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Haiti: Selected Issues and Statistical Appendix

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Haiti: Selected Issues and Statistical Appendix © 2007 International Monetary Fund August 2007 IMF Country Report No. 07/292 [Month, Day], 2001 August 2, 2001 January 29, 2001 [Month, Day], 2001 August 2, 2001 Haiti: Selected Issues and Statistical Appendix This Selected Issues paper and Statistical Appendix for Haiti was prepared by a staff team of the International Monetary Fund as background documentation for the periodic consultation with the member country. It is based on the information available at the time it was completed on July 9, 2007. The views expressed in this document are those of the staff team and do not necessarily reflect the views of the government of Haiti or the Executive Board of the IMF. The policy of publication of staff reports and other documents allows for the deletion of market-sensitive information. To assist the IMF in evaluating the publication policy, reader comments are invited and may be sent by e-mail to [email protected]. Copies of this report are available to the public from International Monetary Fund • Publication Services 700 19th Street, N.W. • Washington, D.C. 20431 Telephone: (202) 623-7430 • Telefax: (202) 623-7201 E-mail: [email protected] • Internet: http://www.imf.org Price: $18.00 a copy International Monetary Fund Washington, D.C. INTERNATIONAL MONETARY FUND HAITI Selected Issues and Statistical Appendix Prepared by Andreas Bauer, Laure Redifer, Gamal El-Masry, Kristian Hartelius (WHD), and Katja Funke (FAD) Approved by the Western Hemisphere Department July 9, 2007 Contents Page Overview................................................................................................................................... 3 I. Assessing Haiti’s External Competitiveness ......................................................................... 4 A. Introduction...................................................................................................................... 4 B. Background ...................................................................................................................... 4 C. Price Competitiveness...................................................................................................... 7 Indicator-Based Analysis.................................................................................................. 7 Equilibrium Real Exchange Rate Analysis..................................................................... 10 D. Non-price Competitiveness............................................................................................ 15 E. Conclusions .................................................................................................................... 17 II. Monetary Policy in Haiti: Improving Effectiveness .......................................................... 20 A. Introduction.................................................................................................................... 20 B. Background .................................................................................................................... 20 Challenges Going Forward ............................................................................................. 23 C. Strengthening the Analytical Framework for Monetary Policy..................................... 23 Data................................................................................................................................. 24 Use of VECMs to Test Quantity Theory ........................................................................ 25 Determinants and Dynamics of Inflation using VARs ................................................... 27 Stability of Multipliers.................................................................................................... 29 Summary of Empirical Conclusions ............................................................................... 29 D. Steps for Strengthening the Monetary Policy Regime................................................... 29 Monetary Policy.............................................................................................................. 30 Strengthening Central Bank Independence..................................................................... 31 Data Issues ...................................................................................................................... 31 E. Implementation Issues.................................................................................................... 31 Forecasting inflation ....................................................................................................... 31 Solving for Money Growth............................................................................................. 32 F. Conclusions..................................................................................................................... 33 Annex 1. The Chow-Lin Methodology........................................................................... 35 2 III. Revenue Mobilization in a Post-Conflict Environment.................................................... 39 A. Stylized Facts of Revenue Collection in Haiti............................................................... 41 B. Strengthening Revenue Collections in Haiti .................................................................. 46 The authorities’ plans for improving revenue administration......................................... 46 Direct taxes: Personal and corporate income tax............................................................ 48 Indirect taxes................................................................................................................... 50 Summary of revenue measures ....................................................................................... 58 C. Conclusions .................................................................................................................... 59 IV. Statistical Appendix.......................................................................................................... 62 Tables 1. National Accounts at Current Price Letter of Intent ......................................................62 2. National Accounts at Constant Prices............................................................................63 3. Origin of Gross Domestic Product.................................................................................64 4. Savings and Investment .................................................................................................65 5. Changes in Consumer Prices by Category.....................................................................66 6. Minimum Wage Rates...................................................................................................66 7. Central Government Current Revenue...........................................................................67 8. Sectoral Distribution of Commercial Bank Credit.........................................................68 9. Interest Rates..................................................................................................................69 10. Reserve Position of the Commercial Banks...................................................................70 11. Compostion of Exports ..................................................................................................71 12. Composition of Imports .................................................................................................72 13. Stock of External Public Debt........................................................................................73 14. Scheduled External Public Debt Service .......................................................................74 3 OVERVIEW The Selected Issues paper accompanying the 2007 Article IV staff report covers three topics that are central to Haiti’s challenge of further consolidating economic stability and converting the incipient recovery into a sustainable economic expansion. The first chapter analyzes Haiti’s external competitiveness. Competitiveness is key to support a sustainable balance of payments position, notably by allowing an adequate contribution of the export and import-substitution sectors to economic growth. While the analysis in this chapter is not conclusive of a price competitiveness problem in Haiti, it shows that the country has been experiencing equilibrium real exchange rate appreciation pressures, which have originated more recently from the rising inflow of transfers. Because macroeconomic policy responses to this phenomenon would be costly and unlikely to be effective, the chapter concludes that policy should focus mainly on addressing the widespread non-price competitiveness problems. These offer significant scope for improvement, and addressing them could foster needed productivity growth in the export and import substitution sectors. The second chapter discusses avenues for further developing Haiti’s monetary policy framework, to help consolidate a stable low-inflation environment and support deepening domestic financial markets. The analysis in the chapter suggests that Haiti’s monetary policy regime could be strengthened through a two-step approach. Empirical evidence of a weak interest channel and a strong historical relationship between monetary aggregates and inflation indicate that monetary policy could be more effective in the short term through an increased focus on controlling inflation via the supply of base money. In addition, the institutional foundations for the conduct of monetary policy
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