Financial Crime World

Haiti’s Financial System Under Scrutiny as Parliament Considers Reforms

The Haitian financial system is facing significant challenges, with a highly dollarized banking sector and a central bank struggling to implement effective monetary policy.

Challenges in Haiti’s Financial System

  • The country’s exchange rate regime has led to real appreciation, making it difficult for local industries to compete.
  • The current account remains relatively balanced due to large remittances and foreign aid inflows, but this is not sufficient to offset significant external vulnerabilities.
  • The banking system is heavily reliant on foreign currency, with over 50% of deposits held in dollars.

Weaknesses in the Central Bank’s Framework

  • The Bank of the Republic of Haiti (BRH) is struggling to implement effective monetary policy due to weaknesses in its framework.
  • Inadequate liquidity forecasting and lack of a well-functioning interbank money market make it difficult for the BRH to transmit monetary policy signals to the economy.

IMF Recommendations for Reforms

Improving Monetary Policy

  • Improve the BRH’s liquidity forecasting and communication with the Ministry of Finance on government financing needs.
  • Set volumes of auctioned bonds in line with base money supply targets and allow interest rates to be determined by market forces.

Strengthening the Central Bank

  • Recapitalize the BRH to improve its financial independence and ability to respond to shocks.
  • Strengthen audit procedures at the BRH and move towards full adoption of International Financial Reporting Standards (IFRS).

Reducing Dollarization

  • Implement closer oversight of indirect FX risk in the banking sector.
  • Require banks to provide more information on their foreign currency lending practices and implement risk management standards.

Government Response

The Haitian government has accepted the IMF’s recommendations and is working towards implementing reforms to strengthen its financial system. Parliament is expected to consider legislation aimed at addressing these challenges in the coming months.