(2013) Ayiti: Kesyon Seleksyone

©2013 International Monetary Fund IMF Country Report No. 13/91 HAITI Selected Issues This Selected Issues paper on Haiti was prepared by a staff team of the International Monetary Fund as background documentation for the periodic consultation with the member country. It is based on the information available at the time it was completed on February 21, 2013. 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. The policy of publication of staff reports and other documents allows for the deletion of market-sensitive information. Copies of this report are available to the public from International Monetary Fund  Publication Services 700 19 th Street, N.W.  Washington, D.C. 20431 Telephone: (202) 623-7430  Telefax: (202) 623-7201 E-mail: publications@imf.org Internet: http://www.imf.org International Monetary Fund Washington, D.C. March 2013 HAITI HAITI SELECTED ISSUES Approved By The Western Hemisphere Department Prepared By Abdel Bessaha (WHD) and Elva Bova (FAD). OPTIMIZING FISCAL POLICY FOR HIGH AND INCLUSIVE GROWTH IN HAITI _________ 2   A. Raising revenue __________________________________________________________________________ 2  B. Upgrading the Country’s Infrastructure and Human Capital _____________________________ 9   C. Concluding Remarks ___________________________________________________________________ 11  REFERENCES _____________________________________________________________________________ 13  A RENEWED PUBLIC INVESTMENT POLICY IN SUPPORT OF GROWTH AND POVERTY REDUCTION ___________________________________________________________________ 15   A. Introduction ____________________________________________________________________________ 15  B. Assessment of the Current Investment Policy Framework and Practices _______________ 16   C. An Agenda for Reform _________________________________________________________________ 21  D. Conclusion _____________________________________________________________________________ 24  REFERENCES _____________________________________________________________________________ 25  BOXES 1. How equitable is Haiti’s tax system? ______________________________________________________ 8   2. Lack of Controls on the Execution of Capital Spending ________________________________ 20   3. SYSGEP: A Critical Tool for Project Management _______________________________________ 23   FIGURES 1. Redefined Role for Institutions in Charge of Public Investment Management _________ 27   2. Proposed Project Sequencing and Institutional Framework ____________________________ 28   APPENDIX ________________________________________________________________________________ 26   CONTENTS February 21, 2013 HAITI 2 INTERNATIONAL MONETARY FUND OPTIMIZING FISCAL POLICY FOR HIGH AND INCLUSIVE GROWTH IN HAITI 1 1. Fiscal policy can serve as an important tool for promoting high and inclusive growth. Not only does fiscal policy warrant macroeconomic stability by ensuring a constant flow of resources to the budget and sustainable debt levels, but revenue and spending components can be powerful inputs in a country’s efforts to achieve higher levels of income and improve socio-economic indicators. 2. For fiscal policy to play an effective role in removing constraints to business and growth, and enhance employability in Haiti, it will be important to:  Raise revenue in ways that minimize its disincentive effects on economic activities (Tanzi and Zee 2000; Birdsall 2007).  Improve the composition of spending towards growth-enhancing and job-promoting sectors. A. Raising revenue Improving tax collection 3. Steps should be taken to increase revenue-to-GDP by improving tax and customs administration and expanding the tax base. Revenue-to-GDP rose from 10.7 percent of GDP in 2008 to 13.1 percent in 2011. Despite this progress, revenue in Haiti is still low compared to international standards and more needs to be done to reach the authorities’ goal of 15 percent of GDP. The reasons for low revenue are manifold, stemming from loopholes in the 1 Prepared by Elva Bova. This SIP updates and expands issues in part raised in the 2007 Selected Issues Paper ‘Revenue Mobilization in a Post-conflict Economy’, by El-Masry and Funke. FISCAL POLICY Macroeconomic Stability Business-friendly Taxation Infrastructure Spending Social Spending Removing constraints to business and growth Enhance employability HAITI INTERNATIONAL MONETARY FUND 3 administration and collection process, a taxation structure that does not adequately reflect the underlying socio-economic structure of the country, and a high level of tax expenditure. 4. Important steps have been taken in the area of revenue administration, but more can be done. The recent improvements in the revenue-to-GDP ratio are associated with a more efficient collection chain, and improved controls over the collection chain. Yet, tax and customs administrations still suffer from weak technical capacity, and an organizational structure where policy direction, monitoring and operational delivery are not separated and that does not fully reflect taxpayers’ diversity (Bua et al. 2012). On this last point, a more segmented tax administration would better address the different needs and compliance challenges of large, medium and small taxpayers. Reforms are ongoing regarding an organizational overhaul of the Ministry of Finance which would attribute larger powers to the revenue collection agencies. 2 On tax segmentation, a unit for large taxpayers and one for medium taxpayers are already running. More efforts are required for improving controls, internal audits, and training at both customs and revenue administration authorities. 5. Tax composition reveals weaknesses in the collection of income taxation, as the bulk of taxes comes mostly from international transactions. Looking at the composition of tax revenues provides insights on possible niches of revenue losses, suggesting areas for higher revenue mobilization. The main component of Haiti’s revenue consists of taxes from international trade, and dependence on international trade is particularly high (4.6 percent of GDP), much higher than in regional comparators (2.5 percent, on average). The second largest component of taxes is the turnover tax on goods and services. Collection of taxes on income is weaker, generating only 2.5 percent of GDP, as opposed to a regional average of 4.1 percent. Over the last 15 years, income tax has slightly increased, while custom duties have increased much more. 2 The initially planned loi organique has been turned into two laws which aim at changing the organization and functions of some of the main Directions Generales. Year Tax revenue % of GDP Barbados 2011 27.8 Be l ize 1997 19.6 Costa Ri ca 2009 13.7 Domi nica 2011 33.6 Dominican Republic 2011 13 Grenada 2011 22 Guatemala 2011 10.9 Hai ti 2011 13.1 Honduras 2009 15.1 Jamai ca 2009 21.6 Ni caragua 2009 17.7 Panama 2011 13.2 St. Lucia 2011 27.7 St. Vincent & Grens. 2011 29 Trini dad and Tobago 2011 33 Tax revenue as percent of GDP Source: WEO, GFS, OECD 0 5 10 15 20 25 30 35 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Revenue performance (percent of GDP) Total revenue and grants Revenue Source: Haitian authorities HAITI 4 INTERNATIONAL MONETARY FUND 6. Revenue could be expanded by modifying the rate for the personal income tax. Although inefficiency in administrative capacity is a reason for low income taxation, and, scarce income segmentation is a major factor behind the incapacity of capturing broader sets of taxpayers, a look at the rates applied to the income tax can provide additional explanations for the low level of revenue. A corporate income is levied at a tax equal to 30 percent of the total income, a level not significantly different from the one of neighboring countries. 3 Similarly, the highest rate of the personal income tax is set at 30 percent, a rate very close to the Caribbean and Central America average. Yet, when considering the rates applied to each bracket, a heavy burden weighs on middle levels of income, and current taxation fails to capture important resources coming from higher levels of income. 4 The 10 percent minimum rate applies only at relatively high levels of income (125 percent of GDP per capita-PPP based), while the highest rate of 30 percent applies to levels of income which are more than 2000 percent higher than the country’s GDP per capita. 3 Please see the following section for a discussion about whether the corporate income tax and dispositions attached to this tax are business friendly. 4 See also the following section which addresses income distribution. 0 2 4 6 8 10 12 14 16 18 20 Cos ta Rica 2009 Dominica n Republic 2008 Guatemala 2009 Haiti 2011 Honduras 2009 Nicaragua 2009 Panama 2011 Jamaica 2009 Composition of tax revenue (% of GDP) intern. trade excise goods and services tax property tax income tax Source: WEO, GFS, OECD Source: authorities 0 2 4 6 8 10 12 14 Tax composition (% of GDP) Turnover tax Income tax Excise Other taxes Custom duties Rate Antigua & Barbuda 25.0% Argentina 35.0% Barbados 25.0% Belize 25.0% Bolivia 25.0% Brazil 34.0% Chile 17.0% Colombia 33.0% Costa Rica 30.0% Dominica 30.0% Dominican Republic 29.0% Ecuador 25.0% El Salvador 30.0% Guatemala 31.0% Guyana 45.0% Haiti 30.0% Honduras 25.0% Jamaica 33.3% Mexico 30.0% Nicaragua 30.0% Panama 30.0% Paraguay 10.0% Peru 30.0% Uruguay 25.0% Venezuela 34.0% Source: IMF & KPMG Corporate Income Tax (2011) Rate Antigua & Barbuda 25.0% Argentina 35.0% Barbados 35.0% Belize 25.0% Brazil 27.5% Chile 40.0% Colombia 33.0% Costa Rica 25.0% Dominica 36.0% Dominican Republic 25.0% Ecuador 35.0% El Salvador 30.0% Guatemala 31.0% Guyana 33.3% Haiti 30.0% Honduras 25.0% Jamaica 35.0% Mexico 30.0% Nicaragua 30.0% Panama 27.0% Paraguay 10.0% Peru 30.0% Uruguay 25.0% Venezuela 34.0% Source: IMF & KPMG Personal Income Tax (2011) HAITI INTERNATIONAL MONETARY FUND 5 7. Envisaged reforms that will better align custom duties and a move towards the VAT may raise revenue. Imports are levied about 3 percent (simple average for all products) for custom duties, a level much lower than in other Caribbean countries and in other Central American countries. To comply with the requirements of the CARICOM membership, however, a reform of import tariffs will soon raise and align these duties with those of other countries in the region. The overall impact on revenues is still uncertain as a revenue loss could result from the reduction or elimination of tariffs within the CARICOM. The authorities are also considering replacing the turnover tax 5 on goods and services with a fully fledged value added tax. The adoption of a VAT could potentially attract more companies in the taxation system because they will need to be formally registered to claim back the VAT paid on inputs. Limiting tax expenditure 8. Another major source of revenue loss comes from tax expenditure. Estimates for the fiscal year 2010-11 indicate a level of tax exemptions in Haiti equivalent to about 4 percent of GDP. While the level as such is not particularly high compared to its comparators, the amount still constitutes an important loss in revenue, and efforts could be made to reduce part of this loss. The major source of this tax expenditure comes from exemptions granted on the imports of international organizations and diplomatic missions, which go even beyond the boundaries set by international treaties. Among the items exempted from custom duties, the largest share of tax expenditure regards vehicles, and to a minor extent food, construction and medical items. 5 The only countries with turnover tax besides Haiti are North Korea with a rate of 2 percent and 15 percent and Netherlands Antilles with rates of 3 percent and 5 percent (Deloitte 2012). 0 5 10 15 Belize Costa Rica Dominican Republic El Salvador Guatemala Haiti Honduras Jamaica Nicaragua Panama Tariff rate applied (simple mean) Source: World Bank World Development Indicators Argenti na 2009 2.4 Bra zi l 2008 2.8 Chi l e 2009 3.9 Col ombi a 2009 2.6 Cos ta Ri ca 2009 4.9 2009 5.9 El Sa l va dor 2009 3.6 Guatemala 2007 4.7 Haiti 2011 4.1 Ni ca ra gua 2010 7.6 Pe ru 2009 1.8 Urugua y 2009 5.4 Tax Expenditure (percent of GDP) Dom. Republic Source: Fenochietto et al. 2012, Haitian authorities HAITI 6 INTERNATIONAL MONETARY FUND 9. Haiti grants exemptions according to the Investment Code and some laws. The Investment Code of 2002 created a privileged status for certain manufacturers, while a 2002 law sets out the conditions for creating free trade zones, along with the exemption or incentive regime applicable to investment in such zones. In addition, firms that import machinery, spare parts, semi-finished products, or materials needed to promote the development of specific sectors within the economy are exempt from duties on imports. NGOs benefit from a special status: they are exonerated from custom duties on all goods necessary for the realization of their objectives. 10. The 2002 law provides incentives for enterprises located in free trade zones. These are geographical areas to which a special regime on customs duties and customs controls, taxation, immigration, capital investment, and foreign trade applies. 6 Firms in a FTZ are granted (i) exemption from income tax for a maximum 15-year period, to be followed by a period of partial exemption that gradually decreases; (ii) customs and fiscal exemption (including registration taxes) for the import of capital goods and equipment needed to develop the area, with the exclusion of tourism vehicles; (iii) exemption from all communal taxes (with the exception of the fixed occupation tax) for a period not exceeding 15 years. 11. The 2002 Investment Code allows for a 5- to 10-year income tax exemption for specific investments. To benefit from the exemption, enterprises must meet one of the following criteria: (i) make intensive and efficient use of available local resources; (ii) increase national income; (iii) create new jobs and/or upgrade the level of professional qualifications; (iv) reinforce the balance of payments position and/or reduce the level of dependency of the national economy on imports; (v) introduce or extend new technology more appropriate to local conditions; (vi) create and/or intensify backward or forward linkages in the industrial sector; (v) engage in export-oriented production; (vi) substitute a new product for an imported product; (vii) prepare, modify, assemble, or process imported raw materials or components for finished goods that will be re-exported; or, (viii) utilize local inputs at a rate equal or superior to 35 percent of the production cost. 6 A free trade zone was established in northern Haiti in 2002. Additionally, an agreement on the creation of another 40-hectare free trade zone in southern Haiti was signed in June 2003. Million of HTG % of Imports % of GDP Total Customs Administration 7,466 6.15 2.5 of which: 0. 0 NGO and c harities 1, 139 0. 4 Diplomat ic mis s ions and int ern. organiz at ions 4, 999 1. 7 Projects funded with foreign aid 482 0.2 Public adminis t rat ion 809 0. 3 Total Revenue Administration 4, 666 1. 6 of whic h: Local industry 4,524 1.5 Touris m 16 0. 0 Communication 126 0.0 Total 12,132 4.1 Source: Agence Générale des Douanes (AGD); Direction Générale des Impôts (DGI) Exemptions for Fiscal Year 2010/11 Composition of custom exemptions (2011) Medicines Medical equipment Food products Office equipment Items for construction Sc hool equ ipmen t Personal items Veh ic les Replacement parts Other Source: Haitian authorities HAITI INTERNATIONAL MONETARY FUND 7 12. More analysis is needed for a streamlining of exemptions. Given the amount of exemptions and the sectors exempted, there is potential to streamline tax expenditure and raising revenues. Yet, the benefits of higher revenue should be weighed against the possible negative impact on businesses and on international donors and NGOs whose work in social and infrastructure projects could be key for the reconstruction. To this end, the newly established Unit for the Analysis of Fiscal Policy is undertaking an examination of all current exemptions and will suggest streamlining them in ways that ensure adequate revenue gains without dampening the profitability of businesses or discouraging donors. Policies for rationalizing exemptions are needed especially for those exemptions granted locally; however, for customs administration, the large amount of exemptions will be likely reduced by better control of fraud and smuggling. Promoting a business friendly tax system 13. Taxation is not the most serious constraint to business in Haiti, but the overall burden is high and procedures are cumbersome. The Paying Taxes Indicator ranks high compared to other Doing Business Indicators for Haiti; but it is low if compared to that of countries in the region. More specifically, the rate of specific taxes is not higher than in other countries, but the overall burden falling on profits is high and the number of payments could be reduced. 14. Rates on dividends and specific provisions discourage business. As indicated, the rates of the corporate income tax (CIT) are in line with comparators. On the contrary, dividends are levied at 30 percent, slightly higher than the 29 percent of the Dominican Republic, and much higher than the 10 percent in Nicaragua and Honduras (see appendix). A series of legal provisions for taxation discourages business. First, contrary to in many other countries the tax on dividends has to be added to the CIT, which may imply a tax burden equal to 44 percent. Second, differently from most other countries, companies operating abroad cannot deduct taxes levied on international income, which implies that a company may have a resulting 60 percent tax on its profits coming from abroad and from Haiti (see appendix). Third, companies with a turnover Rank Payments (number per year) Time (hours per year) Profit tax (%) Labor tax and contributions Other taxes (%) Total tax rate (% profit) Belize 45 29 147 24.7 7 1.4 33.2 Costa Rica 125 23 226 18.9 29.5 6.6 55 Dominican Republic98 9 324 22.1 18.6 1.8 42.5 El Salvador 153 53 320 17 17.2 0.7 35 Guatemala 124 24 332 25.9 14.3 0.7 40.9 Haiti 123 46 184 24.1 12.4 4.3 40.8 Honduras 139 47 224 26.6 5.1 8.6 40.3 Jamaica 163 36 368 25.7 12.9 7 45.6 Nicaragua 158 42 207 22.9 20.3 21.8 65 Panama 172 60 431 12.5 19.8 9.7 42 Source: World Bank, Doing Business Indicators Paying Taxes (2013). Ranking out of 185 countries HAITI 8 INTERNATIONAL MONETARY FUND higher than Gourdes 15 million are required by law to contract an external auditor to verify their accounts, which adds to the company’s costs. Finally, the payment of almost 70 percent of the tax is in some cases required at the beginning of the fiscal year. 15. Although incentives are provided to small and medium enterprises, the payment of the turnover tax weighs quite heavily on their business. Small business employs almost 80 percent of Haiti’s labor force. For companies with turnover below USD 31,250 per year, a simplified taxation applies. They can subtract USD 12,500 from the tax base and then on this base they are levied a corporate income tax of only 1 percent and a 10 percent turnover tax. For companies with a turnover of USD 2,500 or below, the law imposes only a lump sum payment of USD 50 and a turnover tax of 2 percent. Despite these incentives, the payment of the turnover tax on the inputs of production largely discourages small enterprises and represents a crucial constrain to business (Petit and Geourjon 2010). Box 1: How equitable is Haiti’s tax system? Taxation is largely tilted to indirect taxes, mostly coming from international trade, and the personal income tax could be more progressive. The Haitian taxation system is substantially tilted towards indirect taxation. A tax system hinged more on direct taxes tend to be more progressive since the burden of tax contribution falls differently on different levels of income instead of being equally distributed across the population. An increase in the direct to indirect tax ratio is usually associated with a decrease in the Gini coefficient (Chu et al 2000, Gemell and Morissey 2005). In Haiti the ratio of direct to indirect taxes is at 29 percent in 2011 against a regional average of 41 percent. Although significant changes took place over time, indirect taxes remain large. The personal income tax could be more progressive. As indicated, with the highest rate at 30 percent, Haiti is largely in line with its comparators for the levels of the tax rates. However, the 10 percent minimum rate applies at relatively high levels of income, corresponding to around 125 percent of GDP per capita (PPP based). Only in Costa Rica and Honduras, minimum rates, of 10 and 15 percent respectively, apply to higher level of incomes, (127 and 138 percent of GDP per capita, respectively). More seriously, as indicated, the highest rate of 30 percent applies in Haiti to levels of income which are more than 2000 percent higher than the country’s GDP per capita. Direct to indirect tax ratio Belize 1997 26% Costa Rica 2009 40% Dominican Republic 2011 31% Guatemala 2011 53% Haiti 2011 29% Honduras 2009 31% Jamaica 2009 48% Nicaragua 2009 29% Panama 2011 76% Source: WEO, GFS, OECD HAITI INTERNATIONAL MONETARY FUND 9 B. Upgrading the Country’s Infrastructure and Human Capital Public expenditure can sustain an inclusive growth path: spending in infrastructure helps in fact reduce bottlenecks and constraints on business, while spending in health and education will reinforce human capital and increase employability. Infrastructure 16. Haiti performs poorly for selected infrastructure indicators. Only 40 percent of the population has access to electricity and 69 percent to water, the lowest ratios in the region. The country has only 15 kilometers of road per 100 square kilometers of land, second to Honduras with 12 kilometers. With only 40 subscribers per 100 people to mobile phones, Haiti ranks low also for access to soft infrastructure. 17. Despite heightened efforts in capital spending, project implementation is still inadequate for the country’s needs. Boosted by urgent needs in the aftermath of the earthquake and stimulated by the presence of international donors, capital spending in Haiti has increased from 1.6 in 2007 to 6.5 percent of GDP in 2012. A slowing down in the rate of increase in current spending indicates the authorities’ effort to reduce unnecessary spending and redirect efforts towards infrastructure. Yet, indicators on infrastructure and the slow pace of the reconstruction call for more efforts in this direction. Source: Haitian authorities 0 5 10 15 20 25 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Capital and current spending (percent of GDP) Foreign-financed Domestically financed Current expenditure Capital expenditure Source: World Bank, World Development Indicators 1 Access to electricity is for 2009. Road density is for 2001 for Haiti, Dominican Rep u b lic, El Salv ad o r, Gu ate mala, Ho n d u ras a n d fo r 2009 fo r Jamaica an d Nicarag u a . 0 40 80 120 160 200 Access to electricity (% of population) Road density (km of road per 100 sq. km of land area) Mobile subscriptions (per 100 people) 2010 Telephone lines (per 100 people) Literacy rate (% of people ages 15 and above) Access to improved water source (% of population) Dominican Republic Haiti Jamaica Nicar agua Panama 0 40 80 120 Access to electricity (% of population) Road density (km of road per 100 sq. km of land area) Mobile subscriptions (per 100 people) 2010 Telephone lines (per 100 people) Literacy rate (% of people ages 15 and above) Access to improved water source (% of population) Costa Rica El SalvadorGuatemala Haiti Honduras Selected Infrastructure Indicators for Central America and the Caribbean (2009-10) 1 HAITI 10 INTERNATIONAL MONETARY FUND 18. Higher reported capital spending does not mean improved execution capacity. The actual amount of capital spending always underperforms the envisaged amount in the budget. Data on execution capacity of treasury-financed capital spending shows an increasing trend over the last five years. Yet, this increasing trend only indicates higher transfers of resources from the treasury accounts to project accounts, with no real indication of project implementation. Evidence on capital spending by quarter shows very high spending occurring during the last quarter (almost 57 percent in FY2012), suggesting that the closing of the fiscal year puts pressure in the transfer of money to project accounts; it is unlikely that these resources are actually utilized for project execution until later. 19. Infrastructure spending should be boosted through better coordination among line-ministries and with donors and a more dynamic and efficient information and supervision system. Major reasons for Haiti’s low execution capacity and a weak public investment can be identified in the fragmentation of the public investment program, lack of sector-anchored growth policies, cumbersome project execution, and weak information and control systems. Against this background, the reform agenda should be oriented to define clear responsibility among government institutions, enhance a control system, boost the work of the unit of project executions and promote a dynamic information system. 7 Human Capital Haiti’s ranking for social indicators is low. School enrollment remains very low and the health situation difficult; key other social indicators are far from the MDGs target. In 2011, Haiti ranked 158 out of 187 countries according to the UNDP Human Development Index. Life expectancy at birth is below 62 year in 2010, while it is above 70 for all other Caribbean countries. About 49 percent of people older than 15 are literate, as opposed to the Caribbean average of 89.5 percent. 7 See next SIP chapter on Public Investment in Haiti. Source: Haitian authorities 0 2 4 6 8 10 12 14 0 10 20 30 40 50 60 70 80 90 2007 2008 2009 2010 2011 2012 Billion of Gourds Treasury-financed capital spending: Execution rate Actual (rhs) Execution ra te (lhs) Haiti Dominican Republic Caribbean Literacy rates of 15-24 (percentage) 72 96 90 Mortality rate, infant (per 1000 live births) 57 22 38 Maternal mortality ratio (per 100,000 live births) 670 100 170 Prevalence of HIV, total (percentage of population 15-49) 2 1 1 Births attended by skilled health personnel (in percentage) 26 98 69 Source: The Millennium Development Goals Report 2011, United Nations Millennium Development Indicators, 201 0 HAITI INTERNATIONAL MONETARY FUND 11 20. Social spending is the lowest in the region, and health spending has declined from its late 1990s level. Spending in education and health is respectively at 2.1 and 1.4 percent of GDP, against 3.8 and 3.4 percent on average for the other countries of the region. Differently from regional trends, health spending in Haiti has actually declined since 1997, going from 2.5 percent of GDP in 1997 to 1.4 percent in 2009. However, a large part of healthcare is provided by international donors and NGOs, especially since the earthquake. 21. To ensure higher job opportunities, the composition of current spending could be more social. While important steps have been made to tilt the envelope of total spending more towards capital spending, the composition of current spending can also be changed more in favor of social spending. Differently from advanced economies where social spending tends to be identified with the creation of safety nets, in the Haitian context this requires more long- lasting and long-term measures. Social infrastructure needs to be build and strengthened, education and health provision has to encompass much larger shares of the population. Hence, while cutting unnecessary current spending, spending should be directed to health, sanitation and education services. Also, the large donors’ presence in the field of social spending can indeed offer opportunities for capacity building. C. Concluding Remarks With high challenges in terms of poverty, employment and inequality, fiscal policy in Haiti should be oriented towards more developmental objectives, sustaining inclusive growth. While major 0 1 2 3 4 5 6 7 Belize Costa Rica Dominica Dominican Rep. El Salvador Grenada Guatemala Haiti Honduras Jamaica Nicaragua Panama Social Spending (percent of GDP) Education HealthSource: IMF, Fiscal Affairs Department Database Source: IMF, Fiscal Affairs Department Database Health Spending (percent of GDP) 0.5 1.5 2.5 3.5 4.5 5.5 6.5 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Belize Costa Rica Dominican Republic El Salvador Guatemala Haiti 0.5 1.5 2.5 3.5 4.5 5.5 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Haiti Honduras Jamaica Nicaragua Panama HAITI 12 INTERNATIONAL MONETARY FUND steps have been taken in this direction, the current taxation and expenditure frameworks do not completely fulfill the necessary requirements for these objectives. On the revenue side,  revenue mobilization is still low, largely based on custom duties, with high inefficiencies in the collection of income revenue;  taxation does not favor the business environment and is not progressive;  tax expenditures are large On the expenditure side,  investment spending is inadequate for the country’s infrastructure needs;  social spending is not enough to raise the productivity of human capital. Addressing these weaknesses would require (i) adopting a VAT as opposed to the current turnover tax; and promoting a more progressive income taxation; (ii) strengthening revenue administration; (iii) streamlining exemptions; (iv) and improving project implementation while enhancing social spending. HAITI INTERNATIONAL MONETARY FUND 13 REFERENCES Birdsall, Nancy, Augusto de La Torre and Rachel Menezes, 2008, “Fair Growth: Economic Policies for Latin America’s Poor and Middle-Income Majority,” Center for Global Development, Inter-American Dialogue. Bova, Elva, Tidiane Kinda, Jaejoon Woo, Yuanyuan Zhang (forthcoming), “Distributional Consequences of Fiscal Consolidation and the Role of Fiscal Policy: What the Data Say?”, IMF Working Paper, (Washington: International Monetary Fund). Chu, Ke-young, Hamid Davoodi, Sanjeev Gupta, 2000, “Income Distribution and Tax and Government Social Spending Policies in Developing Countries,” IMF Working Paper 00/62, (Washington: International Monetary Fund). Cubero, Rodrigo and Ivanna Vladkova Hollar, 2010, “Equity and Fiscal Policy: The Income Distribution Effects of Taxation and Social Spending in Central America,” IMF Working Paper, 10/112, (Washington: International Monetary Fund). Gemmell, Norman and Oliver Morrissey, 2005, “Distribution and Poverty Impacts of Tax Structure Reform in Developing Countries: How Little We Know”, Development Policy Review, 23 (2): 131-144. Goñi, Edwin, J. Humberto López, Luis Servén, 2008, “Fiscal Redistribution and Income Inequality in Latin America”, Policy Research Working Paper 4487, (Washington: International Monetary Fund). Ernst & Young, 2012, “The 2012 Worldwide Corporate Tax Guide”, April 2012. Ernst & Young, 2011, “Global Executive Guide: Individual Tax, Social Security and Immigration,” August 2011. IMF and World Bank, 2006, “Fiscal Policy for Growth and Development: an Interim Report,” Development Committee, April 6, 2006. KPMG, 2010, “KPMG’s Corporate and Indirect Tax Survey 2010,” KPMG 2010. Kraay, Aart, 2004, “When is growth pro-poor? Evidence from a panel of countries,” Journal of Development Economics, 80 (2006): 198-227. Martinez-Vazquez, Jorge, Blanca Moreno-Dodson and Violeta Vulovic, 2012, “The Impact of Tax and Expenditure Policies on Income Distribution: Evidence from a Large Panel of Countries,” Review of Public Economics, 200-(4/2012): 95-130. HAITI 14 INTERNATIONAL MONETARY FUND OECD, 2012, “Promoting Inclusive Growth: Challenges and Policies”, eds Luiz de Mello and Mark A. Dutz. Petit, Patrick and Anne-Marie Geourjon, 2010, “Évaluation de la Fiscalité Intérieure et Proposition de Réformes,” International Monetary Fund (not published). Tanzi, Vito and Howell H. Zee, 2000, “Tax Policy for Emerging Markets: Developing Countries,” International Monetary Fund, IMF Working Paper 35. World Bank, February 2009, “What is Inclusive Growth?” (Washington: The World Bank). World Bank and International Finance Corporation, 2012, “Doing Business Report: Economy Profile: Haiti,” (Washington: The World Bank). HAITI INTERNATIONAL MONETARY FUND 15 A RENEWED PUBLIC INVESTMENT POLICY IN SUPPORT OF GROWTH AND POVERTY REDUCTION 1 A. Introduction 1. Weaknesses in public investment have long been major impediments to growth in Haiti. Starting in 2004, the authorities took steps to enhance the efficiency and quality of public investment, and strengthen coordination among government agencies involved in project management. However, the post-earthquake surge in the number of projects as well as stakeholders like donors and NGOs has put further pressure on an already strained framework and limited administrative and technical capacity. In the process, this has also exposed and exacerbated overall weaknesses in the current investment framework, including project preparation, execution, reporting, evaluation, and control. 2. Investment inefficiency is costly. Direct costs of the weak public investment framework include lower growth, loss of domestic fiscal revenue and employment, and higher project costs. As an illustration of waste, it is estimated that over the past 5 years and for several reasons, including political uncertainty, an equivalent of G20 billion of earmarked resources for projects was not injected in the economy due to weak capacity and poor investment framework. This is equivalent to a fiscal adjustment of about 7 percent of average GDP of G280 billion. Assuming a fiscal multiplier of 0.6 percent, (Ilzetzki et al. 2011) 2 this implies that the economy has lost an estimated 3.5 percentage points of GDP over the past five years. Indirect costs include lower externalities, the presence of which is linked to the use of some inputs like the learning-by-doing effects stemming from the complementarities between physical capital and skilled labor. 3. Strengthening project preparation, execution, and control while ensuring the overall quality and consistency of public investment are critical for a sustainable growth reform agenda. In addition to protracted political instability and lingering security concerns, major technical reasons for Haiti’s low execution capacity and a weak public investment framework include the fragmentation of the public investment program (PIP), lack of sector-anchored investment and growth policies, complex and nontransparent capital expenditure procedures, and weak information and control systems. Against this background, the reform agenda should be framed in a comprehensive approach based on a strong political commitment for change, including enhanced transparency, better procurement practices, and stronger governance. In particular, there is a need to redefine and clarify responsibilities among government institutions involved in public investment 1 Prepared by Abdelrahmi Bessaha. The results of the paper were extensively discussed with the authorities and other donors. 2 Ilzetzki, E.,Mmendoza, E., and Veigh C., 2011, “How Big (Small?) Are Fiscal Multipliers,” IMF Working Paper 11/52, Washington, International Monetary Fund. HAITI 16 INTERNATIONAL MONETARY FUND project management, rehabilitate the work of the units in charge of project execution within ministries, enhance the control system, and promote a dynamic information system. 4. This chapter is organized as follows. Section B outlines the key changes introduced by the authorities over the past few years in order to improve investment efficiency. It also discusses the outstanding issues, including the fragmentation of the public investment program (PIP), weak preparation, lack of sector-anchored investment and growth policy, cumbersome capital spending procedures, and other shortcomings on execution, reporting and control. Section C puts forth an agenda for reform to enhance public investment efficiency and increase its growth impact. Sub- section D concludes. B. Assessment of the Current Investment Policy Framework and Practices 5. The impact of public investment on growth has been weak in Haiti. A wide array of literature and research has shown that higher public investment, particularly in infrastructure, may positively affect growth through several channels, including higher productivity. However, the acceleration in investment in Haiti has not led to strong growth, mainly because of weaknesses in the public investment framework. Public investment efficiency as measured by the Public Investment Management Index (PIMI) constructed by Dabla-Norris et al. in 2011 ranked Haiti in the lowest quartile of project performance. 3 3 The PIMI is built around four key pillars, including strategic guidance and project appraisal, project selection and budgeting, project implementation, and project evaluation and audit. 1.4 27.8 2.7 5.6 0.4 10.5 -8 -6 -4 -2 0 2 4 6 8 10 12 0 5 10 15 20 25 30 1997 1999 2001 2003 2005 2007 2009 2011 Public Investment, lhs Real GDP Growth Contribution to growth Haiti: Real Gross Public Investment (In Percent of GDP) HAITI INTERNATIONAL MONETARY FUND 17 6. Key reforms were introduced in the past few years to improve the public investment framework. The authorities have adopted several public financial management (PFM) laws and regulations, which set the stage for improving the public investment policy. In this context, they strengthened project preparation and execution, enhanced transparency of budget information, and reinforced budget oversight. In addition, they have endeavored to link budget preparation with priorities set forth in the medium-term poverty reduction strategy. The authorities have also made headway in improving coordination and consultations among ministries and public agencies that design and execute the public investment program. Other reforms include the introduction of a new budget classification system based on the administrative and economic nature of expenditures and the construction of the key elements of a forward-looking public investment framework, including: (i) a national system for planning and development management (SNPGD); (ii) a system for project information system (SYSGEP) aimed at tracking active projects, reporting physical and financial execution and facilitating overall planning of public investment; the creation of Analytical and Programming Units (UEPs) in key ministries tasked with overseeing project planning and execution as well as reporting; (iii) a directorate of investment at the Ministry of Planning and External Cooperation (MPEC) in charge of following up on SNPGD; and the creation of a Unit of Coordination of Projects (UCP) at the Ministry of Economy and Finance (MEF) in charge of improving capacity and executing some projects aimed at improving economic governance. 7. The authorities launched in November 2012, a new mechanism to strengthen the coordination and harmonization of aid. The new mechanism calls for an alignment of international funds to national development goals and government investment programs, and relies on the national budget as the main vehicle for channeling all aid. The new framework includes an aid effectiveness committee (AEC) chaired by the Prime Minister and comprising representatives of international institutions. The AEC will coordinate resource allocation in line with government priorities. Main priority themes as of now include employment, education, environment, rule of law, energy and disaster prevention. Overall Index Appraisal Selection Management Evaluation Highest Score 3.53 4.00 4.00 2.80 3.33 Median 1.65 1.33 1.60 2.00 1.33 Haiti 1.07 0.00 1.20 1.73 1.33 Barbados 1.19 0.50 2.00 0.93 1.33 Trinidad and Tobag 1.10 0.00 2.40 1.33 0.67 Belize 0.27 0.00 0.80 0.27 0.00 So urce: Era Dabla No rris, Jim B rumby, A nnette Kyo be, Zack M ills, and Chris P apageo rgio u, 2011, " Inv es t ing in P ublic Inv es t m ent : an Index o f P ublic Inv es t m ent Ef f ic ienc y" , Wo rking P aper (WP /11/37), Internatio nal M o netary Fund, Washingto n DC. Sub Indices Ranking Regarding Public Investment Management HAITI 18 INTERNATIONAL MONETARY FUND 8. Significant weaknesses remain. While the reforms have addressed important issues, further review of the public investment framework reveals continued fragmentation of the PIP, lack of preparation capacity, absence of sector-anchored investment and growth poles, cumbersome capital expenditure procedures, a weak and partial information and reporting system, low execution capacity, and weak enforcement of control procedures. 9. Fragmentation of the PIP. The fragmentation of the PIP raises concerns about the intra and inter sectoral consistency of the investment program as well as over the projects’ cost and impact on economic integration and growth. Public investment in Haiti is undertaken by 3 entities: (i) the central government which channels domestic resources through the Treasury to fund local projects included in the PIP; (ii) the donor community, including the numerous NGOs that conduct significant investment operations; and (iii) the “Bureau de Monetisation” which finances projects from PetroCaribe resources. However, the PIP only covers ongoing or pipelined projects funded by the government budget and part of PetroCaribe resources. Donor-funded projects are not included into the national budget and the authorities have little information on their execution. The fragmentation of the PIP complicates project planning and coordination. 10. Weak preparation capacity. Project design and preparation remain incomplete and weak. In many cases, project preparation is reduced to a mere summary note; there is no thorough economic, financial, or social assessment and no basic indicators on which project selection is made. Furthermore, many projects included in the national budget lack a contract for execution as well as an implementation schedule. Consequently, these incompletely prepared projects slow down the pace of execution considerably, complicate project management, and unduly tax Haiti’s limited absorptive capacity. 11. Lack of sector-anchored investment and growth poles. The investment portfolio lacks sector-anchored growth poles. The global portfolio under government control comprises 752 projects. Most projects are medium-sized, of which 2/3 is intended to expand administrative capacity. There are few large infrastructure projects, which could have provided a structuring base for a much-needed growth strategy anchored around key sectoral/regional development poles. A. Public Investment Program Current Investment Flows, 2012 B. Investment Projects Partially Reported in TOFE or Excluded A Fragmented Investment Program Treasury-Funded Projects Recorded in the national budget as domestically-financed capital expenditures Data on execution recorded in the TOFE Foreign-financed capital expenditures Project funded by PetroCaribe with donors Investment by NGOs HAITI INTERNATIONAL MONETARY FUND 19 During FY2012, 362 new projects were added to the PIP. This significant rise in the number of projects, particularly in a context of low capacity for thorough technical project preparation, heightens concerns about the quality and cohesiveness of the investment program. 12. Complex and non-transparent capital expenditure procedures. Procedures for execution of project spending are regulated by the October 3 1984 decree that created the Public Investment Fund. Disbursement plans for public investment projects are produced in the context of a top-down process, instead of an interactive bottom-up system; the channeling of resources is unusually layered (Box 1); and controls on funds allocated to project managers are lacking. 13. Lack of transparency and control of earmarked funds for project implementation. Disbursements made from project accounts to pay for project spending are not subject of controls by the Minister of Planning (MPEC) nor the Minister of Economy and Finance (MEF). In addition to budgetary credit disbursements from the MEF, project managers may have access to other revenues, which they may use to support outlays linked to the project or for other purposes. 14. Weak and partial information and reporting system. The information system is weak and the tracking mechanism for investment execution (SYSGEP) is in its infancy stage. As a result, data for assessing progress in the implementation of the investment program is incomplete. Data for Treasury-financed projects is available on the financial side and is reported in the TOFE. However, the reporting from project managers is irregular and does not include a full accounting of the physical and financial progress in project execution. Information on PetroCaribe projects is not comprehensive and is not provided in a timely fashion. Donor-funded investment data are partial and reported with significant lags. The current tracking mechanism for investment implementation SYSGEP lacks the resources and staff required to be fully operational. 15. Lower execution rate and uneven implementation across sectors. The effective execution rate is low. It is estimated that project execution falls within a 35-45 percent range. This underperformance is attributable to a range of factors, including poor design of projects, low execution capacity, lack of coordination between government agencies, weak reporting, political uncertainty, volatile security, and loose enforcement of internal control mechanisms. At the same time, and as long as these issues are not addressed, they exacerbate the weaknesses of the investment framework and continue to lessen the efficiency of the projects and their impact on growth. HAITI 20 INTERNATIONAL MONETARY FUND Box 2. Haiti: Lack of Controls on the Execution of Capital Spending A top down process guides the preparation of disbursement plans of project funds. The MPEC updates project notes (FIOPs) at the beginning of each fiscal year based on budgetary allocations agreed by the government without the direct involvement of project managers and without a comprehensive report on execution from managers in the field. Project managers are informed at a later stage about the amount of resources allocated to their projects. The MPEC forwards the projected disbursement schedule to the MEF. The MEF takes over and plays a central role in the supply of funds to project accounts. The channel for public resources allocated to projects is flawed. The MEF Directorate General of Budget (DGB) of the MEF reviews the projected disbursement plan and establishes a payment order to the Minister of Finance, which is then sent to BRH for transfer of funds (equivalent to the first two months of the annual capital budget envelope) from the central Treasury account to a transit account called “Compte Tresor Special Developpement (CTSD)”. Once the latter is replenished, the Treasury Directorate issues payment orders to individual project accounts. BRH then transfers the fund to each of these project accounts. Treasury notifies the project managers and the line ministry that oversees the project account. No copy is issued to the MPEC, except for quarterly notification of subsequent transfers of resources to project accounts. The whole procedure does not involve a public accountant. The usefulness of the CTSD remains to be proven; furthermore, it merely lengthens the transfer process of project funds. The operating revenue of the CTSD (airport tax) is not linked to outlays financed by it. Also, the MPEC is not supplied – or is only with delay--with information on project disbursements. Spending controls are missing. Spending by the project manager is subject to neither a fiduciary control nor the review of a public accountant. At the beginning of each quarter, project managers are expected to submit to the MPEC a progress report indicating financial and physical execution of the project, together with supporting documents detailing the use of the resources advanced; and a projected disbursement schedule for the subsequent quarters. Those reports rarely provide the required information on the use of funds or on the end period balance of the project account. This does not prevent the MPEC from preparing another quarterly disbursement plan to the MEF and resupply the project accounts managers with additional fund. Compte Tresor Spe c ia l developpe ment Haiti: Disbursement Process for Treasury-Funded Projects, 2012 Treasury Transfer of budgetary credits to PIP projects Recorded by Treasury and included into TOFE) Other funding •Public entities' own revenues •Donor funds Project Special Accounts End-month balance retrieved by Treasury Projects on PIP Disbursement made independently of Treasury control. Reporting on actual disbursements is unclear. Other expenditure No information available; no spend ing justification provided HAITI INTERNATIONAL MONETARY FUND 21 C. An Agenda for Reform 16. More efficiency in capital spending is crucial. The major reconstruction process under way is likely to be protracted and span the next decade due to the immense needs and time needed to build appropriate capacity. At this time, the investment program financed by domestic resources comprises several hundred projects. To ensure the most efficient use of these resources, there is need for a comprehensive reform plan to improve the design and preparatory phases of projects, but also execution, reporting, and controls. These reforms are key to enhance investment spending efficiency and ensure the highest impact on economic growth and employment creation. This section outlines a road map for reform and discusses the related timeline. 17. The investment framework needs to be strengthened. It will be anchored on (i) a clearly defined set of responsibilities between government institutions in charge of project management; (ii) articulated sequencing regarding project management; (iii) an enhanced role for the UEPs; (iv) a dynamic information system; and (v) an active control process. Most importantly, these reforms should be accompanied by a medium-term strategic budgeting. A clearly defined set of responsibilities across government institutions  The sector ministries will remain responsible for the production of coordinated sector projects and programs. They will update their sector strategies and put together clear guidelines on sector projects (Figure 1).  The MPEC should (i) ensure consistency of sector plans, projects and programs: (ii) consolidate the latter into a comprehensive national strategy; (iii) issue cross-sector guidelines for project management; (iv) manage the information system based on SYSGEP; (v) produce regularly reports on project execution from UEPs; and (vi) assess public-private partnerships ventures in order to determine their costs and benefits.  The MEF should take a more active role in preparing project disbursement projections with inputs from UEPs, consolidating financial reports on project execution, and working closely with control institutions to ensure the best use of the public resources allocated to investment. The MEF should also coordinate with MEPC in the issuance of project management guidelines.  The UEPs should play a central role in a newly designed institutional framework. The UEPs are not new as they were created by the May 17, 2005 decree aimed at reactivating a fledging national investment management system. Political uncertainty and low capacity have delayed the implementation of this crucial component. There is a strong need to establish UEPs in all line ministries. These units are to be in charge of (i) sectoral analysis and data compilation; (ii) program and project design; (iii) sectoral, regional and local coordination; (iv) monitoring execution of programs and projects; and (v) control. The UEPs will also be in charge of preparing disbursement projections, review progress report from project managers and prepare payment orders for work execution. Payment of this work will be done by the Ministry of Economy Finance. This will eliminate the need to transfer resource to project managers and most HAITI 22 INTERNATIONAL MONETARY FUND importantly ensure that payment orders functions are clearly separated from payment functions. The UEPs prepare a quarterly progress report to be sent to both MPCE and MEF. They will also have the ability to conduct control of project execution through in site visits or on the basis of documentation sent by the project managers. Experts funded by donors would be assigned to support the UEPs if necessary An articulated sequencing of project work  Project preparation work should focus on producing all the preliminary studies (technical, economic, commercial, and/or social) and indicators that would guide the decision to select a project. The selection process should be completed by the negotiation of a contract (confirmed by the procurement agency, CNMP), a financing plan and a comprehensive work schedule to facilitate reporting and control (Figure 2).  Project should be incorporated in the national project database and the official investment program. Upon completion of the preparatory phase and recording in the national project database which is run by the MPEC, the new project should then be incorporated in the medium-term budgetary framework (MTBF) for execution and the sectoral budget.. At this stage, the project is fully under the responsibility of the UEP of the sectoral ministry. The UEP will monitor execution, work on disbursement plans, and issue payment orders. It also conducts controls of the project through in site visits as well as on the basis of documents.  The current institutional framework procurement is weak. The national commission requires additional resources and equipment to operate properly. However, in view of the significant amount of projects, the current institutional arrangement will continue to produce bottlenecks. Therefore, we suggest that regional commissions be reactivated and fully equipped with appropriate staff and equipments and their authorities fully restored, at least for sectors running major investment programs. Second, project thresholds are needed. Regional commissions should review only projects below a certain threshold while the national commission should take up projects exceeding that threshold. A dynamic information system  The SYSGEP fed with information on execution of all public investment projects is the cornerstone of the investment framework. A reliable integrated information system is critical to ensure execution in a timely manner and the use of resources in a transparent fashion (Box 2). The system is predicated on a steady supply of information from project managers, and from donors and PetroCaribe managers. HAITI INTERNATIONAL MONETARY FUND 23 Box 3. SYSGEP: A Critical Tool for Project Management The Système de Gestion de l’ Information sur les Programmes et Projets (SYSGEP) is a critical tool put together by the authorities to monitor project execution and facilitate assessment of public investment policy. The SYSGEP module is in place as it loads data and information related to all the phases of domestically-financed active projects, including project identification in the context of the National Project Nomenclature, progress in execution on both the physical and financial aspects, disbursement projections, and other aspects of a project under execution. For a full performance of this computerized tool that is a central element of a comprehensive information system in support of economic development, there is a need to: • Upgrade the National Project System, the legal framework for Public Investment, the General Guide for Investment Projects, and the technical module to manage projects. • Install SYSGEP in all line ministries to ensure comprehensive flows of information on project implementation; because of capacity constraints, the extension of this system will cover in a first phase large ministries, including education, health, agriculture, and public works. By 2016, SYSGEP is expected to cover all ministries. • Link SYSGEP to other modules and econom ic and financial databases to enhance its efficiency and produce real time data on execution, including the module of external aid, the module of current spending (for recurrent spending that projects give rise to), the central bank information system. In addition to improving the efficiency and transparency of the public investment policy, SYSGEP is expected to facilitate project design and preparation in line with national priorities defined in the country strategy and associated sectoral development plans, while strengthening coordination with the donor community. An active control process  The control phase is crucial in the revised framework for public investment policy. Internal controls should be conducted on a quarterly basis and reports sent to the MEF and MPEC. SYSGEP should also receive copies of the control reports. A posteriori controls are also expected to be conducted by the Inspection Generale des Finances, the Unité de Lutte Contre la Corruption if necessary, and the Cour Superieure des Comptes et du Contentieux Administratifs. Medium-Term strategic budgeting  Improved project management will require a break with the current annual budgeting process. A one-year authorization for capital spending is not appropriate since most projects are implemented within time horizons exceeding one year and lasting up to 3 years. Therefore, it is important to establish medium-term strategic budgeting (MTB). This will ensure smooth execution of projects as well as incorporating in due time the recurrent costs that arise from projects that enter the operational phase. With medium-term spending comes medium-term revenue planning. In any event, the authorities will have to introduce new tools, including variable length budget authorizations and appropriations, long-term contracts, thorough reviews of execution plans, and regular reports on quarterly and six-month execution. HAITI 24 INTERNATIONAL MONETARY FUND Timing of the reform agenda 18. This reform is ambitious and will require time to be implemented. That said, the institutional know-how is available and building blocks are in place, including the UEPs and SYSGEP. The reform process will not start from scratch as development partners have already built solid knowledge bases. However, any further progress will require a strong political will, as the proposed changes will affect deeply-entrenched interests. 19. The reform could be conducted in a progressive fashion in two main phases.  First phase (2013): consolidation of the foundations of the public investment framework. In this phase, the authorities would (i) define the mandate of the UEPs to include all phases of project management and strengthen them with adequate resources with support from the World Bank; (ii) enhance the SYSGEP with support from IDB; (iii) increase procurement capacity with the help of the World Bank; (iv) clarify the roles of the government agencies involved in project management; and (v) reform capital expenditure procedures, in line with the introduction of the Treasury Single Account with the assistance of the IMF. This would include the elimination of the transit account (CTSD) for disbursement of capital outlay funds.  Second phase (2014): assign international experts to UEPs, introduce a new disbursement plan and execution under the control of the MEF, and lay the ground for extending reporting on project execution for all stakeholders operating in Haiti. D. Conclusion 20. Public investment is critical to the development of Haiti. However, investment efficiency has been low. Reforms are needed. Causes of this situation are numerous and include poor project management and a fragmented investment portfolio. Low investment efficiency is also attributable to lack of transparency, poor coordination among branches and levels, and low capacity. Inefficient public investment and lack of transparency have not only resulted in lower growth, lower fiscal revenue, and higher costs but are also the cause of macro imbalances and limited competitiveness and slow economic integration. Haiti is at a cross roads. Large aid inflows are not expected to continue on the scale observed so far. It is imperative for the country to take advantage of the available financial assistance and step up efforts to improve public investment quality. This assistance should be used to: (i) design and prepare and coordinate public investment on the basis of well-developed sectoral strategies and plans and assessment tools to ensure high quality and stability; (ii) streamline the institutional framework to ensure better coordination between government institutions in charge of projects and adequate monitoring of execution and control; and (iii) improve bidding processes. Implementation of such an agenda is expected to take place gradually over the next two years. Once the system is fully operational by 2015, the authorities should be ready to make adjustments if necessary to ensure investment efficiency at all times and have a greater impact on economic growth. HAITI INTERNATIONAL MONETARY FUND 25 REFERENCES Agenor, Pierre Richard, 2012, “Public Capital, Growth, and Welfare.” (To be published; Princeton University Press). Buffie, E., Berg, A., Patillo, C., Portillo, R., and Zanna, L., 2012, “Public Investment, Growth, and Debt Sustainability: Putting Together the Pieces,“ IMF Working Paper 12/144, (Washington: International Monetary Fund). Calderón, Cesar, and Luis Serven, 2004, “The Effects of Infrastructure Development on Growth and Income Distribution,” Policy Research Working Paper No. 3440, (Washington: World Bank). Dabla, Norris E., Bruma J., Kyole A, Nills Z, and Papageorgian C., 2011, “Investing in Public Investment: An Index of Public Investment Efficiency,” IMF Working Paper 11/32, (Washington: International Monetary Fund). Gupta, S., Kangur, A., Papageorgiu, C., and Wane, A., 2011, “Efficiency-Adjusted Public Capital and Growth, “ IMF Working Paper 11/217, (Washington: International Monetary Fund). Ilztzki, E., Mendoza, E.G., and Veigh, C., 2011, “How Big (Small??) are Fiscal Multipliers?" IMF Working Paper 11/52, (Washington: International Monetary Fund). Ministère de la Planification et de la Cooperation Externe, 2011, “Elements d’ Harmonisation des Sous-Systemes d’ Information de Gestion et de Developpement,“ Port-au-Prince, Government of Haiti . Ministère de la Planification et de la Cooperation Externe, 2012, “Plan d’Actions pour l’Opérationnalisation et le Deploiement du SYSGEP dans le Ministères Sectoriels,” Port-au- Prince, Government of Haiti. Ministère de la Planification et de la Cooperation Externe, 2012, “Structure Organisationnelle et Plan d’Opération pour la Mise en Œuvre des Unîtes d’Études et de Programmant (UEP) des Ministères, “ Port-au-Prince, Government of Haiti. Straub, S., 2008, “Infrastructure and Growth in Developing Countries: Recent Advanced and Research Challenges;” Policy Research Working Paper No. 4460, (Washington: World Bank). World Bank, 2008, “Haiti: Public Expenditure Management and Fiscal Accountability Review,” (Washington: World Bank). HAITI 26 INTERNATIONAL MONETARY FUND Brazil Exemptions for very underdeveloped areas Chile Exemptions for income derived from activities of certain regions Colombia 15% for industrial or service users in a free-trade zone [0% for years 1-2; 25% for years 3-5; 33% from year 6] Dominican Republic After 24 months, tax rate from 29% to 25%. Zone of Free Trade are fully exempt up to 15 to 20 years El Salvador If company turnover is smaller than USD 150,000 the tax rate is 25% Guatemala Drawback Regime or Free-Trade Zone Regime benefit from full exemption for 5 to 10 years. 1 Nicaragua Exemptions for Free Trade Zones Source: Ernst & Young 2012 1 This will apply until 2015. Jamaica Exempt from 5 to 15 years companies under the Export Industry Encouragement Act or Hotel Incentives Act and company engaged in approved agricultural activities. For Export Free Zones exemptions are forever Tax on business: Provisions Costa Rica 10% for income below 87,609 USD; and 20% for below 176,224 USD. Free Trade Zone Regime companies located in the Great Extended Metropolitan Area (GEMA) benefit from full exemption for first 8 years, and 50% exemption for next 4 years. Outside GEMA, full exemption is for 12 years and 50% exemption for 6 years. Honduras Exempt Free Trade Zones, Industrial Processing Zones, Temporary Import Regimes, Agroindustrial Export Zones, Free Tourist Zones Argentina Dividends from local corporations are not taxed Brazil 15% to 22.5% Chile Dividends are aggregated to personal income Colombia Paid as personal income Costa Rica 15%, but if listed on the Costa Rican stock exchange 5% Dominican Republic 29% witholding tax Ecuador Exempt if dividends distributed after CIT/ if not, tax on progressive basis El Salvador Exempt if dividends distributed after CIT/ if not, 10% witholding tax Guatemala Exempt if dividends distributed after CIT Haiti 30% Honduras 10% Mexico Exempt from tax if the dividends are distributed after CIT/ if not, 30% Jamaica 5 or 25% Nicaragua 10% Panama 10% (5% in free zones or 20% on bearer shares) Peru 4% Source: Ernst & Young 2011 and Petit 2010 Tax on dividends: rates and provisions Appendix HAITI INTERNATIONAL MONETARY FUND 27 Figure 1. Redefined Role for Institutions in Charge of Public Investment Management 1/ The new framework is anchored on sectoral strategies; the Ministry of Plan is in charge of the national system for planning and development of management 2/ Economic, technical, commercial. The objective is to establish key performance indicators. For large projects, there is a ne ed to assess also externalities. Preparation Phase National consulting firm Initiation of Projects Sectoral strategies by line Ministries Preliminary Sector Contracts Financing Work schedule Local Ext. Consulting firm Ministry of Planning (National System for Planning and Development SNPGD) Sectoral Investment Plan MEF Execution by Line Ministries Control UEP Regular Reporting SYSGEP Standard Statistics Program and Projects Financing and Project Payment Order Execution and Assessment Project and Preparation Phase Inclusion in National Plan Phase Execution Control CNMP (Including regional unit) Inclusion in National Budget of the Medium term Budget Framework INSTITUTIONAL FRAMEWORK Sectoral strategies Project design and preparation Na ti ona l s ys tem for plan and projects Executi on of projects Reporting Control Sectoral Ministries Definition of sectoral s tra tegi es a nd a cti on pl a ns Design and prepare projects through EUPs Submit sectoral investment programs to Execution through Sectoral UEPs Reporting through Sectoral UEPs Internal Control of Execution through Sectoral UEPs Uni tes d'Etudes et de Progra mma ti on Contri bute to s ectora l strategies Preliminary studies; financing pl an; execution contract; work execution plan Submit final ized proj ects to the MPEC for inclusion in the national project roster Physical and financial Executi on Regular reporting on proj ect a dva ncement Internal control (in situ and on basis of documents) NEW EXPANDED ROLE Commission Nationale des Marches Publics Assist UEPs validate execution contracts for projects equal or above to -- Commissions Sectorielles des Marches Publics Assist UEPs validate execution contracts for projects equal or above to -- NEW Na ti ona l Cons ul ti ng Fi rm Assist UEPs in preparing projects Assist UEPs in executing projects Assist UEPs in reporting execution of projects Conduct technical controls NEW Ministry of Planning and External Cooperation Coordinate sectoral strategies Coordi nate sectoral development plans; consolidates and ma na ges the PI P Manages SYSGEP NEW REDEFINED ROLE Ministry of Economy and Finance Coordinate financial execution of the investment program NEW REDEFINED ROLE Institutions of Control Conduct a posteriori control of proj ect executi on NEW PROJECT SEQUENCING Figure 2. Proposed Project Sequencing and Institutional Framework HAITI 28INTERNATIONAL MONETARY FUND