Haiti: Selected Issues

Abstract

Haiti: Selected Issues

Haiti’s Public Sector: Explaining the ECF’s Fiscal Target1

A. Introduction

1. A good assessment of Haiti’s public finances requires an appropriate coverage of fiscal accounts. Although fiscal targets under IMF-supported programs (2006–10 and 2010–14) have focused on the Central Government, there are a number of public sector institutions with significant weight in the economy, which (directly or indirectly) impact on public debt accumulation, and which are the source of fiscal vulnerabilities.2 For example, over recent years, deficits accumulated by the state-owned electricity utility (EDH) has become a drain for government finances.3

2. The current note provides an inventory of public sector entities other than the central government. These include the central bank (Banque de la République d’Haïti, BRH), state-owned enterprises (SOEs) such as the electricity utility (Electricité d’Haïti, EDH), autonomous agencies such as the Road Fund (FER), special treasury accounts such as the fund for the universal education program (PSUGO), the pension system, and local authorities (municipalities). The main constraint to the compilation of public sector fiscal accounts is the lack of financial data for most of public entities, mainly autonomous agencies and state-owned enterprises even if these entities are required by law to publish their financial data on a regular basis.

3. The new IMF-supported medium-term program (2015–2018) targets the deficit of a subset of non-financial public sector institutions. This subset includes, in addition to the central government, all transaction financed with Petrocaribe-related resources, as well as the FER, PSUGO, and EDH balances. These entities are responsible for public debt dynamics, as well as fiscal vulnerabilities. Other information will be gradually collected and integrated as the treasury single account (TSA) is expanded to cover autonomous agencies, state owned enterprises, and local authorities.

B. The Banque de la République d’Haiti (BRH)

4. The BRH has generated a profit in recent years. The BRH’s net income was over $14 million in FY2013, according to the BRH’s most recent audited financial statements (see BRH 2014). The central bank’s key income driver has been the return on its FX portfolio in recent years, which has largely funded the central bank’s operations. The interest on its FX portfolio was US$60 million in FY2013 (Table 1). The BRH has also earned G 1.1 billion a year (about US$25 million) on its claims on the government in recent years, under the terms of an agreement with the government pending a final settlement of these claims. Most of the central bank’s expenses related to salaries, benefits, and administrative expenses.

Table 1:

BRH Profit and Loss Accounts, US$ Millions

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Source: BRH FY2013 audited financial statements, Fund staff calculations.

5. BRH’s assets as of end-FY2014 were about G 147 billion (US$3.2 billion, or 37 percent of GDP). About half of the BRH’s assets were held as foreign exchange reserves, and gross claims on the government (about G 49 billion, or US$1.7 billion) accounted for most of the rest (Table 2). BRH liabilities consisted mostly of deposits, money in circulation, and BRH bills outstanding.

Table 2:

Structure of the BRH Balance Sheet, end-September 2014

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Source: BRH, Fund Staff Calculations

6. Most of Haiti’s FX reserves are held in corporate debt. According to the FY2013 audited financial statement, two-thirds of the BRH’s FX reserves (excluding gold and participation in international institutions) were held in corporate debt at end-FY2013.4 Most of the rest was collateral placed to conduct repurchase operations, which were subsequently unwound.5 Haiti’s FX reserves are managed by internationally-recognized firms with the goal of maintaining liquidity, are available for sale, and are held at market value. Fund staff confirmed that, as Haiti’s FX reserves are investment-grade and denominated in U.S. dollars, they are considered liquid for balance of payments purposes under the latest guidelines of the Balance of Payments and International Investment Position Manual (BPM6).

7. The BRH does not remit profits to the government as part of an agreement to capitalization. Article 59 of the BRH law states that 25 percent of net profits are to be distributed to the Treasury, 10 percent to a legal reserve, and the balance to special reserves for investment and expansion as determined by BRH Executive Board. However, as part of a memorandum of understanding to recapitalize the central bank that was agreed upon in the context of Haiti’s 2010 ECF arrangement, the BRH agreed with the MEF to not remit net profits to the Treasury.

C. State-Owned Enterprises

8. Haitian law defines state-owned enterprises (SOEs) as autonomous entities involved in financial, commercial and industrial activities.6 They operate under the commercial code and are expected to provide an economic and social return. They are created by law and their governance structure includes a management team and an executive board.7 They are under the administrative supervision of a sectoral ministry and their financial transactions are supervised by the Ministry of Finance and by the Court of Accounts (Cour Supérieure des Comptes et du Contentieux administrative). While SOEs enjoy administrative and financial autonomy, the government can intervene in their management if they fell into deficit.8 The government can propose to parliament the liquidation of SOEs that do not meet expectations. SOEs are owned fully or partially (mixed enterprises).9 Private sector participation in SOEs should be in line with the 1996 law on the modernization of public enterprises.

9. In the late 1990s, the government began a privatization program with the objective of injecting capital and increasing investment.10 The SOEs slated for privatization included a flour mill, a cement factory, the telephone company (TELECO), the electricity company (EDH), the national port authority (APN), the airport authority, an edible oil plant and two commercial banks (Banque nationale de crédit, BNC and Banque populaire d’Haïti, BPH). Only three enterprises were privatized, namely the flour mill (1998), the national cement factory (1999) and the telecommunications company TELECO (2010). Non financial public enterprises remaining in the state portfolio include the electricity distribution company (EDH), the national port authority (APN), the national airport authority (AAN), the social security office (ONA), the postal office (Office des Postes d’Haïti, OPH), a third-party vehicle insurance company (OAVCT), a labor and maternity insurance office (OFATMA), and a sugar factory (USJLDD). The government also has a 40 percent stake in NATCOM (former TELECO).11

10. Most SOEs are financially sound, with the key exception is EDH, which receives substantial government subsidies.12 A few SOEs pay dividends to the central government, but their contribution to revenue is very limited (less than 0.1 percent of GDP in the FY2015 budget). The port authority (APN) was exempted from distributing dividends so that it can consolidate its capital base.

11. Only a few SOEs publish their financial statements on a regular basis. This is the case despite that the law requires SOEs and autonomous agencies to submit (on a regular basis) their financial statements to the Ministry of Finance and the Court of Accounts.13 In particular, EDH has not published its financial statements since 2007, which makes it difficult to have a full picture of its financial position.14

12. The central government has a creditor position vis-à-vis a number of SOEs. Some SOEs have accumulated debts vis-à-vis the government, stemming from unpaid taxes or taxes collected from customers but not transferred to the Treasury (over 0.1 percent of GDP in FY2014). EDH has accumulated arrears (almost 1½ percent of GDP) to independent power producers, creating a contingent liability for the central government. In turn, local authorities have accumulated some arrears to EDH related to street lighting (0.5 percent of GDP). The legal framework does not prevent SOEs from contracting debt, although existing debt it is very limited and guaranteed by the central government. SOEs maintain a creditor position with the domestic banking system in the form of deposits (0.6 percent of GDP at end-February 2015).

D. The Road Maintenance Fund (FER)

13. The Road maintenance Fund (FER) is a financial autonomous agency created by law (of July 2003) with the mission to maintain road infrastructure on a sustainable basis. It is under the technical supervision of the Ministry of Public works. Like all autonomous agencies, it is also under the financial supervision of the Ministry of Finance, and its activities are submitted to the external audit by the Court of Accounts.

14. The FER is headed by a managing director, appointed by the Presidency, and operates under the supervision of a board established by an order (arrêté) of September 2005. The Board, chaired by the Minister of Public Works, includes 5 members representing the Ministry of Public Works (2), local authorities (1 currently designed by the Ministry of the interior), transporters (1) and petroleum companies (1).

15. The FER is charged with maintaining a list of eligible roads established by the Ministry of Public Works; the list is revised every two years, and is proposed by the Board of the FER.15 The domestic resources of FER, collected by the Tax and Customs departments, are generated by the following taxes and fees:

  • A charge on petroleum products (1Gourde per gallon of gasoline and diesel)

  • 5 fees collected on automobiles

  • Fees collected on cigarettes, alcohols, driver’s licenses and passports

  • 20 percent of road tolls.

Table 3.

Haiti: List of Autonomous Entities per Ministry and Category

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Source: Haitian Authorities

16. The FER also receives contributions of bilateral donors (EU, France, and Canada) and multilateral institutions (World Bank, IDB). Under exceptional circumstances, the FER can borrow to finance its current spending, with Board approval.

17. Resources of the FER are deposited on a special account with the BRH (compte FER). By law, up to 10 percent of FER resources is used for current spending, while the remainder is used for road maintenance under regular activities (85 percent) and in case of emergencies (5 percent). The Ministry of Public Works manages spending related to road maintenance while the FER’s DG manages current spending. The budget for road maintenance is used for the national road network under the responsibility of the central government (70 percent), and the rest to roads under the responsibility of local authorities. FER resources are limited, with allocations of only G350–650 million (0.1 percent of GDP) during FY2013–2015 (Table 4).16

Table 4:

Haiti: Operations of the Road Fund (FER), 2013-2015 (in millions of Gourdes)

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Sources: FER, Ministry of Economy and Finance and Fund staff estimates

E. The PSUGO Fund

18. The PSUGO Fund was announced in May 2011 as one of the President’s 5-year priorities. The objective of the Fund was to mobilize needed resources to provide compulsory and free school access to 1.5 million disadvantaged children, under the universal, free and compulsory program (PSUGO).17 The Fund would complement budgetary allocations to PSUGO that are executed under the investment budget of the Ministry of education (ME). The authorities decided that the Fund would be financed by the following fees on international telephone calls and money transfers:

  • US$0.05 on each incoming call minute, to be collected by the National Telecommunications Council (CONATEL);

  • (US$1.5 on money transfers (incoming or outgoing the country), to be collected by financial institutions, and transferred to the central bank (BRH).

19. The PSUGO Fund was expected to be effective from June 2011. Initial projections had established the collection capacity at US$360 million for the 5 years, with equal contributions from the two sources. The Fund was to be managed by a council of 15 members, including BRH, and an independent international firm would be responsible for its audit.

20. At present, the Fund is operational but without a legal framework, since the bill on the establishment, organization and functioning of the Fund is still pending adoption by the parliament. In August 2012, the lower house of the parliament passed a bill on the Fund, with clarifications on the composition of the managing committee. But the bill has not yet been considered by the Senate. In the meantime, fees have been collected. With regard to the fee on money transfers, BRH’s circular 98 of May 2011 instituted the fee on money transfers for “cost of testing, certification, operation and inspection”.

21. The PSUGO Fund’s operations have essentially been extra budgetary. Resources of the Fund are deposited in a special account at the BRH, within the definition of Net Credit to the Central Government (NCG), captured within the program targets. Changes in deposits, resulting from the Fund’s revenue or expenditures, affect government financing through the change in NCG; however the Fund’s revenues and expenditures are not recorded in the table of budget execution as a counterpart.18 For program monitoring purposes, starting from FY2013, information on revenues and expenditure was included in the ECF’s table of government fiscal operations.

22. The PSUGO Fund’s spending for FY2012 and FY2013 was tentatively estimated using information on FNE revenues and changes in end-year deposits. The Fund’s resources averaged G 1.9 billion (US$45 million) a year during FY2012–FY2013, of which G 1.6 billion (US$38.7 million) collected from telecommunications and money transfer fees and G 0.3 billion from transfers from PCDR resources (Table 5). Expenditure averaged G 1.7 billion per year, with the difference remaining in the Fund’sdeposits with the central bank. In FY2014, the Fund’srevenue was lower at G 1.6 billion, with spending estimated at G 1.5 billion. Figures for in the FY2015 budget show an increase both in revenue (G 1.9 billion) and spending (G 1.8 billion).

Table 5.

Haiti: Operations of the PSUGO Fund, 2012-15 1/2/

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Sources: Ministry of Economy and Finance; and staff estimates and projections.

Expenditure for FY2014 as provided by the Budget Department; estimates for previous years.

Data for 2015 are based on the budget law for FY2015, and execution for the first quarter of FY2015.

F. The Pension System

23. Haiti’s pension system comprises: (i) a private sector mandatory plan; and (ii) a civil service mandatory pension plan. To supplement the private sector plan, major corporations have developed voluntary pension schemes for their employees. But such schemes are protected by no legislation and are not supervised, and therefore no information is readily available.19

24. The private sector mandatory plan is managed by ONA (OfficeNationald’Assurance-Viellesse). ONA is State-owned enterprise regulated by a law of 1965 (modified by the organic law of August 28, 1967 and other subsequent decrees) and is under the technical supervision of the Ministry of Social Affairs. The law provides for a board with representatives of employers, workers and the government). The plan is funded by contributions by employees (6 percent of member’s wages) and employers (6 percent of member’s wages).

25. ONA provides coverage for old age, disability and survivors. Coverage includes (i) employees of formal private sector (industrial, commercial, agricultural firms); and (ii) certain categories of public sector employees, mainly in state-owned enterprises (SOEs).20 Self-employed, workers in the informal sector, and even civil servants can participate on a voluntary basis, on the condition that they provide a total contribution of 12 percent of their salary.

26. The mandatory plan provides the following benefits:

  • Old-age pension: 1/3 of average monthly salary during the last 10 years of contributions, for those who have contributed during a period of at least 20 years. Benefits are neither indexed nor adjusted for inflation. ONA has a restitution system for employees who do not meet the conditions for benefiting from the old-age pension (mainly the 20 year contribution period). The old-age pension represents more than 70 percent of total benefits.

  • Permanent disability pension: monthly pension is based on 1/5 of average monthly earning in the last 10 years before disability, for those who have contributed between 10 and 20 years. Benefits are neither indexed nor adjusted for inflation.

  • Survivor pension: 1/2 of the pension, split among the surviving spouse and minor dependents (less than 18). Benefits are neither indexed nor adjusted for inflation.

27. While the very low dependency ratio generates significant surpluses, ONA’s financial position remains weak.21 At end-2010, some 200k individuals contributed to the pension system compared with only 2k beneficiaries. The coverage rate is small (about 2 percent of the population). Annual contributions during FY2011 amounted to G 1.5 billion, for retiree benefits of only G 80 million and restitutions of G 20 millions. However, because of weak management and supervision (in part because the Board is not functional), the low return on investments (in part due to limited opportunities), the high provision for NPLs, the various shocks to domestic activity, and the high administrative costs (the wage bill is unusually high, representing 50 percent of total spending), ONA’s financial position is weak. A recent actuarial study (Delarue, 2014) found that ONA has been recording no new contributors, as the ONA scheme has become less attractive (pension benefits based on only 1/3 of the salary and discontinuation of mortgage loans). It concluded that ONA’s situation called for deep structural reforms.

28. The Civil Service Pension Plan is administered by the Direction de la Pension Civile (DPC) within the Ministry of Finance.22 The plan is mandatory for civil servants and is open to public sector contractual employees willing to contribute. Benefits are available at the age of 55 for public sector employees who have contributed to the plan (8 percent of the base salary). Until mid-1990, the government matched 100 percent of the employee contribution; government contribution has been reduced to 2–3 percent, but the government intends to increase its contribution in future budgets. The majority of retirement benefits represent old age benefits (pensions), which vary according to the length of the contribution period, with a 20-year minimum contribution.23 The plan also offers survivor benefits for non-remarried spouses and children up to age 24. A few exceptions apply to a few categories.24 Old age benefits are not adjusted for inflation (Table 6).

Table 6.

Haiti: Benefits for Public Sector Employees

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Source: MEF, Direction de la Pension Civile (DPC)

29. Civil servants benefit from other non-contributory benefits (MEF, 2014). Since 2007, public sector retirees benefit from medical insurance (medical and funeral services) fully covered by the government. Also, a few initiatives were recently introduced in favor of government employees and retirees, including: (i) since 2005, loans guaranteed by the Civil Service Pension Plan are extended by the Banque populaire haïtienne to retirees at an 18 percent interest rate; (ii) since 2008, the Direction de la Pension Civile (DPC) extends advances to employees at a 12 percent interest to allow the payment of the income tax; (iii) since 2009, retirement benefits are progressively paid through bank transfers, as payments by checks are costly and prone to errors; and (iv) a service is provided to retirees in filling out administrative formalities for the annual re-registration.

30. Due to a relatively less favorable dependency ratio, the system generates modest savings. In 2014, the number of retirees was 14k for 70k active contributors.25 Monthly employee contributions (G 79 million) barely cover monthly retirement pensions (G 69 million). Surpluses are kept on a commercial bank account (0.4 percent of GDP at end-March 2014) mainly invested in government T-bills. Recruitments in the police and social sectors are expected to increase the plan’s revenue base.

G. Municipalities

31. Aggregate spending by Municipalities is estimated at below 2 percent of GDP. Due to limited financial and technical constraints, municipalities do not carry out all the responsibilities established under the Constitution of Mars 1987and the Decree of February 2006 on local authorities (“charter of local authorities”).26 Spending by municipalities include social services related to police, cemeteries, markets, butcheries, the protection of sites, basic hygiene and health services, civil protection, and cultural infrastructure. Large municipalities (Carrefour, Port-au-Prince, Pétionville and Delmas) provide garbage collection services and public lighting. There are a total of 140 municipalities, with the largest municipalities located in the Port-au-Prince urban area and Cap Haïtien.

32. Spending is financed by a combination of national and local taxes. Resources include transfers from the central government and earmarked taxes (amounting to about 1 percent of GDP), that are transferred to Municipalities through the Ministry of the Interior. Other revenues include local taxes, (essentially real estate taxation), and fees on services provided by municipalities.27 Municipalities have accumulated arrears to EDH related to public lighting (0.5 percent of GDP at end-FY2014). They currently owe no debt to the domestic banking system.

33. Municipalities follow accountability rules governing the use of public resources. Their activities, conducted in the context of annual budgets, are subject to ex-post controls by the Court of Accounts. Spending must be in line with the procurement framework; a Decree of September 5, 2009 (on procurement) sets the thresholds for municipalities at lower levels, with even lower levels for smaller municipalities. Economic data on municipalities is lacking and reporting is delayed, sometimes by more than one year, making monitoring difficult.

References

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1

Prepared by Joseph Ntamatungiro and Lawrence Norton (WHD)

2

International Monetary Fund (2006 and 2010).

3

See the Selected Issues Paper “Opportunities and Challenges for Growth”.

4

The audited financial statement of BRH can be found at http://www.brh.net/etats_financiers_2013.pdf. The audit is qualified because of the BRH’s holdings of residual TELECO. The BRH owns about 97 percent of TELECO, which is valued at G 1.9 billion but which has not been revalued since 2001. In the absence of audited financial statements of TELECO, the audit is qualified.

5

See IMF 7th Review, IMF Country Report 14/105, available at http://www.imf.org/external/pubs/ft/scr/2014/cr14105.pdf

6

See the Decree of May 17, 2005 on organization of national administration.

7

According to Article 128 of the Decree of May 17, 2005, members of the executive board (3 to 9 members) are nominated by the government after approbation by the Senate, for a 3-year term renewable once.

8

Article 154 of decree of May 17, 2005 lists 4 circumstances under which the government could intervene: (i) deficit greater than to a third of the revenue of the previous year; (ii) the deficit exceeds 15 percent of the revenues of during three years over a five-year period; (iii) losses are higher than a third of the capita; and (iv) a court decision forces the SOE to pay debt obligations exceeding 80 percent of revenues.

9

See Article 118 (b). SOEs differ from several autonomous agencies carrying out government missions in the administrative, cultural or scientific areas (see Table 3). These agencies are defined by Article 118 (a); their budgets are financed by allocations of the central government budget, and their employees are subject to the civil service charter, even though they can benefit from special statutes.

10

In 1996, Haiti passed legislation on the modernization of public enterprises (Law of September 26, 1996), allowing for the privatization of 9 public enterprises by March 1998. Privatization could take the form of a management contract, a concession, or a capitalization (joint venture). In the case of a joint venture, the government would retain from 20 percent to 49 percent ownership. The privatization process was supervised by the Council of modernization of public enterprises (CMEP) established in 1997.

11

Financial public enterprises include two commercial banks (BNC and BPH).

12

See the Selected Issues Paper “Opportunities and Challenges for Growth”.

13

Articles 150 and 151 of the decree of May 17, 2005.

14

EDH, APN and DINEPA were audited for FY2005 and FY2006 under two IDA-financed budget support operation (Economic Governance Reform Operations I and II). With the assistance from the World Bank, an audit of EDH’s accounts is being conducted for the period 2007–14.

15

The Ministry of Public Works is charged with maintaining roads that are not eligible to the FER.

16

The FY2014 and FY 2015 budget laws included FER spending under government investment, financed with withdrawals on FER’s bank account under domestic financing. Starting from FY2015, staff fiscal tables add FER revenue to government revenue. Movements on the FER’s bank account affect net bank credit to the central government. In February 2015, FER’s deposits with the central bank amounted to G220 million (10.05 percent of GDP)

17

The PSUGO Fund would benefit primarily the Greater South, the Great North and the West and Central Plateau. The first schooling was to take place in September 2012 with 350,000 children.

18

The FY2014 and FY 2015 budget laws however included the Fund’s spending under government investment, while the Fund’s revenue is recorded under domestic financing (assumed withdrawals on the Fund’s special account). In staff fiscal tables the Fund’s revenue is added to government revenue.

19

See the 2008 Financial System Stability Assessment (FSSA).

20

The retirement age (55 years) is low compared with LAC countries; e.g. 60 years for women and 65 years for men in Chile (World Bank, 2009). But also life expectancy at birth (64 years in 2011) is also the lowest (compared with over 70 years in most Caribbean countries). The age dependency ratio (old in percent of working-age population) is also the lowest (7.5 percent in 2012).

21

ONA was created in 1965, but started providing pension benefits only twenty years later in 1985, which resulted in an accumulation of surpluses. Given the limited investment opportunities, ONA ventured into extensive and risky lending programs, including mortgage loans from 1974, for which it lacked the expertise, and with low repayment rates (Rajput, 2013). Mortgage loans were discontinued in 2007. In February 2015, ONA’s deposits with the banking system amounted to G 4.7 billion (1.1 percent of GDP).

22

The Direction de la Pension Civile (DPC) essentially acts as a benefit payment agency. A coordination unit assists the DPC in the provision of benefits in various regional departments.

23

Since 2004, the plan provides reimbursements to agents who have contributed less than 20 years.

24

Former Presidents, Prime Ministers and Ministers enjoy a special treatment, as well as high government officers (Grands Commis). Employees in the education sector and some employees in the health sector with a 25-year career also receive 100percent of their remuneration, up to G10,000.

25

The number of retirees includes about 3k retired military with monthly pensions of about G10 million. Following the dissolution of the army and of the military pension system, payments to the military retirees are reimbursed by the central government budget.

26

With USAID financial support, the Ministry of the Interior and Local Authorities preparer in 2011 a compendium of laws and decrees governing local authorities in Haiti.

27

These taxes are notably instituted by the Law of August 20, 1996 on the Contribution to the Fund for the Management and Development of Local Authorities, and the Law of September 28, 1987 on the business tax (patente).