Haiti 1. RECENT ECONOMIC PERFORMANCE. A. Overview

Transcription

1 Haiti 1. RECENT ECONOMIC PERFORMANCE A. Overview Haiti in 2007 continued to emerge from the political and economic crisis experienced in the early years of the current decade. The growth rate improved markedly. So did the balance of payments, facilitating considerable strengthening of the international reserves position. Despite ongoing institutional weaknesses, fiscal indicators on the whole continued to ameliorate, albeit marginally. The external debt stock, though a cause of concern, is poised for major reduction through the HIPC and other donor initiatives. In the banking system, the process of consolidation initiated in 2006 continued, contributing significantly to enhanced stability. B. Growth Performance In the early years of the current decade, real income growth decelerated sharply from the average of 3.8% during For the period , due to widespread political instability, the economy contracted at an annual average rate of approximately 1%. With the success of the stabilisation programme in the period following the end of the presidency of Jean-Bertrand Aristide; improved security as a result of the presence of UN peace-keeping force; and significant capital inflows from multilateral and bilateral donors, economic growth performance rebounded to an average of 2.1% during Real income growth was estimated at 3.5% in 2007, a considerable improvement over the period , strongly driven by an increase in public investment and by improved export performance. (Figure 1) Annual growth is projected at approximately 4% for Higher sustained growth performance presents an enduring challenge to reduce the very high level of poverty and indigence resulting from decades of economic decline. It is estimated that per capita growth declined annually by an average of 0.7% during the last four decades. C. Inflation Haiti has made remarkable progress in reducing the inflation rate over the last five years. Due mainly to excessive borrowing by government from the Central Bank and depreciation of the gourde, the rate of Figure 1: Growth Growth (%) Source: Haiti: Interim Poverty Reduction Paper, 2006 and IMF Article IV, CDB Annual Economic Review 2007 Haiti

2 inflation reached 37.8% (end of period) in Fiscal consolidation; reduced lending by the Central Bank to the Central Government; and the sterilisation of excess liquidity, all part of an IMF Staff Monitored Program during April to September 2004, resulted in a decline to 21.7% by the end of Continued and determined efforts on the part of the post-aristide transition government (March 2004 to January 2006) and of the current administration brought the rate of infl a tion to substantially lower levels. This was achieved through In 2005, the rate of infl a tion (end of period) was 14.8%, declining further to 12.4% at the end of In 2007, it fell to 8%, below the target of 9%. Infl a tion rates of 7.5% and 7.3% are targeted for 2008 and However, with strong inflationary pressures from rising prices of food and oil imports, on both of which Haiti is very dependent, the attainment of these targets will be very challenging. (Figure 2) Figure 2: 2: Inflation Percent Source: Haiti, Interim Poverty Reduction Paper, 2006 and IMF Article IV, 2007 fi s cal adjustments and tight monetary policy agreed to under the Interim Cooperation Framework (ICF) and the Poverty Reduction and Growth Facility (PRGF). 1 1 The ICF (July 2004), a framework for aid coordination and project implementation, was agreed on jointly by the Interim Government and the donor community, including both multilateral and bilateral donors, for the post-aristide transition period to new elections. The framework comprised four pillars: (i) strengthening of political governance and the promotion of national dialogue; (ii) strengthening of economic governance and institutional development; (iii) promotion of economic recovery; and (iv) improvement of access to basic services. The ICF established clear targets and financial resource requirements in more than 20 areas grouped under the four pillars. Donors pledged $1.1 bn to support implementation of the framework, exceeding the target of $924 mn. To implement the various projects, a Joint Coordination Committee for ICF Implementation and Monitoring was established, comprising three government representatives; three from civil society and six from the donor community. The PRGF is an IMF low interest (0.5% over ten years with a grace period of four and a half years) facility for low-income countries. Central to participation in PRGF-supported programmes is the formulation of a national Poverty Reduction Strategy Paper (PRSP). Haiti completed in November 2006 its Interim Paper (I-PRSP) and the PRSP in March Access to PRGF funding requires the satisfaction of several performance criteria (fiscal, monetary, structural). In the first review under the PRGF in 2007, Haiti fulfilled all criteria with the exception of one for which it sought and received a waiver. D. Fiscal Policy and Debt Operations Despite determined efforts, the government has had modest success so far in the amelioration of fiscal policy. With recurrent revenues estimated currently at approximately 11% of GDP in the current fiscal year, reflecting a considerably constrained revenue generation capacity, government has found it very difficult to provide much needed services to the population in education; health; security; infrastructure, etc. 2 The ratio of recurrent revenue to GDP in FY 2006/07 was 10%, up from 9.7% in FY 2005/06 and estimated at 11.1% in FY 2007/08. The Government is targeting a revenue intake of 12% of GDP for FY 2008/09 and FY 2009/10. Haiti s revenue performance is substantially below that of similar low income countries. 3 As a result of inadequate revenues, government expenditure, despite substantial grant inflows, has been very low. Total Central Government expenditure 2 The fi scal year is October 1 to September El-Masry, Gamal and Funke, Katja, Revenue Mobilisation in a Post-Confl ict Environment, in Haiti: Selected Issues and Statistical Appendix, IMF, August, 2007 p. 41. Haiti CDB Annual Economic Review

3 was estimated at 17% of GDP in FY 2006/07, 2.6 percentage points above expenditure in FY 2005/06, but still grossly inadequate to satisfy the demand for government services. An estimated 7.1 percentage points was allocated to capital expenditure, most of this fi n anced externally, while 9.9 percentage points was allocated to recurrent expenditure. Current account savings improved to 0.9% of GDP from 0.1% of GDP in FY 2005/06. The overall budgetary deficit, including grants, was 0.8% of GDP (4.4% of GDP, excluding grants) marginally above the deficit of 0.6% of GDP (including grants) in FY 2005/06. With substantial support from the IDB and the World Bank in the areas of financial management and revenue administration, the Government of Haiti (GOH) is hoping to achieve revenue levels of 15% of GDP by 2015 through institutional strengthening of the Customs and Inland Revenue departments; the broadening of the tax base; and changes in tax rates. In the first half of FY 2006/07, the authorities were able to increase revenues by 30%. Haiti s external debt to GDP ratio in 2007 was estimated at 26%, somewhat lower than the ratios of 30.9% and 29.3% registered in 2005 and 2006, respectively. The external debt is highly concessionary with low interest payments and long maturities. The domestic debt stock at the end of 2007 was estimated at 4% of GDP, accounting for 13.3% of public sector debt. External debt service in 2007 was 0.7% of GDP, significantly lower than in 2006 and 2005, with estimates of 1.2% and 2.4% respectively. As a percentage of recurrent revenue, external debt service was 6.4% in 2007, substantially below 11.4% and 27.6% in 2006 and 2005, respectively. However, the external debt stock as a percentage of Haiti s exports of goods and services was very high, estimated at 187.4%, raising concerns about the risk of default. In 2006 and 2005, the ratio of external debt to the export of goods and services was 205.1% and 222.7%, respectively, significantly above the 150% benchmark for highly-indebted countries under the HIPC programme. Under the HIPC initiative, Haiti is expected by the end of 2008 to benefit from substantial debt reduction. In addition, Haiti will benefit from the Multilateral Debt Reduction Initiative and other debt relief. These initiatives by the donor community will reduce considerably Haiti s debt burden. It is estimated that the combined effect of donor initiatives will be a decline in the external debt stock to a level considerably below 100% of Haiti s export of goods and services, alleviating concerns about debt sustainability. E. The Banking System In the context of the government s stabilisation programme, the supply of credit slowed significantly, contributing thereby to the continuing decline in inflation. Growth of net domestic assets of the banking system slowed to 1.6% in 2007 from 2.9% in Credit to the non-financial public sector declined by 2.4%, following a contraction of 4.9% in Much of this reflected the cessation of Central Bank s lending to the Central Government, one of the performance criteria under the PRGF. In 2006, such lending had declined by 2.1%. Growth in lending to the private sector in 2007 remained moderate at an estimated 5.1%, compared with the rate of 5.5% in The slowdown in private sector credit was due in part to the contraction of foreign currency lending. While lending in local currency grew by 1.4% in 2007, lending in foreign currency contracted by 4.4%. The stabilisation programme, through the containment of domestic demand, continued to facilitate the accumulation of net foreign assets of the banking system which increased by 31.3% in 2007 to $681 mn, following growth of 41.6% in M 2 expanded by 9.7% in 2007, following growth of 10% in To a significant extent, growth was driven by foreign currency deposits related to the expansion in aid flows, in remittances and in foreign private sector investments. Foreign currency deposits rose by 12.4%, following growth of 10% in The Haiti economy is, in fact, substantially dollarised as a result of high inflation sustained over several decades and the weakness of the gourde. However, there are indications of a slowing in the dollarisation process. Approximately 44% of deposits in the banking system in 2007 were in US dollars. In 2007, approximately 52.0%, of loans to the private sector were in US dollars. Currency in circulation in 2007 rose by 7.7%, compared with 5.8% in Domestic deposits also increased by 7.7%, subsequent to growth of 11.5% in The banking system in 2007 continued the process of consolidation initiated in As a result, the number of banks declined from 13 to 9. In March 2007, Socabank, the fourth largest bank, was taken over by BNC (Banque Nationale de Credite), a large state-owned bank. A recent Financial Sector Assessment Programme (FSAP) concluded that the banking system is quite sound with most banks reporting high solvency, high liquidity and satisfactory profit levels. However, there are concerns about the high level of non-performing loans which average 12% of total assets. F. External Sector Balance of payments performance improved in The current account registered a surplus of 1.2 % of GDP, including grants (a deficit of 6.4% of GDP excluding grants) after being in balance in Excluding 92 CDB Annual Economic Review 2007 Haiti

4 grants, the current account balance was -7.9% of GDP in Contributing to the improved performance in 2007 was growth of 11.9% in export revenues, mainly from garments, compared with 7.7% growth in The most important contributor, however, was strong remittance inflows estimated at close to 20% of GDP and exceeding revenues from the export of goods and services and foreign direct investment. At the same time, growth in import expenditure, due to government s stabilisation measures, decelerated to 5.9% from 18.3% in There was little movement on the capital and fi n ancial account with net inflows estimated at $89.9 mn in 2007, marginally higher than the $88.4 mn in The overall balance of payments surplus in 2007 was $156.8 mn, almost twice the surplus in As a result, the reserves position improved considerably. Gross international reserves in 2007 were $534.7 mn, compared with $335.5 mn in Import cover was 2.4 months at the end of 2007, more than 30% higher than in MAJOR POLICY ISSUES A. Growth For decades, Haiti has suffered the consequences of low economic growth which was also highly variable. During 1990 to 2006, real economic growth averaged 0.7% per annum with a coefficient of variation (the ratio of the standard deviation to the mean) of 6.5, underscoring its extreme volatility. This indicates that while the majority of the population is poor (estimated at 76%), there is also likely a significant portion that is economically vulnerable, that is, likely to fall into poverty because of economic shocks. There are several reasons for the dismal economic performance: political and social instability; high levels of crime; inadequate security; poor, inadequate physical and economic infrastructure; natural disasters (hurricanes, droughts and floods); limited institutional capacity in both the private and public sectors; weak economic management; lack of skills; inadequate social services (education, health, housing, sanitation, water etc.); and the instability of aid flows. For example, it is estimated that only 5% of the road network can be considered good and 15% is considered of average quality. Only about 10% of the population have access to electricity, and 4 less than 60% of the population access to potable water. The private sector comprises mainly informal sector micro enterprises, with only a few SMEs. Economic activity is largely of a subsistence nature. Central Government institutions are generally weak, as indicated below in the discussion of fiscal performance and governance. Given Haiti s very weak social indicators, in fact, social crisis, there is pessimism with respect to the attainment of the MDGs. The foregoing indicates clearly the need for a broadbased approach to growth. Among other strategic elements, this would include substantial improvements to physical (roads, ports, airports, etc.) and economic infrastructure (electricity, water, telecommunications); social infrastructure (housing; hospitals; clinics; schools; sanitation); significant strengthening of the private (recapitalisation of companies; provision of support services etc) and public sectors (institutional strengthening of key ministries and departments such as, for example, the Ministry of Finance and Ministry of Communications and Works); strengthening of the security forces and of law and order institutions generally; enhancement of disaster management and mitigation capacity etc. The list is by no means exhaustive. However, local resources and institutional capacity to address these issues are very limited. This implies the need for substantial external assistance, mainly concessionary, sustained over an extended period. B. Fiscal Policy Capacity A major difficulty facing GOH going forward is its very limited fi s cal capability, in part the result of the recent prolonged period of political instability and weakened revenue collection capability. In the current fiscal year, recurrent revenues are estimated at approximately 11% of GDP, just enough to cover recurrent expenditure. GOH consequently is very dependent on external sources, especially con-cessionary resources, to implement its capital programme. However, while the inflow of resources has been substantial, this still falls very short of the requirements for providing basic services, and for maintaining and expanding physical and economic infrastructure. One of the dire consequences of weak Central Government capacity is the social crisis that has enveloped the country for decades. Haiti ranks close to the bottom (147 th ) on the Human Development Index, within the lowest quintile. It has the worst health indicators in the Western Hemisphere. Life expectancy is 54 years. The mortality rate for children under 5 is 123 out of 1,000. Maternal mortality is 523 of 100,000 births. The incidence of HIV/AIDS at 5% is the highest outside of sub-saharan Africa. More than 50% of the population do not have access to drinking water. Only 28% have access to sanitary facilities. Close to 50% of the population are illiterate. Net primary school enrolment is 68% and the quality of education very poor. 5 4 IDB, Haiti, Ban s Transition Strategy, , p.7 5 Op. Cit, p.4.. Haiti CDB Annual Economic Review

5 The impact of weak fiscal capacity on growth also is substantial. The lack of skills is a considerable impediment to growth, especially in a globalised knowledge economy. The absence of quality health care severely compromises labour productivity. Government s inability to provide adequate security has been a major constraint on the expansion of economic activity. Defi c ient infrastructural facilities (transport, electricity, telecommunications, etc.) have provided an inadequate enabling environment for growth. Without sustained growth, government will not have the increased revenues necessary to overcome the foregoing constraints. Without the increase in revenues, government will not be able to contribute significantly to growth. A heavy inflow of concessionary resources will be necessary to break the vicious circle of low revenue and low growth. However, it is recognised that even with such an inflow of resources, government will need to increase its revenues in order to operate and maintain the expanded infrastructure. GOH is committed to increasing substantially its revenue intake, and is targeting a ratio of 12% of GDP for 2008 and 15% by The strategy for fiscal expansion is threefold: (i) strengthening of key revenue institutions, namely the Customs (Direction Generale des Impots, (DGI); and Inland Revenue Departments (AGD) (with the help of the IDB and the World Bank); (ii) expansion of the tax base (such as, for example, the intensification of Inland Revenue and Customs Departments collection activity in the provinces. Both institutions currently collect more than 90% of their revenue intake in the capital, Port-au-Prince); and (iii) changes in tax rates (for example, raising the VAT rate from 10 to 14%; increasing excise taxes which are currently quite low, etc.) C. Poverty Haiti is the poorest country in the Western Hemisphere 6, and one of the poorest countries in the world. Approximately three quarters of the population live on less than $2 per day (76%, 6.2 mn persons) and over half (56%, 4.2 mn persons) live on less than $1 per day (World Bank 2006). Income distribution is highly skewed. The Gini coeffi c ient of 65% (the second highest in Latin America is Brazil with 59%) indicates that inequality of income is a significant obstacle to fighting poverty and indigence. The most recent poverty profile for Haiti was drawn up by the Ministry of Economic and 6 Western Hemisphere is a geographical term which refers to the half of the earth that lies west of the prime meridian. It is often used in reference to the Latin America and the Caribbean Region while excluding other territories that lie geographically in the hemisphere (parts of Africa; Europe; Antarctica and Asia). Finance (2003) and the Institut d Etudes Internationales Appliquees (2004). Conclusions suggest that the Haitian population not only has to deal with widespread misery, but also and especially, with structural poverty 7 (FAFO, 2004). Life expectancy is only 54 years, compared with the regional average of 70 in the Western Hemisphere. The fertility rate is 4.8, compared with a regional average of 2.8. Infant mortality is very high - 71 per 1,000 live births which is 110 per cent higher than the regional average. Malnutrition affects about half of the population under the age of five, and food security concerns are spread throughout the country, affecting the adult population as well. The education indicators are also extremely poor. Half of Haitian adults are illiterate; only about one child (12-15 years old) in five attends secondary school. Education in Haiti is provided by public and private schools, and access to education largely depends on the income level of the household. However, due to the rise of NGOs and projects supported by international agencies, primary level education has increased among poor households (90 per cent of primary schools are non-public and run by Community Based Organisations (CBOs), religious organisations and/or NGOs). There is nevertheless a difference in the enrolment rate between the poor living in urban areas (70% access to primary education) and the rural poor with a 54% enrolment rate (Lamaute-Brisson, 2004). The enrolment rate for primary schools is 67% and for secondary schools 20% (USAID, 2007). The literacy rate at 53% is the lowest in the Western Hemisphere. While access to education depends heavily upon income level, access to public services is profoundly influenced by the place of residence. Access to services such as electricity; roads; telephone lines; piped water; and garbage collection varies from Department to Department. The least serviced are the rural and mountainous areas. Electricity supply is available to 37% of the poor living in the metropolitan areas, compared with only 4% of the rural poor (FAFO, 2004) 8. Health conditions are similarly unsatisfactory. Vaccination coverage for children is estimated at 28% (WHO, 2005). In terms of healthcare spending, Haiti 7 Structural poverty (or chronic poverty) differs from transitional (or temporary) poverty in that it is imbedded within institutional and economic structures. It generally lasts for a long time, and requires major social and economic changes in order to reverse a trend or situation of constant social deprivation. 8 FAFO, founded by the Norwegian Confederation of Trade Unions in 1982, develops and disseminates knowledge about changes in social and economic issues, democracy, etc. It works in conjunction with various institutions - public agencies; NGOs; EU; international organisations; and international research programmes. 94 CDB Annual Economic Review 2007 Haiti

6 ranks last in the Western Hemisphere. Per capita, Haiti spends about $83 annually on health care. Only one-fourth of births are attended by a skilled health professional (WHO, 2005). Haiti has the highest prevalence of HIV/AIDS in the Latin America and Caribbean Region and the highest incidence outside of sub-saharan Africa (World Bank, 2006). Contraceptive use is among the lowest in the Western Hemisphere and social stigma and widespread discrimination make it difficult to analyse the extent of HIV/AIDS. There are, however, indications that the situation is improving, and treatment conditions are favourable due to large-scale support from international health organisations and civil society groups 9. Housing issues such as illegal settlements, squatting and expansion of shanty town areas are a great concern as urban poverty is rising steadily. Haiti has a housing deficit of approximately one million homes with 700,000 people living in substandard conditions (IHSI, 2005). The highest levels of poverty, however, are outside the main urban areas of Port-au-Prince and Cap-Haitien. 80% of the rural population are deemed to live in indigence and poverty. It is estimated that 77% of Haiti s extremely poor live in rural areas while 23% cluster around urban areas. The income gap ratio 10 is similar in rural and other urban areas, while it is somewhat lower in the metropolitan areas of Port-au-Prince and Cap-Haitien. Poverty incidence is lower in Départment Ouest (West Department), where the capital city is located and highest in Départment Nord Est (North East Department) where 84% of the population (313,000) live on less than $1 per day. Départment Nord Est has the second highest incidence, with 72% living on less than $1 per day (FAFO, 2004). According to the data collected by FAFO, there is no clear demographic distribution of poverty in Haiti 11 as age does not represent an important dimension of poverty. The same applies to gender in the overall distribution of poverty. Whether a main provider is female or male, the difference in terms of income is rather small. In urban areas, however, there seems to be a more manifest division among male and female heads of household and income providers. In the capital, Portau-Prince, 26% of households with a female as main provider are extremely poor, against 17% of households with a male provider. According to the findings of the poverty assessments undertaken in Haiti, it is highly unlikely that the country 9 USAID has provided almost $6 billion since inception of its international HIV/AIDS programme in 1986, and it is the leading agency working in the prevention of HIV/AIDS in Haiti. 10 The Income Gap Ratio is defined as the mean distance between the income of a household and the poverty line. 11 FAFO, 2004, p. 11. will achieve most of the Millennium Development Goals by 2015 (UNDP, 2005). Out of the seven groups of selected indicators for measuring progress towards the attainment of the 8 MDGs, Haiti is likely to meet only two of the objectives: elimination of gender disparity in education and empowerment of women; and reversal of the spread of HIV/AIDS and other major diseases. D. Crime Haiti s volatile political traditions and fragile institutions have contributed to political instability and the emergence of entrepreneurs of violence 12. Poor governance and the state s inability to provide public goods are often cited as determinants in the exacerbation of crime and violence 13. Historically, despite high levels of reported social cohesion and mutual aid among local communities, crime and violence have been endemic. In the past 20 years, both organised and random crime have reached staggering heights, and have greatly affected the country s tourism industry and capacity for development. Homicide rates are estimated at 33.7% per 100,000 citizens, which is higher than the regional average for Latin America and the Caribbean (22.9 per 100,000). Domestic violence against women and children remains the most prevalent form of violence; 35% of women over 15 have reported cases of physical violence and abuse, with a higher prevalence in rural areas 14. Criminal and political violence is largely concentrated in the metropolitan area and other urban hotspots. Armed gangs are active in Port-au-Prince where violence results from political tensions; community divisions; territorial disputes; and retaliatory acts. Gang violence is facilitated by the easy access to small arms. The number of available small fi r earms is estimated at around 200, Security concerns include kidnappings (540 cases reported in 2006); personal robberies; shootings; vehicle thefts; driving assaults; and residential thefts. The drug trade has also contributed to the escalation of crime and violence in Haiti. Though not a significant producer of narcotics, Haiti has become a major trans-shipment point for drug smuggling into the US (World Bank, 2006). The US Drug Enforcement Administration has estimated that 15% of the cocaine entering that country transits either Haiti or the 12 Social Resilience and State Fragility in Haiti, World Bank, The concept of entrepreneurs of violence is also highlighted in the book Avengers of the New World by Larent Dubois. It refers to a group of people resorting to crime in order to satisfy the wishes of the ruling administration. 13 World Bank 2006, p Haiti: a Country Social Analysis, World Bank 2006, p Small Arms Survey, Haiti CDB Annual Economic Review

7 Dominican Republic. E. Governance Analysts and observers often indicate that one of the recurrent key factors accounting for the dire poverty in Haiti is political instability compounded by poor governance and corruption. While the restoration of democracy has been highly welcomed and heralded as a fundamental basis for economic and social development, the Haitian government has limited capacity to provide services that are essential to law and order; economic growth; poverty reduction; and income redistribution 16. The strength of state institutions is generally measured against a list of essential factors. The indicators used to assess the state s ability to fulfil its mandate are: voice and accountability; political stability; government effectiveness; regulatory quality; rule of law; and control of corruption. According to the World Bank Institute s Aggregate Governance Indicators 17, Haiti ranks within the bottom 5% of countries. The ability of the Haitian government to score higher on the governance indicators is severely impaired by historical structural factors at both the political and economic levels. Since 1957, Haiti has had a long history of unstable and fragile political institutions which has resulted in a pervasive view that the Haitian state today is largely absent from the lives of most citizens 18. Economically, the capacity of the Central Government to drive development has been extremely limited as its revenues are grossly inadequate. Consequently, within the context of a weak revenue base and institutions with poor expenditure targeting, government spending on education; health; security; and infrastructure has been modest (below the average of low-income countries). For instance, public spending on education in 2006 fell under 1.7% of GDP, the lowest in Latin America and the Caribbean, where the average was 5% (World Bank 2006). Spending on the health sector was even lower. In Haiti, basic education and health services are supplied to a minor extent by government. They are mainly supplied by the private sector; by NGOs or by the international community. The weakness of national administrative and political governance structures is further illustrated by the limited provision of basic infrastructure services such as roads; access to water; electricity; and telephone lines. Since the violence of 2004, there have been significant efforts from the international community to restore political stability and improve governance and transparency in public sector operations. Several initiatives were launched in consultation with the Interim Government and the Préval administration, which took office in In 2004, the International Development Association initiated a programme to 16 Haiti: World Bank Report 2006, p World Bank World Wide Governance Indicators, data from 1996 to Haiti: World Bank Report 2006, p. 39. improve the allocation, efficiency and effectiveness of public expenditure; improve transparency and accountability in the public sector; and increase the country s absorption capacity for external resources 19. In 2004 also, the government ratified the OAS Inter- American Convention Against Corruption, and created an Anti-Corruption Unit, which in 2007 completed a comprehensive diagnostic survey of the state of governance as an input to the design of a national anticorruption strategy 20. Additionally, the IMF supported two new arrangements under the PRGF and the HIPC initiatives in the continuing efforts to implement prudent fiscal and monetary policies MEDIUM TERM PROSPECTS Medium term economic prospects can be characterised as cautiously optimistic. Assuming the continuation of political and macroeconomic stability, increased investment and an expansion in exports, economic growth for the medium term is projected at 4%, however, with significant constraints and downside risks. Structural and institutional bottlenecks such as the appreciation of the gourde because of the substantial inflow of remittances; supply rigidities especially in the construction sector; infrastructural inadequacies; the high cost of basic utilities and the unavailability of skills continue to constrain growth. Additionally, the medium term international economic environment seems increasingly challenging with the rise in oil and commodity prices and the prospect of a recession or even stagflation in the US. Close to 80% of Haitian exports go to the US. The expectation is that the impact of oil prices will be moderated somewhat by access to preferential terms under the PetroCaribe arrangement. However, there are concerns about the resulting impact on Haiti s debt stock and debt repayment burdens. 19 Total project cost was US$61 million provided by IDA through a credit of US$36.5 million and a grant of US$24.5 million, disbursed in two tranches. 20 It aims to improve the management and transparency of key public enterprises. Financial audits of the national port authority (APN), the telecommunications company (TELECO) and the national electricity company (EDH), were completed by international audit firms. The authorities now intend to increase private sector involvement in the telecoms sector and in water and sanitation. Furthermore, civil society can now monitor the programme of economic governance reforms and provide feedback to ministries and agencies. 21 For a comprehensive reading of the IMF programmes in Haiti, refer to International Monetary Fund Country Report No. 07/293, August CDB Annual Economic Review 2007 Haiti