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Story Highlights
- In October 2014, the Haiti government increased fuel prices by about eight percent on average, which, combined with the decline in international oil prices, eliminated fuel subsidies.
- With Energy Sector Management Assistance Program (ESMAP) support, the World Bank delivered two workshops, a hands-on training session on methods and tools for analyzing the distributional effects of fuel price reforms, and the provision of a consultant embedded in the inter-ministerial committee to provide real-time technical assistance.
- The Public Expenditure Review (PER) summarized the work completed and, now that the subsidies have been eliminated, recommended a return to an automatic price adjustment—a mechanism that ensures pass-through of increases or decreases in international fuel prices to domestic fuel prices while smoothing out these fluctuations—which the Haiti government implemented in June 2015.
Supporting Sustainable Fuel Price Reform in Haiti
February 09 2016
Over the last five years, the size of oil subsidies in Haiti has increased dramatically, imposing a large burden on public finances. In October 2014, the Haiti government increased fuel prices by about eight percent on average. Combined with the decline in international oil prices, the move eliminated fuel subsidies, which had accounted for about two percent of the country’s GDP. This step, a major feat in itself, was further accompanied by a general increase in spending in education, health, and public investment without major protests that sometimes accompany cutting subsidies. How did Haiti accomplish all this?
The story began almost a year earlier. At the request of the Haitian authorities, the World Bank developed a series of knowledge events to support Haiti’s efforts in designing and implementing an increase in fuel prices. These events were part of the ongoing Public Expenditure Review (PER) and funded by the World Bank’s Energy Sector Management Assistance Program (ESMAP).
With ESMAP support, the Bank delivered two workshops, a hands-on training session on methods and tools for analyzing the distributional effects of fuel price reforms, and the provision of a consultant embedded in the inter-ministerial committee to provide real-time technical assistance. At the first workshop, experts from the World Bank, the International Monetary Fund, and University of the Americas, Mexico, presented international experience and best practices on fuel price reforms in Mali, Cameroon, Mexico, and the Dominican Republic. Experience with focus groups and consultations in Central Europe and Central Asia on possible mitigating measures and how to build consensus for reform was also shared. The second workshop focused on options in the Haitian context. With training from the World Bank, the Haitian team from the Ministry of Economy and Finance presented results of their analysis on the distributional effects of the current fuel price policy and possible reform options as well as the price effects of a reform.
“This activity demonstrated the ability of the World Bank to mobilize at short notice its cross-sectoral experience—macro-fiscal, communication, social protection, energy, transport—as well its expertise across regions—Africa, Eastern and Central Europe, Latin America and the Caribbean, and the Middle-East,” observed Raju Jan Singh, World Bank Program Leader for Haiti. “Even for World Bank staff, the exchanges within the team was rewarding as we learned a lot from each other and expanded our network.”
“Before discussing options for Haiti, we wanted to hear about the international experience—both what worked and what didn’t,” said Marie-France Laleau, Director-in-charge of Economic Studies at the Ministry of Economy and Finance. “Having our own staff run simulations and analyses of price reforms and possible mitigation options allowed us to understand better the distributional effects. Discussions with experts from other countries including our neighbor, the Dominican Republic, also helped identify solutions tailored to our country’s needs.”
The PER summarized the work completed and, now that the subsidies have been eliminated, recommended a return to an automatic price adjustment—a mechanism that ensures pass-through of increases or decreases in international fuel prices to domestic fuel prices while smoothing out these fluctuations—which the Haiti government implemented in June 2015. This approach protects fuel tax revenues and margins of local distributors, avoiding the disruption of fuel markets, and frees up scarce budgetary resources for public spending on the poor. Haiti’s experience was also included in the content of a course in March 2015 on the political economy of fuel price reform at the Graduate Institute in Geneva, Switzerland.
In the months leading up to the price adjustment, the Haiti’s Ministry of Economy and Finance rolled out a media campaign, reaching out to journalists and labor unions to explain the necessity of adjusting fuel prices. The outreach was key to widespread public acceptance.
While international oil prices have remained low over the past year, the Haitian national budget remains vulnerable to a rebound in oil prices, which could force authorities to reintroduce fuel subsidies. A more targeted set of mitigating measures is necessary to build a sustainable system. The price structure for petroleum products, such as reference price, petroleum taxation, profit margins for operators, would also need to be revisited.
Against this backdrop, the authorities have set up a Presidential Commission to carry the fuel subsidy reforms forward and requested further assistance from the World Bank Group to design a targeted subsidy scheme in favor of urban transport, seen as one of the organized groups most affected by a rise in fuel prices and therefore most likely to trigger unrest, as well as to revisit the price structure for petroleum products. This work is ongoing with continued support from ESMAP.
Learn more about the Energy Assessments and Strategies Program.