Haiti: Use of Fund Resources-Request for Emergency Post-Conflict Assistance Supplementary Information
Author:
International Monetary Fund
Search for other papers by International Monetary Fund in
Current site
Google Scholar Close
Publication Date:
11 Nov 2005
eISBN:
9781451817621
Language:
English
Keywords:
ISCR; CR; financing; Emergency Post-Conflict Assistance; EPCA financing; IMF policy advice; IMF's Emergency Post-Conflict Assistance; financing of the budget; fiscal year; net operation; excl. BRH bond; net financing; Emergency assistance; Current spending
Download PDF (640.1 KB)

This paper discusses the Use of IMF Resources in Haiti and Request for Emergency Post-Conflict Assistance (EPCA). The EPCA-supported program was on track until May 2005. All end-December and end-March targets were observed, inflation declined, the exchange rate stabilized, and net international reserves were increased. However, following expansionary fiscal and monetary policies during May–June, most end-June targets were missed. Also, while many structural measures were implemented as envisaged, progress on key structural measures, including the census of public employment and domestic arrears, was delayed.

Abstract

This paper discusses the Use of IMF Resources in Haiti and Request for Emergency Post-Conflict Assistance (EPCA). The EPCA-supported program was on track until May 2005. All end-December and end-March targets were observed, inflation declined, the exchange rate stabilized, and net international reserves were increased. However, following expansionary fiscal and monetary policies during May–June, most end-June targets were missed. Also, while many structural measures were implemented as envisaged, progress on key structural measures, including the census of public employment and domestic arrears, was delayed.

1. This supplement provides additional information that has become available to the staff since issuance of the staff report. A key development has been the weakening of the central government’s position at end-September 2005 relative to earlier expectations. The authorities have committed to implement additional measures to ensure that the objectives of the program are met, and on that basis the thrust of the staff appraisal remains unchanged.

Fiscal developments

2. Provisional data indicate a weakening of the fiscal position from that described in the staff report. This mainly reflected expenditure overruns in late September that were not anticipated during discussions with the authorities at the time of Annual Meetings, including an exceptional bonus to public employees equivalent to 70 percent of monthly salaries (G284 million) and payments for road construction contracts (G60 million). As a result, the stock of net credit from the central bank (BRH) to the central government at end-September 2005 exceeded the level anticipated under the program by G348 million (0.2 percent of GDP).

3. The authorities have committed to take corrective measures (Attachment). In particular, expenditures in the first half of FY2005/06 will be reduced by about G300 million by delaying recruitment and limiting salary increases, reducing subsidies (in particular for electricity production), and eliminating low-priority outlays.

4. The 2005/06 budget approved on September 30, 2005 is consistent with the understandings under the program. However, the budget gap for April–September 2006—at US$24 million—is US$6.6 million lower than projected by the staff, largely reflecting higher revenue assumptions. Nonetheless, the staff still projects the external financing gap for April-September to be about US$31 million.

Monetary developments

5. Net international reserves are as programmed but the exchange rate has weakened. Preliminary data indicate that NIR were about US$68 million at end-September, slightly above estimates in the staff report. The gourde has depreciated to about G43/US$, from about G42/US$ since mid-September.

6. Since early October, the central bank has taken steps to tighten monetary policy, in line with commitments under the program. The BRH increased interest rates on its bonds by about 300 basis points on all maturities, thereby taking them to positive levels in real terms (adjusted by 12-month inflation). Concurrently, the BRH increased its stock of bonds to eliminate remaining excess liquidity in the banking system.

Political developments

7. Elections have been slightly delayed. According to a recent statement by Prime Minister Latortue, the presidential and legislative elections scheduled for November 20 and the local and municipal elections for December 11 will be delayed by three weeks due to logistical problems. In addition, there are indications that donor financing for the elections may fall short of earlier pledges, and unless this gap is closed by donors, the authorities may be forced to use domestic resources.

Revised tables

8. The recent data necessitate amendments to the tables that had been contained in the main staff report. In particular, indicative targets for December 2005 and March 2006 have been adjusted to take into account the slippages to end-September 2005 and the effects of the offsetting measures, and the monetary and fiscal projections have been amended accordingly (MEFP Table 1; and staff report Tables 3a-3d and 4).

Table 1.

Haiti: Indicative Targets, September 2005–March 2006 1/

article image
Sources: Ministry of Finance, Central Bank of Haiti, and Fund staff estimates.

Refer to technical memorandum for definitions of indicative targets.

Program exchange rate of G42/US$.

To all creditors except those who agreed on debt service deferral.

Not targets. Cumulative flows over the program period.

Table 3a:

Central Government Operations

(in millions of gourdes)

article image
Sources: Ministry of Finance and Economy; and Fund staff estimates

Includes statistical discrepancy.

Table 3b.

Haiti: Central Government Operations

(in percent of GDP)

article image
Sources: Ministry of Finance and Economy; and Fund staff estimates

Includes statistical discrepancy.

Table 3c:

Central Government Operations

(in millions of gourdes)

article image
Sources: Ministry of Finance and Economy; and Fund staff estimates

Includes statistical discrepancy.

Net BRH financing in 2005/06 is equal to central government’s net savings accumulated at the BRH during 2004/05.

Table 3d.

Haiti: Central Government Operations

(in percent of GDP)

article image
Sources: Ministry of Finance and Economy; and Fund staff estimates

Includes statistical discrepancy.

Net BRH financing in 2005/06 is equal to central government’s net savings accumulated at the BRH during 2004/05.

Staff appraisal

9. Recent fiscal developments do not alter the broad thrust of the staff appraisal. However, the recent expenditure slippages and shortfall in the 2004/05 budget outturn relative to earlier estimates were unfortunate. Although the authorities have provided commitments to additional measures to help contain central bank financing of the budget, these will add to an already challenging fiscal situation and underscore the importance of more rigorous expenditure discipline and governance, as emphasized in the staff appraisal. Moreover, effective program implementation will require close consultation with Fund staff on economic developments and any revisions to the policies contained in the MEFP, as stated in the authorities’ Letter of Intent. The staff continues to support the authorities’ request for Fund assistance under the EPCA policy.

Table 4.

Haiti: Summary Accounts of the Banking System

Fiscal Year Ending September 30

article image
Sources: Bank of the Republic of Haiti; and Fund staff estimates.

Includes commercial banks’ foreign currency deposits. For program monitoring, they are excluded from net international reserves.

Excludes special accounts.

For all quarters, percentage change is calculated relative to the previous September.

Mr. Rodrigo DE RATO

Managing Director

International Monetary Fund

700 19th Street, N.W.

Washington, D.C. 20431

U.S.A.

Dear Mr. DE RATO:

It was with a certain surprise, and no small disappointment, that I learned yesterday afternoon of the decision by the Western Hemisphere Department to postpone consideration by the Fund’s Board of the Emergency Post-Conflict Assistance (EPCA II) credit to Haiti, this despite the successful completion of consecutive financial programs between Haiti and the Fund – first the Staff-Monitored Program of April-September 2004, followed by the initial EPCA operation in FY 2004-05.

True, preliminary data issued by the central bank of Haiti at the beginning of this week indicated that we might have been very far from the expected net accumulation of G380 million for FY 2004-05 and that there may have been central bank financing on the order of G132 million through end-September 2005, However our more recent provisional data show a net accumulation of G32 million for the year, thereby respecting our commitment of no net financing from the central bank.

We are aware that if this shortfall of net accumulation of 348 million were to persist, it would pose difficulty for the program for which we are requesting financial support through a second EPCA. However, we wish to reassure you that we have already identified appropriate remedial measures. These include the reduction of the projected wage bill by postponing the recruitment of new personnel and salary increases which together will produce a savings of G205 million; and the reduction in subsidies to the electricity company for the purchase of fuel (G100million).

We understand that some are of the opinion that certain expenditures, such as the bonus to public employees, could have been postponed or curtailed. However, we proceeded with these expenditures at a time when we still anticipated closing out the fiscal year with a sizable net accumulation at the central bank, and based on the conclusion that the expenditures could not be postponed. In the specific case of the bonus, the expenditure had been budgeted, engaged and made public since the beginning of September.

We think it important also to note that the data now before us confirm that September revenues, adjusted as is done with each month’s preliminary figures to include late-reported revenues collected in cities and towns outside Port-au-Prince and at provincial ports, were significantly higher than the preliminary data on which yesterday’s decision seems to have been based. These additional revenues include:

  • - G25 million in customs receipts at Malpasse (on the Haiti-Dominican Republic border)

  • - G52 million in partial payment of overdue petroleum duties and taxes

  • - G59 million in domestic tax receipts collected in the provinces

  • - G29 million in miscellaneous receipts.

You will find attached to this letter the central bank’s revised “Tableau estimatif du Financement de la BRH de l’Administration Centrale,” and the staffs of both my ministry and of the BRH will be at the disposal of the Fund’s Resident Representative and of your headquarters for any further information or clarifications.

We fervently hope that, in the light of the tables referred to above and of the facts and clarifications provided in this letter, it may still be possible for Management to request Board consideration of Haiti’s program before next week’s Haiti follow-up meeting of donors in Brussels, a meeting obviously of critical importance to the political, social and economic future of Haiti.

Once again, it bears reiterating that the Transitional Government has respected its commitments to the Fund over the past two years, and that as spelled out so clearly in the Letter of Intent addressed to you on October 5, 2005: “(We have always stood ready to) take any further measures that may become necessary” to achieve the objectives of this latest program upon which we had expected to embark with the Fund as of today.

Same Series

Other IMF Content

Other Publishers

  • Collapse
  • Expand
Cover IMF Staff Country Reports
Haiti: Use of Fund Resources—Request for Emergency Post-Conflict Assistance
Author:
International Monetary Fund
Volume/Issue:
Volume 2005: Issue 404
Publisher:
International Monetary Fund
ISBN:
9781451817621
ISSN:
1934-7685
Pages:
81
DOI:
https://doi.org/10.5089/9781451817621.002