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Home Publications Blogs Haiti: Relief and Reconstruction Watch Slow Pace of Reconstruction Leads to Lower Economic Growth

Slow Pace of Reconstruction Leads to Lower Economic Growth

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Thursday, 10 November 2011 15:30

The level of grant support is only marginally higher than in 2009, before the earthquake, while overall spending levels are actually below 2009 levels. Despite the billions pledged in aid, budget support for the Haitian government was lower in 2011 than it had been in 2009.

The January 12 earthquake, which caused an estimated $8 billion in damages, led the Haitian economy to contract by 5.5 percent in 2010. With the prospect of large reconstruction projects backed by donor pledges of $4.6 billion, the economy was expected to begin growing rapidly in 2011. The IMF projected growth of over 8.5 percent in their first review of Haiti’s economic program in May:

Real GDP is expected to grow by 8.6 percent, assuming concerted strong efforts by the authorities and the international community to speed up the reconstruction.

As we have written about previously, disbursements from donors have been slow to materialize, a problem only exacerbated by the five months it took to form a new government. In addition to the effects on the ground, over 550,000 still living in tarp shelters with little services, the slow pace of reconstruction is also slowing economic growth. Updated projections from the IMF now expect slower growth of 6 percent in 2011.

Surprisingly, given the immense needs, government spending contracted sharply in 2011 compared to 2010. In 2010, with substantial grant support (including direct budget support) from donors, government spending reached 27.5 percent of GDP. In 2011 expenditures were significantly lower at 19.7 percent of GDP as grants decreased by ten percentage points to just 7.5 percent of GDP in 2011. The level of grant support is only marginally higher than in 2009, before the earthquake, while overall spending levels are actually below 2009 levels. Despite the billions pledged in aid, budget support for the Haitian government was lower in 2011 than it had been in 2009. The decreased expenditure most drastically affected capital expenditures, which fell from 16 percent of GDP in 2010 to below 10 percent in 2011.

Table I. Economic Indicators (In percent of GDP)

 

2009

2010

2011

2012

Real GDP Growth

2.9

-5.4

6.1

7.5

Total Revenue and Grants

17.9

29.6

20.4

28

   Domestic Revenue

11.2

11.9

12.9

13.5

   Grants

6.7

17.8

7.5

14.5

      Of Which Budget Support

1.5

3.4

1.1

0.7

Total Expenditure

22.3

27.5

19.7

32.6

   Current Expenditures

11.5

11.5

10

11.1

   Capital Expenditures

10.8

16

9.8

21.5

As can be seen in Table I, the IMF is expecting a reversal of the decline in spending for 2012, with capital expenditures more than doubling as a percent of GDP. Certainly much of the responsibility will rest with President Martelly and the newly formed Conille government, but donors pledged significant support in March 2010, much of which has been slow to show up in Haiti. A recent World Bank report, while touting many successes of the reconstruction, acknowledges that:

[P]rogress has not kept pace with the expectations of the population, which increases the risk of volatility, and has led to criticism of the international community in the media.  

Based on the lowered projections for GDP growth, progress has not kept pace with the expectations of the International Monetary Fund either.

Tags: aid distribution | economy | GDP | imf | world bank

 

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