## _cr1390

## Source details

**Canonical URL:** [_cr1390](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2013/_cr1390.pdf)

## Other formats

- [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2013/_cr1390.pdf.md)
- [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2013/_cr1390.pdf.json)

---

### Natural disasters: exposure, impacts, and recovery
- Haiti struck by 60 natural disasters over the last 20 years; affected about 6 million people and caused almost US$ 9 billion in damages.
- 2010 earthquake:
  - Affected almost 4 million people.
  - Damage estimated at about 120 percent of 2009 GDP (Total damage estimated at about US$9 billion).
  - Deaths: 220,000 people killed (including one out of three civil servants), 1,200 teachers, and over 500 health personnel killed.
  - Physical damage: destroyed or damaged 300,000 houses, 13 out of 15 ministerial buildings, 4,200 schools, and more than 60 percent of the country’s hospitals.
- Hurricanes Isaac (August 2012) and Sandy (October 2012):
  - At least 50 deaths.
  - Overall losses estimated at US$570 million (7.2 percent of 2012 GDP).
  - Reported damages of about $170 and $400 million respectively (mostly in the agricultural sector).
- Agricultural sector:
  - Accounts for about one-fourth of GDP and is particularly vulnerable to floods and storms.
- Economic impacts:
  - After the 2010 earthquake, real GDP declined by 5.4 percent compared to the pre-earthquake projection of 2.4 percent.
  - Excluding the 2010 earthquake, natural disasters estimated to have reduced growth performance by an average of 1 to 2 percent of GDP.
- Recovery outcomes:
  - About 80 percent of debris removed since 2010 earthquake.
  - Progress in relocating people from temporary shelters and rebuilding many schools; further efforts needed for permanent lodging and rehabilitating public buildings, schools, and hospitals.
  - Reconstruction pace constrained by limited administrative and absorptive capacity and long political transitions.
- Policy implications and recommended measures:
  - Strengthen the national risk and disaster management system (NRDMS).
  - Ex ante measures: relocate communities from disaster-prone areas; enforce building codes; hold food inventories; develop emergency response mechanisms; establish comprehensive social safety nets.
  - Ex post measures: use available fiscal and external buffers, macroeconomic policy flexibility, and timely external financing to mitigate impacts and accelerate recovery.

### Financial sector reforms, FSAP implementation, and supervisory developments
- Implementation progress since 2008 FSAP:
  - Adoption of a new banking law.
  - Hiring of a new audit firm to conduct the audit of the BRH.
  - Establishment of a T-bill market.
  - Ongoing work with the World Bank to establish a credit bureau and set up a collateral registry.
- Banking law and supervision:
  - New law (May 2012) empowers Central Bank to regulate five new categories and reinforces intervention powers.
  - Supervision based on Basel I core principles and CAMEL approach; on- and off-site units in place.
- Financial soundness indicators (selected, as reported):
  - Regulatory capital to risk-weighted assets: 13.4; 16.5; 16.7; 16.7; 16.8
  - NPLs to gross loans: 5.7; 3.7; 3.6; 3.2; 2.4
  - Provisions to gross NPLs: 84.1; 93.1; 83.3; 88.8; 96.7
  - Return on Assets (ROA): 1.2; 1.4; 1.4; 1.3; 1.5
  - Return on equity (ROE): 18.4; 22.2; 22.2; 21.7; 21.9
- Credit developments and risks:
  - Commercial bank credit to the private sector increased on average by about 28 percent a year over the last two years.
  - Credit to the private sector stood at about 19 percent of GDP at end-September 2012.
  - Rapid credit growth could pose challenges; staff requested IMF TA to develop macroprudential rules.
- FSAP recommendations (selected) and implementation status:
  - Prepare for BRH recapitalization and increase government transfers — BRH’s financial situation has strengthened.
  - Develop treasury securities market — Treasury securities market will be further strengthened through the Public debt law expected to be submitted to Parliament by end-March 2013.
  - Adopt and implement new banking law — Status: "Banking Law was passed recently".
  - Complete transition of BRH accounting toward IFRS and commission BRH audit — Status: In progress.

### Public investment, PFM, Treasury Single Account (TSA), and execution quality
- Public investment challenges:
  - Low execution rate due to poor design/preparation, low execution capacity, lack of coordination, weak reporting, political uncertainty, security volatility, and loose internal controls.
  - Public Investment Management Index (PIMI) places Haiti in the lowest quartile of project performance.
- Required institutional improvements:
  - Enhanced transparency, better procurement practices, stronger governance.
  - Redefine and clarify responsibilities among government institutions involved in project management.
  - Strengthen units in charge of project execution within ministries (including by hiring technical experts).
  - Promote a more dynamic information system.
- TSA progress and benefits:
  - First phase completed: closing dormant government accounts and training public accountants.
  - Important to introduce TSA by June 2013 in a first wave of ministries with adequate capacity.
  - Expected benefits: improve cash management, budget execution, quality of public spending, execution rate of capital spending, and transparency by eliminating bunching transfers near year-end.
- Structural and procedural reforms:
  - Roll out GL-software in all ministries and record projects and imprest accounts expenditure when effectively paid (timing: End-March 2013).
  - Reduce domestically-funded imprest accounts to three by ministry/institution (timing: End-March 2013).

### Electricity sector (EDH): facts, financials, reforms, and donor plans
- Sector facts:
  - EDH monopoly over purchase, transmission, distribution and commercialization.
  - EDH generates about 15 percent of the energy produced in Haiti; about 75 percent of distributed electricity produced by independent power producers.
  - Installed generation capacity: 212 MW; peak load demand: around 250 MW.
- Financial and operational challenges:
  - Technical and commercial losses estimated at about 66 percent.
  - Ratio of energy unpaid to energy produced: 35 percent of the energy delivered is stolen.
  - Utility paid bills cover less than a third of the electricity generated.
  - Average tariffs: $0.31/kWh; Industrial and commercial tariffs: $0.35/kWh.
  - Government transfers to EDH in FY2012: US$ 142 million.
- Reform actions and next steps:
  - February 2011 MOU with IADB and USAID; August 2, 2012 EDH Board approved a loss reduction plan; August 17, 2012 TETRATECH authorized to implement measures.
  - EDH plan to eliminate transfers by 2016 to be submitted to government for adoption in April 2013.
  - Donors committed to coordinated investment plan of approximately US$400 million over the next five years focusing on loss reduction, grid rehabilitation and extension, and technical assistance.

### Macroeconomic outlook, projections, and downside risks
- FY2013 outlook and medium-term prospects:
  - Real GDP growth projected at 6.5 percent in FY2013 assuming agricultural rebound and continued large public investment projects.
  - Inflation expected to remain stable, in the mid-single digits; inflation expected in the 5-6 percent range over the coming year (staff view).
  - Official transfers expected to decline; higher reconstruction-related imports would widen the external account deficit and reduce gross liquid official reserves to 5.5 months of imports.
  - Medium-term growth drivers: maturing agricultural projects, rebound in public construction investment, rising exports of textiles and manufacturing.
  - Total government debt-to-GDP anticipated to remain below 30 percent (the pre-earthquake level).
- Key macroeconomic projections (Haiti: Medium-Term Macroeconomic Framework, 2010-2017) — GDP at constant prices:
  - 5.6; 2.8; 6.5; 6.3; 6.1; 5.8; 5.6
- Consumer prices (end-of-period):
  - 10.4; 6.5; 5.0; 4.5; 4.0; 3.5; 3.0
- Fiscal and external balances (selected):
  - Overall fiscal balance: -3.7; -5.9; -5.3; -5.5; -4.6; -3.4; -3.1
  - External current account balance: -4.6; -4.0; -5.6; -5.3; -5.2; -5.0; -4.8
  - External current account balance (excluding official grants): -24.2; -16.5; -17.7; -16.1; -14.7; -13.5; -12.4
  - Gross reserves (months of imports): 6.3; 6.5; 5.5; 5.2; 4.8; 4.4; 4.1
- Major downside risks and transmission channels (likelihood / impact):
  - Severe global growth shock — Medium; Medium. Transmission: official transfers, remittances (about 18 percent of GDP in 2012), trade (exports 13.2 percent of GDP mainly to US), official transfers (about 12.5 percent of GDP). Policy: build buffers; increase macro policy flexibility; delay non-priority capital spending; mobilize domestic financing via T-bills.
  - Lower external aid — High; Medium. Policy: mobilize domestic financing via T-bills; delay non-priority spending; insert budget buffer.
  - Deterioration in international food and energy prices — Low; Low. Policy: accommodate first-round effects; use targeted subsidies; BRH ready to tighten monetary policy if second-round effects materialize.
  - Heightened political tensions — High; High. Policy: build national political consensus on sustainable growth reform agenda; improve transparency and governance; ensure inclusive growth.
  - Natural disasters — High; High. Policy: build financial buffers; increase macro policy flexibility; strengthen NRDMS.

### Fiscal policy stance, revenue mobilization, and PFM reform priorities
- FY2013 budget targets and composition:
  - Overall deficit: 5.3 percent of GDP (down from 5.9 percent in FY2012).
  - Revenue projected to reach 14.1 percent of GDP (up from 12.8 percent in FY2012).
    - Domestic revenue: 8.5 -> 9.2 (change 0.7)
    - TCA: 3.6 -> 3.9 (change 0.3)
    - Tax on income and profits: 3.0 -> 3.3 (change 0.3)
    - Excises: 0.3 -> 0.6 (change 0.3) (excise on alcoholic beverages)
    - Other Taxes: 1.6 -> 1.3 (change -0.3)
    - Customs duties: 4.2 -> 4.7 (change 0.5)
    - Other: 0.1 -> 0.2 (change 0.1)
  - Wage bill expected to increase by almost 0.6 percent of GDP due to new hiring; authorities intend to contain wage bill at 5.0 percent of GDP in the medium term.
  - Domestically-financed capital spending ramped up to around 9 percent of GDP (more than 2 percent higher than in 2012).
  - Projected deficit financing: external resources 4.4 percent of GDP and domestic financing including issuance of T-bills 0.9 percent of GDP.
- Measures to expand fiscal space and strengthen PFM:
  - Implement revenue measures in 2013 budget law and improve revenue administration: stronger controls, tougher collection, medium-taxpayer unit, and e-declaration (in place since January 2013).
  - Improve customs valuation and control of exemptions (exemptions > 3 percent of GDP in FY2011).
  - Consider broader tax reform including shift to VAT system.
  - Contain recurrent expenditure and wage bill; civil service reform to eliminate ghost employees.
  - Gradually unwind subsidies to EDH via donor-supported comprehensive strategy.
- Medium-term fiscal path:
  - Domestic revenue projected to increase to about 15 percent of GDP in 2017.
  - Donor support expected to trend down to about 6 percent of GDP (from 10.6 percent in FY2012).
  - Current expenditures expected to be contained below 11 percent of GDP while protecting social spending.
  - Overall deficit projected to decrease to 3.1 percent of GDP by 2017.
- Staff observations on risks:
  - Implementation risks include first-quarter revenue underperformance, weak administrative capacity and PIM framework, underexecution of capital spending, and expenditure bunching near year-end.

### Monetary policy, liquidity, dollarization, exchange rate, and reserves
- Monetary policy focus:
  - Continue to focus on achieving price stability; stance supports recovery while keeping inflation in single digits.
  - Recent pickup in inflation mainly reflects higher international food prices and domestic food supply disruption from hurricanes/floods.
  - Inflation expected to remain in the 5-6 percent range over the coming year (staff estimate).
  - Policy tightening tools: policy rate, required reserves ratio, issuance of central bank and Treasury bills.
- Liquidity and domestic debt market development:
  - Banking sector remains highly liquid.
  - Legal and operational market infrastructure in place; several initial T-bill issuances successful but not regular.
  - Framework agreement for securitization of large government debt toward the BRH encouraged to develop T-Bill market and absorb excess reserves.
- Dollarization and exchange rate:
  - Dollarization remains high despite recent decline.
  - Since April 2010, the gourde depreciated by about 8 percent against the U.S. dollar (nominal); real effective appreciation about 7 percent due to relatively higher inflation.
  - Staff estimates exchange rate broadly in line with medium-term fundamentals.
  - Authorities agreed to pursue greater exchange rate flexibility cautiously; move to single-price foreign exchange auctions gradually.
- International reserves:
  - Gross official reserves rose to about US$2.2 billion at end-December 2012 from US$1 billion in December 2009.
  - Excluding government deposits, gross official reserves are at 4 months of imports at end-December 2012.
  - Official transfers: US$395 million in FY2009 -> US$1446 million in FY2011 -> US$988 million in FY2012.
  - Private transfers (mostly remittances) increased by US$140 million over same period.
  - Current level of international reserves of about six months of imports provides a good near-term buffer.

### Financial inclusion, remittances, MFIs/FCs, housing finance, and SME financing
- Financial inclusion and sector structure:
  - 22 percent of persons over 15 had a deposit account in 2011 (WB FINDEX).
  - 8 percent reported having a loan with a financial institution.
  - Nine banks: two public, five domestic private, two foreign; three banks control more than 80 percent of total assets and deposits.
  - MFIs and FCs serve similar number of depositors as banks and provide loans to a much larger share of the population.
- Remittances:
  - Remittances about 18 percent of GDP in 2012 in main text; Annex reports remittances approx USD 1.6 billion ≈ 19 percent of GDP in 2012.
  - Remittances on average account for 60 percent of income of recipient households.
  - 55 percent of remittance-receiving households have no other income; 27 percent earn less than USD 500 a year.
  - Informal remittances ≈ 30 percent of received remittances.
  - Major corridors: US → Haiti average transaction USD 120; DR → Haiti average transaction USD 70.
  - RSP network: 7 RSPs; 134 payout institutions; 411 payment locations; Western Union: 48 percent of payment points; Banks: 30 percent of payout locations; MFIs: 15 percent of payout locations (96 percent outside Port-au-Prince).
  - Policy recommendations: promote competition, assess remittance tax impact (USD 1.5 flat fee introduced June 2011), formalize Haiti-DR corridor, encourage MFIs/credit unions to expand remittance services.
- MFIs and FCs:
  - Potential demand for microcredit up to 1.7 million households (market estimate).
  - Donor estimate: ~375,000 microenterprises and 10,000 SMEs.
  - FCs and MFIs accounted for about 17.5 percent of banks’ total gross loan portfolio; microcredit portfolio increased by 46 percent in 2011 reaching gourds 10.6 billion.
  - Policy actions: finalize Laws for Cooperatives and MFIs, conduct census of FCs/MFIs, facilitate access to payment system and credit registry for qualifying FCs/MFIs, strengthen supervision and reporting.
- SME and housing finance:
  - Local deposits equivalent of $3.5 billion; loans about $1.2 billion.
  - Residential mortgage loans roughly 1 percent of GDP; estimated 650 outstanding mortgage loans in 2011.
  - Lending constraints: lack of land titles, high down-payments (30 percent average), interest rates 10–12 percent for adjustable-rate mortgages, maturities 7–10 years.
  - Policy recommendations: improve property rights and cadastre; develop credit information system; stimulate mortgage insurance and guarantees; design subsidy systems linked to credit.

### PetroCaribe/ALBA-related inflows, treatment, and fiscal risks
- Authorities plan to channel new PetroCaribe/ALBA inflows through a binational Venezuela-Haiti corporation (societé mixte); until statutes published, inflows treated as direct external debt of central government and reflected in fiscal tables.
- Spending from PetroCaribe resources (up to US$400 million in FY 2012) financed with drawdown of PetroCaribe deposits will be fully reflected in program tables.
- Following ratification of societé mixte, annual budgets to be published on MEF website and audited financial statements published within six months of year-end.
- Debt definitions and ceilings:
  - Ceiling for contracting and guaranteeing of new non concessional debt by total public sector set at US$ thirty-three million continuously throughout the program period.
  - Concessionality rule: grant element at least 35 percent using OECD CIRR methodology and specified margins (0.75%; 1%; 1.15%; 1.25% depending on repayment period).
- Fiscal risk monitoring:
  - PetroCaribe-related inflows will become non-governmental debt once the company is operational; expected not to worsen medium-term debt sustainability as entity expected to continue financing PetroCaribe-related capital and social spending.
  - Staff reiterated need to enhance transparency and accountability, including timely publication of annual budgets and audited annual financial statements of the new company.
- Commitment:
  - Authorities will share by-laws and financing terms of the new binational entity with Fund staff as soon as enacted.

### Monitoring framework, quantitative performance criteria, and structural benchmarks (TMU highlights)
- Monitoring follows revised TMU definitions, data sources, and frequency; sixth review (assessing end-March 2013 performance) expected by mid-July 2013.
- Selected quantitative performance criteria (in millions of gourdes or U.S. dollars as specified):
  - Net central bank credit to the non-financial public sector - ceiling (Dec. 2012 PC): 21,549; Dec. 2012 Actual: -12,090; Dec. 2012 Indicative target: -17,864.
  - Net central government (net credit) (Dec. 2012 PC): 23,118; Dec. 2012 Actual: -7,742; Dec. 2012 Indicative target: -13,883.
  - Net domestic assets of the central bank - ceiling (Dec. 2012 PC): 14,448; Dec. 2012 Actual: -5,383; Dec. 2012 Indicative target: -24,874.
  - Net international reserves of central bank - floor (Dec. 2012 PC, in millions of U.S. dollars): 416; Dec. 2012 Actual: 563; Dec. 2012 Indicative target: 886.
- Selected indicative targets and memorandum items (exact figures preserved in TMU tables):
  - Change in base money - ceiling (Dec. 2012 PC): 31,080; Dec. 2012 Actual: 17,128; Dec. 2012 Indicative target: 10,561.
  - Net domestic credit to the central government - ceiling (Dec. 2012 PC): 19,540; Dec. 2012 Actual: -6,710; Dec. 2012 Indicative target: -22,532.
  - Poverty reducing expenditures - floor (Dec. 2012 PC): 24,313; Dec. 2012 Actual: 24,506; Dec. 2012 Indicative target: 31,175.
- Structural benchmarks (selected status):
  - Completed: closing dormant accounts of central government at central bank and commercial banks; creation of fiscal policy unit within MEF; publication of quarterly reports on poverty-reducing expenditures.
  - Reprogrammed/in progress: strengthen the debt unit and submit public debt law — reprogrammed to End-March 2013 from End-March 2012.
  - Not met: establish unconstrained single price foreign exchange auctions (Timing: End-September 2012; Status: Not met).
- TMU reporting frequency and required indicators:
  - Daily: exchange rate.
  - Weekly: monetary and fiscal indicators (stock of BRH bonds; deposits; credit to private sector; currency in circulation; base money; reserves flows; FX transaction volumes; gross and net international reserves).
  - Monthly: Table 10R, Table 20R, project accounts by donor, consolidated treasury balances, revenue reports, balance of PetroCaribe/ALBA deposits (max 30-day lag).
  - Quarterly: report on poverty-reducing expenditures (max 30-day lag).

### External stability, REER assessment, and competitiveness
- External account developments:
  - Current account deficit declined from 12.5 percent of GDP in 2010 to 4 percent in 2012.
  - Trade deficit high at 23.5 percent of GDP at end-September 2012 due to aid-related imports and low exports.
  - Official transfers: 6 percent of GDP in 2009 -> 19.6 percent in 2011 -> declined to 12.5 percent in 2012; projected at 7 percent of GDP in medium-term.
  - Remittances: about 18 percent in 2012 (Annex shows approx USD 1.6 billion ≈ 19 percent).
  - Gross international reserves: US$2.2 billion at end-December 2012 (6 months of imports).
- Exports and diversification:
  - Exports about 15 percent of GDP; textile exports account for about 95 percent of the total, almost entirely to the United States.
  - HELP Act increased share of Haiti in US textile imports; export diversification needed.
- Real exchange rate assessment:
  - REER broadly stable since 2010 earthquake; appreciated by about 7 percent.
  - Macroeconomic Balance results: implied REER overvaluation (end-2011): -2.74% (Fixed Effect) | 1.42% (Hybrid Pooled).
  - Current REER close to equilibrium value estimated from fundamentals; small undervaluation or slight overvaluation depending on methodology.
- Policy implications:
  - Competitiveness gains must come from structural reforms to boost productivity: export diversification, improve business environment, invest in infrastructure, strengthen financial sector infrastructure, and enhance PFM and aid coordination.

### Conclusion and program support
- Staff supports completion of the fifth review of the ECF arrangement given Haiti’s program performance and authorities’ commitment.
- Key priorities reiterated:
  - Improve revenue collection and PFM to secure fiscal space for poverty-reducing and growth-enhancing spending.
  - Improve execution and quality of public investment; strengthen procurement and implementation units.
  - Implement energy sector reforms to reduce EDH subsidies and improve electricity supply.
  - Deepen financial intermediation while safeguarding stability, including credit bureau, collateral registry, and microfinance regulation.
  - Strengthen disaster risk management and resilience.

*Italic: IMF staff report content (content unit: _cr1390).*

### 1. Natural Disasters  ________________________________________________________________________________  8

### 1. Natural Disasters

### Haiti’s exposure and recent events
- Haiti’s exposure to natural disasters is exceptionally high: over the last 20 years, the country has been struck by 60 natural disasters, affecting about 6 million people and causing almost US$ 9 billion in damages.
- The 2010 earthquake:
  - Affected almost 4 million people.
  - Caused damage estimated at about 120 percent of 2009 GDP (Total damage estimated at about US$9 billion).
  - Resulted in 220,000 people killed (including one out of three civil servants), 1,200 teachers, and over 500 health personnel killed.
  - Destroyed or damaged 300,000 houses, 13 out of 15 ministerial buildings, 4,200 schools, and more than 60 percent of the country’s hospitals.
- Hurricanes Isaac (August 2012) and Sandy (October 2012):
  - Caused at least 50 deaths.
  - Caused overall losses estimated at US$570 million (7.2 percent of 2012 GDP).
  - Reported damages of about $170 and $400 million respectively (mostly in the agricultural sector).
- Agricultural sector accounts for about one-fourth of GDP and is particularly vulnerable to floods and storms.

### Economic impacts and macroeconomic consequences
- Real GDP impact:
  - After the 2010 earthquake, real GDP declined by 5.4 percent compared to the pre-earthquake projection of 2.4 percent.
- Longer-run growth effect:
  - Excluding the 2010 earthquake, natural disasters are estimated to have reduced growth performance by an average of 1 to 2 percent of GDP.
- Fiscal and external pressures:
  - Natural disasters put pressure on the fiscal and external accounts and slow progress toward poverty reduction.
- Role of external financing:
  - Adequate and timely external financing has often helped Haiti address immediate resource needs and limit contractionary macro policies that could aggravate the shocks.

### Human and recovery outcomes
- Human toll and infrastructure damage from disasters can be large (examples above for 2010 earthquake and 2012 hurricanes).
- Recovery progress since 2010 earthquake:
  - About 80 percent of debris removed.
  - Progress in relocating people from temporary shelters and rebuilding many schools; further efforts needed for permanent lodging and rehabilitating public buildings, schools, and hospitals.
- Vulnerabilities in reconstruction:
  - Reconstruction pace has been slow, constrained by limited administrative and absorptive capacity and long political transitions.

### Disaster incidence and summary statistics (1993-2012) — as reported
- Type of disaster / number of events / Average years between disaster / Casualties / People affected / Damage (US$'000)
  - drought / 2 / 10.0 / - / 35,000 / -
  - earthquake / 1 / 20.0 / 222,570 / 3,700,000 / 8,000,000
  - flood / 3 / 10.6 / 3,059 / 444,958 / 1,000
  - storm / 2 / 60.8 / 5,071 / 2,407,164 / 331,620
  - total / 6 / 00.3 / 230,700 / 6,587,122 / 8,332,620
- Source of table: www.emdat.be (table reproduced exactly as presented in source text).

### Policy implications and recommended ex ante and ex post measures
- Strengthen the national risk and disaster management system (NRDMS), addressing its lack of capacity, resources, and institutional support.
- Enhance ex ante measures to reduce human suffering and economic costs:
  - Relocate communities from disaster-prone areas.
  - Enforce building codes.
  - Hold food inventories as buffers against drought.
  - Develop emergency response mechanisms.
  - Establish a comprehensive system of social safety nets for the most vulnerable.
- Use available fiscal and external buffers, macroeconomic policy flexibility, and external financing to mitigate impacts and accelerate recovery.

*Source: IMF staff summary, “1. Natural Disasters” (content unit: _cr1390 - 1. Natural Disasters).*

### 16.      The implementation of the recommendations of the 2008 FSAP to further strengthen

### 16.      The implementation of the recommendations of the 2008 FSAP to further strengthen the financial sector is underway

### Implementation progress and reforms
- Implementation of 2008 FSAP recommendations underway, with some delays; January 2010 earthquake slowed reforms, shifted priorities, and added challenges.
- Progress achieved:
  - Adoption of a new banking law.
  - Hiring of a new audit firm to conduct the audit of the BRH.
  - Establishment of a T-bill market.
- Coordination and capacity-building measures:
  - Enhanced coordination between the central bank and the ministry of finance.
  - Improved liquidity management.
  - Ongoing work with the World Bank to establish a credit bureau and set up a collateral registry.

### Prospects and key macroeconomic projections
- FY2013 outlook:
  - Real GDP growth projected at 6.5 percent, assuming agricultural rebound and continued execution of several large public investment projects (including export and tourism promotion).
  - Inflation expected to remain stable, in the mid-single digits.
  - Official transfers expected to decline as the emergency situation transitions and weak execution/absorption capacities persist.
  - Higher reconstruction-related imports would widen the external account deficit and reduce gross liquid official reserves to 5.5 months of imports.
- Medium-term prospects:
  - Growth drivers: maturing agricultural projects, rebound in public construction investment, rising exports of textiles and other manufacturing goods from emerging free zones.
  - External account deficit expected to decline as reconstruction-related imports wind down and exports improve.
  - Total government debt-to-GDP anticipated to remain below 30 percent (the pre-earthquake level).

### Key macroeconomic indicators (Haiti: Medium-Term Macroeconomic Framework, 2010-2017)
- GDP at constant prices: 5.6, 2.8, 6.5, 6.3, 6.1, 5.8, 5.6
- Consumer prices (end-of-period): 10.4, 6.5, 5.0, 4.5, 4.0, 3.5, 3.0
- Overall fiscal balance: -3.7, -5.9, -5.3, -5.5, -4.6, -3.4, -3.1
- External current account balance: -4.6, -4.0, -5.6, -5.3, -5.2, -5.0, -4.8
- External current account balance (excluding official grants): -24.2, -16.5, -17.7, -16.1, -14.7, -13.5, -12.4
- External public debt (end-of-period): 8.9, 13.2, 16.6, 19.1, 20.6, 21.6, 22.3
- Total government debt (end-of-period): 12.2, 15.4, 20.4, 24.2, 26.7, 28.6, 29.7
- Gross reserves (In months of imports of the following year): 6.3, 6.5, 5.5, 5.2, 4.8, 4.4, 4.1

### Major downside risks and transmission channels
- External risks:
  - Severe global growth shock — likelihood: Medium; impact: Medium.
    - Transmission through: official transfers, remittances (about 18 percent of GDP in 2012), trade (exports were 13.2 percent of GDP and mainly destined for the US), and official transfers (about 12.5 percent of GDP).
    - Policy recommendations: build buffers; increase flexibility in macroeconomic policies; delay some non-priority capital spending; mobilize additional domestic financing through issuance of T-bills.
  - Lower external aid — likelihood: High; impact: Medium.
    - Could slow growth and reforms.
    - Policy recommendations: mobilize additional domestic financing through issuance of T-bills; delay some non-priority spending; insert buffer in budget.
  - Deterioration in international food and energy prices — likelihood: Low; impact: Low.
    - Could raise inflation (food and fuel > half of Haiti’s CPI basket), generate social unrest, and deteriorate fiscal/external positions.
    - Policy recommendations: accommodate first-round effects; use targeted subsidies to protect the poor; BRH ready to tighten monetary policy if second-round effects materialize.
- Domestic risks:
  - Heightened political tensions — likelihood: High; impact: High.
    - Could slow reconstruction/recovery, weaken business environment, delay key legislation, and limit reform progress.
    - Policy recommendations: build a national political consensus on a sustainable growth reform agenda; improve transparency and governance and combat corruption; ensure growth is inclusive.
  - Natural disasters — likelihood: High; impact: High.
    - Could cause loss of life, destruction of capacity/infrastructure, higher macroeconomic volatility, low growth prospects, and delays in poverty reduction.
    - Policy recommendations: build financial buffers; increase macro policy flexibility; strengthen the national risk and disaster management system.

### Fiscal policy stance and reform priorities
- FY2013 budget targets:
  - Overall deficit: 5.3 percent of GDP (down from 5.9 percent in FY2012).
  - Revenue projected to reach 14.1 percent of GDP (up from 12.8 percent in FY2012).
    - Domestic revenue: 8.5 -> 9.2 (change 0.7) (table: Total Revenue 12.8 -> 14.1 change 1.3; Domestic Revenue 8.5 -> 9.2 change 0.7).
    - TCA: 3.6 -> 3.9 change 0.3; Tax on income and profits: 3.0 -> 3.3 change 0.3; Excises: 0.3 -> 0.6 change 0.3 (excise on alcoholic beverages); Other Taxes: 1.6 -> 1.3 change -0.3; Custom duties: 4.2 -> 4.7 change 0.5; Other: 0.1 -> 0.2 change 0.1.
  - Wage bill expected to increase by almost 0.6 percent of GDP due to new hiring in social sectors and security and higher salaries for low-earning civil servants; authorities intend to contain the wage bill at 5.0 percent of GDP in the medium term.
  - Domestically-financed capital spending ramped up to around 9 percent of GDP (more than 2 percent higher than in 2012).
  - Projected financing of the deficit: external resources 4.4 percent of GDP and domestic financing including issuance of T-bills 0.9 percent of GDP.
- Staff observations and risks:
  - FY2013 fiscal stance broadly appropriate but implementation risks include: first-quarter underperformance of revenue, weak administrative capacity and PIM framework, underexecution of capital spending, and expenditure bunching near year-end.
- Medium-term fiscal path:
  - Domestic revenue projected to increase to about 15 percent of GDP in 2017.
  - Donor support expected to trend down to about 6 percent of GDP (from 10.6 percent in FY2012).
  - Current expenditures expected to be contained below 11 percent of GDP while protecting social spending.
  - Overall deficit projected to decrease gradually to 3.1 percent of GDP by 2017.

### Measures to expand fiscal space and strengthen PFM
- Revenue mobilization priorities:
  - Steadfast implementation of revenue measures in the 2013 budget law.
  - Improve revenue administration: stronger controls and enforcement, tougher collection practices, new medium-taxpayer unit, and e-declaration (in place since January 2013).
  - Improve customs identification and product evaluation and better control of exemptions (exemptions > 3 percent of GDP in FY2011).
  - Consider broader tax reform including a shift to a VAT system.
  - Improve internal audits, controls, and training in customs and revenue administrations.
- Expenditure priorities and reforms:
  - Contain recurrent expenditure to free resources for development and social spending.
    - Contain public sector wage bill; limit rise to avoid crowding out domestically-financed public investment.
    - Authorities plan civil service reform to rationalize workforce (eliminate ghost employees) and streamline public service.
  - Gradually unwind subsidies to electricity company EDH via a comprehensive strategy developed with donors to reduce budgetary transfers and improve electricity availability.

### Improving execution and quality of public investment
- Public investment challenges:
  - Low execution rate due to poor design/preparation of projects, low execution capacity, lack of coordination, weak reporting, political uncertainty, security volatility, and loose internal controls.
  - Post-earthquake surge in investment strained institutional and technical capacity and exposed fragile project management processes.
  - Public Investment Management Index (PIMI) places Haiti in the lowest quartile of project performance.
  - PIMI sub-index scores and comparisons were noted (Overall Index and pillars: Appraisal, Selection, Management, Evaluation), with Haiti scoring notably low relative to medians and peers.

*Source: IMF staff report content provided in the Content unit.*

### 31.      Improving the execution and quality of capital spending will require a strong

### _cr1390 - 31.      Improving the execution and quality of capital spending will require a strong

### Improving execution and quality of capital spending / public investment framework
- A strong political commitment and leadership are required to upgrade the current public investment framework through:
  - enhanced transparency,
  - better procurement practices,
  - stronger governance.
- Specific institutional needs:
  - redefine and clarify responsibilities among government institutions involved in public investment project management;
  - strengthen units in charge of project execution within ministries (including by hiring technical experts);
  - enhance the control system;
  - promote a more dynamic information system (MEFP, ¶ 16).
- Staff presented preliminary results of an analytical paper; recommendations were well received.
- Staff intends to continue working with the authorities and donor community to strengthen project preparation, execution, and control while ensuring the overall quality and consistency of public investment.

### Public financial management (PFM) and Treasury Single Account (TSA)
- Authorities reiterated commitments to improve public financial management.
- Progress toward a Treasury Single Account (TSA):
  - completion of the first phase that included closing all identified dormant government accounts in the banking system, and the training of public accountants.
  - Important to introduce the TSA by June 2013 in a first wave of ministries with adequate capacity for a rapid shift.
- Expected TSA benefits:
  - improve cash management,
  - improve budget execution,
  - improve quality of public spending,
  - enhance execution rate of capital spending,
  - improve transparency by eliminating bunching transfers of resources to project accounts near the end of the fiscal year.
- Continued progress needed to strengthen budget formulation, execution, transparency and reporting, and improve internal and external controls (MEFP, ¶ 22).

### Electricity sector (Box 3) — key facts and next steps
- Legal and operational context:
  - Electricité d’Haïti (EDH) holds a monopoly over purchase, transmission, distribution and commercialization of electricity.
  - EDH generates about 15 percent of the energy produced in Haiti.
  - About 75 percent of distributed electricity is produced by independent power producers; the rest by Tripartite Cooperation (Haiti-Venezuela-Cuba).
  - Installed generation capacity: 212 MW; peak load demand: around 250 MW.
  - No clear government responsibility for sector oversight; no investment master plan for the sector.
- Financial and operational challenges:
  - Technical and commercial losses estimated at about 66 percent.
  - Ratio of energy unpaid to energy produced: high (35 percent of the energy delivered is stolen).
  - Utility paid bills cover less than a third of the electricity generated.
  - Average tariffs: $0.31/kWh.
  - Industrial and commercial tariffs: $0.35/kWh.
  - Government transfers to EDH in FY2012: US$ 142 million.
- Recent reform actions:
  - February 2011 MOU between the government, the IADB, and USAID to help reform the sector.
  - August 2, 2012: EDH Board approved a loss reduction plan.
  - August 17, 2012: TETRATECH authorized to implement measures to improve EDH performance.
  - New managing director and deputy directors appointed at EDH.
  - Government and EDH signed a MoU for budgetary transfers to the electricity sector for fiscal years 2013 to 2016.
- Next steps and planned measures:
  - (i) immediate analysis of the current financial situation of EDH and the sector as a whole;
  - (ii) measures to improve the financial situation of EDH and of the electricity sector over the medium-term;
  - (iii) design of a detailed program to implement a financial recovery strategy for the electricity sector, starting with the preparation of a financial recovery plan.
- Specific initiatives:
  - EDH is developing a plan with donor support to restore financial soundness, including reducing losses and production leakages, improving the distribution network, enhancing bill collection, and strengthening energy supply; this plan, which would eliminate transfers by 2016, will be submitted to the government for adoption in April 2013.
  - Donors (including USAID, the World Bank, and the IADB) committed to support the government’s electricity strategy through a coordinated investment plan of approximately US$400 million over the next five years, focusing on loss reduction, grid rehabilitation and extension, and technical assistance.

### Administrative capacity, IMF support, and fiscal risks
- Capacity-building activities and IMF support:
  - Since October 2011, a long-term IMF expert posted at the MEF to build capacity at the Treasury and help create the TSA.
  - Several macro-fiscal missions provide training to:
    - establish and operationalize a macro-fiscal unit at the Ministry of Economy and Finance;
    - prepare macro-fiscal forecasts and analyses.
  - Next visit scheduled for March 2013 aims to develop tools for analysis of the quality of capital expenditure.
  - Technical assistance missions have helped strengthen revenue administration and improve tax policy.
- Fiscal risks:
  - Potential fiscal risks associated with extra-budgetary funds and quasi-fiscal activities need close monitoring.
  - Government should monitor risks associated with the joint-venture between Haitian and Venezuelan governments on public investment (new company to manage the PetroCaribe program).
  - PetroCaribe-related inflows will become a non-governmental debt once the company is operational.
  - This is not expected to worsen medium-term fiscal and public debt sustainability because the new entity is expected to continue financing PetroCaribe-related capital and social spending.
  - Staff reiterated need to enhance transparency and accountability, including timely publication of annual budgets and audited annual financial statements of the new company.

### Monetary policy, liquidity, dollarization, exchange rate, and reserves
- Monetary policy focus:
  - Will continue to focus on achieving price stability.
  - Current monetary policy stance supports post-earthquake recovery while keeping inflation in single digits.
  - Recent pickup in inflation mainly reflects higher international food prices and disruption in domestic food supply due to hurricanes and floods.
  - Inflation is expected to remain in the 5-6 percent range over the coming year, assuming the shock from international food prices recedes and domestic food production recovers.
  - Authorities indicated policy tightening tools: policy rate, required reserves ratio, issuance of central bank and Treasury bills.
- Liquidity and domestic debt markets:
  - Unwinding excess liquidity will enhance monetary transmission mechanisms and facilitate conduct of monetary policy.
  - Banking sector remains highly liquid.
  - Legal and operational market infrastructure is in place; several initial T-bill issuances were successful, but issuances have not been regular due to lack of Treasury financing needs.
  - Staff encouraged by recent framework agreement for securitization of the large government debt toward the BRH; this will help develop the T-Bill market and gradually absorb excess reserves.
- Dollarization:
  - Dollarization remains high despite recent decline.
  - Reducing dollarization will require a positive and longer track record of political and economic stability, greater flexibility in the exchange rate, and deepening of domestic financial markets (MEFP, ¶ 18).
- Exchange rate and competitiveness:
  - Since April 2010, the gourde has depreciated gradually against the U.S. dollar by about 8 percent, returning to pre-earthquake level.
  - Relatively higher inflation has led to the gourde’s appreciation in real effective terms by about 7 percent.
  - Staff estimates the exchange rate remains broadly in line with its medium-term fundamentals (Annex 1).
  - Authorities agreed greater exchange rate flexibility should be pursued cautiously given a shallow foreign exchange market and potential volatility; they reaffirmed commitment to a floating exchange rate regime and gradual move to single-price foreign exchange auctions, including allowing more participants and promoting interbank FX market development (MEFP, ¶ 19).
- International reserves:
  - Current level of international reserves of about six months of imports provides a good near-term buffer.
  - Official transfers increased from US$395 million in FY2009 to US$1446 million in FY2011 before declining to US$988 million in FY2012.
  - Private transfers (mostly remittances) increased by US$140 million during the same period.
  - Gross official reserves rose to about US$2.2 billion at end-December 2012 from US$1 billion in December 2009.
  - Excluding government deposits, gross official reserves are at 4 months of imports at end-December 2012.
  - Preserving external stability long-term hinges on improving competitiveness and promoting exports; staff noted the launching of the industrial Park of CARACOL as encouraging.

### Strengthening the business environment and infrastructure
- Authorities agreed improving the business environment is urgent to raise productivity, enhance competitiveness, and lift growth constraints (MEFP, ¶ 23).
- Key impediments identified by business community and international surveys:
  - weak infrastructure,
  - lack of access to finance.
- Infrastructure and financing strategy:
  - Ramping up domestically-financed investment is crucial to build infrastructure.
  - To safeguard public debt sustainability, authorities agreed with staff to seek concessional financing for infrastructure, including PetroCaribe resources and Public-Private Partnerships (MEFP, ¶ 26).
  - Authorities indicated they are finalizing the legal framework for PPPs (MEFP, ¶ 23).

### Deepening financial intermediation and preserving stability
- Credit developments:
  - Commercial bank credit to the private sector increased on average by about 28 percent a year over the last two years, reflecting reconstruction, large current transfers, increased banking system liquidity, and new measures including creation of a Partial Guarantee Funds after the earthquake.
  - Credit to the private sector stood at about 19 percent of GDP at end-September 2012, below the average for LICs.
- Constraints on deeper intermediation:
  - Weaknesses in legal and institutional framework,
  - fragile security situation,
  - limited competition between banks,
  - banks restricting lending to a limited number of activities and borrowers.
- Measures to deepen intermediation:
  - establishment of a credit bureau,
  - setting up a collateral registry,
  - adopting a legal framework for supervision of microfinance institutions,
  - implementing regulatory changes to facilitate leasing.
- Risks from rapid credit growth:
  - Rapid credit growth could pose challenges requiring tightening of prudential regulations and closer supervision to preserve soundness (MEFP, ¶ 20).
  - BRH requested IMF technical assistance to develop macroprudential rules; an upcoming 3 day-workshop will focus on prudential, regulatory, legal, and structural measures to maintain credit quality and limit macroprudential risks.
  - Need to accelerate implementation of 2008 FSAP recommendations to improve financial regulatory and supervisory framework.

### Program implementation and structural benchmark status
- Overall program performance:
  - Program performance is broadly satisfactory.
  - All end-June 2012 indicative targets were observed and all end-September 2012 performance criteria were met.
  - Full data not yet available to assess observation of end-December indicative targets.
- Structural benchmarks implemented:
  - end-June 2012 benchmark: closing all dormant accounts of the central government at the central bank and commercial banks — implemented.
  - end-September 2012 benchmarks: creation of the fiscal policy unit within the MEF and creation of the unit in charge of medium and large enterprises — implemented.
- Structural benchmarks not yet implemented:
  - end-September 2012 benchmark: move to single-price foreign exchange auctions — not implemented due to lack of competition in the FX market dominated by a few major players; authorities aim to expand number of participants in FX markets.
  - two end-March 2012 structural benchmarks not observed:
    - strengthening the debt unit with fully operational middle and back offices — underway and linked to passage of organic law on reorganization of the Ministry of Economy and Finance.
    - public debt law — expected to be submitted to Parliament.
  - Minister of Finance submitted two draft laws in January 2013 to the Prime Minister’s office before submission to Parliament by end-March 2013; thus the two benchmarks would be rescheduled from end-March 2012 to end-March 2013.

*Italicized source: IMF staff report content as presented in the provided chapter/section.*

### 45.      Safeguards assessment. The authorities continue to implement the recommendations of

### _cr1390 - 45.      Safeguards assessment. The authorities continue to implement the recommendations of

### Safeguards, accounting, and reserves oversight
- The authorities continue to implement the recommendations of the 2010 follow-up review of the safeguards assessment (MEFP, ¶ 28), albeit with some delays.
- Progress underway to migrate to IFRS, including creation of a special committee to monitor its implementation.
- Recent adoption of the framework agreement between the BRH and the MEF paves the way for the securitization of central bank credit to government.
- Staff urged the authorities to:
  - Activate the Investment Committee as an independent oversight body.
  - Appoint a compliance officer to monitor observation of foreign reserves policy and investment guidelines.

### Anti-money laundering and combating the financing of terrorism (AML/CFT)
- The draft AML/CFT law is being finalized and should be enacted by Parliament during its spring 2013 session (MEFP, ¶ 29).
- Staff encourages ensuring the new law’s compliance with the Financial Action Task Force (FATF) standards and proceeding with its effective implementation to support efforts to combat corruption.

### Data provision
- Data are broadly adequate for surveillance purposes, but data gaps, linked to capacity constraints, still occur in many areas, including national accounts, balance of payments and social and labor market indicators.

### Macroeconomic outlook and risks
- The economy is gradually recovering from the January 2010 earthquake.
- Prudent macroeconomic policies have helped keep inflation in the single digits and improve the external position.
- Under-execution of capital spending—due predominantly to limited administrative and absorptive capacity, coupled with persistent political tensions and instability, and a series of shocks, including cholera and tropical storms—has considerably slowed down reconstruction and economic activity.
- The recovery is expected to be firmer in 2013, led by a rebound in agricultural output and a pickup in public investment.
- Risks to the outlook are on the downside, stemming mainly from a volatile political environment, fragile social context, and weak capacity.

### Fiscal policy and public financial management
- Fiscal reforms should continue.
- Fiscal space for poverty-related and growth-enhancing spending should be secured through increasing revenue and containing current spending.
- The 2013 revenue target is ambitious but could be achieved provided there is strong resolve to combat fraud, particularly at customs, and strengthen revenue collection.
- Staff welcomes the launch of the e-declaration in January 2013 and urges rapid implementation of the remaining measures specified in the 2013 budget law.
- Looking ahead, efforts needed to:
  - Further strengthen revenue administration.
  - Reduce tax expenditure.
  - Expand the tax base.
- There is ample room to improve the composition and quality of spending.
  - Staff urges adoption of a comprehensive energy sector reform to gradually reduce subsidies to EDH.
  - Recent efforts to establish a treasury single account are welcome.
  - Continued progress needed to strengthen budget formulation, execution, transparency and reporting, and improve internal and external controls.

### Public investment execution
- Improving the execution rate of public investment should be a key priority.
- Ramping up domestically-financed investment is crucial to build infrastructure to unlock the country’s potential.
- Staff urges authorities to work closely with donors to strengthen project design and preparation, execution, reporting and control while ensuring overall quality and consistency of public investment.
- Urgent priorities include strengthening:
  - The agency in charge of procurement.
  - The units in charge of project assessment and programming (UEP).
  - The units in charge of technical execution (UTE) in line ministries.
  - Hiring international experts in key spending ministries.

### Social safety nets
- Efforts to further develop and strengthen social safety nets are essential.
- Recent initiatives to alleviate poverty through direct transfers are welcome.
- Targeting beneficiaries is challenging given the large vulnerable population and limited government resources.
- Spending will need frequent audits to prevent misuse of funds, and impact analysis should be conducted to ensure social goals are met.
- The government must balance helping the poor without creating unrealistic expectations; sustainable poverty reduction requires high and inclusive growth.

### Monetary policy, liquidity, and dollarization
- The monetary policy stance is appropriate.
- Authorities need to remain vigilant to keep price inflation under check.
- Further progress needed to improve liquidity management, deepen the domestic financial market, strengthen market-based operations, and reduce dollarization to strengthen monetary transmission mechanisms.

### Exchange rate policy
- Authorities’ continuing commitment to exchange rate flexibility is welcome.
- Greater exchange rate flexibility would help absorb external shocks and increase monetary policy effectiveness.
- Consideration should be given to the gradual introduction of single-price foreign exchange auctions.
- BRH’s interventions should be limited to smoothing excessive exchange rate volatility.
- (Table excerpt — Remaining Benchmarks Through End-March 2013)
  - Complete the setting-up of the debt unit at the MEF and build capacity to prepare a medium-term debt strategy.
    - Objective: Strengthen the debt unit with fully operational middle and back office functions; Preparation of annual debt sustainability analyses.
    - Timing: Reprogrammed to End-March 2013 from End-March 2012
    - Status: In progress
  - Strengthen the legal framework for debt management.
    - Objective: Submit to Parliament a public debt law that would establish a sound legal and institutional framework for public debt management.
    - Timing: Reprogrammed to End-March 2013 from End-March 2012
    - Status: In progress
  - Improve accounting procedures and enhance transparency
    - Objective: Reduce the number of domestically-funded imprest accounts to three by ministry or institutions (for revenue collection, capital spending, and other transactions) and deploy the network of public accounting offices at the line ministries level and gradually grant signature authority on these accounts to public accountants appointed by the Ministry of Economy and Finance
    - Timing: End-March 2013
    - Status: In progress
  - Enhance accounting for expenditure management
    - Objective: Roll out in all ministries the GL-software and start to record projects and imprest accounts expenditure when they are effectively paid, and no longer when the replenishment of the account is made.
    - Timing: End-March 2013
    - Status: In progress
  - Exchange rate management — Improve the functioning of foreign exchange market
    - Objective: Establish unconstrained single price foreign exchange auctions
    - Timing: End-September 2012
    - Status: Not met

### Business environment and structural reforms
- Improving the business environment is urgent to raise productivity, enhance competitiveness, and achieve higher and more inclusive growth.
- Measures under way to streamline numerous, complex, and cumbersome regulations, reduce cost and burden of doing business, and promote private sector development.
- Strong political consensus and commitment are needed to advance long-awaited structural reforms to make Haiti open for business and attractive for investors.
- Critical areas to address:
  - Infrastructure gap.
  - Deepening financial intermediation while safeguarding stability.
  - Strengthening human capital.
  - Reform of the energy sector to reduce high cost of electricity and improve reliability and efficiency of energy supply.
  - Clarifying property rights.

### Conclusion on program review
- Staff supports the completion of the fifth review of the ECF arrangement in view of Haiti’s good performance so far and the authorities’ commitment to the program.

* _cr1390 - 45.      Safeguards assessment. The authorities continue to implement the recommendations of_*

### 56.      It is proposed that the next Article IV consultation with Haiti be held in accordance with

### _cr1390 - 56.      It is proposed that the next Article IV consultation with Haiti be held in accordance with

### Proposed timing and procedural note
- It is proposed that the next Article IV consultation with Haiti be held in accordance with the decision on Article IV Consultation Cycles adopted on September 28, 2010, as amended.

### Macroeconomic overview and projections (selected)
- Nominal GDP (2011): US$7.4 billion
- Population (2009): 9.9 million
- GDP at constant prices (12-month percentage change; fiscal years): -5.4 (2009/10); 8.6 (2010/11); 5.6 (2011/12); 4.5 (2012/13 Act./Prog.); 2.8 (2013/14 Est./Prog.); 6.5 (2014/15 Prov./Prog.); 6.5 (2015/16 Prov./Proj.); 6.3 (2016/17 Proj.); 6.1; 5.8; 5.6
- GDP deflator (12-month % change): 4.7; 6.2; 6.8; 5.7; 7.5; 5.3; 5.3; 3.8; 3.6; 3.2; 2.8
- Consumer prices (period average): 4.1; 7.0; 7.4; 6.8; 6.8; 5.9; 6.7; 4.0; 4.0; 3.7; 3.4
- Consumer prices (end-of-period): 4.7; 9.1; 10.4; 6.0; 6.5; 5.0; 5.0; 4.5; 4.0; 3.5; 3.0

### External sector (selected)
- Exports (f.o.b., percent change): 2.2; 10.7; 36.3; 0.0; 2.2; 22.8; 20.1; 12.0; 11.5; 11.0; 10.0
- Imports (f.o.b., percent change): 38.3; 7.2; 7.3; 0.0; -12.4; 12.0; 14.5; 9.0; 4.9; 4.8; 4.5
- External current account balance (including official grants, percent of GDP): -12.5 (2009/10); -4.2; -4.6; -4.3; -4.0; -5.3; -5.6; -5.3; -5.2; -5.0; -4.8 (proj.)
- External current account balance (excluding official grants, percent of GDP): -29.8; -23.3; -24.2; -21.2; -16.5; -21.0; -17.7; -16.1; -14.7; -13.5; -12.4
- Gross liquid reserves (millions of U.S. dollars): 1,792; 1,539; 2,000; 2,060; 2,284; 1,970; 2,019; 1,989; 1,919; 1,849; 1,779
- Net international reserves (program definition, millions of U.S. dollars): 1,098; 772; 1,178; 1,221; 1,302; 1,057; 998; 968; 898; 831; 767
- Liquid gross reserves in months of imports of the following year: 5.2; 4.1; 6.3; 5.5; 6.5; 5.0; 5.5; 5.2; 4.8; 4.4; 4.1

### Fiscal sector — central government operations (selected; fiscal year ending September 30; amounts in millions of gourdes and percent of GDP)
- Nominal GDP (millions of Gourdes): 264,039; 308,335; 297,687; 328,807; 329,032; 368,630; 368,991; 407,143; 447,490; 488,662; 530,351
- Nominal GDP (millions of US dollars): 6,551; 7,620; 7,388; 7,895; 7,902; 8,529; 8,535; 9,253; 10,170; 11,106; 12,053
- Total revenue and grants (millions of gourdes): 75,004 (2013/14 Act./Prog.); 86,794; 88,801; 91,786; 76,802; 99,386; 90,197; 94,115; 99,146; 105,326; 110,980 (proj.)
- Domestic revenue (millions of gourdes): 31,425; 36,459; 38,893; 44,516; 41,970; 51,411; 52,002; 58,848; 65,200; 72,663; 79,560
- Grants (millions of gourdes): 43,579; 50,335; 49,907; 47,270; 34,831; 47,975; 38,195; 35,268; 33,946; 32,663; 31,419
- Total expenditure (millions of gourdes): 68,704; 104,100; 99,811; 103,677; 96,292; 116,861; 109,838; 116,488; 119,650; 121,987; 127,386
- Current expenditure (millions of gourdes): 29,849; 33,997; 35,231; 37,089; 39,008; 38,537; 41,538; 43,386; 46,852; 49,850; 54,171
- Capital expenditure (millions of gourdes): 38,855; 70,103; 64,579; 66,588; 57,285; 78,324; 68,300; 73,102; 72,798; 72,137; 73,214
- Of which: domestically financed capital expenditure (millions of gourdes): 14,689; 25,335; 17,621; 21,025; 22,264; 32,942; 33,067; 36,360; 37,753; 38,374; 40,695
- Of which: related to PetroCaribe spending (millions of gourdes): 2,991; 9,874; 7,479; 9,500; 9,276; 14,442; 14,442; 14,817; 14,808; 15,407; 15,981
- Overall balance (millions of gourdes): 6,299; -18,984; -11,010; -11,891; -19,491; -17,475; -19,641; -22,373; -20,504; -16,660; -16,406
- Overall balance (excluding grants, millions of gourdes): -37,279; -67,641; -60,918; -59,161; -54,322; -65,450; -57,836; -57,640; -54,449; -49,323; -47,825
- Domestic taxes (millions of gourdes): 19,393; 22,133; 24,460; 29,387; 28,076; 33,861; 34,032; 38,743; 43,644; 49,941; 55,422
- Customs duties (millions of gourdes): 11,394; 13,512; 13,672; 15,000; 13,721; 16,908; 17,337; 19,407; 20,789; 21,884; 23,229
- Financing from Petrocaribe (mem. item, in U.S. dollars): 9,113.9; 13,214.3; 14,160.2; 14,157.2; 16,613.2; 16,613.2; 16,908.7; 16,908.7; 16,908.7; 16,908.7; 16,908.7
- Balance of PCDR account (in millions of U.S. dollars): 268; 199; 268; 225; 222; 168; 165; 101; 47; 47; 47
- Note: "The financing gap is expected to be covered by donor inflows, but no formal pledges have been made."

### Public debt and debt service
- External public debt (end-of-period, percent of GDP): 13.2; 8.8; 8.8; 13.1; 13.0; 16.4; 16.8; 19.8; 21.6; 22.9; 23.8
- Total government debt (end-of-period, percent of GDP): 17.7; 14.9; 12.2; 16.6; 15.4; 20.1; 20.4; 24.2; 26.7; 28.6; 29.7
- External public debt service (in percent of exports of goods and nonfactor services): 1.6; 0.9; 0.6; 0.8; 0.8; 1.4; 1.5; 2.5; 4.1; 5.1; 5.9

### Banking system and financial soundness (selected)
- Broad money (incl. foreign currency deposits) 12-month % change: 22.7; 20.3; 10.4; 11.2; 6.9; 13.0; 11.8; 11.0; 10.0; 9.5; 9.0
- Base money 12-month % change: 31.2; 15.2; 6.0; 9.0; -3.7; 10.9; 10.9; 8.7; 7.4; 6.7; 6.4
- Credit to private sector (12-month % change): -5.6; 21.6; 24.5; 18.6; 29.8; 18.0; 21.6; 18.0; 17.5; 17.0; 16.5
- Credit to the nonfinancial public sector (net; millions and 12-month % change): -122.7; -91.7; 229.4; -107.4; -0.2; 41.6; -6.3; -13.2; -40.3; -32.0; 3.8; 2.9
- Banking-system summary (selected levels, in millions of U.S. dollars): Net foreign assets 92,209; 86,810; 104,581; 101,132; 111,097; 115,977; 112,264; 109,572; 109,132; 106,932; 104,401; 102,043
- Broad money (M3, levels): 126,151; 151,763; 139,324; 161,747; 154,960; 148,938; 175,043; 166,517; 184,834; 203,317; 222,632; 242,669
- Foreign currency deposits (U.S. dollars, 12-month % change): 25.3; 24.1; 13.9; 17.4; 14.6; 7.3; 16.9; 12.2; 11.7; 10.5; 10.2; 9.9
- Commercial banks' credit to private sector (percent of GDP): 14.6; 15.2; 16.2; 16.2; 17.5; 19.1; 18.4; 20.8; 22.3; 23.9; 25.7; 27.7 (mem. item)

### Balance of payments and external flows (selected; fiscal year basis, millions of U.S. dollars)
- Overall balance of payments (annual): 1,028; -273; 167; 381; 77; -105; -290; -30.0; -70.0; -67.5; -63.6
- Current account (including grants): -821; -339; -375; -341; -316; -453; -479; -488; -528; -556; -576
- Trade balance (goods): -2,247; -2,246; -2,438; -2,246; -1,855; -2,433; -2,080; -2,237; -2,278; -2,314; -2,347
- Exports of goods (levels, millions USD): 563; 768; 943; 768; 785; 943; 943; 1,056; 1,178; 1,307; 1,438
- Imports of goods (levels, millions USD): -2,810; -3,014; -3,381; -3,014; -2,640; -3,376; -3,023; -3,293; -3,456; -3,621; -3,785
- Current transfers (net, levels): 2,439; 2,757; 2,894; 2,700; 2,368; 2,753; 2,434; 2,460; 2,488; 2,519; 2,554
- Capital transfers (HIPC/MDRI/PCDR; levels): 1,360; 656; 330; 333; 44; 4

### Financial soundness indicators of individual banks (selected; Sep-10 to Sep-12)
- Asset volume (US$ millions, Sep-10 to Sep-12 series): 345; 353.6; 376; 367.5; 385; 380.0; 394; 450; 429.9
- Deposit volume (US$ millions): 298.5; 331.6; 339.4; 234?; 75.1; 346?; 469.5 (note: source table lists multiple period entries)
- Regulatory capital to risk-weighted assets: 13.4; 16.5; 16.7; 16.7; 16.8
- NPLs to gross loans: 5.7; 3.7; 3.6; 3.2; 2.4
- Return on Assets (ROA): 1.2; 1.4; 1.4; 1.3; 1.5
- Return on equity (ROE): 18.4; 22.2; 22.2; 21.7; 21.9
- Foreign currency loans to total loans (net): 60.1; 55.7; 53.8; 51.8; 51.7

### FSAP recommendations and implementation status (selected)
- BRH’s financial sustainability: prepare for recapitalization and increase government transfers — Status: "BRH' s financial situation has strenghened because of the improved macroeconomic situation, the adoption of the new banking law, the absence of government deficit financing  and the recent agreement on the debt between BRH and the MEF"
- Enhance competition in BRH bond auction system — Status: "Through development of the T-Bills market the competition in BRH bond auction system has been enhanced"
- Adopt and implement new banking law and upgrade regulations — Status: "Banking Law was passed recently"
- Conduct special inspections of the three largest banks, and prepare BNC restructuring strategy — Status: "Successful inspection was conducted"
- Broaden scope and set up centralized public registry of personal property collateral — Status: "Ongoing – Private Sector Development Project (WB)"
- Strengthen BRH’s independence through recapitalization and legal reform — Status: "Significantly strengthened through the new banking law and improved capitalization"
- Develop treasury securities market — Status: "Treasury securities market will be further strenghend through the Public debt law  expected  to be   submitted parliament by end-march 2013"
- BRH audit has been committed — Status: "In progress"
- Strengthen judicial capacity for contract enforcement — Status: "Reforms underway"
- Implement BNC restructuring strategy — Status: "Guarantee was executed by BNC in 2011"
- Reduce cost of establishing collateral — Status: "Ongoing with  PCGF and movable collateral. Pillar one of the PCGF has been completed"
- Increase competition in audit sector — Status: "OCPAH working with French Accounting Board towards capacity Building"
- Improve framework for systemic liquidity forecasting — Status: "TA is being provided and exercises are being conducted"
- Improve regulation and supervision of credit unions — Status: "In progress"
- Establish basic transparency requirements and regulation for other nonbank financial institutions — Status: "Law for supervision of microfinance has been drafted"
- Set up working group to assess options for deposit insurance scheme — Status: "Currently under consideration"
- Start improving banks’ accounting practices in line with long-term IFRS compliance goal — Status: "New Accounting Law and framework being drafted by OCPAH with TA of IFI’s executed by French Accounting Board takes this into account"
- Require full publication of banks’ annual accounts — Status: "Required under the New Banking Law"
- Upgrade IT infrastructure and increase risk focus of banking supervision — Status: "Being upgraded under the Payment System TA"
- Support orderly expansion of microfinance sector — Status: "New Law for microfinance has been drafted and is under consideration"
- Conduct actuarial assessments of all defined benefit pension schemes — Status: "Public DB scheme will be supervised by insurance regulator under the new insurance law"
- Facilitate establishment of a private credit bureau — Status: "Work is ongoing jointly with WB and IFC"
- Modernize insolvency legislation — Status: "A commercial court to be established"
- Develop strategy for the transition of bank accounting toward IFRS — Status: "New Accounting Law and framework being drafted by OCPAH with TA of IFI’s executed by French Accounting Board takes this into account"
- Adopt simple and easily enforceable accounting system for private enterprises — Status: "New Accounting Law and framework being drafted by OCPAH with TA of IFI’s executed by French Accounting Board takes this into account"
- Complete transition of BRH accounting toward IFRS and commission BRH audit by new audit firm — Status: (listed under FSAP table; actions underway as above)

*Source: IMF staff tables and text in _cr1390 (Haiti): Selected Economic and Financial Indicators, Central Government Operations, Summary Accounts of the Banking System, Balance of Payments, Financial Soundness Indicators, FSAP Recommendations and Implementation Status.*

### Annex 1. External Stability and Competitiveness

### Annex 1. External Stability and Competitiveness

### External account developments and vulnerabilities
- Current account deficit declined from 12.5 percent of GDP in 2010 to 4 percent in 2012.
- Trade deficit remained high at 23.5 percent of GDP at end-September 2012, driven by high aid-related imports and low exports.
- Official transfers:
  - Increased from 6 percent of GDP in 2009 to 19.6 percent in 2011 after the earthquake.
  - Declined to 12.5 percent in 2012 reflecting transition from the emergency situation and weak execution and absorption capacities.
  - Projected at 7 percent of GDP in the medium-term.
- Remittances: about 18 percent in 2012 (relatively high and stable).
- Balance of payments outcome for FY2012 recorded a surplus; gross international reserves rose to US$2.2 billion at end-December 2012 (6 months of imports of goods and services).
- Since April 2010, the gourde has depreciated gradually against the U.S. dollar by about 8 percent.

### Exports, diversification, and FDI
- Exports at about 15 percent of GDP remain low relative to Caribbean and Latin America averages.
- Exports highly concentrated: textile exports account for about 95 percent of the total, almost entirely to the United States.
- HELP Act contributed to an increased share of Haiti in US textile imports, but export diversification is needed.
- Foreign Direct Investment (FDI):
  - Increased in the last decade but remains low compared to regional peers.
  - Improvements in ease of doing business, legal framework, transparency, accountability, rule of law, property rights protection, and infrastructure investment are critical to attract FDI and enhance competitiveness.

### Real exchange rate assessment
- Real effective exchange rate (REER) has remained broadly stable since the 2010 earthquake; appreciated by only 7 percent despite large inflows of remittances and external aid.
- This limited appreciation reflects a moderate depreciation of the nominal effective exchange rate and relatively higher inflation compared to key partners.
- Equilibrium REER (EREER) approach:
  - Current REER is close to the equilibrium value estimated from fundamentals including GDP per capita relative to trading partners, current transfers, terms of trade, openness, the REER, and investment as a share of GDP.
  - Results show a modest undervaluation as of end-September 2011; recent REER appreciation reflects an equilibrium response to movements in fundamentals.
- Macroeconomic Balance approach:
  - Improved exports (particularly textiles) and gradual winding-down of reconstruction-related imports would reduce the current account deficit to about 4 percent of GDP by 2017.
  - Underlying current account is slightly below the current account norm using fixed effect regression coefficients, suggesting a small undervaluation of the REER of about 2.7 percent.
  - Using the hybrid pooled regression coefficients points to a slight overvaluation of 1.42 percent.

### Macroeconomic Balance (selected values)
- Estimation Method: Fixed Effect | Hybrid Pooled
  - Current account (% GDP) Observed 2011: -4.59 | -4.59
  - Projected M-T (2017): -3.98 | -3.98
  - Estimated "Norm": -4.14 | -3.89
  - Elasticity of CA to REER: -0.060 | -0.060
  - Implied REER overvaluation (end-2011): -2.74% | 1.42%

### Policy implications and structural priorities
- High dollarization and a real exchange rate broadly aligned with fundamentals imply competitiveness gains must come from structural reforms to boost productivity.
- Key structural reforms and actions needed:
  - Export diversification beyond textiles.
  - Improve business environment: legal and regulatory reforms to promote entrepreneurship, transparency, accountability, and protect property rights.
  - Invest significantly in infrastructure to reduce supply-side bottlenecks and attract FDI.
  - Strengthen financial sector infrastructure (credit bureaus) and adopt supportive laws (insurance law submitted to Parliament).
  - Enhance public financial management, economic governance, and coordination with donors to improve efficiency of aid flows and align international funds on national development goals using the national budget.

### Macroeconomic outlook and fiscal policy (government program)
- FY2012 outcomes and FY2013 projections:
  - Real GDP growth in 2012: 2.8 percent (target was 4.5 percent).
  - Headline inflation through end-December 2012: 7.6 percent (up 2.7 percentage points since June 2012).
  - Fiscal deficit FY2012: overall fiscal deficit reached 5.9 percent of GDP (program target 3.6 percent).
  - Domestic revenue FY2012: 12.8 percent of GDP (program objective 13.5 percent); lower customs duties cited.
  - Disbursement of budget support fell short of the 0.7 percent of GDP target by 0.4 percentage points.
  - Broad money growth moderated to 6.9 percent (program target 11.2 percent).
  - Credit grew by 29.8 percent year-on-year through end-September.
- FY2013 projections and policy aims:
  - Real GDP growth projected to reach 6.5 percent in FY2013, assuming rebound in public investment spending, export and tourism projects, and a rebound in agriculture.
  - Inflation expected to remain stable in the mid-single digits.
  - Higher reconstruction-related imports would widen the external account deficit and reduce gross liquid reserves to 5.5 months of imports.
  - Fiscal policy aims:
    - Target fiscal deficit of 5.3 percent of GDP (about 2 billion gourdes higher than at time of fourth ECF review).
    - Deficit financing: external resources 4.4 percent of GDP and domestic financing, including issuance of T-bills, 0.9 percent of GDP.
    - Options in event of domestic revenue shortfall: draw down government deposits and issue additional T-Bills while ensuring medium-term debt sustainability and macroeconomic stability.
    - Consider reducing non-priority current spending or delaying some non-reconstruction-related domestically-financed capital spending.
- Medium-term outlook:
  - Medium-term projections broadly unchanged: maturing agricultural projects, rebound in public construction investment, rising exports of textiles and manufacturing, improvements in infrastructure and business environment expected to sustain growth.
  - Domestic revenue collection expected to improve while donor support trends down.
  - External account deficit expected to decline with winding-down of reconstruction imports and improved exports.

*Source: Annex 1. External Stability and Competitiveness (IMF staff report content provided).*

### 14. In 2013, we will continue improving our tax-to-GDP ratio. Our revenue target is

### 14. In 2013, we will continue improving our tax-to-GDP ratio. Our revenue target is

### Revenue mobilization
- Revenue target for FY2013: 14.1 percent of GDP, 1.3 percentage points above the 2012 outcome.
- Expected drivers of revenue improvement:
  - The expected economic rebound.
  - The full impact of FY2012 measures (higher excise tax on alcoholic beverages, fees on casinos and house games).
  - Tighter control on tax exemptions.
  - New measures: tighter controls, improvements in tax collection enabled by implementation of the e-declaration, and customs actions to strengthen valuation and inspect all imports.
- Institutional enhancements:
  - Newly created taxpayer unit for medium and large enterprises and a unit for NGOs to expand the taxpayer net, improve compliance, rationalize and strictly apply exemptions, and strengthen tax collection.
  - Appointment of a Secretary of State in charge of tax reform to improve coordination and command of the tax reform plan.

### Current public spending composition and control
- Policy objectives:
  - Offset increase in the wage bill by limiting spending on goods and services to 3 percent of GDP.
  - Reduce subsidies to the electricity company to 0.7 percent of GDP, down from 1.5 percent of GDP in FY2012, to free resources for growth-enhancing projects and poverty-related spending.
- Rationale and support:
  - Lower electricity subsidies expected from restructuring plan with support from the World Bank, IDB and USAID to improve EDH financial management and reduce technical losses.
  - Progress on social front through direct budgetary transfers; plans to improve transfer schemes and safety nets, notably to alleviate effects of natural disasters on the poor.
- Projection:
  - Current spending projected at 11.3 percent of GDP, against an outcome of 11.9 percent of GDP the year before.

### Public investment and capital spending
- Target: Domestically-financed capital spending projected to increase to 9 percent of GDP, a 2.2 percent of GDP rise in FY2013.
- Allocation: More funds to social and growth-inducing projects.
- Investment framework reform (two phases):
  - Phase 1 objectives:
    - Define UEPs’ mandate to include all phases of project management and strengthen them with resources.
    - Enhance the SYSGEP.
    - Increase procurement capacity.
    - Clarify roles of government agencies in project management.
    - Reform capital expenditure procedures in line with introduction of the Treasury Single Account (TSA).
  - Phase 2 (starting 2014):
    - Assign international experts to UEPs.
    - Introduce new disbursement, execution and control procedures.
- Aid coordination: New coordination and harmonization mechanism aligning international funds to national development goals and government investment programs; national budget as main vehicle for channeling aid.
- Outcome sought: Unify public investment projects into one coherent program.

### Monetary and exchange rate policies
- Inflation target and outlook:
  - Monetary policy aims at price stability.
  - Consumer price inflation expected to be in the 5-6 percent range in FY2013 as the shock from international food prices recedes and domestic food production recovers.
  - Vigilance against second round effects and readiness to act if they materialize.
- Liquidity management and de-dollarization measures:
  - Improve liquidity management, strengthen market-based operations, and develop macroprudential regulatory mechanisms.
  - Develop domestic T-bill market (legal and operational infrastructure in place; two initial T-bill issuances were successful).
  - Securitize large government debt to the BRH to boost the T-Bill market.
  - Use reserve requirements to control liquidity.
  - Agenda to reduce dollarization: establish longer positive political track record, maintain macroeconomic and financial stability, increase exchange rate flexibility, and deepen domestic financial markets.
- Exchange rate flexibility:
  - Allow greater exchange rate flexibility while smoothing excess volatility.
  - Interventions conducted on an ad hoc basis through bilateral active or passive (via a window) transactions.
  - Plan to introduce a system of single price foreign exchange auctions; first steps include allowing more participants and promoting development of the interbank foreign exchange market.

### Financial intermediation and sectoral reforms
- Credit to private sector:
  - Commercial banks’ credit to the private sector in 2012: about 19.1 percent of GDP (well below the average for LICs).
  - Anticipate credit to the private sector to grow faster than the economy in coming years.
- Constraints and actions:
  - Constraints include fragile security situation and limited competition between banks.
  - Need to update financial legislation to improve regulation and supervision.
  - Establish a committee to monitor systemic risks and financial stability through macroprudential surveillance.
  - Passage of a new insurance law expected to improve business and consumer protection.
  - Creation of credit bureaus to enable increased lending to SMEs.
  - Steps to regulate the microfinance industry and strengthen the Partial Credit Guarantee Fund to expand intermediation.
  - Country selected as a pilot case for enhanced surveillance of financial systems of LICs.

### Medium-term tax reform and revenue goals
- Medium-term plan with support from the Unit for the Analysis of Fiscal Policy:
  - Outline broader tax reform including a shift to a VAT system and actions to streamline tax expenditure.
  - Plan to raise the revenue-to-GDP ratio to 15 percent by 2017.
  - Other actions: improve taxpayer coverage, strengthen revenue collection efficiency and controls, create a more equitable and business-friendly tax system, and move towards the CARICOM external tariff system.

### Public financial management reforms
- Commitment to improve management of public finances: strengthen budget formulation, execution, transparency and reporting, and internal and external controls.
- Legal and regulatory package: an update prepared and expected to be approved by the Government and transmitted to Parliament; includes:
  - New organic law for the MEF to revamp the Directorate General of Budget.
  - Creation of a new Directorate General of Treasury and Public Accounting, including the Debt Unit.
  - Provisions to improve tax and customs administration.
  - Establishment of a central structure for economic analysis and oversight of economic developments.
- Fiscal discipline:
  - Principle that all public resources and spending are channeled through the budget to preempt extra-budgetary outlays.
  - Ensure upcoming Haitian-Venezuelan joint-venture on public investment does not translate into fiscal risks.
- TSA implementation:
  - MoU between MEF and BRH to lock in total amount of debt due by the Public Treasury to BRH and modalities of payment, plus provisions for better cash management to implement the TSA.
  - First phase completed: closing dormant government accounts, training public accountants, drafting a procedures manual.
  - Next steps: introduce a first pilot of the TSA at the MEF by January 2013; extend to a first wave of ministries in June 2013.
  - Gradual introduction of multi-year budgeting and medium term expenditure frameworks; create Planning (UEP) and Studies units in every ministry to improve public investment spending efficiency.

### Business environment, PPPs, and sectoral priorities
- Business environment reforms:
  - Establish public-private partnerships in infrastructure, utilities, export industries, and tourism.
  - Special management unit for PPPs established within the MEF.
  - Ministry of Commerce and Industry preparing measures to reduce cost and burden of doing business.
  - Creation of a “Guichet Unique Electronique” to reduce registration process for new firms to a 10-day period via simplified procedures.
- Energy sector actions:
  - Implement plan to stabilize and upgrade EDH’s technical, commercial and financial functions.
  - Strengthened management team and enhanced legal and institutional framework.
  - Adopt comprehensive plan to enhance production and distribution of electricity.
  - Monitor independent power producers to rationalize budgetary transfers and increase access and quality of electricity services through EDH and other supply chains.
  - Planned investments: rehabilitation of Peligre dam and plant, construction of a new water electricity plant in the southern region.
- Disaster resilience:
  - Strengthen national risk and disaster management system (NRDMS) with World Bank and partners to protect growth and overcome poverty.

### External debt management
- Continue debt management reform in 2013 on legal and institutional fronts.
- Institutional changes:
  - Expected adoption in 2013 by Parliament of law related to administrative reorganization of the MEF to create a Directorate General of Treasury with authority over a new debt unit with fully operational middle and back office functions.
- Legal reforms:
  - Draft public debt law completed; intend to submit to Parliament when it reconvenes in January 2013.
  - Complete work on a medium-term debt strategy.
- Prudence:
  - Continue exercising caution in use of PetroCaribe resources: limit to growth-enhancing investment projects and resort only to concessional financing to maintain debt sustainability.

### Safeguards and AML/CFT
- Safeguard recommendations:
  - Continue implementing recommendations of the January 2010 Safeguards assessment follow-up mission.
  - Work underway to adopt the IFRS, including establishing a special committee to monitor implementation.
  - Reconstitute the Investment Committee as an independent oversight body and appoint a compliance officer to monitor investment guidelines.
- AML/CFT compliance:
  - Commitment to ensure legal framework compliance with FATF standards.
  - Submitted a revised draft law to Parliament enhancing compliance with CFATF standards.
  - Progress on combating corruption, countering tax evasion, preventing financial sector abuse, and improving identification of citizens.
  - Central Bank published two decisions and guidelines to align mechanisms and procedures with the new law on banks and other financial institutions (passed by Parliament on May 14th, 2012), to help financial institutions (i) properly identify their customers and fund beneficiaries and (ii) prevent money laundering and the financing of terrorism.

### Social policies and data-driven planning
- Strengthen social policies and protection mechanisms for vulnerable populations.
- Recent initiatives in education and health and a cash program to help women with children.
- Work underway on a comprehensive institutional framework to protect the most vulnerable and combat extreme poverty.
- Ongoing social and demographic surveys: two household surveys, a survey on living standards, a joint demographic and health survey, and a multi-indicator cluster survey.
  - Completion of these surveys expected for the first quarter of 2013, paving the way for a comprehensive strategy by mid-2013.
- A census, supported by donors, is expected to be launched by IHSI.

*IMF staff report content (chapter/section).*

### 31. Our program will be monitored using the definitions, data sources, and frequency

### 31. Our program will be monitored using the definitions, data sources, and frequency

### Monitoring framework and schedule
- Monitoring will follow the definitions, data sources, and frequency set out in the accompanying revised TMU.
- The government will make available to Fund staff all data appropriately reconciled and on a timely basis, as specified in the TMU.
- Table 1 shows the quantitative performance criteria for monitoring program execution in 2011/12 and 2012/2013.
- Structural benchmarks, with corresponding dates and status of implementation, are identified in Tables 2a and 2b; structural conditionality for the remainder of the program, including new dates for the implementation of the four benchmarks outstanding, are in Table 2c.
- It is proposed to reschedule to end-March 2013 (from End-March 2012) the two benchmarks on:
  - (i) strengthening the debt unit with fully operational middle and back offices functions; and
  - (ii) submission to Parliament of a public debt law.
- The sixth review under the ECF arrangement, assessing end-March 2013 performance criteria, is expected to be completed by mid-July 2013.

### Quantitative performance criteria and indicative targets (highlights from Table 1)
- Net central bank credit to the non-financial public sector - ceiling (in millions of gourdes unless otherwise indicated):
  - Dec. 2012 PC: 21,549
  - Dec. 2012 Actual: -12,090
  - Dec. 2012 Indicative target: -17,864
  - Mar. 2013 Actual: -13,776
  - June 2013 PC: -13,160
  - Sept. 2013 Indicative target: -15,823
  - (Additional monthly/period entries shown in Table 1: -13,163; -12,551; -11,938)
- Central Government (net credit):
  - Dec. 2012 PC: 23,118
  - Dec. 2012 Actual: -7,742
  - Dec. 2012 Indicative target: -13,883
  - Mar. 2013 Actual: -11,904
  - June 2013 PC: -11,289
  - Sept. 2013 Indicative target: -11,545
  - (Further entries in Table 1: -11,375; -10,846; -10,317)
- Net domestic assets of the central bank - ceiling (NDA, program definition) (in millions of gourdes):
  - Dec. 2012 PC: 14,448
  - Dec. 2012 Actual: -5,383
  - Dec. 2012 Indicative target: -24,874
  - Mar. 2013 Actual: -13,251
  - June 2013 PC: -12,635
  - Sept. 2013 Indicative target: -13,988
  - (Further entries: -10,323; -7,395; -4,467)
- Net international reserves of central bank - floor (in millions of U.S. dollars):
  - Dec. 2012 PC: 416
  - Dec. 2012 Actual: 563
  - Dec. 2012 Indicative target: 886
  - Mar. 2013 Actual: 764
  - June 2013 PC: 749
  - Sept. 2013 Indicative target: 636
  - (Further entries: 723; 682; 641)
- Continuous performance criteria (selected):
  - Domestic arrears accumulation of the central government: (Table entries shown as zeros in the source)
  - New contracting or guaranteeing by the public sector of nonconcessional external or foreign currency debt (In millions of U.S. dollars): (Table entries include strings of zeros and 3s in the source)
  - Public sector external arrears accumulation (in millions of U.S. dollars): (Table entries shown as zeros)
- Indicative targets (selected):
  - Change in base money - ceiling:
    - Dec. 2012 PC: 31,080
    - Dec. 2012 Actual: 17,128
    - Dec. 2012 Indicative target: 10,561
    - Mar. 2013 Actual: 17,328
    - June 2013 PC: 17,328
    - Sept. 2013 Indicative target: 11,469
    - (Further entries: 18,609; 19,890; 21,171)
  - Net domestic credit to the central government - ceiling:
    - Dec. 2012 PC: 19,540
    - Dec. 2012 Actual: -6,710
    - Dec. 2012 Indicative target: -22,532
    - Mar. 2013 Actual: -22,221
    - June 2013 PC: -21,605
    - Sept. 2013 Indicative target: -21,552
    - (Further entries: -21,615; -21,010; -20,404)
  - Poverty reducing expenditures - floor (domestically-financed spending in health, education, and agriculture):
    - Dec. 2012 PC: 24,313
    - Dec. 2012 Actual: 24,506
    - Dec. 2012 Indicative target: 31,175
    - Mar. 2013 Actual: 31,175
    - June 2013 PC: 29,777
    - Sept. 2013 Indicative target: 36,446
    - (Further entries: 41,717; 46,988)
- Memorandum items (selected exact figures from Table 1):
  - Change in currency in circulation: 13,448; 7,161; 6,784; 7,921; 7,921; 9,646; 8,494; 9,067; 9,640
  - Net domestic credit to the rest of the non-financial public sector: -1,641; -2,032; -4,254; -1,948; -1,948; -4,157; -1,865; -1,782; -1,698
  - Government total revenue, excluding grants: 29,881; 117,269; 112,289; 127,253; 127,253; 122,643; 139,283; 151,969; 166,245
  - Government total expenditure, excluding externally-financed investment: 42,096; 162,735; 155,263; 171,677; 171,677; 171,669; 188,152; 207,199; 226,645

### Structural benchmarks, status, and timetable (highlights from Tables 2a, 2b, 2c)
- Completed and met actions (selected):
  - Completion of the audit of foreign reserves to confirm end-September 2009 and end-September 2010 unencumbered reserves. Status: Completed. Timing: End-September 2010.
  - Continue publishing quarterly reports on poverty-reducing expenditures on the MEF website, including domestically-financed health, education and agriculture spending. Status: Met.
  - Start publishing central government monthly transfers to investment project accounts, project by project, including PetroCaribe projects. Status: Met with delay.
  - Start publishing central government monthly transfers by beneficiary entity. Status: Met.
  - Start preparing monthly consolidated Treasury balances (TMU ¶38). Status: Met with delay.
  - Prepare an inventory of all government and donor accounts at the BRH and BNC (TMU ¶39). Status: Met with delay.
  - Prepare quarterly reports with monthly data on the performances of the tax system and the tax administration (TMU ¶40). Status: Met.
  - Start publishing a quarterly report that identifies all fiscal expenditure by beneficiary sectors. Status: Met.
  - Completion and publication of externally audited financial statements for 2008/09. Status: Met.
  - Adoption of a global reserves management policy by the investment committee. Timing: End-June 2011. Status: Met.
  - Identify and consolidate all sources of transfers to EDH in regular monthly reports. Timing: End-June 2011. Status: Met.
  - Launch the bids for selection and hiring of the international consulting agency to assist UCP and other project implementation units. Timing: End-June 2011. Status: Met.
  - Continue publishing reports listed under 1a, 2a, 2b, 2c. Timing: End-March 2011. Status: Met.
- In progress or reprogrammed benchmarks (selected):
  - Strengthen the debt unit with fully operational middle and back office functions; Preparation of annual debt sustainability analyses. Reprogrammed to End-March 2013 from End-March 2012. Status: In progress.
  - Submit to Parliament a public debt law that would establish a sound legal and institutional framework for public debt management. Reprogrammed to End-March 2013 from End-March 2012. Status: In progress.
  - Reduce the number of domestically-funded imprest accounts to three by ministry or institution and deploy the network of public accounting offices at the line ministries level and gradually grant signature authority to public accountants appointed by the MEF. Timing: End-March 2013. Status: In progress.
  - Roll out in all ministries the GL-software and start to record projects and imprest accounts expenditure when effectively paid. Timing: End-March 2013. Status: In progress.
- Not met:
  - Establish unconstrained single price foreign exchange auctions. Timing: End-September 2012. Status: Not met. (Authorities intend to expand and modernize the foreign exchange market before establishing single price auctions.)

### TMU: institutional definitions and measurement rules (selected provisions)
- Institutional definitions:
  - Central government: presidency, prime minister’s office, parliament, national courts, treasury, line ministries and “organismes déconcentrés”; includes expenditures financed directly by foreign donors through ministerial accounts (“comptes courants”).
  - Non-financial public sector: central government plus non-budgetary autonomous organizations, local governments and public sector enterprises (government controlling stake > 50 percent).
  - Total public sector: non-financial public sector plus the central bank, Bank of the Republic of Haiti (BRH).
- Definitions and measurement rules (cumulative from stock at end-September 2009):
  - Net BRH credit to the non-financial public sector = net central bank credit to the central government + net central bank credit to the rest of the non-financial public sector.
  - Change in net BRH credit to the central government measured using: change in net domestic credit to the central government from the BRH according to Table 10R of the BRH; excluding change in stock of project accounts (“Comptes de projets”); excluding change in stock of Special Accounts (“Comptes spéciaux”) and seized values (“Valeurs saisies UCREF”) included in Table 10R.
  - Change in net central bank credit to the rest of the non-financial public sector measured as change in “créances nettes sur le secteur public” minus change in “créances nettes sur l'état” according to table 10R.
- Net domestic financing to the central government:
  - Comprises change in net banking sector credit to the central government plus change in nonbank financing (amortization, counterpart funds, net issuance of T-bills and other government securities to non-banks).
  - Net domestic banking sector credit measured as change in net domestic credit from the BRH (Table 10R) plus change in net domestic credit from domestic banks (Table 20R), includes net issuance of treasury bills for government financing; securities issued for BRH recapitalization excluded.
  - Changes exclude project accounts, Special Accounts, and seized values as defined.
- Net international reserves (NIR) measurement:
  - Change in NIR measured using: change in net foreign assets (“Réserves de change nettes” of BRH Table 10R) minus change in foreign currency deposits of commercial banks at the BRH, minus change in project accounts, minus change in Special Accounts in dollars and Euros (excluding gourdes) and seized values, plus change in SDR allocation (“Allocations DTS”).
  - Data expressed in U.S. dollar terms and valued at end-period market exchange rate from BRH Table 10R.
  - For definition purposes, NIR = BRH gross foreign assets minus reserve liabilities (including liabilities to nonresidents ≤ one-year maturity, use of Fund credit, excluding the full SDR allocation, and trust funds). Swaps with domestic financial institutions and pledged/encumbered reserve assets are excluded from NIR.
- Net domestic assets (NDA) of the BRH:
  - Change in NDA = change in base money (program definition) minus change in the U.S. dollar amount of net international reserves (program definition), converted into gourdes at the program exchange rate.
  - Program exchange rate: G 40.0 per U.S. dollar for the period June 2010 - March 2013.

### Other program-specific factual items
- PetroCaribe-related funds:
  - As of October 2012, the outstanding balance of Petro Caribe funds totaled 334 million dollars held at the BNC state bank.

*Source: IMF staff report content unit _cr1390 (TMU update and Tables 1–2c).*

### 19.      The authorities are planning to channel new PetroCaribe/ALBA-related inflows through a

### _cr1390 - 19.      The authorities are planning to channel new PetroCaribe/ALBA-related inflows through a

### PetroCaribe/ALBA-related inflows and treatment
- The authorities are planning to channel new PetroCaribe/ALBA-related inflows through a binational Venezuela-Haiti corporation, the creation of which is well advanced.
- Until the statutes of the new societé mixte are published in the “Journal Officiel” (Le Moniteur), PetroCaribe-related inflows will continue to constitute direct external debt of the central government.
- These resources are under the direct control of the central government and, for program purposes, will be fully reflected in the fiscal tables underpinning the program.
- They will be treated as budget support loans, whose proceeds are partly or entirely deposited in government accounts in the banking system (PetroCaribe deposits).
- Spending from PetroCaribe resources (up to US$400 million in FY 2012), financed with a drawdown of PetroCaribe deposits in the banking system, will also be fully reflected in program tables.
- Following ratification of the societé mixte, the annual budgets of the company will be published on the MEF website before the beginning of the fiscal year.
- Audited annual financial statements will be published within six months of the end of each financial year.

### Definition of debt, ceilings on nonconcessional external debt, and concessionality
- Debt definition: comprises all forms of debt, including loans, suppliers’ credits, and leases, that constitute current, i.e. not contingent liabilities, created under a contractual arrangement through the provision of value in the form of assets (including currency) or services, and which require the obligor to make one or more payments in the form of assets (including currency) or services, at some point in the future, as set forth in point 9 of IMF Executive Board Decision No. 6230-(79/140), as amended by Executive Board Decision No. 14416-(09/91) of August 31, 2009.
- A ceiling applies to the contracting and guaranteeing by the public sector of new non concessional debt in foreign currency with original maturities of one year or more. The ceiling applies to debt and commitments contracted or guaranteed for which value has not yet been received. This covers private debt for which official guarantees have been extended and which, therefore, constitute a contingent liability of the public sector.
- For program purposes, the guarantee of a debt arises from any explicit legal obligation of the public sector to service a debt in the event of nonpayment by the debtor (involving payments in cash or in kind).
- Concessionality rule: For program purposes, a debt is concessional if it includes a grant element of at least 35 percent, calculated as follows: the grant element of a debt is the difference between the present value (PV) of debt and its nominal value, expressed as a percentage of the nominal value of the debt.
  - The PV of debt at the time of its contracting is calculated by discounting the future stream of payments of debt service due on this debt, based on the currency specific commercial interest reference rates (CIRRs) as laid out by the Organization for Economic Cooperation and Development (OECD).
  - For a debt with a maturity of at least 15 years, the ten-year-average CIRR will be used to calculate the PV of debt and hence, its grant element.
  - For debt with maturity of less than 15 years, the six-month average CIRR will be used.
  - To both the ten-year and six-month averages, the same margin for differing repayment periods as those used by the OECD need to be added (0.75 percent for repayment periods of less than 15 years, 1 percent for 15 to 19 years, 1.15 percent for 20 to 29 years, and 1.25 percent for 30 years or more).
- Excluded from the ceiling are short-term import-related credits, rescheduling arrangements, borrowing from the Fund, non-resident purchases of treasury bills, and guarantees for the electricity sector in the form of letters of credit.
- The ceilings for contracting and guaranteeing of non concessional debt by the total public sector (as defined in paragraph 4) will be set at US$ thirty-three million continuously throughout the program period.

### Arrears definitions and monitoring
- External payment arrears: defined as overdue payments (principal and interest) to non-residents on debt contracted and guaranteed by the central government, and will be defined according to the terms of indebtedness of each creditor. The criterion of zero accumulation of external arrears will be monitored on a continuous basis.
- Domestic arrears of the central government are defined to include:
  - (i) any bill that has been received by a spending ministry from a supplier for goods and services delivered (and verified) and for which payment has not been made within 90 days after the due date of payment;
  - (ii) wage, salary, and other payment to government employees, including direct and indirect allowances, that were due to be paid in a given month but remained unpaid on the 30th of the following month;
  - (iii) interest or principal obligations which remain unpaid 30 days after the due date of payment.
- This definition excludes changes in the stock of arrears on account of interest, penalties and valuation changes.

### Base money and poverty-reducing expenditures
- Base money change measurement:
  - a. The change in the stock of currency in circulation from Table 10R of the BRH.
  - b. The change in the stock of reserve deposits of commercial banks at the BRH, from Table 10R, using gourde sight deposits of commercial banks (dépôts a vue en gourdes des BCM a la BRH) and cash-in-vault of commercial banks (encaisses des BCM).
- The changes will be measured on a cumulative basis from the stock at end-September 2009.
- Poverty-reducing expenditures growth measurement:
  - The growth in poverty reducing expenditure will be measured as the sum of domestically-financed spending for the Ministries in charge of agriculture, health, and education.
  - This will be a flow measured on a cumulative basis from end-September 2009.

### Quarterly performance criteria adjustments
- Adjustment for Domestic Arrears Accumulation:
  - The ceilings for net BRH credit to the central government and the net domestic banking sector credit to the central government will be adjusted downwards for the amount of outstanding domestic arrears accumulation.
- Adjustment for PetroCaribe-related Inflows:
  - Until the bi-national company expected to administer PetroCaribe-related funds is legally established, any drawdown of PetroCaribe-related deposits will be considered as central government spending for program purposes.
  - The ceiling for net domestic credit to the central government will include movements in PetroCaribe accounts in the banking system and will be adjusted for the difference between the actual stock of PetroCaribe deposits in the banking system and programmed stock of these deposits in the banking system.
  - The ceilings for net BRH credit to the central government, on BRH net domestic assets, and the floor for NIR will also include movements in PetroCaribe accounts at the BRH. They will be adjusted for the difference between the actual stock of PetroCaribe deposits at the BRH and the programmed stock of these deposits at the BRH.
  - The adjustor will be calculated on a cumulative basis from October 1, 2009.
- Adjustment for Budgetary Cash Grants in Second Half of FY2012:
  - The performance criteria ceilings on BRH net credit to the central government, net domestic financing to the government, and on BRH net domestic assets, and the floor on NIR reflect expected budgetary donor grants of the equivalent of G4.7 billion (about $114 million) during FY2012 (USA, $13 million, France $22 million, Spain $22 million, World Bank $27 million, and IDB $25 million).
  - For FY2013, expected budgetary donor grants total $80 million, including IDB $30 million, IDA$20 million, France $13 million, and Spain $7 million.
  - If actual grant inflows are lower (higher) than programmed, these performance criteria ceilings will be adjusted upward (downward), and the performance criterion floor will be adjusted downward (upward), by the amount of the difference between actual and programmed inflows.
  - The adjuster will be calculated on a cumulative basis from October 1, 2009.

### Structural benchmarks — fiscal sector highlights
- Continued publication (on specified regular basis) over the program period of items related to benchmarks: 1a, 2a, 2b, 2c, 3a, 3b, and 2h.
- Structural benchmark on raising government revenue (end-December 2011):
  - Design and implement monitorable performance indicators for DGI and AGD; include detailed information by industry (AGD) and taxpayer segment (DGI) and a set of ratios to verify “tax effort” and efficiency, in line with TA recommendations.
  - Reports should be published monthly on the MEF website.
- Structural benchmark to establish a fiscal policy unit within the MEF (end-September 2012):
  - Create a separate service within the MEF tasked exclusively with analyzing fiscal measures and simulating their impact on budget balances and the economy.
  - Delimit the perimeter and provide appropriate written communication nominating the officer in charge, staffing and duties (to be shared with the IMF).
- Structural benchmark to create a unit in the Directorate General of Taxes for medium enterprises (end-September 2012):
  - Require an official act setting up a separate unit within the DGI to deal with medium taxpayers; provide adequate staffing and office space; act should nominate person in charge and immediate aides.
- Structural benchmark on closing dormant accounts and establishing a list of all accounts used by public entities (end-June 2012):
  - Compile a census of accounts at the Central Bank and in commercial banks; create permanent rules governing the closing of dormant accounts; share list and rules with the IMF.
- Structural benchmark on strengthening the debt unit (end-March 2013):
  - Provide permanent office space and staffing; nominate officer in charge; set up tasks with official communication (to be shared with the IMF); MEF should produce annual debt sustainability analyses and make them available to the Fund, all MEF services, the BRH and the MPCE.
- Structural benchmark on submitting a public debt law (end-March 2013):
  - Transmit to Parliament (and share with the IMF) a draft debt law in line with international standards and TA recommendations.
- New structural benchmark on reducing domestically-funded imprest accounts to three by ministry/institution and granting signature power to public accountants (end-March 2013):
  - Identify all accounts and current authorized signatories; reduce number of accounts and provide signature power to public accountants designated by the ministry of finance.
- New structural benchmark on rolling-out GL-software for government accountants and recording project and imprest accounts expenditure at payment (end-March 2013):
  - Provide all ministries a copy of the software and ensure installation; follow up on recording expenditure at payment level.

### Monetary policy, financial sector, and provision of information
- Benchmark on strengthening exchange rate management: develop an exchange rate management strategy including reform of the foreign exchange market by end September 2012.
- To ensure adequate monitoring of the program, the authorities will provide daily, weekly, and monthly monetary and fiscal indicators to IMF staff, details of any loan contract or guarantee to be ratified by a non-financial public sector entity, including public enterprises, before signature, as well as other data upon request.

### Reporting frequency and required indicators
- Daily:
  - The exchange rate.
- Weekly — Monetary indicators (maximum five-day lag for preliminary data, four weeks for final data):
  - (a) Stock of BRH bonds;
  - (b) Deposits at commercial banks (in gourdes and U.S. dollars);
  - (c) Credit to the private sector (in gourdes and U.S. dollars);
  - (d) Credit to central government and the public sector (net);
  - (e) Currency in circulation;
  - (f) base money;
  - (g) details of inflows and outflows of gross foreign exchange reserves;
  - (h) volume of foreign exchange transactions, of which BRH sales and purchases;
  - (i) gross international reserves;
  - (d) net international reserves (NIR).
- Weekly — Fiscal indicators:
  - (a) Revenues (internal, external, other);
  - (b) Expenditures on a cash basis (wages and salaries, goods and services, external debt, current accounts).
- Monthly (maximum 30-day lag for final data unless otherwise specified):
  - Table 10 R and Table 20 R.
  - Tableau on the comptes courants.
  - “Project Accounts”, by donor.
  - Tableau de trésorerie de devises.
  - Tableau des Operations Financières de l’Etat (within 20 days after end of month).
  - Table underlying the TOFE (TOFE-extension).
  - Set of external debt tables.
  - Report of revenue collection of the DGI (Rapport d'activités).
  - The aide memoire table, including monetary policy indicators.
  - Tables of revenue collection of AGD (Indicateurs d’activités aux ports, Rapport analytique des perceptions douanières à l'importation).
  - Balance of Bureau de Monetization accounts, including spending from “fonds de contrepartie” and flows linked to the ALBA-PetroCaribe agreement.
  - Balance of PetroCaribe/ALBA-related deposits at commercial banks and the BRH, with a maximum 30-day lag for final data.
- Quarterly:
  - Report on poverty-reducing expenditures, with a maximum 30-day lag for final data.

### Net International Reserves — End-December 2012 (BRH, In millions of U.S. dollars)
- A. Gross Foreign Exchange Reserves: 2,185.2
- B. Gross Liabilities: 275.9
- C. Net Foreign Assets (=A-B): 1,909.3
- D. FX deposits of commercial banks and CAM transfer at the BRH: 963.7
- E. Project accounts: 8.8
- F. Special accounts in U.S. dollars and euros: 3.1
- G. Seized values: 0.0
- H. SDR allocation (liability): 118.5
- J. NIR (=C-D-E-F-G+H): 1,052.2

*Source: Haitian authorities; and Fund staff estimates.*

*italic: IMF staff report text as provided in content unit _cr1390 - 19.*

### 53.      The authorities will share with staff the by-laws of the new binational (Venezuela-Haiti) entity

### 53.      The authorities will share with staff the by-laws of the new binational (Venezuela-Haiti) entity

### Commitment by the authorities
- The authorities will share with staff the by-laws of the new binational (Venezuela-Haiti) entity (as soon as they are enacted), including any and all needed information to assess the nature of such new entity.
- The authorities will also share with staff the financing terms of any financing received by such entity, including any and all information needed to assess whether any financing flows received by such new entity constitute public debt (direct and/or contingent) of any form.

### Purpose and scope of information to be provided
- By-laws of the new binational entity (to be shared as soon as they are enacted).
- Financing terms of any financing received by the new entity.
- Any and all information needed to:
  - Assess the nature of the new entity.
  - Assess whether financing flows received by the entity constitute public debt (direct and/or contingent) of any form.

*Source: _cr1390 - 53.      The authorities will share with staff the by-laws of the new binational (Venezuela-Haiti) entity*

### 2012.  The Board stressed the need to widen the scope of financial sector surveillance in low-income

### _cr1390 - 2012.  The Board stressed the need to widen the scope of financial sector surveillance in low-income countries (LICs) in Article IV consultations to better account for the interplay between financial deepening, macro-stability and the effectiveness of monetary policy, in line with the recommendation of the 2011 Triennial Surveillance Review.

### Overview of the financial system
- Financial sector composition:
  - Commercial banks, credit unions, financial cooperatives (FCs), microfinance institutions (MFIs), and other nonbank financial institutions (insurance companies, pension funds).
- Financial inclusion and usage:
  - 22 percent of persons over 15 years of age interviewed in Haiti in 2011 had a deposit account with a formal financial institution (WB FINDEX).
  - 8 percent of FINDEX respondents reported having a loan with a financial institution.
- Structure and concentration:
  - Nine banks: two public, five domestic private banks, and two foreign banks.
  - Three banks control more than 80 percent of total assets as well as of total deposits.
- Role of nonbank institutions:
  - MFIs and FCs are growing fast and already serve a similar number of depositors as banks and provide loans to a much larger share of the population, particularly in rural areas.
  - Insurance sector comprises nine non-life insurers and two life insurers; property and casualty policies are most prevalent; life insurance products are very limited.
- Data constraints:
  - Results limited by data availability, particularly on FCs, MFIs, insurance, and remittances; improving data is a prerequisite for appropriate policies.
- Systemic assessment:
  - The financial system plays an increasing but limited role in supporting economic growth due to weaknesses in legal and institutional frameworks, fragile security, limited competition, poor governance, and absence of a functioning credit registry.
  - The 2012-13 World Economic Forum report ranks Haiti’s financial market development 141 out of 144 countries.
- Importance of deepening:
  - A deeper financial sector is critical for broad-based and inclusive growth; sustainable credit growth and financial deepening increase long-term economic growth.

### Banking sector: recent trends and relevance
- Shock and recovery:
  - Commercial banks’ credit to the private sector dropped by 12 percent between December 2009 and April 2010 (January 2010 earthquake).
  - Commercial banks’ credit to the private sector rebounded strongly by more than 25 percent both in 2011 and 2012.
- Credit penetration:
  - Private sector credit to GDP remains well below the level in LICs.
  - Credit to the private sector represents less than 50 percent of deposits and available liquidity in the banking system.
- Foreign banks:
  - Foreign banks’ share of total lending was 7.3 percent in September 2012.
- Constraints on intermediation:
  - Weak protection of creditors' rights; lack/ delays in operationalizing information databases (credit bureau, centralized registry of bad debts, central registry of corporate balance sheets); weak collateral mechanisms; difficulty in obtaining land titles; limited electronic financial services.
- Demand and supply:
  - Significant infrastructure and development financing needs (roads, ports, airports, electrical grids, telecommunication, housing, schools, hospitals, water supply, sanitation) create demand for finance.
  - Excess liquidity historically present in banking system; poor intermediation limits access to finance.
- Risks of rapid credit expansion:
  - Two risk categories: (i) macroeconomic imbalances; (ii) financial sector stability via deteriorating asset quality.
  - Lending booms can induce “ever-greening,” under-diversification, and underestimation of loan risk.
  - Any expansion in credit should be monitored closely to limit macroeconomic and financial risks.

### Credit growth assessment (Box 2 summary)
- Methodology:
  - Long-term trend of credit identified using HP filter on credit-to-GDP and real credit; deviation compared to threshold of 1.5 standard errors to identify credit booms; sample 1955–2012.
- Findings:
  - Credit-to-GDP and real credit exhibit slight positive deviations starting in 2011 and are slightly above the thresholds in 2012.
  - Deviations are minor to date but signal the possibility that credit growth could be becoming excessive.
  - Rapid credit growth in Haiti requires heightened attention to credit market developments and financial indicators.

### Financial cooperatives and microfinance institutions
- Economic role:
  - MFIs and FCs are key players in providing financial services to lower to mid-income population segments, especially rural areas.
  - These institutions already serve a similar number of depositors as banks and provide loans to a much larger share of the population.
- Data and information gaps:
  - Information about customers and supply/demand for financial services to lower/mid-income segments is fragmented and scarce.
- Policy focus:
  - Further research needed on consumer protection, financial literacy, leasing, factoring, and agricultural finance.
  - The review lays groundwork for a future FSAP focused on implementation of recent reforms in the financial sector.

### Insurance
- Market structure and issues:
  - Insurance industry relatively small; until recently largely unregulated and unsupervised with limited reporting to supervisors, making size and growth difficult to assess.
  - Predominance of property and casualty policies; life insurance products are very limited.
- Implication:
  - Limited insurance penetration constrains risk-pooling and financial resilience.

### Housing finance
- Role and trends:
  - Housing finance coverage in contents and figures (mortgage loans and trends) is presented in the chapter; constraints to mortgage market development discussed (see figures and sections in the source).

### Remittances
- Importance:
  - Remittances are covered as an integral component of the financial sector review; trends and policy implications analyzed (see source sections and figures).

### Policy implications and recommendations (high-level synthesis)
- Widen financial sector surveillance in LIC Article IV consultations to account for interplay between financial deepening, macro-stability, and monetary policy effectiveness.
- Improve data collection and reporting for FCs, MFIs, insurance, and remittances to enable informed policymaking.
- Address legal, institutional, and infrastructural impediments:
  - Strengthen protection of creditors' rights.
  - Operationalize credit bureau, centralized registries (bad debts, corporate balance sheets).
  - Improve collateral frameworks and land title processes.
  - Develop electronic financial services and secondary markets for government securities.
- Monitor credit expansion closely to manage macro and financial stability risks and to avoid “ever-greening” and asset-quality deterioration.
- Prepare and conduct a targeted FSAP to assess implementation of recent reforms and to support deepening of the financial sector.
- Promote measures to expand inclusive financial access through MFIs and FCs while strengthening supervision and reporting.

*Prepared by The Western Hemisphere Department (IMF) and the World Bank, February 21, 2013.*

### 12.      A number of important improvements have taken place in the legal and regulatory

### 12.      A number of important improvements have taken place in the legal and regulatory environment in Haiti.

### Legal and regulatory improvements
- Haitian supervisory framework is based on the core principles of Basel I and uses the CAMEL (Capital, Asset, Management, Earning, and Liquidity) approach to analyze and monitor risk profiles of supervised institutions.
- Supervision is conducted through on- and off-site units:
  - Off-site unit: ensures banks’ compliance with applicable rules and prudential norms by regularly analyzing regulatory reports and discussing relevant issues with key personnel.
  - On-site unit: performs a more detailed annual analysis of financial information, management, and compliance.
- A new law on banking and other financial institutions enacted in May 2012:
  - Central Bank empowered to regulate and supervise five new categories of financial institutions: investment corporations; factoring institutions; credit card companies; fiduciary institutions; and development financial institutions.
  - An ad hoc committee was established to adapt existing prudential norms to the new law and to promulgate required rules and regulations for newly regulated institutions.
  - Reinforced Central Bank powers to intervene directly in case of potential crisis or bank run.
  - Improved protection for bank supervisors performing their duties.
  - Foreign banks: can no longer operate through branches but must operate through subsidiaries and must adopt the same fiscal year as local banks.
- New circulars on anti-money laundering (June 2012):
  - Require banks to implement prevention and compliance programs for anti-money laundering.
  - Inspired by the 40+9 recommendations of FATF and take into account recommendations of the 2008 World Bank AML Evaluations of Haiti.
- Leasing sector development: Central Bank working with other authorities to create legal and regulatory framework to support a strong leasing sector to increase access to finance for SMEs.
- Credit concentration regulations improved with three limits on the loan portfolio:
  - (i) maximum ratio of 10% applied individually to loans granted to connected parties with regard to regulatory capital;
  - (ii) maximum ratio of 20% applied to loans granted to each related party but not connected to the bank;
  - (iii) maximum ratio of 25 % of total banking loan portfolio applied to loans granted to each sector.

### Strengths of the banking system (reported indicators)
- Capital and asset quality:
  - Average capital adequacy ratio of 16.8 percent at end September 2012 (regulatory minimum 12 percent).
  - Reported NPLs reached 2.4 percent at end September 2012.
  - Provisioning for NPLs increased to about 97 percent.
- Profitability:
  - Average ROE of 22 percent.
  - ROE described as more than double that of the largest 100 European banks and about 8 percentage points higher than the ECCU banking system.
- Financial soundness indicators (selected, as reported: Sep-10 Sep-11 Mar-12 Jun-12 Sep-12):
  - Regulatory capital to risk-weighted assets: 13.4, 16.5, 16.7, 16.7, 16.8
  - NPLs to gross loans: 5.7, 3.7, 3.6, 3.2, 2.4
  - Provisions to gross NPLs: 84.1, 93.1, 83.3, 88.8, 96.7
  - Return on Assets (ROA): 1.2, 1.4, 1.4, 1.3, 1.5
  - Return on equity (ROE): 18.4, 22.2, 22.2, 21.7, 21.9
  - Foreign currency loans to total loans (net): 60.1, 55.7, 53.8, 28.4, 51.7
  - Foreign currency deposits to total deposits: 44.1, 62.3, 63.9, 64.5, 62.9
  - Foreign currency loans to foreign currency deposits: 31.3, 32.6, 34.6, 35.7, 37.3

### Vulnerabilities and structural patterns
- Main vulnerabilities:
  - Concentrated lending portfolios.
  - High financial dollarization.
  - In some cases relatively underdeveloped credit risk management practices and weak governance.
- Credit allocation (sectoral shares, 2008–2012 trends; percentages for 2008–2012 shown):
  - Trade: 28.6, 27.1, 24.6, 27.4, 24.7
  - Industries: 15.3, 16.7, 16.2, 15.7, 16.0
  - Real estate: 12.6, 13.7, 13.5, 14.7, 14.8
  - Services: 18.0, 17.1, 18.1, 14.9, 13.3
  - Consumption: 9.9, 11.7, 12.2, 11.0, 10.5
  - Telecommunications: 2.2, 1.8, 1.7, 3.9, 4.0
  - Other: 13.4, 11.9, 13.7, 12.5, 16.6
- Credit concentration and SMEs:
  - Credit remains concentrated in large businesses, mostly commercial.
  - Overall, 25 percent of all credit goes to trade, followed by industry at 16 percent, and real estate at 14 percent.
  - Few loans to agricultural sector, although it represents a quarter of the economy.
  - Banking system lends mainly to a few large and well-established firms; lending to SMEs is limited.
- Dollarization dynamics:
  - Ratio of credit in dollars to total credit: rose from 12 percent in 1996 to 57 percent in 2008; 42 percent in 2012.
  - Between 2008 and 2012: credit in dollars increased by 22 percent; credit in local currency increased by 124 percent.
  - Policy change: Central Bank eliminated requirement to keep in gourdes 30 percent of the reserves for dollar deposits (decision referenced as contributing to gourde credit rebound).
  - Prudential regulation: banks’ net open foreign exchange position cannot exceed 2 percent of equity.
  - Three systemic banks have more assets than liabilities in foreign currency; potential indirect credit risk requires closer oversight.
  - Anecdotal evidence: dollar loans primarily granted to larger commercial entities that derive most income in US dollars.

### Box 3 — SME Financing: resources, bottlenecks, and measures
- Available resources and sector size:
  - Local deposits in banking system: equivalent of $ 3.5 billion.
  - Loans in banking system: about $ 1.2 billion.
  - Potential demand for microcredit could reach up to 1.7 million households (market estimate).
  - Donor estimate: approximately 375,000 microenterprises and 10,000 small and medium-sized businesses.
- Lending terms observed:
  - Loans extended up to 5 years, at rates varying between 12 to 50 percent per year.
- Observed mismatches:
  - Ample liquidity in banking sector which could potentially be allocated for SME financing, but bottlenecks remain.
- Measures to enhance SME financing (enumerated):
  - Government, financial system, and development agencies should coordinate to advance SME agenda and liberate SME financing.
  - Banks, FCs, and MFIs should place greater emphasis on SME financing, with more financial, organizational, and human resources.
- Policy actions recommended:
  - Maintain monetary and fiscal policies conducive to economic growth and low inflation.
  - Maintain political stability and create economic policy certainty so SMEs can plan over the short-medium term (1-3 years).
- Information provision recommendations:
  - Introduce a fully functional Credit Registry.
  - Extend the National Identity program to facilitate access to credit and implementation of compliance programs by financial institutions.
  - Conduct a national census of MSMEs (urban and rural) to identify/formalize enterprises and address poor data availability.
- Training recommendations:
  - Organize short-term training seminars for start-up entrepreneurs and established SMEs.
  - Introduce business/financial literacy and entrepreneurship courses in secondary and university curriculums.
  - Organize short- and medium-term training programs for SME credit officers of banks, MFIs, and credit unions; banks and MFIs should increase core SME competencies, simplify forms/applications, and reduce turnaround.
- Guarantees and insurance:
  - Promote use of guarantee funds for co-insurance with insurance companies of SME stocks and equipment.
  - Reinforce access to insurance with introduction of fire-fighting capacities in Port-au-Prince and provincial cities.
- Collateral and secured transactions:
  - Continue work on use of movable assets as collateral; accelerate secure transaction reforms and improve re-possession mechanisms.
  - Reduce time required and fees for registration of leased assets and equipment liens (collateral registry).
  - Take measures to facilitate use of land as collateral for MSME loans (land titling, cadastre etc.).
- Funding:
  - Use donor funds to leverage local funds through guarantee mechanisms, particularly for start-up SMEs, agricultural/rural lending, and quasi-equity and equity participations in SMEs.
  - Centralize donor efforts to avoid multiple overlapping financing/guarantee programs.

### Banking system policy recommendations (summary)
- Identified areas for improvement in regulatory and supervisory framework:
  - Continue progress on the 2008 FSAP recommendations and ensure effective implementation of the new banking law.
  - Establish a credit registry, a centralized registry of security collateral, a land registry, and a deposit insurance scheme.
  - Establish explicit rules and regulations pertaining to corporate governance and consolidated supervision of financial groups and/or financial conglomerates.
  - Improve risk focus of supervision.
  - Upgrade IT infrastructure to allow for automated data collection and the production of key risk-focused statistics.
  - Continue stimulating competition in the banking system.
- Note: This review did not assess in-depth quality of banking regulations per se, including conduct of stress testing and on-site supervision; these are important areas for the next FSAP.

### Financial Cooperatives (FCs) and Microfinance Institutions (MFIs)
- Economic relevance and recent trends:
  - Potential demand for microcredit in Haiti could reach up to 1.7 million households (market estimates).
  - Donors estimated approximately 375,000 microenterprises and 10,000 small and medium-sized businesses.
  - Authorities estimate approximately 300 credit unions in the country, only 85 of which are formally licensed.
  - Only 14 microfinance institutions provide financial services to MSMEs and the unbanked population (bank subsidiaries and NGOs).
- Size and growth:
  - FCs and MFIs accounted for about 17.5 percent of banks’ total gross loan portfolio and grew much faster than banks in 2011.
  - Microcredit portfolio increased by 46 percent in 2011 (2.7 times the Latin American average), reaching gourds 10.6 billion in 2011.
  - FCs and MFIs serve a similar number of depositors as banks but a much larger number of borrowers (286,000 versus 12,500).
  - FCs and MFIs are oriented toward low to mid income customers; average loan and deposit sizes are significantly smaller than banks’.
- Geographic coverage:
  - Banks: 57 percent of 157 branches operate in Port-au-Prince.
  - FCs and MFIs: more than 400 branches, 80 percent located outside Port-au-Prince; many rural FCs/MFIs are small with often only one branch.
- Performance differences by size:
  - Larger FCs show better information and accounting systems and appear profitable and well capitalized.
  - USAID: thirteen larger FCs reported ROE of 20.6 percent; small FCs reported negative ROE.
- Concerns and challenges:
  - MFIs are currently not regulated by financial authorities; sector outreach and rapid growth require close monitoring.
  - Some MFIs take deposits from large numbers of low-income customers without regulatory protection.
  - FCs are formally regulated but the legal framework needs revision for effective oversight of a heterogeneous sector.
  - Coordination issues: Law for Savings and Credit Cooperatives (July 2002) established BRH as prudential supervisor while CNC retains licensing prerogatives; processes between agencies are not well coordinated causing registration delays.
  - Collection of financial information is partly delegated to existing federation which monitors non-licensed credit unions but lacks intervention powers.
  - BRH obtains financial information mainly from FCs in Le Levier and Desjardins networks; majority of entities are not licensed and total number is not known.
  - BRH performs on-site supervision of FCs known to have delicate financial position.
  - Management weaknesses: USAID assessment found 53 percent of FCs required improvements in financial management; 76 percent had deficient loan origination and management processes.
- Recent regulatory developments:
  - Proposal to modernize the Law for Cooperatives developed; draft Law for Microfinance prepared but neither submitted to Parliament.
  - Draft Microfinance Law under consultation; some MFIs note the draft does not recognize joint-liability as a relevant guarantee for lending — joint-liability lending methodologies (solidarity, mutual and community groups) are common in Haiti and this gap should be addressed.

### Policy recommendations for FCs and MFIs (implied from concerns and recent developments)
- Finalize and present to Parliament the modernized Law for Savings and Credit Cooperatives and the draft Law for Microfinance.
- Ensure the regulatory framework recognizes joint-liability lending methodologies (solidarity, mutual and community group guarantees).
- Improve coordination between BRH and CNC to streamline licensing and oversight processes.
- Expand BRH’s collection of financial information across a larger share of FCs and strengthen powers to intervene where necessary.
- Monitor rapidly growing MFIs and consider appropriate regulatory coverage, especially for institutions taking deposits from low-income customers.
- Strengthen financial management, loan origination, and credit administration practices across small FCs and MFIs via technical assistance and capacity building.

*International Monetary Fund — Haiti report excerpt*

### 30.      For the long-term development of the microfinance and cooperative sector, the

### _cr1390 - 30.      For the long-term development of the microfinance and cooperative sector, the

### Microfinance and Cooperatives — Policy Recommendations and Actions
- Accelerate approval of the revised Law for Cooperatives to:
  - Simplify the licensing process (by leaving it in the hands of BRH).
  - Improve the faculties of BRH to intervene in failing institutions.
  - Establish prudential and reporting requirements commensurate to the size of each FC.
  - Increase the transparency of information about the sector.
- Accelerate approval process for the Law for MFIs and establish a regulatory framework that:
  - Differentiates between deposit-taking institutions and those which do not mobilize deposits.
  - Includes provisions on the use of joint-liability as a collateral.
  - Includes provisions for consumer protection.
- Conduct a census of FCs and MFIs to better understand the sector and develop an action plan to expand the collection and improve the quality of financial information about registered FCs and MFIs.
- Conduct a study of options to promote consolidation of small financial cooperatives to achieve scale and soundness, potentially translating into lower cost and a broader palette of services for the final client.
- Facilitate access of qualifying FCs and MFIs to financial infrastructure:
  - Allow, if minimum standards are met, at least the largest FCs and MFI to participate in the payments system to provide a wider range of services.
  - Allow entities with qualifying information systems to participate in the credit registry currently being set up by BRH.
  - Note: incorporation into payments and credit registry would enhance soundness and deepen the financial system as the vast majority of borrowers are currently served by FCs and MFIs.

### Insurance — Relevance, Recent Trends, and Recommendations
- Recent status and trends:
  - Insurance sector largely unregulated and unsupervised until very recently; regulated by a 1981 law that contains no prudential requirements apart from licensing and reporting.
  - Financial statements are not reported to the supervisor and are not published.
  - Sector currently comprises nine non-life insurers, and two life insurances.
  - Axco reports estimate gross premiums at about 0.5 percent of GDP.
  - Property and casualty policies are most prevalent; life insurance products are very limited.
  - Reinsurance covered an estimated 75 percent of earthquake claims following the 2010 earthquake.
- Reform initiatives and supervisory capacity building:
  - MEF drafted two bills (Loi Cadre sur l’Assurance and Loi sur l’Organisme Autonome de Supervision et de Controle des Assurances) to set prudential requirements in line with international standards and establish a dedicated independent supervisor; consultation process involved a working group (GTA – Groupe de Travail sur les Assurances).
  - In August 2012, a unit was set up within MEF to oversee insurance with four staff assigned and trained.
  - In December 2012, a guideline on reporting was completed and the MEF requested the industry to submit financial statements by early 2013.
  - Efforts supported by a FIRST Grant managed by the World Bank to strengthen insurance regulation and supervision, prepare guidelines, examination manuals and training.
- Policy recommendations for long-term development:
  - Work towards rapid approval of the insurance bills by Parliament to legitimize the new insurance supervisor and clarify prudential rules.
  - Complete the reporting process in cooperation with the industry; MEF requested financial statements of the industry by early January to:
    - Assess the sector’s capacity to face future natural disasters.
    - Build supervisory capacity on financial statement analysis.
    - Prepare new regulations.
    - Define actions to strengthen and consolidate the sector.
  - Build up supervisory capacity and processes: appoint Board and Managing Director of the Supervisor once law is approved; secure increase in permanent staff and office space; provide training; draft guidelines and manuals.
  - Once the supervisory authority (OASCA) is established, prepare an action plan to supervise public insurers such as ONA, OAVCT and OFATMA.
- Note on foreign branches: current draft bills would require foreign branches to post the same minimum capital (cautionnement) as local companies, which is more restrictive than international best practice.

### Housing Finance — Relevance, Recent Trends, Constraints, and Recommendations
- Size and comparisons:
  - Residential mortgage loans account for roughly 1 percent of GDP.
  - Comparable country indicators: Malawi 0.5 percent, Uganda 1.1 percent, Kenya 2.5 percent.
  - Regional comparators: Dominican Republic 4.2 percent, Guatemala 5.9 percent, Bolivia 6.6 percent.
  - In 2011, estimated 650 outstanding mortgage loans.
  - Note: This figure would be 2.4 percent if commercial mortgage loans were to be included.
  - Latin America and Caribbean average: home mortgage loans accounted for 6.8 percent of GDP.
- Earthquake and financing context:
  - 7.0 magnitude earthquake in January 2010; government estimate: need to build 500,000 new homes over next decade.
  - Post Disaster Needs Assessment estimated damages to housing sector at USD 2.3 billion; programmed donor contributions estimated at USD 200 million.
  - Banking system holds USD 1.8 billion in liquid assets.
- Market structure and lending characteristics:
  - All nine commercial banks offer mortgage products; three largest providers hold roughly 67 percent of home mortgage loans.
  - Sogebel had 29 percent market participation; in commercial mortgage loans three banks concentrate roughly 90 percent and the largest provider, Unibank, 56 percent.
  - Demand constraints: low and informal incomes, limited savings, lack of land titles; banks only serve households with land and property titles and formal proof of income.
  - Loan terms limiting affordability: down-payment requirements are 30 percent on average; interest rates on adjustable rate loans are 10 to 12 percent; maturities typically 7 to 10 years.
  - Banks usually require a debt-to-income ratio of up to 20 percent and households must secure three monthly payments in advance.
  - Upfront fees and mortgage costs (mortgage taxes, mortgage registration fees, insurance costs and bank fees) are relatively high. Mortgage taxes were recently reduced in the new Banking Law.
- Role of MFIs and FCs:
  - MFIs and FCs slowly introducing short-term housing microfinance products with flexible collateral requirements.
  - Challenges: short-term funding base, high credit risk, high transaction costs for small loans, lack of technical expertise for longer-term housing loans.
  - Interest rates for FCs and MFIs range from 20 to 30 percent and are not calculated in a standard way.
  - IFC and USAID provided technical assistance and liquidity funding for some FCs and MFIs.
  - Expectation: FCs and MFIs to play a growing short-term role in financing home improvements and expansion before engaging in mortgage lending.
- Past and current government/donor measures:
  - 2011 Government mortgage program Kay Pam targeted civil servants and salaried workers; in 2012 it had 29 active clients with outstanding loans amounting to USD 3.3 million, average loan size USD 115,000.
  - Small uptake attributed to lack of proper land titles, subsidy structure, absence of adequate savings mechanisms for housing.
  - BRH eliminated reserve requirements on resources raised in Gourdes to finance housing and increased allowable sector concentration ratio from 25 to 50 percent to encourage mortgage lending.
  - Government and donors have provided grant funds to subsidize reconstruction and repair; donors provide technical assistance and support partial credit guarantee schemes. BRH supported establishment of a partial credit guarantee fund managed by FDI; USAID expanded scope of DCA guarantees to include housing.
- Remaining constraints to mortgage portfolio expansion:
  - Inadequate financial risk management tools: absence of a credit bureau, lengthy foreclosure procedures, absence of interest rate risk management tools (other than adjustable rate mortgages which place risk on the client).
- Policy recommendations for long-term development:
  - Establish conditions to guarantee property and land rights: modern property registration system; reforms to legal framework to enforce property rights; creation of a modern physical land cadastre; development of an affordable system for registration of titles and mortgages; definition of property valuation standards and methods.
  - Implement more direct measures to stimulate mortgage lending to mobilize liquidity in banking system for housing:
    - Improve the credit information system.
    - Stimulate development of mortgage insurance for all or a subgroup of loans or borrowers.
    - Adapt general loan portfolio guarantees as needed.
    - Address shortcomings in foreclosure procedures and other risk management mechanisms.
  - Address high transaction costs of mortgage lending:
    - Consider adjustments to mortgage taxes and fees to incentivize lending while broadening the base on which they are levied.
    - Review taxes and controls on rental housing as constraints to rental market development.
  - Develop well designed household subsidy systems linked to credit to enhance affordability and increase banks’ interest in lending to middle and lower middle income households:
    - Options include down-payment and monthly mortgage payment assistance.
    - Subsidy programs should allow lenders to make lending decisions on market principles, be simple and transparent, and be well monitored.
    - Programs could expand formal housing stock and improve disaster resilience; review lessons from current subsidy programs on reconstruction and repair.
  - Monitor housing finance and micro mortgage products provided by FCs and MFIs closely:
    - Require APR disclosure and appropriate consumer protection programs.
    - Provide access to longer-term funds for FCs and MFIs to grant longer-term housing loans.
  - Note: While banking system is currently highly liquid, authorities should initiate activities to promote development of capital markets to mobilize long-term resources for housing finance.
  - Caution on subsidy design: past experience shows supply-side subsidies can be captured by suppliers and interest rate subsidies can distort market prices; well-designed, market-oriented incentives could unlock home improvements and acquisitions for middle and lower income segments and support disaster resilience and building code adherence.

### Remittances — Economic Relevance and Development Potential
- Recent trends and magnitude:
  - 2012 estimated remittances approximately USD 1.6 billion, which accounted roughly for 19 percent of Haiti’s GDP.
  - Between 2005 and 2010, remittance inflows represented 22 percent of GDP on average.
  - Savings of the Haitian diaspora estimated at USD 3.7 billion or 57 percent of GDP.
  - Informal remittances could make these numbers considerably larger.
- Development potential:
  - If channeled through the financial system and increased savings rather than consumption, remittances could strengthen the deposit base and extend maturities, stimulating sustained credit growth.
  - Leveraging remittances could increase access to additional financial services and raise financing for infrastructure and other development projects.

*Source: _cr1390 - 30.*

### 47.      Aside of being an important source of funding for the financial system, remittances are an

### _cr1390 - 47.      Aside of being an important source of funding for the financial system, remittances are an

### Remittances: role and household reliance
- Remittances are an important financial service for large segments of the population and can be leveraged to increase access to finance and deepen the financial sector.
- It is estimated that, on average, remittances accounted for 60 percent of the income of households receiving remittances.
- The World Bank estimated that 55 percent of remittance-receiving households do not have any other income and that 27 percent of recipient households earn less than USD 500 a year.
- Most recipients spend transfers on basic needs (food and clothing); a significant number also invest in education, savings, health care, housing and business but face constraints due to the limited offer of public and private services.
- Informal remittances could account for roughly 30 percent of received remittances (Orozco, 2010).
- In 2010, the stock of Haitian emigrants reached one million. Top destinations: USA (45 percent), DR (45 percent), Canada (5 percent), France (3 percent), and other (2 percent).

### Major remittance corridors and vulnerabilities
- United States - Haiti corridor:
  - In 2011, more than 77 percent of remittance inflows were sent from the United States (BRH statistics).
  - Haiti is vulnerable to the US economic situation, especially its unemployment rate; remittance inflows flattened in 2009 during the financial crisis.
  - Average remittance transaction from the US to Haiti was USD 120.
- France (6 percent), Canada (6 percent), DR (2 percent), and others (8 percent) constituted other reported sources in 2011.
- Dominican Republic - Haiti corridor:
  - Reported to provide only 3 percent of reported remittance volume, but likely considerably larger due to informality.
  - Estimated number of migrants in the Dominican Republic: 450,000.
  - Nearly 54 percent of remittance inflows from the Dominican Republic are sent to rural areas, roughly 23 percent to the capital and 23 percent to other urban areas.
  - Average reported remittance transaction in the Dominican Republic - Haiti corridor was USD 70; informal remittances from the Dominican Republic are likely smaller.
- Differences between corridors:
  - Haitian diaspora in the Dominican Republic mainly in border areas, employed in sugar cane, the service industry, and informal economy.
  - Haitian diaspora in the US generally has higher formal education and better income opportunities.
  - Recipient profiles: remittances from the US sent to husband/wife (30 percent), parents (22 percent), children (24 percent); from the Dominican Republic beneficiaries are largely parents (52 percent).

### Providers, market structure, and geographic reach
- Money transfer operators (MTOs) are the primary formal remittance service providers (RSPs).
- There are seven RSPs partnering with 134 payout institutions to offer 411 payment locations.
- Market concentration:
  - Western Union holds 48 percent of the payment points.
  - Banks account for 30 percent of the payout locations and are the largest payer type.
  - Microfinance institutions (MFIs) account for 15 percent of payout locations; 96 percent of their payout locations are located outside Port-au-Prince, important for reaching remote recipients.

### Key statistics from banking and remittance context (preserve exact figures)
- Average remittance transaction amounts:
  - US → Haiti: USD 120
  - DR → Haiti: USD 70
- Household dependence:
  - Remittances on average = 60 percent of income of recipient households
  - 55 percent of remittance-receiving households have no other income
  - 27 percent of recipient households earn less than USD 500 a year
- Informality:
  - Informal remittances ≈ 30 percent of received remittances
- Diaspora distribution (2010 stock of emigrants = one million):
  - USA 45 percent; DR 45 percent; Canada 5 percent; France 3 percent; Other 2 percent
- RSP network:
  - 7 RSPs; 134 payout institutions; 411 payment locations
  - Western Union: 48 percent of payment points
  - Banks: 30 percent of payout locations
  - MFIs: 15 percent of payout locations; 96 percent of MFI payout locations outside Port-au-Prince

### Policy recommendations (explicit)
- Promote competition in the remittances market to reduce costs and improve transaction security.
  - Noted improvement: average cost of sending funds to Haiti decreased from USD 7.7 to 5.7 between the third quarter of 2011 and 2012; nevertheless, Haiti still has one of the highest remittance fees in the Caribbean and Central America.
- Assess impact of the recent remittance tax and consider alternatives to the current flat fee.
  - Example: USD 1.5 tax on remittances from the Haitian Diaspora established in June 2011.
  - Concerns: a flat fee could negatively affect smaller transactions, reduce household income, reduce incentives to send remittances, drive resources underground, and impede linking remittances to financial inclusion.
- Study in depth the structure and operation of the Haiti – Dominican Republic remittance corridor to design a strategy for formalization.
  - Based on analysis, establish mechanisms to issue licenses to sound providers and define policy measures and communication campaigns.
- Assess the legal and regulatory framework for remittances to improve transparency, competition, and financial inclusion.
  - Law on Money Laundering (amended 2008) and new Banking Law of 2012 include AML provisions that improved information collection, IT systems and internal controls, but information quality and transparency still need improvement.
  - Credit unions only recently started providing remittance services; Government should consider mechanisms to encourage credit unions and MFIs to expand remittance services given their branch networks and financial inclusion potential.
  - An in-depth review of all legal statutes concerning remittances (including AML/CFT) could help develop a coherent regulatory framework.
- Note on pilot initiative:
  - September 2011: 7 credit unions affiliated with Le Levier started a remittances pilot through 15 service points with the International Remittances Network (IRnet®), a platform owned and operated by the World Council of Credit Unions (WOCCU).

### Summary findings (from study)
- (i) Banks dominate the financial sector in Haiti in terms of assets and volume of loans and deposits, but play a limited role in financial inclusion, lending to few sectors and clients.
- (ii) A significant part of the nonbank system is not regulated and information on their activity is scarce.
- (iii) Microfinance institutions (MFIs) and Financial Cooperatives (FCs) are growing fast and play a key role in increasing financial inclusiveness, particularly in rural areas.
- (iv) The insurance sector and the housing finance system are relatively limited.
- Key recommendations summarized:
  - (i) Assess that existing banking legislation is up-to-date, implemented, and adequately enforced.
  - (ii) Put in place needed legislation and framework for the nonbank system.
  - (iii) Address the lack of information on the nonbank system.
  - Several recommendations could be implemented through an update of the 2008 FSAP.

*Source: _cr1390 - 47.      Aside of being an important source of funding for the financial system, remittances are an*

### 7.6 percent in December, reflecting primarily higher international food prices and reduced

### _cr1390 - 7.6 percent in December, reflecting primarily higher international food prices and reduced

### Economic context and recent developments
- Inflation spiked to 7.6 percent in December, reflecting primarily higher international food prices and reduced domestic food supply caused by Hurricanes Isaac and Sandy.
- Gross international reserves reached $2.2 billion (6 months of imports) at end-December 2012.
- Haiti’s debt situation has significantly improved owing to additional debt relief from major partners (including the Fund) after the January 2010 earthquake.
- Reconstruction and economic recovery have been slow due to weak administrative and absorptive capacity, persistent socio-political tensions, a difficult security situation, and a weak business environment.
- The country remains highly vulnerable to exogenous shocks.

### Output, inflation, and short-term performance
- Real GDP growth:
  - FY2010: contraction of 5.4 percent (following the earthquake)
  - FY2011: 5.6 percent
  - FY2012: 2.8 percent (slowed due to spring drought, impact of Hurricane Isaac, and delays in public investment projects)
  - FY2013: projected 6.5 percent (assuming a pickup in reconstruction and a rebound in agriculture)
- Inflation:
  - 2010/11: 10.4 percent
  - 2011/12: 6.5 percent
  - 2012/13 (Proj.): 5.0 percent
- Executive Directors: commended prudent policies; noted single-digit inflation and strengthened external position; cautioned on extreme vulnerability to natural disasters and slow reconstruction.

### Fiscal position and public finances (central government)
- Revenue and grants (% GDP): 2010/11: 29.8; 2011/12: 23.3; 2012/13 (Proj.): 24.4
- Domestic revenue (% GDP): 2010/11: 13.1; 2011/12: 12.8; 2012/13 (Proj.): 14.1
- Grants (% GDP): 2010/11: 16.8; 2011/12: 10.6; 2012/13 (Proj.): 10.4
- Expenditures (% GDP): 2010/11: 33.5; 2011/12: 29.3; 2012/13 (Proj.): 29.8
  - Current expenditures (% GDP): 2010/11: 11.8; 2011/12: 11.9; 2012/13 (Proj.): 11.3
  - Capital expenditures (% GDP): 2010/11: 21.7; 2011/12: 17.4; 2012/13 (Proj.): 18.5
- Overall balance (% GDP): 2010/11: -3.7; 2011/12: -5.9; 2012/13 (Proj.): -5.3
- Total government debt (% GDP): 2010/11: 12.2; 2011/12: 15.4; 2012/13 (Proj.): 20.4

### Money, credit, balance of payments, and external indicators
- Broad money (incl. foreign currency deposits) (% change): 2010/11: 10.4; 2011/12: 6.9; 2012/13 (Proj.): 11.8
- Credit to private sector (% change): 2010/11: 24.5; 2011/12: 29.8; 2012/13 (Proj.): 21.6
- 3-month BRH bond interest rate (%): 2010/11: 3.5; 2011/12: 3.7; 2012/13 (Proj.): 3.6
- External current account balance (including official grants) (% GDP): 2010/11: -4.6; 2011/12: -4.0; 2012/13 (Proj.): -5.6
- External current account balance (excluding official grants) (% GDP): 2010/11: -24.2; 2011/12: -16.5; 2012/13 (Proj.): -17.7
- Foreign direct investment (FDI) (% GDP): 2010/11: 2.4; 2011/12: 2.1; 2012/13 (Proj.): 1.3
- Reserves (months of imports of the following year): 2010/11: 6.3; 2011/12: 6.5; 2012/13 (Proj.): 5.5
- External debt (% GDP): 2010/11: 8.9; 2011/12: 13.0; 2012/13 (Proj.): 16.8
- Nominal GDP (millions of Gourdes): 2010/11: 297,687; 2011/12: 329,032; 2012/13 (Proj.): 368,991
- Nominal GDP (millions of dollars): 2010/11: 7,388; 2011/12: 7,902; 2012/13 (Proj.): 8,535

### Growth prospects and risks
- Short-term projection: growth projected to accelerate to 6.5 percent in 2013, assuming reconstruction pickup and agricultural rebound.
- Medium-term outlook: maturing agricultural and industrial projects and improvements in the business environment could sustain growth and strengthen the external position.
- Downside risks highlighted:
  - Worsening global economic conditions
  - Continued weak administrative and absorptive capacity
  - Heightened domestic political and social tensions fueled by pervasive poverty and lack of progress in improving living standards
  - Natural disasters impeding fragile recovery

### Executive Board recommendations and priorities
- Fiscal policy:
  - Secure fiscal space for poverty-related and growth-enhancing spending by increasing revenue and containing current spending.
  - Strengthen revenue administration, reduce tax expenditures, and expand the tax base, including adoption of a VAT system.
  - Further strengthen social safety nets and increase investment in health and education.
  - Continue progress towards a treasury single account and strengthen budget formulation, execution, transparency, reporting, and controls.
- Public investment:
  - Improve execution rate of public investment to build infrastructure and unlock growth potential.
  - Work closely with donors to improve project preparation and management and ensure quality of public investment.
  - Improve coordination and harmonization of donor procedures and align external assistance with domestic priorities.
- Monetary and exchange rate policy:
  - Maintain neutral stance of monetary policy while keeping inflation in check.
  - Improve liquidity management, financial market deepening, market-based operations, and reduce dollarization to strengthen monetary transmission.
  - Move towards greater exchange rate flexibility and deepen the foreign exchange market; commit to gradual move to single price foreign exchange auctions after deepening the interbank market.
- Structural reforms:
  - Streamline regulations, remove infrastructure bottlenecks, strengthen human capital, and deepen financial intermediation to improve competitiveness and the business environment.
  - Implement planned energy sector reform decisively to lower cost of electricity, improve reliability and efficiency, and reduce budgetary burden.
- Financial sector supervision:
  - Monitor recent strong credit growth closely.
  - Continue implementing 2008 Financial Sector Assessment Program recommendations and regulate microfinance and cooperative sectors.
  - Further improve regulatory and supervisory framework.

### Sector-specific developments and reforms
- Investment and donor coordination:
  - Donor disbursements since the 2010 earthquake reported as US$ 9.04 billion, with a significant portion not channeled through Haiti’s national budget.
  - Concerns about parallel structures and competition for qualified personnel between donors/NGOs and public institutions.
  - New structure under the Minister of Planning and External Cooperation to replace the Interim Haiti Recovery Commission aims to improve donor coordination and alignment.
- Public sector capacity and human resources:
  - Public sector hiring and retention challenged by high salaries and benefits offered by NGOs and international organizations.
  - Action plan for reforming the public service being elaborated with support from Canada and the IDB.
- Taxes and fiscal administration:
  - E-declaration launched; electronic liquidation of taxes expected by end of year.
  - International firm being hired to support MEF in strengthening tax offices.
  - Transforming TCA to TVA expected to help widen tax base; success depends on timely information system implementation.
  - CARICOM membership and adoption of CET may raise average tariff rates; net effect on fiscal revenues uncertain but likely positive in the short-term given import sources.
  - Tax expenditures considered alarming; measures underway to ensure NGOs and international institutions comply with legislation and to limit exemptions and exonerations.
- Energy sector:
  - Phasing out Treasury subsidies to Electricité d’Haïti (EDH) initiated with target date of 2016 for complete elimination.
  - MOU signed between EDH and MEF at end-2012; EDH committed to present a financial sustainability plan by end-March 2013 with an agreement by end of year.
  - Delegate minister for energy appointed; Ministry of Public Works remains lead oversight institution.
  - Long-distance power meters installed at five of six IPP plants; standard contract to be drafted with a view to harmonize IPP agreements by end of 2013.
  - External firm Tetratech involved in EDH reform.
- Financial sector and inclusion:
  - Reforms to enhance access to credit; pending legislative changes include Law on Financial Cooperatives and Bill for Microfinance Institutions.
  - Draft law for financial leasing and factoring prioritized.
  - Credit bureau to be launched with support from World Bank and IDB.
  - Regulatory framework for microfinance and cooperatives to be established; FCs and MFIs meeting minimum IT and regulatory requirements will have access to the credit bureau.
  - Authorities to hasten regulation for the nonbank financial sector and improve data availability.
- Remittances:
  - Authorities welcome recommendations to strengthen regulatory framework, promote competition, reduce costs, and secure transactions.
  - Flat fee on remittance flows introduced about a year ago; preliminary Central Bank data do not show negative effects on number of transactions or total amount.
  - Recommendation for in-depth study of Haiti-Dominican Republic remittance corridor; authorities prefer initial focus on US-Haiti and France-Haiti corridors and joint assessments with central banks.

### Monetary, credit, and exchange rate measures (recent actions)
- Central Bank actions:
  - Maintained accommodative stance adopted since the earthquake; interest rates on its paper unchanged since January 2011.
  - With 12-month inflation above 7 percent, raised banks' reserve requirement ratios by 5 percentage points to a maximum of 34 percent on liabilities in local currency and 39 percent on liabilities in foreign currency. This measure became effective on February 1st, 2013.
  - Committed to move gradually towards greater exchange rate flexibility; foreign exchange market remains shallow and constrained.
  - Expansion and modernization of the foreign exchange market deemed prerequisite for single price foreign exchange auction system; NGOs and exporters already hold frequent free auctions.

### Key strategic priorities going forward
- Accelerate reconstruction and strengthen absorptive and administrative capacity using external support.
- Increase revenue and contain current spending to create fiscal space for poverty-related and growth-enhancing spending.
- Improve execution and quality of public investment through better project preparation, management, and donor coordination.
- Implement energy sector reforms to reduce fiscal subsidies and lower the cost of electricity.
- Deepen financial inclusion via regulatory reforms, credit bureau implementation, and stronger supervision of microfinance and cooperative sectors.
- Gradually increase exchange rate flexibility and deepen foreign exchange market to improve shock absorption.

*Source: IMF staff report and Executive Board discussion for the 2012 Article IV Consultation with Haiti; Statement by Mr. Nogueira Batista, March 11, 2013.*

---


_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2013/_cr1390.pdf_