President has trouble tempering political protests

One year after fierce political protests erupted, President Jovenel Moïse remains unable to defuse the situation. The protests originally started in July 2018, when fuel subsidy cuts were announced. As Venezuela’s deliveries of subsidised oil came to a full stop a couple of months beforehand, the government needed to buy oil at full price on international markets. Though the price hikes were suspended the day after the announcement – before they could even be implemented – unrest lingered. In the following months, protests regularly flared up, fuelled by the fast-rising inflation, high poverty, goods shortages and corruption scandals.

Now the president is trying to appease unrest by appointing yet another prime minister (Fritz William Michel). If confirmed by the parliament, Michel – a little-known bureaucrat from the Ministry of Economy and Finance – will become Moïse's fourth prime minister in less than three years. Nonetheless, the chances are that the protests will not die down, as a new cabinet is unlikely to bring about material change to policymaking, when placed under constant pressure from an angry opposition. Moreover, the protests focus on the resignation of the President, who refuses to step down. Indeed, Moïse, whose term is scheduled to end in 2022, pledged to serve the remainder of his term, something only a quarter of Haiti’s presidents accomplished. The ongoing political unrest could also have an impact on the local and legislative elections scheduled for October this year, as the organisation of elections remains uncertain without a government in place and an approved budget.

Short-term risk classification is under pressure

The short-term risk classification is under pressure due to the ongoing political unrest. The moderate short-term risk classification of Haiti (4/7) can be explained by a fairly low short-term external debt level, adequate foreign exchange reserves (in December 2018, they covered roughly 5.5 months of imports) and a relatively wide current account deficit (estimated at almost 4% of GDP in 2019). However, the ongoing protests and their potential escalation put pressure on Credendo’s short-term risk classification. Besides, next to a possible escalation of protests, downside risks loom over Haiti. Firstly, a harsh crackdown on immigration by Trump would impact the Haitian economy. Roughly two thirds of the current account receipts come from private transfers. Therefore, a crackdown on immigrants in the US or on their remittances would negatively affect the current account balance and foreign exchange reserves. Furthermore, private transfers support consumer spending and economic growth. If they were to decline, economic growth would be likely to decrease as well. Secondly, the country is highly vulnerable to natural disasters. The island not only sits in the middle of the Caribbean hurricane belt but is also prone to earthquakes and droughts.

Worst classifications for systemic commercial risk and medium- to long-term risk

Haiti is classified in Credendo’s worst category for systemic commercial risk (category C). Rampant corruption and a rather low level of legal protection are indeed affecting the business environment. Additionally, Haiti’s economy, which is forecasted to have a lacklustre real GDP growth of 1.5% in 2019, might even be pushed into a recession due to the persistent political instability. Furthermore, the currency has been depreciating sharply since last year. It has lost about 30% of its value vis-a-vis the USD since August 2018 (last observation on 5 August 2019). As a consequence, the country’s inflation is estimated to have reached a high level of 18% in May. All these elements explain the high-risk classification for systemic commercial risk.

Unsurprisingly, in light of the ongoing events, the medium- to long-term risk classification remains firmly in category 7/7.

Analyst: Jolyn Debuysscher – J.Debuysscher@credendo.com