency and communication:
  - Publish a six-month monetary note covering April through September 2010, then restart quarterly monetary policy notes.

B. Structural Reforms

Revenue measures and tax administration
- Medium-term revenue aim: boost revenue collections to 13.6 percent of GDP by FY 2013.
- Recent measure: car registration fees introduced in October 2010 expected to yield about 0.4 percent of GDP a year over the program period.
- FY 2011 measures to strengthen management and accountability:
  - Develop and adopt internal performance indicators for DGI and AGD by end-December 2011 (structural benchmark).
  - Implement new customs code after parliamentary approval.
  - Finalize action plan for tax policy and administration to present to donors for financial and technical support.

Public financial management (PFM) and economic governance
- Core strategy: continue PFM and economic governance improvements with development partners; reforms summarized in a common conditionality matrix.
- Key measures:
  - Strengthen framework for annual budget preparation by establishing a new direction/office in charge of economic promotion to oversee DEE and the macro-fiscal unit at MEF.
  - Budget execution and reporting improvements:
    - Finalize implementation of computerized management system SYSGEP and publish reports from that system by end-September 2011.
    - Starting in September 2011, eliminate discrepancies between accounts provided by BRH, Treasury, revenue agencies, and the TOFE.
  - Treasury management:
    - Prepare and publish monthly cash plans including PetroCaribe spending and financing needs to align donor support timing and enhance transparency.
  - Government financing framework:
    - Gradually step up issuance of government securities to smooth cash management and catalyze financial market development.
    - By end-June 2011: finalize preparation of reform to expand primary T-bill market and allow issuance of government bonds.
    - Establish a predetermined public auction calendar for T-bills based on government quarterly financing needs and domestic market absorption capacity; specify amounts for government financing and for securitization of debt to BRH.
    - Build on successful T-bill issuances in September 2010 and January 2011.

*Source: APPENDIX II. MEMORANDUM OF ECONOMIC AND FINANCIAL POLICIES (MEFP), March–September FY 2011.*

### 16.      A robust banking sector is essential to sustain a private sector-led growth. In

### 16.      A robust banking sector is essential to sustain a private sector-led growth. In

### Banking sector support and PCGF
- Plan to launch the second pillar of the PCGF to guarantee new loans, after successful launch of the first pillar which guarantees existing loans.
- Use up to US$70 million of the resources freed up by the PCGF to support both pillars as needed, beginning immediately with support to pillar 1 and then to pillar 2 as soon as it is launched.
- Ensure that the fee structure and coverage of the guarantee:
  - provide adequate incentives to banks and avoid moral hazard;
  - ensure PCGF resources are fully ring-fenced and kept separate from the central bank’s own capital;
  - establish a proposed management structure that avoids conflicts of interest.

### Strengthening banking supervision (FY 2011)
- Actions to be taken:
  - (i) inspect all banks to assess their situation after the earthquake;
  - (ii) enhance and update prudential legislation to ensure consistency with the banking law, once approved by the Senate, and the Basel rules;
  - (iii) establish a credit information bureau.

### Insurance sector reinforcement (FY 2011)
- Audit and assess the health of all insurance companies with help from international partners.
- Set up a regulatory and supervisory framework for insurance companies during FY 2011.
- Rationale: Some insurance companies suffered significant losses from the earthquake because they were not adequately reinsured.

### BRH independence and safeguards
- FY 2010–11 measures to enhance BRH independence:
  - Sign a memorandum on the partial securitization of the government’s debt to the BRH by end-May 2011 as part of the T-bill implementation project. The memorandum will allow the government to issue T-bills to BRH for a period of three years in exchange for a reduction of other BRH claims with the government.
  - Securitization of remaining debt will be considered over the next two years.
  - Prepare and submit a new central bank law to parliament by December 2011 to enshrine central bank independence and further strengthen external audit and reserves management.
- Implementation of pending recommendations from the 2010 safeguards assessment update will be completed before the end of FY 2011.
- NIR audit completed confirming the level of reserves for end-September 2009 and end-September 2010.
- By end-July 2011, select an international firm to conduct ISA compliant external audits of the BRH for the next 3–6 years, starting from the 2011 audit (structural benchmark).
- Strive to publish annual audited financial statements within six months after the end of each fiscal year.
- By end-June 2011, the investment committee of the BRH will adopt a global reserves management policy covering all foreign exchange reserves (structural benchmark).

### External debt management
- Rebuild debt management capacity affected by the earthquake through measures including:
  - (i) Strengthen the existing debt directorate capacity, including the conduct of debt sustainability analysis by end-March 2012 with fully operational middle and back office functions, clear assignments of functional responsibilities and drafting memoranda of understanding between the MEF and other ministries and the BRH to clearly establish responsibilities and avoid overlapping (structural benchmark).
  - (ii) Submit to Parliament by end-March 2012 a public debt law that establishes a sound legal and institutional framework for public debt management (structural benchmark).
  - (iii) Develop a medium-term debt management strategy, based on a comprehensive analysis of the sustainability of total public debt in FY 2012.

### Other structural reforms to promote private sector activity and investment
- Economic development and decentralization strategy anchored on large transportation and energy infrastructure projects to improve networks, connect local markets, and create jobs in the provinces.
- Work to establish a robust legal framework for Public-Private Partnerships with assistance from technical partners to promote investment in specific sectors.
- Strengthen framework for business and investment to improve Haiti’s image as a country open for business and foreign investment through improvements in governance and legal framework, financial market deepening, and increased private investment.
- Simplify legal and regulatory framework for investments in export-processing zones; intend to revamp the investment promotion office as an effective one-stop shop for potential investors.
- High priority to development of a cadastre focusing initially on development zones with a timetable for surveying and establishment of specialized cadastres to encourage investment.
- Published new construction guidelines for residential buildings based on international best practices and are in the process of establishing and enforcing a new building code for commercial buildings.
- Identify specific pieces of land to be purchased by the government to build government buildings and implement specific private-sector projects to address land title issues.
- Other key measures:
  - reform of the legal regime for collateral;
  - establishment of a registry for the use of movable assets as collateral;
  - adoption of a new law for microfinance institutions.

### PRSP
- Preparing a PRSP update to be ready ahead of the second review.
- Will broaden the definition of poverty outlays to better reflect anti-poverty spending efforts.

### Program monitoring and quantitative framework
- Program monitored using quarterly quantitative benchmarks and semi-annual quantitative performance criteria and structural benchmarks.
- New performance criteria (PCs) set for end-September 2011 and end-March 2012.
- Quantitative targets set on:
  - net international reserves,
  - net domestic assets of the central bank,
  - net central bank credit to the central government and to the entire nonfinancial public sector,
  - public sector external arrears accumulation,
  - non-concessional external loans contracted or guaranteed by the public sector (all performance criteria).
- Indicative targets set on:
  - base money,
  - net domestic financing by the central government,
  - domestic arrears accumulation of the central government,
  - a floor on poverty-reducing spending.
- Definitions and program adjustors provided in the Technical Memorandum of Understanding (TMU); structural benchmarks for end-September 2011 are listed in Table 2 and further defined in the TMU.
- Expected review timeline:
  - second review completed by end-September, 2011;
  - third and fourth reviews completed by end-February 2012 and by end-September 2012 respectively.
- In accordance with terms of the ECF arrangement, will refrain from:
  - imposing restrictions on payments and transfers for international transactions,
  - introducing new nor intensifying trade restrictions for balance of payments purposes,
  - resorting to multiple currency practices,
  - entering into bilateral payments agreements incorporating restrictive practices with other IMF members.

### Selected numeric program targets and benchmarks (as presented)
- Use up to US$70 million of PCGF resources to support pillars.
- Program exchange rate: G40.0 per U.S. dollar for the period June 2010 – March 2012.
- Deadlines and target dates cited:
  - Sign memorandum on partial securitization to BRH by end-May 2011.
  - New central bank law submitted by December 2011.
  - Select international firm for BRH ISA-compliant audits by end-July 2011.
  - Adopt global reserves management policy by end-June 2011.
  - Debt sustainability analysis and strengthened debt directorate by end-March 2012.
  - Submit public debt law by end-March 2012.
  - Medium-term debt management strategy based on FY 2012 analysis.
- Structural benchmarking and monitoring schedules referenced include end-September 2011 and end-March 2012 for multiple measures.

*Source: _cr11106 - 16.      A robust banking sector is essential to sustain a private sector-led growth. In*

### 4.      The heading of Section III.B is replaced with the following:

### _cr11106 - 4.      The heading of Section III.B is replaced with the following:

### B. Adjustment for PetroCaribe-related inflows
- Section heading replaced with: “B. Adjustment for PetroCaribe-related inflows”
- Table in paragraph 34 is replaced (table reference: 45).

### C. Adjustment for Budgetary Cash Grants in Second Half of FY2011
- Section III.C replaced with: C.   Adjustment for Budgetary Cash Grants in Second Half of FY2011
- Performance criteria adjustments reflect expected budgetary donor grants of the equivalent of G 5,928 million (about US$148 million) in the second half of FY 2011. Donor breakdown:
  - EU €26 million
  - France €20 million
  - Norway $5 million
  - USA $12.5 million
  - Canada Can$15 million
  - World Bank US$20 million
  - IDB US$35 million
- If actual grant inflows are lower (higher) than programmed:
  - Performance criteria ceilings on BRH net credit to the central government, net domestic financing to the government, and on BRH net domestic assets will be adjusted upward (downward) by the amount of the difference between actual and programmed inflows.
  - The performance criterion floor on NIR will be adjusted downward (upward) by the same amount.

### PetroCaribe Deposits (selected published series and stocks)
- Table time columns: September 2010, December 2010, March 2011, June 2011, September 2011, December 2011, March 2012, June 2012, September 2012.
- Total deposits in government accounts in the banking system
  - Cumulative flows (G mlns): 3204.9 4057.5 4292.1 5883.6 6102.8 -222.5 3268.2 6758.8 10249.5
  - in US dollars (US$ mlns): 84.3 106.0 108.9 146.7 150.5 -3.9 81.0 165.6 250.0
  - Stocks (G mlns): 6918.1 7770.7 8005.3 9596.8 9815.9 3490.7 6981.4 10472.0 13962.7
  - in US dollars (US$ mlns): 173.2 194.8 197.8 235.6 239.4 85.0 169.9 254.5 338.9
- Deposits in government accounts at the BRH
  - Cumulative flows (G mlns): -96.0 -96.0 -96.0 -96.0 -96.0 -171.0 -171.0 -171.0 -171.0
  - in US dollars (US$ mlns): -2.2 -2.2 -2.2 -2.3 -2.3 -4.1 -4.1 -4.1 -4.1
  - Stocks (G mlns): 75.0 75.0 75.0 75.0 75.0 0.0 0.0 0.0 0.0
  - in US dollars (US$ mlns): 1.9 1.9 1.9 1.8 1.8 0.0 0.0 0.0 0.0
- Deposits in government accounts in commercial banks
  - Cumulative flows (G mlns): 3300.9 4153.5 4388.1 5979.6 6198.7 -51.5 3439.2 6929.9 10420.5
  - in US dollars (US$ mlns): 86.5 108.2 111.2 149.0 152.8 0.2 85.1 169.7 254.1
  - Stocks (G mlns): 6843.1 7695.7 7930.3 9521.7 9740.9 3490.7 6981.4 10472.0 13962.7
  - in US dollars (US$ mlns): 171.3 193.0 196.0 233.8 237.6 85.0 169.9 254.5 338.9
- Sources: Haitian Authorities and IMF Staff estimates and projections
- Table label: Haiti. PetroCaribe Deposits (table reference: 46).

### Structural area — Fiscal Sector: published benchmarks and new structural conditionality
- Ongoing publications (as specified on tables [1a and 1b]) to continue over program period: items 1a, 2a, 2b, 2c, 3a, 3b, and 2h.
- New structural conditionality:
  - Transparency of government transfers to the energy sector:
    - Identify and consolidate all sources of transfers to the electricity company (EDH) in regular monthly reports through monitoring all transfers to EDH including counterpart funds and off-budget transfers from PetroCaribe resources.
    - Set for end-June 2011; monthly publication to continue over the program period.
  - Enhancing quality of investment projects (including PetroCaribe-financed and PCDR debt relief freed-up resources):
    1. Launch bids for selection and hiring of the international consulting agency to assist UCP (by end-June 2011).
    2. Prepare an action plan or operational manual describing:
       - (a) Modalities to recruit staff with project management skills and responsibility for ordering payments for project work orders;
       - (b) A defined set of information, project lists and accounts to be regularly published online to ensure full transparency on project execution and planning;
       - (c) Clear practices to ensure coordination between the UCP, the Procurement Commission (CNMP) and the Ministry of Economic Cooperation and Planning (MPCE), in full compliance with national budget execution rules (by end-September 2011).
    3. Adopt a comprehensive action plan to improve the quality of overall public investment spending (by end-March 2012).
  - Raising government revenue:
    - Design and implement monitorable performance indicators for DGI and AGD (by end-December 2011).

### Structural area — Monetary Policy and Financial Sector: new conditionality
- New structural conditionality:
  1. Enforcing rotation of external auditors for BRH accounts:
     - Select a new reputable international firm to conduct SIA compliant external audit for FY 2011 for a period of 3 to 6 years (set for end-July 2011).
  2. Strengthening foreign exchange reserves management:
     - Adopt a global reserves management policy by the investment committee, covering all foreign exchanges reserves (set for end-June 2011).
  3. Strengthening exchange rate management:
     - Develop an exchange rate management strategy encompassing reform of the foreign exchange market (set for end-December 2011).

### Statement by the IMF Staff Representative on Haiti (Executive Board Meeting 11/46 — May 11, 2011)
- Provides additional information since the staff report for the First Review Under the Extended Credit Facility arrangement for Haiti (EBS/11/63); does not change the thrust of the staff report.
- Key developments:
  - Presidential elections:
    - Final results of the second round released on April 21, confirming Mr. Michel Martelly as the winner.
    - Inauguration scheduled for May 14.
  - Legislative elections:
    - Composition of Parliament not finalized; results contested for 19 candidates (17 deputies in the 99-seat Chamber of Deputies and two senators in the 30-seat Senate).
    - OAS reviewed final results at request of President-elect; found final count incorrect and recommended reinstatement of preliminary results.
    - Remaining parliamentarians sworn in on April 27; Parliament can be in session.
  - Constitution:
    - Parliament expected to adopt constitutional amendments by May 9 to reduce number of elections, synchronize elections, strengthen judiciary, promote gender equality, allow dual citizenship, and help better protect the environment.
  - Foreign reserves audit:
    - Final audit report of the NIRs review released on May 6 indicates that NIRs for end-September 2009 should be lower than reported by the central bank by US$2.2 million instead of the initial estimate of US$64 million mentioned in the staff report (paragraph 19).
    - Discrepancies due to capacity constraints of the authorities.

### Press Release No. 11/171 — May 11, 2011: IMF Executive Board Approves First Review Under Haiti’s ECF and Approves US$13.1 Million Disbursement
- Executive Board completed first review of Haiti’s performance under the ECF arrangement.
- Immediate disbursement: SDR 8.2 million (about US$13.1 million).
- Total disbursements under the program to date: SDR 16.38 million (about US$26.2 million).
- Haiti’s ECF arrangement approved on July 21, 2010 (Press Release No. 10/299) together with full relief of the country’s outstanding debt to the Fund of about SDR 178 million (equivalent to US$268 million).
- Statement by Mr. Naoyuki Shinohara, Deputy Managing Director and Acting Chair:
  - Commends authorities for good policy implementation despite challenging environments.
  - Notes Haitian economy is recovering; essential state functions reinstated; prudent macroeconomic policies helped support growth and contain inflation to single digit levels.
  - Economic outlook favorable if authorities and international community accelerate reconstruction and transition to policies for high and sustained growth and poverty reduction.
  - Disbursement of donor pledges and timely implementation of structural reforms in economic governance and business environment are important.
  - Fiscal objectives for FY 2011: raise domestic revenue, contain current expenditure, align budget to reconstruction priorities and poverty-reduction spending within sustainable public financing.
  - Monetary and exchange rate policies aim to contain inflation to single digit levels and appropriately absorb capital inflows.
  - Program supported by comprehensive medium-term technical assistance strategy in close coordination with development partners.

### Statement by Paulo Nogueira Batista, Executive Director for Haiti, et al. — May 11, 2011
- Staff report, Letter of Intent, and MEM support conclusion of first review and disbursement of SDR 8.19 million.
- Authorities’ performance highlights and context:
  - Despite external shocks, authorities maintained fiscal discipline, prudent monetary policy, and implemented structural measures agreed for end-September 2010.
  - Anticipated successful assessment of program engagements for end-March 2011.
  - Haiti remains vulnerable to rising international prices of agricultural goods and petroleum products; maintaining single digit inflation requires skillful policy coordination.
- Domestic political transition:
  - President-elect Michel Joseph Martelly expressed eagerness to work with Parliament and avoid confrontational relations.
  - Multi-sector transition team nominated; Prime Minister designated counterparts.
- Performance under the ECF — key achievements:
  - Remarkable domestic revenue collection effort: 53% more than programmed.
  - Maintenance and improvement of safeguards framework at the Central Bank despite earthquake losses.
  - Improvement in banking sector indicators: significant decrease of NPLs with increased provisioning, increased liquidity.
  - Strengthening of external position and maintenance of stable exchange rate amid massive inflow of foreign exchange.
  - Structural reforms: improved business climate and public financial management, greater transparency in electricity and procurement sectors.
- Revenue mobilization and external assistance concerns:
  - Post-earthquake surge in taxes forgone: 145% of total revenues due to exemptions for international organizations and NGOs.
  - Sub-optimal modalities of disbursement of budget support; targeted support often less efficient than general budget support.
  - Grants with donor-directed sectors/areas act like investment support and do not meet norms of budget support; do not help close fiscal gap.
  - Inefficiencies from routing budget support funds through Reconstruction Fund removing resources from normal budget execution.
  - Accountability concerns when funds disbursed through mechanisms outside government control, particularly private donors and NGOs.
  - Recommendation: greater coordination of external assistance and alignment of NGO projects with government development and reconstruction programs; auditing private institutions receiving public funds by the General Public Auditor; Ministry of Economy and Finance publishes tax exemptions awarded and beneficiary sectors on the Web.
- President-elect priorities reiterated during Fund visit: (i) universal and free access to education, (ii) re-localization of tent-dwellers, (iii) increased attention to agriculture sector needs — requiring stepped-up mobilization of resources.
- Fund support:
  - Management commended for commitment to scale up technical assistance to support revenue mobilization.
- Other policy issues and reforms:
  - Improve population access to financial services:
    - Establish a Credit Bureau promptly.
    - Guarantee environment for secondary market for Treasury Bonds.
    - Effectively regulate and supervise insurance sector; request international support to complete comprehensive audit of insurance companies.
  - Treasury Bonds introduction:
    - Offer additional sustainable financing source for budget.
    - Strengthen legal framework for debt management and technical capacity.
    - Prepare medium term debt strategy suitable for post HIPC context.
    - Phase out full guarantee by Central Bank of Treasury Bonds carefully to avoid confusing signals.
  - Address other constraints to private sector initiative: improve delivery of telecom and electricity services; address cadastre establishment complications post-earthquake.
- Relationship with the Fund:
  - IMF provided essential support; technical assistance well targeted.
  - Financial support via Post-Catastrophe Debt-Relief (PCDR) instrumental for reconstruction needs.
  - Fund’s active presence in CIRH and budget support group contributed to boost donors’ confidence.
  - Authorities appreciative of constructive dialogue; encourage Fund and donors to strengthen cooperation to improve efficiency of assistance.

*Source: _cr11106 - 4.      The heading of Section III.B is replaced with the following: (PDF chapter/section).*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2011/_cr11106.pdf_