(2024-12) Ayiti Konsèltasyon Atik IV 2024 - Kominikèpou lapres; Rapò Pèsonèl; ak Deklarasyon Direktè Egzekitif la pou Ayiti

HAITI IMF Country Report No. 24/333 December 2024 2024 ARTICLE IV CONSULTATION—PRESS RELEASE; STAFF REPORT; AND STATEMENT BY THE EXECUTIVE DIRECTOR FOR HAITI Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. In the context of the 2024 Article IV consultation with Haiti, the following documents have been released and are included in this package: • A Press Release summarizing the views of the Executive Board as expressed during its November 20, 2024, consideration of the staff report that concluded the Article IV consultation with Haiti. • The Staff Report prepared by a staff team of the IMF for the Executive Board’s consideration on November 20, 2024, following discussions that ended on October 26, 2024, with the officials of Haiti on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on November 6, 2024. • An Informational Annex prepared by the IMF staff. • A Debt Sustainability Analysis prepared by the staffs of the IMF and the World Bank. • A Statement by the Staff Representative on Haiti • A Statement by the Executive Director for Haiti. The IMF’s transparency policy allows for the deletion of market-sensitive information and premature disclosure of the authorities’ policy intentions in published staff reports and other documents. Copies of this report are available to the public from International Monetary Fund • Publication Services PO Box 92780 • Washington, D.C. 20090 Telephone: (202) 623-7430 • Fax: (202) 623-7201 E-mail: publications@imf.org Web: http://www.imf.org International Monetary Fund Washington, D.C. © 2024 International Monetary Fund PR 24/461 IMF Executive Board Concludes 2024 Article IV Consultation with Haiti FOR IMMEDIATE RELEASE Washington, DC – November 20, 2024: The Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation1 with Haiti. Haiti faces an unprecedented multidimensional crisis encompassing humanitarian, economic, social, and security problems. The economy has a low tax base and a large informal sector that relies heavily on volatile remittance flows. Since the last 2019 Article IV consultation, Haiti has suffered a series of shocks, including the pandemic; a devastating earthquake in 2021; cholera outbreaks; and the economic spillovers of the war in Ukraine, which led to a food crisis that triggered acute hunger. The severe deterioration of security over the last few years has magnified these problems—leading to a surge in the number of displaced people within and outside Haiti and to a significant drop in potential growth. Haiti’s macroeconomic outlook is challenging and subject to elevated uncertainty. The supply-side shock caused by the security crisis would continue to greatly affect growth and feed inflation unless the security outlook improves. Fiscal revenues, which are essential to reconstruct basic infrastructure after years of social unrest and support large development needs, are only slowly recovering. Remittances would continue to finance consumption, although this reflects mainly an exodus of human capital which could further undermine a sustainable recovery. Growth is projected to be barely positive in 2025 and will stabilize at only 1½ percent over the medium term (pending further improvements in the security outlook). Executive Board Assessment2 Executive Directors agreed with the thrust of the staff appraisal. They acknowledged the severity of Haiti's multidimensional crisis, resulting from security, economic, humanitarian shocks, and the ongoing political transition, which has greatly affected the well-being of the Haitian population. The outlook remains uncertain, as security continues to deteriorate, and growth is expected to remain low. Despite the headwinds, Directors recognized the authorities’ achievements over the last few years in implementing reforms aimed at strengthening economic resilience and restoring macroeconomic stability. Directors noted that normalization of security is essential to improve economic prospects, emphasizing the critical role of support from the international community in this regard, as well as in supporting the reform efforts and helping rebuild critical infrastructure. Directors also 1 Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. 2 At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here: http://www.IMF.org/external/np/sec/misc/qualifiers.htm. 2 called for continued well-prioritized engagement with the Fund, particularly through capacity development, appropriately guided by the Strategy for Fragile and Conflict Affected States and welcomed the authorities’ interest in a new Staff Monitored Program, which would provide a useful policy anchor. Directors commended the authorities for the timely passing of the budget and their efforts to increase fiscal revenue. They emphasized that further advancing the authorities’ revenue mobilization agenda is paramount to address Haiti’s immense development needs, notably through the implementation of the new tax code to broaden the tax base. Directors encouraged the authorities to step up the ongoing efforts to enhance the quality, efficiency, and transparency of public spending and called for continued strong scrutiny and prompt audit of the resources provided through the Fund’s Food Shock Window. They emphasized the need for sustained efforts to preserve debt sustainability, including by avoiding non-concessional lending. Strengthening social safety nets to protect the most vulnerable and alleviate widespread poverty and continued endeavors to foster gender equality will also be critical. Directors welcomed the authorities’ commitment to keeping the monetary financing of the deficit at zero and called for continued efforts to promote price stability and enhance the monetary policy framework. They urged the authorities to conclude and publish the 2023 central bank audit to demonstrate commitment to transparency and limit FX interventions only to smooth excessive exchange rate volatility. Directors noted rising vulnerabilities in the banking sector, particularly from non-performing loans, and called for close monitoring and continued improvements to regulatory and supervisory frameworks. Further strengthening of the AML/CFT framework is also needed. Directors strongly underscored that progress in implementing the structural and governance reform agenda is critical to lift potential growth. They welcomed the authorities’ efforts to strengthen governance and anti-corruption frameworks and leverage digitalization. They urged the authorities to publish the governance diagnostic assessment and accompanying action plan as soon as finalized. Building resilience to natural disasters and fostering financial inclusion are also key. Directors strongly encouraged the authorities to improve data adequacy for surveillance purposes, while continuing to prioritize the quality and timeliness of monetary and reserve assets data. 3 Haiti: Selected Economic and Financial Indicators, FY2021– 27 (Fiscal year ending September 30) FY2021 FY2022 FY2023 FY2024 FY2025 FY2026 FY2027 Proj. Proj. Proj. Proj. (Change over previous year; unless otherwise indicated) National Income and Prices GDP at constant prices -1.8 -1.7 -1.9 -4 1 1.5 1.5 GDP deflator 19.3 29.8 31.5 29.1 23.2 17.6 10.4 Consumer prices (period average) 15.9 27.6 44.1 25.9 19.8 15.4 10.6 Consumer prices (end-of-period) 13.1 38.7 31.8 27.9 18.7 12.2 9.3 External Sector Exports (goods, valued in U.S. dollars, f.o.b.) 27.7 13.5 -25.5 -20 10 14.4 13.6 Imports (goods, valued in U.S. dollars, f.o.b.) 19.8 7.8 -1 -9 11 6 5.5 Remittances (valued in U.S. dollars) 22.5 -7.3 0.1 11 5 5 5.5 Real effective exchange rate (eop; + appreciation) 1/ -5 13.8 10.9 33 … … … Money and Credit (valued in gourdes) Credit to private sector 15.2 17.4 -6.2 -5.3 21.1 14.7 12 Base money 21.5 23.1 3.1 10 13.5 11.5 10 Broad money 38.2 21.1 4.6 4.1 15.5 11.5 11 (In percent of GDP; unless otherwise indicated) Central Government Overall balance (including grants) -2.3 -1.8 0.9 7.2 -0.1 -1.4 -1.5 Domestic revenue 5.9 5.3 6.4 4.9 5 5.3 5.7 Grants 1 1.3 0.9 6.8 1.2 0.7 0.3 Expenditures 9.3 8.3 6.4 4.5 6.2 7.4 7.4 Current expenditures 7.4 6.8 4.9 3.4 4.2 4.2 4.3 Capital expenditures 1.9 1.6 1.5 1.1 2.1 3.2 3.1 Overall balance of the nonfinancial public sector 2/ -2.2 -1.7 0 6.6 -0.1 -1.4 -1.5 Savings and Investment Gross investment 18 15.9 13.9 6.1 7.8 10.7 14.2 Of which: public investment 1.9 1.6 1.5 1.1 2.1 3.2 3.1 Gross national savings 18.5 13.5 10.4 5.5 7.2 9.8 13 External current account balance (incl. official grants) 0.4 -2.3 -3.5 -0.5 -0.6 -0.9 -1.2 Net fuel exports -3.1 -4.5 -3.6 -2.4 -2.3 -2.3 -2.3 Public Debt External public debt (medium and long-term, eop) 12.9 12.3 12.9 1.5 1.4 2.7 4.1 Total public sector debt (end-of-period) 28.9 29.5 28.5 13.9 11.4 10.9 11.4 External public debt service 3/ 9.4 8.1 11.8 13.5 3.3 4.7 4.6 Memorandum Items: (In millions of dollars, unless otherwise indicated) Net international reserves 4/ 456 119 391 960 1,159 1,341 1,501 Gross international reserves 2,534 2,067 2,346 2,496 2,621 2,771 2,921 In months of imports of the following year 5.6 4.7 5.3 5.6 5.6 5.6 5.6 Nominal GDP (millions of gourdes) 1,699,208 2,168,223 2,798,324 3,468,166 4,315,508 5,151,163 5,772,370 Sources: Ministry of Economy and Finance; Bank of the Republic of Haiti; World Bank; Fund staff estimates and projections. 1/ The real effective exchange rate for FY2024 reflects August 2024 data. 2/ Includes transfers to the state-owned electricity company (EDH), and unsettled payment obligations. 3/ In percent of exports of goods and nonfactor services. Includes debt relief. 4/ Excludes banks’ FX deposits, Venezuela escrow account, IMF liabilities (except Food Shock Window), and swaps. HAITI STAFF REPORT FOR THE 2024 ARTICLE IV CONSULTATION November 6, 2024 KEY ISSUES Recent developments. Haiti is facing exceptional challenges. While security has deteriorated steadily since the last 2019 Article IV Consultation, it reached crisis proportions in the first few months of 2024. Gangs controlled 80 percent of the capital during March-May 2024, paralyzing economic activity by disrupting supply chains, destroying much infrastructure, and rekindling inflation pressures. The escalation of violence has destroyed human and physical capital and led to a surge in the number of displaced people and greatly accelerated brain drain. The worsened security situation has amplified Haiti’s fragility, compounding its multiple shocks, including the pandemic, a devastating earthquake, political crisis following the assassination of President Moïse, worsening malnutrition resulting from the economic spillovers of Russia’s war in Ukraine which led to the food crisis, and repeated outbreaks of infectious diseases. The economy is only very slowly normalizing. The first wave of the contingent of the Multinational Security Support mission (MSS)—led by Kenya backed by the United Nations—arrived in Haiti at the end of June to help re-establish security. The new government, in place since June 2024 with a time-bound mandate through February 2026 (tasked with holding general elections), has a window of opportunity to implement reforms that could eventually help restore the country’s potential over the medium and long term. Themes of the Article IV Consultation. The analytical work underpinning the policy discussions, prepared by staff in agreement with the authorities, focuses on strengthening policy frameworks to enhance resilience (to make them less pro-cyclical). It also quantifies the impact of crime and climate on potential growth; points to the importance of closing gender gaps to boost potential output; calls for strengthening digital infrastructure to generate additional tax revenue to support inclusive growth; examines the main sources of inflation; and analyzes the macro financial linkages, using a balance sheet approach. Initial findings from the IMF staff-led governance diagnostic report were also discussed. Staff-Monitored Program (SMP). Building on progress achieved under the 2022 SMP covering June 2022-May 2023, a new SMP was negotiated in June 2023, initially covering the period June 30, 2023, through March 31, 2024. Despite meaningful initial HAITI progress, including the timely approval of the budget in September 2023, the amendments to the financial intelligence unit (FIU) law, and improved provision and timely dissemination of finance ministry data, program slippages occurred on other fronts. As a result of the IT incident in mid summer 2023, whose impact was far more extensive than originally foreseen, the timeliness of monetary data suffered and prevented the conclusion of the First Review in December 2023. At that time, the SMP was extended by six months through September 2024. The extension was meant to allow for more time to accumulate a track record of effective policy implementation, which was eventually disrupted by the unfolding security crisis, and build the capacity to provide high-quality data. The worsened insecurity in the spring led to further slippages, including a collapse in tax collection and delays in achieving some structural benchmarks and in providing data. The latter reflected reduced capacity in compiling statistics attributable to the lockdowns. With the new interim government in place, the authorities and staff agreed to let the 2023 SMP lapse, rather than extending it further, and to start a new SMP after the finalization of the budget, which would anchor the new quantitative targets. Policy recommendations • Implement the budget for FY2025 and keep the monetary financing of the budget to zero, consistent with the objective of price stability. • Advance governance reforms, including publish the governance diagnostic assessment as soon as completed (and adopting accompanying action plan) and advance anti-corruption reforms. • Adopt measures to strengthen revenue collection, expenditure management and controls and increase budget allocations for social spending and for protecting the most vulnerable—and assess their impact. • Strengthen public finance reporting, transparency, and accountability in the use of public funds. • Continue to limit foreign exchange interventions to smoothing excess volatility and well-signaled foreign reserve build-up. • Complete and publish the audit of the Central Bank for FY2023 as soon as possible. • Provide more timely data to the Fund and enhance data transparency through timeline publication of core economic data. 2 INTERNATIONAL MONETARY FUND HAITI Approved By Patricia Alonso-Gamo and Peter Dohlman CONTENTS Policy discussions started in person in Washington DC during July 2-3, 2024, continued remotely during July 24-August 5, 2024, with several additional meetings throughout August and September and concluded in person in Washington DC during October 21-26, 2024. The team comprised Patrizia Tumbarello (head), Noah Ndela, Arsène Kaho, Gonzalo Huertas, and Juan Passadore (all WHD), Henrique Chociay (SPR), Mher Barseghyan (STA), Jinkyu Sung, (FAD) and Gabriel Duvalsaint and Ralph Wata (Port-au-Prince office). Monique Newiak (SPR) participated in the discussion on gender and inclusion. Joel Lee (LEG), Parisa Kamali (SPR), and Pamela Cardoso (MCM) participated in the discussions on Article VIII and Capital Flow Management. Former team members included Weicheng Lian and Justin Matz. Toyosi Ojo provided excellent research assistance. Soungbe Coquillat coordinated all work related to mission scheduling and document preparations. The mission met with Prime Minister Garry Conille, Minister of Economy and Finance and Minister of Planning and External Cooperation Ketleen Florestal, Central Bank Governor Ronald Gabriel, other senior government officials, members of the donor community, NGOs, and representatives of the private sector. Ms. Ludmilla Buteau Allien (OED advisor) participated to all policy and technical discussions. Mr. André Roncaglia (Executive Director) and Mr. Bruno Saraiva (Alternate Executive Director) joined the concluding meetings. THE SETTING _____________________________________________________________________________________ 5 RECENT DEVELOPMENTS ________________________________________________________________________ 7 OUTLOOK AND RISKS __________________________________________________________________________ 11 2023 SMP PERFORMANCE______________________________________________________________________ 13 POLICY DISCUSSIONS___________________________________________________________________________ 14 A. Fiscal policy—From Crisis to Resilience________________________________________________________ 14 B. Strengthening Social Assistance _______________________________________________________________ 17 C. Addressing Governance and Enhancing Transparency to Lift Potential Growth _______________ 19 D. Implementing Structural Reforms to Support Potential Growth_______________________________ 22 E. Strengthening Monetary and Exchange Rate Policy Frameworks ______________________________ 24 F. Safeguarding Financial Sector Stability ________________________________________________________ 26 G. Improving Data Adequacy for Surveillance and Other Issues__________________________________ 28 STAFF APPRAISAL_______________________________________________________________________________ 30 BOX 1. Scarring from Multiple Crises—Loss in Potential Output _______________________________________ 9 INTERNATIONAL MONETARY FUND 3 HAITI FIGURES 1. Indicators of Well-Being and Digital Access ____________________________________________________ 6 2. Monitoring Economic Activity Through Satellite Data __________________________________________ 8 3. Revenue Performance, 2019–24 _______________________________________________________________ 16 4. Real Sector Developments, 2016–24___________________________________________________________ 32 5. Fiscal Sector Developments, 2016–24__________________________________________________________ 33 6. Monetary and Financial Sectors Developments, 2017–24______________________________________ 34 7. External Sector Developments, 2017–24 _______________________________________________________ 35 TABLES 1. FSW. Spending Priorities Indicated by the Authorities _________________________________________ 20 2. Selected Economic and Financial Indicators, 2021–29 _________________________________________ 36 3a. Non-Financial Public Sector Operations, 2021–29 ____________________________________________ 37 3b. Non-Financial Public Sector Operations, 2021–29____________________________________________ 38 4a. Balance of Payments, 2021–29 _______________________________________________________________ 39 4b. Balance of Payments, 2021–29 _______________________________________________________________ 40 5. Summary Accounts of the Banking System, 2021–29 __________________________________________ 41 6. External Financing Requirements and Sources, 2021–29 ______________________________________ 42 7. Financial Soundness Indicators, June 2021–June 2024_________________________________________ 43 ANNEXES I. Country Engagement Strategy _________________________________________________________________ 44 II. Impact of Crime on Economic Activity _________________________________________________________ 52 III A. Closing Gender Gaps________________________________________________________________________ 54 III B. Macro-Critical Gender Gaps: The Case of Haiti______________________________________________ 61 IV. Risk Assessment Matrix _______________________________________________________________________ 67 V. Domestic Revenue Mobilization: Reaping the Benefits of Digitalization through GovTech____ 69 VI A. Assessing the Fiscal Policy Stance __________________________________________________________ 79 VI B. Strengthening the Fiscal Framework by Revising the Fuel Subsidy Regime_________________ 89 VII. Options to Further Strengthen Monetary and Exchange Rate Policy _________________________ 91 VIII. Assessing Macro-financial Linkages Using a Balance Sheet Approach_______________________ 99 IX. Data Issues ___________________________________________________________________________________107 X. External Sector Assessment ___________________________________________________________________109 XI. Inflation Dynamics in Haiti ___________________________________________________________________113 XII. Greening Haiti—Climate Policy and Structural Reforms _____________________________________120 XIII. Past IMF Recommendations and Implementation Status ___________________________________123 APPENDICES I. Joint Governance Matrix on Recent, Ongoing, and Forthcoming Capicity Development by the IMF and Development Partners _______________________________________________________________________124 4 INTERNATIONAL MONETARY FUND HAITI THE SETTING 1. Haiti is a fragile and conflict-affected state—a low-income country with multiple challenges. Half its population lives below the poverty line. The economy has a low tax base and a large informal sector that relies heavily on volatile remittance flows. Since the last 2019 Article IV consultation, Haiti has suffered a series of crises and shocks, including the pandemic; a devastating earthquake in 2021; cholera outbreaks; and the economic spillovers of the war in Ukraine, which led to a food crisis that triggered acute hunger. The severe deterioration of the political and security situation over the last few years (including the assassination of President Moïse in 2021) has magnified these problems—leading to a surge in the number of displaced people (within the country and outside), a worsening brain drain, fatigue in host communities and in the region, and tighter capacity constraints (Annex I). Governance and corruption problems are pervasive.1 2. Political and social insecurity deteriorated further during February-May 2024, reaching crisis proportions.2 Gang violence inferred attacks on government buildings, police installations, and such key infrastructure as airports, roads, and ports. Schools have been forced to close and most Port-au-Prince residents have been cut off from critical supplies of food and healthcare. Gangs 450 400 350 300 250 200 150 100 50 0 Total Number of People Displaced from Haiti (Thousands, annual data, end of each year) 200 180 160 140 120 100 80 60 40 20 Forcibly Displaced and Stateless Persons from Haiti (Thousands) 2023 2024 1/ 0 2018 2019 2020 2021 2022 2023 2024 USA Brazil Mexico Canada France Dominican Costa Rica Source: United Nations High Commisioner for Refugees. Note: Includes refugees, asylum-seekers and other people in need of international protection. Source: United Nations High Commisioner for Refugees. 1/ Data refers to the first six months of 2024. Rep. In percent of imports of goods and services In percent of GDP (right scale) Net Remittances: Regional Perspective 80 60 40 20 40 80 30 60 20 40 10 20 40 30 20 10 0 0 0 0 2024 1/ 2019 2020 2021 2022 2023 2019 2020 2021 2022 2023 2019 2020 2021 2022 2023 2019 2020 2021 2022 2023 Dom. Rep. Guatemala Honduras Nicaragua Sources: Bank of the Republic of Haiti, WEO, BOPSY, and IMF staff calculations. 1/ Data are on a fiscal year basis. Refers to the first two quarters of 2024, annualized. 2019 2020 2021 2022 2023 Haiti 1 Since late 2022, the United Nations, Canada, the EU, the United Kingdom, the United States, and other countries have imposed sanctions on high-profile Haitians for criminal activities. 2 According to UN data, 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. Furthermore, 702,973 people were displaced within Haiti as of September 2024 (see UN International Organization for Migration agency), in addition to the 400,000 people who are displaced from Haiti. INTERNATIONAL MONETARY FUND 5 HAITI control large part of the capital. The widespread disorder has heightened Haiti’s fragility and compounded the populations’ suffering from severe malnutrition (Figure 1). Figure 1. Haiti: Indicators of Well-Being and Digital Access Life expectancy in Haiti is among the lowest in the world… …and children mortality rate is very high. Life Expectancy Barbados 77.7 Grenada 75.3 Antigua and Barbuda 79.2 Aruba 75.0 Bahamas, The 74.4 Latin America & Caribbean 73.8 Dominica 73.0 St. Kitts and Nevis 72.0 St. Lucia 71.3 Caribbean small states 71.0 Belize 71.0 Jamaica 70.6 Pacific island small states 69.7 St. Vincent and the Grenadines 69.0 PRGT 66.4 Guyana 66.0 IDA only 65.4 FCS 65.0 Haiti 63.7 0 20 40 60 80 100 Mortality Rate of Children Below Five Years Old Antigua and Barbuda (Per 1,000 live births) St. Vincent and the Grenadines 2022 Barbados 2016 Latin America and the Caribbean Honduras Nicaragua Trinidad and Tobago St. Kitts and Nevis St. Lucia Caribbean small states Jamaica Guyana Haiti IDA only Low income FCS 0 5 10 15 20 25 30 35 Only 50 percent of the population has access to electricity… …and sanitation services are below other Fragile and Conflict-Affected States. (Percent of population) Access to Electricity St. Kitts and Nevis Jamaica St. Vincent and the… Dominica Barbados Antigua and Barbuda Latin America and Caribbean Honduras Guyana Nicaragua 2022 Pacific island small states 2016 IDA only FCS Haiti Low-income countries 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100 PeopleUsing at Least Basic Sanitation Services Haiti (Percentof population) 2022 IDA only 2016 FCS Pacific island small states St. Lucia Honduras Caribbean small states Guyana Trinidad and Tobago Antigua and Barbuda Barbados 20 30 40 50 60 70 80 90 100 Internet access is still limited… …as is the use of mobile phones. (Percent of population) Bahamas, The Individuals Using the Internet Jamaica Dominican Republic Dominica Trinidad and Tobago St. Vincent and the Grenadines Latin America and Caribbean Barbados 2022 St. Lucia 2016 Pacific island small states Nicaragua Honduras Kiribati Haiti 1/ FCS IDA only 0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100 1/ Haiti data refers to 2021. Trinidad and Tobago Mobile Cellular Subscriptions (Per 100 people) St. Kitts and Nevis Guatemala 2022 1/ Barbados Latin America and Caribbean 2016 Caribbean small states Jamaica St. Vincent and the Grenadines Nicaragua St. Lucia Dominican Republic Dominica IDA only Grenada Haiti 0 20 40 60 80 100 120 140 160 1/ Data for Dominica, Caribbean small states, Grenada, Haiti, St Kitts and Nevis, St. Lucia, and Nicaragua are for 2021. Sources: World Development Indicators and IMF staff calculation. Note: IDA=International Development Association; PRGT=Poverty Reduction and Growth Trust; FCS=Fragile and Conflict-Affected States. 6 INTERNATIONAL MONETARY FUND HAITI 3. The government in place since June 2024 has a time-bound mandate to restore security, economic growth, and pave the way for orderly general elections in February 2026 (for the first time since 2016). A nine-member Transitional Presidential Council was established in April 2024, with the support of CARICOM, acting as the country’s presidency until February 2026. The first waves of the contingent of the Multinational Security Support Mission (MSS)—led by Kenya backed by the UN—arrived in Haiti at the end of June 2024. Progress in restoring security has been slow as the authorities maintained that the size of the MSS is still too small relatively to the originally expected presence to be impactful, with lack of resources being one of the main issues and requested the MSS to be replaced by a UN peacekeeping mission to have access to considerably additional funding and personnel. Kenya has committed a further 600 police officers by the end of the year. Some schools in the capital remain closed due to security and others host an increasing number of displaced people which could not return to their destroyed homes. A further escalation of violence took place since early October 2024. RECENT DEVELOPMENTS 4. Data point to a dire situation. Macroeconomic conditions remain difficult, with Haiti recording five consecutive years of negative growth (2019-23). Real GDP growth was negative 1.9 percent in FY2023, ending in September 2023. This reflected disruptions in production, exports, and in the distribution of goods and services (including energy) in local markets. The economy collapsed during March-May 2024 and has yet to fully recover. The airport in Port-au-Prince was closed from March to May and port capacity was at a minimum, as evidenced by staff’s monitoring of trade flows using satellite data through Portwatch (Figure 2). The supply-side shock caused by the security crisis has greatly fed inflation and worsened the hunger crisis: after 10 months of steady and remarkable September. decline, inflation resumed rising in February 2024, reaching 27.9 percent (year-on-year) in Haiti: Trade and Remittances Data Amount (in millions of US dollar) Percentage change Period Fiscal year to date FY19-23 (average) FY24 FY23 FY24 vs average FY19-23 FY24 vs FY23 Exports October-July 892 642 782 -28 -18 Imports October-July 3,650 3,547 3,868 -3 -8 Net Remittances October-August 2,662 3,065 2,745 15 12 Latest available month Exports July 101 67 71 -33 -5 Imports July 373 388 377 4 3 Net Remittances August 252 287 254 14 13 Sources: BRH and Fund staff estimates. INTERNATIONAL MONETARY FUND 7 HAITI Figure 2. Haiti: Monitoring Economic Activity Through Satellite Data The pandemic and the intensification of criminal activity have disrupted trade flows. Import and export volumes, and the number of cargo and tanker ships are on a downward trend. Daily Import and Export Volumes 10 1.2 Average Daily Ship Arrivals Import volume 2.0 1.0 1 8 Export volume (right scale) 0.9 1.8 Cargo ships 0.8 0.8 1.6 Tanker ships (right scale) 6 0.7 1.4 0.6 0.6 1.2 4 0.5 0.4 1.0 0.4 0.8 2 0.3 0.2 0.6 0.2 0 0 0.4 0.1 2/1/2019 6/1/2019 10/1/2019 2/1/2020 6/1/2020 10/1/2020 2/1/2021 6/1/2021 10/1/2021 2/1/2022 6/1/2022 10/1/2022 2/1/2023 6/1/2023 10/1/2023 2/1/2024 6/1/2024 10/1/2024 2/1/2020 6/1/2020 10/1/2020 2/1/2021 6/1/2021 10/1/2021 2/1/2022 6/1/2022 10/1/2022 2/1/2023 6/1/2023 10/1/2023 2/1/2024 6/1/2024 10/1/2024 Satellite data suggest that trade activity fell dramatically beginning in March-April 2024. Sources: IMF Portwatch (daily data), IMF Swift Monitor, and FlightsRadar24. Left upper chart: the blue line is the quarterly average of the daily arrivals of cargo ships. The red line is the quarterly average of the daily arrivals of tanker ships. Right upper chart: quarterly average of the daily import and export volumes. 8 INTERNATIONAL MONETARY FUND HAITI Box 1. Haiti: Scarring from Multiple Crises—Loss in Potential Output Results. 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 in the period is equal to 25 percent (Figure 1.2).1 Methodology. We use a growth accounting exercise with a Change in Potential Real GDP, 2019-23 (Percent per year) 4 3 2 1 0 -1 -2 Cobb Douglass production function: Y�� = ����( ����)��(���� ℎ��)1−��, -3 Haiti Regional comparators Change in Potential Real GDP 2019-23 (Percent per year, Index 2019=100) 130 where Y��is real GDP, ����is labor force, ℎ��is human capital, and 120 ����is capital stock, and ����is total factor productivity. 110 100 • Step 1. To account for the impact of natural disasters on 90 capital stock, we remove changes in investment, ���� which 80 are due to reconstruction efforts after natural disasters (to 70 avoid upward bias in capital stock in the recovery phase). HTI COM 2019 2020 2021 2022 2023 To this end, we estimate an ARIMA (1,0,1) model for investment and introduce a two-lag dummy for natural Sources: Haver, Analytics, WEO, and IMF staff calculations. Note: Potential real GDP estimation accounting for natural disasters. Regional comparators include: Antigua and Barbuda, Bahamas, Belize, Dominica, and Jamaica. disasters. After subtracting the effect of natural disasters, we obtain a modified investment series: ������. • Step 2. Calculate the corrected capital stock, ������ by using the perpetual inventory method with the “correct” investment process, ������, as an input. • Step 3. Obtain the human-capital-adjusted labor force accounting for changes in population and in average years of schooling when available. Step 4. Estimate¸ using the growth accounting framework, the contribution of total factor productivity as a residual: A�� = ����/( ������)1−��(���� ℎ��)1−��. • Step 5. Compute the trend for productivity, A������������ using the filter of Hodrick-Prescott. • Step 6. Use A������������ and ������to obtain potential output: ���������� = A������������(������)1−��(���� ℎ��)1−��. The impact of crime and climate on potential output. The channels through which crime affects growth are productivity, capital accumulation, and human capital. IMF (2023) computes the effect of crime on real GDP growth in a cross section of Latin American countries, with an elasticity ranging between -0.3 and -0.4 with respect to the homicide rate (measured in logs). Using homicide rate (i.e., homicides per 100,000 inhabitants) for Haiti which surged from 11 in 2019 to 59 in 2024, we conclude that crime could account for a drop in real GDP of at least 1.2 percent per year. In addition, climate will impact the computation of potential output through the difference between ����⬚and ������(with the latter correcting for the upward bias due to reconstruction efforts in the aftermath of a natural disaster) and through the effect on natural disasters on productivity. 1/Prepared by: Sinem Kilic and Juan Passadore (WHD). Note: Regional Economic Outlook: Western Hemisphere, October 2023 (imf.org), “Securing Low Inflation and Nurturing Potential Growth,” Online Annex 4, “Crime and its Macroeconomic Consequences in Latin America and the Caribbean.” Note: Estimates of the homicide rate for 2024 (through August) are from UN Integrated Office in Haiti. INTERNATIONAL MONETARY FUND 9 HAITI 5. Latest data suggest that trade collapsed in Haiti: Foreign Exchange Interventions by the Reserve Bank of Haiti (Cumulative purchases per fiscal year, in millions of US dollars) recent months while remittances held up. The current account deficit widened in FY2023 to 3½ percent of GDP owing mainly to a collapse in exports (especially textile). The external position of Haiti in FY2023 is assessed as weaker than the level implied by fundamentals and desirable policies (Annex X). Preliminary BOP data point to a narrowing deficit so 500 400 300 200 100 0 -100 FY21 FY22 FY23 FY24 Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep far in FY2024 to ½ percent of GDP, mainly the result of large import compression (amid strong real-side restraints on economic activity) and robust Sources: Bank of the Republic of Haiti and IMF staff calculations. remittances. As a result, reserve buffers have been rebuilt to a comfortable level. 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) for September 2023 stood at US$356 million and jumped to almost US$1 billion (US$963 million in August 2024). The increase in net international reserves in FY2024 (US$607 million through August) was supported by net FX purchases by the BRH (US$471 million in Haiti: Calculation of BRH Net International Reserves the whole year, text chart), benefitting from a favorable FX supply in the market driven by remittances. Relative to the net reserves, gross reserves increased by a lower amount in FY2024 Change Sep 2023 Oct 2023 Nov 2023 Dec 2023 Jan 2024 Feb 2024 Mar 2024 Apr 2024 May 2024 Jun 2024 Jul 2024 Aug 2024 Sep 2024-Aug 2023 A. Gross International Reserves 2,346 2,301 2,394 2,587 2,341 2,334 2,429 2,365 2,421 2,451 2,455 2,533 188 Monetary gold 109 116 118 121 120 118 129 134 137 136 141 146 37 (In millions of US dollars) Holdings of foreign currency 24 36 60 42 35 28 27 21 17 44 24 55 31 Demand deposits abroad 371 334 330 542 396 413 475 446 479 471 446 475 104 Investments abroad 1,706 1,678 1,754 1,750 1,660 1,646 1,669 1,635 1,667 1,679 1,723 1,736 30 SDR holdings 1/ 110 109 104 105 104 102 101 101 94 93 94 93 -16 Reserve Position in the Fund 1/ 27 27 27 28 27 27 27 27 27 27 27 28 1 B. Reserve Related Liabilities 143 143 139 140 378 379 380 347 343 345 253 256 113 Liabilities to the IMF, excluding Food Shock Window 1/ 141 140 137 138 137 137 136 135 131 130 131 133 -8 Short-term loans from private non-residents 0 0 0 0 240 240 240 206 206 206 112 112 112 Liabilities to IFIs 2 2 2 2 2 3 4 5 6 9 10 10 8 C. FX Denominated Liabilities to Residents 1,813 1,777 1,770 1,743 1,238 1,279 1,296 1,316 1,340 1,325 1,292 1,280 -533 FX liabilities to commercial banks, microfinance, and caisses d'epargne 1,265 1,229 1,222 1,195 1,205 1,246 1,263 1,283 1,308 1,292 1,259 1,247 -18 Government FX deposits (Venezuela transitory account) 515 515 515 515 0 0 0 0 0 0 0 0 -515 Swaps with financial institutions 33 33 33 33 33 33 33 33 32 32 32 32 0 D. Other FX Liabilities 34 34 34 33 33 19 18 18 18 18 36 35 2 Off-balance sheet FX liabilities 15 15 15 15 15 15 15 15 15 15 15 15 0 Project accounts 18 17 18 18 18 3 3 3 3 3 20 20 3 Special accounts 1 1 1 0 0 0 0 0 0 0 0 0 -1 E. Net International Reserves (A - B - C - D) 356 348 451 671 691 658 736 684 720 763 874 963 607 Memorandum items F. Food Shock Window (FSW) - Liability to the IMF 1/ 107.7 107.6 109.2 109.9 108.9 108.7 108.4 107.9 108.4 107.7 108.8 110.3 2.6 G. Net International Reserves deducting FSW (E - F) 248 240 341 561 582 549 627 576 611 655 765 852 604 1/ IMF data. Sources: BRH, IFS, and IMF staff calculations. Reserves Accumulation and Bilateral Exchange Rate Depreciation of the gourde Bilateral Exchange Rate (Gourde per US dollar) 160 140 120 100 80 NIR (millions of US dollar, right scale) Gourde per US dollar 1,080 900 720 540 360 180 155 150 Depreciation of the gourde 145 140 135 130 125 120 115 BRH reference exchange rate Estimated two-percent band (June-December 2023) Estimated two-percent band (January-September 2024) 60 0 9/30/2022 12/31/2022 3/31/2023 6/30/2023 9/30/2023 12/31/2023 3/31/2024 6/30/2024 9/30/2024 Aug-21 Nov-21 Feb-22 May-22 Aug-22 Nov-22 Feb-23 May-23 Aug-23 Nov-23 Feb-24 May-24 Aug-24 Sources: Bank of the Republic of Haiti and IMF staff estimates. Sources: Bank of the Republic of Haiti and IMF staff estimates. 10 INTERNATIONAL MONETARY FUND HAITI (US$188 million through August) due to the settlement with Venezuela, which reduced both FX assets and FX liabilities. 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. The authorities have continued to reduce the monetary financing of the fiscal deficit, in line with 2022-23 SMP objectives. Monetary Financing of the Budget (In percent of GDP) 60 Inflation 4 3 2 1 0 -1 (Percent) 50 40 30 20 10 0 Overall CPI (year on year) Food CPI (year on year) 2019 2020 2021 2022 2023 2024 1/ Sources: Ministry of Finance (Tableau des Operations Financières de l’Etat—TOFE) and IMF staff estimates. 1/ Data are on a fiscal-year basis. 2024 refers to October 2023-July 2024, annualized. Sep-19 Feb-20 Jul-20 Dec-20 May-21 Oct-21 Mar-22 Aug-22 Jan-23 Jun-23 Nov-23 Apr-24 Sep-24 Sources: Haitian Institute of Statistics and Informatics (IHSI), and Bank of the Republic of Haiti. 6. Debt restructuring with Venezuela implemented in early 2024 significantly reduced the debt stock and debt service of Haiti. 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 allowing the authorities to save approximately annually US$95 million (or 12.5 billion gourdes) in debt service. OUTLOOK AND RISKS 7. The macroeconomic outlook for Haiti remains clouded. Growth in FY2024 (ended in September 2024) is expected to be negative (for the sixth consecutive year), at minus 4 percent. Growth could reach 1 percent in FY2025 and 1½ percent over the medium term if the security situation improves. But further social turmoil would continue to disrupt economic activity. Staff’s analysis suggests that bolstering domestic security could greatly enhance growth. Should crime (proxied by the homicide rate) be brought to pre-pandemic levels, the impact on growth could be as large as 1.9 percentage points annually in the short and medium term (Annex II) and 1 percentage point in steady state (long term), all else equal. Furthermore, staff’s analysis (Annex III A) indicates that the medium- and long-term level of GDP could rise by 5-15 percent should Haiti’s gender gap, proxied by different gender labor participation rates, close. The increase in GDP would be even larger if education gaps were to close. INTERNATIONAL MONETARY FUND 11 HAITI Inflation is projected to ease further over the medium term, assuming adequate macroeconomic policies and improvement on the security front. The fiscal deficit of the NFPS is projected at about 0.1 percent of GDP. The 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. 8. Domestic and external risks cast a long shadow (Annex IV, RAM). These risks include intensified political instability; continuous gang-related disruptions to economic activity, especially if full deployment of the MSS is delayed; a worsening of the hunger crisis; natural disasters; and pervasive corruption and weak rule of law. Externally, Haiti is vulnerable to volatile remittance flows, reduced external financing from development partners, and renewed surges in global food and energy prices. The macroeconomic baseline for Haiti is subject to elevated uncertainty. Given the country’s fragility, conflict, and violence, it is highly vulnerable to macro risks that could erode confidence in the baseline projection. Such risks include continuation of recession, problems in mobilizing revenue owing to a resurgence of violence, and the transitional government’s weakened capacity to implement policy. Under this adverse scenario, substantial monetary financing of the budget would likely resume, further undermining macroeconomic stability. The debt risk outlook is negative, in light of the high likelihood that Haiti debt carrying capacity will be downgraded in the next debt sustainability analysis (DSA) absent significant strengthening of country fundamentals. The accompanying DSA still assesses Haiti’s risk of debt distress as high but sustainable. This is because of Haiti’s large exposure to natural disasters, its large development and infrastructure needs, and its still-low potential growth—mainly the result of a lack of security and poor infrastructure. However, the sustainability of overall debt hinges on the ability of the authorities to secure donor financing over the short to medium term. 9. That said, the current government has a narrow window of opportunity to implement reforms that could help restore the country’s potential over the medium and long term. Official transfers could rise if countries within and outside the region support the Kenya-led operation with additional financing and if they support Haiti’s reconstruction. Normalization of the security situation would greatly improve the medium-term outlook. If this were combined with the implementation of a strong anti-corruption strategy, it could bring back the foreign direct investment FDI and talent that have left the country. Should downside risks materialize, additional donor support (via grants) will be essential to preserve macro stability and support priority spending, without reverting to monetary financing. 10. Authorities’ views. The authorities’ economic outlook is consistent with that of IMF staff. That said, they believe that GDP numbers, in and of themselves, do not accurately portray the real conditions of the Haitian population and the extent of the current humanitarian, social, and economic, crises. They indicated that the current government has nonetheless a narrow window of opportunity to implement reforms. Quite apart from the immense challenges, the country could face meaningful prospects in the medium term that would require strong support from the private sector and large development partners. The authorities expect only a small current account deficit in 12 INTERNATIONAL MONETARY FUND HAITI FY2024, a result of import compression and security-related trade flow disruption, as well as strong remittances (supported by migration). Over the medium term, they see risks of a wider current account shortfall attributable to imports of consumer goods and a potential slowdown in remittances related to the expiration of Temporary Protected Status by the United States. They also see risks tilted to the downside and an exceptional level of uncertainty deriving mainly from the unsettled security situation, which could lead to further brain drain, prevent FDI inflows, and continue to undermine long-term growth. They see large multilateral and bilateral external assistance as paramount for supporting growth prospects to finance the large development needs and see the continuation of grant financing as essential to preserve debt sustainability. 2023 SMP PERFORMANCE 11. Building on progress achieved under the 2022 SMP (June 2022-May 2023), a new SMP was negotiated in June 2023. The new SMP went off track despite the authorities’ continuously close engagement with staff.3 A cyber/IT attack on the central bank in June 2023 and delay in providing timely monetary data prevented the completion of the first review in December 2023. The Fund addressed concerns about monetary data by providing capacity development (CD) assistance to the central bank in helping it compile for the first time the reserve data according to the international standard provided by the “reserve template.” The central bank recompiled manually central bank balance sheet data, prior to a new software being introduced. A FIN-tailored new safeguard-monitoring mission in March 2024 revealed persistent weaknesses in foreign reserve management, with 60 percent of reserves invested in corporate bonds. The main lesson of the 2023 SMP is that without a minimum level of security, the authorities’ commitment is insufficient to ensure successful implementation. Despite the challenges, until March 2024, the fiscal aggregates were in line with the approved program (2023 SMP) and the fiscal stance was more conservative than expected. 12. The worsened security situation led to further slippages (in providing data and lower tax collection and in delaying the achievement of some structural benchmarks), also the result of reduced capacity in data compilation because of the lockdowns. This prevented the completion of the combined First and Second Reviews in March. Despite slippages, the authorities continued to deliver, and most quantitative targets (QTs) were met until March. But implementation of structural benchmarks has been mixed. The authorities have continued to share detailed quarterly financial statements for the FAES and have provided monthly reports on the execution of fiscal spending financed by the Food Shock Window (FSW)—according to the template provided by staff, no later than 45 days after the end of each month. The General Finance Inspectorate has conducted internal audits of all ministries that use FSW emergency resources and is transmitting the documentation to the Superior Court of Accounts and Administrative Disputes (CSCCA). The authorities also had met—a