UPDATE 2-Haiti GDP to shrink but govt says revenue recovering

Thu Mar 4, 2010 6:38pm EST

Related Topics

* Haiti GDP seen shrinking 10 pct: U.S. Treasury

* Govt: Revenue back by June to 80 pct of pre-quake total

* Haiti imports down, remittances up - U.S. Treasury

* Multi-donor trust fund expected to finance recovery (Wraps in Treasury official's comments)

By Matthew Bigg

PORT-AU-PRINCE, March 4 (Reuters) - Haiti's earthquake-hit economy is expected to shrink by at least 10 percent this year, a senior U.S. Treasury official said on Thursday, but the Haitian government said it was recovering its ability to collect revenues.

The catastrophic Jan. 12 quake, which may have killed up to 300,000 people in the impoverished Caribbean country, reduced revenue in January to just 10 percent of expected totals.

But Haitian Deputy Finance Minister Sylvain Lafalaise told Reuters that by the end of March, the government expects its revenue to have bounced back to around 60 percent of its pre-quake levels and that figure could rise to 80 percent by the end of June.

Balancing the budget was a different matter since the government needed to rebuild a huge amount of destroyed infrastructure, Lafalaise said in an interview.

In an assessment of the quake impact on Haiti's economy, the U.S. Treasury's Deputy Assistant Secretary for the Western Hemisphere Nancy Lee said economic activity in the country was beginning to recover, boosted by a huge international relief effort and significant financial flows.

In written testimony to a U.S. House of Representatives subcommittee, Lee, who had just returned from a visit to Haiti, called the quake a "catastrophic setback" to what was already the poorest state in the Western Hemisphere.

"Post-earthquake, we can now expect a GDP contraction of at least 10 percent, and a significant increase in inflation, perhaps to 10-20 percent, as a result of severe shortages in particular goods," her report to the Financial Services Subcommittee on International Monetary Policy and Trade said.

This compared with pre-earthquake projections of 3.6 percent annual growth and annual inflation of 8 percent.

Meanwhile, Haiti's Lafalaise, a career civil servant, said an official committee would provide a provisional report by the end of the month on the country's expected deficit.

"We have to figure out with the IMF (International Monetary Fund) what our level of deficit will be and then ... take a decision" on a new budget, said Lafalaise, adding that discussions on the subject were "sensitive."

Lee said in her testimony that the IMF had preliminarily identified a potential balance-of-payments gap of $300 million for 2010, at least $100 million of which was unfinanced.

But she added: "At the moment, the situation is stable with imports sharply down and remittances up."

MULTI-DONOR FUND FOR RECONSTRUCTION

Haiti is heavily dependent on imports, but until recently, Port-au-Prince's seaport and airport had been closed to most commercial traffic. But remittances, representing some 20 percent of GDP, had increased significantly, Lee added.

The international community, which already provides most of Haiti's investment budget and is involved in the big humanitarian operation there, is due to meet in New York at the end of March to decide on levels of reconstruction funding.

Lee said the U.S. Treasury expected a multi-donor trust fund could play a critical role in Haiti's reconstruction effort as well as in filling balance-of-payments and fiscal gaps.

She said the United States and international financial institutions were considering a model that would build on the lessons learned from the 2004 tsunami in Indonesia -- a single facility with a steering committee of donors guided by a government-led national development authority.

Such a fund would most likely would be administered by the World Bank, Lee said.

Haiti's original budget for the 2009-10 fiscal year starting in October stood at 78.8 billion gourdes ($1.97 billion), of which 34.9 billion gourdes came from domestic revenues and 41.9 billion in donations from the international community. Other sources made up the difference.

Lafalaise said that of the domestic revenue, 23.8 billion gourdes was seen derived from customs alone.

Almost 70 percent of the country's revenue came from just 500 companies. Of those, four telecom companies, including Digicel and Voila, accounted for 25 percent and banks constituted roughly 20 percent, said Jacques Nelson, a ministry cabinet director. Haiti's tobacco industry was the next largest contributor.

"The big companies are still open and in the days after the quake we went looking for them," Lafalaise said.

The quake destroyed several government buildings, and the Finance Ministry, while still standing, is unusable. The ministry's key revenue departments were now scattered across the city.

An early decision was made to continue to pay the country's roughly 55,000 civil servants even if their workplaces had been destroyed. That represented half of government spending.

But Lee also noted Haiti's looming fiscal and balance-of-payments pressures come on top of a still significant debt burden.

Although a considerable portion of Haiti's external debt had been forgiven, $1.1 billion in external debt remained, of which multilateral debt stock represented $825 million, with $447 million owed to the Inter-American Development Bank.

A U.S. congressional committee on Thursday approved legislation aimed at canceling Haiti's debt, one step in a lengthy process to get the IMF and World Bank to write off what it was owed by the quake-hit country. ($1 U.S.=40 Haitian gourdes)

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