June 20, 2008
The Executive Board of the International Monetary Fund (IMF) today completed the third review of Haiti's economic performance under the Poverty Reduction and Growth Facility (PRGF) arrangement and approved SDR 16.38 million (about US$26.5 million) in additional financial assistance to help Haiti cope with the impact of rising food and fuel prices. The completion of the review will enable the immediate disbursement of SDR 23.98 million (about US$38.7 million).
The PRGF arrangement was approved on November 20, 2006 (see Press Release No. 06/258) in the amount equivalent to SDR73.7 million (currently about US$119 million).
The Executive Board also approved Haiti's request for a waiver for non-observance of two performance criteria, related to the preparation of a plan to recapitalize the Central Bank of Haiti, and to hiring of experts to strengthening program units in key ministries.
Following the Executive Board discussion, Mr. Takatoshi Kato, Deputy Managing Director and Acting Chair, said:
"Despite numerous external shocks, including rising international commodity prices and inclement weather, as well as political difficulties, Haiti's performance under its PRGF-supported program and progress in structural reform have been commendable. However, sharply rising inflation, largely attributable to increases in international food and fuel prices, has been a challenge and is creating additional hardship for Haiti's large vulnerable population. In response, the authorities have appropriately put into place immediate measures to stabilize food prices, and are stepping up targeted measures to, among other things, expand school feeding programs, create jobs through public works programs, and boost domestic agricultural production.
"The PRGF-supported program has been modified for the remainder of FY2008 to reflect the more challenging macroeconomic situation, while allowing for a gradual adjustment of the economy to the external shock. Growth will likely be lower at about 2.5 percent. With the sharp acceleration of inflation, the authorities will attempt to contain its second round effects to hold end-September inflation at 16 percent. Along with additional pledges of external support, the program permits the use of some international reserves to help finance the costs of the shock. The PRGF arrangement has also been augmented to provide additional balance of payments support of SDR16.38 million (about US$26.5 million).
"The program accommodates spending on social assistance programs and measures to soften the impact of higher food prices on the population, much of it financed by additional donor support. However, with the welcome rise in spending capacity and somewhat lower revenues than expected, there is a need to prioritize and cautiously manage budget execution during the remainder of the fiscal year. A continued strong focus on modernizing customs and tax administration to raise revenues, and meeting donor conditionality to receive pledged budgetary support will also be important.
"Meanwhile, monetary policy will need to focus on containing the spill-over of imported prices on core inflation. To achieve this, the authorities have increased interest rates, and are planning to reduce base money growth somewhat further. If needed, the program also provides room for the use of international reserves to take some pressure off the exchange rate adjustment. Clear communication by the central bank of its anti-inflation strategy and the external nature of the price shock, through regular reporting, will also be important to help anchor inflation expectations.
"In addition to dealing with the shocks and the current political difficulties in Haiti, continued implementation of medium-term policies outlined in the PRSP to improve social services, rehabilitate infrastructure, and support potential growth industries will be critical. Prompt implementation of the PRSP and other triggers is also important to obtain debt relief under the enhanced HIPC and Multilateral Debt Relief Initiatives. Reform legislation in the economic area now in Parliament, such as the new banking law, the customs code, and a number of legal amendments to disengage the central bank from non-essential activities, should be swiftly passed.
"Although risks have increased, the Haitian government has displayed its ability and commitment to maintaining macroeconomic stability in the face of adversity. It is important that the international community stay firmly engaged to help Haiti through the current difficult period, to both help safeguard the gains already achieved and set the course going forward to boost growth and employment prospects, and improve living standards," Mr. Kato said.
The PRGF is the IMF's concessional facility for low-income countries. PRGF-supported programs are based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners and articulated in the country's Poverty Reduction Strategy Paper. This is intended to ensure that PRGF-supported programs are consistent with a comprehensive framework for macroeconomic, structural, and social policies to foster growth and reduce poverty. PRGF loans carry an annual interest rate of 0.5 percent and are repayable over 10 years with a 5½ -year grace period on principal payments.
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