IMF staff mission concludes visit to Haiti

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PORT-AU-PRINCE, Haiti — A mission from the International Monetary Fund (IMF) led by Christopher Walker visited Haiti during September 7–11 to review economic developments and hold discussions with the authorities on the 2015–16 budget. The staff team expects to return to Port-au-Prince in November to hold discussions on the first review under Haiti’s arrangement with the Fund under the extended credit facility, adopted and approved in May of this year.

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At the conclusion of the mission, Walker issued the following statement:

“Haiti continues to implement its IMF-supported program in challenging circumstances. The country is facing a significant drought, with crop losses estimated as high as 50 percent in the most-affected areas. In the face of this negative shock, and with a decline in construction linked to a drop in public investment, economic growth in FY2014/15 (ending September 30) is expected in the 1–2 percent range.

“In addition, uncertainties common to electoral cycles contributed to a sharp depreciation of the gourde in June/July. The monetary authorities took appropriate and timely measures in response, and the exchange rate has regained approximately half of its 17 percent loss against the dollar during this period. Nevertheless, the depreciation, coupled with food price increases resulting from the drought, is expected to push inflation up to around 10 percent this fiscal year.

“The relaxation of the monetary policy measures taken in response to the depreciation should be carefully calibrated, proceeding only when public-sector borrowing requirement is reduced, in order to maintain an orderly exchange rate market and protect the level of international reserves.

“Despite electoral-year spending pressures, the central government budget has registered significant improvements. Revenues have risen more than 20 percent from last year, and are close to the program’s target levels, while expenditure controls on current spending have prevented slippages in the current balance. With the decline in the international price of oil, however, assistance through the PetroCaribe program has dropped precipitously, leading to a sharp reduction in public investment.

“Nevertheless, substantial risks to fiscal stability remain. The fiscal costs of supporting the state-owned power company – in particular, the very costly arrangements under which the company purchases power from private suppliers – have not abated as planned, and public subsidies remain at around 2 percent of GDP. As such, measures are urgently needed to improve the company’s financial performance.

“Without reforms, there will be little possibility of limiting the large off-budget subsidies currently provided to the company, which would cast into doubt the achievement of program targets for the deficit of the non-financial public sector. The mission therefore welcomed the government’s commitment to launching major sector reforms to address these risks in the coming weeks.

“While the precise contours of the 2015–16 central government budget remain to be settled, the authorities were confident that the final document would permit the achievement of a deficit of 2.3 percent of GDP at the level of the nonfinancial public sector. They presented the broad outlines of their planned 2015–16 fiscal policies, which include an emphasis on raising additional revenue through a range of measures, but mainly through reforms to land taxation and leasing procedures.

“Capital investment is expected to focus on enhancing agricultural infrastructure, but externally-financed investment is expected decline from 2014–15 levels; PetroCaribe-financed spending will be halved from the already-reduced levels of the year now ending.”

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