Haiti Selected Issues - Dollarization, External Debt and HIPC, Trade Liberalization, Poverty

[page 1] ©2001 International Monetary Fund January 2001 IMF Staff Country Report No. 01/04 Haiti: Selected Issues This Selected Issues report on Haïti was prepared by a staff team of the International Monetary Fund as background documentation for the periodic consultation with this member country. As such, the views expressed in this document are those of the staff team and do not necessarily reflect the views of the government of Haiti or the Executive Board of the IMF. The policy of publication of staff reports and other documents by the IMF allows for the deletion of market-sensitive information. Copies of this report are available to the public from International Monetary Fund + Publication Services 700 19th Street, N.W. + Washington, D.C. 20431 Telephone: (202) 623-7430 + Telefax: (202) 623-7201 Telex (RCA): 248331 IMF UR E-mail: publications@imf.org Internet: http://www.imf.org Price: $15.00 a copy International Monetary Fund Washington, D.C. [page 2] INTERNATIONAL MONETARY FÜUND HAITI : Selected Issues Prepared by the staff team consisting of Bernhard Fritz-Krockow, Eric Verreydt, Werner Keller, and Randa Sab (all WHD) Approved by the Western Hemisphere Department November 15, 2000 Contents Page Basic Data.….............................. en S JL Overview... iii à IL Deposit and Loan Dollarization in Haiti... 0 À. Introduction .…......................................................... 9 B. Dollarization in Developing Countries and Haïti... 10 C. Dollarization Issues in Haiti... ............120 D. Conclusion... 27 References... 28 IT. External Resource Flows, Debt, and HIPC Ekigibility 29 À. Introduction …..........................................................................29 B. Resource Flows to Haiti in the 1990s 30 C. Haiti’ s Debt and HIPC Eligibility.…...............................................32 D. Conclusion 34 References... #40 IV. Trade Liberalization in Haiti... ...................................41 - A. Introduction ........................................................................ AT B. Trade Liberalization 1986-87... A2 C. Trade Policies 1994-95 43 D. Haiti s Accession to the CARICOM.........................,...,,..,.....,,,,.,46 E. Conclusion... 48 Reference ss 49 [page 3] -2- V. Poverty and Social Policies... S0. A Introduction... 50 B. Incidence of Poverty.....…......................................................sST C. Social Sector Indicators.….....................................................S4 D. Conclusion ee 60 References... 66 Boxes IV. Trade Liberalization in the Rice Sector... AS V. L Reforming the Education System... 57 2. Reforming the Health Sector .…................................................... 02 | 3. Protecting the Environment 64 Tables IE 1. Commercial Bank Reserve Requirements…..............…........................ 13 2. Reserve Requirements on Foreign Currency Deposits at end-1996.................. 15 3. Seigniorage Estimates 1996-99... 25 NT. 1. Indicators of Debt, Debt Service, and Resource Transfers 35 2. Comparative Debt Indicators…........................... 36 3. External Public Debt …....................................................... 37 IV. L Index of Trade Restrictiveness.…......................................... 44 2. Rice Production and Imports, 1986-99...........................................46 : 3. Custom Duties on Selected Basic Food Items... V. 1. Social Indicators: International Comparisons, 1990 and 1998... 52 2. Education Indicators 856 3. Health Indicators….................. 50 Figures I 1 Deposit Dollarization, Exchange Rate and Inflation, 1991-2000... 10 . 2. Deposit Dollarization and Exchange Rate 1991-2000... 11 3. Deposit Dollarization and Exchange Rate Oct. 1999-Sept. 2000 12 4. Real Gourde and U.S. Dollar Deposit Rates 1997-2000... 16 5. Gourde and U.S. Dollar Lending Rates 1997-2000 17 6. Foreign Currency lending and exchange Rate 1994-2000 18 7. Relation Between Foreign Currency Deposit and Loan Ratios, end-1999....... 19 [page 4] -3- 8. Foreign Currency Loan to Deposit Ratio 1994-2000... 10 9. Intermediation Spreads for U.S. Dollar and Gourde Transactions, 1997-2000 2) 10. Difference in Intermediation Spreads for U.S. Dollar and Gourde Transactions, 1997-2000 022 11. Deposit Dollarization, Exchange Rate, and Inflation Volatility, 1999-2000 26 IUT. 1. Debt and NPV of Debt, 1999... DS 2. Comparative Debt Indicators, 1999... 30 V. 1 Social Indicators—Comparison with PRGF-Eligible Countries 65 Statistical Appendix Tables 1. National Accounts at Current Prices GO 2. National Accounts at Constant Prices GO 3. Origin of Gross Domestic Product... @0 4. Agricultural Production "T0 5. Savings and Investments... 7] 6. Monthly Changes in the Consumer Price Index... "T2 7. Consumer Price Index... "73 8. Changes in Consumer Prices by Category... "74 9. Prices of Selected Items... "7 10. Selected Price Indicators…..................... |. "70 11. Minimum Wage Rates... "7 _ 12. Summary Operations of the Nonfinancial Public Sector... 78 13. Summary Operations of the Central Government "70 14. Central Government Current Revenue.......….............................. S0 15. Consolidated Accounts ofthe Main Public Enterprises... 16. Accounts of the Telecommunications Company 2 17. Accounts of the Electricity Company... 18. Accounts of the Port Authority... C4 19. Accounts of the Airport Authority... CS 20. Accounts of the Water Supply Company... 80 21. Accounts of the Central Bank of Haiti... C7 22. Accounts of Commercial Banks DS 23.. Consolidated Accounts of the Banking System... 80 24. Sectoral Distribution of Commercial Bank Credit... O0 25. Origin, Destination, and Financing of Bank Credit... Ol 26. Annual Change in Credit Extended by the Banking System O2 27. Summary Indicators of Commercial Banking Sector... O 28. Interest Rates... O4 [page 5] -4- 29. Reserve Requirements by Category of Deposit and Institution..…....................OS 30. Reserve Position of the Commercial Banks O6 31. Summary Balance of Payments .…......................... .......! OT 32. Net International Reserves OS 33. Selected Foreign Trade Indices O0 34. Composition of Exports, fo.b. 100 35. Exports of Light Manufactures to the United States 101 36. Principal Commodity Exports …....................................... 10 37. Composition of Imports, c.i.f. ….................................................... 103 39. Loan Disbursements 105 40. Stock of External Public Debt 106 41. Scheduled External Public Debt Service 107 42. Stock of External Arrears 108 Appendix 1 Summary ofthe Tax System 100 [page 6] Es -5- Haiti: Basic Data I. Social and Demographic Indicators 1/ Area (sq. km) 27,750 Nutrition (1997) Calorie intake (daily per capita) 1,869 Population (1999) Total (million) 78 Annual rate of growth (percent) 2.0 Access to safe water (1996) 28 Density (per sq. km.) 260 Percent of dwellings Urban 37 GDP per capita, (FY 1998/99, US$) 566 Rural 23 | Population charactenstics (1998) Education Life expectancy at birth (years) 54 Adult literacy rate (1999, in percent) st Crude birth rate (per thousand) 31 Net enrollment rates, in percent Crude death rate (per thousand) 13 Primary education (1997/98) 64 Infant mortality (per thousand live births) 71 Secondary education (1997/08) 17-21 Under 5 mortality rate (per thousand) 116 Tertiary education (1997) 1 Health GDP (FY 1998/99) G71,979 million Physicians (1995, per thousand) 02 US$4,306 million Hospital beds (1996, per thousand) 07 IL Economic Indicators, 1996-99 Fiscal Year Ending September 30 1996 1997 1998 1999 (n percent) Origin of GDP (at market prices) Agriculture and mining 312 30.3 29.9 29.8 Manufacturing and construction 18.9 19.8 20.5 212 Services 2/ 499 49.9 49.6 49.0 : (Annual percentage changes, unless otherwise indicated) National accounts and prices Real GDP 28 14 3.1 22 Real GDP (per capita) 0.5 0.8 10 0.1 : GDP deflator 212 163 12.7 83 : Consumer prices (annual average) 219 16.2 127 8.1 Consumer prices (end-of-period} 20.1 17.0 83 9.9 . (Ratios to GDP) Gross domestic investment 9.5 10.1 104 110 ef which: public investment 5.5 57 52 53 Gross national savings 27 3.1 43 37 Extemal savings 12.1 7.0 6.1 73 [page 7] -6- : Il. Economic Indicators, 1996-99 Fiscal Year Ending September 30 1996 1997 1998 1999 Public finances Central govemment Total revenue 7.2 8.6 8.3 8.7 Total expenditure 9.7 9.1 9.1 9.5 of which: interest mn 0.7 0.7 0.8 Savings n 0.7 09 1.1 Primary balance mn 0.2 0.1 0.1 Overali balance -2.5 0.6 -1.1 -13 Consolidated public sector Overall balance -76 -3.6 -3.0 -3.0 (12-month percentage changes, unless otherwise indicated) Money and credit Broad money 102 154 147 17.7 Of which: Money 20.8 44 10.6 15.8 Quasi money 2.9 243 172 18.7 Net domestic assets of the banking system 3/ 13.7 10.6 114 15.1 Of which: Credit to non-financial public sector (net) 3/ 9.5 49 3.0 73 » Credit to the private sector 3/ 83 175 7.6 44 (a millions of U.S. dollars, unless otherwise indicated) Balance of payments Current account (including grants) 65.6 -19.0 -13.1 -59.6 Merchandise trade balance Exports 147.7 195.5 2843 3519 Imports -563.9 -588.8 667.7 -821.6 Services and transfers (net) 574 152.6 147.7 1533 Of which: interest 94 14.0 125 202 Capital and financial account 143 46.1 45.5 83.1 Foreign direct investment 4.1 5.0 10.8 30.0 Portfolio investment : . . . . Other capital (net) 77.8 109.8 70.5 54.0 Errors and omissions an 68.7 -35.8 2.9 Change in net intemational reserves -513 27.1 324 23.5 Exports (in percent of GDP) . 5.6 74 82 Imports (in percent of GDP) . -17.0 -174 -19.1 Current account (in percent of GDP) -12.1 -7.0 -6.1 -73 Merchandise exports (in US$, annual percentage change) 7.6 323 454 238 Merchandise imports (in USS$, annual percentage change) 0.9 44 13.4 23.0 [page 8] -7- II. Economic Indicators, 1996-99 Fiscal Year Ending September 30 1996 1997 1998 1999 Real effective exchange rate (12-month percentage change) 153 114 82 8.9 International reserve position and external debt (as of end-September) Gross official reserves 215.6 265.7 292.7 329.2 in months of imports of goods and services) 34 40 3.6 34 Net official reserves 135.0 162.5 1947 218.1 Net reserves of the banking system 258.0 269.6 303.6 330.9 Outstanding external debit, in percent of GDP Public (excl. IMF) 29.8 29.0 28.0 26.3 Total debt service ratio (in percent of exports goods and services) 10.6 115 9.8 10.7 Of which: interest 3.8 48 2.8 3.9 IMF data (as of September 30, 2000) Article VII status Exchange rate 4/ US. dollar at G 24.6 Quota SDR 60.7 million Fund hoïdings of gourdes SDR 75.8 million Às percent of quota 124.9 percent Outstanding purchases and loans SDR 304 million ESAF arrangements SDR 152 million First credit tranche SDR 152 million Special Drawing Rights Department Net cumulative SDR allocation SDR 13.7 million - Holdings of SDRs (as percent of allocation) 0.5 Sources: Haitian authorities, World Bank; and Fund staff estimates and projections. 1/ Social indicators of development, the World Bank. 2/ Including indirect taxes. 3/ In relation to broad money at the beginning of the period. 4/ Average reference exchange rate of the central bank for September 2000. [page 9] N -8- L OVERVIEW 1 This report presents a set of chapters that examine various topics of current interest in Haiti. Chapter 1 provides an overview of deposit and loan dollarization in Haiti, which has been the result of inflation and depreciation expectations, interest rate arbitrage, the use of monetary policy instruments, prudential regulations, and immigration. The chapter also reviews the effects of dollarization on the ability of the Bank of the Republic of Haiti (BRH) to conduct monetary policy and the risks to macroeconomic stability and the banking system. 2. Chapter 2 provides an overview of the external debt situation of Haiti in the light of bilateral and multilateral support during the last decade and debt relief under the auspices of the Paris Club. In this context, the chapter compares Haiti’s external indebtedness situation with that of some countries eligible for debt relief under the Initiative for Highly Indebted Poor Countries (HIPCSs). The chapter also reviews sources of external financing for Haiti during the 19905, including bilateral and multilateral loans and grant financing. 3. Chapter 3 reviews Haitÿ’s trade regime and trade reforms. The chapter describes the two main stages of Haiti’s trade liberalization during 1986-87 and 1994-95, which have resulted in the country ranking among the most open economies in the Western Hemisphere. The chapter also discusses Haiti’s recent accession to the Caribbean Common Market and discusses the impact of trade liberalization measures on the strategic rice sector. 4. Chapter 4 examines the causes of poverty in Haïti and analyzes the education, health, and environment sectors. The chapter provides a description of aggregate social indicators in Haïti and compares them with Heavily Indebted Poor Countries in Latin America and sub- Saharan Africa. It also traces the roots of poverty in Haïti to political instability, poor governance, lack of personal safety, a weak justice system, low levels of physical and human capital investment, lack of basic infrastructure, and demographic pressures. [page 10] -9- IL. DEPOSIT AND LOAN DOLLARIZATION IN HAITE Abstract Deposit and loan dollarization in Haïti has been the result of inflation and depreciation expectations and interest rate arbitrage. In addition, the use of monetary policy instruments, prudential regulations, and immigration have underpinned a continuous increase in dollarization since 1994. Dollarization has complicated the conduct of monetary policy by the Bank of the Republic of Haïti (BRH), increased risks to the banking system, and reduced seigniorage derived from currency issue. Overall, the chapter recommends that the BRH harmonize and reduce reserve requirement ratios and continue improving its regulatory framework, to gain better control over the foreign currency components of the monetary aggregates, and to reduce interest rate spreads of commercial banks. A. Introduction 5. Dollarization in this paper refers to the holding by residents of some but not all of their assets and some but not all of their liabilities towards domestic commercial banks in a foreign- currency denominated form. This paper does not discuss full dollarization, that is, the replacement of the entire currency of a country by a currency of another country. 6. Deposit and loan dollarization has increased in recent years in Haiti. U.S. dollar deposits accounted for 38 percent of all deposits, while U.S. dollar loans accounted for 41 percent of all commercial bank loans to the private sector in June 2000. While the increase in dollarization in recent years does not constitute in itself a problem, the authorities have begun to address the risks inherent in a high degree of dollarization of the economy for macroeconomic stability and the banking system. 7. Section B discusses the roots of deposit and loan dollarization in Haiti. The discussion is based on available economic literature and data and insights provided by Fund economists.? Section C discusses monetary issues related to the increase in dollarization in Haiti. These are in particular the use of monetary policy instruments, the risks to macroeconomic stability, to ?Prepared by Bernhard Fritz-Krockow. ? I am grateful for the extensive help and data received from a number of desk economists, particularly in the Western Hemisphere Department. [page 11] -10- economic agents, and to the banking system, and the impact of dollarization on seigniorage in Haiti. The chapter summarizes conclusions in Section D. B. Dollarization in Developing Countries and Haïti Foreign currency deposits 8. Various factors can lead to an increase of deposit dollarization in a country. Economic literature has mostly concentrated on episodes of high inflation as the primary trigger for deposit dollarization. Other factors that have led to increases in deposit dollarization include increases in the trade openness of the country, monetary policies, and prudential regulations. High inflation | 9. Periods of high inflation or hyperinflation are often starting points for a rapid deposit dollarization process. The high levels of deposit dollarization in Peru and Bolivia, for example, can be traced to previous hyperinflation episodes. In Bolivia, inflation reached 23,000 percent in 1985 and foreign currency deposits, which accounted for less than 1 percent of total deposits in 1984, increased to 68 percent of total deposits in 1987. 10. Haïti has no history of hyperinflation, but has experienced episodes of high inflation during the last ten years. Figure 1 compares the pattern of inflation during the last ten years with the deposit dollarization ratio. As can be seen from the figure, there is some initial correlation of inflation rates and deposit dollarization in Haiti. When inflation accelerated to 52 percent during FY 1993/94, US .doilar deposits in the domestic banking system increased sharply from 4 percent of total deposits in September 1993 to 10 percent at end-September 1994. With the abatement of inflation after the return to democratic rule, the rate of increase - of deposit dollarization slowed. However, the increase in deposit dollarization has been continuous since then, indicating some form of ratchet effect or hysteresis (nonreversibility) once dollarization has taken hold. Fm à Ha Deposit Dollarization, Exchange Rate and Inflation 1991-2000 in percent; 11. Jthasbeenobservedthatin F countries where high inflation rates Annuatinflation 4 Exchange rate 25 have led to dollarization, there has Cond ofpæriod)/ À Cgourdes per U.S. dollars, right axis) not been a reversal of dollarization # / \ 20 when stabilization is finally attained. / 55 As was the case of Bolivia and / \ posit dollarization ratio 7. . # À (in percent of total deposits) Peru, a rapid increase in 2 FF 10 dollarization happened during and , Lé TT TN N Le. shortly after hyperinflation 10 ve T 5 episodes. However, the process ° 0 ———— Sep-91 Sep-92 Sep-93 Sep-94 Sep-95 Sep-96 Sep-97 Sep-98 Sep-99 Sep-00 3 IMF (1999). [page 12] -ji1- did not reverse with the subsequent sharp decline in inflation rates.” A similar process occurred in Haïti, where a rapid dollarization process during the high inflation episode of FY 1993/94 was followed by gradual increase in the deposit dollarization ratio until September 1999 (Figure 1). In the case of Haiti, the ratchet effect can be explained by the change to a dollar valuation of real estate and large consumer good transactions (e.g., vehicles) during 1994-95. This new, agreed valuation standard has been maintained since. Exchange rate expectations 12. In theory, interest rate differentials between domestic and foreign currency deposits should reflect the public's depreciation expectations. This should make depositors indifferent to holding deposits in domestic or foreign currency, as they should be expecting a similar real return on their financial assets.Ÿ However, commercial banks in developing countries have often maintained negative real interest rates on domestic currency deposits in times of high inflation, as some time and savings deposits are used for transaction purposes, rather than for portfolio allocation purposes. As depositors' depreciation expectations are not fully reflected in the domestic deposit rates, there is an incentive to switch to portfolio deposits in foreign currency because they carry higher real rates of interest. In addition, domestic currencies lose their function of an intertemporal valuation instrument when prices and exchange rates change rapidiy, creating an additional incentive for depositors to maintaïin foreign currency deposits. 13. Exchange rate Figure 2. Haïti Deposit Dollarization and Exchange Rate 1991-2000 developments in Haiti have 50 Pen) 30 tended to reflect political Gal il des no » uncertainties, foreign exchange 40 availability, and the fiscal stance. Exchange rate 2 The exchange rate, long maintained 30! ("Pets to ti at 5 gourde per U.S. dollar, D —-cP 15 depreciated considerably between 2 / 777 Deposit dollaizalion ratio 1990 and 1994 during de-facto rule, 7 PÉemte 1904 camper) | reaching around 15 gourde per US. 10 5 dollar in September 1994 Figure 2). As foreign exchange o o shortages eased at the time of Sep-91 Sep-92 Sep-93 Sep-94 Sep-95 Sep-96 Sep-97 Sep-98 Sep-99 Sep-00 return to democratic rule, foreign exchange deposits rose rapidly. This coincided with a time of increased exchange rate volatility, before the exchange rate stabilized at around G16-18 per U.S. dollar. The relative stability of the gourde between 1995 and 1999 led to reduced # For a different explanation, see Mizen (1996). $ More specifically, depositors should expect an equal real retumn on assets, adjusted for country-risk differences. [page 13] -12- depreciation expectations in Haiti, which reduced the incentive for Haitians to move foreign currency deposits abroad. 14. With the increase in political Figure 3. Haïti: Deposi Dollarization and Exchange Rate . , October 1999 - September 2000 (in percent) uncertainty and excessive fiscal 60 30 spending prior to the parliamentary (gourde per DS Sa right as)” and municipal elections in 5 | : 1, 1999-2000, depreciation Deposit dallarization ratio ’ expectations clearly increased again Gin percent af total deposits) _ (Figure 3)./ As a consequence, the + L. Deposit dollarization ratio Lune 20 deposit dollarization ratio, which Let rent ete putremietes qu — | -" had tended slowly upward to DS Ps 31 percent between September # 5 1996 and September 1999, TE increased to around 45 percent in 20 10 September 2000. However, all of Oct-98 Jan-99 Apr99 Jul-99 Oct-99 Jan-00 Apr-00 Jul-00 the relative increase is attributable to the revaluation of existing dollar deposits. If valued at a constant exchange rate of September 1994, the dollarization ratio would have remained stable at around 25 percent. The relative valuation change did not prompt deposit holders to reduce their dollar deposits in favor of gourde deposits to rebalance their portfolio, which can be considered at least a tacit acceptance of a higher dollarization ratio. Banking system soundness considerations 15. In some countries, the authorities have allowed deposit dollarization to take place to safeguard the banking system from sharp changes in the deposit base as a result of high inflation rates and changes in exchange rate expectations (Argentina, Bolivia, Ecuador, Peru). If dollar deposits were not allowed, depositors would retire domestic currency deposits to purchase foreign currency when they perceive a heightened risk of a faster depreciation pace.® This could escalate to a system-wide run on banks if depositors expected a maxi-depreciation. This was the case in Peru in 1990, when depositors depleted their domestic deposit accounts to buy foreign currency and move capital abroad. If dollar deposits had been allowed under $ There are no capital controls in Haiti to prevent capital movements or to create an incentive for increased dollarization of residents’ deposits in lieu of capital outflows. ? This was not only visible in the pattern of the exchange rate itself, but also in the flow of capital out of the country. Haïtian banks do not maintain offshore subsidiaries and there is no information on Haitian deposits abroad. 8 Garcia-Herrero (1997). [page 14] -13- such circumstances, depositors would have maintained deposits in the banking system, but switched their denomination.° 16. Such a rapid switch in deposit denomination can cause a liquidity problem for commercial banks if reserve requirements have to be maintained in the deposit currency. Countries have attempted to deal with this problem in different ways. Argentina, maintaining a fixed parity to the U.S. dollar, allows banks to maintain required reserves in either foreign or domestic currency. During its hyperinflation episode, Bolivia allowed commercial banks to maintain a part of their required reserves in local currency. Peru, Bolivia, and Mexico have also resorted to prohibition of foreign currency deposits at certain times. 17. The central bank has indicated that banking Table 1. Haiti: Commercial Bank sector safety considerations in Haiti explain why Reserve Requirements dollar deposit accounts are permitted and lower reserve requirement ratios have been applied to {in percent) gourde deposits. One of the reasons dollar deposits . were permitted in 1990 was to create an incentive cureney ce for foreign currency to remain in Haïti, rather than Deposits Deposits being transferred to residents' deposits abroad, 6/1/95 to 8/27/95 48 0 particularly in Miami or New York. In order to 8/28/95 to 9/4/95 50 0 retain local dollar deposits, the authorities initially nee es 6 ne : imposed no reserve requirement on dollar deposits. 5/6/96 to 7/3/96 50 0 Reserve requirements were applied to dollar deposits | 74/96 to 11/18/96 48 0 since March 1997 and raised over time, but still 11/19/96 to 1/24/96 44 0 remain below reserve requirements for gourde Dane ane 96 ui ù deposits (Table 1). 12/9/96 to 2/15/97 30 0 2/16/97 to 3//1697 27 0 3/17/97 to 5/15/97 26 12 Trade openness 5/16/7 to 7/15/97 25 12 17/16/97 to 11/15/97 26 12 18. Economic literature suggests that deposit 11/16/97 to 11/15/99 26% 24 dollarization can originate to finance exports and 11/16/99 to 4/15/00 26% 15 : . . . . 4/16/00 to 8/31/00 28 17 imports. Increase in foreign trade will necessitate a 9/1/00 to 9/L4/00 30 20 larger degree of foreign currency transactions. 9/15/00 to present 31 21 However, we have found no systematic relationship |" between the degree of trade liberalization or trade Source: Bank of the Republic of Haiti openness of a country and the degree of deposit dollarization. ° Depositors might still prefer to move assets abroad if they were concerned with the possibilities of a freeze, nationalization, or forced conversion into a domestic currency denomination of domestically held foreign currency deposits. [page 15] -14- Banking system technology 19. Inincrease in dollarization can result from changes in the technology used in the domestic banking system. The creation of a clearing house for U.S. dollar transactions in Haiti in 1995 enabled depositors to maintain dollar deposits in Haïti rather than abroad and use these accounts to carry out local transactions. Monetary policy 20. The monetary authorities have directly or indirectly influenced the level of deposit dollarization in their countries. At one extreme, some authorities have explicitly opted for full dollarization, for example, in Panama or more recently in Ecuador, while at the other extreme, some authorities have prohibited the establishment of foreign currency deposits in the domestic banking system, for example, in Brazil. A more indirect influence has occurred when monetary policy has favored one currency over another. This is mainly the case in countries where reserve requirement ratios for domestic or foreign currency deposits differ. As depicted in Table 2, 5 of 21 developing countries maintained higher reserve requirement ratios for foreign currency deposits than for domestic currency deposits at end-December 1996. The opposite was the case in 7 ofthe 22 countries for which information was available. In 9 cases, reserve requirement ratios were identical. 21. Ofthe 22 developing countries, 13 countries required reserves on foreign currency deposits to be held in foreign currency at end-1996, while 6 required no reserve deposits for foreign currency deposits and only 2 required reserves to be held in local currency." In one case, Belize, maintaining full convertibility and a fixed exchange rate system, commercial banks are allowed to maintain required reserves in either local or foreign currency at their own discretion.!! In the case of Pakistan, banks were required to surrender their foreign currency deposits to the central bank in exchange for rupees and guaranteed conversion back into foreign currency at the exchange rate prevailing at the time ofthe initial surrender. The rupee equivalent of the deposit was subject to the normal rupee reserve requirement. FUIMF (1999), p.22. [page 16] -15- Table 2: Reserve Requirements on Foreign Currency Deposits at end-1996 Reserve requirement ratios on deposits in Currency of ————— ———<--—— denomination of required reserves on Deposit Domestic Foreign foreign currency dollarization Currency Currency deposits ratio Nepal 12 0 None 7.1 Malawi 20 20 Foreign 112 El Salvador a. . Foreign 15.9 Jordan 14 14 Foreign 18.5 Haiti (1996) 30 0 None 23.0 Haiti (1999) 264 15 Local 33.7 Tanzania 12 0 None 25.0 Honduras 12 50 Foreign 26.7 Egypt 15 10 Foreign 27.2 Sao Tome and Principe 15 30 Foreign 45.6 Philippines 17 0 None 48.4 Turkey 8 11 Foreign 493 Argentina 17 17 Foreign 50.0 Maldives 35 35 Foreign 50.3 Lebanon 13 0 None 53.7 Guinea-Bissau 25 25 Foreign 57.0 Nicaragua 15 25 Foreign 644 : Peru 45 45 Foreign 74.9 Bolivia 10 20 Foreign 92.0 Belize 24 24 Either … India 10 0 None …. Malaysia 14 BA Local . Pakistan 5 5 Local . Source: IMF (1999) and IMF staff. [page 17] -16- 22. The use of higher reserve Figure 4. Haiti: Reai Gourde and U.S. Dollar Deposit Rates 1997-2000 : . (in percent per annum) requirements for gourde deposits 2 than for foreign currency 0 el deposits creates an advantage for Real US. dollar savings depasit rate foreign currency intermediation À Cdeflated by 12-month US. CPI) in Haiti, as the higher reserve 4 requirement ratio for gourde é deposits leads to a higher Real gourde savings deposit ratc a ._ , (deflated by 12-month Haiti CPI) intermediation spread in gourde J transactions. The deposit rates, 10 which, when deflated by the ” corresponding inflation rate, have Sep-97 Dec- Mar- Jun-98 Sep-98 Dec Mar- Jun-99 Sep-99 Dec Mar- Jun-00 been substantially negative for "7 58 s8 % 35 00 gourde deposits, but fluctuating between -1 and 1 percent per annum for U.S. dollar deposits Figure 4). Immigration 23. A unique element ofthe dollarization process in Haiti might also have contributed to the initial dollarization around 1994 and the hysteresis observed between 1995 and 1999. The return of democratic rule in Haiti was accompanied by a substantial immigration of Haîtians and expatriates from abroad, mainly comprised of higher-earning professionals. The returning Haitians and expatriates brought capital and purchasing power into the country, fueling the initial dollarization process but also changing the purchasing patterns of the middle and higher-income economic strata in the country. The change in purchasing patterns was accompanied by a change in the valuation and denomination of transactions and the financial savings pattern. The immigrant community has also maintained close links to friends and families abroad, necessitating a larger amount of foreign currency transactions for visits and purchases of goods and services abroad. Foreign currency loans 24. Denomination of assets in foreign currency (loan dollarization) was largely ignored in economic literature until recently. This phenomenon has received much more attention since the Asian crises, in particular after many corporations in Indonesia became insolvent due to the sharp increase in the domestic currency value of their foreign-currency denominated liabilities. Domestic borrowers are motivated to borrow in foreign currencies despite the inherent portfolio risk under a number of conditions. [page 18] -17- Interest rate arbitrage pos os Des and US. Dollar Lending Rates 1997-2000 30 25. Interest rate arbitrage has | been a major factor for loan 25 Nomialgonde lending te dollarization in Haiti. Demand PNR RTS RIT for dollar loans in Haïti increased 2 since 1994 as loan rate differentials Real gourde lending rate continuously favored dollar lending Vas NT (Figure 5). In addition, the period DR NE of nominal exchange rate stability “, V LES RaUs Es N ne ie : between 1995 and 1999 (écfnted by Tamonth US, CPI) underpinned an environment of low STD 97 Mar- Jun-98 Sep-98 Dec-98 Mar- Jun-99 Sep-99 Dec-99 Mar- Jun-00 depreciation expectations. 98 99 co 26. The credit risk analysis undertaken by the domestic banking industry in Haïti also supported loan dollarization. Commercial banks granted foreign currency loans to borrowers that derived all or most of their income from abroad, that is, exporters. However, they also granted foreign currency loans to clients that derived income from a fully dollarized segment of the economy, for example, car dealerships, clients that were in a position of indexing their prices to the exchange rate, for example, fuel importers, or clients that sold goods for which demand is inelastic, for example, the beverage industries. !? While all of these arguments are valid credit-risk analysis considerations at the individual ioan-approval level at commercial banks, foreign currency loan risk analysis rarely took into consideration the individual and systemic implications of maxi-devaluations. * At the individual borrower's level, a maxi-devaluation could increase the domestic value of the foreign currency indebtedness to levels that render the borrower legally insolvent and incapable of servicing the foreign currency loan. At the systemic level, borrowers that derive income from operations in a monopolistic or oligopolistic market position might find it impossible to raise prices significantly in a recessionary environment surrounding a maxi-devaluation. 27. While there is yet no information to compare nonperforming loan ratios on domestic currency lending and foreign currency lending, anecdotal evidence seems to suggest that there is no marked difference, despite the recent exchange rate volatility.* The fact that banks ?In Haiti, foreign currency borrowers tend to be larger commercial entities. The banks tend to restrict foreign currency lending to their best customers and generally iend on terms not exceeding 12 months. 3 Calvo (2000). 1 The banking supervision department of the Bank of the Republic of Haiti (BRH) is preparing a circular to be issued to commercial banks requiring loan performance to be reported separately for domestic and foreign currency loans. [page 19] -18- restrict foreign currency lending to their best customers tends to decrease nonperforming loan ratios. Conversely, the fact that foreign currency loans are more often granted to corporations tends to worsen the nonperforming loan ratio, as the supervision department of the central bank indicates that corporate loans are generally riskier than consumer loans in Haiti. Public sector exchange rate preferences 28. Haitian residents perceived the government to have a clear preference for stability of the nominal exchange rate for several reasons. The exchange rate was seen as an indicator of the capacity of the government to manage the country's affairs. Also the government was perceived to have an interest in minimizing currency depreciation to prevent the erosion of fiscal revenue and to prevent an increase in the local currency cost of servicing the government's external debt.!° 29. Despite a substantial but Figure 6. Haiti: Foreign Currency Lending and Exchange Rate 1994-2000 declining inflation differential 250 Gin millions af U.S. dollars and gourdes per U.S. doilar) 30 between Haïti and the U.S., the exchange rate between the two 200 pe pres Fc aien 5 currencies fluctuated in a narrow band between 1996 and late 1999. 150 During that time, private sector 20 borrowers appeared to interpretthe 100 nominal exchange rate stability as , the result of the government's 50 À (godes pe Da Ro right md | preference for a stable exchange rate, providing an additional o Lun 10 incentive for interest rate Sop54 Sp35s Sp%6 Sp97 Sp58 Sep29 arbitrage". The unsettled political environment since mid-1999, the expansionary fiscal stance, the loss of reserves at the BRH, and an increase of inflationary pressures changed the 5 Currency depreciation, combined with nominally stable oil prices at the pump, would have decreased the variable oil tax receipts that accounted for about a quarter of tax revenue during 1995-98. 6 Calvo and Reinhart (1999). [page 20] N -19- environment significantly in late 1999. Foreign currency borrowing, which had increased steadily since early-1996, leveled off at US$220 million in August 1999. The exchange rate began to depreciate in October 1999 (Figure 6). Prudential regulations 30. Loan dollarization Figvre 7: Relation Between Foreign Currency Deposit and Laan Ratios, end-1999 normally increases in parallel to (percent foi deposs oans) deposit dollarization for various Loën ratio reasons. In most countries, banking 100 | QU. supervision authorities place limits : pen | on the amount of open positions #0 RS CORRE RS RS commercial banks are allowed to PR RE RE hold, creating an incentive for E E banks to offer foreign currency 4 Re e CS denominated loans to residents so a as to avoid a mismatch.!? The SN RS DS RS RS positive relationship between loan x fmsivwom | and deposit dollarization ratios can 0 2 4 6 80 100 be seen in Figure 7. Deposit ratio 31. In the case of Haïti, domestic Figure 8. Haiti: Foreign Currency Loan to Deposit Ratio 1994-2000 banks are not allowed to maintain 80 open positions. This is not, however, 2 the main reason for increasing loan . . 60 dollarization in the country. As foreign currency deposits beganto increase in 5 1994-95, banks preferred to invest 40 liquid foreign currency assets in . .. 30 deposits or securities abroad. Most _assets were composed of U.S. 20 Treasury bills, but also more risky 10 portfolio choices were used, such as o collateralized mortgage obligations. SpD4 SpS Sp26 Sp97 Sep98 S99 Sep-00 . Only when the risk-adjusted return of | domestic foreign currency ending appeared to be more profitable than the return on assets invested abroad, did banks begin to increase foreign currency lending (Figure 8). By international standards, Haiti has a low ratio of foreign currency loans to foreign currency deposits, which can be in part attributed to a heightened risk-aversion on the side of the Haitian banking industry. 7? Calvo (2000). [page 21] . - 20 - C. Dollarization Issues in Haiti 32. The monetary policy instruments of the BRH are unremunerated reserve requirements on domestic and foreign currency deposits and the issuance through weekiy auctions of gourde-denominated BRH bonds in maturities of 7, 28, and 91 days. The main reason for the lack of remuneration of the reserve requirements is the low profitability of the BRH. Reserve requirements for foreign currency deposits are somewhat lower than those on domestic Currency deposits, although the differential has been decreasing over time. Most outstanding bonds carry a 91-day maturity, while 28-day bonds have not been sold since March 2000. Risks to macroeconomic stability 33. Increased dollarization has complicated the conduct of monetary policy, because of different money multipliers for gourde and dollar deposits. The instruments the BRH can use are primarily directed towards affecting gourde-denominated monetary aggregates. Às a consequence, monetary policy has become less effective as a counterweight to expansionary 5 fiscal policy. Given that dollarization is destined to continue in Haiti, the central bank should consider developing instruments, including in the area of prudential control and regulation, to better address the foreign currency denominated components of the monetary aggregates. Role of the Central Bank 34. The process of dollarization can alter the role ofthe BRH. While foreign exchange reserves are traditionally regarded as a cushion to minimize the effects of exogenous shocks on the economy, foreign reserves could also be called upon to guarantee the stability of the banking system in a dollarized economy. This can take place in two forms. BRH as currency regulator 35. The growth rate of monetary aggregates in the economy, which is the focus of attention of the BRH, includes that of foreign currency denominated components. In order to affect the growth rate of such components, the BRH would have to either intervene in the market directly to purchase or sell foreign exchange or use indirect monetary instruments that directly target foreign currency denominated components of monetary aggregates. The BRH has only limited indirect instruments to achieve these goals. The reserve requirement on foreign currency deposits has been set at levels that encourage dollarization. In addition, the reserve requirements on foreign currency deposits are to be deposited at the central bank in 1 Some countries have used minimum liquidity requirements for foreign currency deposits or foreign currency-denominated central bank bonds to address this issue. However, more recently, central banks have shifted away from issuing foreign-currency denominated bonds because of the exchange rate risks involved, while prescribed liquidity requirements have been abandoned in favor of maturity ladders and an increasing degree of supervisory discretion. [page 22] -21- local currency, thereby affecting the volume of foreign currency deposits only indirectly via the implicit taxation that is inherent to the imposition of reserve requirements. BRH as a guarantor of the domestic banking system 36. The BRH is the lender of last resort for the domestic banking system. Thus the BRH needs foreign exchange reserves that would credibly prevent systemic banking crises by sufficiently covering residents' foreign currency deposits in the banking system beyond the reserves traditionally destined to safeguard the domestic economy against exogenous shocks. The reserve coverage of foreign currency deposits in the banking system sufficient to provide a credible safeguard for the domestic banking system would vary depending on the solidity of the banking system and credibility of the exchange rate system. A lower level of foreign exchange reserves would be necessary with a lower risk of bank faïlures and with a more credible exchange rate system. 37. In order to improve the BRH's capacity to fulfill its role as lender of last resort, the BRH should increase its holdings of foreign reserves to keep pace with foreign exchange deposits in the banking system. In addition, the BRH should strengthen banking supervision to insure in general the solidity of the banking system and in particular the availability of sufficient foreign exchange liquidity in the banking system to face possible rapid withdrawals in case of an exchange rate crisis. 38. Toinsure sufficient foreign exchange liquidity in the banking system, the BRH has issued a circular requiring banks to observe a maximum nonguaranteed U.S.-dollar loan to U.S.-dollar liabilities ratio of 50 percent.” The regulation becomes effective January 1, 2001. The requirement is not formally a liquidity requirement, as it does not specifÿ the degree of liquidity that has to be maintained with the foreign currency assets that are not being lent. However, it functions de facto as a liquidity requirement as most other assets are invested in US. Treasury securities. Banks have an incentive to invest their unlent foreign currency assets in such low-risk securities abroad, as prudential regulations require substantial provisioning for higher-risk or illiquid assets. Nonetheless, the BRH should monitor the degree of liquidity of the foreign currency assets of the commercial banks to ensure sufficient avaïlability to cope with rapid withdrawals in case of an exchange rate crisis. % Haiti does not have a deposit insurance scheme. ? Loans guaranteed by the head-office of a foreign bank are excluded from the calculation. [page 23] -22- Use of monetary policy instruments 39. The reserve requirement regime and open market operations in BRH bonds affect dollarization indirectly through differences in the implicit taxation and the impact on interest rate differentials between deposits and loans in local and foreign currencies.?! 40. The use of unremunerated Figure 9. Haiti: Intermediation Spreads for U.S. Dollar and Gourde Transactions reserve requirements constitutes "777200 (paemgepont) a form of taxation of the banking 18 industry. In Haïti, transactions in Gourde spread gourdes are taxed higher than 4 those in foreign currency, asthe 1 reserve requirement ratio for 10 domestic currency deposits is 8 AIN ANRT higher than that for foreign 6 currency deposits. In the absence of * such differential treatment, the : differences in interest rate spreads Sep- Dec- Mar: Jun98 Sep. Dec- Mar: Jm99 Sœp- Dec Mar- Jun-00 in local and foreign currency in the 97 97 98 98 98 99 99 99 00 domestic banking system would reflect exchange rate and inflation expectations, and the market perception of the country risk. The inflation and exchange rate depreciation expectations and the perceived country risk increased towards the end of 1998 (Figure 9). During that period, the differential reserve requirement ratios were kept unchanged. The difference in interest rate spreads in Haiti decreased somewhat in 1999 and 2000 when the reserve requirement ratios for foreign currency deposits were increased more than those for domestic deposits, thereby reducing the differential taxation burden. L 41. It is estimated that the Figure 10. Haiti: Difference in Intermediation Spreads for U.S. Dollar and Gourde . . Transactions 1997-2000 (in percentage points) difference in interest rate spreads 14 would be reduced from 22 | : : 7.2 percentage points to Piferense in btemnetition aresde 3.3 percentage points if reserve 10 imrenceinintemediation gross requirements for deposits in foreign g Lifreserve requirement ratios were equal. and local currencies were equalized n in September 1999 (Figure 10). 6 DRE This estimate is based on the à RE . ” assumption that reserve r na SAT requirements on domestic deposits 2h. ou \ Ÿ. rt : sue, res No rt -* TT om Dec97 Mur98 JmS® Sep98 DecO8 Mar9? Jun39 Sep99 Dec99 Mar00 Jun-00 # For a discussion about the impact of inflation vs. exchange rate targeting, see below. 2 For example, cross-boarder transaction or liquidity risks. [page 24] -23- would be reduced to the level of those for foreign currency deposits and that the reduction in the financial burden for the commercial banks would be used to increase domestic deposit rates and reduce lending rates. The remaining difference in the margin can be attributed to the higher risk of doing business in Haiti in local currency. In addition, competition from banking centers outside Haiti would also tend to limit the possible spread that local banks can earn on foreign currency operations. 42. Haïti is also one of the few countries outside eastern Europe that requires commercial banks to maintain reserves on foreign currency deposits in local currency (Table 2). In Haïti this requirement is due to the need to mop up gourde liquidity in the banking system without having to issue costly central bank bonds, which would affect the profitability of the BRH. This requirement tends to inhibit dollarization.? To be able to cover the local currency reserve requirement for foreign currency deposits, banks have to maintain a larger gourde liquidity to account for possible larger gourde reserve requirements due to valuation changes of the dollar deposits. This would be similar to imposing an additional liquidity requirement on dollar deposits and increases the costs of doing business in foreign currency for commercial banks. Risks to economic agents 43. As mentioned above, foreign currency borrowers in Haiti do not always receive income in foreign currency. As a consequence, some foreign currency borrowers maintain an open, unhedged exchange rate risk position. They face the risk of a sharp increase in indebtedness in the case of a rapid depreciation of the gourde. During periods of relative exchange rate stability, for example, 1996-99, borrowers benefited from lower foreign currency interest rates and a stable exchange rate. This changed during FY 1999/2000, when depreciation increased the borrowers' gourde indebtedness and the debt service obligations in gourdes. 44. To minimize the systemic risk created by the deterioration of some borrowers’ debt servicing capacity, the BRH' banking supervision should impose stricter commercial bank lending guidelines for loans denominated in foreign currency. This would take into account the additional unhedged exchange rate risk. # It has been argued that this requirement fosters dollarization as banks would maintain a larger spread on gourde transactions than on dollar transactions to account for the local Currency reserve requirement on foreign currency deposits. However, the larger gourde spread is better explained through the higher country risk in Haiti and due to the fact that banks cannot increase the dollar spread because of competition from offshore financial centers. — [page 25] -24- Seigniorage . 45. Seigniorage estimates in the literature for different countries or groups of them arrive at sharply different results, depending on the definition of seigniorage, the estimation methodology used, and the degree of financial intermediation in the countries. Fischer (1982) estimated the annual seigniorage of industrial countries to be about 0.7 percent of GNP and around 0.8 percent of GNP for developing countries. * For Lebanon, Bolbol (1999) estimated seigniorage at 1.1 to 2.5 percent of GNP annually between 1984 and 1997. 46. Inthe case of Haiti, we calculated annual seigniorage as the increase in currency outside of the BRH plus the net interest income that the BRH could derive from the required commercial banks' deposits at the BRH.Ÿ In our estimates, we have used the time deposit rate at commercial banks as an indicator of the theoretical income that could be derived from such deposits.* As can be seen from Table 3, seigniorage estimates for the last 3 years show considerable fluctuation, ranging from 0.4 percent of GDP in fiscal year 1996/97 to 1.1 percent of GDP in fiscal year 1998/99. 47. A simple estimate has been made to separate the seigniorage that the authorities have collected from the inflation tax. Noninflation seigniorage can be calculated on the basis of real GDP growth, a real interest rate that would be paid on commercial bank deposits in a noninflationary environment, and a natural rate of increased demand for liquidity (re-monetization) in a noninflationary environment. For sake of simplicity each of the 3 rates is assumed to equal 3 percent. ? Under these assumptions, noninflation seigniorage can be estimated to amount to slightly more than 0.5 percent of GDP annually in Haiti. # Switching completely to a foreign currency would entail one-time costs of about 6 percent of GDP to replace all high-powered money in the country with the foreign currency at end- September 2000. # Currency outside the BRH comprises currency in circulation and currency at commercial banks. 2 It could also be possible to use the average interest rate paid over a 12-month period for all BRH bonds outstanding over that period as an indication of opportunity costs for the BRH. 77 Various estimates for Haiti showed a lack of parameter stability that rendered econometric tests to derive a rate of noninflationary re-monetization irrelevant. It is however possible to decompose the nominal increase in currency in circulation into its real and inflation-related component by deflating nominal growth in currency by the consumer price inflation. The results are broadly similar for FY 1997/98 and FY 1998/99 but show a negative zero-inflation seigniorage in FY 1996/97 due to the reduction in real currency in circulation during that year. [page 26] -25- 48. Dollarization has resulted in a loss of seigniorage. First, currency issue by the BRH is reduced by the substitution by economic agents of dollars for gourdes. There is no data available about the amount of dollars in circulation in Haïti, but anecdotal evidence points to à predominant use of gourdes for cash transactions in Haiti and only negligible use of dollars for transactions. This implies that the loss of seigniorage due to currency substitution is rather limited? 49, Second, deposits in dollars have grown rapidly in recent years. This implies a relative loss in seigniorage for the authorities as the reserve requirements on those deposits are levied at a lower rate. If the authorities imposed an identical reserve requirement ratio on domestic and foreign currency deposits, there would be no loss of seigniorage on this account. Table 3 shows that the annual loss of seigniorage due to dollarization has amounted to around G70 million since FY 1996/97 or about 0.1 percent of GDP.” The fact that this loss has been decreasing while the dollarization ratio has increased can be explained by the fact that the difference in the reserve requirement ratios has been shrinking faster than rate of increase in deposit dollarization. Table 3. Haiti: Seigniorage Estimates 1996-99 (in units as indicated) 1996/97 1997/98 1998/99 (in millions of gourdes) Seigniorage 220 598 773 Change in currency outside BRH -12 244 498 Unpaid interest on banks” deposits at the BRH 232 354 275 Zero-inflation seigniorage 304 335 379 Seigniorage lost to deposti doillarization 78 73 61 (in percent of GDP) : Seigniorage 0.39 0.92 1.07 Zero inflation seigniorage 0.54 0.52 0.53 # This assumes that the usage of electronic dollar transactions is not a substitute for gourde cash transactions, in which case there would be a loss in seigniorage. This is a reasonable assumption in Haïti, where large-value transactions are not carried out in cash and dollar transactions are usually related to large-value items. # The loss is calculated as the unpaid interest on the additional required reserves that would have been levied if the dollar deposits had been denominated in gourdes. The interest rate used is again the commercial banks' time deposit rate. [page 27] & -26- Exchange rate regime 50. The dollarization process in Haïti can have a negative bearing on the stability of the exchange rate as a consequence of the factors discussed above. As the conduct of monetary policy becomes more complicated in a dollarized environment exchange rate volatility can increase. In addition, as economic agents could perceive the changing monetary policy environment as a sign of a decreased capacity of the BRH to conduct monetary policy or a sign of increased macroeconomic instability, they would reallocate gourde and dollar portfolios accordingly. The reactions of economic agents to changes in exchange rate expectations in a dollarized environment tend to amplify exchange rate changes. It is therefore necessary for the BRH to sharpen its monetary policy instruments, in particular to gain better control over the foreign currency components of the monetary aggregates and to ensure appropriate levels of liquidity in the banking system through continuous improvements in the regulatory framework. 51. Economic literature Figure 11-Haiti: Deposit Dollarization, Exchange Rate, and Inflation Volatility 1999-2000 suggests that exchange rate 35 é volatility tends to be associated . : . with lower degrees of deposit . PVR (on Rte 15 dollarization, while inflation 5} à, volatility tends to be associated » L' Depouit doit ao st ! with higher degrees of deposit d Tr FE 15 dollarization.” The experience in 15 — (left scale) : Haïti does not conciusively support _,, |yf} 11? or contradict those findings, as ONE M |, inflation volatility has tended to $ Van LS LOT A ap coincide with exchange rate o is o volatility (Figure 11). Data does Sp34 Sp55 SpI6 Sp97 Spos Se99 Sep-00 therefore not allow distinguishing between periods of exchange rate volatility and periods of inflation volatility and their respective impacts on deposit dollarization. Nonetheless, if the -authorities were interested in slowing deposit dollarization, economic literature would suggest it to be preferable to strive to reduce inflation volatility rather than to reduce exchange rate volatility. Consequently, a stabilization policy that targets a lowering of inflation through tighter fiscal policy rather than through an exchange rate anchor may be the most effective in E limiting an increase in dollarization. 30 Ize and Levy-Yeyati (1998). [page 28] -27- D. Conclusion 52. Deposit dollarization in Haïti has been primarily the result of political and economic uncertainty that has been reflected in inflation and depreciation expectations. In addition, the higher reserve requirements on local currency deposits, which have created a cost advantage for dollar intermediation, have promoted deposit dollarization. Dollarization in Haiti has complicated the conduct of monetary policy because of different money multipliers for gourde and dollar deposits. Loan dollarization in Haïti has also increased risks to borrowers and the banking system holding foreign currency denominated assets. To minimize the systemic risks created by deposit and loan dollarization, and eliminate the tax advantage of foreign currency intermediation, the BRH should consider harmonizing reserve requirement ratios. Over the medium-term, the BRH should consider lowering reserve requirement ratios as the profitability of the BRH improves and rely increasingly on open market operations. [page 29] -28- List of References Bolbol, Ali, 1999, "Seigniorage, Dollarization and Public Debt: The Lebanese Civil War and Recovery Experience," World Economy, Vol. 27, No. 10. Brand, Diana, 1993, "Currency Substitution in Developing Countries: Theory and Empirical Analysis for Latin America and Eastern Europe,” Jfo-Studien zur Entwicklungsforschung, No. 24 Calvo, Guillermo, 2000, "Capital Markets and the Exchange Rate,” Manuscript, University of Maryland, April 14. Calvo, Guillermo and Reinhart, Carmen, 1999, “Capital Flow Reversals, the Exchange Rate Debate, and Dollarization,” Finance & Development, September. Canto, Victor, 1985, "Monetary Policy, Dollarization, and Parallel Market Exchange Rates: The Case of the Dominican Republic," Journal of International Money and Finance, Vol. 4. Dancourt, Oscar, 1999, "Neoliberal Reforms and Macroeconomic Policy in Peru," CEPAL Review 67, April 1999, Santiago, Chile. Fischer, Stanley, 1982, "Seigniorage and the Case for a National Currency," Journal of Political Economy, Vol. 90, No. 21. Garcia-Herrero, Alicia, 1997, "Banking Crises in Latin America in the 1990s: Lessons from Argentina, Paraguay, and Venezuela," IMF Working Paper WP/97/140. IMF, 1999, “Monetary Policy in Dollarized Economies, Occasional Paper 171. | Ize, Alain and Levy-Yeyati, Eduardo, 1998, "Dollarization of Financial Intermediation: Causes and Policy Implications," Z44F Working Paper WP/98/28. Melvin, Michael and Peiers, Bettina, 1996, "Dollarization in Developing Countries: Rational Remedy or Domestic Dilemma?," Contemporary Economic Policy. Vol. 14. Mizen, Paul, 1996, "The Behavior of Foreign Currency Holdings During Currency Crises: Causes and Consequences," Open Economies Review, Vol. 7. Savastano, Miguel, 1996, "Dollarization in Latin America: Recent Evidence and Some Policy Issues," ZMF Working Paper WP/96/4. [page 30] -29- III. EXTERNAL RESOURCE FLOWS, DEBT, AND HIPC ELIGmBILI Tv" A. Abstract Haiti has great development needs, but the burden of its external debt is relatively manageable compared with that of other poor developing countries. During the past ten years, a high proportion of external financial flows to Haiti has been in ‘ the form of grants rather than loans, and most loans were made on highly concessional terms. Haiti has also benefited from substantial debt relief from the Paris Club and bilateral creditors. Finally, exports grew rapidly during the past five years, especially as the light assembly sector recovered following the lifting of the trade embargo in 1995. As a result, Haiti has avoided the accumulation of a debt and debt service burden sufficiently onerous to make it eligible for debt relief under the Initiative for the Heavily Indebted Poor Countries {(HIPC). Present}y, Haiti's external debt and debt service position appears manageable, and assuming good economic policy implementation and continued external financial support in | the form of grants and concessional loans, it may remain so. A. Introduction 53. Despite its low level of social indicators, Haiti has avoided the accumulation of an unsustainable burden of external debt.°? This is mainly because most external resource flows have been in the form of grants in recent years and Haiti has benefñted from debt relief under the aegis of the Paris Club. Loan disbursements to the public sector have been constrained by repeated political crises and the weak absorptive capacity of public institutions. In addition, the high level of concessionality of Haiti’s external debt resulted in debt burden indicators that are relatively low compared with countries considered eligible for debt relief under the Initiative for the Heavily Indebted Poor Countries (HIPC). Thus, Haïti has not been considered as qualifying for debt relief under the HIPC Initiative. 54. This chapter assesses Haïiti’s external financing and debt situation as of end- FY 1998/99. To evaluate the level of indebtedness, it uses relevant HIPC standards. Accordingly, the debt analysis is based on the net present value (NPV) concept.” The analysis *? Prepared by Werner Ch. Keller. #7 See chapter V for a description of poverty and social indicators. The NPV of debt is defined as the sum of all future interest and principal payment obligations on the existing debt, discounted at the market interest rate (IMF 1999). [page 31] -30- also compares Haïiti’s debt service with the inflows of external loans and grants. However, the chapter does not provide a forward-looking debt sustainability analysis for Haïti, as this would imply a complete medium-term policy framework, including projected loan disbursements to finance balance of payments needs in the context of an economic program supported by a Fund facility. 55. Section B of this chapter presents a short history of the flows of external resources to Haiti and the process of debt accumulation and relief in the 1990s. Section C analyzes Haiti’s external debt situation, in nominal and NPV terms, relative to the criteria determining eligibility for the HIPC Initiative, and compares Haiti with the countries in the Western Hemisphere and a sample of African countries that are being considered eligible for debt relief under the HIPC Initiative. Finally, in Section D the debt situation is placed in the context of past economic performance. B. Resource Flows to Haïti in the 1990s 56. During the first half of the 1990s, Haïti suffered a dramatic deterioration in economic and social conditions. Shortly after the inauguration of President Aristide, bilateral and multilateral institutions increased loan commitments, but were only able to disburse small amounts before the September 1991 military coup led to embargoes on most trade and financial transactions. À major collapse of the economy ensued. Real GDP is estimated to have fallen by 19 percent between 1990 and 1994. Loan disbursements were stopped and substantial arrears accumulated on external debt service payments to bilateral and multilateral creditors, including to the Fund. As a result, Haiti’s external debt increased from US$850 million (45 percent of GDP) at end-fiscal year 1989/90 to US$940 million (50 percent) at end- FY 1993/94, including arrears of over US$200 million (Table 1). 57. After the return to democratic rule in October 1994, the government’s Emergency Economic Recovery Program and the normalization of external financial relations were supported by a stand-by arrangement with the Fund. The Fund approved a stand-by arrangement in the amount of SDR 20 million to support the FY 1995/96 economic program in March 1995. This paved the way for a substantial increase in financial flows to Haiti. As a contribution to the government‘s Emergency Economic Recovery Program, multilateral institutions stepped up their financial efforts seeking to rehabilitate the battered Haitian economy and initiate a period of economic growth and social development. Multilateral loan disbursements, including a purchase from the Fund, reached US$150 million in FY 1994/95, while grants amounted to US$410 million. | [page 32] N -31- 58. A substantial reduction of bilateral debt was achieved as a result of the May 1995 Paris Club agreement with bilateral creditors.”* The agreement provided for concessional Naples terms, involving a 67 percent NPV reduction of the amounts rescheduled. The agreement covered arrears (including late interest) as of February 28, 1995 and principal and interest payments through end-March 1996. As this covered almost all of Haiti’s debt to Paris Club members, it was almost equivalent to a rescheduling of Haiti’s stock of bilateral debt. Five creditors were involved in the rescheduling of debt and debt service amounting to US$113 million, or 4.3 percent of GDP, including US$82 million of debt in dispute. Three creditors (Canada, France, and the United States) opted to write-off two thirds of the rescheduled obligations, with the remainder to be consolidated at market interest rates over a period of 23 years, including a grace period of 6 years. The other two creditors (Italy and Spain) chose to reschedule 100 percent of obligations due at concessional rates with repayment over 33 years, so as to reduce by 67 percent in NPV terms the payments due on the rescheduled debt. Partially as a result of debt relief and forgiveness the face value of total external public debt was reduced in FY 1994/95 by US$160 million to US$781 million (30 percent of GDP). 59. Since 1995, Haïti has attracted substantial amounts of international resources, but debt indicators have fallen significantly. In FY 1994/95, following the lifting of the embargo, net external resource flows amounted to around US$650 million or 25 percent of GDP, before leveling off to around US$300 million (7 percent of GDP) in FY 1998/99. Net debt-creating loan disbursements on average represented only around 30 percent of inflows of gross public resources in FY 1999/2000. External debt outstanding rose by 50 percent from US$780 million in FY 1994/95 to US$1.2 billion in FY 1998/99, while GDP over the same period grew by 63 percent in U.S. dollar terms. As a result, the ratio of debt to GDP decreased slightly from 30 percent of GDP to 27 percent. However, over the same time period, debt in relation to exports of goods and services fell substantially from 370 percent to 224 percent, due to the robust increase in exports, which grew by 157 percent from US$137 million to US$352 million, driven by the recovery of exports from the light assembly sector. 60. In the second half of the 1990s, inflows of financial resources mirrored the mixed - performance under Fund arrangements. Over this period, Haiti remained current with its external payment obligations. Haïti‘s overall balance of payments position moved into surpluses of US$25-30 million per year for FY 1996/97 through 1998/99 as a result of economic stabilization measures, a sustained strong growth of exports from the light assembly = sector, and remittances from Haitians living abroad. A three-year program was supported by an agreement under the Fund’s Enhanced Structural Adjustment Facility (ESAF) approved in October 1996. However, the mid-term review of the first year arrangement could not be completed, as a deepening political crisis adversely affected the implementation of structural % This was Haiti’s only debt rescheduling from Paris Club creditors. For details see Haiti— Report on External Debt Renegotiation (SM/95/170), 7/17/95. In previous years, some bilateral creditors had forgiven debt or transformed small amounts into grants. [page 33] -32- reforms, the disbursements of external aid flows, and economic recovery. Since 1996, the Haitian parliament ceased ratification of new multilateral loans, including IDB loans totaling almost US$200 million; while the World Bank substantially curtailed the preparation of new project lending. Between 1995 and 1999, annual loan disbursements from multilaterai sources declined gradually, falling from US$150 million in FY 1994/95 (5 percent of GDP) to US$100 million (2.5 percent of GDP) in FY 1998/99. However, the share of multilateral loan disbursements continued to average more than 95 percent of total external loan disbursements. During the same period, amortization payments amounted to US$20-30 million per year, of which about three-quarters went to multilateral institutions. In November 1998, Fund Emergency Assistance in the amount of SDR 15.2 million was provided to support recovery and reconstruction after the destruction caused by hurricane Georges. 61. External grants represented about 70 percent of total disbursements of grants and loans between 1995 and 1999. Grants have come from a diversified range of international, bilateral, nongovernmental, and private sources; they are both tied or untied and take various forms, including budget or balance of payments support, in-kind contributions of n goods and services, and technical assistance. The vast majority of grants is channeled through nongovernmental organizations and is directed towards specific social sectors or projects. Between 1995 and 1999, external grants amounted to some US$1.4 billion compared to US$600 million in loan disbursements. Grant flows declined from a peak of US$400 million in FY 1994/95 to US$300 million in FY 1995/96, before stabilizing at US$200-250 million (about 6 percent of GDP) a year during the following three years. | C. Haitÿs Debt and HIPC Eligibility 62. The Initiative for the Heavily Indebted Poor Countries (HIPC) is designed to help countries with a track record of sound economic policies to reduce a debt burden that remains unsustainable even after all debt relief available under other mechanisms, including Paris Club Naples terms, has been provided. To qualify for HIPC debt relief, a poor country has to satisfy specific criteria for high indebtedness. The countries‘ debt burden, in net present value (NPV) terms, has to exceed 150 percent of exports (three-year moving average of exports of goods and nonfactor services) or exceed 20 percent of GDP. Alternatively to the above criteria, the enhanced HIPC Initiative provides for a fiscal window for open economies undertaking a strong revenue effort, if the NPV of external debt exceeds 250 percent of central government # The loans approved by the IDB Board in 1996 and 1997 were not ratified by parliament and USS$95 million in 1998 IDB loans could not be presented to parliament. [page 34] -33- revenue. HIPC debt relief is provided to an extent that reduces the debt burden to the level of the threshold that qualified the country for HIPC debt relief. 63. Haitis external debt service burden in relation to GDP and exports is relatively light. Total debt service payments, amortization and interest combined, represented 4.8 percent of external debt outstanding in FY 1998/99.7 In comparison, only Malawi and Uganda were paying relatively less. Haiti’s debt stock amounts to 27 percent of GDP, half of Bolivia‘s 53 percent or Uganda’s 56 percent (after both countries availed themselves of a first package of debt relief under the HIPC initiative), or a third of that of other HIPC countries (Honduras, Senegal, Tanzania, (Table 2)). Similarly, debt service as a percentage of GDP in Malawi, Senegal, and Tanzania was 4-5 times higher than the 1 percent of GDP paid by Haïti. 64. The degree of concessionality of Haiti’s total external debt is among the highest worldwide. Haiti’ s debt profile has an average concessionality of 49 percent. This is higher than the any one of the HIPC countries in the comparator sample. Uganda’s and Malawi’s concessionality are 46 percent and 43 percent, respectively, although both countries have a slightly higher share of highly concessional multilateral debt. Uganda has already received debt relief in NPV terms under the original HIPC Initiative. 65. At end-FY 1998/99, the net present value of Haitis external debt amounted to US$591 million. Of that amount, US$497 million (84 percent) was due to multilateral institutions, of which 40 percent was owed to IDA, 34 percent to the IDB, and 7/2 percent to the Fund. Bilateral creditors held US$94 million or 16 percent, of which Paris Club creditors represented 94 percent (Table 3). 66. Haiti does not meet the thresholds for a highly indebted country by the standards established under the enhanced HTPC Initiative. At end-FY 1998/99, Haiti‘s : debt in NPV terms amounted to 13.7 percent of GDP, below the minimum threshold of 20 percent established in the enhanced HIPC Initiative. Haiti‘s NPV debt-to-exports ratio amounted to 141 percent at end-FY 1998/99, below the minimum threshold of 150 percent established in the enhanced HIPC Initiative. Haiti’s NPV debt-to-revenue ratio amounted to 166 percent, below the minimum threshold of 250 percent established in the enhanced HIPC Initiative. The fiscal window is also not applicable, as Haiti’s fiscal revenue %6 An open economy for the purpose of the HIPC Initiative is defined as an economy exporting more than 30 percent of GDP; a strong revenue effort is defined as fiscal revenue exceeding 15 percent of GDP. #7 Concessionality or grant element is the discount between the value of debt in NPV and in nominal terms. The degree of concessionality is very sensitive to the interest rate applied for its calculation. Higher world interest rate levels imply a higher level of concessionality and a lower level of NPV. A discount rate of 7 percent was applied to calculate the NPV of Haitis dollar-denominated debt. [page 35] -34- represented only 8.7 percent of GDP during fiscal year 1999/2000, below the minimum threshold of 15 percent established in the enhanced HIPC Initiative. 67. Haiti has not yet established a track record of good economic performance. In order to be eligible for assistance under the HIPC Initiative, a country must first establish a track record of good economic performance, including the adoption of a comprehensive strategy for poverty reduction and growth, established through a broad-based participatory process. Haiti has had some success in stabilizing îts economy for two years, but economic performance deteriorated in FY 1998/99 and a staff-monitored program could not be presented to Fund management for FY 1999/2000. D. Conclusion 68 Presently, Haïitis debt and debt service position appears manageable. Although being poor, Haiti is not heavily indebted by HIPC standards. Haiti’ s debt and debt service ratios have remained at levels that are already below those that could be achieved through debt relief under the enhanced HIPC Initiative. This is the result of the combined effect of debt relief from Paris Club creditors, large inflows of external grants instead of loans, highly concessional multilateral Loan disbursements, and growing export earnings. Haiti’s debt service position also appears modest in relation to grant and loan inflows, as total debt service during fiscal years 1995/96-1998/99 amounted to US$160 million, compared to inflows of grants and loans of US$1450 million during the same period. 69. Rather than debt reduction, the major developmental issue in Haïti is the efficient absorption of the external financial and technical assistance that Haiti receives. Since the embargo was lifted in 1995, Haiti has received on average a net inflow of international resources equivalent to 12 percent of annual GDP, of which over 70 percent was in grants. However, this inflow has underpinned an annual average real GDP growth of only 2/4 percent, barely exceeding population growth. Although there was some progress in improving Haïti’s administrative and technical capacity to absorb external assistance, the weakness of existing structures and the structural growth impediments have prevented a sustained growth of per capita income and a reduction of widespread poverty. The low overall return on external assistance inflows in terms of growth and poverty alleviation points toward focusing on increasing the effectiveness in the use of external financial resources and the elimination of structural impediments as the most effective development strategy ahead. Assuming good economic and social policy implementation and continued support in the form of grants or highly concessional loans in the framework of a comprehensive medium-term program, Haitis economy can grow and the poverty of its population be reduced, while the external debt and debt service position may remain manageable. [page 36] -35- Table 1. Haïti: Indicators of Debt, Debt Service, and Resource Transfer Fiscal year ending September 30 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 (In millions of US dollars) Public external debt 850.8 8370 845.5 8624 9405 7812 9054 10295 11072 11656 to multilateral creditors 5524 5679 559.3 538.9 516 6466 7563 856.8 9330 9933 to bilateral creditors 2984 269.1 2862 3435 431. 160.8 1744 2187 2122 2039 Change of external debt stock 302 -13.8 8.5 16.9 781 -159.3 1242 124.1 771 584 Public external debt service 51.8 29.5 23.1 37.8 383 28.8 263 33.6 434 55.9 Amortization 37.8 193 12.7 27.2 25.8 19.83 16.9 19.6 30.5 357 Interest payments 14.0 102 10.4 10.6 12.5 9.0 94 14.0 12.9 202 Loan disbursements 742 433 0.5 0.0 00 1500 121.5 1319 974 1030 Net resource flows 166.7 1903 800 104.3 1120 644.0 388.3 320.2 2766 3038 External grants 1319 1647 85.0 1000 113.3 4099 293.1 2219 2226 2568 Netlending 1/2/ 348 25.6 -5.0 43 -13 121.2 952 98.3 54.0 47.1 Debt relief 0.0 0.0 0.0 0.0 0.0 112.9 0.0 0.0 0.0 0.0 (In percent of total debt) Multilateral debt 649 67.8 662 62.5 549 82.8 83.5 83.2 843 852 Debt service 6.1 3.5 27 44 4.1 37 2.9 3.3 3.9 48 {In percent of GDP) Public external debt 4.9 34.8 40.6 474 49.7 29.7 30.6 29.7 28.8 27.1 Public external debt service 2.7 12 11 2.1 2.0 1.1 0.9 1.0 14 13 Net resource flows 8.8 79 3.8 57 59 24.5 13.1 9.2 72 71 Net loan disburserments 19 10 2.6 -1.5 -14 49 3.5 32 17 L6 Loan disbursements 3.9 18 0.0 0.0 0.0 57 4.1 3.8 2.5 24 Amortization -2.0 0.8 2.6 -L.5 -L4 0.8 -0.6 -0.6 2.8 028 Net arrears accumulation 0.7 05 0.9 23 2.0 00 0.0 0.0 0.0 00 Net debt relief from Paris Club creditors 0.0 0.0 0.0 0.0 0.0 43 0.0 0.0 0.0 0.0 Grants 70 6.8 41 55 60 15.6 99 6.4 58 60 Interest payments 2.7 4 —.5 2.6 7 03 23 04 03 2.5 {In percentage) Loan disbursement share of grants and loans 36.0 20.8 0.6 0.0 0.0 268 293 373 304 28.6 Debt to GDP 449 34.8 40.6 474 49.7 29.7 30.6 29.7 28.8 27.1 Debt to exports of GNFS 267.5 3733 5958 560.5 7206 369.5 366.4 3534 250.7 224.1 Debt service to exports of GNFS 16.3 132 163 246 293 13.6 10.6 11.5 9.8 10.7 Debt service net to international reserves 3/ ….. ee . .…. mn 15.5 19.5 20.7 22.3 25.6 Memorandum items: GDP (in US$ million) 1895 2407 2084 1818 1891 2634 2955 3462 3839 4307 Exports of GNFS (in millions of USS) 3180 2242 1419 1539 130.5 2114 2471 2913 4417 5200 Current account to GDP (in percent) 4/ 47 -5.1 2.0 -3.8 0.9 -12 -2.2 -0.6 03 -14 Source: Bank of the Republic of Haiti, and Fund staff estimates. 1/ New loans, minus amortizations and interest payments. 2/ Including, from 1990 to 1994, accumulation of external payment arrears. 3/ In FY 1989/90 through 1994/94, the level of net international reserves was negative. 4/ including grants. [page 37] Table 2. Haiti: Comparative Debt Indicators 1/ n millions of US dollars, unless indicated otherwise) EE EE CE LE 2 eme ue joue eee en en Ne nn Debt External public debt ° 1,166 4,467 1,383 4,373 6,358 2,597 3,763 10/ 6,385 3,217 7,056 Share of bilateral debt (in percent) 13 34 28 34 10/ 66 16 37 45 13 46 Share of Paris Club debt (in percent) 13 33 ne 27 10/ 26 13 21 31 9 40 Share of multilateral debt 3/ 83 65 70 55 10/ 34 84 63 54 86 $4 External public debt service 56 372 130 382 323 82 216 413 134 328 [NPV of debt 4/ 589 3,521 1,078 3,220 5,487 1,479 2,495 4,613 1,748 5,075 Debt ratios (in percent) Debt to GDP 27 52 192 83 280 142 79 74 56 249 Debt to exports 5/ 224 329 201 178 761 479 238 591 443 838 Debt to service to GDP 1 4 18 7 14 4 5 5 2 12 Debt service to exports 5/ ii 27 19 16 39 15 14 38 18 39 Debt service to debt outstanding s 8 9 9 5 3 6 6 4 5 INPV to GDP 14 41 150 61 242 81 52 54 30 179 NPV to Exports 5/ 114 260 157 131 657 273 158 427 24] 603 INPV to three-year average exports 5/6/ 14t 259 151 147 656 262 166 397 240 539 0 NPV to Revenue 7/ 157 180 312 338 961 517 303 340 175 702 4 Memorandum items ! GDP 4,307 8,555 721 5,268 2,268 1,833 4,756 8,585 5,791 2,835 GDP per capita (in US$) 552 1,051 848 852 459 172 513 262 268 272 Debt per capita (in US$) 149 549 1,627 708 1287 244 405 195 149 678 Exports 520 1356 688 2,463 835 542 1,582 1,081 726 842 Three-year average exports 6/ 418 1,361 715 2,184 837 565 1,505 1162 728 942 Current account balance -60 675 -85 -504 -840 -99 166 -558 -240 -498 Current account balance to GDP (in percent) -L4 79 -118 -9.6 -37.0 -54 3.5 6.5 41 -17.6 Revenue 7/ 376 1,959 345 952 571 286 823 1,358 997 723 Revenue to GDP (in percent) 8.7 22.9 47.9 18.1 25.2 15.6 173 158 12.1 25.5 Exports to GDP (in percent) 6/ 12.1 15.9 95.4 46.8 36.8 29.6 33.3 12.6 12.5 29.7 Concessionality 8/ 49% 21% 22% 26% 14% 43% 34% 28% 46% 28% Source: national data, IFS, and Fund staff estimates. 1/ Country sample includes ail Western Hemisphere and some African HIPC countries. 2/ For ail countries, except for Haiti and for Bolivia and Uganda (footnote 5): date before HIPC debit relief. 3/ Including IMF. 4/ As calculated in respective HIPC documentation. 54 Exports of goods and non-factor services. 6/ Backvwvard-looking three-Vear moving average, 7/ Central government revenue. 8/ Concessionality is the grant element consisting of the percentage difference between the nominal and the net present value of debt. 9/ Bolivia and Uganda: after first HIPC assistance, 10/ End-1998. . l [page 38] -37- Table 3. Haiti: External Public Debt (fn millions of US Dollars) - September 30, 1999 tock of Debt outstanding of debt Total 1,165.6 589.3 Bilateral 172.3 92.0 Paris Club 167.4 88.2 pre-cutoff 167.4 88.2 ODA 143.4 65.0 non-ODA 24.1 23.2 post-cutoff 0.0 0.0 Other official bilateral 1/ 49 3.7 pre-cutoff 0.0 0.0 post-cutoff 4,9 3.7 Commercial 0.0 0.0 Muitilateral 993.3 497.4 IMF 51.5 43.9 DA 515.2 239.2 IDB/FSO 400.2 199.5 IFAD 22.4 11.7 OPEC Fund 4.0 3.0 Ratios Debt/GDP 27.1 13.7 Debt/Exports (in percent) 2/ 3/ 279.1 141.1 Debt/Central government revenue (in percent) 309.6 165.5 Memorandum items: GDP 4,306.5 4,306.5 Exports 2/ 520.0 520.0 Exports, three-year moving average 2/ 3/ 417.7 417.7 Source: Bank of the Republic of Haiti, and staff Fund estimates 1/ Taiwan Province of China, Argentina, and Venezuela. | 2/ Exports of goods and non-factor services. 3/ Backward-looking three-year moving average of exports. [page 39] -38- Figure 1. Haiti: Debt and NPV of Debt, 1999 (in millions of US. dollars) Haiti and Western Hemisphere HIPC countries : 8000 7000 6000 : 5000 _ 4000 | a pe à 3000 ee ee 2000 _ . . . 1000 ET 3 _ _ TE EE . à Haïti Bolivia Guyana Honduras Nicaragua Haiti and selected African HIPC countries . 8000 7000 ss 6000 FC A 5000 E à 4000 | | 3000 a Fe < . … nn _ | . à a Fe 1 É 1000 | FF ee É | É. : ee . e : FR FRS : ee Fe RS ESS Haiti Malawi Senegal Tanzania Uganda Zambia : | B External public debt BNPV of debt Source: National data, IFS, and staff estimates. [page 40] -39- Figure 2. Haiti: Comparative Debt Ratios, 1999 Debt to GDP Ratio (in percent) 300 250 Es _ . . ÈS ne 0 | . = _ | . | . 150 | Le 100 | L | de 50 an À À | D D 1 ml. LL À E Di 1 D 1 LU Li Li RL, | 0 LÉ Fo bi É É — É ee É É Haiti Bolivia Guyana Honduras Nicaragua Malawi Senegal Tanzania Uganda Zambia Ratio of Net Present Value (NPV) of Extemal Debt to Three-year Average Exports (in percent) 700 600 a 500 ee L 400 _ _ . . 300 HIPC threshold ÈS e . L . | Ru pe — | 0 E / | | | ENS = es = se Re Res Rs es Fi 100 | | Fe . É É h | _ Êe a Le | ee: É | LE ET ES EU 1 1 1 PU LU 1. Haiti Bolivia Guyana Honduras Nicaragua Malawi Senegal Tanzania Uganda Zambia Source: National data, IFS, and staff estimates. [page 41] - 40 - International Monetary Fund, 1999, “Debt Relief for Low-IncomeCountries—The Enhanced HIPC Initiative,” Pamphlet Series No. 51. [page 42] -41- IV. TRADE LIBERALIZATION IN HAITI Abstract This chapter describes the two main stages of Haïti's trade liberalization (1986/87, 1994/95), that have resulted in the country ranking among the most open economies in the Western Hemisphere. If argues that an important objective of trade liberalization was lowering the cost of food and basic commodities to the poorest segments of population. Evidence from the rice sector suggests that this policy put downward pressure on the domestic price of rice, as well as on domestic rice output. The government is currently seeking to consolidate the liberal trade regime through membership in the CARICOM and further tariff reduction. However, other crucial structural reforms have lagged behind trade liberalization. À sustained improvement in living conditions of the poor will require more determined pro-growth structural reforms in these other areas, as well as the maintenance of macroeconomic stability. A. Introduction 70. Since the restoration of democracy in 1986, the Haitian authorities have persevered in establishing and maintaining a liberal trade regime, under difficult political and economic circumstances. Starting in 1986/87, Haiti boldly dismantled the protectionist trade system that was in place at the time. It liberalized its trade regime by eliminating nontariff barriers (NTB’s), including import and export licensing restrictions, and dramatically lowering customs tariffs. Haiti has actively sought membership in the African Caribbean Pacific Countries (ACP) group under the Lome convention, it became a member of the WTO in 1996, and acceded in July 1999 to the Caribbean Community and Common Market (CARICOM). Haitÿs actual accession to the CARICOM will take place once parliament ratifies the treaty. As a result of its liberal trade policy, Haïti, albeit the poorest country in the Western Hemisphere, currently ranks among the most open economies worldwide. 71. The boldness of Haitis trade policies stands in sharp contrast with the slow pace of structural reforms in other crucial areas, in particular the privatization of public enterprises, thereby depriving the population of some of the beneñits of the liberal trade policy. The swift opening up ofthe economy to competing imports has been effected in the absence of a strong domestic private sector free-trade constituency and would seem to have been 38 Prepared by Eric Verreydt. Haïti was admitted to the Caribbean Community in 1997. [page 43] - 42 - mainly motivated by domestic politics, in particular in regard to reducing food prices. After years of embargoes, the drastic reduction in customs tariff rates in early 1995 was designed to benefit consumers, making imports of basic commodities and food staples, in particular of food products, more affordable. Another objective was to reduce the incentive for fraud. While the relative prices of rice seems to have declined since 1995, there is no strong evidence that overall the tradable-goods component of the CPI has become relatively cheaper in the aftermath of trade liberalization. 72. Output in some sectors was displaced by imports, notably lower grade rice, which attracted criticism. The latter, however, does not appear to take into account the broader policy perspective. The prolonged political crisis since end-1996, and the associated uncertainty, have depressed investment and growth, while the postponement of essential structural reforms, in particular the privatization of the main utilities, has led to a substantial deterioration of infrastructure. Moreover, in FY 1999/2000, excessive budget deficits have imposed a toll on the poor through higher inflation. The unfinished reform agenda has not permitted Haiti to fully benefit from its bold trade liberalization policy. 73. The remainder of this chapter is organized as follows. Sections B and C describe the two-stage trade liberalization that occurred in 1986-87 and 1994-95. Section D discusses Haïtis recent accession to the Caribbean Common Market. Discussion of issues related to the rice sector is enclosed in the Text Box, Section E summarizes the chapter’s conclusions. B. Trade Liberalization 198687 74. As in many Latin American countries pursuing an import-substitution industrial policy, the pervading import restrictions in Haiti during the 1970°s and early 1980°s adversely affected agricultural exports and led to inefficient industries developing behind protective barriers. By contrast, the unprotected export assembly industry grew rapidly. Import restrictions on rice and an export tax on coffee resulted in high domestic prices for rice and low prices for coffee, encouraging inefficient rice production on hilisides. 75. The administration that came to power in Haiti in 1986 undertook to dismantle domestic private monopoles, and spur competition through trade liberalization. By December 1986, quantitative import restrictions had been removed for all but seven agricultural products, which remained subject to import licensing, including rice, sugar and pork. In March 1987, a new 13-band tarif structure was introduced with ad valorem rates mostly between zero and 40 percent (exceptions were 50 percent for rice and 57.8 percent for gasoline), with an average of around 16-20 percent. This trade regime was maintained until embargoes on most external transactions were imposed on Haiti, following the military coup that ousted President Aristide in September 1990. [page 44] -43- C. Trade Policies 1994-95 76. Following the return to constitutional rule in October 1994, and the lifting of the embargoes imposed on most trade and financial transactions in 1991-94, the government of Haiti embarked on an economic recovery program, supported by the international community, as well as on a medium-term structural adjustment strategy. The latter included sweeping trade liberalization measures. 77. In FY 1994/95, all remaining import restrictions on agricultural commodities were eliminated. Under the tariff reform, approved in February 1995, imports were to be valued using the market exchange rate, as opposed to the fixed preferential rate of G 6.5 per US. dollar in effect since August 1989. The resulting large valuation increase was broadly offset by a reduction in tariffs rates. The tariff schedule adopted in February 1995, that is still in effect, reduced the maximum tariff rates from 40-50 percent to 15 percent and consolidated the 13-band rate structure into a four-band tariff structure (0, 5, 10, 15 percent). Specific rates (0-3 percent) were stipulated for certain basic products (rice, sugar, flour, cement). As rice | and flour were previously subject to a rate of 50 percent, the reform entailed an actual lowering of the tax incidence on these basic products. However, gasoline remained taxed at 57.8 percent. Under the current tariff structure, the simple average tariff rate is 5 percent, and over half of the close to 1,600 tariff lines bear a zero rate. The tariff structure was notified as binding to the WTO, making it difficult to increase rates. In addition to customs duties, an import verification fee of 4 percent is applied on non-exempt imports, as well as a 2 percent advance income tax payment. The latter is deductible from income tax for registered businesses, and is final for businesses that do not file income tax returns, for example, small or informal businesses. 78. Including the numerous exemptions on imports by public sector entities, donor-funded projects and NGO’s, the average total custom duty is currently around 8 percent.“ The relatively low customs duties, the elimination of NTB’s and of all economically relevant import and export licensing requirements, have put Haïti in the category of countries with the most liberal trade regime. In the Western Hemisphere, only Chile and Panama, countries that have a much larger GDP per capita, have a similarly liberal trade regime.*! A further lowering of custom tarifs to a maximum of 10 percent was to be implemented by end-1996 (some tariffs that are currently less than 10 percent, such as those for rice and sugar, would be raised somewhat). However, following the onset of the prolonged political crisis, this lowering has not been implemented to date pending parliamentary approval. It remains however on the government’s agenda. * Including the verification fee. An important exemption is gas oil supplied to the electricity company EDH. * According to the 1999 IMF's trade restrictiveness rating (Table 1). - [page 45] - 44 - Table 1: Index of Trade Restrictiveness (as of end-1999) Overall Index NTB Index Tariff Index CARICOM countries Antigua and Barbuda 5 2 2 The Bahamas 5 1 5 Barbados 5 2 2 Belize 5 2 2 Dominica 5 2 2 Grenada 9 3 3 Guyana 2 1 2 Jamaica 5 2 2 St. Kitts and Nevis 2 1 2 St. Lucia 5 2 2 St. Vincent and the Grenadines 5 2 2 Trinidad and Tobago 4 2 1 HISPANIOLA countries Dominican Republic 6 2 3 Haiti 1 1 1 Source: IMF. See IMF: “Trade Liberalization in IMF-Supported Programs, Appendix 1,” February 1998, for a description of the methodology used to build the index. [page 46] -45- 79. Export industries, mainly in the agricultural sector, were unable to seize the opportunities provided by the liberalized trade regime. “ While the new trade regime offered lower cost inputs and better market access abroad, export industries could not fully benefit from the trade liberalization effort due to the widespread structural impediments in the Haitian economy. The main impediments to increased export activity continued to be the poor road and port infrastructure and the severe supply bottlenecks in the utility sectors. In addition, some industries operating inefficiently under the previous protected regime faced increased competition from lower cost imports (see box below). Box. Trade Liberalization in The Rice Sector The opening up of the agricultural sector to imports has benefited consumers through lower relative prices for rice. Domestic rice output has declined. However, high-quality domestic production has not been displaced by lower-grade imports. In the early eighties, Haitian agricultural production was highly protected from imports. Custom tariffs on food products were on the order of 40-50 percent, and NTB’s included prohibition of imports, licensing requirements, and quotas. While NTB’s on seven sensitive food products were retained after 1986/87, in February 1995 under the Aristide-Michel government, import restrictions were lifted and customs tariffs on food products were lowered dramatically, as part of the overall reduction in custom tariffs. Custom tariffs on most food imports went from 40-50 percent to 0-5 percent; the tariff on rice, a major component of Haitians” diet, was lowéred from 50 percent to 3 percent. Trade liberalization has contributed to a large increase in imports of rice. (Table 2). At the same time, domestic production has gone down substantially (from around 180,000 tons of paddy rice in 1986-89 to 105,000 tons in 1997-99). Imports of rice, are currently estimated to account for about two-thirds of domestic consumption. Between 1994 and 1999 whereas the CPI rose by about 125 percent, the domestic price of rice increased by around — 65 percent, entailing a 25 percent decrease in the relative price of rice. Partial evidence tends to show that margins of traders has increased. The downward pressure on domestic price of rice has stemmed from competition from US. imports. Competition from imports notwithstanding, domestic production remains significant, as Haitian rice producers have tended to specialize in higher grade varieties (Gougousse, la Crete) that sell at a premium over lower-quality imported rice. The authorities’ policy of securing access to relatively cheap rice imports by the majority of the population, in particular the poorest, as opposed to maintaining more remunerative producers prices, has attracted criticism. It has been argued that competition is unfair, as U.S. rice producers receive income support; that it has benefited traders more than consumers; and that it has led to displacement of local rice. Some donors involved in agricultural projects have recommended raising tariffs to the 20-25 percent range, in order to secure higher producer prices. The Haitian government has consistently favored a low-tariff policy, arguing that the supply response of rice producers to higher prices is long and uncertain. In the authorities’ view, the loss of production reflects impediments to growth other than prices, in particular inadequate irrigation, low investment in hulling machines by traders, and land tenure issues. # See “Libéralisation des échanges: Positions et recommandations des industriels travaillant pour le marché local,” Groupe Corissance, May 1996. [page 47] -46- Table 2: Rice Production and Imports, 1986-99 (in tons) 1985-86 180,000 na. 1986-87 180,000 na. 1987-88 202,000 na. 1988-89 183,000 Da. 1989-90 130,000 5,919 1990-91 128,000 3,776 1991-92 126,000 188,309 1992-93 124,000 9,132 1993-94 1e. 90,163 1994-95 88,711 84,245 1995-96 100,000 145,351 1996-97 110,000 108,407 1997-98 100,000 na. Sources: Ministere de l’Agriculture, des Resources naturelles et du developpement Rural; and Administration Generale des Douanes. 1/ Paddy rice. The transformation coefficient in Haiti is low owing to the obsolescence of hulling machines (60 percent on average). 2/ Harbor of Port-au-Prince only. Does not include unrecorded imports. D. Haitis Accession to the CARICOM 80. Haiti was admitted to the Caribbean Common Market in Juiy 1999 with the special status of a less developed country. This enabled it to negotiate numerous suspensions to the common external tariff. In addition to trade-related issues, Haiti has become part of the agreement on free capital flows that is intended to facilitate direct investment from member countries. The main impetus to joining the CARICOM has been a desire to put an end to political isolation within the region and expand economic ties, by integrating into the main Caribbean regional organization. Haiti also wishes to be in a position to participate in the Free Trade Zone of the Americas by 2005. 81. Tarifs applied by other members of the CARICOM are generally higher than in Haiti. The common external tariff (CET) of the CARICOM was introduced in the community in January 1991. Customs tariffs initially ranged between 5 percent and 35 percent (40 percent for agricultural products). They were to be gradually reduced to a range of 5-20 percent by 1998, but were to remain at 40 percent for agricultural products. Member countries were allowed to conform with the CET tariffs at their own pace. The implementation of the CET [page 48] -47- : has been slower than anticipated, and some member countries still maintain tariffs in excess of 20 percent. Moreover, members countries have generally retained NTB's. | 82. Haiti’s trade with CARICOM countries is very small (less than 2 percent of Haitian imports and less than 1 percent of exports). Implementing the CET without suspensions or temporary waivers would entail a large increase in Haïiti’s average tariff rate, as the higher rates on non-CARICOM imports would not be compensated by zero rates on intra-community trade. In negotiating the terms of Haiti’s accession to the CARICOM, the authorities have taken considerable care in preventing a rate increase on the buik of imports, including on food imports (Table 3). Haiti negotiated therefore suspensions of the implementation of the CET for about 500 products. With a view to safeguarding custom revenues, it also negotiated waivers (“dérogations”) to the implementation of the intra-CARICOM free trade policy on a number of important products, including rice, pork, and gasoline, that could potentially be supplied in part by partner countries. The negotiated tarif, a five-band structure (0, 5, 10, 15, 20 percent) may enter into force after a transitional period following ratification. Estimates of the impact of the negotiated tariffs show an increase of about 2 percentage points in the average rate, as rates on many products, accounting for about one-third of the value of imports, will go up. With regard to the application of the full CET, CARICOM members have agreed to grant Haiti an adjustment period of five years after parliamentary ratification, postponing it until 2005 at the earliest. The adjustment period is renewable. (in percent) Flour 3 20 0 Sugar 3 40 5 Maize 15 40 15 Peas 5 20 5 Pork meat 5 40 15 Chicken meat 3/ 5 “A? list “A7 list Eges 0 40 20 Milk 3/ 0 “A? list “A? list Edible oil 0 40 0 - Source : Haitian authorities. 1/ Common external tariff of the CARICOM, at the time of negotiations (early 1999). 2/ Rate negotiated by Haiti for membership into CARICOM, valid for five years. 3/ “A” list: member states can set the custom duty rate, subject to a ceiling. [page 49] - 48 - 83. In parallel to CARICOM negotiations, technical work has been completed in the ministry of finance to update the 1996 draft revised custom tariff law that will provide for a ‘ maximum rate of 10 percent. Once the current macroeconomic instability subsides the draft law will be submitted to parliament. There is an apparent contradiction between the draft customs law and the tariff structure negotiated with CARICOM, which implies rates above 10 percent for some products. The authorities are well aware of the possible conflict between the two tariff schedules. It is however the stated goal of the authorities to implement the lowest possible tariff over the medium-term. In this respect, the authorities are hopeful that the CET will have been lowered by the time it becomes binding, to avoid tariff increases in Haiti. E. Conclusion 84. The swift liberalization of Haiti’s external trade mainly benefited consumers and traders, at some cost to inward-looking agricultural and industrial sectors. However, the slow pace of structural reforms in other areas has so far prevented Haiti from reaping the full benefit of this policy in the areas of efficiency and growth. Trade reform in Haiti was implemented in two bold steps, that each coincided with historical breaks with past economic and political environments: the fall of the dictatorship in 1986 and the lifting of the embargoes after the return to constitutional rule in 1994. As a result, Haïti, ranks among the most open economies. The liberalization of the trade regime was carried out without a strong free-trade constituency within the private sector. One of the policy’s main goal was securing access to affordable imports for consumers, in particular of food and basic commodities consumed by the poorest segments of the population. In the medium-term, a further reduction in custom tarif rates is envisaged, in parallel with Haïti’s integration in the CARICOM. 85. Through effectively liberalizing trade, Haiti has put itself in a position to exploit its comparative advantages and reallocate its resources efficiently. However, important structural impediments remain, in the utilities sector, infrastructure, education and health, and the judiciary, that constrain growth and investment. Moreover, recentiy, rising inflation is taking a toll on the poorest elements of the population. The remaining impediments to growth will have to be removed and macroeconomic stability restored, for Haiti to be able to reap the full benefit of its liberal trade regime. [page 50] N - 49 - List of References International Monetary Fund, 1998, “ Trade liberalization in IMF-Supported Programs.” Centre pour la Libre Entreprise et la Démocratie (CLED), - Zone de libre échange des Amériques: quel positionnement pour Haïti?, 1998, “Bulletin d’ Information, No. 4” - Haïti et la CARICOM, 1999, “Une Intégration Difficile mais Possible,” “Bulletin d’ Information, No. 5.” Groupe Croissance S.A., - “Libéralisation des échanges: Position et Recommandations des Industriels Travaillant pour le Marché local.”, May 1996. - (in collaboration with IRAM), 1998, “La Tarification des Principaux Produits Agricoles en République d'Haïti.” Pierre Baris, “Consultation Relative à l’ Assistance Technique Ponctuelle d’ Appui aux Négociations d'Haïti à la CARICOM.” Bureau de coordination et de suivi des dossiers CARICOM/OMC/ZLEA, “Report of the Technical Working Group on the Terms and Conditions of Haiti’s Membership in the Caribbean Community.” 1999. - September 2000, “La Communauté de la Caraïbe (CARICOM), Adhésion d'Haïti” . Jeffrey Metzel, 1999, “The Economic Context for Investment in Agricultural Intensification in Haïti.” Caribbean Community Secretariat, 1993, “The Common External Tariff of the Caribbean : Common Market.” [page 51] -50- V._ POVERTY AND SOCIAL POLICIES“ Abstract During recent years, Haïti has experienced an extended period of political distress leading to a worsening of the country's social and economic indicators and a deepening of poverty. Social programs, which are largely financed by international donors through nongovernmental organizations, have been scaled down or suspended in the last fwo years as a consequence of the ongoing political crisis, economic uncertainties, and a slow pace of structural reforms. This chapter examines the causes of poverty in Haïti and analyzes the education, health, and environment sectors. We conclude that it is essential that Haïti returns to a stable and sustainable macroeconomic framework and undertakes structural - reforms that will lead to a higher growth path that would permit a reduction in poverty and an improvement in social indicators. A. Introduction 86. Haiti occupies 27,750 km? of the western half of the island of Hispaniola. The country is divided into nine departments, 133 municipalities, and 561 districts. It became independent in 1804. In its turbulent political history, poverty alleviation was rarely a priority and recurrent political crises have tended to deepen poverty. The de-facto government that controlled Haiti between 1991 and 1994 faced an international financial and trade embargo, again worsening the country's social and economic indicators. Democratic rule was reinstated in 1994, but the country has suffered a continuous political crisis since 1997, leading to a slowdown in structural reforms, project implementation, and external assistance to alleviate poverty 87. Measured by the Human Development Index (HDI), Haïti is the poorest country in the Western Hemisphere. The causes of poverty in Haiti are political instability, poor governance, lack of personal safety, a weak justice system, low levels of physical and human capital investment, lack of basic infrastructure, and demographic pressures. Social programs, which are largely financed by international donors through nongovernmental organizations, have been scaled down or suspended in the last two years as a consequence of the ongoing # Prepared by Randa Sab. [page 52] -51- political crisis, economic uncertainties, and a slow pace of structural reforms. It is therefore essential that Haïti returns to a stable and sustainable macroeconomic framework and undertakes structural reforms that could lead to a higher growth path and a reduction in poverty. 88. The remainder of the chapter is organized as follows. Section B describes poverty incidence and aggregate social indicators in Haïti and compares them with other countries in the Western Hemisphere and sub-Saharan Africa that are eligible for the Fund”’s Poverty Reduction and Growth Facility (PRGF). Section C describes the social sectors in Haiti, in particular the education and health systems, and the environment. B. Incidence of Poverty 89. Haiti’s GDP per capita in 1998 was US$524, just slightly above the sub-Saharan African average. Its social indicators are significantly lower than those of the poorest countries in the Western Hemisphere and are comparable to those of sub-Saharan Africa (Table 1 and Figure 1). Two-thirds of the population lives in rural areas in Haiti, and over 80 percent of the rural population fall below the poverty line.“ This compares unfavorably with the rural poverty rates of PRGF-eligible countries in the Western Hemisphere.“ 90. Population pressure has exacerbated poverty in Haiti. Although the growth rate has slowed since 1990, population was still growing at 2 percent in 1998. The fertility rate has declined from 5.1 births per woman in 1990 to 4.3 in 1998, and is lower than the sub-Saharan African countries' average. The high fertility rate exerts pressures on the environment, and reduces available resources per capita for basic education, health, sanitation and access to safe water.’ The urbanization ratio in Haiti is below the average level for Western Hemisphere # Some caution has to be exercised when interpreting available data. Data on social indicators are limited in Haiti and are drawn from different sources and in several cases are not consistent. International donors are working with the government to establish a more consistent database in order to monitor social indicators. # Overall according to the 1987 household survey, 65 percent of Haitians lived below the national poverty line, which is based on population-weighted subgroup estimates from the household survey. “ World Bank (1998). | #7 The high fertility rate has a particularly adverse impact on children. Some children of low- income families (mainly girls under the age of 14) are employed as domestics under dismal conditions. Others end up in the strects, or become prostitutes. Some of these children are involved in drugs, become victims of abuse and disease, or turn into criminals. [page 53] / : . Table 1. Social Indicators: International Comparisons, 1990 and 1998 1/ ‘ (In percent) Latin America Sub-Sahara Haiti Bolivia Guyana Honduras Nicaragua & Caribbean Africa Indicators 1990 1998 1990 1998 1990 1998 1990 1998 1990 1998 1990 1998 1990 1998 GDP per capita (in dollars) 2/ 3314 523.5 7984 1175.6 463.5 9483 570.6 803.6 405.3 4774 3,009.2 4,030.5 6134 5152 Rural poverty rate 3/ .… 80.0 79.1 . . … 510 … 76.1 De ne . . : Population growth 2.0 2.0 23 23 0.1 0.7 3.0 28 23 2.6 18 16 3.0 2.6 Population density (people per sq km) 234.9 277.5 6.1 7.3 4.0 43 43.6 55.0 31.5 39,5 219 250 226 266 Fertility rate (births per woman) 5.1 43 4.8 41 2.6 2.3 5.2 42 48 3.7 3.1 2.7 6.0 5.4 Urban population (percent of total) 29.5 345 55.6 61.3 33.2 37.1 41.8 50.6 53.1 55.5 710 745 280 333 Birth rate (per 1,000 people) 35.8 313 36.1 32.4 25.7 216 38.0 327 390 30.9 26.9 23.3 43.6 403 Death rate (per 1,000 people) 124 126 10.7 8.9 8.1 7.6 6.5 52 7.3 52 6.9 6.5 15.3 149 Infant mortality rate (per 1,000 live births) 4/ 854 70.5 80.0 60.4 63.8 574 50.0 35.9 510 357 409 308 100.8 918 Life expectancy at birth (years) 53.1 536 58.3 61.9 627 64.1 66.8 69.2 645 684 68.0 69.7 50.1 504 Adult illiteracy rate 5/ 60.3 52.2 21.6 15.6 2.8 17 315 266 35.1 32.1 152 122 50.1 40.5 ! u Human development index 6/ 03 04 04 0.6 0.5 0.7 0.5 0.7 0.5 0.6 en 0.8 ne 0.5 à Rank 137.0 150.0 122.0 114.0 105.0 96.0 1160 113.0 1110 1160 . un ue ! Access to safe water 7/ 420 430 46.0 80.0 810 91.0 520 78.0 530 78.0 … 780 410 540 Access to sanitation 7/ 220 270 34.0 65.0 900 88.0 330 740 270 850 … 710 26.0 480 Freshwater resources … 1,468 .… 38,625 .. . … 9,258 … 37,467 … 27,393 … 8,441 (cubic meters per capita) Annual deforestation (average annual percentage change) 34 En 12 . ee . 2.3 2.5 me 0.6 . 0.7 Source: World Development Indicators, 2000, World Bank, unless otherwise indicated. 1/ In some cases, data are not available for the year indicated. In those cases, the reported data refers to a range of +/- 2 years around the year indicated. 2/ World Economic Outlook database. 3/ For Haïti, latest survey year is 1995; for Bolivia, 1995; for Honduras, 1993; for Nicaragua, 1993. : 4/ Number of infants who die before reaching one year of age, per 1,000 live births in a given year. 5/ Percentage of population age 15 and above. 6/ United Nations Development Programme, Human Development Report, 1993 and 2000. 7/ Pan American Health Organization, Improving the Health of the Peoples of the America, 1998, and UNDP, World Development Report, 1993 and 2000. [page 54] -53- Figure 1. Haiti: Social Indicators—Comparison with PRGF-Eligible Countries Human Development Index GDP per Capita 0.8 1400 07 is 1200 _— 06 ss ! ps Ë : : : OZ | 100 ES ; : 3 4 S D D DS us os U1LE SO | 0 Se 00 LES SES, RS Se o LES ÈS ER EE, Re Haiti Bolivia Guyana Honduras Nicaragua Haïti Bolivia Guyana Honduras Nicaragua Infant Mortality Rate Life Expectancy 80.0 80.0 70.0 ses 70.0 ———— 600 ESS ue E 60.0 ms Es 001 ES Eee SOS SO 401 D COLE ee. pi sul 00 LES, RSS ES, D. Hu co LS, ESS, SRE, RU, ESS Haiti Bolivia Guyana Honduras Nicaragua Haiti Bolivia Guyana Honduras Nicaragua Population Density illiteracy Rate 300 60 250 ss] 50 | ESS Haïti Bolivia— Guyana Honduras Nicaragua Haiti Bolivia Guyana Honduras Nicaragua Sources: World Development Indicators, 2000, World Bank; World Economic Outlook: and United Nations Development Programme, Human Development Report. [page 55] -54- countries. However, substantial disparities and limited opportunities in rural areas have caused migration to urban areas in recent years and a rapid prolifération of slums in Haitian cities (Port-au-Prince, Cap-Haitien, Gonaïves, Les Cayes). Overpopulation has also become a major problem in Haiti. Haiti’s population density of 278 persons per square km is by far the highest among the comparator countries. 91. The death rate in Haïti is 13 per 1,000 people a year and is about twice that of Guyana, Honduras, or Nicaragua. Life expectancy is only 54 years, the lowest among the PRGF-eligible countries in the Western Hemisphere and comparing unfavorably to the average for sub-Saharan Africa countries. This has been the result of poor access to health care services, malnutrition, and insecurity created by the economic and political distress that affects the country. 92. The human development index (HDI) in Haiti has improved from 0.3 in 1990 to 0.4 in 1998. However, its rank relative to other countries has worsened during the same period from the 137% to 150% position, comparable to that of the poorest sub-Saharan countries. The HDIs for Bolivia, Guyana, Honduras and Nicaragua are all above 0.6 and their rank is in the range of 96%-116" C. Social Sector Indicators Education 93. Formal education system in Haiti is mostly provided by the private sector. About 80 percent of primary students are enrolled in privately operated schools, with somewhat lower percentages for secondary and tertiary education. The large incidence of private schools is a reflection of the marginal government participation in past decades and the intense involvement of religious and foreign-funded NGOSs in the sector. Two-thirds of private schools are supported by religious groups and most belong to FONHEP (Fondation Haïtienne de l’Enseignment Prive), a foundation created in 1988 by the Episcopal Commission for Catholic Education (CEEC) and the Federation of Protestant Schools of Haiti (FEPH).“ Most private schools are small (1-2 teachers, 100-150 pupils, 1-2 classrooms) and charge a The HDI is a composite index constructed by the United Nations Development Programme since 1990. It measures average achievements in basic human development and is based on life expectancy, a combination of adult literacy rate and the combined gross primary, secondary, and tertiary enrollment ratios, and by purchasing-power-adjusted real GDP per capita. The index ranges from 0 to 1 with a higher index implying a higher level of human development. # FONHEP is a nonprofit organization whose objective is to restructure the private education sector. Through financing from multilateral and bilateral donors, FONHEEP trains school personnel, distributes textbooks, and provides curriculum and institutional development ŒONHEP 1998). [page 56] -55- moderate schooling fee. Only 10 percent of the private schools at the primary level are licensed, and not more than one-third at the secondary level. Teachers are poorly qualified and paid and schools lack instructional material, and an appropriate curriculum and facilities. Ÿ° 94. Public spending on education amounted to 2.1 percent of GDP in FY 1997-98 (Table 2). Access to public schools in Haiti is limited, given the scarce resources from the Ministry of Education. While teachers in public schools are on average better trained than teachers in private schools’! they earn about 6 times as much as private school teachers, straining further the scarce public resources.” Although public, these schools charge a fee for the academic year destined to defray expenses, but provide uniforms, some school material and meals. Public schools suffer from lack of resources, poorly trained teachers, absence of school maintenance, and an ill-defined curriculum not adapted to the labor market requirements of Haiti. 95. The quality of the education system in Haiti is poor. More than half of the adult population in Haiti is illiterate, the highest proportion in the Western Hemisphere and above the average for sub-Saharan African countries. The female illiteracy rate was only slightly higher than male illiteracy, 54 percent and 50 percent, respectively in 1998. The enrollment rate at the primary level deteriorated from 60 percent in 1975 to 51 percent in 1995, but increased somewhat in 1998 after the embargo was lifted and international assistance resumed. Repetition rates in primary schools have increased from about 10 percent in 1985 to 17 percent in 1995. Almost two-thirds of all children drop out of primary school before concluding the six-year course. As a result, ît takes 15 pupil-years to have one pupil complete 6* grade against 10.5 pupil-years in Guatemala, 8.7 in Chile, and 7.5 in Costa Rica. Secondary school enrollment rates stood at 15 percent in 1998. 96. The high repetition and drop-out rates are due to school fees, child labor, poor education quality, migration, sickness and malnutrition, school population, school location, and teenage pregnancy. *% According to UNICEF (1999), 58 percent of the current educational buildings in Haïti were not initially built to operate as schools. Many classrooms are so crowded that only one in four children has a seat. 5 {n public schools at the primary level, only 45 percent of teachers were formally qualified in 1996. In private schools, 67 percent of teachers had not concluded primary education and 99 percent were not formally qualified. %? Private teachers were paid about US$20 per month in FY 1999/2000, while public teachers are paid about US$120 per month. Teachers’ salaries account for about one third of the public sector wage sum. [page 57] .56- Table 2. Haiti: Education Indicators 1/ (In percent) —_—_——— —_—_—_—_—_—_—_——_—_—_————_—__—" 2 — 1970 1975 1980 1985 1990 1995 1998 Public education spending (in percent of GDP) 2/ ee nl . es 19 2.1 Aduit illiteracy rate 3/ 77.8 73.8 69.4 64.9 60.3 55.2 52.2 Female 81.4 77.3 72.7 67.9 63.0 57.6 544 Male 73.9 70.1 65.8 61.6 57.3 52.7 49.9 Primary pupil-teacher ratio 4/ 470 41.0 44.0 380 29.0 = 35.0 Secondary pupil-teacher ratio 4/ 16.0 23.0 19.0 19.0 . en Primary enroilment rate 5/ 53.0 60.0 . 52.9 47.8 51.4 64.0 Female . 55.0 . 513 46.4 De . Male . 65.0 . 54.5 492 ee = Secondary enrollment rate 5/ en 8.0 13.5 28.1 20.9 12.8 15.0 Female De 79 12.8 17.0 20.4 ee. " Male mn 9.0 142 39.2 214 ee . Tertiary enrollment rate .. . 0.9 1 12 13 un Percentage of repeaters at the primary level 4/ En . 15.5 9.5 12.7 17.0 un Female En 15.i 9.5 12.6 . ue Male ne . 15.8 9.4 12.7 en = —— ———— Source: World Development Indicators, 2000, World Bank, unless otherwise indicated. 1/1n some cases, data are not available for the year indicated. In those cases, the reported data refers to a range of +/- 2 vears around the year indicated. 24 Ministry of Economy and Finance. 3/ Percentage of population age 15 and above. 4/ UNESCO database. 5/ The source is Annuaire Statistique des Ecoles Fondamentales et Secondaires d' Haiti. [page 58] -57- 97. An additional problem in the education system is the significant difference in schooling conditions between rural and urban areas. The rural education system suffers from the limited number of public schools, especially in poor communities. The quality of schooling is particularly poor in rural areas, with high pupil-teacher ratios, commonly exceeding 100 students per class; irregular attendance of teachers; poor teacher qualification; poor school facilities, and a curriculum not adapted to the needs of the poor in rural areas. Private schools are rarely licensed or inspected. Costs associated with schooling, such as uniforms, shoes, and instructional material are often prohibitive for low-income families. To address severe problems in the education system, the government is reforming the education system (Box 1). Box 1. Reforming the Education System The Ministry of Education developed the National Education and Training Plan (PNEF) in early 1997 to provide a framework for education investment for a ten-year period. This project would be financed by the IDB, IBRD, and the Government of Haiti. The plan has identified 10 major objectives: (1) improve the quality of education; (2) promote a solid strategy for the development of instructional material, (3) attain universal primary education by the year 2010-2015; (4) reform secondary education; (5) coordinate efforts with other agents (Ministry of Health; Ministry of Social Affairs, and NGOs) for the development of children of pre-primary school age; (6) establish technical and professional training schools; (7) implement a system of higher education geared toward research and development; (8) improve informal education services and programs for distance education; (9) reinforce institutional capacity of the Ministry of Education; and (10) reevaluate the quality and professional preparation of teachers. As this plan sets goals for achievement of universal primary education and for improvement of quality, a database with a set of key indicators will be established and will serve as part of the monitoring strategy of indicators to better follow the progress of the plan. To strengthen efforts for reforming and developing the education system in Haiti within the framework set by the PNEF, the National Partnership Commission (Commission Nationale du Partenariat) was created in December 1999 as a result of an agreement between the Ministry of Education and the USAID. lis main objective is to streamline and develop the education system. This agreement consists of four elements: (1) coordination between private and public schools; (2) reforming the education system; (3) improvement of governance and integration of the national education system: and (4) directing support to keys partners in the private sector. Given the large number of private facilities and the poor quality of education in the private sector, two laws were drafted and are being discussed by the commission. A draft law on private schools was prepared for reforming and setting standards for licensing private schools. The main clauses set in the law are that: (1) the functioning of each private school is conditional upon the possession of a license; (2) each student will have to sit for state exams after completion of their studies; and (3) each private institution should keep records of each student. The other law pertains to subsidies to private schools and will set the criteria to subsidize private schools with public funds. [page 59] -58- Health 98. The health care system in Haïti is composed of a public, a donor-financed, and a private sector. Each sector operates about one third ofthe 663 health care facilities in the country, but donor-financed NGOs mainly provide basic health care services in rural areas, while the private sector consists of physicians, dentists, and other specialists who are employed in private health care establishments mainly in Port-au-Prince. NGO and private health care facilities operate without quality standards or inspections and with little or no coordination with the public sector. 99. Expenditure by the Ministry of Health in FY 1997/98 amounted to only 0.8 percent of GDP (Table 3). As a result, the provision and quality of public health services in Haiti is poor. Hospitals and health centers are scarce, ill equipped, lack a sufficient number of skilled workers, and experience recurring drug and supply shortages.*? In addition, the public sector has been negatively affected by the political crisis, which led foreign assistance to be directed to NGOs and more recently by the suspension of financing for new projects. 100. Health services and conditions in Haiti are among the poorest in the Western Hemisphere and Sub-Saharan Africa. Approximately 40 percent of the population has no access to primary health care, compared with 26 percent for the Western Hemisphere countries average. In addition, transportation to health care centers is a problem, particularly in rural areas. Moreover, as costs of modern medication are sometimes prohibitive, Haitians revert to the use of traditional medicine, which consists of family recipes or medicinal herbs, sometimes aggravating their health conditions. 101. Haiti has the highest mortality rates among Western Hemisphere countries. Both female and male adult mortality rates have worsened over time, with female mortality increasing from 332 deaths per 1,000 female adults in 1995 to about 340 in 1998, compared to 116 for the Western Hemisphere countries average. The male mortality rate increased from : 427 deaths per 1,000 male adults in 1995 to 432 in 1998, compared to 216 for the LAC average. Conversely, infant and under-five mortality rates decreased by almost half since 1970 but remain very high. The infant mortality rate decreased from 141 deaths per 1,000 births in 1970 to 71 in 1998, while the under-five mortality rate fell from 221 to 116 during the same period. The leading causes of child mortality in Haiti are diarrheal diseases, acute respiratory infections, and malnutrition. In 1995 it was estimated that there was only 0.7 hospital bed per 1,000 people and 0.2 physician per 1,000 people. Patients have to reach the health facilities on foot or by donkey taking sometimes hours to reach the nearest health facility. [page 60] -59- Table 3. Haiti: Health Indicators 1/ (In percent unless indicated otherwise) 1970 1975 1980 1985 1990 1995 1998 Public health expenditure (percent of GDP) 2/ . ee un . . 0.7 0.6 Hospital beds (per 1,000 people) 0.8 0.8 0.7 0.7 0.8 0.7 n Physicians (per 1,000 peopie) 0.1 0.1 0.1 0.1 0.1 02 n Life expectancy at birth (years) 47.6 .. 51.0 nn 53.1 . 53.6 Female 49.0 .. 52.6 . 55.0 cu. 56.0 Male 46.2 . 49.6 . 543 . 513 Infant mortality rate (per 1,000 live births) 3/ 141.0 127.0 122.8 101.0 85.4 714 70.5 Under five mortality rate (per 1,000 live births) 221.0 … 200.0 189.1 1340 1250 116.0 Adult mortality rate 4/ Female (per 1,000 female adults) 325.8 … 2746 … 290.8 332.0 339.0 Male {per 1,000 male adults) 410.9 . 348.4 . 352.8 427.0 432.0 Immunization rates 5/ 6/ BCG nn . . 66.8 . 73.0 71.0 DPT3 . ne . 21.7 41.0 42.9 Polio ee. mn nn 22.7 en 41.0 42.9 Measles ° us . . 25.8 . 48.0 53.9 Antenatal care visits to a medically trained person 6/ " ne un . . 67.7 78.8 Delivery attendance by a medically trained person 6/ ne . un . un 46.3 59.8 Prevalence of contraceptive 7/ E At least one method 5.0 6.9 7.7 10.2 18.0 . No method . 95.0 93.1 92.3 89.8 82.0 . Low-birthweight babies (percent of births) . . 15.0 15.0 15.0 15.0 . Malnutrition prévalence (percent of children under 5} Under weight for age 8/ . en 37.4 ne 26.8 27.5 ne Below height for age 8/ . un 39.6 D 33.9 34.9 en Source: World Development Indicators, 2000, World Bank, unless otherwise indicated. 1/ In some cases, data are not available for the year indicated. In those cases, the reported data refers to a range of +/- 2 years around the year indicated. 2/ Ministry-of Economy and Finance. 3/ Number of infants who die before reaching one year of age, per 1,000 live births in a given year. 4/ The percentage of 15-year-olds who will die before their sixtieth birthday. 5/ Children age 12-23 months. 6/ Survey on Mortality, Morbidity and Utilization of Services, Institut Haitien de l'Enfance, 1987, 1994/1995, and 2000. TI US. Bureau of the Census, International Data base. 8/ Lower than two standard deviations below the median of the reference population. [page 61] - 60 - 102. The maternal mortality rate in 1991 was estimated at 456 deaths per 100,000 live births. This high maternal mortality rate results from short intervals between births, chronic malnutrition, including anemia, and low antenatal care visits.Ÿ Antenatal care visits to a medically trained person took place in 79 percent of pregnancies, while delivery attendance was only 60 percent. About 80 percent of deliveries took place at home in 1995, owing to inadequate access to health centers and the high costs of services when available. 103. Haiti has low immunization rates, although some significant improvement has been registered since 1985. Immunization rates for DPT3 (diphtheria, whooping cough, and tetanus), polio, and measles doubled between 1985 and 1998. DPT3 increased from 22 to 43 percent during that period, polio from 23 to 43 percent, and measles from 26 to 54 percent. However, about 17 percent of the population have not benefited from any immunization. 104. The use of modern contraception is very low. In 1995, 82 percent of women did not use any method of contraception. As a result, Haïti registers a high incidence of sexually transmitted diseases, further aggravating high mortality rates. While attention has been given to increasing HIV/AIDS awareness, rural areas are particularly affected, given the higher incidence of prostitution and the stigmatization of the disease. In Port-au-Prince, HIV prevalence among antenatal women was estimated at around 8-10 percent between 1986 and 1996. The incidence of tuberculosis has declined from 280 per 100,000 people in 1995 to 180 in 1999 as a result of the establishments of treatment sites countrywide (it is estimated that by March 2001 there will be about 180 sites) including a center for the treatment of resistant tuberculosis in the rural community. Further developments in the health sector are found in Box 2. % It is estimated that home deliveries account for 85 percent of maternal mortality (UNICEF 1999). 3€ Since 1991, PAHO, USAID, WHO and the French Cooperation, and UNFPA have been providing technical and financial assistance against AIDS. On January 1, 1996, UNAIDS initiated operation in Haïti. The Ministry of Health introduced a national program for controlling AIDS and other sexually transmitted diseases on December 1, 1996 (PAHO 1998). [page 62] N -61- Box 2: Reforming the Health Sector The misallocation of resources is of great concern given that over the years greater emphasis has been given to financing of tertiary health services in lieu of more cost-effective basic health services, quality standards, and maintenance. According to the World Bank (1993), there should be at minimum a package of essential clinical interventions of high cost-effectiveness. This package should include: (1) services to ensure pregnancy-related care; (2) family-planning services; (3) tuberculosis control; (4) control of sexually transmitted diseases (STDs); and care for the common serious illnesses of young children— diarrheal disease, acute respiration infection, measles, malaria, and malnutrition. It was estimated that these interventions cost substantially less than US$50 per disability-adjusted life year (DALY) gained.°” Therefore, in recognition of the importance of basic health care access to all, the Ministry of Health introduced a health program in March 1996 aiming at reforming the health sector as part of the | decentralization effort by the government to ensure a minimum package of health services. The government of Haiti, with the support of the IDB, developed a program for the reorganization of the national health system which would be implemented during a six-year period. The objective of this program is to improve the quality and access to health services; increase efficiency of services; and use new ways of financing and of provision of basic health systems. In addition, as part of the effort for improving health service delivery, the Government of Haiti and international donors have committed to formalize a framework for communal health units (Unité Communales de Santé (UCS)); define a framework for a partnership with the private sector; follow up on analysis of budget execution; finalize the works of the Mixed Commission (Ministry of Health and Ministry of Finance) concerning budgetary allocations; define a framework of cost recovery for health; initiate the implementation of a development program of human resources and of sanitarÿ information system; conduct a drug study that defines an action plan for the next five years; and define the needs concerning contraceptives, vaccines, and anti- tuberculosis for FY 2000/01. As part of the effort of the Ministry of Health to strengthen the monitoring of health indicators, three surveys on mortality, morbidity and utilization of services (Enquête mortalité, morbidité et utilisation des services) were conducted by the Haitian Children's’ Institute (Institut Haïtien de l’Enfance) in 1987, 1994/95, and 2060. This most recent survey was financed by the USAID, UNICEF, Haiti-Canada Cooperation Fund, and the United Nations Fund for the Population. The database generated by the three surveys will serve as a basis for monitoring health indicators in the future. The government of Haiti has signed a cooperation agreement with Cuba to improve the quality ofthe health system in Haïti. As part of this Cuba-Haiti cooperation, 450 Cuban doctors were sent to work in Haiti for about 2 years. Given the satisfactory results of the program, the Ministry of Health is discussing : the renewal of this agreement. In addition, the Ministry of Health has sent 240 Haitian students to study medicine in Cuba and 260 additional will be sent over the course of about four years. The government also aims to send 20 female students to nursing school. 7 DALY captures the burden of disease. It is a measure that combines healthy life years lost because of premature mortality with those lost as a result of disability [page 63] -62- Nutrition 105. The nutritional situation in Haïti is difficult. It was estimated that the average daily caloric intake per capita was 1,869 in 1997, equivalent to about 80 percent of the daily caloric intake of 2,260 recommended by the Food and Agricultural Organization (FAO). Nutritional deficiency has an adverse effect on the formation of human capital, especially affecting children, and pregnant and breast-feeding women. It has a permanent effect on the future development of a child and in his cognitive skills therefore affecting his performance in school. 106. In 1995 it was estimated that 28 percent of children under five had a weight for age lower than 2 standard deviations below the median of the reference population, compared to 8 percent in Bolivia, and 12 percent in Nicaragua in 1998. In 1995, 32 percent of children had a height for age lower than 2 standard deviations below the median, compared to 27 percent in Bolivia, and 25 percent in Nicaragua in 1998. 107. The poor nutrition of Haitian children has resulted from overpopulation, environmental degradation, lack of economic opportunities in rural areas, and infectious diseases. In addition, the food insecurity during the embargo years and more recently the continued political | instability have prevented the establishment of more programs to relieve the worst cases of malnutrition. Water and sanitation 108. Access to safe water and basic sanitation is precarious in Haïti, particularly in Port-” au-Prince and other large cities, where demographic pressures have overburdened existing water and sewerage systems. The percentage of the population with access to safe water remained about unchanged at 43 percent between 1990 and 1998, falling far below the average of Western Hemisphere and sub-Saharan African countries. About 22 percent of the population had access to sanitation facilities in 1990, increasing to 27 percent in 1998. There is also a wide disparity in the proportion of the rural and urban population with access to basic sanitation. In 1998, 43 percent of the urban population had access to basic sanitation, % According to preliminary results of the household expenditure consumption survey (Enquete-budget-consommation des menages, 1999-2000) by the Haitian Statistics Institute IHSI, spending on food comprises about 72.6 percent of total household consumption spending. % For several years, school feeding programs have been implemented in Haiti. Although those programs are attractive to parents and have been an important factor in raising school enrollment rates, there has been a shift away from these programs for school-age children toward the most vulnerable group, maternal and children health programs. [page 64] - 63 - compared to only 16 percent of the rural population. The lack of access to basic sanitation has further exacerbated water pollution. %° 109. Lack of maintenance of the existing infrastructure and the suspension of projects during the embargo period resulted in a deterioration of the water and sanitation systems. In addition, an outdated water distribution network and mismanagement have further strained the systems. While most of the water and sanitation projects that were suspended during the embargo resumed since October 1994, investment has fallen short of the necessary expansion and maintenance to cope with demographic pressures and rural-urban migration. As a consequence, access to clean water and sanitation has deteriorated in urban areas. Environment 110. Haïti suffers from extreme environmental degradation, resulting from a high level of poverty, demographic pressure, and the effects of decades of neglect. Due to the critical levels of environmental degradation, Haïti is in danger of experiencing epidemics of diarrheal diseases or cholera mainly in the overpopulated low-income urban areas. The freshwater resources in Haiti were estimated at 1,468 cubic meters per capita in 1998, compared to 27,393 cubic meters for the Western Hemisphere average and 8,441 cubic meters for the sub- Saharan African countries’s average. 111. The agricultural sector in Haïti, which employs about a third of the total Labor force and provides sustenance for a large majority of Haiti's poor, has been affected by deforestation and erosion due to overuse, inadequate agricultural technologies, in particular on steep slopes, and the production of wood charcoal. Deforestation, already extremely advanced in Haiti, is still proceeding at a faster pace than in other countries. Haiti lost 3.4 percent of its forest cover annually during 1990-95, compared to 0.6 percent and 0.7 percent for Western Hemisphere and sub-Saharan African countries, respectively. The nationally protected areas as percent of total land area was estimated at just 0.4 percent for - Haiti in 1996, much lower than the average of 7.3 percent and 6.2 percent for Western Hemisphere and sub-Saharan African countries, respectively. 112. Urban environmental degradation has also advanced. Solid waste management is deficient in cities. Poor human waste disposal practices are contaminating all 18 water sources that supply Port-au-Prince. In addition, the growing number of motor vehicles and their inadequate maintenance have created a serious air pollution problem in Port-au-Prince. 113. The Ministry of Environment was allocated G 20 million (0.03 percent of GDP) in the FY 1999/2000 budget. Within their scant resources, the Ministry of Environment is giving ® The Ministry of Health is working on a system of sanitary information with the support of USAID and the World Health Organization. [page 65] -64- emphasis to informing the population, studying plastic waste recycling and deforestation, and conducting an energy study to search for alternatives to charcoal production (Box 3). Box 3. Protecting the Environment Given the severe environmental degradation and in the spirit of the Rio Declaration on Environment and Development (UN Conference on Environment and Development, Rio de Janeiro, Brazil, June 1992), the Inter-Ministerial Environment Commission prepared an Environment Action Plan (EAP), which was approved by the government in December 1999. This plan was prepared with technical and financial support from the USAID, the World ‘ Bank, the UNDP, ACDL and the Government of Haïti, and provides a framework of ten priority programs to be implemented during a 15-year period. The program includes measures to promote: (1) a better management of national resources; (2) energy for a sustainable development; (3) environmental education; (4) conservation and durable use of biological diversity; (S) management of strategic hydrological basins; (6) integrated management of coastal and maritime zones; (7) rehabilitation of the environment, (8) management of natural disasters; (9) support to activities related to sustainable development; and (10) support to mineral exploration. D. Conclusion 114. During the past 30 years, Haiti has witnessed only a modest improvement in some of its social indicators. Political instability and poor governance, the lack of personal safety and a weak justice system to protect persons and property rights, the lack of economic opportunities and pervasive structural impediments to new investments, low levels of human capital investment, and demographic pressures have prevented Haiti from emerging from a long- lasting vicious cycle of poverty. The unsettled political situation during the early 1990s further aggravated poverty as donors and foreign investors scaled back or suspended financial “assistance or investment. After the return of democratic rule in 1994, foreign assistance returned to Haïti and some social indicators have shown improvements. However, the ongoing political stalemate is again reducing foreign aïd flows and domestic and foreign investment and Haïti could again experience a deterioration of its already poor socio- = economic conditions. 115. Inthe education sector, although primary and secondary enrollment rates have risen moderately, the quality of education has not experienced any significant progress. High repetition and dropout rates reduce the effectiveness of a system that is already marked by poor and inadequate infrastructure, poorly trained teachers, and a curriculum poorly adapted to the necessities of the poor and rural environment of Haïti. Emphasis should be given to increasing in-service training for teachers to improve their qualification and to institute standards to evaluate student performance. While the government should concentrate its scant resources on support services, the international community should support efforts to expand [page 66] -65- the system's coverage, reaching students who have dropped out, improving facilities, providing adequate materials, and improving teacher training. 116. Indicators in the health sector in Haiti fare poorly in comparison with other countries in the Western Hemisphere. Although there have been improvements in some health indicators, access to health care services is still inadequate and costly. In particular health services for the wider segment of Haiti's poor and rural population are deficient. It is in this area that the largest positive externalities of investment in health services can be expected and the vicious cycle of poverty and ill health broken. The government should therefore give priority to the provision of basic health care services, including to reduce communicable diseases. Basic health care services should strive to close the gap between traditional and modern medicine, reduce malnutrition, promote family planning services, and increase access and coverage of antenatal care and delivery attendance by qualified health personnel. 117. Progress in the education and health sectors is linked. On one hand, several health programs rely on basic skills earned at school regarding personal hygiene and sanitation. Education is also needed for the formation and training of health personnel. On the other hand, health is an important factor affecting school attendance and the results of attending school. It is essential to increase investment in basic education and health to alleviate the burden on the poor from morbidity and mortality and to improve the efficiency of labor in order to attain sustained growth. In addition, the synergy between education and health is evident from to the fact that a longer-lived individual will have more years to earn a return on educational investments (Mushkin 1962). 118. Given that factors affecting poverty are interdependent, an improvement in one sector will have a positive impact on other sectors. As a result, policy makers should coordinate policies in the various social sectors and in areas like agricultural policies, property rights and provision of basic infrastructure in their efforts to design a comprehensive strategy to reduce poverty in Haïti. [page 67] - 66 - List of References Cadre Strategique de Lutte Contre La Pauvreté (CSLP), 2000, Document de Project. Enquête Mortalité, 2000, Morbidité et Utilisation des Services (EMMUS-IN), Ministry of Public Health and Population. FONHEP, 1998, Presentation Fondation Haïtienne de l'Enseignement Privé. Fondation Haïîtien de l'Environnement, 2001, Plan Operationnel. Ministry of the Environment, 1999, Plan D’Action pour l'Environnement, Haiti. Mushkin, Selma, 1962, “Health as an Investment,” Journal of Political Economy, Vol 70, Issue 5, Part 2, pp. 129-157. PAHO, 1998, Improving the Health of the Peoples of the Americas. UNAIDDS, PAHO, and World Health Organization, 2000, Haiti: Epidemiological Fact Sheet on HIV/AIDS and Sexually Transmitted Infections. UNICEF, 1999, Haiti faces major education challenge, Internet: C:\haiti\unicefedu.htm UNICEF, 1999, Women's Health and Development. World Bank, 1998, Haiti: The Challenges of Poverty Reduction, Vols. I and II, Report : No. 17242-HA (August). World Bank, 1993, Investing in Health, World Development Report. World Bank, 2000, Socio-Economic Differences in Health, Nutrition, and Population in Haiti (May) (Washington, World Bank). World Bank, 2000, World Development Indicators. [page 68] -67- Table 1. Haiti: National Accounts at Current Prices 1/ Fiscal Year Ending September 30 1995 1996 1997 1998 1999 (in millions of gourdes) Gross domestic expenditure 46,168 55,891 64,102 73,996 82,800 Consumption 42,958 51,383 58,454 67,239 74,858 Central govemment 3,734 4,459 4,217 4,680 5,509 Other 39,224 46,924 54,237 62,559 69,349 Gross domestic investment 3,210 4,508 5,648 6,757 7,942 Public sector 2,288 2,610 3,172 3,586 3,781 Private sector 922 1,898 2,476 3,171 4,161 Balance of trade in goods and nonfactor services -7,981 -8,354 -8,133 -8,965 -10,822 Exports 3,061 3,898 4,600 7,307 8,485 Imports -11,042 -12,252 -12,733 -16,272 -19,307 Gross domestic product at market prices 38,187 47,537 55,969 65,031 71,979 (Annual percentage change) Gross domestic expenditure 53.5 21.1 14.7 15.4 119 Consumption 47.4 19.6 13.8 15.0 113 Central government 144.7 194 -5.4 11.0 17.7 Other 42.1 19.6 15.6 153 10.9 Gross domestic investment 238.7 40.4 25.3 19.6 17.5 Public sector 2,062.6 14.1 21.5 13.1 s4 Private sector 9.5 105.9 30.5 28.1 312 Exports 59.3 27.3 18.0 58.8 16.1 Imports 167.3 11.0 3.9 27.8 18.6 Gross domestic product at market prices 37.0 24.5 17.7 16.2 10.7 (In percent of GDP) Gross domestic expenditure 120.9 117.6 114.5 113.8 115.0 Consumption 112.5 108.1 104.4 103.4 104.0 Central government 9.8 9.4 7.5 72 7.7 Other 102.7 98.7 96.9 96.2 96.3 Gross domestic investment 8.4 9.5 10.1 10.4 11.0 Public sector 6.0 5.5 5.7 5.5 53 Private sector 24 40 4.4 4.9 5.8 Balance of trade in goods and nonfactor services -20.9 17.6 -145 -13.8 -15.0 Exports 8.0 8.2 8.2 112 11.8 Imports -28.9 -25.8 -22.7 -25.0 -26.8 Sources: Haitian Institnte of Statistics, Bank of the Republic of Haiti; and Fund staff estimates. 1/ There are serious problems with national accounts in Haiti including incomplete coverage, outdated activity surveys, and poor quality of raw data. [page 69] - 68 - Table 2. Haiti: National Accounts at Constant Prices 1/ ———————————" —— ——__———— a ——— Fiscal Year Ending September 30 1995 1996 1997 1998 1999 —————_ "T7 1770, 2791 1978 1999 (In millions of 1976 gourdes) Gross domestic expenditure 8,029 7,952 7,920 8,254 8,953 Consumption 7,470 7,418 7,155 7,415 8,007 Gross domestic investment 559 534 764 839 945 Balance of trade in goods and nonfactor services -3,698 -3,501 -3,407 -3,601 4,197 Exports L670 2,140 2,508 3,913 4,535 Imports -5,368 -5,641 -5,915 -7,515 -8,733 Gross domestic product at market prices 4,331 4,451 4,512 4,653 4,755 (Annual percentage change) Gross domestic expenditure 50.0 -1.0 0.4 4.2 8.5 Consumption 5SL8 0.7 -3.5 3.6 8.0 Gross domestic investment 30.0 4.5 43.1 9.8 12.6 Exports 149.3 28.1 17.2 56.0 15.9 Imports 187.1 5.1 4.9 27.0 16.2 Gross domestic product at market prices 4.4 2.8 1.4 3.1 2.2 —————"— —— _—————__— _—_—_ Sources: Haitian Institute of Statistics; Bank of the Republic of Haiti; and Fund staff estimates. 1/ There are serious problems with national accounts in Haiti including incomplete coverage, outdated activity surveys, and poor quality of raw data. [page 70] -69- Table 3. Haiti: Origin of Gross Domestic Product 1/ Fiscal Year Ending September 30 1995 1996 1997 1998 1999 (in millions of gourdes at 1976 prices) - Primary sector 1,396 1,391 1,365 1,393 1,416 Secondary sector 756 840 895 955 1006 Manufacturing 313 322 324 334 339 Other 7 8 9 10 10 Electricity and water 38 43 42 42 43 Construction and public works 398 467 520 569 614 Services sector 2,056 2,078 2,091 2,131 2,156 Utilities, transportation, communications 93 96 97 98 112 Commerce 597 600 605 623 637 Government 812 821 820 830 816 Other 554 561 569 580 591 Gross domestic product at factor prices 4,208 4,309 4,35i 4,479 4,578 Indirect and import taxes 2/ 123 143 161 174 177 Gross domestic product at market prices 4,331 4,452 4,512 4,653 4,755 (Percentage change over previous year) Primary sector -8.9 -0.4 -1.9 2.1 1.7 Secondary sector 17.1 i.1 6.5 6.7 5.3 Manufacturing 9.8 2.9 0.6 3.1 15 Other . 143 12.5 11.1 0.0 Electricity and water 31.0 13.2 -2.3 0.0 2.4 Construction and public works 314 17.3 113 9.4 7.9 Services sector 10.7 11 0.6 1.9 1.2 Utilities, transportation, communications 6.9 3.2 10 10 143 Commerce 26.2 0.5 0.8 3.0 22 Government 7.0 11 0.1 12 -17 Other 3.0 13 1.4 19 1.9 GDP at market prices ” 44 2.8 14 3.1 2.2 (Percentage distribution) Primary sector 32.2 31.2 30.3 29.9 29.8 Secondary sector 17.5 18.9 19.8 20.5 21.2 Manufacturing 7.2 7.2 7.2 72 LA! Other 0.2 02 02 0.2 0.2 Electricity and water 0.9 1.0 0.9 0.9 0.9 Construction and public works 92 10,5 11.5 12.2 12.9 Services sector 47.s 46.7 46.3 45.8 45.3 Utilities, transportation, communications 2.1 22 2.1 2.1 2.4 Commerce 13.8 13.5 13.4 13.4 13.4 Government 18.7 18.4 18.2 17.8 17.2 Other E2.8 12.6 12.6 12.5 12.4 Indirect and import taxes 2.8 3.2 3.6 3.7 3.7 Gross domestic product at market prices 100.0 100.0 100.0 100.0 100.0 Sources: Haitian Institute of Statistics; Bank of the Republic of Haiti, and Fund staff estimates. 1/ There are serious problems with national accounts in Haiti including incomplete coverage, outdated activity surveys, and poor quality of raw data. 2/ Includes import duties. [page 71] -70- Table 4. Haiti: Agricultural Production (n thousands of metric tons) ——— Fiscal Year Ending September 30 1995 1996 1997 1998 1999 — "22 1779 1771 1778 1299 I. Major Commodities for Domestic Consumption Com 182 230 .…. . . Millet (sorghum) 155 195 …. n . Rice 89 115 .. . .. Beans 71 80 …. .. .. Bananas 32 50 …. En IL Exportables Coffee 18 13 .. .. en Sugarcane 527 600 .. . ee Cocoa s 5 ne eu . — Sources: Ministry of Agriculture; Food and Agricultural Organization (FAO); and Bank of the Republic of Haïti. [page 72] -71- Table 5. Haiti: Savings and Investment 1/ — ——_—_————"——— ———— "0 —_—_—_ mm — Fiscal Year Ending September 30 1995 1996 1997 1998 1999 —__—_———————…. ———___—_—————.— "22 TS 1 778 1799 (in millions of gourdes) Gross domestic investment 3,210 4,508 5,648 6,757 7,942 Public sector 2,288 2.610 3,172 3,586 3,781 Private sector 922 1,898 2,476 3,171 4,161 Gross national savings -3,174 -1,254 1,782 2,765 2,654 Public sector 748 -1,090 -1,019 401 134 Private sector -2,426 -164 2,771 3,166 2,520 Current account 6,384 -5,762 -3,896 -3,992 -5,288 External savings 6,384 5,762 3,896 3,992 5,288 Official transfers 5,935 4,707 3,589 3,770 4,292 Official capital (net) 2/ 1,575 1,722 1,519 1,223 968 Private capital (net) 3/ -808 410 -888 -747 446 Changes in net foreign assets (increase - ) -319 -257 -323 -254 418 (in percent of GDP, at current market prices) Gross domestic investment 8.4 9.5 10.1 10.4 11.0 Public sector 6.0 5.5 5.7 5.5 5.3 Private sector 24 4.0 44 4.9 5.8 Gross national savings 8.3 -2.6 3.1 43 3.7 — Public sector -2.0 -23 -1.8 0.6 0.2 Private sector -6.4 -0.3 5.0 4,9 3.5 External savings 16.7 12.1 7.0 6.1 7.3 Public transfers 15.5 9.9 6.4 5.8 6.0 Official capital (net) 4.1 3.6 2.7 1.9 13 Private capital -2.1 0.9 -1.6 -LI 0.6 Changes in net foreign assets (increase - } 0.8 0.5 -0.6 04 -0.6 Memorandum item: Nominal GDP (in millions of gourdes) 38,187 47,537 55,969 65,031 71,979 ——_—_—_…————…————…—…—…—….——————— Sources: Haitian Institute of Statistics, Bank of the Republic of Haiti, and Fund staff estimates. 1/ There are serious problems with national accounts in Haiti including incomplete coverage, outdated activity surveys, and poor quality of raw data. 2/ Includes Trust Fund, publicly guaranteed capital, SDR allocation, and other unrequited earnings. 3/ Includes monetary capital and net errors and omissions. [page 73] -72- Table 6. Haiti: Monthly Changes in the Consumer Price Index Fiscal Year Ending September 30 1996 1997 1998 1999 2000 (Monthly percentage change) Average 1.5 13 0.7 0.8 L2 October 2.9 15 13 0.6 0.7 November 19 10 0.4 0.9 0.5 December 17 18 15 0.9 0.9 January 0.3 07 0.9 0.8 LI February 0.8 10 0.2 0.7 1.1 March ES 24 0.6 0.6 2.0 April 2.0 12 12 0.7 1.0 May 2.0 1.6 0.8 0.9 0.5 June 16 14 0.5 1O 0.7 July 14 14 0.3 0.9 11 August 0.8 0.7 0.1 0.7 14 September L6 1.0 0.2 0.8 3.3 (Cumulative change during the fiscal year) October 2.9 15 13 0.6 0.7 November 48 2.5 16 14 12 December 6.6 43 3.1 2.3 2.1 January 6.9 5.1 - 40 3.2 3.2 February 7.8 6.2 42 3.9 44 March 9.4 8.7 4.9 4.6 6.5 April 11.6 10.1 6.1 53 7.6 May 13.9 118 7.0 6.3 8.2 June 15.7 13.4 7.5 T4 8.9 July 173 15.0 7.9 84 10.1 August 18.2 15.8 8.0 9.1 117 September 20.1 17.0 8.3 9.9 15.3 (12-month change) October 23.7 15.7 16.7 7.5 10.1 November 28.1 14.6 15.9 8.0 9.7 December 25.5 14.6 15.6 74 9.7 January 20.6 15.1 15.7 7.4 10.0 February 17.5 15.2 148 7.9 10.5 March 20.3 16.9 12.8 7.9 12.0 April 22.0 16.4 12.8 7.5 123 Mäy 22.5 16.6 11.9 7.6 11.9 June 22.0 16.9 10.9 8.1 11.5 July 21.8 173 9.7 8.7 11.6 August 20.4 17.6 9.1 93 12.5 September 20.1 17.0 8.3 9.9 15.3 Sources: Statistics Department; Bank of the Republic of Haiti, and Fund staff estimates. [page 74] 273 - Table 7. Haïti: Consumer Price Index (Percentage change in period averages) : Fiscal Year Ending September 30 1996 1997 1998 1999 2000 Average 91.7 106.6 120.1 129.9 144.8 October 85.6 99.0 115.5 1242 136.7 November 87.3 100.0 115.9 125.2 137.3 December 88.8 101.8 117.6 126.4 138.6 January 89.1 102.5 118.6 127.4 140.1 February 89.9 103.5 118.9 128,3 1417 March 90.7 106.0 119.6 129.1 144.6 April 92.2 107.3 121.1 130.1 146.1 May 93.5 109.0 122.0 1313 146.9 June 94.6 110.6 1227 132.6 147.9 July 95.7 1122 123.1 133.8 -149.4 August 96.0 112.9 123.2 134.7 151.6 September 97.5 114.1 123.5 135.7 156.5 Growth rates Average 21.9 16.2 12.7 8.1 15 End of period 20.1 17.0 8.3 9.9 15.3 Sources: Haitian Institute of Statistics; Bank of the Republic of Haïti; and Fund staff estimates. [page 75] -74- Table 8. Haiti: Changes in Consumer Prices by Category (Percentage change in period averages) —_—__——_—_————_————_—_ Fiscal Year Ending September 30 1996 1997 1998 1999 2000 ——_—_———_—_—__——__———— 5 TS 777 ON Total 219 16.2 12.7 8.1 11.5 Food 22.7 18.6 14.5 14 6.0 Clothing 26.2 15.3 11.4 18.1 22.6 Housing 13.8 20.8 16.8 16.8 15.6 Furuiture and household items 17.1 6.2 8.1 15.3 18.1 Services 20.8 un ….. . Health . 10.1 92 19.5 143 Education . 152 17.1 12.4 19.6 Transportation . 10,3 5.1 5.8 9.1 Other goods and services . 11.5 8.3 7.3 12.1 —_————.—— a Sources: Haitian Institute of Statistics; Bank of the Republic of Haiti; and Fund staff estimates. [page 76] “ -75- Table 9. Haïti: Prices of Selected Items (n gourdes per unit) Fiscal Year Ending September 30 1995 1996 1997 1998 1999 Rice Mme Gougousse (1 pound) 5.8 8.4 7.2 6.2 6.7 Imported (1 pound) 3.7 5.4 5.0 5.6 . Corn (1 pound) 2.5 33 34 42 41 Sorghum (1 pound) 2.6 3.3 3.2 3.7 31 Beans (1 pound) 53 7.9 74 9.5 93 Chicken (1 pound) 19.6 22.7 19.0 20.9 23.1 Eggs (pack of three) 45 5.7 5.1 5.2 5.4 Fish (1 pound) 20.3 29.8 20.7 22.0 23.6 Charcoal (sack of 60 kilograms) 844 98.6 79.2 110.6 1417 ———— Sources: Haitian Institute of Statistics; and Bank of the Republic of Haiti. [page 77] _76- Table 10. Haiti: Selected Price Indicators (Average for year ended September 30; base year, FY 1975/76 = 100) Consumer GDP Import Export Terms of Real Effective Fiscal Price Implicit Price Price Trade Exchange Rate Year Index 1/ Deflator Index 2/ Index 2/ Index 2/ Index 3/ 1976 | 100.0 100.0 100.0 100.0 100.0 …. 1977 107.4 110.9 108.3 110.9 102.4 ne 1978 104,3 109.3 122.8 126.0 102.6 .. 1979 1144 112.4 161.9 143.7 88.8 . 1980 135.0 134.3 184.0 158.4 86.1 . 1981 146.1 142.4 174,7 148.9 85.3 120.9 1982 158.1 148.0 164.7 1447 87.9 126.9 1983 171.4 161.2 158.3 1402 88.6 137.4 1984 185.1 179.1 153.1 136.3 89.1 147.6 1985 200.7 197.1 150.9 136.9 90.7 133.8 1986 217.8 220.5 161.3 164.5 102.0 ‘129.5 1987 206.8 214.6 185.7 183.9 99.1 1163 1988 212.8 215.6 193.1 196.2 101.6 105.5 1989 236.1 238.1 200.3 193.9 96.8 105.0 1990 284.2 281.4 223.3 211.7 94.8 100.8 1991 338.2 334.0 217.3 210.7 97.0 102.3 1992 410.1 387.8 222.7 216.6 97.3 99.1 1993 487.4 445.2 208.2 205.1 98.5 86.5 1994 669.8 604.1 213.2 216.6 101.6 97.7 1995 872.3 791.8 235.0 238.2 101.4 119.8 1996 1,063.3 958.9 237.3 229.7 96.8 127.0 1997 1,235.6 1,113.2 219.0 215.4 98.3 149.5 1998 1,392.5 1,254.6 204.8 2113 103.2 167.7 1999 1,505.3 1,358.8 213.6 207.7 97.3 180.8 2000 1,678.4 1,517.7 . . ue Sources: Haitian Institute of Statistics; and Fund staff estimates. 1/ Data before 1980 were obtained by splicing the old consumer price index based on 1948. Before 1991 the index covered only the Port-au-Prince area and since 1992 the whole country. 2/ Estimate based on calendar year data from the IMF World Economic Outlook. 3/ IMF Information Notice System data rebased to FY 1980/81 = 100, Q:\Data\ML\HTTRED SR Tables\00REDREDTab10.XLS 11/15/00 3:40 PM [page 78] -71- Table 11. Haiti: Minimum Wage Rates (Fiscal Year Ending September 30) ——— Standard Minimum Wage Rate Real Wage (Gourdes per day) Index 1/ —_— En, 1972 5.0 101.0 1973 5.0 82.5 1974 5.0 71.6 1975 6.1 74.4 1976 6.5 71.7 1977 6.5 67.1 1978 8.0 85.0 1979 8.0 77.6 1980 11.0 90.4 1981 13.2 100.0 1982 13.2 92.4 1983 13.2 85.2 1984 13.2 78.9 1985 15.0 72.8 1986 15.0 67.1 1987 15.0 70.6 1988 15.0 68.7 1989 15.0 61.9 1990 15.0 51.4 1991 15.0 43.2 1992 15.0 35.6 1993 15.0 30.0 1994 15.0 21.8 1995 36.0 27.6 1996 36.0 22.7 1997 36.0 19.5 1998 36.0 17.3 1999 36.0 15.4 2000 36.0 14.2 —— Sources: Ministry of Social Affairs, Haitian Institute of Statistics; and Bank of the Republic of Haiti 1/ Last quarter of 1971=100. Deflated by consumer price index for Port-au-Prince until 1991. Deflated by an index covering the whole country beginning in 1992. [page 79] -78- Table 12. Haiti: Summary Operations of the Nonfinancial Public Sector — ——— “ne — Fiscal Year Ending September 30 — 1995 1996 1997 1998 1999 ——_——___.———— __— "77 1776 _____1977 1978 1999 (a millions of gourdes) Central government current account -1,485 -1,281 415 s71 774 Current revenue 2,249 3,178 4,770 5,252 6,084 Current expenditure 3,734 4,459 4,355 4,680 5,310 Public enterprises current account balance 1/ 605 274 488 842 901 Public sector savings -880 -1,007 903 1,413 1,675 Capital expenditure 2,288 2,610 2,926 3,370 3,805 Overall balance -3,168 -3,617 -2,023 -1,956 -2,130 Financing 3,168 3,617 2,023 1,956 2,130 External 2/ 3,519 2,393 2,134 1,508 949 Domestic 3/ - 351 1,224 -111 448 1,180 Ofwhich Central bank 650 1,081 -38 687 1,090 (In percent of GDP) Central government current account balance -3.9 2.7 0.7 0.9 11 Public enterprises current account balance L6 0.6 0.9 13 13 Public sector savings -23 -2.1 16 2.2 2.3 Capital expenditure 6.0 5.5 5.2 5.2 5.3 Overall balance -83 -7.6 -3.6 3.0 -3.0 Financing 83 7.6 3.6 3.0 3.0 External 2/ 92 5.0 3.8 2,3 13 Domestic 3/ 0.9 2.6 0.2 0,7 16 Of which Central bank -1.7 2.3 0.1 11 1.5 Memorandum item: Nominal GDP (millions of gourdes) 38,187 47,537 55,969 65,032 71,979 ——— —_—_—_—_——"" —_—_—_ Sources: Ministry of Economy and Finance; Bank of the Republic of Haiti, and Fund staff estimates. 1/ Refers to five major enterprises (see Table 15). 21/ Includes budgetary support, project and technical assistance, and support for the clearance of arrears accumulated in FY 1995. 3/ Includes domestic arrears. [page 80] -79- Table 13. Haïti: Summary Operations of the Central Government 1/ ——— Fiscal Year Ending September 30 1995 1996 1997 1998 1999 = ————————_—__—_—_—_—_—__— 0 TO 771 1978 _ 199 (n millions of gourdes) Total revenue 2,449 3,417 4,828 5,371 6292 Current revenue 2,249 3,178 4,770 5.252 6084 Internal 1,825 2,678 3,731 4,174 4,779 Customs 424 499 1,039 1,078 1306 Transfers from public enterprises 201 238 57 119 207 Total expenditure 4,083 4,604 5,084 5,888 6,827 Current expenditure 3,734 4,459 4355 4680 5310 Wages and salaries 1,690 2,083 2698 2815 2926 Operations 1,233 895 1473 1434 1735 Interest payments 212 211 374 437 616 External 154 143 206 215 339 Internal 58 68 168 222 276 Transfers and subsidies 2/ 584 622 268 243 326 Other 3/ 15 648 459 -249 -293 Capital expenditure 4/ 350 145 737 1219 1,488 Net lending 0 n] 7 -1l 30 Current account balance -1,485 -1,280 416 571 775 Overall balance excluding cost of reforms -1,634 -1,187 -257 -517 -535 Cost of structural reforms 0 0 55 181 435 Overall balance including cost of reforms -1634 -1,187 -313 -699 -970 Financing 1,634 1,187 313 699 970 External 1,848 77 294 390 -280 Domestic 5/ -215 1,110 18 309 1,249 Ofwhich Central bank -258 1,081 -38 687 1,090 (In percent of GDP) Total revenue 6.4 7.2 8.6 8.3 8.7 Current revenue 5.9 6.7 8.5 8.1 8.5 Transfers from public enterprises 0.5 0.5 0.1 02 03 Total expenditure 10.7 9.7 9.1 9.1 9.5 Current expenditure 9.8 94 78 7.2 74 Capital expenditure 0.9 0.3 13 1.9 2.1 Current account balance -3.9 27 0.7 0.9 11 Overall balance excluding cost of reforms 43 -2.5 0.5 0.8 2.7 Cost of structural reforms 0.0 0.0 0.1 0.3 0.6 Overall balance including cost of reforms 43 -2.5 0.6 -L1 -13 Financing (net) 43 - 25 0.6 -L1 -13 External financing 48 0.2 0.5 0.6 04 Domestic financing 0.5 2.3 0.5 0.5 17 Ofwhich Central bank 2.7 23 —.1 1.1 15 Memorandum item: Nominal GDP (millions of gourdes) 38,187 47,537 55,969 65,032 71,979 —————————_—_—_—_———_————————_———————_————" ——____ Sources: Ministry of Economy and Finance; Bank of the Republic of Haiti, and Fund staff estimates. 1/ Does not include expenditures on projects and technical assistance financed with concessional loans and grants. 2/ Includes transfers to public enterprises. &! Comprises spending over discretionary checking accounts, regular float, extraordinary carry-over, and screpancies. 4} May include outlays on goods and services and other current expenditures. 5/ Includes domestic arrears. [page 81] - 80 - Table 14. Haïti: Central Govemment Current Revenue —— ——— _———— —————…— ——— Fiscal Year Ending September 30 1995 1996 1997 1998 1999 (n millions of gourdes) Total current revenue 2,249 3,178 4,770 5,252 6,084 Customs 424 499 1,039 1,078 1,306 Internal 1,825 2,678 3,731 4,174 4,778 General sales tax 389 619 1,271 1,420 1,555 Intemal 143 214 313 362 425 Customs 246 405 958 1,058 1,130 Taxes on income and profits 253 485 688 671 921 Corporate 126 223 378 410 516 Individual 128 263 310 261 405 Taxes on property I . 10 3 0 Other taxes and fees 1,180 ne 1,761 2,080 2,302 Excise 506 495 705 855 971 Petroleum 465 460 563 459 538 Cigarette 8 un 23 21 18 Other excises 33 ne 119 375 415 Motor vehicles 41 ae 57 82 103 Consular services 101 235 26 5 6 Other 533 en 973 1,338 1,222 ( percent of GDP) Total current revenue 5.9 6.7 8.5 8.1 8.5 Customs il 1.0 1.9 17 18 Internal 48 5.6 6.7 64 6.6 General sales tax 10 13 2.3 22 22 Internal 0.4 0.5 0.6 0.6 0.6 Customs 0.6 0.9 17 1.6 1.6 Taxes on income and profits 0.7 1.0 12 1.0 13 Corporate 03 0.5 0.7 0.6 0.7 Individual 03 0.6 0.6 04 0.6 Taxes on property 0.0 en 0.0 00 0.0 Other taxes and fees 3.1 ne 3.1 3.2 32 Memorandum item: Nominal GDP (millions of gourdes) 38,187 47,537 55,969 65,032 71,979 ————_—" _—_—— Sources: Ministry of Economy and Finance; and Bank of the Republic of Haiti. [page 82] -81- Table 15. Haiti: Consolidated Accounts of the Main Public Enterprises 1/ (a millions of gourdes) Fiscal Year Ending September 30 1995 1996 1997 1998 1999 Total revenue 1,339.2 1,955.5 2,328.6 2,721.4 2,853.9 Domestic revenue 710.9 1,039.6 1,040.1 1,265.2 1,615.0 Teleco international services 486.1 506.7 1,236.7 1,330.0 1,181.7 Other 2/ 1422 409.2 518 126.2 57.2 Total expenditure 1,187.7 2,267.5 2,164.2 2,272.2 2,420.,7 Current 532.8 1,443.0 1,783.6 1,760.4 1,745.9 Wages 174.6 238.5 …. …. u Interest 84.6 115.4 105.0 184.1 120.8 Repair and maintenance 80.9 136.0 149.4 242.2 178.9 Other 3/ 192.7 953.1 . .. .. Capital 141.9 717.5 380.6 5119 674.8 Transfers (net) -201.0 -238.0 -57.0 -119.0 -207.0 Current account balance 4/ 605.4 274.5 488.0 842.0 901.0 Overall balance 463.5 -443.0 107.4 330.1 226.2 Financing -463.5 443.0 -107.4 -330.1 -226.2 Central bank -394.2 110.5 -8.6 754 -114.0 Other 5/ 69.3 332.5 -98.8 -405.5 -1122 Sources: Public enterprises; Bank of the Republic of Haiti, Ministry of Economy and Finance; and Fund staff estimates. 1/ Cash basis consolidation. 2/ Includes gain or loss from the exchange rate fluctuation. 3/ Does not include depreciation expenditure. 4/ Includes transfers. 5/ Includes external financing. [page 83] Ne -82- Table 16. Haiti: Accounts of the Telecommunications Company (in millions of gourdes) ——— ———— —— Fiscal Year Ending September 30 1995 1996 1997 1998 1999 —_————_—_——_—_ Ï "7 11776 __ 1997 ___ 1998 1999 Balance sheet Assets 3,137.9 3,193.4 3,656.1 4,294.8 4,748,1 Cash and receivables 1,398.7 1,289.3 1,672.2 2,090.1 2,124.0 Fixed assets (depreciated) 373.6 570.9 627.5 835.3 1,254.7 Lending to public sector 182.7 182.7 182.7 182.7 182.7 Long-term investments 104.2 106.1 129.2 142.2 142.2 Other assets 1,078.7 1,044.5 1,044.5 1,044.5 1,044.5 Liabilities 3,126.9 3,193.4 3,656.1 4,294.8 4,748.1 Short-term debt and payables 1,368.7 1,282.7 1,120.8 1,332.5 1,603.7 Long-term debt 276.2 124.0 198.8 198.6 164.0 Capital and undistributed profits 1,482.0 1,786.7 2,336.6 2,763.8 2,980.5 Profit and loss statement Total revenue 713.0 1,027.5 1,387.7 1,572.0 1,382.8 National services 87.2 115.1 109.4 136.9 152.8 International services 486.1 506.7 1,236.7 1,330.0 11817 Other 1/ 139.7 405.7 416 105.1 48.3 Total expenditure 385.1 495.0 551.9 930.8 1,135.0 Current 346.0 440.3 473.6 846.1 1,032.1 Wages 132.4 182.6 2192 263.7 396.2 Interest 27.1 9.5 7.3 96.8 47.1 Repair and maintenance 27.0 27.0 343 33.8 51.8 Other 159.5 221.2 212.8 4518 536.9 Deépreciation 39.1 54.7 78.3 84.7 102.9 Earnings before taxes 327.9 532,5 835.8 641.2 247.8 Taxes and transfers 114.7 186.3 284.4 249.7 86.6 - Earnings after taxes 213.2 346.2 SS1.4 391.5 161.2 Cash basis accounts Gross capital expenditure 106.2 151.4 134.9 292.5 522.3 Transfers from government -1612 -1147 -54.8 -249.7 -14.0 = Current balance 205.8 472.5 859.3 476.2 336.8 Overall balance cash basis 99.6 321.1 724.4 183.8 -185.6 Financing -99.6 -321.1 -724.4 -183.8 185.6 Domestic 82.9 -299.6 -589.2 -187.5 -39.3 BRH ee. 110.7 10.8 712 -114.0 Commercial banks un 8.4 0.0 0.0 0.0 Other ne 418.7 -600.0 -258.8 747 External -182.5 -21.5 -135.2 3.8 224.9 ————— —_]_—_———— ———————— Sources: Telephone company; and Haitian authorities. 1/ Includes gains and losses from exchange rate changes. [page 84] -83- Table 17. Haiti: Accounts of the Electricity Company (a millions of gourdes) Fiscal Year Ending September 30 1995 1996 1997 1998 1999 Balance sheet Assets 1,492.0 1,856.2 1,867.4 2,250.5 2,337.0 Cash and receivables 2718 300.2 269.5 347.5 392.1 Fixed assets (depreciated) 1,123.5 1,457.0 1,422.5 1,708.9 1,647.0 Other assets 96.7 98.9 175.4 194.1 298.0 Liabilities 1,492.0 1,856.2 1,867.4 2,250.5 2,337,0 Short-term debt and payables 671.0 1,583.6 1,752.3 1,891.2 1,899.6 Long-term debt 566.2 2,618.2 3,049.7 3,352.3 3,536.8 Capital and undistributed profits 254.8 -2,345.6 -2,934.6 -2,993.0 -3,099.3 Profit and loss statement Total revenue 276.4 461.0 495.4 553.5 585.0 Sales 273.9 457.5 485.2 532.4 576.2 Private sector 233.3 385.5 406.1 4413 489.6 Public sector 40.6 72.0 79.1 91.1 86.6 Other 2.5 3.5 10.2 21.1 8.8 Total expenditure 408,7 768.3 1,046.9 706.8 560.6 Current 339.0 694.2 711.6 590.0 453.5 Wages . . ne ne mn Interest 99.8 88.9 88.9 78.1 64.7 Oil purchases 119.3 272.7 321.7 247.1 196.6 Repair and maintenance 40.3 93,3 87.7 178.8 96.9 Other . . . . …. Depreciation and special charges 69.8 74.1 335.2 116.8 107.1 Earnings before taxes -132.3 -307.3 -551.5 -153.3 24.5 Taxes and transfers 15 2.5 2.9 3.2 3.2 Earnings after taxes -133.8 -309.8 -554.3 -156.4 21.2 Cash basis accounts Gross capital expenditure 1213 18 22.8 3.4 32.5 Transfers from government 226.6 . 153.8 0.0 0.0 Current balance 164.0 . -62.4 -36.5 131.5 Overall balance cash basis 42.7 . -85.2 -39.9 99.1 Financing 427 ne 85.2 39.9 -99.1 Domestic 42.7 ne 85.2 39.9 -99.1 Other Es . . . " External 0.0 0.0 0.0 0.0 00 Sources: Electricity company; and Haitian authorities. [page 85] - 84 - Table 18. Haiti: Accounts of the Port Authority ( millions of gourdes) ——_—————— Fiscal Year Ending September 30 1995 1996 1997 1998 ——— —_——"._. —__—__——— - 17 777. _ 1991 1998 Balance sheet Assets 560.1 608.2 985.3 1,052.0 Cash and receivables 1193 142.3 506.5 555.1 Fixed assets (depreciated) 312.5 338.5 352.6 360.7 Lending to public sector 0.4 0.4 0.4 0.4 Other assets 128.7 127.8 126.6 136.6 Liabilities 560.1 608.2 985.3 1,052.0 Short-term debt and payables 192.4 198.6 222.6 242.4 Long-term debt 148.0 174.7 165.3 155.9 Capital and undistributed profits 219.8 234.9 597.4 653.7 Profit and loss statement Total revenue 245.7 344.6 419.3 440.9 Total expenditure 199.0 301.5 310.1 345.3 Current 189.0 292.1 299.5 331.8 Wages .. ne . de Repair and maintenance 7.6 9.5 20.3 17.4 Interest 45 43 4.6 43 Other . en . .. Depreciation 10.0 9.5 10.7 13.5 Earnings before taxes 46.7 43.1 109.2 95.6 L Taxes and transfers 38.2 22.0 18.0 18.0 Earnings after taxes 8.6 21.1 912 77.6 Cash basis accounts Gross capital expenditure 43 4.5 7.1 13.5 Transfers from government -38.2 -22.0 -18.0 -18.0 Current balance 18.6 30.6 1018 911 Overall balance cash basis 142 26.0 94.7 77.6 Financing _ -142 -26.0 -94,7 -77.6 Domestic . -52.7 -85.3 -68.2 BRH . -5.7 -5.4 11.0 Commercial banks un 0.0 0.0 0.0 Other . 47.0 -79.9 -79.1 External . 26.7 -9.4 -9.4 ———_—————_—————— Sources: Port Authority; and Haitian authorities. Q:\DATA\ML\HTRRED SR tables\00RED\REDTab18.XLS 11/15/00 3:45 PM [page 86] -85- Table 19. Haiti: Accounts of the Airport Authority (n millions of gourdes) Fiscal Year Ending September 30 1995 1996 1997 1998 1999 Balance sheet Assets 111.4 128.0 162.1 175.4 201.2 Cash and receivables 61.5 67.9 94.8 78.9 97.5 Fixed assets (depreciated) 49.9 60.1 673 96.5 103.7 Liabilities 111.4 128.0 162.1 175.4 201.2 Short-term debt and payables 47.9 22.7 42.1 49.6 62.6 Long-term debt 11.9 47.1 47.2 47.2 47.2 Capital and undistributed profits 51.6 58.2 72.9 78.7 91.4 Profit and loss statement Total revenue 64.4 74.9 79.1 80.8 90.4 Total expenditure 51.9 718 644 75.6 80.6 Current 46.8 64.4 56.0 64.7 67.4 Wages 22.6 31.8 312 342 33.3 Interest 0.0 0.0 0.0 0.0 0.0 - Repair and maintenance 4.9 4.9 3.5 3.9 6.1 Other 193 27.7 213 26.6 28.0 Depreciation 5.1 TA 84 10.9 13.2 Earnings before taxes 12.5 3.1 147 5.1 9.7 Taxes and transfers 0.0 0.0 0.0 0.0 0.0 Earnings after taxes 12.5 3.1 147 5.1 9.7 Cash basis accounts Gross capital expenditure 5.0 18.4 18.9 42.5 30.7 Transfers from government 0.0 0.0 0.0 0.0 0.0 Current balance 17.6 10.5 23.1 16.0 23.2 Overall balance cash basis 12.6 -7.9 4.1 -26.4 .. Financing -12.6 7.9 4.1 26.4 . Domestic - . T4 6.6 30.5 mn BRH mn -3.4 5.8 3.6 " Commercial banks .. 0.0 0.0 0.0 mn Other . 10.8 0.8 27.0 n Extemal … 0.5 -10.7 41 … Sources: Airport Authority, and Haitian authorities. [page 87] - 86- Table 20. Haiti: Accounts of the Water Supply Company (n millions of gourdes) Fiscal Year Ending September 30 1995 1996 1997 1998 Balance sheet Assets 117.0 331.3 486.1 631.1 Cash and receivables 56.5 157.8 140.9 139.4 Fixed assets (depreciated) 32.8 135.2 310.8 432.7 Other assets 27.7 38.3 34.4 59.0 Liabilities 117.0 331.3 486.1 631.1 Short-term debt and payables 45.2 59.8 105.1 102.9 Long-term debt 66.3 251.6 377.2 576.9 Capital and undistributed profits 5.4 19.9 3.8 -48.8 Profit and loss statement Total revenue 39.9 47.6 65.2 710 Total expenditure 48.2 45.3 68.8 103.4 Current 38.7 42.2 60.5 87.6 Wages 19.6 24.1 29.0 36.7 Interest 1.5 L8 42 48 Repair and maintenance 1.1 13 3.6 8.3 Other 16.5 15.0 23.7 37.8 Depreciation 9.5 3.1 8.3 15.8 Earnings before taxes -8.3 2.3 -3.6 -32.4 Taxes and transfers 0.0 0.0 0.0 0.0 Earnings after taxes 8.3 2.3 -3.6 -32.4 Cash basis accounts Gross capital expenditure 8.3 105.5 185.0 613 Transfers from government 0.0 0.0 0.0 0.0 Current balance 12 5.4 47 -16.6 Overall balance cash basis -7.1 -100.1 -180.3 -77.9 Financing 7.1 100.1 180.3 77.9 Domestic . -85.2 547 -121.8 ‘BRH nn -9.8 2.6 6.8 Commercial banks . 0.0 0.0 0.0 Other u -75.4 52.1 -128.6 External D 185.3 125.6 199.7 = —_———————————————— — " "Û Û —— — Sources: Water Supply Company; and Haitian authorities. [page 88] = -87- Table 21. Haiti: Accounts of the Central Bank of Haiti (n millions of gourdes, unless otherwise indicated) ————_— Fiscal Year Ending September 30 June 30 1996 1997 1998 1999 1999 2000 — ———_— —__——_—_———_U "TT. "771 1776 1999 1999 2000 Net foreign assets 1/ 2,031.6 2,754.3 3,281.4 3,695.5 3,960.0 3,88L8 Assets 1/ 3,243.8 4,503.6 4,931.3 5576.9 5,788.3 5,920.4 Liabilities -1,2122 -1,749.3 -1,649.9 -1,881.4 -1,828.3 -2,038.7 Liabilities to the IMF 2/ -3743 -724.9 -636.6 -855.1 -817.9 -805.9 Other -838.0 -1,024.4 -1,013.4 -1,026 -1,010.5 -1,232.8 Net domestic assets 1,038.8 600.4 234.8 294.4 -167.0 861.6 Net credit to public sector 5,965.4 5,661.4 6,263.5 7,665.4 7,034.4 8,999.4 Central government 6,318.3 6,360.2 6,930.1 7,952.5 7,352.5 9,353.6 Special accounts 3/ -350.4 -558.3 -521.0 -214.0 -248.5 -247.9 Rest of public sector -24 -140.5 -145.7 -73.1 69.6 -106.3 Credit to the private sector 140.9 155.6 239.6 288.2 2732 3313 Net claims on commercial banks -4,063.3 4,187.6 -5,532.3 -7,029.3 -6,833.3 -7,514.7 Cash-in-vault and reserve deposits -3,949.7 -3,105.1 -3,810.6 -3,764.1 -3,905.3 -5,661.2 BRH bonds 0.0 -954.0 -1,629.0 -3,105.0 -2,720.0 -1,585.0 Other -113.6 -128.5 -92.7 -160.2 -208.1 -268.5 Net claims on other financial institutions -2.9 13.2 -5.1 -95.1 66.8 42.6 SDR allocation -296.6 -316.9 -316.4 -322.0 -305.7 -370.9 Capital and surplus -774.6 -866.1 -9274 -973.8 -1,040.1 -1,485.3 Other 210.7 296.4 752.7 760.9 7714 944.5 Currency in circulation 3,070.4 3,354.7 3,516.2 3,989.9 3,793.0 4,743.4 ————— ——— ————— ———— ——— Sources: Bank of the Republic of Haiti, and Fund staff estimates. 1/ Includes commercial banks' foreign currency deposits. 2/ Includes liabilities to the general resources and ESAF Trust Accounts. 3/ Special accounts of donors. [page 89] _ 88 - Table 22. Haiti: Accounts of Commercial Banks 1/ (In millions of gourdes, unless otherwise indicated) ——— —_ _—_——_—_—_———_—_————pZ 0 — me Fiscal Year Ending September 30 June 30 1996 1997 1998 1999 1999 2000 ———_—_——_——_—_—_——_—_——— "7 7 Net foreign assets 1,851 1,815 1,834 L910 1,916 3,373 Assets 1,926 2,108 2,047 2,116 2,096 3,818 Liabilities -75 -292 -214 -206 -180 -445 Claims on the BRH 4,114 4,099 5,412 6,873 6,624 7,47 Currency holdings 923 628 710 735 715 957 Deposits with the BRH (including reserves) 3,191 2,517 3,073 3,034 3,189 4,930 BRH bonds 0 954 1,629 3,105 2,720 1,585 Net domestic assets 6,143 8,515 9,738 11,184 10,464 13,512 Net claims on the public sector 41 -430 -511 -249 472 -196 Central government 40 -128 -199 79 -107 69 Special accounts 2/ 0 -298 -309 -324 -361 -261 Rest of the public sector -l -3 -3 4 4 4 Credit to the private sector 5,252 7,724 8,885 9,658 9,572 11,207 In gourdes 4,602 6,025 6,215 5,847 6,086 6,500 In US dollars 650 1,700 2,669 3,811 3,485 4,707 Net claims on other financial institutions 0 -13 65 -31 -21 -30 Interbank float 147 352 389 502 360 543 Unclassified assets 785 882 1,040 1,303 1025 L988 Liabilities to the BRH 67 71 39 35 36 33 Liabilities to the private sector 12,041 14,358 16,945 19,932 18,968 24,323 Deposits 11,152 13,059 15,308 18,168 17,390 22,291 In gourdes 8,498 9,514 10,816 12,443 12,028 13,909 In US dollars 2,654 3,544 4,492 5,725 5,362 8,382 Demand deposits 3,289 3,238 3,833 4,522 4,051 5,273 Saving deposits 5,258 6,008 6,472 7,739 7,581 9,031 Time and other deposits 2,605 3,763 5,004 5,907 5,759 7,986 Private capital and surplus 888 1,300 1,637 1,764 1,578 2,032 (Percentage change from end-period a year earlier) Private Sector Deposits 14.1 17.1 17.2 18.7 214 28.2 In gourdes 78 12.0 13.7 15.0 15.8 15.6 In US dollars 40.2 33.5 26.7 27.4 36.1 56.3 Credit to private sector 214 47.1 15.0 8.7 71 17.1 In gourdes . 6.9 30.9 32 -5.9 -7.3 6.8 ln US dollars 3,439.5 161.4 57.1 42.8 46.6 35.1 Memorandum Items Percent in foreign currency Bank Deposits 23.8 27.1 29.3 31.5 30.8 37.6 Credit to the private sector 124 22.0 30.0 39.5 364 42.0 Net Foreign Assets of Commerical Banks/ Dollar Deposits 69.7 512 40.8 334 35.7 402 ——————————_—_—______—_—_———"—____ Sources: Bank of the Republic of Haiti, and Fund staff estimates. 1/Includes the government-owned banks, BNC and BPH. 2/ Special accounts of donors. [page 90] - 89. Table 23. Haiti: Consolidated Accounts ofthe Banking System (In millions of gourdes, unless otherwise indicated) ———————————————————————————— ——————— Fiscal Year Ending September 30 June 30 1996 1997 1998 1999 1999 2000 © ——— Net foreign assets 3,883 4,570 5,115 5,605 5,876 7,255 Assets 5,169 6.611 6,979 7,693 7,885 9,738 Liabilities -1287 -2,041 -1,864 -2,087 -2,009 -2,483 Use of Fund credit -374 -725 637 -855 -818 -806 Other -913 -1,317 -1,227 -1,232 -1,191 -1,677 Net domestic assets 10,340 11,844 13,709 16,552 15,307 19,779 Net credit to the public sector 5,925 5,232 5,753 7,417 6,563 8,803 Central government 6,278 6,232 6,731 8,032 7,246 9,422 Special accounts 1/ -350 -857 -830 -538 -610 -509 Rest of public sector -3 -143 -148 -77 <73 -H10 Credit to the private sector 5,393 7,880 9,124 9,946 9,845 11,538 Net claims on other financial institutions -3 0 -70 -126 -88 -73 Capital and surplus -1,663 -2,166 -2,564 -2,738 -2,618 -3,517 Interbank float 130 192 230 311 115 466 Net other assets 558 706 1,236 1,742 1,491 2,562 Broad Money 14,223 16,413 18,825 22,158 21,183 27,034 Narrow Money 6,360 6,643 7,349 8,512 7,844 10,017 Currency in circulation 3,070 3,355 3,516 3,990 3,793 4,743 Demand Deposits 2/ 3,289 3.288 3,833 4,522 4,051 5,273 Time and Savings Deposits 2/ 7,863 9,771 11,476 13,646 13,339 17,017 (Percentage change from end-period a year earlier) Broad money 10.2 154 147 17.7 19.9 27.6 Narrow Money 20.8 44 10.6 15.8 162 27.7 Currency in circulation -19 93 48 13.5 13.6 25.1 _ Demand Deposits 2/ 542 0.0 16.6 18.0 18.7 30.2 Time and Savings Deposits 2/ 2.9 243 174 18.9 222 27.6 (Percentage change relative to broad money a year earlier) Net foreign assets -3.5 48 33 2.6 10.6 6.5 Net domestic assets 13.7 10.6 11.4 15.1 94 21.1 Credit to the non-financial public sector 9.5 49 32 8.8 52 10.6 Credit to the private sector 83 17.5 7.6 44 4.0 8.0 Other 4.0 -2.0 0.6 19 02 2.5 Memorandum Items Income Velocity of Broad Money 3/ 3.5 37 3.7 3.5 0.0 0.0 Money Multiplier 4/ 4.6 4.9 54 5.6 5.6 57 a —_—_—— ———————————— —_—__ Sources: Bank of the Republic of Haiti; and Fund staff estimates. 1/ Special accounts of donors. 2/ Includes dollar-denominated deposits 3/ Nominal GDP at market prices divided by the average of the year-end stock of broad money for the current and prior year. 4/ Ratio of broad money to currency in circulation. [page 91] -90- Table 24. Haiti: Sectoral Distribution of Commercial Bank Credit 1/ Fiscal Year Ending September 30 1995 1996 1997 1998 1999 (In millions of gourdes) Total 3,392.2 4,072.0 5,520.3 7,605.8 8,282.5 Retail and wholesale trade 1,102.2 1,341.2 2,180.0 3,470.5 4,392.2 Eoans to individuals 750.4 1,023.1 1,483.2 1,804.2 1,605.2 Manufacturing L035.1 1,176.7 1,347.8 1,573.5 1,338.5 Electricity, gas, and water 149.1 149.8 161.0 156.3 9.8 Construction 62.0 723 129,3 204.1 387.7 Insurance and real estate 106.8 73.0 87.8 266.8 313.7 Transport and communication 18.7 54.7 42.4 35.4 160.6 Agriculture 62.9 48.9 30.4 27.9 20.0 Other services 105.0 132.3 58.4 67.1 54.8 (in percent of total credit) Total 100.0 100.0 100.0 100,0 100.0 Retail and wholesale trade 32.5 32.9 39.5 45.6 53.0 Loans to individuals 22.1 25.1 26.9 23.7 19.4 Manufacturing 30.5 28.9 24.4 20.7 16.2 Eiectricity, gas, and water 44 3.7 2.9 2.1 0.1 Construction 1.8 L8 2.3 2.7 47 Insurance and real estate 3.1 18 16 3.5 3.8 Transport and communication 0.6 13 0.8 0.5 1.9 Agriculture 1.9 12 0.6 0.4 0.2 Other services 3.1 3.2 1.1 0.9 0.7 ————_—————_—_—————— Source: Bank of the Republic of Haïti. 1/ Excludes ioans below G 75,000. [page 92] -91- Table 25. Haïti: Origin, Destination, and Financing of Bank Credit (la millions of gourdes) Fiscal Year Ending September 30 June 30 1996 1997 1998 1999 1999 2000 Total credit 11525.3 13460,3 15662.7 18638.2 17190.7 22182.0 Origin 11525.3 13460.3 15662.7 18638.2 17190.7 22182.0 BRH 5398.7 5104.9 6083.6 76457 6972.0 87473 Central government and special accounts 1/ 5967.9 5801.9 6409.1 7738.5 7104.0 9105.7 Rest of public sector 1/ -24 -140.5 -145.7 -73.1 69.6 -106.3 Private sector 140.9 155.6 239.6 288.2 273.2 331.3 Other -707.6 -712.0 -419.4 -308.0 -335.6 -583.4 Commercial banks 5996.2 8163.0 9349.22 10681.6 10104.0 12968.4 Central government and special accounts 1/ 40.1 426.8 -508.0 -244.8 -467.9 -192.5 Rest of public sector 1/ 0.5 -3.0 27 -3.8 -3.7 -3.8 Private sector 52519 77242 8884.6 9657.9 95715 11206.7 Other 784.9 868.7 975.2 1272.2 1004.0 1958.0 Interbank float 130.4 192.3 229.8 310.9 114.7 466.3 Destination 11525.3 13460.3 15662.7 18638.2 17190.7 22182.0 Public sector 5924.8 5231.6 5752.8 7416.8 6562.9 8803.1 Central government and special accounts 1/ 5927.7 5375.1 59012 7493.7 6636.1 8913.2 Rest of public sector 1/ -2.9 -143.5 -148.4 -76.9 -73.2 -110.1 Private sector 5392.8 7879.7 91242 9946.2 9844.7 11538.0 Other 773 156.6 555.8 964.2 668.5 1374.6 Interbank float 130.4 192.3 229.8 310.9 114.7 466.3 Financing 11525.3 13460.3 15662.7 18638.2 17190.7 22182.0 Liabilities to private sector 151112 17713.1 204613 239214 22761.1 29065.9 BRH 3070.4 3354.7 3516.2 3989.9 3793.0 4743.4 Commercial banks 12040.8 14358.3 16945.1 199316 18968.1 243226 Net foreign assets -3882.6 -4569.7 -5115.1 -5605.3 -5876.1 -72549 BRH -2031.6 -2754.3 -3281.4 -3695.5 -3960.0 -3881.8 Commercial banks -1851.0 -1815.4 -1833.7 -1909.8 -1916.1 -3373.2 SDR allocation 296.6 316.9 316.4 322.0 305.7 370.9 Sources: Bank of the Republic of Haiti, and Fund staff estimates. 1/ Credit less deposits. [page 93] -92- Table 26. Haïti: Annual Change in Credit Extended by the Banking System . (n millions of gourdes) ————————_———— UT Fiscal Year Ending Septembe 30 June 30 1996 1997 1998 1999 1999 2000 ————— ——_———_—_——_ "2 "71 778 17727 _____ 1999 2000 Total credit 2291.1 1935.0 2202.4 2975.5 1680.8 4991.2 Origin D BRH 1007.3 -293.8 978.7 1562.1 737.2 1775.3 Central government and spécial accounts 1/ 1082.6 -166.0 607.2 1329.4 699.6 2001.7 Rest of public sector 1/ 107.9 -138.1 -5.2 72.6 20.4 -36.7 Private sector . 147 84.0 48.7 68.3 58.1 Other -324.1 44 292.7 1114 -51.1 -247.9 Commercial banks 1335.9 2166.9 1186.2 1332.4 905.5 28644 Central government and special accounts 1/ 25.8 -386.7 -81.1 263.2 194.5 275.3 Rest of public sector 1/ 5.6 -2.5 0.3 -Li -10 2.1 Private sector 927.0 24723 1160.5 773.3 6310 1635.2 Other 377.5 83.8 106.5 297.0 810 954.0 Interbank float -52.0 61.9 37.5 81.1 38.1 351.6 Destination Public sector 1221.8 -693.3 521.2 1664.0 913.5 22402 Central government and special accounts 1/ 1108.3 -552.7 526.1 1592.6 894.1 2277.1 Rest of public sector 1/ 113.5 -140.6 49 715 19.4 -36.8 Private sector 1067,9 2486.9 1244.5 822.0 699.3 1693.3 Other 53.4 794 399.2 408.4 29.9 706.1 Interbank float -52.0 619 37.5 81.1 38.1 351.6 Financing Liabilities to private sector 1858.8 2601.8 27483 3460.1 3556.1 63048 BRH -59.9 2843 161.5 473.6 454.9 950.4 Commercial banks 1918.7 2317.5 2586.7 2986.5 31012 53544 Net foreign assets 453.2 -687.1 -545.4 -490.1 -1863.6 -1378.9 — BRH 844.1 -722.7 -527.] 414.1 -1563.8 78.2 Commercial banks -390.9 35.6 -18.3 -76.1 -299.9 -1457.1 SDR allocation -20.9 20.3 0.5 5.6 -117 65.3 (Change with respect to total liabilities to the private sector 12 months carlier) Total credit 17.3 12.8 12.4 14.5 8.8 219 Origin BRH 7.6 -19 5.5 7.6 3.8 7.8 Commerciai banks 10.1 143 6.7 6.5 47 12.6 Interbank float 0.4 0.4 02 0.4 0.2 15 Destination Public sector 9.2 4.6 2.9 8.1 4.8 9.8 Central government and special accounts 1/ 8.4 -3.7 3.0 7.8 47 10.0 Rest of public sector 1/ 0.9 2.9 0.0 03 0.1 0.2 Private sector 8.1 16.5 7.0 4.0 3.6 7.4 Other 0.4 0.5 2.3 2.0 0.2 3.1 Interbank float 0.4 0.4 0.2 0.4 02 15 ———— Sources: Bank of the Republic of Haïti, and Fund staff estimates. 1/ Credit less deposits. [page 94] -93- Table 27. Haïti: Summary Indicators of Commercial Banking Sector re Fiscal Year Ending September 30 Dec. 2000 1996 1997 1998 1/ 1999 1999 Mar. Jun. Capital Capital, reserves, undistributed profits/total assets 4.6 54 57 52 si 49 49 Capital/risk-weighted assets (capital adequacy ratio) . . 9.4 10.6 11.9 111 Nonperforming Loans Nonperforming loans/total loans 4,7 4.9 8.6 7.9 8.6 7.9 8.7 excluding BNC . 3.2 6.7 6.5 6.7 63 7.1 Provisions/nonperforming ioans 953 79.5 56.2 62.3 57.2 50.0 539 Nonperforming loans/capital, reserves, undistributed profits 17 8.5 303 24.7 30.6 40.7 33,3 excluding BNC .. L8 27.5 213 22.5 22.5 28.6 Profitability Retum on assets (in percent) 12 14 0.6 10 11 17 17 excluding BNC . 14 Li 0.9 13 1.0 13 Return on equity (in percent} 25.9 28.1 10.1 18.5 21.5 34.9 33.8 Net interest income/gross interest income 55.6 593 55.8 60.2 64.0 61.5 59.8 Operating costs/net interest and noninterest income 75.0 75.5 78.4 772 783 69.8 73.4 excluding BNC mn 74.9 75.9 78 73.9 70.3 76.5 Net income/employes 427.8 6344 554.6 606.5 667.1 756.9 757.7 Number of branches 58 68 82 99 105 110 112 Number of employees 2,032 2.234 2,591 2,639 2,712 2,799 2,880 Liquidity L Total Loans/Total Deposits 2/ 47.0 58.6 573 53.8 53.1 53.1 30.8 Foreign Currency Loaus/Foreign Currency Deposits 3/ 245 48.0 59.4 66.6 59.7 58.8 562 Foreign Currency Loans/Total Loans 12.1 21.6 293 333 373 38.9 40.8 Foreign Currency Deposits/Total Deposits 23.8 27.1 293 31.5 33.7 35.8 37.6 Intermediation Private Sector Bank Deposits/Broad Money 78.4 79.6 813 82.0 797 819 82.5 Private Sector Credit/GDP 10.8 119 13.1 132 Es =" = ee ——_—_—_—_—_—_—_—_—_— ee ———— À Sources: Bank ofthe Republic of Haïti; and Fund staff estimates. 1/ Criterie for loan classifications were tightened in March 1998. 2/ Denominated in gourdes and in foreign exchange. 3/ Foreign exchange operations ofthe private sector only. [page 95] - 94 - Table 28. Haiti: Interest Rates (in percent per annum) Gourde Denominated Dollar Dencminated Memo: Deposits 1/ 91-day Deposits 1/ Annval Time Savings Lending 1/ BRH Bonds Time Savings Lending 1/ {nfation 2/ 1996 March 11.0 55 29.0 " = " . 20.3 June 115 53 27.8 mn En ue Le 22.0 : September 113 5.5 274 …. . ue . 20.1 December 10.5 5.5 23.0 19.4 .. mn " 14.6 1997 March 10.0 5.5 21.9 15,3 . En " 16.9 June 10.0 5.5 20.0 18.0 a . ee 16.9 September 113 5.5 21.5 17.7 43 2.0 12.5 17.0 December 10.5 5.5 23.5 17.2 4.8 2.8 12.0 15.6 1998 March 12.5 5.5 22.5 ‘22.5 43 2.8 10.8 12.8 June 13.5 5.5 23.5 23.5 4.5 2.8 11.0 10.9 September 14.8 5.5 22.5 213 4.8 3.0 12.5 83 December 11.0 3.0 23.5 9.2 5.0 2.8 14.0 7.4 1999 March 7.5 3.0 23.0 10.3 44 15 12.0 7.9 June 7.0 33 24.5 103 3.8 15 12.5 8.1 September 6.8 3.5 22.5 10.3 40 2.3 12.5 8.9 December 9.6 3.5 22.5 21.1 4.8 2,0 13.5 9.7 2000 March 9.8 3.3 24.3 23.3 3.8 18 14.0 12.0 June 10.5 33 25.3 23.3 48 1.5 14.3 11.5 Source: Bank of the Republic of Haiti. 1/ Interest rates shown here are a simple average of the lowest and highest end-of-period deposit and ending rates reported by the commercial banks. 2/ Change in consumer prices compared to same period 12 months earlier. [page 96] -95- Table 29. Haïti: Reserve Requirements by Category of Deposit and Institution (n percent) Local Currency Deposits Time Deposits Foreign Demand Saving Less Than More Than Currency Deposits Deposits One Year One Vear Deposits ——=———__—.——— —JHTE EPS __ ne Year One Year ___ Leposits L Commercial Banks March 1, 1993 to May 31, 1995 73 12 46 20 20 0 June 1, 1995 to August 27, 1995 48 48 48 48 0 August 28, 1995 to September 4, 1995 50 50 50 50 0 September 5, 1995 to October 9, 1995 1/ 53 12 53 12 53 12 53 12 0 October 10, 1995 to May 5, 1996 1/ 51 12 51 12 Si 12 51 12 0 May 6, 1996 to July 3, 1996 1/ 50 50 50 50 0 July 4, 1996 to November 18, 1996 2/ 48 48 48 48 0 November 19, 1996 to November 24, 1996 44 44 44 44 0 November 25, 1996 to December 1, 1996 4 42 42 42 0 December 2, 1996 to December 8, 1996 35 35 35 35 o] December 9, 1996 to February 15, 1997 30 30 30 30 0 February 16, 1997 to March 16, 1997 27 27 27 27 0 March 17, 1997 to May 15, 1997 26 26 26 26 12 May 16, 1997 to July 15, 1997 25 25 25 25 12 July 16, 1997 to November 15, 1997 26 26 26 26 12 November 16, 1997 to November 15, 1999 26 122 26 12 26 12 26 12 12 12 November 16, 1999 to April 15 , 2000 26 12 26 122 26 1/2 26 12 15 April 16, 2000 to August 31, 2000 28 28 28 28 17 September 1, 2000 to September 14, 2000 30 30 30 30 20 September 15, 2000 to present 31 31 31 31 21 IL Mortgage Banks March 1, 1993 to May 31, 1995 0 23 10 10 û June 1, 1995 to August 27, 1995 24 24 24 24 0 August 28, 1995 to September 4, 1995 25 25 25 25 0 September 5, 1995 to October 9, 1995 3/ 26 3/4 26 3/4 26 3/4 26 3/4 0 October 10, 1995 to May 5, 1996 3/ 25 3/4 26 3/4 26 3/4 26 3/4 0 May 6, 1996 to July 3, 1996 3/ 25 25 25 25 0 July 4, 1996 to November 18, 1996 4/ 24 24 24 24 0 November 19, 1996 to November 24, 1996 22 2 22 22 0 November 25, 1996 to December 1, 1996 21 21 21 21 0 December 2, 1996 to December 8, 1996 17 12 17 12 17 12 17 12 0 December 9, 1996 March 16, 1997 15 15 15 15 0 March 17, 1997 to November 15, 1999 15 15 15 15 12 November 16, 1999 to April 15, 2000 15 15 is 15 14 12 April 16, 2000 to August 31, 2000 16 12 16 122 16 12 16 1/2 16 September 1, 2000 to September 14, 2000 18 12 18 12 18 1/2 18 122 18 September 15, 2000 to present 19 12 19 12 19 12 19 1/2 19 —————_—_—_——_——__——— —_—_——— Source: Bank of the Republic of Haiti. 1/ This includes mandatory (remunerated) secondary reserves of 34 percent. 2/ This includes mandatory (remunerated) secondary reserves of 1%4 percent. 3/ This includes mandatory (remunerated) secondary reserves of 124 percent. 4/ This includes mandatory (remunerated) secondary reserves of #4 percent. [page 97] - 96 - Table 30. Haiti: Reserve Position of the Commercial Banks Fiscal Year Ending September 30 June 30 1996 1997 1998 1999 1999 2000 (In millions of gourdes) Deposit liabilities 11,152 13,059 15,308 18,168 17,390 22,291 Actual reserves 4,114 3,105 3,811 3,764 3,905 5,661 Required reserves 4,079 2,899 3,428 4,013 3,858 5,319 Excess/deficiency (-) 35 206 383 -249 47 342 (In percent of deposit liabilities) Actual reserves 36.9 23.8 24,9 20.7 22.5 25.4 Required reserves 36.6 22.2 22.4 22.1 0.0 0.0 Excess/deficiency (-) 03 1.6 2.5 -14 22.5 25.4 Sources: Bank of the Republic of Haiti; and Fund staff estimates. [page 98] -97- Table 31. Haiti: Summary Balance of Payments (n millions of U.S. dollars, unless otherwise indicated) Fisçal Year Ending September 30 1995 1996 1997 1998 1999 Current account, excluding grants 441.0 -358.7 -240.9 -235.7 -316.4 Trade balance 431.9 416.1 -393.3 -383.5 469.7 Exports, f.0.b. 137.3 147.7 195.5 284.3 351.9 Imports, £o.b. -569.2 -563.9 -588.8 667.7 -821.6 Services (net) -128.3 -109.0 -116.6 -148.5 -185.7 Income (net) 10.8 144 13.0 10.1 54 Ofwhich Interest payments -9.8 -94 -14.0 -12.9 -20.2 Private transfers, net 1/ 108.5 152.0 256.0 286.1 333.6 External grants 409.9 293.1 221.9 222.6 256.8 Current account, including grants -31.1 65.6 -19.0 -13.1 -59.6 Capital account 154.6 14.3 46.2 45.3 83.0 Public sector capital flows, net 105.7 109.0 93.9 72.2 57.9 Loan disbursements 125.5 1215 112.3 97.4 824 Amortization -19.8 -16.9 -18.3 -252 -24.5 Short-term credit (net) 0.0 44 -9.1 _ 0.0 Banks (net) -35.3 -284 15.9 -17 -3.9 Direct investments 74 4.1 5.0 10.8 30.0 Other 2/ 76.8 -70.4 -68.7 -35.9 -1.0 Overali balance (deficit -) 123.5 -51.3 27.2 32.2 23.4 Financing -123.5 513 -27.2 -32.2 -23.4 Change in arrears (reduction -} 3/ -121.0 0.0 0.0 0.0 0.0 Change in net international reserves (increase -) -115.4 513 27.2 -32.2 234 Debt rescheduling 112.9 0.0 0.0 _ 0.0 Memorandum items: Current account balance, excluding prants (in percent of GDP) -16.7 -12.1 -7.0 6.1 -73 Gross official reserves (US$ million, end of period) 216.0 215.6 265.7 292.7 329.2 in weeks of imports, c.i.f) 16.0 163 19.6 19.0 174 Exports of goods and services (in percent of GDP) 9.2 8.7 8.5 115 12.1 Imports of goods and services {in percent of GDP) -30.4 -26.5 -23.4 -25.4 -273 Sources: Data provided by Bank of the Republic of Haiti, and Fund staff estimates. 1/ Based on private remittances transferred through the authorized “transfer houses" and BRH estimates of such transfers channeled through other means. 2/ Includes errors and omissions. 3/ Includes arrears clearance vis-à-vis the Fund. [page 99] -98- Table 32. Haiti: Net International Reserves (n millions of U.S. dollars at end of period) ———— ——_——_—_—————— September 30 June 30 1996 1997 1998 1999 1999 2000 ———..——… — _ 770, 1271 1978. 1999 1999 ___2000 Net foreign assets of the banking system 258 270 304 331 352 356 Official reserves (net) 1/ 135 162 195 218 237 190 Assets 216 266 293 329 347 291 Gold 7 6 6 0 ( 0 Liquid assets 159 209 237 279 297 241 Other assets 49 50 50 49 49 49 Liabilities 81 103 98 111 109 100 Arrears 0 0 0 0 0 0 Ofwhich IMF 0 0 0 0 0 0 Liabilities to the Fund 2/ 25 43 38 50 49 40 Other 56 60 60 61 60 60 Net foreign assets of commercial banks 123 107 109 113 115 166 Assets 128 124 122 125 125 187 Liabilities 5 17 13 12 ll 22 Memorandum items Gross official reserves in weeks of imports, cif 16 20 19 . . ne percent of broad money 23 27 26 25 27 22 ———_———— Sources: Bank of the Republic of Haiti, and Fund staff estimates. 1/ Bank of the Republic of Haiti. 2/ Excluding arrears. [page 100] -99- Table 33. Haiti: Selected Foreign Trade Indices (FY 1991/92-100) Fiscal Year Ending September 30 1995 1996 1997 1998 1999 Exports _ Value index, f.0.b. 116.0 124.8 165.1 240.1 297.2 (Annual change in percent) 273 7.6 32.3 45.4 23.8 Price index 109.0 109.2 109.2 110.0 1112 {Annual change in percent) 48 0.2 0.1 08 LO Volume index 106.4 114.2 151.3 218.2 267.3 {Annual change in percent) 215 7.3 32.4 443 22.5 Share of traditonal exports 10,3 19.7 93 8.9 123. Imports Value index, f.o.b. 217.4 215.3 224.9 255.0 313.8 (Annual change in percent) 152.2 0.9 44 13.4 23.0 Price index 102.5 102.9 1022 101.7 102.6 s (Annual change in percent) 2.5 0.4 0.7 0.5 0.8 Volume index 212.1 209.3 220.1 250.7 306.0 (Annual change in percent) 146.1 -13 5.1 13.9 22.0 Terms of trade Index 106.3 106.2 106.8 108.2 108.4 (Annual change in percent) 2.3 0.1 0.6 13 02 Memorandum items US. conumer price index (period average) 2/ 108.6 111.9 1145 116.8 119.1 Annual change in percent 2.8 3.0 2.3 2.0 2.0 Sources: Bank of the Republic of Haiti (BRH); U.S. Department of Labor, and Fund staff estimates. 1/ Value and price indices are U.S. dollar based. In contrast to the WEO based indices reported in Table 8 here are adjusted for imports and exports of the assembly industry. The U.S. consumer price index is used as movements of the industry's inputs and outputs. 2/ Index for all urban consumers (CPI-U). [page 101] - 100 - Table 34. Haiti: Composition of Exports, £o.b. ——— ——— —— ————— "TT Fiscal Year Ending September 30 1995 1996 1997 1998 1999 —_— ——— _—_ . "T7 1776 _____ 19971 1998 _ 1999 (n millions of U.S. dollars) Total exports, f.0.b. 137.3 147.7 195.5 284.3 351.9 Agricultural exports 27.1 13.7 17.5 35.0 40.2 Coffee 17.9 6.9 13.0 218 18.0 Sisal and sisal strings 0.9 0.6 0.8 2.0 4.6 Sugar 0.0 0.0 0.0 0.0 0.0 Cocoa 2.0 0.6 0.7 .. 6.7 Mango 0.0 ne n 7.5 44 Essential oïls 63 5.7 2.9 3.7 6.5 Light manufactures 1/ 96.9 126.6 159,4 239.3 296.2 Domestic inputs 17.9 20.1 24.0 28.1 35.3 Imported inputs 79.0 106.5 15.4 2112 261.0 Other items 13.4 T4 18.6 10.0 15.5 (In percent of total exports) Agricultural exports 19.7 93 8.9 123 114 Light manufactures 1/ 70.6 85.7 81.5 84.2 84.2 Others 9.7 5.0 9.5 3.5 44 (Annual percentage changes) Total exports 273 7.6 323 45.4 23.8 Agricultural exports 143.7 49.3 27.3 100.2 15.1 Light manufactures 1/ 9.3 30.7 25.9 50.1 23.8 ———— —_——_———_—_————— Sources: Bank of the Republic of Haiti; U.S. Department of Commerce; and Fund staff estimates. 1/Includes valuation and classification adjustments made by the Bank of the Republic of Haiti. [page 102] -101- Table 35. Haïti: Exports of Light Manufactures to the United States (n millions of U.S. dollars) Fiscal Year Ending September 30 1995 1996 1997 1998 1999 2 À SE 2 Total value exported 1/ 96.9 126.6 159.4 239.3 296.2 A. Products from domestic materials 2/ 17.9 20.1 24.0 28.1 35.3 Textiles: yarns, fabrics, and manufactures 5.0 5.7 9.5 10.3 12.9 Wood manufactures 0.6 14 12 L1 14 Leather manufacturers 5.8 6.8 6.5 52 6.5 Other 6.5 6.4 6.9 116 14.5 B. Products from imported materials 3/ 79.0 106.5 135.4 2112 261.0 Textiles, apparel, etc. 64.5 96.5 128.5 203.1 251.0 Wear, apparel, accessories, and articles made from fur 63.1 94.6 125.4 199.3 246.3 Travel goods, handbags, and similar articles 0.8 19 3.1 2.8 3.5 Footwear, excluding military and orthopedic 0.6 0.0 0.0 1.0 12 Machinery and electronics 3.3 3.4 3.6 3.8 4.7 Miscellaneous manufactures 10.7 6.6 3.3 43 5.3 Sporting goods, toys, and other similar products 3.6 3.5 33 23 2.8 Articles of rubber and plastic 0.0 0.2 0.0 2.0 2.5 Other manufactures 7.1 3.0 0.0 0.0 0.0 _ ——————————_—————————_—— -————____— Sources: Bank of the Republic of Haiti, U.S. Department of Commerce; and Fund staff estimates. 1/ Exports to the United States represent about 90 percent of Haiti's light manufacturing exports. 2/ Fiscal year figures are estimates based on calendar year data. 3/ For 1993 only, fiscal year figures are estimates based on calendar year data. [page 103] - 102 - Table 36. Haïti: Principal Commodity Exports (Value in millions of U.S. dollars, volume in thousand tons, and unit value in USS$/kg, unless otherwise specified) ———————— ———_—_— Fiscal Year Ending September 30 1995 1996 1997 1998 1999 —__———_———__—_ .—" Û "T7? 770 _. 1777 1998 ___ 199 Total value 1/ 28.12 13.72 14.65 28.5 33.5 Coffee Value 14.11 6.85 10.16 218 18.0 Volume 2/ 148.50 70.32 84.90 1952 205.8 Unit price 3/ 95.03 97.41 120.00 111.4 87.7 Sisal and sisal strings Value 4.82 0.60 0.84 2.0 4.6 Volume 3.43 1,30 1.87 3.8 8.3 Unit price 0.43 0.46 0.45 0.5 0.5 Cocoa Value 1.95 0.61 0.68 1.1 44 Volume 3.40 105 1.08 15 8.6 Unit price 0.57 0.58 0.63 0.8 0.5 Essential oils Value 7.24 5.66 2.94 3.7 6.5 Volume 0.23 0.17 0.10 0.1 0.2 Unit price 31.56 33.00 30.10 31.5 33.0 ——— ——_—_— Sources: Bank of the Republic of Haiti, and Fund staff estimates. 1/ Some value figures may not be equal to the product of volume and unit value because of rounding. 2/ In thousands of 60 kilogram bags. 3/ US. dollars per 60 kilogram bag. [page 104] - 103 - Table 37. Haiti: Composition of Imports, c.i.f —_——_———— _—————"—————" ——————— Fiscal Year Ending September 30 1995 1996 1997 1998 1999 —_——. —___ÎÏ "1775 170 ___ 1997 1998 ____1999 (n millions of U.S. dollars) Total 481.4 687.9 706.6 821.3 1010.6 Food and others 1/ 217.0 343.0 318.4 331.8 434.9 Ofwkhich Food 149.0 219.6 200.4 234.7 295.0 Fuel and lubricants 713 79.4 74.9 80.8 85.4 Of which Petroleum and derivatives 70.2 70.7 70.6 77.8 82.4 Machines and transport equipment 95.1 125.0 111.5 125.8 1943 Raw Materials 22.7 7.9 17.2 22.5 18.8 Manufactured goods 68.3 130.6 154.4 202.7 257.2 Other imports 7.0 2.0 30.3 57.7 20.0 (In percent of total) Food and others 45.1 49.9 45.1 40.4 43.0 Fuel and lubricants 14.8 1LS 10.6 9.8 8.5 Machines and transportation 19.8 18.2 15.8 15.3 19.2 Raw materials 47 12 24 2.7 19 Manuñfactured goods 142 19.0 21.9 24.7 25.4 Other imports LS 03 43 7.0 2.0 (Annual percentage change) Total 162.6 42.9 2.7 143 23.0 Food and others 118.3 58.1 -7.2 42 31.1 Fuel and lubricants 543 11.4 -5.7 7.9 57 Machines and transportation 1,135.1 31.4 -10.8 12.8 54.5 Raw materials 808.0 65.2 117.7 31.2 -164 Manufactured goods 798.7 912 18.2 31.3 26.9 ———_—_—_——…———…————————……“—— Em Sources: Bank of the Republic of Haiti, U.S. Department of Commerce; and Fund staff estimates. 1/ Includes beverage, oils and fats, and pharmaceutical products. [page 105] - 104 - Table 38. Haiti: Official Grants Gn millions of U.S. dollars) ——— ———_—————— —————————û“—————. — —_—_—_—_—_—_— Fiscal Year Ending September 30 1995 1/ 1996 1997 1998 1999 —— "0 7 0 177 1998 1999 Total 409.9 293.1 221.9 222.6 256.8 Bilateral donors 297.5 187.3 1412 143.2 183.1 Canada 313 34.3 26.7 248 33.2 France 15.9 72 21.0 10.0 13.5 Germany 14 43 3.0 5.0 3.6 Japan 13.6 03 72 12.7 12.9 Netherlands 19 2.9 10 2.0 5.5 Switzerland 2.2 5.4 0.4 2.3 2.8 Taiwan Province of China 2/ ue .. 9.5 17.4 8.9 United States 225.2 112.9 64.8 64.2 102.8 Other bilateral donors 6.0 20.0 7.1 47 0.0 Muitilateral donors 112.4 105.8 73.9 79.4 70.6 European Union 60.1 61.1 44.5 49.9 32.1 UNDP - 9.6 16.7 143 12.8 11.8 WHO-PAHO 2.2 2.6 45 0.4 0.5 WFP 15 3.0 2.9 34 14 Other UN organizations 12.5 12.1 5.6 113 20.4 Other multilaterat donors 26.5 103 2.1 16 44 Nongovernment organizations 3/ 0.0 0.0 6.8 0.0 3.0 Memorandum items: Humanitarian aid 72.4 67.6 48.3 37.7 48.5 —————— —_—— Sources: U.S. Monitoring Report, World Bank survey on donor financing; and Fund staff estimates. 1/ Includes US$64 million for grants for clearance of arrears to international financial institutions. 2/ For 1995-96, grants provided by the Taïwan Province of China are included under other bilateral donors. 3/ During 1992-94, most official aid was channeled through nongovernment organizations (NGOSs). Beginning in 1995, some grants channeled through NGOs may be included in the figures for grants by bilateral donors , but explicit data on grants by NGOs are not readily available. [page 106] = - 105 - Table 39. Haïti: Loan Disbursements Gn millions of U.S. dollars) ———————"“/ —.— Fiscal Year Ending September 30 1995 1996 1997 1998 1999 ——_— 177? 1770 _1I91 1778 1999 Total 150.0 121.5 131.9 97.4 103.0 Bilateral 2 9 11.7 5.7 15 France 2 9 117 5.7 ES Multilateral 123.5 112.5 100.5 91.7 80.9 EIB 0 1 3.5 0 0 IDA/IBRD 49.4 66.7 39.9 37.8 14.6 IDB 74.1 448 57.1 52.4 64.8 OPEC/FIDA 0 0 0 LS 1.5 IMF 24.5 0 19.7 0 20.6 Memorandum item: Total, excluding the IMF 125.5 121.5 1122 97.4 82.4 ———_——_—__ UT Sources: Bank of the Republic of Haiti, donors, and Fund staff estimates. [page 107] - 106 - Table 40. Haiti: Stock of External Public Debt 1/ ——————_—_——_—— September 30 1995 1996 1997 1998 1999 ——_û_———_——__—_——…—_ __—__ _ Ï +77 176 1971 ___1998 __ 199 (n millions of U.S. dollars) Total 781.2 905.4 1,050.4 1,107.2 1,165.6 Medium and long-term debt 771.5 905.4 1,050.4 1,106.2 1,165.5 Bilateral creditors 124.9 149.1 193.6 173.2 155.8 United States 2/ 9.7 7.8 12.8 108 10.6 France | 74 43.6 52.4 53.9 48.4 Others 3/ 107.8 97.7 108.5 108.5 96.8 Muitilateral creditors 620.4 731.0 810.8 895.0 961.7 IDA 388.4 472.5 486.2 523.9 5147 FIDA 0.0 0.0 22.3 214 22.3 IDB 228.5 255.3 298.2 344,9 420.7 OPEC Special Fund 3.5 3.2 4.1 4.8 4.0 IMF and IMF Trust Fund 26.2 25.3 46.0 38.0 48.0 Other debt 4/ 9,7 0.0 0.0 10 0.1 Short term 9.7 0.0 0.0 0.0 0.0 Atrears 0.0 0.0 0.0 1.0 0.1 (In percent of GDP) Total 29.7 30.6 30.3 28.8 27.1 Medium and long-term debt 29.3 30.6 30.3 28.8 27.1 Bilateral creditors 47 5.0 5.6 4.5 3.6 United States 2/ 0.4 03 0.3 03 0.2 France 0.3 15 LS 14 L1 Others 3/ 41 3.3 3.1 2.8 2.2 Muiltilateral creditors 23.6 24.7 234 23.3 22.3 IBRD/TDA 14.7 16.0 14.0 13.6 12.0 IMF and IMF Trust Fund 0.0 0.0 0.6 0.6 0.5 IDB 8.7 8.6 8.6 9.0 9.8 OPEC Special Fund 0.1 0.1 0.1 0.1 0.1 Other debt 4/ 0.4 0.0 0.0 0.0 0.0 Short term L 0.4 0.0 0.0 0.0 0.0 ÂrTears 0.0 0.0 0.0 0.0 0.0 Memorandum item: Nominal GDP (millions of U.S. dollars) 2,633.8 2,955.1 3,462.4 3,839.0 4,306.5 a ————__—_—_—— —" ———_———_————_ Sources: Data provided by the Bank of the Republic of Haiti ; and Fund staff estimates. 1/ Includes concessional and commercial public debt, officially guaranteed debt, and central bank liabilities, including use of Fund resources. 2/ Debt cancellation by the United States in 1991 was accounted for only in 1995 after Haiti's return to constitntional rule 3/ Increase in 1995 reflect recognition of debt in dispute. 4/ Excludes overdue suppliers' credits in dispute ("dette en litige"). [page 108] -107- Tabie 41. Haiti: Scheduled External Public Debt Service | (In millions of U.S. dollars) Fiscal Year Ending September 30 1995 1996 1997 1998 1999 Total scheduled payments 29.6 25.0 31.9 43.4 55.9 Interest 9.8 8.1 12.3 12.9 20.2 Bilateral creditors 17 07 4.0 2.3 8.0 United States 0.9 0.0 0.8 0.7 0.5 France 0.6 0.5 1.7 1.0 2.1 Others 1/ 0.2 02 1.5 0.6 5.4 Muitilateral creditors 8.1 74 8.3 8.6 10.0 IMF 19 0.0 0.0 2.0 2.2 IBRD/IDA 2.5 3.0 3.0 3.3 3.8 DB 3.7 42 5.0 49 5.6 OPEC Fund/FIDA 0.1 0.2 0,3 0.4 0.5 Amortization payments 19.8 16.9 19.6 30.5 35.7 Bilateral creditors 2.0 2.6 42 10.1 8.1 United States 1.2 0.0 0.3 0.5 03 France 0.8 0.8 12 2.0 4.0 Others 1/ 0.0 L8 2.7 7.6 3.8 Multilateral creditors 15.8 143 15.4 15.1 16.4 IMF 3.1 2.6 13 5.3 11.2 IBRD/IDA 54 3.8 43 5.1 64 IDB 37 6.4 8.3 8.2 8.5 OPEC Fund/FIDA L6 1.5 1.5 L8 LS Sources: Data provided by the Bank of the Republic of Haiti, and Fund staff estimates. 1/ The main creditors are Venezuela, Argentina, and Canada. [page 109] - 108 - Table 42. Haiti: Stock of External Arrears | Gn millions of U.S. dollars) September 30 1994 1995 1996 1997 1998 1999 Total 120.5 0 9 0 0 A] Multilateral creditors 79.8 0 0 0 Ô 0 IDB 27.4 0 0 0 0 Ô World Bank/IDA 15.1 Ô 0 0 û 0 IMF 34.4 0 0 0 () 0 Other (OPEC and FIDA) 2.9 0 0 0 9 0 Bilateral creditors 41.1 6 (] 0 [l 0 US. Aid 3.4 (e) 0 0 0 (e] United States (EXIMBANK) 11.9 0 0 L) 0 ] United States (FMS) 0.3 0 0 0 0 0 Mexico (PEMEX) 0.7 0 (t 0 û 0 Venezuela (FIV) 4.1 0 0 0 0 0 Canada (Wheat Board) 5.4 0 Le) 0 0 Ô Taiwan Province of China (EXIMBANK) 2.5 ] Ô 0 0 0 Argentina 12.8 ü 0 Ô ( Ô Sources: Bank of the Republic of Haiti ; World Bank; and Fund staff estimates. [page 110] - 109- APPENDIX I Summary of the Tax System (As of September 30, 2000) Tax 777 Tate ofTex (Base) | Exemponsand Deus | Ras 1. Tax on net income and profits (Amended by decree of September 29, 1988) 1.1 Corporate income tax Tax on net industrial and Enterprises with a mover not Net profits of local companies are subject to the commercial profits of exceeding G 50,000. actual profits regime (régime réel). enterprises (including state | Agricultural cooperatives, . : enterprises) and companies, | mutual loan associations, and The actual pronis regie inchades the oliowieg including capital gains and” | enterprises granted privileges 9f marginal rates: after deduction of ail under the Investment Code. Fifty | profits in gourdes Percentage legitimate charges; percent of capital gains on . dividends paid to affiliated | developed property and 1-20,000 10 companies are not taxed. 25 percent on undeveloped 20,001-100,000 15 property. 100,001-250,000 20 250,001—750,000 30 Over 750,000 35 Enterprises are required to make an installment payment equal to 1 percent of the previous year’s profits plus 1 percent of the current value of imports. Undistributed profits are taxable at the rate of 15 percent afîer five years unless reinvested, Foreign companies: In addition to the actual profits regime, a surcharge representing 30 percent of net profits after tax, constituting the final tax on profits to be distributed to foreign shareholders. 12 Personal income tax Based on aggregate income, Exemptions: Foreign diplomatic and | For income, a progressive general schedule with including income from real consular personnel. the following marginal rates: estate; industrial, commercial, and agricultural profits; Deductions: (1) deficits carried over | Income in gourdes Percentage investment income; income from previous fiscal years: (2) for a from literary works and principal residence: 20 percent ofthe | 20,001--100,000 10 patented inventions, wages and | annual rent or the sum of real estate 100,001-250,000 15 salaries; interest and dividends | tax and mortgage interest payments; | 250,001-750,000 25 received; and all types of G) donations to charitable or public- | Over 750,000 30 capital gains. interest institutions, up to 20 percent ofincome; and (4) 50 percent of with the application oftax credits and source capital gains on developed property withholding. and 25 percent on undeveloped property. For profits, applicable rates are as follows: Presumptive regime: G 50,000-250,000 1 percent of tumover 2 percent of the value of imports, c.i.f. (in both cases, constituting payment in full) Actual profits regime: See 1.1 above. Taxpayers whose noncommercial profits are less than G 20,000 are subject to a presumptive tax of percent of their gross income, with a minimum ofG 600, deductible from the final tax but not refundable. Source withholding on: wages (1%4 of : TT the tax paid the previous year), unreported bonuses {10 percent, in full payment), commissions and capital gains on developed land (2% percent) and uündeveloped land (10 percent), and on interest and dividends (15 percent [page 111] -110- Summary of the Tax System (As of September 30, 2000) 2. Social security contributions À monthly contribution by Monthly contribution private sector employers and (Wages in gourdes) ercentage) pensi employees to the pension Less than 201 2 2.1 ONA (oldage ons) scheme, based on actual wages, 201-500 3 with a daily minimum of 501-1,000 4 G 13.50. Over 1,000 6 Payable by employer and employee. 2.2 OFATMA (work-related Monthly contribution paid by Paid by the employer: accidents) employers to assist employces Who are victims of work- 2 percent for commercial enterprises; related accidents or illnesses, based on actual wages, with a 3 percent for agricultural, daily minimum of G 8.50. industrial, and construction enterprises; 6 percent for mining operations. 3. Payroll tax Paid by employers and based Diplomatic missions, NGOs, and on the total value of the cash international organizations. (Decree of October 14, 1988) and noncash emoluments of public- and private-sector mployees. 4. Property taxes Based on the net annual rental | Full exemption for the buildings of Annual Rental Value Rate value of land and buildings government departments providing (in gourdes) (in percent) (Land perty erected with nontraditional nonprofit public services; buildings Der CA dr sopod Pro ) materials. used for religious activities; and Upto 2,400 6 Pr 5, , 8S ps : amended through January 1982). buildings belonging to cultural k 2,401- 3,300 7 associations, educational institutions, | 3,301- 7,200 8 and diplomatic missions. 7,201 9,600 9 9,60i-12,000 10 Reductions: 12,001—14,400 11 14,401-16,800 12 Single-rental apartments (furnished): | 16,801--19,200 13 30 percent. 19,201-21,600 14 Over 21,600 15 Multiple-rental apartments: Fumished: 50 percent. Unfurnished: 33 percent. All buitdings in locations other than Port-au-Prince and Pétionville: reductions of 75 percent (1st year), 50 percent (2nd year), and 25 percent (3rd year). . Owner-occupied property with a rental value of less than G 480 in urban areas and G 900 in rural areas is exempt. 4.2 Stamp tax Stamp tax on sales of tangible On the selling price or the value ofthe assets: or intangible assets or (Decr inheritances. Sales of tangible assets: 2 percent se of September 28, 1977) Sales of intangible assets: 3 percent Inheritances: 1-8 percent, depending on the type of goods and the degree of relationship between the parties involved. [page 112] -111- Summary of the Tax System (As of September 30, 2000) Tex 7 T7 Nate offax(Base) | | Exemprions and Deductions | ____ Ras 5. Taxes on goods and services 5.1 Value-added tax General tax on sales of goods Exemptions: (1) business persons 10 percent ofthe price of goods and services, (Decree of September 19, 1982, as (including agro-industrial), on with a tumover of less than including other duties and taxes. ded through 3: 1996 ? the provision of services G 100,009; (2) service providers amen ugh June ) -. {including water, electricity, and | with a turnover of less than local bank premiums and G 100,000; (3) international services charges), and on imports, (transportation equipment main- calculated at each stage in the tenance), (4) interest on bank ioans production/distribution/import and on banking and insurance chain, with credit for tax paid on | operations; (5) wages and education purchases. and health care expenses; (6) operations of nonprofit organizations: (7) exports and re- exports; (8) imported petroleum products; (9) equipment and imputs for agriculture, fivestock, and fisheries; and (10) supplies for education, Deductions: The tax collected on inputs of a taxable operation is deductible from the tax applicable to that operation. 5.2 Excise duties (Decree of September 3, 1971, as amended in August 1987) 5.2.1 Excise duty on tobacco Specific regular and Tobacco cultivated and dried Cigarettes (per pack of 20) products supplementary duty on domestically with no further cigarettes. processing and powdered tobacco Regular duty are exempt. Domestic production G100 Imports G125 Supplementary duty (per kg) Domestic G7.00 Imports G 14.50 Cigars Domestic production G0.01-0.05 Imports G0.05-0.50 Tobacco (per kg) Local G0.10-0.50 Imported G0.20-2.00 [page 113] -112- Summary of the Tax System (As of September 30, 2000) 5.2.2 Excise duties on Specific duties on imported and (n gourdes per liter) alcoholic beverages domestically produced spirits, wines, and malted beer. Regular duties: ecree of April 1984, as amended in 1988 and 1993) Local . …. Alcohol (>25 percent natural Cartier cane juice) G 100 per month Molasses (<25 percent natural Cartier cane juice) G L50 per month Imported Liqueurs G2.50 Gin, vodka, and cognac G 10.00 Whisky G 15.00 Stout, malted ale (per 24 bottie casc) G2.00 Wine and champagne G2.00 Local and imported Beer (per 24-bottle case) G 7.00 Rum (per liter) G1.00-G7.35 Supplementary duties on local and imported beer (per 24-bottie case) G1-G735 Beer G2.25 Stout G.2.25 523 Excise duties on Specific dufies collected by Electricité d'Haïti and government Fixed duties (in gourdes per gallon): petroleum products Customs at the time of bodies; diplomatie missions; and importation. certain NGOs. Gasoline G330 (Decree of February 1995, as Diesel oil G3-10 amended in May 1996) Kerosene sz50 Aviation fuel Go.25 Lubricants Go.15 Heating oil G0.10 Variable duties (in gourdes per gallon): Based on original reference levels, as fotlows: Gasoline G 6.80 Diesel G4.00 Kerosene G0.44 The price at the pump is to be adjusted upwards or downwards when the change in the landed cost exceeds 5 percent. 5.2.4 Excise duties on otheritems | Specific duties on refined sugar, Sugar G 20.00 per 100-1b bag and on carbonated beverages | flour, and carbonated beverages Flour G3.75 per 100-Ib bag manufactured Jocally. Carbonated beverages G 7.20 per 144 botties 5.2.5 Excise duties on luxury Levied on a wide range of 5 percent of the value, c.i.f. foodstuffs imported foodstuffs. [page 114] -113- Summary of the Tax System (As of September 30, 2000) Exemptions and Deductions 5.3 Business fees and licenses 5.3.1 Business fees Annual presumptive professional | Local governments, farmers, stock Professional fee (business license): fee payable bÿ any individual or | breeders, fishermen, wage earners, (Decree of September 28, 1987) legal entity engaged in a cooperatives, artists, authors, Group I: From G 40 (small retailers) to G 2,000 professional activity in Haiti, musicians, and singers. (mining industries) levied by the commune of which Average: G 400-1,000 the taxpayer is a resident. For exempt export industries: G 7,500 Communes are classified into three groups, the main one being Groups H and III: }4 and 1/4, respectively, ofthe Port-au-Prince and its suburbs. Group I rate, This fee is either fixed, on the basis ofthe schedule and depending on the location of the business and the sector of economic activity involved, or variable, based on the difference between the turnover and the age bill of'the business. 5.3.2 Licenses Annual tax on the authorization Tobacco factories G2,500 to engage in certain industrial or Breweries G1,500 (Decree of January 13, 1978) commercial activities or certain Distilleries G 20 per boiler professions. All foreign and Local factories G250-1,000 domestic enterprises are subject based on turnover 10 this tax, as are manufacturers of products for local consumption, distilieries, breweries, and tobacco factories. 5.4 Motor vehicle tax 54.1 Tax on initial registration | Based on the value, c.i.f 25-seat van Van (12-24 seats): 5 percent ofthe value, c.if. 2-ton truck Truck (< 2 tons): 5 percent of the value, c.i.f. (Decree of February 18, 1987) Other vehicles G 0-35,000 5 percent - G35,000-55,000 10 percent G 55,000-75,000 15 percent Over G 75,000 20 percent 54.2 Annual fec (April 1993, as Based on the cylinders, weight, Excise of 10 percent on all vehicles with a capacity amended in May 1996) and number of wheels of private of at least 2000 cubic centimeters. and public vehicles. Private (gasoline): 4-8 cylinders: (Registration tags) G60-110 Public (gasoline): 4-8 cylinder: G60-120 Public (diesel): 2-8 cylinders: G60-100 Public (trucks): 4-8 tons, 4-6 wheels: G 80-240 [page 115] -114- L Summary of the Tax System (As of September 30, 2000) 6. Taxes on international trade and The tariff currently contains 21 sections with a transactions total of 99 chapiers. Except in the case of certain staples and the items (Regime amended in February 1995) mentioned below, the following tariff structure is temporarily applicable: 6.1 Import duties General rate 6.1.1 Customs tariff Previous rate New rate À minimum tariff is applied to Certain industrial machinery, (in percent) merchandise originating from tractors, works of art, plant seeds and countries that have entered into bulbs, fertilizers, and a few other 0-10 L trade agreements with Haïti. Chemical products. 15-20 5 A reduced tariff is applied to Educational materials; health 25-30 10 merchandise originating from products; gasoline; kerosene; all 35-50 15 ‘WTO member countries. A products destined to agriculture; and maximum tarif, generally chemicals. Specific rates double the minimum tariff, is Rice 50 3 applied to merchandise Grains 50 0 originating from other countries. Vegetable oils 20 0 Sugar 20 3 Cement 10-33 3 Gasoline 57.8 57.8 6.12 Verification fee Import surtax, now levied atthe | Assembly sector, personal imports; 4 percent of the c.if. import value, . Haïtian port of entry ratherthan | and diplomatic missions. atthe foreign port of shipment. 7. Other taxes 7.1 Identification card tax Annual tax for the issuance or Diplomatic and consular services. Legal entities: G 600 validation of the identification Sole proprietorships: G 50-150 (Decree of September 28, 1987, as card fevied on ali individuals, amended through May 1993) legal entities, and sole Individuals proprietorships. Wage earners (< G 20,000): G 1$ Wage earners (G 20,000-100,000): G 150 Vehicle owners: G 150 Persons subject to property taxes: G 150 = Wage earners (> G 100,000): G 250 Source: Ministry of Economy and Finance.