Abstract
This 1999 Article IV Consultation highlights that progress on structural reforms in Haiti in FY1998/99 has been mixed. In the financial sector, the central bank’s supervisory capacity and the regulatory framework continued to be strengthened. Performance under the FY1997/98 Staff-Monitored Program (year ending in September) was satisfactory. As a result of firm policy implementation, inflation was reduced, the external current account deficit narrowed, and official net international reserves rose. Output growth picked up to about 3 percent. Credit policy was tighter than programmed, although the fiscal deficit was slightly higher than in the program.
1. The following information has been received by the staff since the staff report for the 1999 Article IV consultation with Haiti was issued. It does not change the thrust of the staff appraisal.
2. Macroeconomic performance under the staff-monitored program (SMP) for FY 1998/99 has continued to be satisfactory. All quantitative benchmarks for end-June were observed with comfortable margins. The central government deficit in the first three quarters of FY 1998/99 (through June) was 0.4 percent of GDP compared with 1.2 percent of GDP in the program, thus extending the margin reported in the staff report for the first half of FY 1998/99. Net international reserves rose by US$32 million in the first three quarters of FY 1998/99 compared with a loss of US$10 million envisaged in the program. Net international reserves have declined moderately, as was expected, since end-June, and stood at US$214 million in mid-August, compared with US$185 million programmed for September 1999.
3. Public sector wage increases were granted in July, based on the application of a new salary scale and selective salary increases. The average wage increase (about 19 percent) was in line with the program, but the wage bill for the year is now expected to be about 0.3 percent of GDP less than envisaged because the increases were not retroactive and the wage base after the civil service downsizing was lower than expected.
4. The 12-month growth of broad money at end-June 1999 was about 20 percent, compared with 18 percent in the SMP, while currency grew by 14 percent, in line with the program. Private sector demand for credit has remained weak, with credit to the private sector unchanged in real terms in the year ending June 1999.
5. Monthly inflation picked up somewhat to 1 percent in June and 0.8 percent in July, bringing 12-month inflation to 8.7 percent, compared with 8 percent targeted for September 1999. This underscores the need to maintain prudent monetary and fiscal policy in the period preceding parliamentary elections toward the end of the year.
6. The voluntary separation and early retirement plan for downsizing personnel at the state-owned bank, BNC, was initiated in August as anticipated. About half of the bank’s personnel are expected to be separated under this plan during the next two to three months. This will result in separation payments equivalent to about 0.1 percent of GDP (provided for in the fiscal program for FY 1998/99).