Treasury bond markets play a pivotal role in the economic development and fiscal management of fragile countries, as they allow governments to secure funds from both the public and institutional investors, reducing the pressure on governments to print out money to finance their budgets. This means treasury bond markets can contribute to more stable economies, reducing the risk of inflation and its negative impacts on growth and income distribution.
In recent years, several fragile countries in Africa have implemented programs to develop these markets domestically with positive results. In the Democratic Republic of Congo, a nation with a long history of conflict and political instability, the share of treasure bonds doubled in 2022 to 0.6% of GDP from 0.3% a year earlier, following a strategy to bolster domestic bond markets to curtail monetary financing of budget deficits.
In Latin America and the Caribbean, Haiti has taken an important step to bolster its domestic treasury bond in September 2022, after the government announced a Treasury Bond Market Expansion Program. The initiative, led by the Ministry of Economy and Finance (MEF) and the Central Bank of Haiti (BRH), seeks to widen the pool of investors that can buy these bonds from only financial institutions and insurance companies to also include companies and individuals.
The initiative, once it becomes operational, could help boost the local treasury bond market which in recent months has shown improvements due to increased government bond sales to offset maturing ones coupled with higher institutional investor demand for these assets. Total bonds accounted for 0.1 percent of Haiti’s GDP for 2023, up from only 0.04 percent in 2022.
So, what can Haiti do to make its program operational and successful? To help answer this question, we summarize some of the key points discussed during one of the IDB-organized public policy roundtables “Mercredi de Réflexion” that took place on April last year.
These roundtables are aimed at providing a space where experts, government officials and key economic actors in Haiti can discuss current development challenges and provide useful recommendations for policymakers in the country. The April 2023 event focused on the topic of public debt in Haiti and had the participation of several experts from the Inter-American Bank (IDB) and Haiti´s BRH and MEF.
Building Sustainable Budgetary Practices
The development of a treasury bond market needs to be considered as a pivotal step towards achieving sustainable budgetary practices, allowing governments to finance deficits without triggering inflation or high interest rates.
This means that for fragile countries it is key to understand the underlying factors that may undermine this objective and set up a roadmap to be able to address these challenges over time so the country can develop the institutional capacity to better manage its public finances.
Governments must consider in their strategy measures to strengthen market and fiscal governance, diversify and expand tax collection, reduce reliance on grants and concessional loans, and diversify their economies. These measures will help governments resist the temptation to rely on inflation to finance budget deficits and be better prepared to deal with external shocks.
The recent economic performance of Haiti shows that there is an opportunity to address several of these issues.
Haiti: Current Economic situation
Haiti has encountered significant economic challenges, experiencing consistent negative growth over the past five years. The nation is struggling with a high annual inflation rate that reached 44 percent last year, a 27 percent depreciation of the exchange rate over the past two years and exports averaging only 5 percent of GDP. Haiti also shows the lowest average tax rate (6% in 2023) among Latin America and the Caribbean nations.
The country has recently began tackling some of these challenges following the recommendations from the IMF Staff-Monitored Program 2022 to lay the foundation for sustainable fiscal recovery. Haiti has implemented measures to boost customs revenue collection and spending cuts on costly fuel subsidies in late 2022. The country is slowly beginning to reduce reliance of central bank financing of budget deficits, with monetary financing slowing to 0.9 percent of GDP in 2023 from 2.9 percent of GDP in 2021.
Still, one of the biggest obstacles for faster progress is political. Haiti has no president and parliament to run the country since the assassination of the president Jovenel Moise in July 2021. Armed gang conflicts and rampant crime have increased economic uncertainty and increased population displacement and migration, significantly hindering the treasury bond market program’s implementation.
What’s Next for Haiti’s Development of its Treasuy Bond Market?
To advance with the development of a treasury bond market, Haiti needs to solve its political and security challenges. First the country needs the election of a democratically chosen president with a commitment to good governance. Secondly, it is imperative to bring armed gangs under control to promote economic stability and build trust among investors.
In parallel, the country should take measures to build the governance and the internal capacity to manage public finances sustainably and implement policies to enhance secondary market liquidity, including instruments to mitigate risks and educational and awareness campaigns to ensure a broader range of individuals and Micro, Small and Medium Enterprises (MSMEs) have access to buy and trade treasury bonds.
Do you want to learn more about what the IDB is doing in Haiti? Visit our Haiti page.
Excellent post Nerlyne. I was waiting for the proposed solutions for an expansion of the Bonds Market in Haiti. There was a lot of progress made at the central bank for the expansion of the bonds markets.
The Central Bank bought the CSD, central security depository which should allow the public at large, individuals and enterprises, to also have access to the bond markets. This will allow for greater participation and greater access to public funds for the Ministry of Finance.
This is a very positive development for the Haitian financial markets. Expanding access to the bonds market will provide more avenues for both individual and enterprise investment, as well as give the government additional sources of public funding.
The central bank’s acquisition of the CSD is a key step in making the bonds market more accessible to the general public.
I can’t wait to see the progress being made in this area and look forward to seeing how it impacts the broader Haitian economy going forward.
Thank you Nerlyne for this most helpful article. Governor Dubois, how can investors in the Haitian diaspora access and purchase these bonds?