Situation économique actuelle et perspectives d'avenir d'Haïti

ruE raa m Report No. 410-HA rlLe IfEUP Y Current Economic Position and Prospects of Haiti April 18, 1974 Latin America and the Caribbean Regional O Not for Public Use Document of the International Bank for Reconstruction and Development International Develonment Association This report was prepared for official use only by the Bank Group. It may not be published, quoted or cited without Bank Group authorization. The Bank Group does not accept responsibility for the accuracy or completeness of the report. Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized CURRENCY EQUIVAIENTS Gourde 1 $US 0.20 Gourde 5 = $US 1.00 Gourde 1 million $US 200,000 AGC - Administration Generale des Contributions AC-D G AA"ir. i-a, Generale ,qs D ENRH - Banque Nationale de la Republique d'Haiti PAU.ffD _ rA4-ela A,,r+inam ?+ rl;+s 4 v1a AlWIl, 4 -+shla COALEP - Coopgrative pour l'Amelioration en Eau Potable des CONADEP - Conseil National de Developpement et de Planification T:TA L4 - Taiti.-4 a.eA--car. ;Lfigar rGo.,.ny IDAI - Institut de Developpement Agricole et Industriel TU.DPCA T%V - T-it4-u4 UHi44-4e, de 'Dror.ion A, a-fe e+ de Dere J.LIL.L VIJZUJ.* .L~uL ULQV U U %A. .. V. .V A - '.iLJu~wa. %.LI J..V d'Exportation Jn'K f l.' 7.A . 7L 4LI0.L -J. n+At .n.LAL.s 0 .A V 0 OI t * nv *MLiAf-O. J.LS SEN - Societe dfEquipement National M7T,: -m LServJ ce Nati- on--[ d"E adica+ion de la Itlar a LLJAIAl1 - IV± v .A. 1'4 .UL .JL~ 1 ," .A1J.r 0.A.V0 a 4.'Sn 0.e I0. rML j., FISCAL YEAR October i - September 30 This Report is based on the findings of an economic mission which visited Haiti in tep-em.er 1973. Te mi o L led by Ian Scott and included: General Economist, Raul de Campos; Public Investmrent Analyst, Jean-Pierxe Beguin; H'u-man Resources Specialist, Marc Botti(UNESCO Consultant). The report incorporates the findings of Professor Vito Tanzi, who visited Haiti on behalf of the Bank as a Consultant in Fiscal Affairs in May 1973. fTRRINT URrnNOMT( Pn.lRTPTfN ANT) PRflqPRrTR OF WATTI TABLE OF CCNTTNTS P"a# Nn REAP 10955 T. T.u1 RA -^.WnTMM UlTOliT1 unTd- VT-nPVnM -------------- Tho Reource Base ...................... 1 1tr0dU.nCti n The Political Eavironment and Recent Economic The Productive Sectors ................... ...... 13 The Phfrolticttur s ArIA *erv.ce Sectors 28 Public Expenditure Requirements .**...eo.o**..oe.e. . 34 III. RESOURCE MOBILIZATIDN ........ ..... **........... 39 IntroduIction ** eeev ee*ee eee 39 ntranein - .......................... Priv e 39 Financing the Public Sector ........................ 43 IV. BAIANCE OF PAYMENTS: PROBLT(S AND PROSPECTS ....... 74 Current Account ............................ 75 Vrt.prna1 Ri9nlAnringf RAmij uaman1.i---------------83 Extemnal Debt Structure and Debt Servicing 84 SrATISTICAL APPENDIX TECHNICAL ANNEX I COTT VATI- HAITI 2 7 0 km 2 /ae 4.3 17lion (mid-1971) W93 Per hetof stabl s....a. ODMU CAT Holti 03 PER CAPTA US$ (Ar.143 BASIS) 120 110 280 d 230 Ld 370 /d DGPRAPHIC Crude bitrh rate (per thousand) hi /o h 11, y. Crude death rate (per thousand) .. 16 22 7 Infant mortality rate (per thouamd li_ birthns 180-200 If 34 156 g 38 Lie xpectancy at birth (years) .. 45 52 66 66 Orose rnproduotimn rate /2 2.0 /dad 3 3 2.4 4L Popultion growth rate 1.6 3.3 2.4 2.5 ftp.lation growth rate - urban 4 a5 5 Ap structure (peroeont) 0-14 42/b 47 42 15-6G4 L 53 51 54 Denend ncy rati. /4 5k 2 4 D°neodeccy rati. ~j .. 1.0 1.1 a . Urban polulation as peront of total 12 A/! 20 /i.k 32 29 n .;1J p Tgi Ko. o: acceptors cumulrtive stB. *. No. of users (% of married oan) rotai -r rorce (tzousands 800 1,600 210 Percentage amployed in agriculture 67 73 32 Pr cent age unemploynd 8 7 15 lerot Cf national income rooeived by highest 5% Percent rf notional income received by higheet 20% Prer.ot cf national income received by lowest 20% leroent of national income received by lowest 40% MSTRIBUTICN OF LAND O WIFSI Son d by top lC of cwnere % owned by amallest 10% of ownere EGALTH AND MUTRITION Population per physician 10.600 /c 13;210 /n 37An tCl20 P h,0 /- Population per mnrsing person 9,220 q 7,3407 1,440 2,200 - 210t t Population per hoepital bed 1,790 1:350 La 590 740 Is 220 Per c.nptt calorie- smrly a S of rern.irn1snte / 77 79A 96 a. Per capita protein supply, total (grace per d4y 40 49 647 Of which, animal and pulse 18 21 t 28 v 22 7 D.eath rate 1-4 years 7 27 33 EDUCATrON AdJu-iWd /B Primary school enrollrqnt ratio 38 4° /a 89 44 ZA 100 / Adjuatedg smcondary scho1 enrolment ratio 4 4 7.v 10 46 px *~~*~**~~-~ l*t lj1 12 13 12/i Vo cational enrollment aa % of eec. school enrollnmt 21 19 /g, 14 5 Adult literacy rate % 10 /aa.ab 10-207r.s 45 10 Arorage No. of pereona per room (urban) ,, ,, 1 8 Parcent of occupied unite without piped water .. ,, 67 Access to electricity (ee S of total population) -rc=nt of fural population =watotd to allactricity CON,^UK0TTION ,adto receivers per 1000 population 5 17 57 69 lOS /r rasDDnger oars per lowv population 2 3 5 10 25 Electric power consumption (kwh p.c.) 17 28 /ac 120 73 440 Newsprint consumption p.c. kg per year 0.05 , 0.08 O 0.5 0. 08 0.9 Notes Figures refer either to the latest perloda or to ancaant of ensironnaj teper-, _y ... W.-, the latest yeaLn Lateat periods refer in principle to diatribution by age and sex of naticAl populatiana. the yearn 1956-6O or 1966-70; the latest years in prin- 6 Protein atndardas (requirernts) for all eountries aa estab- ciple ,o 1960 end 1970. lished by ODA Eonaomic R" earoh Service provide for a minimum / The Per Capita GNP eatimate as at esrket prices for allowane or 60 grams or total prozein per dy, am 20 gras of years other than 1960, calculated by the ame oonveraion animal ad pulse protein, of which 1D gram ehoulo be animal technique as the 1972 World bank Atlas. protoin. These standarda are oewhat lower than those of 75 /2 AveraRe number of daueiters Per woman of reproductive grams of total protoin and 23 gram of snima protein a n aga. average for the world, proposed by FPO In the Third world Food & Populotion growth retes are for the decades endingAn Suriny 1960 end 1970. a Some studies have euggested that crude death rates of children /4 RPtio of under 15 and 65 and over age brackets to ages 1 through 4 s be used as a first approximatiso index of tho.e in labor force bracket of ages 15 through 64. malnutrition. ZI FAO reference standards represent phYeiological re- Peroentage enrolled of sorresponding population of sahool age quire-ents for norsal activity and health, taking as defined for each oountry. /a 1965; lb Excluding forests and pastures; c Computed by applyig to tee 1970 figure the grwth rate of the GNP/cep. in real terms from 1960 to 1970; d 1970 fiGures based on 1965-7 avOraga exchange rate; /A 1965.70; If 1962; & 1968; /h 1967; /i Definitions of urban unkncrun; a 1950-71; k 1971; /i Ratio of population under 15 and 65 and over to total labor force; /a 1950; /n Orer 10,000 population; /o1961; /A 1969; /L Including midwives; /r Including asistant midwives, nursemiidwives and assistant nurses; Z I6Euding a tat no sea, mi dves and asei1Ant midwivel t Nuraesa and midwivef-f numher on tne ranintar, not all woc-lee is the ona2t.-vI /u Tnelu.e lann nr .- s1 h-itaI cc nd .4A- centers; /v 1964-66; /. Not Lncluding private vocational schools; / tvurnmsnt rmnined and aded schools only; /y Including ru1l eecondary cycle (Junior and senior levl); & Estiate; /an 15 years and over; /ab Definition of literacy unknown; /ac UN source; /ad get reproduotion rateo; / Exludd the ar of adjacentTManda. R2 Maich 28, 1974 GROSS NATIOUNL PRODUCT IN 972 IA AL RATl 0?F OROfH (S. constant prices)a . USS In. st 1960 -65 1965 -0 1972 OIP at Narket Priosa 539 100.0 7.2 1.7 ) 47 Gross Donstic Investact 314 6.3 -5.5 -7.7 Oross National Sgeina 314 6.3 -1.2 1.3 1 .5 Current Acocunt Dalanos - - lxports of Goods, UFS 63 11.7 -1.14 2.5 -15.1 Y.rt_ ^~f L.4.., IS iA65 t -1 .2 1.6 4.G Gum.., p .mn -n.= .D MlDDUCTrTYIT IN 197 Value Added r Yorr Agriculture 2141 h6.5 Industry 62 16.6 Services 170 314.5 *- Unallocated Total/Iverage lnn? a Ioflll Jl::S Oeneral Ooveruent Central Ooverrment (Gourman J S of 0r Fm burdlLn.) S of GD 972 197Z 7TO-71 19Z17- 71 Current Reeeipts 326 12.0 12.0 279 . 10.3 10.C. Current penditure 1 10.7 10.4 27/6Y 10.23/ i 0.W Current Surplus 35 1.3 1.6 3 .1 -0. Capital Expenditures 8S3/ 3tiV/ 29 o. . . External Assistance (net) 43 1 .6 0.7 -7 -0.3 -0.2 May rlay )0YEY CRDIT and PRICES 1 19 1971 1972 12 1973 (Milion outstanding end period Money and Quasi Money 182.6 198.2 251.2 321.1 298.7 395.5 Bank credit to Public Sector 193.1 189.2 202.5 213.5 201.3 2C6.5 Bank Credit to Private Sector 59.4 65.3 78.5 93.9 88.6 148.3 (Percentages or Index Numbers) Y1oney and Quaasi Mone as t of ODP 8.2 8.-4 9.1 10.5 10.1 12.0 General Price Index (1963 - 100) 119.0 123.2 128.9 135.6 Annual percentage changes ins ernrl Prce index 4.9 3- .652 .. '4.7 2.3 5 4.' 9 Bank credit to Public Sector 13.6 -2.1 7L0 5.4 71y. Bank credit to Private Sector 5.7 9.9 20.2 19.6 19.6p/ 98.94/ NOkt All conversions to dollars in this table are at the average exohange rate prevailing during the period covered. ] Data refer to fiscal years ending September 30. / May include small morunt of fixed irnvestmnto. 31 Includes current expenditures associated with development projects. Jz Implied annual percentage change. not available not avplieable e staff estimate TRADE PADINTs AND CAPITAL FLIOW BLANCE OF PAYMENTS MERCHINDISE EXPORTS (AVERAGE 1970-72) 1970 1^ 1972 US Min % 7xillions US $) Exports of Goods, NFS 53.0 64.5 63.0 Coffee 1..6 8 Imports of Goods, NPS 69.3 78.8 84.7 Handicrafts 8.? 17-. W.-surCe GaP (dcf ici ) -103 -14. l 71 B aute 'i. t Sugar B.2 7 Interest Payments (net) 0.3 0.3 0.3 Fasential Oils 3.0 7 Workers' Remittances - - _ Sisal 1.0 2.-, Other Factor Payments (net) 3.3 3.6 4.3 Copper C.S 2.? Net Transfers 21. 18 9 26J3 All other comodities 3.', 9. Balance on Current Account 1.8 o.e o.l Total 43.1 100,0 Direct Foreign invrest^.t 2.8 3.4 4.2 *>^.ERNA DZBT. DZZIGR 31. 1972 Net MLT Borrowing Disbursements 1.4 3.8 4.0 US $ Mln Amortization 3,3 3.A 3.6 Subtotal -1.9 0.5 0.4 Public Debt, incl. guaranteed Capital Grants 0.8 1.0 o.6 Non-Guaranteed Private Debt - Other Capital (net) - _ Total outstanding & Disbursed Other items n.e.i 2.Ai _.L ____ I/ Increase in Reseves *) +6.4 ',9. +10.7 DEBL SERIvFC RwLrO for i,9c- Gross Reserves (end year) 14.2 10.9 20.7 Net Reserves (end year) o.6 9.7 20.4 Public Debt, incl. guaranteed 2 Non-Guaranteed Private Debt Fuel and Related Materials Totel outstanding & Disbursed Imports 2.9 3.8 3.7 of which: Petrolemw 2.8 3.7 3.5 of which: Petroleum - - - IBRD/IDA LENDING, (Feb. 28. 1974) (Million US $): IBRD IDA RATE OF EXCHANGE Outstanding & Disbursed - 0,4 Thrug 9l7i Since - 1971 US$l.O OGS.O U- 1$ Si .00 - 5.0 Undisbursed US $ 1.00 =G 5.0U $. $ 1 - U $00 Outstanding incl. Undisbursed - G 1.00 US $0.20 r. 1 00 = UrS $0=20 I/ Ratio of Debt Service to Exports of Goods and Non-Factor Services. .not available not applicable Country Programs I Latin America and the Caribbean Regional Office April 3 1974 _____________________________________________________ IBRO- 0 955~~~~~~~~~~~~~~~~~ B D 19, '7' 12'77 ,~~~~~~~~~~~~~o MARCH 1974~~~~~~~~~12 11U.SA. 1zl7bwo7°3 7 B D | |4. N .P.AT o -L A r IA I IC OCCEAN AIA Ch.,,, >O C A 7' N ~ ~ -o o' CA,, lC, OcgA~z PORT DE PAIX < A t i A Al r S c O s f J V ~~~~~~~~~~~~~Po,ot -j.o Pbe--A,t.CAx s P-,,,,' CURA ,CC A--ebM.t- °3°rP ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ - \3CC <2/- q ~ )g U ,-f\ L 0g X 1 s~3PAC .tPUET I s:;. bjC 4 s. . . . <t-,'-X_. CoWi A - I EAV I -19-30 , ' ttt7 - TRANSPORTATION AND RELIEF °" t -- '' 5 " ' 0AJOR ROA D PROJECTS CA1,,,EA' nE . - - . - - '. - - - NORTHERN ROAD ~ ~ ~ ~ ~ ~ ~ ~~~~~~~~- Mp ___ NORTHERN ROAD (RECONSTRUCTION) C , > 7BEC, ' EXSTHRNG ROADS G.-., I C CC C, . I .,4 C ASPHALTrdSgi,, t--> GRAVEL 3 _ - C C _ H T--- DIRT n . . i PHYSIOGRAPHY N ; > seAslioe. vH6CHEW! T N O AOUNTAIN RANGEN R " .C *'-*C- L PLATEAU J,O R, P ECT ..... , DEPARTHENTBOUNDARIECONSTRU1 -. . I-NTERNATIONAL BOUNDARIES C < 1 .. r - -|s~{ ot 13 L 0 13 2! 3 30u+\i.~SdEQC i<r___1 - SU OH ETERN R -) ceDe r/o, '~~~~ ~ ~~~~~~~~~~~~~ ~ ~~.o:d S,INo I. :,K..s ; ~ ~ ~ ~ ~ j - -- A;1a it qe7 s.;.i I n_~;~z4E;CCi= A SPHL C .r .CO-,,..CU>5 ,=;.. i- GRAE , , , ._ 30 M-ad t < - 3! ;, PHTSIORAPH ,d. E,_" i,_boo*e .e d/~>n PLIN S r'1 _____ __ ,_ ir .- --------- C'/ 4 S/AS C B*ANS0 n ._ ~~ ~~ I 7 F 203 37 Q,o -- ,. 30 73 4 o .Ot 010OMEESOS ~ ~ ~~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ A Cop, 7,,,e £ >/c, d. S~~~d ' A N 'A II~ ~ ~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~A-,P, SUMMARY AND CONCLUSIONS Introduction 1. A poor resource endowment, a rudimentary administrative and physical infrastructure, and long periods of political instability have, together, made Haiti one of the poorest countries in the world, and the only Western llemisphere nation to be included in the U.N. list of the 25 least developed countries. Notwithstanding that its rugged terrain is basically hostile to agriculture, 8n percent of Haiti's 4.5 million people live in rural areas where land tenure is characterized by excessive fragmentation, where popula- ticn pressures have led to overcultivation, soil exhaustion and 3evere erosion, and where poor maintenance has reduced the efficiency of a small irrigation network. Transport and communications between the capital, Port-au-Prince, and the rest of the country remain exceedingly difficult while power genera- tion capacity is well below the Latin American average. 2. GNP per capita in 1972 was about $120, but high infant mortality (about 200 per thousand live births), low nutrition standards (malnutrition and gastro-enteric diseases account for over half the deaths in the country) and high illiteracy (between 80 and 90 percent of the adult population) are better indicators of the standards of living of the Haitian population. 3. In m-arked rsntrast to the previous decade, Haiti has enjoyed relatively rapid, though unbalanced, economic growth in the last five years. Annual increases of CGDP have averaged 4 pereent, mainly as a result of the expansion of small-scale manufacturing, tourism and construction, all of which are in Port-au-Prince. Aarirulture has shown little dvnamisn and value added in agriculture increased at only 2 percent per annum during this period; on a per capita basis this implies near sta-nation. Recent Qrnwth bevan from a very depressed level of economic activity*. GDP in 1968 was the same as in 1960 and only in 1973 did the pn capita product surpass the 1960 level. These trends thus reflect recovery but are not in themselves reliable indica- tors of longer term prospects. In 1973, supply rioidities in agriculture together with imported price increases led to a rapid rise in consumer prices. 4. Recent growth has, moreover, been achieved with little new fi:sed investrment. Availa ble data s-gest that sin.ce 1969, outinas for fixed capital *~L~OLIA~fLL IV L.. C ,.a AO 0 5 - J formation have averaged little more than 5 percent while domestic real savings have amounted to only about 2 percent of GnDP. The busin"ness connunitV appearns- however, to have regained confidence in the economy. Relatively large private investments iLr constructior, .d industr; are n. being made or are at an advanced stage of planning, while the establishment of three new commercial banrks lr. lort-au-Plr Lrice sLi.ce 1971 is alsi.-dicati-ve of the recove of confidence. Competition in the banking sector has, moreover, led to an in- crease 'n l,teres t rates on ue osit-, snd sw - i..gS acounts b. WV eased since 1970 from 2.5 to 4.4 percent of GDP. - ii - 5 PulickL U i- r ne.ve nt in recenrt yea_ has focused or. thm cor.shrutior of the hydro-electric station at Peligre where the last of three turbines was put into operatiLon in late 19073-. O~ther malor pubbl-ic in,vesLets ir. -th period put jJ~ dL.4LL .11 .OL~I,/ I) %. JL11~L UJ JLp.4 41V3LJL.0LLL4 LIM PCL.LOU 1969-72 include imDrovements to the harbor, and to the telephone system, in Port-au-rrince. vVerall, public expendi'tures hLave pLayedU onLLy aUJL1UL m U.Lodrect role in economic recovery. Resource Requirements 6. In the future, however, the public sector will have to expand its role if sustained economic growth is to be achieved and if its benefits are to be distributed among the 4/5 of the Haitian population who live in the impoverished rural areas. Tne priorities are fairly clear. The first is tne development of a basic transport infrastructure which will serve to facilitate the flow of agricultural products to markets. Tne rehabilitation of the "Northern Road" (from Port-au-Prince to Cap Haitien) and the construction of the "Southern Road" (from Port-au-Prince to Les Cayes) are expected to begin in 1974. Other major transport investments under consideration include a road to Jacmel and a central road to the north coast through Hinche. Second, further investments in the power sector will be required to meet increasing demands in the capital. Tnird, public expenditures in agriculture (which are likely to have a greater impact once transport and power constraints have been removed) will include the rehabilitation of coffee trees, the expansion and improvement of the irrigation network, the development of new programs tor rural communities, and the development of improved extension services. Fourth, with respect to human capital, while financial, institutional and technical constraints may limit development expenditures in education and health in the short and medium term, long run sustained growth cannot be achieved without the expansion of these services. Population planning ranks high among the country's needs. Population growth has so far been kept below 2 percent by high death and emigration rates, but a reduction of these rates would increase already severe population pressures. Resource Mobilization 7. To finance these needs, public sector development expenditures will have to increase rapidly. On the basis of studies which have been completed for the agriculture, power, telecommunications and transport sectors, it is estimated that development expenditure requirements for the period 1975-79 will average about C 229 million per year. This compares with average develop- ment expenditures of only C 71 million per year in the period 1969-72. Only about 67 percent of the programmed expenditures is for fixed investment (mostly in the transport and power sectors but also including an extension of the irrigation network). The remaining 35 percent includes outlays for maintenance, rehabilitation, extension services, current expenditures associated with development prolects and agricultural credit. As a percent of GDP the proposed level of development expenditures would reach 4.5 percent in 1980 as compared to 3.1 percent in 1972. This level of expenditures is seen as a necessary condition of maintaining a real GDP growth rate of about 5.0 percent yearly. - iii - 8. Whereas, however, the Haitian Government has in the p three years financed some 42 percent of development expenditures, it is estimated that its contribution could fall to 32 percent in 1975-79. The higher absolute level of development outlays would nevertheless imply that government development expenditures would rise from G 35.4..il.1lion- pe ear in 1971-73 to C 73 .5 11U4lU per year in 1975-79. 9. The remainder would be financed by official lending agencies. In th,e period 191=731 net external off-ic4al lendi4ng f-inancedI only a-out 4.9 per- 1LI& .L .U 7 1 I - .J LL L~ .L Ia. LPA. A. L~J .. ~A. L 5 A..La1LIL.L L a3.u L t* cent of development outlays. On the basis of disbursements of committed loans anU of adUlULt-iona'l exAternaL L financing whichI Ls Ilkelly toLU UC LUb Lfr.thUoiL1g, 'LL i estimated that official agencies could finance about 45 percent of development expenduiLtures. 'lo l-La'Lntain the required Leve'l ofL dUisburse.Itents, coluaitment levels would have to average between $25 and $30 million per year. Technical assLstance grants and pri-vate Uonat'Lons would bie likely to contiLnue to Linance an important, albeit declining, share of development outlays amounting to about 3 percentt Lin 197/5-7197 as comuparedU with 4L 4 percent in 1 7 1-7/a3. 10. With regard to thle mobilOizatLon of sufficient public sector resources to finance development expenditures, the reallocation of resources rather than increases in tax and other receipts seems to be an appropriate strategy. During a CIAP meeting held in Port-au-Prince in 1972, the Haitian Government suggested tnat hne Matcning rund, tne Road Construction and Maintenance Funds and the profits of the Port Administration would be likely sources for financ- ing the counterpart payments for internationally financed projects. The envi- saged investment program, however, could not be entirely financed from these sources wnich would, together, contribute only about 40 percent of the required amount. It would seem that most of the remainder (about 55 percent) could be financed by receipts from numerous small taxes presently included in the Gov- ernment's extra-budgetary accounts. Many of these taxes are currently earmarked for specific pruposes which have been met and no longer require revenues. An- other possible source of finance for development expenditures is the Regie du Tabac. Little is known about the actual revenues of this agency, but estimates suggest that current receipts amount to about G 53 million and that they have grown rapidly. (at a rate of about 15 percent per annum) between i969 and 1973. During the CIAP meeting, the Government proposed that the Regie's contribution to development expenditures could increase from G 3 million in 1973 to G 3.5 million 1977. As these amounts were not required in 1973, no contributions were, in fact, made. The budgetary accounts, which cover most Ministerial outlays, are another possible source of funds to finance development outlays. Expenditures from these accounts have risen at a much slower pace than re- venues or other government outlays, so that in 1973 these accounts generated a surplus of G 17 million. It would not seem desirable, however, that more than a marginal share of development expenditures be financed with budgetary revenues for two reasons. First, ample resources appear to exist in other government accounts. Second, increasing Ministerial outlays by raising gov- ernment wages, improving maintenance of public assets and increasing other essential current expenditures, would seem to be the most appropriate way of bettering the quality of public administration. - iv - I I 'WnIZL e goveriiment revenues Ihlave Liounted to a corL.s Lal L12J pCecenL ol GDP in the last five years, the regressive nature of most taxes suggests that a shirting of the fiscal burden to progressive levies on income ana wealth rather than a higher tax ratio to GDP, merits the Governments's con3ideration. The bulk of revenues now stem from disincentive taxes on cofree and sugar and excise taxes on food; taxes on income and wealth provide only marginal shares of government receipts. Tne Government has recognized tne need to increase the progressiveness of the tax structure. In August 1973, the specific tax on coffee was replaced by a progressive ad valorem levy. At the current nign world price, producer prices are actually lower than they would have been under the previous tax, but if world prices decline the producer should bene- fit from this change in the coffee tax. In 1973, the Government also lowered taxes on several food products and medicines whilst raising import duties on certain luxury goods, More measures in this direction, including the institu- tion of an urban property tax based on current land values, better income tax administration and higher marginal income tax rates, are still required. Balance of Payments 12. The continuation of current growth trends is likely to have a major impact on the balance of payments. Rising domestic demand and tagging output of coffee and sugar have offset rapid growth in exports of baux:!.te, and to a lesser degree, essential oils. Even with rising export prices total merchan- dise exports in current terms have thus increased by only 6.5 percent per annum since 1968. In contrast, merchandise imports have grown at an annual rate of mo-e than 15 percent during the same period. Receipts from tourism have to sonme extent offset the trade imbalance but the high import content of tourism receipts and their income generating effects have themselves affected import growth. Given that, at least in the short term, domestic demand for coffee and sugar is likely to continue rising (per capita consump- tion of these two products still has not reached early 1960 levels) and that production problems are not likely to be overcome quickly, the resource gap is expected to grow. Moreover, the substantially higher level of official and private capital flows will also serve to accelerate import growth. By 1980, the resource gap could reach about 6 percent of GDP. However, the current account deficit would amount to only about half the resource gap since current transfers, both private and public, could be expected to finance a large but declining share of the latter. 13. As there has been little net foreign borrowing for the past ten years, the debt service ratio is now low. Moreover, the bulk of debt servicinR requirements are related to a small number of relatively large debts. Servicing the debts to suppliers for the power generators at Peligre 1/, and to the U.S.. for agricultural proiects executed in the late 1940's and 1950's, accounted for 60 percent of all obligations in 1972 which totalled $3.'8 million (or 6 percent of exports of goods and services). Haiti's total debt outstanding, repayable in foreign currencies, was $72 million by the end 1/ Technically this was a prepayment and is considered as such in the debt stattgticn. of 1973. If all borrowing in the future is made on concessionary terms, debt servicing is not likely to become a constraint to growth. But even with a lovw debt service ratio, borrowing on non-concesssionary terms co ild lead to debt service difficulties after 1980, when grace periods on the relatively high level of commitments expected for the period 1975-80 would come to an end. In view of its poverty, Haiti will need external assistance to support its domestic efforts for a long time; to the extent possible, assistance should be provided on concessionary terms, if the risk of an unmanageable debt burden is to be avoided. 14. It is expected that higher prices of petroleum will have a small effect on economic growth. Imports of petroleum products represented only 4 percent of imports of goods and services in 1972 and the entry into opera- tion of the Peligre hydro-electric plant reduced the economy's dependence on fossil fuels for power generation. Even allowing for a 10-15 percent per annum increase in the consumption of gasoline and diesel fuel, higher petroleum prices should add no more than $5 million or about 3 percent to Haiti's annual import bill over the next three years. On balance, therefore, the-energy situation merely reinforces the need for the authorities to tighten import management. 7 MT" fl A nAl*Am XTTT 1T* TIS *r TT A YTfT 1kTM I. Inkc DBAtNjVUkV IV r1A.LILtUNU VJ.vLuvrrPrIL Introduction 1. With a per capita GNP of $120 in 1972, Haiti is the most impover- ished nation in tne Western Hemispnere and one of the poorest nations in tne world. 1/ Whether its poverty is assessed in terms of current comparison with other countries or in terms of its own past, at least some of the causes for Haiti's faltering economic progress are readily apparent. 2. First, the country is resource poor. Second its physical and administrative infrastructures are rudimentary. Third, the political stability and security which is a sine _qa non of economic progress has rarely existed. Finally, the ramifications and interactions of these factors have from time to time produced other constraints to sustained development, including, for example, the virtual isolation of Haiti from the world community during the 1960's. 3. The background to Haitian development thus comprises a brief account of Haiti's resource base, its infrastructures, and, as exemplified by rec.ant trends, the relationship between the political environment and economic p-o- gress. The Resource Base Physical Resources 4. Haiti's natural resource endowment, particularly in respect of agricultural production, was once such that, given judicious management, it was able to become the richest colony in the world at the end of the 18th century. 5. The country's physique resembles a thoroughly crumpled and crescent shaped form with relatively few lowland areas. This environment has impeded communications, has nurtured internal isolation and has successfully defied physical, economic, social and cultural integration. It is also an environ- ment whose resource base has deteriorated. In 1965. some 870.000 hectares were under cultivation - about 30 percent of the country's surface area - but little more than half of this area was well suited to agriculture. The indis- criminate felling of trees on steep slopes, over-cropping and the absence of appropriate cultivation techniques such as contour plouRhinR or terracing, have combined to erode and exhaust a vast area of once productive land. As if this were not enough, much of the country suffers from climatic conditions which are hostile to agrictulture. Since 1960, the southern peninsula has been struck by hurricanes in four suceessive years. Elsewhere - particularly 1/ Haiti is included in the United Nations list of the world's 25 poorest nations identified for special attention during the Second Development neeAnde RP Tl.N_ FrOSOC r th Raion AaQnda Ittm S_ Donument E/5269. April 4, 1973. -2- in the north - floods and droughts have, within the past decade, variously destroyed or diminished agricultural output. 6. Whereas the agricultural resource base might, with better management and/or less severe population pressure, have been preserved, mineral resources are by definition in the nature of a stock. Haiti's known reserves of copper and bauxite were never large and while bauxite exports have recently increased, unexploited reserves are small. In the immediate future only lignite offers some prospect of becoming a new and economically viable mineral resource. Human Resources 7. Population growth has not yet exceeded an annual rate of 2 percent, mainly because of the combined effects of a high death rate and emigration. Haiti is nevertheless one of the world's most densely populated countries. With a total area of only 27,750 sq. km., and a population (in 1973) of about 4.5 million, the average population density is in the order of 160 persons per sq kam. - only slightly less than in India. 1/ Measured in terms of arable land, the average density exceeds 490 persons per sq. km. - over two times as high as in the neighbouring Dominican Republic. 8. Approximately 80 percent of the population lives in rural areas. Of the 20 percent which comprises the urban population, 2/ 12 percent are in Port-au-Prince, and the remainder in provincial towns, only one of which, CaP Haitien, has more than 50,000 inhabitants. Haiti is thus far less urbanized than any other Western Hemisphere country. This is a result of several things: a distinctive pattern of rural land tenure in which small- holdings predominate; the lack of opportunity in urban areas; and in recent times a series of Government policies which have effectively deprived provin- cial towns o-' whatever dynamism they once possessed, with the effect that such urban migration as occurred was directed almost exclusively toward Port- au-Prince. This emphasized the primacy of the capital. 3/ 9. StandardR of health and education are the lowest in the hemisphere. Malnutrition and gastroenteric diseases account for over half the number of epathq and it is estimated that avernAe ner canita constimntion of nalorieq and proteins is about 25 percent below minimum daily requirements. Life expectancy (49 vearQ) is l1w and infant mortality (about 200 ner 1000) 19 high. 4/ 1/ Excluding the area of adjacent islands which are sparsely populated. 2/ Defined as all inhabitants of settlements with more than 2,500 people. 3/ The ratio of the population size of Port-au-Prince to that of the second city, Cap Haitien, in 1970 is in the order of 10:1. This compares with ratios of 26:1 for Uruguay; 6:1 for Mexico and 4:1 for the Dominican Republic which are other examples of primacy in Latin America. 4/ See Beghin, Fougere and King; Food and Nutrition in Haiti, Presse Universitaire A , 1070 14L,vcLaLa.Lc LkffI. ~ I - 3 - 10. This poorly nourished and far from healthy population is also poorly educated. Adult illiteracy probably exceeds 80 percent, reflecting the paucity of the education system in the past. School attendance by chil- dren aged 6 to 15 does not exceed 30 percent, reflecting the current inade- quacies of the system. At higher levels, university students account for only 0.34 per 1000 of the population. However, it is estimated that there are more Haitian physicians in North America than in Haiti and that large numbers of Haitians who complete other professional and technical training in Port-au-Prince have subsequently left the country. As a result, profes- sional and technical skills of almost all kinds are scarce. This is true in Port-au-Prince and is even more true in provincial towns and rural areas. Malnutrition, endemic disease, low life expectancy, the scarcity of skills and educational attainments have clearly retarded the growth of the Haitian economv because they imnlv low levels of nroductivitvy At the same time they are partial measures of the extent and depth of the grinding onvprtv whirh ic t%hp wav nf l1if nf all bhut a fpw HMir11nnn 11. Bv Latin American standards- income distribution in Haiti in rather unusual. This is closely related to what is also (by the same standards) an unusuallv fragmented nattern of rural land tenure, The smallest lane] holdings, in the hands of 20 percent of the rural population occupy 4 percent of farm arpa. Thp largest land hnldinas- in the hande nf S nprrpnt of thp ruiral populations, occupy 20 percent of farm area. 1/ 12. The pattern of land distribution is therefore relatively equitable and implies that there are few income contrasts *thir the raral populstio... This means in turn that the 45 percent of value added which accrues to agriculture is prJobablf1Jy sharLed f2a4rly evenlyy beonC.een the On percent ofAS th e total population resident in rural areas. 2/ Whilst this relatively equal A 4stribution of agricultural D -p -a be unique -n Latin -A-- -4e the fact %L I~~%. J ~ %A~ , C& . - LAICLt9L fLLU,L. that the rural population is so large as a proportion of the whole is, in .- ,an-,y respects, a consequerce ofL thLI fact that the c.U i8 S0 un ve'oped that there is as yet no "middle class" in Haitian society. The table below reflect s thke ztage of HBal 48 develop.enLt -an-A, alao, the- fact- tat 5 e...igratior. probably accounted for many of those who, had they remained, would have been me.,.bers of a '>ideincamel group. '.Tuat th1e --- 'le does not shvw is -'at almost all of those in the highest income decile are in Port-au-Prince. This may rel"Lect su'UstantLLaL emULgrat'Lon fromL.U prov'LncLIaL tuwns bu Ufor w`i.iCh thLe geographic as well as the decile structure of income distribution might have d,f.iered. I I Ita._._ _ ___~ 5_ _ ____ ._ qf %_ __J_- t,_ _ - _ __. I/ rreLlm LIaLy rCbU.L us 1711 Y.aCLf1A Uk rPUJ.aIU..JAJ, nUOAU49ig anu AgrLcu.L.ure. A precise distribution of land ownership is not available because of the aeficiencies or ene la-nd tLting system. i/ GDP is used in lieu of income because estimates of depreciation are not available. - 4 - Table I-I: HAlTI: DISTKIBUTION oa CDP GDP Population per Totasl GDP million % Cumulative Capita G'000 Cumulative (gourdes) Rural 3.5 78 78 400 1400 45 45 Urban Underemployed 0.2 4 82 600 120 4 49 Urban Wage Earners 0.4 9 91 1000 400 13 62 Public Servants 0.3 7 98 2000 600 19 81 Entrepreneurs 0.1 2 100 5800 580 19 100 Source: Mission Estimates Infrastructure 13. Another kind of development resource is the infrastrudtural base comprising the stock of fixed public assets on one hand, and the machinery of public administration on the other. 14. Just as the base for agricultural production has been gradually eroded since the early 19th century, the country's physical infrastructure has also deteriorated. Outside Port-au-Prince and its suburbs there are fewer than 200 kms of well surfaced highways; there are another 100 kms of once paved but poorly maintained roads. 1/ The latter and almost all other roads are impassable at certain times of the year, even in a four-wheel drive vehicle. Provincial towns are consequently almost isolated from each other and from Port-au-Prince, and the flow of goods and people is severely constricted. Given that (in 1969) there were only 2000 functional telephone lines in the whole country and 4400 telephone units (about 1 per 1000 people - the lowest ratio in the Western Hemisnhere); the flow of information and ideas was also constrained. Haiti's shape and topography will render the construction and maintenance of a ermmnrninAtionn network both technicallv difficult and expensive. But the failure to maintain even relatively new investments (such ;ac the "Norther.n l,ad" link1in E Port-aii-Prin-P and anp HRaitler) was one of thp most discouraging features of the Haitian economy in the 1960's. 15. The irrigation network is largely of colonial vintage and after an expar.sion to 70,000 ha. in thae 1950',a has nnt bheen xtbeqpniipntlv enlarged. 1/ Data from "Plan r'Actr", ANAnVP 1971. Nor has it been effectively maintained although the emergency reconstruction of part of tne Artibonite irrigation system during 1973 is indicative of some improvement in this regard; there have also been some new investments in tubewells. Io6. l-ftree other important public investment initiatives occurred in the 1960's. A new airport in Port-au-Prince was completed in 1967, some improve- ments were made to Port-au-Prince harbor in the late 1960's and what had previously been a totally inadequate level of installed electric generating capacity was greatly increased when the first stage of the Peligre hydro- electric plant was completed in 1971. 1/ Rural areas still have no power supply and provincial towns depend on obsolete gasoline or diesel fired generators. The water supply system also shows a contrast between Port-au- Prince and the rest of the country. In 1961 only 2.6 percent of all dwellings in Haiti had piped water and almost all of them were in the capital. Even there, however, 60 percent of the houses did not have piped water; it is not thought that much improvement has since occurred. 17. Haiti's physical infrastrucutre is therefore extremely weak, poorly maintained and unequally distributed between Port-au-Prince and the rest of the country. Assessed in terms of its value as a basis for sustained develop- ment it is, in almost all respects, inadequate. Economic expan:ion has been constrained by this inadequacy. There are, however, encouraging signs of im- provements which will be discussed in subsequent parts of this report. 18. If the physical framework for development has been (and notwith-> standing recent improvements remains) inadequate, the administrative framework has been scarcely more suited to the task of implementing policies. There is a small cadre of capable administrators and technicians. They are, however, concentrated in a few government agencies. Elsewhere, there is a dearth of technical and professional expertise and even in agencies which are, by com- parison, well staffed, the situation is far from satisfactory. A further cause of administrative weakness arises from the salary structure of the civil service; many government officials are so poorly paid that they hold two lobs and are consequently less efficient than they might otherwise be. The appointment during 1973 of a number of well trained and competent techni- cians to ministerial posts has somewhat improved the situation but the basic weaknesses remain, and will persist until a sound basis for a well trained and well motivated civil service is established. The Political Environment and Recent Economic Trends 19. Haiti has eninved few and lnfreauent neriods of stable and nrnares- sive government. Most recently, the decade of the 1960's was characterized by conditions which favored neither inatitutional develonment nor fixed capital formation. Contrarily, Haiti during the 1960's was, in many respects, a nlace apart. Whereas other nations (in Afrifea and Asia) were rnmparnblv poor in terms of resource endowments, most of them received concessionary ntihlir rennitnl fvn ahrnnA anA naln mannnnogr tn nAttr n-riuprva fnrPlan inves- tors. Haiti did not. Whereas almost all developing countries were similary 1/ The second stage was completed in 1972 and the third stage in late 1973. -6- exposed to the vagaries or internationai comlmo-dity marKets as arDiters or their foreign exchange earnings, the consequences of this exposure were thus partially tempered by the inflow of external capitai. In the naitian case there were no countervailing factors to offset the declining value of its principal export products as output of corfee, sugar and sisal declined and their market prices fluctuated. Haiti was thus isolated from the international community. Receiving almost no development capital and only a limited amount of technical assistance, considerable ingenuity was required to service the country's outstanding debts with only limited resort to rescheduling. 20. Against the background of acute resource poverty, and poorly main- tained physical infrastructure, an inefficient administrative system and isolation from the world community, Haitits unsatisfactory economic performance in the 1960's is hardly remarkable. But had the political and thus the investment climate been more propitious, the recession of the 1960's might have been avoided. As it was, real GDP fell from 1962 to 1968 and it was not until 1973 that per capita GDP in real terms surpassed the historic peak of 1962. 21. The importance of the political environment as a determinant of economnic progress has been demonstrated by the recent reversal of the downward trends of the 1960's. During the two years preceding and three years following the death of President Francois Duvalier (in 1971) and the succession to the Presidency of his son, Jean-Claude Duvalier, there has been a significant change in the political and thus the economic climate. 22. The statistical base for measuring growth is weak (see Techni:al Note #1). It is nevertheless adequate to support the contention that, since 1968, Haiti has enjoyed a modest recovery summarized in an average annual GDP growth rate of 4 percent, as compared with an average annual rate of 0.5 percent between 1960 and 1968. It is as yet too early to equate this with the beginnings of sustained growth. For one thing, the base from which the recovery bezan was extremely low. For another, the structural constraints to sustained development, which have been outlined above, have not been removed. 23. Recovery has been led by the expansion of small scale export oriented assembly industries, the growth of tourism and the expansion of the construction industry. Emplovment in the assembly industries, increased from some 10,000 jobs in 1971 to almost 25,000 in 1973. Gross exports of light manufactured aonds to the U.S. (the main market) in calendar 1972 amounted to almost S23 million as compared with $12.2 million in 1970 and $3.8 million in 1967. Tn,ir-ft arrivj1c dtirina thp naqt three vearq have stirnaqqed the hi4t-orir noakq established in the late 1950's. The recent growth of the construction indusutr is illustrated by the fact that value added in rnnstruction has increased at an annual rate of more than 20 percent since 1968 while cement sales have risen from 70,000 tons in 1968 to an estimated t30,000r tons in 1970. -7- Table I-2: SECTORAL GROWTH OF GDP Shiare Average Annual Growth Sh.are 1960-65 1967-70 1970-73 1973- Agriculture 49.9 1.0 1.3 2.5 146.9 Kining 1.2 2.2 13.5 6.3 1.8 M4anufacturing 10.1 0.2 2.1 9.0 10.9 Construction 2.0 -2.8 24.9 20.5 3.5 Public Utilities 1.0 3.9 4.0 10.5 1.5 Transport and Cowunanication 3.1 -1.8 -1.1 7.5 2.6 COmiinerce 10.8 -0.7 3.2 5.8 9.9 Finance 0.8 1.7 3.7 5.1 0.9 Real Estate 8.9 1.9 2.3 5.5 10.3 Govenuiment 6.4 -9.J i0.h 9.7 5.3 Personal Services 5.7 2.5 - 5.7 6.4 GDF 100.0 0.5 2.5 5.1 100.0 Source: Table 2.1 -8- 24. These growth sectors share certain characteristics. First, in two out of three, growth has been achieved with relatively little fixed investment. In the case of the assembly industries, capital requirements are limited to a simple structure to house the activity and low cost tools and machines for assembly work. In the case of tourism, new growth has been mainly accommodated through the more intensive utilization of installed capacity, and few new hotel facilities have been added. In the construction sector, however, growth appears to have been directly responsive to new investment, much of which has been financed by remittances from Haitians living abroad. 25. Second, growth in all three sectors has been largely in response to external demand and a consequence of decisions made outside Haiti. Plans concerning assembly industry contracts, tourist visits and new construction have largely been made abroad, although, to some extent, they reflected a more favorable perception of Haiti. In the case of the assembly industries, domestic demand conditions in the U.S. economy are of key importance. In tourism, the recent buoyancy of the world economy is part of the background to recent growth, while another part refers to developments elsewhere in the Caribbean which may have affected the growth of tourism in certain other countries. 26. The growth of these sectors has also been reflected ir recent trends in savings and investment. With due allowance for the approximate nature of the pertinent statistics which probably underestimate investments in the sub- sistence economy, it is estimated that domestic savings only averaged about 2.0 percent of GDP between 1969 and 1972, but investment as a percent of GDP has risen to 6.2 percent in 1972 as compared to 4.1 percent in 1969. As the table below shows, however, the shares of the public sector in consumption and investment have fallen slightly while those of the private sector have increased. This underlines one of the most important features of the Haitian recovery. The reestablishment of confidence may be interpreted as a contri- bution of government to economic progress but the direct role of the public sector has been negligible, notwithstanding the effort involved in the con- struction of the Peligre power plant. Moreover, aside from the general issue of the economic climate, there appear to be few instances of changes in eco- nomic nolicv whir-h hnve led to important responses from the private sector. Almost all of the new growth which has occurred is therefore attributable either to spontanenus investment decisions or to the snontaneous growth of consumer demand (as in the case of tourism) in the context of an improved nn1ntio-Peonnnm-r environmPnt. 27; Notw1thst anding the t-e,treuen-e nf certain parts of the eonnmy; other parts have signally failed to show signs of vitality. Most important, there is no inAication thnt the conatraints to th.e growth of the- agricultural sector have yet been modified. Any interpretation of recent macroeconomic trends~ as a r~.ew w,ave of eYpansi-on would,1 tiahus be ditorted because 4 ltjwould ignore the characteristics of most of the growth which has occurred since 19Q68- 4t w.ou,lA A4dQ-sr"e A the fact that grwtZh hbeon from a modAet base and it would conceal the structural impediments to growth which still remain. Table I-3: EXPENDITURE OF GQCSS DOMESTIC PRODUCT (nercent of G,DP) 1968 1969-72 1972 Consulittion 97.5 98.2 07A0 .>bic (A 1 (R 8.3 (A No A %- . / \'.'..'*I ~/ P ( P I ~ OV I ~ Investment 4l 5.2 6.2 Private (1.8) (3.2) ( .1) Public ( 2.5) ( 2.0) ( 2.1) RDesource Grap 1.8 I.). 3.8 D ~~~~pI W '-). -pos (12.)I L 1. 0I 1 V * ,,aports (13*) ('54)(-5 GDP 100.0 100.0 100.0 Source: Table 2.2 - 10 - 28. Some of these structural weaknesses have been reflected in recent trends in domestic prices. Until 1972 the growth of output had been achieved without significantly greater inflation than the modest 2 or 3 percent which had been customary over the preceding decade. During 1972 and 1973 however pr