Second statement by the Dominica Freedom Party on the Coronavirus Pandemic

The Dominica Freedom Party (DFP) continues to encourage all citizens and residents of Dominica to adhere to the current advice of our public servants to practice social distancing, wear a mask and to respect the curfew and lockdown measures that are aimed at halting the spread of COVID-19 – the disease caused by the New Corona Virus.

But we recognize that our country is on the verge of a total economic disaster – the results of a double whammy – loss of CBI revenue and the impact of the COVID-19 pandemic!  While we must hope for the best as it relates to COVID-19, as a people we must prepare for the worst.

A key challenge will be how to prevent the situation from becoming chaotic and how do we ultimately restore the economic health of our country. We shall address that in our next statement, but we pause to explain a bit on how the economy is going to be adversely affected, how the government finances will weaken significantly, and the difficulty that the government will experience in its effort to raise financing.

It must be recognized that prior to the onset of the pandemic, the agriculture sector already lacked vibrancy and much of the production was for local consumption, but it also supported the huckster trade.  The pandemic has brought the huckster trade to a halt with adverse implications for the ability of farmers to earn.  Restarting the huckster trade will depend on the reopening of the borders to allow hucksters to travel, unless arrangements can be made that does not require the hucksters to travel. The reopening of borders will depend on how quickly the spread of COVID-19 is halted in the neighbouring islands to which our hucksters export. Moreover, local sales of agricultural produce will be affected by the lockdown.  But creating a vibrant economy will take much more than restoring the huckster trade and local production to pre-COVID-19 levels.   There needs to be a major effort to re-invigorate agriculture – a task that needs to be pursued even if the COVID-19 pandemic had not occurred.  But the pandemic presents an opportunity for a reset of the sector given food security concerns that have been highlighted and heightened opportunities for tapping the global health food markets.

It must be further noted that the tourism industry already lacked vibrancy prior to the COVID-19 pandemic.  There was however some hope that the two recently opened hotels funded under the CBI programme in addition to those that were under construction or that were being promoted under the programme, would have added some vibrancy to the stay-over segment of the industry.  But even then, there where major challenges with the operations of one of the recently opened hotels prior to the impact of the COVID-19 pandemic.  The larger of the two hotels – Kempinski, was apparently already operating at very low occupancy levels. This was disappointing.  It is our understanding that the hotel has sent home most if not all the workers in the wake of the COVID-19 pandemic.   It is unfortunate that in the face of more than adequate CBI flows at the time of the hotel’s development,  there was not the foresight to set aside sufficient working capital which would have allowed the operation to withstand a few crisis months, which is a likely expectation at least on the basis of Dominica’s location in the Atlantic hurricane belt.   But certainly, the COVID-19 pandemic, will have a significant impact on visitor arrivals to our country and that will mean that our hotels and other tourism businesses will not be able to retain staff for long especially if they are not adequately capitalized.  How prolonged this impact is going to be or how quickly staff will be re-hired will depend in part on how quickly Dominica and the countries from which our visitors come are successful in halting the spread of the New Corona Virus and consequently reopen borders. But even if borders are re-opened, the impact of the pandemic on the tourism industry in the Caribbean will be prolonged beyond that point as a global recession caused by the COVID-19 pandemic may extend well beyond the re-opening of borders and this would result in lower stay-over visitors. Moreover, the completion of the hotels under construction being financed under the CBI programme will be impacted by the COVID-19 pandemic as sales of passports is bound to slow down as countries take measures to slow and stop the spread of the New Corona Virus.  But the flow of CBI funds was already in decline before the global onset of COVID-19 and that occurrence had to do with the difficulties that Dominica was experiencing with its corresponding banking relationships.  Much of the CBI funds have not been able to be transited through the banking system over the last six months or more.  This has been due to concerns over Dominica’s inadequate management of the CBI programme including concerns over the legitimacy of the persons to whom passports are sold.  Thus, there was already a cloud of doubt over the completion of approved hotel projects under the investment option of the CBI programme.

Cruise tourism demand will also be impacted by the depth and extent of the global recession, but there could be additional reluctance by patrons to use cruise services given the negative experience of the cruise-ship industry during the early period of the global spread of the New Corona Virus – a factor which may reduce the overall appeal for taking cruise holidays.

Apart from tourism and agriculture activity, two other significant areas supported economic activity in Dominica – funds from the CBI programme and remittances from Dominicans living abroad. We have already noted that much of the funds under the CBI programme are not transiting through the banking system to Dominica.  The CBI programme was a major source for funding government activity in Dominica to include public sector investments and social programmes such as the NEP.  This contributed significantly to sustaining economic activity on the island. A significant fall in CBI flows will spell disaster for government finances in an environment where it will not be easy to raise revenue from other sources.  As for that matter, tax receipts will fall as economic activity is curtailed as a result of COVID-19 curfew and lockdowns as well as the result of lower economic activity that will ensure in the aftermath of the COVID-19 pandemic, depending on how deep and prolonged the global recession proves to be even after borders are re-opened.  The truth is that the government of Dominica is practically bankrupt – this was the case before the impact of the COVID-19 pandemic but the fiscal situation will get much worse with the impact of the pandemic.  This is greatly affecting the ability of the government to provide a meaningful relief to allow disadvantaged persons to cope with the impact of the pandemic, and to provide a stimulus package to mitigate a decline in economic activity that is likely to ensue even after the spread of the novel coronavirus has been effectively halted in Dominica and in our major trading partners.

With regards to remittances to Dominica which provided significant support to the livelihood of many, there is likely to be a fall.  Many Dominicans who work overseas will have reduced incomes and some will lose their jobs as the global recession deepens.  Others will suffer loses in the value of their investments in the wake of stock market declines.  While, Dominicans living oversea are loyal to their families in Dominica, they may have to adjust and that could include sending home less remittances.

Moreover, the lockdown in Dominica is affecting many local businesses – public transport operators, restaurants, stores operators among others.  Depending on how long the situation continues, it will mean that some businesses will have to release workers, reduce their pay or reduce the hours some staff work.  These will have second-round impacts in the economy thus affecting the earnings of even those essential establishments that remained open during the quasi-lockdown, prompting subsequent waves of the release of workers or reduced pay or hours of work. Farmers will also be further affected as local demand could fall as national incomes falls and as people seek to themselves grow their own food as a coping mechanism.  There could also be attempts by businesses in some cases to raise prices as they seek to remain viable, thus pushing up the cost of living in the country.

Even after the lockdown is over, the global recession will affect local business activity. An overall depressed state of export agriculture, tourism, remittances, and the CBI will all place a damper on local business activity.  Moreover, the government will struggle to pay civil servant given lower tax revenue and much reduced CBI flows. All of the above could also place great stress on our commercial banks as businesses and individuals experience difficulties servicing their loans.

The overall economic situation could also have adverse social impacts.  It could certainly impact citizen security if there is increased crime as persons seek to cope with the stressful economic situation.  Beyond citizen security, poverty will deepen, there could be increased abuse of alcohol and illegal drugs, and an overall deterioration in nutrition, health and health care could ensue.

Our country could indeed fall apart, but the DFP hopes that it does not come to that.  For this not to be the outcome, a number of strategies must be contemplated.  It would be desirable for there to be prepared a meaningful rapid relief package and an economic stimulus package to address the immediate social impact of the COVID-19 Pandemic on the people and to awaken an economy that was already very weak.  But given the lack of fiscal reserves and the poor state of government finances, the current administration will need to find the resources to finance such a package.  In the face of grave potential peril for the country, the Skerrit-led government has not announced such a package, and this may be because they are finding it difficult to source the financing for such a package given the weak fiscal position.  The government can seek to borrow to finance such a package.  But they are not a good prospect for lending by the private sector. While much of the local private sector does not have significant capacity to purchase government treasury bills or bonds, some domestic entities are not willing to risk investing in the government. Likewise, in the face of competition from other countries, the regional private sector would be expected to prioritize better performing countries well ahead of Dominica with regards to purchasing government treasury bills or bonds. Government may seek financing from the Dominica Social Security, but this must be done in a manner that does not place the scheme at risk of insolvency.

That therefor leaves two other potential borrowing sources – bilateral sources (country to Country) and multilateral sources such as the International Monetary Fund (IMF), the World Bank (WB) and the Caribbean Development Bank, (CDB).  The Dominica Freedom Party recommends that Dominica approach these three multilateral sources for support.  Their support will require that the country put in place an adjustment plan and accepts certain loan conditions.  These conditions may be required to strengthen good governance.

However, the extent of financing that will be available from these three multilateral sources is uncertain as this point as these institutions will have to deal with several countries that are in economic distress all at once. Normally the institutions only have to deal with a few countries at a time.  This may mean that they may not be able to extend all the financing that any one country may desire.

It would be disconcertingly if the ruling regime do not want to accept the loan conditions that the multilateral agencies may desire. Should that be the case, the government of Dominica may consider bilateral sources of assistance instead.  The ruling regime’s closest international friends seem to be People’s Republic of China and Venezuela.  However, Venezuela is currently in no position to help Dominica.

This leaves China as the most viable source that the ruling regime may want to turn to. But as a nation we are to ensure that the government does not enter into any agreement with China that is ultimately likely to hurt the dignity and the economic well-being of our people.  Thus, any agreement with China needs to be fully transparent.  Citizens should guard against any pledging of national assets to China as security for loans.  These assets could be owned by China if Dominica is unable to pay should such a clause be included in the terms for borrowing from China.  Similar reported unpleasant experiences of some African countries who have borrowed from China should be avoided. National assets that could potentially be pledged as security should Dominica turn to China could include the air and sea ports and large tracks of state land.  Citizens should not entertain any of these.

In our next public statement on the impact of the COVID-19 Pandemic on Dominica, we will discuss some specific points on what a relief and stimulus package could include and we will discuss other strategies for preventing chaos in our country and to ultimately restore the nation’s economic health if the government fails to take the correct actions.

Kent Vital

Political Leader

Dominica Freedom Party.