Haiti: Staff-Monitored Program-Press Release; and Staff Report
Author:
International Monetary Fund. Western Hemisphere Dept.
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Publication Date:
30 Aug 2023
eISBN:
9798400252860
Language:
English
Keywords:
reform strategy; government balance; excess reserves; reform priority; government's ability; Global
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This paper presents Haiti’s Staff-Monitored Program (SMP). Building on progress achieved under the previous SMP, which was satisfactorily concluded in May 2023, the new 9-month SMP should contribute to macroeconomic stability by helping Haiti sustain recent policy reforms designed to enhance economic resilience and governance. Haiti faces a challenging macroeconomic outlook amid a dire humanitarian crisis. The country has been hit hard by economic spillovers from Russia’s invasion of Ukraine, including food price inflation that has triggered a hunger crisis. This global shock has been compounded by a highly volatile security situation in Haiti, which has heightened the economy’s fragility. The authorities have also recently made a formal request for an IMF Governance Diagnostic, which is a very welcome development and will help Haiti solidify the early improvements achieved during the recently concluded SMP. The diagnostics are designed to help inform governance and anti-corruption strategies, including sequencing of reforms.

Abstract

This paper presents Haiti’s Staff-Monitored Program (SMP). Building on progress achieved under the previous SMP, which was satisfactorily concluded in May 2023, the new 9-month SMP should contribute to macroeconomic stability by helping Haiti sustain recent policy reforms designed to enhance economic resilience and governance. Haiti faces a challenging macroeconomic outlook amid a dire humanitarian crisis. The country has been hit hard by economic spillovers from Russia’s invasion of Ukraine, including food price inflation that has triggered a hunger crisis. This global shock has been compounded by a highly volatile security situation in Haiti, which has heightened the economy’s fragility. The authorities have also recently made a formal request for an IMF Governance Diagnostic, which is a very welcome development and will help Haiti solidify the early improvements achieved during the recently concluded SMP. The diagnostics are designed to help inform governance and anti-corruption strategies, including sequencing of reforms.

Context and Recent Developments

1. Haiti continues to face a dire humanitarian crisis. Haiti has one of the highest levels of food insecurity in the world.1 The country has been hit hard by the economic spillovers from Russia’s invasion of Ukraine, with food price inflation triggering a hunger crisis affecting over 50 percent of the population. To help address Haiti’s balance of payments needs, the Fund approved in January 2023 US$110.6 million under the Food Shock Window (FSW) of the Rapid Credit Facility (RCF). That said, the financing needs of Haiti remain large, as previous reports indicated, and import compression is necessary, pending additional external financing from development partners.2 The security situation remains very difficult, worsening widespread fuel shortages. The recent heavy rain and flooding have further aggravated the country’s fragility.3

2. Political uncertainty persists, albeit with one notable achievement. Prime Minister Henry signed on December 21, 2022, a new agreement with representatives of all political parties, the private sector, and NGOs. The agreement, “National Consensus for an Inclusive Transition and Transparent Elections,” includes a timetable for installing an elected government by February 2024; the establishment of a High Council for the Transition (set up in February), and soon of a Body for the control of government action to enhance the current government’s accountability (including through the oversight of the budget process); and measures to fight corruption.

3. Macroeconomic conditions remain challenging. In fiscal year 2022 (FY2022)4, real GDP contracted for the fourth consecutive year, by 1.7 percent (Table 1). Year-on-year inflation reached 46.4 percent in May 2023 with food prices inflation at 45.8 percent (year-on-year), driven by global commodity and supply-side disruptions (security and drought). Month-on-month inflation, however, has declined sharply, from near 11 percent in October to 0.9 percent in May, indicating that inflation is decelerating. The deficit of the non-financial public sector (NFPS) narrowed by 0.4 of a percentage point to 2.1 percent of GDP in FY2022 (Table 2a and Table 2b). Still, this was 0.6 percentage point above the level expected when the SMP was approved in June 2022 and was attributable mainly to higher-than-expected fuel subsidies (until mid-September 2022). The current account balance shifted to a deficit of 2.3 percent of GDP (Table 3a and Table 3b), from a surplus of ½ percent in FY2021, owing mostly to a negative terms-of-trade shock (higher fuel and food import costs). The exchange rate (gourde vis-a-vis US dollar) has stabilized since January 2023. Fuel shortages, security issues, and, more recently, floods continue to undermine economic activity, with credit growth decelerating to 2.5 percent (year-on-year) in the first quarter of 2023. Overall, the external position of Haiti in FY2022 is assessed to be moderately weaker than medium-term fundamentals and desired macroeconomic policies (Annex I).

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Inflation

(Percent)

Citation: IMF Staff Country Reports 2023, 315; 10.5089/9798400252860.002.A001

Sources: Haitian Institute of Statistics and Informatics (IHSI), and Bank of the Republic of Haiti.

4. Signs of resilience have emerged, and buffers have been rebuilt, although from a low base, suggesting that policies, aligned with 2022 Staff-Monitored Program (SMP), have helped the economy. Net international reserves (NIR) have picked up in recent months, reaching almost US$481 million in May 2023, up from just US$114 million at end-October 2022. This increase reflects recent FX purchases to rebuild external buffers, as well as valuation effects in the central bank’s FX portfolio. Remittances remained resilient in 2022 after surging in 2020-21 and were still higher than in the pre-Covid period (as a share of imports). Custom duties helped boost fiscal revenue by 48 percent in the first six months of FY2023, which also reflected improved revenue administration and the government’s ability to collect taxes on fuel imports at the new regulated price. Monetary financing of the budget decreased considerably during October 2022-April 2023 (year-on-year)—in line with the SMP objectives—to ½ percent of GDP, from 2 percent over the same period of the previous year.

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Reserves Accumulation and Bilateral Exchange Rate

Citation: IMF Staff Country Reports 2023, 315; 10.5089/9798400252860.002.A001

Sources: Bank of the Republic of Haiti, national authorities, and IMF staff calculations.

5. Despite multiple challenges, the authorities demonstrated a firm commitment under the 2022 SMP which provided a credible anchor for enhancing policymaking and have stayed actively engaged with Fund staff, which has spurred additional support. The authorities achieved all structural benchmarks set in the 2022 SMP, although some with delays, supported by capacity development in the areas of governance and public financial management; tax administration; central bank law; anti-money-laundering; tax policy and custom administration; and safeguards (EBS/23/59). Since the disbursement of US$110.6 million under the FSW of the Rapid Credit Facility, the authorities’ engagement has strengthened through the high-level Program Monitoring Committee (Comite de Suivi)—which meets with IMF staff biweekly. The Fund has also continued actively supporting Haiti’s capacity development. The IMF Legal Department (LEG) conducted a capacity development (CD) mission on AML/CFT and on the law on the Central Financial Intelligence Unit and advised the authorities on the revision of the Central Bank law; the IMF Fiscal Affairs Department (FAD) and LEG delivered assistance on the consumer-pricing mechanism reform of the fuel subsidy regime, completed in April. If implemented, the latter will allow changes in international fuel prices to be regularly passed on to consumers.5 This reform also features a smoothing mechanism to protect consumers by limiting the monthly variation of prices at the pump (through revisions of the current 1995 law).6 FAD and the Caribbean Regional Technical Assistance Centre (CARTAC) provided technical assistance (TA) on cash management to improve PFM systems; FAD also delivered TA on revenue administration to broaden the tax base and improve tax compliance; the IMF Statistics Department provided initial support the compilation of quarterly GDP data and external sector statistics; and the Monetary and Capital Markets Department (MCM) delivered TA on the Central Bank Banking Chart of Accounts to align them with IFRS Standards and a TA to upgrade the regulatory framework and move to risk-based supervision. Finally, the 2022 SMP has helped facilitate the forthcoming budget support (€19.5 million) from the European Union, which was conditional, among other things, on the successful completion of the first and second reviews of the 2022 SMP.

Outlook and Risks

6. The macroeconomic outlook for Haiti remains very challenging. Growth is expected to be muted at 0.1 percent in FY2023 owing mainly to the security situation. It is expected to reach 1½ percent over the medium term, depending on continued implementation of structural reforms and an improved security outlook. Inflation is expected to moderate gradually-to about 30 percent at the end of this fiscal year-as the impact of lower monetary financing of the fiscal deficit takes effect and world market prices for food and fuel stabilize. Inflation is then forecasted to ease further over the medium term, assuming adequate macroeconomic policies. The fiscal deficit of the NFPS is projected at 1.9 percent of GDP in FY2023—0.4 percentage point below that envisaged at the time of the SMP approval—because of lower fuel subsidies and higher customs revenues. The fiscal deficit would expand slightly to about 2.2-2½ percent of GDP over the medium term, led primarily by capital spending. The current account deficit is expected to narrow to 0.8 percent of GDP in FY2023, and further to 0.6 percent over the medium term, assuming imports compression and as import prices stabilize.

7. The outlook is subject to multiple risks, including climate and security, and it is tilted mainly to the downside. Domestic risks include intensified political instability, gang-related disruptions to economic activity, a further spread of cholera, a worsening of the hunger crisis, and natural disasters. Externally, Haiti is vulnerable to volatile remittance flows, lower-than-expected external financing, and renewed surges in global food and energy prices. Normalization of the security situation (not envisaged in our baseline) would greatly improve the medium-term outlook. The projected path of public debt was sustainable, although consistent with a high risk of debt distress and the debt-carrying capacity was assessed as medium, as ascertained in the most recent DSA (see EBS/23/4). Risks to program implementation could also increase in the run up to the election.

Policy Discussions on the New SMP

Building on the satisfactory outcome of the 2022 SMP, the new proposed SMP would help strengthen domestic revenues mobilization to support efforts to raise inclusive growth thereby continuing lowering the monetary financing of the budget; it would further enhance transparency and accountability in the use of public spending; and it would continue to build administrative and institutional capacity through capacity development (Box 1).

A. Fiscal Policy

8. Background. Tax revenues at 5.3 percent of GDP in fiscal year 2022 are among the lowest globally. That said, during the first half of FY2023, domestic revenue was much stronger than in previous years, rising by 48 percent, owing mainly to custom duties and reflecting strong improvement in revenue administration and the government’s ability to collect taxes on fuel imports at the new regulated price. Domestic revenue had a weak start, as a result of the paralysis of the economy in September/October, attributable to the temporary loss of access to the main fuel terminal (Varreux), which reduced tax collection in October 2022. In nominal terms, revenue recovered to its historical high as activity resumed. Average monthly revenue exceeded 17 billion gourdes in the second quarter of FY2023, relative to a monthly average of 11 billion gourdes during the year-earlier quarter. Nominal spending grew 18 percent (year-on-year) in the first semester of FY2023, led mainly by capital spending (25 percent), including to strengthen national police. The increase in current spending was more subdued (13 percent), with energy transfers (including fuel and electricity) cut in half,7 as the fuel price adjustment has cut fuel subsidies to zero. During the first semester of FY2023, social spending totaled 0.65 percent of GDP, slightly higher than the year-earlier period (0.62 percent of GDP). In nominal terms, total social spending surged 50 percent year-on-year, reaching 20.3 billion gourdes. The higher level of spending is primarily domestically financed. Monetary financing of the budget stood at 1 percent of GDP, based on annualized data using the outturn for the first semester.

Execution of Social Spending

article image
Sources: Ministry of Economy and Finance (MEF) and IMF staff calculations. 1/ Fiscal year 2022 ends in Septem ber 2022. 2/ Spending by MAST for FY 2023 Q1 is an estimate.

9. Implementation of the 2023 budget is in line with the goal under the new SMP of reducing monetary financing of the deficit and the FY2024 budget should be consistent with agreed targets under the new SMP (September structural benchmark). The overall government balance is projected at 1.9 percent of GDP in FY2023. Monetary financing is expected to reach 1.4 percent of GDP at the end of the fiscal year, given seasonality in spending, far below the 2.3 percent in FY2022. Total domestic tax revenue is expected to climb to 6.4 percent in 2023, from 5.3 percent of GDP in 2022. The higher tax revenue owes to higher customs revenue, given the recent revenue administration reforms, and the fuel price adjustment—projected to yield 0.9 percent of GDP from taxes on fuel imports. As for expenditures, current spending and domestically financed capital spending are projected to rise by 1.2 percentage point of GDP relative to 2022.8 With global oil prices moderating, fuel subsidies will remain at zero for the rest of the fiscal year, and transfers to the electricity company will total 0.4 percent of GDP, consistent with historical patterns. The FY2024 budget is expected to remain around 1.8 percent of GDP, while the medium-term fiscal deficit is projected to slightly widen to an average of 2.1 percent of GDP, driven by a slight increase in capital spending to support infrastructure needs. The launch of the process on the 2024 budget has been announced in the new MEF website for July 7.

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Contribution of Energy Subsidies to the Fiscal Balance

(Percent of GDP)

Citation: IMF Staff Country Reports 2023, 315; 10.5089/9798400252860.002.A001

Sources: World economic outlook (WEO) and IMF staff projections.Figures for 2023 correspond to projections.

10. Efforts to boost revenue have been successful and collection should be sustained in the new SPM. While the 2022 SMP focused on approving the tax code (approved by the Council of Ministries in December 2022 through a broad-based consultative process), the new SMP will focus on its implementation. To this end, the authorities have requested TA from the Fund to help implement it and design the tax administration strategic reform plan as well as TA on custom administration.9 The new tax code will become operational in October 2024.

11. Meaningful progress has been achieved on PFM, with respect to enhancing the transparency of public spending and public finance reporting and accountability, and efforts should continue. Since March 2023, the authorities have provided far more detailed monthly data on budget execution (including spending on wages, goods and services, and capital investment by ministry and by project) and published (on the web site of the Direction Generale du Budget, MEF) detailed budget execution by line ministries. They are also committed to continuing sharing more detailed quarterly financial statements for the FAES (quarterly structural benchmark also under the new SMP), following PFM best practices provided by the FAD. The authorities have made progress in seeking to consolidate the Treasury Single Account (TSA). They have also prepared a medium-term fiscal framework (MTFF), with the NFPS deficit as the main anchor, adopted together with the FY2023 budget. Going forward, based on the MTFF, the medium-term budget framework (MTBF) should be prepared using a top-down approach to set expenditure ceilings that will guide budget preparation at the line ministry level. Building on this reform, in the medium run, each key line ministry should prepare a medium-term expenditure framework (MTEF), using its defined expenditure ceilings. This reform would help ensure better resource allocation and prioritization at the line ministry level, making the annual budget more credible and its execution more predictable.

Haiti: Integration Between Capacity Development and the 2023 SMP-Forthcoming Activities

In achieving the SMP objectives, the Fund will continue to support the authorities through an extensive CD agenda. Furthermore, staff will closely collaborate with development partners, with particular emphasis on governance and customs administration issues.

  • Governance diagnostic (LEG, FAD, MCM, starting in July 2023);

  • Revision of the excise chapter of the new tax code (FAD/LEG, July 2023);

  • Revenue administration and customs reform: to facilitate and ensure a timely and appropriate implementation of the recently approved General Tax Code and strengthen the customs procedures code (FAD/LEG, FY 2024);

  • Compilation of quarterly GDP data (STA/CARTAC);

  • Improve timeliness and quality of balance of payments statistics (STA/CARTAC); and

  • Additional CD on the amendments to the organic law on the Central Financial Intelligence Unit could also be provided, pending authorities further needs.

12. Spending related to the FSW. To ensure transparency and accountability in the spending of emergency resources received under the FSW, the authorities have committed in January 2023 to carefully controlling, monitoring, recording, and publishing all expenditure related to this facility and strengthen audit capacity in the spending of emergency resources for the most vulnerable households to ensure accountability. These general commitments have become structural benchmarks under the new SMP. The authorities have started to publish comprehensive monthly reports on execution of the budget (on the Direction Generale du Budget) according to the template provided by Fund staff no later than 45 days after the end of each month (monthly structural benchmark). They also intend, through the General Finance Inspectorate, to conduct internal expenditure audits of all ministries that use emergency resources provided by the FSW and to report these internal audits to the Superior Court of Audit and Administrative Disputes (CSCCA) (quarterly structural benchmark). The CSCCA will also conduct the financial and operational compliance audit of all RCF Food Shock Window spending for fiscal year 2022-23 and publish the report (December 2023 structural benchmark). Resources related to the FSW had not been spent until beginning of May and were kept as reserves at the central bank. This reflected the authorities’ commitment to following proper procurement processes as well as the need to respect the safeguards agreed under the RCF to enhance transparency and accountability in the use of public spending. As of end May 2023, 4 billion gourdes, or about 25 percent of the total FSW disbursement were authorized to be spent, and 0.23 billion gourdes or 1.5 percent of the total actually spent. Spending rate is expected to accelerate in the last months of FY2023 (text Table).

Spending Related the Food Shock Window Resources

(In millions of gourdes)

article image
Source: Ministry of Finance and Economy.

Spending started in May 2023.

13. The authorities are working towards strengthening the social safety nets and efforts should continue. Fuel subsidy reform is essential to ensure medium-term fiscal sustainability. Given the political and social implications, the authorities are taking the lead both in terms of the modalities and timing of the reform. The authorities started reviewing the retail price-setting mechanism, as the September fuel price increases have eliminated fuel subsidies only temporarily, and a comprehensive and transparent policy framework for future price adjustments needs to be implemented. To this end the authorities committed to amend the 1995 Law with the objective of allowing changes in international fuel prices and exchange rates to be partially passed on to consumers, with a smoothing mechanism which caps the monthly variation of retail prices. The forthcoming fuel price reforms should include mitigating measures to protect the most vulnerable in conjunction with a gradual and well-communicated approach. Staff and the authorities agreed that an elaborated communication policy would greatly help the authorities’ reform strategy. Establishing a regulatory framework for the petroleum products sector and strengthening related regulatory institutions should remain amongst the authorities’ reform priorities. The authorities are taking steps to cushion the impact of the shocks on the population. The authorities have prepared a detailed strategy to tackle food insecurity and strengthen the social safety nets (see text Tablei and A15 of IMF Country Report No. 23/48 and A8 of IMF Country Report No. 23/80), also leveraging ongoing programs. The plan aims to expand programs that improve living conditions and enhance social inclusion, focusing on the most vulnerable groups (children, women, and old-age group). One of the challenges of the 2022 SMP was that, despite the authorities providing targeted social spending to the population, this amount was not fully reflected in the program spending definition. Following further consultation with the authorities and IMF Fiscal Affairs department, staff uses a different definition of social spending in this 2023 SMP to better reflect Haiti’s specificities.

B. Monetary and Exchange Rate Policy

14. Background. Monetary financing of the budget has decreased since the start of the 2022 SMP (text chart in A4), which has enhanced the credibility of the monetary policy framework. On the exchange rate front, recent data suggest that the authorities’ interventions in the foreign exchange (FX) market are mainly to rebuild NIR. The authorities also began to unwind some FX surrender requirements (per Circular 114.3), a positive step in line with staff recommendations. And they have requested technical assistance on FX market operations, aiming at eliminating the foreign exchange parallel market.10

15. To strengthen the monetary and exchange rate frameworks, staff continued to recommend:

  • (i) greater exchange rate flexibility,

  • (ii) a ceiling on credit to the NFPS as the main anchor to limit monetary financing of the deficit to 1½ percent of GDP, and

  • (iii) short-term liquidity-absorbing operations at a fixed rate (policy rate) and full allotment.

Staff recommended a further increase in short-term interest rates to initiate disinflation, given the large negative real rate of about 15 percent. While the interest rate transmission to inflation is weak, there is little room to tighten direct instruments further as reserve requirements are already at 50 percent.

16. The Bank of the Republic of Haiti (BRH) should continue to limit its interventions in the FX market to smoothing excessive exchange rate volatility. Staff recommended that the BRH:

  • (i) put in place an appropriate mechanism for FX interventions, such as well-designed weekly FX auctions, in lieu of the FX allocation system;

  • (ii) advance its ongoing work on an FX market intervention rule; and

  • (iii) complete the revision of banks’ net open position (NOP) limits.

These reforms will deepen the foreign exchange market and help the government formalize the FX market as well. The authorities are committed not to introduce exchange restrictions or multiple currency practices. Staff received requested information on the unwinding of FX surrender requirement measures (under Circular 114.3).

C. Financial Sector

17. Background. The BRH is advancing reforms to increase financial inclusion to increase access to credit, including in the rural areas and support inclusive growth. It has been strengthening banking supervision, with Fund assistance, to upgrade the regulatory framework and move to riskbased supervision. More information is needed for a full-fledged assessment of risks faced by the financial sector, including for small non-bank financial institutions that have been growing fast.

18. Reform efforts will need focus on:

  • Banking supervision. The BRH has reinforced human capital through external hiring and training of supervisors. It finalized the pre-draft of risk assessment grids and the rating matrix for financial institutions, an important step toward risk-based supervision. The adoption of regulations on risk concentration, classification, and provisioning of credits—and a new chart of accounts for financial institutions—are being finalized. Staff commends recent progress, including the BRH’s commitment to finalize pending regulation and to continue working to establish risk-based supervision, supported by TA.

  • Digital money. BRH has benefited from the Fund’s technical assistance in analyzing key issues related to a central bank digital currency. The BRH conveyed that it does not intend to implement the CBDC at the moment, but stressed the importance of putting a placeholder in the central bank framework, in anticipation of future implementation, as legal frameworks are not frequently revised in Haiti. Staff strongly recommended that the BRH considers all aspects of the project’s desirability and feasibility, including a robust evaluation of costs and risks, before proceeding. Haiti still needs to improve the regulatory framework and/or update the national payment system to facilitate mobile payments and operators. Modernization efforts should include migration toward new international messaging standards that support interoperability and financial integrity.

  • Anti-money laundering. The authorities have upgraded the AML/CFT framework with the technical support of the IMF Legal Department to ensure greater alignment_with the international standards of the Financial Action Task Force (FATF); and they approved in April the new AML/CFT Decree. The revised AML/CFT framework should allow Haiti to address a key item on the FATF action plan. The authorities should also enact amendments to the Financial Intelligence Unit (FIU) law (Unite Centrale de Renseignements Financiers—UCREF), including to ensure UCREF’s operational autonomy, its power to conduct operational and strategic analysis, and its access to a broad range of information held by other government agencies (December 2023 structural benchmark). LEG has provided TA in this area and stands ready to further support the authorities on this endeavor. In addition, the authorities are working with staff to address other steps necessary to exit FATF grey list and ease potential pressures on correspondent banking relationships, including completing sectoral risk assessments, implementing a risk-based supervision regime for financial institutions and designated non-financial businesses and professions, and ensuring transparency of basic and beneficial ownership information on legal persons. The authorities should also review regulations recently published by the BRH to ensure consistency with the new AML/CFT decree.

19. The authorities are committed to the prudent use of Haiti’s SDR holdings and to transparent reporting on Haiti’s use of its SDR allocation. Haiti converted about half the SDR holdings it received from the 2021 SDR allocation to freely usable currencies, which it subsequently used to pay for priority fiscal spending. Staff emphasized the importance of reinforcing institutional frameworks governing the fiscal use of the SDR allocation—including on the repayment terms between the finance ministry and central bank—and on transparency measures for SDR-related spending. The authorities also agreed to communicate publicly on the BRH or MEF websites any future conversion of their SDR allocation into freely usable currencies and to engage staff on future SDR conversions.

D. Governance

20. The authorities have made solid progress on governance and further efforts are needed. The authorities have published public procurement contracts, including the publication of tenders, contracts, and the beneficial owners of successful bidders and will continue to do so under the new SMP (monthly structural benchmark). To monitor the implementation of social programs, the authorities are committed to follow good PFM practices, in line with recent technical assistance from the IMF. They introduced all social expenditure into the budget and all associated financing in the Treasury Single Account at the central bank, in compliance with procurement, execution, and expenditure control procedures. The authorities have requested an IMF Governance Diagnostic CD which should help them identify the next priorities for governance and anti-corruption reforms. The revision of to the AML/CFT legal framework is also an important step forward to address the FATF recommendations and fight corruption.

21. With a view to strengthen its governance and operations, the BRH had made further efforts to implement some of the overdue 2019 safeguards recommendations and has committed to implement the pending ones. The BRH recently approved drafting amendments to its organic act which, once passed, will strengthen its governance arrangements and autonomy as well as clarify its mandate. The other priority recommendations, such as the adoption of International Financial Reporting Standards and development of a medium-term plan to phase-out BRH’s involvement in development activities, as well as the alignment of the foreign investment strategy with best practices, remain in progress. Staff will continue to monitor the implementation of these recommendations.

Program Monitoring

This SMP envisages two reviews and two test dates: June 2023 and December 2023.

22. Quantitative targets (QTs). Periodic QTs are presented in Appendix 1. Table 1 and comprise: (i) a floor on the NFPS primary balance; (ii) a ceiling on Central Bank’s net credit to the NFPS; (iii) a floor on net international reserves (NIR) of the central bank; (iv) a floor on the sum of the budget allocations to the Ministry of Social Affairs and Labor (MAST), Ministry of Education, Ministry of Agriculture, and Ministry of Public Health; and (v) continuous QTs of a zero ceiling on nonconcessional external borrowing and on domestic and external arrears accumulation. A floor on central government fiscal revenue is set as an indicative target (IT). The QTs include an asymmetric adjustor on the NFPS primary balance and NIR for shortfalls in expected external budget support, allowing the government to spend the surplus given the need to increase productive spending in infrastructure, social spending, and national police. There is no adjustor on central bank net credit to the NFPS. The test dates are set for end-June and end-December 2023. ITs will apply to September 2023. The new indicator to measure social spending (QT (iv) above), is meant to improve SMP monitoring of social spending.

23. Structural benchmarks. The proposed program has identified eight benchmarks that will help consolidate and lock in recently implemented reforms to strengthen economic resilience, governance, and social protection (Appendix 1. Table 2). Considerable preparatory work has already been accomplished by the authorities for the proposed structural benchmarks, including in the context of the recently completed SMP (supported by Fund TA) and the disbursement under the FSW under the Rapid Credit Facility, which should facilitate implementation. The proposed benchmarks focus on locking in recent reforms on governance, transparency, and accountability to improve budget controls and reporting and to strengthen best practices in AML/CFT issues, public financial management; and tax policy and tax administration measures to support the implementation of the new Tax Code.

Staff Appraisal

24. Haiti faces a humanitarian crisis, with a challenging macroeconomic outlook and risks tilted to the downside. The country has been hit hard by the economic spillovers from Russia’s invasion of Ukraine, with food price inflation triggering a hunger crisis. This global shock has been compounded by political instability and security volatility, which has heightened the economy’s fragility and further fueled inflation. Risks to the outlook include intensified political instability, a worsening of the security conditions constraining further business activity, and natural disasters, including an intensification of recent floods.

25. Despite domestic and global difficulties, the authorities have adopted important policy reforms over the last year, anchored by the 2022 SMP, and displayed a firm commitment throughout. These include reforms on governance and anti-corruption, tax and revenue administration, budget preparation and execution, and central bank independence. Data and statistics have also improved. All these have enhanced much-needed transparency in public spending and in the financial sector and helped maintain macroeconomic stability. Still, the paralysis of economic activity in September/October, owing to the escalation of gang violence, has led to temporary macro slippages. Despite the delicate political landscape, and thanks to a highly inclusive consultative process, the authorities built the necessary ownership and public support for the SMP (including through public consultations when warranted) through the high-level Program Monitoring Committee (Comite de Suivi).

26. The recent fiscal reforms are encouraging and should continue to allow Haiti to finance its large development needs. The authorities have taken crucial measures to strengthen revenue administration and boost revenue mobilization over time. These include the approval of a new tax code and tax procedures code, publication of all codes and tariffs related to customs, adoption of unique Tax Identification Numbers (TINs), publication of the TIN database and of the file of active taxpayers, and stronger oversight of the revenue agency since August 2022. Thanks mainly to an improvement of revenue administration, customs revenue has reached a historic high in recent months, although from a low base.

27. Staff welcomes the recent progress made in reducing governance vulnerabilities, but corruption and broader financial integrity risks need to continue to be effectively addressed. Governance and anti-corruption measures were key components of reforms under the 2022 SMP and continue to be key in the new SMP. The authorities have acted to strengthen accountability in the use of public resources and have boosted the transparency of public procurement for emergency resources. The recent finalization of revisions to the Central Bank and to the AML/CFT legal frameworks are also critical for improving governance and transparency. Sustaining progress on reforms to strengthen governance is paramount for ensuring inclusive growth and building the trust of the private sector and of development partners. The authorities’ recent formal request of a Fund Governance Diagnostic is a welcome development.

28. Measures taken under the 2022 SMP to strengthen public financial management are needed to promote fiscal and macroeconomic stability and should continue in the new SMP. The authorities have successfully consolidated the main central budgetary accounts into one Treasury Single Account and adopted a three-year medium-term fiscal framework for the first time. Their improved budget presentation and execution will ensure greater accountability and transparency in public finances and help reduce fiscal dominance, as will the government’s commitment to limit central bank financing of the NFPS deficit to 1/ percent of GDP. Going forward, the medium-term budget framework should be prepared by the Ministry of Economy and Finance before the medium-term expenditure framework could be envisaged at the line-ministry level. The completed FY2021 financial audit of the BRH and publication of its audited financial statements was an important step in implementing the recommendations of the 2019 Safeguards Assessment, which the authorities have committed to complete. The BRH should maintain the timely completion and publication of its annual financial statements.

29. Continued strengthening of the social safety nets will be essential for cushioning the impact of the shocks on the population and alleviating widespread poverty. Staff thus welcomed the authorities’ detailed strategy to tackle food insecurity and looks forward to assessing the implementation of spending related to FSW resources. The authorities are taking meaningful steps toward implementing the fuel reform strategy. The technical assistance from the Fund on the consumer-pricing mechanism of fuel should allow changes in international fuel prices to be regularly passed on to consumers instead of ad hoc price/sudden price adjustments. Staff recommends that the authorities follow through with the implementation of this reform, following recent TA provided by FAD. The reform should be accompanied by mitigating measures together with an effective communication strategy, to protect the most vulnerable.

30. The authorities have strengthened the monetary policy and exchange rate frameworks and should continue to do so. The authorities moved toward greater exchange rate flexibility, which has helped rebuild reserves. They have also limited monetary financing of the deficit to less than 1½ percent of GDP. The revisions to the central bank law, if enacted, should allow the BRH to focus on its core policy goals of stabilizing prices while maintaining adequate liquidity and financial stability to support growth.

31. Data provision to the Fund for program and surveillance purposes has improved under the SMP, and efforts should continue. The timeliness and periodicity of data provided to the Fund exceed the commitments of countries of comparable capacity under the Enhanced General Data Dissemination System (e-GDDS), for publication purposes—which the authorities are considering implementing in the future.

32. Based on Haiti’s performance under the 2022 SMP and the authorities’ strong commitment throughout, Fund staff supports the authorities’ request for a new nine-month SMP. The new SMP should help lock in recent reforms and sustain them to further enhance economic resilience. That said, risks to the implementation of the SMP exist, including in the context of upcoming elections. The new SMP will continue to be supported with Fund capacity development assistance. In line with the Fund Strategy for Fragile and Conflict-Affected States, staff will also coordinate closely with Haiti’s main development partners and produce an updated Country Engagement Strategy as part of the upcoming Article IV Consultation, scheduled for fall 2023.

Figure 1.
Figure 1.

Haiti: Real Sector Developments, 2016-23

Citation: IMF Staff Country Reports 2023, 315; 10.5089/9798400252860.002.A001

Sources: Haitian Institute of Statistics and Informatics (IHSI), Bank of the Republic of Haiti, and Fund staff estimates.1/ On a fiscal-year basis, ending on September 30.
Figure 2.
Figure 2.

Haiti: Fiscal Sector Developments, 2016-23

Citation: IMF Staff Country Reports 2023, 315; 10.5089/9798400252860.002.A001

Sources: National authorities and Fund staff calculations.
Figure 3.
Figure 3.

Haiti: Monetary and Financial Sectors Developments, 2016-23

Citation: IMF Staff Country Reports 2023, 315; 10.5089/9798400252860.002.A001

Sources: Bank of the Republic of Haiti and Fund staff calculations.1/ Excess reserves are reserves above requirement ratios on deposits; structural excess reserves include excess reserves plus other bank deposits at the BRH minus reserves banks obtain under BRH facilities.
Figure 4.
Figure 4.

Haiti: Financial Sector Indicators, 2016-22

Citation: IMF Staff Country Reports 2023, 315; 10.5089/9798400252860.002.A001

Sources: National authorities and Fund staff calculations.
Figure 5.
Figure 5.

Haiti: External Sector Developments, 2016-23

Citation: IMF Staff Country Reports 2023, 315; 10.5089/9798400252860.002.A001

Sources: National authorities and staff calculations.
Figure 6.
Figure 6.

Haiti: Social Indicators

Citation: IMF Staff Country Reports 2023, 315; 10.5089/9798400252860.002.A001

Sources: International Organization for Migration (IOM), Fed, World Bank, and Fund staff estimates.
Table 1.

Haiti: Selected Economic and Financial Indicators, 2020-28

(Fiscal year ending September 30)

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Sources: Ministry of Economy and Finance; Bank of the Republic of Haiti; World Bank; Fund staff estimates and projections.

Includes transfers to the state-owned electricity company (EDH), and unsettled payment obligations.

In percent of exports of goods and nonfactor services. Includes debt relief.

Table 2a.

Haiti: Non-Financial Public Sector Operations, 2020-28

(Fiscal year ending September 30; in millions of gourdes)

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Sources: Ministry of Finance and Economy; and Fund staff estimates and projections.

Includes previously-programmed multilateral budget support that could be delayed, as well as CCRT debt relief.

Commitment basis, except for domestically financed spending, which is reported on the basis of project account replenishments.

Includes all COVID-related expenditures for FY2020 and FY2021.

Amounts include RCF financing for FY2020, the full two-year debt-relief under the CCRT for FY2021-22, and the FSW disbursement for FY2023.

Includes the net change in the stock of government securities held by non-banks, of checks that are not yet cashed, of supplier credits and of domestic arrears.

Table 2b.

Haiti: Non-Financial Public Sector Operations, 2020-28

(Fiscal year ending September 30; in percent of GDP)

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Sources: Ministry of Finance and Economy; and Fund staff estimates and projections.

Includes previously-programmed multilateral budget support that could be delayed, as well as CCRT debt relief.

Commitment basis, except for domestically financed spending, which is reported on the basis of project account replenishments.

Includes all COVID-related expenditures for FY2020 and FY2021.

Amounts include RCF financing for FY2020, the full two-year debt-relief under the CCRT for FY2021-22, and the FSW disbursement for FY2023.

Includes the net change in the stock of government securities held by non-banks, of checks that are not yet cashed, of supplier credits and of domestic arrears.

Table 3a.

Haiti: Balance of Payments, 2020-28

(In millions of U.S. dollars on a fiscal year basis; unless otherwise indicated)

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Sources: Bank of the Republic of Haiti; and Fund staff estimates and projections.

Change in net foreign assets of commercial banks.

Includes arrears on oil imports.

Includes debt to Venezuela for oil shipments already paid by the GOH in local currency but not yet cleared in U.S. dollars.

Includes the CCRT debt relief.

Table 3b.

Haiti: Balance of Payments, 2020-28

(In percent of GDP on a fiscal year basis; unless otherwise indicated)

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Sources: Bank of the Republic of Haiti; and Fund staff estimates and projections.

Change in net foreign assets of commercial banks.

Includes arrears on oil imports.

Includes debt to Venezuela for oil shipments already paid by the GOH in local currency but not yet cleared in U.S. dollars.

Includes the CCRT debt relief.

Table 4.

Haiti: Summary Accounts of the Banking System, 2020-28

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Sources: Bank of the Republic of Haiti; and Fund staff estimates and projections.

Program definition. Excludes commercial bank forex deposits, letters of credit, guarantees, earmarked project accounts and US$ denominated bank reserves. A portion of SDR allocation is in NIR.

Changes in stocks of net claims on government differ from domestic financing data in Table 2a due to differences in accounting practices (cash vs. accrual) and in the recording of revaluations of positions denominated in foreign exchange.