Overview Better Spending, Better Services A Review of Public Finances in Haiti Overview BETTER SPENDING, BETTER SERVICES Better Spending, Better Services A Review of Public Finances in Haiti Photo cover Credit: Isabelle Schaefer / World Bank BETTER SPENDING, BETTER SERVICES The images of flattened buildings and tent cities equipped and maintained. Staffing is insufficient, that dominated the news following the Haitian heavy on administrators and light on front-line earthquake of January 12, 2010 triggered an workers. By correcting these shortcomings, Haiti emergency response from the global aid and stands to reap major dividends in growth and poverty development community. Foreign governments, reduction. multilateral organizations including the World Bank, Haiti has other potential drivers of positive and NGOs dramatically increased the flow of funding change. It has a young labor force, a dynamic to the devastated country. The money helped pay for diaspora, and proximity to major export markets. emergency relief but also for higher public investment Given political stability, its pristine beaches and spending that sought to repair damage and press lively culture could draw tourists and their dollars in ahead with development projects that had begun huge numbers. Despite the turmoil of recent years, before the disaster. some macroeconomic indicators are trending in the Six years later, the flow of aid is declining, and right direction: GDP has registered modest growth. Haiti faces pivotal challenges: how to adapt to the Inflation is down to single digit levels. International reductions, raise more resources internally, spend debt relief initiatives allowed external debt to drop more efficiently, and safeguard the fragile social from 30 percent of GDP in 2008 to 9 percent in gains it has achieved in a time of extreme hardship. 2011. But to keep things moving forward, Haiti’s key Education, public health, and social safety nets challenge is to make better use of the resources it has deserve particular attention, so as to ease pressure on at home. poor Haitians and give them the skills they need to For the present, life remains a struggle for most move up the income ladder. of the country’s 10.4 million people. In 2012, The infrastructure Haiti has acquired in the almost 60 percent were living in poverty, getting by recent surge of investment is something like a on about $2 a day or less. Twenty-four percent were newly built house that lacks furniture and running caught in extreme poverty—about $1 a day, making water—it may look good from the outside but them unable to meet even basic needs for food. does little for its occupants. The country has gained Moreover, Haiti has the highest income inequality in schools, clinics, and roads, but many are not properly the region and one of the highest in the world—0.6 3 Haiti’s growth rate compared to its best-performing International Aid, 2008-25 years, 2005-2009. (In Percentage of GDP) Thus in addition to growth, the country 20 needs policies that will foster inclusiveness. This 18 combination would take Haiti a long way toward the 16 2030 goal. Achieving overall growth of about 4 percent 14 per year and expanding the income of the bottom 40 12 percent of the income distribution at twice that speed 10 would decrease extreme poverty to 3 percent by 2030. 8 But what would it take to deliver this outcome? 6 4 Analysis and past experience suggest that two factors are key: human capital and political 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 stability. Good health care and education in particular drive higher incomes at the bottom of the Source : International Monetary Fund (IMF) income distribution. Periods of political calmness, with limited frequency of cabinet changes and feuding within the government, have also helped as measured by the Gini coefficient. Time and again, this group advance. Improvements in infrastructure political instability, violence, and natural disasters and transparency in government, meanwhile, are have thwarted efforts to pull the country up. important underpinnings of income growth for all Following the earthquake, donor funding groups. surged. Private donations of $3.1 billion were To achieve this goal, Haiti will require a new reported; at a March 2010 conference in New York, outlook favoring fair, efficient government and 58 donors made pledges totaling $5.5 billion. But now social inclusiveness. Unfortunately, an observation the flow is tapering off. Donor assistance peaked at in the Bank’s 1998 Poverty Report holds true today: about 17 percent of GDP after the earthquake and “Haiti has never had a tradition of governance aimed sank to 7 percent in 2014. Paradoxically, the decline in at providing services to the population or creating an international oil prices has been creating fiscal strain environment conducive to sustainable growth.” for the energy-importing country, because its largest Following are six areas that hold special potential source of foreign debt, concessional loans from for building a better life for the people of Haiti. Venezuela under the Petrocaribe program, becomes more costly as oil becomes cheaper on world markets. 1. Increasing the Mobilization Stoking economic growth is a prime goal in Haiti, but levels that the country can realistically of Revenue and Reducing Tax expect will not be enough to bring significant Exemptions improvements in living standards for most citizens. To confront the enormous challenges facing its Simulations show that, with income distributions people, the Haitian government needs adequate remaining unchanged, per capita GDP would need to funds. As foreign money dries up, it will have to raise expand by more than 7 percent per year for extreme more from the domestic economy. For now, Haiti poverty to fall to 3 percent by 2030, the World Bank’s is one of the region’s poorest performers in revenue global goal. This would be a very ambitious and mobilization. While receipts have edged upward unlikely outcome: a two- to three-fold acceleration in recently due to increases in domestic income, more 4 BETTER SPENDING, BETTER SERVICES Extreme Poverty Simulations Scenario in case of neutral growth Scenario in case of more inclusive growth Poverty Rate Projections, 2013-2030 Poverty Rate Projections, 2013-2030 (Percentage of Population) (Percentage of Population) 23.8 23.8 24 24 20 18.0 20 16 13.8 16 13.8 12 12 13.0 8 8 3.0 3.0 4 4 0 0 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 GDP growth 3.3% (average 2011/14) GDP growth 3.3% (average 2011/14) GDP growth 2.5% (Best Spell 2005/09) GDP growth 3.6% (botton 40% grows double GDP growth 7.2% (goal of 3% Ext. Pov.) the average) GDP growth best spell - Botton 40% grows double Source : World Bank sta calculation Source : World Bank sta calculation sales taxes collected in Port-au-Prince, and new taxes of the region. Direct taxes, however, tend to be on international phone calls and money transfers, the progressive because rates vary by the income level of government would do well to apply new frameworks the people paying. These taxes frequently function as for financing its operations. an important tool of construction of the modern state because they tend to create a more direct citizen-state Haiti’s current tax system reflects the country’s interaction and voice. limited capacity for tax administration. As do many countries around the world, Haiti relies heavily One means by which Haiti’s state accounts lose on taxing international trade to keep the state in large volumes of revenue is tax exemptions. The operation. Sixty percent of Haiti’s tax revenues is corporate income tax rate is 30 percent, slightly higher collected at borders as customs duties, inspection fees, than the regional average, but exemptions are applied and sales and excise taxes on imported goods. Thirty- so liberally that in 2011 they equaled 63 percent of six percent is collected in various forms in Port-au- all corporate income tax collected. Most exemptions Prince. Provincial Haiti, meanwhile, appears to be arise from a 2002 investment code that gives 15- virtually a tax-free zone: only 4 percent of revenues year tax holidays to companies operating in tax-free originate there. zones, as well as 5-10 year exemptions for specific investment projects deemed good for development. This framework not only keeps government But experience suggests that incentives of this type revenues low, but tends to be regressive. An indirect are often bad deals for the country offering them. A tax such as customs duties on imported rice costs the clear framework is needed to manage, measure, and poor and the rich equal amounts of money. All told, monitor tax exemptions and their expected benefits. Haiti’s ratio of direct to indirect taxes was about 30 Often the result is windfalls for foreign groups that percent in 2011, a level below that of most countries would have made the investment anyway. Studies 5 Fiscal Revenue, 2009-13 (In Percent of GDP) 14 12 Other (inc. FNE) 10 Customs duties (inc. inspection fees) 8 Other taxes Sales taxes 6 Excise taxes 4 Domestic taxes in provinces 2 Income taxes (P-au-P only) 0 2009 2010 2011 2012 2013 Sources : Ministry of Finance (MEF), IMF, BOOST database and authors' estimate. 2009 2010 2011 2012 2013 Fiscal Revenue 11.2 11.8 12.8 12.8 12.7 Domestic taxes 7.4 7.3 8.1 8.6 8.0 Income taxes (P-au-P only) 2.3 2.2 2.5 3.0 2.6 Domestic taxes in provinces 0.5 0.4 0.4 0.5 0.5 Excise taxes 0.7 0.5 0.3 0.3 0.3 Sales tax 3.5 3.2 3.7 3.7 3.7 Other taxes (P-au-P only, inc. discrepancies) 0.5 0.9 1.2 1.0 1.0 Customs duties (inc. inspection fees) 3.3 4.3 4.5 4.2 3.9 Other (inc. FNE) 0.4 0.2 0.3 0.1 0.8 Sources: Ministry of Finance (MEF), IMF and BOOST database Ratio Direct To Indirect Taxation, 2009 or 2011 (Percent) Panama Low income countries Jamaica Costa Rica Honduras Dominican Rep. Nicaragua Haiti 0 20 40 60 80 Sources : IMF and World Bank 6 BETTER SPENDING, BETTER SERVICES suggest that to attract capital from abroad, countries Though Haiti ranks as one of the world’s most do better to address investors’ primary concerns, such open economies, with very low tariffs, it imposes as infrastructure quality, regulatory framework, and various fees that amount to trade barriers. Imports, availability of local suppliers. for instance, are subject to a 5 percent “inspection fee.” Adopting the trade regime of the Caribbean Exemptions on import taxes are common too. In Community and Common Market (CARICOM) 2013 Haiti gave up 14 percent of sales tax revenues would generate additional revenue but also increase collected at the border due to exemptions, plus 19 protectionism and costs for firms and consumers. But percent of ad valorem excise taxes. For tariffs, the inspection fees could be replaced with a combination shortfall was 50 percent. Tax breaks for imported of higher tariffs and removal of exemptions with no capital goods can aid development, but standard loss in revenue. customs procedures require that a clear legal basis be cited for an exemption. In Haiti, however, most Finally, Haiti has a number of taxes that generate exempted imports are simply classified as “exempt little revenue but impose high compliance costs of all taxes” or exempt of specific ones, without on businesses—so-called “nuisance taxes.” They explanation. Exemptions attributed to embassies, encourage companies to drop out of the formal NGOs, and the government amount to only a small economy and generally undermine the business amount of the total. climate. Steps to consider: • Shift the government’s revenue generation system toward direct taxes and away from indirect ones, to increase efficiency of collection and reduce regressive effects. • Rein in the granting of tax exemptions on imported goods. An important step would be the introduction of a clear classification system in customs data to track the granting of these waivers. • Monitor more closely tax holidays for investors and focus on attracting foreign capital by such steps as improving infrastructure, human capital, and institutions. • Eliminate or reform nuisance taxes. • Consider replacing import fees with higher tariffs. Combined with fewer tax exemptions, such a regime would not result in lower revenues. 2. Unifying, Targeting, and Better and ports, and spurred economic growth, but the country has seen little such effect. Sadly, this is Tracking Public investment Spending nothing new in Haiti—during the 1965-2004 period, Though much of the influx of foreign funds since public investments rarely delivered the expected 2010 has gone directly to NGOs and private growth dividend. Several explanations have been put contractors, enough was channeled through forward, ranging from misclassification of spending the government budget to help it bolster public as investment, chronic lack of maintenance, or simply investment outlays. In theory, this spending should the unproductive nature of the investment itself. This have raised the country’s historically low ranking disappointing outcome stems also in part from very in such indicators as access to electricity, roads, weak public investment management. 7 Capital Expenditures, 2003-2013 GDP Growth, 2003-2013 (Percentage of GDP) (Real GDP 2002 = 100) 180 20 160 15 140 10 120 5 100 0 80 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Haïti LAC LIC 2013 Haïti LAC LIC Sources: IMF and World Bank Source : World Bank Like many donor-dependent countries, Haiti has the government’s Public Investment Program (PIP), limited capacity to appraise prospective investments such as supporting studies and financial plan. and instead relies on donors to design good projects. In May 2012, the Haitian government issued a Within the state bureaucracy, investment plans are Strategic Development Plan, detailing a vision for neither fully assessed nor prioritized. Domestically the country to become an emerging economy by funded capital expenditures are not properly tracked 2030. But the plan is too broad to serve as a basis for and reported, creating an environment conducive to project selection. While it gives strategies for some corruption and mismanagement of scarce resources. sectors, there is not enough information in terms of Even though on paper the country has a good legal timing and selection criteria to help ministries decide framework for management of these investments, its which to push forward. As a result, links between the requirements are rarely respected. When they are, government’s investment projects, national policies, the result is often bureaucratic processes that are and underlying strategies are tenuous. In the sample redundant or excessively elaborate. Within a ministry, of 20 projects, only a quarter were supported by a for instance, a request from a technical office for funds sector strategic plan. may require as many as twelve steps before the check is finally delivered. Once approved, projects are frequently altered. The Ministry of Planning and External Cooperation A recent review found that first-level screening can and does arbitrarily replace PIP projects, without of investment proposals seldom takes place, transparency or stated justification. In the sample of calling into question whether projects meet even 20 projects, four were not maintained in their original, minimum criteria of consistency with the strategic approved PIP form. goals of the government. In a sample of 20 projects that were reviewed, only six had all of the project The PIP often does not include donor-funded documentation that theoretically it needs to be part of projects. This creates potential for conflict and overlap between externally-financed projects and 8 BETTER SPENDING, BETTER SERVICES the government’s own. It also means that costs the Contracting Methods, 2012-13 government will have to bear for the donor’s projects (Number of Contracts Reviewed by CNMP) down the road may not be provided for in the Haitian national budget. For instance, the costs of operating a 80 hospital built by a foreign donor may not have been 70 taken into consideration, delaying its opening once 60 completed. 50 40 Haiti’s budgeting process for the government 30 as a whole is another area of deep concern. The 20 country is only now implementing a Single Treasury 10 Account and consistent budget classifications that would facilitate monitoring. Multi-year planning 0 2011-2012 2012-2013 is lacking, as is strategic coordination between ministries. Projects that are begun and funded may Direct contracting single source selection Limited Competition be abandoned at mid-course. Technical expertise may Open competition be lacking for issuing procurement tender documents and evaluating applicants. Procurements can be Source: Haitian authorities delayed for months as every question is submitted to the top of the bureaucracy for resolution before the authorization flows back down. On reducing single- Once investment projects are set in motion, source contracting, there has been some progress, Haitian ministries conduct at best limited financial but nonetheless roughly half of all contracts over the monitoring of them. Officials lack an integrated past year have been awarded by this means, limiting computerized management system for public finances competition. or an independent accounting system for public Donors sometimes use “executing entities” to investments. There are more than 25 free-standing get around the inefficiency of government services. computer applications that respond to specific needs But this practice has long-term downsides. These of a project, but none of them caters to the project’s entities have weaker linkage with the government’s budgetary, financial, and accounting management overall investment strategy and have cherry-picked needs. some of the best staff away from ministries by offering Finally, physical monitoring of projects is lacking. higher salaries. The main drawback, however, is that The Ministry of Planning and External Cooperation the entities reduce incentives for government to get appears to have performed no supervision visits to better itself. investment project sites in the last five years. Because Compliance checks are another area of of funding shortfalls, it simply trusts progress reports shortcoming. Proof of spending is often submitted submitted by departmental directorates. Even closing as photocopies, not originals, opening the door to audits of completed projects rarely take place. Of the fraud. The establishment of public accountants could 20 projects surveyed, only eight had undergone a improve the monitoring of accounts. Public accounts closing inspection by the line ministry. units would take care of such things as elimination of prepayment of services, with money going out only when services have been actually rendered or goods delivered. 9 Steps to consider: • Strengthen fiscal reporting to allow close tracking of public spending and enforce minimum conditions of transparency and accountability. Completing the roll-out of the Single Treasury Account and unifying budget classifications among the various sources of financing would be important steps in this direction. • Increase donor coordination. A master plan for critical sectors could avoid duplication of investment and inefficiencies. Such a plan would have indicators and deadlines, triennial operational plans, and annual action plans for monitoring implementation. • Improve public investment management through a strengthening of project evaluation, selection, programming, execution, and control. A first step would be to implement basic elements of formal management so that projects advance only if they are part of a broader strategic plan, are monitored (including physically), use their resources adequately, and are controlled after completion as required. 3. Making the Health Care System Overall, however, the poorest Haitians benefit the least from health services. At a 76 percent More Efficient and Equitable likelihood, child delivery in a health institution was Haiti’s health challenges are immense. Maternal eight times more common among the richest quintile mortality rates are almost five times higher than those of Haitians than among the poorest. Geographical of the Latin America and Caribbean region, while disparities remain too: the Metropolitan area around the under-five mortality rate is four times greater. Port-au-Prince has the highest institutional delivery Immunization and presence of skilled attendants at rate and the lowest rate of underweight babies. births lag behind; incidence of serious diarrhea is The government’s ability to improve health higher than average. Many people go through life with care is hampered by the fact that it spends very little or no contact with trained medical professionals, little of its money in the sector—just 5 percent resorting instead to buying their own medicines in of its total spending goes to health. That is well markets or consulting traditional healers. below the 15 percent recommended by the Abuja Despite the traumas of recent decades, Declaration, issued under the auspices of the World nevertheless, a few health indicators have actually Health Organization in September 2000. Before improved. Under-five mortality declined from 145 the earthquake, government health spending deaths per 1,000 live births in 1990 to 73 in 2013. was comparable with the regional average, but Haitians can now expect to live eight years longer it plummeted in the earthquake’s aftermath as than the expectation in 1990. Gaps in health outcomes international medical NGOs arrived en masse. By between rich and poor households have narrowed. 2011 they were providing 90 percent of the country’s While health care spending per capita remains only a health care costs. Patients paid almost nothing out of fraction of what’s found elsewhere in the region, Haiti pocket, just 5 percent. has managed to raise per capita rates to 1.5 times the With NGOs packing up and going home, the $50 that the World Health Organization says can patients’ share has shot up to 50 percent, an ensure basic care. alarming rate for a country where a majority of 10 BETTER SPENDING, BETTER SERVICES Maternal Mortality, 2013 Under-5 Child Mortality, 2013 (Per 100,000 live birth) (Per 1,000 live births) 600 100 500 90 80 400 70 60 300 50 40 200 30 100 20 10 0 0 Fragiles LIC Haïti Caribbean LAC Fragiles LIC Haïti Caribbean LAC states small states small states states Source : World Development Indicators Source : World Development Indicators Health Service Utilization (In Percent of Population) 67 Burkina Faso 66 (2010) 48 81 59 Ghana (2008) 57 53 79 84 Bénin (2012) 87 54 48 44 Kenya (2009) 43 72 68 83 Honduras 46 (2012) 60 85 93 Guyana 89 (2009) 59 56 37 Haiti (2012) 36 58 45 0 20 40 60 80 100 Skilled birth attendance Institutional delivery Diarrhea treatment Immunisation Sources: Demographic and Health Surveys and World Health Organization 11 Health Expenditure Per Capita, 2012 Health Expenditure by Source, 2004-2013 (Current US$) (% of Total Health Expenditure) 1000 100% 900 80% 800 700 60% 600 500 40% 400 20% 300 200 0% 100 2013 2011 2004 2006 2007 2008 2009 2010 2012 2005 0 LAC Caribbean Fragile Haiti LIC small states Out-of-pocket External resources states Public domestically funded Source : World Development Indicators Source : World Bank, World Development Indicators Density of Medical Personnel by Location, Child Health Outcome Indicators, 2012 Excluding the Private For-Pro t Sector, 2013 (Per 1,000 Live Births) (per 10,000 Inhabitants) Nord-Ouest Nippes 12 Grande-Anse 10 Sud Centre 8 Artibonite 6 Nord-Est 4 Nord Sud-Est 2 Ouest 0 Metropole Urban Rural National average National average Medical doctor Nurse 0 20 40 60 80 100 120 Auxiliaire-nurse Midwife under-5 mortality rate infant mortality rate Source : World Bank calculations based on the SPA dataset (IHE and ICF International, 2013). Source : ICF International, 2012, DHS Program STATcompiler - http://www.statcompiler.com households live below the poverty line and only new clinics and hospitals and repairing old ones four percent have health insurance. As donor damaged by the earthquake. But investment was funds decline, many people, particularly in the lower often not targeted where it was most needed. Only income levels, are opting not to seek professional help 22 percent of funds went to dispensaries and health at all for health issues. When they do, it may be only centers, facilities that, though small, account for 87 for major injuries or illnesses that become a “financial percent of all health care delivery in Haiti. In contrast, catastrophe” for the family, forcing it to pare spending close to 33 percent of investment went to hospitals. on such necessities as food, clothing, and education. Health services are unevenly distributed During this period, however, Haiti did double geographically. People in the Metropolitan area tend its spending on health care facilities, building to benefit more than average from health care spending, 12 BETTER SPENDING, BETTER SERVICES with 50 percent consulting public providers, against had income from other work, such as a private medical 43 percent in rural areas, where most of the country’s practice, sale of medicine, or unrelated businesses such as poor live. Disparities are also seen among regions: the the sale of mobile phone cards. west has the highest density of doctors, nurses and Bulky administrative staffs may also pull down midwives, for instance, and the south the lowest. productivity. Administrative personnel make up As medical capital expenditures have expanded about 40 percent of total staffing at primary care quickly, operating expenditures have not kept up. facilities; these types of facilities, small and lacking Haiti has only 9.5 medical staff per 10,000 people, sophisticated equipment, have a generally low need well behind regional averages. Operation money for administrative people. goes overwhelmingly to salaries, putting the squeeze The government is looking at confronting these on budgets for such crucial supplies as vaccines issues by implementing “results-based financing,” and medicines. This creates a major barrier to good which would predicate funding for a facility on service delivery. A recent study found that only six it meeting certain pre-determined results, such out of 45 surveyed health facilities delivered services as immunizing a fixed percentage of children in efficiently—they had neither excessive operation costs a certain area. Traditionally funding for health has nor excessive personnel. been directed toward inputs—salaries, construction, A common theme in this chronic low productivity training, equipment. Improved health was assumed is low numbers of consultations. Daily interactions with to follow, but this has not always happened. Results- patients per medical professional amounted to only about based financing flips the whole equation on its head, 67 percent of the rate of Liberia and 35 percent of those starting with the result—more children immunized, of Cambodia and Rwanda. Much of the explanation for example—and letting health workers and appears to be that people who are paid for full-time work managers on the ground decide how to achieve in clinics show up only part time. A survey found that it. Three countries—Rwanda, Burundi, and Sierra 49 percent of medical personnel in Haiti’s North-West Leone—have implemented results-based programs Consultations per Medical Sta Member International Comparisons-Share of Administrative (Daily Numbers) Personnel In Total Number of Primary Health Facilities (Percentage Total) 25 50 45 40 20 40 35 33 30 29 15 30 25 20 10 20 15 5 10 5 0 0 Haiti Liberia Cambodia Rwanda Morocco Haiti Afghanistan Rwanda Liberia Liberia (2013) (2009) (2008) (2011) (2014) (dispensaire) (CSL/CAL) Source : Haiti: Cros, M. et Zeng, W., 2014; Afghanistan : Sources : SPA, 2013 (Haiti); USAID, 2009 (Liberia); Transitional Islamic Government of Afghanistan, Royal Government of Cambodia, 2008 (Cambodia); 2003; Rwanda: USAID, 2011; Liberia: USAID, 2009 MSH, 2011 (Rwanda); Kingdom of Morocco, 2014 (Morocco). 13 with promising results. Rwanda, for instance, has women had given birth in a facility rather than at linked bonuses directly to performance. For example, home with its attendant risks, they would receive a if a health worker or facility can show that ten more bonus. Steps to consider: • Better target public spending to improve health service delivery. Staffing expansion has often favored people not directly involved in service delivery, diverting budgets for front-line workers and operating and maintenance expenses. • Work for a more equitable distribution of health services among regions of the country and among different income groups. • Move toward results-based financing, which would provide monetary and non-monetary incentives to health workers to increase their productivity and forego outside employment. • At underused health facilities, put new stress on primary health services and operation of mobile clinics to increase patient numbers, particularly the poor. 4. Raising Standards and to be in school than children in households where the head had no formal schooling, and 23 points less Accountability in the Education likely to be over-age. System The school system is highly inefficient: children Despite many challenges, Haiti has improved typically start primary school two years late—at 7.8 its education indicators in recent years. The vast years of age, on average—and fewer than 60 percent majority of primary school-aged children—90 ever reach the last grade of the primary cycle, percent—are today in school. In 1994, fewer than sixth. After age 14, girls drop out of school slightly 30 percent of 15-19 year-olds had reached lower faster than boys. This trend holds true whether the secondary school. By 2012, that figure had risen to over household is poor or non-poor, rural or urban. It may 50 percent for women and 40 percent for men. These be caused by girls’ tendency to advance from grade gains grew mostly from the increasing number of to grade faster than boys—in sixth grade, the average low-cost non-public schools and from state programs girl is 14.9 years old, compared to 15.6 for boys—and to finance primary education at them through tuition for social and economic pressure on girls for such life waivers and support for school canteens. changes as child-bearing and migration. Yet even with this progress, enrollment numbers Even children who remain in school, particularly lag behind regional averages. Schooling participation poor children, learn little. Teacher quality is drops off sharply at the tertiary level. Rural-urban generally low. For example, in French language and disparities heighten the impact: children from poor math assessments of primary school teachers in the rural households located far from the capital are more Central Plateau, only 10 percent (French) and 22 likely to be out of school or over-age in grades that percent (math) were able to correctly answer at least they do attend. Parents’ educational levels also matter: half of a set of questions drawn from teacher training children in households where the head completed institute exams. Low teacher quality contributes to primary school are 4 percentage points more likely high repetition and dropout rates by their students, 14 BETTER SPENDING, BETTER SERVICES Youth Enrolled in School by Age and Gender, 2012 Primary Schools, 1930-2011 (Percentage of Total) (Thousands of Schools) 100 14 90 Non-public (CS2011) 80 12 Public (CS2001) 70 Non-public (CS2003) 10 60 Public (CS2003) 50 8 40 30 6 20 4 10 0 2 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Female Male 0 1930 1940 1950 1960 1970 1980 1990 2000 2010 Sources : World Bank sta estimates using ECVMAS 2012. Sources : World Bank sta estimates using 2003 and 2011 School Censures. and ultimately to low educational attainment. An of this money has gone to primary education in assessment conducted in schools in the Artibonite recent years. But as aid declines, holding on to recent and Nippes departments found that the average third improvements in education is at risk and there is grader could only read 23 words per minute, well still vast room for improvement. Enrollment is not below the speed of 35-60 words needed to understand yet universal and the most disadvantaged students, a basic text. including the poor, disabled or those living without their parents, tend not to be in school. While all children in Haiti are constitutionally entitled to a basic education, the state has In recent years Haiti’s government has been historically not fulfilled this obligation. Most raising education spending, which now accounts for education today comes from the non-public sector. a 14 percent of government expenditures, funded The country has about seven times more non-public partly by new taxes on international phone calls primary schools than public ones; 78 percent of and money transfers. But much of this spending goes primary students attend non-public schools. A bit not to pay for government schools but to non-public less than half of these are run by religious groups, ones, through tuition waivers and canteen programs. mostly Protestant. About 35 percent of non-public About HTG 2 billion were spent on waivers in the schools are privately owned and the rest are run by 2012-13 school year, supporting 1.4 million students communities. This means Haiti has one of the largest in more than 10,700 schools. The programs attempt to non-public education systems in the world, and with target the subsidies at communities that are poor and major attendant problems. Non-public schools face have sub-standard nutrition. But corruption has often little regulation, as the country’s licensing system intervened. In 2013, the government’s anti-corruption has never been fully enforced. Schools taking part in unit reported that an audit of a sample of schools found certain public financing programs, such as the Tuition that about 25 percent more students than actually Waiver Program, must theoretically comply with existed were reported to be taking part in those schools. specific criteria for funding. It found cases of “ghost” schools that could not be physically located and appeared to have been invented In 2013, international funding for education for the private gain of specific individuals. stood at HTG 2 billion. Between 80 and 90 percent 15 Even with these programs, total public spending on education is low compared to the world at large. Donor Financing for Education Sector, 2010-13 And funds are often poorly spent. As with health (In Billions of Gourdes) facilities, public schools have too many administrators. 9 Only about 58 percent of salary expenditures go to 8 people who are “frontline” educators such as teachers, 7 directors, and inspectors. Moreover, a program to 6 provide free or subsidized textbooks to students has 5 4 had questionable results: a 2011 audit found that 3 while the program purchased 2.5 million textbooks, 2 only 19 percent of a sample of public schools had 1 actually received any. 0 2010 2011 2012 2013 Though the government is spending more, the Source : World Bank sta estimates using data from reality of education in Haiti is that the cost falls Ministry of Finance (MEF) mostly on households. With the state spending HTG 10 billion per year and international donors disbursing 2-3 billion, the bill to households better resources than in other departments, in terms nonetheless works out at about HTG 20 billion per of student-teacher ratios and likelihood of having year. Among households with children aged 6-14, libraries and electricity. 93 percent report spending money on education, on average 10 percent of the total household budget. Cost In August 2014, the Education Ministry to households tends to create schools segregated by announced steps to increase accountability income group, with better-off families sending their and improve quality. These include mandatory children to well-equipped non-public schools with registration of all teachers and schools with the small class sizes, and lower-income families settling ministry through automatic, provisional granting of for poorly endowed schools. But many families can’t registration cards followed by qualification checks. afford school at all. In cases when children don’t In addition, students will be academically evaluated attend, parents say 83 percent of the time that cost is prior to the sixth grade, and schools performing the primary reason. One saving grace is that in recent particularly badly will come under ministry years, spending for low-income households has supervision. In addition, the ministry has been risen more slowly than spending by higher-income planning to administer the Early Grade Reading and ones, due apparently to an expansion in government Math Assessments (EGRA and EGMA) to nationally spending on the public school system. representative samples of third grade students. While these are welcome efforts, implementation School quality remains widely diverse in and financing plans have not yet been articulated, different parts of the country. The West department and it remains unclear how the new steps will fit into has more schools per capita and the schools enjoy ongoing efforts to raise quality. 16 BETTER SPENDING, BETTER SERVICES Steps to consider: • Make all Haitian schools—public and non-public—more accountable for the quality of education they provide. Identify schools and students benefiting from the different programs offered by the Ministry of Education, including the donor-financed Tuition Waiver Program (TWP) and the Programme de Scolarisation Gratuite et Universelle (PSUGO), and linking this support to school achievement. • Establish a mandatory teaching license based on demonstrated competencies and a mandatory school identity card, leading to certification. • Offer teachers in-service training programs to improve instructional skills. • Work to reduce disparities of education quality available to students in different areas of the country and income groups. 5. Providing Safety Nets for Those The 2010 earthquake, which killed more than 200,000 people, understandably shifted the focus to Most in Need short-term humanitarian response. Since no safety The Haitian state has traditionally played a limited, net could be quickly rolled out, interventions had to laissez-faire role concerning social safety nets. The be designed from scratch. Between 2012 and 2014 Duvalier dictatorships of 1957-1986 had no interest there was again some encouraging attention to social in providing such help to the poor. The FAES (Fonds protection as a broader framework for addressing d’Assistance Economique et Sociale) was created in short-term and long-term vulnerability and poverty 1990 to provide social support, but subsequent years reduction. In 2014, the government began a three- of political turmoil and natural disaster hampered year initiative called “Thinking and Fighting for a development of this approach. It was only in the second Haiti without Poverty: Action Plan for Accelerating half of the 2000s that Haiti’s political elite began to buy the Reduction of Extreme Poverty.” A key element is into the concept of social protection as public policy a social assistance strategy known as EDE PEP, which that can contribute to poverty reduction and social aims to protect people living in extreme poverty and risk management. The 2007 National Growth and to ensure long-term investment in human capital. It is Poverty Reduction Paper covering the period 2008- a multi-faceted initiative, including issues as diverse 2010 listed poverty reduction and the improvement of as family planning, cholera eradication, conditional living conditions as national objectives. Trade unions cash transfers, community restaurants, literacy, and approved a roadmap that included social protections public works aimed at improving the environment. such as gender equality and contributory and non- One potential weakness is that the program is contributory mechanisms for workers and vulnerable financed principally by concessional loans from groups. At the same time, some donor partners began Venezuela at a time when access to those loans is to show interest in food and nutrition security, which tightening due to the fall in world oil prices. But led them to consider a safety net agenda that could various international donors are taking interest in address both the short-term needs of responding to social protection. The United Nations Development constant shocks and the longer-term goal of reducing Program, for instance, has supported the human chronic poverty. 17 capital approach of the conditional cash transfer International Comparison - Social Spending, program known as Ti Manman Chéri. 2013 or Latest (In Percentage of GDP) The chronically poor are in particular need of help from these programs. These are people who live 25 below the monetary poverty line and also lack various 20 dimensions of wellbeing such as access to electricity and basic sanitation. By this definition, about 70 15 percent of Haiti’s rural residents are chronically 10 poor, compared to 20 percent of people living in 5 urban areas. But aid is also needed by the transient poor, people who are poor in terms of money, but 0 have access to basic services and are more likely to Costa Rica (2011) Honduras (2012) Panama (2011) El Salvador (2012) Nicaragua (2011) Guatemala (2011) Haiti (2013) be able to pull themselves up above the poverty line. In general, Haitian households need help in dealing with the shocks that are so common in Haitian life, whether an earthquake that levels the community or an illness that sidelines a household’s prime bread Sources : World Bank and Ministry of Finance (MEF) winner. Raising incomes is a deeply ambitious task, Targeting of social assistance benefits is also because poor households face so many constraints weak, with as much as half of these benefits going to building human capital such as education and to the non-poor. Because informality is so high in skills, which ultimately is their biggest hope of Haiti, only 11 percent of wage workers have access exiting poverty. These constraints include chronic to retirement benefits through the social security malnutrition among children, barriers to health care, system, but they tend to be in the upper income and a tendency to respond to shocks with decisions groups. Patterns are similar with health insurance that help in the short term but hurt in the long, such administered by the Office of Work Accidents, as removing a child from school after a breadwinner Illness, and Maternity Insurance (OFATMA)—most loses a job. households covered by the program are in the top The different risks faced by different segments of quintile and living in the Metropolitan area. Children the population require different responses in terms under age six, meanwhile, have almost no social of social protection policies. Unfortunately, Haiti’s assistance coverage—just 7.4 percent do. And though social protection system is too fragmented to attack child labor and the practice known as restavèk, in effectively the varying risks. Social insurance schemes, which children live in other households and work for instance, are implemented by a maze of institutions, as servants, are widespread in Haiti, this risk is not making coordination difficult. Social safety nets addressed by the EDE PEP strategy. involve more than 20 programs with implementation Geographically, safety net initiatives could scattered across at least four ministries. Nine be better targeted to areas where poverty is ministries share the oversight of EDE PEP programs, particularly severe. Some EDE PEP programs, in and 11 agencies or ministries are responsible for fact, have little coverage in regions with the highest their execution. In addition, donor contributions are poverty rates. Even where coverage does exist, it may widely fragmented, creating difficulties in estimating be only short-term. The Ti Manman Chéri CCT gives and coordinating spending. Many are financed by one mothers incentive to keep their children in school, but organization and implemented by another. 18 BETTER SPENDING, BETTER SERVICES due to budget restrictions and Haitian government its greater concentration of poverty, than in urban. decisions, the payments last only a year. But overall, Haiti’s social protection system remains deeply undeveloped. The net impact of the programs Here and there are glimmers that things are is very small: Without social protection transfers, taking a promising turn. About 13 percent of people including pensions, Haiti’s poverty headcount would in the poorest quintile receive some social assistance be just one percentage point higher than it is. compared to 5 percent in the two richest quintiles. And coverage is slightly higher in rural areas, with Steps to consider: • Continue to develop the social safety net. In a country with such high levels of poverty, social programs often make the difference in enabling some basic dignity of life. • Reduce fragmentation of the social safety net by creating more centralized control of programs. Improve planning and coordination of domestically and foreign-financed initiatives. • Better target benefits programs so as to reach people who most need help. Pay particular attention to the chronically poor. • Press ahead with efforts to create a social registry of potentially eligible beneficiaries, so as to better target people in need and serve them efficiently. 6. Protecting the Budget from a public spending on health and education. The resulting major difference in fuel prices with the Dominican Return of Fuel Subsidies Republic, which shares the island of Hispaniola with Like in so many energy-importing countries of the Haiti, had created incentives for smuggling—fuel world, political stability in Haiti is at risk when taken across the border could be resold at the roughly international oil prices spike. Rising retail prices can 30 percent higher prices prevailing there. These illegal bring crowds into the street demanding relief. The sales created even more budgetary burden for Haiti’s Haitian government long cautiously passed through government. increases to consumers but in 2010 it abandoned Moreover, the program was highly regressive. that practice in favor of a system of tax forgiveness Poor households consume very little fuel—they and subsidies that shields consumers from retail spend only about 0.01 percent of their money on it. price shifts in gasoline, diesel fuel, and kerosene. Yet in households of the richest decile, likely to own That changed in October 2014 when the government cars and motorbikes, fuel spending is almost 6 percent allowed retail fuel prices to rise. Combined with a of total consumption. Adding it all up, over 93 percent decline in international oil prices, this step allowed of fuel subsidies that were going directly to Haitian Haiti to eliminate the subsidies. households were benefitting the richest 20 percent of Until then, oil subsidies had expanded the population. Poor households got only 1.6 percent dramatically for four years and posed a heavy of the subsidies and extremely poor households got burden on public finances, gobbling up about 15 only almost nothing, 0.3 percent. percent of total revenues in 2013. Subsidies were equivalent to close to 2 percent of GDP, exceeding 19 Distribution of Oil Subsidies by Fuel Product, 2009-13 (Billion Gourdes) Fiscal Year Products 2010 2011 2012 2013 Gazoline 95 0.105 0.604 1.004 2.066 Gazoline 91 0.269 1.565 2.301 2.529 Gasoil 0.541 1.93 1.217 1.898 Kérosène 0.162 0.341 0.187 0.399 Total 1.078 4.44 4.709 6.892 Source. MEF (2014) The higher fuel prices resulting from reduced Another exception concerning impact on the subsidies thus have little direct impact on poor poor involves kerosene. In a country where most households, because they spend so little on fuel homes lack electric power, kerosene lamps are the to begin with. The impact falls mainly on higher- standard means of lighting. This is particularly true in income households which are more able to absorb rural areas, where 80 percent households use kerosene the impact. Indirect impact—the effect of fuel prices as their main fuel. A change in the price of this on the price of food, due to higher costs of moving it fuel, therefore, is mostly felt by the most vulnerable from field to market, for instance—can be contained segments of the population. to affordable levels. Ending fuel subsidies is only one dimension of Transit costs are a special case. Owners of the renewable and transport reforms. The country needs brightly painted mini-buses and pick-ups known as safer vehicles and more highly skilled drivers. Haiti’s “tap-taps,” on which millions of Haitians get around, reliance on petroleum fuels could be reduced by tend to pass on higher fuel prices to passengers. This developing renewable sources such as solar and wind. can price the poor out of employment and education Furthermore, in the absence of a truly automatic pass- opportunities across town. through mechanism, the budget remains vulnerable to a rebound in international oil prices and a return of fuel subsidies. Steps to consider: • Return to a system of automatic pass-through of oil price rises, to prevent fuel subsidies from draining away government resources that are urgently needed by other more fruitful programs. • Place the pricing mechanism in the hands of an independent agency, so as to reduce political influence in the setting of fuel prices. • Consider creating targeted subsidies that would ease price rises that particularly impact low-income Haitians, such as higher transit costs. • For the long term, promote programs to shift the country away from petroleum toward renewable forms of energy such as solar and wind. 20