Abstract
The macroeconomic goals of the first program year were largely met, although growth accelerated somewhat less than expected. Objectives for the second program year (FY2008) are to create conditions for higher growth and consolidate stabilization gains achieved so far. Monetary policy will focus on quantity management, with a market-determined policy interest rate. The authorities plan to further strengthen their monetary policy framework. Macroeconomic policies contained in the program are consistent with the central objective to boost growth while maintaining economic stability.
1. This statement provides additional information that has become available since the circulation of the staff report. It does not alter the thrust of the staff appraisal.
Prior actions
2. Both prior actions for the review have been fulfilled. On February 7, 2008, the authorities hired an international expert, who has commenced work on assessing possible recapitalization and restructuring needs of the state bank BNC. A review of implementation issues for the adoption of IFRS by the central bank (BRH) was submitted to staff on February 19, 2008.
Recent developments
3. The program has remained broadly on track through the first quarter of FY2008 (September–December 2007). Preliminary data show that quantitative indicative targets for end-December were observed, except for base money growth which rose slightly faster than programmed.
Inflation and activity. Inflation rose from 7.9 percent in the year to September 2007 to 11 percent in January 2008, reflecting rising international prices for food and fuel. This increase remains broadly compatible with program projections, which have built in a temporary acceleration of inflation in the early part of the fiscal year. However, because of the importance of basic foodstuffs such as flour and rice in the Haitian diet, the observed price increases are causing considerable social hardship. Few indicators are available at this stage to assess economic growth during the first quarter of FY 2008, although preliminary trade and revenue data suggest that activity has continued to expand.
Fiscal sector. Both government expenditure and revenue were lower than programmed during the first quarter, highlighting again the importance of swiftly implementing plans to modernize revenue agencies and increase capacity of spending ministries. According to preliminary data domestically-financed capital expenditure was broadly in line with expectations, but expenditures on wages, transfers, and operations fell significantly short of the program (23 percent). Revenue increased by 12 percent, but was still 14 percent below program projections. Budget support disbursements were in line with expectations. Altogether, these outcomes resulted in a first quarter fiscal deficit (excluding grants and foreign-financed projects) that was 0.3 percent of GDP smaller than projected.
Monetary sector and exchange rate. Base money growth during the first quarter of the fiscal year exceeded the program target somewhat (7.4 percent actual vs. 5.3 percent programmed), but nonetheless remained well below estimated nominal GDP growth. The Haitian gourde has depreciated by about 3 percent in nominal terms against the US dollar since end-September 2007. In early February 2008, the BRH reduced the prudential limit on commercial bank net open foreign currency positions and increased the gourde component of the reserve requirement on foreign currency deposits. These changes, which reversed recent action in the opposite direction, followed an increase in banks’ foreign exchange positions that the authorities considered unusual. Staff has encouraged the authorities to avoid frequent changes in direct monetary instruments, and instead focus on the use of BRH bonds and base money management.
Balance of payments. The overall balance of payments during the first quarter was somewhat stronger than expected. The current account deficit reached 0.5 percent of GDP, unchanged from the previous quarter but as expected weaker than one year ago, mainly due to the higher import bill for food products and fuels. Capital flows were broadly in line with projections, albeit a large disbursement of official project financing allowed net international reserves to increase to US$308 million at the end-December 2007, significantly higher than programmed. As expected, this overperformance unwound during January as the project resources were drawn down, and NIR are presently about US$14 million above end-September 2007 levels.