Document o f The World Bank

FOR OFFICIAL USE ONLY

Report No. 43731-HT

FOOD PRICE CRISIS RESPONSE TRUST FUND

SUPPLEMENTAL FINANCING DOCUMENT

FOR A

PROPOSED SUPPLEMENTAL FINANCING

IN THE AMOUNT OF US$10 MILLION

TO

THE REPUBLIC OF HAITI

FOR

THE SECOND ECONOMIC GOVERNANCE REFORM OPERATION

May 19,2008

Poverty Reduction and Economic Management Sector Unit Sustainable Development Sector Management Unit Latin America and the Caribbean Region

This document has a restricted distribution and may be used by recipients only in the performance o f their official duties. I t s contents may not otherwise be disclosed without Wor ld Bank authorization.

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AAA BRH CARICOM CNSA

CSCCA

DR DSNCRP

EGTAG EGRO EU F A 0 GFRP HIPC IDB IFRS IMF LICUS MEF MINUSTAH - NGO OCHA OMRH - PRGF PRSP UNDP UNICEF - USAID - WFP

CURRENCY EQUIVALENTS (as o f May 7,2008)

Currency unit = Gourdes

US$1 =38 .5

GOVERNMENT FISCAL YEAR October 1 - September 30

WEIGHTS AND MEASURES Metric System

ABBREVIATION AND ACRONYMS

Analytical and Advisory Activities Central Bank o f Haiti (Barque de la Rkpublique d’Hazti) Caribbean Community National Food Security Coordination Unit (Coordination Nationale de la Sdcuritd Alimentaire) Supreme Audit Institution (Cours Supkrieure des Comptes et du Contentieux Adm inistrat iJl Dominican Republic National Strategy for Growth and Poverty Reduction (Document de Stratkgie Nationale pour la Croissance et la Reduction de la Pauvrete? Economic Governance Technical Assistance Grant Economic Governance Reform Operation European Union Food and Agricultural Organization Global Food Crisis Response Program Heavily Indebted Poor Countries Inter- American Development Bank International Financial Reporting Standards International Monetary Fund Low-Income Countries Under Stress Ministry o f Economy and Finance United Nations Stabilization Mission in Haiti Non-Governmental Organization Office for the Coordination o f Humanitarian Affairs Management Office o f Human Resources Poverty Reduction and Growth Facility Poverty Reduction Strategy Paper United Nations Development Programme United Nations Children’s Fund United States Agency for International Development World Food Programme

THE REPUBLIC OF H A I T I

I . I1 . I11 . I V . V .

SUPPLEMENTAL FINANCING

DEVELOPMENT POLICY GRANT FOR THE SECOND ECONOMIC GOVERNANCE REFORM OPERATION

TABLE OF CONTENTS

ECONOMIC. POLITICAL AND SOCIAL CONTEXT .................................................. 1

FOOD CRISIS ...................................................................................................................... 2

GOVERNMENT’S RESPONSE TO THE CRISIS .......................................................... 3

BANK’S RESPONSE AND STRATEGY .......................................................................... 4

THE SECOND ECONOMIC GOVERNANCE REFORM PROGRAM ....................... 5 A . Economic Performance ....................................................................................................... 5 B . Reform Progress ................................................................................................................. 7 C . Poverty and Social Impact Analysis ................................................................................... 9

V I . RATIONALE FOR PROPOSED SUPPLEMENTAL FINANCING ............................... 9

VI1 . IMPLEMENTATION ARRANGEMENTS .................................................................... 10

B . Funds Flow and Auditing Requirements for the Supplemental Financing .................. 10 C . Environmental Aspects ...................................................................................................... 11

A . Terms of the Supplemental Financing .............................................................................. 10

VI1 . BENEFITS AND R I S K S ................................................................................................... 11 A . Benef i ts ................................................................................................................................ 11 B . R i s k s ..................................................................................................................................... 11

TABLES

Table 1: Selected Macroeconomic Indicators .......................................................... 6

ANNEXES

ANNEX 1: Social Assistance Programs and Donor Efforts to Respond to the Food Crisis in Hai t i .............................................................................................. 13

ANNEX 2: Haiti at a Glance ............................................................................. 16

ANNEX 3: Key Economic Indicators ................................................................ ..19

ANNEX 4: Implementation Status of Second Tranche Conditions.. ........................... .20

ANNEX 5: IMF Press Release ............................................................................ 25

Vice President - Pamela Cox Country Director - Yvonne M. Tsikata Sector Directors - Marcel0 Giugale and Laura Tuck Sector Managers - Jaime Saavedra and Ethel Sennhauser

Task Team Leaders - Benu Bidani (LCSPR) and Gany Charlier (LCSAR)

The team included Benu Bidani (Lead Economist, LCSPR), Gany Charlier (Sr. Operations Officer, LCSAR), Emmanuel Pinto Moreira (Senior Economist, LSCPE), David Warren (Lead Social Protection Specialist, LCSHS) Peter Holland (Operations Officer, LCSHE), Diego Arias (Agricultural Economist, LCSAR), Julie Dana (Technical Specialist, ARD), Gabriel Demombynes (Economist, LSCPP), Mary Morrison (Country Officer, LCC3C), Solange All iali (Sr. Counsel, LEGLA), Joseph Denis (Consultant, LCCHT), Fily Sissoko (Sr. Financial Management Specialist, LCSFM), Patricia MacGowan (Sr. Procurement Specialist, LSCPT), Ross Gartley (Consultant, LCSUW), Vanessa Paul (Operations Analyst, LCC3C), Alejandro CedeAo (Communications Officer, LCC3C) and Martha Garcia (Team Assistant, LCSPE).

THE REPUBLIC OF HAITI

SUPPLEMENTAL FINANCING FOR THE SECOND ECONOMIC GOVERNANCE REFORM OPERATION

DEVELOPMENT POLICY GRANT SUMMARY

Borrower: The Republic o f Haiti

Implementing Agency: Ministry o f Economy and Finance

Amount: US$ lO million

Terms: Grant

Estimated Disbursement: US$10 million will be disbursed in a single tranche upon grant effectiveness.

Project ID Number P112133

FOOD PRICE CRISIS RESPONSE TRUST FUND

PROPOSED SUPPLEMENTAL FINANCING

THE SECOND ECONOMIC REFORM OPERATION (EGRO 11) T O THE REPUBLIC OF HAITI FOR

I. ECONOMIC, POLITICAL AND SOCIAL CONTEXT

1. Haiti has long suffered from political instability and conflict. In early 2004, as armed groups, including many former soldiers, advanced toward the capital in February o f that year, President Jean- Bertrand Aristide resigned and left the country. A wave o f conflict, including widespread looting, l e f t thousands dead and much public and private property, including infrastructure, destroyed or looted.

2. Haiti has made considerable progress in restoring political and social stability since 2004, although there have been some setbacks in recent months. After two years under a transitional government, Hai t i successfully held presidential and parliamentary elections in 2006. President Rene PrCval o f the Lespwa party won 5 1 percent o f the presidential vote. H e appointed Prime Minister Jacques- Edouard Alexis to head a six-party coalition government, which took office in May 2006. The 48th legislature was opened in M a y 2006, ending three years o f legislative paralysis - and strengthening checks and balances in the political system. The new Parliament has passed numerous bills, including two national budgets and a requirement for asset declaration by higher officials in public service. Municipal elections were held in December 2006 and April 2007. However, partial Senate elections scheduled for the end o f 2007 have been postponed due to restructuring o f the electoral council and the passage o f a new electoral code and a new date for the elections has yet to be determined’. The term o f 10 senators expired on M a y 08, 2008. Currently, there i s a caretaker Government. President PrCval’s April 27 nominee for Prime Minister, Mr. Ericq Pierre, was rejected by the lower house on May 12, 2008. The nomination and ratification process must start over in accordance with the Constitution.

3. While the overall security situation remains fragile, it has improved markedly since December 2006, when the Haitian National Police and the 9,000-strong UN peacekeeping force (MINUSTAH) launched direct operations against major gang leaders in the violent Port-au-Prince slums o f Cite Soleil and Martissant. These areas have largely been returned to state control and most development partners have resumed interventions (including Wor ld Bank financing o f school feeding and urban community driven development activities in CitB Soleil). However, rates o f kidnapping and other violent crimes remain a concern. In addition, the smuggling o f narcotics and weapons, amid weak border control, undermines Haiti’s security and stability.

4. Haiti’s economy has gradually recovered from the shocks of 2004 (political turmoil and floods). Growth i s estimated at 3.2 percent in FY072. This i s an improvement from 2.3 percent in Haitian FY06.

5. While greater macroeconomic stability and improved security laid the foundations for growth, there i s a pressing need for quicker results on the ground, particularly in urban areas susceptible to violence, to reduce poverty and cement stability. Economic growth has not been rapid

The new electoral law has been approved by both chambers o f the Parliament in May 2008. The next step i s

The Haitian fiscal year 2007 runs from October 1,2006 to September 30,2007. promulgation o f the law by the President.

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enough to create many jobs. While development programs are generally advancing well, the delivery o f assistance has been slowed by many factors, including limited government and private sector implementation capacity, as wel l as ongoing violence. As a result, four years into the current recovery effort, most Haitians have yet to enjoy a peace dividend. Along with the persistent weakness o f political and public sector institutions, the potential for popular discontent contributes to a high risk o f relapse into social and political upheaval, which could negatively affect the Government’s capacity to implementing i ts reform program.

6. To accelerate growth and reduce high inequality and poverty, the Government has launched an ambitious program, articulated most recently in the 2007 Poverty Reduction Strategy Paper (PRSP) entitled “Document de Stratkgie Nationale pour la Croissance et la Reduction de la Pauvretk, DSNCRP” including key economic governance reforms. The Government’s continued efforts to implement i t s reform program have received strong support from the international community. The good policy track record under the IMF’s Emergency Post-Conflict Assistance (2005) helped Hait i benefit from the first three-year Poverty Reduction and Growth Facility (PRGF) program (starting November 2006). In November 2006, Hai t i qualified for debt relief under the Enhanced Heavily Indebted Poor Countries (HIPC) Initiative by reaching the decision point.

7. Economic governance reforms since 2004 have been supported by IDA through policy advice and financial assistance. This has included an Economic Governance Reform Operation (EGRO I, o f US$61 mi l l ion fully disbursed in 2006), the EGRO I1 (the first tranche o f US$10 mi l l ion which was disbursed in August 2007), two ongoing Economic Governance Technical Assistance Grants (EGTAG I and 11, o f US$2 mi l l ion each), a LICUS Economic Governance Grant (US$1.5 million), and selected analytical reports. IDA-supported investment operations in education, community driven development and rural water complement the support for the economic governance agenda and have been closely coordinated with assistance provided by other donors, in particular Canada, EU, the IDB, IMF, and US.. Reform implementation under EGRO I1 has remained strong over the past year, despite the fragile security situation and the food crisis.

11. FOOD CRISIS

8. Domestic food prices have increased dramatically since late 2007. Food prices have recently soared, provoking protests against President PrBval and the Government led by Prime Minister Alexis. In March 2008, overall inflation was estimated at 16 percent, almost double the 2007 rate. Food inflation more than tripled from 6.4 percent in July 2007 to 20 percent in March 2008. Price increases, especially for basic food staples, accelerated in early 2008.

9. The rising cost of living in Haiti has fueled social and political discontent. In February 2008, following (relatively peaceful) protests in Port-au-Prince and other cities, Prime Minister Alexis faced an init ial challenge in the Chamber of Deputies. However, on February 28 the lower house rejected a no- confidence vote against him, defeating critics angry over the Government’s handling o f the economy, in particular a perceived failure to create jobs and control rising food prices. Prime Minister Alexis subsequently announced a “Program o f Governmental Action against the High Cost o f Living”, which envisioned around $45 mi l l ion o f emergency programs, including school feeding, public cafeterias and agricultural input provision. As the Program was gearing up for implementation in early April, much larger protests erupted in the southern city o f Les Cayes. These quickly turned violent and spread to the capital, Port-au-Prince. By the time the protests subsided, six people had lost their lives (including a UN peacekeeper), and several properties had been looted and ransacked. On April 8, only a timely intervention by UN peacekeepers prevented protestors from storming the Presidential Palace.

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10. On April 12, the Prime Minister faced a second challenge from legislators, this time in the Senate. Of the 17 participating senators, 16 voted for the resignation o f Prime Minister Alexis. The removal o f the Prime Minister, coupled with the simultaneous announcement by the President o f an immediate reduction in the price o f rice, quelled protests. However, the situation remains fragile and volatile. Mr. Alexis and his Government remain in a caretaker capacity until a successor and a new cabinet are confirmed. On April 27, President Pr6val nominated Ericq Pierre as Prime Minister. While approved by the Senate, Mr. Pierre was rejected by the lower house on M a y 12. The nomination and ratification process must start over in accordance with the Constitution.

111. GOVERNMENT’S RESPONSE TO THE CRISIS

11. Prior to the riots of early April, a multi-sectoral working group, chaired by the Prime Minister, had been developing a comprehensive strategy to deal with rising food prices. This group, organized at the technical level by the National Food Security Coordination Unit (CNSA), includes the Ministry o f Agriculture, Rural Development and Natural Resources, the Prime Minister’s Office, United Nations agencies (FAO, OCHA, UNDP, UNICEF and WFP) and the United States Agency for International Development (USAID). The working group drafted a Plan o f Response to Food Insecurity for the period o f April to September 2008. This document incorporates earlier plans set out in the Government’s Program o f Action against the High Cost o f Living, announced in February. The Plan identified 1.4 mi l l ion people mo$t affected by high food prices in the short run and sets out three priority action areas for improving food security in the short term: (i) employment generation through labor- intensive works; (ii) agricultural inputs to revitalize production, and (iii) expansion o f food assistance programs (including feeding programs for schoolchildren, mothers and infants) for six months.

12. The riots of April 2008 led the Government to announce a temporary subsidy to reduce the price of rice, as an emergency measure. N o recent household survey data are available3. However, analysis o f the 200 1 household data shows that the rice subsidy in Hai t i i s reasonably well-targeted to the poor. Almost al l Haitian households (86 percent in the survey) consume rice, and rice expenditure as a percentage o f income i s much higher among the poorest Haitians. Roughly 70 percent o f the rice i s consumed by those living on less than $2 a day (76 percent o f the p~pu la t ion)~ . The Government sees the subsidy as temporary measure (up to six months) to smooth the transition to the environment o f higher food prices and it i s currently exploring strategies to adjust gradually to market prices, while increasing support to farmers to help boost domestic output. High taxes on rice in the Dominican Republic (DR) create incentives for rice imported to Hait i to find i t s way to the DR. Estimates indicate that this i s in the range o f 5-8 percent o f total imports5. The Haitian Government has recently banned the export o f rice, but it i s unclear how effectively the borders can be monitored.

13. As noted above, the Government i s also working with donors to scale up existing safety net programs including school feeding programs, mother-child programs, and labor intensive public works (see Annex 1). As a complementary response, the Government would l ike to scale up support for agricultural inputs and investments. The key agencies engaged in supporting safety nets and agriculture

A new household survey i s currently being conducted and wil l provide updated poverty estimates and information

The distribution o f the subsidy i s the same as the distribution o f rice consumption by the population. Note de Travail - Observatoire des echanges de produits agricole avec la Republique Dominicaine, LAREHDO,

Avril, 2008. Given the difficulty in getting accurate estimates o f this cross-border trade, there i s uncertainty around these numbers.

on the distribution o f consumption o f rice.

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include the United Nations (FAO, OCHA, UNDP, UNICEF and WFP), USAID, and multilateral agencies such as the IDB and Wor ld Bank.

14. The estimated cost of the Government’s response to the food price crisis for the remainder of this fiscal year i s preliminary. This includes an estimated US$30 mi l l ion for the rice subsidy, which i s intended to ease immediate social pressures and allow time for the implementation o f more sustainable relief programs, including targeted social assistance programs and measures to boost agricultural output during the fal l harvest (August-December 2008). The estimates for the implementation o f the targeted social assistance programs and agricultural measures are less precise. This proposed supplemental operation would cover part o f the financing gap. Incremental resources o f around US$10 mil l ion are estimated to be forthcoming from the CARICOM. In addition, the IDB has accelerated approval o f US$27 mi l l ion o f i t s ongoing budget support to support the Government’s emergency response and other donors such as USAID, CIDA, Japan and France have also brought forward their projects to help the Government respond to the food price crisis (see Annex 1). A more accurate estimate o f the financing gap i s expected by early June.

IV. BANK’S RESPONSE AND STRATEGY

15. In April 2008, the Bank announced its intention to provide a US$10 million additional grant to Haiti. This grant to Haiti, provided as a supplement to the EGRO I1 operation, will be financed from the Food Price Crisis Response Program Trust Fund being established by the Bank from IBRD surplus to channel grant financing to especially vulnerable countries affected by the crisis. The establishment o f this Trust Fund i s scheduled for Board presentation at the same time as this operation and thus the US$10 mi l l ion grant to Hai t i i s contingent upon the approval o f the Food Price Crisis Response Trust Fund. In addition, financing out o f the Trust Fund will be subject to the Board o f Governors approval o f the allocation o f IBRD surplus for this purpose.

16. The aim will be to safeguard the ongoing reform and poverty reduction program that the EGRO series i s supporting, by helping to partially fill the unanticipated financing gap created by the food price crisis. The food crisis has put pressure on the state to increase i ts expenditures on social assistance, directly (through school feeding programs, mother-child programs, and labor intensive public works) and indirectly (through subsidies on food commodities, such as rice). In the short term, accommodating that pressure i s critical to preserve the political stability necessary to continue progress in implementing the policy and institutional reforms supported by the EGRO series, and in some cases, to protect reforms that have already been achieved. For that reason, the Bank will j o i n other donors (IDB and CARICOM) in providing additional fast-disbursing financing on an emergency basis. The overall intention o f the Bank will be to open a window o f opportunity to: (i) deepen and extend the social assistance network; (ii) target subsidies; (iii) elicit an income-enhancing supply response among farmers (especially poor ones); (iv) start a dialogue for better coordinated action across the island (Haiti- Dominican Republic); and (v) design and implement insurance mechanisms that could hedge the country against a protracted and/or repeated episode o f food inflation.

17. In addition, the Bank will also contribute to the Government’s efforts to address the crisis by extending the school feeding program underway through the Education for All project. The program will be adapted to cover some children over the summer break and to expand coverage o f the program in the new school year starting September 2008.

18. The Bank will provide technical assistance to the Government to develop a medium-term solution of improved agricultural productivity and a well functioning safety net. A f i rs t area o f

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technical assistance will focus on options for making food available at prices affordable to the poor, on complementary price risk management strategies, and on moving from an emergency approach to a more sustainable medium term approach. A second area o f technical assistance will be addressing the constraints to realizing Haiti’s potential in agriculture, a key vector o f growth in the Government’s PRSP - and focus o f i t s medium-term response to the crisis. A third area o f focus will be the design o f an appropriate social protection system for Haiti. This crisis has further exposed the limitations o f Haiti’s existing safety net mechanisms, which are not sufficiently targeted to reach the poorest.

V. THE SECOND ECONOMIC GOVERNANCE REFORM PROGRAM

19. EGRO I1 is the second in a series o f development policy operations to support the implementation of Haiti’s economic governance reform program, as spelled out in the Interim PRSP and the recently prepared full PRSP, the Document de Strate‘gie Nationale pour la Croissance et la Re‘duction de la Pauvrete‘ (DSNCRP). The DSNCRP emphasizes sustained, rapid growth as the main vehicle for poverty reduction and i s based on three pillars: (i) accelerating growth and maintaining macroeconomic stability; (ii) enhancing human development, with a focus on the strengthening o f social sectors to improve the delivery o f basic social services; and (iii) strengthening democratic and economic governance, particularly through improving justice and public security.

20. The overall EGRO I1 reform program i s closely aligned with the three reform pillars outlined in the DSNCRP. As poor economic governance and slow growth are at the root o f high poverty incidence, the main thrust o f the DSNCRP agenda, and EGRO 11, which preceded it but i s largely consistent, centers on a set o f policy reforms to improve economic governance and accelerate and sustain rapid growth. The EGRO I1 program focuses on critical policy reforms in the areas o f public financial management and procurement, human resource management, public infrastructure management, and governance reform in education.

2 1. EGRO 11, in an amount of US$23 million, was approved by the Board in January 2007 and its first tranche of US$10 million disbursed in August 20076. As detailed in Section B below, the Government i s maintaining implementation o f the conditions for release o f the first tranche and i s making overall satisfactory progress towards the conditions for release o f the second tranche.

A. Recent Economic Performance

22. Since EGRO I1 was approved, economic performance has been good. Real GDP was estimated to have risen by 3.2 percent in FY2007 (October-September), more than one percentage point greater than in FY2005 (1.8 percent) helped by macroeconomic stability and international economic assistance. Growth was driven by private consumption, which benefited from the more stable environment and strong remittances. Public investment also contributed to growth.

23. However, food and fuel prices have dramatically increased since late 2007, with adverse macroeconomic and fiscal impacts. Preliminary data suggest a lower projected growth rate o f 2.5 percent in FY2008 against 3.7 percent projected previously (see Table 1). This decline in growth rate i s linked to a combination o f factors, including the damage from the tropical storms and the recent riots that have shaken private sector confidence, which are l ikely to result in lower levels o f foreign direct investment (FDI) and domestic investment than originally expected. Net exports are also projected to be

The disbursement o f the f i rs t tranche o f EGRO I1 was linked to a portfolio-wide issue on Parliamentary approval, which has now been resolved.

5

significantly more negative than previously assumed. High food and fuel prices have led to higher inflation, a deteriorating trade balance, and a depreciating gourde. Inflation rose to 16.3 percent in March 2008, up from 7.9 percent in September 2007. Food, fuel and public transportation account for two-thirds o f Haiti’s Consumer Price Index. Food prices have been driven up by international price increases as well as storms and flooding in late 2007, which caused considerable damage to the local agricultural sector. The trade deficit widened by US$185 million (2.5 percent o f annual GDP) in the f i rs t half o f FY2008 compared to the previous year, largely because o f higher import bills for food and fuels, particularly oil. The current account deteriorated somewhat less, aided by rising private remittances, which have not been affected so far by the downturn in the U.S. economy. With demand for foreign currency rising, the gourde reversed i ts nominal appreciation trend and weakened by about 10 percent against the dollar between September 2007 and March 2008. Because o f Haiti’s relatively strong exchange rate pass through, the weakness o f the gourde i s likely adding to observed inflationary pressure.

Table 1: Selected Macroeconomic Indicators (Fiscal year ending September 30)

Nominal GDP (2007): US$ 6.0 bi l l ion Population (2006): 9.1 mi l l ion Share ofpop. l iv ing with less than $1 a day (2003): 54 percent

GDP per capita (2007): US$660 Adult literacy (2005): 53 percent Unemployment rate (2003): 27 percent

2006 2007 2008 2009 Prel. Feb 2008 05/16/2008 Proj.

GDP at constant prices Consumer prices (period average) Consumer prices (end-of-period)

Overall balance 1/ Overall balance (excl. grants)

Total revenue and grants

Total expenditure 2/ Total revenue

Current expenditure Transfers and subsidies

o/w Rice subsidy o/w Other emergency programs

Capital expenditure

(change over previous year unless otherwise stated)

2.3 3.2 14.2 9.0 12.4 7.9

(percent o f GDP, unless otherwise stated)

-0.9 -0.6 -4.4 -5.5

13.5 15.1 10.0 10.3 14.4 15.7 9.1 8.9 2.8 2.4 ... ... ... ...

5.3 6.8

3.7 9.7 9.0

-1.0 -5.9

16.9 12.1 17.9 10.4 2.2

...

... 7.6

External current account balance (incl. official grants) -0.4 -1.1 -1.3 External current account balance (excl. off icial grants) -8.2 -7.6 -7.5

In months o f imports o f the following year 1.7 2.4 2.7

(millions o f US$, unless otherwise stated)

Exchange rate (gourdes per dollar, end-of-period) 39.1 36.4 ... Nominal GDP (millions o f gourdes) 200,456 225,560 256,594 Nominal GDP (millions o f dollars) 4,836 6,031 7,128

2.5 4.0 14.5 11.5 16.0 9.5

-2.3 -2.9 -7.4 -6.6

15.8 15.2 10.6 11.5 18.1 18.1 11.2 10.2 3.4 2.2 0.4 ... 1.1 ... 6.9 7.8

-3.2 -3.0 -9.6 -8.0 2.5 2.7

... I..

264,722 306,972 7,353 7,382

Sources: Ministry o f Economy and Finance; Bank o f the Republic o f Haiti; and Fund staff estimates.

1/ From 2009 onward, budget grants are assumed zero until firm donor commitments are forthcoming. 2/ Commitment basis except for domestically financed capital expenditure, which is reported on cash basis f fom 2007 on.

Note: This macroeconomic framework i s preliminary and an updated framework i s expected by early June 2008

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24. Despite these negative shocks, macroeconomic stability has been broadly maintained. The Ih4F supported-PRGF program i s on track. The program performance during the f i rst ha l f o f FY2008 (October 2007-March 2008) was satisfactory. Preliminary data indicate that most quantitative performance criteria o f the program were met, albeit with much narrower margins than at previous test dates. Most structural conditionality was implemented on time. The third review o f the program i s currently being conducted, during which the macroeconomic outlook for 2008-2009 will be revised and the IMF will consider an increase in balance o f payments support under the program.

25. Expenditure execution, a weak point in the past, picked up and exceeded revenue growth. Revenues rose 18 percent during the f i rst ha l f o f FY2008 compared to a budget target o f 30 percent. Slow implementation o f modernization plans for customs and the internal revenue service contributed to less-than-programmed revenue intake. In addition, budget support disbursements fel l short by about 0.3 percent o f annual GDP. Expenditures remained below budget but nonetheless experienced a sharp acceleration. In addition, a substantial portion o f expenditures that were committed in the last month o f FY2007 appears to have been executed. Overall, these outcomes left the fiscal balance (excluding foreign financed projects and project grants) broadly in balance.

B. Reform Progress

26. The economic governance reforms started under EGRO I have been maintained, and the Government i s making satisfactory progress in implementing the program supported by EGRO 11, despite some unevenness across the various policy areas of the program. The status o f compliance and prospective compliance with the second tranche release conditions o f EGRO I1 i s set out below and in further detail in Annex 4. Overall, two o f nine second tranche release conditions o f EGRO I1 have been satisfactorily completed and significant progress has been observed in another four out o f nine conditions, which are expected to be completed by end-July 2008. Progress in the remaining three has been slow and completion i s projected for fal l 2008. In addition, full compliance with the first tranche release conditions o f EGRO I1 i s being maintained, without reversal.

27. Significant progress has been made in public financial management reform. Key areas of progress include budget preparation, execution, and control. The FY2008 budget was submitted to Parliament before the start o f the fiscal year. It reflects the Government's development priorities. The share o f poverty-reducing spending in the FY2008 budget i s estimated at 56 percent, up from 43 percent in FY2007. Wh i le budget execution was slow in the f i rst quarter o f FY2008, it accelerated in the second quarter. As o f end-March 2008, more than 40 percent o f the total Government budget was spent, with about 50 percent o f the poverty-reducing spending executed. To ensure the sustainability o f the large road investments currently being undertaken, the Government i s making efforts to establish a sustainable f low o f resources to finance road maintenance activities. To this end, the FY2008 budget law also includes a specific l ine for recurrent budget allocation for the Road Maintenance Fund (Fonds d 'Entretien Routier, FER) as well as a line item for counterpart funds o f about 9 mi l l ion gourdes. The Government i s committed to preparing and submitting the budget law to Parliament before the beginning o f the fiscal year and in conformity with the PRSP priorities. It aims to design the FY2009 budget law in line with the recently prepared DSNCRP and submit it to Parliament before end-September 2008. To this end, a committee i s in place and has started the preparation o f the FY2009 budget law together with a revised FY2008 budget law.

28. To accelerate budget execution, the Government has stepped up i t s efforts to recruit public accountants and financial comptrollers, which will strengthen the capacity o f line ministries, departments and agencies involved in the spending chain. In addition to the 9 public accountants recruited in FY2007, 10 out o f the 30 accountants trained in FY2007 were deployed in l i ne ministries in FY2008. At the same time, 8 financial comptrollers were deployed in line ministries. Moreover, during

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FY2008, the Government has continued to strengthen public expenditure management by expanding the integrated financial management system (SYSDEP) to al l l ine ministries. A manual of procedures for budget execution i s being developed with technical assistance funded by the Bank.

29. Budget control mechanisms have also been significantly strengthened. The draft Budget Review Law (Loi de R2glement) for FY2006 prepared by the Ministry of Economy and Finance (MEF) was reviewed by the Supreme Audit Institution (Cours Supkrieure des Comptes et du Contentiem Administratij CSCCA). A revised draft of that Budget Review Law completed in end-April 2008 i s being reviewed by the CSCCA. Once the iterative process between CSCCA and MEF i s completed7, the draft Budget Review Law accompanied by the CSCCA's legal opinion wil l be transmitted by the MEF to the Parliament for adoption. The 2004 and 2005 treasury accounts were audited by CSCCA and the draft audit reports were submitted for quality review to international consultants. CSCCA i s in the process of integrating these comments and i s expected to produce the audit reports by the end of July 2008.

30. I n the area of public procurement, progress has been slow due to delays encountered in submitting the new draft Procurement Law to Parliament. However, partial adoption of improved procedures has occurred despite the delays in submission of the new law to Parliament. In addition, the standard bidding documents and manuals have already been introduced to government procurement staff (including members o f Commissions Ministerielles and Commissions Specialise'es) through a series o f seminars in 2007.

31. Measures have also been taken to strengthen human resource management in the public sector and accountability of state employees, though progress has been slow. The Government has launched the process o f updating the registry o f state employees. The selection process o f the firm in charge of updating and improving the existing registry o f state employees i s well advanced and i s expected to be completed by end-May 2008. The system, applicability, and procedures for new merit- based appointments and promotions wil l be available for the Management Office o f Human Resources ( O W ) by end-September 2008. The strategic framework for public administration reforms and several ar&tes which establish the different functions of OMRH have been prepared. The ar&te which defines the organization and functioning o f the Conseil Supe'rieur de 1 'Administration et de la Fonction Publique was approved in March 2008. Another ar&te which defines the organization and functioning of OMRH will be issued by the Prime Minister by September 2008.

32. Important steps have been made to advance the adoption o f the anti-corruption strategy. An anti-corruption survey was conducted and the results were disseminated at a workshop in Port-au-Prince in August 2007, followed by participatory seminar series organized in provinces between October and November 2007. The next critical step i s the adoption of the anti-corruption strategy. This i s expected to take place by end-June 2008. The Government i s also committed to widely disseminate the anti- corruption strategy through the posting of the strategy on the MEF website and additional dissemination events financed by the Bank EGTAG project.

33. Improving efficiency and transparency in public infrastructure management has been a challenge. Important progress was made during the past two years to improve financial transparency, performance, and procurement o f public utilities. Two competitive bidding processes were completed for the provision o f energy in the provinces and Port-au-Prince in 2007 and 2008. However, the pace o f implementing these new procedures has recently faced significant challenges due to conflicting interests involved in setting the price and modalities of energy supply contracts. Bank staff are collaborating

~ ~~

According to the information provided both the MEF and CSCCA, this iteration process should be completed 7

within three months Le. by the end o f July 2008.

8

closely with the Government to find appropriate solutions to move the reform program forward in the energy sector.

C. Poverty and Social Impact Analysis

34. The EGRO II operation is expected to have a significant positive impact in terms of poverty reduction, albeit indirectly, through strengthening the core functions and processes of the state’. It i s not yet possible to identify whether the reform program has been accompanied by declines in poverty. A new survey later this year will make it possible to produce the f i rst new estimates o f poverty rates since 2001. In light o f the stability and economic growth o f the last few years, it i s l ikely that poverty has declined. However, given the large share o f food in the consumption o f the poor, the recent rise in food prices has almost certainly increased the number o f poor and increased the depth o f poverty for those living below the poverty line.

VI. RATIONALE FOR PROPOSED SUPPLEMENTAL FINANCING

35. The urgent need for public expenditures to respond to the food price crisis in the wake of the riots has resulted in higher financing requirements than originally anticipated. This supplemental financing grant will help enable the Government to continue to make progress on the reform program supported in EGRO I1 which could otherwise be jeopardized by the unanticipated gap in financing for the 2008 budget.

36. The proposed Supplemental Financing, which would contribute to the sustainability o f the overall reform program of the government, meets Bank requirements for Supplemental Financing under OP 8.60 as follows:

(a) The program is being implemented in compliance with provisions of the Grant Agreement. Hai t i i s currently implementing the EGRO I1 reform program in full compliance with the covenants. Specifically, the reform program i s proceeding in compliance with this agenda, with the expectation o f - and Government’s commitment to - completing such compliance before the EGRO I1 closing date. The evidence supporting this conclusion i s detailed in Annex 4 below. The compliance track i s more advanced for some conditions than for others, for which progress i s proving more difficult. Nevertheless, on balance and in view o f the challenging country circumstances, management’s judgment i s that progress i s sufficient to meet OP 8.60 requirements for supplemental financing.

(b) The borrower is unable to obtain suflcient fundsfrom other lenders on reasonable terms or in a reasonable time. The Government has approached donors to support i t s crisis response program. Donor assistance (e.g. Canada, USAID) has been forthcoming, primarily for supporting NGO and UN agency implemented programs for mother and child programs and labor intensive foodhash for work public works programs. The IDB has accelerated disbursement o f i t s budget support operations, and has ongoing agricultural projects which can support agricultural productivity. Nonetheless, while an updated macroeconomic framework i s not yet available, preliminary analysis suggests that even with this donor financing, (including this grant), Hai t i would face a financing gap o f about US$30 milliong.

See Report No. 38235-HT for a discussion o f the poverty and social impacts under EGRO 11. The fmancing gap wil l depend on the execution capacity o f the Government and donor programs and the

8

availability o f donor financing.

9

(c) The time available is too short to process a firther ffeestanding Bank credit. The Supplemental Financing option would enable the Bank to deliver program support in a timely manner. The second tranche o f the EGRO I1 i s not expected to disburse before October 2008 which the Bank considers too late to address the Government’s pressing needs.

(d) The borrower is committed to the program and the implementing agencies have demonstrated competence in carrying it out. The Government i s committed to a medium term poverty reduction strategy, the DSNCRP. I t s performance in pursuing macroeconomic stability and structural policies for growth and poverty reduction together with its overall satisfactory progress in implementing the EGRO program, including its steps to fulfill the conditions for disbursing the second EGRO I1 tranche demonstrate its continuing commitment to the policy program.

VI1 IMPLEMENTATION ARRANGEMENTS

A. 37. Apart from the standard requirement o f a legal opinion, no conditions will apply to this proposed Supplemental Financing other than that the Government continue to maintain a satisfactory macroeconomic policy framework and make overall satisfactory progress in implementing the EGRO I1 policy program.

Terms of the Supplemental Financing

B. Funds Flow and Auditing Requirements for the Supplemental Financing

b. Supplemental proceeds will be deposited in a deposit account at the Central Bank o f Haiti into which the Supplemental Financing proceeds will be disbursed on a single tranche basis. Disbursements would not be linked to any specific purchases. The proceeds of the Grant would not be used to finance expenditures excluded under the Supplemental Financing Agreement.

c. The second review o f the Poverty Reduction and Growth Facility (PRGF), done in March 2008 by the IMF, noted that priority recommendations o f the March 2007 Safeguard Assessment had been implemented. An external audit committee was established and a gap analysis o f the International Financial Reporting Standards (IFRS) was undertaken. In addition, the IMF completed the Financial System Stability Assessment in February 2008. The report makes a number o f recommendations, including the need to strengthen the audit o f the Central Bank, Banque de la Re‘publique d‘Hazti (BRH) and to move toward full application o f the IFRS. Neither report, however, reveals any systemic vulnerabilities that would signal that the control environment into which the grant proceeds will flow i s not adequate.

d. In accordance with the Bank’s policy and given the remaining weaknesses in the Central Bank control environment, the deposit account would be audited on terms o f reference acceptable to the Bank within four months o f disbursement, in accordance with consistently applied auditing standards acceptable to the Bank and by an independent auditor acceptable to the Bank. The audit will certify that: (a) the exact sums disbursed by the Bank with respect to the Supplemental Financing are paid into the designated foreign currency Deposit Account of the Government kept in the Central Bank exclusively for this purpose, that forms part of the general reserves o f the country, and no sums are kept in or paid into the Deposit Account other than those disbursed by the Bank for this particular development policy grant; (b) all withdrawals from the foreign currency Deposit Account are for legitimate budgetary purposes and not to finance expenditures on the Bank’s negative list; and (c) the financial statements o f the Deposit Account are produced in a format acceptable to the Bank.

10

C. Environmental Aspects

e. As noted in the EGRO I1 program document, the reforms supported by the proposed supplemental grant, which focus largely on economic governance issues, are not considered likely to cause any significant effects on the country’s environment, forests and other natural resources, but would indirectly contribute to increasing the environmental sustainability o f the energy sector”.

VI11 BENEFITS AND RISKS

A. Benefits

f. The provision of timely, flexible support to the Government of Haiti will enable the Government to respond quickly to the socio-economic and political crisis that it i s facing. The provision o f quick disbursing financing will enable the Government to maintain the gains in macroeconomic stability, sustain the critical reforms under EGRO 11, and undertake critical expenditures to respond to the food price shock, while maintaining satisfactory progress in implementing the EGRO I1 program. The development community i s supporting Haiti’s medium term poverty reduction strategy, and it i s critical that the momentum o f the reform program i s maintained. Supplemental financing will complement other support from bilateral and multilateral agencies for mitigating the risks to the overall Hait i program. It will also support the Government’s medium-term reform agenda for putting in place a better safety net system that improves Haiti’s resilience and response to shocks.

B. R i s k s

g. The risks to this operation are significant. Haiti’s recovery i s fragile. The protests over rising food prices put two years o f hard-won macroeconomic stability and improved security at risk, and the possibility o f renewed protests over rising prices cannot be excluded. The Government i s under tremendous pressure to deliver visible assistance to the population. This operation i s a small part o f a much bigger effort that i s needed to scale up assistance to Hait i to consolidate and lock in the early gains, to deliver growth and jobs, and improve service delivery to the population. The risk remains that the government’s limited implementation capacity will impede delivering concrete results on the ground in line with the expectations o f the population, jeopardizing social and political stability. The international environment, with high prices o f energy and food projected at least for the foreseeable future”, will continue to generate pressures for policy responses that may be sub-optimal but politically expedient. Thus, despite the Government’s intention to gradually bring domestic rice prices in line with international import parity prices, this could be difficult. The Bank will provide technical assistance to accompany the Government, in co-ordination with other partners, on the medium term development issues on agriculture, safety nets and price risk management strategies. Moreover, the delay in appointing a new prime minister could further slow the implementation o f some o f the reforms supported by EGRO 11, most notably the conditions o f the release o f the second tranche. However, the technical work has been completed for most o f the unmet conditions, and Bank staff have received reassurance from the authorities that the implementation o f the remaining conditions will be a top priority o f the new Government.

See Report No. 38235-HT, page 34, for a discussion of the environmental aspects related to EGRO 11. 10

l1 Indices of real prices (2004 base) for most food commodities such as rice and sugar are projected to reach their peaks only in 20 10 and decrease to their 2008 level or below only in 20 15 ---see: Rising foodprices: policy options and IVorld Bank response -Backgroundpaper for the Development Committee.; p .2

11

ANNEXES

ANNEX 1: SOCIAL ASSISTANCE PROGRAMS AND DONOR EFFORTS TO RESPOND TO THE FOOD CRISIS IN HAITI

ANNEX 2: HAITI AT A GLANCE

ANNEX 3: KEY ECONOMIC INDICATORS

ANNEX 4: IMPLEMENTATION STATUS OF SECOND TRANCHE CONDITIONS

ANNEX 5. IMF PRESS RELEASE: IMF EXECUTIVE BOARD APPROVES SECOND REVIEW UNDER THE PRGF ARRANGEMENT

12

ANNEX 1

Canada

Social Assistance Programs and Donor Efforts to Respond to the Food Crisis in Haiti

reallocated c. $35m via WFP C$2 mi l l ion C$7m mother-child care;

1. Based on the team’s assessment o f existing safety net instruments and available funding, donors seem to be preparing to provide funding to utilize whatever spare capacity there i s in existing instruments to channel resources to poor households (mainly food distribution for vulnerable groups and food or foodhash for work programs). The Bank intends to contribute to this effort-above and beyond what will be provided through the EGRO I1 supplemental-by advancing uncommitted funds under the Education for All (EFA) project to expand national school feeding programs to an additional 15,000 children starting next September, and to extend feeding to 15,000 children during the summer months; these figures represent the maximum unutilized capacities.

IDB EU

France Spain Venezuela

Additional and Re-allocated Donor Assistance

C $ l mi l l ion food baskets $27m accelerated

c. 12m euros, o f which 7- 8m accelerated 2.4m euros 4 m euros’ 0.5m euros

200 tons o f food

2. Major donors are preparing additional or reallocatedaccelerated assistance to address the crisis, as summarized in the table below. This table reflects assistance in three broad categories-food aid, workfare, and agricultural support. An additional column has been included for budget support.

3. The largest single contribution i s set to be from the United States, which has pledged $200 mi l l ion to the World Food Program’s multi-country crisis appeal. Of this, U.S. authorities expect roughly $35 mil l ion to be earmarked to Haiti.

4. Much o f the funding presented, particularly in the category o f labor-intensive works has been reallocated or accelerated under existing programs. Job creation through labor-intensive works has been a central element o f the programs o f U S A I D and other major donors in Hait i since 2004.

Table A1.1: Preliminary Estimates of Additional and Re-allocated Donor Assistance

I Japan Note: These numbers are tentative. ’’ This amount may be project or budget support.

13

Main Safety Net Programs

5. School feedinp Dropram: The National School Feeding Program (PNCS) i s a government program housed under the Ministry o f Education. The project sub-contracts non-governmental organizations to provide school feeding to selected underserved areas throughout the country, using the Haitian Poverty Map as a targeting mechanism. The World Bank i s currently financing school feeding programs (up to $5 million) through the Education for All Project, a US$25 mi l l ion IDA grant. The program provides children with hot meals totaling 1,500 kilocalories per day, or 2/3 o f their recommended daily intake. For school year 2007-2008, approximately 30,000 children have been participating in the program in the West (Cite Soleil and Belair), South, Artibonite, and Centre (thus, in four o f the ten regional Departments in Haiti). School-feeding services are sub-contracted to four NGOs, under the supervision o f the PNCS. The other major donors in this area are U S A I D and CIDA, funding existing programs through WFP and international NGOs. None o f these donors are expected to provide incremental resources to school feeding activities. A GIs coded maps shows the schools where each donor/program i s active.

School Feeding Programs

School feeding Region Current Scaling up potential programs Beneficiaries

PNCS 20,000 School lunches (PNCS Central Plateau; 30,000 in school year 15,000 for 3 months during run through EFA West (Cite Soleil 2007/8 sutnmer program) and Bel Aire);

Anibonite; South Additional 15,000 in 2008/9 school year for 10 months

World Food Program school feeding

300,000 30,000 additional

6. There i s scope for scaling up school feeding programs, both to cover the summer months when children are out o f school, and for the next school year. The Bank will advance disbursements under the EFA program to utilize all available spare capacity in the national (PNCS) program.

Support for health and nutrition activities at “summer camps”. When school ends, many o f the students currently benefiting from school feeding programs wil l suddenly be without a regular meal that they have been receiving during the year. The mission was told that for 60 percent o f the 30,000 children receiving school feeding under the EFA project, that feeding i s the only food they receive. Thus, with incremental resources, the daily feeding programs (five days per week) for approximately ha l f o f the number o f students currently fed under EFA, in the context o f summer camps, that are usually run by communities and/or NGOs could be scaled up. Thus, this program could be expanded by 15,000 beneficiaries at a cost o f $10/month for 3 months = $500,000.

Scaling up school health and nutrition programs for the beginning o f the school year (Rentree Scolaire) in September 2008. September and the rentrCe tend to be flash points in terms o f pressures on families-middle to end o f hurricane season, school fees coming due, and, this year, likely price volatility as the rice subsidy begins to be phased out. Availability o f school feeding could, at the margin, tilt the balance for families for whom the opportunity cost o f sending their child to school (versus putting hidher to work) i s high. This component would extend the existing school feeding program from 30,000 beneficiaries to 45,000-a number that appears to

14

be logistically possible, based on discussions with providers. The cost for 10 months, at a unit cost o f $10/month, would be $1,500,000. The WFP program i s also seeking pledges to cover i t s current program o f 300,000 and to expand by an additional 30,000 children next year.

7. Mother-child health woprams: The World Food Program i s implementing a program o f family rations targeted at pregnant women, anemic mothers and underweight children under 5 years o f age in the North, Nord-east and West including urban areas such as Port-au-Prince, Cap-haitien, Fort-Liberte and Ouanaminthe. The current coverage i s about 65,000 primary beneficiaries, who each receive 3 rations, for a total coverage o f around 200,000 people. The WFP program i s around US$21 mi l l ion per year, and the beneficiaries are served through health clinics. Resources are available to finance the program through June 2008. France has contributed 3.4 mil l ion Euros and incremental financing from C I D A ($7 million) i s l ikely to be available, but overall there i s scope for WFP to scale up i t s program by around 10,000 primary beneficiaries.

8. Labor intensive public works (foodkash for work): UN agencies (e.g. WFP) and U S A I D are undertaking labor intensive public works programs. The food for work activities can be targeted to the most food insecure areas such as North-West (Far West) or urban zones at risk o f c iv i l unrest such as Port-au-Prince, Gonaives, Les Cayes and Cap-Haitian. USAID i s planning to disburse US$13- 14 mi l l ion for this component in the next 6 months, through in part advancing planned activities (US$8 million) and reprogramming activities for vulnerable provincial cities and Port au Prince (US$5.6 million). WFP’s labor intensive workfare program i s US$7 mi l l ion over two years. Jobs are generated for 60 days per person for about 260,000 people. WFP i s l ikely to receive incremental funding from C I D A (US$2 million) to implement the food for work programs.

Need for Technical Assistance for the Development o f a Social Protection System.

9. The food price crisis has highlighted yet again the importance o f having an effective social protection system in place with the ability to respond when the need arises. The Bank team will work with Haitian counterparts to develop a more coherent and effective social protection system that responds to Haiti’s level of development and the nature o f shocks it faces. This analysis would also consider the feasibility o f a conditional cash transfer system. The International Food Policy Research Institute (IFPRI) has recently conducted an analysis o f the possibilities for setting up a conditional cash transfer (CCT) program in Haiti, and their report outlines some options. An effort to develop such a cash or conditional cash transfer program, while more oriented toward development than short term emergency response, would build on the Government’s interest in learning from the crisis and building a more resilient social protection system. The Bank plans to provide support to the Government in improving the social protection system in Hai t i through AAA (probably NLTA), proposed for FY09.

15

ANNEX 2

Haiti a t a qlance 5/6/08

Key Development Indicators

(2006)

Population, mid-year (millions) Surface area (thousand sq. km) Population growth (%) Urban population (% of total population)

GNI (Atlas method, US$ billions) GNI per capita (Atlas method, US$) GNI per capita (PPP, international $)

GDP growth (%) GDP per capita growth (W)

(most recent estimate, 2000-2006)

Poverty headcount ratio at $1 a day (PPP, %) Poverty headcount ratio at $2 a day (PPP, %) Life expectancy at birth (years) Infant mortality (per 1,000 live births) Child malnutrition (% of children under 5)

Adult literacy, male (% of ages 15 and older) Adult literacy, female (% of ages 15 and older) Gross primary enrollment, male (% of age group) Gross primary enrollment, female (56 of age group)

Access to an improved water source (% of population) Access to improved sanitation facilities (% of population)

Haiti

9.1

1.7

4.0 480

2.3 0.6

54 78

Latin America & Carib.

556 20,415

1.3 78

2,650 4,767 8,798

5.5 4.2

9 22 72 26

91 89

120 116

91 77

Low income

2,403 29,215

1.8 30

1,562 650

2,698

8.0 6.1

59 75

72 50

108 96

75 36

Net Aid Flows

(US$ millions) Net ODA and official aid Top 3 donors (in 2005):

United States France Canada

Aid (56 of GNI) Aid per capita (US$)

Long-Term Economic Trends

Consumer prices (annual % change) GDP implicit deflator (annual % change)

Exchange rata (annual average, local per US$) Terms of trade index (2000 = 100)

Population, mid-year (millions) GDP (US$ millions)

Agriculture Industry

Services

Household final consumption expenditure General gov't final consumption expenditure Gross capital formation

Exports of goods and services Imports of goods and services Gross savings

Manufacturing

1980

104

35 7 5

7.2

10.8 21.4

5.0

1,462

81.9 10.1 16.9

21.6 30.5

1990 2000

167 208

50 91 32 11 10 20

5.9 5.4

20.6 13.8 14.1 13.5

5.0 21.2

2864 3849 (% of GDP)

25 2 14 7 8 0

48 8

81 4 e63 8 0 7 4

13 0 26 0

17 5 12 1 20 0 31 8 6 4 21 7

2006

51 5

154 82 82

11.7

14.0 16.6

40.4

4,975

25.4 15.8 7.8

51.4

91 3 9 0

28.8

14.1 43.2 27.2

Age distribution, 2006

Male Female

70-74

60-64

50-54

4044

30-34

20-24

10-14

0-4

20 15 10 5 0 5 10 15

oercent

Under-5 mortality rate (per 1,000)

50

40

30

20

10

0 1990 1995 2000 2005

OHai!! ( ) DLalin America &!he Caribbean

2rowth of GDP and GDP per capita (%) 1

O5 I so 95 00

GDP per capita (..) -4-GDP -

1980-90 1990-2000 2000-06 (average annual growth %)

-0.2 -1.5 -0.3

-0 1 -1 7 -1 7 0 9

0 9 -44 -0 6

1 2 2 3

Note Figures in italics are for years other than those specified 2006 data are preliminary a Aid data are for 2005

Development Economics, Development Data Group (DECDG)

indicates data are not available

16

Haiti at A Glance (continued) Haiti

2ooo 2o06 Technology and Infrastructure 2000 2005 Balance of Payments and Trade

(US$ millions) Total merchandise exports (fob) Total merchandise imports (ci9 Net trade in goods and services

Current account balance as a % of GDP

Workers' remittances and compensation of employees (receipts)

Reserves, including gold

Central Government Finance

(% of GDP) Current revenue (including grants)

Current expenditure

Overall surplus/deficit

Highest marginal tax rate (%)

Tax revenue

Individual Corporate

External Debt and Resource Flows

(US$ millions) Total debt outstanding and disbursed Total debt service Debt relief (HIPC, MDRI)

Total debt (% of GDP) Total debt service (% of exports)

Foreign direct investment (net inflows) Portfoiio equity (net inflows)

Private Sector Development

Time required to start a business (days) Cost to start a business (% of GNI per capita) Time required to register property (days)

Ranked as a major constraint to business (% of managers Surveyed who agreed)

n.a. n.a.

Stock market capitalization (Oh of GDP)

327 1,091 -852

-260 6 .8

578

272

8.1 7.5 8.0

-2.2

1,169 44 -

30.4 4.0

13 0

Paved roads (% of total) Fixed line and mobile phone

494 subscribers (per 1,000 people) 1,665 High technology exports

-1,170 (% of manufactured exports)

-20 -0.4%

1,002

337

13.5 6.4 9.1

-0.9

1,463 63 -

29.3 8.5

160

Environment

Agricultural land ( O h of land area) Forest area (56 of land area) Nationally protected areas (Oh of land area)

Freshwater resources per capita (w. meters) Freshwater withdrawal (% of internal resources)

C02 emissions per capita (mt)

GDP per unit of energy use (2000 PPP $ per kg of oil equivalent)

Energy use per capita (kg of oil equivalent)

24.3

3.5

58 56

.. 1,524 7.6

0.17 0.21

6.3 5.6

257 262

/US$ mil/ions)

IBRD Total deb6 outstanding and disbursed Disbursements Principal repayments Interest payments

IDA Totel debt ouislending and disbursed Disbursements

2000 2006 Totel debt service

0 0 0 0 0 a 0 a

480 504 8 0

10 56

- 203 IFC (fiscal year) - 1277 Total disbursed and outstanding pottfolio 0 15 - 683 of which IFC own account 0 15

Disbursements for IFC own account 0 15 Portfoiio sales, prepayments and

rapayments for IFC own account 0 0

MlGA Gross exposure - - New guarantees I -

Development Economics, Development Data Group (DECDG)

17

Hait i at a Glance (continued)

Millennium Development Goals Haiti

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

Goal 1: halve the rates for $1 a day poverty and malnutrition 1990 1995 2000 2005 Poverty headcount ratio at $1 a day (PPP, % of populabon) Poverty headcount ratio at national poverty line (% of population) Share of income or consumption to the poorest qunitile (%) Prevalence of malnutrition (% of children under 5)

Goal 2: ensure that children are able to complete primary schooling " "

Pnmary school enrollment (net, %) Primary completion rate (% of relevant age group) Secondary school enrollment (gross, %) Youth literacy rate (% of people ages 15-24)

Goal 3: eliminate gender disparity in education and empower women Ratio of girls to boys in primary and secondary education (%) Women employed in the nonagricultural sector (% of nonagdwltural employment) Proportion of seats held by women in national parliament (%)

Goal 4: reduce under4 mortality by two-thirds . .._ Under-5 mortality rate (per 1,000) Infant mortality rate (per 1,000 live births) Measles immunization (proportion of one-year oids immunized, %)

- Goal 5: reduce maternal mortality by three-fourths "

Maternal mortality ratio (modeled estimate, per 100,000 live births) Births attended by skilled health staff (% of total)

Goal 6 : halt and begin to reverse the spread of HIWAIDS and other major diseases Prevalence of HIV (% of population ages 15-49) Contraceptive prevalence (% of women ages 15-49) incidence of tuberculosis (per 100,000 people) Tuberculosis cases detected under DOTS (%)

Goal 7 : halve the proportion of people without sustainable access to basic needs Access to an improved water source (Oh of population) Access to improved sanitation facilities (% of population) Forest area (% of total land area) Nationally protected areas (% of total land area) C02 emissions (metnc tons per capita) GDP per unit of energy use (constant 2000 PPP $ per kg of oil equivalent)

Goal 8: develop a global partnership for development Fixed line and mobile phone subscnbers (per 1,000 people) Internet users (per 1,000 people) Personal computers (per 1 000 people) Youth unemployment (% of total labor force ages 15-24)

I I Education indicators (x)

+Primly net enroliment ratio (..)

I Measles immunization (% of 1-year olds)

1990 1995 2000 2005

0 Haiti (..) 0 Latin America &the Caribbean

28 21

O f 0 1 0 2 a 2 9 3 6 6 6 3 5 6

0 0 3 70

CT indicators (per 1,000 people)

80 1 70 60 50 40 30 20 10

0 2005 ZOW 2002

n Fixed + mobile subscribers ( ) b3 internet users

Note: Figures in italics are for years other than those specified. .. indicates data are not available.

Development Economics, Development Data Group (DECDG).

5/6/08

18

ANNEX 3: Selected Economic and Financial Indicators

(Fiscal year ending September 30)

Nominal GDP (2007): US$6.0 billion Population (2006): 9.1 million Share of pop. living with less than $1 a day (2003): 54 percent

GDP per capita (2007): US$ 660 Adult literacy (2005): 53 percent Unemployment rate (2003): 27 percent

2006 2007 2008 2009 Prel. Feb 2008 05/16/2008 Proj.

(change over previous year unless otherwise stated)

National income and prices GDP at constant prices GDP deflator Consumer prices (period average) Consumer prices (end-of-period)

External sector Exports (f.0.b.) Imports (f.0.b.) Real effective exchange rate (+ appreciation)

Central government Total revenue and grants I / Total revenue excl. grants Current expenditure Total expenditure

Money and credit Credit to the nonfinancial public sector (net) Credit to private sector Base money Broad money (incl. foreign currency deposits)

2.3 3.2 16.6 9.0 14.2 9.0 12.4 7.9

7.7 5.6 18.3 4.5 18.3 10.6

22.8 26.0 23.7 15.4 12.6 10.4 24.6 23.0

-4.9 -7.0 5.5 10.9 5.5 7.6

10.0 4.8

(percent of GDP, unless otherwise stated) Central government Overall balance I / -0.9 -0.6 Overall balance (excl. grants) -4.4 -5.5 Overall balance (excl. grants and externally-financed projects) 0.0 -0.2 Overall balance (excl. &.-financed projects and project grants) 0.6 0.7 Central bank net credit to the central government -0.2 -0.4 Savings and Investment Gross investment Gross national savings

External current account balance (incl. official grants) External current account balance (excl. official grants) External public debt (end-of-period) Total public debt (end-of-period) 2/ External public debt service (in percent of

Of which: Central government savings

exports of goods and nonfactor services) 31

28.9 28.4

1.6 -0.4 -8.2 29.7 33.5

7.5

28.3 27.2 2.3

-1.1 -7.6 25.6 29.4

8.9

(millions of US$, unless otherwise stated)

Overall balance of payments Net international reserves (program) 4/ Liquid gross reserves 5/

Exchange rate (gourdes per dollar, end-of-period) Nominal GDP (millions of gourdes) Nominal GDP (millions of dollars)

In months of imports of the following year

79.1 163.4 92.7 259.1

337.1 544.7 1.7 2.4

39.1 36.4 200,456 225,560

4.836 6.031

3.7 9.7 9.7 9.0

16.5 16.2

...

27.0 33.4 33.3 30.1

0.0 13.2 9.6

10.8

-1 .o -5.9 -1 . I 0.2 0.0

29.6 28.3

3.0 -1.3 -7.5 23.0 26.9

8.4

57.8 299.0 644.1

2.7

256,594 7,128

...

2.5 14.5 14.5 16.0

13.4 24.6

...

22.2 21.3 46.9 34.6

0.0 13.9 7.9 8.0

-2.3 -7.4 -2.8 -1.1 0.0

26.9 23.7

1.2 -3.2 -9.6 22.3 25.5

8.8

-68.7 244.7 578.3

2.5

264,722 7,353

..'

4.0 11.5 11.5 9.5

7.1 1 .o ...

11.5 25.4 6.4

15.9

0.0 15.3 10.3 11.3

-2.9 -6.6 -1.7 -1.7 0.0

29.3 26.3

1.3 -3.0 -8.0 23.4 26.2

7.8

-127.1 304.7 648.9

2.7

306,972 7,382

...

Sources: Ministry of Economy and Finance; Bank of the Republic of Haiti; and Fund staff estimates

I / From 2009 onward, budget grants are assumed zero until firm donor commitments are forthcoming. 2/ Includes external public sector debt, outstanding Central Bank bonds, and credit from commercial banks to the NFPS. It does not reflect possible completion point debt reduction in 2009. 3/ In line with actual debt service schedule. 4/ Excluding commercial bank forex deposits, letters of credit, guarantees, and earmarked project accounts 5/ Gross reserves excluding capital contributions to international organizations.

19

ANNEX 5: IMF Press Release TMF Executive Board Approves Second Review under the PRGF Arrangement with Haiti and Approves US$12.2 Million Disbursement

Press Release No.OU40 March 4,2008

The Executive Board o f the International Monetary Fund (IMF) completed on February 29, 2008 the second review o f Haiti's economic program under the Poverty Reduction and Growth Facility (PRGF) arrangement. The completion ofthe rcvicw allows for an immcdiatc disbursement o f SDR7.6 niillion (about US% 12.2 million).

The Executive Board also approved Haiti's request for a waiver for non-observance of two end-September 2007 performance criteria related to the implementation o f lnternational Financial Reporting Standards by the central bank and the assessnient o f possible recapitalization and restructuring needs o f state bank BNC. The authorities implemented both performance criteria prior to the Executive Board's consideration of the review.

Thc PRGF ai-rangenient was approved on November 20, 2006 (sce Press Release No. 06/258) in the amount equivalent to SDR73.7 niillion (currently about US$I 18. I million).

Following the Executive Board discussion, Mr. Takatoshi Kato, Deputy Managing Director and Acting Chair, said:

"Hai t i has cont inued to perform remarkably well under i t s PRGF-supported program despite ntiinerous challenges: including tl ie dcvastating effects o f llurricane Nocl late last ycar. During liscal year 2007, growth accelcratcd for the third year in a row and inflation declined. The authorities are also to be commended for implementing the program's ambitious structural conditionality, and developing a poverty reduction and growth strategy that prioritizes needed reforms. with a focus on restoring basic public goods and services, targeting sectors for growth, and repairing infrastructure.

"Consistent with the authorities' strategy, the key goals for the second year o f tl ie PRGF-supported program are to crcatc conditions for highcr growth and to consolidate the stabilidion gains achieved so far. One l a y element o f the program i s to accelerate t l ie execution o f public cxpenditures needed to improve the provision o f public goods and serviccs. as wcll as to upgradc infrastructure, while prcserving the quality of spending. The planned improvements in revenue niobilization should be firmly pursucd to help ensure a sufficient resoitrce flow for accelerated spending. A strong Cocus on implcmentiug the agreed policy actions will be important to achieve the I Ieavily Indebted Poor Countries Initiative completion point as soon as possible.

"Prudent monetary policy wil l reniain important. in light o f inflationary pressure from high international oil and food prices. The program's monetary targets will allow some accommodation of first-round et'fects o f the commodity price increases, but the objective i s to keep inflation in single digit$. An ambitious plan to recapitalize the central bank i s being embarked upon, in order to ensure the independence o f monetary policy.

"'The authorities' plans to foster financial sector stability and development wil l help support higher growth through increased intermediation. A recent joint [MY-World Bank Financial Sector Assessment found that indicators o f bank soundness are relatively favorable, but suggested several important reforms. including: improving regulation and supervision; passage o f a new banking law; and strengthening of insolvency and creditor rights, audit and accounting, and the payments system. The authorities have welcomed the assessment and are planning to implement most of i t s reconimendations.

"Despite the many remaining challenges, the prospects for a further acceleration o f growth and continued strong impleniciitation o f the PRGF-supporled program are favorable. Haiti's resource and capacity constraints and thc authorities' strong commitment to rcform warrant continued technical and linancial assistance ii-om the international community," Mr. Kat0 said.

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