## 1htiea2024002-print-pdf ## Source details **Canonical URL:** [1htiea2024002-print-pdf](https://www.imf.org/-/media/files/publications/cr/2024/english/1htiea2024002-print-pdf.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2024/english/1htiea2024002-print-pdf.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2024/english/1htiea2024002-print-pdf.pdf.json) --- ### Scarring from multiple crises and loss in potential output - Key result: - Between 2019 and 2023, Haiti’s potential real GDP fell on average by about 2 percent a year, while that of a comparator group increased by 3.2 percent a year. - The cumulative total gap between Haiti and the comparator group for the period is equal to 25 percent. - Methodology (growth accounting with Cobb–Douglas production function): - Production function: Yt = At (Kt)^α (Lt ht)^(1−α). - Steps used: correct investment It for reconstruction-driven changes (ARIMA (1,0,1) with disaster dummy) → obtain corrected capital stock Ktc (perpetual inventory) → human-capital-adjusted labor force → estimate TFP At as residual → compute AtTrend (Hodrick–Prescott) → potential output YtPot = AtTrend (Ktc)^(1−α) (Lt ht)^(1−α). - Crime and climate channels to potential output: - IMF (2023) cross-section elasticity of real GDP growth w.r.t. homicide rate: between -0.3 and -0.4 (log scale). - Haiti homicide rate: surged from 11 in 2019 to 59 in 2024; using this measure, crime could account for a drop in real GDP of at least 1.2 percent per year. - Climate affects potential via differences between Kt and Ktc and natural disasters’ effects on productivity. ### Recent developments and macroeconomic conditions - Growth and activity: - Real GDP growth: five consecutive years of negative growth (2019–23). - Real GDP growth was negative 1.9 percent in FY2023 (ending September 2023). - FY2024 (ended September 2024) growth expected negative, at minus 4 percent. - Economic collapse during March–May 2024; airport in Port-au-Prince closed from March to May; port capacity at a minimum; satellite data indicate dramatic fall in trade activity beginning in March–April 2024. - Inflation and prices: - After 10 months of steady decline, inflation resumed rising in February 2024, reaching 27.9 percent (year-on-year) in September. - Trade, remittances, current account (selected figures; amounts in millions of US dollar and percentage change): - Fiscal year to date, October–July: - Exports: FY19–23 (average) 892; FY24 642; FY23 782; FY24 vs average FY19–23: -28; FY24 vs FY23: -18 - Imports: FY19–23 (average) 3,650; FY24 3,547; FY23 3,868; FY24 vs average FY19–23: -3; FY24 vs FY23: -8 - Net Remittances: FY19–23 (average) 2,662; FY24 3,065; FY23 2,745; FY24 vs average FY19–23: 15; FY24 vs FY23: 12 - Latest available month (as presented in source tables): - Exports (July): 10; 16; 77; 1; -33; -5 - Imports (July): 373; 388; 377; 43 - Net Remittances (August): 252; 287; 254; 141; 13 - External balances and reserves: - Current account deficit widened in FY2023 to 3½ percent of GDP (collapse in exports, esp. textiles). - Preliminary BOP data: current account deficit narrowed in FY2024 to ½ percent of GDP (large import compression and robust remittances). - Gross International Reserves (GIR): US$2.1 billion end-September 2022 → US$2.3 billion end-September 2023 → US$2.5 billion (equivalent to 5.7 months of imports) in August 2024. - Net International Reserves (NIR): US$356 million in September 2023 and US$963 million in August 2024 (increase US$607 million through August in FY2024). - BRH net FX purchases in FY2024: US$471 million (text chart). - Reserves accumulation through August in FY2024: US$188 million (change Sep 2024 − Aug 2023 in GIR table). - Settlement with Venezuela reduced both FX assets and FX liabilities (US$188 million through August noted). - Exchange rate: crawl-like behavior June–December 2023; stabilized within a 2 percent band against the U.S. dollar since then. ### Monitoring economic activity and trade disruptions - Satellite indicators: - Import and export volumes and number of cargo and tanker ships on a downward trend. - Trade activity fell dramatically beginning in March–April 2024 (IMF Portwatch, IMF Swift Monitor, FlightRadar24 daily series). ### Debt restructuring with Venezuela and fiscal impact - Petrocaribe debt situation and restructuring: - By end-September 2023, outstanding Petrocaribe debt to Venezuela: US$2.2 billion, with US$642 million in arrears. - January 2024 agreement: debt forgiveness of about US$1.7 billion in exchange for a lump-sum payment of US$500 million. - Result: Haiti’s debt-to-GDP ratio dropped to 14 percent in FY 2024. - Authorities estimated annual debt service savings: approximately US$95 million (or 12.5 billion gourdes). - Fiscal and macro projections: - FY2024 growth expected -4 percent. - Growth projections: FY2025 could reach 1 percent; medium term could reach 1½ percent if security improves. - Fiscal deficit of the NFPS projected at about 0.1 percent of GDP. - Current account deficit projected to increase to 1 percent of GDP in the medium term as imports recover. - Gross reserves expected to grow this year assuming confidence-building from Kenya deployment and strong remittances; could remain at 5½-6 months of imports over the medium term. ### Risks and scenarios - Domestic risks: - Intensified political instability; continuous gang-related disruptions; worsening hunger; natural disasters; pervasive corruption and weak rule of law. - External risks: - Volatile remittance flows; reduced external financing from development partners; renewed surges in global food and energy prices. - Adverse scenario: - Continuation of recession, revenue mobilization problems due to violence, weakened transitional government capacity; likely resumption of substantial monetary financing, undermining macro stability. - Debt outlook: - Debt risk outlook negative; high likelihood Haiti debt carrying capacity will be downgraded in next DSA absent material strengthening. - Accompanying DSA assesses Haiti’s risk of debt distress as high but sustainable; sustainability depends on authorities’ ability to secure donor financing short–medium term. ### Fiscal policy: revenues, spending, and public financial management - Revenues and administration: - Tax revenue level: 5 percent of GDP. - FY2023 revenue: total tax revenue rose by 55 percent y/y (driven mainly by higher customs duties). - Customs duties grew 120 percent and accounted for 35 percent of total domestic revenue. - Excise taxes surged 310 percent, representing 5 percent of total domestic revenue. - Revenue collapsed by 73 percent in March 2024 during economic paralysis, with mild recovery starting July 2024. - Recent reforms and pending actions: - New tax code (and tax procedure code) in December 2022 (implementation on hold pending regulations). - Publication of customs tariffs; new customs code adopted March 2023. - Pending implementing regulations: transfer pricing documentation, exemptions lists, excise products lists, appointment procedures, special regimes, registration and tax ID rules, audit procedures, code of conduct, taxpayers charter. - Tax and customs administrations vulnerable to arbitrariness and corruption due to complexity, low digitalization, lack of transparency and oversight. - Digitalization and revenue potential: - Staff analysis (Annex V): strengthening customs digital infrastructure (GovTech) could generate additional tax revenue of 0.6-0.9 percent of GDP a year by limiting trade fraud and smuggling. - Estimated customs revenue gains from halving distance to digital frontier: US$129 million (lower range) and US$189.3 million (upper range), corresponding to 0.6 percent and 0.9 percent of GDP, using TSLS coefficients 1.181 and 1.733. - Spending and fiscal balance: - FY2023 spending decreased by 1.9 percent of GDP (large drop in fuel subsidies). - Social spending FY2023: 1.3 percent of GDP (below prior year 1½ percent). - Nominal wages rose 17 percent; goods and services rose 20 percent. - Fiscal stance: NFPS zero balance in FY2023; monetary financing reached 1 percent of GDP end-FY2023. - FY2024 NFPS surplus expected 0.7 percent of GDP (excluding one-off capital transfer due to Venezuela repayment); spending underperformed by 1.9 percentage points of GDP relative to FY2023. - Fuel subsidies projected at zero in FY2024; revenue on fuel imports projected at 0.7 of GDP. - Budgets and contingency planning: - August 2024 revised budget redirected former interest payments to social spending. - FY2025 budget approved on time and points to a balanced budget. - Staff vs authorities: staff projects lower revenues and grants by 0.9 percent of GDP and lower capital spending by 0.8 percent of GDP relative to authorities. - Contingency plan: shortfalls to be offset by limiting planned increases in current and capital spending while preserving social spending; avoid domestic arrears and resuming monetary financing. ### Gender and social policy—FY2025 budget measures and impacts - FY2025 gender-specific allocations: - Support for Women's Entrepreneurship (Ministry of Industry and Commerce): 75 million gourdes. - Ministry for Women's Affairs: total 150 million gourdes (30 percent increase relative to prior year). - Authorities’ FY2025 priorities: - Strengthen women's education and training; improve access to financing and labor market participation; improve health access to reduce maternal mortality; implement protection against gender-based violence programs. - Macro gains from closing gender gaps: - Closing gender gap in labor market participation could raise medium- and long-term level of GDP by 5-15 percent (Annex III A). - Social assistance and targeting: - Fuel cards distribution started September 9, 2023 to low-income transport workers. - Cash transfers to vulnerable via SIMAST database; World Bank and WFP supported SIMAST maintenance/expansion. - Food Shock Window (FSW) spending through July 2024: about 3 billion gourdes (20 percent of total FSW disbursement); much spending impeded by criminal activity and lockdowns. - FSW allocations (millions of gourdes): Total original allocation 15,600; Spent 3,089; Authorized to be spent 9,104 (selected line items and amounts detailed in source). - PFM, governance, and anti-corruption priorities affecting gender outcomes: - Provide MTBF based on MTFF; ministries to prepare MTEFs; limit unspecified expenditure to around 3-5 percent of total government expenditure; reinstate financial controller prerogatives; adopt revised expenditure execution manual; revise procurement law; strengthen internal and external audits; publish audit follow-ups. - Finalize and publish governance diagnostic assessment by December 2024; establish Pôle Anti-Corruption; publish asset declarations of top officials; implement governance action plan with CD support. ### Climate exposure, resilience actions, and financing needs - Climate and disaster vulnerabilities: - Haiti exposed to natural disasters and climate shocks that destroy capital and damage potential growth. - Annual budget allocation for parametric insurance: US$6-7 million. - Authorities to finalize Climate Prosperity Plan in December 2024, including full-scale renewable energy deployment in due course. - Risk-management strategy components: - Assess vulnerability and incorporate disaster costs into budgeting and DSAs; build buffers and preparedness; self-insure and risk-transfer (CCRIF, parametric insurance); emergency response and reconstruction supported by bilateral/multilateral financing. - Spending needs for SDGs: - Staff estimate spending needs to achieve five SDGs (health, education, WASH, electricity, roads/internet): equivalent to 14.4 percent of GDP (using 2030 GDP). - Financing combination required: higher revenue, donor financing, higher spending efficiency, private sector financing. ### Monetary, exchange rate, and reserves policy—stance and recommendations - Recent developments: - Monetary policy framework strengthened; central bank independence increased. - Monetary stance during last two years tighter than programmed; financing of budget reduced to zero. - Large negative real rate of about 15 percent due to high inflation. - Staff recommendations: - Greater exchange rate flexibility. - Ceiling on credit to the NFPS as main anchor to avoid monetary financing. - Short-term liquidity-absorbing operations at a fixed rate with full allotment. - Limit FX interventions to smoothing volatility; implement mechanism for FX interventions (e.g., weekly FX auctions) and an FX market intervention rule; revise banks’ net open position limits. - Exchange rate regime: - De jure: "floating". - De facto: "stabilized" since January 2024. - Authorities’ view: - Main goal: price stability; committed to keeping monetary financing at zero. - FX purchases aimed to smooth gourde volatility and improve reserves cushion; BRH argued purchases did not expand monetary base and attributed inflation mainly to supply-side security constraints. ### Financial sector structure, vulnerabilities, and reform priorities - Key indicators and vulnerabilities: - Financial system small: assets (excluding central bank) < 20 percent of GDP. - Credit-to-GDP declined to 5.3 percent in FY2023 (from 10.5 percent in 2019). - Credit gap estimated at negative 22 percent in June 2024. - Banking concentration: three largest banks hold > 80 percent of banking system assets. - Non-performing loans rose from 5 percent in 2020 to 12 percent in June 2024. - All banks but one meet minimum capital adequacy ratio of 12 percent. - Errors and omissions in BOP estimated at 3.4 percent of GDP in FY2023. - Reform and supervisory priorities: - Emergency liquidity assistance (ELA) option; finalize chart of accounts; reactivate off-site supervision; continue annual on-site inspection program; finalize revised regulation on credit risk classification and provisioning. - Digital money: BRH not planning immediate CBDC; staff advised evaluation of costs/risks. - AML/CFT: decree reorganizing UCREF adopted; work on national risk assessment (expected Dec 2025); operationalization of risk-based supervision tool; urgent measures for ML related to corruption to be recommended. - Financial sector metrics (selected): - Credit-to-GDP: 5.3 percent FY2023. - NPLs to gross loans: Sep-21 5.6; Jun-24 12.0. - Regulatory capital to risk-weighted assets: Sep-21 22.3; Jun-24 21.4. - Foreign currency loans to total loans (net): Sep-21 44.9; Jun-24 58.1. ### Data adequacy, disruptions, and statistical capacity - Data progress and setbacks: - Improvements in fiscal data dissemination since last Article IV; monetary data provision experienced delays after June 2023 cyberattack. - Surge of gang activity early 2024 prevented central bank staff physical access for months; manual recompilation improved timeliness since late summer 2024. - Identified data limitations: - BOP and IIP compilation limitations; large errors and omissions (3.4 percent of GDP FY2023) reflecting off-budget donor support, informal remittances, informal activity, incomplete investment income info, and stock-flow inconsistencies. - Security hampers production of timely and adequate GDP and survey-based data. - Planned missions and priorities: - Staff will conduct a mission to assess GDP data sources and methodology; timeline to begin compiling/disseminating quarterly GDP data put on hold pending assessment. - Top priority: improve timeliness and quality of monetary and reserve assets data; real sector (GDP) shortcomings to be addressed with forthcoming TA. ### Automatic stabilizers, fiscal cyclicality, and policy implications - Empirical findings: - Haiti’s fiscal policy is, at best, weakly countercyclical; revenues contribute to some countercyclicality but spending is largely acyclical or pro-cyclical. - For average EMDE, a 1 percent increase in real GDP is associated with increase in primary-balance-to-GDP ratio of about 0.15 percentage points; Haiti’s estimates align but with greater uncertainty. - Consumption taxes contribute to countercyclicality; income taxes appear a-cyclical. - Investment spending tends to be pro-cyclical in fragile states and Haiti. - Policy implications: - Strengthen tax base and adopt new tax code to bolster stabilizing role of direct taxes. - Recalibrate expenditure mix to eliminate inefficient rigidities; reform fuel subsidy regime to pass international price changes to consumers with mitigating social measures. - Expand and strengthen social assistance (e.g., PSARA) to enhance automatic stabilizers. - Improve data granularity to better measure and design stabilizers. ### Monetary strategy and model-based guidance - Recommended monetary anchors and operations: - Ceiling on credit to government as main anchor; greater exchange rate flexibility; short-term liquidity operations to manage excess liquidity; combine interest-rate adjustments with reserve-requirement changes. - Model-based results: speed of convergence parameter −λ could be about 16.7 percent implying monetary financing around zero percent of GDP for initial net credit to government of 10.4 percent of GDP. - Exchange rate policy guidance (DSGE-based insights): - Limit FX interventions to smoothing excessive volatility; allow exchange rate to act as shock absorber; implement FX intervention rule and consider weekly FX auctions. - Responses to shocks: money growth shocks minor impact on exchange rate; productivity shocks induce exchange-rate overshooting. ### Debt sustainability and DSA highlights - Coverage and stocks: - Gross public debt at end-FY2023: US$5,932.7 million (28.5 percent of GDP). - External debt end-FY2023: US$2,699.0 million (45.5 percent of total debt; 12.9 percent of GDP). - Domestic debt end-FY2023: US$3,233.7 million (54.5 percent of total debt; 15.5 percent of GDP); BRH holdings: US$2,564.5 million (43.2 percent of total; 12.3 percent of GDP). - Impact of Venezuela debt restructuring (January 2024): - Lump-sum payment US$500 million in exchange for forgiveness of about US$1.69 billion. - Projected debt-to-GDP: 28.5 percent FY2023 → 14.1 percent FY2024. - External debt-to-GDP projected to decline to 1½ percent in FY2024. - Annual debt-service savings: US$95 million (12.5 billion gourdes). - DSA assessment and risks: - Risk of external debt distress: High; overall risk of debt distress: High. - Debt assessed as sustainable but highly vulnerable to natural disasters, drops in remittances, and weakened donor support. - Public sector debt projections: total public debt falls to 11.5 percent of GDP in FY2025 (due to Venezuela relief) and grows moderately thereafter. - Stress tests: natural disaster or remittance shocks can sharply worsen debt indicators; PV of external debt-to-exports and debt-service ratios may breach thresholds under adverse scenarios. ### Country engagement, capacity development, and external partners - Country Engagement Strategy (CES) pillars: - Article IV Consultation 2024: short- and medium-term perspectives; annexes on crime scarring, gender, GovTech, climate resilience, inflation dynamics. - New SMP (being finalized) to enhance governance and fight corruption. - Forthcoming governance diagnostic assessment to operationalize anti-corruption actions. - Capacity development and partner coordination: - IMF CD programs: CARTAC customs, risk-based banking supervision, tax code support, PFM, statistics, governance diagnostic, AML/CFT, revenue administration. - Development partners: World Bank, IADB, EU, USAID, WFP, UN, bilateral partners. - Major partner projects: disaster risk management, PFM/statistics project, social protection expansion, STREAM customs modernization, National ID program, various IADB and World Bank social safety net programs. - Financing and operational needs: - Rapid Crisis Impact Assessment estimated relaunch needs at around 2 billion dollars (February–April crisis). - Donor grants and concessional financing critical to preserve macro stability and support priority spending if downside risks materialize. ### Staff appraisal and policy priorities (summary) - Crisis characterization: - Haiti faces unprecedented multidimensional crisis: humanitarian, economic, social, security, and political transition; massive displacement and brain drain; multiple shocks (pandemic, 2021 earthquake, cholera, food crisis linked to war in Ukraine). - Macroeconomic outlook: - Growth projected barely positive in 2025 and stabilizing at 1½ percent over medium term contingent on security improvements. - Fiscal revenues slowly recovering; remittances continue to finance consumption amid human capital exodus. - Staff policy priorities and recommendations: - Re-start mobilizing revenue urgently; avoid new non-concessional loans that undermine debt sustainability. - Audit use of Food Shock Window resources; continue improving quality and transparency of public spending. - Strengthen social safety nets and target vulnerable populations. - Follow through with fuel pricing reform accompanied by mitigating measures and communication. - Monetary policy: keep monetary financing of deficit at zero; use FX interventions only to smooth volatility; align reserve framework with best practices. - Financial sector: monitor high NPLs, continue supervisory strengthening and stress testing with IMF assistance. - Governance: publish and implement governance diagnostic and action plan; anti-corruption measures essential to restore FDI and confidence. *Source: 1htiea2024002-print-pdf — IMF staff report content as provided.* ### 1. Scarring from Multiple Crises—Loss in Potential Output _______________________________________ 9 ### 1. Scarring from Multiple Crises—Loss in Potential Output ### The setting - Haiti is described as a fragile and conflict-affected state and a low-income country with multiple challenges: half its population lives below the poverty line; a low tax base; a large informal sector that relies heavily on volatile remittance flows. - Since the last 2019 Article IV consultation, Haiti experienced the pandemic; a devastating earthquake in 2021; cholera outbreaks; and spillovers from the war in Ukraine that contributed to a food crisis and acute hunger. - Governance and corruption problems are pervasive; security and political deterioration (including the assassination of President Moïse in 2021) magnified displacement, brain drain, and capacity constraints (Annex I). - Political and social insecurity worsened during February–May 2024 to crisis proportions: gang violence damaged government buildings, police installations, airports, roads, and ports; schools closed; large parts of Port-au-Prince cut off from food and healthcare; gangs control large parts of the capital. - UN data noted that homicides more than doubled in 2023 relative to 2022 and tripled relative to the pre-pandemic time; in 2024 homicide rates increased by 50 percent relative to 2023. As of September 2024, 702,973 people were displaced within Haiti, in addition to about 400,000 people displaced from Haiti. ### Recent developments and macroeconomic conditions - Real GDP growth: Haiti recorded five consecutive years of negative growth (2019–23). Real GDP growth was negative 1.9 percent in FY2023 (ending September 2023). - Economic collapse during March–May 2024; airport in Port-au-Prince closed from March to May; port capacity at a minimum. Satellite-based monitoring (Portwatch) indicates a dramatic fall in trade activity beginning in March–April 2024. - Inflation: after 10 months of steady decline, inflation resumed rising in February 2024, reaching 27.9 percent (year-on-year) in September. - Trade and remittances (selected figures; amounts in millions of US dollar and percentage change): - Fiscal year to date, October–July: - Exports: FY19–23 (average) 892; FY24 642; FY23 782; FY24 vs average FY19–23: -28; FY24 vs FY23: -18 - Imports: FY19–23 (average) 3,650; FY24 3,547; FY23 3,868; FY24 vs average FY19–23: -3; FY24 vs FY23: -8 - Net Remittances: FY19–23 (average) 2,662; FY24 3,065; FY23 2,745; FY24 vs average FY19–23: 15; FY24 vs FY23: 12 - Latest available month: - Exports (July): 10; 16; 77; 1; -33; -5 (table formatting indicates exports July values and percent changes as presented) - Imports (July): 373; 388; 377; 43 (values as presented) - Net Remittances (August): 252; 287; 254; 141; 13 (values as presented) - Current account and external position: - Current account deficit widened in FY2023 to 3½ percent of GDP, mainly from a collapse in exports (especially textiles). - Preliminary BOP data: current account deficit narrowed in FY2024 to ½ percent of GDP due to large import compression and robust remittances. - International reserves and foreign exchange: - Gross International Reserves (GIR) increased from US$2.1 billion at end-September 2022 to US$2.3 billion at end-September 2023, and stood at US$2.5 billion (equivalent to 5.7 months of imports) in August 2024. - Net International Reserves (NIR): US$356 million in September 2023 and US$963 million in August 2024 (an increase of US$607 million through August in FY2024). - The increase in net international reserves in FY2024 was supported by net FX purchases by the Bank of the Republic of Haiti (BRH) totaling US$471 million in the whole year (text chart). - Reserves accumulation through August in FY2024 was US$188 million (change Sep 2024 − Aug 2023 in the GIR table). - The exchange rate exhibited a crawl-like behavior between June and December 2023 and has stabilized within a 2 percent band against the U.S. dollar since then. - Settlement with Venezuela reduced both FX assets and FX liabilities (US$188 million through August noted in text). ### Monitoring economic activity (satellite data) - Satellite indicators show that import and export volumes and the number of cargo and tanker ships were on a downward trend. - Satellite data suggest trade activity fell dramatically beginning in March–April 2024 (daily import/export volumes and daily ship arrivals data from IMF Portwatch, IMF Swift Monitor, and FlightRadar24). ### Box: Scarring from Multiple Crises—Loss in Potential Output - Key result: Between 2019 and 2023, Haiti’s potential real GDP fell on average by about 2 percent a year, while that of a comparator group increased by 3.2 percent a year (Figure 1.1). The cumulative total gap between Haiti and the comparator group for the period is equal to 25 percent (Figure 1.2). - Methodology overview (growth accounting with a Cobb–Douglas production function): - Production function: Yt = At (Kt)^α (Lt ht)^(1−α), where Yt is real GDP, Lt is labor force, ht is human capital, Kt is capital stock, and At is total factor productivity. - Step 1: Correct investment It for reconstruction-driven changes after natural disasters by estimating an ARIMA (1,0,1) model for investment and introducing a two-lag dummy for natural disasters to obtain a modified investment series Itc. - Step 2: Compute corrected capital stock Ktc by the perpetual inventory method using Itc. - Step 3: Obtain human-capital-adjusted labor force accounting for population and average years of schooling. - Step 4: Estimate total factor productivity At as a residual: At = Yt / (Ktc)^(1−α) (Lt ht)^(1−α). - Step 5: Compute trend productivity AtTrend using the Hodrick–Prescott filter. - Step 6: Potential output YtPot = AtTrend (Ktc)^(1−α) (Lt ht)^(1−α). - Impact of crime and climate on potential output: - Channels: productivity, capital accumulation, human capital. - IMF (2023) cross-section elasticity of real GDP growth with respect to homicide rate ranges between -0.3 and -0.4 (log scale). - Haiti homicide rate surged from 11 in 2019 to 59 in 2024; using this measure, crime could account for a drop in real GDP of at least 1.2 percent per year. - Climate affects potential output through differences between Kt and Ktc (correction for reconstruction) and through natural disasters’ effects on productivity. ### Other notable data points and operational developments - Government and security arrangements: - Government since June 2024 has a time-bound mandate to restore security, economic growth, and pave way for orderly general elections in February 2026. - A nine-member Transitional Presidential Council established in April 2024 acts as the presidency until February 2026. - First waves of the Multinational Security Support Mission (MSS) led by Kenya arrived at end of June 2024; authorities view MSS size as too small and requested replacement by a UN peacekeeping mission for additional funding and personnel. Kenya committed a further 600 police officers by the end of the year. - Some schools in the capital remain closed or host displaced people; further escalation of violence occurred since early October 2024. *Prepared by: Sinem Kilic and Juan Passadore (WHD); figures and tables cited are from the IMF staff’s chapter "1. Scarring from Multiple Crises—Loss in Potential Output."* ### 6. Debt restructuring with Venezuela implemented in early 2024 significantly reduced ### 6. Debt restructuring with Venezuela implemented in early 2024 significantly reduced ### Debt restructuring and immediate fiscal impact - By end-September 2023, Haiti’s outstanding Petrocaribe debt to Venezuela was US$2.2 billion, with US$642 million in arrears. - In January 2024, Haiti and Venezuela finalized an agreement on a debt forgiveness of Petrocaribe debt of about US$1.7 billion in exchange for a lump-sum payment of US$500 million. - As a result, Haiti’s debt-to-GDP ratio dropped to 14 percent in FY 2024. - The authorities are estimated to save approximately annually US$95 million (or 12.5 billion gourdes) in debt service. ### Macroeconomic outlook and growth scenarios - FY2024 (ended in September 2024) growth is expected to be negative, at minus 4 percent. - Growth projections: - FY2025: could reach 1 percent. - Medium term: could reach 1½ percent if the security situation improves. - Staff analysis on security: - Bringing crime (proxied by the homicide rate) to pre-pandemic levels could increase growth by 1.9 percentage points annually in the short and medium term (Annex II). - The same security improvement could raise growth by 1 percentage point in steady state (long term), all else equal. - Staff analysis on gender and education (Annex III A): - Closing Haiti’s gender gap (proxied by different gender labor participation rates) could raise the medium- and long-term level of GDP by 5-15 percent. - GDP gains would be larger if education gaps were also closed. ### Inflation, fiscal and external projections - Inflation is projected to ease further over the medium term, assuming adequate macroeconomic policies and improvement on the security front. - Fiscal deficit of the NFPS is projected at about 0.1 percent of GDP. - Current account deficit is projected to increase to 1 percent of GDP in the medium term as imports recover. - Gross reserves are expected to grow this year, assuming confidence-building from the Kenya deployment mission and strong remittances; they could remain at 5½-6 months of imports over the medium term. ### Risks (domestic and external) - Domestic risks: - Intensified political instability. - Continuous gang-related disruptions to economic activity, especially if full deployment of the MSS is delayed. - Worsening of the hunger crisis. - Natural disasters. - Pervasive corruption and weak rule of law. - External risks: - Volatile remittance flows. - Reduced external financing from development partners. - Renewed surges in global food and energy prices. - Under an adverse scenario: - Continuation of recession, problems in mobilizing revenue due to resurgence of violence, and weakened capacity of the transitional government could erode confidence. - Substantial monetary financing of the budget would likely resume, further undermining macroeconomic stability. - Debt outlook: - Debt risk outlook is negative, with a high likelihood that Haiti debt carrying capacity will be downgraded in the next DSA absent significant strengthening of country fundamentals. - The accompanying DSA assesses Haiti’s risk of debt distress as high but sustainable. - Sustainability depends on the authorities’ ability to secure donor financing over the short to medium term. ### Policy implications and opportunities - The current government has a narrow window of opportunity to implement reforms to restore potential over the medium and long term. - Official transfers and reconstruction financing could rise if countries support the Kenya-led operation with additional financing. - Normalization of the security situation combined with a strong anti-corruption strategy could: - Restore foreign direct investment (FDI). - Attract back talent. - If downside risks materialize, additional donor support (via grants) will be essential to preserve macro stability and support priority spending without reverting to monetary financing. ### Authorities’ views - Authorities’ economic outlook is consistent with IMF staff, but they emphasize GDP numbers do not fully capture humanitarian, social, and economic crises. - Authorities expect only a small current account deficit in FY2024 due to import compression, security-related trade flow disruption, and strong remittances (supported by migration). - Over the medium term, risks to the current account include wider deficits from imports of consumer goods and potential slowdown in remittances related to expiration of Temporary Protected Status by the United States. - Authorities view large multilateral and bilateral external assistance and continued grant financing as essential to preserve debt sustainability and support growth prospects. ### 2023 SMP performance and lessons - A new SMP was negotiated in June 2023 but went off track despite close engagement. - A cyber/IT attack on the central bank in June 2023 and delays in providing timely monetary data prevented completion of the first review in December 2023. - Fund capacity development helped the central bank compile reserve data according to the “reserve template”; the central bank recompiled manually its balance sheet prior to new software introduction. - A FIN-tailored safeguard-monitoring mission in March 2024 found persistent weaknesses in foreign reserve management, with 60 percent of reserves invested in corporate bonds. - Main lesson: without a minimum level of security, authorities’ commitment is insufficient to ensure successful program implementation. - Despite challenges, until March 2024 the fiscal aggregates were in line with the approved program and the fiscal stance was more conservative than expected. - Implementation challenges: - Worsened security led to slippages in data provision, lower tax collection, and delays in some structural benchmarks. - Most quantitative targets were met until March, but structural benchmarks introduced in December (part of SMP extension) were not met. - Met structural actions included: sharing detailed quarterly FAES financial statements; monthly reports on Food Shock Window execution no later than 45 days after month-end; internal audits of ministries using FSW emergency resources; Council of Ministries’ approval of amendments to the organic law on the financial intelligence unit (ahead of target). ### Fiscal policy—From Crisis to Resilience Revenues - Haiti’s level of tax revenue is 5 percent of GDP. - Domestic revenue (excluding customs) has remained below pre-pandemic levels. - FY2023 revenue performance: - Total tax revenue rose by 55 percent, year-on-year in FY2023, driven mainly by higher customs duties. - Customs duties grew 120 percent and accounted for 35 percent of total domestic revenue. - Excise taxes surged 310 percent, representing 5 percent of total domestic revenue. - Revenue grew sharply during October-December 2023; customs collections grew 48 percent y/y during that period. - Early 2024 developments: - Revenue began declining in early 2024 and collapsed by 73 percent in March 2024, reflecting economic paralysis, before beginning a mild recovery in July 2024. Recent reforms - Since 2019, key reforms aimed at raising domestic revenue: 1) New tax code (and accompanying tax procedure code) in December 2022, originally to be implemented in October 2024 but on hold pending implementing regulations. 2) Publication of customs tariffs. 3) New customs code adopted in March 2023. - Pending implementing regulations include provisions on transfer pricing documentation, lists of products exempt from turnover taxes, products subject to excise, procedures for appointing tax litigation appeal commission members, application of special regimes, registration and tax identification numbers, audit procedures, code of conduct for tax officials, and taxpayers charter and users’ service policy. - Tax and customs administrations remain vulnerable to arbitrariness and corruption due to complex systems, inequitable processes, low digitalization, lack of transparency and accountability, weak integrity standards and oversight. Capacity to raise taxes and role of digitalization - Staff analysis (Annex V) suggests strengthening digital infrastructure of customs administration (GovTech) could generate additional tax revenue of 0.6-0.9 percent of GDP a year by limiting trade fraud and smuggling. - Recommended reforms: - Adopt and publish the 2024-27 strategic reform plan for tax and customs administrations. - Simplify declaration procedures as a prerequisite for digitization. - For the DGI: abolish issuance of payment authorizations in periodic tax return procedure. - For the AGD: initially apply the simplified procedure recommended by Article 108 of the Customs Code. - Intensively use technologies to increase transparency, traceability, reduce face-to-face interactions, and minimize officer intrusion. - Set up tax payments by mobile telephone initially, then by bank transfer. - Interconnect DGI and AGD IT systems to exchange data to enlarge the tax base and fight fraud. - Formalize information exchange protocols and develop the platform for electronic data exchange. - Implement capacity development activities targeting local authorities for property tax base determination. Spending - Since 2019, authorities limited spending relative to historical averages, enabling rebuilding of fiscal buffers. - FY2023 spending decreased by 1.9 percent of GDP, largely due to a large drop in fuel subsidies. - Nominal wages and salaries rose at an annual rate of 17 percent; goods and services rose by 20 percent. - Social spending was 1.3 percent of GDP in FY2023, below the previous year’s 1½ percent, due to deteriorating security hampering implementation. - Lockdowns triggered by gang violence also hampered the authorities’ ability to spend in FY2024 (at least through June). Fiscal balance - Authorities’ containment of current spending yielded a zero balance for the non-financial public sector (NFPS) in FY2023 (the SMP envisaged a deficit of 1.9 percent of GDP). - Monetary financing reached 1 percent of GDP at the end of FY2023 (below the 1.4 percent projected at the SMP’s outset). - The FY2024 budget was consistent with the 2023 SMP goal of reducing monetary financing of the deficit. - The fiscal balance of the NFPS is expected to register a surplus equal to 0.7 percent of GDP (excluding a one-off capital transfer owing to the repayment of the debt to Venezuela), with spending underperforming by 1.9 percentage points of GDP relative to FY2023. - With global oil prices rising only moderately, fuel subsidies are projected at zero in FY2024. - Revenue on fuel imports is projected at 0.7 of GDP. FY2024 revised budget and FY2025 budget - In August 2024, the Council of Ministries passed a revised budget (budget rectificatif) to account for lower revenue relative to the original budget and the recent debt operation with Venezuela—and to re-direct former interest payments to social spending. - The FY2025 budget was approved on time and points to a balanced budget, in line with staff projections; fiscal stance viewed as appropriate. - Staff and authorities differ in projections: - Staff projects lower revenues and grants relative to the authorities by 0.9 percent of GDP. - Staff projects lower capital spending relative to authorities by 0.8 percent of GDP. - To mitigate fiscal risks from lower project grants, discussions include a contingency plan: - Shortfalls in revenue or external project grants should be offset by limiting planned increases in current and capital spending in FY2025, while preserving social spending on the most vulnerable. - Authorities agreed to avoid running domestic arrears to finance shortfalls and avoid resuming monetary financing of fiscal deficits. *Source: 1htiea2024002-print-pdf - 6. Debt restructuring with Venezuela implemented in early 2024 significantly reduced* ### 19. Gender. The FY2025 budget purposefully introduced measures to close gender gaps. These ### 19. Gender. The FY2025 budget purposefully introduced measures to close gender gaps. ### Gender-specific budget measures and objectives - Support for Women's Entrepreneurship (Ministry of Industry and Commerce): budget allocation of 75 million gourdes to support new jobs among youth, particularly women. - Ministry for Women's Affairs: increased allocation by 30 percent relative to the previous year budget for a total amount of 150 million gourdes to promote gender equality rights and strengthen security and protection of women. - Authorities’ stated priorities in the FY2025 budget: - Strengthen support for women's empowerment by improving women's education and training. - Improve women's access to financing and participation in the labor market. - Improve access to health care, with a view in particular to reducing maternal mortality. - Implement programs dedicated to protection against gender-based violence. - Authorities prefer channeling Food Shock Window (FSW) resources through the budget to demonstrate spending capacity, exercise ownership, and avoid overhead costs from a third party (while remaining open-minded about channeling through WFP). ### Contribution of gender reforms to growth and policy measures - Closing gender gaps could greatly enhance economic activity by 5-15 percent (Annex III A) by boosting women’s participation in the labor market. - Recommended complementary measures to support gender impact on growth: - Tailor a gender-friendly tax system. - Improve women’s health and reduce maternal mortality. - Raise levels of education and job skills. - Increase financial inclusion. - Use targeted social spending, conditional cash transfers to encourage girls’ access to education, and child allowances to reduce girls’ dropout rates. ### Medium-term fiscal framework and implications for gender spending - Fiscal balance over the medium term expected to shift into a small deficit equal to 1.4-1.7 percent of GDP (Table 3b). - Forecast assumptions relevant to social and gender spending: - Increase in capital spending to support infrastructure needs. - Increased goods and service spending as a mild recovery unfolds. - Small increase in wages (to retain talent). - Gradual rise in the tax-to-GDP ratio due to further revenue administration reforms. - Monetary financing of the budget capped at zero percent of GDP. - Implementation of the tax code over the medium term expected to raise tax revenue. ### Strengthening social assistance and targeting vulnerable women - Fuel cards distribution (started September 9, 2023) to low-income workers in the transportation sector to mitigate impact of fuel price adjustments and better target subsidies. - Cash transfers (checks) to the most vulnerable as identified in the SIMAST database; World Bank and WFP helped maintain and expand SIMAST. - Food Shock Window (FSW) spending through July 2024 had been limited (about 3 billion gourdes or 20 percent of total FSW disbursement) due to criminal activity, lockdown, and political transition that impeded targeting of the most vulnerable. - Table 1 (FSW spending priorities indicated by the authorities, in millions of gourdes): - Total original allocation: 15,600 - Spent: 3,089 - Authorized to be spent: 9,104 - Selected line items (Original allocation / Spent / Authorized to be spent): - Reactivation of community restaurants and mobile canteens: 2,000 / 200 / (blank) - Distribution of food to vulnerable households (paniers de solidarité): 500 / 1,134 / 310 - Cash transfer to vulnerable households: 2,500 / 595 / (blank) - Cash to workers in subcontracting industries: 1,500 / 1,113 / 656 - Cash transfer to vulnerable households to encourage school attendance (Ministry of National Education and Vocational Training): Support to parents 7,500 / 442 / 5,561 - Grants/subsidies to public transportation drivers (Fuel cards for drivers): 1,600 / 400 / - - Support for Micro, Small and Medium sized enterprises with difficulties (Establishment of a seed funding mechanism to finance businesses): -- / 50 / (blank) - Total (as reported): 15,600 / 3,089 / 9,104 - Notes: 1/ Allocated under the FY23 budget. 2/ Spent until the adoption of the revised FY24 budget. No spending occurred during October 2023-July 2024. 3/ Funds transferred by MEF to institutions under the revised FY24 budget (ending in September 2024). ### Public financial management, governance, and implementation priorities that affect gender outcomes - PFM reforms to enhance reporting, transparency, and accountability: - Provide medium-term budget framework (MTBF) based on the adopted medium term fiscal framework (MTFF) and use a top-down approach to set expenditure ceilings for ministries. - Each key line ministry should prepare a medium-term expenditure framework (MTEF) using defined expenditure ceilings. - Limit volume of unspecified expenditure in the budget by bringing it down to around 3-5 percent of total government expenditure to improve fiscal transparency. - Reinstate the financial controller’s prerogatives on a priori control over public investment expenditures. - Adopt and implement a revised expenditure execution manual. - Revise the procurement law to streamline internal control mechanisms and make procurement competitive and transparent. - Strengthen internal and external audits, including by the Inspectorate General of Finance and the Superior Court of Accounts and Administrative Disputes (CSCCA), to produce and publish an annual report to follow-up TA recommendations. - Governance diagnostic and anti-corruption priorities: - Finalize and publish results of the Fund-supported governance diagnostic assessment by December 2024. - Establish an agency or center (Pôle Anti-Corruption) for serious organized crime, corruption and related money laundering offences. - Publish asset declarations of top officials. - Implement the action plan of the governance diagnostics as a roadmap for reforms; implementation will require CD from the Fund and development partners. - Central bank and reserves management reforms affecting transparency and macro stability: - Implement STA recommendations on the reserve template. - Finalize the audit of the central bank for the fiscal year ending September 2023 by the end of December 2024. - Implement FIN recommendations from the tailored safeguard monitoring mission in March. - BRH should undertake an external comprehensive review of reserves management practices and an external assessment of its portfolio to determine liquidity and short-term alternatives. ### Structural reforms and financing needs linked to human capital and gender outcomes - Staff estimate: spending needs to achieve five SDGs (health, education, water/sanitation/hygiene, electricity, roads/internet) are equivalent to 14.4 percent of GDP (using 2030 GDP). - Achieving SDGs and gender-related development objectives will require a combination of: - Higher revenue. - Donor financing (not already channeled through the budget to avoid double counting). - Higher efficiency of spending. - Private sector financing. - Sectoral opportunities relevant to gender and employment: - Tourism has untapped opportunities but requires sizable investment to improve the business environment; comprehensive strategy needed involving public and private sectors. *Source: 1htiea2024002-print-pdf - 19. Gender. The FY2025 budget purposefully introduced measures to close gender gaps.* ### 31. Haiti is very much exposed to natural disasters and climate shocks which poses severe ### Haiti is very much exposed to natural disasters and climate shocks which poses severe macro-critical challenges ### Climate exposure, impacts, and resilience actions - Natural disasters and climate change destroy or damage infrastructure and other capital and impact potential growth. - Government actions under way: - Investments to exploit renewable energy potential through development of micro-grids in rural areas (with support of USAID). - Irrigation projects, adoption of new technical packages, and ecosystem management to strengthen agricultural resilience and food security. - Bridge and road constructions to improve accessibility and rural resilience. - Annual budget allocation of US$6-7 million for parametric insurance against hurricane, earthquake, and floods. - Special allocation in the Emergency Fund. - Work to set up warning systems and temporary shelters in departments most vulnerable to climate shocks. - Authorities intend to finalize in December 2024 a Climate Prosperity Plan, including a full-scale deployment of renewable energy in due course. ### Multi-pillar risk-management strategy - Strengthening resilience requires a multi-pillar strategy at national, regional, and multilateral levels and enhancing Haiti’s risk management capacity. - Components highlighted: - Assess vulnerability, incorporate disaster costs into national budget planning, and integrate fiscal costs into macro frameworks and the DSAs. - Build buffers and enhance preparedness (invest in smart infrastructure, enhance debt management capacity). - Self-insure and risk transfer options (e.g., Caribbean Catastrophe Risk Insurance Facility (CCRIF), parametric insurance). - Emergency response and reconstruction supported by bilateral or multilateral financing. - Note: Green areas in the source indicate where the IMF has been involved. ### Monetary and exchange rate framework: stance, diagnosis, and staff recommendations - Recent developments and assessment: - Monetary policy framework strengthened since the last Article IV; central bank independence has increased. - Monetary stance during the last two years has been tighter than programmed; financing of the budget was reduced to zero. - Current policy mix (continued fiscal adjustment and zero monetary financing) should help bring inflation down from currently high levels (which lead to large negative real rate of about 15 percent). - Staff analysis suggests inflation more recently associated with security-related supply-side shocks; restrictive monetary and fiscal policies alone are insufficient without a normalization of the security outlook. - Staff continued recommendations: - greater exchange rate flexibility, - a ceiling on credit to the NFPS as the main anchor to continue avoiding monetary financing of the deficit, - short-term liquidity-absorbing operations at a fixed rate (policy rate) and full allotment to strengthen the monetary and exchange rate frameworks. - Recommendations for BRH FX operations and market functioning: - Limit interventions to smoothing excessive exchange rate volatility and signaling a build-up of NIR. - Put in place an appropriate mechanism for FX interventions, such as well-designed weekly FX auctions, in lieu of the FX allocation system. - Advance ongoing work on an FX market intervention rule. - Complete the revision of banks’ net open position limits (see Annex VII, para 15). - Exchange rate regime: - De jure exchange rate: "floating". - De facto exchange rate: classified as "stabilized" since January 2024. - Authorities’ views on monetary policy and FX: - Main goal of monetary policy remains price stability. - Fiscal and monetary authorities committed to keeping monetary financing of the budget to zero. - FX market interventions (net purchases of dollars) aimed mainly at smoothing gourde volatility (prevent further appreciation) and improving reserves cushion. - Authorities noted real appreciation of the gourde and argued a depreciation would not boost exports because security and structural problems are main impediments. - Authorities stated FX purchases did not expand the monetary base and attributed inflationary pressures mainly to supply-side factors (security constraints to movement of goods). - Authorities acknowledged existence of an informal FX market focused on cash transactions and are trying to bring more market agents into formality. - Recent remittance regulations intended to bring more formality to the FX market and protect consumers from unfavorable rates and abuses. ### Financial sector: structure, vulnerabilities, and reform priorities - Key facts and indicators: - Financial system is small: assets (excluding the central bank) of the entire system equivalent to less than 20 percent of GDP. - Underdeveloped capital markets with limited trading activity. - Credit-to-GDP declined to 5.3 percent in FY2023 (from 10.5 percent in 2019). - Staff estimated the credit-to-GDP gap at negative 22 percent in June 2024. - Banking sector highly concentrated: the three largest banks hold more than 80 percent of banking system assets. - Non-performing loans rose from 5 percent in 2020 to 12 percent in June 2024. - All banks but one (state-owned) meet the minimum capital adequacy ratio of 12 percent. - Nonfinancial corporates rely primarily on offshore funding, vulnerable to currency mismatches and sudden withdrawals. - Errors and omissions in BOP estimated equivalent to 3.4 percent of GDP in FY2023 (data issues discussed below). - Net international reserves and related series reported with reference to August2024. - Reform priorities and staff recommendations: - Emergency liquidity assistance (ELA) as a potential option while banks retain liquidity for precautionary reasons. - Banking supervision: - Finalize the new chart of accounts for financial institutions. - Reactivate off-site supervision following a quasi-suspension. - Continue execution of the annual on-site inspection program. - Finalize and publish revised regulation on credit risk classification and provisioning (expected by end November). - Digital money: - BRH does not plan immediate CBDC implementation but has placed a placeholder in the central bank framework. - Staff advised that pursuing digital money is premature given other priorities and urged full evaluation of costs and risks before proceeding. - AML/CFT: - Council of Ministers adopted a new Decree Reorganizing the Unité Centrale de Renseignement Financier (UCREF) to replace the FIU organic law, aiming to ensure UCREF’s operational autonomy and broader powers. - April 2023 decree revamped AML/CFT framework and allowed Haiti to receive upgrades on 18 of the 40 FATF recommendations in the latest CFATF report. - Progress includes resumption of work on the national risk assessment (now expected to be completed in December 2025) and operationalization of a tool for risk-based supervision by the BRH. - Authorities should: assess risks related to the informal cash-based sector and legal persons; step up on-site inspections (as security permits); apply remedial actions for non-compliance; ensure transparency of basic and beneficial ownership information on legal persons; designate supervisors for high-risk DNFBPs (gambling and lottery sectors; notaries and lawyers performing TSCP activities). - Urgent measures to reinforce investigations and prosecutions of ML related to corruption and criminal asset recovery will be recommended in the Governance Diagnostic report. - Authorities’ views on financial sector reforms: - Scarring from multiple recessions and persistent insecurity has significantly impacted sector health; relaunching growth is essential to prevent further NPL increases. - Authorities requested Fund technical assistance to perform stress tests. - Ongoing efforts to build on AML/CFT progress; new committee to assess ML/TF risks related to legal persons; UCREF strengthening with planned support from UNODC and cooperation with ULCC, law enforcement, and judicial authorities; UCREF pursuing MOUs with regional counterparts. - Full implementation and operational independence of UCREF remains necessary; nomination of UCREF’s Board of Directors has been initiated but delayed by the political crisis. ### Data adequacy, recent disruptions, and implications for surveillance - Recent progress and setbacks: - Much progress achieved in compiling and disseminating fiscal data, especially at the central government level, since the last Article IV; however, new shocks have prevented broader advancements and led to setbacks relative to 2022 SMP results. - Monetary data provision experienced delays until recently; meaningful revisions to NIR occurred after an IT shock. - Surge of gang activity in early 2024 prevented central bank staff from physically accessing central bank premises for many months. - Timeliness improved since late summer 2024 when BRH normalized activities and completed manual recompilation of data. - Identified limitations and consequences: - TA from the Fund’s Statistics Department identified data compilation limitations in the BOP and International Investment Position data. - Large errors and omissions (equivalent to 3.4 percent of GDP in FY2023) may reflect inability to capture development partner support not channeled through the budget, remittances not channeled through the financial system, other informal activity, incomplete information on investment income, and stock-flow inconsistencies. - Insecurity has greatly hampered production of timely and adequate data, including national accounts; security environment makes surveys to compile GDP data very difficult. *Source: IMF staff report content as provided.* ### 43. Over the next few months, staff will conduct a mission to assess GDP data sources and ### 1htiea2024002-print-pdf - 43. Over the next few months, staff will conduct a mission to assess GDP data sources and ### GDP data assessment and statistical capacity - Over the next few months, staff will conduct a mission to assess GDP data sources and methodology. - The mission will ascertain whether the current structure of the economy—which suffered severe declines in capital stock, total factor productivity, and human capital since at least 2020, as well as huge population displacement—is still appropriately represented by the 2012 benchmark year or whether changes are necessary. - Pending this assessment and a new action plan, the ongoing timeline to begin compiling and disseminating quarterly GDP data has been put on hold. - Staff discussed with the authorities the strategy to improve capacity to close data gaps over time (Annex I). This requires firm prioritization and careful sequencing. - Staff urges the authorities to prioritize efforts to improve data provision to the Fund. The quality and timeliness of monetary and reserve assets data should continue to be the top priority. Real sector data, in particular GDP, continues to face shortcomings that should be addressed with forthcoming technical assistance. ### SDR allocation, safeguards, and BRH resilience - Staff discussed issues related to the SDR allocation, the adoption of international finance reporting standards, and safeguard-related matters. - Staff emphasized the importance of reinforcing institutional frameworks governing the fiscal use of the SDR allocation. - Staff underscored the need for transparency measures for SDR-related spending and for communicating publicly on the BRH or MEF websites any future conversion of their SDR allocation into freely usable currencies—and the need to engage Fund staff on future SDR conversions. - The team discussed with the BRH the ongoing progress in reaching full recovery after the cyberattack, as well as the alignment of the foreign reserve framework with best practices. - Further efforts are needed to implement safeguards recommendations from the 2019 assessment and the recent targeted monitoring mission, particularly on foreign reserves, monetary data, and cyber-resilience. Staff will continue to engage with the BRH on these issues. - The FY2023 financial audit of the BRH is urgent and its eventual publication would be an important step in demonstrating transparency. ### Country Engagement Strategy (CES) and authorities’ views - In line with the Fund Strategy for Fragile and Conflict-Affected States, staff coordinated closely with Haiti’s main development partners and finalized an updated Country Engagement Strategy (CES). The CES (Annex I) identifies the sources of fragility, the capacity development strategy, and policies to tackle them—as well as the main areas of collaboration with development partners. - Authorities’ views: - The authorities reiterated their commitment to data transparency and indicated that delays over the last year were due mainly to the IT incident at the central bank. - They indicated that it was difficult to improve the quality of GDP calculations owing to the inability to conduct business surveys. - The authorities committed to publish the governance diagnostic assessment and accompanying action plan. ### Staff appraisal: crisis characterization and macroeconomic outlook - Haiti faces an unprecedented multidimensional crisis encompassing humanitarian, economic, social, and security problems, and a political transition. - Since the last 2019 Article IV consultation, security has deteriorated severely, leading to destruction of physical infrastructure, prolonged economic paralysis, massive human displacement, and further acceleration of brain drain, including from key institutions. - The dire security situation was compounded by several shocks: the pandemic, the assassination of President Moïse, an earthquake in 2021, repeated waves of cholera, and a hunger crisis linked to Russia’s war in Ukraine. - The food crisis and insecurity have further fueled inflation. - Pervasive governance issues have undermined growth prospects and potential GDP has dropped. - Macroeconomic outlook and projections: - Growth is projected to be barely positive in 2025 (pending further improvements in the security outlook) and would stabilize at only 1½ percent over the medium term. - Fiscal revenues are only slowly recovering. - Remittances would continue to finance consumption, reflecting mainly an exodus of human capital. ### Policy priorities and recommendations - Fiscal and public finance: - An urgent government priority is to re-start mobilizing revenue (after its collapse early this year as a result of the insecurity) to support large development needs and increase well-targeted spending. - The authorities should avoid contracting non-concessional loans which can quickly undermine debt sustainability. - The use of resources related to the FSW should be promptly audited. - Efforts to improve the quality of public spending and enhance transparency of public spending should continue. - Social protection and safety nets: - Continued strengthening of the social safety net will be essential for cushioning the impact of the shocks on the population and alleviating widespread poverty. - Fuel pricing reform: - Staff recommends that the authorities follow through with the implementation of the fuel reform strategy to allow changes in international fuel prices to be regularly passed on to consumers instead of ad hoc or sudden price adjustments. - This reform should be accompanied by mitigating measures to protect the most vulnerable, together with an effective communication strategy. - External assistance: - A government-led strategy to relaunch the economy would need to receive the essential financing support of the international community. - This assistance should take the form of grants. - Monetary, exchange rate, and reserves policy: - The careful pace of monetary tightening has been appropriate and consistent with the goal of fighting inflation. - The fiscal and monetary authorities’ commitment to keeping monetary financing of the deficit at zero has enhanced the credibility of the policy frameworks. - Restrictive monetary stance will not be sufficient without a normalization of security to reignite growth. - The adequate foreign exchange (FX) reserves, re-built during 2023-24, remain a valuable buffer. - FX intervention should continue to be used only to smooth excessive exchange rate volatility, not substitute for macroeconomic policy adjustment when needed. - Alignment of the foreign reserves framework with best practices would be critical for avoiding financial risks. - Financial sector and supervision: - Addressing financial sector vulnerabilities is paramount for mitigating financial risks. - High non-performing loans (NPLs) warrant close monitoring and underscore the need for an urgent plan to mitigate a further increase. - The BRH has been strengthening banking supervision, with Fund assistance, to upgrade the regulatory framework and move to risk-based supervision. Efforts should continue including with technical assistance. - Governance: - Publication and implementation of the governance diagnostic assessment and accompanying action plan would provide a road map for reforms to enhance governance and fight corruption—and should be implemented in close collaboration with development partners. - Sustaining progress on reforms to strengthen governance is essential for ensuring inclusive growth and building the trust of the private sector and attract FDI. *Source: 1htiea2024002-print-pdf* ### 56. Staff recommends that the next Article IV consultation for Haiti be held on the ### 56. Staff recommends that the next Article IV consultation for Haiti be held on the ### Real sector developments (2016–24) - Staff recommendation: the next Article IV consultation for Haiti be held on the standard 12-month cycle. - Real GDP: - "Real GDP has contracted for five consecutive years..." - Contraction driven by "a drop in investment and net exports." - Sectoral conjunctural indicators: - "Conjunctional indicators point to negative growth across all sectors... in particular construction, manufacturing, and agriculture." - ICAE (Conjunctural Indicator of Economic Activity) shows negative year-on-year percent values across FY2017–FY2024 (chart, percent y/y scale -12 to 12). - Inflation and output gap: - "Inflation started to pick up again in 2024." - "The output gap has widened since 2017." - Sources: Haitian Institute of Statistics and Informatics (IHSI), Bank of the Republic of Haiti, and IMF staff calculations. - Note: Fiscal year basis ends on September 30 (1/). ### Fiscal sector developments (2016–24) - Tax revenue and spending: - "Tax revenues are extremely low." - "Spending has declined... including social spending." - Fiscal balance and financing: - "The fiscal deficit fell in 2023 due to lower fuel subsidies... which reduced the need for monetization." - "The BRH financing of the fiscal deficit has been negative since FY2024" (monetization reduced). - "Government debt declined in early 2024." - Social spending (share of total expenditure; 2024 through June). - Key table figures (Table 2 / Table 3a highlights): - Nominal GDP (2023): US$21.5 billion - GDP per capita (2021): US$1,765 - Population (2021): 11.9 million - Percent of population below poverty line (2021): 52.3 - Central government (percent of GDP, Table 2 projections): - Domestic revenue: FY2024 4.9; FY2025 5.0; FY2026 5.3; FY2027 5.7; FY2028 5.9; FY2029 6.1 - Grants: FY2024 6.8; FY2025 1.2; FY2026 0.7; FY2027 0.3; FY2028 0.3; FY2029 0.3 - Expenditures: FY2024 4.5; FY2025 6.2; FY2026 7.4; FY2027 7.4; FY2028 7.8; FY2029 8.1 - Overall balance (including grants): FY2024 7.2; FY2025 -0.1; FY2026 -1.4; FY2027 -1.5; FY2028 -1.6; FY2029 -1.7 - Public investment (percent of GDP): FY2024 1.1; FY2025 2.1; FY2026 3.2; FY2027 3.1; FY2028 3.3; FY2029 3.5 - Gross investment: FY2024 6.1; FY2025 7.8; FY2026 10.7; FY2027 14.2; FY2028 19.1; FY2029 23.2 - Gross national savings: FY2024 5.5; FY2025 7.2; FY2026 9.8; FY2027 13.0; FY2028 18.0; FY2029 22.2 - Total public sector debt (end-of-period): FY2024 13.9; FY2025 11.4; FY2026 10.9; FY2027 11.4; FY2028 11.9; FY2029 12.5 ### Monetary and financial sector developments (2017–24) - Central bank and liquidity: - "The BRH financing of the fiscal deficit has been negative since FY2024 ... with net domestic assets declining." - "While excess structural liquidity is rising in the banking system." - Private credit and monetary transmission: - "Private sector credit has collapsed since early 2023." - "Monetary transmission has been weak, with market rates not responding to policy rates." - FX and deposits: - "FX deposits and loans have been stable since August 2020, after the central bank revalued the gourde..." - Banking system summary (Table 5 and Table 7 snapshots): - Base money growth (percent change): FY2021 21.5; FY2022 23.1; FY2023 3.1; FY2024 10.0; FY2025 13.5; FY2026 11.5; FY2027 10.0; FY2028 9.0; FY2029 8.0 - Broad money (M3) growth (percent change): FY2021 38.2; FY2022 21.1; FY2023 4.6; FY2024 4.1; FY2025 15.5; FY2026 11.5; FY2027 11.0; FY2028 10.5; FY2029 9.0 - Credit to private sector (percent change): FY2021 15.2; FY2022 17.4; FY2023 -6.2; FY2024 -5.3; FY2025 21.1; FY2026 14.7; FY2027 12.0; FY2028 10.1; FY2029 9.4 - Real private credit sector growth (Table 5 memorandum): Sep-21 2.2; Dec-21 -21.2; Mar-22 -38.1; Jun-22 -33.2; Sep-22 2.4; Dec-22 2.5; Mar-23 2.7; Jun-23 2.7; Sep-23 2.4 - Financial Soundness Indicators (Table 7, selected): - Asset volume (US$ millions): Sep-21 5,341; Jun-24 4,879 - Deposit volume (US$ millions): Sep-21 4,352; Jun-24 3,985 - Regulatory capital to risk-weighted assets: Sep-21 22.3; Jun-24 21.4 - NPLs to gross loans: Sep-21 5.6; Jun-24 12.0 - Provisions to gross NPLs: Sep-21 103.1; Jun-24 66.1 - ROA (cumulative): Sep-21 2.1; Jun-24 0.8 - Foreign currency deposits to total deposits: Sep-21 66.1; Jun-24 68.8 - Foreign currency loans to total loans (net): Sep-21 44.9; Jun-24 58.1 ### External sector developments (2017–24) and balance of payments (2021–29) - Trade and transfers: - "Haiti continues to have structural trade deficits." - "Remittances (in dollar terms) are above pre-pandemic trend." - "FDI has declined in recent years... As have donor flows." - Exchange rates and reserves: - "The REER has appreciated during 2023-24... And net international reserves jumped to almost US$1 billion." - Balance of Payments (Table 4a / 4b key figures): - Current account including grants (US$ millions): FY2021 88; FY2022 -464; FY2023 -683; FY2024 -141; FY2025 -187; FY2026 -315; FY2027 -409; FY2028 -399; FY2029 -370 - Current account excluding grants (US$ millions): FY2021 -77; FY2022 -653; FY2023 -863; FY2024 -356; FY2025 -547; FY2026 -548; FY2027 -509; FY2028 -499; FY2029 -470 - Exports of goods (US$ millions): FY2021 1,130; FY2022 1,282; FY2023 956; FY2024 765; FY2025 841; FY2026 962; FY2027 1,093; FY2028 1,213; FY2029 1,350 - Imports of goods (US$ millions): FY2021 -4,416; FY2022 -4,762; FY2023 -4,715; FY2024 -4,291; FY2025 -4,762; FY2026 -5,048; FY2027 -5,326; FY2028 -5,592; FY2029 -5,844 - Private transfers (remittances, US$ millions): FY2021 3,316; FY2022 3,072; FY2023 3,076; FY2024 3,414; FY2025 3,585; FY2026 3,764; FY2027 3,971; FY2028 4,150; FY2029 4,316 - Net international reserves (memorandum, US$ millions): FY2021 456; FY2022 119; FY2023 391; FY2024 960; FY2025 1,159; FY2026 1,341; FY2027 1,501; FY2028 1,658; FY2029 1,811 - Gross international reserves (US$ millions): FY2021 2,534; FY2022 2,067; FY2023 2,346; FY2024 2,496; FY2025 2,621; FY2026 2,771; FY2027 2,921; FY2028 3,081; FY2029 3,241 - Debt service (percent of exports of goods and services): FY2021 9.4; FY2022 8.1; FY2023 11.8; FY2024 13.5; FY2025 3.3; FY2026 4.7; FY2027 4.6; FY2028 5.9; FY2029 6.7 - Nominal GDP (US$ millions): FY2021 21,017; FY2022 19,826; FY2023 19,603; FY2024 26,283; FY2025 30,614; FY2026 33,173; FY2027 34,155; FY2028 35,664; FY2029 37,497 ### External financing requirements and sources (Table 6) - Requirements (US$ millions): - FY2021 509; FY2022 752; FY2023 1,241; FY2024 2,706; FY2025 695; FY2026 740; FY2027 697; FY2028 709; FY2029 690 - Components include current account excluding official transfers, government debt amortization (non-IMF), net repayments to the IMF, increase in reserve assets, clearance of arrears, errors and omissions. - Sources (US$ millions): - Official current transfers: FY2021 164; FY2022 189; FY2023 181; FY2024 215; FY2025 359; FY2026 233; FY2027 100; FY2028 100; FY2029 100 - Current project grants: FY2021 148; FY2022 170; FY2023 181; FY2024 215; FY2025 320; FY2026 215; FY2027 100; FY2028 100; FY2029 100 - Official capital transfers: FY2021 65; FY2022 70; FY2023 60; FY2024 1,753; FY2025 50; FY2026 50; FY2027 51; FY2028 54; FY2029 57 - Foreign direct investment: FY2021 51; FY2022 39; FY2023 24; FY2024 17; FY2025 19; FY2026 30; FY2027 46; FY2028 71; FY2029 111 - Debt forgiveness (capital account): FY2024 1,467 (included under sources) - Incurrence of arrears: FY2021 90; FY2022 96; FY2023 97; FY2024 0 ### Macroeconomic projections and prices (Table 2 highlights) - GDP growth (percent): - FY2021 -1.8; FY2022 -1.7; FY2023 -1.9; FY2024 -4.0; FY2025 1.0; FY2026 1.5; FY2027 1.5; FY2028 1.5; FY2029 1.5 - Price indices (percent): - GDP deflator: FY2021 19.3; FY2022 29.8; FY2023 31.5; FY2024 29.1; FY2025 23.2; FY2026 17.6; FY2027 10.4; FY2028 9.7; FY2029 9.1 - Consumer prices (period average): FY2021 15.9; FY2022 27.6; FY2023 44.1; FY2024 25.9; FY2025 19.8; FY2026 15.4; FY2027 10.6; FY2028 7.9; FY2029 7.4 - Consumer prices (end-of-period): FY2021 13.1; FY2022 38.7; FY2023 31.8; FY2024 27.9; FY2025 18.7; FY2026 12.2; FY2027 9.3; FY2028 7.4; FY2029 7.0 - External sector projected growth (percent change): - Exports (goods, US$ f.o.b.): FY2021 27.7; FY2022 13.5; FY2023 -25.5; FY2024 -20.0; FY2025 10.0; FY2026 14.4; FY2027 13.6; FY2028 10.9; FY2029 11.3 - Imports (goods, US$ f.o.b.): FY2021 19.8; FY2022 7.8; FY2023 -1.0; FY2024 -9.0; FY2025 11.0; FY2026 6.0; FY2027 5.5; FY2028 5.0; FY2029 4.5 - Remittances (US$ valued): FY2021 22.5; FY2022 -7.3; FY2023 0.1; FY2024 11.0; FY2025 5.0; FY2026 5.0; FY2027 5.5; FY2028 4.5; FY2029 4.0 - Real effective exchange rate (eop; + appreciation): FY2021 -5.0; FY2022 13.8; FY2023 10.9; FY2024 33.0 (reflects August 2024 data). *Source: IMF staff report content provided in the supplied PDF content unit.* ### Annex I. Country Engagement Strategy ### Annex I. Country Engagement Strategy ### Framing and recent developments - This CES updates the pilot CES endorsed by the Executive Board in January 2020. - Since 2022 Haiti made notable progress in governance, public financial management, and revenue mobilization anchored by the 2022 SMP and international support, but: - Efforts on the structural and macro front did not lift economic growth due to escalation of crime and a series of shocks. - Progress in revenue mobilization evaporated during episodes of gang violence through June 2024 and started again as the new transitional government began its mandate and security started slowly to improve. - Remittances are a major source of temporary resilience supporting consumption but cannot substitute for FDI (which are virtually nil). ### Sources of fragility - Multiple, interrelated drivers: - Weak institutions: pervasive corruption, weak governance, weak rule of law. - Exposure to natural disasters and climate shocks. - Gender gaps in economic opportunity. - Capacity constraints: low access to basic education (especially for girls) and record-high brain drain. - Recent crises compounding fragility: the pandemic; 2021 earthquake; assassination of the President in 2021; ongoing cholera outbreak; food crisis causing acute hunger; unprecedented gang violence. - Social outcomes: - Half its population lives below the poverty line. - World Bank estimates: in 2023, poverty likely increase to 29.2 percent ($2.15/day international poverty line) and 58.0 percent ($3.65/day). ### Dire humanitarian situation and food insecurity - Haiti faces a dire humanitarian crisis exacerbated in 2024 by a surge in criminal activity. - More than half of household consumption spending is on food; the resurgence of inflation has caused a hunger crisis. - Security crisis lockdowns worsened supply-side inflation due to a drastic drop in imports when gangs took control of the main port in Port-au-Prince through mid-July. - That port typically handled 85 percent of imported goods and gang control prevented (in March and April) or hindered (in May and June) the distribution of fuel in the country. - The number of people undernourished has increased steeply and internal displacement surged. ### Macroeconomic implications of fragility - Monetary and fiscal policy frameworks have been weakened and tend to be pro-cyclical. - Pervasive criminal activity has constrained tax collection: - Tax revenue as a percent of GDP is 5 percent. - Consequences and vulnerabilities: - Fiscal dominance and large monetary financing of the budget (historically). - Low capacity to target spending to the most vulnerable; poor quality and transparency of public spending; risk of misappropriation of public funds; poor data quality. - Enormous investment needs and lack of budget support by development partners owing to weak governance. - Weak judiciary that concentrates economic power and encourages rent-seeking; reflected in low World Governance indicators and record low FDI. - Financial sector vulnerabilities after six years of consecutive recession. ### Political and security context - Long-standing political uncertainty with democratic institutions deteriorating since early 2020. - Assassination of President Moïse in July 2021 aggravated instability. - Key events: - September-October 2022: gangs took control of the main oil terminal at Varreux and blocked fuel distribution. - December 21, 2022: a “national consensus for an inclusive transition and transparent elections” agreement set a timetable for elections by February 7, 2024; a High Council for the Transition; and a Body for control of government action. - The country has been without elected representatives since January 2023. - With gangs controlling most of the capital and the national police understaffed, the UN Security Council approved in October 2023 a Kenya-led multi-country security support mission (MSS) which began slow deployment at the end of June 2024. - After many years of political turbulence, the newly appointed government has a window to implement reforms; restoring security is the first priority. ### A. The Fund’s multi-layered engagement strategy - The Fund’s engagement has strengthened and is guided by pillars supported by capacity development and partner coordination: - The Article IV Consultation (2024) incorporates short- and medium-term perspectives and signals policy priorities to development partners; annexes quantify the impact of rising crime on real GDP and show scarring effects of crime on growth; annexes address gender, fiscal and monetary countercyclicality, GovTech, macro-financial linkages, climate resilience, and inflation dynamics. - A new SMP (still being finalized) aims to enhance governance, fight corruption, and lock in recent progress. - A forthcoming governance diagnostic assessment intended to operationalize anti-corruption actions; authorities wish to publish it once finalized later in 2024. ### B. Capacity development (CD) to enhance governance and transparency - CD delivery increased and was embedded in the 2022 and 2023 SMPs; structural benchmarks under recent SMPs were supported by tailored CD. - Structural benchmarks (selected examples) and CD outcomes: - SB 1: Publish procurement contracts — Published public procurement contracts. - SB 2: Expand Treasury Single Account to include main central budgetary units — Most extrabudgetary funds now on budget. - SB 3: Adopt a Medium-Term Fiscal Framework — Prepared a medium-term fiscal framework with NFPS as anchor. - SB 4: Publish main donor fund (FAES) quarterly reports — Published quarterly and annual reports on FAES operations and finances. - SB 5: Draft revisions to the AML/CFT law — Approved the revisions to the AML/CFT framework. - SB 6: Approve new tax code — Approved tax code. - SB 7: Publish customs codes and tariffs — Published codes and tariffs related to customs. - SB 8: Make Tax Identification Number compulsory and publish database. - SB 9: Amend central bank law; SB 10: Complete the financial audit of the central bank — Safeguards and revisions of central bank framework. - CD outcomes and priorities: - Timely publication of monthly execution budget data has greatly improved. - Implementation of the new tax code remains a top CD priority to raise revenue. - Central bank capacity for risk-based supervision enhanced; TA covers assessing banks’ risk profile, supervisory manuals, and Basel-aligned training. - Integration between CD and SMPs includes: governance diagnostic assessment; risk-based supervision; excise chapter revision; revenue administration and customs reform; quarterly GDP data production; balance of payments statistical improvements; transparency of beneficial ownership and AML/CFT supervision for DNFBPs. ### C. Leveraging development partner partnerships - Since October 2022 the Fund country team launched a joint governance matrix with key development partners on governance/PFM to improve coordination. - Major partners engaged: World Bank, IADB, EU, United Nations (including UN Ad Hoc Advisory Group on Haiti chaired by Canada), WFP, and bilateral partners including the U.S., Brazil, Canada, and France. - Fund’s comparative advantage: macroeconomic and financial policy expertise, stepped-up CD, and reinforced Haiti team resources; potential to increase field footprint when security allows. - Partnerships are essential to: - Build momentum and support for achieving macroeconomic stability and sustainable, inclusive growth. - Catalyze donor support (strategic partnerships). - Build institutional capacity (technical partnerships). - Rapid Crisis Impact Assessment (RCIA) (preliminary, July–October 2024) by World Bank, IADB, EU, UN in partnership with the government provides an initial assessment and a recovery framework and investment plan for the next two fiscal years. ### Reform priorities and outreach - Near-term economic reform strategy priorities (four objectives): - Maintain macroeconomic stability and raise growth, with domestic resource mobilization being the first priority. - Strengthen governance and transparency, particularly public finances and procurement. - Build a social safety net. - Prepare and implement mitigating measures to accompany fuel adjustments while ensuring domestic fuel prices are in line international prices. - Use of additional revenues should prioritize social safety net, health and education systems, police salaries and law and order, and key infrastructure to build public support. - The Fund has provided extensive TA; implementation of TA recommendations is critical to achieving objectives. - Outreach: strategic communication is necessary to advance the strategy and highlight progress on macroeconomic stability and governance in collaboration with development partners. ### Annex II (intro): Impact of crime on economic activity - Haiti’s security situation deteriorated after 2021; gangs now control more than 80 percent of Port-au-Prince. - Homicides and kidnappings skyrocketed in 2023 and even more so in 2024. - Surge in gang violence caused greater displacements and a contraction of economic activity across all key sectors through multiple channels and contributed to the worst food crisis of recent years and the prolonged inflation crisis. *Source: Annex I. Country Engagement Strategy.* ### 2. This analysis quantifies the impact of the rise in crime on Haiti’s real GDP in the ### 1htiea2024002-print-pdf - 2. This analysis quantifies the impact of the rise in crime on Haiti’s real GDP in the ### Impact of crime on Haiti’s real GDP (medium term) - If crime (proxied by homicide rate) is reduced to its pre-pandemic level, growth could rise by as much as 1.9 percentage points a year during 2024-28. - Two scenarios illustrate the impact of crime on Haiti’s GDP: - Scenario A: homicide rate stays high between 2024 and 2028 — average annual real GDP growth contracts by 1.6 percent. - Scenario B: homicide rate falls to pre-pandemic levels for 2024-28 — average annual real GDP growth expands by 0.2 percent. - Caveat: the simulation exercises do not consider other drivers of growth and, hence, these numbers should not be interpreted as GDP projections. ### Scarring effects of crime (dynamic response) - Based on the average international experience, the economy would not recover fully without additional measures: - The real homicide rate will exceed the pre-shock level persistently even five years after the shock. - Real GDP will stay below the pre-shock level over the medium term. - Magnitude of the effect: - For a 50 percent increase in the homicide rate, real GDP would remain below the pre-shock level by 1/2 percent of GDP five years after the shock. - Mechanisms for persistent adverse effects: - Negative impacts on productivity. - Negative impacts on capital accumulation. - Brain drain and displacements. - Uncertainty regarding the evolution of the security crisis amplifies adverse effects through persistent scarring. ### Impact of crime on investment and decomposition of growth effects - Crime affects growth through two channels: - i) Negative impact on investment. - ii) Negative impact on consumption, employment, and production efficiency. - Scenario comparison (2024-28): - GDP growth (per year) is 1.9 percentage points lower in the elevated-homicide scenario than in the pre-pandemic-homicide scenario. - Lower investment path explains 1.1 percentage points of the overall 1.9 percentage point difference. ### Key statistics and model scope - Model basis: global sample of 166 countries over the period of 1992-2021. - Crime measure: homicide rate (standard practice in the literature). - Data sources cited: World Bank Indicators, and the World Economic Outlook database. ### Closing gender gaps — potential macro gains (labor force participation) - Estimated GDP gains from reducing the gender gap in labor market participation: between 5 and 15 percent in the long term. - Historical context: - The gender gap narrowed over the past 30 years but widened further in 2019 and 2020 owing to deteriorating security and political instability. - Narrowing mainly due to decline in the male participation rate rather than a strong rise in female participation. - Methodology note: - Draws on Ostry, Alvarez, and Papageorgiou (2018): female and male labor distinguished in the production function. - Estimated elasticity of substitution about 2, implying female and male labor are complementary; higher female participation raises GDP both by increasing labor force and via complementarity. ### Gender gaps and socioeconomic indicators (selected findings) - Haiti's Gender Development Index (GDI) stood at 0.898 in 2021, on a downward trend starting in 2016 and falling in the first quartile worldwide. - Compared to peers: - GDI remains slightly above the median for other FCS, but well below the median for LICs and Caribbean countries. - Haiti lags peer FCS and LICs on education-related components for both female children and adults. - Health and violence: - Women's life expectancy remains higher than men's and above the median for women in LICs and FCS. - High maternal mortality: falls in the fourth quartile worldwide and well above the median for LICs and FCSs. - Elevated gender-based violence indicators. - Labor market outcomes: - Women's labor force participation is slightly above the third quartile worldwide but remains more than 8 percentage points lower than Haitian men. - Women's unemployment rate (especially for women with basic education) is among the highest in the world: above the third quartile worldwide, four times higher than the median of LICs and three times higher than the median of FCSs. - When employed, women's income averages one quarter below men's. - Women’s jobs are more likely to be vulnerable. - Political representation: - Women accounted for less than 3 percent of members in the latest parliamentary elections. ### Policy recommendations to close gender gaps in labor market access - A multipronged approach; implementation should be accelerated and sustained for medium- to long-term impact. Specific measures include: - Tailoring a gender-friendly tax system: - Reforms to taxation of labor income, more progressive and individualized systems to reduce disincentives for women to work. - Improving women's health and reducing maternal mortality: - Increase investment in new health facilities and upgrade existing ones, enhance staff skills, reduce access costs, and improve quality of services for women. - Raising women's education and job skills: - Sustained investment to increase girls' access to quality education and vocational training; reduce gender gaps in mean years of schooling, school attendance, and educational achievement. - Ramping up social programs targeting vulnerable and poor women: - Scale up and better-target existing social safety nets to address barriers to healthcare access and improve girls’ educational outcomes. - Increasing women’s financial inclusion: - Harness fintech, strengthen digital infrastructure (including Internet access), and run awareness campaigns to increase women’s digital literacy. - Stepping up the fight against gender-based violence: - Strengthen prevention, warning, and education tools; expand victim-support and grievance mechanisms; ensure strong judicial support. - Enhance accountability and effectiveness: - Consider implementing gender-responsive budgeting to monitor and evaluate government gender policy budget commitments. *Sources: World Bank Indicators, and the World Economic Outlook database.* ### Annex III B. Figure 2: Outcomes and Representation ### 1htiea2024002-print-pdf - Annex III B. Figure 2: Outcomes and Representation ### Outcomes and Representation — labor, legal rights, and political representation - The gender gap in labor force participation has declined over the past decades but gap remains. - Female representation in national parliament is below regional comparators. - Legal Rights: "Haiti has made limited progress in legal rights over the past decades... with several gaps still existing in legal equity between women and men." - Labor Force Participation Rate (female vs male): (figure source: World Bank Gender Data Portal). ### Financial inclusion — access, exclusion, and credit allocation - 2017: "13 percent of women had savings in financial institutions, compared to 11 percent of men." - Account ownership rates increased for both genders from 2011 to 2017, with "a 2-percentage points gender gap" remaining. - 2019: "47 percent of women and 45 percent of men remained completely excluded from the formal financial system." - 2023: "64 percent of credit allocated to men and 36 percent to women." - Policy implication noted: "These gaps highlight the importance of designing policies to support the needs of targeted groups." ### Child marriage, gender-based violence, and other constraints on female economic activity - Child marriage: - "About 22 percent of women are married by the age of 18." - Annex V note: "Eliminating child marriage in Haiti could potentially increase per capital growth by 0.9 percentage point." (IMF’s Child Marriage Toolkit) - Child marriage contributes to higher adolescent pregnancy, higher maternal death risk, pressure on the health sector, and lower secondary enrollment rates for girls. - Gender-based violence (GBV): - "Physical violence affects 28 percent of women ages 20 to 45 in the country." - "In 45 percent of cases, the act of violence is perpetrated by the intimate partner." - Context: proliferation of gang attacks, kidnappings, political and economic upheaval increases violence against women. - IMF research: "a one ppt decrease in the share of women who experience intimate partner violence is associated with an 8-9 percent increase in economic activity." - Infrastructure and services: - Access to electricity improved but a significant rural-urban gap remains, disproportionately burdening women's unpaid work time (fetching water, cooking, laundry, cleaning). - "There is also a significant unmet demand for contraception by women in Haiti, according to the latest data." ### Data gaps and priority areas for gender-disaggregated data - "Table 1 highlights other potential macrocritical gender inequalities for Haiti, while Table 2 shows the data availability on macrocritical gender gaps." - Priority data to collect or update: "school enrollment, literacy, STEM education, informal employment and gender wage gap," including as part of broader efforts to strengthen data collection. ### GovTech assessment — Haiti’s public-sector digitalization (GTMI) - World Bank GovTech Maturity Index (GTMI) overview: - GTMI scale: 0 to 1. - "Haiti's GTMI score fell to 0.202 in 2022 from 0.272 in 2020." - Haiti placed in "Group D — countries with a low or minimal focus on GovTech development." - Haiti's score is below the global median and those of LICs, FCSs, and other Caribbean countries. - Performance by GTMI subindices: - Haiti scores poorly on: Core Government Systems Index (CGSI); Public Service Delivery Index (PSDI); GovTech Enablers Index (GTEI). - Haiti scores at or above medians on Digital Citizen Engagement Index (DCEI) relative to FCSs and Caribbean countries, and close to LICs median. - Specific deficiencies identified: 1. Core government systems: - "Lack of a shared cloud platform available for all government entities." - "Lack of interface between public finance administration information systems, including tax and customs administrations." - "Lack of a Human Resources Management Information System self-service portal for employees and managers." - "Lack of a public investment management system." - "Limited capabilities of the e-procurement portal, which does not allow e-tendering and e-contracting and does not comply with the Open Contracting Data Standards." - "Need to strengthen governance of the operations of most government information systems (notably Treasury, DGI, and AGD) in terms of compliance, security, and auditing." 2. Electronic delivery of public services: - "Lack of a one-stop shop online public services portal and a mobile application enabling users to access public services." - "Lack of e-payment services." - "DGI has an online tax services portal but does not offer online transactional services or electronic invoicing." - "DGI portal offers electronic filing of tax and customs declarations but only for a limited number of taxes." - "Lack of online service portals for customs, social insurance, and pensions." 3. Digital engagement of citizens: - "Although an open data portal has been created, there is no national platform for citizens to participate in policymaking or to provide feedback on the delivery of public services." 4. GovTech enablers: - "The 2018-23 State Modernization Program includes a section on e-governance that could constitute a national digital strategy, but there is no specific government entity dedicated to its implementation." - "There are no right-to-information laws governing the conditions for making data and information available to the public online or in digital form." - "There is no legal or institutional framework to protect personal data and for management of digital risks." ### Potential fiscal gains from enhanced digitalization of customs (methodology and estimates) - Rationale: - "Strengthening the digital infrastructure of the customs administration will increase revenue. Customs revenue accounts for a sizable share of Haiti’s government revenue." - Customs revenue trend: "peaking in 2010 at 36.3 percent of domestic revenues and 2.4 percent of GDP" and "trending downward until 2022." - Decline drivers: "limited control of the tax base and pervasive corruption." - Estimate of revenue gains: - "We estimate that the tax revenue generated could range between US$129 and US$189.3 million, or between 0.6 and 0.9 percent of GDP." - Methodological approach: - Based on trade gravity model from the IMF Fiscal Monitor (2018). - Dependent variable: trade gap defined as difference between export value declared by importer and exporter normalized by declared average bilateral trade flow. - Model matrices include variables: cost, insurance and freight, distance, common borders and languages, VAT rate (or equivalent indirect tax rate), weighted average tariff, GDP and GDP per capita, inflation, exchange rate, participation in regional or international trade agreements, and the United Nations e-Services Index (normalized 0–1). - Revenue gain formulae: - Revenue Gain t = τrate . Δ(VTotalm − VTotalx) (equation (2) as presented) - Rearranged: Revenue Gain t = τrate . 1/2 (VTotalm + VTotalx) . βdigitm . Δzm (equation (3) as presented) - Assumption: progress in digitalization in the importing country increases only VTotalm and does not affect VTotalx. - Supporting figures and diagnostics: - Annex V. Figure 3: Customs duties and Imports (customs duties percent of domestic revenue; imports percent of GDP; customs duties percent of GDP). - Annex V. Figure 4: TradeGap (Percent) showing evolution since 2002. *Source: 1htiea2024002-print-pdf - Annex III B. Figure 2: Outcomes and Representation.* ### 9. The results of the econometric estimation of equation (1) presented in the Annex ### 9. The results of the econometric estimation of equation (1) presented in the Annex ### Econometric findings and estimated revenue gains - The importing country's digitalization index is positively and significantly associated with its trade gap based on the econometric estimation of equation (1) presented in the Annex. - The coefficients used to quantify revenue gains are the two TSLS estimates presented in the Appendix: 1.181 and 1.733. These determine the lower and upper ranges of revenue gains resulting from digitization. - Using the TSLS coefficients, 2021 imports data (free on board and cost, insurance, and freight), and the 2021 weighted average tariff, annual customs revenue gains for Haiti resulting from halving the country's distance to the digital border (∆푧푚) are estimated as: - US$129 million (lower range) - US$189.3 million (upper range) - These gains correspond to revenue increases of: - 0.6 percent of GDP (lower range) - 0.9 percent of GDP (upper range) - Calibration detail: With the Online Services Index for Haiti standing at 0.0865 in 2022, halving it from the frontier (the index's maximum value, set at 1) would bring it to 0.5432. ### Assessment of legal and institutional framework for public sector digitalization - Existing legal texts and actions: - Two laws on electronic signatures and electronic exchanges were passed in 2017. - Previous regulatory texts recognize the right of citizens to engage with public administration through electronic devices and govern business emails, domain names, and websites. - Identified gaps and needs: - Haiti lacks a national digitalization policy; the existing digital strategy is set to expire this year and its implementation progress has been limited. - Absence of a national entity to steer digital strategy execution. - Key legislation still required: texts relating to the right to digital information, cybercrime and other cyber-risks, protection of personal data, and creation of an institution responsible for ensuring the privacy of personal data. ### Infrastructure and human capital priorities - Preconditions and current access metrics: - Access to internet and a reliable electricity network accessible to most of the population are prerequisites for public administration digitalization. - Latest available data indicate: - Less than half the Haitian population has access to electricity. - 39 percent have access to internet. - Recommended investments and capacity-building: - Increased investment to extend electricity access should remain a priority. - Investment to develop public administrations' data storage and management capacities. - Enhance technical skills of public sector personnel responsible for designing, operating, and maintaining digital tools and services. - Awareness-raising campaigns and training programs—including within the education system—to enable users to take advantage of new digital tools. ### Priority digital upgrades for tax and customs administrations - Essential measures to capture revenue dividends from digitalization: - Introduction of an electronic payment system, including mobile payments, enabling taxpayers to discharge tax obligations remotely. - Digitalization of declaration and payment procedures at DGI's Large Taxpayers Department and Medium Taxpayers Department. - Integral automation of customs procedures to improve efficiency and reduce vulnerability to corruption and reinforcement of AGD information system (ASYCUDA), plus modules dedicated to tax and customs duties’ incentives and exemptions, automatized risks analysis and customs’ litigation. - Creation of customs’ value databases at the AGD for imported goods to avoid arbitrary assessment, comply with the Kyoto revised convention on transactional value, and improve transparency, authenticity and accuracy of customs filings. - Computerization and connection to ASYCUDA of all customs posts. - Complete interfacing between DGI and AGD information systems to facilitate information sharing, enhance protection of the tax base, and optimize domestic revenue collection. - Interconnecting DGI and AGD information systems with the Trésor Public information system to secure and improve the traceability of tax collection and accounting in the TSA. ### Literature evidence on GovTech benefits (Box 1) - Tax revenue and compliance: - Automation of tax procedures through digitalization could help increase tax revenue collection via improved tax compliance, enforcement, and increased formalization of the economy (Amaglobeli et al, 2023; Bellon et al, 2022; Okunogbe and Santoro, 2022; Mascagni et al, 2021; Slemrod, 2019; Pomeranz, 2015; Yilmaz and Coolidge, 2013). - Public spending and targeting: - Identification and authentication systems (e.g., biometric technology, mobile phone-backed applications) can improve targeting of social program beneficiaries, minimize leakage and delivery costs, and reduce social inequalities (Aiken et al, 2023; Aker et al, 2016; Muralidharan, Niehaus, and Sukhtankar, 2016; Aker and Blumenstock, 2014; Nose, 2023). - Governance and transparency: - Digitalization can strengthen governance and budget transparency, foster greater transparency in public procurement, curtail corruption vulnerabilities, reduce bias against small businesses through electronic procurement platforms, and elicit greater public awareness and citizen control of budget preparation and implementation (Ouedraogo and Sy, 2020; Pijoan-Mas et al., 2022; Zouhar et al, 2021). ### Key regression/estimation details from Annex V Table 2 - Selected coefficient estimates (regressors and estimators; robust standard errors in parentheses): - Im.Digitalization Index: - OLS: -0.069* (0.575) - TSLS-1: 1.733* (0.937) - TSLS-2: 1.181** (0.??) [coefficient reported as 1.181** in text; parentheses value placement in source indicates (0.575) on prior line—use exact coefficient values as reported: 1.181 and 1.733] - log Im.GDP: - OLS: -0.370*** (0.114) - TSLS-1: -0.831*** (0.191) - TSLS-2: -0.861*** (0.221) - log Ex.GDP: - OLS: 0.947*** (0.107) - TSLS-1: 1.475*** (0.194) - TSLS-2: 1.436*** (0.225) - Additional regression diagnostics and sample sizes: - Number of observations: - OLS: 36,626 - TSLS-1: 13,318 - TSLS-2: 10,944 - F-stat (first stage): - TSLS-1: 16.34 - TSLS-2: 17.24 - Instruments: - TSLS-1 and TSLS-2 use as instrumental variables R&D in percent of GDP and the logarithm of patents over R&D intensity, respectively. - Note: Controls include country fixed effects, year fixed effects, and time trends (linear and quadratic) omitted for parsimony. *, **, *** denote statistical significance at the 10, 5, and 1 percent levels, respectively. *Source: IMF staff calculations (content unit: econometric estimates, policy analysis, and recommendations as presented in the Annex).* ### 5. In this context, we gauge the effectiveness of automatic stabilizers as robustly as ### 5. In this context, we gauge the effectiveness of automatic stabilizers as robustly as possible. ### Conceptual and methodological challenges - Two different approaches to address indistinguishable cycle and trend in volatile developing economies: - Examine the fiscal response at the onset of the pandemic (useful because demand collapsed when the pandemic began and fiscal stimulus was the only appropriate option). - Conduct econometric analyses using real GDP growth as a proxy for the cyclical position (annualized negative growth rates reflect an economic recession). - Data limitations: - Ideal data: granular tax-filing units and individuals eligible for social assistance, and accurate information on discretionary fiscal policies and their aggregate-demand effects. - Haiti constraints: monthly fiscal data are highly aggregated; GDP figures only reported annually. - Two econometric techniques used: - Cross-country panel model with annual data (describes average developing-country experience and differences across developing countries, including fragile vs non-fragile). - Temporal disaggregation (Chowlin) using quarterly inflation rates and the Haiti ICAE to construct a quarterly GDP series for Haiti; seasonally adjusted using Census X-13. - Endogeneity concerns: - Reverse causality and fiscal multipliers bias estimates if unaddressed. - System-GMM is common in micro-panels, but for macro panels the mean group estimator with common-correlated effects is preferred. - For Haiti-specific regressions reverse causality is less worrisome since the country did not implement discretionary fiscal measures during the period of analysis (2008-22). - Measurement error and omitted variables risks: - Measurement error mainly relates to cyclical-position variable. - Omitted variables are relevant in panel estimation; addressed via mean-group estimator with common-correlated effects. ### Event analysis: Fiscal response at the onset of the pandemic (2019-20) - Sample and focus: - Analysis focuses on countries at a similar stage of development as Haiti, differentiating fragile and non-fragile states (Haiti = low-income and fragile). - Fiscal impulse refers to the year difference in the primary balance to GDP ratio over the 2019-20 period. - Cross-country evidence: - Among non-fragile LICs, primary deficits were larger where output declined the most. - For fragile states, the fiscal impulse appears uncorrelated with the degree of economic hardship. - Haiti’s observed pandemic reaction: - Haiti’s fiscal policy reaction was weakly countercyclical, given expenditure rigidities. - Normalizing changes in fiscal variables by the growth rate shows: - Lower-income non-fragile countries: fiscal policy reaction primarily countercyclical (revenues/spending-to-GDP ratios moved in same/opposite direction as GDP). - Fragile states (including Haiti): mixed experience; small decline in tax-to-GDP ratios and stable government-to-GDP ratios, suggesting financial constraints. - Caveat: - Calculations may overstate automatic stabilizers because they also capture multiplier effects of discretionary fiscal stimulus deployed by most countries. - Haiti did not introduce extraordinary tax relief; intended expansions in social, health, and security spending were not fully implemented. ### Econometric analysis: model and estimation - Core specification (as used for cross-country panel and Haiti-specific exercises): - Equation (1): ∆(F/Y)it = α + β ẏit + δ (F/Y)it−1 + γ Xit + εit - F = fiscal variable (primary balance; tax revenues aggregated/disaggregated; government spending aggregated/disaggregated between consumption and gross fixed capital formation). - X = vector of controls, includes inflation. - ẏ = real GDP growth; parameter of interest is β. - Countercyclical fiscal policy: β>0 for primary balance and tax-to-GDP ratios, β<0 for spending. - Panel framework addressing heterogeneity and common factors: - Uses common-correlated effects mean group (CCEMG) model (Pesaran 2006). - Modified equation (2): ∆(F/Y)it = βi ẏit + Φi Zit + εit, with Zit = {Xit, (F/Y)i,t−1}, and εit = α1i + θ1i Ft + εit. - Model allows country-specific slope coefficients βi and incorporates unobserved common factors Ft with heterogeneous loadings to capture time-variant heterogeneity and cross-section dependence. - CCEMG augments regressions with cross-section averages {∆(F/Y)̅, y̅, Z̅ } to account for unobserved common factors; mean-group estimator corresponds to average β̅ across countries. - Haiti-specific model: - Annual data since 2008 gives only 15 observations—insufficient statistical power. - Temporal disaggregation (Chowlin) constructs quarterly GDP; quarterly model estimated with Prais-Winsten and Cochrane-Orcutt GLS to account for serial autocorrelation. - In figures, CCEMG mean-group estimates are dark blue (full sample and subsamples), Haiti-specific cross-country estimate is light blue, and Haiti quarterly model estimate is dark red. ### Key empirical findings - Primary balance: - The fiscal stance in Haiti does not exhibit a clear countercyclical response. - For the average EMDE and fragile and low-income country, a 1 percent increase in real GDP is associated with an increase in the primary-balance-to-GDP ratio of about 0.15 percentage points. - Revenues and tax composition: - Revenues contribute to a countercyclical pattern overall. - Estimates for Haiti align with average EMDE and fragile and low-income countries but with greater uncertainty. - Taxes on income and profits capture PIT and CIT; consumption taxes include general sales tax and excises. - Consumption taxes contribute to the countercyclical response; income taxes appear a-cyclical. - A-cyclicality of direct taxes in EMDEs may reflect narrow tax bases tied to political agency issues and reliance on distortionary tax incentives. - In Haiti, implementation of the new tax code (which precludes extension/granting of new tax agreements while preserving current tax rate structure) could strengthen the automatic-stabilizing role of direct taxes. - Expenditures: - All estimates suggest government spending is acyclical in fragile states, including Haiti. - In the average EMDE: - Current spending is negatively associated with output growth (contributes to countercyclical fiscal policy). - Public investment is acyclical (supports long-term growth). - For fragile states and Haiti: - Current and productive spending are acyclical. - Large standard errors in mean-group estimates reflect wide cross-country heterogeneity. - Haiti annual model has wide errors likely due to small sample size. - Haiti quarterly model confirms that acyclicality of current spending (public wages and fuel subsidies) cannot be rejected at a high confidence level. - Investment spending (domestically financed public capital goods, other goods, and services) reacts positively to economic growth, contributing to a pro-cyclical policy stance. - Implication: during downturns the government prioritizes current spending (public wages, transfers to the fuel sector), compounding rather than mitigating aggregate demand fluctuations. ### Conclusion and policy implications - Overall assessment: - Across methodologies the qualitative results and policy implications are broadly consistent: Haiti’s fiscal policy is, at best, weakly countercyclical. - Estimates are more uncertain for Haiti due to data limitations and sample size; quarterly-disaggregated analysis improves statistical power. - Policy implications highlighted in the analysis: - Strengthen tax base and implementation of the new tax code to enhance the automatic-stabilizing role of direct taxes. - Address expenditure rigidities that lead to acyclical or pro-cyclical spending patterns—particularly the tendency to prioritize current spending (public wages and fuel subsidies) during downturns. - Improve data granularity (tax-filing units, social assistance eligibility, detailed discretionary policy measures and their demand effects) to enable more precise measurement of automatic stabilizers. - Consider reforms that allow countercyclical fiscal policy space for fragile states constrained by financial limitations during recessions. *Source: IMF staff analysis contained in the chapter titled “5. In this context, we gauge the effectiveness of automatic stabilizers as robustly as possible.”* ### 16. The empirical analysis suggests that Haiti has wider scope to enhance the stabilizing ### 16. The empirical analysis suggests that Haiti has wider scope to enhance the stabilizing role of fiscal policy, making fiscal policy more countercyclical ### Fiscal policy: revenue and expenditure reforms to strengthen automatic stabilizers - Revenue-side recommendations: - Eventual adoption of the New Tax Code could: - Strengthen the stabilizing role of direct taxes. - Broaden the tax base. - Address potential political agency problems in providing discretionary tax incentives. - Expenditure-side recommendations: - Recalibrate the expenditure mix to eliminate inefficient rigidities and enhance automatic stabilizers. - Reform the fuel subsidy regime by implementing the amendment to the 95 Law to allow retail fuel prices to (at least partly) adjust to international market conditions, reducing budgetary pressures and freeing resources for the social safety net. - Social protection recommendations: - Expand programs that target vulnerable individuals before, during, and after fuel subsidy reform because their higher propensity to consume would help smooth aggregate demand fluctuations. - Strengthen social assistance programs targeting lower-income households, such as the cash transfers program (PSARA), to enhance the effectiveness of automatic stabilizers by supporting the poor and unemployed. ### Annex VI B — Quantified benefits of revising the fuel subsidy regime - Objective of analysis: - Quantifies benefits of a regime that passes on (at least partly) changes in international fuel prices to consumers using simulations based on 2020 and 2022 international market episodes. - Simulations assume retail prices allowed to fluctuate with global prices up to +/- 5 percent a month. - Haiti context under the current regime: - Fuel companies import and sell fuel at a fixed price denominated in gourdes; government reimburses (positive subsidies) or is paid by (negative subsidies) oil companies for the differential with international prices. - Large rises in global oil prices and/or sharp gourde depreciation increase government payments, risking arrears and potential supply disruptions and black market distortions. - Historical episodes: - August–November 2020: sharp appreciation of the gourde → price of gasoline fell sharply. - January–June 2022: rising global fuel prices and weakening gourde → fuel prices increased markedly. - Staff capacity assistance provided: - Short-term: specify parameters of pricing formula; decide frequency of price adjustment, smoothing mechanism, and phasing-in strategy. - Institutional: define responsibilities for setting prices; short-term regulator management with later strengthening of fuel price regulation independence. - Medium term: detailed market study on fuel product cost and margins and revise reference prices and pricing formula to promote efficient operations. - Quantitative scenario results (FAD-recommended regime vs status quo): - Mechanism caps monthly price changes at 5 percent and passes part of international price changes to consumers, reducing volatility of retail prices and fiscal net revenues. - Scenario 1 (international prices fell in 2020): - Annualized net revenues would have fallen from 0.25 to 0.18 percent of GDP under the reform (top-left Figure 2). - Retail prices at the pump would have adjusted downward gradually at a pace of 5 percent a month under the reform versus a discretionary downward adjustment of 10 percent under the status quo (top-right chart). - Scenario 2 (international prices rose in 2022): - Proposed regime would have reduced net gas payouts by 25 percent: annualized energy subsidies of 0.75 percent of GDP under the reform versus 1 percent of GDP under the status quo (bottom-left chart). - Proposed mechanism implies a gradual 5 percent monthly increase in retail gasoline prices under the reform versus a 130 percent ad-hoc increase announced by authorities in September 2022 (bottom-right chart). - Policy implementation considerations: - Capping monthly price changes and adopting a rules-based mechanism reduces discretionary adjustment shocks that increase economic and social instability. - To minimize social unrest risks, communicate reform timely and clearly and precede/accompany it with steady strengthening of the social safety net. ### Monetary and exchange rate policy: recent progress, remaining priorities, and model-based guidance - Recent progress and context: - Since 2022, reforms under Staff-Monitored Programs (SMP) to strengthen monetary framework and reduce fiscal dominance. - BRH actions: - Adopted a ceiling on credit to the non-financial public sector (NFPS) to limit monetary financing of the fiscal deficit: target less than 1½ in FY2022-23 and to bring it to zero from FY2023-24 onward. - Committed to conducting short-term liquidity operations at a fixed rate with full allotment (including at seven days). - Committed to limiting FX interventions to smooth excessive exchange rate volatility and to review the FX intervention framework. - Recent observed outcomes: - BRH reduced monetary financing to the NFPS below 0.9 percent of GDP in FY2022-23 from 3 percent in FY2021-22. - BRH net credit to the government: 10.4 percent of GDP in FY2022, reduced to 8.5 percent in FY2023. - Monetary financing fell to 0.9 percent of GDP in FY2023 from 3 percent in FY2021. - Annual inflation trended upward since FY2017, reaching 44.1 percent in FY2023 and easing to 22.1 percent in December 2023. - Dollarization and foreign-currency exposure in FY2023: - Dollarization about 69.4 percent of total deposits in FY2023. - Ratio of foreign-currency credit to total private-sector credit 52.4 percent in FY2023. - Exchange rate pass-through to CPI estimated at about 0.30. - Operational frictions and market structure: - Short-term interest rate/policy rate transmission weak; BRH policy rate at 11.5 percent has not been adjusted since August 2022. - Government bond market shallow; one commercial bank main buyer of BRH bills; thin interbank money market; formal interbank rates exceed BRH bill rates. - Reserve-requirement ratios extensively used to manage liquidity and act as a source of gross foreign reserves. - September 1996 ratios: 0.265, 0.125, 0.165, and 0.16 (for transferable deposits in gourdes, transferable deposits in US dollars, savings accounts in gourdes, savings accounts in US dollars, respectively). - August 2022 adjusted ratios: 0.45, 0.53, 0.34, and 0.4. - Depository institutions hold increasing balances in excess of requirements, creating structural excess reserves; BRH lacks standing facilities to set an interest rate corridor. - Cyberattack impact: - IT attack on June 2023 affected production of monetary data and some operations. - Recommended components of a monetary strategy: - Continue keeping monetary financing of the non-financial public sector deficit to zero. - Conduct short-term liquidity operations at a fixed rate with full allotment to manage excess liquidity. - Raise the policy rate. - Reduce reserve requirement ratios. - Adopt an FX market intervention rule with pre-defined targets to increase transparency and encourage forward-looking bank liquidity management. ### Model-based analysis and quantitative guidance on optimal monetary financing - Modeling framework: - A dynamic general equilibrium model tailored to Haiti’s circumstances captures fiscal dominance, limited financing options, and fragility frictions (e.g., oligopolistic production, gang activities raising marginal costs). - Framework follows money in the utility approach (Sidrauski 1967) integrated into the Ramsey (1928)/Cass (1965)/Koopmans (1965) neoclassical growth model. - Model quantifies optimal level of central bank credit to the government, speed of convergence to that level, and implications for short-term interest rates and reserve requirement ratios. - Sensitivity analysis includes frictions relevant to fragile and conflict-affected states. - Key quantitative model implications: - In the vicinity of the balanced growth path, net credit to the NFPS per unit of effective labor, denoted as m(t), can converge toward a non-inflationary optimal level m* at a speed proportional to its distance from m*: - Path: m(t) − m* ≈ e^(−λ t) ( m(0) − m* ), where −λ is the growth rate of m(t) − m* and corresponds to the speed of convergence toward m*. - The speed parameter −λ depends on: interest elasticity of money demand; discount factor; coefficient of relative risk aversion; marginal productivity of capital; depreciation rate of capital; long-term growth; and population growth. - Applied to Haiti’s parameters, the results show the growth rate (−λ) could be about 16.7 percent, which corresponds to monetary financing of about zero percent of GDP for an initial net credit to the government of 10.4 percent of GDP. *Prepared by IMF staff; content reflects chapter sections and annexes from the supplied IMF document.* ### 10. The above simulations help inform the design of a recommended monetary strategy. ### 10. The above simulations help inform the design of a recommended monetary strategy. ### Monetary strategy: design and instruments - Recommended anchors and operations: - A ceiling on credit to government as the main anchor to limit monetary financing of the deficit, combined with greater exchange rate flexibility. - Short-term liquidity operations to manage excess liquidity in the banking system. - A comprehensive strategy combining short-term interest rates and reserve-requirement ratios. - Interaction of instruments and effects: - Keeping the monetary financing of the fiscal deficit to zero puts upward pressure on the short-term interest rate, requiring some adjustments. - Higher interest rates could reduce the negative real interest rate. - If higher interest rates are combined with short-term liquidity operations to manage excess liquidity, this would help drain excess liquidity from the banking system. - Draining excess liquidity creates scope for reducing reserve-requirement ratios, while strengthening the interest-rate channel and the transmission of monetary policy. - Possible forms of liquidity operations: - Reverse operations, swaps, outright purchases, or sales of fixed-term deposits, executed through tenders. - Bilateral procedures, collateralized operations, and reverse transactions should not be excluded. ### Exchange rate policy (DSGE-based insights and guidance) - Model and shocks: - The model was extended to a dynamic stochastic general equilibrium (DSGE) model calibrated and estimated using Haiti quarterly data on ICAE, inflation, short-term interest rates, exchange rates, and central bank credit to NFPS. - The DSGE model incorporates shocks especially money growth and productivity shocks and permits computation of the speed of convergence of monetary financing of the fiscal deficit consistent with Haiti’s behavior. - Responses to a money growth shock: - An unanticipated money growth shock has only a minor impact on the exchange rate. - It would increase the money supply, put downward pressure on short-term interest rates (due to the interest elasticity of money demand), and boost inflation in the near term. - Quantified responses reported: - An unexpected money growth shock could generate an increase of 0.001 percent in long-run inflation. - A decrease of 0.005 percent in short-term interest rate. - Impact on output is mixed; the exchange rate appears unaffected. - Policy implication: forward guidance that the BRH might adopt a “benign neglect” approach vis-à-vis the impact of money growth shocks on the exchange rate as it leads to non-inflationary monetary financing of the fiscal deficit. - Responses to a productivity shock: - A positive productivity shock (1 standard deviation) would raise output by more than 0.5 percent. - Inflation response: inflation would increase by 0.04 percent following a productivity shock, then decline to near zero in the medium term. - Exchange rate response: the exchange rate overshoots by about 0.3 percent in the short run, then adjusts gradually toward equilibrium. - The inflation response depends on whether tradable versus non-tradable goods are affected; tradable-good productivity improvements can put pressure on inflation via exports. - Policy implication: the asymmetric exchange rate responses to money growth and productivity shocks offer additional forward guidance on exchange rate policy. - BRH operational guidance: - Limit interventions in the FX market to smoothing excessive exchange rate volatility. - Adjust the exchange rate in an orderly way and intervene to calm market pressures when demand/supply of foreign currencies is large, allowing the exchange rate to serve primarily as a shock absorber. - FX interventions would also help narrow the parallel market premium. ### Financial sector reforms and market development - FX market functioning: - Under the 2022 SMP, authorities adopted a floor on net international reserves (NIR) and committed to establishing an FX market intervention rule. - A rule with pre-defined targets could enhance transparency of BRH FX interventions and encourage banks to manage liquidity more forward-looking. - The BRH could implement an FX intervention rule with an appropriate mechanism such as well-designed weekly FX auctions in lieu of the foreign exchange allocation system. - Review limits on banks' net open FX positions to render the FX market deeper; limits can encourage active FX risk management by banks. - Deepening financial markets: - BRH initiatives: deepen the government securities market; develop the inter-bank money market with overnight lending facilities, open market operations, repos, and reverse repos; and enhance domestic saving instruments. - Deepening securities market will provide an alternative funding source to the treasury and a more effective conduit for monetary policy. - New money-market standing facilities could help BRH manage liquidity, but design and use (collateral policies, liquidity forecasts) require in-depth discussions with Fund TA experts to avoid undermining risk management incentives, exposing the central bank balance sheet to credit/market/liquidity risks, or impeding money market functioning. ### Stylized facts and macro-financial vulnerabilities (Annex VIII) - Size and structure: - Haiti's financial system is small, with assets (excluding the central bank) equivalent to less than 20 percent of GDP. - The financial sector has grown by 3 percent of GDP since 2019. - Credit and institutions: - Credit provision dominated by commercial banks: close to 90 percent of the country’s loan volume is provided by commercial banks; the remainder by microfinance institutions. - Microfinance institutions play a relevant role for small firms and rural customers; savings and credit cooperatives and microfinance institutions serve mainly rural customers. - Insurance system is underdeveloped. - Concentration: - The banking sector is highly concentrated: the three largest banks (out of eight) hold more than 80 percent of commercial bank assets, 75 percent of banking system loans, and 82 percent of banking system deposits. - Concentration leads to reduced competition, higher costs, risk concentration, and potential systemic risk if large banks come under stress. - Capitalization, liquidity, and reserve requirements: - While the banking system is well capitalized and liquid overall, there is heterogeneity across institutions; all banks but one meet the minimum regulatory capital adequacy ratio of 12 percent. - One public bank, the smallest by asset size, has negative equity. - High reserve requirements: 51 percent for foreign-currency deposits and 40 percent for gourde deposits. - Bulk of bank assets are placed with the central bank; banks place excess liquidity at the central bank because of the security situation and lack of bankable projects with preferred clients. - Asset quality and profitability trends: - Profits are falling and levels of non-performing loans (NPLs) are rising despite a repayment moratorium recently extended through September 2024. - NPLs have risen to 12 percent. - Lending patterns and credit gap: - Bank lending concentrated in wholesale trade (23.2 percent), retail trade (11.6 percent), food and beverage (11.5 percent), commercial real estate (10.3 percent), residential real estate (8.8 percent), consumer credit (6.9 percent), construction (6.2 percent), and other sectors. - The number of borrowers at commercial banks fell from over 140,000 in September 2017 to 63,596 in March 2024. - Banks have greatly reduced lending to the private sector, by almost 21 percent year-on-year by March 2024. - A credit gap analysis reveals a gap for June 2024 of 22 percent—private-sector borrowing is well below potential. - Loan/deposit ratio is under 30 percent. - Total deposits account for the bulk of bank funding, amounting to around 80 percent of total assets. - Dollarization and central bank FX position: - Overall deposit dollarization as a percent of total broad money remains elevated, at about 55 percent for the past year. - Central bank net foreign exchange position has been deteriorating since 2016 and has become negative since end-2020. *Source: 1htiea2024002-print-pdf - 10. The above simulations help inform the design of a recommended monetary strategy.* ### 11. In contrast, commercial bank balance sheets are well hedged overall with foreign ### 1htiea2024002-print-pdf - 11. In contrast, commercial bank balance sheets are well hedged overall with foreign ### Currency substitution and banking sector FX positions - Banks have low net open positions in foreign exchange to capital, which is one percent. - Three banks regularly have ratios higher than the regulatory limit, but these ratios rarely exceed 3 percent. - A short-term mismatch persists with short-term foreign currency liabilities exceeding short-term foreign currency denominated assets. - Banks’ funding comes mainly from household deposits, which are generated from remittances; remittances have remained high during the current crisis as overseas Haitians provide support to their families. - Commercial banks provide a significant amount of foreign exchange to the central bank, half of which they must keep with the central bank as required reserves. ### Balance Sheet Analysis (BSA): exposures and vulnerabilities - The BSA covers seven sectors: (i) government; (ii) central bank; (iii) other depository corporations (ODCs, i.e., commercial banks); (iv) other financial corporations (OFCs); (v) nonfinancial corporations (NFCs); (vi) households; and (vii) external. - Key BSA findings: - The banking sector is mostly exposed to NFCs and thus vulnerable to a direct shock to NFC balance sheets (e.g., high nonperforming loans, many of which are under a repayment moratorium); this exposure decreased slightly from 2020 to 2022. - Commercial banks’ direct exposure to government picked up between 2020 and 2022, albeit remaining moderate. - NFCs rely largely on external financing, which exposes them to the risk of currency mismatches; external funding of NFCs takes the form almost entirely of foreign direct investment, which limits the risk of a sudden withdrawal of funding from external creditors. - Without many bankable opportunities and with high reserve requirements, commercial banks are exposed to the BRH (central bank). - The BRH has a relatively high exposure to the government, which grew considerably during the crisis from 2020 to 2022. - The central bank is a net debtor and its debtor position reflects vulnerabilities due to the low level of equity. - Banks source funds from the private sector but largely deposit these savings at the central bank rather than extending credit to the private sector. - Lack of domestic credit from banks forces nonfinancial corporates to rely on foreign direct investment from offshore. ### Network maps and cross-sectoral linkages - Network maps visualize gross cross-sectoral exposures; arrow thickness indicates magnitude of gross exposure and node color distinguishes net creditors (green) from net debtors (red). - Stylized transmission features in Haiti: - The Haitian financial sector has built up a large exposure to the government over the years, with a unique transmission channel via the central bank: banks channel household savings to the government indirectly by parking reserves at the central bank. - The central bank mobilizes funding by issuing currency and holding bankers’ deposits, primarily in FX; it has used these funds to invest overseas (international reserves) and to lend to the government. - Banks do not significantly lend to the private sector but instead deposit savings at the central bank, reinforcing the central bank’s intermediation role. ### Data issues, adequacy, and recommended corrective actions - Haiti participates in the Enhanced General Data Dissemination System (e-GDDS) by only posting metadata (not data) since December 2009; Haiti has yet to disseminate data recommended under the e-GDDS on a National Summary Data Page and does not use an SDMX technology. - Other data points: - Financial access survey (FAS) data last observation is 2020. - Changes since the last Article IV consultation: GDP data from the demand side was compiled; timeliness in reporting of monetary, national accounts and real sector data as well as government finance statistics improved since 2019 until the IT cyber-attack incident at the central bank in June 2024. As a result, earlier improvements in timeliness of monetary and reserve data statistics were not consistently maintained. Since mid 2024 strong progress has been made to revert to previous achievements. Publication of central government finance data has greatly improved since 2019 Article IV. - Rationale for staff assessment notes that monetary and external sector statistics have long delays since the IT attack in June 2023, reducing their usefulness for surveillance; however, timeliness of the data submission has improved recently. Data quality issues are revealed through frequent revisions to key macroeconomic aggregates like money, credit aggregates, and international reserves. - Corrective actions and capacity development priorities (as listed): 1) There is significant scope to improve the source data and compilation methodology and rebase the GDP estimates to a more recent base year. In due course, the forthcoming quarterly GDP calculations should also be aligned with the updated base year; 2) Address misclassification issues in tax revenue data included in the Central Government Operations Table (TOFE); 3) Expand coverage of public sector debt to include extrabudgetary units, state-owned enterprises, and government guarantees; 4) Ensure the timely implementation of the plan to enhance the quality of external sector statistics, including international reserves, supported by technical assistance (TA). Compilation of Reserve Data Template on International Reserves and Foreign Currency Liquidity is in progress, supported by TA; 5) Implement the eGDDS framework to improve transparency. *Source: Reserve Bank of Haiti and IMF staff calculations; IMF staff compilation as presented in the provided content.* ### 2. Haiti: Data Standards Initiatives ### 2. Haiti: Data Standards Initiatives ### Data Quality and Provision - The data provided to the Fund is adequate for surveillance (heatmap/code: C). - Note: When the questionnaire does not include a question on a specific dimension of data quality for a sector, the corresponding cell is blank. - The overall data adequacy assessment is based on staff's assessment of the adequacy of the country’s data for conducting analysis and formulating policy advice, and takes into consideration country-specific characteristics. - The overall questionnaire assessment and the assessments for individual sectors reported in the heatmap are based on a standardized questionnaire and scoring system. - Granularity notes: - The top cell for "Granularity" of Government Finance Statistics shows staff's assessment of the granularity of the reported government operations data; the bottom cell shows that of public debt statistics. - The top cell for "Granularity" of Monetary and Financial Statistics shows staff's assessment of the granularity of the reported Monetary and Financial Statistics data; the bottom cell shows that of the Financial Soundness indicators. - Data provision to the Fund through the National Summary Data Page includes: - Exchange Rates - International Reserve Assets and Reserve Liabilities of the Monetary Authorities - GDP/GNP - Reserve/Base Money - Broad Money - Central Bank Balance Sheet - Consolidated Balance Sheet of the Banking System - Interest Rates - Consumer Price Index - Revenue, Expenditure, Balance and Composition of Financing — General Government - Revenue, Expenditure, Balance and Composition of Financing — Central Government - Stocks of Central Government and Central Government-Guaranteed Debt - External Current Account Balance - Exports and Imports of Goods and Services ### External Sector Assessment — Overall - Overall assessment: The external position of Haiti in FY2023 was weaker than the level implied by fundamentals and desirable policies. - Preliminary information on FY2024 points to a continued real appreciation of the gourde, amid strong real-side restraints on economic activity. - Potential policy responses: - Continue reforms and address Haiti’s security situation and business climate to address vulnerabilities and strengthen the external position. - BRH should maintain its policy of limiting interventions in the FX market to smoothing excessive volatility. - Increase transparency in FX interventions. - Advance on the formalization of the exchange market. ### Foreign Assets and Liabilities: Position and Trajectory - Background (end-FY 2023): - Net international investment position (NIIP): negative at US$1½ billion, or 7.7 percent of GDP. - Gross assets: 18.6 percent of GDP (composed mostly of gross international reserves 12.1 percent of GDP and other investment assets from the banking sector 4.9 percent of GDP). - Gross liabilities: 26.3 percent of GDP (mostly direct investment 10½ percent of GDP and public debt 12 percent of GDP, the majority owed to Venezuela). - Despite a sizable current account deficit in FY 2023 (3½ percent of GDP) and limited financing, the net IIP improved by 0.6 percentage point compared to FY 2022 due to high errors and omissions in the balance of payments (3.4 percent of GDP). - Longer horizon: Since FY 2016 net IIP has hovered between minus 5½ and minus 8½ percent of GDP. - Between FY 2016-23: current account deficits averaged around 1½ percent of GDP and were absorbed by capital transfers (around ½ percent of GDP), errors and omissions (around 0.7 percent of GDP), and the denominator effect from average nominal growth of 3½ percent per year in GDP in U.S. dollar terms. - Assessment: - In the near-term, IIP performance is satisfactory given security and institutional constraints. - Debt forgiveness from Venezuela is expected to have improved the IIP substantially in FY2024, possibly bringing it close to zero. - Persistent elevated current account deficits would pose a medium-term risk to the IIP. - Key FY2023 metrics (percent of GDP): - NIIP: -7.7 - Gross assets: 18.6 - Debt assets: 6.5 - Gross liabilities: 26.3 - Debt liabilities: 14.2 ### Current Account - Background: - Current account deteriorated from a deficit of 2.3 percent of GDP in FY 2022 (about US$450 million) to 3½ percent of GDP in FY 2023 (about US$700 million). - Net trade deficit in goods and services: about 21½ percent of GDP. - Net current transfers: about 18 percent of GDP. - Goods exports collapsed from US$1.28 billion to US$0.96 billion (goods exports/GDP ratio to 4.9 percent, the lowest since FY 2010). - Imports of goods remained constant in nominal terms at about US$4.7 billion (around 24 percent of GDP), with a composition shift of around 2 percent of GDP from manufactured products and fuel toward food products. - Preliminary FY2024: - Exports contraction: around 20 percent. - Imports contraction: around 10 percent. - Remittances support: about 10 percent increase. - Expected current account balance: deficit of around ½ percent of GDP. - Structural impediments: security situation, poor port and road infrastructure, limited credit, electricity, water, inadequate legal/regulatory environment, concentrated export base (apparels > three-quarters of goods exports; about 70 percent to the United States), dependence on imports and remittances, proneness to natural disasters. - Assessment: - EBA-lite current account model indicates FY 2023 balance is weaker than medium-term fundamentals and desirable policies suggest. - Model gap: minus 2.9 percent of GDP between cyclically adjusted current account deficit of 4.0 percent of GDP and model-based norm of -1.1 percent of GDP. - Data limitations: errors and omissions (3.4 percent of GDP) cast significant uncertainty. - Policy context: Haiti’s policies were relatively supportive of the current account in FY 2023; if policy gaps were comparable to the rest of the world, the current account deficit could have been 6.3 percent of GDP wider. - Policy recommendations: - Fiscal consolidation to support current account balance. - Focus on increasing productivity, diversifying exports, and lowering private precautionary saving through inclusion-enhancing policies (higher spending on social assistance, education, health, and measures to increase financial access). - Strengthen business climate and move toward a more market-determined exchange rate to help exporters’ medium-term competitiveness. ### Real Exchange Rate - Background: - Between FY 2022 and FY 2023: - Year-average real effective exchange rate (REER) appreciated 7 percent. - Year-average nominal effective exchange rate (NEER) depreciated by 22 percent. - Year-average nominal exchange rate against the U.S. dollar depreciated by 24 percent. - In FY 2024, REER appreciated further by more than 30 percent (year-average, based on August 2024 data). - End-of-period nominal exchange rate against the U.S. dollar: - Depreciated by 12 percent in FY 2023 (24 percent depreciation between end-September 2022 and mid-April 2023, followed by recovery of 15 percent through end-September 2023). - Appreciated 2 percent through end-September 2024 (FY 2024). - Over five years (FY2019-2023): - Year-average REER appreciated by 30 percent. - September 2023 REER was 46 percent above the FY2018 average. - Year-average NEER depreciated 49 percent in five years. - Domestic inflation above nominal depreciation has been the main driver for REER appreciation. - Assessment: - EBA-lite CA and REER models suggest an overvaluation of the gourde of 25-30 percent, consistent with real appreciation over the past 5 years. - Magnitude of overvaluation is difficult to ascertain given BOP data inconsistencies and security/structural factors affecting international trade. - Further real appreciation in FY2024 compounds FY 2023 overvaluation and could lead to pressures on the exchange rate once security improves and economic activity resumes. ### Capital and Financial Accounts: Flows and Policy Measures - Background: - Capital transfers contribution to finance the current account deficit declined from 1 percent of GDP in FY 2018 to 0.3 percent of GDP in FY 2023. - On the financial account: - Foreign direct investment dropped from 0.6 percent of GDP in FY 2018 to 0.1 percent of GDP in FY 2023. - Other investment provided 0.5 percent of GDP to non-banks in FY 2023. - Government financing: government didn’t draw loans in FY 2023 beyond the IMF RCF Food Shock Window (0.5 percent of GDP in exceptional financing), consistent with SMP commitments. - Assessment: - Ongoing security volatility greatly impairs the investment climate. - Improving security while sustaining reforms is the most effective way to attract FDI. ### FX Intervention and Reserves Level - Background: - Gross international reserves (GIR) increased from US$2.1 billion at end-September 2022 to US$2.35 billion at end-September 2023 (about 5-6 months of imports or 12 percent of GDP). - Key deductions from gross to net reserves at end-FY 2023 included: - Central bank FX-reserve-related liabilities to the banking sector: about US$1.3 billion. - FX liability to the MEF on the Venezuela transitory account: US$515 million. - Exchange rate regime: de jure floating; since January 2024 de facto “stabilized” arrangement. - Parallel-official exchange rate gap: - Peaked at about 25 percent in March 2021. - Narrowed thereafter; at end-September 2024 gap was 1.6 percent (BRH data) or 3 percent (staff survey). - Central bank monitors exchange rate due to high pass-through to domestic prices, implications for banking system liquidity, and impact on growth; regulations have channeled more dollars to the formal FX market. - Assessment: - GIR coverage is above the three-month import coverage rule-of-thumb and the reserve adequacy metric for credit-constrained economies (2.6 months of imports, based on data through FY2023). - Potential FX drains are high, posing external sustainability risks. - Defending the nominal value of the gourde, including through accumulation of reserve-related liabilities, should continue to be limited. ### Inflation Dynamics in Haiti - Overview: - Inflation has historically been higher than in comparable countries. - Drivers include food and energy inflation, monetary financing, exchange rate depreciation, natural disasters, and supply-side shocks (crime and social unrest). - Two approaches used: hybrid Phillips curve estimation and an event analysis since the last Article IV consultation. - Key findings: 1. Inflation episodes and persistence - Since 1998, year-on-year inflation has been above 5 percent for almost 80 percent of months, and above or equal to 10 percent for more than half of them. - Longest low-inflation period: April 2009 to June 2015 (six years) with average inflation rate of 4.1 percent. - Successive peaks: May 2016 at 13.2 percent; August 2020 at 27.8 percent; January 2023 at 49.3 percent. 2. Food inflation - Food inflation has been the main driver of headline inflation over the past two decades. - Contribution of food to headline inflation increased since 2015, culminating at 58.1 percent on average between 2020 and 2023. - Main drivers within food: cereals, dry peas, and edible oil. - Other contributors (to a lesser extent): housing, water, gas, electricity, other fuels, and transport; these have trended down for more than a decade but became less homogeneous since the Covid-19 crisis. - Note: Weight of food items in the rebased 2017-2018 CPI basket is 48.5 percent. 3. Imported goods inflation - Imported goods inflation is a major driver of headline inflation. - Overall inflation trend is closely correlated with imported inflation. - Contribution of imported goods to headline inflation increased since early 2014, peaking at 51.9 percent in June 2022 (end of Covid-19 pandemic due to rising international oil and food prices) before receding. *Source: 1htiea2024002-print-pdf - 2. Haiti: Data Standards Initiatives* ### Annex XI. Figure 3A: Average ### Annex XI. Figure 3A: Average ### Inflation drivers and recent dynamics - Natural disasters and external shocks have driven inflation dynamics: - Series of hurricanes between August and September 2008 contributed to the peak in inflation observed in October 2008. - The January 2010 earthquake was followed by an acceleration in inflation, although at a slower pace—most likely due to prompt and massive international aid. - External shocks: rising international food prices in 2008, 2011 and 2021-22; oil prices in 2003 and 2021-22; the Covid-19 pandemic and disruption of international supply chains. - Deteriorating security and increased gang activity are currently hampering domestic supply chains and fueling inflation. - Policy measures: liberalization of petroleum product prices in 2001 and removal of subsidies in 2003 were responsible for spikes in inflation in those years. - Recent buildup in monetary financing of the fiscal deficit and ensuing depreciation of the local currency contributed significantly to the country's strongest inflationary surge in 20 years. - Energy and electricity specifics: - In 2022, 86.5 percent of electricity was generated using imported petroleum products (the rest from hydropower). - In FY2022 (ending in September 2022), transfers and subsidies related to fossil fuels amounted to 2.1 percent of GDP, falling to ½ percent of GDP the following year. ### Inflation persistence and transmission - AR(1) persistence estimate: - Month-to-month inflation model: π_t = ρ π_{t−1} + α e_{t−1} + ε_t. - Estimated coefficient of lagged inflation (ρ) is 0.6, indicating inflation shocks dissipate gradually with a half-life of about 2 months. - 60-month rolling-window estimates show: - After declining slightly for a decade, inflation persistence increased considerably along with the strong inflationary surge that began in 2015, driven mainly by food prices. - Inflation persistence declined again since the start of the Covid-19 crisis but remains higher than the average for the pre-2015 period. - Persistence of food inflation has receded recently, dragging down headline inflation persistence; persistence of non-food inflation has increased. - Cross-sector contagion: - Two-equation VAR for food and non-food inflation (including lagged gourde/USD exchange-rate change as exogenous) shows: - Positive and significant impact of lagged food inflation on non-food inflation. - Shocks to non-food inflation also affect food inflation, but to a lesser extent. - Diffusion index results: - Inflation is particularly broad-based during high-inflation periods. - During peak inflation periods of February 2001, October 2003 and January 2023, the inflation rate for almost all sectors exceeded 10 percent. - Periods where a larger share of items in the CPI basket (between 40 and 50 percent) have an inflation rate equal or below 3 percent are very limited and short. ### Event study: supply-side shocks and inflation - Four events analyzed for impact on overall and food inflation (monthly rates, six months before and after the shock): - January 2010 earthquake. - July 2021: President assassination and the associated increase in violence. - September 2022: nationwide unrest following the increase in fuel prices (liberalization of fuel prices). - March 2024: increase in gang violence. - Key observed impacts: - January 2010 earthquake implied an increase in monthly inflation from ½ percent before the shock to 3 percent in the month of the shock. - Liberalization of fuel prices and subsequent social unrest (September 2022) implied an increase in overall inflation and food inflation of 11 and 13 percent, respectively. - All four events implied a marked increase in overall and food inflation levels in the six-month windows. ### Empirical estimates (hybrid Phillips-curve specification) - Model estimated: - π_t = ρ π_{t−1} + α x_{t−1} + β Z_t + γ dummy1 + δ dummy2 + ε_1 - π_t: quarterly year-on-year CPI inflation. - x_{t−1}: lagged GDP gap (percent deviation of real GDP from trend via Hodrick-Prescott filter; annual GDP interpolated using quadratic match). - Z_t: external and domestic structural factors (US and Dominican Republic inflation and exchange rates, domestic kerosene, gasoline and diesel inflation, net claims of Central Bank on central government as percent of GDP). - Dummy1 and Dummy2 capture effects of the 2010 and 2018 earthquakes. - Estimation period: 1998Q1-2023Q4 (Haiti fiscal year ending in September). - Main empirical findings: - Significant determinants of inflation dynamics (in addition to one-period lagged inflation): US inflation, gourde/US$ percentage change, monetary financing, kerosene inflation. - Dominican Republic inflation and gourde/DOP exchange-rate change are not significant determinants. - Gasoline and diesel inflation, and the 2010 and 2018 earthquake dummies, are not statistically significant (though coefficients display the expected positive sign). - Output gap coefficient is not significant and does not have the expected positive sign. - Table 1: Haiti: Inflation Estimation Results (selected coefficients and statistics) - Lag CPI inflation: - (1) 0.7029*** (0.0329) - (2) 0.7039*** (0.0296) - (3) 0.7099*** (0.0334) - (4) 0.6992*** (0.0327) - (5) 0.6666*** (0.0355) - Lag output gap: - (2) -0.2268 (0.1696) - (3) -0.2237 (0.1714) - (5) -0.1189 (0.1653) - US inflation: - (1) 0.6715*** (0.1483) - (2) 0.6668*** (0.1322) - (3) 0.6440*** (0.1485) - (4) 0.6648*** (0.1488) - (5) 0.5161*** (0.1488) - DR inflation: - (1) 0.0035 (0.0319) - (2) 0.0025 (0.0318) - (3) 0.0059 (0.0316) - (5) 0.0597* (0.0339) - Percentage change gourde/US$: - (1) 0.0737*** (0.0252) - (2) 0.0830*** (0.0179) - (3) 0.0712*** (0.0252) - (4) 0.0743*** (0.0253) - (5) 0.0959*** (0.0231) - Percentage change gourde/DOP: - (1) 0.0100 (0.0213) - (2) 0.0127 (0.0213) - (3) 0.0096 (0.0214) - (4) 0.0088 (0.0204) - Kerosene inflation: - (1) 0.0260** (0.0120) - (2) 0.0257** (0.0100) - (3) 0.0288** (0.0121) - (4) 0.0259** (0.0120) - (5) 0.0213* (0.0118) - Gasoline and diesel inflation: - (1) 0.0070 (0.0156) - (2) 0.0065 (0.0139) - (3) 0.0032 (0.0159) - (4) 0.0076 (0.0156) - (5) 0.0102 (0.0155) - Monetary financing: - (1) 0.2035*** (0.0617) - (2) 0.1999*** (0.0610) - (3) 0.1971*** (0.0616) - (4) 0.2105*** (0.0622) - (5) 0.1183*** (0.0278) - Dummy1 (2010 earthquake): - (3) 3.5680 (2.4088) - (4) 3.5447 (2.4872) - (5) 3.7791 (2.3679) - Dummy2 (2018 earthquake): - (3) 2.3411 (2.3764) - (4) 2.1772 (2.3926) - (5) 2.4073 (2.3199) - Output gap (alternate rows): - (1) -0.2262 (0.1694) - (2) -0.1940 (0.1721) - Number of observations: 103 (for all specifications) - R-squared: - (1) 0.9506 - (2) 0.9521 - (3) 0.9521 - (4) 0.9505 - (5) 0.9554 - Note: Robust standard errors in parentheses, *, **, *** denote statistical significance at the 10, 5, and 1 percent levels, respectively. ### Policy implications and structural recommendations (from Annex XII summary points relevant to inflation and resilience) - Reduce dependence on imported petroleum for electricity generation by scaling renewable energy (solar and wind) where cost-effective. - Continue reducing subsidies on petroleum-based products (FY2022 fossil fuel transfers/subsidies were 2.1 percent of GDP; fell to ½ percent of GDP the following year). - Improve access to clean cooking fuel and modern cookstoves to reduce deforestation (forest cover was 12.5 percent of land area in 2021) and lower disaster risk. - Enhance disaster risk management through a government-led multi-pillar strategy that includes: - Undertaking a national risk assessment and integrating projected fiscal costs of climate change and natural disasters into annual budgets within a medium-term framework. - Building policy and financial buffers (self-insurance) and allocating portions of future budgets specifically for natural-disaster purposes. - Reducing risks via preparedness and investing in “smart” climate-resilient infrastructure and enhancing debt-management capacity. - Transferring risk through catastrophic sovereign insurance or subregional parametric insurance schemes. - Ex-post disaster risk management should prioritize emergency response, reconstruction that reduces future risks through climate-resilient infrastructure investment, and donor financing where reconstruction costs are too large to be fully internalized by domestic buffers. *Source: Haitian Institute of Statistics and Informatics (IHSI), Bank of the Republic of Haiti, and IMF staff calculations.* ### Annex XIII. Past IMF Recommendations and Implementation ### Annex XIII. Past IMF Recommendations and Implementation ### Fiscal Policy - Recommendation: Increasing domestic revenue collection, strengthening the capacity of tax administration offices and modernizing tax and customs operations. - Implementation status: - "Domestic revenue is still low at 5 percent of GDP." - "Tax revenue performance had improved in FY2023, before collapsing due to an escalation of violence which disrupted economic activity." - The government has passed important reforms aimed at raising domestic revenue over the medium term: "a new tax code in December 2022 (pending implementation), the publication of customs tariffs, and a new customs code adopted in March 2023." - Recommendation: Establishing a deficit target for the NFPS of 2.0 percent over the medium term. - Implementation status: - "The deficit of the NFPS has been maintained well below 2 percent of GDP since FY2022." - "The authorities have passed the FY2025 budget with an overall balance of the NFPS at around 0 percent of GDP." - Recommendation: Reallocating current expenditures towards capital and social spending. - Implementation status: - "Budget allocations for social spending have been established and were monitored as part of recent SMPs." ### Monetary and Exchange Rate Policies - Recommendation: Establishing a quantitative monetary target to limit the scale of fiscal dominance. - Implementation status: - "Monetary financing of the deficit has been brought down to 1 percent of GDP in 2023 and zero in 2024 from 3 percent in 2020." - Recommendation: Limiting foreign exchange interventions to instances of disorderly market conditions. - Implementation status: - "The BRH has gradually taken steps to enhance the flexibility of the exchange rate, including by discontinuing discretionary sales of reserves to importers." - Recommendation: Transitioning to International Financial Reporting Standards (IFRS). - Implementation status: - "Progress has been made with support of staff technical assistance." ### Financial Sector Policy - Recommendation: Fostering financial inclusion by investing in infrastructure connectivity and supporting fintech and mobile banking. - Implementation status and developments: - "The BRH has launched in June 2020 a national plan in late on financial literacy;" - "in February 2022, the BRH has launched a fund dedicated to support women entrepreneurs." - "BRH data for 2022-23 suggest that only 36 percent of bank credit is accessed by women (and 64 percent by men) indicating still a strong disparity;" - "a draft law to protect consumers subject to fraud and abuse by the financial sectors is under consideration;" - "in December 2021, the Circular 121 established the regulation of Fintech activities." - "The World Bank is actively supporting the country in developing the digital ecosystem." ### Governance and Transparency - Recommendation: Enhancing anti-corruption measures, including anti-money laundering initiatives. - Implementation status: - "The authorities have revised the AML/CFT framework with the support of capacity development." - "The Council of Ministers has adopted a new Decree Reorganizing the Unité Centrale de Renseignement Financier (UCREF) to replace the Financial Intelligence Unit (FIU) organic law" ### Structural and Climate Policies - Recommendation: Enhancing management and oversight of the national power utility (EDH). - Implementation status and developments: - "In 2020, EDH started replacing traditional post-paid meters with prepaid meters to reduce electricity theft and address the accumulation of unpaid bills, which has long affected EDH’s financial health. The goal was to install 70,000 prepaid meters, improving billing accuracy and enhancing financial accountability." - "Haiti energy regulator (the National Energy Sector Regulatory Authority or ANARSE) led efforts to involve the private sector in managing regional electricity grids in order to attract investment and improve the efficiency of electricity generation and distribution. Under this initiative, private companies would handle operations, while EDH retained oversight." - "In 2023 EDH implemented a tariff increase aimed at improving financial sustainability and reducing dependency on government subsidies." - Recommendation: Initiating gradual energy subsidy reform. - Implementation status: - "A large price adjustment for fuel subsidies was implemented in August 2022 and a smaller adjustment in July 2023." *Annex XIII. Past IMF Recommendations and Implementation — extracted from source content* ### Appendix I. Joint Governance Matrix on Recent, Ongoing, and Forthcoming Capacity ### Appendix I. Joint Governance Matrix on Recent, Ongoing, and Forthcoming Capacity Development by the IMF and Development Partners ### IMF Capacity Development: fiscal, monetary, financial supervision, and statistics - Scope: customs, revenue administration, public financial management, risk supervision, and data (as of October 2024). - Selected IMF projects, objectives, status, and timeline: - CARTAC - Customs Administration - FY19; Delivering Institution: IMF; Beneficiary: Ministry of Finance; Sector: Fiscal; Workstream: Revenue Administration; Objective: Strengthened revenue administration management and governance arrangements; Status: Active; Start Date: Aug - 2020; End Date: Aug-2024. - Building a Risk Based Banking Supervision Framework; Delivering Institution: IMF; Beneficiary: Central Bank; Sector: Financial; Workstream: Financial Supervision and Regulation; Objective: To implement a risk-based supervision (RBS) system and upgrade other supervisory processes; Status: Active; Start Date: Aug - 2020; End Date: Oct - 2024. - Support consultations on the Tax Code and Tax Procedure Code; Delivering Institution: IMF; Beneficiary: Ministry of Finance; Sector: Fiscal; Workstream: Tax Policy; Objective: Improved tax and non-tax revenue policy (SDG 17.1); Status: Active; Start Date: Jan - 2021; End Date: Aug-2024. - Public Financial Management (Budget Preparation) FY25; IMF → Ministry of Finance; Fiscal; Public Financial Management; Objective: Comprehensive, credible, and policy-based budget preparation; Status: Active; Start Date: Jan - 2021; End Date: Jan - 2025. - Macroeconomic Frameworks TA—Ministry of Finance; IMF → Ministry of Finance; Macro-economics; General Macroeconomic Analysis; Objective: Strengthen macroeconomic forecasting and policy analysis at the Ministry/central bank / or other governmental agency(ies) feeds into the economic policymaking process; Status: Active; Start Date: Feb - 2021; End Date: Dec-2026. - PFM Management (Asset and Liability Management); IMF → Ministry of Finance; Fiscal; Public Financial Management; Objective: Improved asset and liability management; Status: Active; Start Date: May - 2021; End Date: Mar-2025. - Public Financial Management (Budget Execution); IMF → Ministry of Finance; Fiscal; Public Financial Management; Objective: Improved coverage and quality of fiscal reporting; Status: Active; Start Date: May - 2021; End Date: Nov-2026. - Public Investment Management and Climate Change; IMF → Ministry of Finance; Fiscal; Public Financial Management; Objective: Improved public investment management; Status: Active; Start Date: Sep - 2021; End Date: May -2025. - AML/CFT; IMF → Ministry of Finance; Governance; AML/CFT; Objective: Strengthen the legal and institutional framework for AML/CFT; Status: Complete; Start Date: Feb - 2022; End Date: Nov-2023. - Revenue Administration (multiple entries); IMF → Ministry of Finance; Fiscal; Revenue Administration; Objectives include Strengthened core tax administration functions (SDG 17.1) and Strengthen revenue administration management and governance arrangements (SDG 17.1); Status: Active; Start Dates: May - 2022 and Feb - 2024; End Dates: Jul-2024 and Apr - 2027 respectively. - Governance Diagnostic; IMF → Ministry of Finance; Governance; Governance and Anti-Corruption; Objective: Strengthen the legal and institutional frameworks to combat corruption; Status: Active; Start Date: Jan - 2023; End Date: Dec-2024. - Financial Supervision and Regulation; IMF → Central Bank; Financial; Financial Supervision and Regulation; Objective: Develop/strengthen banks’ regulation and supervision frameworks - BRS; Status: Active; Start Date: Feb - 2023; End Date: Feb - 2026. - Statistics program (Government Finance, External Sector-BOP/IIP, Real Sector - National Accounts, External Sector reserve template); IMF → Ministry/BRH/Ministry of Planning; Statistics; Objectives: Strengthen compilation and dissemination of Government Finance Statistics (GFS), BOP/IIP, National Production/Income/Expenditure Accounts, and reserve template; Status: Active; Start Dates: May - 2023 and Jan - 2024; End Dates: Apr - 2026 and Apr–2027. - Expenditure Policy desk support on social spending; IMF → Ministry of Finance; Fiscal; Expenditure Policy; Status: Active; Start Date: July - 2024; End Date: Aug-2024. - Public Financial Management (FRP) for improved fiscal reporting; IMF → Ministry of Finance; Fiscal; Public Financial Management; Status: Pipeline; Start Date: Jul - 2024. ### Development partner projects and objectives (World Bank, WBG, IADB, EU, USAID, Canada, France/AFD, Expertise France) - World Bank / WBG projects: - Strengthening Disaster Risk Management and Climate Resilience Project (P165870); Delivering Institution: WBG; Beneficiary: Ministry of Domestic Affairs and Local Authorities; Governance; Emergency Prevention and Response; Objectives include enhancing prevention and response capacity of 140 Communal Committees of the Civil Protection (CCPC), shelter management capacity in at least 20 shelter management committees in 5 departments, strengthening DGPC coordination/preparedness, and support development of the National Multi-Hazard Early Warning System; Status: Active; Start Date: June 2019; Activity 1 and 3 end in April 2025; Activity 2 ends April 2026 – estimated. - Improving Haiti’s Public Financial Management and Statistical Information Project; WBG → Ministry of Finance, IHSI, oversight institutions; Governance; Statistical Capacity Building and Public Financial Management; Objectives: (a) Assist in preparation for the Fifth Population and Housing Census and (b) Improve budget management and oversight via deployment/operationalization of an IFMIS and strengthening oversight institutions; Status: Active; Start Date: March 2017; End Date: Dec – 2024. - WBG BRH Governance AML-CFT: Support for preparation of National Risk Assessment (NRA) for money laundering and terrorist financing; Status: Active; Start Date: April 2024; End Date: Dec 2025. - WBG/IADB/USAID/WFP Adaptive Social Protection for Increased Resilience Project; Beneficiary: Ministry of Social Affairs and Labor; Fiscal; Social Safety Net; Objectives: register/update more than 200,000 new households in SIMAST country-wide; support monthly cash transfers to more than 22,000 vulnerable households in Grande Anse; enhance digital payment system; adopt and implement Social Protection Policy action plan (2023-25); establish shock-response design/financing; support review of MAST organic law; Status: Active; Start Date: Feb 2021; End Date: June 2027. - IADB projects: - Strengthening Public Management to Improve Service Delivery; IADB → Ministry of Finance; Fiscal; Public Financial Management; End Date: Dec-2027. - Fiscal Management of SOEs; IADB → Ministry of Finance; Fiscal; Fiscal Management of SOEs; Objectives: strengthen capabilities for fiscal management of SOEs; improve diagnostics of SOE governance and investment frameworks; Start Date: Oct-2024. - Program to Strengthen Safety Nets for Vulnerable Populations; IADB → FAES; Social; Social Safety Net; Main expected results: 1) 200 000 people receiving unconditional cash transfers; 2) 60 000 people receiving conditional cash transfers (cash-for-work); 3) 170 small community projects under Cash for Work; 4) 110 000 people receiving cash transfers and complementary social services; 5) Protocol and operational guide for management of repatriated persons drafted; 6) 92 000 new households registered in SIMAST; Status: Ongoing; Start Date: November 2022; End Date: November 2025. - Tackling Food Insecurity and Fostering Resilience through Safety Net for Vulnerable Populations; IADB → FAES; Social; Social Safety Net; Main expected results: 1) 16 000 beneficiaries receive cash-for-work transfers; 2) 18 000 beneficiary patients receive transfers conditional on healthcare compliance; 3) 70 000 new households registered in SIMAST; Status: Ongoing; Start Date: November 2023; End Date: November 2027. - Community-based program to foster human security in Haiti; IADB → FAES; Social; Social Safety Net and Health; Main expected results: 1) 165 000 people receive unconditional cash transfers; 2) 7 400 beneficiaries cash-for-work; 3) 370 770 people receive at least one Essential Care Package service; 4) 2 000 children 6 to 36 months in Reach Up and Learn; 5) 20 000 youths enrolled in safe spaces; 6) 12 Health Districts complete strengthening plan with PAHO support; 7) 56 000 new households registered in SIMAST; Status: Ongoing; Start Date: June 2024; End Date: June 2028. - EU – SBC-II program (multiple components supporting MPEC, OMRH, Ministry of Finance): - Support for planning, programming, budgeting, state modernization evaluation, public finance management/external control, public finance reform commission capacity building, State Treasury diagnostics and IT feasibility, macroeconomic management/forecasting, revenue mobilization, and AML/CFT technical assistance; Status: Active; Start Date: Feb – 2018; End Date: April–2027 (across components). - STREAM (Support For Trade, Revenues, Equipment Acquisition, and Modernization of the General Customs Administration); Delivering: Expertise France/AFD/USAID/EU; Beneficiary: General Customs Administration (AGD)/MEF; Governance and Revenue Administration/Revenues Mobilization; Objective: strengthen AGD to increase domestic resource mobilization and secure/facilitate trade; core component: automation/digital transformation of customs operations (SYDONIA), digitizing customs declarations/payments/clearance; improve customs governance, anti-corruption, HR management, promote gender equality with target of 35 percent female representation by 2028; Status: Active; Start Date: Sep - 2024; End Date: Sept-2028. - Support and strengthening institutions (USAID, UNDP, Canada) targeting transparency, accountability, gender equality, inclusive governance; Status: Active; Start Date: Sept 2024. - National ID Card Program; USAID and OAS → Office of National Identification (ONI); Governance; Objective: three-year activity to ensure all Haitians have identity and ability to vote; USAID will register and distribute over 2 million ID cards; strengthen ONI technical capacity and prepare strategic plan through 2028; Objectives include recruitment/training of ONI staff, nationwide ID distribution system, and nationwide public information campaign; Status: Active; Start Date: June 2023; End Date: June-2026. ### Fund relations, membership, financial position, and safeguards - Membership Status: Joined September 08, 1953; Article VIII. - General Resources Account (SDR Million; % Quota): - Quota 163.80 100.00 - IMF's Holdings of Currency (Holdings Rate) 143.26 87.46 - Reserve Tranche Position 20.54 12.54 - SDR Department (SDR Million; % Allocation): - Net cumulative allocation 235.50 100.00 - Holdings 69.42 29.48 - Outstanding Purchases and Loans (SDR Million; % Quota): - RCF Loans 179.16 109.38 - ECF Arrangements 1.57 0.96 - Latest Financial Commitments — Arrangements (selected): - ECF May 18, 2015 – Nov 17, 2016; Amount Approved (SDR Million) 49.14; Amount Drawn (SDR million) 7.02. - ECF Jul 21, 2010 – Dec 24, 2014; Amount Approved 40.95; Amount Drawn 40.95. - ECF 1/ Nov 20, 2006 – Jan 29, 2010; Amount Approved 180.18; Amount Drawn 180.18. (1/ Formerly PRGF.) - Outright Loans (selected): - RCF Jan 23, 2023 – Jan 25, 2023; Amount Approved (SDR Million) 81.90; Amount Drawn (SDR million) 81.90. - RCF Apr 17, 2020 – Apr 21, 2020; Amount Approved 81.90; Amount Drawn 81.90. - RCF Nov 18, 2016 – Nov 23, 2016; Amount Approved 30.71; Amount Drawn 30.71. - Projected Payments to Fund (SDR Million; based on existing use of resources and present holdings of SDRs): - 2024: Principal 3.94; Charges/Interest 1.54; Total 5.48 - 2025: Principal 15.03; Charges/Interest 5.86; Total 20.9 - 2026: Principal 22.52; Charges/Interest 5.87; Total 28.39 - 2027: Principal 16.38; Charges/Interest 5.87; Total 22.25 - 2028: Principal 24.57; Charges/Interest 5.87; Total 30.44 - Exchange rate arrangement: - Currency: gourde. - De jure exchange rate regime: floating. - De facto exchange rate arrangement: stabilized. - Haiti has accepted obligations of Article VIII, Sections 2(a), 3, and 4. - Safeguards Assessment: - Last full safeguards assessment: August 2019 (in connection with RCF request early-2019). - Main 2019 recommendations: complete amendments to BRH Law to strengthen central bank autonomy; enhance accountability, transparency, and decision-making structure; establish independent Board oversight; reinforce Audit Committee membership and modalities; implement IFRS with IMF TA support; complete modernization of internal audit; strengthen governance and accountability in reserve management (including Investment Committee composition and segregation of operational responsibilities); prepare medium-term plan for BRH investment policy and transition to strategic asset allocation consistent with safety and liquidity. - Targeted safeguards monitoring mission: March 2024 (triggered by June 2023 impact on BRH operations); scope: cybersecurity, foreign reserves management, program monetary data, banking operations, external audit, financial reporting. - Conclusion: progress on 2019 recommendations slow; most recommendations remained outstanding. ### Technical Assistance (selected missions since last Article IV consultation) - Timeframe and examples: - STA 02 Sep 2024 - 13 Sep 2024: TA - HFE - Mission 3.2. - MCM 26 Aug 2024 - 31 Oct 2024 (Virtual): CARTAC FY25 August to Oct- Banking Supervision Regulatory Framework and RBS. - FAD 29 Jul 2024 - 09 Aug 2024: C/STX/FCS/Enforcement - Strengthening Valuation risks-based Controls - Input 3. - FAD 14 Jul 2024 - 20 Jul 2024: T/ Off site Mission - Tax code New. - FAD 10 Jun 2024 - 21 Jun 2024: FAD STX HYBRID MISSION Cash management - Fiscal reporting FY25. - MCM 03 Jun 2024 - 31 Jul 2024: Banking Supervision Regulatory Framework and RBS. - STA 04 Mar 2024 - 15 Mar 2024: TA - (Reserve Assets) Template. - Numerous prior missions spanning 2020–2024 covering BOP/IIP, GDP, GFS, tax and customs administration, MTBF, chart of accounts, Basel II-III implementation, AML/CFT, central bank law amendments, and other areas (dates and missions listed in the source table). ### Debt Sustainability Analysis (Joint Bank-Fund DSA) — Key outcomes and risks - Risk ratings: - Risk of external debt distress: High - Overall risk of debt distress: High - Granularity and judgment: - Debt is sustainable; Application of judgment: Yes: High probability of protracted threshold breaches on external debt over a 20-year horizon from FY2037 and important risks and vulnerabilities to debt outlook. - Summary findings: - The DSA updates earlier analysis (Food Shock Window RCF Jan 2023); overall assessment largely unchanged. - Haiti’s risk of debt distress assessed as “high” though overall public debt remains sustainable despite debt relief received from Venezuela which improved key debt indicators significantly. - The high risk of external debt distress arises because exports-related external debt indicators breach their respective indicative threshold under the baseline scenario; breaches occur beyond the 10-year projection period but judgment applied due to narrowing production and export base and ongoing security crisis. - High overall debt distress risk arises from steady-upward trend of public debt service-to-revenue ratio. - Downside risks: potential downgrade in Haiti debt carrying capacity due to deteriorating fundamentals; serious economic, policy, and institutional fragilities (including governance vulnerabilities, brain drain, persisting debt data limitations); heightened exposure to natural hazards and climate change. - Sustainability of overall debt hinges on authorities’ ability to secure donor financing in the short to medium term. - Note on debt-carrying capacity: - Current Composite Index (CI) estimated at 2.642 based on World Bank’s 2023 CPIA and October 2023 WEO. - Haiti’s debt-carrying capacity remains “medium” as in the previous DSA. *Prepared by staff of the International Monetary Fund and the World Bank; November 6, 2024.* ### 1. Coverage. Gross public debt used for this DSA covers the central government, local ### 1. Coverage. Gross public debt used for this DSA covers the central government, local governments, extrabudgetary autonomous organisms, the state-owned electricity company Electricité d’Haiti (EDH), and advances by the central bank—Banque de la République d’Haiti (BRH) to the government ### Coverage and data sources - Gross public debt used for this DSA covers: - the central government, local governments, extrabudgetary autonomous organisms, the state-owned electricity company Electricité d’Haiti (EDH), and advances by the central bank—Banque de la République d’Haiti (BRH) to the government. - External debt data come from the BRH and include debt to multilateral and bilateral creditors, including foreign oil companies, as well as an estimate of contingent liabilities. - External debt is defined on a residency basis. - No data are available on guaranteed debt, including to other state-owned enterprises (SOEs), and non-guaranteed SOE debt. - The government is committed to expanding the debt coverage, including to SOEs. - Ongoing efforts are aimed at improving debt data collection and the preparation and public disclosure of the debt portfolio review are supported by the World Bank. - Under the Sustainable Development Finance Policy (SDFP), the Government of Haiti (GoH) implemented performance and policy actions (PPAs) over three fiscal years: - New external public or publicly guaranteed (PPG) non-concessional debt was limited to zero in FY2022, FY2023, and FY2024. - Debt transparency enhanced by the Ministry of Economy and Finance (MEF) publication of quarterly Debt Portfolio Review starting in FY2022. - Fiscal sustainability measures included a tax expenditure rationalization plan in FY2023. - A fiscal PPA in FY2024 targeted enforcement of an automated vehicle management module for customs; implementation remains incomplete due to civil disturbances damaging customs offices. - The World Bank SDFP Committee waived the customs PPA for FY2024 and exempted Haiti from preparing PPAs for FY2025. ### Domestic public debt measurement and composition - Gross domestic public debt is calculated as the sum of: - claims of the overall banking sector (including the BRH) to the non-financial public sector (NFPS), - plus suppliers’ credits and domestic arrears as reported by the authorities. - Banking sector claims data come from the Fund’s Standardized Report Forms 1SR and 2SR Tables reported by the BRH to the Fund. - The accounts of the education fund Programme Spécial de Gratuité de l’Education (PROSGATE), and social security funds Pension civile and Office Nationale d’Assurance-Vieillesse, ONA, are consolidated with the rest of the NFPS. - In the absence of data, the calculation of domestic public debt does not include Treasury bills and bonds held outside the banking sector (understood to be negligible). - Overdue payments related to current spending on wages and salaries, or goods and services, are effectively recorded in the subsequent year’s budget and typically processed (paid) in the current fiscal year. - Recent arrears history: - Some delayed payments in salary and diplomatic representations were observed in FY2022 following the deterioration of security in September 2022. - Payments due to oil distribution companies were mostly cleared. ### Key metrics and Text Table 2 (Structure of Public Debt at end-2023) - Total debt: US$5,932.7 million (100.0 percent of total debt; 28.5 percent of GDP). - Total External Debt: US$2,699.0 million (45.5 percent of total debt; 12.9 percent of GDP). - Multilateral creditors: US$321.0 million (5.4 percent of total; 1.5 percent of GDP). - o/w IMF: US$248.4 million (4.2 percent; 1.2 percent of GDP). - o/w OPEC: US$35.4 million (0.6 percent; 0.2 percent of GDP). - o/w IFAD: US$37.2 million (0.6 percent; 0.2 percent of GDP). - o/w IDA: US$0.0 million (0.0 percent; 0.0 percent of GDP). - Bilateral creditors: US$2,377.8 million (40.1 percent; 11.4 percent of GDP). - Venezuela: US$2,216.1 million (37.4 percent; 10.6 percent of GDP). - o/w PetroCaribe: US$2,189.3 million (36.9 percent; 10.5 percent of GDP). - o/w BANDES: US$26.8 million (0.5 percent; 0.1 percent of GDP). - Taiwan, Province of China: US$161.7 million (2.7 percent; 0.8 percent of GDP). - Other borrowing: US$0.0 million (0.0 percent; 0.0 percent of GDP). - Total Domestic Debt: US$3,233.7 million (54.5 percent of total debt; 15.5 percent of GDP). - BRH: US$2,564.5 million (43.2 percent of total; 12.3 percent of GDP). - Other creditors: US$669.2 million (11.3 percent of total; 3.2 percent of GDP). ### Background on public debt dynamics and events - Post-2010 earthquake debt relief: - Haiti received about US$1.0 billion in debt relief from international creditors, including US$268 million from the Fund under the Post-Catastrophe Debt Relief Trust Fund (CCRT) and US$36 million from the World Bank. - External public debt fell from 19 percent of GDP at end-FY2009 to less than 9 percent in FY2011 (old GDP series). - Subsequent increases in debt: - Debt rose steadily until FY2020, driven by PetroCaribe-related disbursements (external) and unremunerated advances from BRH (domestic). - Financing events: - Domestic financing from non-financial companies: US$123 million in FY2018. - Loan with Taiwan Province of China for US$150 million signed January 2019 (disbursed in tranches; US$82.5 million disbursed so far, plus US$30 million in FY2022, with remaining US$37.5 million to be disbursed later). - IMF disbursement: US$111.6 million (SDR 81.9 million) under the RCF in April 2020 for COVID-19 needs. - Debt relief of US$22.6 million (SDR 15.21 million) in April 2021 under updated CCRT covering IMF debt service due April 14, 2020 to April 13, 2022. - SDR allocation: US$224 million (SDR 157 million) in August 2021; half on-lent by the central bank to the government for emergency and recovery spending. - IMF Food Shock Window disbursement: about US$110 million under the RCF in January 2023. - National accounts revision: - IHSI released rebased national accounts in October 2020 leading to a 65 percent upward revision in nominal GDP (FY2019). - Resulting impact: - Public debt fell to 22.7 percent of GDP in FY2020 from 51.9 percent previously projected. - Public debt was 28.9 percent in FY2021. - Domestic revenue ratios fell sharply: domestic revenue at 5.9 percent of GDP in FY2021 from 6.4 percent in FY2019 (compared with 10.7 percent under old GDP series). - Domestic revenue improved to 6.4 percent of GDP in FY2023 from 5.3 percent in FY2022. - Foreign exchange receipts from exports of goods and services fell to an estimated 5.6 percent of GDP in FY2023 from 11.7 percent of GDP in FY2019 (18.2 percent under old series). - As a result, Haiti’s debt service capacity has not improved. ### End-FY2023 debt stocks and valuation effects - At end-FY2023: - Public sector debt stock: US$5.9 billion (28.5 percent of GDP). - External public debt: 45.5 percent of total public debt (12.9 percent of GDP), 81.1 percent of which originated from PetroCaribe oil imports. - After debt reconciliation, outstanding debt to Venezuela assessed at US$2.2 billion (previous DSA: US$1.85 billion), of which US$242.45 million accounted for unpaid interest. - Total external “technical arrears” due to Venezuela estimated at US$642.1 million (about 3.2 percent of GDP, September 30, 2023). - Domestic public debt rose to US$3.2 billion in FY2023 from US$3.05 billion in FY2022. - Increase partially attenuated by a valuation effect due to a 12 percent depreciation of the gourde against the dollar in FY2023. - Nearly 80 percent of domestic debt was in the form of central bank advances to the government. - Government debt to BRH: 12.3 percent of GDP in FY2023, from 12.2 percent of GDP in FY2021. - Monetary financing of the fiscal deficit: 2.8 percent of GDP in FY2021, 1.9 percent of GDP in FY2022, and 1.0 percent of GDP in FY2023. ### Debt restructuring with Venezuela (January 2024) - Haitian and Venezuelan authorities finalized an agreement in January 2024: - Haiti paid a lump sum of US$500 million to Venezuela (as a portion of external “technical arrears” due). - In exchange, Venezuela granted debt forgiveness of US$1.69 billion on the remaining debt. - Transaction mechanics and fiscal impact: - Payment was made by the central bank (fiscal agent) through increased short-term liabilities and drawdown in foreign reserves. - The lump-sum payment did not affect the government’s gross financing requirements because it was made by the central bank. - Projected impact on debt ratios and savings: - Debt-to-GDP ratio projected to decline from 28.5 percent of GDP in FY2023 to 14.1 percent of GDP in FY2024. - External debt-to-GDP ratio projected to decline from 12.9 percent of GDP in FY2023 to 1½ percent of GDP in FY2024. - Annual savings from debt service to Venezuela: US$95 million (or 12.5 billion gourdes), to be reallocated toward pro-poor and growth-enhancing expenditures. ### Central bank financing and accounting - Central bank financing to the treasury does not trigger an "in debt distress" rating for Haiti. - Government debt to BRH at 12.3 percent of GDP in FY2023 is not serviced. - July 2022 Memorandum of Understanding (MoU) between BRH and MEF: - Imputed accrued interest payment on non-negotiable government debt securities held by BRH, increasing BRH’s net claims on central government starting October 2021 balance sheet. - MoU recommends converting most liabilities into negotiable securities bearing interest rate of 7.57 percent per annum, payable over fifty years with a 10-year grace period. - MoU supports BRH implementation of 2019 safeguards recommendations on International Financial Reporting Standards (IFRS) to improve transparency and harmonize accounting of treasury and BRH operations. - Central bank financing is currently unremunerated and is expected to be waived over the projection period in the baseline. ### Macroeconomic forecast baseline and assumptions - Baseline assumes normative policy implementation under a new Staff-Monitored Program (SMP) with conservative growth projections: - Growth assumptions: - Real GDP projected to contract in FY2024 by 4 percent (a sixth consecutive yearly decline) due to worsening security since January 2024. - Phased deployment of the Multilateral Security Support mission expected to gradually improve security and foster recovery by 2025. - Medium-term baseline assumes modest growth of 1/2 percent. - Long-term growth projection of 1½ percent is based on a growth accounting exercise (labor share 35 percent; TFP growth 1.2 percent during 2024–29). - Inflation: - Year-on-year inflation expected to remain elevated in FY2024 at 27.9 percent (FY2023: 31.8 percent; FY2022 peak: 38.7 percent). - Inflation pressures expected to ease gradually with improved security and reduced monetary financing of the budget deficit. - A stable real exchange rate vis‑à‑vis the U.S. dollar is assumed over the medium term, with the nominal bilateral rate driven by inflation differential vis‑à‑vis the U.S. - Fiscal balances: - Overall balance of the NFPS projected to post a surplus of 6.6 percent of GDP in FY2024, mainly due to a capital transfer of 5.9 percent of GDP received from the debt relief granted by Venezuela. - Small fiscal deficit of 0.1 percent of GDP projected in FY2025. - Fiscal deficit expected to widen gradually over the medium term and reach nearly 1.0 percent of GDP in the long term as public investment and social spending are scaled up. - Baseline assumes no change in fuel price policy. - Domestic revenue projected to strengthen in the medium term due to domestic revenue mobilization reforms (simplify tax and customs regimes; enhance transparency, accountability, and audit capacity; broaden tax base). - Current account: - Current account deficit projected to narrow to 0.5 percent of GDP in FY2024 from 3.5 percent in FY2023 (trade disruptions from gang violence at Port-au-Prince). - With gradual security restoration, current account deficit forecast to widen before stabilizing at nearly 1.0 percent of GDP in the long term. - Remittance inflows projected to follow historical trends. - Financing assumptions: - Short- and medium-term financing prioritizes external financing to extend maturities, reduce roll-over risk, and create space for bank lending to the private sector. - SMP expected to catalyze some external financing for capital expenditures; concessional donor financing (including grants) is critical. - Share of external financing projected to fall over the long term as government increases Treasury bills and Treasury bonds issuance. - Treasury bills expected to account for the bulk of domestic financing in the short and medium term, with longer maturity instruments phased in longer term. - External debt financing, contracted or guaranteed, assumed to remain concessional and grow only moderately in relative terms. ### Macroeconomic assumptions compared to previous DSA (Text Table 3: select entries) - Real GDP (2024): Previous DSA 1.2; Current DSA -4.0. - Real GDP (2025-29 Avg): Previous DSA 1.5; Current DSA 1.4. - Real GDP (2030-39 Avg): Previous DSA 1.5; Current DSA 1.5. - Consumer prices (period average) (2024): Previous DSA 14.0; Current DSA 25.9. - Consumer prices (2025-29 Avg): Previous DSA 10.7; Current DSA 12.2. - Consumer prices (2030-39 Avg): Previous DSA 9.7; Current DSA 7.2. - Total revenue and grants (2024): Previous DSA 9.4; Current DSA 11.7. - Total revenue and grants (2025-29 Avg): Previous DSA 10.0; Current DSA 6.1. - Total revenue and grants (2030-39 Avg): Previous DSA 10.6; Current DSA 7.0. - Total expenditure (2024): Previous DSA 11.9; Current DSA 4.5. - Total expenditure (2025-29 Avg): Previous DSA 12.8; Current DSA 7.4. - Total expenditure (2030-39 Avg): Previous DSA 13.9; Current DSA 8.0. - Overall balance (2024): Previous DSA -2.5; Current DSA 6.6. - Overall balance (2025-29 Avg): Previous DSA -2.8; Current DSA -1.2. - Overall balance (2030-39 Avg): Previous DSA -3.3; Current DSA -1.0. - Current account balance (2024): Previous DSA -0.5; Current DSA -0.5. - Current account balance (2025-29 Avg): Previous DSA -1.8; Current DSA -1.0. - Current account balance (2030-39 Avg): Previous DSA -3.0; Current DSA -0.9. - Exports of goods and services (2024): Previous DSA 6.3; Current DSA 3.3. - Imports of goods and services (2024): Previous DSA 24.7; Current DSA 18.4. *Source: Haitian authorities, and Fund staff estimates and projections in the DSA (Text and Tables provided).* ### 11. The baseline assumptions are credible as the DSA toolbox for assessing the realism of ### 11. The baseline assumptions are credible as the DSA toolbox for assessing the realism of ### Drivers of debt dynamics and forecast errors - Main drivers of public debt dynamics are expected to remain broadly the same as over the past five years, except the real GDP growth rate and residual whose contribution is set to be muted. - The change in public debt-to-GDP ratio over the next five years is projected to be mainly driven by the debt relief granted by Venezuela in FY2024 as captured by the large “other debt creating flows”. - Unexpected changes in real interest rate, residuals, and real GDP growth were mostly responsible for past forecast errors in total public debt. - Residual, the current account and FDI, and real GDP growth drove the errors in external debt. ### Realism of planned fiscal adjustment - The projected three-year fiscal adjustment is realistic: it falls well below the top quartile of the distribution of past adjustments of the primary fiscal deficit (2 percentage points of GDP) for a sample of LICs. - Despite an expected significant rise in domestic revenues, the projected moderate fiscal adjustment is mainly due to the acceleration of public investment and social expenditures to close the country's huge infrastructure gap and to address the population’s pressing basic social needs. ### Consistency between fiscal adjustment and growth - Growth trajectory consistent with fiscal adjustments in FY2024 and FY2025, marked successively by an improvement and deterioration in the fiscal balance. - After the projected 4 percent fall in FY2024, growth is expected to: - return to positive territory in FY2025, and - stabilize at 1.5 percent in the medium to long term. - Resumption of economic activity predicates an improvement in the security situation, thanks to the deployment of the Kenya-led Multinational Security Support mission. - Projected moderate long-term growth rate reflects lower potential GDP growth rate resulting from the adverse effects of the crisis on human and physical capital. ### Consistency between public investment and growth - Divergence in share of public investment in GDP between the previous and current DSAs, reflecting: - lingering impact of the crisis (short and medium term), and - expected improvement in domestic public revenues and external financing (long term). - Private investment is also expected to scale up over the projected years. ### Country classification and tailored stress tests - Haiti’s debt-carrying capacity remains rated “medium” as in the two previous DSA despite the downgrade of the Composite Indicator (CI) to assess debt-carrying from “medium” to “weak” as a result of the decline of the CI to 2.64. - CI decrease drivers: - deterioration in the country CPIA index: 2.687 (current) against 2.749 (previous DSA), - lower import coverage of reserves: 40.5 percent (current) against 44 percent (previous DSA), - remittances-to-GDP: 11.7 percent (fell below the 15.5 percent cut-off; average during 2013–21). - A one-off major natural disaster stress test assumes damage equivalent to 25 percent of GDP (similar to Hurricane Matthew in 2016); the 2010 earthquake damage was 120 percent of FY2009 GDP but is treated as a tail risk. - Combined contingent liabilities on external and domestic debt stress test updated to reflect available data. ### External debt sustainability (baseline and projections) - External PPG external debt-to-GDP ratio path under baseline: - 12.9 percent in FY2023, - 1.5 percent in FY2024, - 1.4 percent in FY2025 (due to Venezuela debt relief), - rises to 11.9 percent at the end of the projection period. - Comparison with previous DSA: previous DSA reached 22.7 percent at end of projection period; gap mainly due to Venezuela debt restructuring operation. - Main driver of external debt dynamics: non-interest current account deficit, largely fueled by deficit in goods and services (increased imports of foodstuffs, capital and intermediate goods). - PV of external PPG debt-to-GDP ratio: - 2.5 percent in FY2023, - 1.3 percent in FY2025, - 9.2 percent in FY2044 (remains well below debt distress threshold owing to gradual increase in external concessional financing). - PV of debt-to-exports ratio: - 44.5 percent in FY2023, - 41.7 percent in FY2025, - projected to breach indicative threshold of 180 from FY2037 onwards (without displaying an explosive trajectory). - Debt-service-to-exports ratio: - 11.8 percent in FY2023, - 3.3 percent in FY2025, - expected to increase steadily and breach indicative threshold only towards the end of the projection period. - Debt-service-to-revenue ratio: - projected to fall in FY2025 and increase thereafter but remain well below its threshold until FY2044 as fiscal revenues recover gradually. ### External debt stress-test results (key vulnerabilities) - Stress tests confirm vulnerability of debt to: - lower remittances, - natural disasters. - A natural disaster shock would raise PV of external debt-to-exports above the 180 percent threshold as early as FY2025. - Exports shock would induce breach of the same indicator in FY2026. - Shocks to non-debt-creating flows (decline in current transfers and FDI inflows by one standard deviation) would cause breach in FY2027. - Primary balance shock would cause breach in FY2029. - Natural disaster shock is the most impactful for debt-service-to-exports ratio; a drop in remittances would entail a more severe shock. ### Public sector debt sustainability (baseline and projections) - Total public debt trajectory under baseline: - 28.5 percent of GDP in FY2023, - falls to 11.5 percent of GDP in FY2025 (due to Venezuela debt relief), - grows moderately thereafter to 18.8 percent of GDP by end of projection period. - Present value of public debt-to-GDP ratio: - 17.9 percent in 2023, - drops to 11.5 percent of GDP in FY2025, - peaks at 16.2 percent of GDP in FY2044 (below its indicative benchmark). - Public debt profile characteristics reducing vulnerabilities: - long maturity of multilateral debt, - high proportion of debt denominated in gourdes (around 82 percent after Venezuela debt relief), - orientation of debt towards investment. ### Public debt service and gross financing needs - Debt service projected to remain moderate over a 10-year horizon, but significantly increase thereafter until FY2044. - Repayment of short-term domestic debt (Treasury Bills) will raise debt service over the long run substantially due to higher cost, very short maturity and predominant share in fiscal deficit financing. - Gross financing needs: - about 1.6 percent of GDP by FY2034, - 2.9 percent of GDP by FY2044, - from 0.2 percent of GDP projected in FY2025. - Debt service-to-revenue ratio projections: - rise from 1.3 percent to 12.2 percent between FY2025 and FY2034, - reach 24.1 percent in FY2044. - Financing assumptions: gross financing needs expected to be covered by domestic borrowing and externally financed project loans; rollover risk likely mitigated by these sources, improved tax revenue collection, and increased demand for government securities by domestic banks. ### Public debt stress-test results - PV of public debt-to-GDP ratio remains largely below benchmark for all stress test scenarios but is highly vulnerable to natural disasters. - Natural disaster shock impact on PV public debt-to-GDP: - 14.0 percent in FY2024, - 29.8 percent in FY2025, - reaching 34.9 percent at the end of the projection period. - Under this extreme scenario, PV public debt-to-GDP barely approaches its indicative benchmark of 55 percent. ### Risk rating, vulnerabilities, and policy implications - Haiti’s external and overall risk of debt distress rating: “high”, while debt is deemed sustainable. - Rationale for high external risk: - exports-related external debt indicators breach respective indicative thresholds under baseline (breaches occur beyond the 10-year projection period; judgement applied due to narrowing production and export base accelerated by ongoing security crisis). - Rationale for high overall risk: - steady upward trend of public debt service-to-revenue ratio. - Despite high risk ratings, debt considered sustainable because: - exports-related debt indicators breach thresholds only in the distant future (in 14 and 19 years) and do not display explosive trajectories; - public debt service-to-revenue ratio forecasted to increase but remain at a sustainable level (24.1 percent at end of projection period); - liquidity risk of servicing external debt expected to remain limited due to projected accumulation of reserves, mainly from remittances; - rollover risks expected to remain limited as larger gross financing needs are expected to be covered mostly by domestic debt and externally-financed project loans; - medium- and long-term growth prospects are favorable, underpinned by recovery from multiple shocks; - authorities committed to re-engage with donor community and to fight corruption more effectively and improve governance frameworks. - Remaining risks and recommendations: - Key indicators of external debt path are below indicative benchmarks under baseline thanks to Venezuela debt relief, but a drop in remittances or a natural disaster similar to Hurricane Matthew would raise debt ratios and cause breaches. - External debt service capacity vulnerable to drops in official and private transfers and FDI. - Downgrading in composite indicator to “weak” is a source of concern given elevated investment and social spending needs that might require external financing. - Calls for stepping up efforts to strengthen revenue mobilization and reforms to raise investment and growth, as recommended by the 2022-23 SMPs. ### Authorities’ views - Authorities agreed with staff's assessment of an external and overall high risk of debt distress and sustainable debt. - Authorities reiterated commitment to: - implementing sound macroeconomic policies, including a prudent fiscal policy, - a debt strategy prioritizing concessional external financing in the short and medium term to safeguard debt sustainability, - improving public debt management and ensuring greater transparency. - Authorities expressed concerns about availability of sufficient concessional external financing to meet huge investment and development needs. - Authorities stressed urgency of restoring security as a prerequisite for boosting economic activity and exports to contain debt vulnerabilities related to the narrower export base. *Source: IMF staff estimates and projections as presented in the DSA chapter.* ### 1990. The size of 3-year adjustment from program inception is found on the horizontal axis; the ### Fiscal Adjustment and Possible Growth Paths ### Distribution of 3-Year Adjustment (Primary Balance) - The horizontal axis shows: "The size of 3-year adjustment from program inception" measured as "3-Year Adjustment in Primary Balance (Percentage points of GDP)". - The vertical axis shows: "percent of sample". - Axis tick values appearing on the horizontal axis (3-Year Adjustment in Primary Balance, Percentage points of GDP): - -4.5 - -4.0 - -3.5 - -3.0 - -2.5 - -2.0 - -1.5 - -1.0 - -0.5 - 0.0 - 0.5 - 1.0 - 1.5 - 2.0 - 2.5 - 3.0 - 3.5 - 4.0 - 4.5 - 5.0 - 5.5 - 6.0 - 6.5 - 7.0 - 7.5 - 8.0 - More - Additional textual labels included in the figure: - "Distribution 1/" - "Projected 3-yr adj ustment" - "3 -year PB adjustment greater than" - "1990. The size of 3-year adjustment from program inception is found on the horizontal axis; the percent of sample is found on the vertical axis." ### Key Observations and Figures - The figure presents a distribution of 3-year primary balance adjustments measured in percentage points of GDP across the sample. - Exact numeric axis values preserved as listed above, spanning from -4.5 to 8.0 (and "More"). - The figure distinguishes between "Distribution 1/" and "Projected 3-yr adj ustment" as labeled elements. *Source: 1htiea2024002-print-pdf - 1990. The size of 3-year adjustment from program inception is found on the horizontal axis; the percent of sample is found on the vertical axis.* ### 2.5 percentage points of GDP in ### 1htiea2024002-print-pdf - 2.5 percentage points of GDP in ### Structure of Public Debt and Debt Service (Fiscal-year basis) - Total debt (US$ millions): 5932.7; total debt as percent of GDP: 100.0; Additional columns show 28.5, 118.3, 32.0, 51.0, 0.4, 0.1, 0.2 (as presented). - External debt (US$ millions): 2699.0; external debt as percent of GDP: 45.5; related columns include 12.9, 118.3, 32.0, 51.0, 0.4, 0.1, 0.2. - Multilateral creditors (US$ millions): 321.0; percent of GDP: 5.4; columns include 1.5, 25.4, 24.7, 4.3, 0.1, 0.1, 0.1. - IMF (US$ millions): 248.4; percent of GDP: 4.2; columns include 1.2, 17.4, 16.7, 3.6, 0.4, 0.1, 0.1, 0.1. - OPEC (US$ millions): 35.4; percent of GDP: 0.6; columns include 0.2, 4.9, 4.8, 4.7, 0.0, 0.0, 0.0. - IFAD (US$ millions): 37.2; percent of GDP: 0.6; columns include 0.2, 3.1, 3.1, 3.1, 0.0, 0.0, 0.0. - IDA (US$ millions): 0.0; percent of GDP: 0.0; all subsequent columns 0.0. - Bilateral creditors (US$ millions): 2377.8; percent of GDP: 40.1; columns include 11.4, 92.9, 7.3, 6.7, 0.4, 0.0, 0.0. - Venezuela (US$ millions): 2216.1; percent of GDP: 37.4; columns include 10.6, 86.2, 1.9, 1.9, 0.3, 0.0, 0.0. - PetroCaribe (US$ millions): 2189.3; percent of GDP: 36.9; columns include 10.5, 84.3, 0.0, 0.0, 0.3, 0.0, 0.0. - BANDES (US$ millions): 26.8; percent of GDP: 0.5; columns include 0.1, 1.9, 1.9, 1.9, 0.0, 0.0, 0.0. - Taiwan, Province of China (US$ millions): 161.7; percent of GDP: 2.7; columns include 0.8, 6.7, 5.4, 4.9, 0.0, 0.0, 0.0. - Other international and commercial creditors: entries shown as 0.00 and 0.0 where applicable. - Domestic debt (US$ millions): 3233.7; percent of GDP: 54.5; additional column 15.5. - Held by residents, total: 3233.7; held by non-residents: entries shown as dashed. - BRH (US$ millions): 2564.5; percent of GDP: 43.2; other creditors (incl. T-Bills): 669.2; percent of GDP: 11.3. - External arrears (US$ millions): 642.1; percent of GDP: 10.8; subsequent columns 3.3, 0.0, 0.0, 0.0, 0.0, 0.0, 0.0. - Nominal GDP (US$ millions): 19,603.5; 26,283.4; 30,614.3; 33,172.7 (presented as series). - Sources: Haitian authorities, and Fund staff estimates. ### External Debt Sustainability Framework, Baseline Scenario (2021–2044) - External debt (nominal) series (percent of GDP): 12.9, 12.3, 12.9, 1.5, 1.4, 2.7, 4.1, 5.3, 6.4, 9.3, 11.9, 13.4, 5.6 (Historical/Projections labels as shown). - Identified net debt-creating flows (percent of GDP): -3.8, 2.9, 3.5, 0.9, 0.5, 0.8, 1.0, 0.9, 0.6, 0.3, 0.3, 1.7, 0.6. - Non-interest current account deficit (percent of GDP): -0.5, 2.2, 3.4, 0.5, 0.6, 0.9, 1.1, 1.0, 0.9, 0.7, 0.7, 2.4, 0.8. - Deficit in balance of goods and services (percent of GDP): 18.0, 20.5, 21.5, 15.0, 14.3, 13.8, 13.9, 13.8, 13.5, 12.9, 12.9, 20.9, 13.6. - Exports (percent of GDP): 6.1, 7.0, 5.6, 3.3, 3.1, 3.3, 3.6, 3.8, 4.0, 4.4, 4.4 (series). - Imports (percent of GDP): 24.0, 27.5, 27.1, 18.4, 17.4, 17.0, 17.5, 17.6, 17.5, 17.3, 17.3 (series). - Net current transfers (negative = inflow) (percent of GDP): -18.3, -18.1, -18.0, -14.5, -13.7, -12.8, -12.7, -12.7, -12.6, -12.2, -12.2, -18.1, -12.7. - Net FDI (negative = inflow) (percent of GDP): -0.2, -0.2, -0.1, -0.1, -0.1, -0.1, -0.1, -0.2, -0.3, -0.4, -0.4, -0.6, -0.3. - Endogenous debt dynamics (percent of GDP): -3.0, 0.9, 0.3, 0.4, 0.0, 0.0, 0.0, 0.0, 0.0, 0.1, 0.1 (series). - Contribution from nominal interest rate: 0.1, 0.1, 0.1, 0.1, 0.0, 0.0, 0.1, 0.1, 0.1, 0.2, 0.2. - Contribution from real GDP growth: 0.1, 0.2, 0.2, 0.4, 0.0, 0.0, 0.0, -0.1, -0.1, -0.1, -0.2. - Contribution from price and exchange rate changes: -3.2, 0.5, -0.1 (and ellipses thereafter). - Residual (percent of GDP): 6.7, -3.5, -2.9, -12.3, -0.7, 0.5, 0.3, 0.3, 0.5, 0.2, -0.2, -1.4, -0.9. - Exceptional financing contribution series includes -0.5, -0.5, -0.5, 1.6, 0.0, 0.0, ... , 0.0. - Sustainability indicators (select): - PV of PPG external debt-to-GDP ratio (series shown): 2.5, 1.5, 1.3, 2.2, 3.1, 3.9, 4.7, 7.0, 9.2 (dots indicate omitted earlier years). - PV of PPG external debt-to-exports ratio (series shown): 44.5, 44.9, 41.7, 65.6, 85.4, 103.3, 117.7, 158.5, 208.1. - PPG debt service-to-exports ratio (series shown): 9.4, 8.1, 11.8, 13.5, 3.3, 4.7, 4.6, 5.4, 6.3, 8.3, 16.2. - PPG debt service-to-revenue ratio (series shown): 9.6, 10.7, 10.3, 9.1, 2.1, 2.9, 2.9, 3.5, 4.1, 5.3, 8.5. - Gross external financing need (Million of U.S. dollars): -39.4, 517.8, 765.2, 227.9, 191.1, 327.1, 400.8, 371.5, 313.1, 298.2, 649.3 (series shown). - Key macroeconomic assumptions (select): - Real GDP growth (percent): -1.8, -1.7, -1.9, -4.0, 1.0, 1.5, 1.5, 1.5, 1.5, 1.5, 1.5, 0.0, 1.0. - GDP deflator in US dollar terms (change in percent): 47.5, -4.1, 0.8, 39.7, 15.3, 6.8, 1.4, 2.9, 3.6, 2.1, 2.1, 3.8, 7.4. - Effective interest rate (percent): 1.4, 0.7, 0.9, 0.5, 2.3, 2.3, 2.2, 2.1, 2.1, 2.1, 2.0, 0.8, 2.0. - Growth of exports of G&S (US$ terms, percent): 24.9, 8.8, -20.9, -20.0, 10.0, 13.2, 12.6, 10.3, 10.7, 3.7, 3.7, -1.7, 6.1. - Growth of imports of G&S (US$ terms, percent): 20.8, 8.0, -2.7, -9.0, 10.6, 6.0, 5.4, 5.0, 4.6, 3.7, 3.7, 2.5, 3.8. - Grant element of new public sector borrowing (percent): 30.7 (repeated across projection years where shown). - Government revenues (excluding grants, percent of GDP): 5.9, 5.3, 6.4, 4.9, 5.0, 5.3, 5.7, 5.9, 6.1, 6.9, 8.4, 6.9, 6.0. - Aid flows (Million of US dollars): -2421.4, -5570.2, -9219.1, 1774.9, 359.4, 233.4, 100.0, 100.0, 100.0, 0.0, 0.0 (as presented). - Grant-equivalent financing (percent of GDP): 1.2, 1.2, 0.8, 0.7, 0.7, 0.3, 0.3, ... 0.6 (as shown). - Nominal GDP (Million of US dollars): 21,017; 19,826; 19,603; 26,283; 30,614; 33,173; 34,155; 35,664; 37,497; 45,611; 65,360 (series). - Nominal dollar GDP growth (percent): 44.9, -5.7, -1.1, 34.1, 16.5, 8.4, 3.0, 4.4, 5.1, 3.7, 3.7, 3.7, 8.3. - Memorandum items: - PV of external debt (in Million of US dollars): 486.8, 392.8, 401.6, 714.9, 1048.7, 1398.2, 1763.3, 3181.3, 5985.9 (series). - (PVt-PVt-1)/GDPt-1 (percent): -0.5, 0.0, 1.0, 1.0, 1.0, 1.0, 0.7, 0.4 (series). - Non-interest current account deficit that stabilizes debt ratio (percent of GDP): -3.5, 2.9, 2.7, 11.9, 0.7, -0.4, -0.2, -0.2, -0.2, 0.2, 0.6. - Notes: Includes definitions and calculation formulas for endogenous debt dynamics, residual, and other methodological items. ### Public Sector Debt Sustainability Framework, Baseline Scenario (2021–2044) - Public sector debt (percent of GDP) historical and projections: 28.9, 29.5, 28.5, 14.1, 11.5, 11.1, 11.6, 12.1, 12.7, 14.3, 18.8, 25.2, 12.8 (presented across columns). - Of which external debt (percent of GDP): 12.9, 12.3, 12.9, 1.5, 1.4, 2.7, 4.1, 5.3, 6.4, 9.3, 11.9, 13.4, 5.6. - Change in public sector debt (percent of GDP): 6.5, 0.6, -1.0, -14.4, -2.6, -0.4, 0.4, 0.5, 0.6, 0.4, 0.6, -0.4, -1.3. - Identified debt-creating flows (percent of GDP): 3.2, -2.4, -6.2, -18.8, -1.6, 0.3, 1.0, 0.9, 1.0, 0.6, 0.6, -0.4, -1.3. - Primary deficit (percent of GDP): 2.0, 1.5, -1.2, -7.4, 0.1, 1.2, 1.3, 1.3, 1.4, 0.8, 0.8, 1.5, 0.2. - Revenue and grants (percent of GDP): 7.0, 6.6, 7.3, 11.7, 6.1, 6.0, 6.0, 6.2, 6.4, 6.9, 8.4, 8.9, 6.9. - Grants (percent of GDP): 1.0, 1.3, 0.9, 6.8, 1.2, 0.7, 0.3, 0.3, 0.3, 0.0, 0.0. - Primary (noninterest) expenditure (percent of GDP): 9.0, 8.0, 6.1, 4.3, 6.2, 7.2, 7.2, 7.6, 7.8, 7.7, 9.3, 10.4, 7.0. - Automatic debt dynamics (percent of GDP): 1.2, -3.8, -5.0, -5.5, -1.7, -0.9, -0.3, -0.4, -0.4, -0.2, -0.2, contributions detailed below. - Contribution from interest rate/growth differential: -1.4, -3.4, -4.1, -2.6, -0.9, -0.5, -0.3, -0.2, -0.2, -0.2, -0.2. - Of which contribution from average real interest rate: -1.8, -3.9, -4.6, -3.8, -0.8, -0.3, -0.1, 0.0, 0.0, 0.0, 0.0. - Of which contribution from real GDP growth: 0.4, 0.5, 0.6, 1.2, -0.1, -0.2, -0.2, -0.2, -0.2, -0.2, -0.3. - Contribution from real exchange rate depreciation: 2.6, -0.4, -0.9, ... (ellipsis indicates omitted further years). - Other identified debt-creating flows: 0.0 across most years; debt relief (HIPC and other) recorded as -5.9 in 2024 in table. - Residual (percent of GDP): 3.4, 3.0, 5.1, 1.6, -1.7, -1.1, -0.6, -0.6, -0.6, -0.2, 0.0, 0.7, -0.4. - Sustainability indicators (select): - PV of public debt-to-GDP ratio (selected values shown): 17.9, 14.0, 11.5, 10.7, 10.7, 10.8, 11.1, 12.1, 16.2 (series with ellipses). - PV of public debt-to-revenue and grants ratio (selected values): 244.5, 119.7, 187.0, 176.3, 179.2, 174.7, 174.2, 174.8, 192.5. - Debt service-to-revenue and grants ratio (percent): 11.9, 12.0, 11.8, 5.3, 1.9, 5.4, 5.1, 5.7, 7.2, 12.2, 24.1. - Gross financing need (percent of GDP): 2.8, 2.2, -0.3, -12.7, 0.2, 1.5, 1.6, 1.7, 1.9, 1.6, 2.9. - Key macro and fiscal assumptions (select): - Real GDP growth (percent): -1.8, -1.7, -1.9, -4.0, 1.0, 1.5, 1.5, 1.5, 1.5, 1.5, 1.5, 0.0, 1.0. - Average nominal interest rate on external debt (percent): 0.9, 0.8, 1.0, 0.5, 2.3, 2.4, 2.2, 2.2, 2.2, 2.2, 2.1, 0.8, 2.1. - Average real interest rate on domestic debt (percent): -14.1, -21.6, -22.8, -21.5, -18.7, -13.5, -7.8, -6.9, -6.4, -3.1, 1.2, -12.4, -8.6. - Inflation rate (GDP deflator, percent): 19.3, 29.8, 31.5, 29.1, 23.2, 17.6, 10.4, 9.7, 9.1, 7.0, 7.0, 16.3, 12.3. - Growth of real primary spending (percent): -10.0, -12.0, -25.2, -32.8, 46.1, 18.7, 1.5, 5.9, 5.2, 3.3, 3.1, -8.7, 4.6. - Primary deficit that stabilizes the debt-to-GDP ratio (percent): -4.5, 0.8, -0.1, 7.0, 2.6, 1.5, 0.8, 0.8, 0.8, 0.4, 0.2, -1.3, 1.5. - PV of contingent liabilities (not included in public sector debt): 0.0 across years shown. ### Sensitivity Analysis for Key Indicators (External Debt and Public Debt, 2024–2044) - Table 5 (External DSA sensitivity): Baseline and multiple scenario series presented (e.g., Baseline: 1 1 2 3 4 5 5 6 6 7 7 8 8 8 8 8 9 9 9 9 9 9 9), alternative scenarios and bound tests (B1–B6) and tailored tests (C1–C2) reported with many multi-year series; threshold values provided (e.g., Threshold 40 across columns). - Select indicators highlighted in sensitivity tables: - PV of debt-to-GDP ratio and PV of debt-to-exports ratio show steep increases under adverse scenarios and tailored tests (numerical sequences reported in table cells). - Debt service-to-exports ratio, debt service-to-revenue ratio, and PV of debt-to-exports ratio breach thresholds under several adverse scenarios (bold values in original indicate breaches). - Table 6 (Public debt sensitivity): Baseline public debt trajectory (percent of GDP) across 2024–2044: 14, 11, 11, 11, 11, 11, 11, 11, 11, 12, 12, 12, 13, 13, 13, 14, 14, 14, 15, 16, 16. - Alternative scenarios and bound tests (B1–B6) and tailored tests (C1–C2) show public debt under stress rising markedly (e.g., Natural disaster scenario values reach 30 in 2025 and rise through 35 by 2044). - Public debt benchmark: 55 (constant across years displayed). - PV of Debt-to-Revenue Ratio, Debt Service-to-Revenue Ratio, PV of Debt-to-GDP Ratio presented and rise substantially under adverse tests (series of values provided in table). - Notes: Bold values indicate breaches of thresholds; scenarios include variables such as real GDP growth, GDP deflator, non-interest current account, non-debt creating flows, and shocks like natural disaster and combined contingent liabilities. ### Recent Developments and Statements (November 20, 2024) - IMF Staff Representative statement: Provides information available since finalization of staff report; indicates information does not alter staff appraisal. - Political developments: - On November 11, 2024, the Transitional Presidential Council (TPC) designated a new Prime Minister, Mr. Alix Didier Fils-Aimé. - Former Prime Minister Garry Conille resigned; decree listing new cabinet members (18 ministries) issued November 15. - New Minister of Economy and Finance: Mr. Alfred Metellus; met with IMF team together with Central Bank Governor Gabriel; signaled strong commitment to remain closely engaged with the Fund. - Former Minister of Economy and Finance, Ms. Ketleen Florestal, remains Minister of Planning and External Cooperation. - Executive Director statement on behalf of Haitian authorities (November 20, 2024): - Authorities broadly concur with staff’s assessment. - After five consecutive years of GDP decline, negative shocks (pandemic, natural disasters, food and energy price spikes) and deteriorated security (including assassination of former president Jovenel Moise) have frustrated recovery. - Humanitarian crisis: conflict-affected internally displaced people largely over 700,000 as of the week of the statement; new people fleeing homes. - Economic impacts: disruptions to mobility, institutions, businesses; supply chain interruptions; inflationary pressures; nearly half of population under acute food insecurity; brain drain and loss of human capital. - Quarterly indicator of economic activity for Q3 FY2024 (May–Jul): index declined by 3.8 percent y-o-y, with agriculture and manufacturing hit hardest. - Episodes of timid recovery in Dec 2023 and Apr 2024 tied to end-of-year festivities and reopening of Port-au-Prince port and airport. - Agriculture severely affected by climate shocks, lower-than-average rainfall, rising input costs, labor supply bottlenecks, reduction in cultivated land due to armed gangs. - Trade and external sector: - Local currency appreciated close to 2 percent in nominal terms through September 2024, driven mainly by rising remittances. - Preliminary data show a 5.8 percent widening of the trade deficit in 2024 despite downward trend in imports. - Exports totaled US$732 million, down 17 percent over first 11 months of 2024; textiles sector downturn noted. - Remittances rose by 11 percent year-on-year for FY2024. - Monetary authorities bolstered official reserves through net purchases of US$470 million; net international reserves nearly US$1,000 million at end of fiscal year. - Institutional resilience: Ministry of Finance and central bank (BRH) remained functional and active; the Transitional Presidential Council (TPC) created to assign a transitional government to conduct country through general elections. *Sources: Haitian authorities; Fund staff estimates, projections, and statements included in the document.* ### 2026. This week, the TPC designated a new Prime Minister for the task and the process of ### 2026. This week, the TPC designated a new Prime Minister for the task and the process of constituting the new administration is being finalized. ### Political transition and governance - The TPC designated a new Prime Minister and the process of constituting the new administration is being finalized. - The TPC and the Prime Minister committed to release a joint action plan outlining measures to improve security and governance, and to bring the country to free elections. - A coordinating committee composed of the Ministry of Justice, the MEF, and the BRH has been set up to monitor the process of removing Haiti from the FATF “grey list.” - The National Risk Assessment (NRA) was officially launched under the leadership of this committee. ### Fiscal policy and public finances - An amendment to the FY2023/24 budget in August and the timely approval of FY2024/25 budget brought fiscal policy to a sustainable track. - As of September 30, 2024, revenue collection decreased by 3 percent year-on-year in nominal terms. - Customs revenues showed a nominal increase of 1.5 percent compared with the previous year. - The fiscal year 2024 was closed with a small surplus, signaling zero-monetary financing for fiscal year 2025. - The 2024-2005 Budget was elaborated with the perspective of a real GDP growth of 1%, a decelerating inflation rate, a sustainable debt level, and an increase in revenue collection. - The authorities anticipate a continued cessation of any monetary financing, conditional on a favorable performance of revenue collection agencies. - Expected governance measures include lease contract procedures standardization and regulation within the public administration to improve public debt management, rationalize public spending, and improve public service delivery. ### Monetary policy stance and macroeconomic outlook - Monetary aggregates have been kept in check, reflecting both policy and sluggish economic activity with declines in credit supply and demand. - The monetary authorities maintained the stance adopted since August 2022, focused on containing inflation and averting undue exchange rate volatility. - Banking system excess liquidity continued to be absorbed through BRH bonds; outstanding amount of these securities increased significantly. - Reserve requirement ratios were kept unchanged: - Commercial banks: 40 percent on gourde deposits and 53 percent on foreign currency deposits. - Savings and housing banks: 28.5 percent on gourde deposits and 41.5 percent on foreign currency deposits. - Repo rates were maintained at 17 percent for BRH bonds and 14 percent for treasury bills. - With stronger fiscal stance, cessation of monetary financing, and more stable exchange rate, monetary policy is expected to help bring inflation on a downward trajectory. ### Financial sector measures and stability - BRH adopted a range of measures from moratoria to loan restructuring to preserve financial stability. - Incentive programs put in place by BRH since 2013 have been maintained to facilitate lending to sectors including private construction, hotels, agriculture and agribusiness, real estate promotion and development projects (PPDI), and free trade zones. - BRH conducted a survey of the financial sector’s exposure to the prolonged crisis; preliminary results point to the need for in-depth analysis and stress-testing of the financial system’s risks, to be performed with IMF assistance. - BRH finalized harmonization of regulatory standards related to money laundering, financing of terrorism, and financing of the proliferation of weapons of mass destruction, and organized training sessions on these standards. ### Banking sector performance and risks - The deterioration in the business climate has significantly impaired the financial system; close to 700 executives were lost in the banking sector. - As of June 30, 2024: - Net banking income (NBI) declined by 2.7 percent. - Return on assets (ROA) fell to 0.64 percent (from 0.94 percent). - Return on equity (ROE) fell to 7.68 percent (from 11.13 percent). - Arrears’ ratio declined to 12 percent. - Losses and material damage to banks disrupted normal operations and tested resilience. ### Recovery needs, reform priorities, and IMF engagement - A Rapid Crisis Impact Assessment covering the February through April crisis estimated the needs to relaunch the post-conflict economy at around 2 billion dollars. - Authorities are committed to urgent reforms to break the cycle of political instability, violence, recession, and poverty. - Priority reforms and actions: - Continue cessation of monetary financing. - Strengthen revenue collection and public financial management. - Implement governance reforms (lease contract procedures standardization, public administration regulation). - Support employment and workforce integration for youth to reduce inequalities and social tensions. - Deepen financial sector risk analysis and stress testing with IMF technical assistance. - A new SMP is viewed as essential to signal commitment to macroeconomic stabilization and strengthened governance, build a track record for a UCT-quality program, and mobilize development partners. - Fund capacity development remains vital given widespread constraints and continued loss of human resources; authorities value the dialogue with the Fund and seek Executive Directors’ recommendations and support. *Source: 1htiea2024002-print-pdf - 2026. This week, the TPC designated a new Prime Minister for the task and the process of constituting the new administration is being finalized.* --- _Source: https://www.imf.org/-/media/files/publications/cr/2024/english/1htiea2024002-print-pdf.pdf_