document of the world bank · 2016. 7. 11. · for mobilizing adequate resources to finance...

Document of The World Bank

FOR OFFICIAL USE ONLY

Report No: 67219-HT

INTERNATIONAL DEVELOPMENT ASSOCIATION

PROGRAM DOCUMENT

FOR A

PROPOSED GRANT

IN THE AMOUNT OF SDR13.3 MILLION (US$20 MILLION EQUIVALENT)

TO THE

REPUBLIC OF HAITI

FOR AN

ECONOMIC RECONSTRUCTION AND GROWTH

DEVELOPMENT POLICY GRANT

June 26, 2013

Haiti Country Management Unit Poverty Reduction and Economic Management Latin America and Caribbean Region

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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HAITI - GOVERNMENT FISCAL YEAR October 1 – September 30

CURRENCY EQUIVALENTS (Exchange Rate as of April 1, 2013) Currency Unit Haitian Gourde

US$1.00 HT43.0

WEIGHTS AND MEASURES Metric System

ABBREVIATIONS AND ACRONYMS

BRH Central Bank of the Republic of Haiti (Banque de la République d’Haïti) CIDA Canadian International Development AgencyCNMP National Procurement Commission (Commission Nationale des Marchés

Publics) CSCCA Court of Accounts (Cour Supérieur des Comptes et du Contentieux

Administratif) DINEPA National Direction of Potable Water and Sanitation (Direction

Nationale de l’Eau Potable et de l’Assainissement) DPG Development Policy GrantDPO Development Policy OperationDSNCRP National Strategy for Growth and Poverty Reduction (Document de Stratégie

Nationale Pour la Croissance et la Réduction de la Pauvreté)EDH ECF

National electricity company (Electricité d’Haïti)Extended Credit Facility

EGRO Economic Governance Reform OperationEGTAG Economic Governance Technical Assistance GrantGCAB Joint Budget Support Group (Groupe Conjoint d’Appui Budgétaire) HELP Haiti Economic Lift ProgramHIPC Heavily Indebted Poor CountriesHRF Haiti Reconstruction FundIADB Inter-American Development BankIDA IHRC

International Development AssociationInterim Haiti Recovery Commission

IEZ Integrated Economic ZoneIFC International Finance CorporationIMF International Monetary FundIPP Independent Power ProducersISN Interim Strategy NoteMEF Ministry of Economy and FinanceMDRI Multilateral Debt Relief Initiative MOU Memorandum of UnderstandingMARNDR Ministry of Agriculture, Natural Resources and Rural Development (Ministère

de l’Agriculture, des Ressources Naturelles et du Développement Rural)

MPCE Ministry of Planning and External Cooperation (Ministère de la Planification et Coopération Externe)

MTPTEC Ministry of Public Works, Transport, Energy and Communications (Ministère des Travaux Public, Transport, Energie et de la Communication)

PARDH National Recovery and Development Action Plan for HaitiPEFA Public Expenditure and Financial AccountabilityPFM Public Financial ManagementPPA Power Purchase AgreementPPP Public-Private PartnershipPREPSEL Electricity Loss Reduction ProjectPRSP Poverty Reduction Strategy PaperPSIA Poverty and Social Impact AnalysisPV Present Value SYSDEP SYSGEP

Expenditure Information System (Système d’Informatisation des Dépenses) Investment Project Management System (Système de Gestion des Projets)

UEP ULCC

Programming and Analysis Units (Unités d’Etudes et de Programmation) Anti-corruption Unit (Unité de Lutte contre la Corruption)

UN United Nations USAID United States Agency for International DevelopmentUS$ United States Dollar

Vice President:Special Envoy:

Sector Director:Sector Manager:

Task Team Leader and Acting Sector Leader:Co-Task Team Leader:

Hasan Tuluy Alexandre Abrantes Rodrigo A. Chaves Auguste T. Kouame Elizabeth Ruppert Bulmer Luc Razafimandimby

REPUBLIC OF HAITI

ECONOMIC RECONSTRUCTION AND GROWTH DEVELOPMENT POLICY GRANT

TABLE OF CONTENTS

I. INTRODUCTION AND OVERVIEW .............................................................................................. 1 II. COUNTRY CONTEXT ..................................................................................................................... 2

A. Political and Security Developments ............................................................................................. 2 B. Recent Economic Developments and Poverty Trends ................................................................... 3 C. Medium-Term Outlook and Debt Sustainability ............................................................................ 6

III. THE GOVERNMENT’S PROGRAM AND REFORM AGENDA ................................................... 8 IV. BANK SUPPORT TO THE GOVERNMENT’S PROGRAM .......................................................... 9

A. Link to ISN .................................................................................................................................... 9 B. Collaboration with the IMF and Other Donors .............................................................................. 10 C. Relationship to Other Bank Operations ......................................................................................... 11 D. Lessons Learned ............................................................................................................................ 13 E. Analytical Underpinnings .............................................................................................................. 15

V. THE PROPOSED OPERATION ....................................................................................................... 16 A. Overall Description ........................................................................................................................ 16 B. Development Objective ................................................................................................................. 17 C. Operation Design ........................................................................................................................... 17 D. Policy Areas .................................................................................................................................. 18

VI. OPERATION IMPLEMENTATION ................................................................................................. 32 A. Participation Process ...................................................................................................................... 32 B. Poverty and Social Impacts ............................................................................................................ 32 C. Environmental Aspects .................................................................................................................. 33 D. Implementation, Monitoring and Evaluation ................................................................................. 34 E. Fiduciary Aspects ........................................................................................................................... 34 F. Disbursement and Auditing ............................................................................................................ 35 G. Risks and Mitigation ...................................................................................................................... 35

LIST OF ANNEXES

ANNEX 1: LETTER OF DEVELOPMENT POLICY ....................................................................................... 38 ANNEX 2: POLICY MATRIX .......................................................................................................................... 46 ANNEX 3: FUND RELATIONS NOTE ............................................................................................................ 49 ANNEX 4: DEBT SUSTAINABILITY ANALYSIS ......................................................................................... 50 ANNEX 5: WORLD BANK ENGAGEMENT IN ECONOMIC MANAGEMENT AND GROWTH ............. 65 ANNEX 6: HAITI AT A GLANCE ................................................................................................................... 67 MAP OF HAITI .............................................................................................................................................. …70

The Economic Reconstruction and Growth Development Policy Grant was prepared by an IDA team led by Elizabeth Ruppert Bulmer (Task Team Leader, LCSPE), co-led by Luc Razafimandimby (LCSPE), and consisting of Joseph Denis, Pascal Jaupart, Maria Kim, Elaine Tinsley, Silvia Gulino, Patricia Holt (LCSPE), Caroline Cerruti (LCSPF), Federica Marzo (LCSPP), Prosper Nindorera (LCSPT), Michel Layec, Frederic Verdol (LCSEG), Franck Bessette (LCSPFM); Ghada Youness (LEGLE), and Victor Ordonez (CTRLN). The team gratefully acknowledges the support and guidance of Alexandre Abrantes (Special Envoy LCCHT), Michelle Keane and Deo Ndikumana (LCCHT), Auguste Kouame (Sector Manager, LCSPE), Rodrigo Chaves (Sector Director, LCSPR), and the peer reviewers Gerard Kambou (Senior Economist, AFTP3), Christine Richaud (Sector Leader, LC3), and Birgit Hansl (Senior Economist, ECSP2).

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GRANT AND PROGRAM SUMMARY REPUBLIC OF HAITI

ECONOMIC RECONSTRUCTION AND GROWTH DEVELOPMENT POLICY GRANT

Recipient Republic of Haiti Implementing Agency Ministry of Economy and Finance Financing Data

IDA Grant in the amount of SDR13.3 million (US$20 million equivalent)

Operation Type Stand-alone operation, single tranche Main Policy Areas

As Haiti transitions from post-earthquake emergency to addressing long standing weaknesses in economic governance, the goal of the proposed Grant is to enhance transparency and efficiency of public resources management in support of physical reconstruction and institutional consolidation for long term growth through improving: (i) public financial management through better budget execution and cash management; (ii) the institutional framework and capacity for effective public procurement; and (iii) governance and performance in the electricity sector. Despite being a single tranche operation, the proposed Grant builds on a continuum of operations that began in 2005. This single tranche approach allows the Bank to remain pragmatic and able to seize opportunities to support progress in areas needing timely attention from the authorities. The series of development policy operations (DPOs) helped lay the basic foundations of sound public financial management, transparency, procurement practices and electricity sector governance, and were followed during the post-earthquake emergency phase with support for securing economic management quality in the face of significantly weakened institutions, data, and domestic resources. The proposed operation aims to consolidate the efforts under the Emergency DPO and return the focus to structural reforms.

Key Outcome Indicators

The following outcomes are expected to be achieved by the closing of the proposed Grant in June 2014: Public Financial Management Strengthen public investment tracking and cash management systems: (i) the Directorate of Public Investment publishes quarterly budget execution reports that provide accurate information about domestically-financed public investment (including data on PetroCaribe resources) beyond the commitment stage with information covering line ministries and by project; (ii) the number of accounts for each ministry has been reduced to three accounts at the Central Bank: a current account for operations, an investment account, and a revenue account, representing a key step toward the establishment of a Single Treasury Account.

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Key Outcome Indicators

Procurement Establish a transparent institutional framework for procurement and upgrade procurement management capacity: (i) not less than two-thirds of public procurement contracts above the prior-review threshold signed after March 31, 2013, and outside of periods of Emergency Law, are the result of competitive or limited bidding, using standard bidding documents; (ii) all procuring ministries have submitted their FY14 procurement plans to the procurement regulator CNMP by October 31, 2013; (iii) ministerial procurement units submit quarterly reports to CNMP on all procurement activity in their ministries; and (iv) US$11M originally allocated to the 5 cancelled contracts were freed up for reallocation to other investments. Electricity Sector Performance Enhance governance and financial performance of the Electricity sector: (i) payment of independent power producers’ bills is based on production levels measured by remote meters and verified by the national electricity utility EDH; (ii) EDH billing of priority customers is based on meter readings; and (iii) no new arrears by the Central Government to EDH for electricity consumption are accumulated.

Program Development Objective and Contribution to ISN

The proposed Development Policy Grant supports the Government of Haiti’s program of sustainable reconstruction and growth. In particular, the Grant supports institution building, and the strengthening of economic governance in sectors critical to reconstruction and growth in the short and medium term. The proposed Grant supports the following key outcomes of the ISN: (a) improvements to the commercial viability of the electricity sector, (b) improved transparency, accountability and efficiency of public resource use, and (c) the continuation of the Government’s economic reform program and the transfer of resources to the Haitian budget in the event of a financing gap. The supported actions build on previous reforms, together comprising a programmatic reform agenda. At the same time, the single tranche format allows the flexibility required to capitalize on reform opportunities when they arise. The proposed operation is well integrated into the bundle of activities supported by the Bank in Haiti. In particular, the proposed Grant is complemented by technical assistance through an Institutional Strengthening project (in the PFM and procurement areas) and an Electricity Sector capacity support project. The Grant is also consistent with the joint donor matrix elaborated by Government and donors in the context of the Joint Budget Support Group which the Bank has co-convened since 2005.

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Risks and Mitigation

The proposed Grant takes place in a risky environment characterized by weak governance, strong political pressures, and inadequate institutional capacity. For this reason, expected outcomes may not materialize. However, the risks are outweighed by the potential gains from advancing critical institutional reforms by the Government of Haiti. First, the reforms supported by this Grant have the potential to be transformational by laying the groundwork for strong economic governance systems as the country transitions from post-disaster response to a medium-term development framework. Second, these reforms are likely to be sustainable as they bring about institutional changes that are not easily reversed. Third, with the potential decline in external aid resources, strengthening Haiti’s public resource management systems supported by this operation becomes even more important for mobilizing adequate resources to finance development programs.

Political risks may interrupt the Government’s reform program, and/or weaken reform implementation. While there may still be risks of political turnover or stalemate in the future, the resignation of the Minister of Finance in April 2013 did not lead to any interruption in the Government’s programs as her successor immediately committed to continuing the reform program under way. With respect to transparency and economic governance, the pressure on policymakers to deliver quick results after occurrence of natural disasters may lead to continued reliance on exceptional rules and Emergency Laws for procuring large public contracts. The Government’s commitment to key reforms – such as through increased transparency in public contracting (making all contracts public), providing the necessary resources and training to ensure the effective functioning of line ministries’ programming and analysis units (UEPs) and procurement commissions, ex-post review of contracts passed under the 2012-13 Emergency Law, comprehensive review and reform of EDH functions, and other reforms agreed in the joint donor matrix – would help to mitigate these risks. This in turn would help to keep the reform momentum and ownership high and generate a more visible development impact. Weak institutional capacity may result in poor observance of governance principles in public finance management and procurement, and may reduce the effectiveness of electricity sector reforms. Haiti’s public sector institutions continue to suffer from a legacy of inefficient budget and fiscal management processes and inadequate human capital. The situation was made worse by the destruction of records and physical and human capacity by the January 2010 earthquake. The capacity of EDH is also limited. Some capacity has been built recently, and the proposed Grant aims to reinforce and extend these institution building efforts. The risks

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Risks and Mitigation

associated with limited capacity are mitigated by (i) concentrating on a selected number of areas; (ii) ensuring that difficult reforms are taken before Board approval; (iii) focusing on institution-building with embedded processes that are not easily reversed; and (iv) providing adequate funding for critical actions through complementary technical assistance.

Operation ID P127208

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PROGRAM DOCUMENT FOR A PROPOSED

ECONOMIC RECONSTRUCTION AND GROWTH DEVELOPMENT POLICY GRANT TO THE REPUBLIC OF HAITI

I. INTRODUCTION AND OVERVIEW

1. This Program Document presents a proposed Development Policy Grant (DPG) to the Republic of Haiti in the amount of SDR13.3 million (US$20 million equivalent). The proposed Grant is the first DPG following the Emergency Budget Support Operation approved by the Board in July 2010 in response to the January 2010 earthquake. 2. The proposed Grant is a single-tranche operation that builds on the institutional foundations laid under the past series of DPGs, some of which were stalled or reversed by the earthquake. The earthquake increased the urgency to address Haiti’s deep structural problems of weak economic governance and inefficient and nontransparent public resource use. The significant inflow of reconstruction funds not only created pressure on the existing capacity to manage and use funds, but also increased demand for better economic governance. In this context, the proposed Grant will enhance transparency in the use and management of public investment resources, improve cash management through streamlined public accounts, strengthen public procurement institutions to enable them to implement effectively the Haiti’s Procurement Law, and enhance electricity sector governance and performance by improving the transparency in electricity supply and the accuracy and regularity of billing. 3. As Haiti’s focus shifts from undertaking post-disaster emergency actions to implementing a longer term development program, the proposed Grant aims to address structural bottlenecks that hamper Haiti’s governance systems during post-earthquake reconstruction. 4. The Grant provides resources to help the Government meet essential outlays in the Haitian FY13 budget adopted by Parliament in September 2012.1 Since January 2010, financing needs have increased significantly, exacerbated by extensive and challenging reconstruction activities following the earthquake. Massive aid inflows since FY10 have helped the Government respond to urgent needs and finance social and physical capital investments aimed at placing Haiti on the path to economic recovery. Domestic revenue is increasing, but remains insufficient to meet the Government’s financing requirements for reconstruction and growth. 5. The Grant supports the Government’s strategy for reconstruction and development outlined in the National Recovery and Development Action Plan (PARDH) of May 2010, as well as the priorities for reconstruction articulated by the President of the Republic of Haiti in October 2011 and the current Government’s program of May 2012.

6. The proposed Grant is an essential component of the World Bank Group’s program for FY13-14 and is aligned with the cross-cutting governance themes of the Bank’s September 2012 Interim Strategy Note (ISN). The World Bank Group’s program of support aims to reduce the vulnerability of Haitians, accelerate reconstruction, promote economic growth, foster private

1 Haiti’s fiscal year runs from October 1st through September 30th.

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sector development and improve governance. Measures taken in the context of the proposed DPG directly complement IDA’s activities under a number of World Bank Group activities, including the following investment operations: (i) the economic and governance activities of the Infrastructure and Institutions Emergency Recovery Operation (approved in March 2010) and its subsequent Additional Financing (approved in September 2012); (ii) the ongoing Electricity Loss Reduction Project (PREPSEL) and the follow-up Rebuilding Energy Infrastructure and Access Project (approved September 2012) aimed at reconstructing and expanding the power network, and increasing electricity access as well as the transparency and efficiency of the sector; and (iii) the Business Development and Investment Project and the Heritage and Sustainable Tourism Project, both under preparation in support of private investment and growth, including outside of Port-au-Prince. Annex 5 provides a summary of complementary knowledge services and convening activities, reflecting the Bank’s extensive engagement in Haiti related to public resource management and growth.

7. The proposed Grant also complements the efforts of other partners involved in budget support. Under a multi-donor coordination mechanism for budget support, a joint policy matrix was drafted by the Government and the relevant development partners in May 2009, and updated in January 2012. A revised matrix was agreed in May 2013 to reflect the current reform context. The specific policies supported by the proposed Grant lie at the core of the comprehensive set of policy reforms elaborated in the joint donor matrix aimed at strengthening economic governance and PFM in particular.

II. COUNTRY CONTEXT

A. Political and Security Developments

8. After a lengthy electoral process that began in November 2010, Michel Joseph Martelly was elected President in May 2011. This marked the first peaceful handover of power from one democratically elected president to another from a different political party.

9. The peaceful completion of the presidential election was seen by many as a sign of hope for the reconstruction of the country after the devastating earthquake of January 2010. A year after the earthquake, Haiti continued to face significant humanitarian challenges, with many earthquake-affected camp residents remaining dependent on assistance for their basic survival. Recovery and reconstruction efforts progressed, albeit slowly. A number of overdue political decisions needed to be reached to accelerate the reconstruction process. The swearing-in of a new Government was an important milestone in Haiti’s efforts to rebuild and move forward with socio-economic development.

10. The political climate in Haiti nevertheless remains contentious. Despite the peaceful transition, President Martelly’s term has been marked by strong tensions between the Executive and Parliament. There was a five-month delay in Parliament’s approval of the Prime Minister, Mr. Gary Conille, who resigned in February 2012 after only five months in office. In May 2012, Mr. Laurent Lamothe took office as Prime Minister with the promise to revive stalled post-earthquake reconstruction efforts and organize legislative and municipal elections by end-2012. Prime Minister Lamothe’s business-friendly stance has been received positively by donors and by the private sector and initially gave new impetus to reconstruction. Nevertheless, the clear break with practices of patronage and opaque management of public resources that many had hoped for has not yet fully

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materialized. A standoff with Parliament over the composition of the Electoral Council which delayed overdue legislative and municipal elections has only recently been resolved.

11. Despite an environment prone to volatility, the change in the Minister of Economy and Finance in April 2013 did not interrupt the Government’s reform program. The former Minister of Economy and Finance had initiated a series of institutional and governance reforms, many of which are supported by the proposed DPG. Her successor, the sitting Minister of Trade and Industry, immediately committed to continuing these key reforms, as reflected in the Government’s Letter of Development Policy (see Annex 1).

12. The uncertain security situation persists. Violent demonstrations subsided after the completion of the presidential election, and the overall security situation was relatively calm during 2012. But growing frustration over the increase in the price of basic foodstuffs, dissatisfaction with the slow pace of reconstruction, and allegations of corruption are fueling discontent, posing a threat to social stability. Following the severe impact of the storms Isaac and Sandy on the agricultural sector and the country’s infrastructure during the 2012 hurricane season, a further deterioration in living conditions could prompt a surge in discontent and possibly violence.

B. Recent Economic Developments and Poverty Trends

13. After suffering a devastating earthquake in January 2010 that killed over 300,000 and displaced over a million Haitians, the economy has recovered only modestly. Most macroeconomic indicators were relatively stable over the last two years (see Table 1). The economy contracted sharply in FY10 (real GDP declined 5.4 percent) due to the earthquake that occurred in the second quarter of the fiscal year. Real GDP growth rebounded to 5.6 percent in FY11, driven by construction, manufacturing and service sector growth financed by massive external aid inflows equivalent to 10 percent of GDP. Delays in the FY12 budget approval led to slower than anticipated capital spending, however, and acted as a drag on economic activities in 2012. The modest 5 percent growth observed in construction activities and 3 percent growth in services were compounded by a severe drought in April and hurricane-related damages to agricultural production in August 2012 (Hurricane Isaac), pulling down agricultural output by 2.2 percent. As a result, economic growth slowed to an estimated 2.8 percent in FY12 (compared to a projected rate of 6 percent).

14. Macroeconomic stability has been largely preserved over the last two fiscal years, thanks to the policies pursued by the Government and Central Bank. Inflation accelerated to 10.4 percent at end FY11 mainly because of the surge in international food and commodity prices and weak local agricultural production, but moderated to 6.5 percent in FY12. The exchange rate regime, a managed float, is being effectively implemented by the Central Bank, which allowed only some modest depreciation to contain inflationary pressures. The currency has nevertheless remained stable in the past two years. Moreover, the Central Bank’s recent measures to curb dollarization are expected to help strengthen demand for gourdes, provided that alternative investment opportunities are available on domestic financial markets. The Government has made progress in domestic financial market deepening, reflected by successful issuance of T-bills.

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Table 1: Macroeconomic Indicators

FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15

Act. Act. Act. Est. Prov. Proj. Proj. Proj.

Output and Prices

Real GDP growth (%) 0.8 2.9 -5.4 5.6 2.8 3.4 4.0 4.0

Consumer price inflation (e.o.p., % change) 19.8 -4.7 4.7 10.4 6.5 5.0 4.5 4.0

Government finances (% of GDP)

Total revenue and grants 15.1 17.9 28.4 29.8 23.3 23.9 23.8 23.4

Domestic revenue 10.7 11.2 11.9 13.1 12.8 13.5 14.2 14.6

Grants 4.4 6.7 16.5 16.8 10.6 10.4 9.6 8.8

Total expenditure 18.2 22.5 26.0 33.5 29.3 29.2 28.4 27.7

Current Expenditures 10.7 11.7 11.3 11.8 11.9 11.4 11.0 10.7

o/w Interest payments 0.7 0.8 0.6 0.4 0.4 0.3 0.3 0.4

Capital expenditure 7.5 10.8 14.7 21.7 17.4 17.9 17.4 17.0

Primary balance -2.4 -3.8 3.0 -3.3 -5.5 -5.0 -4.3 -4.0

Overall balance* -3.1 -4.6 2.4 -3.7 -5.9 -5.3 -4.6 -4.4

Excluding grants -7.5 -11.3 -14.1 -20.5 -16.5 -15.7 -14.2 -13.2

Overall balance -3.1 -4.4 2.1 -4.1 -5.9 -5.3 -4.6 -4.4

Financing 3.1 4.4 -2.1 4.1 5.9 5.3 4.6 4.4

External net financing 2.7 3.1 3.4 4.6 4.7 5.4 4.4 3.9

o/w PetroCaribe 0.8 2.2 3.5 4.4 4.3 5.0 4.3 3.9

Arrears (net) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Internal net financing 0.0 0.8 -5.5 -0.5 1.3 -0.1 0.2 0.5

HIPC interim relief 0.3 0.5 0.0 0.0 0.0 0.0 0.0 0.0

External sector

Current account balance (% of GDP) -4.5 -3.5 -12.5 -4.6 -4.0 -3.4 -5.3 -5.3

Excluding official transfers -11.7 -9.5 -29.8 -24.2 -16.5 -15.6 -16.6 -15.6

Exports of g. (% change) -6.2 12.4 2.2 36.3 2.2 16.0 14.0 12.7

Imports of g. (% change) 30.2 -3.6 38.3 7.3 -12.4 7.5 8.0 8.0

Current Transfers (net, $US m) 1,726 1,635 2,439 2,757 2,368 2,452 2,404 2,521

o/w private 1,253 1,241 1,307 1,311 1,380 1,700 1,768 1,839

Foreign direct investment inflows (US$ m) 30 38 150 181 169 178 186 196

Gross official reserves (months of imports) 2.9 2.8 5.2 6.3 6.5 5.5 5.0 4.5

Memorandum items

Nominal GDP (billions of gourdes) 251.5 266.6 264.0 297.7 329.0 358.2 386.7 416.7

Nominal GDP (US$ m) 6,570 6,552 6,551 7,388 7,902 8,524 8,986 9,465

Total public debt (% of GDP) 37.7 27.7 17.7 12.2 15.4 19.8 23.4 26.6

Credit to private sector (% change) 14.7 14.7 -5.6 24.5 29.8 21.6 18.0 17.5

Remittances (% of GDP) 21.4 21.3 22.2 21.1 20.6 19.9 19.7 19.4 Source: World Bank staff estimates. * Discrepancy in overall balance in some years due to unidentified spending and delays between the approval and execution of public expenditures.

15. External balances and the stock of reserves are healthy. Export growth was a very modest 2 percent in FY12 after a boom in FY11 (36 percent growth in real terms, from a very low

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base), while imports fell sharply by 12.4 percent in FY12 compared to the 7.3 percent growth recorded in FY11 and 38 percent growth in FY10. Despite these fluctuations, the current account deficit remained relatively stable at -4.6 percent of GDP in FY11 and -4.0 percent in FY12, financed by increasing levels of FDI and PetroCaribe project funding. The expansion of manufacturing facilities within integrated economic zones – assisted by a new regulatory framework – is expected to boost exports and job creation in the sector. The authorities have accumulated a healthy level of gross international reserves, which increased from US$2.0 billion in FY11 to US$2.2 billion in FY12 (equivalent to over 6 months of imports).

16. Fiscal deficits are relatively modest due to high levels of donor assistance. Grants jumped to 16.5 percent of GDP after the earthquake, resulting in an FY10 fiscal surplus because the Government was unable to absorb resources quickly enough. As capital expenditures accelerated to 21.7 percent of GDP, the FY11 fiscal deficit reached 4.1 percent of GDP (including grants), in spite of increased domestic revenues (to 13 percent of GDP in FY11) and stable current expenditure. Recent measures by the Customs Directorate (DGD) and the Tax Directorate (DGI) and intensified tax collection efforts supported by technical assistance from the IMF contributed to higher domestic revenues in FY11 and FY12. But the subsequent sharp slowdown in grant inflows – from 16.8 percent of GDP in FY11 to 10.6 percent of GDP in FY12 – led the overall FY12 deficit to widen to 5.9 percent of GDP, despite a decline in capital spending to 17.4 percent of GDP partly due to delays in the FY12 budget approval.

17. The composition of Government financing has shifted. Donor assistance for budget support and project grants contracted significantly in FY12, but PetroCaribe, the oil import financing arrangement with Venezuela, has become a dominant source of non-grant external financing. The level of PetroCaribe funding has increased in recent years, from 2 percent of GDP in FY09 to over 4 percent of GDP in FY11 and FY12 (see Annex 4, Box 4.2 for a description of the PetroCaribe agreement). The Government has also been able to access internal financing from the Central Bank and, more recently, through issuing T-bills. Haiti’s pre-earthquake debt levels were significant, but a series of debt forgiveness arrangements – the Heavily Indebted Poor Countries (HIPC) relief and Multilateral Debt Relief Initiative (MDRI) – sharply reduced external debt obligations from 29 percent of GDP in FY08 to only 8.9 percent of GDP by FY11. Public debt accumulation resumed, however, pushing the external debt-to-GDP ratio to 13.3 percent of GDP in FY12, driven by PetroCaribe sources.

18. The financial sector has shown marked improvement in recent years. The share of non-performing loans (NPLs) has decreased considerably with the recent expansion in the total loan portfolio and the write-off of loans undertaken in the course of the last two years, but banks remain excessively liquid. NPLs were 2.4 percent in September 2012, compared with 3.7 percent in September 2011, and 5.7 percent the previous year. Reconstruction has fueled credit growth; credit to the private sector increased by 24 percent in FY11 and 30 percent in FY12. The Central Bank reduced interest rates and introduced reserve requirement exemptions for resources channeled to the housing sector. Furthermore, the Central Bank has implemented a guarantee scheme and a fixed-rate liquidity facility for mortgage lending. These have supported banks’ profitability and capital replenishment; the system’s Return Over Average Equity (ROAE) is currently estimated at 22 percent, 8 percentage points higher than in the neighboring Eastern Caribbean Currency Union banking system. On the other hand, banks are not fully utilizing their resources for lending, despite high levels of liquidity. Credit has been disproportionately allocated for trading rather than

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productive activities that create value-added and contribute to growth. Credit growth slowed in the first two quarters of FY13, as the BRH tightened its policy stance to curb excess credit growth by raising by 5 percentage points the reserve requirements applicable to banks. The insurance sector currently comprises nine insurers and is largely unregulated, which limits the level of information available about the sector. According to Axco Insurance Information Services, the estimated gross insurance premium is equal to about 0.5 percent of GDP, which is low compared to regional standards.

19. The IMF satisfactorily concluded the fifth review of its ECF program in March 2013. Haiti’s program with the IMF, a three-year arrangement under the 2010 Extended Credit Facility (ECF) totaling SDR40.95 million (about US$60 million) has remained on track despite the difficult post-earthquake environment. The most recent disbursement of US$7 million in March 2013 brought total ECF disbursements to US$54 million. An Article IV mission was completed in December 2012 and presented to the IMF Executive Board in March 2013. 20. Haiti’s poverty situation remains severe, and is likely to have been made worse by the earthquake. Haiti is also one of the most unequal countries, with a Gini coefficient of 0.59. Before the earthquake, poverty levels were extremely high. The 2001 Household Survey indicates that 78 percent of the population lived below the US$2-a-day poverty line, and 58 percent fell below the US$1-a-day poverty line.2 Haiti’s 2011 Human Development Index ranking was 158th out of 187 countries. Although no household data has been published since the earthquake, the devastating impact of the earthquake on the population (especially in Port-au-Prince) is likely to have worsened the poverty picture, in particular for the poor and vulnerable in the earthquake affected area. In addition to the immediate negative impacts of the massive loss of life, the destruction of property and infrastructure, and the interruption of services, the number of single-headed households increased following the earthquake, and surveys of time-use indicate that the logistics of survival (procuring food/water/sanitation) were estimated to absorb 80 percent of women’s time in the aftermath of the disaster, leaving little time for income-generating activities. Haiti’s vulnerability to periodic storms and hurricanes translates into damaged agricultural production and upward pressure on food prices, which is particularly harmful given that two-fifths of Haitians are food insecure.3 Two Bank-financed household surveys are expected to be completed by June 2013: a survey on living standards (ECMAS), and a joint Demographic and Health Survey (DHS) and Multiple Indicator Cluster Survey (MICS). These surveys will allow a better understanding of the evolution of poverty levels and income distribution in Haiti, and the elaboration of the first comprehensive Poverty Assessment for Haiti since 2001.

C. Medium-Term Outlook and Debt Sustainability

21. Over the next three years, the economy is expected to grow at a slightly faster pace than in FY12. Assuming a steady rate of government investment spending and moderate damage from periodic weather-related events4, annual economic growth in our baseline scenario is projected to be 3-4 percent in the coming three years, provided that the right policies can be implemented.

2 2001 Household Survey; staff estimate. 3 National Survey on Food Security (ENSA) carried out by the Coordination Nationale de la Sécurité Alimentaire (CNSA), Port- au Prince, Haiti, 2012. 4 The baseline scenario assumes annual weather-related damages equivalent to 1.5 percent of GDP, based on average costs of flooding and storm damages over the past 10 years (IMF Article IV Staff Report, March 2013).

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Exceptionally high levels of public investment averaging 17-18 percent of GDP over the next three years are expected to finance social and economic infrastructure rebuilding and provide stimulus to the economy, but this would be moderated by weather-related damages. Repairing the substantial post-earthquake structural damage – or newly arising hurricane-related damages – would continue to buoy the construction sector, and prospects for the manufacturing sector – supported by the Haiti Economic Lift Program (HELP) initiative, a favorable trade agreement with the US – are positive, with steady growth anticipated from the current low base. 22. Most key macroeconomic indicators are projected to reflect reconstruction challenges but would remain sound for the next three years and beyond (see Table 1). Continued high public expenditures are expected to pose a challenge for the fiscal balance, despite an anticipated steady increase in tax revenue. Although Central Government transfers to electricity utility EDH (Electricité d’Haïti) remain high, they are expected to decline through FY16 concurrent with energy sector reforms. Moreover, Government efforts in PFM and cash management monitoring and efficiency improvements will contribute to contain expenditures. Other donors, principally the IMF, are supporting sustained improvements in tax revenue through a series of measures aimed at reducing tax exemptions, creating a medium-sized enterprises unit in the Directorate of Tax, and implementing an e-declaration system, inter alia. The projections shown in Table 1 anticipate a continued deceleration of inflation from 6.5 percent at end FY12 to 5 percent at end FY13, as world price projections for oil, energy and food decrease in the near term and domestic credit to the private sector slows. It is expected that reconstruction efforts will continue to weigh on Haiti’s external position. The current account deficit is projected to improve to -3.4 percent of GDP in FY13 due to a recovery in exports, but widen thereafter to -4 percent of GDP, due primarily to increased imports linked to sustained public investment which requires imported goods.

23. This economic outlook is subject to a number of uncertainties. Haiti is highly vulnerable to natural disasters including hurricanes and flash floods, and renewed occurrence of large-scale natural disasters could slow economic growth and divert resources from the longer-term development agenda towards more urgent recovery and reconstruction needs. The uncertain global environment linked to the euro zone financial crisis and weak economic recovery in the US poses a risk to growth prospects and macroeconomic balances. For example, a global recession could affect Haiti through weakened demand for exports, reductions in external support for reconstruction, and/or lower remittance inflows, resulting in a deterioration of the economic situation. The uncertain political environment – characterized by high turnover and tensions between the Executive Branch and Parliament – could potentially slow the pace of reform due to political stalemate, and thus depress economic growth.

24. Haiti’s challenge going forward is to maximize the current aid momentum and prepare for reduced external assistance in the medium term. External support has played a key role in financing the government’s reconstruction program and in obtaining the current macroeconomic stability. Over the last two years, external financing (i.e., grants plus PetroCaribe funding) amounted to 21 percent of GDP in FY11, and 15 percent of GDP in FY12. The bulk of recent social and economic achievements is attributable to the stimulus provided by this exceptionally high level of external assistance, which also helped attenuate the fiscal deficit. However, grants are expected to decrease in FY14 and may fall to pre-earthquake levels in the medium term. This risk could materialize even in the short term, in the event of a reduction in official transfers to Haiti, potentially disrupting the stream of expenditures and negatively affecting

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reconstruction, both from the social and growth angles. Without external assistance, Haiti’s fiscal situation would be precarious. The Government’s program to decrease its dependence on donor support includes measures to (i) improve public resource efficiency – including through PFM, procurement and electricity sector reforms; (ii) target grant funding to infrastructure and human capital investment that supports growth; (iii) foster private sector development through regulatory reform and export promotion in integrated economic zones; and (iv) mobilize additional resources through fiscal reforms and public-private partnerships, inter alia. Even with these efforts, Haiti will nevertheless continue to rely on external financing for the foreseeable future.

25. Although Haiti’s total debt burden was significantly reduced through debt forgiveness (from 38 percent of GDP in FY08 to 12 percent of GDP in FY11), Haiti’s risk of debt distress remains high. Haiti’s nominal external public debt as of end-FY11 was estimated at US$657 million. In present value (PV) terms, the external public debt was US$479 million, equivalent to 48 percent of exports, 50 percent of government revenue, and 7 percent of GDP at end-2011.5 Debt reductions resulted from the Heavily Indebted Poor Countries (HIPC) and Multilateral Debt Relief Initiative (MDRI) debt reliefs, and from subsequent debt relief to help Haiti overcome the devastating earthquake of January 2010. As shown in the Debt Sustainability Analysis (DSA) in Annex 4, prepared jointly by the Fund and Bank staffs in February 2012, rapid debt build-up is expected in the short-to-medium term, and will lead to a breach of the sustainability threshold of 100 percent of exports in 2017. These results point to the need for enhanced monitoring of the evolution of external debt and adopting policies that support exports. The Government has implemented plans to enhance the capacity of its Debt Unit, and the Bank is providing technical assistance and training on debt sustainability analysis, inter alia. The favorable oil import financing arrangement with Venezuela, PetroCaribe, has enabled the Government to finance extensive capital investment on subsidized terms. Going forward, Haiti will continue to access PetroCaribe resources under favorable terms in order to finance badly needed investments; however, achieving a significant return on such investments will be important for avoiding the accumulation of excessive external debt without significant improvement in Haiti’s repayment capacity.

26. Notwithstanding the significant challenges inherent to the post-earthquake situation and a future transition to fiscal self-sufficiency, the macroeconomic policy framework is adequate to support the proposed Grant, reduce volatility, and sustain growth without accumulating excessive debt. The proposed DPG support equivalent to US$20 million, together with budget support provided by other donors totaling a further US$73 million in FY13, will help finance essential expenditures and meet external financing needs. The government’s FY13-FY15 financing needs are projected to be covered through grants, external financing and, to a lesser extent, issuance of government securities in the form of T-bills.

III. THE GOVERNMENT’S PROGRAM AND REFORM AGENDA

27. While a new medium-term National Strategy is being developed to respond to the post-earthquake reality, the March 2010 strategy for reconstruction and development (PARDH) remains relevant, enhanced by the priorities subsequently articulated by President Martelly. The PARDH aims to improve infrastructure, develop growth industries, and address governance as 5 Haiti’s external creditors are Venezuela (71 percent of total nominal debt), Taiwan Province of China (14 percent), the International Fund for Agricultural Development (IFAD) (10 percent), the IMF (4 percent), and the Organization of the Petroleum Exporting Countries (OPEC) (2 percent).

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one of its main themes. The long-term vision for Haiti’s development is the rebuilding of the nation, transforming the disaster of January 2010 into an opportunity for Haiti to become an emerging market by 2030. The following four pillars anchor this vision.

(a) Territorial rebuilding foresees completing the implementation of the national transport system, the electrification of the country, the expansion of digital communications, increase in water supply and sanitation (including solid waste management, as well as activities in terms of planning and local development), the protection of the environment and watershed, and urban renewal. Programs under this pillar will install and upgrade the infrastructure required for economic growth, job creation and access to social services.

(b) Economic rebuilding aims at supporting private investment, modernizing and revitalizing the agriculture sector, livestock and fisheries, developing the competitive sectors of the Haitian economy, particularly manufacturing and tourism, as well as developing the professional construction sector.

(c) Social rebuilding involves creating networks of modern health and education centers across the country, including higher education and vocational and technical training; protecting cultural assets and supporting cultural creativity; ensuring better access to housing; and establishing a health system that ensures minimum coverage throughout the country and social protection for the most vulnerable.

(d) Institutional rebuilding focuses on rebuilding the capacities of affected government departments by prioritizing the most essential functions; redefining the legal and regulatory framework in line with national requirements; implementing an institutional structure that will oversee the reconstruction process; and establishing a culture of transparency and accountability that deters corruption.

28. The PARDH is complemented by the five strategic priorities identified by President Martelly, namely: Environment, Employment, the Rule of Law, Education, and Energy. The new government is currently working to integrate both into a broader national development strategy aimed at transforming the country into an emerging economy by 2030. The attached letter of development policy sets out the objectives and priorities of the Government’s economic program.

IV. BANK SUPPORT TO THE GOVERNMENT’S PROGRAM

A. Link to ISN

29. The World Bank Group’s Interim Strategy Note (ISN) for Haiti for FY13-14 was discussed by the Executive Directors on September 27, 2012. The overarching objective of the Interim Strategy is to support the Government of Haiti in implementing sustainable post-earthquake reconstruction through: (i) reducing Haiti’s vulnerability to disasters and crises and increase its resilience to shocks; (ii) sustainable reconstruction in key infrastructure; (iii) building human and social capital; and (iv) promoting inclusive growth. Strengthening governance in favor of reconstruction is a crosscutting theme defined in the ISN that will permeate all operations and drive the content of budget support operations. The proposed DPG provides support to the governance theme as well as specific support to objectives (ii) and (iv) above. The DPG supports key outcomes of the ISN, specifically (a) improvements to the commercial viability of the electricity sector, (b) improved transparency, accountability and efficiency of public resource use, leading to increased spending effectiveness across ministries, and (c) the continuation of the Government’s

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economic reform program and the transfer of resources to the Haitian budget in the event of a financing gap. The ISN identifies this DPG as one of its important operations to support the Government’s reform agenda on economic governance.

B. Collaboration with the IMF and Other Donors

30. Numerous donors are active in Haiti. The EU, the IMF, Spain, France, Canada, the United States Agency for International Development (USAID) and the Inter-American Development Bank (IADB) are providing support in a number of areas, including public finance management, electricity sector reforms, and governance, inter alia. A joint-mission of donors involved in budget support took place in February 2012 to coordinate the policy actions underpinning the Government’s reform program and budget support operations. This mission followed on a series of joint supervision missions and consultations among the members of the Joint Budget Support Group (Groupe Conjoint d’Appui Budgétaire, GCAB), including in particular the World Bank, IADB, EU, France, Spain, CIDA, USAID, and in collaboration with the IMF. The donors signed a Memorandum of Understanding (MOU) in April 2009 with the objective of harmonizing budget support operations and establishing a budget support group to provide a forum to exchange information among stakeholders and support policy dialogue with the Government. The Government drafted a joint policy matrix which is currently being updated, and the GCAB coordinates closely in the supervision of the implementation of the reforms contained in the matrix. The donor coordination process, led by the Government, is flexible, allowing for bilateral discussion and adjustments to the joint policy matrix as needed. The policy measures in the proposed Grant represent a subset of policies delineated in the joint donor matrix, and other donors’ budget support also depends on the set of policies summarized in this matrix. The combined level of budget support from the IADB, EU, Spain, France, Norway and the World Bank amounted to US$87 million in FY11, US$27 million in FY12 (lower due to delays in EU and Bank support) and a projected US$93 million in FY13 including the proposed Grant and a planned Haiti Reconstruction Fund operation for which the Bank has agreed to act as the partner entity. 31. The IMF’s ECF program addresses key issues including: (i) enhancing public resource mobilization and spending efficiency; (ii) improving liquidity management and increasing the financial sector’s contribution to growth; and (iii) improving the business and investment environment. The periodic assessment of Haiti’s macroeconomic performance by the IMF – including the recent Article IV consultations – serves as a key input for dialogue on policies related to macroeconomic stability and for ensuring timely disbursement of budget support.

32. CIDA is actively supporting the government’s public finance management programs through a series of training activities to strengthen budget preparation, especially the capacity of staff in the Programming and Analysis units (UEPs) in line ministries. CIDA also provides technical assistance to support tax and customs administrations, and its PARGEP project provides training in budget audit and control for staff of the Financial Audit and External Audit Offices of Haiti. USAID provides support to the Directorate of Taxes in the development of Strategic and Tactical Plans for modernizing and reviewing the main tax laws, implementing sound tax audits, collections, and taxpayer services and education, as well as developing a plan for data processing. Finally, USAID, IADB and CIDA are all active in the energy sector.

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C. Relationship to Other Bank Operations

33. To support recovery and reconstruction efforts in an environment of weak institutional capacity, the World Bank Group is providing a broad range of sectoral and budget support. The proposed Grant is designed to reinforce and complement the objectives of recent, ongoing and planned World Bank operations in Haiti in line with the government’s development agenda and with a particular focus on strengthening institutions. 34. The proposed Grant builds on the series of Economic Governance Reform Operations (EGRO) and the recently closed Emergency Development Policy Operation (DPO). In this context, the proposed single-tranche operation is part of a programmatic approach which began by establishing the foundations of sound PFM and procurement practices and electricity sector governance, subsequently strengthened checks and balances in the emergency phase, and is now strengthening institutions and policy implementation under the current operation (Figure 1 illustrates the evolution of policies supported by DPOs). As shown in Figure 1, the EGRO series focused on setting policy and laying the foundations for institution building and enhanced transparency by strengthening the regulatory framework and institutional capacity, and supporting the government's implementation of critical economic and public sector governance reforms in public finance management, procurement, anti-corruption, and transparency of public transfers in the electricity sector. While the Government made encouraging progress under EGRO I (January 2005) and EGRO II (January 2007), the EGRO III – approved in December 2009 as a programmatic series of two operations aimed at consolidating the gains achieved under the preceding two operations – was discontinued after the earthquake in January 2010. The operation was closed in October 2010, one year before its closing date, to redirect resources so as to better support Haiti in addressing the new policy and development challenges in the aftermath of the disaster.

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Figure 1: Evolution of Policy Reforms Supported by Bank DPGs 2005-2013

Electricity

Foundations

EGROSeries(FY2005‐2009)

EmergencySupport StregtheningInstitutions

ProposedDPG(FY2013)EmergencyDPO(FY2010‐2011)

PublicFinancial

Management

Procurement

Institutionalbuildingandenhancedtransparency

mechanisms

Strengtheningchecksandbalancesmechanisms

Institutionalstrengtheningand policy

implementation

‐ Creation ofamechanismformonthlymonitoringpublictransferstoelectricitysector‐ Implementationofacostrecoverypolicy

‐ QuarterlybudgetexecutionreportspublishedontheMEFwebsite‐ Disbursementofnon‐salarycurrentpublicexpendituresthroughdiscretionarycomptesspeciaux reducedtolessthan3%

‐ Creationoftheprocurementregulatorybodyandprocurementcommissionsinlineministries‐ Reductionofpercentageoftotalpubliccontractamountawardedonsolesourcebasis‐ Issuanceoffourkeyimplementingdecrees

‐ Publicationofmonthlydataonpaymentsandenergyproduction‐ CreationofaninstitutionalframeworkinvolvingMEF,EDHandMTPTEC

‐ Reductionofbacklogofauditsofgovernmentaccounts‐ SubmissionofgovernmentaccountsbytheTreasurytoCSCCAwithinthestatutorytimeframe‐ Strengtheningoftheinternalauditunitandimplementationofitsactionplan

‐ RestorationofCNMPwebsitecontaininginformationonprocurementbidsandcontractsawarded.‐ AuthorizationbythePMpriortouseofacceleratedprocurementproceduresundertheStateofEmergencyLaw

‐ EDHusesIPPmeterreadingsforbillingverification‐ On‐sitemetertestingandreadingverificationforprioritycustomers‐ CentralGovernmenthassettledallitsFY12paymentsdelaystoEDH

‐ TheMPCEhasestablished andstaffedaDirectorate ofPublicInvestmentwithin theMinistry‐ TheUEPsinlineministries havebeenstaffed, andaUEPactionplan hasbeenprepared bythePM'soffice.‐ TheMEFhasadopted theMay2012strategy toestablish theSingleTreasury Account, andclosed311 idleanddormant publicaccounts attheCentral Bankandcommercial banks

‐ TheGovernment has issued andpublished allthenecessary implementingregulations ofthe2009 Procurement Law‐ All lineministries haveestablished,staffed and trained ministerialprocurement units‐ TheGovernment has terminated 5contractsasper therecommendation oftheCSCCA AuditReport ofpubliccontracts issued under the2010‐11Emergency Law

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35. Under the Emergency DPO (August 2010), the overall focus of the Government shifted to strengthening checks and balances mechanisms while providing emergency support. The objective was to mitigate any potential negative impact of the earthquake on governance due to the weakening of oversight institutions under exceptional circumstances. In complement to the Emergency DPO, the Infrastructure and Institutions Emergency Recovery Project (US$65 million) approved after the earthquake focused on restoring key economic and financial functions of the government. A further US$35 million in Additional Financing was approved in September 2012. The project includes rehabilitation of and equipment for offices as well as technical assistance to reinstate the basic functions of the Ministry of Economy and Finance (MEF) in accounting, reporting, budget monitoring, and control, re-establish the Court of Accounts, strengthen external audit capacity, and restart operations at the procurement regulatory body and in the procurement units in line ministries. These efforts are being complemented by a Governance Partnership Facility (GPF), Enhancing Political Leadership to Improve Governance and Public Sector Performance in Haiti (US$500,000), which (i) supports capacity building of the Inspection Générale des Finances (IGF) and (ii) identifies and helps to address obstacles to a better performing Court of Accounts.

36. The measures foreseen under this DPG complement and strengthen efforts undertaken under two Energy Sector operations financed by IDA aimed at making energy more accessible and more affordable for the Haitian population. The ongoing Electricity Loss Reduction Project (PREPSEL, US$11 million) aims at improving the financial viability of EDH. It was approved in 2006 and restructured and expanded in 2008-9 to support the installation of new billing and grid maintenance systems (CMS and TSMS) and remote meters for large clients, provide capacity-building support to strengthen EDH’s anti-fraud unit and external expertise to assist EDH Management, and support enhanced transparency of transfers from the state to the electricity sector through setting up the monitoring mechanism and regular disclosure of key indicators.6 The project is expected to close in August 2013. A new IDA Grant, the Rebuilding Energy Infrastructure and Energy Access Project (US$90 million), was approved in September 2012, and expands access to reliable electricity services through power sector infrastructure rehabilitation and expansion and strengthens energy policy and planning capacity. The electricity sector reforms supported by the proposed Grant will enhance the impact of the projects’ investment activities by increasing EDH’s effectiveness and financial position, freeing resources to upgrade and expand electricity service quality and access.

37. Two complementary projects aimed at job creation and growth (for a total of US$65 million – the Business Development and Investment Project and the Heritage and Tourism Development Project) are scheduled for Board presentation in FY13 and early FY14. The first aims to accelerate private sector-led growth and increase employment opportunities in Haiti by strengthening the legal framework for industrial parks and integrated economic zones, and through institutional strengthening activities to improve the environment for investment. The second project will support decentralized growth around Cap Haïtien and the National Historic Park. These projects are underpinned by IFC advisory services related to the investment climate. Two main IFC initiatives address Investment Generation and the Doing Business Reform Agenda. IFC also has an active program providing investment services; IFC has committed a total of US$76

6 The monitoring mechanism table tracks seven groups of technical and financial indicators, including budgetary transfers to EDH, electricity produced and amount and price of fuel used on a monthly basis.

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million for 10 investments, including US$30 million from syndicated loans since 2006. Investments after the earthquake include: a US$6 million loan (of which US$3 million syndicated) to enable the expansion of important garment manufacturer Group M; an equity support to Canada-based Eurasian Minerals’ gold and copper exploration in Haiti, which will support 800 jobs; an additional US$1 million loan to help complete the 30MW power generation plant E-Power; and the recurring activation of Capital Bank’s trade finance credit line.

D. Lessons Learned

38. Experience points to the need to adopt a simple approach in fragile countries, and supports the use of a single-tranche operation. Weak institutional capacity, particularly when coupled with political and/or social instability, can hinder lasting reforms. The design of a budget support operation should avoid the risk of delaying disbursement or stalling implementation due to political turnover or exogenous factors. Moreover, fragility is amplified in countries prone to natural disasters. For instance, the implementation of both the EGRO II (a two-tranche budget support operation) and the EGRO III (a programmatic operation) were negatively affected by back-to-back hurricanes and the 2010 earthquake, which increased financing needs while making the programmatic results-framework of the DPO inoperative. A one-tranche operation allows the Bank to support the Government in areas that need urgent attention while building on long-term structural reforms in a programmatic way.

39. Countries that have experienced major natural disasters need strong institutional support to back up critical reforms aimed at quickly restoring state functions. Institutional rebuilding and strengthening of legal and regulatory frameworks were the main objectives of the predecessor operation, the Emergency DPO. Making headway in these areas would not have been possible without significant technical assistance and reconstruction projects aimed at supporting relevant institutions (e.g., activities under the Infrastructure and Institutions Recovery Emergency Project for the Court of Accounts, the procurement regulatory body, and the Ministry of Finance). Therefore, the proposed Grant aligns its objectives with existing technical assistance programs and projects to minimize the risk of slow implementation. Other donor-financed operations further complement the technical assistance provided by the Bank.

40. The fragile state environment also calls for reforms that build the foundations for an effective system of economic governance. In this context, reforms with an institutional focus that are difficult to reverse can have a greater impact in the medium term by assisting fragile countries to move to a sustainable development path.

41. While strengthening the legal framework for public sector governance in DPGs remains critical for ensuring proper management of aid inflows in fragile states, growth-enhancing reforms also need to be strongly promoted. Ensuring that public sector governance institutions function appropriately is crucial for improving service delivery and enhancing the efficiency of public spending. At the same time, there is a need to emphasize growth policies to ensure a sustained recovery process and lasting results. In Haiti, while continuing to focus budget support programs on economic governance, more needs to be done to underpin sustainable growth, which is critical for the success of the reconstruction process and to ensure that an environment conducive to the private sector’s development is in place. Drawing from that lesson, the proposed Grant combines public sector governance reforms with measures to enhance the business climate

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through more efficient and dependable electricity provision, an important condition for attracting private investment.

42. Complementing investment project activities with sectoral policy reforms can enhance the impact of both. The proposed Grant has effectively leveraged strong governance reforms by supporting measures that complement the Bank’s sectoral investment program and technical assistance. The electricity sector provides a prime example. Significant delays in the purchase and installation of meters for independent power producers (IPPs) since the beginning of the Electricity Loss Reduction Project severely inhibited progress, but the policy dialogue and reform measures addressed in the proposed Grant helped resolve implementation bottlenecks. This achievement underpins a renewed dynamic for reform in the electricity sector, where the authorities have (a) initiated the review and harmonization process of the current power purchase agreements with IPPs, and (b) incentivized EDH to install remote metering on all other power plants in order to have full transparency, monitoring and operational control of power generation in Haiti. 43. Mutual coordination and coherence of policy dialogue among donors are essential for improved aid effectiveness. Coordination is important in order to reach achievable but solid milestones and indicators, develop a commonly agreed reform framework, and address issues of capacity building. For instance, progress achieved in public financial management has been the result of extensive and effective coordination among partners. The harmonization of budget support operations and technical assistance through the Joint Budget Support Group in Haiti has provided a forum for a coordinated effort to address weak governance and improve capacity.

E. Analytical Underpinnings

44. The proposed Grant draws on a wide range of analytical work carried out in recent years by the Government, the Bank and other development partners. Instrumental to identifying reforms in the domain of PFM was the Public Expenditure and Financial Accountability (PEFA) evaluation, commissioned by the Government and supported by the European Commission (completed in January 2012). Among the persistent weaknesses, the evaluation highlights, inter alia, the efforts needed to further improve overall budget management and the transparency and completeness of budgetary processes. The PEFA report, complemented by IMF PFM TA reports, also underlines the need for a more efficient and integrated cash management system with a view to avoiding unnecessary costs through better control and efficiency. The reforms supported by the proposed Grant are based on the PEFA diagnostic.

45. The White Paper on Energy, produced by the Government with donor support in 2010, analyzes the energy sector in detail, and explains the reasons why Haitians have among the lowest access to electricity in the world. The study identifies inefficiencies and constraints at all levels in the energy sector, and particularly in the production and distribution of electricity. The report points to a defective commercial operation at the national electricity utility EDH, since the company does not bill for a sufficiently high portion of electricity provided to the network, and it only collects a fraction of what it bills. EDH’s resulting poor performance leads to massive transfers from the public treasury to the electricity sector. One of the report’s conclusions is the need to improve governance and management, whose weakness is the cause of poor operational and financial performance.

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V. THE PROPOSED OPERATION

A. Overall Description

46. The proposed Development Policy Grant in an amount equivalent to US$20 million supports the Government’s reconstruction programs. In particular, the operation supports three axes of the Government’s strategy for reconstruction and development (PARDH), namely (a) territorial rebuilding with a focus on infrastructure, in particular the electricity sector; (b) economic rebuilding with a focus on more efficient public procurement and attracting private investment; and (c) institutional rebuilding with a focus on government’s essential functions in public financial management and procurement.

47. The proposed Grant supports critical prior actions that address the following three complementary policy areas:

strengthening public investment tracking and enhancing cash management systems; reinforcing the institutional framework and capacity for effective public procurement; strengthening governance and financial performance in the electricity sector.

48. The proposed Grant aligns its policy areas with the country’s short- and medium-term challenges by placing emphasis on the conditions needed for enhancing the efficiency of public spending in view of maximizing the impact of the high level of grants in the transition period, following which grants are likely to return to pre-earthquake levels.

49. The prior actions that the Government has already taken to implement its development and reconstruction program are summarized in Box 1.

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Box 1. Prior Actions

Prior action 1. The Ministry of Planning and External Cooperation has established and staffed a Directorate of Public Investment within the said ministry.

Prior action 2. The Programming and Analysis Units (UEPs) in line ministries have been staffed, and a UEP action plan to restructure and strengthen the said UEPs was adopted in January 2013 by the Prime Minister’s Office (Primature).

Prior action 3. The Ministry of Economy and Finance has adopted the May 2012 strategy to establish the Single Treasury Account, and closed 301 idle and dormant public accounts at the Central Bank and commercial banks.

Prior action 4. Pursuant to the Procurement Law dated June 10, 2009, the Government has issued and published on December 21, 2012 through its executive branch, the following two implementing regulations (“arrêtés d’application”) covering respectively: (i) the code of ethics for officials involved in procurement activities; and (ii) the standard documents for evaluating bids.

Prior action 5. All line ministries have established and staffed ministerial procurement units (commissions ministérielles de passation des marchés), and the Commission Nationale des Marchés Publics (CNMP) has provided training to the staffs of such units.

Prior action 6. In order to improve public procurement practices, the Government has, in accordance with the Arrêté dated February 16, 2005 and the Emergency Law dated April 19, 2010, rescinded 5 contracts awarded under the said Emergency Law.

Prior action 7. EDH has initiated the use of meter readings from functional remote meters newly installed at IPP entry points to verify IPP production levels and inform billing.

Prior action 8. EDH has performed on-site meter testing and verified meter readings for at least 200 priority customers, re-issued bills, and implemented arrears recovery plans when applicable.

Prior action 9. The Central Government, through the Ministry of Economy and Finance, has settled all of its FY12 payment delays to EDH.

B. Development Objective

50. The proposed Grant’s development objective is to support the Government of Haiti’s program of sustainable reconstruction and growth. Towards this end, the Grant supports institution building and the strengthening of economic governance in sectors critical to reconstruction and growth in the short and medium term.

C. Operation Design

51. The program design demonstrates the pragmatism required to deepen governance reforms in areas addressed by predecessor operations in the context of a fragile state. Consistent with this strategy, attention is geared toward institution-building and sound governance conditions to ensure the efficient use and enhanced accountability of reconstruction funds. Areas of continuity include strengthening budget management, public procurement, and transparency and efficiency in the electricity sector (recall Figure 1). The reform in public expenditure management focuses on areas deemed critical for improving capital budget execution rates, monitoring and transparency. This will be complemented by efficiency gains from improved cash management systems. With respect to procurement, the proposed Grant shifts the focus from strengthening the legal and regulatory framework to actual implementation of the Procurement Law through institutional reforms. And in the area of electricity, the focus shifts to creating the conditions critical

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for efficient private investment that would complement Government efforts to expand electricity supply and coverage, while preserving the integrity of public transfer management. 52. The Grant supposes the resumption of efforts aimed at implementing medium-term-oriented public sector governance reforms following the earthquake and the presidential election. The earthquake represented a major setback to the progress made in governance under the previous budget support operations. Following the disaster and supported by the Emergency DPO, the focus of the authorities shifted to rebuilding government institutions and strengthening the control systems of public resources in the context of reconstruction. Despite a challenging period due to political uncertainty since end-2010, all public institutions have been restored to operational status, are equipped and staffed, and control systems have been strengthened significantly. The reforms under the proposed Grant renew efforts to deepen policy reform implementation and address weaknesses in public sector governance and efficient and transparent public resource use. A broad agenda of reform remains to be defined beyond these measures, including in particular in the areas of efficiency and quality of public spending, as well as results-based budgeting.

53. The proposed Grant is a single-tranche operation. Whereas the supported actions build on previous reforms, together comprising a programmatic reform agenda, the single tranche format allows the flexibility required to capitalize on reform opportunities when they arise. Several considerations support a stand-alone approach, including the limited political visibility at the outset of project preparation, the Bank program’s two-year interim strategy time horizon, the Government’s weak implementation capacity, and the lack of an articulated medium-term Government strategy. The team also wishes to retain flexibility in light of the generally risky implementation environment as well as the need to test the Government's commitment to solid governance principles in the area of procurement under the Emergency Law. Furthermore, this single-tranche operation is grounded in the donors’ harmonized budget support and technical assistance efforts which are comprehensive and programmatic in nature. It will be crucial for the Bank to continue to support the Government’s reform and institution building efforts, including through technical assistance, analysis and policy advice.

D. Policy Areas

54. The Grant supports key actions to strengthen economic governance in the following policy areas: public financial management, public procurement, and electricity sector performance. The policy matrix presented in Annex 2 summarizes the policy objectives, key issues, measures taken prior to the Board presentation of this operation, baseline indicators, and the expected outcomes to be achieved by June 2014. Each section below provides background information on the challenges in each sector, describes the related objectives of the Government’s reform program, and identifies the Government’s planned actions to achieve these objectives.

i. Public Financial Management

Strengthen public financial management through improved public investment tracking and cash management systems

55. While acknowledging the progress achieved in managing public finances, several challenges relating to transparency and accountability remain, including, but not limited to: (i) improving the

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investment expenditure tracking system to enhance budget execution monitoring, and (ii) managing the flow of resources to increase accountability and ensure timely availability of funds.

Background and Sector Issues

56. The Government has discussed in an open forum the latest PEFA report analyzing the status of public finance reforms, which serves as a basis for the short- and medium-term public finance agenda. While recognizing the significant progress made in public expenditure management over the recent past, the PEFA also acknowledges persistent weaknesses in some key areas.

57. Haiti has made progress in budget preparation and transparency. The Ministry of Finance has adopted a manual that sets clear and transparent guidelines for budget preparation. It has also improved the consultation process with line ministries and civil society during the preparatory phase of the budget. For instance, in April 2012, the Government organized a meeting to discuss with civil society its evaluation and assessment of the 2011-12 budget, subsequent to a first meeting in February 2012 during which the budget was presented by the Minister of Finance to the public. The significant delay in submitting the budget to Parliament was due primarily to external factors, namely damage to public institutions caused by the 2010 earthquake and the protracted political situation in 2011 and part of 2012.7 One important example of increased transparency is the publication of the budget. The 2012-13 budget was published in the Moniteur on October 1, 2012, and is posted on the MEF website.

58. Progress in budget execution and control has been modest but demonstrates improvement. On budget execution, the Government has significantly reduced the use of special accounts for current expenditures (from 60 percent in FY04 to less than 3 percent in FY10), and the adoption of the manual for budget preparation and execution should lead to further improvement, including a more systematic enforcement of internal procedures for expenditure processing. There has been little progress for capital expenditure, however. On budget control, despite persistent shortcomings, there is evidence of progress. The Treasury submits government accounts to the Court of Accounts within the legal timeframe, and this was the case for the 2010-11 accounts. The Court of Accounts has substantially reduced the backlog of audits of government accounts. It has finalized the 2008-09 report and has sent to the Treasury the 2009-10 report. The internal auditing body has successfully implemented key activities of its Action Plan approved in 2010. Among the main results are: (i) an inventory of government and NGOs’ projects; (ii) audits of subsidies in the education sector and the transfers by the MEF; (iii) analysis of audit reports issued by the Court of Accounts; and (iv) audits of public accountants’ activities in the MEF.

59. Persistent weaknesses in some key areas of public expenditure management nevertheless remain, including: the lack of functional classification in the budget nomenclature, which is needed to establish a link between policy and investment; the absence of a forward-looking approach due to lack of multi-annual sector strategies and the institutional set-up between sectors and the Ministry of Planning to translate sector strategies into a costed budget; the absence of a single treasury account; and a partial expenditure tracking system, particularly with regard to the Public Investment Program and PetroCaribe funds. The Government is currently developing an

7 As per the Organic Law, in the absence of a new approved budget, monthly allocations to beneficiary institutions are equivalent to one-twelfth the prior year’s annual budget allocation.

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action plan to guide the reform effort in public finance management based on the findings of the PEFA.

60. The proposed Grant focuses on two critical items for improved transparency and accountability of public resources management: public expenditure tracking and monitoring, and the establishment of a Single Treasury Account. A system to track effectively where public funds are spent and what outcomes result will make government functioning more transparent and accountable; this in turn can be used to inform spending priorities and planning for the future. Better expenditure tracking and monitoring is facilitated by streamlining the accounts through which public funds are processed into a Single Treasury Account, reducing opportunities for funds to be diverted and at the same time enabling more efficient cash management. These complementary efforts are critical for the credibility of the Government’s efficient use of reconstruction funds.

61. With respect to tracking public expenditures, the existing system is fragmented and does not provide comprehensive information. It captures only current expenditures and allocations to line ministries for domestically-financed investment at the commitment stage. For capital spending, once funds are transferred by the Ministry of Economy and Finance to the Ministry of Planning and then onward to projects and/or line ministries, this transaction is accounted as budget execution and there is no proper tracking of the status of expenditure processing or project implementation. With respect to PetroCaribe funds, whereas they are under the control of the central government and all transactions are captured in the fiscal accounts, PetroCaribe projects are not systematically integrated into the Government’s Public Investment Plan, and their accounting is not fully transparent, especially as their allocation between current and capital spending is muddled. In addition, the current system omits a significant portion of funding streams for traditional Government functions that are financed directly by donors. This lack of a reliable monitoring and reporting information system limits the scope for monitoring consolidated investment outcomes, improving budget execution rates, and programming future investment. This is why the proposed Grant is supporting measures to improve the integrity of the budget and the credibility of the public expenditure management system; the availability of information about public spending both at the central and line ministry levels would shed light on how resources for reconstruction – and public resources in general – are used, and clarify what outputs were delivered by the budget. These steps are also essential building blocks toward multi-year investment planning to support sector strategies. Unless these measures are fulfilled, the budget process will remain weak, thereby limiting the development impact of public investment.

62. The Government has taken actions to improve the expenditure tracking system and monitoring of public spending outcomes. The Ministry of Planning has developed and started rolling out in 2009 an information system (SYSGEP) linking line ministries with the Ministry of Planning, which allows for consolidating data on investment budget execution and monitoring the related physical execution and outcomes. In order to operationalize the system, the Government had created Programming and Analysis Units (Unités d’Etudes et de Programmation – UEPs) in line ministries, which were tasked with inputting into the system data on investment at various stages of execution for further centralization and treatment at the level of the Ministry of Planning. Staff of both the Ministry of Planning and some line ministries had been trained accordingly. However, the earthquake and resulting destruction of most line ministries significantly sidelined this process.

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63. Recently, the Government issued instructions to all line ministries to resume operationalizing the UEPs, and further trainings have taken place to train staff of both UEPs and at the Directorate of Public Investment in the Ministry of Planning. The UEPs are tasked with monitoring the execution of public investment projects and performing control and reporting functions. It is expected that effectively operationalizing the UEPs would help establish the mechanism for a systematic transmission of public investment execution data to the Ministry of Planning and further consolidation into the budget execution report. But a key success factor will be coordination by, and impetus from, the Ministry of Planning’s new Directorate of Public Investment to ensure leadership and follow-up with the UEPs, without which the system will remain ineffective. The unit in charge of coordinating with UEPs in the past was weak and did not have the necessary authority and capacity to ensure effective leadership. The new Directorate of Public Investment, in contrast, is empowered to interface directly with line ministries’ UEPs and ensure exchange of information.

64. In a complementary effort to improve control over public resources, and more broadly to improve the efficiency of their use, the Government also has started implementing the measures needed to establish a Single Treasury Account. The Ministry of Economy and Finance recently completed an inventory of public accounts held by line ministries at the Central Bank and commercial banks, identifying a total of 569 accounts. The inability of the Treasury to capture accurate financial information from this large number of dispersed accounts – many no longer active – impedes timely and accurate accounting and reporting of Government operations. This, in turn, leads to a weak consolidation of financial information and constrains the monitoring of physical outcomes of the budget. It also leads to ineffective cash flow forecasting and management, or an absence thereof. The resulting suboptimal allocation of cash gives rise to payment arrears and sometimes costly and entirely avoidable borrowing as well. Such weaknesses could also undermine budget execution (e.g., if funds get misdirected to hidden accounts), and have been identified among the factors accounting for discrepancies between programmed and executed budgets.

65. Haiti has recently developed a capacity to issue Treasury bonds, which should help foster financial sector development. Adopting measures to improve cash management will not only increase payment efficiency and boost confidence in the Government; it will also enhance transparency and expand information sharing. Therefore, reducing the number of bank accounts to three per ministry – and ultimately to a Single Treasury Account – will contribute to more transparent and efficient public resource use for reconstruction and other priority spending by avoiding unnecessary borrowing costs and enhancing the Treasury’s control over public resources. The Government is making significant headway, has closed 301 idle or dormant accounts, and transferred any balances to a set of linked Treasury accounts in the Central Bank through which the Government transacts all payments and centralizes cash balances. In September 2012, the MEF approved an action plan for implementing the Single Treasury Account, and this plan was presented to the Council of Ministers. The key steps needed to reach this goal have been communicated to line Ministers with specific deadlines. The rationalization of existing public accounts is the precursor to establishing a Single Treasury Account, which is targeted by October 2014. The process of better cash flow management is underway and is supported by the Treasury Committee created in January 2012 and chaired by the Minister of Finance, and which convenes on a monthly basis.

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Specific Actions Supported by the Grant

Prior action 1. The Ministry of Planning and External Cooperation has established and staffed a Directorate of Public Investment within the said ministry. This entity has been integrated into the Chart of the Ministry of Planning and is operational. The Directorate of Public Investment is expected to coordinate the collection and treatment of information on budget execution from all UEPs in line ministries for further consolidation and integration into the budget execution report. The Directorate will also interface with the Ministry of Finance on budget planning, ensuring consistency between the current and capital budget allocations. The Government has drafted a report on the recent activities of the Directorate of Public Investment. [Action completed]

Prior action 2. The Programming and Analysis Units (UEPs) in line ministries have been staffed, and a UEP action plan to restructure and strengthen the said UEPs was adopted in January 2013 by the Prime Minister’s Office (Primature). Each line ministry has created and staffed UEPs. In light of heretofore delays in the effective operation of the UEPs, the Government recently adopted an action plan to restructure the UEPs and re-invigorate capacity building of the units, which includes training for clearly enumerated procedures. [Action completed] Prior action 3. The Ministry of Economy and Finance has adopted the May 2012 strategy to establish the Single Treasury Account, and closed 301 idle and dormant public accounts at the Central Bank and commercial banks.8 This prior action will lead to the rationalization of public account management into a Single Treasury Account expected to be established by October 2014. The significantly reduced number of public bank accounts has already made monitoring easier. The next step in the strategy will be for each line ministry to close all but three bank accounts (one for recurrent expenditures, one for capital expenditures, and one for revenues). These three accounts are to be leveled on a daily basis by Treasury, supported by the recently created Treasury Committee. [Action completed] Expected Outcomes

66. Short-term. By the closing date of this Grant in June 2014, it is expected that the Directorate of Public Investment will publish quarterly budget execution reports using SYSGEP containing information on public investment financed through the government budget – including the proceeds of PetroCaribe – beyond the commitment stage, with information covering line ministries and by project. This more detailed expenditure reporting system will not only increase transparency, it will also enhance accountability and efficiency by providing a metric of government policy impact as well as a clearer picture of the pace of reconstruction activities which can ultimately inform future planning. This represents an important first step towards a comprehensive reporting on all budget execution – both foreign and domestically financed – which will require donors to furnish project execution and disbursement data to the MEF, something they do not presently do. With respect to cash management, the fact that each ministry will only have three accounts by the end of the operation represents important progress. The reduced number of public bank accounts – ultimately to a Single Treasury Account – will enhance the Directorate of the Treasury’s capacity to actively and efficiently manage cash flows, and limit opportunities for

8 The "Stratégie pour la mise en place du Compte Unique du Trésor" was approved by the MEF on September 24, 2012. The Minister of Finance presented the strategy at the Council of Ministers.

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diversion of resources into unmanaged accounts. The result will be increased efficiency and accountability in the use of public resources.

67. Medium-term. Regularly published budget execution reports including externally financed investment in the SYSGEP would enhance transparency in public resource use and assist the shift to a multi-year budget framework. But this will depend on donors to furnish the necessary information, a major challenge in most countries, and beyond the control of the Government. In order to increase and sustain the impact of the reconstruction program, the Government plans to start using a multi-year expenditure framework, which will be key for improving the predictability and the alignment of the budget with priority policies, as well as ensuring the coherence of the current and capital budgets. Some key ministries already have well-developed sector strategies and medium-term expenditure plans; this exercise will be extended to all line ministries. Regarding cash management, the Treasury Committee will work based on up-to-date and complete information aided by a forward-looking Treasury plan. The establishment of a forward-looking cash-flow forecast (plan de trésorerie) will contribute to a more efficient and less costly cash management system, reduce cash constraints imposed on businesses dealing with the Government, and also minimize the use of T-bills for short-term financing. The Single Treasury Account is expected to be established by October 2014 for internal funds.

ii. Public Procurement

Establish a credible institutional framework for procurement and upgrade procurement management capacity

69. Through the recent operationalization of the 2009 Procurement Law, the Government is striving to address past weaknesses in public procurement and build the necessary processes, institutional infrastructure and capacity to improve procurement practices and standards within an effective legal framework. These efforts complement the expenditure tracking and cash management measures to improve the efficiency and transparency of public resource use.


70. The progress achieved in procurement before 2010 stalled after the earthquake. Following the creation of a procurement regulatory body (Commission Nationale des Marchés Publics – CNMP) and procurement units in key line ministries after the reengagement in 2005, the Bank provided support to the Government to draft a new Procurement Law and the related first implementing decrees, adopted in the second half of 2009. However, the reform process was interrupted following the earthquake and the destruction of government institutions, including the CNMP and line ministries. In order to accelerate reconstruction activities in the immediate aftermath of the earthquake, the Government adopted an Emergency Law that included specific dispositions allowing for limited competitive bidding for public contracts. Therefore, during the period that this Emergency Law was in effect, from April 2010 to October 2011, the Procurement Law was not binding. While the Government swiftly restored the capacity of the procurement regulatory body, the CNMP, policy reform implementation has been slow ever since. As of early December 2011, 14 of the 17 implementing decrees had been adopted, but only four had been published, which delayed the effectiveness of the Procurement Law. The publication of these signed decrees is a prerequisite for the effectiveness of the Law, and for the dissemination of all key documents clarifying the procedures and key dispositions related to the new purchasing practices,

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performance and conduct, the modalities and statutes to apply, and the regulations and policies applicable to all facets of statewide purchasing authority.

71. Observance of the Procurement Law requires addressing weak institutional capacity. In addition to the effectiveness of the Procurement Law through the necessary implementing regulations, compliance with good procurement practices requires adequate enforcement structures. Line ministries had procurement units as required by the Law, but most of these units were barely functional due to lack of staff, and were further weakened by the earthquake. Whereas there have been some efforts to staff these units, as of January 2012, only nine of the 18 concerned ministries had appointed members to their respective procurement units. And even within these, the capacity to conduct competitive procurement using the procedures set in the new Law was lacking. Furthermore, there was no code of ethics guiding officials involved in procurement activities, as is the norm in other countries. The Bank is providing technical assistance through the Infrastructure and Institutions Emergency Recovery Project and recent Additional Financing to enhance CNMP’s capacity. In mid-2012, the CNMP organized a series of training workshops so that agents working in existing procurement units and relevant officials could effectively use the various documents underpinning the new legal framework.

72. Improving procurement practices and transparency is dependent on line ministries submitting annual procurement plans to the CNMP. Procurement plans would enhance transparency in procurement practices and visibility for the CNMP in its role as regulator. The CNMP had already begun assisting procurement units in line ministries to prepare and submit procurement plans as required by the 2009 Law. However, this has not been completed, in part due to the absence of effective procurement structures within line ministries.

73. Reinforcing procurement regulation and line ministries’ procurement capacity is on the Government’s priority list. It is critical for the Government to take swift action to operationalize the procurement units in line ministries and accelerate the effectiveness of the 2009 Procurement Law in order to ensure compliance. This would help reduce significantly the risk of irregularities in procurement practices as well as opportunities for corruption, and would increase transparency. An example of weak governance is provided by the recent investigation carried out by an Audit Commission into contracts processed under the 2010-11 Emergency Law. Requested by former Prime Minister Gary Conille, an Audit Commission reviewed 41 contracts totaling more than US$400 million, identified multiple irregularities, and concluded that state interests were not adequately protected (note that none of these contracts were Bank-financed). The Government took action to redress the weaknesses identified,9 sending a positive signal about the integrity of public resource use and management, in addition to recouping and reallocating US$124 million in investment resources from cancelled or restructured contracts.

74. Addressing the irregularities in the 41 contracts reflects a degree of commitment by the Government, but new concerns arose in the use of a new Emergency Law enacted after Hurricane Sandy in October 2012. Under the 2012-13 Emergency Law, in effect from October 30, 2012, to January 5, 2013, a large number of new contracts was issued using non-competitive

9 Recommended corrective actions by the Government include, inter alia: suspending any of the 41 contracts for which no disbursements have been made; checking the progress of work undertaken in relation to disbursements already made; soliciting MPCE documentation relating to the 41 contracts reviewed; and requesting from the Central Bank the bank statements of the Public Investment Program (PIP) for the period from November 1, 2010 to October 31, 2011.

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procurement procedures. Some of these emergency projects were designed to redress as quickly as possible the severe damages caused by the storm (equivalent to an estimated US$120 million according to Government sources), and were procured using direct contracting or restricted bidding procedures, as permitted under the Emergency Law. The Government made an initial allocation of 3bn gourdes (US$75M) for road and bridge repair and reconstruction related to Sandy damages.

75. A significant share of these new contracts, while consistent with the legal provisions of the Emergency Law, does not seem to be related to emergency repairs resulting from Hurricane Sandy, however. During the two-month emergency period, the Government issued 92 contracts, of which only six appear in the Public Investment Program approved by Parliament. Forty-five (45) of these contracts were for public works worth US$325M, representing over half of MTPTEC’s total annual investment budget, and 47 were contracts relating to agriculture, equivalent to US$32M or 15 percent of the Ministry of Agriculture’s annual investment budget. These contracts could have benefited from the more rigorous investment review and appraisal and public procurement processes prevalent outside emergency circumstances. On the positive side, details of all these projects have been recently published on the MEF website, representing a significant improvement in transparency. In addition, the great majority of the public works contracts will contribute to strengthening the resilience of the national transport network. Furthermore, the Government has for the first time allocated significant funds and signed supervision contracts to oversee project implementation. Finally, the Government has committed to carry out ex-post reviews of these projects, as indicated in the Letter of Development Policy (Annex 1).

76. Going forward, it will be important to close this potential loophole in investment planning and procurement in order to maximize the value for money of public investment and preserve the credibility of the Government’s reform efforts. Through the measures supported by this Grant, more efficient procurement processes, aided by more effective and better equipped institutions – the CNMP and the ministerial procurement units – will likely speed up public investment, thereby reducing the potential benefits of resorting to emergency procedures.10 Furthermore, the Bank is launching a multi-country analysis of post-disaster PFM and procurement experiences to better understand the range of practices and outcomes, and to draw potential lessons. This analysis will be used to develop guidelines for the Haitian authorities – and for governments in other disaster-prone countries – on effective ways to facilitate reconstruction in the aftermath of natural disasters and at the same time ensure transparent and efficient public resource use through sound PFM and procurement practices. Technical assistance under the Infrastructure and Institutions Emergency Recovery Project has supported the development of the CNMP website, and will help develop an information system to enhance record keeping and reporting of procurement practices. Strengthening procurement remains on the Government’s agenda and is reflected in the revised joint donor matrix agreed between the Government and the Joint Budget Support Group in May 2013.

Specific Actions Supported by the Grant

Prior action 4. Pursuant to the Procurement Law dated June10, 2009, the Government has issued and published on December 21, 2012 through its executive branch, the following two implementing regulations (“arrêtés d’application”) covering respectively: (i) the code of ethics for officials

10 Note that contracting using non-competitive procedures (e.g., single-source or shopping) can be justified under many circumstances, and are permitted under the Procurement Law with the approval of the CNMP.

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involved in procurement activities; and (ii) the standard documents for evaluating bids.11 All the necessary components for implementing the Procurement Law are now in place, and the Government is making the required efforts on the institutional side. This includes, for example, the Government’s adoption and ready availability of standard forms for bid evaluations for procuring works, goods or consultant services, which will facilitate efficient and accurate application of the procurement requirements defined in the Law. International best practice for transparency and accountability in public procurement includes a code of ethics for individuals responsible for procuring goods and services using public resources, thereby providing guidelines and the basis for enforcing compliance with the Procurement Law. In addition to being consistent with international best practice, it also represents the best fit given Haiti’s current development stage. [Action completed] Prior action 5. All line ministries have established and staffed ministerial procurement units (commissions ministérielles de passation des marches), and the Commission Nationale des Marchés Publics (CNMP) has provided training to the staffs of such units. Strengthening the legal framework is insufficient to ensure its application, given the weak capacity within the public sector. In particular, procurement units within line ministries need to be operationalized, which requires that these units not only be adequately staffed, but also have the necessary capacity and training to carry out procurement activities and prepare procurement plans in compliance with the Procurement Law. A series of trainings has been launched, with Module 1 completed in August 2012. Article 5 of the new Law requires acceptable procurement plans from each procuring public entity before expenditures can be submitted to and approved by the CNMP. This practice will help reduce waste and fraud and inform the budget process. For FY13, ten ministries accounting for over four-fifths of public procurement prepared preliminary procurement plans, but none within the required timeframe. The CNMP intends to continue its training modules developed to strengthen the capacity in line ministry procurement units, and plans to organize a workshop targeted to all concerned stakeholders in order to increase transparency and accountability. [Action completed] Prior action 6. In order to improve public procurement practices, the Government has, in accordance with the Arrêté dated February 16, 2005, and the Emergency Law dated April 19, 2010, rescinded 5 contracts awarded under the said Emergency Law. A specially named unit in the Prime Minister’s office undertook a review of the implementation status of each of the 41 contracts, on the basis of which it was agreed to terminate five contracts for which no disbursements had been made (for a total of US$11 million). The Government’s right to terminate these contracts has legal basis in the Arrêté dated February 16, 2005, and the Emergency Law dated April 19, 2010, as described in the legal opinion communicated by the MEF to the Bank May 12, 2013. The 2009 Procurement Law contains provisions for legal recourse to injured parties to a terminated contract to seek damages through the CNMP, or failing agreement, through the Court of Accounts. For the contracts in question, no works were initiated, and no claims have been made to-date. [Action completed]

11 The Charte d’Ethique Applicable aux Acteurs des Marchés Publics et des Conventions de Concession d’Ouvrage de Service Public and the Documents Standards Relatifs à l’Evaluation des Offres et au Suivi de l’Exécution des Marchés Publics (Documents Normalisés) were adopted in Arrêtés présidentiels dated December 21, 2012.

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Expected Outcomes

77. Short-term. By the closing date of this Grant, it is expected that two-thirds of public procurement contracts above the prior-review threshold signed after March 31, 2013, and outside of periods of Emergency Law, are the result of competitive or limited bidding, using standard bidding documents. This would represent a significant improvement compared to the baseline indicator of less than one-third. Continuing technical assistance to the CNMP and the ministerial procurement units will help to strengthen the application and culture of good procurement practices. All procuring ministries are expected to submit their FY14 procurement plans to CNMP before October 31, 2013, as required by the Law. Furthermore, ministerial procurement units will submit quarterly reports to CNMP on all procurement activity in their ministries in conformity with the Law, including activity undertaken under the Emergency Law. This data can then be cross-referenced with public investment execution information being tracked by the UEPs. The forthcoming procurement review report for FY11 is expected to be published, potentially generating demand for better outcomes from stakeholders, and the findings will be used to form a baseline of comparison for analyzing effective enforcement of the Procurement Law in the coming years.

78. Medium-term. The medium-term objectives are that: (i) annual procurement reviews will allow for an independent assessment of the performance of procurement institutions and processes; (ii) competitive or limited bidding represents the great majority of signed public procurement contracts and Emergency Law contracting procedures are strictly limited to projects directly linked to the emergency; and, ultimately, (iii) transparency, efficiency and competition prevail in the national procurement system.

iii. Electricity Sector Governance and Performance

Electricity sector reforms to improve governance and enhance EDH’s financial performance

79. In order to unleash Haiti’s economic potential, it is crucial to address some of the main obstacles for improved infrastructure and private sector profitability. Reliable electricity supply is critical for improving citizens’ daily lives and livelihoods, attracting investment, and fostering economic growth, and the Government’s plan to increase efficiency in electricity distribution, with Bank support through electricity sector investments and complemented by the reforms in the proposed Grant, will further generate budget savings for the state. The reforms also support improved governance and public resource use in the sector.


80. Due to a poor management system, the performance of the national, vertically integrated electricity utility Electricité d’Haïti (EDH) has deteriorated over time. EDH has been characterized by weak customer services and lack of infrastructure maintenance, which has affected its revenue performance as well as the quality of electricity service and supply, including frequent service interruptions and large voltage fluctuations. The sector’s institutional framework is obsolete, sector policies are out of date, planning and monitoring of sector activities is inadequate, and vested interests have impeded reform efforts, in particular by creating bottlenecks for installing meters at IPPs. The compound effect of the earthquake on power generation, transmission, and distribution further aggravated EDH’s weak performance. In 2011, bill collection rates were as low

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as 65 percent while EDH’s losses stood at 65 percent of the electricity generated (of which commercial losses represented nearly 40 percent). Only one-fourth of Haiti’s population has access to electricity, and in rural areas, access is around 5 percent.

81. EDH’s weak grid infrastructure, poor commercial performance, and inadequate controls over sub-contracted electricity generation by independent producers (IPPs) have led to a financial drain on Government resources. Due to its inability to meet electricity demand and in an attempt to expand electricity availability, EDH has subcontracted part of the production of electricity to IPPs.12 Unable to cover its operating expenses, including fuel costs and power purchases in part because of low bill collection rates, EDH has relied on fiscal transfers from the Treasury averaging US$100 million annually in recent years (equivalent to 10 percent of the national budget and 1-2 percent of GDP).13 IPPs are expected to continue to play a major role in power generation in Haiti. In particular, as the Government plans to expand electricity coverage to support development of industry, trade and tourism zones, there would be increased demand for reliable electricity.

82. Past governance reforms to preserve the integrity of public resource management in the electricity sector have produced modest results. The control system to check the accuracy of IPPs’ bills was weak, both at the level of EDH and the Government. Ill-equipped, EDH could not systematically check the power and energy produced by IPPs and there was no adequate institutional set-up at the level of MEF and MTPTEC. The Government issued a joint-memorandum from the MEF and the MTPTEC to clarify and strengthen the payment process and the responsibilities of each entity involved in order to enhance transparency and control of the accuracy of IPP claims. The memorandum signed in August 2012 by the Minister of Finance, the Minister of Public Works and Energy and the Managing Director of EDH is intended to transfer accountability and responsibility for IPPs to the state power company. It is also intended to foster a proactive dialogue on the level of state support needed and the modalities of their transfer to EDH, an essential component of budget planning for all parties. The enhanced verification process by EDH has thus far saved an estimated US$11 million since January 2011. And in an effort to enhance transparency in the sector, the Government has made some advances through the publication of a monitoring table including key data, despite some irregularity and interruptions.14 Nevertheless, problems remain. The structures in place to review the data are ad hoc, the budget transfer process is not fully effective, and the level of subsidy to be provided by the MEF to EDH remains a contentious issue partly due to challenges in estimating EDH’s future revenue gaps. All of these factors combined have caused delayed payments to IPPs and thus significant arrears and interest penalties. In addition, the risk of overpaying IPPs remains high, given that EDH cannot accurately measure the amount of power and energy delivered by IPPs.

83. The Government has initiated a range of corrective measures to address challenges related to sector performance, institutional capacity and financial viability, with Bank support under the Electricity Loss Reduction Project. Subsequent to the 2010 earthquake, EDH

12 IPPs provided 60 percent of total electricity generation in 2011. 13 Electricity transfers are unbounded due to their dependence on international oil prices, electricity supply, unsanctioned theft and bill non-payment, inter alia. 14 The table, published on the MEF website, includes portions of updated data on: (i) payments by the State to each IPP, as well as transfers to cover EDH fuel costs, (ii) payments by EDH to each IPP, (iii) energy produced by each IPP, and (iv) amounts billed by each IPP during the period.

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invested in strengthening management capacity in order to reduce its large technical and commercial losses in a sustainable way. First, the Government contracted – through a competitive bidding process – a new billing and customer management system (CMS – Consumer Management System) and an operations and grid management system (TSMS – Technical Services Management System).15 Supported by the Bank-financed Electricity Loss Reduction Project and fully operational since February 2012, these systems include an inventory and monitoring of all EDH customers, and a comprehensive resource management system.16 Secondly, since September 2010 four international experts – also funded by the Bank-financed project – have been assisting EDH as deputy heads of EDH’s commercial, financial, planning and technical departments. Thirdly, EDH started rehabilitating existing power network infrastructure in 2011, including substations, feeders and meters. Lastly, EDH has (i) designed and started the implementation of a comprehensive Commercial Action Plan17 to significantly tackle commercial losses by September 2013, aiming to reach a level of performance that will allow the company to end public transfer requests by 2016, and (ii) initiated an extensive analysis of its prospective fundamentals (long-term demand forecasts, sector master plan, least cost investment plan and tariff restructuring) and expects to present a medium-term Energy Sector Financial Recovery Plan to the Government by September 2013. These actions are key components of the energy sector reform agenda summarized in Box 2.

84. Whereas these steps represent progress, they have so far not succeeded in generating marked improvements in electricity service delivery and EDH’s financial performance. The efforts to-date to improve EDH’s own performance would not generate the expected return unless accompanied by significant investment spanning equipment, financial systems, and human resources – all measures to be supported by the Bank’s recently approved US$90 million Rebuilding Energy Infrastructure and Energy Access Project. It also requires efforts to stabilize and gradually improve EDH’s technical and commercial performance, which could be achieved through strengthening the EDH management team in charge of implementing the sector reforms and the operational and investment programs. With respect to the management of IPP bills, the incentives for EDH to ensure billing accuracy and operational efficiency are, in fact, weak because EDH ultimately relies on the sovereign guarantee in the power purchase agreements (PPAs) and passes on all costs to the central government rather than directly compensating IPPs. Improving the management of public transfers and the accountability system in the sector will require a gradual transfer of payment responsibility away from the Ministry of Finance directly to EDH through a well-defined financial framework. It must be accompanied by investment in equipment for EDH to enhance control over power and energy distributed by IPPs; this is being supported through the purchase and installation of remote meters, another action financed by the Bank’s Electricity Loss Reduction Project. The central government would have to continue to subsidize EDH operations given the widespread poverty in Haiti and the critical role electricity plays in the economy, while

15 The CMS will facilitate proper execution and monitoring of all commercial activities of EDH, in particular metering, billing and collection. The TSMS aims to optimize attention to customer claims related to poor quality of electricity supply, by helping reduce the time between receipt of claims and restoration of regular electricity supply, which is the critical metric of service quality. 16 The resource management system focuses on accounting, financial, and human resources management and corresponding training; it is funded by the IADB. 17 The Commercial Action Plan includes the following measures to improve EDH’s financial performance: reducing fraud, increasing billing, performing controls on inactive residential and commercial customers, verifying consumption of large inactive clients, dissuading partial payments, reducing the arrears of large private clients and autonomous institutions, and installing remote meters.

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EDH gradually transitions to sound financial footing, with the long-term objective that EDH will ultimately be responsible for its own financial performance and service delivery.

85. The improvement in operations management and in the management of IPP bills are critical steps towards improved governance in the sector. As such, it is a prerequisite for any large investment that would aim to improve the performance of the electricity sector. Achieving the objectives of both energy sector projects funded by the Bank is greatly assisted by the enhanced accuracy of private power generation levels, and may also benefit through better overall financial performance of EDH. The combined impact of improved commercial management, private generation control, and distribution infrastructure rehabilitation is expected to result in a gradual reduction in public transfers to EDH, and the anticipated financial viability of EDH by 2016.

Specific Actions Supported by the Proposed Grant

Prior action 7. EDH has initiated the use of meter readings from functional remote meters newly installed at IPP entry points to verify IPP production levels and billing. Twelve remote meters and the remote metering system have been installed at IPP entry points and are monitored independently by EDH. The instant metering of all independent producers is expected to improve significantly the accuracy and transparency of the energy bills claimed by the IPPs. EDH will have a verifiable basis for paying IPPs, and the Government will have the capacity to dispute or appeal inaccurate billing. Once EDH power plants are also equipped with similar remote meters, the instantaneous information provided will facilitate improving the entire electricity system’s performance by allowing EDH to balance consumer demand with generation on an instantaneous basis. [Action completed]

Prior action 8. EDH has performed on-site meter testing and verified meter readings for at least 200 priority customers, re-issued bills, and implemented arrears recovery plans when applicable. Meters of over 200 priority customers18 – representing 8 percent of EDH’s total potential revenue – were indicating “zero consumption”; this failure was symptomatic of a broader problem of

18 The targeted consumers were mainly SMEs with a long irregular payment status.

Box 2. Haiti Energy Sector Reform Agenda

Haiti is following its letter of energy sector development policy to: (i) improve the technical, operational and financial performance of EDH; and (ii) strengthen policy and planning capacity to develop programs for expanding energy access. Addressing the financial performance issues on existing distribution networks will create fiscal space to expand services to under-served populations. The Government has undertaken a series of analyses and actions toward reducing the significant budget transfers provided to EDH. This is in line with a memorandum of understanding signed in April 2011 between the Government, IADB and the US Government to improve EDH’s operational and financial situation and analyze medium term alternatives. This agreement led to an operations improvement contract signed between private firm Tetra Tech and the Government to assist EDH management in its modernization process.

Achievements to-date include: (i) a budget transfer protocol between the Ministry of Economy and Finance and EDH signed in August 2012; (ii) an EDH Commercial Recovery action plan (September 2012 to September 2013); (iii) an EDH Roadmap and Master Plan exercise (to be delivered in December 2013); and (iv) a Government Rural Electrification action plan. An active dialogue on the reform of the energy sector’s regulatory framework is complementing the Government’s efforts to update and improve the draft Energy Policy to provide a comprehensive strategy for electricity generation and distribution across the entire national territory.

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insufficient and inaccurate billing and collection and widespread illegal connections. To-date, over 330 priority customers have been the object of meter testing, reading verification and re-billing, resulting in US$262,000 in additional collected revenue. As illustrated in Figure 2, a diagnostic of clients with “zero consumption” highlights malfunctions in customer management but also the extent of fraudulent behavior. For example, for 15 percent of priority customers, zero consumption was due to EDH failures (e.g., the meter or distribution line was removed), while 37 percent was attributable to external reasons that were not properly accounted by EDH (e.g., the site was permanently closed or destroyed by the earthquake). Another 24 percent of “zero consumption” readings were accurate, explained by alternative privately-owned electricity generation capacity, and one-tenth of “zero consumption” was attributed to fraud. These results suggest that closer monitoring of EDH’s priority clients will improve the accuracy of meter readings and EDH accounting, strengthen the relationship between the power company and its key consumers, and improve commercial revenues. [Action completed]

Prior action 9. The Central Government, through the Ministry of Economy and Finance, has settled all of its FY12 payment delays to EDH. The Ministry of Finance settled FY12 arrears stemming from unpaid electricity bills and representing a cumulative US$6.9 million in September 2012. The symbolic aspect of this action – the payment of all Central Government electricity bills for the previous fiscal year – sets an example for all public institutions in the same situation, significantly improving EDH’s bill recovery rate for institutional customers. It also creates the opportunity to establish a more regular payment process for institutional clients’ future electricity bills and helps mitigate EDH’s cash flow challenges. [Action completed]

Figure 2: Breakdown of Explanatory Factors behind “Zero Consumption” (%)

Expected Outcomes

86. Short-term. By the closing date of this Grant, it is expected that the payment of IPPs’ bills is based on production levels measured by remote meters and verified by EDH, which should eliminate any unexplained discrepancies between IPP claims of energy generation and IPP

No fraud, 24%

Fraud, 10%

New client, 13%

Meter removed, 9%

Grid line removed, 6%

Site permanently closed, 7%

Site destroyed by earthquake, 30%

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payments. It is also expected that billing of priority customers will be based on meter readings, and that no new arrears by the Central Government to EDH for electricity consumption emerge.

87. Medium-term. EDH is expected to continue investing in and installing meters at private and EDH power plants’ delivery points in order to capture the amount of power delivered to the network and improve reconciliation of bills with payments. In addition to these major improvements in the sector, results from EDH’s Commercial Action Plan currently under development as well as donor-funded investments in distribution infrastructure should allow the state power company to reduce significantly its technical and commercial losses by the end of 2013 and beyond. The combined improvement on the production and consumption sides will contribute positively to overall sector performance in the medium run, enhancing EDH’s financial management capacity and strengthening its financial solvency. This in turn will create space to invest in better distribution and metering infrastructure to provide reliable electricity services to existing customers, as well as expanding access to new customers. This should also have a positive impact on willingness to pay for quality service, and thus reduced illegal connections. Improved cost recovery will also lead to a decline in public transfers from MEF to EDH over time.

VI. OPERATION IMPLEMENTATION

A. Participation Process

88. The policy measures supported by the proposed Grant have been informed by various government consultative processes involving relevant stakeholders. The proposed Grant supports and draws from the government’s PARDH, which benefited from stakeholder consultations conducted by the government at that time. This document outlines the main areas addressed, including public financial management, procurement, and the electricity sector. Broad consultation in the current environment is difficult. Nevertheless, in the energy sector there have been consultations with many stakeholders including workers, unions, consumers and the private sector.

89. Extensive consultations were held throughout the first half of 2009 and the second half 2011 on the new Procurement Law and the PEFA report, respectively. With respect to procurement, over several months, the government engaged in extensive consultation with civil society and parliamentarians to ensure an inclusive process and to reconcile divergent views. Furthermore, in March 2009 the CNMP organized a dissemination seminar to familiarize key players, including representatives from different government agencies and the private sector, as well as parliamentarians, academics and civil society representatives, with the provisions of the law. Following the earthquake, in 2011 the CNMP organized a series of further seminars aimed at familiarizing public entities with the various documents and materials supporting the implementing decrees of the procurement Law. As for the PEFA report, the preparatory stages included a broad consultation of government agencies, development partners, and the private sector in 2011, and the PEFA results were disseminated subsequently in 2012 in a workshop in which the same broad range of actors participated.

B. Poverty and Social Impacts

90. The actions supported by this Grant are likely to have positive poverty and social impacts. With respect to economic governance, strengthening budget execution will allow for

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better control over expenditures, leading to more efficient allocations and better resource planning to meet the needs of the Haitian population. These measures have the potential to make it easier to scrutinize the extent to which voted budget allocations and actual public expenditures are in line with the government’s stated objectives, which could in turn benefit the entire population, including the poor. It could also provide a basis for assessing the effectiveness and impact of public investment, informing public debate on future spending priorities. By upgrading the cash management system to ensure the availability of cash for timely payment of the government’s liabilities, fiscal savings will be generated through avoiding unnecessary borrowing costs. The measures that support the implementation and enforcement of the new Procurement Law would allow for increased transparency and accountability, crucial elements for fostering increased trust in government institutions. The indirect impact of potential budget savings – either from more efficient use of public resources or more effective cash management or more competition in public procurement – could be significant by creating the fiscal space for the Government to expand education, health and other social services and increase the sustainability of their financing.

91. The actions supporting reforms in the electricity sector would translate into gains on several fronts, including increasing electricity access and reliability, and improved financial efficiency and fiscal loss mitigation, freeing up resources for socially sustainable policies. By monitoring IPP production and paying only for metered generation, and by controlling, repairing and monitoring the meters of its largest consumers, EDH will improve its commercial balances. EDH’s bottom line will also be helped by the Government’s settlement of its payment delays for electricity consumption in FY12. And through adherence to a subsidy transfer schedule from MEF, EDH will be able to improve its cash management which would help it avoid late payments to power suppliers. These potential gains could materialize if complemented by effective actions to reduce technical losses and increase billing under EDH’s recently adopted Commercial Action Plan. The expected result in the medium run is increased electricity supply to consumers, which improves both quality of life and enhances livelihoods, particularly for the self-employed and small business owners. The reduced fiscal burden on the Government would in turn free up resources for more equity-enhancing programs including expanding electricity access to needy households in the medium and long terms, and reducing the need of small and medium enterprises to rely on alternative, more expensive sources of electricity such as fuel-based generators.

92. Going forward, it will be crucial to monitor changes in poverty and living standards. The new household surveys soon to be completed will provide a baseline for measuring poverty rates, access to education and health services, and access to electricity, inter alia, factors that can be tracked over time using future surveys or other tools.

C. Environmental Aspects

93. The specific policies supported by the proposed Grant are not likely to have a significant effect on the environment, forests or other natural resources. The proposed Grant focuses primarily on institutional reforms, with no perceived negative environmental implications. On the positive side, efficiency improvements in the electricity sector should help rationalize electricity generation and consumption through a closer link between production and consumption costs, as well as lead to increased access to less costly electricity in the medium run.

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D. Implementation, Monitoring and Evaluation

94. Monitoring and evaluation arrangements will rely on the government with the aim of strengthening government capacity and institutions. The MEF is the agency responsible for coordinating and implementing the activities and reforms under the proposed Grant as set out in the Letter of Development Policy (Annex 1). Sectoral progress will be monitored directly by the relevant entities involved but will also benefit from indirect monitoring by MEF. A supervision committee headed by MEF has been created to facilitate coordination, and MEF will be in charge of reporting progress toward the target outcome indicators listed in the results framework of the policy matrix in Annex 2. These easy-to-monitor indicators include the issuance of budget execution reports, the number of public accounts at the Central Bank, submission of line ministries’ procurement plans to CNMP, and EDH’s use of meter readings in its payment of IPP bills and its billing of priority customers. In parallel, collaborative monitoring of public sector and economic governance and transparency has progressed among donors, with the government’s support. In particular, implementation will be monitored as part of the joint donor matrix for budget support.

95. Bank staff will monitor the outcomes of the program. If required, the more recent country developments, stakeholder support, and feasible options for realizing the intended development goals would be taken into account. The review will be largely based on the monitoring indicators and the goals of the program.

E. Fiduciary Aspects

96. Public Financial Management System. A Public Expenditure Framework Assessment (PEFA) was carried out in 2010 and concluded in February 2011. It provides a baseline for the assessment of the country’s public financial management environment, identifying existing weaknesses, and at the same time, acknowledging progress in strengthening fiscal discipline and improving the efficiency of PFM.

97. In spite of the visible improvement in the PFM environment over the last several years, some critical weaknesses remain. As developed in the previous sections of this document, progress has been made on the legal framework, the preparation and execution of the budget, the control systems, and in the rationalization of cash management and government bank accounts. However, weaknesses remain with respect to: (i) the content of the budget documents and the usefulness of the budget as a planning tool, mainly due to the lack of a forward-looking perspective in the budget; (ii) the need for stronger links between the budget for recurrent spending and the investment budget; (iii) weak dialogue and coordination between the MEF, the Planning Ministry, and spending ministries; (iv) the existence of off-budget revenues or aid inflows that finance some ministries’ spending; and (v) the need to improve accounting and fiscal reporting, particularly the inclusion of final investment expenditures, the timely reconciliation of accounts and preparation of annual accounts.

98. The IMF’s safeguards assessment dated January 18, 2011, noted that despite the serious setback resulting from the earthquake, elements of the safeguards framework within the Central Bank remain in place. However, the safeguards assessment also concluded that new vulnerabilities emerged, particularly in the areas of governance, external audit and reserves management. Measures that the BRH has adopted in light of the recommendations of the safeguards assessment to address these vulnerabilities include the rotation of external auditors and the adoption

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of a formal selection policy for external audits. The assessment also recommended the adoption of reserves guidelines, to cover both reserves managed internally as well as reserves managed externally. Other recommendations aim to strengthen the oversight bodies. IDA will therefore not use additional fiduciary arrangements as per OP 8.60.

F. Disbursement and Auditing

99. The proposed grant will follow the Bank’s disbursement procedures for development policy loans/credits. The untied finances will be disbursed against satisfactory implementation of the development policy program and not tied to any specific purchases. Once the grant is approved by the Board and becomes effective, the Recipient shall open, prior to furnishing to the Association the first request for withdrawal from the Financing Account, and maintain a deposit account in Dollars ("Foreign Currency Deposit Account"). At the request of the borrower, the proceeds of the grant will be deposited by IDA into a US$-denominated account designated by the Borrower and acceptable to the World Bank at the Central Bank of the Republic of Haiti (Banque de la République d’Haïti, BRH). The Borrower shall ensure that upon the deposit of the Grant into said account, an equivalent amount is credited in the Borrower’s budget management system, in a manner acceptable to the Bank. The Bank should obtain confirmation from the Government within 30 days after loan disbursement that (a) the loan proceeds were received into an account of the Government that is part of the country’s foreign exchange reserves (including the date and the name/number of the bank account into which the amount has been deposited), and (b) an equivalent amount has been accounted for in the country’s budget management system (including the Chart of Accounts name/account number, the date, and the exchange rate used). If the proceeds of the grant are used for ineligible purposes as defined in the Development Policy Grant Agreement, IDA will require the Borrower to, promptly upon notice from IDA, refund an amount equal to the amount of said payment to IDA. Amounts refunded to the Bank upon such request shall be cancelled. The administration of this grant will be the responsibility of the Ministry of Economy and Finance. The Bank retains the right to request an audit of the operation if needed.

G. Risks and Mitigation

100. The proposed operation takes place in a risky environment characterized by (i) weak governance, (ii) strong political pressures, and (iii) inadequate institutional capacity. This risk is, however, outweighed by the potential gains from advancing critical institutional reforms by the Government of Haiti. The reforms supported by this Grant have the potential to be transformational by laying the groundwork for strong economic governance systems as the country transitions from post-disaster response to a medium-term development framework. Moreover, these reforms are likely to be sustainable as they bring about institutional changes that are not easily reversed. In addition, with the potential decline in external aid resources, strengthening Haiti’s public resource management systems becomes even more important for mobilizing adequate resources to finance development programs.

101. Political risks may interrupt the Government’s reform program, and/or weaken reform implementation. The recent resignation of the Minister of Finance in April 2013 had the potential to undermine confidence in the Government’s reform agenda and delay progress. However, this risk did not materialize, as the rapid nomination of the sitting Minister of Trade and Industry to the post was followed by his immediate endorsement of the Government’s ongoing reform program. The pressure on policymakers to accelerate reconstruction to deliver results may

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lead to continued reliance on exceptional rules and Emergency Law loopholes for procuring large public contracts. For example, the Government used post-disaster Emergency Laws to fast-track public contracts and avoid competitive procurement rules for some activities unrelated to disasters. This is one reason the Grant is judged to be high risk. And the risk is exacerbated by weak institutional capacity. Whereas political risks are difficult to mitigate, the Government’s commitment to key reforms helps reduce these risks. Key actions that demonstrate this commitment include increased transparency in public contracting by making all contracts public, providing the necessary resources and training to ensure the effective functioning of line ministries’ programming and analysis units (UEPs) and procurement commissions, ex-post review of contracts passed under the 2012-13 Emergency Law, comprehensive review and reform of EDH functions, and other reforms agreed in the joint donor matrix. These actions help to keep the reform momentum and ownership high and contribute to a more visible development impact.

102. Weak institutional capacity represents a significant risk to the Grant’s outcomes because it may result in poor observance of governance principles in key areas including public finance management and procurement, and may reduce the effectiveness of electricity sector reforms. Haiti’s public sector institutions suffer from a legacy of inefficient budget and fiscal management processes and inadequate human capital. The situation was made worse by the destruction of records and physical and human capacity by the earthquake. The capacity of EDH is also limited: its long-held monopoly and poor commercial practices have resulted in financial dependence on the Government to cover its operating costs and led to inadequate maintenance of and investment in infrastructure and service processes.

103. Some capacity has been built recently in the expenditure tracking and procurement bodies and in EDH, and the measures supported by the proposed Grant significantly reinforce and extend these institution-building efforts. With a functioning system to track public investment spending (under the new Directorate of Public Investment and with UEPs in line ministries) and a reduction in the number of public accounts, the Government will be able to exercise tighter control over expenditures and cash flows as it moves toward a Single Treasury Account. With widely available implementing regulations for procurement, and operational procurement units in each line ministry, the Government will have increased its capacity for more effective procurement, reducing its reliance on non-competitive bidding processes and increasing transparency. The range of measures taken by EDH – e.g., validating IPP billing with electricity meters, and ensuring accurate billing of its priority consumers – is already increasing EDH revenues and thus reducing its reliance on the Government to meet any financing shortfalls. Moreover, the success with meters has generated positive externalities for EDH in terms of reviewing power purchase agreements and installing remote metering on other power plants, effectively leading to a new paradigm in the electricity sector that reflects better governance.

104. The reforms supported by this Grant, through their focus on concrete short-term institution-building measures that are achievable, enhance the systems for improved Government efficiency, transparency and accountability in the medium term. As Haiti emerges from the post-earthquake crisis response mode, it needs to strengthen the basic institutions of economic management and governance to harness more effectively external and domestic resources to accelerate economic growth, poverty reduction and shared prosperity. A key step in this direction, for example, is the reduction in the number of accounts that handle public funds – and ultimately establishing a Single Treasury Account – which creates a solid framework for

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controlling and managing cash flows. The measures supported by the Grant are not easily reversible, illustrated by the example that installed electricity meters provide the basis for accurate billing both today and in the future. If the reforms succeed, they have the potential to create a strong nexus of transparent and sound governance practices that contribute to better fiscal results through less waste, better targeting of expenditures with a larger development impact, and increased capacity in public resource management. This nexus will also contribute to better cost-recovery and electricity generation and consumption monitoring by EDH, allowing it to invest in improved electricity service and expanded access, with less drain on the Government budget. There will be a growth pay-off as well; as the business environment becomes less risky, investors will have more confidence and will be able to access reliable electricity service.

105. Given the significant gap between existing capacity and needs, and the inability to fully mitigate risks, the expected outcomes of the Grant may not materialize. The risks associated with limited implementation capacity and weak governance are at least partly mitigated by (i) concentrating on a selected number of reform areas; (ii) ensuring that difficult reforms are taken before Board approval; (iii) focusing on institution-building with embedded processes that are not easily reversed; and (iv) providing adequate funding for critical actions through complementary technical assistance. The proposed Grant represents one instrument in the Bank’s multi-pronged approach comprising strategic investment lending and extensive technical assistance to build the institutional framework and capacity in numerous government entities (recall Annex 5). The proposed Grant is accompanied by technical assistance activities including: strengthening budget and procurement institutions (through the Infrastructure and Institutions Emergency Recovery Project); capacity building at the Inspection Générale des Finances (IGF) and the Court of Accounts (under the Governance Partnership Facility); and improving energy sector policy and planning capacity (under the Rebuilding Energy Infrastructure and Energy Access Project), inter alia. The design of the proposed operation further mitigates risks by grounding the reforms in the joint donor budget support matrix, a coordinated and comprehensive program of policy reforms agreed jointly by core donors and the Government to help strengthen economic governance, and PFM in particular. The proposed Grant supports a subset of reforms articulated in the joint donor matrix. Finally, risks are also mitigated by the Bank’s engagement in a programmatic policy dialogue on PFM, procurement and electricity reforms, facilitated by the proposed Grant.

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ANNEX 1: LETTER OF DEVELOPMENT POLICY

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LETTER OF DEVELOPMENT POLICY (English translation)

Minister of Economy and Finance Ministry of Economy and Finance Republic of Haiti May 10, 2013

Mr. Jim Yong Kim President World Bank 1818 H Street, N.W. Washington, D.C. 20433

Re: Development Policy Grant to Haiti

Mr. President, The Government of the Republic of Haiti hereby requests the support of the International Development Association (IDA) to pursue the implementation of the reconstruction and development strategy elaborated in Haiti’s Strategic Development Plan (Plan Stratégique de Développement d’Haïti - PSDH). This request represents an update of the Letter of Development Policy dated April 17, 2013. The proposed Development Policy Grant aims to: i) support the government’s strategies in their reconstruction effort, ii) help cover the financing needs for reconstruction, iii) improve public expenditure effectiveness through the implementation of performance and accountability measures, and iv) improve governance in the electricity sector. Pursuant to this objective, the proposed program incorporates all the key design and implementation elements necessary for accelerating Haiti’s reconstruction process. This letter provides a description of the macroeconomic context, as well as the objectives and strategy of the above mentioned program. A – Macroeconomic framework

In recent years, there has been significant progress to achieve and maintain macroeconomic stability. Despite significant inflows of external aid in the wake of the January 2010 earthquake, cautious fiscal and monetary policies contributed to keep inflation in single digits. The large foreign currency inflows helped strengthen Haiti’s external position. In fact, at the end of September 2012, international reserves reached US$2.2 billion, which represents 5.9 months of imports, above the usual three-months-of-imports rule. Thanks to the reforms undertaken and the HIPC initiative and the MDRI which allowed a considerable write-down of external debt obligations after the earthquake, the country’s level of indebtedness has declined substantially.

According to our projections for FY2013, the economic recovery should continue. Assuming greater

efficiency in public investment, the continuation of various projects aimed at promoting exports and tourism, and a rebound of the agricultural sector, real GDP growth should reach 6.5% in FY2013. Overall year-on-year inflation is expected to remain stable at around 5%. Domestic tax revenues are forecast to grow by 1.3 percentage points of GDP. Current expenditure should remain stable, while capital expenditure should

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increase by 0.8% of GDP, reflecting accelerating reconstruction efforts. Accordingly, the fiscal deficit would decline slightly to 5.4% of GDP, compared to 5.9% in FY2012.

In 2010, the Government of Haiti entered into a 3-year IMF program under an Extended Credit

Facility. In December 2012, the IMF carried out the fifth review of the program and ascertained that its implementation was satisfactory. In this framework, the IMF supports the Government of Haiti in its effort to strengthen the macroeconomic policy framework. It also makes provision for balance of payments assistance to increase international reserves at the Central Bank of Haiti.

The Government of Haiti intends to implement policies geared towards an acceleration of reconstruction activities in a viable manner in the short and medium terms. Accordingly, the 2012-2013 budget aims at increasing revenues and allocating more resources to reconstruction-related activities while boosting pro-poor expenditures. However, speeding up reconstruction activities will require a substantial increase in capital expenditure to be financed, inter alia, by increased revenue mobilization efforts, external resources and the issuance of treasury bills, in compliance with the IMF program. B – Execution strategy and program monitoring

In the framework of budget support requested by the Government of Haiti, it is anticipated that actions be undertaken in two key domains critical for sustainable and balanced economic recovery. These are public sector governance, and private sector development and economic growth. In particular, the program for which the budget support is solicited will take into account institution strengthening and the implementation of the regulatory frameworks in sectors that are deemed essential to reconstruction. To this effect, the operation proposed by the Government specifically aims to: (i) strengthen public expenditure management, (ii) improve the cash management system, (iii) strengthen the institutional framework and capacity to effectively implement the Procurement Law, and (iv) strengthen economic governance of the electricity sector.

In recent years, the Government of Haiti made significant progress on the public finance management front. Nevertheless, several challenges remain in order to transform the budget into a truly strategic and effective tool to support the development objectives of the country. These challenges principally concern the budget execution system. Consequently, the proposed program will address a number of key actions in the domains of budget control and cash management. Component 1: Strengthen the expenditure and cash management systems

Given the scope of the reforms to be implemented, improving public finance management will require a strategic planning effort over the long term. The Government recently discussed in an open forum the PEFA report, which assessed the state of public finance reforms. It will serve as a reference for any public finance reform in the short and medium terms. While acknowledging the significant progress made in public expenditure management in the recent past, the PEFA report also recognizes persistent weaknesses in certain key areas. First of all, in the past, budget preparation was reinforced thanks to consultations with the line ministries and civil society during the preparatory phase of the budget. In an effort to correct the identified weaknesses, the Government submitted the 2012-2013 budget to Parliament according to the Constitution’s mandate. Later, budget execution was reinforced thanks to a reduction in the use of special accounts. We anticipate other improvements with the adoption of a manual for budget execution, including a more systematic application of the internal procedures for expenditure processing.

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Component 2: Implementation of Procurement Law framework and enhancing the capacity of public procurement management

Following the adoption of a Procurement Law in 2009 and of four implementing decrees, progress was made regarding public contracts. In December 2011, 14 new decrees were adopted. The publication of these decrees allowed the dissemination of key documents clarifying procurement-related procedures and provisions. However, these norms and procedures are not yet well known and integrated by users. In addition to training and dissemination activities, the Government plans to undertake periodic reviews of public procurement to ensure conformity with the procedures. In 2011, 41 contracts issued within the framework of the Emergency Law adopted following the January 2012 earthquake were reviewed by an Audit Commission (Commission d’Audit). In accordance with the recommendations of the Court of Accounts, the Government reviewed the implementation status of certain contracts and cancelled those for which no disbursements had been made. The Government is also committed to completing an ex-post review of the contracts executed under the 2012-13 Emergency Law in effect from October 30, 2012 to January 5, 2013. The CNMP will also continue to support the procurement units of procuring ministries in the preparation and submission of public procurement plans, as required by the 2009 Law. The Government’s priority is to reinforce procurement regulation and the public procurement management capacity in these spending ministries. For both the Government and society in general, this would be a means to prevent inefficient use of public resources. Thus, the Government of Haiti firmly commits itself to increase transparency and accountability. Component 3: Reform of the electricity sector to improve governance and financial performance of EDH

The energy sector must overcome serious institutional and infrastructure problems in order to contribute to returning the country to the path of economic development and help improve the living standards of its citizens. Only one fifth of the population of Haiti has access to electricity, and in rural areas, access is less than 5%. The institutional framework of the sector is obsolete and the human and financial resources are insufficient, which have led to frequent power outages. Unable to cover its operational costs, EDH depends on budget transfers from the Treasury averaging US$100 million annually in recent years (equivalent to about 10% of the budget). Technical and commercial losses are about 50%, and EDH recovers only about 30% of the cost of the electricity it produces. Under its policy aimed at increasing the availability of electricity, EDH subcontracts part of its electricity generation to independent producers.

From the perspective of increasing the management capacity of EDH, the Government adopted a series of measures related to the maintenance of the distribution network, the installation of remote meters for its largest customers and for suppliers, the creation of an anti-fraud unit to improve EDH’s bill collection rate, and contracting an international firm to help strengthen EDH’s management system. The Government demonstrates greater transparency in budget transfers to EDH by its implementation of a monitoring mechanism and the disclosure of key indicators on the functioning of EDH. Finally, the Government is working to expand access to and a reliable supply of electricity through the rehabilitation of generation and distribution infrastructure.

The Government reiterates its commitment to work with your institution, particularly to pursue its policies to strengthen good governance and transparency. The Government of Haiti would like to thank you for your consideration of this request.

Yours faithfully,

Wilson LALEAU Ministre

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ANNEX 2: POLICY MATRIX

Objectives Key Issues Prior Actions Baseline Indicators October 31, 2012

Outcomes June 2014

i. Public Financial Management

Strengthen the public investment tracking system to increase transparency and accountability

The use of public investment resources lacks transparency and accountability. The existing system of investment expenditure tracking (SYSGEP) is ineffective due to a lack of information exchange and coordination between the Public Investment unit at the Planning Ministry and the line ministries, as well as weaknesses in the structures for programming and analysis

1. The Ministry of Planning and External Cooperation has established and staffed a Directorate of Public Investment within the said ministry [Met January 2012] 2. The Programming and Analysis Units (UEPs) in line ministries have been staffed, and a UEP action plan to restructure and strengthen the said UEPs was adopted in January 2013 by the Prime Minister’s Office (Primature) [Met January 2013]

No information or publication on public investment using SYSGEP

The Directorate of Public Investment publishes quarterly budget execution reports using SYSGEP that provide accurate information about domestically-financed public investment beyond the commitment stage with information covering line ministries and by project

Strengthen cash management systems to increase accountability and efficiency

Each ministry has multiple bank accounts held at various banks, impeding the Treasury’s ability to control and manage cash resources efficiently, and creating opportunities for waste and fraud

3.The Ministry of Economy and Finance has adopted the May 2012 strategy to establish the Single Treasury Account, and closed 301 idle and dormant public accounts at the Central Bank and commercial banks [Met September 2012]

There are 569 public accounts at the Central Bank and commercial banks (as of May 2012), the majority of which are idle or dormant

The number of accounts for each line ministry has been reduced to 3 accounts at the Central Bank: a current account for operations, an investment account, and a revenue account, representing a key step allowing the establishment of the Single Treasury Account

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Outcomes June 2014

ii. Procurement Establish a transparent institutional framework for procurement and upgrade procurement management capacity

Haiti’s procurement institutions are weak and lack capacity to implement and adhere to the 2009 Procurement Law; procurement practices lack transparency; and there is an overreliance on uncompetitive procedures An Inquiry Commission identified irregularities in 41 contracts signed under the post-earthquake 2010-11 Emergency Law, and the CSCCA reviewed the report and issued recommendations

4. Pursuant to the Procurement Law dated June10, 2009, the Government has issued and published on December 21, 2012 through its executive branch, the following two implementing regulations (“arrêtés d’application”) covering respectively: (i) the code of ethics for officials involved in procurement activities; and (ii) the standard documents for evaluating bids19 [Met December 2012]

5. All line ministries have established and staffed ministerial procurement units (commissions ministérielles de passation des marchés), and the Commission Nationale des Marchés Publics (CNMP) has provided training to the staffs of such units [Met September 2012] 6. In order to improve public procurement practices, the Government has, in accordance with the Arrêté dated February 16, 2005, and the Emergency Law dated April 19, 2010, rescinded 5 contracts awarded under the said Emergency Law [Met July 2012]

The 2009 Procurement Law is not fully effective; the share of contracts using competitive or limited bidding in FY12 was less than one-third20 No procurement plans were prepared for FY11 or FY12 within the required timeframe

Not less than two-thirds of public procurement contracts above the prior-review threshold and signed after March 31, 2013, and outside of periods of Emergency Law, are the result of competitive or limited bidding, using standard bidding documents20 All procuring ministries have submitted procurement plans for FY14 to CNMP by October 31, 2013; ministerial procurement units submit quarterly reports to CNMP on all procurement activity in their ministries The US$11M originally allocated to the 5 terminated contracts were freed up for reallocation to other investments

19 The Charte d’Ethique Applicable aux Acteurs des Marchés Publics et des Conventions de Concession d’Ouvrage de Service Public and the Documents Standards Relatifs à l’Evaluation des Offres et au Suivi de l’Exécution des Marchés Publics (Documents Normalisés) were adopted in Arrêtés présidentiels dated December 21, 2012. 20 The share is calculated in terms of the number of contracts passed by ministries excluding those passed under an Emergency Law.

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Outcomes June 2014

iii. Electricity Sector

Enhance governance and financial performance of the electricity sector, so that public transfers from MEF to EDH decrease over time

EDH has no way to verify the production claims of IPPs, due to lacking reliable information, giving rise to the risk of overpaying IPPs EDH’s financial performance has been very weak in the past, due to significant commercial and technical losses, inadequate billing and collection, and the prevalence of illegal connections MEF makes periodic, ad-hoc transfers to EDH in response to requests to cover its expenses, and these transfers far exceed the budget allocation; at the same time, the Central Government does not pay its electricity bills in a timely way.

7. EDH has initiated the use of meter readings from functional remote meters newly installed at IPP entry points to verify IPP production levels and inform billing [Met March 2013] 8. EDH has performed on-site meter testing and verified meter readings for at least 200 priority customers, re-issued bills, and implemented arrears recovery plans when applicable [Met January 2013] 9. The Central Government, through the Ministry of Economy and Finance, has settled all its FY12 payment delays to EDH [Met November 2012]

Modern remote meters at IPP entry points are lacking, so that IPPs’ production claims cannot be verified Meters of many large customers indicate zero electricity consumed Central administration arrears to EDH amounted to US$6.9 million in September 2012

Payment of IPP bills is based on production levels measured by remote meters and verified by EDH EDH billing of priority customers is based on meter readings No new arrears by the Central Government to EDH for electricity consumption are accumulated

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ANNEX 3: FUND RELATIONS NOTE

IMF EXECUTIVE BOARD COMPLETES FIFTH REVIEW UNDER ECF ARRANGEMENT FOR HAITI

AND APPROVES US$7.4 MILLION DISBURSEMENT Press Release No. 13/76 March 13, 2013

The Executive Board of the International Monetary Fund (IMF) completed the fifth review of Haiti’s performance under the Extended Credit Facility (ECF) arrangement on March 11, 2013. Completion of the review will enable an immediate disbursement of SDR 4.914 million (about US$7.4 million), bringing total disbursements under the program to date to SDR 36.036 million (about US$54.1 million).

Haiti’s ECF arrangement was approved on July 21, 2010 (see Press Release No. 10/299) together with the full relief on the country’s outstanding debt to the Fund of about SDR 178 million (equivalent to US$268 million). The debt relief, financed by the Post-Catastrophe Debt Relief (PCDR) Trust Fund, and IMF financing are part of a broad international strategy to support Haiti’s longer-term economic reconstruction plans, following the devastating earthquake of January 12, 2010.

Following the Executive Board’s discussion, Mr. Naoyuki Shinohara, IMF Deputy Managing Director and Acting Board Chair, issued the following statement:

“Haiti’s performance under the ECF-supported program continues to be broadly satisfactory. Sound policies have contributed to safeguard macroeconomic and financial stability. However, economic activity remains subdued, reflecting limited absorptive capacity, a business environment that needs to be strengthened, and frequent natural disasters.

“In the short-run, the key challenge is to accelerate reconstruction and sustain the recovery following the 2010 earthquake, while safeguarding macroeconomic stability. Looking ahead, macroeconomic policies and structural and institutional reforms to enhance the country’s resilience, particularly to natural disasters, will also be needed to protect long-term growth, reduce unemployment, and raise living standards.

“Efforts should focus on optimizing fiscal policy for higher and inclusive growth, particularly by expanding fiscal space for development spending, improving the execution rate and quality of capital spending, and strengthening public financial management. Maintaining price stability and facilitating external adjustment should also remain key priorities.

“Accelerating the pace of structural reforms will be important to enhance competitiveness, safeguard external stability and achieve higher and more inclusive growth. Efforts should focus on enhancing the business environment, particularly by removing infrastructure bottlenecks, increasing transparency and improving governance, and deepening financial intermediation.”

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ANNEX 4: DEBT SUSTAINABILITY ANALYSIS

HAITI—DEBT SUSTAINABILITY ANALYSIS

INTERNATIONAL MONETARY FUND AND INTERNATIONAL DEVELOPMENT ASSOCIATION

HAITI

Joint Bank-Fund Staff Debt Sustainability Analysis 2012

Prepared by the Staffs of the International Monetary Fund

and the International Development Association

Approved by Gilbert Terrier and Taline Koranchelian (IMF) and Rodrigo A. Chaves and Jeffrey D. Lewis (IDA)

February 23, 201221

The updated DSA was prepared jointly by the Fund and Bank staffs in accordance with the Joint Fund-Bank Debt Sustainability Framework (DSF) for low-income countries (LICs).22 HIPC and MDRI debt reliefs have been complemented with additional debt relief to help Haiti overcome the devastating earthquake of January 2010. As a result, Haiti’s external debt burden has been significantly reduced (with the PV of debt to export ratio—the most critical sustainability measure—falling below 50 percent at end-2011). However, over the medium-term, rapid debt build up is expected, and the PV of debt to export ratio will reach the sustainability threshold of 100 percent of exports in 2017. Over the long-term, the PV of debt to export ratio will remain above 100 percent (peaking at 129 percent in 2024). Consequently, the staffs continue to assess Haiti’s risk of debt distress as being high.23 The narrow export base continues to challenge Haiti’s debt sustainability; no standard stress test leads to a breach of any thresholds with the exception of the PV of debt to export threshold, which is breached in all six standard stress tests. In the most extreme stress test (the combination shock), the PV of debt to export ratio peaks at 195 percent in 2019. This stress test points to the need to continue to carefully monitor the evolution of external debt.

21 Note that this analysis was completed assuming a higher baseline GDP compared to current estimated GDP for FY12 and FY13, but the debt projections are not materially affected. Only the timing of the projected breach of the sustainability threshold of 100 percent of exports would change. 22 World Bank and IMF (2009). “Review of Some Aspects of the Low-Income Country Debt Sustainability Framework.” (IDA/SecM2009-0397; SM/09/216; BUFF/09/146). 23 Haiti is classified as a weak performer based on its three-year 2008-10 average score of 2.90 in the World Bank’s Country Policy and Institutional Assessment (CPIA) framework. For weak performers (defined as those with three-year average CPIA ratings below 3.25), the indicative thresholds for external debt sustainability are PV debt-to-GDP ratio of 30 percent, PV debt-to-exports ratio of 100 percent, PV debt-to-revenue ratio of 200 percent, debt service-to-exports ratio of 15 percent, and debt service-to-revenue ratio of 25 percent.

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I. Background

4.1. Haiti’s nominal external public debt as of end-2011 was US$657 million (Text Table 1).24 In present value (PV) terms, the external public debt was US$479 million or the equivalent of 48 percent of exports, 50 percent of government revenue, and 7 percent of GDP. Haiti’s external creditors are Venezuela (71 percent of total nominal debt), Taiwan Province of China (14 percent), the International Fund for Agricultural Development (IFAD) (10 percent), the IMF (4 percent) and the Organization of the Petroleum Exporting Countries (OPEC) (2 percent). The structure of external debt has undergone a significant change in recent years: the share of debt owed to traditional development partners has dropped owing to debt relief, while the share of debt owed to non-Paris Club bilateral has increased reflecting continued new disbursements from Venezuela.

4.2. Haiti’s external debt burden has been significantly reduced owing to debt relief. After having earlier benefitted from HIPC/MDRI-related debt relief, Haiti received additional debt relief following the devastating earthquake in January 2010. This debt relief include the following initiatives: The IMF extended debt relief in July 2010 to Haiti in the amount of SDR 178.13 million

(about US$268 million) from the Post-Catastrophe Debt Relief (PCDR) Trust.25

24 Unless otherwise noted, data are presented on a fiscal year basis. Haiti’s fiscal year ends in September. 25 Established in June 2010, the PCDR Trust allows the Fund to join international debt relief efforts when poor countries are hit by the most catastrophic of natural disasters. Debt relief under the PCDR Trust frees up additional

2009 2010 2011

Total 1,243 863 657

Multilaterals 677 569 102IMF 166 13 26OPEC 7 8 11IFAD 48 62 66IDB 418 486 0IBRD/IDA 39 0 0

Bilaterals 567 294 555Venezuela 295 134 466Taiwan Province of China 90 89 89France 82 71 0Spain 40 0 0Italy 58 0 0Canada 2 0 0

Source: Haitian authorities.

Text Table 1. Haiti: Public Sector External Debt(In millions of U.S. dollars; end of fiscal year)

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The World Bank provided debt relief on Haiti’s outstanding debt of SDR 24.3 million

(about US$36 million as of May 21, 2010). The debt relief became effective in May 2010 when the 14 donors to the Debt Relief Trust Fund agreed to allocate the resources needed to cover the debt cancellation.

The IDB provided debt relief in the amount of US$486 million. The debt relief was approved in March 2010 and delivered in October 2010 upon receipt of committed donor financing.

The IFAD has established a Haiti debt relief account into which donors contribute funds. Pending the receipts of sufficient funds to cancel Haiti’s debt to IFAD, current debt service falling due to IFAD is paid from this account. Currently, the debt relief account holds sufficient funds to service Haiti’s debt to IFAD through 2020.

Venezuela cancelled all outstanding PetroCaribe-related debt as of January 25, 2010 in the amount of US$395 million. This debt relief included a cancellation of the end-September 2009 stock of debt (US$295 million) and disbursements over the October 2009—January 2010 period (US$100 million).

Taiwan Province of China waived interest payments for a period of five years. It also agreed to shift back the schedule of principal repayments by five years.

4.3. The Central Government’s domestic debt to state-owned enterprises amounted to G1.9 billion stemming mainly from recent agreements about the settlement of past payments of goods and services received. The non-financial public sector is a net creditor to the consolidated banking system (G 12.3 billion as of end-2011) mainly reflecting the central government’s unspent balances in the IMF Post-Catastrophe Debt Relief account (G 10.8 billion) and in the PetroCaribe account (G 11.6 billion).

II. External Debt Sustainability Outlook, 2012-2032

4.4. The baseline macroeconomic framework for the long-term debt sustainability analysis has been revised to take into account recent developments. Key macroeconomic assumptions are summarized in Box 4.1.

resources to meet exceptional balance of payments needs that arise from such catastrophes and subsequent economic recovery efforts. The Trust was initially financed by SDR 280 million (equivalent to around $422 million) of the IMF’s own resources, and is expected to be replenished through future donor contributions, as necessary.

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Box 4.1. Macroeconomic Assumptions (as of February 2012)

Growth and inflation. In 2011, real GDP recovered from the earthquake-related contraction in 2010. Major reconstruction projects and buoyant exports will jumpstart growth in 2012 and 2013.26 Over the medium term, several large infrastructure projects and the adoption of efficiency-enhancing reforms of the public sector are expected to foster a more enabling environment for private sector-led growth and buttress the economy’s resilience to shocks. Long-run growth is assumed to be 4.5 percent underpinned by an ICOR of 5.1. High food and fuel prices pushed up consumer prices in 2011. Inflation is expected to revert to the low, single-digit level from 2013 onwards.

Fiscal policy. The overall balance deficit is 7.7 percent in 2012 and 5.8 percent in 2013. Over the medium term, it gradually decreases to 2.9 percent in 2032. Domestic revenues will increase gradually from 13.1 percent of GDP in 2011 to 16.9 percent of GDP in 2023 (and remain constant thereafter), thanks to the implementation of a recently launched reform program to overhaul revenue administration, increase excise taxes and streamline direct taxation. Whereas capital expenditures are projected to gradually decline from 26 percent of GDP in 2012 to 10 percent of GDP in 2032, current primary expenditures will remain constant at 10-11 percent of GDP.

Grants and financing. Donor assistance (grants, including humanitarian assistance, and concessional loans, but excluding debt relief) was close to US$3 billion in 2010 and US$2 billion in 2011. This assistance is projected to gradually decrease to US$1.3 billion by 2017. Beyond donors’ commitment horizon, it is assumed that assistance will continue at the level of US$1.3 billion annually (with a grant/loan mix of 60/40 percent). Following the introduction of a Treasury-bill market in 2011, residual domestic financing needs—i.e., domestic financing less drawings from the PCDR account (expected to be fully drawn down by 2015) and PetroCaribe account (discussed in Box 4.2)—will be met through the issuance of Treasury-bills. The majority of those are expected to be bought by local commercial banks, as T-bills are set to replace Central Bank bills currently issued for monetary policy. It is assumed that such debt carries a rate of interest of 5 percent.

Current account. Exports rebounded strongly in 2011 and buoyant growth is expected to continue through 2013 driven by investments into the textile sector. In contrast, import demand will remain subdued as the international support for post-earthquake reconstruction winds down. Over the long term, it is assumed that the real export (real import) elasticity with respect to real GDP is 1.2 (0.8). Workers’ remittances are conservatively assumed to increase 4 percent annually (below the expected increase in salaries in the US, which is the main source of remittances). The product-weighted average oil import price is projected to be US$124 per barrel in 2012 and the price is assumed to stay constant over the projection period. Consequently, the current account deficit excluding grants is projected to fall from 30 percent of GDP in 2010 to 20 percent of GDP in 2013, and then to 9½ percent of GDP (the pre-earthquake deficit level) by 2020. Capital and financial accounts. The capital account surplus is projected to average 4 percent of GDP over medium term. In the early years, the capital account is dominated by public sector inflows, but private sector inflows will dominate the capital account from 2021 onwards. The private sector inflows are expected to be mostly in the form of FDI; by 2032, the stock of private sector external liabilities will be close to 35 percent of GDP.

26 Note that this assumption overstates actual GDP growth observed in FY12.

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4.5. Following the delivery of debt relief, most bilateral development partners and multilateral development banks have shifted to providing assistance on a grants-only basis. Major new disbursements are those related to the PetroCaribe agreement with Venezuela (see Box 4.2). Other disbursements are limited to those financed by OPEC, the ongoing airport renovation project financed by Venezuela’s Economic and Social Development Bank (BANDES),27 and the existing IFAD project pipeline.28 4.6. Various changes to the baseline macroeconomic framework have been introduced since the previous DSA (Text Table 3) to take into account recent domestic developments, the current more troubling international outlook, and the government’s revised long-term strategy.29 Exports, imports, gross workers’ remittances and official transfers have been revised down. Consistently, the long-run real GDP growth rate has been slightly lowered from 5.0 percent to 4.5 percent. In contrast, the fiscal stance is broadly unchanged, but the projected increase in revenues has been brought forward to reflect the authorities’ strong commitment to raise revenue collection, and reduce the country’s dependency to donor support.

27 As the BANDES loan is a non-concessional waiver on the performance criterion on the contracting of external non-concessional debt was granted during the previous ECF arrangement (Country Report No. 10/14). 28 This pipeline is expected to have become fully disbursed by 2013. It is assumed that new IFAD projects are financed by grants. 29 Plan Stratégique de développement d’Haïti; Haïti pays émergent en 2030.

DSA 2010 1/ DSA 2012 DSA 2010 1/ DSA 2012

Total public sector nominal debt 35.4 25.0 32.1 37.4Domestic 15.0 5.4 20.8 14.4External 20.4 19.6 11.4 22.9

GDP (in billions of US dollars) 14.6 13.4 35.3 30.6GDP per capita (in US dollars) 1,295 1,224 2,642 2,434Real GDP per capita index (1990 = 100) 102 103 161 158

External current account -4.5 -3.7 -3.6 -3.6Exports of goods and services 11.5 14.2 17.5 14.0Imports of goods and services -37.8 -37.4 -37.5 -28.4Official transfers 6.6 7.0 3.4 2.5Gross workers' remittances 13.9 14.9 11.3 10.8

Central government overall balance -3.8 -4.0 -2.6 -2.8Government domestic revenue 14.8 15.6 16.9 16.9Grants 5.3 6.0 2.4 2.1Primary expenditures -23.2 -25.1 -20.7 -20.9Interest payments -0.8 -0.5 -1.1 -0.9

Sources: Haitian authorities; and staff estimates.

1/EBS/10/139, Supplement 1 (July 8, 2010) as corrected on July 19 and July 20, 2010.

Text Table 3. Haiti: Comparison with Macroeconomic Projections in Previous DSA (In percent of GDP; unless otherwise noted)

2017 2030

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Box 4.2. PetroCaribe

Under the PetroCaribe Agreement, Venezuela finances part of Haiti’s fuel import bill. The oil import bill is divided into a portion that is paid for in cash (the ‘cash’ portion) and a portion that is paid for through an extension of a loan (the ‘loan’ portion).

The ‘cash’ portion represents a suppliers’ credit that must be settled within 90 days (that credit is interest free the first 30 days and carries a two percent annual interest rate over the remaining 60 days).

The ‘loan’ portion is a function of the oil price; this portion varies from 5 percent of the value of the oil shipment at oil prices up to US$15 per barrel to 50 percent at oil prices of US$100 per barrel or more. Shipping charges have to be prepaid and the ‘cash’ and ‘loan’ portions are then determined based on fob prices on a shipment –by–shipment basis. The terms of the ‘loan’ portion is also a function of the oil price. At oil prices up to US$40 per barrel, the loans have a 17-year maturity and carry a two percent rate of interest. At higher oil prices, the maturity is extended to 25 years and the rate of interest is lowered to one percent. At any oil price, the maturity of the loans includes a two-year grace period.

The local currency counterpart of the PetroCaribe credits is deposited in the domestic banking system. The funds are under the control of the central government and all transactions are fully captured in the fiscal accounts. Disbursements are recorded as external financing of the budget with an offsetting negative domestic bank financing entry. When the central government draws down the funds to finance its capital expenditure budget the (negative) domestic financing line is reduced accordingly. The authorities have committed to only use PetroCaribe resources to finance growth-enhancing investment projects; however, funds have also been used to finance transfers to the loss-making energy company EDH. In 2012-13, projected disbursements from the account are based on the expected rate of implementation of the existing project pipeline and a phasing out of electricity subsidies. From 2014 onwards, no electricity subsidies are envisaged and project disbursements are assumed to remain constant in real terms subject to availability of financing (by 2020 the PetroCaribe account has been fully drawn down). General budgetary resources are used to service the debt to PetroCaribe.

The PetroCaribe agreement allows for the financing of up to 14,000 barrels per day (on an annual basis). As Haiti currently exceeds this level of imports, financing is solely a function of price. With an assumed constant oil price over the medium term (at the projected product-weighted average oil price of US$124 per barrel in 2012), PetroCaribe disbursements remain constant at US$330 million a year. These disbursements will lead to a significant build- up of new debt over time. The steady-state level of debt to PetroCaribe will be US$4,620 million from 2036 onwards.

4.7. The outlook for the debt built up has also been updated. Over the 2012-17 period, total disbursements have been revised up from US$1.8 billion to US$2.1 billion to incorporate larger PetroCaribe-related inflows (US$2 billion). Beyond donors’ commitment horizon,

Terms of Venezuelan's Loans under the Petrocaribe Agreement

International oil price (U.S.$/bbl, FOB, VZLA)

Share of value that is lent to Haiti (percent)

Loan maturity (in years)

≧ 15 5 15≧ 20 10 15≧ 22 15 15≧ 24 20 15≧ 30 25 15≧ 40 30 23≧ 50 40 23≧ 100 50 23

Source. Petrocaribe Agreement between Haiti and Venezuela.

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projections are more speculative. The current DSA maintains the assumption that international assistance over the long run will continue at a level of US$1.3 billion annually. However, in light of the current pressures on aid budgets, the average grant element of this assistance has been lowered from 89 percent to 74 percent by changing the grants/loan mix from 83/17 percent to 60/40 percent. The assumptions on future borrowing are realistic given that the expected improvement in Haiti's economic outlook and the resulting buoyancy of the economy will stretch ODA needs (and opportunities) beyond what pure grant funding can cover, and the projected increases in ODA will not breach the concessionality criteria. 4.8. Haiti’s debt situation has significantly improved as a result of debt relief operations.30 The outlook for Haiti’s debt, however, has not improved as prospects now are for a more rapid build-up of debt in the context of a weaker capacity to carry such debt. Over the long run, the PV of debt to export ratio will consistently exceed 100 percent (peaking at 129 percent in 2024) and all six standard stress tests lead to a breach of the PV of debt to export sustainability threshold. In the most extreme stress test (the combination shock), the PV of debt to export ratio peaks at 195 percent in 2019. Among the four standard shocks that constitute the combination shock, the export shock is the more serious. In contrast, the sustainability thresholds relating to the PV of debt to GDP and the PV of debt to government revenue are not breached even in the most extreme stress test. Similarly, the debt service sustainability thresholds are not breached in the most extreme stress test.

III. Public Sector Debt Sustainability Analysis 4.9. In the baseline scenario, the public sector PV debt burden continue to increase over the projection period reaching 32 percent of GDP or 189 percent of revenue by 2032. The external debt to GDP ratio falls from 2024 onwards reflecting increasing repayments to PetroCaribe. In contrast, domestic debt increases gradually over the projection period from less than 1 percent of GDP in 2011 to 16 percent of GDP by 2032.

IV. Debt Management 4.10. The Public Debt Directorate—located in the Ministry of Finance’s Directorate-General for the Budget—is the focal point for public debt management. The January 2010 earthquake seriously disrupted the functioning of the debt management office: the building was destroyed, some data were lost and computer systems were impaired. Staff has now been relocated to new prefabricated offices. While computer systems have been partially restored, there are ongoing problems with network connectivity. 4.11. Steady progress is being made to enhance the Public Debt Directorate’s operational capacity. The Directorate uses the electronic UNCTAD’s Debt Management and Financial Analysis System (DMFAS) debt recording system and its capacity to produce debt sustainability analyses has been enhanced through the delivery of technical assistance from the Center for Latin American Monetary Studies (CEMLA). Work is ongoing to establish fully operational

30 The extended debt relief was anticipated and the current baseline DSA is broadly similar to the debt relief scenario included in the previous DSA report.

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middle and back office functions within the Directorate. The legal framework for borrowing is not clearly defined, but the government is currently receiving technical assistance from CEMLA as well as the Caribbean Regional Technical Assistance Centre (CARTAC) to set up such a framework. A public debt law establishing a sound legal and institutional framework for public debt management is expected soon to be submitted to parliament (a structural benchmark for end-March in the ECF-supported program). 4.12. The Public Debt Directorate and the External Debt Unit in the Central Bank’s International Affairs Directorate collaborate closely. The two organizational units exchange information frequently and jointly prepare debt service projections. The Central Bank is currently receiving technical assistance from UNCTAD to improve compilation of statistics on external private commercial debt.

V. Conclusion 4.13. As a result of debt relief, Haiti’s external debt burden has been significantly reduced since 2009. However, the outlook is for a significant build-up of new external debt. The narrow export base remains the Achilles’ heel of Haiti’s debt sustainability: the PV of debt to export ratio exceeds the 100 percent sustainability threshold from 2017 onwards. Thus, Haiti’s debt situation still remains vulnerable, and, consequently, the staffs continue to assess Haiti’s risk of debt distress as being high.

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Sources: Country authorities; and staff estimates and projections.

Figure 1. Haiti: Indicators of Public and Publicly Guaranteed External Debt under Alternatives Scenarios, 2012-2032 1/

1/ The most extreme stress test is the test that yields the highest ratio in 2022. In figure b. it corresponds to a Combination shock; in c. to a Combination shock; in d. to a Combination shock; in e. to a Combination shock and in figure f. to a Combination shock

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Figure 2. Haiti: Indicators of Public Debt Under Alternative Scenarios, 2012-2032 1/

Sources: Country authorities; and staff estimates and projections.1/ The most extreme stress test is the test that yields the highest ratio in 2022. 2/ Revenues are defined inclusive of grants.

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Estimate

2009 2010 2011Average

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2012 2013 2014 2015 2016 20172012-17 Average 2022 2032

2018-32 Average

Public sector debt 1/ 19.5 13.2 9.7 14.0 16.9 19.2 21.4 23.4 25.0 33.5 37.7o/w foreign-currency denominated 19.5 13.1 9.0 12.5 15.0 16.7 17.9 18.9 19.6 24.9 21.5

Change in public sector debt -10.1 -6.3 -3.4 4.3 2.9 2.3 2.1 2.0 1.6 1.1 0.2Identified debt-creating flows 3.7 -3.5 2.5 6.6 4.2 3.2 3.0 2.5 2.2 1.5 0.6

Primary deficit 4.0 -2.9 3.3 1.3 2.1 7.3 5.4 4.5 4.4 3.9 3.5 4.8 2.8 1.9 2.6

Revenue and grants 17.9 29.7 29.8 29.5 26.1 24.7 23.5 21.6 21.5 20.2 18.7of which: grants 6.7 17.8 16.8 15.9 12.2 10.2 8.5 6.5 6.0 3.5 1.9

Primary (noninterest) expenditure 21.9 26.8 33.1 36.9 31.5 29.2 27.9 25.5 25.1 23.0 20.6Automatic debt dynamics -0.3 -0.6 -0.8 -0.7 -1.3 -1.3 -1.4 -1.4 -1.3 -1.3 -1.3

Contribution from interest rate/growth differential -0.9 1.0 -0.5 -0.4 -0.7 -0.8 -1.0 -1.0 -1.1 -1.3 -1.3of which: contribution from average real interest rate -0.1 -0.1 0.2 0.3 0.2 0.1 0.1 0.1 0.0 0.1 0.3of which: contribution from real GDP growth -0.8 1.1 -0.7 -0.7 -0.9 -1.0 -1.1 -1.1 -1.1 -1.4 -1.6

Contribution from real exchange rate depreciation 0.6 -1.6 -0.3 -0.3 -0.6 -0.4 -0.4 -0.3 -0.2 ... ...Other identified debt-creating flows 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Privatization receipts (negative) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Recognition of implicit or contingent liabilities 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Debt relief (HIPC and other) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Other (specify, e.g. bank recapitalization) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Residual, including asset changes -13.8 -2.8 -5.9 -2.4 -1.2 -0.9 -0.9 -0.5 -0.6 -0.4 -0.4

Other Sustainability Indicators

PV of public sector debt ... ... 7.3 10.6 13.0 14.9 16.7 18.5 19.9 26.5 31.9

o/w foreign-currency denominated ... ... 6.6 9.2 11.1 12.3 13.3 14.0 14.5 17.9 15.7

o/w external ... ... 6.6 9.2 11.1 12.3 13.3 14.0 14.5 17.9 15.7

PV of contingent liabilities (not included in public sector debt) ... ... ... ... ... ... ... ... ... ... ...

Gross financing need 2/ 5.0 -2.3 3.8 8.4 7.1 6.7 7.5 8.0 8.8 11.9 18.1PV of public sector debt-to-revenue and grants ratio (in percent) … … 24.4 36.0 49.7 60.3 71.2 85.5 92.4 131.3 170.4PV of public sector debt-to-revenue ratio (in percent) … … 55.7 78.2 93.4 102.4 111.4 122.0 128.0 159.2 189.3

o/w external 3/ … … 50.3 67.5 79.8 84.7 88.5 92.2 93.0 107.4 93.4Debt service-to-revenue and grants ratio (in percent) 4/ 5.5 2.1 1.5 1.5 1.6 2.2 3.2 4.3 5.1 7.6 9.7

Debt service-to-revenue ratio (in percent) 4/ 8.7 5.2 3.5 3.2 3.0 3.7 5.1 6.1 7.0 9.3 10.8Primary deficit that stabilizes the debt-to-GDP ratio 14.1 3.4 6.7 3.1 2.5 2.1 2.3 1.9 1.9 1.7 1.7

Key macroeconomic and fiscal assumptions

Real GDP growth (in percent) 2.9 -5.4 5.6 0.8 3.3 7.8 6.9 6.2 6.0 5.5 5.0 6.2 4.5 4.5 4.5

Average nominal interest rate on forex debt (in percent) 0.7 0.6 0.5 1.1 0.7 0.8 0.9 1.0 1.1 1.1 1.1 1.0 1.0 1.0 1.0

Average real interest rate on domestic debt (in percent) ... ... 342.8 342.8 #DIV/0! 44.3 10.5 7.5 4.8 4.1 4.1 12.5 4.2 3.3 4.0

Real exchange rate depreciation (in percent, + indicates depreciation) 2.2 -7.7 -2.1 -3.9 12.0 -3.6 ... ... ... ... ... ... ... ... ...Inflation rate (GDP deflator, in percent) 3.4 4.7 6.8 12.7 7.6 7.7 5.6 4.0 4.0 3.5 3.0 4.6 2.0 2.0 2.0

Growth of real primary spending (deflated by GDP deflator, in percent) 0.3 0.2 0.3 0.2 0.2 0.2 -0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Grant element of new external borrowing (in percent) ... ... ... … … 29.5 29.5 30.3 31.8 31.8 31.8 30.8 35.2 35.2 ...

Sources: Country authorities; and staff estimates and projections.1/ Indicate coverage of public sector, e.g., general government or nonfinancial public sector. Also whether net or gross debt is used.

2/ Gross financing need is defined as the primary deficit plus debt service plus the stock of short-term debt at the end of the last period.

3/ Revenues excluding grants.

4/ Debt service is defined as the sum of interest and amortization of medium and long-term debt.

5/ Historical averages and standard deviations are generally derived over the past 10 years, subject to data availability.

Table 1. Haiti: Public Sector Debt Sustainability Framework, Baseline Scenario, 2009-2032(In percent of GDP, unless otherwise indicated)

Actual Projections

61

2012 2013 2014 2015 2016 2017 2022 2032

Baseline 11 13 15 17 18 20 27 32

A. Alternative scenarios

A1. Real GDP growth and primary balance are at historical averages 11 11 11 12 13 13 17 30A2. Primary balance is unchanged from 2012 11 14 18 22 25 29 46 74A3. Permanently lower GDP growth 1/ 11 13 15 17 20 22 32 50

B. Bound tests

B1. Real GDP growth is at historical average minus one standard deviations in 2013-2014 11 15 21 24 28 32 48 67B2. Primary balance is at historical average minus one standard deviations in 2013-2014 11 12 13 15 17 18 25 31B3. Combination of B1-B2 using one half standard deviation shocks 11 12 13 17 21 24 39 57B4. One-time 30 percent real depreciation in 2013 11 16 17 19 20 21 26 31B5. 10 percent of GDP increase in other debt-creating flows in 2013 11 20 21 22 24 25 31 34

Baseline 36 50 60 71 85 92 131 170



B. Bound tests


Baseline 1 2 2 3 4 5 8 10



B. Bound tests


Sources: Country authorities; and staff estimates and projections.1/ Assumes that real GDP growth is at baseline minus one standard deviation divided by the square root of the length of the projection period.2/ Revenues are defined inclusive of grants.

Table 2. Haiti: Sensitivity Analysis for Key Indicators of Public Debt 2012-2032

PV of Debt-to-GDP Ratio

Projections

PV of Debt-to-Revenue Ratio 2/

Debt Service-to-Revenue Ratio 2/

62

Historical6/

Standard6/

Average Deviation 2012-2017 2018-2032

2009 2010 2011 2012 2013 2014 2015 2016 2017 Average 2022 2032 Average

External debt (nominal) 1/ 19.5 13.1 9.0 12.5 15.0 16.7 17.9 18.9 19.6 24.9 21.5o/w public and publicly guaranteed (PPG) 19.5 13.1 9.0 12.5 15.0 16.7 17.9 18.9 19.6 24.9 21.5

Change in external debt -10.1 -6.4 -4.0 3.5 2.5 1.6 1.3 0.9 0.7 0.5 -0.7Identified net debt-creating flows 2.9 0.3 -0.4 2.7 3.5 2.1 1.8 1.5 1.2 0.9 -0.6

Non-interest current account deficit 3.3 2.4 3.5 1.7 1.6 4.4 5.4 4.6 4.2 3.8 3.6 4.3 3.1 3.9Deficit in balance of goods and services 28.6 50.2 41.4 39.6 35.5 31.4 28.3 25.0 23.2 19.5 13.4

Exports 14.2 12.2 13.7 15.0 15.5 14.8 14.4 14.2 14.2 14.1 13.9Imports 42.8 62.3 55.1 54.6 50.9 46.2 42.7 39.3 37.4 33.6 27.3

Net current transfers (negative = inflow) -25.0 -47.3 -37.3 -30.3 7.2 -34.7 -29.6 -26.5 -23.8 -21.0 -19.5 -15.3 -11.1 -14.0o/w official -6.0 -27.3 -19.6 -18.4 -14.4 -12.1 -10.2 -8.1 -7.0 -4.2 -2.2

Other current account flows (negative = net inflow) -0.4 -0.4 -0.6 -0.5 -0.4 -0.3 -0.3 -0.3 -0.2 0.1 0.8Net FDI (negative = inflow) -0.6 -2.3 -2.4 -1.2 1.1 -1.2 -1.3 -1.8 -1.7 -1.6 -1.6 -2.6 -3.0 -2.8Endogenous debt dynamics 2/ 0.2 0.1 -1.4 -0.6 -0.7 -0.7 -0.7 -0.7 -0.7 -0.8 -0.7

Contribution from nominal interest rate 0.2 0.1 0.1 0.1 0.1 0.1 0.2 0.2 0.2 0.2 0.2Contribution from real GDP growth -0.9 1.1 -0.6 -0.6 -0.8 -0.8 -0.9 -0.9 -0.9 -1.0 -0.9Contribution from price and exchange rate changes 0.8 -1.1 -0.8 … … … … … … … …

Residual (3-4) 3/ -13.0 -6.7 -3.6 0.8 -1.0 -0.4 -0.5 -0.5 -0.5 -0.4 -0.1o/w exceptional financing -2.4 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

PV of external debt 4/ ... ... 6.6 9.2 11.1 12.3 13.3 14.0 14.5 17.9 15.7In percent of exports ... ... 48.1 61.1 71.5 83.2 92.1 98.1 102.0 126.9 113.1

PV of PPG external debt ... ... 6.6 9.2 11.1 12.3 13.3 14.0 14.5 17.9 15.7In percent of exports ... ... 48.1 61.1 71.5 83.2 92.1 98.1 102.0 126.9 113.1In percent of government revenues ... ... 50.3 67.5 79.8 84.7 88.5 92.2 93.0 107.4 93.4

Debt service-to-exports ratio (in percent) 3.9 1.6 0.6 0.7 1.3 2.3 3.8 4.8 5.5 7.6 7.6PPG debt service-to-exports ratio (in percent) 3.9 1.6 0.6 0.7 1.3 2.3 3.8 4.8 5.5 7.6 7.6PPG debt service-to-revenue ratio (in percent) 4.9 1.7 0.6 0.8 1.4 2.3 3.7 4.5 5.1 6.4 6.3Total gross financing need (Millions of U.S. dollars) 212.6 23.3 82.8 277.2 404.0 318.7 344.1 352.8 360.8 508.7 403.9Non-interest current account deficit that stabilizes debt ratio 13.4 8.9 7.5 0.9 2.9 3.0 2.9 2.8 2.9 3.8 3.8

Key macroeconomic assumptions

Real GDP growth (in percent) 2.9 -5.4 5.6 0.8 3.3 7.8 6.9 6.2 6.0 5.5 5.0 6.2 4.5 4.5 4.5GDP deflator in US dollar terms (change in percent) -2.8 5.7 6.8 7.3 12.0 4.7 4.3 4.0 4.0 3.5 3.0 3.9 2.0 2.0 2.0Effective interest rate (percent) 5/ 0.7 0.6 0.5 1.1 0.7 0.8 0.9 1.0 1.1 1.1 1.1 1.0 1.0 1.0 1.0Growth of exports of G&S (US dollar terms, in percent) 11.6 -14.3 26.8 9.1 11.1 23.9 15.0 5.8 7.0 7.8 7.9 11.2 6.5 6.5 6.5Growth of imports of G&S (US dollar terms, in percent) -1.7 45.6 -0.3 12.9 14.5 11.8 4.0 0.2 1.8 0.4 3.0 3.5 4.4 4.4 4.4Grant element of new public sector borrowing (in percent) ... ... ... ... ... 29.5 29.5 30.3 31.8 31.8 31.8 30.8 35.2 35.2 35.2Government revenues (excluding grants, in percent of GDP) 11.2 11.9 13.1 13.6 13.9 14.6 15.0 15.1 15.6 16.7 16.9 16.7Aid flows (in Millions of US dollars) 7/ 663.2 1393.3 1576.1 1669.1 1479.9 1380.0 1319.0 1160.0 1160.0 1170.0 1170.0

o/w Grants 438.4 1169.2 1238.7 1329.0 1135.0 1045.0 959.0 800.0 800.0 650.0 650.0o/w Concessional loans 224.8 224.0 337.5 340.1 344.9 335.0 360.0 360.0 360.0 520.0 520.0

Grant-equivalent financing (in percent of GDP) 8/ ... ... ... 17.3 13.4 11.2 9.5 7.4 6.8 4.5 2.4 3.9Grant-equivalent financing (in percent of external financing) 8/ ... ... ... 84.4 82.5 83.1 81.4 78.8 78.8 71.2 71.2 71.2

Memorandum items:Nominal GDP (Millions of US dollars) 6552.0 6551.2 7388.4 8335.3 9293.8 10264.8 11315.9 12354.5 13361.4 18383.8 34801.6Nominal dollar GDP growth 0.0 0.0 12.8 12.8 11.5 10.4 10.2 9.2 8.2 10.4 6.6 6.6 6.6PV of PPG external debt (in Millions of US dollars) 478.7 754.6 1028.9 1266.8 1501.6 1723.7 1934.1 3288.9 5479.3(PVt-PVt-1)/GDPt-1 (in percent) 3.7 3.3 2.6 2.3 2.0 1.7 2.6 1.5 0.5 1.2Gross workers' remittances (Millions of US dollars) 1375.6 1473.8 1552.7 1636.8 1702.3 1770.4 1841.2 1914.8 1991.4 2422.9 3586.4PV of PPG external debt (in percent of GDP + remittances) ... ... 5.4 7.7 9.4 10.5 11.4 12.1 12.6 15.8 14.3PV of PPG external debt (in percent of exports + remittances) ... ... 18.9 26.5 32.8 38.5 43.3 46.9 49.8 65.6 65.0Debt service of PPG external debt (in percent of exports + remittances) ... ... 0.2 0.3 0.6 1.1 1.8 2.3 2.7 3.9 4.4

Sources: Country authorities; and staff estimates and projections. 01/ Includes both public and private sector external debt.2/ Derived as [r - g - ρ(1+g)]/(1+g+ρ+gρ) times previous period debt ratio, with r = nominal interest rate; g = real GDP growth rate, and ρ = growth rate of GDP deflator in U.S. dollar terms. 3/ Includes exceptional financing (i.e., changes in arrears and debt relief); changes in gross foreign assets; and valuation adjustments. For projections also includes contribution from price and exchange rate changes.4/ Assumes that PV of private sector debt is equivalent to its face value.5/ Current-year interest payments divided by previous period debt stock. 6/ Historical averages and standard deviations are generally derived over the past 10 years, subject to data availability. 7/ Defined as grants, concessional loans, and debt relief.8/ Grant-equivalent financing includes grants provided directly to the government and through new borrowing (difference between the face value and the PV of new debt).

Actual

(In percent of GDP, unless otherwise indicated)

Projections

Table 3. Haiti: External Debt Sustainability Framework, Baseline Scenario, 2009-2032 1/

63

2012 2013 2014 2015 2016 2017 2022 2032

Baseline 9 11 12 13 14 14 18 16

A. Alternative Scenarios

A2. New public sector loans on less favorable terms in 2012-2032 2 9 12 14 15 17 18 24 25A3. Alternative Scenario :[Costumize, enter title] 9 9 9 8 6 5 0 -5

B. Bound Tests

B1. Real GDP growth at historical average minus one standard deviation in 2013-2014 9 12 15 16 17 17 21 19B2. Export value growth at historical average minus one standard deviation in 2013-2014 3/ 9 13 16 17 17 17 20 16B3. US dollar GDP deflator at historical average minus one standard deviation in 2013-2014 9 12 15 16 17 17 21 19B4. Net non-debt creating flows at historical average minus one standard deviation in 2013-2014 4/ 9 16 21 21 21 22 23 17B5. Combination of B1-B4 using one-half standard deviation shocks 9 18 27 28 28 28 29 21B6. One-time 30 percent nominal depreciation relative to the baseline in 2013 5/ 9 16 17 19 20 20 25 22

Baseline 61 72 83 92 98 102 127 113



B. Bound Tests


Baseline 68 80 85 88 92 93 107 93



B. Bound Tests

B1. Real GDP growth at historical average minus one standard deviation in 2013-2014 68 88 101 106 110 111 128 111B2. Export value growth at historical average minus one standard deviation in 2013-2014 3/ 68 91 109 111 113 112 120 97B3. US dollar GDP deflator at historical average minus one standard deviation in 2013-2014 68 87 101 106 110 111 128 112B4. Net non-debt creating flows at historical average minus one standard deviation in 2013-2014 4/ 68 118 143 141 142 139 137 102B5. Combination of B1-B4 using one-half standard deviation shocks 68 131 188 186 185 181 175 126B6. One-time 30 percent nominal depreciation relative to the baseline in 2013 5/ 68 112 119 124 129 131 151 131Sources: Country authorities; and staff estimates and projections.

6/ Applies to all stress scenarios except for A2 (less favorable financing) in which the terms on all new financing are as specified in footnote 2.

5/ Depreciation is defined as percentage decline in dollar/local currency rate, such that it never exceeds 100 percent.

PV of debt-to GDP ratio

Table 4. Haiti: Sensitivity Analysis for Key Indicators of Public and Publicly Guaranteed External Debt, 2012-2032 (Continued)

1/ Variables include real GDP growth, growth of GDP deflator (in U.S. dollar terms), non-interest current account in percent of GDP, and non-debt creating flows.

2/ Assumes that the interest rate on new borrowing is by 2 percentage points higher than in the baseline., while grace and maturity periods are the same as in the baseline.

3/ Exports values are assumed to remain permanently at the lower level, but the current account as a share of GDP is assumed to return to its baseline level after the shock (implicitly assuming

an offsetting adjustment in import levels).

4/ Includes official and private transfers and FDI.

Projections

(In percent)

PV of debt-to-exports ratio

PV of debt-to-revenue ratio

64

2012 2013 2014 2015 2016 2017 2022 2032

Baseline 1 1 2 4 5 6 8 8


A1. Key variables at their historical averages in 2012-2032 1/ 1 1 2 4 5 5 5 3A2. New public sector loans on less favorable terms in 2012-2032 2 1 1 3 4 6 7 10 13

B. Bound Tests


Baseline 1 1 2 4 4 5 6 6


A1. Key variables at their historical averages in 2012-2032 1/ 1 2 2 4 4 5 4 3A2. New public sector loans on less favorable terms in 2012-2032 2 1 2 3 4 5 6 8 10

B. Bound Tests


Memorandum item:Grant element assumed on residual financing (i.e., financing required above baseline) 6/ 33 33 33 33 33 33 33 33

Sources: Country authorities; and staff estimates and projections.1/ Variables include real GDP growth, growth of GDP deflator (in U.S. dollar terms), non-interest current account in percent of GDP, and non-debt creating flows. 2/ Assumes that the interest rate on new borrowing is by 2 percentage points higher than in the baseline., while grace and maturity periods are the same as in the baseline.3/ Exports values are assumed to remain permanently at the lower level, but the current account as a share of GDP is assumed to return to its baseline level after the shock (implicitly assuming an offsetting adjustment in import levels). 4/ Includes official and private transfers and FDI.5/ Depreciation is defined as percentage decline in dollar/local currency rate, such that it never exceeds 100 percent.6/ Applies to all stress scenarios except for A2 (less favorable financing) in which the terms on all new financing are as specified in footnote 2.

Table 4. Haiti: Sensitivity Analysis for Key Indicators of Public and Publicly Guaranteed External Debt, 2012-2032 (Concluded)

Projections

Debt service-to-exports ratio

(In percent)

Debt service-to-revenue ratio

65

ANNEX 5: WORLD BANK ENGAGEMENT IN ECONOMIC MANAGEMENT AND GROWTH IN HAITI

Foundations (2005-2009)

Emergency Support (2010-2011)

Strengthening Institutions (2012-2014)

Fin

anci

al S

ervi

ces

-Economic Governance Reform Operations (EGRO I-III) -Electricity Loss Reduction Project (PREPSEL)

-Emergency DPO -Infrastructure and Institutions Emergency Recovery Project (IIERP) -Post-Disaster Partial Credit Guarantee Program Support Project -Emergency Solar Lanterns Operation

-Proposed Reconstruction and Growth DPG -Additional Financing for the IIERP -Rebuilding Energy Infrastructure and Energy Access Project -Business Development and Investment Project -Heritage Tourism and Development Project

Kn

owle

dge

Ser

vice

s

-Country Economic Memorandum 2006 -Governance and Anticorruption Diagnostic Survey (WBI-May 2007) -Economic Governance TA Grants (EGTAG I &II) addressing PFM, procurement and corruption -Assisted budget formulation and execution & monitoring (e.g., Organic budget decree adopted Feb 2005) -Low Income Country Under Stress (LICUS) grant on Economic Governance assisted creation of Procurement Regulatory Body (CNMP) -Haiti Country Social Analysis (May 2006) -Public Expenditure Management and Fiduciary Accountability Report (joint with IADB) -Financial Sector Assessment Program (2008) -Accounting and Auditing Reports on Observance of Standards and Codes (2007) -TA for Woodfuels Alleviation (Energy Sector Management Assistance Program 2007)

-TA to restore basic functioning of MEF (Project Preparation Advance for prefabricated buildings for Directorate of Tax (DGI), Directorate of Budget (DGB), Treasury and Directorate of Economic Studies (DEE) -TA emergency support for civil service payroll system post-earthquake -TA for recovery and records management (Treasury archives salvaged) -TA for clearance of backlog of Court of Accounts (CSSCCA) external audits -PEFA/ PFM analysis -Grant Partnership Facility Trust Fund – Support to Institutions for Economic Governance: IGF, CSCCA -TA to train CNMP, revamp its website, diagnostic of ministerial committees -TA for insurance regulatory framework - TA for modernization of fiscal administrations (upgrading of Automated SYSTEM for CUSTOMS DATA (ASYCUDA) World System for customs and Human Resources Information System for General Directorate of Tax (DGI) and General Directorate of Customs (AGD) -TA for EDH Management support -TA to GOH Energy Unit

-Public Expenditure Financial Accountability/PFM Action Plan -IFC advisory services on the investment climate -TA for mining regulatory environment -Financial Sector Review (joint with IMF in the context of the pilot for enhanced surveillance of financial systems) -TA to UEPs and roll-out SYSGEP -TA for a National Strategy to Support the Accounting and Auditing Profession and introduction of International Accounting Norms in the Private Sector -TA to strengthen the network of public accountants -TA to enhance audit capacity at the Inspection Générale des Finances (IGF) -TA for capacity building at the Court of Accounts (CSCCA) -TA to carry out the HH survey -TA for on-line procurement training for government staff -TA for civil service audit -TA for Management Information System tools to interconnect CNMP with line ministry procurement units -FIRST TA to strengthen insurance regulation and supervision -Quisqueya study -Diagnostic Trade Integration Study -Trade Facilitation study and TA -TA for MEF for macro modeling -TA to MEF for debt sustainability analysis -Public Expenditure Review -TA for Public-Private Partnership regulatory framework -TA to Central Bank to establish a regulatory framework for credit bureaus and credit reporting - TA to Central Bank to define a Strategy to Improve Access to Finance -TA to build institutional capacity in Energy -Renewable Energy Integration Study

66

Foundations (2005-2009)

Emergency Support (2010-2011)

Strengthening Institutions (2012-2014)

Con

ven

ing

Ser

vice

s -Donor meetings in Port au Prince and Washington under the International Cooperation Framework (2005) -Joint donor matrix on Economic Governance

-Joint donor meetings Budget Support Group

-Public communication and training on the Procurement law and standard bidding processes -Dissemination of standard bidding documents -Active support to Financial Sector Working Group (established by Central Bank and includes the IMF, IADB, US Treasury, IFC and World Bank) -Integrated Economic Zones workshop -Supreme Audit Institution (Court of Accounts) workshop -TA for anticorruption activities to implement strategy (dissemination, website) -Joint donor meetings Budget Support Group -Rural Energy workshops

67

ANNEX 6: HAITI AT A GLANCE

LatinKey D evelo pment Indicato rs America Low

Haiti & Carib. income(2011)

Population, mid-year (millions) 10.1 583 796Surface area (thousand sq. km) 28 20,394 15,551Population growth (%) 1.3 1.1 2.1Urban population (% of to tal population) 53 79 28

GNI (Atlas method, US$ billions) 5.4 4,505 421GNI per capita (Atlas method, US$) 560 7,733 528GNI per capita (PPP, international $) 1,180 10,926 1,307

GDP growth (%) 5.6 6.2 5.9GDP per capita growth (%) 4.2 5.0 3.7

(mo st recent est imate, 2005–2011)

Poverty headcount ratio at $1.25 a day (PPP, %) 62 a 6 ..Poverty headcount ratio at $2.00 a day (PPP, %) 78 a 12 ..Life expectancy at birth (years) 62 74 59Infant mortality (per 1,000 live births) 70 18 70Child malnutrition (% of children under 5) 19 3 23

Adult literacy, male (% of ages 15 and o lder) 53 92 69Adult literacy, female (% of ages 15 and o lder) 45 90 54Gross primary enro llment, male (% of age group) .. 119 108Gross primary enro llment, female (% of age group) .. 115 101

Access to an improved water source (% of population) 69 94 65Access to improved sanitation facilities (% of population) 17 79 37

N et A id F lo ws 1980 1990 2000 2011 b

(US$ millions)Net ODA and official aid 104 167 208 3,076Top 3 donors (in 2010): United States 35 50 91 1,107 Canada 5 10 20 459 European Union Institutions 1 11 11 284

Aid (% of GNI) 7.2 5.9 5.6 11.5Aid per capita (US$) 18 23 24 308

Lo ng-T erm Eco no mic T rends

Consumer prices (annual % change) 17.8 21.3 13.7 8.4GDP implicit deflator (annual % change) 21.4 14.1 11.1 6.8

Exchange rate (annual average, local per US$) 5.0 5.0 21.2 40.5Terms of trade index (2000 = 100) .. .. .. ..

1980–90 1990–2000 2000–11

Population, mid-year (millions) 5.7 7.1 8.6 10.1 2.3 1.9 1.4GDP (US$ millions) 1,462 2,864 3,665 7,346 -0.2 4.5 0.7

Agriculture .. .. 28.4 .. -0.1 9.0 -0.3Industry .. .. 16.6 .. -1.7 10.5 1.4 M anufacturing .. .. 9.0 .. -1.7 2.3 0.4Services .. .. 55.0 .. 0.9 15.5 0.8

Household final consumption expenditure 81.9 81.4 90.6 93.1 0.9 .. ..General gov't final consumption expenditure 10.1 8.0 7.8 9.1 -4.4 .. ..Gross capital formation 16.9 13.0 27.3 28.0 -0.6 12.2 1.4

Exports o f goods and services 21.6 17.5 12.7 13.7 1.2 8.9 4.5Imports o f goods and services 30.5 20.0 33.4 55.1 2.3 20.1 3.3Gross savings .. 5.6 22.8 ..

Note: Figures in italics are for years other than those specified. 2011 data are preliminary. .. indicates data are not available.a. Country poverty estimate is for earlier period. b. A id data are for 2010.Development Economics, Development Data Group (DECDG).

(average annual growth %)

(% of GDP)

10 5 0 5 10

0-4

15-19

30-34

45-49

60-64

75-79

percent of total population

Age distribution, 2010

Male Female

0

20

40

60

80

100

120

140

160

180

1990 1995 2000 2010

Haiti Latin America & the Caribbean

Under-5 mortality rate (per 1,000)

-8

-6

-4

-2

0

2

4

6

8

96 00 10

GDP GDP per capita

Growth of GDP and GDP per capita (%)

68

Haiti

B alance o f P ayments and T rade 2000 2011

(US$ millions)

Total merchandise exports (fob) 331 768Total merchandise imports (cif) 1,091 3,210Net trade in goods and services -863 -3,082

Current account balance -82 -282 as a % of GDP -2.2 -3.8

Workers' remittances and compensation of employees (receipts) 578 1,499

Reserves, including gold 182 1,195

C entral Go vernment F inance

(% of GDP)Current revenue (including grants) 8.5 29.8

Tax revenue 7.8 12.8Current expenditure 8.4 11.8

T echno lo gy and Infrastructure 2000 2010Overall surplus/deficit -2.3 -3.7

Paved roads (% of to tal) 24.3 ..Highest marginal tax rate (%) Fixed line and mobile phone Individual .. .. subscribers (per 100 people) 1 41

Corporate .. .. High technology exports (% of manufactured exports) 3.5 ..

External D ebt and R eso urce F lo ws

Enviro nment(US$ millions)Total debt outstanding and disbursed 1,190 783 Agricultural land (% of land area) 61 67Total debt service 45 5 Forest area (% of land area) 4.0 3.7Debt relief (HIPC, M DRI) 163 674 Terrestrial protected areas (% of land area) 0.3 0.3

Total debt (% of GDP) 32.5 10.7 Freshwater resources per capita (cu. meters) 1,456 1,319Total debt service (% of exports) 4.1 0.5 Freshwater withdrawal (billion cubic meters) .. ..

Foreign direct investment (net inflows) 13 .. CO2 emissions per capita (mt) 0.16 0.25Portfo lio equity (net inflows) 0 ..

GDP per unit o f energy use (2005 PPP $ per kg of o il equivalent) 4.9 4.0

Energy use per capita (kg of o il equivalent) 233 263

Wo rld B ank Gro up po rtfo lio 2000 2010

(US$ millions)

IBRD To tal debt outstanding and disbursed – – Disbursements – – Principal repayments – – Interest payments – –

IDA To tal debt outstanding and disbursed 480 0 Disbursements 8 0

P rivate Secto r D evelo pment 2000 2011 To tal debt service 10 36

Time required to start a business (days) – 105 IFC (fiscal year)Cost to start a business (% of GNI per capita) – 250.9 To tal disbursed and outstanding portfo lio 0 22Time required to register property (days) – 301 o f which IFC own account 0 15

Disbursements for IFC own account 0 15Ranked as a major constraint to business 2000 2010 Portfo lio sales, prepayments and (% of managers surveyed who agreed) repayments for IFC own account 0 0 n.a. .. .. n.a. .. .. M IGA

Gross exposure – –Stock market capitalization (% of GDP) .. .. New guarantees – –Bank capital to asset ratio (%) .. ..

Note: Figures in italics are for years other than those specified. 2011 data are preliminary... indicates data are not available. – indicates observation is not applicable.

Development Economics, Development Data Group (DECDG).

0 25 50 75 100

Control of corruption

Rule of law

Regulatory quality

Polit ical stability andabsence of violence

Voice and accountability

Country's percentile rank (0-100)higher values imply better ratings

2010 2000

Governance indicators, 2000 and 2010

Source: Worldw ide Governance Indicators (www.govindicators.org)

IBRD, 0IDA, 0

IMF, 135

Other multi-lateral, 557

Bilateral, 293

Private, 0

Short-term, 0

Composition of total external debt, 2010

US$ millions

69

Millennium Development Goals Haiti

With selected targets to achieve between 1990 and 2015(estimate closest to date shown, +/- 2 years)

Go al 1: halve the rates fo r extreme po verty and malnutrit io n 1990 1995 2000 2010

Poverty headcount ratio at $1.25 a day (PPP, % of population) .. .. 61.7 .. Poverty headcount ratio at national poverty line (% of population) .. .. 77.0 .. Share o f income or consumption to the poorest qunitile (%) .. .. 2.4 .. Prevalence of malnutrition (% of children under 5) 23.7 24.0 13.9 18.9

Go al 2: ensure that children are able to co mplete primary scho o ling

Primary school enro llment (net, %) 22 57 .. .. Primary completion rate (% of relevant age group) 29 47 .. .. Secondary school enro llment (gross, %) .. 28 .. .. Youth literacy rate (% of people ages 15-24) .. .. .. ..

Go al 3: e liminate gender disparity in educat io n and empo wer wo men

Ratio of girls to boys in primary and secondary education (%) .. 95 .. .. Women employed in the nonagricultural sector (% of nonagricultural employment) 44 .. .. .. Proportion of seats held by women in national parliament (%) .. 4 4 11

Go al 4: reduce under-5 mo rtality by two -thirds

Under-5 mortality rate (per 1,000) 151 129 109 165 Infant mortality rate (per 1,000 live births) 104 90 78 70 M easles immunization (proportion o f one-year o lds immunized, %) 31 49 55 59

Go al 5: reduce maternal mo rtality by three-fo urths

M aternal mortality ratio (modeled estimate, per 100,000 live births) 620 550 460 350 B irths attended by skilled health staff (% of to tal) 23 21 24 26 Contraceptive prevalence (% of women ages 15-49) 10 18 28 32

Go al 6: halt and begin to reverse the spread o f H IV/ A ID S and o ther majo r diseases

Prevalence of HIV (% of population ages 15-49) 1.3 3.6 2.8 1.9 Incidence of tuberculosis (per 100,000 people) 247 247 271 230 Tuberculosis case detection rate (%, all forms) 57 32 44 62

Go al 7: halve the pro po rt io n o f peo ple witho ut sustainable access to basic needs

Access to an improved water source (% of population) 59 60 62 69 Access to improved sanitation facilities (% of population) 26 25 22 17 Forest area (% of land area) 4.2 .. 4.0 3.7 Terrestrial protected areas (% of land area) 0.3 0.3 0.3 0.3 CO2 emissions (metric tons per capita) 0.1 0.1 0.2 0.3 GDP per unit o f energy use (constant 2005 PPP $ per kg o f o il equivalent) 6.4 5.1 4.9 4.0

Go al 8: develo p a glo bal partnership fo r develo pment

Telephone mainlines (per 100 people) 0.6 0.8 0.8 0.5 M obile phone subscribers (per 100 people) 0.0 0.0 0.6 40.0 Internet users (per 100 people) 0.0 0.0 0.2 8.4 Computer users (per 100 people) .. .. .. ..

Note: Figures in italics are for years o ther than those specified. .. indicates data are not available. 1/15/13

Development Economics, Development Data Group (DECDG).

H ait i

0

25

2000 2005 2010

Prim ary net enrollment ratio (. .)

Ratio of girls to boys in primary & secondary education (. .)

Education indicators (%)

0

10

20

30

40

50

2000 2005 2010

Fixed + m obi le subscribers Internet users

ICT indicators (per 100 people)

0

25

50

75

100

1990 1995 2000 2010

Haiti Latin America & the Cari bbean

Measles immunization (% of 1-year olds)

To To Monte Monte Christi Christi

Chaine de la Selle Chaine de la Selle (2680 m ) (2680 m )

Île de Île de la Gonâve la Gonâve

CCee nn tt rr aa ll PP ll aa tt ee aa uu

MM aa ss ss ii ff dd ee ll aa HH oo tt tt ee

NORD - OUEST NORD - OUEST

N O R D N O R D

NORD - EST NORD - EST

A R T I B O N I T E A R T I B O N I T E

C E N T R E C E N T R E

O U E S T O U E S T

S U D - E S T S U D - E S T S U D S U D

G R A N D E - G R A N D E - A N S E A N S E

Gros-Morne Gros-Morne Limbé Limbé

Ennery Ennery

Grande Rivière Grande Rivière du Nord du Nord

Saint- Saint- Raphaël Raphaël

Verrettes Verrettes

Croix des Croix des Bouquets Bouquets

Petit- Petit- Goâve Goâve

Belle- Belle- Anse Anse Thiotte Thiotte

Côtes-de-fer Côtes-de-fer

Vieux Bourg Vieux Bourg d'Aquin d'Aquin

Les Anglais Les Anglais Camp-Perrin Camp-Perrin

Miragoâne Miragoâne

Mirebalais Mirebalais

Ferrier Ferrier Trou- Trou- du-Nord du-Nord

Saint Michel Saint Michel de l'Attalaye de l'Attalaye

Maïssade Maïssade

Léogâne Léogâne

LLeess TTrrooiiss

AArrttiibboonniittee

GGuuaayyaammppuuoo

Jacmel Jacmel

Hinche Hinche

Gonaives Gonaives

Fort-Liberte Fort-Liberte

NORD - OUEST

N O R D

NORD - EST

A R T I B O N I T E

C E N T R E

O U E S T

S U D - E S T S U D

G R A N D E - A N S E

N I P P E S

Palmiste

Môle St.-Nicolas

Baie de Henne

Gros-Morne Limbé

Ennery

Grande Rivière du Nord

Saint- Raphaël

Verrettes

Pointe-à-Raquette

Croix des Bouquets

Marigot

Petit- Goâve

Belle- Anse Thiotte

Côtes-de-fer

Vieux Bourg d'Aquin

Roseaux

Anse d'Hainault

Les Anglais

Port-Salut

Camp-Perrin

Anse-à-Galets

La Cayenne

Mirebalais

Ferrier Trou- du-Nord

Saint Michel de l'Attalaye

Maïssade

Léogâne

Jacmel

Hinche

Jeremie

Gonaives

Les Cayes

Cap-Haitien

Fort-Liberte

Port-de-Paix

Miragoâne

PORT-AU-PRINCE

DOMINICAN

REPUBLIC

Les Trois

Artibonite

Guayampuo

ATLANTIC OCEAN

Caribbean Sea

Win

dward P

assa

ge

Golfe de la Gonâve

Lago Enriquillo

Étang Saumâtre

Lac de Péligre

To Monte Christi

To Santiago

To San Juan

To Barahona

To Oviedo

Île à Vache

Grande Cayemite

Île de la Gonâve

Île de la Tortue

Ce n t r a l P l a t e a u

M a s s i f d e l a H o t t e

Chaine de la Selle (2680 m )

20°N

74°W

74°W

73°W 72°W

73°W 72°W

18°N

19°N

20°N

18°N

HAITI

This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries.

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0 10 20 30 Miles

40 Kilometers

IBRD 33417R

JAN

UA

RY 2006

HAIT I SELECTED CITIES AND TOWNS

DEPARTMENT CAPITALS

NATIONAL CAPITAL

RIVERS

MAIN ROADS

RAILROADS

DEPARTMENT BOUNDARIES

INTERNATIONAL BOUNDARIES