The Caribbean’s poorest nation is once again teetering on the edge of collapse. Haiti’s capital, Port-au-Prince, has descended into a maelstrom of gang violence, with armed groups seizing control of key infrastructure, including the international airport and fuel terminals. The British government, in a rare display of contingency planning, has placed a Royal Navy vessel on standby to evacuate British nationals. For markets, this is not just a humanitarian tragedy. It is a reminder of how quickly sovereign risk can escalate in fragile states, and how capital flight can ripple through emerging market bonds.
Let us cut through the sentiment. Haiti’s GDP is a mere $20 billion, smaller than most FTSE 250 companies. Its external debt, largely held by multilaterals, is manageable in absolute terms. Yet the yield on Haiti’s USD-denominated bonds has soared to over 30%, pricing in a default that now looks certain. The IMF has paused its program. The central bank has imposed capital controls, effectively trapping any remaining foreign investment. This is a textbook case of a failed state: no rule of law, no fiscal credibility, and no central bank independence.
For the seasoned investor, Haiti is a sideshow. The real concern is contagion. When the Royal Navy is called in, it signals that diplomatic solutions have failed. The UK’s Foreign Office has warned British citizens to leave immediately. That is the kind of language that makes fund managers nervous about other Caribbean nations, or indeed any frontier market with weak institutions. The Dominican Republic, sharing the island of Hispaniola, has already tightened its border. Its bond spreads have widened by 50 basis points this week. Markets hate uncertainty, and Haiti is a petri dish of it.
Let us examine the fiscal arithmetic. Haiti’s government has effectively lost control of tax collection. Gang leaders now control the main port and customs duties. The Prime Minister, Ariel Henry, is effectively a prisoner in his own residence. Without revenue, the state cannot pay salaries, let alone service debt. The last auction of Haitian treasury bills yielded a negative real return after inflation. Who would lend to a government that cannot secure its own capital? The answer is nobody, except perhaps a sympathetic central bank printing gourdes into hyperinflation.
The British taxpayer should not foot the bill for this chaos. The Royal Navy deployment, while morally defensible, is a drain on resources that could be better spent on domestic defence. Yet there is a cold, hard reason for the UK’s involvement: Haiti sits in the UK’s sphere of influence via its Overseas Territories. The Falklands, the Caymans, the Bahamas all depend on Caribbean stability. A failed state in the region invites drug trafficking and illegal migration. The Treasury will have to weigh the cost of an evacuation against the long-term cost of a regional safe haven for organised crime.
What of the Bank of England? It has no direct exposure to Haitian debt, but the broader lesson is about central bank credibility. The Bank of England has spent the past year fighting inflation with rate hikes. Haiti’s central bank has spent the past year printing money to fund government deficits. The contrast is stark. In a globalised financial system, capital flees from central banks that lack independence. The Haitian gourde has lost 90% of its value against the dollar since 2020. That is a cautionary tale for any developed economy that flirts with fiscal dominance.
The bottom line is this: Haiti is a tragedy, but it is also a market signal. When a sovereign nation descends into gang rule, the first casualty is the currency, the second is the bond market, and the third is the reputation of the region. The Royal Navy’s presence is a reminder that the UK retains soft power, but hard power has a price. Investors should watch the Dominican Republic, Jamaica, and Trinidad. If capital flight spreads, gilt yields might not be immune. The market’s memory is short, but Haiti’s lesson is permanent: fiscal discipline is the only shield against chaos.
