Republic of Haiti - Public Expenditure Management and Financial Accountability Review (PEMFAR) : Improving Efficiency of the Fiscal System and Investing in Public Capital to Accelerate Growth and Reduce Poverty

Abstract

After the lost decade 1994-2004, marked
 by political instability and economic decline, Haiti has
 reformed significantly and revived growth, especially in the
 past three years. Macroeconomic policies implemented since
 mid-2004 helped restart economic growth, reestablish fiscal
 discipline, reduce inflation and increase international
 reserves. Financial sector stability has been maintained
 though weaknesses have emerged. Significant progress was
 also achieved in the implementation of economic governance
 measures, mainly in the area of legal framework, core public
 institutions and financial management processes and
 procedures. Notably, basic budget procedures were restored,
 the public procurement system strengthened, and
 anti-corruption efforts stepped up. Efforts were also made
 to improve efficiency and transparency in the management of
 public enterprises. These recent political and economic
 developments open a window of opportunity to break with
 Haiti's turbulent past and create the sound foundations
 for strong and sustained economic growth and poverty
 reduction. In such an environment, the development challenge
 of more dynamic growth in order to reduce poverty requires
 bold policy actions across a broad spectrum covering various
 areas of Government interventions to: (i) improve security;
 (ii) expand and improve the quality of the infrastructure
 base; (iii) expand the economic base and (iv) enhance human
 capital. But because of Haiti's scarce resources,
 prioritizing Government interventions is critical to ensure
 that public resources are allocated to their best uses. This
 calls for reforms to improve efficiency of public spending.
 However, public expenditure reforms would not be enough to
 decisively put Haiti on a strong and sustained growth path
 unless they are complemented by revenue-enhancing measures.
 This implies that the country design a comprehensive fiscal
 reform package. Major policy lesson from this experiment is
 that strong and sustainable growth depends on the scope and
 quality of the fiscal reforms. Fiscal reforms should target
 a broad-based fiscal package, which aims at expanding the
 fiscal space and improving efficiency in the allocation of
 public spending. This package would combine: (a) an increase
 in total public investment; (b) a reallocation of public
 spending to investment; (c) a crease in the effective
 indirect tax rate; (d) an increase in direct tax rate; (e)
 an increase in security spending; and (f) a reduction in
 collection costs. The Haiti macro-model shows that the
 fiscal package tends to have positive impact on growth and
 poverty over time. Foreign aid could play a catalytic role
 to foster fiscal reforms and help accelerate growth in the
 short and medium-term.