Haiti 2011-2015 Country Program Evaluation

The country strategy with Haiti for the 2011-2015 period is the Inter-American Development Bank’s (IDB) first post-earthquake strategy and coincides with the start of the mandate of the Ninth General Increase in the Resources of the IDB (IDB-9). The IDB-9 commitments for Haiti include debt forgiveness and expanding the IDB Grant Facility with a view to providing Haiti with US$200 million per year over a period of 10 years (2011-2020), subject to annual approval by the Governors. The IDB-9 commitments modified the Bank’s relationship with Haiti by converting the Bank’s entire portfolio to a grant portfolio. Adjustment to the IDB- 9 requirements also included to create in the Vice Presidency for Countries (VPC) a Haiti Department (CDH), to ensure the efficient and effective management of the unprecedented amount of resources allocated by IDB-9 (document AB-2764) to the Haiti program (paragraph 1.7, vi). The Haiti Country Program Evaluation (CPE) for the 2011-2015 period covers the first five years of the IDB-9 mandate and the change in the Bank’s strategic positioning in Haiti. The CPE is an opportunity to evaluate the Bank’s post-earthquake actions with a view to identifying the main challenges that the Bank faces to position itself in the five remaining years of the IDB-9 mandate. The CPE is divided into five chapters. Chapter I analyzes the changes in the economic, political, and social context in which the country strategy was implemented, with particular emphasis on the structural limitations that affect Haiti’s development. Chapter II analyzes the Bank’s positioning, with an emphasis on the significance of the strategic commitment and the efficiency of implementation of the operational program. Chapter III focuses on an effectiveness analysis and an analysis of the main outcomes at a sector level. Chapter IV sets out the main conclusions and recommendations for the next strategy cycle. The CPE also includes sector annexes that describe the sectoral context in which the program was implemented and a detailed evaluation of IDB operations in each sector, as well as other annexes with additional information. Haiti 2011-2015 Country Program Evaluation COUNTRY PROGRAM EVALUATION: HAITI 2011-2015 Original: Spanish Inter-American Development Bank July 2016 Country Program Evaluation: Haiti 2011-2015 Office of Evaluation and Oversight (OVE) RE-494-1 © Inter-American Development Bank, 2016 Office of Evaluation and Oversight 1350 New York Avenue, N.W. Washington, D.C. 20577 www.iadb.org/evaluation This work is distributed under a Creative Commons license https://creativecommons.org/licenses/by-nc-nd/3.0/us (CC BY-NC-ND 3.0 US). You are free to share, copy and redistribute the material in any medium or format, Under the following terms: The link provided above includes additional terms and conditions of the license. Attribution - You must give appropriate credit, provide a link to the license, and indicate if changes were made. You may do so in any reasonable manner, but not in any way that suggests the licensor endorses you or your use. No Derivatives - If you remix, transform, or build upon the material, you may not distribute the modified material. No additional restrictions - You may not apply legal terms or technological measures that legally restrict others from doing anything the license permits. Non-Commercial - You may not use the material for commercial purposes. iii Acknowledgements Acronyms and Abbrevia tions Executive Summary 1. Context of the Country Program 2011-2015............................................... 1 A. Recent economic developments.............................................................................. 1 B. Changes in social indicators.................................................................................... 4 C. Structural limitations in Haiti and development challenges..................................... 6 2. The Bank’s Positioning in Haiti......................................................................... 9 A. Background............................................................................................................ 9 B. The Bank’s strategy with Haiti................................................................................ 9 C. The Bank’s program in Haiti...................................................................................14 3. Effectiveness of the IDB P rogram in Haiti.................................................25 A. Transportation........................................................................................................25 B. Energy ...................................................................................................................27 C. Agriculture..............................................................................................................29 D. Education...............................................................................................................31 E. Water and sanitation...............................................................................................33 F. Private sector development......................................................................................35 4. Conclusions and Recommenda tions...................................................................39 Notes Electronics Annexes Annex I Macroeconomic analysis (original English version) Annex II Transportation Sector (original Spanish version) Annex III Energy Sector (original Spanish version) Annex IV Private Sector (original English version, confidential) Annex V Agriculture Sector (original Spanish version) Annex VI Water and Sanitation Sector (original Spanish version) Annex VII Education Sector (original English version) Annex VIII Review of strategic indicators and targets (2013-2016) (original Spanish version) Annex IX Institutional strengthening (original Spanish version) Annex X List of interviews conducted for the CPE (original French version) Table of contents ivCountry Program Evaluation: Haiti 2011-2015 Spanish Agency for International Development Cooperation Composite annual growth rate Country Department Caribbean Group Conditional credit line for investment projects Country Department Haiti Caracol Industrial Park The Bank’s Country Office in Haiti Country Program Evaluation Centre Technique d’Exploitation [urban water utility] Direction Nationale de l’Eau Potable et de l’Assainissement [National Water and Sanitation Directorate] Electricité d’Haïti Education pour tous [Education for all] Fonds d’Assistance Économique et Sociale [Economic and Social Assistance Fund] Fund for Special Operations Haitian gourdes Haiti Reconstruction Group Ninth General Increase in the Resources of the Inter-American Development Bank Inter-American Investment Corporation International Monetary Fund Kreditanstalt für Wiederaufbau [Reconstruction Loan Corporation] Ministry of National Education and Vocational Training Multilateral Investment Fund Natural Disaster Mitigation Program Non-sovereign guaranteed OPEC Fund for International Development Opportunities for the Majority Sector Organization of the Petroleum Exporting Countries Office of Evaluation and Oversight Policy-based grant Policy-based loan Project coordination unit Post-disaster Needs Assessment Purchasing power parity Primary road network Structured and Corporate Financing Department Sovereign-guaranteed Small and medium-sized enterprise Technical cooperation operations Technology Transfer to Small Farmers Program United Nations Children’s Fund United States Agency for International Development Vice Presidency for Countries World Health Organization AECID CAGR CCB CCLIP CDH CIP COF CPE CTE DINEPA EDH EPT FAES FSO G HRG IDB-9 IIC IMF KfW MENFP MIF NDMP NSG OFID OMJ OPEC OVE PBG PBL PCU PDNA PPP PRN SCF SG SME TC TTSFP UNICEF USAID VPC WHO Acronyms and Abbreviations v Acknowledgements This evaluation was performed by a team made up of Verónica Gonzalez Diez (Team Leader), Monika Huppi, Roland Michelitsch, Anna Crespo, María Elena Corrales, Ali Mahmoud Khadr, Julie Biau, María Cabrera Escalante, Felipe Vargas Gomez, Margareth Celse L’Hoste, Rafael Alcántara Sánchez, and Maya Jansson under the direction of Cheryl Gray, OVE Director. The country strategy with Haiti for 2011-2015 is the Inter-American Development Bank’s first post-earthquake strategy approved after the start of the mandate of the Ninth General Increase in the Resources of the IDB. © IDB vii Executive Summary The country strategy with Haiti for 2011-2015 is the Inter- American Development Bank’s first post-earthquake strategy approved after the start of the mandate of the Ninth General Increase in the Resources of the IDB (IDB-9). The IDB-9 mandate included forgiving the debt and transferring an unprecedented amount (US$200 million per year) in grants to Haiti for a period of 10 years. The Country Program Evaluation (CPE) 2011-2015 for Haiti covers the first five years of the IDB-9 mandate and provides an opportunity to evaluate the Bank’s program and strategic positioning in the post- earthquake period. The CPE examines the main achievements of the strategic move arising from the IDB-9 commitments and identifies the adjustments needed for the Bank to position itself over the five years remaining in the IDB-9 mandate. Following the 2010 earthquake, economic growth in Haiti was driven by the reconstruction efforts and by significant foreign financing. Starting in 2014, a drop in external transfers and an intense drought adversely affected the country’s growth trend. Gross domestic product (GDP) grew 5.5% in 2011. The construction and infrastructure sectors, linked to the country’s rebuilding, were the largest engines of growth, fueled by a significant increase in public investment. More than half of public investment was financed through international grants and loans on favorable terms from Petrocaribe. The flow of international aid swelled to 50% of GDP after the earthquake but then gradually decreased to an estimated 5% of GDP in 2015. Economic growth began to decline to an estimated 1% in 2015. In addition, an extended drought impacted agricultural production, affecting the availability of food. viiiCountry Program Evaluation: Haiti 2011-2015 Haiti has preferential trade agreements with the United States; however, development of the manufacturing sector is in its early stages and is highly concentrated in the maquila industry, limiting the sector’s impact on the external accounts and on economic growth. Despite the relative increase in the contribution of manufacturing to economic growth and advances in the use of preferential trade agreements in recent years, Haiti has not succeeded in taking full advantage of the agreements and has had difficulties in covering the annual sales quotas set under them. The balance of trade has historically been negative, and this situation was aggravated after the earthquake as a result of foreign aid flows. The rise in imports to address reconstruction needs, meanwhile, deepened the trade deficit. While tax revenue collection has improved in recent years, it is barely enough to cover current expenditures, limiting the government’s ability to deliver and regulate basic services. Haiti’s taxation system depends on indirect taxes (primarily on international trade). With current expenditures among the lowest in the region, the Government of Haiti’s ability to deliver and regulate basic services is limited. In fact, despite some relative improvements in the past decade in health and education access indicators, there have been no advances in services such as water and sanitation and electricity. Poverty in Haiti remains widespread, with high levels of inequality in income distribution. The greatest impediments to greater development and economic growth in Haiti arise from structural factors associated with the fragility of the State and weak institutions. The limitations associated with government efficiency and institutional quality pose major development challenges in Haiti. At the same time, the business environment, which is among the weakest in the world, and the poor quality and coverage of the basic productive infrastructure impose major constraints on economic growth. Low institutional capacity, poor socioeconomic conditions, and high physical exposure to natural disasters combine to create extreme vulnerability. Lastly, the political instability of recent years, associated with turnover among government authorities and the absence of a functioning parliament, has imposed additional restrictions. The IDB-9 mandate and the 2011-2015 country strategy modified the incentives system in the Bank’s relationship with Haiti. The grant modality eliminated the incentives that traditionally guide the Bank’s loan operations, such as the country’s sense of ownership, as expressed in its commitment to repay and counterpart funds. Furthermore, during this period, the Bank’s grant resources, and indeed most international cooperation resources, were not systematically programmed in the country’s nascent budget planning process. This limits the government’s fiscal management and discipline. The country strategy was approved in November 2011 and identified six priority sectors that, while aligned with the Government of Haiti’s program priorities, were not indicative of a new strategic positioning. The country strategy focused on the ix EXECUtIVE SUMMARY traditional sectors of Bank action prior to the earthquake and introduced only two strategic changes: a regional development program in the country’s north, and an institutional reform and strengthening program focused on the priority sectors and replacing the crosscutting reform programs to support governance and the comprehensive strengthening of the State. The Bank designed an ambitious strategy anchored in Management’s decision to approve and disburse US$200 million per year. This strategic commitment, approved nearly two years after the earthquake, did not seem to take sufficiently into account the challenges associated with Haiti’s fragility and limited institutional capacity, which was further strained by the fallout from the earthquake. In this context, the country strategy proposed objectives and targets that turned out to be unrealistic and apparently failed to recognize the need to adapt Bank action to the country’s strategic planning and implementation capabilities. As a result, the Bank ended up financing an outsized operational program that did not in any case properly assess the costs and benefits of the interventions, given the limited information that was available on the markets, and that had to be bolstered with hefty investment resources to strengthen institutions and build the capacity of personnel in charge of executing the projects. The Bank’s operational program for the 2011-2015 period doubled from the previous period, positioning the IDB as Haiti’s main donor after the United States. Between January 2011 and December 2015, the Bank approved US$1.271 billion in grants, US$142 million of which was cofinancing funds. In terms of instruments, almost 80% of the Bank’s portfolio in Haiti was investment grants. Most of the investment operations had a program logic, but the individual operations in each program were approved on an annual basis and in several cases without regard to the performance and disbursement of prior operations. The programmatic policy- based grants (PBGs) for budgetary support and sectoral institutional strengthening accounted for 13% of the portfolio. PBGs supplemented the sector investment portfolio and led to a broader policy dialogue, but they had limited depth. Most of the programmatic series have yet to be completed, partly due to the absence of a functioning parliament to approve the reforms pursued under the PBGs and partly due to turnover among authorities in some ministries. Lastly, given the unfavorable business climate, the private sector windows (non-sovereign guaranteed operations) did not meet expectations in terms of volume of operations and accounted for only 7% of the portfolio. To ensure program management and implementation, the Bank introduced a new department for Haiti within its organizational structure. This allowed the Bank to significantly reactivate its disbursements but also meant an increase in administrative and operating expenses. Disbursement volume tripled during the evaluation period, although with significant differences by sector: operations that include large contracts, such as in transportation and the private sector (related to the industrial park), were above the disbursement average, while water and sanitation, education, and xCountry Program Evaluation: Haiti 2011-2015 energy operations were below the average. At the same time, the operating expenses of the Country Department Haiti (CDH) show a significant increase over the total operating expenses that were being posted by the Country Department Caribbean Group (CCB) prior to the creation of CDH. The total operating expenses of the Haiti program, per million dollar approved, increased during the evaluation period (from US$46,000 to US$61,000) despite the stabilization in approvals starting in 2012. Implementation of the IDB program faced not only the country’s structural limitations but also problems associated with the design and implementation of operations. Delays and cost overruns affected the achievement of outputs and outcomes. The limited management and execution capacity of governmental entities, the volatility of the political leadership, and the limited business environment had an impact on program execution. Operations also faced conceptualization and design issues in part associated with the speed of preparation times in the first years of the country strategy and limited information on markets, especially in the post-earthquake landscape. These brought about implementation difficulties and delays resulting in significant cost overruns. In addition, given the lack of benchmark unit costs, the cost benefit analyses of the interventions were not very realistic. These design and implementation problems limited the scope of the works and the outcomes. Faced with the challenge of executing an ambitious operational program in a context of institutional fragility, Bank staff made considerable efforts and devoted significant resources to building institutional capacity and speeding up program implementation. Disbursements were increased thanks in part to an investment of significant resources (US$205.7 million) to build government capacity and assist the officials and consultants who were performing ongoing work in support of project implementation, fostering continuous dialogue with the local counterparts. One half of these resources were used to support the project execution units, promote the development of public policies, and shore up institutional restructuring processes. In addition, between 2014 and 2015, the Bank financed current expenditures for an estimated 715 personnel (consultants and salaried employees) at various ministries and government agencies. While Haiti’s particular situation may have justified this type of financial support at an initial stage, these resources create significant asymmetries at the government agencies, as well as fiscal sustainability risks. The IDB should put forth a clear exit strategy that takes into account the limitations of human resources and the civil service in general. Despite these efforts, the country strategy achieved limited results in relation to the initial targets, with significant challenges in terms of the operational and financial sustainability of investments. The investment portfolio made progress on infrastructure works, albeit with differences from sector to sector, but the coverage and expansion targets initially proposed under the country strategy were not met. In transportation, the results fell short of the targets in terms of road network quality (kilometers rehabilitated) and maintenance. In energy, the rehabilitation programs for the Péligre xi EXECUtIVE SUMMARY hydroelectric plant and the distribution system experienced significant delays and cost overruns (close to US$110 million). The results in the agricultural sector portfolio were positive in terms of the construction of flood protection infrastructure and the expansion of irrigable area, but limited in terms of raising crop yields. The outcomes in water and sanitation, in terms of increase in coverage and financial performance of the operators, have been limited for Port-au-Prince but show improvements in midsized city programs. The rural water program, despite achieving the beneficiary targets, did not meet the coverage and sanitation targets. In education, the outcomes in terms of improvements in access, through the construction of schools, have been limited so far, while the tuition waiver program has yielded better outcomes. In terms of quality of education, progress has been confined to teacher training and the provision of materials. Progress on the governance pillar has been significant (in particular, completion of the education census and school mapping), and these products are starting to be used in policy planning and decision-making. At the same time, policy-based grant operations served to support policy dialogue at the sector level but encompassed incomplete reform processes. In addition, the budgetary support was not integrated with a centralized planning process. The sectoral institutional reforms supported by the IDB helped to identify and promote new reform pillars as well as to broaden sector dialogue. However, the PBGs were implemented in each sector on an independent basis, without centralized planning by the national government and without integrating the financial flows into the national budget. In a departure from previous strategies, development of the private sector took on particular importance in the 2011-2015 country strategy. A majority of the approved resources went to the construction of the Caracol Industrial Park (CIP). With 78% of the funds having been disbursed, the CIP program has made strides in developing quality infrastructure and creating jobs. However, the outcomes have not met expectations in terms of job creation and the cost per job has been particularly high. In the medium and long run, investments face some sustainability problems associated with their profitability and competitiveness. The rest of the private sector promotion operations are pilots with a small number of beneficiaries, and they face scalability challenges. The 2011-2015 evaluation period was characterized by major changes in the government that affected implementation of the IDB’s program. Also, Haiti remains in a state of extreme institutional fragility and social and economic vulnerability. The decline in economic growth and in tax revenue jeopardizes the sustainability of public finance. The decrease in concessional resources highlights the importance of mobilizing domestic resources and achieving more efficient management and use of these funds. The limitations associated with governmental efficiency and quality of institutions threaten the functioning of the State. During the evaluation period, there was high turnover among officials in most of the line ministries. In the short to medium term, these factors create a difficult context for interventions. In addition, xiiCountry Program Evaluation: Haiti 2011-2015 reports of fraud in the last presidential elections (October 2015) and the end of the presidential term (February 2016) led to a political transition and the installation of a provisional government (February 2016) that is expected to hold new presidential elections in October 2016, with a new administration to take office in February 2017. This political transition, combined with the economic slowdown and local currency depreciation, aggravates the country’s fragile condition. In this context, the Office of Evaluation and Oversight (OVE) believes that the Bank’s new country strategy with Haiti for the remaining five years of the IDB-9 mandate should not be a continuation of previous strategies. The future strategy should allow the Bank to position itself as a true partner for development, focusing on solutions to the country’s structural problems. The current period of political transition and Management’s decision to refrain from approving new operations provide an opportunity to redimension the program to reflect the country’s real execution and institutional capacity, in line with the recommendations made by OVE in previous evaluations. OVE also feels that the Bank needs to consolidate its portfolio so as to show tangible results at the conclusion of the IDB-9 mandate and achieve them on a cost-effective basis. Thus, OVE recommends for the Bank to: 1. Set the next country strategy in realistic terms, focusing on building the country’s long-term institutional capacity. The strategy needs to incorporate diagnostic components that can identify the fragility of the Haitian State and the absorption capacity of its institutions, and promote progressive action to develop internal institutional capacity and make government agencies accountable. In addition, the objectives and targets should be set on the basis of this capacity and be measurable so as to favor accountability. 2. Initiate a process with the Government of Haiti to integrate the Bank’s resources into the national general budget, supporting the government in consolidating this budget. This would align the incentives and reinforce the role of the central government (through the Ministry of Finance) in the strategic management of budgetary support and investment resources, placing the IDB in a leading position with regard to other donors. In addition, the Government of Haiti should be equipped with ongoing fiscal management and public policy execution capabilities, strengthening ownership of the program and its sustainability. To this end, the IDB should also provide support to the Government of Haiti to strengthen mechanisms for accountability and transparency in the use of public resources. 3. Prepare an exit strategy for financing permanent officials/consultants in the government institutions. This strategy would require the use of fiscal resources to finance the operating capacity of the ministries and government agencies and would help to ensure the sustainability of interventions in the medium xiii EXECUtIVE SUMMARY term. To this end, the IDB should also provide support to the Government of Haiti to move forward with organizational reforms and improvements in human resources management in the civil service. 4. Review and consolidate the current investment portfolio using a cost-effective approach aimed at sequencing the interventions so as to strengthen the sustainability of the Bank’s portfolio outcomes. The IDB should rationalize the portfolio, prioritizing interventions based on a realistic cost benefit analysis and combining operations based on common strategic objectives. It should proceed with new operations only when there is evidence of significant progress on the existing portfolio and when the institutional capacity is shown to be sufficient to undertake a new commitment effectively. 5. Target the use of sovereign-guaranteed resources to improving the business climate in order to facilitate private sector activity. Resources from the public sector window should be keyed to the fundamental mission of supporting initiatives likely to improve the business climate in Haiti. The IDB could also explore new ways of supporting private sector initiatives through structuring and financing mechanisms that reduce the risk associated with such initiatives. 1 Crop production has low yields and fails to satisfy domestic demand. In this context, food availability is highly dependent on external markets. © IDB 1Context of the Country Program 2011-2015 Haiti is a country with significant comparative advantages but with structural limitations, derived from the country’s fragility, that affect its development. Haiti is the third largest Caribbean country (after Cuba and the Dominican Republic), with a surface area of 27,750 square kilometers and an estimated population of 10.9 million. Haiti’s comparative advantages include proximity and access to major markets, preferential trade agreements with the United States, a young labor force, and a dynamic diaspora that contributes to the country’s economic growth by sending remittances, which grew from 20.6% of GDP (2011) to 22.7% of GDP (2014). However, Haiti is also the most fragile country in the Latin American and Caribbean region, with structural institutional limitations and high levels of poverty and inequality. A. R ecent economic developments After the 2010 earthquake, economic growth in Haiti was driven by the reconstruction efforts and by significant amounts of external financing. Starting in 2014, the growth trend was adversely affected by a decline in external transfers and an intense drought. In real terms, it is estimated that the earthquake led to a 5.5% drop in gross domestic product (GDP) in 2010, in addition to the enormous loss of human life, infrastructure, and social capital. 1 Driven by the reconstruction efforts promoted by the international community, GDP grew 5.5% in 2011 and 4.2% in 2013 (Figure 1.1). However, economic growth began to decline in 2014 (2.7% of GDP), and estimates for 2015 are in the area of 1%. External transfers (grants), which in 2013 accounted for 9% of GDP, decreased to 7% in 2014 and an estimated 5% in 2015 (Box 1.1). In addition, the extended droughts affected agricultural production and resulted in low availability of foodstuffs. The agricultural sector’s contribution to economic growth 2Country Program Evaluation: Haiti 2011-2015 has been declining for the past 20 years. Agricultural productivity has remained below the regional averages. 2 Crop production has low yields and fails to satisfy domestic demand. In this context, food availability is highly dependent on external markets. Figure 1.1 Economic growth (% GDP) Source: IMF Box 1.1: International aid flows to Haiti The response to the 2010 earthquake included an unprecedented flow of aid. However, in recent years, the international aid flow shows signs of being exhausted, heralding the end of the post earthquake period. In 2010, the aid flow reached US$3.400 billion. However, by 2014-2015, international aid had returned to its 2005-2008 levels. The drop in oil prices has also led to a significant reduction in the resources that Petrocaribe contributes to the Government of Haiti. Source: Organization for Economic Cooperation and Development. Creditor Reporting System Statistics and World Bank based on the IMF for the “Projected” series. Note: Other bilaterals:* Spain, Norway, and Finland; Other multilaterals:** IMF, UNICEF, OPEC. Figure 1.2 Gross disbursements by donor (2005-2025; % of GDP) 60 50 40 30 20 10 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 % of GDP Petrocaribe Canada European Union Others multilaterals** Others bilaterals* World Bank IDB United States Projected 8 6 4 2 0 -2 -4 -6 -8 20012002 20052006 2011201220032004 2009201020072008 201320142015 Growth in GDP Growth in per capita GDP % Annual growth 31 CONtEXt OF tHE COUNtRY P ROGRAM 2011-2015 The construction and infrastructure sectors were the biggest engines of growth, fueled by a significant increase in public investment. However, public investment has made only a limited contribution to sustainable economic growth. Starting at a minimum level of 25.4% of GDP in 2010, gross investment—driven by public investment—gradually rose to 28.9% of GDP in 2015. More than half of public investment was financed through external grants, including budgetary support. In addition, a large part of this financing was in the form of loans on favorable terms from Petrocaribe. 3 However, shortcomings in public investment management, such as limited prioritization of investments, poor quality of project design, and little supervision, as well as insufficient resources for operation and maintenance, restricted public investment’s contribution to economic development. The sector strategies that could guide the prioritization of projects were few. 4 Moreover, dependence on foreign aid weakens public investment management and hinders efficient use of public resources. While Haiti has preferential trade agreements with the United States, development of the manufacturing sector is in its early stages and is highly concentrated in the maquila industry, limiting the sector’s impact on economic growth. Haiti’s geographic proximity to the United States market, preferential trade agreements and relatively low labor costs, and the limited skills required of workers, fostered development of the garment assembly/textile (“maquila”) industry as a key sector in terms of creating jobs and attracting investment. In recent years, the boost received by the manufacturing sector was reflected in a relative increase in its contribution to economic growth 5 and in the growth of apparel exports (12% composite annual growth rate (CAGR), 2010-2015) and in the number of jobs created in the sector, estimated at roughly 41,000 (8% CAGR, 2010-2015). Its progress notwithstanding, Haiti has not yet succeeded in taking full advantage of its preferential trade agreements, exhibiting difficulties in covering the annual sales quotas under those agreements. 6 Haiti’s balance of trade has historically been negative, and this situation was exacerbated after the earthquake as a result of the external aid flows. The country’s exports cover only one fourth of its imports. Exports consist primarily of garments from the maquila industry (more than 90% of exports in 2013), shipped mainly to the United States under preferential trade arrangements. 7 The rest is comprised of industrial products (mainly essential oils) and agricultural products (primarily mango and cocoa). The rise in imports to address reconstruction needs worsened the trade deficit. The main import categories included foodstuffs, manufactured products (machinery and transportation equipment), and fuels. In the capital account, foreign direct investment fluctuated but remained within a relatively low range (1%-2% of GDP in recent years). 8 (Gross) international reserves grew after the earthquake but have since been declining due to pressures on the currency market that have led the Haitian gourde to depreciate at a faster pace. 4Country Program Evaluation: Haiti 2011-2015 Inflation remained moderate until 2014, but it now shows signs of accelerating as a result of the depreciation of the Haitian currency. Consumer price inflation remained at an average of 6.2% between 2011 and 2014; however, in 2015 and early 2016, it increased to 14.4% (Table 6 – Annex I). The fluctuations in Haiti’s exchange rate have a significant effect on consumer prices, since foodstuffs and fuels, most of which are imported, account for approximately two thirds of the basket of goods included in the index. The accelerated pace of local currency depreciation, coupled with a drop in the supply of domestic agricultural products as a result of the drought, accounted for the upturn in inflation, despite the decline in fuel prices. The expenditures associated with reconstruction contributed to an expansion of the fiscal deficit. Revenue collection has improved but is barely sufficient to cover current expenditures. In 2013, as a result of the reconstruction efforts and the increase in public investment, the fiscal deficit reached a peak of close to 7% of GDP (15% of GDP not including grants). 9 The largest source of residual deficit financing was Petrocaribe, 10 which in net terms contributed 4.6% of GDP (2013). Domestic financing (3.5% of GDP) was primarily in the form of a reduction in net government assets at commercial banks. Haiti’s tax system is highly dependent on indirect taxes (primarily international trade). While revenue collection (12.1% of GDP in 2014) has improved in comparison to the decade of 2000 (9.7%), 11 it continues to be at typical levels for low-income countries and far below the regional average (22% of GDP). Tax revenues are barely enough to cover current expenditures, which are roughly 11%-12% of GDP. Given the small debt interest payment amount (0.5% of GDP), the largest current expenditures are wages and salaries (5.6% of GDP), goods and services (3% of GDP), and transfers and subsidies (3% of GDP). 12 B. C hanges in social indicators Poverty in Haiti remains widespread, with high levels of vulnerability and inequality. Per capita GDP growth was limited in recent years. At US$833 in 2014, it showed improvement over 2000 (US$518) but continues to be the lowest in the region. In 2012, the Government of Haiti published the first official national poverty line for Haiti based on basic needs, the food basket, and consumption. On this basis, in 2012, the poverty index was estimated at 58.5% and the extreme poverty index at 23.8%. 13 The incidence of poverty is significantly higher in rural areas and in the country’s north. In addition, 10% of the population is just above the poverty line, suggesting high levels of vulnerability. With a Gini coefficient of 0.61 (unchanged from 2001), income distribution in Haiti is among the most inequitable in the region. Social protection mechanisms are insufficient and poorly targeted. In terms of basic services, while health and education access indicators showed some improvement, there have been no advances in services such as water and sanitation and electricity. Health indicators, primarily maternal and infant mortality rates, 51 CONtEXt OF tHE COUNtRY P ROGRAM 2011-2015 suggest that progress has been made in recent years. In education, while the school enrollment rate has grown, the quality of education is uneven and considerably low, this being one of the factors behind the country’s high unemployment rates (World Bank, 2015). Employment is primarily informal, with salaries that are half the size of formal salaries. Moreover, energy coverage in Haiti shows only limited progress and does not exceed one third of the population, while access to “improved” water sources has remained at roughly 50% of the population 14 and access to basic sanitation is among the lowest in the region (Table 1.1). Gender inequality is worrisome both at the school enrollment level and in terms of labor market share (World Bank, 2015). Table 1.1: S elected social indica tors Base year Latest available data Education % enrollment of school-age children – Rural areas % enrollment of school-age children – Urban areas Literacy rate (% of population 15-24) Net primary school enrollment rate Net secondary school enrollment rate School completion rate – primary school School completion rate – secondary school Health % institutional delivery coverage % fully vaccinated children ages 12-23 months Total health expenditure (% of GDP) (1) Maternal mortality rate per 100,000 live births Infant mortality rate per 1,000 live births Water and basic sanitation % improved water source coverage – Rural areas (2) % improved water source coverage – Urban areas % improved sanitation coverage- Rural areas (3) % improved sanitation coverage – Urban areas Energy Access to energy - Nationwide (% of total population) Access to energy – Rural areas (% of total population) Access to energy – Urban areas (% of total population) Employment Unemployment rate 74 (2001) 84 (2001) 81.6 (2003) N/A N/A 78 (2005) 12 (2005) 23.8 (2000) 33.5 (2001) 5.5 (2002) 506 (2000) 30.2 (2002) 49 (2000) 82 (2000) 14 (2000) 33 (2000) 32 (2001) 11 (2001) 62 (2001) 87 (2012) 93 (2012) 82,1 (2015) 76 (2012) 22 (2012) 101 (2012) 20 (2012) 37.3 (2012) 45.2 (2012) 9,4 (2013) 360 (2015) 25.4 (2015) 48 (2015) 65 (2015) 19 (2015) 34 (2015) 36 (2012) 11 (2012) 63 (2012) 40.6 (2010) Notes: The table lists the most recent available data for Haiti. (1) Includes public and private expenditure. (2) Source whose construction provides adequate protection from external pollution. (3) Solution that hygienically separates excretes from human contact and is not shared among several households. Sources: Education: UNICEF Statistics, Haiti - Systematic country diagnostic, World Bank Group (2015). Health: WHO Statistics, UNICEF Statistics. Water and sanitation: WHO/UNICEF Joint Monitoring Programme for Water Supply and Sanitation (2015). Energy: Haiti - Systematic country diagnostic, World Bank Group (2015). Employment: CIA-The World Factbook. 6Country Program Evaluation: Haiti 2011-2015 C. S tructural limitations in Haiti and development challenges The impediments to greater development and economic growth in Haiti stem from structural factors and institutional limitations associated with the fragility of the State. 15 The constraints associated with governmental efficiency and quality of institutions pose major development challenges for Haiti. According to the World Bank’s Worldwide Governance Indicators, Haiti’s score on “government effectiveness” is particularly low and has worsened in recent years. Haiti is ranked in the 0.96 th percentile in the distribution for 2014 (compared to the 2.9th percentile in 2010). In terms of institutional capacity, the Country Policy and Institutional Assessment showed no significant improvement during the evaluation period: Haiti maintained an average score of 2.8, which is below the threshold (3.2) for a country to be deemed fragile. The fragility of the Haitian state is a major constraint on the government’s ability to deliver and regulate basic public services, finance an adequate economic and social infrastructure, and create a favorable business environment to stimulate the economy. Current public expenditure in Haiti is among the lowest in the region, and this also restricts the government’s ability to deliver and regulate basic services. While the increase in revenue has allowed current public expenditure to expand since the earthquake, this expansion is insufficient to ensure the functioning of basic services. 16 Most basic services, such as health and education, are provided by nongovernmental actors (the private sector and nongovernmental organizations). These entities operate under limited State regulation and supervision that would ensure quality and equity in the access to such services. The cost of the services is transferred to the households, linking service delivery/quality to household income. In the case of education, the high percentage of private provision (88% at the primary school level and 60% at the secondary school level), coupled with the ministry’s limited regulatory and management capacity and the low level of public investment, affects service quality and school performance. In addition, the low levels of financing and the shortcomings in public investment management affect the government’s ability to provide an adequate productive and social infrastructure. Haiti lags far behind in terms of transportation and logistics 17 indicators and reliability of energy supply. 18 Moreover, despite progress in the form of better technical capacity among some operators, the low continuity and quality of water and sanitation services impact collection of payment, regularization of customers, and service expansion. Coverage of sanitation services is low. Lastly, the limited technical and financial capacity of the responsible entities affects service planning and management. 71 CONtEXt OF tHE COUNtRY P ROGRAM 2011-2015 The business environment, considered one of the weakest in the world, is also a major constraint on economic and social growth. 19 The main constraints on business activity include weaknesses associated with property rights (land tenure), 20 contract enforcement, and restricted access to finance. 21 Private economic activity in Haiti has been traditionally concentrated in a handful of family groups with interests in key companies in the country. The rest of private activity primarily consists of small businesses and microenterprises (90%) with a high degree of informality (95%) and a significant impact on employment quality and tax contributions. Haiti is among the most vulnerable countries to natural disasters associated with climate change. A combination of high physical exposure, limited socioeconomic conditions, and low institutional capacities produces a situation of extreme vulnerability (document RE-459-1). Haiti faces severe deforestation problems as a result of unsustainable agricultural practices and high demand for charcoal for energy purposes. Changes in precipitation patterns have started to affect agricultural productivity, impacting the availability of food. The agricultural sector is the main source of resources for the country’s poorest population groups. 2 2 Between 2011 and 2015, the largest approval amounts for projects were in transportation and private sector development. © IDB 9“Head 1”: Unit bold 48/40 # 2 The Bank’s Positioning in Haiti A. Background Since 2000, the Office of Evaluation and Oversight (OVE) has performed two evaluations of the Bank’s country strategy with Haiti and prepared one evaluation report on the commitments with respect to Haiti under the Ninth General Increase in the Resources of the Bank (IDB-9). The evaluation of the country strategy for 2001-2006 covered a period of high political polarization and instability that ended with the departure of the President, establishment of the United Nations Stabilization Mission in Haiti (MINUSTAH), and development of the Interim Cooperation Framework (ICF). The country strategy evaluation for 2007 2011 included a Country Strategy Update by IDB Management in response to the 2010 earthquake. In 2012, OVE also prepared an evaluation report on implementation of the Bank’s commitments to Haiti under IDB-9 (Box 2.1). B. T he Bank’s strategy with Haiti The country strategy with Haiti for 2011-2015 was approved in November 2011 and coincided with the start of the IDB-9 mandate, which modifies the Bank’s system of incentives and relationship with the country. The IDB-9 commitments converted the Bank’s loan portfolio in Haiti into a grant portfolio. 22 This modality eliminates factors that have traditionally guided the Bank’s loan operations, such as the country’s ownership, expressed in counterpart funding and commitment to repay. In addition, the Bank’s grant resources, and all other international cooperation resources, are not systematically programmed in the nation’s annual budget planning process, and there is no methodical ex post monitoring of disbursements by the Government of Haiti. This 10Country Program Evaluation: Haiti 2011-2015 limits fiscal management and discipline on the part of the government. The fact that donor support flows are not properly integrated into the national budget and treasury accounting makes it impossible to obtain a complete overview of public expenditures, establish strategic priorities, and have an adequate reserve to cover the operating and maintenance expenses of investments. Box 2.1: Main conclusions and recommendations of the OVE evaluations The CPE for the period 2001-2006 (document RE-237) concluded that the Bank’s presence in the country was significant in a complex political context. However, the program failed to provide policy guidelines that could help the Government of Haiti prioritize its scarce resources and engage in medium-term planning. The program was aligned with the Interim Cooperation Framework, achieving greater coordination among donors but failing to achieve harmonization. Policy-based loan (PBL) operations were relatively effective in terms of balance of payments support and also revived certain significant political and economic governance reforms. The CPE for the period 2007-2011 (document RE-394) highlighted the Bank’s swift and timely organizational and financial response to the earthquake emergency. However, it concluded that the strategic response was insufficient to position the Bank in the face of the enormous challenges created by the earthquake. The evaluation emphasized that the 2010 Country Strategy Update did not include a proper evaluation of the risks posed by post-earthquake conditions for the portfolio in execution, nor did it offer a sequential strategy for IDB action for emergency, reconstruction, and long-term development tasks. In addition, the evaluation pointed out that the new grant modality eliminates factors that have traditionally guided the loan portfolio (commitment to repay), creating room for discretionality. Execution problems, stemming from the institutional fragility of the Haitian State and the absence of designs adapted to the new context, curtailed the achievement of project results. The evaluation recommended: (i) map out a long-term strategy (10 years) that garners the greatest consensus with the Government of Haiti and Haitian society (focusing on a few sectors with greater impact on poverty and social inclusion, giving priority to institution-strengthening, and including the short-term challenge of reconstruction); (ii) strengthen and make coordination more effective among donor agencies and country agencies; (iii) acknowledge the recurring emergencies arising from Haiti’s institutional, political, and environmental vulnerabilities (strengthening risk analysis for each operation); and (iv) expand the Bank’s knowledge capital, rooting its work in a robust diagnostic assessment of the real conditions on the ground in Haiti. The 2012 Evaluation of IDB-9 Commitments for Haiti (document RE-426) analyzed the Bank’s action with regard to its financial commitments, its effectiveness in coordinating aid, and its post-earthquake strategic positioning. The evaluation 112 THE BANK’S POSItIONING IN HAIt