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Haiti

Author(s):
International Monetary Fund
Published Date:
February 2010
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I. Background

1. On January 12, 2010, Haiti was struck by an exceptionally powerful earthquake, which caused unprecedented damages and casualties. The epicenter of the 7.0 magnitude earthquake was located near the capital city, Port-au-Prince, where a third of the country’s population and most of the state and economic infrastructure are located (Box 1).

Box 1.Earthquake Impact

The earthquake has largely affected Port-au-Prince and nearby cities, affecting about 3 million people or a third of Haiti’s population. The extent of destruction of buildings is compounded by the fact that Port-au-Prince has many densely packed neighborhoods with inferior construction standards. The number of casualties is estimated to be in the tens of thousands. The UN estimates that about one million people are in need of shelter, and this figure could rise. The affected population has either been injured, or has lost access to basic necessities such as food, water, health care, and shelter, in addition to jobs and education. Local hospitals were damaged or destroyed, and most of the schools in Port-au-Prince have collapsed. The UN and international humanitarian community located in the capital also suffered heavy losses. Due to the high concentration of the displaced population in Port-au-Prince, many are leaving the city to rural areas, or other urban centers in search of food and water, which will place more pressure on these areas.

There are fears the security situation may deteriorate rapidly, particularly if the humanitarian needs of the population are not met quickly. There have been reports of shootings, looting of shops, and small riots mostly at food distribution points. Nonetheless, the overall security situation has been fairly calm, helped by the presence of 9,000 UN troops and police, and the arrival of U.S. troops.

The economic infrastructure in and around the capital city was destroyed. The UN estimates that damage to agricultural production systems in and around the capital has been widespread. Several bank headquarters were destroyed. The sea port of Port-au-Prince became non operational. The airport was damaged but is open and receiving aid, though a lack of fuel, transport, communications and handling capacity are creating bottlenecks. Severe damages to infrastructure, including roads, bridges, water systems, and electrical and communications systems are affecting the immediate relief effort and will constrain economic activity over a longer period.

The government’s ability to function was seriously impaired, further constraining the aid response. Several ministries and the tax and customs collection offices have been destroyed; the presidential palace, parliament, the prime minister’s office and supreme court were seriously damaged; and many civil servants have been killed. The central bank sustained some damage, but has been able to restore a basic manual payments system.

2. This disaster represents a major setback for Haiti, following several years of progress in maintaining macroeconomic stability, resuming growth, and implementing essential reforms. Over the past three years economic growth averaged 2½ percent per annum, improving the dismal growth performance of earlier years. Such progress was achieved despite a series of adverse external shocks, episodes of political instability and social unrest, and volatile external support which jeopardized macroeconomic stability.

3. Haiti is the poorest country in the Western Hemisphere and ranks in the bottom quartile of the United Nations Development Program (UNDP) Human Development Index. Over half the population lives on less than a dollar a day and 72 percent on less than two dollars. Poverty contributes to environmental degradation which, in turn, has increased its vulnerability to natural disasters (Text table 1).

Text table 1.Haiti: Selected Social Indicators
Human Development IndexLife expectancy at birth (years)DPT immunization rate (percent of children ages 12-23 months)Prevalence of undernourishment (percent of population)Adult literacy rate (percent of population above age 15)
Haiti10.53615358552
Low income countries0.5458803164
Latin America and the Caribbean0.827392991
Sources: UNDP, Human Development Report; World Bank, World Development Indicators.

Haiti ranks 149th over 182 in the 2009 Human Development Report.

Haiti uses the creole literarcy rate whereas other countries use the main European language.

Sources: UNDP, Human Development Report; World Bank, World Development Indicators.

Haiti ranks 149th over 182 in the 2009 Human Development Report.

Haiti uses the creole literarcy rate whereas other countries use the main European language.

II. Recent Developments

4. Economic performance through FY 2009 (ending in September 2009) was favorable, with a minimal impact of the global crisis and a post-hurricane rebound.

  • Growth reached 2.9 percent, fueled by strong agricultural and manufacturing output. Annual inflation bottomed out at minus 4.7 percent in September, reflecting lower international and local food prices.

  • The fiscal deficit (excluding grants and externally financed projects) was contained at 4.4 percent of GDP, as spending remained subdued, in part due to delays in budget support disbursements. At the same time, dynamic exports, low import prices and resilient remittances helped reduce the external current account deficit to 3.2 percent of GDP, from 4.5 percent in FY 2008. Reserve coverage rose to 3.7 months of imports in September, following the SDR allocation (Figures 1-3, Tables 1-4).

  • In the financial sector, credit and deposits grew strongly, liquidity improved, and all banks posted positive earnings (Figure 4, Table 5).

Figure 1.Haiti: Recent Economic Indicators

Prior to the earthquake growth, inflation, and the external sector improved in 2009, but fiscal dominance raised liquidity.

Sources: Haitian Authorities; and IMF staff calculations.

Figure 2.Haiti: Remittances

Remittance inflows to Haiti have proved surprisingly resilient amid the global crisis compared to other remittance-dependent economies in the region, supporting consumption and modest growth.

Sources: Country Authorities; Haver Analytics; and Fund staff calculations.

1/ Excluding Panama and Guatemala.

2/ Correlation of the annual change in remittances to real GDP growth.

Figure 3.Haiti: External Sector and Competitiveness

Most competitiveness indicators indicated either some deterioration in recent years or a relatively worse position than regional competitors…

Sources: Authorities; U.S. Department of Commerce and the U.S. International Trade Commission (USCIT); World Bank Doing Business Project; and IMF staff calculations.

Table 1.Haiti: Selected Economic and Financial Indicators(Fiscal year ending September 30)
Nominal GDP (2008): US$6.95 billionGDP per capita (2008): US$712
Population (2008): 9.76 millionAdult literacy (2008): 53 percent
Share of pop. living with less than $1 a day (2003): 54 percentUnemployment rate (2003): 27 percent
2007200820092010
Country Report No. 09/258
ActualEst.Actual GDP 1/Prel.Proj.
(change over pervious year unless otherwise stated)
National income and prices
GDP at constant prices3.30.82.02.9-10.0
GDP deflator7.213.86.33.211.6
Consumer prices (period average)9.014.45.13.48.4
Consumer prices (end-of-period)7.919.81.0-4.715.0
External sector
Exports (f.o.b.)5.7-6.20.112.4-29.7
Imports (f.o.b.)4.530.2-0.8-3.312.3
Real effective exchange rate (+ appreciation)15.32.91.0
Central government
Total revenue and grants30.79.229.425.9-2.2
Total revenue excl. grants15.415.78.211.3-43.0
Current expenditure-2.042.821.813.82.8
Total expenditure14.633.437.430.34.6
Money and credit
Credit to the nonfinancial public sector (net)2/-6.9-29.863.725.338.9
Credit to private sector10.825.212.814.7-8.6
Base money7.613.99.39.51.1
Broad money (incl. foreign currency deposits)4.817.710.011.06.7
(in percent of GDP, unless otherwise stated)
Central government
Overall balance0.2-3.1-5.0-4.4-5.8
Overall balance (excl. grants)-5.0-7.5-12.5-11.1-16.9
Overall balance (excl. grants and externally-financed projects)0.4-2.3-5.8-4.4-8.2
Overall balance (excl. ext.-financed projects and project grant1.6-0.9-3.5-2.9-5.8
Central bank net credit to the central government-0.40.00.90.20.0
Savings and investment
Gross investment25.026.038.223.426.8
Gross national savings24.821.534.920.220.4
Of which: Central government savings3.21.40.91.2-3.0
External current account balance (incl. official grants)-0.3-4.5-3.3-3.2-6.4
External current account balance (excl. official grants)-6.9-11.7-13.4-10.6-19.1
Total public debt (end-of-period)3/39.836.423.223.428.4
External public debt service (in percent of exports of goods and nonfactor services)4/8.38.210.03.93.7
(in millions of U.S. dollars, unless otherwise stated)
Overall balance of payments163.441.5-57.433.4-304.2
Net international reserves (program)5/269.1288.1238.1314.5516.8
Liquid gross reserves5/6/544.7707.8754.7947.5867.6
In months of imports of the following year2.32.93.03.73.4
Exchange rate (gourdes per dollar, end-of-period)36.440.041.8
Nominal GDP (millions of gourdes)219,102251,464266,893266,893268,067
Nominal GDP (millions of U.S. dollars)5,8586,5726,5606,5606,104
Sources: Ministry of Economy and Finance; Bank of the Republic of Haiti; Fund staff estimates; and World Bank. Includes HIPC/MDRI relief beginning in 2010.

GDP ratios are calculated using nominal program figures for 2009 (numerator) and actual GDP (denominator).

In 2008 it reflects accumulation of Petrocaribe-related resources; in 2009, it reflects the use of Petrocaribe-related resources accumulated in 2008.

Coverage has been modified since Country Report No. 09/77. Includes external public sector debt, domestic debt of the central government, but excludes BRH bonds issued for monetary purposes. Reflects HIPC/MDRI debt reduction in

Includes HIPC/MDRI relief beginning in 2010.

Excluding commercial bank forex deposits, letters of credit, guarantees, and earmarked project accounts. In 2010, NIR jumps as the program definition of NIR changed with the SDR allocation no longer netted out as a liability. NIR at end-2009 under the new definition is US$608.2 million.

As of August 28, 2009, also includes the (general and special) SDR holdings of SDR 64.8 million.

Sources: Ministry of Economy and Finance; Bank of the Republic of Haiti; Fund staff estimates; and World Bank. Includes HIPC/MDRI relief beginning in 2010.

GDP ratios are calculated using nominal program figures for 2009 (numerator) and actual GDP (denominator).

In 2008 it reflects accumulation of Petrocaribe-related resources; in 2009, it reflects the use of Petrocaribe-related resources accumulated in 2008.

Coverage has been modified since Country Report No. 09/77. Includes external public sector debt, domestic debt of the central government, but excludes BRH bonds issued for monetary purposes. Reflects HIPC/MDRI debt reduction in

Includes HIPC/MDRI relief beginning in 2010.

Excluding commercial bank forex deposits, letters of credit, guarantees, and earmarked project accounts. In 2010, NIR jumps as the program definition of NIR changed with the SDR allocation no longer netted out as a liability. NIR at end-2009 under the new definition is US$608.2 million.

As of August 28, 2009, also includes the (general and special) SDR holdings of SDR 64.8 million.

Table 2a.Haiti: Central Government Operations(Fiscal year ending September 30; in millions of gourdes)
2007200820092010
Country Report No. 09/258
ActualEst.Prog.Rev. Proj.BudgetProj.
Total revenue and grants34,71337,90149,06247,71776,85346,679
Domestic revenue23,19726,84929,04129,88134,92517,045
Domestic taxes15,74018,02619,66319,95423,87311,207
Customs duties6,8287,9178,9398,95810,5705,130
Other current revenue629906438970482709
Grants11,51711,05220,02117,83641,92829,634
Budget support2,7203,4855,9563,8733,1686,401
Project grants8,7977,56814,06513,96238,76023,233
Total expenditure1/34,24845,68062,49759,53488,19862,275
Current expenditure18,86426,93532,59530,64131,70031,490
Wages and salaries8,08711,71613,99713,39616,03114,681
Net Operations 2/3,0278,4167,6717,1598,69810,607
Operations 2/6,3227,3507,6717,6558,69810,607
Interest payments2,4201,7682,2592,2421,5591,686
External7209281,0641,106420547
Domestic1,7008401,1941,1361,1391,139
Transfers and subsidies5,3305,0358,6697,8445,4124,516
Of which: energy sector4,2583,4482,0001,988
Capital expenditure15,38518,74529,90228,89456,49830,785
Domestically financed3,5465,61111,83910,9599,0547,552
Of which: Treasury3,5465,6113,0212,2257,8926,390
Of which: Counterpart funds 3/1,8991,8991,1621,162
Foreign-financed11,83913,13418,06317,93447,44423,233
Overall balance465-7,778-13,435-11,817-11,345-15,596
Excl. grants-11,052-18,831-33,456-29,653-53,273-45,230
Excl. grants and externally financed projects787-5,697-15,394-11,718-5,828-21,996
Excl. project grants and ext. financed projects3,507-2,212-9,437-7,845-2,660-15,596
Financing-4657,77813,43511,81711,34511,204
External net financing-1066,7868,2988,2108,39910,043
Loans (net)1,6206,7868,2818,2108,39910,043
Disbursements3,4068,46110,0159,9358,68510,499
Budget support3642,8956,0175,963010,499
Of which: Petrocaribe1,9515,9965,963010,478
Project loans3,0425,5663,9973,9728,6850
Amortization-1,786-1,676-1,734-1,725-285-457
External financing to be committed17000
Arrears (net)-1,72600000
Internal net financing-1,264833,6032,0822,9461,162
Banking system-1,264-2292,3956442,2440
BRH-9491212,3956442,2440
excl. Petrocaribe6442,2440
Net T-bills for recap0
Commercial banks-315-3490000
excl. Petrocaribe000
Net purchase of T-bills0
Nonbank financing03121,2081,4397021,162
Amortization-690-460-460-460
Counterpart funds 3/1,8991,8991,1621,162
Arrears (net)000000
Debt rescheduling13416314314200
HIPC interim relief7717471,3911,38300
Unidentified financing (in U.S. dollars)00000100
Sources: Ministry of Finance and Economy; and Fund staff estimates.

Commitment basis except for domestically financed capital expenditure, which is reported on cash basis from 2007 onwards.

Includes stastical discrepancy.

Proceeds from sales of grants received in kind.

Sources: Ministry of Finance and Economy; and Fund staff estimates.

Commitment basis except for domestically financed capital expenditure, which is reported on cash basis from 2007 onwards.

Includes stastical discrepancy.

Proceeds from sales of grants received in kind.

Table 2b.Haiti: Central Government Operations(Fiscal year ending September 30; in percent of GDP)
2007200820092010
Country Report No. 09/258
ActualEst.Actual GDP3/Rev. Proj.BudgetProj.
Total revenue and grants15.815.118.417.928.717.4
Total revenue10.610.710.911.213.06.4
Domestic revenue10.610.710.911.213.06.4
Domestic taxes7.27.27.47.58.94.2
Customs duties3.13.13.33.43.91.9
Other current revenue0.30.40.20.40.20.3
Grants5.34.47.56.715.611.1
Budget support1.21.42.21.51.22.4
Project grants4.03.05.35.214.58.7
Total expenditure1/15.618.223.422.332.923.2
Current expenditure8.610.712.211.511.811.7
Wages and salaries3.74.75.25.06.05.5
Net Operations 2/1.43.32.92.73.24.0
Operations 2/2.92.92.92.93.24.0
Interest payments1.10.70.80.80.60.6
Transfers and subsidies2.42.03.22.92.01.7
o/w energy sector1.61.30.70.7
Capital expenditure7.07.511.210.821.111.5
Domestically financed1.62.24.44.13.42.8
Of which: Treasury1.62.21.10.82.92.4
Of which: Counterpart funds 4/0.00.00.70.70.40.4
Foreign-financed5.45.26.86.717.78.7
Overall balance0.2-3.1-5.0-4.4-4.2-5.8
Excl. grants-5.0-7.5-12.5-11.1-19.9-16.9
Excl. grants and externally financed projects0.4-2.3-5.8-4.4-2.2-8.2
Excl. project grants and ext. financed projects1.6-0.9-3.5-2.9-1.0-5.8
Financing-0.23.15.04.44.24.2
External net financing0.02.73.13.13.13.7
Loans (net)0.72.73.13.13.13.7
Disbursements1.63.43.83.73.23.9
Budget support0.21.22.32.20.03.9
Of which: Petrocaribe0.82.22.20.03.9
Project loans1.42.21.51.53.2
Amortization-0.8-0.7-0.6-0.6-0.1-0.2
External financing to be committed0.00.00.00.00.0
Arrears (net)-0.80.00.00.00.00.0
Internal net financing-0.60.01.40.81.10.4
Banking system-0.6-0.10.90.20.80.0
BRH-0.40.00.90.20.80.0
excl. Petrocaribe0.20.80.0
Net T-bills for recap0.00.00.0
Commercial banks-0.1-0.10.00.00.00.0
excl. Petrocaribe0.00.00.0
Net purchase of T-bills0.00.00.0
Other nonbank financing0.00.10.50.50.30.4
Amortization-0.3-0.20.00.0
Counterpart funds 4/0.70.70.00.0
Arrears (net)0.00.00.00.00.00.0
Rescheduling0.10.10.10.10.00.0
HIPC interim relief0.40.30.50.50.00.0
Unidentified financing0.00.00.00.00.01.6
Sources: Ministry of Finance and Economy; and Fund staff estimates.

Commitment basis except for domestically financed capital expenditure, which is reported on cash basis from 2007 onwards.

Includes stastical discrepancy.

GDP ratios are calculated using Nominal Program Figures for 2008 (numerator) and actual nominal GDP (denominator)

Proceeds from sales of grants received in kind.

Sources: Ministry of Finance and Economy; and Fund staff estimates.

Commitment basis except for domestically financed capital expenditure, which is reported on cash basis from 2007 onwards.

Includes stastical discrepancy.

GDP ratios are calculated using Nominal Program Figures for 2008 (numerator) and actual nominal GDP (denominator)

Proceeds from sales of grants received in kind.

Table 3.Haiti: Summary Accounts of the Banking System(Fiscal year ending September 30; in millions of gourdes)
2007200820092010
Country Report No. 09/258
ActualEst.Prog.Act.Proj.
I. Central Bank
Net foreign assets16,84921,03521,52224,95318,235
(In millions of U.S. dollars)463526507597393
Net international reserves (program) 1/269288238315517
Commercial bank forex deposits181221250267262
Net domestic assets8,0817,3569,5226,12613,171
Net credit to the nonfinancial public sector19,90520,54122,93621,54921,549
Of which: Net credit to the central government20,48720,60723,00223,11823,118
Of which: t-bills0
Liabilities to commercial banks (excl gourde deposits)-15,596-18,431-20,777-20,711-20,156
BRH bonds-9,013-9,601-10,161-9,552-8,000
Counterpart of commercial bank forex deposits-6,583-8,830-10,616-11,159-12,156
Other3,7715,2477,3635,28911,778
Base Money24,93028,39231,04331,08031,406
Currency in circulation11,57013,03014,27113,44813,744
Commercial bank gourde deposits13,35915,36216,77317,63217,663
II. Consolidated Banking System
Net foreign assets28,10639,11138,60341,49039,605
(In millions of U.S. dollars)773979909993854
Of which: Commercial banks NFA309452402396461
Net domestic assets50,55753,46963,19661,30370,050
Credit to the nonfinancial public sector18,85213,22421,64916,57523,025
Credit to the private sector29,94637,49642,29143,00239,319
In gourdes13,28416,11717,28419,20612,906
In foreign currency16,66321,38025,00723,79626,414
In millions of U.S. dollars458535589570570
Other1,7602,748-7441,7277,706
Broad money78,66492,580101,800102,794109,656
Currency in circulation11,57013,03014,27113,44813,744
Gourde deposits32,97437,05039,82941,18241,290
Foreign currency deposits34,12042,50047,70048,16454,622
In millions of U.S. dollars9381,0641,1241,1531,178
(12-month percentage change)
Currency in circulation3.712.69.53.22.2
Base money7.613.99.39.51.1
Gourde money (M2)4.312.48.09.10.7
Broad money (M3)4.817.710.011.06.7
Gourde deposits4.612.47.511.20.3
Foreign currency deposits (U.S. dollars)5.324.612.213.313.4
Credit to the nonfinancial public sector-6.9-29.863.725.338.9
Credit to the private sector10.825.212.814.7-8.6
Credit in gourdes2.821.37.219.2-32.8
Credit in foreign currency (U.S. dollars)18.228.317.011.311.0
Memorandum items:
Foreign currency bank deposits (percent of total)50.953.454.553.956.9
Foreign curr. credit to priv. sector (percent of total)55.657.059.155.367.2
Commercial Banks’ Credit to Private Sector (percent of GDP)2/13.014.215.815.413.9
Sources: Bank of the Republic of Haiti; and Fund staff estimates.

Excluding commercial bank forex deposits, letters of credit, guarantees, earmarked project accounts and U.S.dollar-denominated bank reserves. In 2010, NIR jumps as the program definition of NIR changed with the SDR allocation no longer netted out as a liability. NIR at end-2009 under the new definition is US$608.2 million.

GDP ratio calculated using nominal program figure for 2009 (numerator) and actual nominal GDP (denominator).

Sources: Bank of the Republic of Haiti; and Fund staff estimates.

Excluding commercial bank forex deposits, letters of credit, guarantees, earmarked project accounts and U.S.dollar-denominated bank reserves. In 2010, NIR jumps as the program definition of NIR changed with the SDR allocation no longer netted out as a liability. NIR at end-2009 under the new definition is US$608.2 million.

GDP ratio calculated using nominal program figure for 2009 (numerator) and actual nominal GDP (denominator).

Table 4.Haiti: Balance of Payments(Fiscal year ending September 30; in millions of U.S. dollars)
2007200820092010
Country Report No. 09/258
ActualEst.Prog.Est.Proj.
Current account-15.2-295.3-213.9-210.3-392.1
Current account (excluding grants)-406.8-769.0-875.4-697.7-1,163.9
Trade balance-1,096.0-1,617.0-1600.1-1,486.0-1,900.3
Exports of goods522.5490.2490.8551.2387.5
Of which: Assembly industry463.1423.3432.1491.3346.5
Imports of goods-1,618.4-2,107.2-2090.9-2,037.2-2,287.8
Of which: Petroleum products-415.0-602.2-425.0-384.6-497.3
Services (net)-443.6-420.6-451.5-462.5-576.8
Receipts259.6342.8319.9382.0235.0
Payments-703.2-763.4-771.4-844.5-811.8
Income (net)7.316.0-12.810.5-4.8
Of which: Interest payments 1/-19.6-24.6-26.8-12.2-12.5
Current transfers (net)1,517.11,726.41850.51,727.72,089.9
Official transfers (net)391.6473.7661.5487.4771.8
Of which: budget support0.00.093.6144.6
Private transfers (net)1,125.51,252.71189.01,240.31,318.1
Capital and financial accounts178.6336.7156.6243.787.9
Capital transfers (HIPC/MDRI)0.00.01069.01,069.00.0
Public sector capital flows (net)46.1319.749.6263.8143.3
Loan disbursements91.6363.598.0186.4153.7
Amortization 1/-45.5-43.8-48.4-24.0-10.4
Debt stock reduction (HIPC/MDRI)0.00.0-1092.0-1,092.00.0
Banks (net) 2/16.2-143.050.056.5-65.0
Private sector capital flows 2/73.0115.857.0-2.19.6
Of which: Foreign direct investment74.529.820.036.99.6
Errors and omissions 3/43.344.20.026.80.0
Overall balance163.441.5-57.433.4-304.2
Financing-163.4-41.557.4-33.4204.2
Change in net foreign assets 4/-184.3-63.419.5-70.8204.1
Change in gross reserves-207.9-163.0-46.7-258.780.0
Liabilities23.599.666.2187.9124.1
Utilization of Fund credits(net)21.049.960.361.4116.5
Purchases and loans54.749.960.361.412.04
Repayments-33.70.00.00.00.0
Other liabilities2.549.75.9126.57.6
Change in arrears-45.00.00.00.00.0
Debt rescheduling37.93.63.53.50.0
HIPC interim assistance28.118.334.034.00.1
External financing to be committed0.00.00.40.00.0
PRGF augmentation0.00.00.00.0104.5
Financing gap0.00.00.00.0100.0
Memorandum items:
Current account balance (in percent of GDP)-0.3-4.5-3.0-3.2-6.4
Current account balance, excl. grants (in percent of GDP)-6.9-11.7-12.4-10.6-19.1
Goods exports (f.o.b) growth5.7-6.20.112.4-29.7
Goods import (f.o.b) growth4.530.2-0.8-3.312.3
Debt service as percent of exports8.38.29.33.93.7
Gross liquid international reserves (in millions of U.S. dollars)544.7707.8754.7947.5867.6
Gross liquid international reserves (in months of next year’s imports of goods and services)2.32.93.03.73.4
Sources: Bank of the Republic of Haiti; and Fund staff estimates.

Includes HIPC/MDRI debt relief beginning in 2010 (2009 HIPC/MDRI debt relief is reflected below-the-line).

Includes NIR and commercial banks’ foreign currency deposits with the BRH.

Includes short-term capital and errors and omissions for historical period.

Petrocaribe resources for 2009 are recorded as private capital inflows and outflows of banks’ NFA.

Sources: Bank of the Republic of Haiti; and Fund staff estimates.

Includes HIPC/MDRI debt relief beginning in 2010 (2009 HIPC/MDRI debt relief is reflected below-the-line).

Includes NIR and commercial banks’ foreign currency deposits with the BRH.

Includes short-term capital and errors and omissions for historical period.

Petrocaribe resources for 2009 are recorded as private capital inflows and outflows of banks’ NFA.

Figure 4.Haiti: Financial Indicators of the Banking System

The financial sector in Haiti was underdeveloped and largely insulated from the global financial sector crisis.

Sources: Haitian Authorities; and IMF staff calculations.

Table 5.Haiti: Financial Soundess Indicators of the Banking System(Fiscal year ending September 30; in percent unless otherwise indicated)
2006200720082009
Size and Growth
Total assets (in millions of gourdes)72,51979,764100,302107,913
Of which: central bank bonds7,6849,0089,3979,552
Of which: total loans22,75024,67031,18735,405
Total assets (in millions of U.S. dollars) 1/1,9292,1922,5102,583
Total Deposits (in millions of gourdes)61,31166,03184,72592,460
Net Profits (loss) (in millions of gourdes)414.4202.3483.7359.8
Credit/GDP10.210.910.813.3
Deposits/GDP30.629.234.637.8
Credit growth (net) from year before 2/13.79.929.314.2
Capital adequacy
Regulatory capital to risk-weighted assets 3/14.319.012.616.4
Capital (net worth) to assets5.37.06.16.7
Asset quality and composition
Loans (net) to assets28.228.329.130.9
NPLs to gross loans11.110.09.78.5
Provisions to gross loans9.98.56.45.9
Provisions to gross NPLs89.385.566.469.6
NPL less provisions to net worth7.06.415.612.6
Earnings and profitability (annualized)
Net Earnings/Assets (ROA)1.81.02.01.4
Net Earnings/Equity (ROE)34.214.730.920.5
Net interest income to gross interest income72.267.180.087.3
Operating expenses to net profits70.786.073.574.1
Efficiency
Interest rate spread in gourdes 4/11.710.212.419.5
Interest rate spread in U.S. dollar 4/7.88.910.710.9
Liquidity
Liquid assets to total assets 5/45.346.535.446.9
Liquid assets to deposits 5/54.556.141.944.4
Market Risk
Foreign currency loans to total loans (net)66.070.169.368.9
Foreign currency deposit to total deposits53.652.458.256.9
Sources: Fund staff computations based on data from the Bank of the Republic of Haiti.

Data for all years converted from gourdes.

Net credit equal to gross loans less non performing loans.

The prudential requirement is 12 percent.

Defined as the difference between average lending rate and average fixed deposit rate in the banking system.

Liquid assets include cash and central bank bonds.

Sources: Fund staff computations based on data from the Bank of the Republic of Haiti.

Data for all years converted from gourdes.

Net credit equal to gross loans less non performing loans.

The prudential requirement is 12 percent.

Defined as the difference between average lending rate and average fixed deposit rate in the banking system.

Liquid assets include cash and central bank bonds.

5. The positive performance continued during the first quarter of FY 2010 (October-December 2009).

  • In November, 12-month inflation rose to minus 0.8 percent (from minus 4.7 in September), owing to rising world commodity prices and incipient pressures from increases in the minimum wage, electricity, and customs tariffs. Political developments in October-November caused some temporary pressures on the gourde which prompted the central bank to sell foreign exchange (US$11.8 million in net terms); as a result, NIR declined by US$16 million during the quarter.

  • The end-December fiscal deficit was lower than anticipated in the budget. A strong revenue performance (with the exception of petroleum taxes) and lower spending on wages and investment resulted in a small overall surplus.

III. Impact of the Earthquake and Proposed Augmentation

6. Staff’s very preliminary estimates suggest that GDP could decline by at least 13 percentage points to - 10 percent in FY 2010 as a result of the earthquake.1 This estimate is comparable to the loss of GDP suffered by other countries following major natural disasters (Text Table 2). Pre-earthquake projections for 2010 pointed to positive growth of about 3.6 percent and annual inflation of 8 percent. It is too early to present estimates of the total damage caused by the earthquake, but it is likely to be much larger than that of the 2008 hurricanes, which caused losses in the order of US$900 million (15 percent of GDP). The above GDP projection takes into account the following assessment:

Text Table 2.Impact of Large Natural Disasters
CountryEventDeath tollDamageGrowth impact (in percentage points, one year after disaster)
(in millions of U.S. dollars)(in percent of GDP)
Bangladesh1970 Bhola cyclone500,000862.2-11.5
Nicaragua1998 Hurricane Mitch3,0001,20057.03.3
Honduras1998 Hurricane Mitch13,5005,00095.0-4.8
El Salvador2001 Earthquakes1,0002,20016.0-0.5
Maldives2004 Tsunami1081,55350.0-14.1
Myanmar2008 Cyclone Nargis146,00010,00038.2-7.9
Haiti2008 Hurricanes80090015.0-2.6
Source: IMF Country Reports.
Source: IMF Country Reports.
  • First quarter growth (October-December) is estimated to have been in line with the pre-earthquake annual projection of about 3.6 percent output growth.

  • The largest drop of GDP is expected to occur in the second quarter (January-March 2010). Manufacturing activity would be hit the most, as the largest enterprises, including the important export textile sector, were located in the Port-au-Prince area. The destruction of government and private buildings is also estimated to result in a sharp drop in government services, commerce, and tourism. Agriculture, the main growth driver, would be affected due to widespread damages to the production systems in and around the earthquake area, in addition to disruptions to the distribution networks.

  • In the second half of the fiscal year, some gradual recovery would take place as a result of the reconstruction effort. The strength of the recovery would depend importantly on the speed of disbursement of foreign aid.

  • On a very preliminary basis also, inflation is projected to rise significantly, perhaps to about 10-20 percent, as a result of severe shortages and a sharp initial depreciation of the gourde.

7. The fiscal balance is projected to deteriorate very substantially. About 85 of total revenues are collected in the capital area, where most of the country’s largest enterprises are located. In addition to staff losses among government officials, revenue administration infrastructure has been destroyed or seriously damaged, including buildings and computer systems, which will further hamper revenue collection. Reconstruction needs will lead to substantial increases in government spending, and actual spending will depend importantly on the availability of external aid. Very preliminary staff projections suggest that the overall deficit for FY 2010 could rise to about 5.8 percent of GDP. This scenario also assumes a fairly conservative level of new financing, which, given amounts already committed is likely to reach higher levels. However, spending needs are equally likely to rise in a commensurate manner based on more precise estimates of the damages and reconstruction needs. Projections assume that most of the budget financing needs would be covered by grants.

8. The impact of the earthquake on the external current account is expected to be significant. Destruction of the production and trade infrastructure (factories, port, roads) could lead to a large decline in exports (all but one textile plants are located in Port-au-Prince, and textile exports represent 90 percent of total exports), while reconstruction-related imports will likely increase. Remittances could increase significantly from FY 2009 as the diaspora responds to the emergency, provided transfers and payments systems can be restored promptly. Nonetheless, the external current account deficit (excluding grants) could reach almost 20 percent of GDP owing to a sharp widening in the trade balance.

9. To help cover the projected balance of payments gap FY 2010, the authorities are requesting a program augmentation of SDR 65.52 million (equivalent to 80 percent of quota). External project and program financing could increase substantially (see below). The remaining financing gap for the year as a whole, after the augmentation from the Fund, could nonetheless reach about US$100 million. The sixth review and augmentation purchases would bring total Fund disbursements to 137 percent of quota, above the normal annual access limit of 100 percent of quota under the new framework for concessional lending to low-income countries, which became effective on January 7, 2010 (Table 6). Exceptional access is justified in light of the very large balance of payments needs that result from the earthquake, the authorities’ commitment to implement strong policies to address the impact of the earthquake in consultation with the Fund and the international community (as indicated in the letter of intent), and Haiti’s capacity to repay the Fund (see below). Fund financing would serve to limit the decline in reserves due to the surge in import needs, which is expected to be covered only in part by other sources of foreign financing, and the drastic loss in export production capacity. Maintaining a prudent level of reserves is critical not only in light of uncertainties concerning the trade balance and its financing, but also to provide scope to meet temporary increases in private sector demand for foreign exchange without severe market disruptions.

Table 6.Haiti: Schedule of ECF Disbursements
AmountDateConditions for Disbursement 1
SDR 28,100,000November 20, 2006Executive Board approval of the three-year arrangement under the ECF. Includes 25% of quota in access for repayment of EPCA purchases
SDR 7,600,000July 23, 2007Observance of performance criteria for March 2007 and completion of the first review under the ECF arrangement.
SDR 7,600,000February 20, 2008Observance of performance criteria for September 2007 and completion of the second review under the ECF arrangement.
SDR 23,980,000June 23, 2008Observance of performance criteria for March 2008 and completion of the third review under the ECF arrangement.
SDR 23,980,000February 11, 2009Observance of performance criteria for September 2008 and completion of the fourth review under the ECF arrangement.
SDR 15,790,000June 29, 2009Observance of performance criteria for March 2009 and completion of the fifth review under the ECF arrangement.
SDR 73,130,000January 27, 2010 2Observance of performance criteria for September 2009 and completion of the sixth review under the ECF arrangement. Includes the seventh disbursement of the ECF of SDR 7,610,000 and an additional access of 80% of quota or SDR 65,520,000 for post earthquake emergency.

Other than the generally applicable conditions for the Extended Credit Facility (ECF).

An extension of the program beyond its expiration date (November 19, 2009) was approved until May 31, 2010.

Other than the generally applicable conditions for the Extended Credit Facility (ECF).

An extension of the program beyond its expiration date (November 19, 2009) was approved until May 31, 2010.

10. The proposed augmentation would complement budget support, project financing, and humanitarian assistance already committed by other stakeholders (Box 2). Contributions announced to this date (January 20, 2010) amount to over US$1.2 billion, of which US$632 million would be earmarked for recovery. However, it remains unclear how much of the committed funds represent additional resources, and what share would be allocated as budget support. The authorities also have at their disposal about US$150 million in accumulated PetroCaribe financing, which they intend to use for the relief and reconstruction effort. Finally, staff’s balance of payments projections assume the disbursement of US$144 million in budget support grants that had been committed before the earthquake.

11. Haiti has a good track record of timely servicing its obligations to the Fund. Although debt service to the Fund is projected to peak at about 5 percent of domestic revenues and 5.9 exports of goods and services, respectively, in 2016, it should remain manageable through 2020 (Table 7).

Table 7.Haiti Indicators of Capacity to Repay the Fund, 2008-2020(In fiscal year ending September 30)
Projections
2008200920102011201220132014201520162017201820192020
Fund obligations based on existing credit
(in millions of SDRs)
Principal0.000.000.000.000.767.9015.8521.4121.4118.6013.515.560.00
Charges and interest0.190.270.030.030.160.280.260.220.170.110.070.040.03
Fund obligations based on existing and prospective credit 1/3/
(in millions of SDRs)
Principal0.000.000.000.000.767.9015.8528.7236.0433.2328.1420.187.31
Charges and interest0.190.270.030.030.250.470.440.400.320.230.160.090.04
Total obligations based on existing and prospective credit 1/
In millions of SDRs0.190.270.030.031.018.3716.3029.1236.3633.4628.2920.277.35
In millions of U.S. dollars0.300.410.050.051.6113.3325.9646.4057.9253.3045.0732.2911.72
In percent of exports of goods and services0.040.040.010.010.211.653.015.145.904.993.882.580.88
In percent of debt service 2/0.62.90.20.13.121.034.051.054.447.738.828.510.5
In percent of government domestic revenues0.00.10.00.00.21.62.84.45.04.23.32.20.7
In percent of quota0.20.30.00.01.210.219.935.644.440.934.524.89.0
In percent of gross international reserves0.00.00.00.00.21.22.13.64.33.83.02.10.7
Outstanding Fund credit
In millions of SDRs67.3105.0178.1178.1177.4169.5153.6124.988.955.627.57.30.0
In millions of U.S. dollars104.8165.6283.9283.7282.6270.0244.1198.5141.288.443.711.60.0
In percent of exports of goods and services12.617.745.643.437.633.428.322.014.48.33.80.90.0
In percent of debt service 2/225.11146.01239.6725.3535.7424.7319.7218.2132.679.137.610.30.0
In percent of government domestic revenues14.922.573.145.540.332.926.518.812.37.03.20.80.0
In percent of quota82.1128.2217.5217.5216.6206.9187.6152.5108.567.933.68.90.0
In percent of gross international reserves13.816.330.328.826.623.619.915.410.56.22.90.70.0
Memorandum items:
Exports of goods and services (millions of U.S. dollars)833.0933.1622.5653.8751.3808.3863.2901.8981.11067.41161.31251.91337.0
Debt service (millions of U.S. dollars) 2/46.514.422.939.152.763.676.491.0106.5111.8116.2113.2111.7
Domestic Revenues (millions of U.S. dollars)701.7734.5388.1624.0701.1819.9920.11,053.01,147.41,255.71,373.61,501.81,641.2
Quota (millions of SDRs)81.981.981.981.981.981.981.981.981.981.981.981.981.9
Gross international reserves (millions of U.S. dollars)758.91,017.6937.7985.61,064.21,144.61,224.91,286.11,350.41,417.91,488.81,563.31,641.5
GDP (millions of U.S. dollars)6,572.36,560.26,104.16,435.66,789.57,194.57,552.78,044.78,569.99,173.29,818.910,510.011,249.8
Sources: Haitian authorities; and Fund staff estimates and projections.

Assumes disbursements of SDR 7.61 million in January 2010 and SDR 65.52 million augmentation under current ECF arrangement.

Net of HIPC assistance.

Obligations take into account the interest rate grace period and new interest rates which came into effect January 7, 2010.

Sources: Haitian authorities; and Fund staff estimates and projections.

Assumes disbursements of SDR 7.61 million in January 2010 and SDR 65.52 million augmentation under current ECF arrangement.

Net of HIPC assistance.

Obligations take into account the interest rate grace period and new interest rates which came into effect January 7, 2010.

Box 2.Haiti: Donor Response to the Earthquake

The United Nations has issued a flash appeal amounting to US$562 million, half of which in food aid. The appeal is intended for emergency humanitarian assistance over the next six months. Priority needs are food, medical supplies, shelter, and security.

The international community response has been strong, with almost US$1.2 billion already committed. The United Nations will coordinate a more comprehensive post-disaster needs assessment and hold a donor conference in Montreal, scheduled on January 25. Immediate pledges for humanitarian assistance already exceed US$540 million and another US$632 million was pledged to cover economic recovery needs.

SectorRequirements (US$ mn)
Total562
Coordination and Support Services46
Productive Sectors69
Agriculture23
Infrastructure99
Economic Recovery and Infrastructure41
Water and Sanitation58
Social Sectors372
Education11
Food246
Health82
Protection/Human Rights/Rule of Law16
Shelter and Non-Food37
Source: United Nations
Source: United Nations
Haiti Earthquake Relief and Recovery Efforts--Financing Needs and Pledges (USD Million) 1/
DisbursedCommittedPledgedIn-kind1/Total
A. Humanitarian
Funding needs 2/575.0
Funding pledged, committed, or disbursed
Government66.392.7222.88.8390.7
Private1/40.017.732.34.894.7
UN5.125.81.03.435.3
NGO1/1.04.016.40.421.8
Of which: UN Flash Appeal61.646.449.9157.9
Sub-total Humanitarian112.4140.2272.517.4542.5
B. Recovery
IMF100.0100
World Bank100.0100
European Union432.0432
Sub-total Recovery632.0632.0
Total Humanitarin and Recovery112.4140.2904.517.41,174.5
Source: United Nations

As of January 15, 2010

Figures are estimates and unlikely to capture all contributions made.

Funding needs as estimated by UN Flash Appeal

Source: United Nations

As of January 15, 2010

Figures are estimates and unlikely to capture all contributions made.

Funding needs as estimated by UN Flash Appeal

12. The updated joint Bank-Fund debt sustainability analysis (DSA) indicates that the PetroCaribe resources received in FY 2009, as well as the economic repercussions of the earthquake, will adversely affect the debt trajectory. As in the previous DSA, Haiti remains at high risk of debt distress (Country Report No. 09/288). Given the emergency situation, the LIC DSA presented in June 2009 at the time of the HIPC completion point was updated to incorporate: (i) a worsened macroeconomic outlook post-earthquake; (ii) a lower discount rate of 4 percent that, all things equal, raises the present value of debt; (iii) new debt to Venezuela under the PetroCaribe agreement of approximately US$295 million (that was previously treated as a private liability);2 and (iv) the Fund’s augmentation. Based on these revisions, the external debt-to-exports ratio would exceed the 100 percent ceiling between 2010 and 2025. Stress tests also show that public and external debt remains vulnerable to shocks, most importantly to a combined shock to growth, exports and non-debt creating flows. Together these shocks could push the NPV of debt-to-exports ratios up to 180 percent, and keep those ratios above the threshold throughout the projection period. The authorities remain committed to seeking foreign financing on highly concessional terms, continue to strengthen debt management, and have agreed to consult with Fund staff on all external financing issues.

13. The proposed Fund financing, in and of itself, should not be regarded as increasing Haiti’s debt vulnerability. Fund financing, including the augmentation, would imply a somewhat higher level of gross debt. However, the Fund’s support is a critical element of the broader international efforts to limit the damage resulting from the earthquake, which will set a foundation for a subsequent economic recovery. Accordingly, these efforts are vital for medium-term economic growth, fiscal revenue, exports, and thus for debt sustainability. While data limitations do not allow for meaningful scenario analysis at this stage, the counterfactual to Fund support would be a scenario with a more prolonged downturn and higher risk of debt distress.

14. The main priority, following the initial phase of emergency rescue and relief, would be to assist the authorities in re-establishing a working government and preparing a plan geared to economic recovery and reconstruction. The Fund, in close coordination with other international economic agencies and bilateral donors, stands ready to assist the authorities with the immediate task of reestablishing a functional government (Box 3). Based on the results of the forthcoming assessment of damages to economic and state infrastructure, there will be a need for a coordinated economic plan that would prioritize key economic infrastructure and activities that need to be restored (e.g. port and key roads to allow for international trade, internal distribution, communications, etc).

Box 3.Haiti: Immediate Government Needs in the Area of Economic Management

The authorities, in consultation with IMF staff and other partners, are stepping up efforts to restore their capacity to conduct fiscal and monetary policy with a view to address the emergency and support reconstruction and economic recovery.

On the fiscal side, the authorities have already taken significant steps to restore public financial management (PFM) systems and procedures with the full support of technical assistance partners. Despite damages to the buildings, the main servers supporting the information and payments systems seem to be unaffected. As a result, the authorities have established temporary technical units that would assure minimum government services, and prepared a first assessment of immediate needs. The technical units are in urgent need of computers, office and communication equipment, as well as generators. Technical assistance partners are working on a joint proposal to support the authorities’ efforts in the PFM area. Priority areas include: basic payroll for government employees, basic treasury functions, basic audit service and expenditure monitoring, procurement functions for major purchases, IT services, and revenue administration. Fund staff stands ready to support efforts on cash planning and the revision of the FY 2010 budget. In the medium term, technical assistance would mostly deal with strengthening budget preparation and execution, particularly of reconstruction expenditures.

The payments system is broadly functioning and banks are expected to reopen soon in Port-au-Prince, although a lack of security, cash distribution, and damages to branches and communication systems remain a concern. The central bank building suffered some damage but is still standing and functional. The extent of physical damage to bank branches is not yet known. The communication infrastructure was badly damaged, including the landline and fiber optic cable. Remittances stopped when the earthquake struck, but have restarted at operational locations. There are significant difficulties in delivering cash to bank branches and money transfer houses, which, for the time being, appear to have enough cash to function. Initially, daily drawings from banks will be limited to US$2,500 per person. The central bank is also preparing a list of institutions that should receive emergency liquidity. The portfolios of banks, and particularly of microfinance institutions, are expected to deteriorate significantly, especially as the latter do not have insurance on their loans. Fund staff will propose to the authorities to conduct a short assessment to better understand immediate needs and priorities. Assistance with payments systems, deposit protection, liquidity management and control of inflation would be available.

IV. Performance Under the ECF Arrangement

15. Program performance through end-December 2009 was broadly satisfactory, although the zero ceiling on contracting non-concessional external debt was breached.

  • All quantitative performance criteria for end-September were met, although budget support fell short by US$50 million, and 90 percent of disbursements occurred during the last week of the fiscal year. Temporarily higher central bank financing was reflected in slightly higher base money growth relative to the indicative target.

  • In the last quarter of 2009 the authorities contracted a non-concessional sovereign loan of US$33 million with the Development Bank of Venezuela (BANDES), to rehabilitate the Cap Haitian airport. The authorities regarded this loan as essential to promote tourism in the north of the country. However, the grant element of this loan (30.2 percent element) is below the required concessionality levels (35 percent). Prior to the earthquake, the authorities had initiated discussions with the IDB on a grant to raise the concessionality element of this project and reiterated their commitment to seek financing on highly concessional terms. Staff supports the authorities’ request for a waiver on the continuous performance criterion on contracting of non-concessional debt, in view of the remedial actions taken. Staff will continue to closely monitor Haiti’s debt dynamics to ensure that future financing takes primarily the form of grants and highly concessional lending (Table 8).

  • There was satisfactory overall progress toward meeting structural conditionality. Two structural benchmarks were met on time, notably the implementation of an electricity tariff structure aimed at gradual cost recovery, and two benchmarks were met with delay. Satisfactory progress was being made on the remaining measures: full operationalization of the debt unit at the Ministry of Finance awaited recommendations from recent IMF technical assistance; the central bank recapitalization plan was moving ahead, as part of a more ambitious project to establish a domestic T-bill market; and the banking law was awaiting Senate approval (Table 9).

Table 8.Haiti: Indicative Targets and Quantitative Performance Criteria, FY 2009
Actual stock at end-Cumulative Flows since September 2008
Mar 09Jun 09Sep 09
Sep 08Test date PCIndicative targetProg. with adjustor 3/ActualDeviation from prog w/adjustorTest date PCProg. with adjustor 3/ActualDeviation from prog w/adjustor
Performance criteria
Net central bank credit to the NFPS (in millions of gourdes)20,5413,5002,7652,9131,953-9602,3954,2741,008-3,266
Central Government20,6073,5002,7652,9132,717-1962,3954,2742,510-1,764
Rest of NFPS 1/-67000-765-76500-1,502-1,502
Net domestic banking sector credit to the central government 2/13,3369,5308,7956,0835,849-2348,4256,7624,863-1,899
Net domestic assets of the central bank (in millions of gourdes) - ceiling 3/16,5793,6904,3674,5172,059-2,4584,7026,5841,616-4,968
Gross Credit from Commercial Banks to the Central Government (in millions of gourdes) - ceiling 4/0000000000
Domestic arrears accumulation of the central government 4/0000000
New contracting or guaranteeing by the central government or the BRH
of nonconcessional external debt (In millions of U.S. dollars) 4/5/000000000
Up to and including one year000000000
Over one-year maturity000000000
Net international reserves of central bank (in millions of U.S. dollars) - floor288-40-40-44-934-50-9626122
External arrears accumulation (in millions of U.S. dollars) 4/000000000
Indicative target:
Change in base money (in millions of gourdes) - ceiling28,3922,0502,7272,7271,682-1,0452,6522,6522,68836
Memorandum items:
Change in currency in circulation13,0309501,0981,098142-9561,2411,241418-823
Net domestic banking sector credit to the rest of the of the non-financial public sector-112000-805-80500-1,512-1,512
Government total revenue, excl. grants (in millions of gourdes)--15,47721,72121,72122,33361229,04129,04129,881840
Government total expenditure, excl. ext-fin investment (in millions of gourdes)--27,04331,47631,47630,489-98744,43544,43541,600-2,835
Sources: Ministry of Finance, Central Bank of Haiti, and Fund staff estimates.

It includes non-budgetary autonomous organizations, local governments and public entities. It will be measured as the change, from September 2008, in créances nettes sur le secteur public (i.e, net credit to the non financial public sector) minus the change in créances nettes sur l’état (i.e. net credit to the central government), according to table 10R of the BRH.

It includes a reduction of government deposits in commercial banks, that were originated in Petrocaribe-related disbursements during FY2008. As of end-FY08, the balance of these deposits amounted to US$ 150 million. The program includes a zero ceiling on commercial banks’ gross credit to the central government, on a continuous basis. The disaccumulation of deposits mainly finances hurricane-related reconstruction spending.

For program monitoring purposes, NDA is defined as monetary base minus Program NIR in gourde terms. Program exchange rate of G41 per US$.

On a continuous basis.

Excludes guarantees granted to the electricity sector in the form of credit/guarantee letters.

Sources: Ministry of Finance, Central Bank of Haiti, and Fund staff estimates.

It includes non-budgetary autonomous organizations, local governments and public entities. It will be measured as the change, from September 2008, in créances nettes sur le secteur public (i.e, net credit to the non financial public sector) minus the change in créances nettes sur l’état (i.e. net credit to the central government), according to table 10R of the BRH.

It includes a reduction of government deposits in commercial banks, that were originated in Petrocaribe-related disbursements during FY2008. As of end-FY08, the balance of these deposits amounted to US$ 150 million. The program includes a zero ceiling on commercial banks’ gross credit to the central government, on a continuous basis. The disaccumulation of deposits mainly finances hurricane-related reconstruction spending.

For program monitoring purposes, NDA is defined as monetary base minus Program NIR in gourde terms. Program exchange rate of G41 per US$.

On a continuous basis.

Excludes guarantees granted to the electricity sector in the form of credit/guarantee letters.

Table 9.Haiti: Structural Benchmarks for the Sixth PRGF Review
BenchmarksTest dateStatus
Provide, along with normal monthly budget execution tables, execution of emergency spending, by normal budget classification.Quarterly during the arrangement period, starting on March 31, 2009 and until all off-budget emergency spending is executedMet with delay
Limit to 10 percent nonwage current spending through current accounts.Quarterly (evaluated at end-March and end-September 2009)Met
Legislative passage of new banking law.End-September 2009Not met
Implement first stage of BRH recapitalization plan.End-September 2009Not met
Set up and train debt management unit in MEF—both to use centralized external debt database, but also to manage domestic Treasury debt in context of BRH recapitalization.End-September 2009Not met
Legislative passage of customs code.End-September 2009Met with delay
Publish and implement a new electricity tariff structure that would increase and maintain electricity prices at cost-recovery levels.End-September 2009Met

V. Staff Appraisal

16. The January 2010 earthquake struck Haiti at a time when its economy had been weathering the global crisis relatively well. During FY 2009, economic growth was almost 3 percent, the highest in the Caribbean region, while annual inflation was negative. The fiscal and the current account deficits remained contained. Remittances showed remarkable resilience, supporting domestic demand. The limited integration of the Haitian financial sector in global markets largely shielded it from the impact of the global financial crisis.

17. The damages and losses caused by the earthquake, which struck near the Haitian capital and other major cities, are unprecedented, both in human and economic terms. Casualties could reach 200,000 people. About 3 million people have been severely affected by the earthquake and are in need of water, medicine, food, shelter and security. The international community is responding promptly to the situation in Haiti, with total pledges for assistance already reaching US$1.2 billion, of which about US$600 million for recovery. It is however essential that the humanitarian and non-humanitarian relief pledged be timely delivered and coordinated, and that they be a sustained commitment to help rebuild Haiti over the medium-term.

18. The earthquake’s disastrous impact on economic institutions may have undone many of the achievements of recent years. Performance under the ECF-supported arrangement has been broadly satisfactory. The authorities had maintained macroeconomic stability under difficult circumstances, and implemented essential structural reforms. As a result of these efforts, Haiti had received US$1.2 billion in HIPC and MDRI debt relief in June 2009. The impact of the earthquake on revenue collections and financial infrastructure is expected to be significant. Critical human capital has been lost, together with physical and administrative organization.

19. A concerted international effort will be needed over the coming weeks and months to assist with the economic reconstruction and recovery. The Fund is fully committed to participate in these efforts with financial and technical support, within its areas of expertise and in close coordination with other development partners.

20. The proposed augmentation of access under the program would assist Haiti with immediate balance-of-payments needs. It would help maintain an adequate reserves cushion in the face of very large import needs for the reconstruction, and complement ongoing efforts by the international community.

21. Staff supports the conclusion of the sixth review and waiver of the missed performance criterion, as well as the authorities’ request for an augmentation under the Extended Credit Facility. Staff regrets the recent signing of a loan on non-concessional terms, despite the relatively favorable terms of the loan. Staff considers that the waiver is justified by the authorities’ efforts to seek to increase the concessionality of the loan, and their forward-looking commitment to seek new project financing on concessional terms only, to consult with staff ahead of time on external financing issues, and to strengthen debt management. Although Haiti remains at high risk of debt distress, the proposed augmentation under the ECF is essential to support the significant additional balance of payments need.

Table 10.Haiti: Indicators of External Vulnerability 1/(Units as indicated)
200820092010
Est.Proj.
Debt indicators
Total external public debt (in percent of GDP)28.215.220.2
Total external public debt (in percent of exports 2/)222.7106.8197.8
External debt service (in percent of GDP)0.70.20.4
Amortization0.40.00.2
Interest0.30.20.2
External debt service (in percent of exports 2/)8.23.93.7
Amortization5.32.61.7
Interest3.01.32.0
External debt service (in percent of current central govt. revenues)6.82.05.9
Amortization4.1-0.22.7
Interest2.62.23.2
Other indicators
Exports (percent change, 12-month basis in U.S. dollars)-6.212.4-29.7
Imports (percent change, 12-month basis in U.S. dollars)30.2-3.312.3
Remittances and grants in percent of gross disposable income20.820.825.5
Real effective exchange rate appreciation (+) (end of period)2.91.0
Exchange rate (per U.S. dollar, period average)38.340.7
Current account balance (in millions of U.S. dollars) 3/-295.3-210.3-392.1
Capital and financial account balance (in millions of U.S. dollars) 4/336.7243.787.9
Public sector319.7263.8143.3
Private sector17.181.3-55.4
Liquid gross reserves (in millions of U.S. dollars)707.8947.5867.6
In months of imports of the following year 2/2.93.73.4
In percent of debt service due in the following year489941383040
In percent of base money99.6127.4128.1
Sources: Bank of the Republic of Haiti; and Fund staff estimates.

Reflects HIPC/MDRI relief.

Goods and services.

Including grants.

Includes in the private sector FDI, short-term capital, and errors and omissions in addition to bank flows.

Sources: Bank of the Republic of Haiti; and Fund staff estimates.

Reflects HIPC/MDRI relief.

Goods and services.

Including grants.

Includes in the private sector FDI, short-term capital, and errors and omissions in addition to bank flows.

Table 11.Haiti: Millennium Development Goals
19901995200020052008
Goal 1: Eradicate extreme poverty and hunger
Employment to population ratio, 15+, total (%)56.054.055.055.056.0
Employment to population ratio, ages 15-24, total (%)37.039.044.046.048.0
GDP per person employed (annual % growth)-10.0-18.0-1.0-4.00.0
Income share held by lowest 20%2.5
Malnutrition prevalence, weight for age (% of children under 5)24.013.918.918.9
Poverty gap at $1.25 a day (PPP) (%)28.0
Poverty headcount ratio at $1.25 a day (PPP) (% of population)55.0
Prevalence of undernourishment (% of population)63.060.058.0
Vulnerable employment, total (% of total employment)
Goal 2: Achieve universal primary education
Literacy rate, youth female (% of females ages 15-24)
Literacy rate, youth male (% of males ages 15-24)
Persistence to last grade of primary, total (% of cohort)
Primary completion rate, total (% of relevant age group)29.0
Total enrollment, primary (% net)
Goal 3: Promote gender equality and empower women
Proportion of seats held by women in national parliaments (%)4.04.04.04.0
Ratio of female to male enrollments in tertiary education
Ratio of female to male primary enrollment95.095.0
Ratio of female to male secondary enrollment94.0
Share of women employed in the nonagricultural sector (% of total nonagricultura44.2
Goal 4: Reduce child mortality
Immunization, measles (% of children ages 12-23 months)31.049.055.058.058.0
Mortality rate, infant (per 1,000 live births)105.098.078.062.057.0
Mortality rate, under-5 (per 1,000)152.0141.0109.084.076.0
Goal 5: Improve maternal health
Adolescent fertility rate (births per 1,000 women ages 15-19)
Births attended by skilled health staff (% of total)23.020.024.026.026.0
Contraceptive prevalence (% of women ages 15-49)10.018.028.032.032.0
Maternal mortality ratio (modeled estimate, per 100,000 live births)670.0
Pregnant women receiving prenatal care (%)71.068.079.085.085.0
Unmet need for contraception (% of married women ages 15-49)45.040.038.0
Goal 6: Combat HIV/AIDS, malaria, and other diseases
Children with fever receiving antimalarial drugs (% of children under age 5 with few12.05.05.0
Condom use, population ages 15-24, female (% of females ages 15-24)13.037.037.0
Condom use, population ages 15-24, male (% of males ages 15-24)28.042.042.0
Incidence of tuberculosis (per 100,000 people)306.0306.0306.0306.0306.0
Prevalence of HIV, female (% ages 15-24)1.41.4
Prevalence of HIV, male (% ages 15-24)1.01.0
Prevalence of HIV, total (% of population ages 15-49)1.22.12.22.22.2
Tuberculosis cases detected under DOTS (%)2.019.044.049.0
Goal 7: Ensure environmental sustainability
CO2 emissions (kg per PPP $ of GDP)0.10.10.20.2
CO2 emissions (metric tons per capita)0.10.10.20.2
Forest area (% of land area)4.04.04.04.0
Improved sanitation facilities (% of population with access)29.027.024.019.019.0
Improved water source (% of population with access)52.054.056.058.058.0
Marine protected areas, (% of surface area)
Nationally protected areas (% of total land area)0.30.3
Goal 8: Develop a global partnership for development
Aid per capita (current US$)24.092.024.054.073.0
Debt service (PPG and IMF only, % of exports, excluding workers’ remittances)9.050.08.017.06.0
Internet users (per 100 people)0.00.00.26.510.4
Mobile cellular subscriptions (per 100 people)0.00.01.05.033.0
Telephone lines (per 100 people)1.01.01.02.01.0
Source: World Development Indicators.
Source: World Development Indicators.
Attachment I: Letter of Intent

Port-au-Prince

January 22, 2010

Mr. Dominique Strauss-Kahn

Managing Director

International Monetary Fund

700 19th Street, N.W.

Washington, D.C. 20431

Dear Mr. Strauss-Kahn:

1. This letter describes the progress made under the PRGF-supported program and requests that the seventh and last disbursement under the arrangement, in the amount of SDR 7.61 million, be made available to Haiti, following the completion of the sixth review. In addition, given the unprecedented damage caused by the recent earthquake and its expected negative impact on Haiti’s external position, we are requesting an immediate augmentation of access under the arrangement of SDR 65.52 million (80 percent of quota). We are also requesting that the full amount of this augmentation be made available immediately, upon completion of the sixth review.

2. Under the current PRGF-supported arrangement, Haiti has implemented macroeconomic and financial policies that have helped stabilize the economy and restore growth, despite successive shocks and the adverse impact of the global slowdown. However, standards of living are improving very slowly; and growth is insufficient to make significant inroads into poverty reduction. Progress with essential structural reforms allowed for the delivery of HIPC/MDRI debt relief in June 2009. Nonetheless, Haiti’s institutional and physical infrastructure needs further development, the economy is highly vulnerable to changes in climatic conditions and commodity prices, and, with low domestic revenues, growth prospects heavily depend on external concessional support and private investment.

3. On January 12, 2010, Haiti was struck by a 7.0 magnitude earthquake, the worst disaster in over 200 years. The capital city and surrounding areas, home to more than one third of the country’s population and key economic and government infrastructure, were the most affected. Surrounding cities were also destroyed. Damages to the transport and production infrastructures are expected to severely cripple exports and hold back economic growth. Pending a more comprehensive assessment of the losses and reconstruction needs, the United Nations estimate the immediate financing requirements to address the emergency at US$562 million, about half of which is needed in the form of food assistance. All indications are that the damage caused by the earthquake is far worse than that associated with the 2008 hurricanes, which destroyed 15 percent of GDP.

4. Overall performance for the sixth and last PRGF review was satisfactory. All quantitative performance criteria evaluated at end-September 2009 have been met, and we have made good progress in implementing structural conditionality–most importantly a new electricity tariff structure aimed at cost recovery. We have recently contracted a loan for the rehabilitation of the Cap Haitian airport that is critical for the development of the north of the country. As a result of protracted negotiations on technical aspects of the loan, global financial conditions led to a decrease in the discount rate used for computation of the concessionality level, lowering the degree of concessionality of the loan to 30.2, short of the 35 percent grant element required by the program. Therefore, we are requesting a waiver for the non-observance of the continuous performance criterion on the contracting of external debt on nonconcessional terms. However, we remain committed to safeguarding debt sustainability by selecting high-quality projects and seeking financing on concessional terms, and have been in discussions with the Inter-American Development Bank (IDB) in order to improve the overall financing terms for this project.

5. The requested additional access under the current Extended Credit Facility arrangement will address the immediate balance-of-payment need associated with the emergency. We have already received additional emergency humanitarian support from our development partners, but much more financial and technical support will be needed to rebuild the country. The additional resources from the Fund will provide a strong signal that will help catalyze support from others. We have also requested assistance in order to rapidly restore basic public financial management functions, so as to ensure full accountability of the funds provided by the IMF and other donors and their effective use.

6. The government is committed to the design and implementation of measures and policies to address the immediate needs resulting from the earthquake and to support the subsequent economic recovery in a manner that restores and maintains macroeconomic stability and financial sustainability, in line with the broad objectives of the program. In developing these measures and policies, we will continue to work in close consultation with the IMF in accordance with the Fund’s policies on such consultations and with the international community, and we have expressed our interest in a successor IMF-supported arrangement.

7. In line with our commitment to transparency in government operations, we agree to the publication of all ECF-related documents circulated to the IMF Executive Board.

Sincerely yours,

/s//s/
Ronald Baudin

Minister of Economy and Finance

Republic of Haiti
Charles Castel

Governor

Bank of the Republic of Haiti

Republic of Haiti

Given data limitations and uncertainty as to the economic impact of the earthquake, the analysis in this report is limited to FY 2010, with the exception of the debt sustainability analysis which was prepared on the basis of very preliminary macroeconomic assumptions. The upcoming Article IV report and, request for a new program would seek to address the impact of the earthquake on medium-term prospects.

In the Completion Point DSA, resources in the amount of US$104 million accumulated under the PetroCaribe agreement were treated as private debt, on the understanding that a binational company would be established and therefore assume the associated debt burden. As of September 2009, the binational company had not been set up and new PetroCaribe resources were accumulated. Financing under the PetroCaribe arrangement is provided on concessional terms. Based on the terms currently applicable–1 percent interest, 2 years grace, and 25 years maturity–the associated concessionality element is 44.5 percent. The same terms would apply to projected new flows of US$153 million for FY2010.

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