June 29, 2009

On behalf of our authorities, we would like to thank staff for the constructive dialogue during the mission to Port-au-Prince in May 2009. This mission was particularly important, as it comprised the fifth review under the PRGF and the completion point under the Enhanced HIPC initiative and the MDRI. The Haitian government has remained strongly committed to the PRGF and the HIPC Initiative, despite the severe shocks that the country has suffered in the recent past.

The progress achieved by the authorities has been significant and is in line with the PRSP. The maintenance of macroeconomic stability and the improvements in economic governance and social sector policies are noteworthy. Headline inflation is close to zero, partly reflecting the fall in international commodity prices. Core inflation is also down. Economic growth continues, however, to be very low. For FY 2009, GDP is expected to increase only 2 percent, after having grown only 1.2 percent in FY 2008. As staff observes, this is well below what would be required to reduce high unemployment rates and widespread poverty.

Despite low growth, the fiscal accounts improved. In the first half of FY 2009, the deficit was much lower than the 4 percent estimated in the program. This was the result of more efficiency in the management of public finances, lower public expenditure, and an increase in grants by donors, although these are still insufficient. The current account deficit was also much lower than projected, as remittances proved more resilient to the global crisis than expected by staff at the time of the fourth review. The external accounts were also helped by lower import prices. Reserves increased considerably and the exchange rate has been stable. Furthermore, the financial sector remains sound and adequately capitalized with liquidity and asset quality being closely monitored, although the authorities are concerned with the high level of dollarization in the banking sector.

The program is on track. All end-March quantitative performance criteria, structural benchmarks and all but one structural performance criteria were met. The criterion that was missed (the presentation of a report on emergency spending) was implemented with a delay of only a few days.

As to the completion point under the HIPC Initiative, eleven out of fifteen triggers have been reached. Moreover, the government has made important advances towards meeting the four triggers that were not fully implemented, as staff recognizes. For instance, the recent approval by Parliament of the procurement law is a demonstration of Haiti’s commitment to increasing transparency and adopting internationally accepted best practices in this area. The new law is an additional step in the effort to improve the procurement framework and to fight against corruption.

Haiti’s faces major challenges, as the Board knows. Growth is projected to remain low in 2010. The economy continues to be vulnerable to exogenous shocks. Donor support has increased but is still insufficient, as explained in the staff report. The Washington donor conference in April was a political success. However, it has not yet produced the desired results in terms of resource mobilization.

Inflation prospects seem to be favorable. In May, the Parliament approved an increase in the daily minimum wage (excluding the agricultural sector) from less than U$ 2 to about US$ 5 per day. The fiscal impact of this measure may not be significant, given that the majority of public servants have a higher remuneration than the minimum wage. Moreover, most the country’s workforce does not have formal employment. It is not anticipated that the increase in the minimum wage will lead to higher inflation.

As a response to the revenue shortfall, the authorities have decided to increase electricity tariffs at the end of September 2009, a tough decision that shows their commitment to the program. Additionally, they will establish strict priorities for public expenditure in 2010. Debt service is expected to fall because of the HIPC and the MDRI, further helping to reduce the fiscal deficit. During the last Fund mission, our authorities mentioned that there was an urgent financing requirement of US$ 50 million from the central bank for the second semester of FY 2009. They are confident that this financing will not have an effect on inflation.

We would like reiterate our call to the donor community to support Haiti in overcoming its fiscal constraints. We again urge Directors to step up the dialogue with their respective governments to secure maximum support for Haiti. This is not an easy task, given the growing donor fatigue and the severe impact of the current global crisis on donor resources. It cannot be forgotten, however, that Haiti has repeatedly shown its capacity to preserve economic stability in the face of a series of major shocks. The country needs and deserves international support. The authorities have implemented the PRGF with great determination, although the level of financial support provided by the Fund is relatively limited. Nevertheless, relations with the Fund have been beneficial to the country and the authorities have expressed interest in negotiating a new three-year PRGF arrangement. They consider that a new program could be instrumental in helping them promote growth, consolidate macroeconomic stability and make further progress in terms of structural reform.