Documentof The World Bank FOROFFICIAL USEONLY ReportNo 36917 REPUBLICOF HAITI EnhancedHeavily IndebtedPoor Countries(HIPC)Initiative PreliminaryDocument August 15,2006 ~ ~ ~~~~~~~ ~ This document has a restricted distribution and may be usedby recipients only inthe performance of their official duties. Its contents may not be otherwise disclosed without World Bank authorization. ' . INTERNATIONALDEVELOPMENT ASSOCIATION AND INTERNATIONALMONETARY FUND REPUBLIC OF HAITI EnhancedHeavilyIndebtedPoor Countries(HIPC) Initiative-Preliminary Document Preparedby the Staffs of the InternationalDevelopmentAssociation and the International Monetary Fund Approved by PamelaCox and DanielLeipziger (IDA) and Ranjit Teja and Mark Plant (IMF) August 15. 2006 I. Introduction........................................................................................................................ 1 I1. BackgroundandEligibilityfor HIPC Initiative Assistance .............................................. 1 A. PRGF andIDA Status.................................................................................................... 1 B. 2 C. Poverty. Social and Political Developments.................................................................. Policy Track RecordandReformAgenda..................................................................... 4 I11. Medium-to-Long-Term MacroeconomicFramework....................................................... 8 IV. Debt SustainabilityAnalysis (DSA) andPossibleHIPC Assistance............................... 10 10 B. Structureof ExternalDebt........................................................................................... A. DebtReconciliation Status .......................................................................................... 10 D. DebtSustainabilityAnalysis........................................................................................ C. PossibleHIPC Initiative Assistance ............................................................................ 12 13 E. MDRI........................................................................................................................... 13 F. SensitivityAnalysis ..................................................................................................... 15 V. The Decisionand FloatingCompletion Points................................................................ 16 A. The PRSP Process........................................................................................................ 16 16 C. PossibleTriggers for the FloatingCompletionPoint.................................................. B. PossibleDecision Point Timng................................................................................... . . 17 D. Monitoringthe Use of HIPC Initiative Resources....................................................... 19 V I. Issues for Discussion....................................................................................................... 21 Text Tables SelectedPoverty and SocialIndicators.......................................................................... 3 2. 1. SelectedEconomic and Financial Indicators................................................................. 5 FOROFFICIAL USE ONLY This document has a restricted distribution and may be used by recipients only in the performance o f their official duties. Its contents may not be otherwise disclosed without World Bank authorization. 3. External Debt. end-September 2005 ............................................................................ 11 Boxes 1. Relations with External Creditors................................................................................ 11 2. Key Macroeconomic Assumptions Underlying the DSA............................................ 14 Possible Triggers for the Floating Completion Point .................................................. 18 4. 3. Possible ExpenditurePriorities for the Use of HIPC Debt Relief............................... 20 Figures 1A. Composition of Stock of External Debt at end-September 2005 b y Creditor Group ..................................................................................................................... 22 1B. Potential Costs of the HIPC Initiative by Creditor Group........................................... 22 2. External Debt Sustainability Indicators. 2005-25 ....................................................... 23 3. Sensitivity Analysis. 2005-25 ..................................................................................... 24 ProjectedTables A1. Nominal Stock and Net Present Value of Debt at end-September 2005 ..................... A2. 26 A3. HIPC Initiative Assistance Under a Proportional Burden-Sharing Approach.............25 Discount and Exchange Rate Assumptions ................................................................. 27 A4. External Debt Service. 2006-25 .................................................................................. 28 A5. Net Present Value of External Debt. 2005-25 ............................................................. 29 A 6. External Debt Indicators. 2005-25 .............................................................................. 30 A7. External Debt Indicators and Sensitivity Analysis. 2005-25 ...................................... 31 A8. HIPC Initiative: Status of Country Cases Considered Under the Initiative.................32 A9. Possible Delivery of IMFAssistance Under the Enhanced HIPC Initiative ...............33 A10. Possible Delivery of IDA Assistance Under the Enhanced HIPCInitiative ...............34 A11. Long-Term Macroeconomic Assumptions. 2005-25 .................................................. 35 Appendix Debt Management Capacity .................................................................................................... 36 This document has a restricted distribution and may beused by recipients only inthe performance of their official duties. Its contents may not be otherwise disclosed without World Bank authorization. Abbreviations and Acronyms AIDS AcquiredImmuneDeficiency Syndrome APN PortsAuthority BRH Banquede la RCpubliqued'Hai'ti (Central Bankof Haiti) CAMEP Water Authority CEM Country Economic Memorandum CNIMP InterimNationalCommissionfor Public Procurement CPI ConsumerPrice Index CSCCA Supreme Audit Institution DSA Debt Sustainability Analysis DHS Demographic and HealthSurvey DMFAS Debt ManagementFinancialAnalysis System GDP Gross Domestic Product GNI Gross NationalIncome EDH Electricity Utility EPCA EmergencyPost-ConflictAssistance EGRO Economic Governance ReformOperation EGTAG Economic GovernanceTechnical Assistance Grant FER RoadMaintenanceFund HIPC Heavily IndebtedPoor Countries HIV Human Immune-deficiencyVirus IBRD InternationalBank for Reconstructionand Development ICF InterimCooperationFramework IDA InternationalDevelopmentAssociation IDB Inter-AmericanDevelopmentBank IMF InternationalMonetary Fund I-PRSP InterimPoverty Reduction Strategy Paper JSAN Joint Staffs Assessment Note MDB Multilateral DevelopmentBank MDG Millennium DevelopmentGoal MDRI Multilateral Debt Relief Initiative MEF Ministry of Economy and Finance NPV Net Present value NIR Net InternationalReserves OPEC Organization of PetroleumExportingCountries PRGF Poverty Reduction and GrowthFacility PRSP Poverty Reduction Strategy Paper SDR Special DrawingRights SMP StaffMonitoredProgram TELECO Telecoms Utility ULCC Anti-CorruptionUnit UNDP UnitedNations Development Programme UNAIDS UnitedNations Programmeon HIVIAIDS UNCTAD UnitedNations ConferenceonTrade and Development Vice President Pamela Cox Country Director Caroline Anstey Director, PRMED Vikram Nehru Director, LCSPR Ernest0May SectorManager,LCSPE Mauricio Carrizosa Task Team Leaders Clara de Sousa, FranGoisPainchaud StaffMembers AntonellaBassani, Emmanuel Pinto Moreira,Mark Thomas, Boris Gamarra - 1 - I. INTRODUCTION 1. This paper presents a preliminary assessmentof the eligibility of the Republicof Haiti(hereafter "Haiti") for assistanceunder the Enhanced Heavily Indebted Poor Countries (HIPC) Initiative.' The assessment was based on several IDA and IMFstaff missions to Port-au-Prince, most recently in June 2006. Together with the authorities, external debt data as of end-September 2005 has been reconciled and a preliminary debt sustainability analysis (DSA) has been conducted. The results indicate that Haiti's external debt burden would remainabove the HIPC Initiative threshold after the application of traditional debt relief mechanisms. Inorder to qualify for HIPC debt relief, Haiti needs to continue the satisfactory implementation of the Emergency Post-Conflict Assistance (EPCA) supported macroeconomic program, agree on appropriate completion point triggers, and finalize its I-PRSP.Possible HIPCdebt relief is estimated to be US$139 million in end- September 2005 NPV terms and relief associated with the Multilateral Debt Relief Initiative (MDRI), also inNPV terms, is estimated at about US$243 million. Debt relief under the HIPCInitiative and the MDRIwould help Haiti accelerate progress towards the Millennium Development Goals (MDGs). 2. This paper is organized as follows. SectionI1provides background information on Haiti's eligibility for HIPCInitiative assistance; recent poverty, social and political developments; the policy track record to date; and the future reform agenda. Section I11 discusses the medium-to-long-term macroeconomic framework. Section N summarizes the results of the preliminary DSA and possible HIPC and MDRIassistance. Section V suggests a timeline for the preparation of the decision point document, presents key reforms to be considered for the completion point triggers, and gives a preliminary indication of how prospective HIPC assistance will be used and its use tracked. Finally, section V I presents issues for discussion by Executive Directors. 11. BACKGROUND ELIGIBILITYFORHIPCINITIATIVEASSISTANCE2 AND A. PRGFand IDA Status 3. InOctober 2005, the ExecutiveBoardof the IMFapproved DR10.25 million (about US$14.7 million) inEmergency Post-Conflict Assistance (EPCA) to Haiti, adding to the SDR10.23 million (about US$15.6 million) inEPCA provided inJanuary 2005. When approving EPCA assistance, IMFDirectors indicated their support for a rapid transition to a Poverty Reduction and Growth Facility (PRGF). Haiti i s eligible to receive resources under ' The expressionsHIPC Initiative and EnhancedHIPC Initiative will be usedinterchangeablyhereafter to refer to the latter. * Haiti was included inthe list of potentially eligiblecountries inthe HIPCring-fencingdocument. See `` Heavily IndebtedPoor Countries (HIPC) Initiative-List of Ring-FencedCountriesthat Meet the Income and IndebtednessCriteriaat end-2004", April 11,2006 (IMF: EBS-06-35;IDA: R2006-0041/2) . - 2 - the IMF's PRGF and discussions are ongoing between IMFstaff and the Haitian authorities for a PRGF arrangement scheduled to be presented to the IMFBoard in October 2006. 4. Haiti is an IDA-only country, with a GNI per capita of US$450 in2005 (using the World Bank's Atlas methodology). A Transitional Support Strategy was discussed by the IDA Boardon January 6, 2005 and an Interim Strategy Note is currently under preparation. Haiti will continue to need substantial concessional assistance from the international community and i s likely to remain an IDA-only country and eligible for PRGFresources for the foreseeable future. B. Poverty, Socialand Political Developments 5. Political and economic instability, recurrent deterioration insecurity, low growth, and high inequality and poverty have beenthe key challengesconfronting Haiti inthe past.The impact of prolonged political conflicts and violence, cycles of highexternal assistance followed by the withdrawal of economic support, and natural disasters has been severe. Real income per capita has declined on average by 2 percent annually over the past twenty years. Haiti's pattern of socio-economic development has been characterized by markedinequalities inaccess to productive assets andpublic services, which, together with low growth, has resulted in widespread poverty. 6. Haiti is the poorest country inthe Latin America and Caribbean region and amongst the poorestinthe world. About 54 percent of its population lives below the US$1 a day poverty line and 78 percent below US$2 a day (2001 data). The 2005 United Nations HumanDevelopment Index ranked Haiti 153rdout of 177 countries. An overwhelming share of the rural population lives in p ~ v e r t yThere are also large pockets of . ~ urban poverty in slum areas in Port-au-Prince, although many smallcities and municipalities have lower poverty rates. Wide disparities exist regionally, with poverty being lowest inthe Ouest region (34 percent), which includes the capital Port-au-Prince, and highest inthe Nord- Estregion (81 percent). Nonetheless, even inthe Ouest region poverty is extremely highby international standards (higher than that of any country in Latin America and the Caribbean). Income inequality in Haiti is also among the highest in the Latin America and the Caribbean region, which inturn has higher levels of inequality than any other region o f the world. Nearly half of national income goes to the richest 10percent of the p~pulation.~ 7. Onsocialindicators Haiti ranksvery low. Although adult illiteracy decreasedfrom 60 percent in 1990 to 52 percent in 2003, it remains the highest inthe Latin America andthe Caribbean region and i s higher than the average for low-income countries. Only 55 percent Incidence of poverty in rural areas is 69 percent for the US$1a day poverty line and 86 percent for the US$2 a day poverty line. 4 Estimates based on household surveys suggest that poverty and inequality rates have not changed substantially over the last two decades. Part of the explanation could be that, while GDP per capita declined, consumption levels were maintained by remittances which have accelerated since the mid-1990s. - 3 - of children aged 6-12 are enrolled in school; inrural areas this indicator i s even lower at 23 percent. Food deprivation and limited access to health care, due to poor infrastructure and lack of qualified personnel and drugs, have resultedin dire health conditions for Haiti's poor. Haiti also faces a highincidence of HIV/AIDS. UNAIDS estimates that 5.6 percent of the adult population has HIV.Despite all the risk factors inHaiti,there i s some evidence that HN/AIDS prevalence rates have not increased significantly inthe last decade and may even have declined. UNAIDScredits this positive trend to close public-civil collaboration and sustained political commitment to contain the disease. 8. The recent successfulpresidential and parliamentary elections provide an opportunity to overcome the legacy of past decades. A coalition government has been formed, including ministers from different political parties. The coalition government received almost unanimous approval inParliament, raising hopes for moving forward with an ambitious reform agenda to modernize the state and promote private sector investment. Both PresidentPrCval and PrimeMinister Alexis have emphasized a number of priorities: Table I.Haiti: SelectedPoverty and Social Indicators Haiti LAC 1/ LIC 2/ Population(million, 2002)" 8.3 540 2,615 Of which rural (%) 62.5 23.3 69.8 Annual populationGrowth (2003-15) 1.4 1.3 1.6 Life expectancyat birth (Years, 2003) 51.6 71.9 58.4 GNI per capita (2005 for Haiti,2004 for LAC and LIC)4/ 450 3,576 507 Incidenceof Poverty (% of the populationbelow the US$1 a day povertyline, 53.9 8.9 2001 data for Haiti; 202 data for LAC) Adult literacy ratio ( % of people age 15 and above, 2003) 3/ 51.9 89.6 60.8 Primaryschool net enrollmentratio (% of relevantage group, 2001) 55 Infant mortalityrate (per thousand, 2003) 31 76 27 80 Child mortalityrate (per thousand, 2002) 3/ 1I 8 32 124 Maternalmortalityrate (per 100,000 live births,2000)5/ 680 194 682 Access to improvedwater source (% of population,2002) 31 71 89 77 Prevalenceof HIV/AIDS (% of persons age l5-49,2003) 3/ 5.6 0.7 2 I/LatinAmericanandtheCaribbean(LAC)region. 2/ Low-hcomeCountries (LIC) 31 UNDP, HumanDevelopmentReport2005. 4/ World Bank, 2006 World Development Indicators (for LAC and LIC). World Bank, staff estimates (for Haiti). Calculatedusingthe World Bank Atlas method. 5/ World Bank, 2006 World DevelopmentIndicators. 6/ World Bank, staff estimatesbasedon the ECVH 2001 data. primary education, rapidjob creation, electricity, basic services in the urban slums, and a national development approach including all of Haiti's departments and communes. Inhis presentation of government policies to Parliament, Prime Minister Alexis stated that his government was committed to pursuingand deepening the economic governance reform agenda of the last two years and waging a war on corruption. These ingredients, in addition to strengthening security, are necessary if Haitii s to achieve the high, sustained and inclusive economic growth that i s required to reduce poverty andbringabout meaningful change inthe living conditions of the Haitian population. I - 4 - 9. However, setting Haiti on a path of economic recovery presents daunting challenges. Economic recovery will critically require restored security, but a sustained improvement in security will inturn depend on the delivery o f quick and visible improvements inthe living conditions of the Haitian population. Also, strengthening public institutions and improving economic governance will be needed to ensure that economic growth i s inclusive and sustained over time. The financial and technical support of the donor community will be critical to help the government address these challenges. While current conditions inHaiti present significant risks going forward, the provision of HPC debt relief will contribute to creating fiscal space for much needed poverty-related expenditures and encourage reforms in public expenditure management. C. Policy Track Record and Reform Agenda 10. Since mid-2004, Haiti's economic and social recovery and its structural reforms have been supported by donors under the Interim Cooperation Framework (ICF).' The initial macroeconomic framework was established under the Fund's staff-monitored program (SMP) covering the period April-September 2004. Over the following two years, the authorities' macroeconomic program has been supported b y the IMF's EPCA, with disbursements inJanuary 2005 and October 2005. Following the clearance of arrears to IDA (US53.4 million) in early 2005, the government also received support from the World Bank to implement economic governance reforms (through an Economic Governance Reform Operation, EGRO, of US$61million and two Economic Governance Technical Assistance grants of US$2 million each) and to support the country's recovery through community driven interventions, disaster prevention and management activities, and transport and territorial development programs. The Inter-American Development Bank (IDB) and bilateral donors have also provided significant financial and technical assistance. 11. During2004-06, Haiti hasmade significant progress toward strengthening macroeconomic stability (see Table 2). The economy has gradually recoveredfrom the shocks experienced in 2004 (political turmoil and severe floods), and annual GDP growth i s expected to increase to 2.5 percent in FY2006 from 1.8 percent inFY2005.6However, recurring security problems have adversely affected economic activity, donor project implementation and other inflows of foreign exchange. With increased revenues and tighter expenditure controls, the central government overall deficit (including grants) was reduced from 3.5 percent of GDP inFY2003 to a projected 1.1 percent inFY2006. This has largely eliminated recourse to central bank financing o f the central government deficit. This substantialfiscal adjustment has also helpedreduce end-of-period inflation from 38 percent inFY2003 to aprojected 14percent inFY2006; however this rate of inflation is still high relative to comparable low income countries. Net international reserves (NIR) have increased, raising import coverage from 1%months of imports of goods and services in FY2003 to an anticipated 1Y2months inFY2006. The authorities' program supported by the The ICF, presentedby the government at the July 2004 donor conference inWashington, D.C., provided an interim framework until an electedgovernment was in place. The Haitian fiscal year runs from October 1to September 30. For example, FY2005 refers to the fiscal year 2004/05. - 5 - EPCA remains on track, and key end-June and end-September quantitative targets are likely to be met. Table 2. Haiti: SelectedEconomic and Financial Indicators 2002103 2003104 2004105 2005106 ~ Proj. (Annual percentagechange, unless otherwise indicated) GDP at constant prices 0.4 -3.5 1.a 2.5 Real GDP per capita -1.7 -5.4 -0.2 0.7 Consumer prices(end-of-period) 37.8 21.7 14.8 14.0 (In percentof GDP) Centralgovernmentoverall balance (including grants) -3.5 -2.4 -0.4 -1.7 (Changes in percentof beginning-of-period broad money) Broad money (including foreign currency deposits) 39.8 9.1 20.3 6.7 (Annual percentagechange, unlessotherwise indicated) Net internationalreserves(in millions of US.dollars) 11 38.8 54.5 70.6 109.0 Liquid gross reserves(in millions of U.S. dollars) 2/ 157.1 207.4 228.5 312.5 In months of imports of the following year 1.2 1.4 I.4 1.7 Sources:Ministry of Economy and Finance; Bank of the Republic of Haiti;and Fund staff estimates. 11Excludescommercialbanks' foreign currency deposits with the BRH. 21Gross reserves excluding capital contributions to international organizations. 12. Progress has also been achieved in the implementation of structural and economic governance measures, notably under the EPCA and EGRO.As of early 2004, Haitiwas confronted with significant weaknesses in economic governance and management, which impededthe efficient use of both domestic resources and external financing7 The main weaknesses were in the following areas: (i) budget formulation, execution and reporting; (ii) procurement;(iii) enterprisemanagementandroadmaintenance; public public (iv) human resource management; and (v) the financial sector. Progress in these areas are as follows: Budget formulation, execution and reporting. Prior to 2004, the government had at times operated without approved budgets or with budgets approved late into the fiscal 'Reflecting these weaknesses, Transparency International's Corruption Perception Index (as well as other governance indices) has placed Haiti among the lowest rankings worldwide and has identified corruption as one of the leading constraint on economic growth and investment. See "La Fondation HCritage pour Haiti", L'Etat des Lieux de la Corruption en Haiti, 2003. - 6 - year. Procedures for budget formulation and execution were weak and a significant share of public resources was channeled through multiple comptes courants held by individual ministries and used non-transparently.8 Inaddition, internal controls were impaired by the lack of a well-structured accounting system or external audits of government budgets. Recent government measures to address these weaknesses include: (i) passage of a new Organic Budget Law' and adoption of a new budget classification and chart of accounts; (ii) approval of the budgets for FY2005 and FY2006 before the start of the fiscal year and regular public dissemination of key budget allocations and execution information; (iii)preparation of the FY2006 budget according to the new budget classification; (iv) a drastic reduction of discretionary spending through ministerial comptes courunts;" and (v) strengthening the external audit function with a decree on the organization and functioning of the supreme audit institution, the Cour Supe'rieuredes Compteset Du ContentieuxAdministrative (CSCCA). The CSCCA i s in the process of catching up on government accounts audits which, together with the resumption of Parliament oversight functions, will strengthen external controls. Other measures have proceeded more slowly: (i)mechanismformonitoringbudgetarytransferstotheelectricitysectorhasbeen a established but i s not yet effective and an independent audit of the transfers has not taken place; and (ii) a survey of domestic payment arrears o f the central government has been completedbut not yet fully verified and a strategy to address them has not been formulated. Inthe early 2000s, publicprocurementoperated under a 1989decree which hadnot been fully implemented and had several flaws, and sole-source contracts and unadvertised biddingwere the norm. Since 2004, the institutional framework for public procurement has been strengthened through: (i) the passage o f a new Procurement Decree and the creation of the Interim National Commission for Public Procurement (CNIMP) in 2004; (ii) preparation of standard biddingdocuments; and (iii) publication of lists the the of government contracts andof a supplier database. The recent hiringof an international procurement consulting firm will help the CNIMP to strengthen procurement capacity in line ministries. Also, in 2004 an Anti-Corruption Unit (ULCC) was created and staffed as an autonomous entity under the Ministry o f Economy and Finance (MEF). The Unit i s conducting a comprehensive diagnostic survey of the state of governance and the perception of corruption in Haitias an input to the design of a national anti-comption strategy and has prepared a draft law for public sector employees' asset declaration." The authorities have also supported the creation o f a mechanismfor civil society to monitor * The "comptes courants" (Ministries' accounts) are meant to be used for unexpected and non-budgeted needs such as for assistanceto those affected by a natural disaster or unexpected travel by policy makers. Inaddition to establishing the outlines of a new budgetary process, the Law mandatesthe creation of a new accounting system, creates the position of internal ex-ante controllers and a new internal auditing office. lo The percentageof non-salary current public expenditures disbursed through comptes courants was reduced from 62 percent during October 2003-March 2004 to less than 10percent from FY2005. "ThediagnosticsurveywascompletedinMarch2006.Thefinalreportisexpectedtobecompletedbyend-July,2006. - 7 - the implementation of economic governance reforms, in order to build demand for better governance and accountability. Publicenterpriseshave been characterized by inadequate financial and operating practices and a lack of managerial accountability, often accompanied by the siphoning of budgetary resources. Due to the limited resources for maintenance and investment, the quality and reliability of services provided by these enterprises deteriorated over the years. Poor governance practices were particularly acute inthe electricity (EDH) and telecoms (TELECO) utilities and the port authority (APN), which are critical for economic growth. In2006, the government launched financial audits of APN, TELECO, EDHandthe metropolitan water utility (CAMEP)'* and an accountingrehabilitationof TELECO and EDH. In2005-06, the government took a number of measures to strengthen the Road Maintenance Fund(FER), created in 2003 as the cornerstone of Haiti's road maintenance strategy. The FER now has reached a basic level of institutional capacity with the recruiting of key staff and the definition o f its operational procedures. The inadequate quality and quantity of humanresources have been one of the impediments to public sector efficiency in Haiti. This results from the scarcity of skilled people and the lack of an adequate incentive and accountability system to attract, maintainand motivate civil servants. Public sector employment inHaitiis very small by international standards. In2004, public sector employment corresponded to 0.7 percent of the population, com ared with 2 percent inAfrica and 7.7 percent among developed market economies.1BDealing with these shortfalls in a manner that supports sustained public sector efficiency will likely require increasingthe efficiency of the use of scarce human resources and implementing reforms involving systemic restructuring of the civil service. In2004, a new Civil Service Decree was enacted. A Coordination Unit inthe Prime Minister's Office has taken on the human resource functions as a first step to overseeing the implementation of the Decree and a census of employment in selected ministries has been completed. Financialsector stability hasbeen maintained,but weaknesseshave been identified in the mechanism of monetary management and infinancial audit and controls of the Central Bank of Haiti (BRH), and the BRHhas experienced operational losses. The authorities are preparing a plan to address these weaknesses, including with technical assistance provided by the IMF.A draft o f a new banking law will be finalized and submitted to parliament later this year. Inaddition, the financial statements of the BRH for the year ended September 30,2004 were published, however with a year delay. The 2005 financial statements of the BRHhave not yet been published. The BRHwas also subject to a safeguards assessment in relation to drawings under the EPCA and the vulnerabilities identified by that assessment are now being addressed; and the BRHhas strengthened its surveillance of credit cooperatives. l2The audit of APN i s completeandan actionplan i s beingpreparedto implementits recommendations.The audits of the remainingthree enterprisesare expectedby AugustKeptember. 13Jaramillo (2005) "Public Sector Employment in Haiti" IMFSelected Issues Paper, SM/05/149. I I - 8 - 13. The reformagenda going forward will be reflected inthe I-PRSP currently under preparation. The government has expressed its commitment to maintaining macroeconomic stability and deepening economic governance reforms. Inthe budget, increased public expenditure will be linked to developing institutional capacity; the main focus will be increasing government revenues to underpin increases in spending for security, infrastructure, health and education. Inthe area of economic governance, the government intends to ensure effective implementation of the recently introduced legal and institutional framework described above. The focus will be on further enhancing budget management, public expenditure controls and procurement practices; improving management of public enterprises and road maintenance; strengthening humanresource management; and supporting the mechanism for governance reform monitoring by civil society. Inthe financial sector, reforms will focus on improving the monetary policy framework and policy instruments to reduce inflation, reforming the auction mechanism for central bank bonds, recapitalizing the central bank and ceasing its non-core activities. Inthe education and health sectors, where private providers are dominant, reforms will focus on strengthening accreditation of private providers, introducing transparent and accountable financing mechanisms for poor families to pay the costs o f non-public schooling and increasing resources to front-line providers. Inaddition, the government i s defining other reforms, notably inthe environment, infrastructure, and in sectors such as agriculture and tourism. Given the nature and depth o f the challenges facing Haiti and the existing weak institutional capacity, results of all these reforms will be incremental and will take time, and sustained donor support will be critical. 111. MEDIUM-TO-LONG-TERM MACROECONOMICFRAMEW0RKl4 14. Realoutput growth is projected to average 4.7 percent over the period 2006-25. In the short term, real output growth i s projected to strengthen sharply, assuming significant improvements in security conditions, continued strong external support and increased public investment. Over the long term, real output growth i s expected to stabilize at 5.0 percent. The expected improvement inreal output growth inthe long term will depend on maintaining security, sustained political and macroeconomic stability, progress on economic governance, and improvements in social and economic infrastructure, contributing to higher private investment, including FDI.While real GDP growth has been very low duringthe past half century, this largely reflects the impact of episodes of political instability. Excluding these shocks, Haiti experienced periods of high growth inthe 1970s (annual average of about 5 percent) and inthe second half of the 1990s (annual average of 4 percent). Growth was fueled in the 1970s by investment inlight manufacturing (notably the garment assembly industry) and tourism, while inthe mid-1990s it reflected the rapid recovery following the 14The macroeconomic projections used inthis analysis cover the next 20 years and were preparedin consultation with the authorities. The medium- and long-term projections will be revised for the HIPC decision point document, according to the prospective final agreement on a PRGF arrangement which is expected to cover fiscal years 2007 to 2009. - 9 - end of the economic embargo during military dictatorship, and inparticular aboom in construction and trade.I5 15. Low and stable inflation is anticipated to foster an environment conducive to long- term growth. Over the past 10years, inflation averaged 17 percent due to extensive use of central bank financing to cover large fiscal deficits. However, building on recent strengthening of fiscal discipline and change in the conduct of monetary policy, inflation is expected to decline gradually to 5-7 percent over the medium term from 15 percent in FY2005. 16. Macroeconomic stability is also expected to be supported by fiscal prudence. Over the projection period, the central government overall deficit i s expected to average about 2.0 percent of GDP.The government is expected to increase revenues and seek concessional external financing to allow for increased pro-poor spending, higher investment and the institutional development of central and local governments, while maintaining debt sustainability after the delivery of HIPC Initiative assistance. 17. Fiscal revenues are projected to increase gradually to about 16 percent of GDPby FY2025, compared to about 9.3 percent over FY2004-06. The government i s expected to implement measuresto boost revenues, including through the establishment of customs control in the provinces (currently there i s no effective central government authority in ports of entry other than Port-au-Prince); limiting industrial tax exemptions and other non- industrialtax incentives; and enhanced computerization of tax and customs administration offices. 18. Government expenditures are expected to be re-oriented toward strengtheningthe institutional capacity of the government and increasing spending in key areas such as security, health and education. Rebuilding social and economic infrastructure will be the core of a comprehensive public investment program under preparation and i s expected to be financed largely by external donors. The framework assumes that the share of pro-poor spending in overall outlays will increase in order to allow Haiti to make progress towards reducing poverty and meeting the MDGs. 19. For the long-term growth projection to materialize, Haiti's level of investment has to increase markedly, by about 6 percent of GDP over the projection horizon.16 Initially, higher investment will come from higher public investment, especially inpublic infrastructure, helping to create the conditions for private sector development. An improvement in security i s pivotal to ensure this outcome. As infrastructure constraints are gradually removed as a result of public investment, agricultural production and exports are l5Given that the long-term projection assumes that Haiti enters a path of restored security and economic recovery, the sensitivity analysis detailed in section E includes a scenario with lower growth. 16The investment numbers in the macroeconomic framework reflect the reporting in the Haitian national accounts, which may significantly overestimate investment as a share of GDP. Investment was reported at 27 percent of GDP in2005. , - 10- expected to pick up. Improvement inhotel infrastructure would create favorable conditions for the tourism industry which notably caters to the large Haitian diaspora. 20. The external current account deficit (excluding grants) is expected to decline from over 8 percent of GDP in2006 to about 5.6 percent of GDPat the end of the projection period largely due to improvements innet exports. Import ratios are projected to decline by 3.8 percentage points of GDPinthe longterm due to lower aid flows and increases in local production, e.g., inthe agricultural sector. Risingexports are also expected to contribute modestly to the improvement in the current account (approximately 0.6 percentage points of GDP).17Internationalreserves are expected to increase from 1.6 months of imports of goods and services in 2005 to over three months from 2010. IV. DEBTSUSTAINABILITY ANALYSIS (DSA) AND POSSIBLEHIPCASSISTANCE A. Debt Reconciliation Status 21. The DSA presented below was preparedjointly by the authoritiesand the staffs of I D A and the IMF,based on loan-by-loan data provided by the authorities and creditors for "ublicreconciliation andpublicly-guaranteed debt outstanding and disbursed as of end-September 2005.l8 The process was completed inJune 2006, with 100percent of multilateral and bilateral debt reconciled. B. Structure of ExternalDebt 22. Prior to the application of traditional debt relief mechanisms, Haiti's publicand publicly guaranteed external debt was estimated at US$1.3 billion innominal terms as of end-September 2005 (Tables 3 andAl). Most of Haiti's external debt i s on concessional terms with multilateral creditors representing 82.4 percent of the total, while bilateral creditors accounted for 17.6 percent (see Figure lA).*' IDA andthe IDB are Haiti's largest external creditors, representingapproximately 38 percent and 40 percent of total claims, respectively. Italy, France and Spainare the largest bilateral creditors, with 5.2 percent, 4.8 percent and 2.9 percent of total claims, respectively. Haiti's outstanding debt to Italy, France, and Spain includes arrears amounting to about US$35 million (see Box 2). Non Paris Club creditors hold about 3.4 percent of Haiti's total external debt. " Exportsofsomeagriculturalproducts,suchasmangoandcoffee, areexpectedtobestrong,followedby exports of textiles and apparel industry, which are expected to be less robust given the ongoing changes in the world market following the phasing out of Multi-Fiber Agreement. A potential offsetting impact may result from the HOPE Act and possible future joint production arrangements with Dominican Republic producers. Nevertheless, an increase in textile sector exports or tourism would not lead to a substantial increase in net exports due to high import components. '* The DSA underlying the decision point document i s expected to be based on the same loan-by-loan dataset. *'Thedebtno data are based at end-September 2005, the end of Haiti's fiscal year. Haiti has external commercial creditors. - 11- Table 3. Haiti: External Debt, end-September 2005 (in units indicated) InUS$ million % of total Total 1,332 100.0 Multilateral 1,098 82.4 Bilateral 234 17.6 Pans Club 189 14.2 Other 46 3.5 Memorandum items NPV of debt after 926 traditional debt relief (in % of exports) 176 Sources: Haitian authorities and staff estimates Box 1. Relationswith ExternalCreditors Haiti has normalized relations with multilateral creditors. Following the Paris Club reschedulingagreement in 1995, Haiti remainedcurrent on external debt service paymentsthrough 1999. During 2000-03, however, the country accumulatedarrears to most externalcreditors. Starting inJuly 2003, arrears to all multilateralcreditors were cleared: In July 2003, Haiti cleared US$32 million in arrears to the Inter-AmericanDevelopment Bank (IDB) using its own resources. This paved the way for renewed IDB lending and the IDB disbursed US$35 million of a policy-based loan immediately afterwards. The IDB has followed up with additional US$50 million in policy-basedloansin 2004 and 2005. In 2004, Haiti cleared about US$ 1 million in arrears to the International Fund for Agricultural Development(IFAD) and the OPEC Fundfor Development. In January 2005, Haiti cleared US$53.4 million in arrears to IDA using its own resources and a US$6 million grant from Canada. IDA subsequently reengagedin Haiti, and providedUS$61 million in budget support (loans and grants) during 2005 and 2006. Haiti has also sought to normalize relations with bilateral creditors, but arrears to three Paris Club creditors remain outstanding: In2004, Haiti cleared arrears to US and Canadian official creditors to enable new disbursements and thus, net positiveresourceflows from these creditors. Haiti obtained an informal deferralon debt service payments from three Paris Club creditors (France, Spain and Italy) during the program supportedby the EPCA. These creditors have informally expressed their willingness to reschedule the debt service payments in the context of a PRGF arrangement, but assurances will be requested prior to the approval of the PRGF. The stock of arrears is estimated at US$35.4 million as of end-September 2005 and is projected to increase to US$42.3 million at end- September 2006. - 12- C. Possible HIPC InitiativeAssistance 23. Haiti'sdebt inNPV terms, after full applicationof traditionaldebt relief mechanisms,is estimatedat US$926 million(as of end-September2005).21This is equivalent to 176 percent of exports of goods and services.22Haiti is thus eligible for debt relief under the Enhanced HIPC Initiative's export window, having an NPV of debt-to-exports ratio above the 150 percent threshold. 24. The reductionof Haiti's NPV ofdebt-to-exportsratiofrom 176 percentto 150percentwouldrequireHIPCdebt reliefof US$139millioninNPV terms.This impliesa common reduction factor of 14.95 percent. Accordingly, the contribution to the US$139 million in debt relief (inNPV terms) from multilateral creditors would be approximately US$119 million, and about US$20 million from bilateral creditors. Assuming the time profile and modalities presented below, this translates into about US$205 million of nominal debt service relief over time.23The following assumptions were made in projecting the time profile of possible HIPC Initiative assistance: IDA would provide total assistanceamounting to US$52.2 million inNPV terms, including an estimated US$32.8 million related to the concessional rescheduling of arrears in early 2005. The concessional rescheduling of arrears i s counted towards IDA'Scontribution to debt reduction under the HIPC Initiative, in line with the methodology agreed with the multilateral development banks (MDBs).~~ Immediately following the approval of the decision point by the Boards of IDA and the IMF, IDA would beginto provide assistance in the form of debt-service reduction on debt outstanding anddisbursed as of end-September 2005. IMFassistancewould total US$3.1 millioninNPVterms. Immediatelyfollowing the approval of the decision point by the Boards of IDA and the IMF, the LMF would extend interim assistance-provided that the necessary financing assurances are in place-in the form of debt-service reduction. However, due to relatively low levels of debt service falling due under the interimperiod, most of the IMFgrant assistance i s expected to be disbursed at the completion point, covering debt service during 2009-10. 21This includes the estimated impact of the concessional reschedulingof arrearsby the World Bank (US$32.8 million) and the IDB Group (US$9.7 million), in line with standard Bank and Fundpractices. Note that these figures are preliminary and could be revised at the decision point. 22The NPV of debt-to-export ratio is calculated using a backward-looking three-year average of exports of goods and services. The 2005 observation of exports of goods and services remains preliminary. 23This does not include the assumed impact of the concessional reschedulingof arrears. 24See "HIPC Debt Initiative: the Chairman's Summary of the Multilateral Development Banks' Meeting," March 6, 1998, IDNSec M98-90. - 1 3 - All other multilateral creditors are assumed to provide debt-service reduction starting at the decision point or the completion point, untiltheir contributions meet the requirement under the Enhanced HIPC Initiative. 0 Paris Club bilateral creditors are assumed to provide a flow rescheduling on Cologne terms-i.e., a 90 percent NPV reduction-after reaching the decision point (assumed to take place in October/November 2006), with delivery of the remaining required assistance at the completion point through a stock-of-debt operation. The rescheduling on Cologne terms i s expected to translate into US$14.5 million inNPV terms. Comparable treatment would be provided by non-Paris Club official bilateral creditors. D. Debt Sustainability Analysis 25. The macroeconomicassumptionsused inthis analysis reflect the framework underlying discussionsfor a possiblePRGF-supported programand staff projections through 2025 and are summarized inBox 2.25The framework assumes rapid economic growth, underpinned by improved security andpolitical stability, the decisive implementation of structural reforms, particularly inthe areas of economic governance, and infrastructure improvement to promote private investment. The framework also assumes the continuation of sound macroeconomic policies, including maintaining fiscal prudence while increasing revenues and seeking concessional external financing. 26. On the basis of the assumptionsdescribedabove and assumingthe unconditional delivery of HIPC Initiative assistance, Haiti's NPV of debt-to-exports ratio is expected to fall gradually from 150 percent as of end-September 2005, to approximately 100 percent by 2025 (Table A5).26The staff projection indicates that the ratio would remain consistently below the HIPC threshold of 150percent during 2007-25. External debt service as a ratio of exports i s also expected to decline gradually. E. MDRI 27. Upon reaching the completion point under the HIPC Initiative, Haiti would qualify for MDRIdebt relief from IDA, but i s not expected to have eligible debt for MDRIdebt relief from the IMF.27MDRIdebt relief would cover all outstanding debt disbursed from The medium- and long-term projections will be revisedfor the HIPC decision point document, according to the prospective final agreement on a PRGFarrangement which is expected to cover fiscal years 2007 to 2009. 26 Calculations based on staff projections for end-September 2006 suggest that Haiti's debt in NPV terms could be below 150percent of exports of goods and services in 2007 without receiving HIPC Initiative assistance. 27For countries that had not yet reached the completion point when the MDRI was implemented (January 5, 2006), the IMFhas committed to provide stock relief under the MDRIon eligible debt to the IMFoutstanding as of December 31, 2004 and still outstanding at the time of the completion point. Haiti is scheduled to repay all - 14- IDA prior to end-December2003, andwould start at the beginning of the quarterfollowing confirmation of the country's eligibility by IDA'SExecutive Board. The amount of MDRI relief from IDA will depend on repayments made by the date of the completion point. Box 2. Key Macroeconomic Assumptions Underlying the DSA Key medium-to-long term macroeconomic assumptions used in the baseline DSA scenario include: Annual real GDP growth averages4.7 percent over the projection period (2006-25). CPI inflation is projected to decelerate from 15 percent in 2006 to 5-7 percent in the medium run in line with projections for comparator countries. Investment ratio is projected to increase by 6 percent of GDP in the long term. Public investment is expected to increase from about 4 percent of GDP in 2005 to about 8 percent of GDP in 2011. Fiscal policy aims at achieving the government's spending priorities while maintaining macroeconomic stability. Central government revenue is expected to increase gradually from 9.6 percent of GDP in 2005 to about 16 percent of GDP by 2025. Expenditure is expected to increase to over 20 percent in the long term with an increased share of pro-poor spending in overall outlays. The central government overall deficit and external financing requirements, before HIPC Initiative assistance, are projectedto average 2 percent of GDP over the projection period. Official loan financing (excluding the IMF)is assumed to be mainly on concessional terms over the projection period, in line with historical experience. IMF loans are expected to be on PRGF terms. Other official loan financing is assumed to be mainly on concessional rates on terms comparable to IDA and the IDB (95 percent of total). The remaining 5 percent are assumed to be covered by bilateral donors on less concessional terms. The resulting grant element for new disbursements is estimated at about 45 percent. External grants are expected to increase at a lower rate than GDP, declining from 8 percent of GDP in2006 to 3.5 percent by 2025, as the overall political situation and per capita GDP improve. The external current account deficit (excluding external grants) is to contract from over 8 percent of GDP in 2006 to about 5.5 percent in the long run. 28. Assuming that Haiti reaches the completion point by end-September 2008, preliminary estimates indicate that MDRI debt relief from IDA could amount to US$465 million innominal terms (US$243 million in NPV terms), excluding debt relief to be delivered under the HIPC Initiative. This compares with possible HIPC Initiative assistance of US$205 million (US$139 million inNPV terms). A one-year delay in reaching the completion point could result inHaiti forgoing about US$9 million indebt relief, highlighting the importance of implementing the completion point triggers as quickly and thoroughly as possible. eligible debt-debt that was outstanding to the IMFbefore December 31, 2004-by December 2006. Haiti is therefore not expected to have eligible debt for MDRIrelief from the IMFat the completion point. - 15- 29. The delivery of MDRIassistance would further reduce Haiti's external debt. Following the completion point, Haiti's NPV of debt-to-exports ratio would significantly fall, remaining within the 87-94 percent range over the projection period.28Compared to a projection including only HIPC assistance, this represents a reduction of almost 40 percentage points at completion point (Table A 6 and Figure 2). F. Sensitivity Analysis 30. Simulations under three scenarioswere conducted to test the sustainability of Haiti's external debt after HIPC Initiative assistance (Table A7 andFigure 2). Under the scenarios considered, Haiti's debt situation would worsen, and the debt indicators would breach the HIPC threshold inthe scenarios with considerably lower export and GDP growth. 0 The first scenario highlights the sensitivity of debt indicators to concessionality of new borrowing. Unlikethe baseline scenario, new borrowing startingin 2006 and remaining inplace throughout the projection period i s contracted with an assumed 100basis point increase in the interest rate paid. This would be equivalent to a reduction in the estimated combined grant element of new borrowing to 33 percent, compared to 45 percent in the baseline scenario. Export receipts are assumed to remain unchanged from the baseline scenario. Under this scenario, Haiti's NPV of debt-to-exports ratio slowly deteriorates compared to the baseline scenario, and stabilizes at about 120percent from 2015. 0 The second scenario considers the sensitivity of the projections to lower growth rates of exports of goods and services.Inthis scenario, exports are assumed to grow at a rate equivalent to the average over the last three years (12 percent) minusone standard deviation (7 percent). This implies a reduction inthe average growth rate of about 3.5 percentage points compared to the baseline scenario.29Lower export growth i s also assumed to reduce government revenues, through lower GDP, and to subsequently increase the need for new financing. Based on these assumptions, the NPV of debt-to-exports, after assuming full delivery of HIPC Initiative assistance, would breach the HIPC threshold in 2014 and reach 196 percent in 2025 (Table A7). Compared to the baseline scenario, this represents a deterioration of approximately 2.0 percentage points in 2006, steadily increasing to almost 100percentage points by 2025. 0 The third scenario considers the sensitivity of the projections to lower GDP growth. Inthis scenario, GDP i s assumedto grow 2.0 percentage points lower than the baseline growth rate of 4.2 percent and 5.0 percent for the decades 2005-15 and 2016-25 respectively. Inability to significantly enhance security, improve social and 28 *'Although This assumes that MDRIhas no impact on Haiti's new borrowing over the projection period. the average growth rates of exports over the past 20 years (11percent) and the past 10 years (15 percent) were relatively high, they were also highly volatile, and additional uncertainties emerge from the on-going significant changes in marketsfor Haiti's exports noted above. - 16- economic infrastructure, and implement structural reforms would weaken private sector confidence and investment. The resulting lower growth would yield lower government revenues andthe need for new borrowing would increase. Based on these assumptions, the NPV of debt-to-exports, after assuming full delivery of HIPC Initiative assistance, would slowly decline until 2013, reaching 121 percent. Thereafter, the NPV of debt-to-exports would gradually increase reaching 162 percent by 2025. Compared to the baseline scenario, this represents an increase in Haiti's NPV of debt-to-exports ratio of about 0.3 percentage points in 2006 increasing to 63 percentage points by 2025. 31. The sensitivity analysis indicates that Haiti's ability to service external debt after HIPC relief is highly vulnerable to export perf~rmance.~' achievement of a robust The external debt position will be also dependent on real GDP growth and the composition and terms of external assistance. The analysis underscores the importance of strong and sustained government's and donors' efforts to: (i) re-establish internal security; (ii) a provide conducive environment for private investment, notably through infrastructure improvement and strengthening of state institutions, to develop exportable production (traditional and nontraditional); (iii) implement a prudent debt management strategy, including ensuring that external assistance i s heavily weighted toward grants. v. THEDECISION AND FLOATING COMPLETIONPOINTS A. The PRSP Process 32. The I-PRSP is expected to be completed by the government by August-September 2006 and presented to the IMFand IDA Boards, together with the Joint Staff Advisory Note (JSAN), in October 2006, at the proposed time for the Decision Point Document. IDA and IMFstaff providedcomments on a first draft prepared inFebruary 2006, which is now under revision by the new government to reflect its priorities and commitments. B. Possible DecisionPoint Timing 33. In the staffs' view, Haiti's overall track record of macroeconomic stabilization and structural reforms since 2004 has been satisfactory for considerationfor the HIPC decision point. Haitihas a favorable record under two comprehensive EPCA-supported programs (October 2004-September 2006), duringwhich the authorities have made significant progress toward strengthening macroeconomic stability and implemented several key structural measures, thereby demonstrating Haiti's capacity to implement a medium-term reform program. The track record also includes economic governance reforms under 30However, the baseline and the sensitivity analysis scenarios do not consider the impact of MDRIdebt relief or additional bilateral assistance.A more detailed analysis will be included in the decision point document. - 17- IDA-supportedEGRO I(since January 2005).3'Although the two-year track record i s relatively short, the HLPC framework has sufficient flexibility to accommodate Haiti's circumstances, including with regardto the lengtho f track record to decision point. 32 Based on the strength of the track record under the EPCA and EGRO noted above, the staffs are of the view that a relatively short track recordof policy implementation isjustified in the case of Haiti. 34. The staffs proposethat the DecisionPoint document for Haitibe consideredby the Boards of IDA and the IMFinOctober 2006, together with the approval of a PRGF arrangement by the IMFBoard, conditional on (a) continued satisfactory implementation of the EPCA-supportedmacroeconomic program; (b) the reaching of understandings between the staffs and the authorities on the details of appropriate completion point triggers; and (c) the finalization of the I-PRSP. 33 C. PossibleTriggers for the Floating Completion Point 35. The previousanalysis outlined key areas inwhich a programof economic governanceand structural reforms, which would underpin HIPC and MDRIassistance, would support the economic and social development of Haiti. This programwould focus on ensuringfull and effectiveimplementation of the legal and institutional framework introduced in the last two years, including: (a) strengthening public finance management, notably in the areas o f budget management, public expenditure controls and procurement; (b) enhancing accountability of highpublic sector officials for their sources of income and assets andpromoting governance and transparency in key public enterprises; and (c) increasing revenue mobilization through enhanced tax policy and administration. This agenda provides a framework for the choice of possible completion point triggers and IDA and IMFstaffs have reached preliminary understandings with the authorities on their broad coverage (see BOX 3). 34 31 As indicated in IDA ReportNo. 35528 "Haiti EconomicGovernanceReformOperation-Release of the FloatingTranche-Full Compliance," March 14, 2006. 32As recognizedby the DevelopmentCommittee in 2001, the existingframework of the Initiative i s flexible and can accommodatespecial circumstances,includingfor post-conflictcountries. See "Assistance to Post- Conflict Countries and the HIPC Framework", DevelopmentCommittee DC2001-0014, April 20, 2001. This comprises flexibility regarding the length and the content of the track recordto reachthe decision point.This document proposes that for post-conflictcountries, the track recordprior to the decision point should emphasize institutionbuilding and governance, and in the interimperiodthe focus should be on developing mechanisms for trackingpoverty-reducingresources.Assuming significant progresshas beenmade towards governance capacity building,monitoringand macroeconomicstability, consideration could be givento havingan early decisionpoint combined with a relatively longer interimperiod.Inthat regard, the ExecutiveDirectorsof IDA and the IMFhave shown flexibility on the three years of satisfactory performanceunder IMF- and IDA- supported programs (of which one year should immediately precedethe decisionpoint) that are normally requiredto reachdecisionpoint. Notethat Haiti metthe conditionsfor post-conflictassistance from the IMF, but it is not classified as a post-conflictcountry under IDA procedures. 33The I-PRSPand accompanyingJSAN will be presentedto the Boards with the DecisionPoint Document. 34More detailed triggers will be includedin the DecisionPoint Document. - 18 - Box 3. PossibleTriggers for the FloatingCompletingPoint 1. PRSP: Preparation of a full PRSP through a participatoryprocess and satisfactory implementationof its recommendedactions for at least one year, as evidenced by an Annual Progress Report submitted by the government to satisfaction of staffs of IDA and the IMF. 2. Macroeconomic Stability: Maintenance of macroeconomic stability as evidenced by satisfactory performance underthe PRGF-supportedprogram. 3. Public finance management and Governance: (a) Introduction of medium-term (three-year) macroeconomic framework and budget projections, consistent with medium-termpro-poor expenditures; (b) Adoption of an adequate classification for budget preparation and reporting to monitor government expenditures, in particular to establish a tracking mechanism for pro-poor expenditures and publicationof reports; (c) Alignment of public spending priorities in accordance with the priorities identified in the I- PRSP, and, when completed, the PRSP, reflectingemphasis on pro-poor growth; (d) Strictly limiting non- salary current public expenditures spent through comptes courunts; (e) Successive annual audits of Government accounts following acceptable audit standards completed by the Supreme Audit Institution, submitted to Parliament and publicly disclosed; (f) Adoption and satisfactory implementation of a new procurement law, promoting transparency and competition in line with international best practice; (g) Adoption and satisfactory implementation of a law on asset declaration and disclosure for public sector employees; and (h) The key public enterprises (electricity, telecoms and the ports authority) are current on financial audits and have made satisfactory progressin the implementationof an action plan to address key audit recommendations. 4. Structural Reform: Strengthentax policy and administration,for example, by establishing customs control inthe provinces, broadeningthe VAT and personalincome tax base, and introducinga unique taxpayer identificationnumber. 5. Social sectors: (a) Education Measuresto improvequality and access to education, notably through - increased public funding for education; the introductionof a public financingmechanism for poor families to pay the costs of non-public schooling; training of teachers; distribution of textbooks both to public and non-public schools; (b) Health- Measuresto increase access and quality of health services and outcomes, i.e, increased child immunization rates, increased access to pre-natal care, increased number of UnitCs Communales de SantC providingthe minimumservices package, and increasedsupply of key drugs; and (c) HIVIAIDS-Mapping of primary new sources of the epidemic to guide future policy decisions, increased awareness and prevention campaigns, and improvedcare for persons infected. 6. External debt management: (a) Centralization of all information on public external and domestic foreign currency debt in a single database; (b) Publication of the quarterly external debt data, on a government website; and (c) Avoidance by the government, including the central bank, of long-term guarantees for public enterprisedebt (external and in foreign currency). 36. The areas of triggers indicated above would be complementedby standard triggers including implementation of the PRSPand the maintenance of macroeconomicstability measuresto increaseaccess to and quality of education, health and HIV/AIDS services and outcomes.The reforms aim at strengthening the conditions for pro-poor growth and at facilitating progress towards the achievement of the MDGs. Should Haiti remain on track with regards to implementation of its poverty reduction strategy and economic reforms - 1 9 - supported by IDA and the IMF, the HIPC completion point could be reached within two years of the HIPC decision point. D. Monitoringthe Use of HIPC InitiativeResources 37. Securing the effective use of debt relief assistancefor poverty reduction and, more generally, the capacity to implementand monitor a shift inthe composition of expenditure toward poverty-related objectives is a key element of the HIPC Initiative. The government intends to ensure the effective use of resources made available by the HIPC Initiative while continuing its ongoing efforts to strengthen the programming, management and control of public expenditure, and to improve service delivery inkey sectors. 38. A joint IMFand IDA Assessment and Action Plan (AAP) for tracking poverty related expenditure inJune 2006 concluded that while Haitidoes not have a budget classification by program or a fully functional budget classification, there are mechanismsinplacethat can be used to adequately monitor the use of resources made available by the HIPC Initiative. The recently introduced budget and accounting classifications allow monitoring of budget allocations and expenditures following four dimensions: (ijinstitutional (executive, legislative,judiciary and autonomous entities); (ii) (economic,political,social,culturalandother); (iii) sectoral administrative (ministries, central and regional departments) including development projects; and (iv) economic (expenditure types). The budget i s also presented in the annexes of the budget law following a functional classificationwith 10broad categories (such as education and health). The functional classificationi s prepared from broad estimates from the administrative classification. Also, inthe absence of a program budget, projects are individually coded within the administrative classification allowing recording andreporting on projects' expenditures. 39. On the basis of the AAP recommendations, the use of resources made available by the HIPC Initiative prior to completion point will be monitored at the entity (e.g., ministries, public institutions, and executing agencies) and the project levels. Entities, which are already coded inthe budget classification, will be identified according to their core mandate in relation with poverty reduction. The same process will be followed to identify individual projects in areas which contribute to poverty reduction as defined in the I-PRSP currently under preparation. Possible expenditure priorities for the use of HIPC resources are providedbelow (see Box 4) and will be further discussed and specified with the authorities in the decision point document. The relatively limitedresources from HIPC initiative assistance would focus largely on health and education, while other areas, such as infrastructure, would be financedby external resources. There are already mechanisms in place to record expenditures according to their destinations. This will allow monitoring both budget allocations and expenditures for both the entities and projects identified as contributing to poverty reduction. - 20 - Box 4. PossibleExpenditure Prioritiesfor the Use of HIPC DebtRelief Education Educationfor All (EFA) program. Provisionof textbooks, teaching material and uniforms. School feeding program. Health Improvingthe availability of drugs, immunizationprograms (including in remote areas using mobile brigades), prevention campaignsagainst malaria,parasite control in schools. Surveyson the prevalenceof iodineand micronutrientdeficienciesand programs to address these deficiencies. Equipmentand supplies for maternity wards of health centersand hospitals. HIVIAIDS preventionand general healtheducation activities. Strengtheningepidemiology services. Water Supply and Sanitation Improvingaccess to potable water and sanitationfor poor urban and rural households. Environment Environmental protectionand naturaldisaster preventionactivities. 40. The periodic budget execution reports published by the MEFon its web page provide a tool to monitor and publicly disseminate the use of resources made available by the HIPC Initiative in-year. Measures are also being taken to become current with the audit of the annual government accounts by the CSCCA. This will provide external and independent validation of the budget execution reports. Inaddition, and as indicated above, the government continues its efforts to enhance programming, management and control of public expenditure with the support of technical and financial assistance from IDA, IMF, IDB and other donors. 41. The poverty-related programs and projects to be financed within the interim assistance would need to be included in the FY2007 and subsequent budgets. The authorities have defined possible expenditure priorities for the use of HIPC debt relief (Box 4) in line with its incoming I-PRSP and taking into account that resources from HIPC relief will be modest. Priority was given to programs which will help Haiti move towards the achievement of the MDG's. Given the significant existing gaps indevelopment indicators, Haiti i s unlikely to achieve the MDGs by 2015. However, with the continued external financial assistance (including HIPC and MDRIrelief) Haiti could reach some MDGs, notably goal 2 (achieve universal primary education) and goal 7 (Combat HIV/AIDS, malaria and other diseases) and progress towards reaching the others.35 35The expenditure prioritiesfor use of HIPC debt relief will be further discussed with the authorities duringthe preparationof the decision point document. . I - 21 - VI. ISSUES FOR DISCUSSION 42. This paper presentsa preliminary assessment of Haiti's eligibility for assistance under the Enhanced HIPC Initiative. Executive Directors' views and guidanceare sought inparticular on the following issues: Eligibility: Do Directors agree that Haiti i s eligible for assistance under the Enhanced HIPC Initiative? Timing of the DecisionPoint: Do Directors agree that Haiti could reach its Decision Point by October 2006, together with the approval of a PRGF arrangementby the IMF Board, provided that (i) country remains on track with its macroeconomic program, the supportedby the EPCA; (ii) understandings are reachedon appropriate completion point triggers; and (iii) the I-PRSP i s finalized? Floating Completion Point: What are the Executive Directors' views on possible triggers andkey policy measures (against which satisfactory performance would have to be measured)linkedto the floating completion point? . 1 - 23 - Figure 2. Republic of Haiti: ExternalDebt SustainabilityIndicators,2005-25 NPV of Debt to Exports (In percent of Exports) 180.0 , Before traditional debt 170.0 + 160.0 After conditional 150.0 HIPC assistance 11 140.0 130.0 After conditional HIPC 120.0 assistanceand MDRI 11 110.0 - unconditional^ HIPC assistance 100.0 - 11 8 / 90.0 - 80.0l ' ' ' ' ' I I I I I I I i i 1 i i 1 i 2004105 2006107 2008109 2010111 2012113 2014115 2016117 2018119 2020121 2022123 2024125 Debt Service to Exports (In percent of Exports) 10.0 , Before traditional debt 4.0 - MDRI assistance * - 1 1 1 - 1 1 3.0 1 1 1 , , , , 1 1 , I , I I 1 2005106 2007108 2009110 2011/12 2013114 2015116 2017118 2019120 2021122 2023124 Sources: Haitian authorities and staff estimates and projections. - 24 - Figure 3. Republic of Haiti: Sensitivity Analysis, 2005-25 NPV of Debt to Exports 200.0 (In percent of Exports) LowerScenarioGrowth Export 0 0 0 180.0 - 0 i m n - e rc Scenario 140.0 J 100.0 - 80.0 - Baseline Scenario 60.0 1 1 2004105 2006107 2008109 2010111 2012113 2014115 2016117 2018119 2020121 2022123 2024125 Debt Service to Exports (In percent of Exports) 10.0 Lower Export Growth Scenario Less concessional New Borrowing 6.0 - Lower GDP growth secnario 4.0 , , , , 1 , I 1 I 1 I I 1 I I I I 1 I 2004105 2006107 2008109 2010111 2012113 2014115 2016117 2018119 2020121 2022123 Sniirces: Haitian aiithnrities and staff estimates and nrniectinnq . - 25 - Table AI. Republic of Haiti: Nominal Stock and Net Present Value of Debt at end-September 2005 by Creditor Groups (Inmillionof US$unlessotherwise specified) NPV of Debt After Traditional Nominal Debt Stock Arrears NPV of Debt Debt Relief I/2/ Percent Percent Percent Percent of total of total of total of total Total 1,332.2 100.0 35.4 100.0 930.1 100.0 926.5 100.0 Multilateral 1,097.8 82.4 0.0 0.0 750.7 80.7 793.2 85.6 World Bank 507.1 38.1 0.0 0.0 316.3 34.0 349.1 37.7 LMF 21.4 1.6 0.0 0.0 20.6 2.2 20.6 2.2 IADB Group 3/ 534.0 40.1 0.0 0.0 390.0 41.9 399.7 43.1 IFAD 31.7 2.4 0.0 0.0 20.3 2.2 20.3 2.2 OPEC 3.7 0.3 0.0 0.0 3.4 0.4 3.4 0.4 Bilateral and commercial 234.4 17.6 35.4 100.0 179.4 19.3 133.3 14.4 Paris Club 188.7 14.2 35.4 100.0 143.1 15.4 97.0 10.5 Canada 2.0 0.2 0.0 0.0 2.1 0.2 2.1 0.2 France 64.1 4.8 23.3 65.9 59.7 6.4 45.7 4.9 Italy 68.9 5.2 7.8 22.0 44.2 4.8 24.2 2.6 Spain 38.6 2.9, 4.3 12.0 24.1 2.6 13.6 1.5 UnitedStates 15.1 1.1 0.0 0.0 13.0 1.4 11.4 1.2 Other Official Bilateral 45.7 3.4 0.0 0.0 36.3 3.9 36.3 3.9 Taiwan, People's Republic of China 45.1 3.4 0.0 0.0 36.3 3.9 36.3 3.9 Sources: Haitian authorities;and Fundand Bank staff estimates. I/Includesastock-of-debtoperationonNaplestermsatend-September2005:andatleastcomparableactionbyotherofficialbilateralandcommercialcreditors on eligible debt (pre-cutoff and non-ODA). 2/ The increasein the NPV of debt for the IADB Group and the World Bank reflects the inclusion of arrearsreschedulingoperations in 2003 and 2005, respectively.The concessional element of the reschedulingoperation for the IADB Group (US$9.7 million) and the World Bank (USS32.8 million) are assumed as part of their HIPC relief effort. 3/ The IADB Group used concessionalresourcesfrom its Fund for Special Operations(FSO). 1 - 26 - Table A2. Republic of Haiti: HIPC Initiative-- Assistance'Under a ProportionalBurden-SharingApproach 1/ 2/ (In millions of U.S.dollars, unlessotherwise indicated) Total Bilateral 31 Multilateral NPV of debt- Common Reduction to-exports-target Factor 41 (in percent) (In NPV terms at end-September2005) (Percent) 150 I39 20 119 14.95 Memorandumitems: NPV of debt 5/ 926 133 793 Paris Club creditors 97 Of which: pre-cutoff date non-ODA debt 50 Non-ParisClub creditors 36 Of which: pre-cutoff date non-ODA debt 0 Three-year averageof exports 525 Current-yearexports 597 NPV of debt-to-exportsratio 61 176 Sources: Haitianauthoritiesand staff estimatesand projections. 11The proportional burdensharing approachis describedin "HIPC Initiative-Estimated Costs and Burden Sharing Approaches" (EBS/97/127,1/7/97 and IDNSEC M 97-306,717197). 21Includes ahypothetical stock-of-debtoperationon Naples terms (end-September2005) and comparable treatment by other official bilateral creditors. 31Includes all official bilateral creditors. 41Eachcreditor'sNPV reduction in percentof its exposure at the decision point. 51Basedon end-September2005 data after full application of traditional debt relief mechanisms. 61Basedon the three-yearexport average (backward-looking average, it.,2005-03). Note that this includes the impact of the concessional reschedulingof arrears by the World Bank and the IADB Group. - 27 - Table A3. Republic of Haiti: Discount and Exchange Rate Assumptions at End-September 2005 Discount Rate 1/ Exchange Rate 2/ Currency Name (In percent per annum) (Currency per U.S. dollar) Canadian Dollar 4.80 1.16 Danish Kroner 4.06 6.20 Euro 4.1 1 0.83 Great Britain Sterling 5.51 0.57 Haitian Gourde (USD equivalent) 31 5.05 1.oo Japanese Yen 1.85 113.15 Norwegian Kroner 4.2 1 6.54 Special Drawing Rights 4.35 0.69 Swedish Kroner 4.2 1 7.15 Swiss Franc 2.82 1.29 United States Dollar 5.05 1.oo Venezuelan Bolivar 4.35 2147 Memorandum item: Paris Club cutoff date October 1, 1993 Sources: OECD; and IMF, International Financial Statistics. 1/ The discount rates used are the average commercial interest reference rates over the six-month period prior to end-September 2005, Le., the end o f the period for which actual debt and export data are available. 2/ The exchange rates are expressed as national currency per U.S. dollar at end-September 2005. 3/ Principal and interest payments are made in Haitian Gourde. However, the amounts to be repaid are denominated in U.S. dollar. . - 28 - 3 5 TableAS. Republicof Ham Net Preaent Valueof E-l Deb&2005-2025 11 (in millims oIV.5. doll.^. d n s othuwiw indiutd) I.Ancrm.dl1lom.l debt-nllrl 2 3 1 W V o r l d dcbl WVoCouls%anding debt Offidrl bi1mar.l dcommcnial Patis Clvb OUlsr oUtcirl bilmtenl Canmcrct.1 Multilalenl W V aCnev b a r m n g Memonmdua lams: W V oldebl-1-rprtr n(io(prcen1) 41 Td.1 deb1 168.3 152.8 (Ibunding dcbl 168.3 147.3 NW afdcbl-tcbrevcnuerabo (permt) Td.1 dchl 235.1 2099 (Illlading deb1 235.1 202.3 11. Ader road1Hoa.l dcllvrryofmb.mced HlPCusbtmnr='5/ W V oClM.1 dcbl W V oCouDlvldiry deb1 Onicoal b1la1cr.l and wmmsrdrl Paris Clvb Other official bilateral Cammcrci.1 Multal.1cr.l W V oCncw barn-ry Ill.Ancruncomdillc-amld~llv~ofy=nbmaoedHlPCurblnoca61 r W V ollol.1 deb1 787.9 786.1 W V oCoulstandtngdcht 787.9 753.6 0nia.l bal.tcnl and commercial 113 4 92.6 Pans Club 82.5 62.7 Othcr onicial bilalcnl 30 9 29.9 Cmmsrcial 0.0 0.0 Mul(il.lerd 674.6 661.0 Wald Bsnk 298.2 294.2 lADB Graup 343.5 333.9 IMF 17.8 13.6 Other mullilalcr~l 20.5 19.4 W V of new ba.muing 0 0 32.5 Memormndumllnn: W V afdcbl-1-xpatl ratio (pronl) 41 Td.1 deb1 174.5 153.6 147.8 126.4 125.7 123.4 119.0 113.0 109.8 108.6 107.0 105.2 1037 102.5 1013 I W 5 99.8 99.4 99.6 99.3 98.7 128.1 101.0 1-1 dcbg v r u m i n ~Cull delivcy 150.0 133.5 129.0 126.4 125.7 123.4 1190 1130 109.8 1086 1070 105.2 103.7 102.5 101.3 100.5 99.8 99.4 99.6 99.3 98.7 122.3 101.0 OuUund~rydcbl 174.5 148.1 131.6 1W.2 89.8 80.0 70.8 62.8 56.0 M.1 445 39.3 34.6 30.3 26.5 23.1 20.1 17.4 14.9 12.7 10.7 91.7 23.0 W V ofdcbl-lcbremnuratio (percent) 1-1 dcbl 243.8 210.9 188.8 157.1 151.3 143.3 133.0 125.3 119.9 1163 1125 108.7 105.3 1023 99.6 97.3 95.3 936 92.6 91.1 89.4 154.7 97.5 Tmal debl, ulumtn8 Cull dclircy 209.5 183.3 164.8 157.1 151.3 143.3 133.0 125.3 119.9 116.3 112.5 108.7 105.3 102.3 99.6 97.3 95.3 93.6 92.6 91.1 89.4 1469 97.5 Outrundin8dcbl 243.8 203.3 168.1 124.5 108.1 92.9 79.1 69.6 61.2 53.6 468 406 35.1 30.3 16.0 22.4 191 16.4 13.9 116 9.7 113.7 22.5 IV. Ancr condlllon.1 dellvery aIenh.aced HIPCmad MDRl luislmmcc Y 71 W V 0ClOt.1deb1 916.7 904.6 974.9 6344 708.0 779.9 845.2 887.3 949.0 1,029.8 1.112.0 1.197.6 1290.7 1393.0 1.5M.l 1,627.3 1,762.8 1.9122 2,085.2 2258.6 2,436.0 885.6 1.746.8 HPV afwlslmd~ngdebt 916.7 872.1 867.7 4452 425.8 407.7 392.6 375.9 358.9 341.4 323.2 3M.7 286.5 268.7 251.9 236.7 222.7 208.8 194.7 181.1 1674 520.7 232.3 Official btl~lenl mdm m m r d d Mullilmlcnl World Bank lADB Group IMT Othcr mullil.ler~l W V aCnm barnawn8 MemormadumIlrms: W V ofdebl-I-xpom rmtio(prslnt) 41 Totrl debt 1745 153.6 147.8 87.9 90.0 90.9 90.1 87.1 86.5 87.6 88.1 88.5 88.9 89.4 89.9 90.5 91.3 92.1 93.4 94.1 94.4 107.7 91.3 1-1 debt. annumnng Idldclivcy 150.0 133.5 129.0 87.9 90.0 90.9 90.1 87.1 86.5 87.6 88.1 88.5 88.9 89.4 89.9 90.5 91.3 92.1 93.4 94.1 944 101.9 91.3 W V oCdcbl-lcbrevcnucnlio ( p m n l ) Told deb1 243.8 210.9 188.8 109.3 108.3 1056 100.7 96.6 94.4 93.8 92.7 91.4 90.2 89.2 88.3 87.6 87.1 86.7 86.8 86.4 85.6 131.3 87.9 T m l debt. msmlul~ngIdldslircv 209.5 183.3 164.8 1093 108.3 1056 I W 7 96.6 944 938 92.7 91.4 90.2 89.2 88.3 87.6 87.1 86.7 86.8 86.4 85.6 123.5 87.9 Sour- bitimn mulhonlissand st.Ucsl~nulcsand ~rai==iI- I / Fi-I war ends i nSeptember. 2 Show theCXIFMI~11~.tion theCdl deb! alter YSC ~Caadilionaldcbl-rclicImcWsm.. and assuming.Ileadwmprablc trulmcnl h m onici.1 bilatenl srrdabrs. 31The W V oCdcbl lo L c Wnld Bsnk and thc W B Groupis based on lhs Is& nibnuon u or&-Scpkmber 2005. Therclm, ilexdudes LCimpur o I l k mnseash-1 rcsdudulingolmrrcmr,. 41 In lerms daimple h i s M u l Ihrcc-yurnvcnge ofexportnoCgml* and nanGnorwm-. 51 A#sumc. interim rclteiunder the en- Inilialivc I r m November2006 to September2M8 and full dclivcyofusisDnsl in Scptcmbn2W8. 61 Assumes lull drlnrcry ocs~limaldcnh.nced HIPC irttalivc deb1rellcCns cndScplcmber 2005. 71MDRl.ssirunoc*pplies only lo IhcWald Bank and Iartr alter Ihe wmplrlim pdnl (Sepamber 2008). Auvma th.1 MDRlhum impactm b i l i ' s rrv bmoviry ovcr Ihc p~jc~lim petid. . . - 30 - - 3 1 - Q " x p e o e e - - - 0 fI3 N d c a N Y - - v i * f S " " 9 - X N N Y I I . - 32 - Table A8. HIPC Initiative: Status of Country Cases Considered Under the Initiative. May 3,2006 Target Estimated Total NPV of Debt-tu Assistance Levels I/ Percentage Normnal Debt Decision Completion Gov. (In nullions of U S dollars. presentvalue) Reduction Service Relief Country Point Point Expom revenue Bilateral and Multi- World in NPV of (In nullions of (in percent) Total commercial --lateral I M F Bank Debt 2/ U.S.dollars) ~ Completion point reached under enhanced framework Benin Jul 00 Mar. 03 150 265 77 I89 24 84 31 4M) Bolivia 1.302 425 876 84 194 ?.OM) ongmaifmmexork sep 97 Sep. 98 225 448 157 291 29 54 I 4 760 eiihancedframeworL Feh 00 Jun 01 150 854 268 585 55 140 30 1.3DO Burkina Faso 553 83 469 57 23 I 930 origmalfiamexork sep 97 Jui. w 205 229 32 I96 22 91 27 400 enhnncedfmmework l i d 00 Apr. 02 150 I95 35 161 22 79 30 300 fOppLng-Up Apr 02 150 129 16 112 14 61 24 230 Cameroon a t 00 Apr. 06 150 1.267 879 322 37 I76 27 4.917 Ethiopia 1.982 637 1.315 60 832 3.275 enhancedfiamework NOL01 Apr. 04 150 1,275 482 763 34 463 47 1,941 fopping-up Apr. 04 I50 707 155 552 26 369 31 1.334 Ghana Feb 02 Jul 04 144 250 2,186 1.084 1,102 112 781 56 3.500 Guyana 591 223 367 75 68 1.354 ongr,iaifimwwork Dec Y7 Mny 99 107 280 256 Y l 165 35 27 24 634 e~limcedframewod Nov 00 Dec-03 150 250 335 132 202 40 41 40 719 Honduras Jul 00 Mar-05 I10 250 556 215 340 30 98 18 1.000 Madagascar Dec 00 ocr-04 150 836 474 362 19 252 40 1.900 Mali 539 I69 370 59 185 895 ongtnaifiamework sep 98 sep 00 200 121 37 84 14 43 Y 220 enhancedfromovork sep 00 Mar. 03 150 417 132 285 45 143 29 675 Mauritania Feb 00 Jun. 02 137 250 622 26I 36I 47 100 50 1.100 Momnbique 2.023 1.270 753 143 443 4.300 ongindfinmeworl Apr 98 /uti 99 2 w 1,717 I 0 7 6 64I 125 381 63 3.700 enhancedfromework Apr 00 Sep. 01 I50 306 I94 112 18 62 27 MM Nicaragua Dec 00 Jan. 04 150 3.308 2,175 1.134 82 191 73 4,500 Niger 663 235 428 42 240 1.190 enlfflncedfiamrwork Dec 00 Apr. 04 150 521 211 309 sa I70 53 944 topping-up Apr. 04 150 I43 23 119 14 70 25 246 Rwanda 696 65 63I 63 383 1,316 enhancedfmmexork Der 00 Apr-05 150 452 56 397 44 228 71 839 lopping-up Apr-05 150 243 9 235 20 I54 53 477 Senegal Jun 00 Apr. 04 133 250 488 212 276 45 I24 19 850 Tanzania Apr 00 Nov. 01 150 2.026 1.006 1,020 I20 695 54 3,000 Uganda 1.003 I83 820 160 517 1.950 onginnlfiomework Apr 97 Apr. 98 202 347 73 274 69 160 20 650 enlfflncedfmmmorl Feb 00 May W 150 656 110 546 91 357 37 1,300 Zambia Dec 00 Apr-05 150 2.499 1.168 1.331 602 493 63 3.900 Decision pint reachedunder enhanced framework Burundi Aug 05 Floating 150 826 I24 70I 28 425 92 1.465 Chad May 01 Floating 150 170 35 134 18 68 30 2 . 9 Congo, Democratic Rep of Jul 03 Floating 150 6,311 3,837 2.474 472 831 80 10.389 Congo Rep. of Mar 06 Floating 250 1.679 1.561 118 8 49 32 2,881 Gambia, The Dec 00 Floating 150 67 17 49 2 22 27 90 Gulnea Dec 00 Floating 150 545 215 328 31 152 32 800 Guinea-Bissau Dec 00 Floating 150 416 212 204 12 93 85 790 Malawi Dec 00 Floating 150 643 I63 480 30 331 44 1.ooo Sao To& and Principe Dec 00 Floating 150 97 29 68 24 83 200 Sierra Leone Mar 02 Floating 150 600 205 354 123 122 80 950 Decision point reachedunder original framework Cote dIvoire Mar. 98 31 141 280 345 163 182 23 91 6 4/ 800 Tolal assistance providedkommitled 34,756 17,239 17377 2.588 51 8,203 61,221 Preliminary HIF'C document issued Cbte dIvoire 6/ 91 250 2.569 1,027 918 166 438 37 3.900 Sources I M Fand World Bank Board decisions, completion point documents. decision point documents, preliminary HlPC documents. and staffcalculdtions. I/Assistancelevelsaredtcountries'respectivedeclsionorcompletionpoints.asapplicable 2/ In percentofthe net present value of debt at the decision or completion point (as applicable). after the full use of traditional debt-relief mechanisms 3/ Cdte dlvoire reached its decision point under the original framework in March 1998 The total amount of assistancecommitted thereunder was US345 million in NPV terms. 4/ Nonreschedulable debt to nun-Paris Club ofticial bilateral creditors and the LondonClub. which was already subject to a highly concessional restructunng, is excluded from the NPVofdebt at the completion point in the calculation of this ratio. 5/ Equivalent to SDR 1.804 million at an SDWSD exchange rate of0.6765, as of May 3.2006. 6/ I t is suggestedthat enhancedHIPCrelief for Cdte dlvoire ovenake the commitments made under the origmd H P C framework. - 33 - . , N N - x 3 3 3 2 2 ? ? - - - 3; 4 - 34 - - 35 - - 3 6 - APPENDIX DEBTMANAGEMENT CAPACITY Currently, the Central Bank of the Republic of Haiti (Banque Centrale de la Rkpublique d'Hai'ti, BRH) and the Ministry of Economy and Finances (Ministhe de I'Economie et des Finances, MEF) arejointly responsible for debt management in Haiti. While the BRH has a relatively complete debt database, the archives of the MEF were devastated by a fire in 2002. The MEF with support from the BRHi s currently rebuilding its database. Overall, the coverage of public debt (external and domestic) i s appropriate. The BRH updates its database at every payment cycle, ensuring that the authorities' database is broadly in line with the creditors. A modern debt reporting system is installed at the BRH, while the MEFis preparingto acquire such a system. Currently, the BRHuses an old version of UNCTAD's debt management system (DMFAS, version 5.2). Both the BRHand the MEF are considering acquiring an updated version of DMFAS. This would be contingent on the receipt of appropriate financing from donors and is also dependent on an assessment by a mission from UNCTAD. In addition to DMFAS, UNCTAD would also provide training to the staff of the BRHand the MEF.The use of an appropriate software and adequate training will be critical for improving debt management. The following debt service procedures are typically followed. Every month, the BRH sends the MEF a statement of all debt service falling due in the following month. At the end of the months, the MEFissues a payment order for the full amount of debt service for the following month. The BRHdebits the Treasury account to pay each creditor as debt service falls due. The BRHcannot legally pay a creditor without having information about the associated disbursement. The BRHproduces monthly, quarterly and annual reports which contain data on external debt. These reports cover the transactions (disbursements and payments) as well as the stock of debt and the accumulation of arrears. The reports are disseminated throughout the Central Bank and MEF.This allows the authorities to integrate the relevant information into the macroeconomic framework. The data are available to the public upon request within one month after the reference period, and are subsequently published with some additional delay. Looking ahead, Haiti needs to further strengthen its debt management capacity by: (i)clarifying by law the debt management responsibility o f the BRHand the MEF; (ii)improving information sharing, including frequent debt reconciliation exercises, between the BRHand the MEF; (iii) shortening the procedures for debt service payments; (iv) improving the tracking of disbursements; (v) acquiring a modern debt reporting system; (vi) training of staff; and (vii) improving the capacity to produce debt sustainability analyses.