PORT-AU-PRINCE, Haiti (CMC) – The International Monetary Fund (IMF) says economic growth in Haiti is expected to be within the one to two per cent range as the French-speaking Caribbean Community (Caricom) country seeks to implement an economic programme “in challenging circumstances”.
An IMF mission, headed by W Christopher Walker, has just ended a one week visit to the country, noting that it “is facing a significant drought, with crop losses estimated as high as 50 per cent in the most-affected areas.
“In the face of this negative shock, and with a decline in construction linked to a drop in public investment, economic growth in FY2014/15, ending September 30, is expected in the one to two per cent range.”
Walker said in addition, uncertainties common to electoral cycles contributed to a sharp depreciation of the local currency, the gourde in June and July.
“The monetary authorities took appropriate and timely measures in response, and the exchange rate has regained approximately half of its 17 per cent loss against the dollar during this period. Nevertheless, the depreciation, coupled with food price increases resulting from the drought, is expected to push inflation up to around 10 per cent this fiscal year.”
He said the relaxation of the monetary policy measures taken in response to the depreciation should be carefully calibrated, proceeding only when public-sector borrowing requirement is reduced, in order to maintain an orderly exchange rate market and protect the level of international reserves.
“Despite electoral-year spending pressures, the central government budget has registered significant improvements. Revenues have risen more than 20 per cent from last year, and are close to the programme’s target levels, while expenditure controls on current spending have prevented slippages in the current balance.”
But Walker said with the decline in the international price of oil, assistance through the Venezuela-led PetroCaribe programme has dropped precipitously, leading to a sharp reduction in public investment.
“Nevertheless, substantial risks to fiscal stability remain. The fiscal costs of supporting the state-owned power company – in particular, the very costly arrangements under which the company purchases power from private suppliers – have not abated as planned, and public subsidies remain at around two per cent of gross domestic product (GDP)”.
The IMF official said as such, measures are urgently needed to improve the company’s financial performance, warning without reforms, there will be little possibility of limiting the large off-budget subsidies currently provided to the company, which would cast into doubt the achievement of programme targets for the deficit of the non-financial public sector.
The IMF mission said it welcomed the government’s commitment to launching major sector reforms to address these risks in the coming weeks.
“While the precise contours of the 2015–16 central government budget remain to be settled, the authorities were confident that the final document would permit the achievement of a deficit of 2.3 per cent of GDP at the level of the nonfinancial public sector.”
Walker said they presented the broad outlines of their planned 2015–16 fiscal policies, which include an emphasis on raising additional revenue through a range of measures, but mainly through reforms to land taxation and leasing procedures.
He said capital investment is expected to focus on enhancing agricultural infrastructure, but externally-financed investment is expected decline from 2014–15 levels.
He said PetroCaribe-financed spending will be halved from the already-reduced levels of the year now ending.