Haiti’s Fuel Subsidies are Hurting People – So Are Plans to Get Rid of Them

This post first appeared on P4H Global’s Redefining Aid blog.

Haiti, like many low-income countries around the world, subsidizes the price of oil for its citizens. While these subsidies are intended to keep fuel prices low, they are damaging to economic growth and lead to a dependence on foreign aid. Fuel subsidies are expensive, mainly benefit the wealthiest households and drain government revenue that would otherwise go to health, education and infrastructure. In Haiti, 93% of fuel subsidies go to the wealthiest 20% of the population.[1] At the same time that the government spent millions on subsidies, many public-school teachers went unpaid for nearly three years because the government could not afford their salaries.[2]

The World Bank and International Monetary Fund (IMF) have been working with the Haitian government for more than a decade to reduce fuel subsidies. In doing so, the government will be able to use that money for programs that will help the most vulnerable Haitians. But removing fuel subsidies is notoriously difficult because it increases the price of fuel, food and transportation throughout the country. The IMF notes the danger in hurting low-income households and recommends “price increases that are phased-in over time,” “extensive communication with stakeholders,” and “measures to protect the poor” as fuel prices rise throughout the country.[3]

In 2014, the World Bank and Haitian government worked to gradually remove fuel subsidies, while investing more in health and education to lessen the impact on the population. Through incremental price increases, the government successfully removed fuel subsidies in 2014.[1] Less than a year later, the government backtracked this progress by reinstating fuel subsidies for fear of losing public support in the 2015 presidential election.

In February 2018, the IMF and Haitian government announced that they would be reforming Haiti’s fuel subsidies in order to “make room for critical public investment in infrastructure, health, education and social services,” and that this effort would include “a substantial package of mitigating measures to protect the most vulnerable members of society.” In a surprise to many, the Haitian government announced on July 6th that all fuel subsidies would be eliminated immediately, and that price increases of 38% on gasoline, 47% on diesel and 51% on kerosene would take place at midnight. That day, Haitians took to the streets in protest. Within a week the prime minister had resigned, and the IMF and Haitian government announced that they would instead work toward “a more gradual approach.”[4]

Why would the government announce an immediate, sharp increase in fuel prices knowing how badly it would hurt their citizens? Why would the IMF allow this approach when their own policies recommend gradual increases that work with the public to cushion the impact and ensure that people understand the long-term benefits of the reform?

It is clear that fuel subsidies are bad policy. By draining government revenue, they cripple the government’s ability to invest in critical programs and force the nation to rely on foreign aid for basic health and education services. But carelessly removing subsidies overnight, causing drastic price increases that hurt low-income citizens, is exactly the wrong way to go about reform. Removing harmful fuel subsidies is necessary for Haiti’s long-term growth and independence, but a more competent and careful approach to doing so takes precedent. Until the government and international organizations ensure that their policies will not hurt the most vulnerable, the Haitian people are right to be demanding change.

[1] http://documents.worldbank.org/curated/en/738411506520409760/pdf/120090-BRI-P155434-PUBLIC-FINALESMAPCountryBriefHaiti.pdf

[2] https://www.caribbeannationalweekly.com/caribbean-breaking-news-featured/teachers-haiti-return-classrooms-following-protest-action/

[3] https://www.imf.org/external/np/fad/subsidies/index.htm

[4] https://www.imf.org/en/News/Articles/2018/02/26/pr1868-haiti-imf-staff-reaches-staff-level-agreement-with-haiti-on-smp

Published by Scott Miller

Scott is currently earning his PhD in development economics at the University of Florida. He has worked for various non-profits and international organizations, including USAID. Scott has worked on a number of research projects around the world, including projects in Haiti, Nepal and Brazil.

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