2009 Index of Economic Freedom

Quick Facts

Population:

• 9.4 million

GDP (PPP):

• $11.6 billion
• 2.3% growth
• 0.1% 5-year compound annual growth
• $1224 per capita

Unemployment:

• 25.0%

Inflation (CPI):

• 9.0%

FDI Inflow:

• $160.0 million

Haiti's economic freedom score is 50.5, making its economy the 147th freest in the 2009 Index. With improvements in half of the 10 economic freedoms, its overall score is 1.5 points higher than last year. Haiti is ranked 26th out of 29 countries in the South and Central America/Caribbean region, and its overall score is lower than the world average.

Haiti scores better than the world average in government spending, which is likely a sign of government weakness rather than efficiency. Restructuring and privatization of state enterprises is an important but probably unachievable near-term objective. Government spending was directed toward mitigating the food crisis in April 2008. Fiscal freedom is just above the world average.

Haiti scores below the world average in business freedom, investment freedom, financial freedom, property rights, and freedom from corruption. Starting a business takes four times longer than the world average, and commercial laws are applied inconsistently and non-transparently. Restrictions on foreign capital are significant, and investment is subject to an arbitrary bureaucracy. Prolonged instability has weakened the rule of law.

Background Back to the top

Haiti, the Western Hemisphere’s poorest country and one of the world’s least-developed nations, is plagued by corruption, gang violence, drug trafficking, and organized crime. After 30 years of dictatorship, a democratic constitution was adopted in 1986, but instability continued under President Jean-Bertrand Aristide. An interim government took over in February 2004, and Rene Préval won a U.N.-supervised election in 2006. His prime minister was forced out in April 2008 after food shortages and high prices led to deadly riots. Haiti is 95 percent deforested, its infrastructure is decimated, unemployment is very high, and most economic activity is informal. Secondary education is available to few children. Some Haitians depend on emigrants’ remittances for survival. Préval claims a commitment to democracy, market reform, and fiscal restraint but maintains close ties with Cuba and Venezuela.

Business Freedom 37.7 Back to the top

The overall freedom to conduct a business is severely impeded by Haiti's burdensome regulatory environment. Starting a business takes an average of 195 days, compared to the world average of 38 days. Obtaining a business license takes about five times longer than the world average of 234 days.

Trade Freedom 79.4 Back to the top

Haiti's simple average tariff rate was 2.8 percent in 2006. Import controls, import quotas on some food products, some import licensing requirements, inadequate trade capacity and infrastructure, inefficient port administration, and customs corruption add to the cost of trade. Fifteen points were deducted from Haiti's trade freedom score to account for non-tariff barriers.

Fiscal Freedom 77.9 Back to the top

Haiti has high taxes. The top income tax rate is 30 percent, and the top corporate tax rate is 35 percent. Other taxes include a value-added tax (VAT) and a capital gains tax. Fiscal reform was abandoned when an incoming loan was diverted for other uses. In the most recent year, overall tax revenue as a percentage of GDP was 9.4 percent.

Government Size 93.8 Back to the top

Total government expenditures, including consumption and transfer payments, are low. In the most recent year, government spending equaled 14.4 percent of GDP. Political instability has made government economic and financial management weak and inconsistent.

Monetary Freedom69.0 Back to the top

Inflation is high, averaging 11.0 percent between 2005 and 2007. Prices are generally determined by the market, but the government restricts markups of some products (retailers, for example, may not mark up pharmaceutical products by more than 40 percent) and strictly controls the prices of petroleum products. Ten points were deducted from Haiti's monetary freedom score to adjust for measures that distort domestic prices.

Investment Freedom30.0 Back to the top

Authorization is required for some foreign investments, particularly in electricity, water, public health, and telecommunications. The government has expressed interest in liberalizing aspects of the investment regime, such as telecommunications and energy, but there has been little progress. Inadequate regulatory capacity, corruption, bureaucratic inefficiency, and political instability deter investment. Residents may hold foreign exchange accounts for specified purposes, and non-residents may hold them without restriction. There are no restrictions on payments, transfers, or capital transactions. Foreign ownership of land is restricted.

Financial Freedom30.0 Back to the top

Haiti's financial sector remains very small and fragile. A considerable proportion of economic transactions is conducted outside the formal banking sector, and the scarce access to financing severely hinders entrepreneurial activity. Supervision and regulation of the financial system is poor and not consistent with international norms. The banking sector consists of 11 banks but is highly concentrated, with around 80 percent of assets held by the three largest banks. The two state-owned banks, privatization of which has been delayed repeatedly by political and economic crises, account for slightly less than 10 percent of assets, while two foreign-owned banks account for around 7 percent of assets. New banking legislation that was submitted for parliamentary approval in mid-2007 was intended to strengthen the current framework for bank supervision. Capital markets are poorly developed.

Property Rights10.0 Back to the top

Protection of investors and property is severely compromised by weak enforcement, a paucity of updated laws to handle modern commercial practices, and a dysfunctional and resource-poor legal system. Litigants are often frustrated by the legal process, and most commercial disputes are settled out of court if at all. Widespread corruption allows disputing parties to purchase favorable outcomes. Despite statutes protecting intellectual property, the weak judiciary and a lack of political will hinder enforcement.

Freedom From Corruption16.0 Back to the top

Corruption is perceived as rampant. Haiti ranks 177th out of 179 countries in Transparency International's Corruption Perceptions Index for 2007. Haiti's reputation as one of the world's most corrupt countries is a major impediment to doing business. Customs officers often demand bribes to clear shipments. Smuggling is a major problem, and contraband accounts for a large percentage of the manufactured consumables market.

Labor Freedom61.2 Back to the top

Haiti's relatively restrictive labor regulations hinder employment and productivity growth. The non-salary cost of employing a worker is moderate, but dismissing a redundant employee is relatively costly. Restrictions on the number of work hours are not flexible.