IMF management approves a staff-monitored program for Haiti

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WASHINGTON / HAITI – Management of the International Monetary Fund (IMF) has approved a Staff-Monitored Program (SMP) for Haiti after discussions from March-May, 2022. The SMP was approved on June 17, 2022, and runs through May 31, 2023.

The SMP 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. With timely implementation of the program, the SMP would help the authorities establish a track record of policy implementation, possibly paving the way to an IMF-supported upper credit tranche program.

SMPs are arrangements between country authorities and the IMF to monitor the implementation of the authorities’ economic program but are not accompanied by financial assistance.

In recent years, Haiti has experienced a protracted political crisis and assassination of its president, lockdowns, the global pandemic, a surge in gang-related violence, and an earthquake. These shocks have weakened economic and institutional frameworks and adversely affected administrative capacity, while socioeconomic and security conditions have deteriorated to a distressing level.

After three years of economic contraction, IMF staff expect growth to turn positive in FY2022, supported by an increase in investment, and to recover further to 1.4 percent the next year with continued flows of remittances amidst modest improvements in socio-political stability.

Caribbean News Global imf_eco_logo IMF management approves a staff-monitored program for Haiti

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. With a strong focus on governance, the SMP is geared to increasing accountability and raising ownership of the reform agenda across the country, placing emphasis on strengthening public finance management, revenue administration, transparency, and anti-corruption measures.

The SMP 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 authorities have 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 finalize and publish the new Tax Code, Customs Code and the Customs tariff. This will simplify the tax system, making it more transparent and thus less prone to governance abuses.

Central bank financing of the fiscal deficit has fueled 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 program thus aims to raise resources for productive spending and reduce monetary financing of the fiscal deficit to reduce inflation. This is critical for the population given the heavy burden placed on the poor from the high increase in prices.

Fuel subsidies have been absorbing at least one-third of domestic revenues and crowding out productive spending on investment, health and education. They are also highly inequitable, with over 90 percent of the benefits going to the top 10-20 percent of the income ladder in Haiti. In this light, the authorities plan to prepare the groundwork to eventually tackle this issue. As a first step, they launched in April several social programs under the Programme d’urgence targeted to the groups affected by earlier fuel price adjustments.

The Haitian authorities will also strengthen the monetary policy framework and limit foreign exchange interventions to smooth excessive volatility to gradually eliminate the spread with the parallel market. Key steps are also planned to improve the financial regulatory framework and update regulations on anti-money laundering (AML/CFT) to meet international standards.

Over the course of this SMP, IMF staff will work closely with the authorities to support implementation of their program and help them build public support. Indeed, most elements of the authorities’ program are underpinned by ongoing IMF technical assistance and capacity building.

The Fund will also continue to coordinate closely with Haiti’s other development partners to leverage efforts in support of common objectives. The first review of the SMP is expected in September. Satisfactory performance under the SMP could lead to an IMF-supported program under a multi-year arrangement that would require approval of the IMF’s executive board. SMP are only subject to formal IMF management review.

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