Press Release: IMF Approves Three-Year ESAF Loan for Haiti
IMF News, October 18, 1996
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- Published: October 18, 1996
Overview
- The International Monetary Fund (IMF) approved a three-year credit for Haiti under the enhanced structural adjustment facility (ESAF) equivalent to SDR 91.1 million (about US$131 million) to support the government's economic reform program for 1996-99.
- The first annual loan, equivalent to SDR 30.4 million (about US$44 million), will be disbursed in two equal semiannual installments; the first installment will be available on November 5, 1996.
Background
- Haiti experienced more than a decade of economic and social decline driven by inappropriate economic policies and internal strife, aggravated by a 1991 military coup and subsequent embargoes.
- Following the return to constitutional rule in October 1994, the government implemented an Emergency Economic Recovery Plan (EERP) focused on rapid macroeconomic stabilization, restoring public administration, and addressing pressing needs.
- Economic outcomes under the EERP included:
- Real GDP growth of 4.5 percent in FY1994/95.
- The rate of consumer price increases declined to 30 percent on average.
- The international value of the national currency, the gourde, stabilized.
- Despite stronger than projected revenue performance, the government deficit was higher than contemplated, and the external current account deficit widened sharply to 19 percent of GDP, financed by official assistance and private capital inflows.
Medium-Term Strategy for FY1996/97 - FY1998/99 and the Program for FY1996/97
- Macroeconomic objectives for the period through FY1998/99:
- Achieve an annual economic growth rate of 4-5 percent.
- Reduce inflation to low single-digit levels.
- Strengthen the balance of payments and increase international reserves to the equivalent of 3.2 months of imports of goods and services by the end of the period, from 2.1 months in FY1995/96.
- Program targets for FY1996/97, supported by the first annual ESAF loan:
- Achieve a real GDP growth rate of 4.5 percent.
- Reduce the rate of inflation to less than 10 percent from 20 percent in FY1995/96.
- Hold the external current account deficit to around 15 percent of GDP.
- Increase net international reserves to the equivalent of 2.7 months of imports, from just over 2 months.
- Fiscal and policy measures to achieve objectives:
- Broaden the tax base and streamline tax systems; reduce exemptions from taxes and customs duties; improve tax administration; strengthen tax enforcement.
- Reduce current budgetary outlays; introduce procedures to strengthen control over spending from discretionary ministerial accounts.
- Strengthen public sector savings performance and increase external support to finance a notable rise in public investment.
- Monetary and credit policies geared toward inflation and balance of payments objectives.
Structural Reforms
- Accelerated reforms will focus on:
- Tax reforms.
- Public administration reform, including introduction of a modern system of budgeting, expenditure control, accounting, and auditing.
- Decentralization of government functions and reinforcement of local administrations.
- Civil service reform to strengthen the caliber of the civil service.
- Restructuring major public enterprises and state-owned banks.
- A national institute for agricultural reform (created in 1995) will formulate and help implement a comprehensive land reform over the next several years.
Addressing Social Costs
- Spending in the social sectors will increase given Haiti is the poorest country in the Western Hemisphere, but budget constraints will lead authorities to continue seeking assistance from humanitarian organizations and external aid agencies.
- The World Bank is conducting a poverty assessment.
- A public expenditure review will be undertaken in early FY1996/97 to help ensure the efficient use of public resources.
Risks and Implementation Challenges
- The government's limited administrative capacity to carry out the reform agenda poses serious challenges and risks.
- Strict implementation and close monitoring of the program are crucial.
- Support measures include a program to strengthen public sector management through civil service reform, technical assistance, and recruitment of qualified personnel.
- The success of the program requires the timely disbursement of external assistance.
Loan Details and IMF Membership
- ESAF characteristics noted:
- ESAF loans carry an interest rate of 0.5 percent per annum.
- ESAF loans are repayable over 10 years, with a 5 -year grace period.
- Haiti joined the IMF on September 8, 1953.
- Haiti's quota is SDR 60.7 million (about US$87 million).
- Haiti's outstanding use of IMF credit currently totals SDR 17.3million (about US$25 million).
Key Statistics (selected)
- Loan amounts:
- Three-year ESAF credit: SDR 91.1 million (about US$131 million).
- First annual loan: SDR 30.4 million (about US$44 million); first installment available on November 5, 1996.
- Macroeconomic targets and outcomes:
- Real GDP growth (FY1994/95): 4.5 percent.
- FY1996/97 program real GDP target: 4.5 percent.
- Consumer prices (average): FY1994/95: 30.2; FY1995/96: 20.5; FY1996/97: 8.9; FY1997/98: 5.7; FY1998/99: 3.6.
- Public sector overall balance, excluding grants (deficit-): FY1994/95: -8.2; FY1995/96: -8.0; FY1996/97: -9.1; FY1997/98: -7.5; FY1998/99: -6.1.
- External current account balance, excluding grants (deficit-): FY1994/95: -18.9; FY1995/96: -14.8; FY1996/97: -14.5; FY1997/98: -12.2; FY1998/99: -10.6.
- International reserves objective:
- Increase to 3.2 months of imports by end of period from 2.1 months in FY1995/96.
- FY1996/97 target: net international reserves equivalent of 2.7 months of imports, from just over 2 months.
Press Release No. 96/53, October 18, 1996 — International Monetary Fund