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PROGRAM INFORMATION DOCUMENT (PID)
APPRAISAL STAGE
Report No.: AB5182
HT Third Economic Governance Reform Operation (EGRO III)
Operation Name
Latin America and the Caribbean
Region
Central Government Administration (100%)
Sector
P117944
Project ID
The Republic of Haiti
Borrower(s)
Ministry of Economy and Finance
Implementing Agency
October 9, 2009
Date PID Prepared
October 13, 2009
Date of Appraisal
Authorization
December 8, 2009
Date of Board Approval
1. Country and Sector Background
Haiti is by far the poorest country in Latin American and the Caribbean and among the
poorest in the world. Fifty four percent of the country’s population lives on less than US$1 a
day and 78 percent on less than US$2 a day, according to the 2001 household survey data.1 The
2009 United Nations Human Development Index ranked Haiti 149 out of 177 countries. Income
inequality is high, with a Gini coefficient of 0.59, among the highest in Latin America and the
Caribbean.
Although Haiti has made considerable progress in restoring political and social stability
since 2004, in 2008, the country experienced a series of domestic and external shocks that
threatened macroeconomic stability. High food and fuel prices led to sharply rising inflation
and a deteriorating current account balance in 2008. Twelve-month inflation peaked at 19.8
percent in September 2008, up from 7.9 percent in September 2007. In addition to the political
stalemate following the food and fuel price riots, Haiti was hit by four back-to-back hurricanes
and tropical storms in August-September 2008, which caused damages and losses estimated at
nearly a billion dollars, or about 15 percent of GDP. In order to help the government address the
immediate impact of the crisis, while safeguarding priority spending for the longer term poverty
reduction and growth agenda, donors pledged US$328 million in new funds to support the
Government’s 18-month priority program2, in addition to the US$2-3 billion already committed
behind the DSNCRP, at a high-level conference in April 2009. These domestic shocks were
compounded by the effects of the global slowdown in 2008. Real GDP growth slowed to 1.2
percent in FY2008 from 3.4 percent in FY2007, turning negative in per capita terms. The current
account deficit widened to 4.3 percent of GDP, driven by an increasing trade deficit, which
deteriorated by 7.5 percentage points of GDP (US$521 million), largely because of higher food
and fuel imports
Although the economic is projected to growth somewhat faster this year (at an expected
rate of 2.4 percent), significant uncertainty remains in the short term. Given the magnitude
1
The last full household survey was conducted in 2001. In 2008, the first two stages of a three-stage household
survey were completed but the data is not yet available.
2
This includes US$50 million in additional budget support.
of the shocks to the Haitian economy experienced in 2008, output growth is expected to perform
relatively well in 2009 and 2010, as infrastructure is being rebuilt and expanded, and economic
activity recovers. Inflation is expected to remain low, although the recent recovery in
commodities prices and the approval by Parliament of a tripling of the minimum wage3 could
lead to renewed price pressures. Uncertainties to this short-term economic outlook also stem
from the possibility of lower remittances, exports, and public investment.
2. Operation Objectives
The proposed single-tranche Third Economic Governance Reform Operation will support
policies and reforms aimed at: (i) creating fiscal space for priority expenditures by reducing
inefficiencies in the electricity sector; (ii) improving public finance management by prioritizing
allocations to key sectors in poverty reduction and growth, and improving information system to
enhance revenue mobilization capacity; and (iii) strengthening the framework for public
procurement. The operation is in line with the improved approach to donor harmonization on
budget support agreed with the Government in April 2009. It also directly supports key pillars of
the Government’s poverty reduction strategy, the DSNCRP, namely building state capacity and
improving management of public resources.
The grant would provide further support to the Government’s reforms initiated under the
previous operations – EGRO I (FY2005) and EGRO II (FY2007) – and the HIPC
completion point. The previous operations supported reforms in governance, the civil service,
public finance management, and public procurement. These include: (i) improving budget
preparation and execution and monitoring through the adoption of procedure manuals, reduction
in the use of discretionary ministerial accounts (comptes courants), and the establishment of an
automated system to track expenditures; (ii) improving the control and reporting systems
including the submission of the Government accounts to the Court of Accounts and the Budget
Execution Law to Parliament; (iii) improving the accounting system with the adoption of budget
and accounting nomenclatures; (iv) rationalizing civil service management through the
completion of the registry for state employees of key line ministries; (v) strengthening tax and
customs administration through the introduction of an automated system (ASYCUDA) linking
some of the main customs offices; (vi) improving the state’s capacity to fight corruption and
enhancing the accountability of public employees; and (vii) strengthening the financial situation,
accounting system and management of public utilities, including the electricity sector. The
design of the operation incorporates key lessons learned from these previous operations, thus
representing continuity and consistency in the Bank’s support for the Haitian economic
governance reform agenda
3. Rationale for Bank Involvement
The proposed operation represents continuity and consistency in the Bank’s support to
Haiti’s economic governance reforms, an area where the Bank has strong expertise. IDA
support for economic management and governance reform program includes (i) two Economic
3
The measure would increase the daily minimum wage from the equivalent of less than US$2 to about US$5. The
increase – the first one since 2003 – does not apply to agricultural and domestic workers. The measure has not yet
been implemented as the President is still attempting to negotiate a smaller increase with Parliament.
Governance Technical Assistance Grants (EGTAG I and II) amounting to US$4 million,
preceded by a US$1.5 million grant from the Low Income Countries Under Stress (LICUS) Trust
Fund and the Public Expenditure Management and Financial Accountability Review (PEMFAR)
finalized in FY08. In addition, the grant is part of a broad program of institutional strengthening
supported by the Bank in Haiti, including at the sectoral level through investment operations
such as an energy project to provide support for the electricity sector. The Grant complements
other donors’ support for Haiti’s economic reform program, and represents a core component of
the Country Assistance Strategy for FY2009-12, which was discussed by the Board in June 2009.
The proposed operation builds on the lessons learned from, and achievements of, the two
predecessor operations (EGRO I and II), as well as two technical assistance grants (EGTAG I
and II) and a range of analytical work. Finally, it is also closely linked to the Bank’s Electricity
Loss Reduction Project (PREPSEL).
4. Financing (million)
Source:
Borrower
International Development Association
Total (single tranche)
0
12.5
12.5
5. Institutional and Implementation Arrangements
The Ministry of Economy and Finance (MEF) will be responsible for the overall
coordination of the operation. Similarly, the MEF will be in charge of reporting progress and
coordinating actions among other concerned entities, including the National Procurement
Commission (CNMP), the Central Bank and the main line ministries managing investment
projects. This ministry was the unit responsible for coordination and implementation of the
activities and reforms under the predecessor operations. The implementation will be monitored
as part of the joint donor matrix for budget support.
6. Benefits and Risks
The operation supports policy measures in three areas deemed critical for continued
progress on economic governance and public financial management, while maintaining a
high degree of continuity with the predecessor operations. The fiscal policy component will
address some of the underlying issues creating pressure to increase fiscal transfers to the lossmaking EDH. The public financial management component will support greater revenue
mobilization capacity through improvements in customs and tax information systems. On the
expenditure side, the component will sustain efforts to further improve budget preparation and
execution, and the control systems. Finally, the public procurement component will support the
implementation of the Public Procurement Law through the timely adoption of the main
implementing regulations. In light of the global economic crisis, the operation will also provide
important financial support to help the Government safeguard expenditure for the economic
recovery program and DSNCRP implementation.
7. Poverty and Social Impacts and Environment Aspects
The actions supported by this operation are likely to have positive poverty and social
impacts. Taken together, the selected reforms are expected to improve the pro-poor orientation
of public expenditure in line with the DSNCRP. The increase in electricity tariffs is not likely to
have a significant impact on the poor. A detailed analysis of the impact of the tariff increase is
currently not possible due to the lack of reliable data. However, available information suggests
that the impact on households will be very limited. First, the new tariff structure was designed to
protect the purchasing power of households. As such, it primarily affects industrial and
commercial clients, and other clients consuming more than 200 kWh per month. Second,
according to data from EDH, only an estimated 12.5 percent of the population is formally
connected to the electricity grid (with meters), primarily those living in the richer areas of Portau-Prince.4 The poor, who tend to live in the bidonvilles of Port-au-Prince and in the countryside,
do not generally have a legal connection and are therefore not billed by EDH.
The specific policies supported by the proposed operation are not likely to have a
significant impact on the environment, forests or other natural resources. While higher
electricity prices may be expected to discourage energy waste and encourage the adoption of
more energy efficient technologies, it has been shown that such reforms sometimes have
unintended negative impacts, such as households switching to less expensive but more polluting
types of fuel as electricity prices go up.5 However, this is not likely to be a significant factor in
Haiti, as only a small share of households is currently formally connected to the electricity grid,
and the increase in tariffs is therefore not likely to significantly affect household energy use. As
service delivery improves and the electricity grid is expanded, it would be important to further
assess the potential impact on energy use and its associated environmental consequences.
8. Contact point
Jasmin Chakeri (Country Economist): 202-458-4882, [email protected]
Luc Razafimandimby (Senior Economist): 202-458-9539, [email protected]
9. For more information contact:
The InfoShop
The World Bank
1818 H Street, NW
Washington, D.C. 20433
Telephone: (202) 458-4500
Fax: (202) 522-1500
Email: [email protected]
Web: http://www.worldbank.org/infoshop
44
Data from the 2001 household survey suggests that up to 31 percent of the population has access to some form of
electricity, including illegal connections and generators.
5
See, for instance, World Bank (2004), Power’s Promise – Electricity Reforms in Eastern Europe and Central Asia.