Ayiti Pwogram ki Swiv pa Anplwaye yo - Kominikasyon ak Rapò Anplwaye yo

© 2022 International Monetary Fund IMF Country Report No. 22/207 HAITI STAFF-MONITORED PROGRAM —PRESS RELEASE; AND STAFF REPORT In the context of the Staff-Monitored Program, the following documents have been released and are included in this package: • A Press Release • The Staff Report prepared by a staff team of the IMF for the Executive Board’s information, following discussions that ended in early-May 2022, with the officials of Haiti on economic developments and policies underpinning the IMF arrangement under the Staff-Monitored Program. Based on information available at the time of these discussions, the staff report was completed on June 8 and approved on June 17, 2022. The documents listed below have been or will be separately released: Letter of Intent sent to the IMF by the authorities of Haiti* Memorandum of Economic and Financial Policies by the authorities of Haiti* Technical Memorandum of Understanding* *Also included in Staff Report The IMF’s transparency policy allows for the deletion of market-sensitive information and premature disclosure of the authorities’ policy intentions in published staff reports and other documents. Copies of this report are available to the public from International Monetary Fund • Publication Services PO Box 92780 • Washington, D.C. 20090 Telephone: (202) 623-7430 • Fax: (202) 623-7201 E-mail: publications@imf.org Web: http://www.imf.org Price: $18.00 per printed copy International Monetary Fund Washington, D.C. July 2022 PR22/235 IMF Management Approves a Staff-Monitored Program for Haiti FOR IMMEDIATE RELEASE Staff Monitored Programs (SMPs) are informal agreements between national authorities and IMF staff to monitor the authorities’ economic program. As such, they do not entail endorsement by the IMF Executive Board (with the exception of SMPs under the Heavily Indebted Poor Countries process). SMP staff reports are issued to the Board for information. • The Staff-Monitored Program (SMP) aims to help the government restore macroeconomic stability and lower inflation―a key goal given the heavy burden of high inflation on the poor. • Efforts to enhance governance in the public sector, mobilize domestic revenues, build capacity, and boost social spending are important elements of the SMP. • The program comprises realistic measures suited to Haiti’s fragility and, if implemented, could pave the way to an upper credit tranche IMF-supported program. Washington, DC – June 29, 2022: Management of the International Monetary Fund (IMF) has approved a Staff-Monitored Program (SMP) for Haiti after discussions from March-May, 2022. The SMP was approved on June 17, 2022 and runs through May 31, 2023. The SMP was designed by IMF staff and the Haitian authorities, keeping in mind Haiti’s fragility and capacity constraints while supporting the authorities’ economic policy objectives. With timely implementation of the program, the SMP would help the authorities establish a track record of policy implementation, possibly paving the way to an IMF-supported upper credit tranche program. SMPs are arrangements between country authorities and the IMF to monitor the implementation of the authorities’ economic program but are not accompanied by financial assistance. In recent years, Haiti has experienced a protracted political crisis and assassination of its president, lockdowns, the global pandemic, a surge in gang-related violence, and an earthquake. These shocks have weakened economic and institutional frameworks and adversely affected administrative capacity, while socioeconomic and security conditions have deteriorated to a distressing level. After three years of economic contraction, IMF staff expect growth to turn positive in FY2022, supported by an increase in investment, and to recover further to 1.4 percent the next year with continued flows of remittances amidst modest improvements in socio-political stability. In this difficult context, the authorities have committed to implementing policies that would begin to restore macroeconomic stability and growth, strengthen governance, and start to provide poverty relief. With a strong focus on governance, the SMP is geared to increasing accountability and raising ownership of the reform agenda across the country, placing 2 emphasis on strengthening public finance management, revenue administration, transparency, and anti-corruption measures. The SMP also aims to raise domestic revenues, which have collapsed in recent years under the strain of social unrest, collection problems, and the security crisis. The authorities have committed to implementing a series of administrative measures, including strengthening the use of the tax identification number and cleaning up taxpayers' portfolios, revise special tax regimes in a new Tax Code, including by eliminating some exemptions, and finalize and publish the new Tax Code, Customs Code and the Customs tariff. This will simplify the tax system, making it more transparent and thus less prone to governance abuses. Central bank financing of the fiscal deficit has fueled inflation, putting pressure on the exchange rate and leading to a vicious circle of higher fuel subsidy costs, further monetary financing of the deficit and higher inflation. The program thus aims to raise resources for productive spending and reduce monetary financing of the fiscal deficit to reduce inflation. This is critical for the population given the heavy burden placed on the poor from the high increase in prices. Fuel subsidies have been absorbing at least one third of domestic revenues and crowding out productive spending on investment, health and education. They are also highly inequitable, with over 90 percent of the benefits going to the top 10-20 percent of the income ladder in Haiti. In this light, the authorities plan to prepare the groundwork to eventually tackle this issue. As a first step, they launched in April several social programs under the Programme d’urgence targeted to the groups affected by earlier fuel price adjustments. The Haitian authorities will also strengthen the monetary policy framework and limit foreign exchange interventions to smooth excessive volatility to gradually eliminate the spread with the parallel market. Key steps are also planned to improve the financial regulatory framework and update regulations on anti-money laundering (AML/CFT) to meet international standards. Over the course of this SMP, IMF staff will work closely with the authorities to support implementation of their program and help them build public support. Indeed, most elements of the authorities’ program are underpinned by ongoing IMF technical assistance and capacity building. The Fund will also continue to coordinate closely with Haiti’s other development partners to leverage efforts in support of common objectives. The first review of the SMP is expected in September. Satisfactory performance under the SMP could lead to an IMF- supported program under a multi-year arrangement that would require approval of the IMF’s Executive Board. SMP are only subject to formal IMF management review. HAITI STAFF-MONITORED PROGRAM EXECUTIVE SUMMARY Context: Since 2018, Haiti has experienced a protracted political crisis, repeated country lock-downs and civil unrest, an earthquake, the assassination of its president and a deep recession. Policymakers face economic imbalances, a surge in gang violence, worsening poverty conditions, and dire social challenges aggravated by years of political instability. Staff-monitored program (SMP). It is not feasible for Haiti to implement an upper credit tranche (UCT) Fund-supported program at this time due to the weakened policy frameworks and erosion in administrative capacity during the protracted crisis. The proposed SMP ending May 31, 2023 would help build capacity, support efforts to reduce inflation and raise growth, strengthen fiscal and monetary policy frameworks, address governance weaknesses and combat corruption, and take concrete steps to strengthen social assistance. A successful SMP is needed to build a track record of policy implementation that would improve Haiti’s prospects for a UCT program. SMP policy recommendations: •Adopt a FY2022 budget with measures consistent with agreed targets. •Reduce central bank financing of the deficit and limit foreign exchange (FX) intervention to smoothing excess volatility. •Mobilize revenues and strengthen public finance management (PFM), notably with higher tobacco, alcohol, and car excises, expansion and simplification of the tax base, and measures to strengthen expenditure management and controls. •Require a minimum budget allocation to the ministry of social affairs (MAST) and prepare an action plan to implement the national plan for social protection (PNPPS). •Strengthen the framework for monetary and exchange rate policies by clarifying the objectives and modalities for liquidity and foreign exchange rate operations. •Advance governance reforms with technical assistance (TA), including governance of the central bank, revenue administration, and public finance management. June 17, 2022 HAITI 2 INTERNATIONAL MONETARY FUND Approved By Patricia Alonso-Gamo (WHD); Wes McGrew and Andrea Schaechter (both SPR) Discussions took place remotely from Washington during a virtual mission from March 4–16, and continued until May 9, 2022. The team comprised Nicole Laframboise (head), Noah Ndela Ntsama, Rina Bhattacharya, Jean Francois Clevy, and Paola Aliperti (all WHD), Patrick Petit (FAD), Neil Shenai (SPR) pre-mission, and Gabriel Duvalsaint (local economist). Experts from FAD, FIN, LEG, and STA who are providing relevant technical assistance participated in some of the meetings. Langy Duverger (local office) and Grey Ramos (WHD) assisted the team with logistics and document preparation. Mr. Saraiva and Ms. Florestal (OED) participated in the discussions. CONTENTS BACKGROUND AND RECENT DEVELOPMENTS _____________________________________________________ 4 OUTLOOK AND RISKS ___________________________________________________________________________________ 5 STAFF-MONITORED PROGRAM _______________________________________________________________________ 6 A. Fiscal Framework and Short-Term Strategy __________________________________________________________ 6 B. Fuel Market Reform and Social Assistance ___________________________________________________________ 9 C. Monetary and Exchange Rate Policy _________________________________________________________________ 11 D. Financial Sector Policies ______________________________________________________________________________ 13 E. Governance_____________________________________________________________________________________________ 14 F. Climate Change and Poverty Reduction _____________________________________________________________ 14 G. Program Monitoring __________________________________________________________________________________ 15 STAFF APPRAISAL_______________________________________________________________________________________15 BOX 1. GDP Rebasing ___________________________________________________________________________________________ 5 FIGURES 1. Real Sector Developments, 2015–22 _________________________________________________________________ 20 2. Fiscal Sector Developments, 2015–22________________________________________________________________ 21 3. Monetary Sector Developments, 2015–22___________________________________________________________ 22 4. Financial Sector Indicators, 2015–21 _________________________________________________________________ 23 5. External Sector Development, 2015–22 ______________________________________________________________ 24 6. Social Indicators _______________________________________________________________________________________ 25 HAITI INTERNATIONAL MONETARY FUND 3 TABLES 1. Quantitative and Indicative Targets, June 2022–March 2023 ______________________________________ 18 2. Proposed Prior Actions for SMP ______________________________________________________________________ 19 3. Proposed Structural Benchmarks for SMP ___________________________________________________________ 19 4. Selected Economic and Financial Indicators, FY2019–25 ___________________________________________ 26 5a. Non-Financial Public Sector Operations, FY2019–25 (Millions of Gourdes) _____________________ 27 5b. Non-Financial Public Sector Operations, FY2019–25 (Percent of GDP)__________________________ 28 6. Summary Accounts of the Banking System, FY2019–25____________________________________________ 29 7a. Balance of Payments, FY2019–25 (Millions of US$)________________________________________________ 30 7b. Balance of Payments, FY2019–25 (Percent of GDP) _______________________________________________ 31 8. External Financing Requirements and Sources, FY 2019–25 _______________________________________ 32 9. Financial Soundness Indicators, June 2020–December 2021 ______________________________________ 33 ANNEXES I. Recent Political History ________________________________________________________________________________ 34 II. Public Debt Sustainability Analysis ___________________________________________________________________ 36 III. External Sector Assessment __________________________________________________________________________ 57 APPENDICES I. Capacity Development Strategy_______________________________________________________________________ 62 II. Letter of Intent _________________________________________________________________________________________ 67 Attachment I. Memorandum on Economic and Financial Policies ___________________________________ 70 Attachment II. Technical Memorandum of Understanding ___________________________________________ 82 HAITI 4 INTERNATIONAL MONETARY FUND BACKGROUND AND RECENT DEVELOPMENTS 1. Since 2019, Haiti has been battered by multiple shocks that have taken a toll on the economy and population. The past few years have been marked by a protracted political crisis, repeated lockdowns (Peyi-Lok), civil unrest, a president’s assassination, the pandemic, and an earthquake, whose direct costs were estimated at 11 percent of 2021 GDP (World Bank). The security situation has deteriorated significantly as gangs have expanded control over regions and infrastructure, at times bringing economic activity to a halt. In this context, the economy contracted again in 2021, tax revenues fell further, monetary financing of the deficit was high and, together with supply disruptions, fueled inflation. Official external financing remained low due to the enduring political uncertainty. Confirmed cases of COVID-19, however, have remained relatively low since the pandemic started. 2. The authorities have taken steps since mid-2021 to make the political transition more inclusive and address some governance concerns. Appointed by President Moïse just days before his assassination, Prime Minister Ariel Henry took office after a period of uncertainty and formed a new government in November that included eight members from opposition groups. He put into place his Accord politique pour une gouvernance apaisée signed with some opposition groups and civil society, and in early-2022 extended the term of the remaining one third of the Senate. Prime Minister Henry however faces challenges and one other political accord led by civil society (Accord de Montana) is still in play. The main objectives of both accords are to establish a transitional government and hold elections. There is no election timetable yet as the consensus appears to be that preparation is needed to ensure broad-based, legitimate elections. 3. Staff have remained engaged and the IMF has been the largest source of external financing since 2019. The Fund provided financial assistance without ex post conditionality to Haiti equivalent to about US$360 million in total since 2020, starting with a disbursement under the Rapid Credit Facility in April 2020 (SDR 81.9 million, equivalent to 50 percent of Haiti’s quota) as well as relief on debt service falling due to the IMF during 2020 and 2021 for a cumulative amount of about SDR 15 million under the Catastrophe Containment and Relief Trust (CCRT). Haiti also received about SDR 157 million under the general SDR allocation in 2021. An SMP agreed “ad referendum” in mid- 2020 was not approved because of governance issues related to procurement. After the authorities took steps during 2021, supported by Fund technical assistance (TA), to strengthen basic governance safeguards in public procurement, among other things, it was agreed that SMP discussions could re- start. HAITI INTERNATIONAL MONETARY FUND 5 OUTLOOK AND RISKS 4. The outlook is based on normative policy implementation under the SMP accompanied by an increase in international assistance. The baseline scenario assumes implementation of sound macro policies and select reforms under the SMP. While the authorities’ program aims to lay the groundwork for an eventual UCT arrangement, reform implementation after the SMP is assumed to be modest under the baseline given the uncertainties regarding policy commitment beyond 2023. Spillovers from the war in Ukraine will likely raise inflation and affect the balance of payments due to higher commodity and food prices, which will have a negative impact on the poor. • Growth is expected to pick up modestly to 0.3 percent in FY2022, supported by higher investment. Assuming some political stability and implementation of reforms, growth would reach 1.5 percent over the medium term with a moderately high supply of credit, facilitated by some improvement in the security situation, contributing to recovery. • Inflation is expected to rise further as higher fuel prices pass through other components of the CPI basket, but would moderate as inflationary financing of the fiscal deficit declines. Inflation is projected at 27.5 percent (y/y) at end-FY2022, falling to 14 percent by end-FY2023. • The current account is expected to be remain in surplus in FY2022 as political uncertainty, the security situation, and supply-side disruptions weigh on imports. It is projected to show a small deficit over the medium term, supported by steady remittance inflows, a modest resumption in exports, and higher official transfers in FY2022-FY2023 which together provide room for some import growth and drive a small positive effect of reforms on productivity growth. • As a percent of GDP, the deficit of the nonfinancial public sector (NFPS) is expected to decline to 1.5 percent in FY2022 and widen to 2.3 percent in FY2023 before stabilizing at around 2.8 percent. The near-term fiscal stance is driven by financing availability and reflects assumption of continued administered fuel prices. 5. Haiti is exposed to a wide range of risks, primarily on the downside. Internal risks include a failure to implement policies under the proposed SMP, worsening governance and corruption problems, heightened political instability and resumption in social unrest, gang-related disruptions, natural disasters, and/or a surge in COVID cases. Externally, Haiti is vulnerable to higher- than-anticipated world fuel prices and/or lower-than-expected remittance and external financing Box 1. GDP Rebasing Haiti’s statistical institute (IHSI) released a rebased GDP series in October 2020. The new series was rebased to 2012 from the old base of 1987 and significantly improved the quality of national accounts data (Appendix I). It includes now an estimate of the informal sector, provides a more detailed breakdown of the services sector, and updates Haiti to the 2008 System of National Accounts. Nominal GDP in gourdes under the new series for 2019 (2012) was revised up by 65 (74) percent. Naturally this led to a large drop in all of the estimated fiscal and external ratios. On the other hand, it highlighted the urgent need for domestic resource mobilization and the low base of export revenues. HAITI 6 INTERNATIONAL MONETARY FUND flows. On the upside, lower fuel prices over the medium term would reduce Haiti’s energy import bill. Without improved policies, progress mobilizing revenues, and strengthened governance, the medium-term outlook would be similar to the recent low or negative growth, high poverty equilibrium. Alternatively, improvements under the SMP could build some momentum for deeper, more comprehensive reforms under a UCT-supported program that could raise growth to higher levels in the medium term. 6. Near term reform should focus on realistic measures calibrated to Haiti’s fragility and that would build capacity. A key factor underpinning the repeated cycle of failed reform efforts has been programs that did not match Haiti’s fragility. Earlier analysis on the sources of fragility prepared in the context of the 2020 Country Engagement Strategy (CES) helped to inform the policy and capacity building priorities in the proposed SMP, which are aligned with the enhanced Fund strategy on fragile states. 1 The authorities’ program aims to raise ownership of policies, including with an emphasis on transparency and governance measures. By lowering inflation, with its heavy toll on the poor, articulating anti-corruption measures, and providing some social assistance, the program could raise public support for reform, including of fuel prices, and empower policy-makers to stick with sound policies. That said, downside risks are significant given ubiquitous governance weaknesses and corruption vulnerabilities which are likely to influence implementation. Together with the unresolved political crisis and grave security conditions, risks to the program are very high. STAFF-MONITORED PROGRAM The proposed SMP would help strengthen fiscal and monetary policy frameworks, support efforts to reduce inflation and raise growth, address some governance weaknesses, take concrete steps to strengthen social assistance, and build administrative and institutional capacity. A. Fiscal Framework and Short-Term Strategy 7. Financing constraints and weak revenue mobilization drive the fiscal stance. With the goal of reducing inflationary financing of the deficit to restore macro stability, the fiscal stance is dictated mainly by the availability of financing. A tax-to-GDP ratio of only 5.8 percent in FY2022 and higher-than-expected domestic amortization of 0.8 percent of GDP has necessitated combined cuts in non-subsidy-related current spending and domestically-funded capital expenditures by 1.2 percent of GDP in order to contain gross fiscal financing needs. Fuel subsidy costs are expected to rise by about 0.5 percent of GDP in FY2022 due to higher world prices. While the non-subsidy spending cuts help lower the projected deficit to 1.5 percent of GDP in FY2022 from 2.4 percent of GDP in FY2021, it provides space to allocate funds equivalent to 0.15 percent of GDP on social programs to mitigate the impact of the December 2021 fuel price increases on vulnerable groups. The modest rise in revenue collection would allow domestically-funded capital spending to rise to 1.5 percent of GDP by FY2025 which should help support positive growth while stabilizing the deficit 1 Staff plan to extend the analysis in the original CES to deepen the understanding of the sources of fragility in Haiti, in consultation with the authorities, to better inform Fund policy and technical advice. An updated CES is expected before the end of the SMP. HAITI INTERNATIONAL MONETARY FUND 7 at about 2.8 percent of GDP in the medium-term. In the event of a shortfall in projected external budget support, the program includes adjustors on quantitative targets (QT, see ¶29). 8. The modest mobilization of revenues together with moderately higher budget support over the next few years will create some space for more productive spending. The government announced in December 2021 they would resume the 1995 law allowing petroleum product prices to adjust regularly to changing world prices: kerosene and diesel prices rose from 163 and 169 HTG per gallon to 352 and 353 HTG, respectively―a level that at the time covered costs, margins, and statutory taxes―while the price of gasoline was raised by 25 percent from 201 to 250 HTG (US$2,50) per gallon. However, as the 1995 law did not include a price smoothing mechanism, subsequent large world price increases were not passed on. The authorities indicated they are not able to adjust prices for the foreseeable future given the additional hardship imposed on the population by higher imported food prices that, together with the difficult security situation, could fuel social unrest. Given the very high uncertainty surrounding the likelihood and timing of this reform, and to be prudent, the SMP baseline scenario does not assume any changes in fuel price policy henceforth. 9. Revenue mobilization is a key priority for FY2022. In addition to the gradual application of fuel excises (¶12), the authorities will increase excises on tobacco, alcohol and other goods―as proposed in a draft Tax Code to be finalized by September, and implement a series of administrative measures, including strengthening the use of the tax identification number (TIN) and cleaning up taxpayers' portfolios. The authorities emphasized that, given the narrow tax base consisting mainly of a few large taxpayers and imports transiting through the capital’s port and airport, raising revenue will depend on the security situation and longer-term efforts to broaden the tax base. While special regimes will be revised in the new Tax Code, including by eliminating some exemptions, a few existing incentives will likely be grandfathered and removing large scale exemptions on necessities will remain difficult. As such, there is limited short term revenue potential through removal of exemptions. Source: National Authorities and IMF staff calculations. HAITI 8 INTERNATIONAL MONETARY FUND 10. Monetary financing will be reduced to help lower inflation and restore macro stability. A lower deficit but higher domestic debt reimbursement in FY2022 leads to gross financing needs estimated at 2.9 percent of GDP in FY2022 compared to 3.4 percent of GDP in FY2021. With about 0.8 percent of GDP covered by domestic borrowing and project loans, BRH financing is estimated at about 2.2 percent of GDP, of which 0.7 percent of GDP will be fully sterilized by issuance of central bank bills or sales of foreign exchange (FX), if needed. This will ensure that BRH financing of the government in FY2022 is contained at 1.5 percent of GDP, the level consistent with staff estimates of non-inflationary monetary financing (assuming money grows at or less than the rate of nominal GDP over the medium-term). In FY2023 and later years, central bank financing is projected to stabilize around 2 percent of GDP, reflecting a prudent estimate of demand for BRH securities by domestic banks. In the event of an adverse shock, the authorities would need to take contingency measures, including mobilizing additional external support. 11. Public debt is sustainable with “high risk of distress” and debt carrying capacity is rated “medium”. Although the GDP rebasing lowered by almost half the debt-to-GDP ratio, slightly higher primary deficits over the medium term, funded by a gradual increase in external concessional financing against the background of subdued export growth, brings the present value of public and publicly guaranteed external debt as a share of exports into the “high” range of debt distress thresholds in the joint IMF-World Bank DSA (Annex II). A low primary deficit, dampened by the real interest rate/growth differential, and slower exchange rate depreciation—driven by lower inflation in the medium term—contribute to improved debt dynamics. Debt carrying capacity is unchanged at “medium” and the debt outlook remains subject to important risks and vulnerabilities. 12. The authorities will start implementing structural fiscal reforms to raise revenues over the medium term (¶9). Drawing on past Fund TA, the authorities will start to tackle the structural decline in revenue collection. As structural benchmarks (SB) under the program, the authorities will proceed with stakeholder consultations on a new draft Tax Code (Code général des impôts) and Tax Procedure Code (Livre de procédure fiscale)—prepared with Fund TA—and finalize them (end- September 2022 SB). Through the same consultation process, they will also finalize and publish the Customs Code and tariffs (end-September SB). These codes will simplify the tax system, making it more transparent and thus less prone to governance abuses. Given the imperative of expanding Haiti’s tax base, the authorities will also systematize the use of tax identification numbers among financial agencies, including the tax, customs and treasury departments (end-September SB). They plan other broader revenue administration reforms identified by TA experts, although payoffs are expected only in the longer-term since these involve the adoption of a medium-term reform plan aimed at modernizing both tax and customs agencies, strengthening the core tax and customs functions, and making intensive use of technology and data matching. HAITI INTERNATIONAL MONETARY FUND 9 13. Public financial management (PFM) reforms are necessary to reduce the scope for misuse of public funds and strengthen the quality of spending. The government adopted a budget for FY2022 that is consistent with agreed targets under the SMP. The treasury single account (TSA) will be broadened to include all bank accounts of the central budgetary units, including emergency funds, thus improving controls and lowering borrowing costs (end-September SB). Foreign-financed resources should be brought into the TSA over the medium-term. The authorities will also prepare a medium-term budget framework (MTBF) for FY2023–2025, with the NFPS deficit target the main anchor (end-September SB). The MTBF, which will be an annex to the FY2023 budget, will strengthen management of public investment. Reforms on the TSA and MTBF will continue to be supported by Fund TA until at least September. Finally, in line with their commitment at the time of the RCF disbursement, the authorities published the audit on COVID-19 spending on June 9, 2022. Based on a preliminary review, the Superior Court of Accounts and Administrative Disputes (CSCCA) paints a very negative view of the government’s planning, management, and coordination of COVID-related spending, in particular flagging a lack of supporting documentation from the Ministry of Finance and other government agencies which impeded the Court’s ability to render a full opinion. Nonetheless, the audit quality was adequate, reflected the willingness of the government to expose its weaknesses, and highlighted PFM issues in need of improvement. The authorities should indicate what and when they intend to address the questions and recommend- ations laid out by the Court and staff will review these issues at the time of the first review. 14. The authorities agreed to report transparently on the use of the SDR allocation. Prior to converting about half of their SDR allocation into freely usable currencies, the staff engaged with the authorities on best practices as laid out in the Fund Guidance Note. The BRH and Ministry of Finance signed a memorandum of understanding consistent with domestic legal and institutional frameworks, clarifying the obligations of each party arising from the use of the SDR allocation for fiscal purposes. The authorities agreed to report transparently on any future use of SDRs. B. Fuel Market Reform and Social Assistance 15. The authorities initiated reform of the fuel sector in late-2021. The fuel import monopoly granted to the government agency Bureau de Monétisation des Programmes d'Aide au Développement (BMPAD) was withdrawn last November, allowing imports to be allocated through a competitive bidding process managed by the Ministry of Economy and Finance (MEF). The premium over an internationally recognized price index determines the winning bid and any fuel distributor can import at or below the winning premium or obtain supply from the winning bidders. Fuel prices were raised in December but the authorities have not made adjustments since then. In addition to the reasons cited above (¶8), they said more time is needed for the compensating measures (see below ¶16) recently launched to take effect. They stated they intend to eventually eliminate fuel subsidies when conditions permit. 16. As noted above, measures are being implemented to mitigate the impact of December fuel price reforms on vulnerable groups. While the top income quintile absorbs over 90 percent of the fuel subsidy benefits, price increases affect the transport industry directly and lower income groups indirectly through higher food prices (World Bank). Resistance to reform from the transport HAITI 10 INTERNATIONAL MONETARY FUND sector has been strong. This time the authorities have been working with transport unions to design a support package, including identifying all eligible vehicles. They are allocating resources equivalent to 0.15 percent of GDP over the next four months to social benefits under the Programme d’urgence comprising the distribution of hot meals, expansion of the school canteen program, school bonds for 50,000 low-income parents, acquisition of 100 new school buses, and fuel vouchers for the vehicles registered on the main transport routes. The voucher system is expected to allow designated participants access to a certain number of gallons at discounted prices and will be managed in coordination with fuel distributors, who will in turn be reimbursed by the government. Some of the mitigating measures listed above may be continued after September. 17. Preparing the groundwork for fuel price reform should be a top priority of the government. Staff stressed that Haiti’s fuel price policy is inequitable and grossly inefficient. The highest income groups absorb most of the benefits while the subsidy costs have averaged between 2-3 percent of GDP annually since 2019. This crowds out productive spending on investment, health, education, and law and order, and results in a gross misallocation of scarce resources. Preparations should include communicating about the costs and tradeoffs, who benefits from subsidies, the new assistance programs to compensate the groups most affected, and the eventual strategy to exit the country from this no growth trap. The communication strategy should explain the eventual reform strategy, including adoption of a price smoothing formula that would gradually adjust prices to reduce the subsidy while protecting the public from sharp price swings. With domestic revenue collection at under 6 percent of GDP and development partners hesitating to provide budget support to fund wasteful spending on fuel subsidies, a viable medium-term fiscal and growth outlook for Haiti, including under a Fund-supported program, is difficult to envision without addressing this flaw. 18. The government will define the action plan to implement the new Politique Nationale de Protection et de Promotion Sociale (PNPPS). The system of social protection is fragmented by a large number of different programs, agencies, and international providers that together constitute a patchwork of social assistance with limited coverage and effectiveness, including due to the volatility of external funding (Country Report 20/122). Over time, the mandate of MAST was either duplicated or sidelined by extra-budgetary activities, including at the request of international donors who sought to limit governance risks in the execution of programs. Unfortunately, this undermined the government’s ownership of social policy, weakened capacity at the MAST, and resulted in disjointed strategy with weak outcomes relative to amounts spent. To address this, the government prepared the PNPPS with assistance from development partners and involving an inclusive national consultation process. They committed to preparing this year an action plan for its implementation. 19. The authorities aim to integrate, expand, and better coordinate social programs in line with the PNPPS. Under the SMP, the authorities have identified on-budget all public spending on social programs, including those executed by the off-budget Fonds d'Assistance Economique et Social (FAES). In that way, the program supports the aim of centralizing the design and implementation of social policy at the MAST over the medium-term. It also includes as a QT a floor for budget allocations for social spending purposes based on currently identified programs. This should support capacity building, ownership, and the effectiveness of Haiti’s overall strategy under the PNPPS. In the HAITI INTERNATIONAL MONETARY FUND 11 short term, other agencies will remain involved to support implementation of programs, including notably to expand the SIMAST database of beneficiaries used to identify target populations, a program supported by the WFP and World Bank, and to finance monetary transfers and support measures under the programs Klere Chimen and at the Bureau du secrétaire d’état à l’inclusion des personnes handicapées (BSEIPH), both projects supported by the World Bank. 20. Greater coordination under the MAST will involve increasing the transparency of operations at FAES. Launched primarily to coordinate external aid on social and education projects, it has become an execution agency of other ministries’ domestic resources with limited to no oversight or accountability. Its governing board has not convened for years and its resources and programs have not been subject to documentation or public review since the Petrocaribe audit. As a benchmark under the SMP, the authorities will provide quarterly and annual financial statements of FAES and the board will re-convene before June 2022 and meet regularly thereafter (quarterly SB). All domestically funded social program resources would also be transferred back to the MAST in the 2023 budget (end-September SB) and all externally funded resources of the FAES should be included in the budget in the medium term. C. Monetary and Exchange Rate Policy 21. The BRH will take steps to strengthen the monetary policy framework in a context of a more flexible exchange rate regime. Monetary policy has been passive in a context of fiscal dominance. The interest rate channel is weak, real interest rates are negative, and required reserve ratios relatively high. To anchor monetary policy, the BRH committed to: (i) adopting a ceiling on credit to the NFPS as the main anchor to limit monetary financing of the deficit to 1.5 percent of GDP in FY2022 and about 2.0 percent of GDP thereafter; and (ii) conducting short term liquidity operations at a fixed rate with full allotment, including at seven-days, to manage excess liquidity in the banking system and strengthen the policy transmission. As the ceiling for BRH financing to the government does not include an adjustor for shortfalls in external budget support (¶29), the authorities will need to raise financing from other domestic sources or externally on concessional terms to cover any shortfall in external budget support. Any monetary financing above the level agreed under the SMP framework (1.5 percent of GDP in FY2022 and 2.0 percent of GDP thereafter) would be sterilized, including through FX interventions if necessary. To ensure that fiscal dominance is reduced, staff recommended revising the Pacte between the ministry of finance and BRH to reflect the targets agreed under the program. Overall, this approach would help the BRH resist pressures to finance the government excessively or intervene in the FX market unduly. 22. The authorities are working on deepening the financial markets. The BRH has initiated reforms to deepen the government securities market; develop the inter-bank money market with new facilities, including overnight lending facilities, open market operations, repos, and reverse repos; and enhance domestic savings instruments. Deepening the securities market will provide an alternative source of funding to the treasury and a more effective conduit for monetary policy. While new money market facilities could help the BRH manage liquidity conditions, staff consider that the design and use of these instruments, such as collateral policies and liquidity forecasts, would benefit from in-depth discussion with Fund TA experts to ensure that they do not: (i) undermine the HAITI 12 INTERNATIONAL MONETARY FUND incentives for banks to manage their risks; (ii) expose the central bank balance sheet to credit, market and liquidity risks; and (iii) create impediments to the functioning of the money market. While the authorities agreed to continue implementing TA recommendations on strengthening the quality of monetary statistics, staff stressed that more timely transmission of monetary data will be necessary for program monitoring. 23. The BRH should limit interventions in the FX market to smoothing excessive volatility of the exchange rate. Haiti’s external position is assessed to be broadly in line with medium-term fundamentals and desired macroeconomic policies (Annex III). Since the sharp appreciation in the gourde/dollar rate in the second half of 2020, the BRH has managed an orderly exchange rate adjustment, intervening to calm market pressures when there were large current account transactions while using prudential measures, including reserve requirements, to limit banks’ vulnerability to FX liquidity risk. After narrowing from an estimated 25 percent in March 2021 to about 4 percent at end-2021, the parallel market premium widened to an estimated 12 percent by end-March. Under the SMP, the BRH will adopt a floor on net international reserves (NIR) and committed to limiting FX interventions to smoothing volatility, thereby allowing the exchange rate to serve primarily as a shock absorber. 2 The authorities agreed that an FX market intervention rule, with pre-defined targets, could enhance the transparency of interventions and encourage banks to manage their liquidity in a more forward-looking way. 24. The authorities concurred with staff on reforms needed to strengthen the functioning of the FX market. In consultation with IMF experts, the BRH stated it would prepare a roadmap of FX market reforms under the SMP to: (i) put in place appropriate mechanisms for FX interventions such as well-designed weekly FX auctions in lieu of the foreign exchange allocation system; 3 (ii) 2 Consistent with the proposed adjustor on the fiscal targets, the NIR target would be adjusted only in the event of a shortfall in external budget support. 3 BRH interventions on FX market are based on foreign exchange allocation techniques, used to provide FX for strategic imports, such as oil or food, when FX reserves are scarce, with BRH reference rate a weighted average of the interbank market rate (60 percent) and the informal market rate (40 percent). Source: BRH and IMF staff calculations. HAITI INTERNATIONAL MONETARY FUND 13 review limits on banks' net open FX positions; and (iii) revise FX regulations and phasing out FX surrender requirements over the medium term, including those introduced by Circular 114-2. 4 This roadmap would facilitate the management of a market-determined flexible exchange rate and help gradually eliminate the spread with the parallel market while promoting external competitiveness. Staff are examining if the FX regulations give rise to exchange restrictions or multiple currency practices (MCPs). The authorities have committed to not impose or intensify restrictions on the making of payments and transfers for current international transactions, and not introduce or modify MCPs. D. Financial Sector Policies 25. While reforms to increase financial inclusion and growth are advancing, monitoring of banks’ financial situation remains crucial. As noted earlier, the banking sector remains small relative to the economy and the population is largely unbanked. However, small non-bank financial institutions have been expanding and the BRH has been strengthening supervision of this sector, including with the assistance of Fund TA to upgrade the regulatory framework and move to risk- based supervision. Measures taken to support the sector at the beginning of the COVID-19 pandemic, now removed, contributed to supporting banks’ portfolios together with a moderate accumulation of government securities. Over the next twelve months, the authorities’ program has three key components: • Banking supervision. On January 13, the BRH adopted seven new draft banking regulations— prepared with the IMF expert on risk-based banking supervision—covering consolidated supervision, licensing rules, authorizations of changes in the status of financial institutions, minimum capital requirements, reporting obligations of financial institutions, and IT Security. Three additional draft regulations related to credit classification and provisioning, credit risk concentration, and institutions’ charts of account are expected after consultations with stakeholders. The BRH has committed to implementing these new regulations while continuing to establish a risk-based supervision framework. • Digital money. The development of fintech offers potential for increasing financial inclusion and growth, but requires an upgrade of the regulatory framework which is bank-centric and lacks an updated national payment system. Mobile money operators need to partner with a supervised bank to offer their services but are not subject to specific guidelines. The BRH is receiving support from specialized firms and has requested Fund assistance to provide guidance on the ongoing exploration of a retail central bank digital currency (CBDC). Staff stressed that a cautious approach is needed given the need for strong internal oversight which is not fully established at the BRH. The authorities will also work on modernizing the migration to new international 4 The BRH issued Circular 114-2 in September 2020 mandating banks and money transfer companies: (i) exchange dollar remittances into gourdes for persons not holding US dollar bank accounts; (ii) convert all dollar remittances into gourdes at the BRH reference rate, a less favorable rate; and (iii) for money transfer companies, to sell 30 percent of FX purchased to the BRH and 40 percent to banks―which themselves were/are not allowed to keep a net open FX position above 0.5 percent of equity. HAITI 14 INTERNATIONAL MONETARY FUND messaging standards that would promote interoperability and financial integrity, and new laws to protect privacy and fight cyber-crime. • Anti-money laundering (AML/CFT). The Caribbean Financial Action Task Force’s identified widespread deficiencies in Haiti’s AML/CFT framework, and the Financial Action Task Force (FATF) added Haiti to its grey list as a jurisdiction under increased monitoring. Staff and the authorities agreed on the urgent need to revise the law against regarding AML/CFT. With TA from the IMF, the BRH will bring it into compliance with FATF international standards for approval by end- March 2023 (end-March SB). These legislative revisions should be part of a larger plan to address legal and institutional AML/CFT deficiencies― necessary to exit the FATF’s grey listing process and build an effective framework. E. Governance 26. Most measures under the SMP focus on, or include elements of governance and anti- corruption reforms (Table 3). With Fund TA, the authorities published a decree in November 2021 outlining the transparency requirements for public procurement contracts, including the publication of tenders, contracts, and the beneficial owners of successful bidders. Staff will be monitoring implementation of the decree as a continuous SB under the program. As constitutional reform in Haiti is under consideration at some point in the future, the authorities committed to ensuring that the law governing the CSCCA guarantees the functioning of this court in accordance with international standards applicable to supreme audit institutions. They also requested a Fund Governance Diagnostic which they expect to publish. Finally, the authorities are working to finalize the reform of anti-corruption laws to ensure compliance with the United Nations Convention against Corruption. 27. In line with the 2019 safeguards assessment recommendations, the SMP puts emphasis on reforms to enhance central bank autonomy and improve its governance and accountability. These include: (i) the approval by the BRH Board of Directors of the draft amendments to the central bank law prepared in consultation with Fund staff (end-September SB) and (ii) completion and publication of the BRH external audit and financial statements for 2021 (end-June SB). Staff also urge the BRH to expedite transition to International Financial Reporting Standards, already supported by Fund TA, and resume required efforts to strengthen the independence and modernization of the internal audit and control functions. Staff will monitor implementation of other recommendations from the 2019 safeguards assessment, including the reestablishment of the Audit Committee of the BRH Board and implementation of the measures put in place prior to the RCF disbursement to strengthen governance of foreign reserves management. F. Climate Change and Poverty Reduction 28. Haiti is vulnerable to natural disasters and climate change. Soil erosion and environmental degradation has increased vulnerabilities, threatening economic and financial stability and affecting productivity, growth, livelihoods, and food security. In this context, the authorities hope to initiate a diagnosis of climate hazards and risks with assistance from the World Bank and HAITI INTERNATIONAL MONETARY FUND 15 IMF to better integrate climate policies into macroeconomic frameworks. The immediate priorities of the program to restore macro stability and raise revenues for the basic functioning of the state will serve in parallel as a necessary condition to launch a climate resilience and recovery plan. 29. The protracted political and security crisis has exacerbated poverty conditions in Haiti. As noted above, the SMP is focused in the short term on building social and macroeconomic stability and restoring growth, conditions necessary to sustain policies and start raising the resources needed to reduce poverty. Alongside efforts to extend the social safety net, the authorities have committed to better coordinate aid and strengthen its effectiveness in reducing poverty by increasing capacity at MAST and starting to build a cohesive and impactful social safety net. G. Program Monitoring 30. Quantitative targets (QTs). Periodic QTs are presented in Table 1 below and comprise: (i) a floor on the NFPS primary balance; (ii) a ceiling on BRH net credit to the NFPS; (iii) a floor on NIR; (iv) a floor on budget allocations to MAST for social expenditure; and (v) continuous QTs of a zero ceiling on non-concessional external borrowing and on domestic and external arrears accumulation. A floor on central government fiscal revenue is set as an indicative target (IT). The QTs include an asymmetric adjuster on the NFPS primary balance and NIR for shortfalls in expected external budget support, allowing the government to spend the surplus given the need to increase productive spending and the findings of Haiti’s debt sustainability analysis that public debt is sustainable (DSA, Annex II). There is no adjustor on BRH net credit to the NFPS. The test dates are set at end-June and end-December 2022. ITs will apply to September 2022 and March 2023. 31. Structural benchmarks (SBs). The proposed program includes two prior actions (Table 2). In addition, the program has identified SBs that are achievable in the short term, serve as important stepping-stones towards more fundamental reforms to be undertaken in the context of a UCT-level program (Table 3), and that reflect Haiti’s capacity constraints and political challenges. For most of the proposed SBs, considerable background work has already been prepared, with long-running TA support from the Fund, which should facilitate implementation. The proposed SBs focus on setting up a sound policy framework for stability, steps to strengthen revenue mobilization, PFM measures to improve budget controls and reporting, and governance measures to strengthen institutions or raise accountability on the use of public resources. In the area of social policy, the team has coordinated closely with key partners (WFP, World Bank, IDB) and the authorities on the design of SBs with the aim of promoting implementation of the PNPPS, taking steps to build the required infrastructure and legal framework to permit cash transfers using existing beneficiary identification, and for advancing progress to launch a universal social benefit. STAFF APPRAISAL 32. Political and economic conditions in Haiti have been extremely difficult in recent years but the authorities are determined to advance stability and reform. They have worked to increase transparency and governance in public procurement and the fuel sector, and took a first HAITI 16 INTERNATIONAL MONETARY FUND step toward tackling the fundamental crack in the fiscal foundation related to fuel prices. Unproductive spending in the face of low revenues and external financing has led to a vicious circle of monetization of the deficit, inflation, currency depreciation, higher fuel subsidy costs, and so on. As external partners are reticent to fund unproductive and inequitable spending on fuel subsidies, a sustainable medium-term outlook is hard to envision without tackling the source of this destructive dynamic. To pave the way to a UCT-quality Fund-supported program, it will be important to take steps toward addressing the cost of fuel subsidies in a sustainable manner and in a way that protects the most vulnerable. The authorities intend to move the economy off this merry-go-round as soon as conditions permit and, supported by the SMP, hope to start a cycle of productive spending, revenue raising, growth and poverty reduction. 33. The proposed SMP takes steps to launch a virtuous cycle. The program includes reforms to raise revenues and improve the management of public resources while making some room for much-needed spending on health, education, social assistance, infrastructure and security. The authorities’ program makes room to compensate vulnerable groups to help them adjust to recent fuel price increases. In addition, their program includes efforts to start boosting tax and customs collection and improving the productivity of current spending. These efforts are expected to be supported moderately by Haiti’s development partners. 34. Better budget management and revenue administration would promote macro stability, a necessary condition for growth and poverty reduction. This would permit a greater degree of monetary policy independence, giving the central bank the flexibility to focus on its core policy objectives: stabilizing prices while maintaining adequate liquidity and stable financial conditions to accommodate growth. Meeting the program objectives of reducing BRH credit to the NFPS, maintaining NIR levels, and bringing inflation down would be major first steps toward a more sound future. Lowering inflation is a critical social policy objective since it helps improve the purchasing power of the poor. 35. Providing social relief up front to alleviate the hardship of widespread poverty is vital to building support and launching growth. In addition to lowering inflation, the authorities’ program sets several benchmarks in support of the PNPPS and strengthening the social safety net. Over the next year, budget resources to support social spending, including for the Programme d’Urgence and allocations to MAST and SIMAST will be assured under the SMP, enabling the authorities to assist vulnerable populations. 36. Governance and anti-corruption measures are key components of virtually all reforms in the program. This includes steps to strengthen accountability in the collection and use of public resources, including with extra-budgetary agencies, raise the transparency of public procurement, strengthen governance at the central bank, and bring AML/CFT laws up to international standards. This emphasis is important to start building the trust of the public and that of development partners. 37. The financial and business environment would benefit from macro stabilization, greater political stability and restoration of law and order. Social, political, and economic uncertainty has harmed the business environment in Haiti, discouraging investment and HAITI INTERNATIONAL MONETARY FUND 17 employment. Fiscal and macroeconomic stability aims to promote a recovery in revenues to allow spending on the provision of the most basic goods and services, including on law and order. The deterioration in security conditions now poses the main obstacle to private sector growth. 38. Fund staff support the authorities’ request for an SMP but downside risks are very high. The authorities implemented the two prior actions, reinforcing a commitment to reform. The program takes account of the sources of Haiti’s fragility identified in the first CES and has integrated these constraints into the formulation of realistic and tailored measures that can deliver some quick wins. The program also incorporates ongoing TA projects that are intensively synced with program goals and priorities, such as TA on budget formulation, tax reform and central bank governance. The program also reflects extensive collaboration with development partners to ensure that efforts are leveraged for maximum impact, including for example in the design and focus of social policy recommendations. That said, downside risks are significant, not least related to political fragility and the difficult security conditions that impede economic activity. In this regard, staff urge the authorities to communicate and raise awareness about the objectives of their economic program in order to build ownership and public support and raise the probability of its success. HAITI 18 INTERNATIONAL MONETARY FUND Table 1. Haiti: Quantitative and Indicative Targets, June 2022–March 2023 1/ (In millions of Gourdes, unless otherwise indicated) HAITI INTERNATIONAL MONETARY FUND 19 Table 3. Haiti: Proposed Structural Benchmarks for SMP Table 2. Haiti: Proposed Prior Actions for SMP HAITI 20 INTERNATIONAL MONETARY FUND Figure 1. Haiti: Real Sector Developments, 2015–22 1/ Real GDP contracted for the third consecutive year in FY2021, declining by 1.8%... …and reflecting, for the most part, a sharp decline in investment by over 21 percent, ... … and negative growth in all key sectors, particularly in agriculture, … … resulting in a sharp widening in the output gap (to 1.8 percent of potential) and increase in unemployment. Inflation rose sharply in late-2021 and-early 2022, recording 1.6 percent (m/m) and 25.9 percent (y/y) in March … …with sharp increases in the cost of food and beverages, utilities, housing, fuel and transport. Sources: National authorities; World Bank; International Labour Organization (ILO) and IMF staff calculations. 1/ Data are in fiscal years, ending September 30. 2/ Unemployment, total is the modeled ILO estimate. HAITI INTERNATIONAL MONETARY FUND 21 Figure 2. Haiti: Fiscal Sector Developments, 2015–22 1/ While tax revenue has collapsed and remains one of the lowest in the world as a share of GDP… … it is hard to see expenditures fall any further without jeopardizing the most basic functions of the State. The deficit is not high given the output gap, but has been driven by inequitable and unproductive fuel subsidies …. ... without any sources of financing, leaving the central bank to cover most of the financing need. This has put pressure on inflation and the exchange rate, and led to higher domestic debt. The fuel price hike in December provided short-lived fiscal relief. Source: National authorities and IMF staff calculations. 1/ Data are in fiscal years, ending September 30. 2/ External financing includes project loan disbursements and external arrears net of amortization. 3/ Non bank financing includes domestic supplier credits and domestic arrears. HAITI 22 INTERNATIONAL MONETARY FUND Figure 3. Haiti: Monetary Sector Developments, 2015–22 1/ BRH financing of the government rose in FY2021, pushing up inflation… … as liquidity from the banking system stabilized. Private sector credit picked up but lending in gourdes retreated. Lending rates are volatile and periodically decouple from the BRH policy rate. Dollarization of deposits and credit has been stable in terms of the constant exchange rate… … while excess structural liquidity in the banking system is rising somewhat. Source: National authorities and IMF staff calculations. 1/ Data are in fiscal years, ending September 30. HAITI INTERNATIONAL MONETARY FUND 23 Figure 4. Haiti: Financial Sector Indicators, 2015–21 1/ The banking system has adequate reported capital buffers... …but relatively high NPLs and related provisions. Profitability has recovered since the exchange rate shock of August 2020 and has been stable since …. … while liquidity conditions remain favorable. Source: National authorities and IMF staff calculations. 1/ Data are in fiscal years, ending September 30. HAITI 24 INTERNATIONAL MONETARY FUND Figure 5. Haiti: External Sector Developments, 2015–22 1/ The trade deficit declined somewhat as a percent of GDP in 2020-2021 as imports weakened … … while remittances (in percent of GDP) have returned to pre-pandemic levels, they remain strong. The current account weakened against the background of lower FDI… … and declining official assistance, although donor support jumped following the August earthquake. The REER depreciated after its sharp appreciation in September 2020, though it has recently trended upward. Foreign reserves coverage remains stable, but NIR has been declining with rising external liabilities to banks. Source: National authorities and IMF staff calculations. 1/ Data are in fiscal years, ending September 30. HAITI INTERNATIONAL MONETARY FUND 25 Figure 6. Haiti: Social Indicators Political instability and security problems have taken a heavy toll on Haitian society …. …and has reversed since 2018 the small progress made at reducing poverty. The absolute number of people undernourished has reached historic highs …. … although the undernourished as a percent of the population has been fairly steady since 2010. “Sanitation rates” (World Bank) are well below those for FCS states … … although youth literacy is significantly above the FCS average and close to the world average. Sources: FAO, World Bank, World Development Indicators, and IMF staff calculations. 1/ Data was extracted from the World Bank, Macro Poverty Outlook - April 2022. Data is not available from 2013 to 2017. HAITI 26 INTERNATIONAL MONETARY FUND Table 4. Haiti: Selected Economic and Financial Indicators, FY2019–25 1/ (Fiscal year ending September 30) HAITI INTERNATIONAL MONETARY FUND 27 Table 5a. Haiti: Non-Financial Public Sector Operations, FY2019–25 (Fiscal year ending September 30; In millions of Gourdes) [... middle sections omitted for long document ...] HAITI INTERNATIONAL MONETARY FUND 83 payment of bills from independent producers for the purchase of fuel, which are the counterpart of EDH arrears for unpaid generation bills. Under the Staff-Monitored Program, transfers from central government are recorded under operations “above the line,” while letters of credit and financial receivables are entered under the operations “below the line.” 7. Non-financial public sector (NFPS). The NFPS includes the central government, special funds and programs (defined in paragraph 3), other autonomous state organizations of an administrative, cultural, or scientific nature, including the FAES and the BMPAD (paragraphs 4 and 5), EDH (paragraph 6), the Civil Service Pension Plan and the National Old Age Insurance Office (ONA), and local governments. 8. Public sector (PS). The public sector comprises the nonfinancial public sector, state- owned banks, and nonbank financial SOEs (enterprises over 50 percent state-owned), and the BRH. 9. Budgetary grants. Budgetary grants are grants received from Haiti’s bilateral or multilateral partners (including the European Union, the Inter-American Development Bank, the World Bank, the Caribbean Development Bank, and bilateral donors) for general or sector budget support purposes. B. Quantitative Targets (QT) 10. The implementation of the program will be monitored using the following indicators. Unless otherwise indicated, all QTs will be assessed in terms of cumulated flows from a reference date set at the end of the previous fiscal year (e.g., for fiscal year 2021-2022 the reference date is end-September 2021), as specified in Table 1 of the Memorandum on Economic and Financial Policies. 11. Program exchange rates. For the purposes of the program, all assets, liabilities, and flows denominated in foreign currency will be valued “at the program exchange rates,” as defined below, with the exception of elements that affect the government’s budgetary accounts, which will be evaluated at current exchange rates. For the purposes of the program, it has been agreed to use the following exchange rates: HTG 100.0123/US$ (BRH reference rate as at December 16, 2021), US$1.133600/EUR and SDR 0.7154070/US$ (rates as at December 16, 2021 published by the IMF on its website - https://www.imf.org/external/np/fin/data/param_rms_mth.aspx). Net Central Bank Credit to the Nonfinancial Public Sector 12. Net central bank credit to the nonfinancial public sector is defined as the difference between BRH assets and liabilities vis-à-vis the nonfinancial public sector (net claims on the public sector) according to Standardized Report Forms 1SR or 2SR reported by the BRH to the IMF. This includes the net BRH credit to central government and net BRH credit vis-à-vis the rest of the nonfinancial public sector. The calculation of the net BRH credit to the nonfinancial public sector is shown below as of September 30, 2021. HAITI 84 INTERNATIONAL MONETARY FUND Components of Net Central Bank Credit to the NFPS (In millions of gourdes) September 2021 Net central bank credit to the nonfinancial public sector 160,047,059.23 Net credit on central government 162,196,977.99 Claims on central government 200,791,090.44 Deposits by government 38,777,196.75 Deposits in current accounts 26,730,369.21 Sight deposits (HTG) 7,073,003.48 Sight deposits (US$) 19,657,365.73 Securities seized UCREF 594.75 Sundry accounts payable 636,307.08 Certified checks 329,125.56 Certified bank checks 25,041.45 Foreign Debt Special Fund 55,669.97 Treasury special accounts 6,762,697.60 Civil pension – investments transaction 375,029.84 IMF debt relief after disaster 2,410,591.87 Minus: Deposits from autonomous agencies (ONA) 276,996.07 Net credit to the rest of the nonfinancial public sector -2,149,918.76 Claims on the rest of the nonfinancial public sector 610,420.96 Deposits by the rest of the nonfinancial public sector 2,760,339.72 Deposits by autonomous agencies (ONA) (HTG and US$) 276,996.07 Local government deposits (sight deposits and certified checks) 489,202.33 Deposits by state-owned enterprises (sight deposits in gourdes and US$ and certified checks) 1,994,141.32 Net International Reserves 13. The gross international reserves of the central bank are those external assets that are readily available to and controlled by monetary authorities for meeting balance of payments financing needs, for intervention in exchange markets to affect the exchange rate, and for other related purposes such as maintaining confidence in the currency and the economy, and serving as a basis for foreign borrowing. Reserve assets must be foreign currency assets and assets that actually exist. All contingent assets are excluded. Underlying the concept of reserve assets are the notions of ‘availability for use’ and ‘control’ by the monetary authorities. 1 The gross international reserves reported by the BRH from Standardized Report Forms 1SR or 2SR must conform to this definition. They include monetary gold, liquid assets, including holdings of Special Drawing Rights (SDRs), and IMF reserve position. Swaps in foreign currency with domestic financial 1 See Balance of Payments Manual, http://www.imf.org/external/pubs/ft/bop/2007/bopman6.htm and Guidelines for a Data Template http://www.imf.org/external/np/sta/ir/IRProcessWeb/pdf/guide2013.pdf. HAITI INTERNATIONAL MONETARY FUND 85 institutions and pledged or otherwise encumbered reserve assets are excluded from gross international reserves. 14. The net international reserves of the BRH are defined as the gross international reserve of the BRH, minus (i) gross external liabilities excluding allocations of special drawing rights and liabilities related to Haiti’s participation in the capital of international financial institutions, (ii) foreign currency deposits of commercial banks at the BRH (sight deposits in US dollars and euro from BCM to BRH, and the CAM transfer), (iii) commitments related to foreign currency swap transactions, (iv) special foreign currency accounts, and (v) project accounts, all from Standardized Report Forms 1SR or 2SR with the exception of the balances of the IMF accounts (SDR holding, reserve position in the IMF, and liabilities to the IMF), which come from the IMF Finance Department. The calculation of BRH net international reserves is illustrated below. Calculation of BRH Net International Reserves (In thousands) September 2021 (gourdes) September 2021 (US$) 1 BRH gross international reserves Gold holdings 9,880,753.71 98,795.39 Foreign currency 5,998,299.64 59,975.62 Foreign sight deposits 24,302,710.70 242,997.22 Investments abroad 189,797,159.80 1,897,738.18 SDRs holdings (according to IMF books) 13,972,219.51 139,705.01 IMF reserve position (based on IMF books) 2,818,820.50 28,184.74 Minus: Foreign liabilities 70,137,904.62 701,292.79 Of which: Foreign liabilities (excluding liabilities related to Haiti’s participation in the capital of international financial institutions) 8,518,510.82 85,174.63 Debt service payment to PDVSA 42,558,855.10 425,536.21 Off-balance-sheet foreign currency liabilities 1,460,675.36 14,604.96 Liabilities to the IMF (based on IMF books) 17,599,863.34 175,976.99 Minus: Deposits in foreign currency 129,098,781.43 1,290,829.04 Minus: Foreign currency swap transactions 6,002,703.60 60,019.65 Minus: Special accounts in foreign currency 133,391.45 1,333.75 Minus: Project accounts 67.74 0.68 Net international reserves of the BRH 41,397,115.02 413,920.24 1 Exchange rate: HTG 100,0123/US$ 15. Interventions of the BRH in the foreign exchange market are defined in the Memorandum of Economic and Financial Policies. 16. If budgetary grants are lower than expected the floor on net international reserves will be adjusted downwards by the amount of the difference in question. Conversely, the floor will HAITI 86 INTERNATIONAL MONETARY FUND not be adjusted upwards by the amount of budgetary grants exceeding the expected levels mentioned in the table below. Projected Budgetary Grants (In millions of US dollars) Cumulative flows since end-September 2021 Cumulative flows since end-September 2022 Dec. 2021 March 2022 June 2022 Sept. 2022 Dec. 2022 March 2023 June 2023 Sept. 2023 - - 9.1 18.1 0.0 18.8 - - Primary Balance of the Nonfinancial Public Sector 17. Domestic arrears of the central government refer to expenditure accepted by the Treasury and unpaid after 90 days, despite the delivery of the corresponding goods and services. Domestic arrears of central government do not include unpaid off-budget government commitments. 18. Unpaid off-budget central government commitments refer to liabilities incurred outside the budgetary process (from ministries or other public bodies), which may give rise to contingent claims against central government resources. 19. Net domestic financing of the nonfinancial public sector (NFPS) corresponds to the sum of the following elements: (i) net central bank credit to the NFPS; (ii) net credit from domestic commercial banks to the NFPS (as reported in the Standardized Report Form 2SR), which includes changes in NFPS deposits and the net issuance of Treasury bills and other NFPS securities to commercial banks; and (iii) net nonbank credit to the NFPS, which includes the net issuance of Treasury bills and other NFPS securities to nonbank institutions, the change in the net position of the NFPS vis-à-vis the electricity sector (including independent power producers), and the net change in suppliers’ credit and domestic arrears of central government. 20. Net external financing of the nonfinancial public sector (NFPS) corresponds to the sum of (i) new external loan disbursements (excluding IMF loans) and (ii) the net change in external arrears minus external loan amortizations. 21. For the purposes of the program, the primary balance of the nonfinancial public sector (NFPS) corresponds to the sum of the following: net domestic financing of the NFPS and net external financing of the NFPS, after deducting interest payments on public debt. If budgetary grants do not reach the expected levels, the floor on the primary balance of the NFPS includes an asymmetric adjuster. More specifically, if the amounts of budgetary support are in deficit, the floors on the primary balance will be reduced by the amount of those deficits. Conversely, if external budget support exceeds projections, the floor on the primary balance will not change. HAITI INTERNATIONAL MONETARY FUND 87 Budget Allocation to the Ministry of Social Affairs and Labor 22. The budget allocation to the Ministry of Social Affairs and Labor (MAST) for social expenditure is defined as the sum (excluding transfers to the population) of the budget allocation (or expenditure implemented if lower) for all social programs of the MAST budget, including the resources allocated and implemented by the FAES, the Emergency Program (2022), Klere Chimen, and the activities of the Office of the State Secretary for Disability Inclusion (BSEIPH). It should be noted that this does not prevent other government entities from supporting the implementation of MAST programs. The floor on the QT applies to the sum of the allocations mentioned. New Contracting or Guaranteeing by the Public Sector of Non-concessional External Debt 23. Definition of debt. The definition of debt is set in paragraph 8 of the Guidelines on Public Debt Conditionality in Fund Arrangements, adopted by Decision No. 16919-(20/103) of the Executive Board (October 28, 2020). For the purpose of these guidelines, the term “debt” will be understood to mean a current, i.e., not contingent, liability, created under a contractual arrangement through the provision of value in the form of assets (including currency) or services, and which requires the obligor to make one or more payments in the form of assets (including currency) or services, at some future point(s) in time; these payments will discharge the principal and/or interest liabilities incurred under the contract. Debts can take a number of forms, the primary ones being as follows: i. loans, i.e., advances of money to the obligor by the lender made on the basis of an undertaking that the obligor will repay the funds in the future (including deposits, bonds, debentures, commercial loans and buyers’ credits) and temporary exchanges of assets that are equivalent to fully collateralized loans under which the obligor is required to repay the funds, and usually pay interest, by repurchasing the collateral from the buyer in the future (such as repurchase agreements and official swap arrangements); ii. suppliers’ credits, i.e., contracts where the supplier permits the obligor to defer payments until some time after the date on which the goods are delivered or services are provided; and iii. leases, i.e., arrangements under which property is provided which the lessee has the right to use for one or more specified period(s) of time that are usually shorter than the total expected service life of the property, while the lessor retains the title to the property. For the purpose of these guidelines, the debt is the PV (at the inception of the lease) of all lease payments expected to be made during the period of the agreement excluding those payments that cover the operation, repair, or maintenance of the property. HAITI 88 INTERNATIONAL MONETARY FUND 24. Gross public debt is debt owned by Nonfinancial public sector and comprised the advances by the Banque de la République d’Haiti (BRH) to the government (see Debt Sustainably Analysis). 25. Debt guarantees by the public sector. For the purposes of the program, a debt guarantee by the public sector means an explicit legal obligation to service a debt in the event of non-payment by the borrower (in return for payment in cash or in kind). 26. Concessional debt. An external debt is considered concessional if it includes a grant element of at least 35 percent. 2 27. External public debt. This is the debt of the public sector which is contacted or serviced vis-à-vis non-residents. It includes, where applicable, debt issued domestically by the government and held by non-residents. This TMU assumes that non-residents do not hold debt issued domestically by the public sector. The stock of external debt will be adjusted if new information becomes available. 28. The central government undertakes not to contract or guarantee any new non- concessional external debt. This quantitative target also applies to domestic debt. It also applies to any private debt guaranteed by the central government that constitutes a contingent liability. Excluded from the ceiling are short-term (with a maturity of less than one year) import-related credits, rescheduling arrangements, borrowing from the IMF, non-resident purchases of treasury bills, and gourde-denominated BRH bills that are indexed to the exchange rate. This quantitative target will be monitored continuously by the authorities and any non-observance will be immediately report to the Fund. Public Sector External Arrears Accumulation 29. Arrears on external debt of the public sector. They include all debt-service obligations (principal and interest) on loans contracted or guaranteed by the public sector that are due to non-residents but not paid on the due date as set out in the loan contract; they exclude those arising from obligations being renegotiated with external creditors and (or) those that are litigious. For the purpose of assessing the quantitative target on the non-accumulation of new external debt arrears by the public sector, arrears resulting from non-payment of debt service due to international sanctions preventing payments to the creditor are excluded from the previous definition. This quantitative target will be monitored continuously by the authorities and any non-observance will be immediately report to the Fund. Domestic Arrears Accumulation of the Central Government 30. Arrears on domestic debt of the central government. They include all debt-service obligations (principal and interest) on loans contracted or guaranteed by the central government 2 A tool to calculate the grant element of a wide range of financial packages is available at: http://www.imf.org/external/np/pdr/conc/calculator/ HAITI INTERNATIONAL MONETARY FUND 89 that are due to residents but not paid 90 days after the due date set out in the loan contract. The quantitative target on domestic arrears accumulation will be monitored continuously by the authorities and any non-observance will be immediately report to the Fund. C. Reporting of Data for the Monitoring of the Program 31. In order to facilitate monitoring of the program, the government will provide IMF staff with the information set out in the following summary table. Any data revisions will be promptly communicated to IMF staff. 32. The authorities will inform IMF staff in writing at least 10 working days (excluding public holidays in Haiti) before any change in economic and financial policies that may affect the outcome of the program. Such policies include, for example, changes in tax or customs legislation, wage policy, and support for public or private enterprises. With respect to continuous QTs, the authorities will report any non-observance to the IMF promptly. HAITI 90 INTERNATIONAL MONETARY FUND Summary of Data to be Provided Sector Type of data Frequency Reporting deadline Real Sector National accounts Annual Year-end + 3 months Quarterly economic indicators (economic cycle) Quarterly Quarter-end + 2 months Consumer price index (including breakdowns) Monthly Month-end + 3 weeks Public Finances Fiscal revenues (internal, external, other) Monthly Month-end + 1 week (4 final weeks final data) Expenditures on Cash Basis (wages and salaries, goods and services, external debt, current accounts) Monthly Month-end + 1 week (4 final weeks final data) Table of government financial transactions (TOFE) Monthly Month-end + 2 weeks Balance on current accounts and operation of projects Monthly Month-end + one month Table Underlying TOFE, which enables the determination of checks in circulation and balance on investment project accounts Monthly Month-end + one month Table on budget implementation with breakdown by ministry and other bodies and by type of expenditure Monthly Month-end + one month Total monthly amount of expenditure executed by transfer letters Monthly Month-end + one month Report on Revenue Collection of DGI (progress report) Monthly Month-end + one month Tables of revenue collection of AGD (port activity indicators, analytical report of customs receipts on import) Monthly Month-end + one month Table of revenue collected and authorized expenditure (TEREDA) Monthly Month-end + one month Detailed revenue and expenditures of BMPAD Quarterly Quarter-end + one month Report on social protection expenditures Quarterly 30-day lag (final data) Table on the implementation of the PSUGO program Quarterly 30-day lag (final data) Dashboard of the state electricity utility EDH showing monthly information on the production of electricity, making explicit the composition of production by independent electricity producers, EDH, and by region. Monthly 30-day lag (final data) EDH commercial data allowing the calculation of EDH's billing and collection rates Monthly Month-end + one week EDH cash data including all revenues and all expenditures (operating, investment, and other) Monthly Month-end + one month Information on any off-budget claims presented for payment Monthly Month-end + one month HAITI INTERNATIONAL MONETARY FUND 91 Sector Type of data Frequency Reporting deadline Stock of unpaid off-budget central government liabilities Monthly Month-end + one month Data on all fuel shipments per product giving the CIF import price, the full price structure (including stabilization margin) and import and consumption quantities. Data on actual collections for each month with a breakdown per product and tax type. Monthly Month-end + one week Table of import prices of petroleum products, by arrival Monthly Month-end + one month Table of imported quantities of petroleum products Monthly Month-end + one month “Stabilization margin” table of the Directorate of the Tax Inspectorate Monthly Month-end + one month “Petroleum product tax” table of the Directorate of the Tax Inspectorate Monthly Month-end + one month Details of the stock of all government borrowing and debt securities (interest rate, maturity, creditor if known) Annual End of financial year + 3 months Full amortization table of domestic and external government debt Annual End of financial year + 3 months Statement of stocks and flows of repayment of suppliers’ credits and payment arrears Monthly Month-end + one week Monetary and Financial Data Exchange rate Daily Day-end + one day Monetary base and sources thereof and currency in circulation. Weekly Week-end + one week Aide Memoire Table containing, inter alia: (i) stock of BRH bonds; (ii) deposits at commercial banks; (iii) credit to private sector (in gourdes and U.S. dollars); (iv) details of inflows and outflows of foreign exchange reserves, including budget support received; (v) volume of foreign exchange transactions, including BRH sales and purchases; (vi) gross and net international reserves; (vii) net BRH credit to central government and the non-financial public sector; and stocks and interest rates of BRH bills. Weekly Week-end + one week Tables of monetary statistics showing, inter alia, the balance sheet of the BRH (Table Standardized Report Form-1SR) and the consolidated banking sector (Table Standardized Report Form -2SR) Monthly Month-end + one month IMF Weekly Tables showing, inter alia, the average and weighted interest rates on gourde and U.S. dollar-denominated deposits and credit, and the excess reserves in the banking system. Monthly Month-end + one month HAITI 92 INTERNATIONAL MONETARY FUND Sector Type of data Frequency Reporting deadline Monetary and financial statistics. Standardized reporting form, balance sheets of the Central Bank and other depository corporations. Monthly Month-end + one month Information on the composition of gross reserves. Monthly Month-end + one month Banking supervision statistics and commercial indicators on commercial banks. Quarterly Quarter-end + one month The calendar and planned placements of BRH gourde-denominated dollar-indexed bills, including in banks and nonbanks. Quarterly Quarter-end + one month Audited financial statements of the BRH Annual Year-end + 3 months Balance of Payments Balance of payments (first version) Quarterly Quarter-end + 6 weeks Revised balance of payments Quarterly 3 months after the first reporting BRH FX cash flow table; quarterly projections through end of fiscal year. Quarterly Quarter-end + one month External Debt External debt report prepared by the BRH showing monthly disbursements; debt service, debt forgiveness and rescheduling, arrears, and debt stocks. Monthly Month-end + one month Details of any external public debt and debt guaranteed by the State Monthly Month-end + one month Data on stocks, accumulation, and repayment of external arrears Monthly Month-end + 6 weeks Table of complete amortization of external debt Annual End of financial year + 3 months International Investment Position (IIP) Annual Year-end + 3 months