Haiti -- Donors' Meeting in Brasilia

Statement by Przemek Gajdeczka
Advisor, Western Hemisphere Department
International Monetary Fund
May 23, 2006

Thank you for this opportunity to speak at this important meeting.

Recent Developments

1. As most of you know, the Fund team traveled to Haiti earlier this month to assess the economic situation and to agree with the authorities on a macroeconomic framework for April-September 2006. We found the overall economic situation broadly stable, and we applaud the outgoing authorities' efforts toward restoring macroeconomic stability, in spite of numerous obstacles. For the year as a whole, real GDP is expected to grow by 2.5 percent as envisaged, but end-September inflation is expected to be 15 percent, as compared with the original EPCA target of 10 percent. On the external side, net international reserves have increased substantially and the gourde has strengthened.

2. These results to a significant extent reflect the performance under the government's EPCA-supported program. The program is broadly on track, even though some targets were missed. Although central bank financing of the budget at end-March was slightly above the target (0.1 percent of GDP), reflecting some expenditure overruns, the use of current accounts was curtailed as envisaged, and information on the central government budget has been published. With regard to monetary policy, the ceiling on net domestic assets of the BRH was missed, reflecting mostly purchases of foreign exchange to rebuild depleted international reserves. Thus, net international reserves were far above the program floor (by US$24 million), and limits on debt and arrears were honored.

Framework through end-September

3. We held discussions with both the outgoing transition government and representatives of President Préval who, while endorsing the policy framework, noted that further corrections may be needed once they take full stock of the situation. The agreed framework through end-September is meant to provide a basis for extending our monitoring of policy implementation in the run-up to a PRGF-supported program. The authorities have committed to implement the supplementary budget in line with the agreement reached with Fund staff in early May.

4. The representatives of the incoming authorities emphasized their commitment to fiscal discipline while reprioritizing expenditures, and to avoid central bank financing of the budget. The budget for April-September 2006, as agreed with Fund staff, targets higher revenue and expenditure. In particular:

  • Higher revenue reflects largely taxes from higher than anticipated petroleum prices.

  • Central government expenditure funded from domestic resources will increase by 0.3 percent of GDP. This is accounted for by higher transfers and subsidies to the electricity sector to offset the impact of higher petroleum prices, while domestically-funded investment will be reduced by about one third. Nearly half of the remaining investment will be re-allocated to quick-disbursing high priority projects that are being prepared in consultation with donors (program d'appaisement social). We support Mr. Préval's transition team's focus on such projects, which would help preserve recent improvements in the security situation.

  • Assuming no new borrowing from the central bank, there would remain a budgetary gap of some US$18 million. This is after including forthcoming disbursements from the IDB ($15 million), and an EC disbursement of Euro 10 million. The authorities are considering offsetting measures if additional external financing to fill the gap is not forthcoming.

5. On the structural front, the authorities committed to complete several measures by end-September 2006. In particular, they will: (i) verify information on domestic payments arrears and prepare a plan for their settlement; (ii) extend computerization of data to all customs offices; (iii) apply the single fiscal identification number in taxpayers files; (iv) implement a monitoring mechanism for government transfers to the electricity sector; and (v) finalize and publish audits of the central government and of the BRH. In addition, they committed to continue to strictly limit the use of the ministerial current accounts.

Budget for 2006/07

6. The incoming authorities need to accelerate preparations for the 2006/07 budget, in order to coordinate properly with donors and obtain parliamentary approval before end-September 2006. They hope to boost economic growth by creating favorable conditions for private sector investment. Fund staff recommended to begin working with projections of real GDP growth of 4 percent, inflation of 8 percent, and an increase in gross international reserves to at least seven weeks of imports by end-September 2007. However, there is an estimated remaining financing gap of around $80 million.

Next steps

7. The authorities agreed on a work program toward a PRGF arrangement and a HIPC decision point, with Executive Board consideration in the fall of 2006. This is a very ambitious agenda that will require exceptional efforts by the authorities and donors.

  • The IMF team is planning discussions on the three-year PRGF-supported program to take place in June and August. We envisage two Executive Board meetings related to this work program: (i) in August/September on a preliminary HIPC document; and (ii) in October on a PRGF arrangement and HIPC decision point.

  • In the meantime, in addition to carrying out the agreed program through September 2006, the new authorities will need to complete and endorse the interim Poverty Reduction Strategy, agree on HIPC completion point triggers, and establish a plan to improve tracking of poverty-reducing expenditures.

This plan also assumes that the pledging meeting takes place in time to provide inputs to the 2006/07 government budget. Most importantly, it is necessary that the budgetary gap is filled before a PRGF-supported program can be presented to the Fund's Executive Board for approval, as the program is required to be fully financed.



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