Press Release No. 96/53

The International Monetary Fund (IMF) today approved a three-year credit for Haiti under the enhanced structural adjustment facility (ESAF) ¹ 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 of which will be available on November 5, 1996.

Background

Haiti has suffered more than a decade of economic and social decline brought on by inappropriate economic policies and internal strife. The situation was aggravated following a military coup in 1991 and the subsequent embargoes imposed on most trade and financial transactions. A major collapse of the economy ensued and living standards declined significantly, particularly of the most vulnerable groups. Following the return to constitutional rule in October 1994, the government of Haiti put into effect an Emergency Economic Recovery Plan (EERP) that sought to achieve rapid macroeconomic stabilization, restore public administration, and attend to the most pressing needs. Economic performance improved significantly under the EERP: real GDP grew by 4.5 percent in FY1994/95; the rate of consumer price increases declined to 30 percent on average; and the international value of the national currency, the gourde, stabilized. Nevertheless, despite a 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, being financed by official assistance and private capital inflows.

Medium-Term Strategy for FY1996/1997 - FY1998/99 and the Program for FY1996/97

The macroeconomic objectives of the Government's program for the period through FY1998/99 are: (a) to achieve an annual economic growth rate of 4-5 percent; (b) reduce inflation to low single-digit levels; and (c) 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.

Within this medium-term strategy, the program for FY1996/97, supported by the first annual ESAF loan, aims at achieving a real GDP growth rate of 4.5 percent; reducing the rate of inflation to less than 10 percent from 20 percent in FY1995/96; and holding the external current account deficit to around 15 percent of GDP, while increasing net international reserves to the equivalent of 2.7 months of imports, from just over 2 months.

To achieve these objectives, the program calls for broadening the tax base and streamlining the tax systems, reducing exemptions from taxes and customs duties, improving tax administration, and strengthening tax enforcement. On the expenditure side, measures have been taken to reduce current budgetary outlays and new procedures have been introduced to strengthen control over spending from the discretionary ministerial accounts. Together with the strengthening of the public sector's savings performance, an increase in external support is projected that will help finance a notable rise in public investment. Monetary and credit policies will be geared toward the inflation and balance of payment objectives of the program.

Structural Reforms

Structural reforms will be accelerated under the program. In addition to the tax reforms, the reform effort will focus on public administration--including the introduction of a modern system of budgeting, expenditure control, accounting, and auditing; the decentralization of government functions and reinforcement of local administrations; and a civil service reform aimed at strengthening the caliber of the civil service. The major public enterprises and the state-owned banks will be restructured, while 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

Given that Haiti is the poorest country in the Western Hemisphere, spending in the social sectors will increase. However, because of budget constraints, the authorities will continue to seek assistance from humanitarian organizations and external aid agencies. To prioritize the needs in these areas, the World Bank is conducting a poverty assessment, and a public expenditure review will be undertaken in early FY1996/97 to help ensure the efficient use of public resources.

The Challenge Ahead

The government's limited administrative capacity to carry out its reform agenda poses serious challenges and risks. Strict implementation and close monitoring of the program will be crucial, and will be supported by a program to strengthen public sector management through civil service reform, technical assistance, and recruitment of qualified personnel. The success of Haiti's program also requires the timely disbursement of external assistance.

Haiti joined the IMF on September 8, 1953. Its quota ² is SDR 60.7 million (about US$87 million). Its outstanding use of IMF credit currently totals SDR 17.3million (about US$25 million).

Haiti: Selected Economic Indicators 1994/95* 1995/96** 1996/97** 1997/98** 1998/99** (Percent change) Real GDP 4.5 2.0 4.5 4.5 4.5 Consumer Prices (average) 30.2 20.5 8.9 5.7 3.6 (Percent of GDP) Public sector overall balance, excluding grants (deficit-) -8.2 -8.0 -9.1 -7.5 -6.1 External current account balance, excluding grants (deficit-) -18.9 -14.8 -14.5 -12.2 -10.6 Sources: Haitian authorities; and IMF staff estimates and projections. *Preliminary results. **Program projections 1 ESAF is a concessional IMF facility for assisting eligible members that are undertaking economic reform programs to strengthen their balance of payments and to improve their growth prospects. ESAF loans carry an interest rate of 0.5 percent per annum, and are repayable over 10 years, with a 5 -year grace period. 2 A member's quota in the IMF determines, in particular, the amount of its subscription, its voting weight, its access to IMF financing, and its share in the allocation of SDRs.