Évaluation de la Performance de la Gestion de la Dette (DeMPA) Haïti Avril 2014

Public Disclosure Authorized Public Disclosure Authorized DEBT MANAGEMENT PERFORMANCE ASSESSMENT (DEMPA) Public Disclosure Authorized Public Disclosure Authorized HAITI APRIL 2014 Contents Acronyms.............................................................................................................................................................................. ii Introduction..........................................................................................................................................................................iii Executive Summary .......................................................................................................................................................... iv Economic Developments and Outlook......................................................................................................................... 1 Public Debt...................................................................................................................................................................... 2 DeMPA Assessment.......................................................................................................................................................... 4 Debt Management Performance Indicators................................................................................................................ 5 DPI-1 Legal Framework............................................................................................................................................. 5 DPI-2 Managerial Structure ..................................................................................................................................... 7 DPI-3 Debt Management Strategy......................................................................................................................... 8 DPI-4 Evaluation of debt management operations........................................................................................ 9 DPI-5 Audit ...................................................................................................................................................................10 DPI 6 Coordination with Fiscal Policy ...............................................................................................................11 DPI 7 Coordination with Monetary Policy .......................................................................................................12 DPI-8 Domestic Market Borrowing ....................................................................................................................14 DPI-9 External borrowing ......................................................................................................................................16 DPI-10 Loan Guarantees, On-Lending and Derivatives..............................................................................17 DPI-11 Cash Flow Forecasting and Cash Balance Management.............................................................19 DPI 12 Debt Administration and Data Security.............................................................................................20 DPI 13 Segregation of Duties, Staff Capacity and Business Continuity................................................22 DPI 14 Debt Records.................................................................................................................................................24 DPI 15 Debt Reporting.............................................................................................................................................25 Annex 1 List of Persons Met.........................................................................................................................................27 Page | i Acronyms BANDES Banco de Desarrollo Económico y Social de Venezuela BMPAD Bureau de Monétisation de l’Aide au Développement BNC Banque National de Crédit BRH Banque de la République d’Haïti CEMEP Conseil de Modernisation des Entreprises Publiques CEMLA Center for Latin American Monetary Studies CSCCA Cour Supérieur des Comptes et du Contentieux Administratif DAJ Direction d’Affaires Juridique DCE Direction de Coopération Externe DEE Direction d’Etudes Economique DeM Debt Management DeMPA Debt Management Performance Assessment DGB Direction Générale du Budget DGI Direction Générale des Impôts DMFAS Debt Management and Financial Analysis System DPI Debt Performance Indicator DRS Debtor Reporting System DSA Debt Sustainability Analysis DTD Direction de Trésorerie et de la Dette DTDCP Direction de Trésorerie et de la Dette et de Comptabilité Publique ECF Extended Credit Facility EDH Electricité d’Haïti GDDS General Data Dissemination System HIPC Highly Indebted Poor Countries IDB InterAmerican Development Bank IFAD International Fund for Agricultural Development IGF Inspection Générale de Finances IHSI Institut Haïtien de Statistique et d’Informatique INTOSAI International Organization of Supreme Audit Institutions IMF International Monetary Fund MDRI Multilateral Debt Relief Initiative MEF Ministère d’Economie et de Finances MPCE Ministère de Planification et de Coopération Externe OPEC Organization of Petroleum Exporting Countries PIP Public Investment Program PDVSA Petróleos de Venezuela SYSDEP Système de Gestion des Dépenses Publiques TSA Treasury Single Account Page | ii Introduction In response to a request from the Government of Republic of Haiti, a World Bank mission team undertook a debt management performance assessment (DeMPA) mission to Port-au-Prince, Haiti between March 13 and 21, 2014. The mission comprised Zeinab Partow (Senior Economist, PRMED Team Leader, World Bank), Karen Bihr (Project Manager, UNCTAD, Implementing Partner), Mame Pierre Kamara (Consultant), Patrick van der Wansem (Consultant), Mamonjiarisoa Volatantely Randrianjanaka (World Bank and Ministry of Finance of Madagascar) and Evans Jadotte (Economist, LCSPE, World Bank). This report includes the results of the assessment. The mission met with officials at the Ministry of Economy and Finance, the Central Bank of Haiti, the Ministry of Planning and External Cooperation, the Supreme Audit Institution, the Prime Minister’s Office, as well as with financial sector entities. The team wishes to sincerely thank the authorities for their collaboration and support of the mission team, for the rich and substantive discussions that took place, and for their hospitality. Page | iii Executive Summary The Ministry of Economy and Finance (MEF) has, in recent months, embarked upon an internal restructuring process, encompassing the debt management unit, and accompanied by an effort to reform the legal framework in a number of areas. The authorities requested technical assistance from the World Bank to support them in their effort to make the new debt unit operational. As part of the restructuring process, the debt management unit has been moved from the General Budget Directorate to the Treasury Directorate, and its internal structure has been modernized to reflect a new role and broadened responsibilities. The new role and responsibilities are described in a draft law on debt management which was sent to Parliament for approval, as well as in a draft law on the restructuring of the Treasury Directorate. The draft law on debt, if approved, would significantly raise the profile of the debt management unit, and would require important changes to current public debt management practices in government. Although both draft laws have been delayed in parliament for months due to difficult relations between the Executive and the Senate, the MEF has begun to move ahead with implementing the new structure of the debt management unit. Public debt management in Haiti today is beset by serious difficulties. These include: a weak legal framework (in the absence of an approved new law), a high degree of fragmentation of responsibility and confusion regarding basic procedures; the absence of a debt management strategy; weak analytical capacity and failure to incorporate planning and analysis in debt management to any significant degree; data bases that are dispersed across institutions, managed in Excel sheets, and with no systematic reconciliation between institutions; no contingency planning; and minimal reporting or public dissemination of debt-related information. If the draft law is approved, it would set the stage for implementation of concrete measures to begin to address some of these challenges. In the meantime, the debt unit is beginning to address some issues, including efforts to unify debt databases, clarify procedures, and extend its involvement to all areas of public debt management. In this they are assisted by the existence of a well-functioning Treasury Committee that includes all key stakeholders in government. Looking forward, the mission identified three overarching challenges for debt management in Haiti: 1) the need to ensure readiness to implement the new law on debt where the debt unit will have a central and much expanded role in all areas of debt management; 2) unifying debt databases and defining responsibilities regarding the management of the DMFAS, including the systematic reconciliation between DMFAS and the Excel database currently in use, and between the different Excel databases in use at the Ministry of Economy and Finance and the Central Bank; 3) significantly strengthening the analytical capacity of the debt unit to enable a comprehensive understanding of debt sustainability and its importance in economic management. Pending approval of the new organic law of the MEF, the government has introduced organizational changes permitted under the existing law. This has enabled the MEF to begin strengthening the debt unit, and to integrate debt and cash management within a single Directorate. Page | iv Economic Developments and Outlook While economic growth remains modest at about 4 percent of GDP, the macroeconomic situation in Haiti has improved in recent years (Table 1). Inflation has been reduced and remains in the single digits and the external position is stronger. Fiscal deficits, while higher than originally projected, are controlled. Post-earthquake recovery has been slow, however, largely as a result of low absorptive capacity as well as governance issues in the execution capital expenditures and procurement contracts. Table 1 Haiti: Selected Economic Indicators 2009/2010 2010/2011 2011/2012 2012/2013 2013/2014 Real GDP Growth (%) -5.5 5.5 2.9 4.3 4.0 Inflation, CPI e-o-p 4.7 10.4 6.5 4.5 5.7 Exchange Rate (avg. G/USD) 43.77 43.76 43.77 43.81 43.89 CA Balance, incl. grants (% of GDP) -1.6 -4.4 -5.4 -6.4 -5.8 CA Balance, excl. grants (% of GDP) -29.3 -23.5 -17.9 -15.3 -13.6 Export of Goods (% change) 2.2 36.3 2.2 11.4 7.5 Import of Goods (% change) 48.1 6.8 -4.2 7.7 2.0 Remittances (% of GDP) 22.5 21.0 20.4 21.0 - FDI (% of GDP) 2.7 1.6 2.0 1.4 - Overall Fiscal Balance, incl. grants (% of GDP) 2.2 -3.6 -4.8 -6.7 -6.7 Overall Fiscal Balance, excl. grants (% of GDP) -5.0 -4.7 -5.0 -6.1 -7.0 Domestic Revenues (% of GDP) 11.8 12.8 12.8 12.7 13.2 Current Expenditures (% of GDP) 11.2 11.6 11.9 11.8 12.5 Capital Expenditures (% of GDP) 10.5 13.9 16.3 15.6 14.9 Source: MEF, IHSI, BRH, IMF and WB Ensuring progress in addressing social needs without compromising fiscal and debt sustainability is perhaps Haiti’s main economic challenge. The government has prioritized the attainment of macroeconomic stability and growth through efforts to increase domestic revenue and to reduce current spending in order to generate additional fiscal space for infrastructure and poverty-related spending. In a context of declining foreign assistance, preserving fiscal and external sustainability has become even more of a priority. From a growth standpoint, removing barriers to public investment and improving its quality are other areas prioritized by the authorities, through measures to improve public financial management and economic governance. Enhancing the business climate for private investment is another priority. Greater domestic revenue collection is important for medium-term fiscal sustainability. Revenue mobilization remains well below potential and the authorities intend to pursue a number of measures to address this, including broadening the tax base, reducing tax expenditures and continuing the efforts to increase the efficiency of tax and customs administration. Aligning domestic petroleum prices with international levels is another goal, and would limit forgone revenue, although the absence of a well- Page | 1 targeted social safety net makes this a challenging proposition without advances in targeted social spending and investment. Notwithstanding the advances in macroeconomic management, the economic outlook is susceptible to important downside risks. External grants and concessional lending are vulnerable to a slower recovery in advanced economies, or to a further deterioration in the macroeconomic situation of Venezuela, on which Haiti substantially depends through the Petrocaribe Agreement. Commodity price shocks could also be a source of stress, particularly to the energy bill. On the domestic front, spending pressures (including for Petrocaribe-related spending, see Box 1) could further worsen the fiscal picture, reducing fiscal buffers and the country’s capacity to react in case of shocks. Box 1. Petrocaribe in Haiti Venezuela has provided, since 2007, significant concessional financing to Haiti under the Petrocaribe Agreement. As of end-FY2013, the stock of Petrocaribe debt (accumulated entirely since 2010) stood at US$1.2 billion, or 14.6 percent of GDP. According to the terms of the agreement for the purchase by Haiti of oil products from Petróleos de Venezuela, when the price of imported oil products exceeds US$100 per barrel, 60 percent of the bill is financed at 1 percent interest, 25 years’ maturity, and 2 years of grace. The sale of these oil products in the domestic market generates considerable resources for the government, which are managed by the Bureau de Monétisation du Programme d’Aide au Développement (BMPAD) on behalf of the Haitian government. Petrocaribe resources have been used to finance investment projects and to support the electricity sector. The resources have been a crucial source of financing in post-earthquake Haiti. A large reduction or stop would lead to substantial fiscal adjustment, constraining investment spending, financing to the electricity sector, and would impact domestic tax revenues. A significant reduction, or sudden stop, of highly concessional flows from Venezuela would be particularly damaging to growth and debt sustainability. Public investment would fall, and difficulties to finance the electricity sector’s deficit would emerge1, and lower concessionality of financing would worsen debt indicators. Public Debt Looking ahead, a key concern for the Government of Haiti is the need to reduce debt accumulation. Haiti is assessed to be at high risk of external debt distress, partly explained by a narrow export base and low revenues. Reducing the primary deficit to levels consistent with debt sustainability, containing spending pressures and preserving fiscal buffers are top priorities for the government. Debt sustainability analysis indicates that Haiti’s external debt profile is particularly vulnerable to shocks to borrowing conditions and the exchange rate, while a lower rate of growth would have a large negative impact on public debt. An ongoing Extended Credit Facility (ECF) with the International Monetary Fund (IMF) supports the government’s economic program to secure and build upon the gains achieved and reforms undertaken to date. The structure of Haiti’s external debt has changed significantly in recent years. The share of debt owed to traditional development partners has dropped as a result of debt relief, while the share of non Paris Club bilateral debt has grown, reflecting disbursements from Venezuela. After benefitting from the Highly Indebted Poor Country (HIPC) initiative and the Multilateral Debt Relief Initiative (MDRI), 1 The deficit of Electricité d’Haïti (EDH, the State-owned power company) has necessitated elevated budgetary transfers in recent years, amounting to close to two percent of GDP last year. Page | 2 Haiti received additional debt relief following the earthquake of 2010. The country’s debt stock declined substantially, as most bilateral and multilateral partners have shifted to providing assistance on a grants-only basis. As noted above, the major new disbursements are those related to the concessional Petrocaribe agreement with Venezuela. At the end of 2013, Haiti’s stock of public sector debt amounted to US$1.6 billion, (19.5 percent of GDP), composed almost exclusively of external debt on concessional terms. External debt amounted to just under US$1.5 billion, while domestic debt was about US$178 million, mostly in the form of Treasury bills largely held by commercial banks and including about US$45 million is a publicly guaranteed debt to a commercial bank contracted by the State-owned electricity company EDH (Electricité d’Haïti). Tables 2 and 3 provide additional details on debt indicators and on the composition of external public debt. Table 2 Haiti: Indicators of Public Debt 2009/10 2010/11 2011/12 2012/13 est. 2013/14 proj. Total public debt (% of GDP) Total external debt (% of GDP) Total public debt (USD millions) 13.0 8.7 14.4 19.5 22.9 13.0 8.7 13.5 17.4 19.8 1,171 887 1,270 1,649 2,158 o/w domestic 308 230 203 178 378 o/w Petrocaribe 134 462 841 1,235 1,595 o/w other external 729 195 226 236 185 External debt service (% of GDP) External debt service (% of current CG revenues) Source: BRH and IMF 0.1 0.0 0.1 0.3 0.4 0.7 0.2 0.9 2.3 3.2 Table 3 Haiti: External Debt, end-2013 US$ millions In percent of Total debt GDP Total 1474.8 100.0 17.4 Multilateral 135.9 9.2 1.6 IMF 57.8 3.9 0.7 IFAD 64.5 4.4 0.8 IDB 0.1 0.0 0.0 OPED 13.5 0.9 0.2 Official Bilateral 1338.9 90.8 15.8 Venezuela 1249.1 84.7 14.8 Petrocaribe 1235.0 83.7 14.6 BANDES 14.1 1.0 0.2 Taiwan, Province of China 89.8 6.1 1.1 Source: IMF Page | 3 DeMPA Assessment Scoring Methodology and Summary The DeMPA comprises a set of 15 Debt Management Performance Indicators (DPIs) encompassing the spectrum of government debt management (DeM) operations, as well as the overall environment in which these operations are conducted. Each DPI has one or more dimensions linked to the subject of the DPI. Each of these dimensions is assessed separately. The scoring methodology assigns a score of A, B or C based on DeMPA criteria. The evaluation starts by checking whether the minimum requirement for that dimension has been met, corresponding to a score of C. A minimum requirement is the necessary condition for effective performance under the particular dimension being measured. If the minimum requirements set out in C are not met, then a D score is assigned, indicating that this may be a priority area for attention and strengthening. In cases where a dimension cannot be assessed, an NR (not rated or assessed) is assigned. The A score reflects the attainment of best, or sound, practice for that particular dimension of the indicator. The B score is an in-between score lying between the minimum requirements for effective performance and good practice. The scope of the DeMPA is central government debt management activities and closely related functions such as the issuance of loan guarantees, on-lending, and cash flow forecasting and cash balance management. Thus, the DeMPA does not assess the ability to manage the wider public debt, including implicit contingent liabilities (such as liabilities of the pension system, losses of State Owned Enterprises, etc.) nor debt of SOEs, if these are not guaranteed by the Central Government. While the DeMPA does not provide recommendations on reforms and/or capacity and institution building needs, the performance indicators do stipulate a minimum standard that should be met under all conditions. Consequently, if the assessment shows that the minimum requirements are not met, this will clearly indicate an area requiring attention. Page | 4 Debt Management Performance Indicators DPI-1 Legal Framework Dimension Score The Existence, coverage, and content of the legal framework D The legal framework for public debt management in Haiti is in transition. A draft law on public debt was adopted by the Council of Ministers and submitted to parliament. It contains many elements that are in line with international best practices. In addition, there is a draft organic law of the Ministry of Economy and Finance (MEF) which, among other changes, proposes a reorganization of the ministry. Pending approval of the latter, the government has introduced organizational changes, including the integration of debt and cash management within a single Treasury Directorate by transferring the Debt Unit from the Budget General Directorate to Treasury. Below, the current legal framework as it relates to public debt management is reviewed. Box 2, below, summarizes some of the key relevant features of the draft law.2 The scoring, however, refers solely to the legal framework as it stands today. The current legal framework The existing legal framework for financing operations and debt management is weak. While there is clear authorization in the primary legislation for the Minister of Finance to negotiate and sign all financial transactions on behalf of the State (Loi Organique du MEF, 13 March 1987, Article 33), confusion continues in practice. There is significant confusion within and between ministries on responsibilities and regarding who actually can sign financing agreements.4 To give a few examples: the Legal Department (Direction des Affaires Juridiques, DAJ) at MEF is the principal party participating on behalf of the ministry in negotiating international loans and reviewing loan agreements. According to DAJ, the negotiation and signature of external loans is the sole prerogative of MEF. The perception of the Ministry of Planning (Ministère de la Planification et de la Coopération Externe, MPCE) is that it is the main counterpart to international creditors on investment projects and that it is the minister of planning who signs the loan agreements, generally, though not necessarily, alongside the minister of finance. According to the MPCE, the relevant line ministry generally also co-signs. That said, the mission’s review of loan agreements indicates that most loans and financial agreements in recent years have been signed by the minister of economy and finance, although there are references to bilateral loans signed in the past by e.g. ambassadors and other ministers. A major exception are the contracts between Haiti and Petróleos de Venezuela (PDVSA) which are signed by the head of Bureau de Monétisation du Programme d’Aide au Développement (BMPAD), along the guidelines set by the main framework Petrocaribe Agreement was signed by President of Haiti in 2007. BMPAD is designated as the Buyer under Article 3 of the Petrocaribe Bilateral Agreement. As noted above, the contracts signed under the Petrocaribe agreement account for the bulk of Haiti’s external debt today. 2 The MEF website provides a useful and effective link to all MEF-related primary and secondary legislation: http://www.sdn.mefhaiti.gouv.ht/ 3 This law states that the Minister of Finance is enabled to negotiate and sign all contracts, agreements, conventions and treaties with economic implications and resulting in financial obligations for the State (“négocier et signer tout contrat, accord, convention et traite a incidence économique et entrainant des obligations financières pour l’Etat”). 4 It should be noted that the bulk of external financing in Haiti takes the form of grants, also signed by the minister of finance. Page | 5 With respect to domestic financing, treasury bonds (bons du Trésor) are the only form of financing that the government engages in, and in this area secondary legislation is clear regarding the MEF’s authority and responsibilities (as stated in Presidential Decree of 27 September 2010, Articles 1, 2 and 6). The constitution confers upon the National Assembly (both chambers together) the power to ratify international conventions or treaties (art. 98.3.3). This applies to international loan agreements between governments and with multilateral institutions – the only type of international borrowing that the government engages in. The legal framework in Haiti does not make any reference to debt management purposes, objectives or to the requirement to develop a debt management strategy. There is also no mention of the power to extend guarantees. Box 2: The Draft Debt Law In February 2013, the President sent to Parliament a public debt law which clearly assigns debt management responsibilities to the Ministry of Finance. Approval of this law is still pending. Here we review the draft law – assuming that it will be put in place in the foreseeable future – against DeMPA criteria. A key DeMPA criterion for rating the legal framework is the existence of a clear authority to borrow in both domestic and foreign markets. Article 4 of the draft law confers sole authority to engage in the issuing of loans and guarantees on behalf of the Central Government to the MEF. The MEF also sets, in collaboration with the relevant line ministries, the conditions and procedures for these transactions. The draft law does not elaborate any further on the procedures, but the empowerment of the MEF is clear. International borrowing continues to be subject to ratification by parliament under Art. 98.3.3 of the Constitution, as is currently the case. The draft law also sets out an explicit objective for debt management in Article 11: to ensure that the financing needs of the public sector are met at the lowest possible cost in the medium and long term, while keeping risks at a prudent level. The adoption of a debt management strategy, with at least a three-year horizon, is also mandated, and which must be translated into annual financing plan and appended to the yearly budget law. The minister of economy and finance is responsible for the preparation of the strategy (through the Treasury and Public Accounts Directorate, Direction de la Trésorerie, de la Dette, et de la Comptabilité Publique, DTDCP, i.e the DeM office), which must then be approved by the Council of Ministers. The strategy itself must also be revised and updated annually and published alongside the budget law. The publication of the strategy helps to ensure accountability. Both objective and strategy are in line with international good practice, although the specification of the purposes for which the Central Government can borrow is absent. Beyond this, the draft law elaborates on the responsibility for the issuance and management of guarantees and on-lent resources, including: the requirement of an annual risk assessment of the portfolio (Art. 25), provisions for information sharing and transmission of beneficiary annual accounts to the MEF (Art. 23) and the establishment of a guarantee and on-lending fund whose rules and procedures would be determined by a decree signed by the Minister of Economy and Finance (Art. 21 and 22). The draft law also calls for the creation of a public debt committee within the ministry, including representatives from various directorates and divisions within MEF (Chapter V). The Committee’s main role is to provide advice on the debt management strategy and to monitor its implementation. The role of secretariat for the Committee would lie with the Treasury and Debt Department (Direction de Trésorerie et de la Dette, DTD). Subnational borrowing is contemplated in the draft debt law, which stipulates that the borrowing entity must report yearly to the MEF. The draft public debt law establishes the requirement that the DTD produce an annual report on debt management activities, which should be made public, although it does not specify an obligation to send the report to Parliament or to evaluate the implementation of the medium-term debt management strategy. Overall, the draft law aims to significantly strengthen the role of the DTD in debt management, including by requiring the unit’s involvement in loan negotiations, introducing the obligation to undertake debt portfolio analyses and to develop a medium term debt management strategy. Page | 6 Scoring: The existing legal framework is rated D. The minimum requirements for a score of C are not met as the purposes for which borrowing can be undertaken by the Central Government are not specified in primary legislation. In addition, the delegation to the Minister of Finance of the authority to commit the resources of the State is not clearly understood or implemented; it is not understood as conferring on the Minister sole authority, and this has generated confusion. DPI-2 Managerial Structure Dimension Score 1. The managerial structure for central government borrowings and debt-related transactions D 2. The managerial structure for preparation and issuance of central government loan guarantees D Dimension 1 The Direction de Trésorerie et de la Dette (DTD) in the DTDCP is the entity responsible for the management of the Central Government’s domestic debt. A Treasury Committee comprising the DTD, DTDCP (beyond the DTD) and the Central Bank (Banque de la République d’Haïti, BRH) examines cash balance positions and proposes Treasury bond issues as deemed necessary. Following approval by the committee, the DTD handles the issuance and awarding of Treasury Bills, thus providing front office (and limited middle office) functions for domestic debt. It also provides, along with the BRH, the back-office functions related to domestic debt. These back office functions have in the past been largely performed by the BRH, but with the overhauling of the Ministry of Finance’s structure and the efforts to modernize the DTD, these responsibilities are being transferred from the BRH to MEF. Nevertheless, considerable fragmentation in back office functions between the two institutions continues to exist (see DPIs 12 and 14). With respect to external public debt, a number of entities have debt management responsibilities, including MEF, MPCE, BRH and BMPAD. Once line ministries identify donors or creditors to support a given project or program, the DAJ (in MEF) develops and negotiates the financing in coordination with the relevant line ministry and the MPCE (which is represented by the Directorate of External Cooperation, Direction de Coopération Externe, DCE). The DAJ also issues a legal opinion regarding the terms of any new loan agreement. The DTD does not participate in the negotiation process. Exchange of information between the various entities involved in the process is limited and not systematic. The DTD is frequently not informed when new financing is signed. In some cases, the DTD only becomes aware of the existence of the external obligation when payment notices are sent. For Petrocaribe loans, the BMPAD carries out front office functions, including the signing of sales contracts by the Director General. Back Office functions for external financing are performed by the DTD and the External Debt unit of the BRH. The allocation of responsibilities amongst the two institutions remains ambiguous. Debt data recording responsibilities are split between the MEF and the BRH and are not formally defined nor documented. At the time a payment comes due, the DTD prepares the payment order which is sent to the BRH for payment. Middle Office functions are only marginally fulfilled by the DTD if it is requested to determine the repayment schedule during loan negotiations. Page | 7 The DTD has already embarked on the organizational changes and new responsibilities envisaged under the draft debt law. MEF Circular number DT/823/09-13 of October 30, 2013 orders the DTD to establish its own structure pending the adoption of the above-mentioned draft laws and their implementation. The DTD has organized itself into three units or services: (i) the Treasury unit (Service de la Trésorerie) which is responsible for treasury and cash management, (ii) the Debt unit (Service de la Dette) which fulfills both front office and back office function (this is inconsistent with international good practices) and (iii) the Studies and Statistics unit (Service des Etudes et de Statistiques) plays the role of Middle Office.5 Dimension 2 There is no defined responsible entity (or entities) responsible for the preparation and management of loan guarantees, nor are there clear procedures. The DTD is only aware of the existence of two loan guarantees. As reflected in the existing guarantees, there is no credit risk analysis carried out prior to their granting. Scoring: Dimension 1: With respect to domestic debt, considerable fragmentation in back office functions between the DTD and BRH continues to exist. Poor coordination and the lack of systematic and complete exchange of information between the various players involved in external debt management also indicate that the minimum requirements for this indicator are not met. A score of D is assigned to this dimension. Dimension 2: The minimum requirements for this dimension are not met. Loan guarantees, although rare, do exist. However, there is no entity with the mandate and skill to assess and price the credit risk, mitigate the financial effects of a default or trigger event, monitor this risk during the term of the guarantee, coordinate the borrowings of the guarantee beneficiaries with central government borrowing, or to record these guarantees properly. The score for Dimension 2 is D. DPI-3 Debt Management Strategy Dimension Score 1. The quality of the Debt Management Strategy document D 2. The decision-making process, updating, and publication of the DeM strategy N/R Dimension 1 To date, the Republic of Haiti has no formal debt management strategy.6In the case of domestic debt, borrowing remains largely limited to Treasury Bills with a maximum tenor of six months, while the external debt of the Central Administration consists largely of loans from Venezuela (Petrocaribe), Taiwan, province of China, the Organization of Petroleum Exporting Countries (OPEC), and the 5 The debt unit was relocated from the Budget General Directorate to the Treasury, which now has a stronger mandate in designing the government’s financing strategy. While the new debt unit’s (DTD) Back Office is fully staffed, the Middle and Front offices are not yet functional. 6 MEF staff in the DGB, DTDCP, the Economic Studies Department (Direction des Etudes Economiques) and the Internal Audit Department (Inspection Générale de Finances, IGF) have participated in recent years in training courses on the elaboration of a medium term debt management strategy from institutions such as the Centre for Latin American Monetary Studies (CEMLA) and Debt Relief International. Page | 8 International Fund for Agricultural Development (IFAD). In the case of many donors, only grant financing is given. Even in an informal sense, guidelines indicating the direction in which certain key indicators (e.g. debt maturing over the next 12 months, proportion of debt denominated in foreign currencies) are expected to evolve are absent. There does not appear to be an identification or measurement of costs and risks to the portfolio, nor any targets or target ranges for key risk indicators. With the transition of the DTD to a full-fledged DeM office, middle office functions, including the elaboration of a medium term debt management strategy, will be strengthened. Dimension 2 Scoring: In the absence of a debt management strategy there cannot be an assessment of the quality of implementation of a strategy. Dimension 1 is scored D; dimension 2 is not rated. DPI-4 Evaluation of debt management operations Dimension Score Level of disclosure, in an annual report or its equivalent, of government DeM activities, central government debt, evaluation of outcomes against stated objectives, and compliance with the government’s DeM strategy D The DTD regularly prepares an annual report on government debt. The report contains, among other elements, quantitative information on external and domestic debt outstanding and its service, Haiti’s contributions to international organizations, Treasury transfers to some entities, and information on training received by debt staff. The annual report is sent to the Budget Director General, and is considered an internal report. Annual reports are not forwarded to the National Assembly, nor to the Council of Ministers, nor made publically available. There is no legal obligation to make the report on debt management activities public. The BRH prepares an annual report of its activities as called for in article 8/17 (Act of 17 August 1979 creating the Central Bank of Haiti). The annual report provides a comprehensive overview of national economic and monetary conditions. Some information on public debt is included in the report, namely regarding the structure and evolution of the stock of outstanding debt, debt service, and loan disbursements, but not on the debt management operations, as assessed in this DPI. The BRH Annual Report is presented to the BRH Board of Governors for approval, although there is no requirement to send it to the National Assembly. The 2011 annual report is available on the BRH website. The 2012 report is still being finalized, and the 2013 report is under preparation. Scoring: As there is no report submitted annually to the National Assembly that provides details of government DeM activities and outstanding central government debt, or evaluates debt management operations, the minimum requirements are not met, and a "D" is given to this indicator. Page | 9 DPI-5 Audit Dimension Score 1. Frequency of internal and external audits of central government DeM activities, policies, and operations, as well as publication of external audit reports D 2. Degree of commitment to address the outcomes of internal and external audits N/R Dimension 1 Haiti has an external audit institution: The Superior Court of Audits and Administrative Disputes (La Cour Supérieur des Comptes et du Contentieux Administratif, CSCCA) which is an administrative and financial jurisdiction established by Decree of 23 November 1983, as well as an internal audit institution: the Inspection Générale des Finances (IGF) created by decree of 17 March 2006, but which has been operational since 2009. The BRH also has its own internal audit office. The Constitution of Haiti (1987) underscores the CSCCA’s independence, and grants it the power to execute its mission without need to recur to any other authority. Its budget, however, is allocated by the Ministry of Economy and Finance. The CSCCA’s responsibilities are broad and comprise control, audit, verification, and administrative and financial adjudication (Article 5). Its two key missions are: 1) to audit the activities of the public administration, and the accounts of the Authorizing Officers (Ordonnateurs, usually ministers) and public accountants; and 2) to assist Parliament and Government in monitoring the implementation of accounting laws and regulations for the Budget and the Public Accounts, in order to fulfill obligations regarding accountability in local and central government accounts (Article 15). The CSCCA has approved the finance settlement bill for the 2005/06 budget (Loi de Règlement) transmitted to the Parliament. It issued a judgment of non-conformity with the bills of 2007/2008, while no action was taken on those of 2009/2010, 2010/2011, and 2011/2012. While the Constitution (Art. 200.4) indicates that the CSCCA must be consulted and give its opinion regarding compliance (Article 5 of the Decree) of all financial and commercial draft contracts, agreements and conventions in which the State participates, it is the Legal Affairs Department (DAJ) of the MEF, which provides judgment on compliance of loan contracts. To date, the CSCCA has only undertaken procedural and public accounts audits, but it has not yet implemented a performance audit of any part of the public administration.7 The IGF, on the other hand, does not have its own budget, and fills an audit advisory role to the MEF on which it depends hierarchically. In this capacity, it is charged with producing recommendations in all areas under its jurisdiction (Art. 3). Its relatively broad responsibilities include two key roles (Article 2 of the Decree): to monitor, control, and conduct the technical, administrative, financial and accounting ex-ante and ex-post audits throughout the public administration; and to examine all questions, execute any mission on public finance, public accounting, public investment programs, public procurement, as well as those concerning the budgetary and financial discipline. IGF carries out audits of high risk investments projects and programs, based on information it receives on irregularities noted in the management of a particular public entity management, or by 7 The mission took note of a CSCCA report published in 2006, which includes information on debt forecasts and payments, debt outstanding by type of debt and by external creditor. Page | 10 implementing its own annual work program, or on instruction of the Minister of Economy and Finance. IGF has so far made accounting, organizational and financial audits; it has not yet executed a performance audit of a public entity. Haiti is not a member of the International Organization of Supreme Audit Institutions (INTOSAI), and the debt portfolio, according to the control and audit institutions (CSCCA, IGF, and BRH audit department) is not currently perceived as risky; an audit of debt management operations is therefore not included in the institutions’ working plans. None of these institutions has conducted an audit of public debt management. Dimension 2 While this dimension cannot be rated due to the lack of any audits of debt management activities over the past five years, it is notable that the recommendations of other CSCCA and IGF audit reports have not been systematically applied. IGF has established an Internal Audit Unit whose mission is to follow up on recommendations made in its own reports as well as those made in by the CSCCA. Scoring: Dimension 1: D. An external audit of government DeM activities, policies, and operations has not taken place within the past five years; the minimum criteria are therefore not met. Dimension 2: The score is N/R. As no audit of debt management activities has been undertaken, it is not possible to evaluate decision makers’ commitment to addressing audit outcomes. DPI 6 Coordination with Fiscal Policy Dimension Score 1. Coordination with fiscal policy through the provision of accurate and timely forecasts of total central government debt service under different scenarios C 2. Availability of key macro variables and an analysis of debt sustainability, and the frequency with which it is undertaken D Coordination with fiscal policy and information exchange is facilitated by the Treasury Committee (Comité de Trésorerie), a group chaired by the Treasury, and comprising the BRH, the Tax General Directorate (Direction Générale des Impôts, DGI), Customs, the Budget Directorate (Direction Générale du Budget, DGB), MPCE, and the Economic Studies Unit (Direction des Etudes Economiques, DEE, Ministry of Finance). The Debt Unit participates as part of Treasury. The Committee meets weekly to monitor receipts and expenditures, developments on the debt front, as well as general macroeconomic conditions. Dimension 1 Forecasts of central government debt and debt service are prepared by the DTD. These forecasts are provided to the Budget Directorate as part of yearly budget preparation. The mission was provided with copies of the forecasts supplied by the DTD to the DEE, which according to the DEE are provided on a timely basis during the budget preparation process. These included a three-year (i.e. the submission for the 2013-2014 budget included forecasts through 2015-16) forecast of domestic and external debt service, with each of these categories further split into its major components (i.e. for domestic credit the sub-categories included: interest payments to the BRH, the payment of interest on the debt of the Electricité d’Haïti towards the Banque Nationale de Crédit (BNC) which was Page | 11 guaranteed by the State, and interest payments to holders of Treasury bonds; for external debt, debt service by creditor was included). Forecasts of debt service are reasonably accurate (to about 10 percent). Sensitivity analyses of central government debt service to interest or exchange rate changes are not carried out, however. Dimension 2 A committee charged with defining the macroeconomic framework that underlies macroeconomic projections (Commission de Cadrage), composed of the DEE (chair), the DGB, MPCE, and the Statistical Institute prepares and updates, at least once a year, the key macroeconomic variables including actual results and forecasts. The information on the macroeconomic framework is shared between the DEE and the Debt Unit. This is used to prepare debt service forecasts by the Debt Unit, which are provided to the DGB in a timely fashion. Beyond the weekly coordination and information sharing meetings of the Treasury Committee and the exercises linked to budget preparation, there are no other periodic or regular reports or communications produced by DEE during the year which update/fine-tune total debt service forecasts for a better appreciation of the evolution of the debt portfolio risk. MEF staff has benefited from training in Debt Sustainability Analysis (DSA) in recent years, and two DSAs have been prepared: in January 2010 and February 2011, in partnership with the Bank and the IMF. Nevertheless, no independent, in-house DSA is prepared in the MEF. Scoring: Dimension 1: C. The minimum requirements for this dimension are met. Timely, reasonably reliable forecasts of total central government debt service are provided by the Debt Unit as part of the yearly budget preparation. A score of B is not attained as no sensitivity analysis of the base case to interest or exchange rate shocks is undertaken. Dimension 2: D. At the time of budget preparation, macroeconomic variables are shared in a timely fashion with the Debt Unit, but the government has not yet independently produced a DSA. DPI 7 Coordination with Monetary Policy Dimension Score 1.Clarity of separation between monetary policy operations and DeM transactions C 2. Coordination through regular information sharing on current and future debt transactions and the central government’s cash flow with the central bank A 3. Extent of the limit to direct access of resources from the central bank C Dimension 1 There is clear separation between monetary policy operations and debt management transactions in that the Central Bank does not issue government securities in the domestic market. MEF itself issues Treasury bonds (bons du Trésor), while the Central Bank issues the BRH bonds. There is therefore little chance of confusion in the market regarding the purpose for which each transaction is undertaken. Market participants confirmed that there was no risk of confusion regarding the purpose of the various issues, although there is some competition for financing between the two types of bonds. There is no Page | 12 formal agency agreement between the MEF and the BRH, and given that the BRH does not act as the government’s agent in the market, there is no need for one. There is little or no perception of conflict of interest. Dimension 2 As noted above, the BRH does not act as the government’s agent in issuing Treasury bonds. Nevertheless, the DTD and BRH take part in weekly Treasury Committee meetings, assuring a good flow of information regarding current and future debt transactions and cash flow. Minutes of these meetings, shared with the mission, reflect this sharing of information. Tables include the evolution of revenues, expenditures, Treasury bond issuances, debt interest and amortization payments and comparisons of these with forecasts, as well as cash balances and changes to these, all on a monthly basis for the next 12 months. Dimension 3 The Central Bank Law (Loi du 17 août 1979 créant la Banque de la République d’Haïti, Articles 41- 45) states that temporary financing from the Central Bank to the State is possible. The duration of such financing may not exceed 180 days (Article 43). In terms of amount, these statutory advances cannot exceed 20 percent of total public revenues of the previous fiscal year (article 45). There has not been any direct borrowing