1. On behalf of our Haitian Authorities, our chair would like to thank management, the Western Hemisphere Department, and especially the mission chief and his present and past teams for a very constructive dialogue throughout the year.
Performance under the ECF and the recent evolution of Haiti
2. As attested by staff in the report, Haiti’s performance at the different test dates under the ECF program has been satisfactory. All performance criteria have been met. Delays in implementing some of the reforms were due to circumstances beyond the authorities’ control. Moreover, at least three of the structural measures not completed at the specific test dates set for the present reviews have now been achieved, i.e. those related to the preparation and publication of monthly cash plans and of investment expenditures as well as the launching of the bids for the selection and hiring of the international consulting agency that will assist the units that implement projects in the government. The authorities have also made good progress in finalizing the contract with an international firm for the external audit of the central bank.
3. The socio-political situation has evolved significantly since the Board’s discussion of the first review of the ECF. Haiti has a legitimately and democratically elected government in place. The security situation has significantly improved. According to the authorities, camp occupancy which was estimated at close to 1.3 million after the earthquake has been reduced by more than two thirds and the cholera epidemic has been halted. Additionally, half of the rubbles from the earthquake is now removed.
4. Despite several external shocks, including adverse weather conditions and uncertainties linked to the election year, the economy has grown by 5.6 percent in 2011, driven to a large extent by the export sector (mostly manufacturing) but also by construction and services. GDP is tabled to grow even faster in 2012 because better harvest conditions are anticipated, reconstruction activities are expected to accelerate and credit to the private sector is projected to continue its upward trajectory. The 7.8 percent projected GDP growth rate is also based on a strong implementation of the public investment program.
5. After a temporary surge, due to the international commodity price hikes, inflation is back to single digits. Fiscal revenues have increased by more than 20 percent to 13.1 percent of GDP at end-September 2011. The external position has strengthened as attested by the maintenance of a comfortable reserve cushion (over five months of import coverage) and a stable exchange rate. The banking sector is sound with low NPLs and reasonable profitability. Respectable growth of the banking sector has been registered using different metrics, including assets, loan and deposit portfolios.
6. Investor confidence increased and is exemplified by the surge in FDI. The domestic private sector which was hard hit by the earthquake is also timidly reconstituting its capital.
After the earthquake, the central bank introduced credit stimulating policies, including the implementation of a credit guarantee scheme and encouragements through accommodative required reserve policy for mortgage loans. Investments are on the rise, particularly in the construction sector.
Near, medium and long term outlook
7. Overall the near term outlook is positive and the Haitian authorities are determined to continue pushing forward with structural reform programs and to achieve a strong performance under the ECF. They recognize, however, that final outcomes are dependent on several factors including (i) the global international environment (more particularly the evolution of commodity prices and, to some extent, remittances); (ii) the timely and continued delivery of donor commitments; as well as (iii) the strengthening of the working relationship between the Government and Parliament.
8. President Martelly has identified five priority areas for his term in office which include Energy and the four “Es” announced during his campaign: Education (universal and free), Employment, Environment, and Rule of law (“état de Droit”). Needless to say, these priorities are at the center of Haiti’s growth and poverty reduction objectives. The achievement of these objectives depends primarily on jumpstarting private sector initiatives in an irreversible manner. In this regard the link between education and employment cannot be overstressed. The Haitian government is determined not only to achieve general and free access to basic education but also to enhance skills and professional training with a view of matching them with labor market needs. It intends to make tangible progress on these five fronts over the next few years.
9. For the medium and long term, as indicated in the MEFP, the authorities’ actions are guided by the strategy for reconstruction and development outlined in Haiti’s National Recovery and Development Action Plan (PARDH) which serves as an update of the PRSP post-earthquake. The strategy is to achieve sustainable, high and inclusive growth by concentrating efforts on four rebuilding pillars:
(i) Territorial rebuilding which includes planning and managing new development centers and stimulating local development through integrated actions to rehabilitate and in certain cases develop basic infrastructures;
(ii) Economic rebuilding which will be based on Haiti’s comparative advantages and centered on increasing its production efficiency and competitiveness in agriculture, tourism and manufacturing, with due consideration given to modernizing the construction sector and to ensuring that hurricane and earthquake resistance standards are set and enforced;
(iii) Social rebuilding with an emphasis on education and health, as well as social protection;
(iv) Institutional rebuilding, involving the strengthening and modernizing of the State as well as establishing a culture of accountability and transparency to deter corruption.
10. Our authorities are determined, with the support of donors, to strengthen the tax administrations, fight tax evasion and contraband as well as streamline exemptions in order to achieve fiscal revenues which are more in line with the economy’s potential and the experience of comparable countries. In this regard, domestic taxes are expected to be the main contributor to the projected significant increase in tax collection. Important savings are also expected from the authorities’ efforts to limit NGO’s undue benefits from the exemption systems as the taxes forgone to the sector are very significant. Additional taxation is also envisaged and already a draft law to increase excise taxes on tobacco and alcohol has been included in the draft budget legislation presented to Parliament.
11. On the expenditure side, several measures are being taken to enhance control and transparency as well as improve the efficiency of expenditures. Subsidies to the electricity sector are being decisively phased out. In this regard, a two-pronged approach has been adopted: (i) increasing transparency and accountability as well improving management practices in the sector particularly by the signing of a two year management contract with an international firm; and (ii) investing in infrastructure rehabilitation and access expansion. This year, in line with the objective of decreasing the burden of the electricity sector on the fiscal budget, the government is replacing open-ended subsidies to the state electricity company (Electricité d’Haiti– EDH) by gradual payment of the government’s overdue electric bills and also avoiding the emergence of new arrears by public entities to EDH.
Exchange rate, financial policies and promotion of private sector initiatives,
12. Marketing “Haiti is ready for business” has been the motto behind several of the Government’s initiative, including enhancing the efficiency of its diplomatic service by nominating officials with a business background and/or international experience for key diplomatic positions. Examples of this policy are Ambassadors, including to the US and Canada, as well as Consuls, approved by the Senate this week.
13. Additionally, several initiatives are being undertaken to improve the business climate, including this past November the holding of the second High-level Investment Forum with
support from the IDB and the Clinton Foundation. Another initiative worth mentioning is the this week’s three day stocktaking exercise on the state of doing business in Haiti with participation of several stakeholders, including the banking system, trade associations, think thanks, and policymakers.
14. Enhancing services and opportunities for small and medium enterprises (SMEs) are also among the priorities of the Authorities who believe that they are a useful vehicle to enhance the income generation capacity of the poor. Hence, the Central Bank in collaboration with other stakeholders is putting together legislation to regulate non mutual microfinance institutions and to facilitate the development of mobile banking.
15. The exchange rate plays an important role in the economy given the high level of openness and the relative importance of public and private transfers. The Central Bank is determined to continue improving the functioning of the foreign exchange market. However the timing and modality for moving to an unconstrained auction system for currency trading will need to be carefully fine tuned, given the potential for oligopolistic behavior in a very small market.
16. In less than two weeks we will come to the second anniversary of the generous pledges made in New York in 2010 after the earthquake. Our Haitian Authorities would like to seize the opportunity to engage with the international community in a constructive assessment of the support provided to Haiti thus far. The idea would not only be to put in place a transparent accounting of the funds disbursed but also to discuss how to cooperate more efficiently. There is a need to increase the predictability of disbursements and the alignment of donors’ programs and projects with government priorities. Also, disbursement and implementation procedures should be harmonized. Finally, it is important to avoid creating parallel structures which contribute to weakening state institutions.
17. One key instrument of support is budget contributions. The authorities are indeed determined to increase fiscal revenues with a view to decreasing Haiti’s reliance on donor assistance in the medium term. However, in the short term, budget support is essential to support the strengthening of public financial management as well as to promote country ownership of development programs and projects. The Ministry of Finance has successfully engaged donors to participate in the budget support group. In this forum, the Government agrees with donors on a matrix of measures and objectives which constitutes the basis on which budget support will be granted and disbursed.
18. The last budget support group meetings were held in mid-December and mid-February. Budget support group members and the authorities agreed on concentrating on two axes: a) economic governance and b) policy. The former entails the stability of the macro framework and, more specifically, the modernization of public financial management, building on the World Bank’s Public Expenditure and Financial Accountability (PEFA) assessment. Another aspect is the improvement of the business environment through enhanced supervision and management of the insurance sector and modifications in the legal framework for doing business. The policies which are included in the matrix span from those to fight poverty to those encompassing the following sectors: energy, transport and communication infrastructures, agriculture, education, potable water and sanitation.
19. We call on our Board colleagues and Fund management to encourage development partners to avoid a wait and see attitude ahead of the approval of the Prime Minister. In the present situation, it is best to stay engaged. The care-taker government is functioning. Parliament is taking relevant decisions. We have mentioned already this week’s approval by the Senate of key diplomatic nominations. Moreover, on March 13, the Senate also approved the long-awaited banking law.
20. The government continues to work on delivering its promises to create jobs and reduce poverty. To reach these goals it is determined to honor its engagements toward the international community, including the IMF. The international community also needs to continue to do its part.