Statement by Mr. Nogueira Batista, Executive Director for Haiti, Ms. Florestal, Government-Provided Advisor, and Mr. Robergeau, Government-Provided Advisor, March 11, 2013

Significant progress has been made in Haiti to safeguard macroeconomic stability after the January 2010 earthquake. However, the pace of the reconstruction has been slow and the business environment remains unattractive. Further development and strengthening social safety nets are essential. The monetary policy stance is appropriate and continuing commitment to exchange rate flexibility is appreciated. Improving the business environment is important to raise productivity, enhance competitiveness, and achieve higher and more inclusive growth.


Significant progress has been made in Haiti to safeguard macroeconomic stability after the January 2010 earthquake. However, the pace of the reconstruction has been slow and the business environment remains unattractive. Further development and strengthening social safety nets are essential. The monetary policy stance is appropriate and continuing commitment to exchange rate flexibility is appreciated. Improving the business environment is important to raise productivity, enhance competitiveness, and achieve higher and more inclusive growth.

1. During the period under review Haiti suffered two new natural disasters (a hurricane and a spring drought). Although there have been significant improvements in disaster preparedness and risk management, the country remains very vulnerable to these shocks. Scarce public resources had to be reallocated to emergency responses, including those related to spikes in cholera infection. Damages in the agricultural sector led to significant material losses with ensuing pressures on imports and prices. The deceleration of exports and the shrinking of agricultural output led to a slowdown in GDP growth.

2. GDP continued to grow, albeit modestly, in per capita terms. Inflation spiked but remained at single digits. Gross liquid international reserves were considerably strengthened and reached the equivalent of six months of imports at end 2012. The authorities have managed to maintain macroeconomic stability and meet all quantitative performance criteria under the ECF. Commendable progress was also achieved on the structural reform agenda.

3. On behalf of our authorities, we would like to thank IMF staff and management for the constructive dialogue and their continuous support particularly with the technical assistance missions. We also commend staff for the set of excellent reports. Our authorities are particularly pleased with the inclusion of Haiti in the pilot program of financial sector reviews which they find to be a helpful addition to the Article IV report.

Investment, growth and donor coordination

4. The authorities’ medium and long term goal is to achieve sustainable and inclusive growth. In their strategy, the private sector needs to play a central role. Therefore, the Government is determined to improve the business climate both by targeted measures to remove bottlenecks and by maintaining a stable macroeconomic environment. Reforms initiated to strengthen institutional capacity, scale up investments in human capital, and build economic and social infrastructures should also have a positive impact on private sector initiatives.

5. Key challenges for the implementation of the national development agenda include securing reliable concessional resources and ensuring that donors’ assistance is aligned with domestic priorities. A significant portion of the US$ 9.04 billion reported to have been disbursed by the donor community since the earthquake of 2010 did not go through Haiti’s national budget. Moreover, much of the donor resources did go through the budget financed projects that were not originally part of the national action plan presented by the Government after the 2010 earthquake. The channeling of donor resources through parallel structures that compete with public institutions for funding and qualified personnel adds to Haiti’s development challenges.

6. Donor-financed projects constitute the bulk of the public investment program (PIP) and their alignment with national development goals remains crucial. This is one of the key mandates of the newly created structure under the leadership of the Minister of Planning and External Cooperation to replace the Interim Haiti Recovery Commission. Greater coordination and harmonization of procedures within the donor community would also be instrumental. Information on the sectoral distribution and geographic location of externally financed operations and disbursements of development partners needs to be made available to the Government on a timely basis. There is no other way to make sure that scarce development resources are efficiently allocated and integrated into the national development plan.

7. Haiti’s absorptive capacity is also weakened by the heterogeneity of donors’ procurement regulations and the multiplication of executing units. The time national institutions, including line and coordinating ministries, spend receiving missions from abroad, could have been more efficiently used in implementing the PIP and the structural reform agenda.

8. Our authorities look forward to the streamlining and harmonization of donor procedures and the increased reliance on Haiti’s rules and institutions in the use of donor resources. At the same time, they are convinced that the difficulties faced by the public sector in hiring and retaining experienced professionals are amplified by the high salaries and fringe benefits offered by NGOs and international organizations. The public sector cannot compete with these institutions under its human resource management framework and financial constraints. With support from Canada and the IDB, an action plan for reforming the public service, including through changes in the salary scale, is being elaborated under the leadership of the Prime Minister’s office.

Taxes and fiscal administration

9. The staff report and the issues note summarize well the assessments and recommendations of Fund technical assistance missions and other development partners. Strengthening the organizational structure and administrative capacities of the tax offices seems critical for attaining fiscal objectives and for improving the quality of services offered to taxpayers. A significant step forward in this direction was the launching of the e-declaration through which taxes can be declared online. It is expected that by the end of the year the electronic liquidation of taxes will also be possible. Also, an internationally renowned firm is being hired to support the Ministry of Economy and Finance (MEF) in its efforts to strengthen the organizational structure and administrative capacities of the tax offices.

10. The size of the informal economy in Haiti explains to a large extent the preponderance of indirect taxation and makes comparisons with regional peers that have mainly formal economies less relevant. Nonetheless, the authorities are determined to enlarge the income tax base. A medium tax payer unit was recently created to contribute to this end. Despite the comparatively low custom tariffs, fiscal revenues depend largely on trade and are thus vulnerable to international demand and price volatility. Reforms have been initiated to shift the burden of taxation to internal sources of revenue. The transformation of the TCA (Taxe sur le Chiffres d’Affaires) to a TVA (Taxe sur la Valeur Ajoutée) should also help. The timing of the official launching of the TVA and its success will however hinge on the speed at which the authorities are able to put in place an adequate information system in the fiscal administration.

11. As Haiti complies with the requirements of CARICOM membership, including adoption of the common external tariff (CET), increases in the average tariff rates are expected. Staff observes that the overall impact on revenues is uncertain, given that revenue losses would result from reduction or elimination of tariffs on imports from CARICOM countries. However, since most of Haiti’s imports are presently coming from countries such as the US and the Dominican Republic, we expect that the net effect on fiscal revenues of aligning the country’s tariffs with those of CARICOM will probably be positive, at least in the short-term.

12. Tax expenditures have reached alarming levels. The authorities started to tackle this problem through a two-pronged approach: first by ensuring that NGOs and international institutions comply with legislation and, second, by limiting or eliminating certain exemptions and exonerations, including to firms executing contracts for the public sector. The Executive Order of August 2012 underscores the obligations and duties of those who are granted tax exemptions and seeks to ensure that beneficiaries participate in the realization of national development plans.

Energy sector

13. The Haitian authorities remain mindful that an orderly reduction of the Treasury’s subsidies to the public utility company Electricité d’Haïti (EDH) is imperative. With the ensuing savings, fiscal space will be generated for social expenditures and the funding of job creation and growth enhancing projects. However, they are also conscious that the strengthening of EDH’s financial situation and production capacity will occur only gradually. Hence, the government adopted a set of measures to phase-out the subsidies and achieve sustainable financial soundness at EDH. The phasing out of budget transfers to EDH has been initiated with a target date of 2016 for complete elimination. An MOU was also signed between EDH and the MEF at end-2012. It includes a commitment by the management of the electric company to present a financial sustainability plan by end-March 2013 on which an agreement will have to be reached by the end of the year.

14. A delegate minister for energy was appointed with a specific mandate that includes the responsibility of overseeing the sector and preparing a financial recovery program and an investment master plan that addresses EDH’s financing needs. However, the Ministry of Public Works continues to be the lead oversight institution for the electricity sector.

15. Additionally, to enhance transparency, equity and control over the operations of the independent power producers (IPPs), long-distance power metersthat allow EDH to monitor the quantity of electricity produced and consumed, have been installed at five out of a total of six IPP plants. A standard contract is also being drafted by EDH management with a view of harmonizing the terms of the agreements with all six IPPs by the end of 2013.

16. The involvement of the external firm Tetratech in the reform of EDH, subsequent to an agreement with the development partners, represents a valuable step. Success depends on an effective cooperation between donors, EDH and the authorities.

Financial sector

17. Several reforms have already been initiated to enhance access to credit. Many challenges remain including completing legislative changes such as the Law on Financial Cooperatives (FCs) and the Bill for Microfinance Institutions (MFIs). A top priority of the BRH’s regulatory agenda is the drafting of a law to cover financial leasing and factoring. In addition, with support from the World Bank and IDB, a credit bureau will be launched soon.

18. Our authorities welcome the policy recommendations for the long-term development of the microfinance and cooperative sectors. They are determined to establish a regulatory framework commensurate with the needs and diversity of the current players. The microfinance and cooperative sectors are preponderant in the rural areas. Their presence and active involvement in financing productive activities make them central to the financial inclusion agenda. FCs and MFIs meeting minimum IT and regulatory requirements will also have access to the credit bureau.

19. The authorities recognize the need to address the problem of insufficient information on the nonbank financial sector. They intend to hasten the process of drafting and approving regulation covering the sector. The informal sector of the economy relies mostly on microfinance provided by nonbank institutions. As informality is progressively reduced, the need for timely availability of quality data will become more pressing.


20. The Haitian authorities are fully cognizant of the importance of remittances in providing a reliable source of income for the most vulnerable. They welcome recommendations to strengthen the regulatory framework, promote competition in the money transfer market, reduce costs and secure transactions. As mentioned in the staff report, a flat fee on remittance flows was introduced about a year ago. Preliminary data compiled by the Central Bank since the introduction of the measure do not show evidence of negative effects either on the number of transactions or on the total amount. Hence, suggestions to consider alternatives to the current flat fee appear somewhat premature.

21. The issues note on the financial sector also calls for an in-depth study of the structure and operation of the Haiti-Dominican Republic corridor in the flow of remittances. The Haitian authorities are of the view that such a project would gain from being conducted jointly by the central banks of the respective countries. In addition, given the importance of the US-Haiti and France-Haiti corridors, the authorities are more inclined to start with the assessment of these channels and derive adequate lessons to be applied to support financial inclusion.

Monetary, credit and exchange rate policy

22. The Central Bank has maintained the accommodative stance adopted since the earthquake, leaving interest rates on its paper unchanged since January 2011. However, with 12-month inflation above 7 percent, the Central Bank slightly tightened the monetary policy stance, raising banks’ reserve requirement ratios by 5 percentage points to a maximum of 34 and 39 percent on liabilities in local and foreign currency, respectively. This measure became effective on February 1st, 2013.

23. The Central Bank is committed to move gradually towards greater exchange rate flexibility. Despite the recent increase in the volume of transactions, the foreign exchange market remains quite shallow and constrained, given the small number of players. The Central Bank considers the expansion and modernization of the foreign exchange market a prerequisite to the establishment of a single price foreign exchange auction system. Ongoing TA and the Fund’s support will be instrumental in deciding on the appropriate sequencing of measures for the change in auction type. NGOs and exporters already hold frequent free auctions to allocate foreign currency to local banks in a wholesale-like market.


24. The building and reconstruction of economic and social infrastructure offer enormous business opportunities which are being seized by some investors as attested by the continuation of growth in FDI last year. Going forward, domestically financed capital investment is to be allocated primarily to projects that will upgrade the stock of infrastructure and foster private sector investments. Transformational projects, those that can change the dynamics of development in Haiti, require the mobilization of important resources. Thus, the use of Private Public Partnerships (PPP) is a useful complement to the conventional sources of development finance. Our authorities would welcome technical support for the finalization of a consistent framework for PPPs.