IMF Executive Board concludes the 2016 Article IV Consultation with Dominica

imfOn July 13, 2016, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation 1 with Dominica.

The Dominican economy was hit hard by tropical storm Erika, with output estimated to have declined by 3.9 percent in 2015. While tourism activities have largely normalized following the resumption of full operations at the main airport, other sectors will likely need more time to be fully restored.
Agricultural output and manufacturing declined sharply, as the storm affected crops and access to arable land, and prompted the closure of operations of the main industrial plant. In addition, the protracted decline of banks’ credit to the private sector remains a drag on economic activity, underpinned by high non-performing loans. Inflation has remained subdued, mainly as a result of falling fuel prices. Notwithstanding weak exports of agriculture and tourism, the 2015 current account deficit remained contained on the back of lower oil imports.

Output growth is expected to remain subdued in 2016 at 1.3 percent as the economy slowly recovers from the storm and investment in reconstruction picks up. This growth, however, is largely conditional on donor grants proceeding according to expectations. Afterwards, growth is projected to accelerate somewhat as the economy continues to recover towards potential, and to stabilize at 1.7 percent per year over the medium-term. The current account is projected to deteriorate on the back of the increase in reconstruction investment, and then to gradually improve as exports of agriculture, tourism and manufacturing activities recover. The imbalances are expected to be financed primarily with external capital grants and official concessional loans.

The fiscal outturn for FY 2015/16 is strong, estimated at a surplus of 0.8 percent of GDP. However, the underlying fiscal performance is somewhat weaker than the outturn suggests, as it was underpinned by the collection of tax arrears (in part transitory), higher ECP revenues (subject to uncertainty), and low capital expenditure. Going forward, fiscal policy should be calibrated to allow space for reconstruction expenditure within fiscally sustainable bounds, consistent with the regional debt target commitment.

Executive Board Assessment 2

Executive Directors noted the economic impact on Dominica caused by Tropical Storm Erika in August 2015 and commended the authorities for their policy response. The disbursement under the RCF program in October 2015 supported the immediate financing needs while providing time to specify measures consistent with the fiscal consolidation targets to restore fiscal sustainability. Looking forward, Directors underscored the importance of maintaining the reform momentum to achieve fiscal and debt sustainability in the medium term, strengthen the financial system, and encourage private sector‑led growth in order to enhance the country’s resilience to possible future natural disasters.

Directors supported the accommodation of reconstruction expenditures over the medium term, and emphasized the importance of financing the reconstruction activities within fiscally sustainable bounds. They noted that the fiscal measures already passed are appropriate and consistent with the commitments in the RCF, and that the improvements in tax administration are yielding additional resources. Given the uncertainty regarding revenues from the economic citizenship program (ECP) and the implementation risk of the remaining reforms, Directors suggested that any unanticipated revenue windfalls should be allocated to public debt reduction and to build fiscal buffers. Directors noted that a timely implementation of the fiscal consolidation plan is needed to attain the Eastern Caribbean Currency Union’s debt target by 2030. They also supported the authorities’ efforts to seek additional donor grants and concessional financing as part of their integrated fiscal consolidation strategy.

Directors encouraged the authorities to complement the fiscal measures with structural fiscal reforms to make fiscal consolidation gains durable. Such measures should focus on strengthening and supporting the budget process and its execution, including systems to improve public financial management, and improving the transparency of the ECP.

Directors welcomed the progress made in strengthening the financial sector, but noted that high levels of non‑performing loans and low capitalization across the financial industry pose risks to financial stability. They encouraged the authorities to press ahead with efforts to improve financial regulation and supervision, and further strengthen AML/CFT legislation.

Directors agreed that enhancing growth prospects requires higher private sector participation and improving the business environment. To this end, they encouraged the authorities to continue pursuing structural reforms that facilitate an efficient operation of markets. In particular, they emphasized the importance of reforms to boost external competitiveness, including in the areas of labor markets, export diversification, access to finance, and energy costs. The ongoing plans to enhance the preparedness for and resilience to natural disasters should continue, as these shocks could be large and recurrent. In this regard, Directors encouraged the authorities to consider establishing a saving fund, using some of the ECP revenues.

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18 Comments

  1. discreet
    July 25, 2016

    0 bananas bananas bananas

  2. forreal
    July 23, 2016

    well at least the IMF seem to have grown a conscience!!! even long before TS ERICKA…the Caribbean basin initiative had already done it’s damage on the Caribbean’s economies,which was implemented by they and the world bank = the shifting of the banana market to Israel and south America,but this sounds like at least like good news,is on dasheen and fig we grow up,we are a fighting people even if we split in two fractions….blue and red

  3. Shaka Zulu
    July 21, 2016

    Important to note, while the drop in oil prices is detrimental to Venezuela it is benifecial to Dominica. This is because it comes at cheaper cost, although it was on concession. This tells how broke we are. The IMF says growth projected cannot be certain since it is bssed on probable grants and loans. The tax measures meaning VAT is appropriate because the economic situation is not healthy. I must say they are very professional organization and being a bit too diplomatic in telling us our financial situstion sucks. TS erika was last year. The labour party been getting grants and loans for 16 years and have not shown growth. What make yall believe it will work this time. I am glad they point out our lack of production, huge debt, and lack of privste sector growth. We been saying this on here and did not need IMF to point out. They are too diplomatic.

  4. Tell the Facts
    July 21, 2016

    This is a feasible report to aid governing bodies in Dominica, also the private and business sector.
    Mention was made to “the collection of tax arrears.” This could curtail the growth of the economy.
    I recall last year the Mayor spoke about those who do not pay their taxes.
    If I also recall, the PM made a similar comment.
    Therefore folks pay your taxes which will assist the economy’s growth.

  5. Concern citizen
    July 21, 2016

    Hi Looking,
    I supposed that they are posting their findings, so who is not pleased the IMF should try and do better next time, so tell ur. PM buckle up man and stop lying to the D/a massive, cause 1 day his lieS will surely catch up with him and people like U and his other followers will deny him big TIME

  6. #$%^*
    July 21, 2016

    where was imf post tropical storm Erika? smh these people.

  7. UDOHREADYET
    July 21, 2016

    Its understandable that the storm impacted the island and its ability to produce and export. I cant even export from Dominica via Amerijet they can only receive goods at this time. I’m currently using Tropical shipping as an alternative though its not as fast I can send more and pay less.
    We’ll get there…

  8. 1979
    July 21, 2016

    Agricultural output and manufacturing declined sharply, as the storm affected crops and ACCCCCEEEESSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSS!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
    to arable land, and prompted the closure of operations of the main industrial plant.

    the access roads they wanted to shoot salisbury people for !!!!!!!!!!!

    In addition, the protracted decline of banks’ credit to the private sector remains a drag on economic activity, underpinned by high non-performing loans. Inflation has remained subdued, mainly as a result of falling fuel prices. Notwithstanding weak exports of agriculture and tourism, the 2015 current account deficit remained contained on the back of lower oil imports.

  9. Reasoning
    July 21, 2016

    :?: internal machinery for famines don’t have to say anything to me, for me to know that there’s no growth in the dumb-in-can economy! Without Erika striking,there has been no economic activity,especially in areas of agriculture and tourism! The illegal rogue cannot do government,is a total failure! An incompetent,inexperience rogue holding the seat of prime mistake and financial disaster, what does one expect,but a failed state! I’m calling on the IMF to help us remove this illegal rogues posing as government,mount pressure on them until they are forced out of the bad governance they’re holding the island in!!!

  10. jim jones
    July 21, 2016

    if the imf was talking bad about dominica allu would full it with comments

    • Tell the Facts
      July 22, 2016

      You note the wickedness of their hearts and how bias they are?

  11. July 21, 2016

    What negative report?

  12. looking
    July 21, 2016

    IMF please stop posting negative reports against Dominica, our PM will not be pleased.

    • Tell the Facts
      July 21, 2016

      Negative reports? IMF offered advice and suggestions. This should be considered helpful. What is wrong with that?

    • Intelligence
      July 22, 2016

      On the other hand Lenox, thompsom and Q will be ecstatically exuberant

      busting out the champagne and confetti

      • Tell the Facts
        July 22, 2016

        For what? Are they that unintelligent that they did not comprehend what IMF stated?

    • Saul
      July 22, 2016

      You know this is just a forecast, right? A prediction?

      Where is the negative report coming in there?

      • Tell the Facts
        July 22, 2016

        I think it was an excellent, well-written report. There were compliments and sound advice. It was not harsh at all. It was a pleasure to read.
        I am pleased that Dominica got a good report. If they thought that IMF was critical, it was constructive, for the betterment of Dominica.
        IMF was compassionate and stated more than once about TS Erika and the devastation to Dominica which caused the economy to stabilize for now (I would say) but it will pick up later.
        Good advice to the government and understanding of what Dominica went through and still is, to a certain extent.

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