and Request for Waiver of Performance Criterion and Augmentation of Access - Staff Report; Staff Supplement; Press Release on the Executive Board Discussion; and Statement by the Executive Director for Haiti
IMF Country Report No. 09/77
Macroeconomic outcomes in the second year of the PRGF arrangement (FY 2008) were weaker than anticipated at the time of the third review. A prolonged political stalemate constrained government operations, while severe natural disasters caused damages estimated at about 15 percent of GDP. Economic growth slowed to 1.3 percent, and end-period inflation picked up to almost 20 percent. Despite these shocks, program performance through end-September 2008 remained satisfactory, avoiding a significant deterioration in macroeconomic stability.
The authorities are confronting difficult challenges in FY 2009. Responding to the humanitarian crisis and rebuilding infrastructure will require substantial resources, in addition to already large PRSP spending needs. Growth is expected to remain modest, at 2.5 percent, driven by public sector spending.
Haiti's external position is expected to deteriorate further in FY 2009, prompting the authorities to request a second program augmentation of 30 percent of quota. Given the exceptional magnitude of the shocks, limited reserve coverage, and the policy response of the authorities to maintain stability in extremely challenging circumstances, staff supports the request. The proposed augmentation, to be phased in two disbursements, would raise access to the PRGF ceiling of 140 percent of quota.
Priorities for the third and final program year are: (i) safeguarding macroeconomic stability in the face of large spending needs; (ii) finalizing outstanding structural reforms; and (iii) facilitating Haiti's timely progression to the HIPC completion point. Containing central bank financing to the government remains the main anchor of the program. In light of the large spending needs and limited pledged budget support, discussions on the macroeconomic framework for the last program year were more difficult than in previous years. In order to close the fiscal financing gap, the authorities had to scale back their spending plans significantly. Accumulated PetroCaribe resources were used to finance emergency reconstruction spending. Although off-budget, PetroCaribe spending is included in program parameters and will be strictly monitored by the authorities. The overall fiscal deficit is expected to widen from 2 percent of GDP in FY 2008 to 4 percent in FY 2009.
Program risks remain significant. Additional donor support to finance PRSP priorities and reconstruction would be crucial to alleviating spending pressures in an increasingly difficult political environment. Parliamentary elections in April 2009 could delay the approval of laws included in program conditionality and HIPC triggers. However, the authorities have demonstrated their commitment to maintaining macroeconomic stability and implementing their reform agenda, even in the face of great challenges.