The International Monetary Fund (IMF) last Wednesday approved a staff-monitored programme for Haiti to establish a track record of policy implementation that could lead to an IMF-supported loan programme.

The programme is expected to run until May 31, 2023, and does not include financial assistance and does not require executive board approval. This would be the 29th arrangement between Haiti and the IMF since the Hispaniola country of 12 million became a member of the IMF in September 1953. But what is the reality in Haiti, and what does this latest programme aims to achieve, given that it will not involve any money from the IMF to help the nation which is the poorest in the western hemisphere with gross domestic product (GDP) per capita in 2021 of US$1,815?

Why is the IMF not putting financing behind this programme?

Staff-monitored programmes are arrangements between authorities in a country and the IMF. The aim is to monitor the implementation of the authorities’ economic programme but are not accompanied by financial assistance.

“The staff-monitored programme was designed by IMF staff and the Haitian authorities, keeping in mind Haiti’s fragility and capacity constraints while supporting the authorities’ economic policy objectives,” the IMF said in its release. If this programme is successful, then the IMF said it could graduate Haiti to a programme on which it will get financial support after implementing certain reforms. This staff-monitored programme than can be seen as the country putting certain things in place — those prior actions — before qualifying fully for a fund-financed programme.

Even though the IMF is providing no funding in this new arrangement with Haiti, it has been the largest source of external financing for the country since 2019. The fund provided financial assistance without ex post conditionality to Haiti equivalent to about US$360 million in total since 2020, starting with a disbursement under the Rapid Credit Facility in April 2020 (US$111 million, equivalent to 50 per cent of Haiti’s quota) as well as relief on debt service falling due to the IMF during 2020 and 2021 for a cumulative amount of about US$20 million under the Catastrophe Containment and Relief Trust (CCRT). Haiti also received about US$214 million in 2021. Other funds were not approved in mid-2020 because of governance issues related to procurement. It was after certain steps were taken by the Haitian Government before negotiations started for the current staff-monitored programme.

What is the situation in Haiti?

In recent years, Haiti has experienced a protracted political crisis exacerbated by the assassination of its president. President Jovenel Moise was assassinated on July 7 last year, one year to the day yesterday. Added to this were lockdowns, the novel coronavirus pandemic, a surge in gang-related violence, and an earthquake. These shocks have weakened economic and institutional frameworks and adversely affected administrative capacity, while socio-economic and security conditions have deteriorated to a distressing level.

After three years of economic contraction, IMF staff is expecting growth to turn positive this year. The number outlined on the IMF website is for Haiti to grow by 0.3 per cent 2022, supported by an increase in investment, and to recover further to 1.4 per cent the next year with continued flows of remittances amidst modest improvements in socio-political stability.

In this difficult context, the authorities have committed to implementing policies that would begin to restore macroeconomic stability and growth, strengthen governance, and start to provide poverty relief. The IMF is hoping that under its watchful eyes, Haitian authorities will have a strong focus on governance, increased accountability. The Haitian authorities now have the difficult task of selling a reform agenda that will no doubt cause more hardships to a people who have been facing a lot of hardship, telling them that the programme will yield long-term benefits from short-term pain. The task is to raise ownership of the reform agenda across the country, placing emphasis on strengthening public finance management, revenue administration, transparency, and anti-corruption measures.

One particularly difficult reform that would have to be made is to either reduce or eliminate fuel subsidies.

Fuel subsidies have been absorbing at least one-third of Haiti’s revenues and crowding out productive spending on investment, health and education. They are also highly inequitable, with over 90 per cent of the benefits going to the top 10-20 per cent of the income ladder in Haiti. Essentially, wealthy Haitians are the ones who benefit the most, given that they are the one’s who own most private transportation. In this light, the Haitian Government’s plan to tackle this issue, began in April with the launch of several social programmes under the programme d’urgence targeted to the groups affected by earlier fuel price adjustments.

The staff-monitored programme also aims to raise domestic revenues, which have collapsed in recent years under the strain of social unrest, collection problems, and the security crisis. The Haitian Government has committed to implementing a series of administrative measures, including strengthening the use of the tax identification number and cleaning up taxpayers’ portfolios, revise special tax regimes in a new Tax Code, including by eliminating some exemptions, and finalise and publish the new Tax Code, Customs Code and the Customs tariff. This the IMF expects will simplify the tax system, making it more transparent and thus less prone to governance abuses.

Banque de la République d’Haïti — the country’s central bank — has been financing the fiscal deficit which has fuelled inflation, putting pressure on the exchange rate and leading to a vicious circle of higher fuel subsidy costs, further monetary financing of the deficit and higher inflation. The programme thus aims to raise resources for productive spending and reduce monetary financing of the fiscal deficit to reduce inflation. This, the IMF said is critical for the population given the heavy burden placed on the poor from the high increase in prices.

Risks

Inflation is expected to rise further, driven by higher fuel prices, but would moderate as inflationary financing of the fiscal deficit declines. Inflation is projected at 27.5 per cent this year and is expected to fall to 14 per cent by the end of 2023.

The current account is expected to be remain in surplus during 2022 as political uncertainty, the security situation, and supply-side disruptions weigh on imports. It is projected to show a small deficit over the medium term, supported by steady remittance inflows, a modest resumption in exports, and higher official transfers between this year and next year, which together provide room for some import growth and drive a small positive effect of reforms on productivity growth.

A key factor underpinning the repeated cycle of failed reform efforts has been programmes that did not match Haiti’s fragility. Earlier analysis on the sources of fragility prepared in the context of the 2020 Country Engagement Strategy (CES) helped to inform the policy and capacity building priorities in the proposed staff-monitored programme, which are aligned with the enhanced Fund strategy on fragile states.

By lowering inflation, with its heavy toll on the poor, articulating anti-corruption measures, and providing some social assistance, the programme could

raise public support for reform, including of fuel prices, and empower policymakers to stick with sound policies. That said, downside risks are significant given ubiquitous governance weaknesses and corruption vulnerabilities which are likely to influence implementation. Together with the unresolved political crisis and grave security conditions, risks to the programme are very high, reports the IMF.