Press Release: IMF Executive Board Completes First Review of Dominica's PRGF Arrangement
March 24, 2004
The Executive Board of the International Monetary Fund (IMF) completed today the first review under the SDR 7.69 million (about US$11.3 million) Poverty Reduction and Growth Facility (PRGF) arrangement for Dominica. In addition, the Executive Board completed the financing assurances review under Dominica's PRGF arrangement, which is required in accordance with the IMF Guidelines on Conditionality to ensure adequate safeguards of IMF resources.
Completion of these reviews makes SDR 308,000 (about US$455,000) immediately available to Dominica, and would bring total disbursements under the arrangement to SDR 2.67 million (about US$3.9 million). The current PRGF arrangement was approved on December 29, 2003 for a period of three years (see Press Release No. 03/228).
The PRGF is the IMF's credit facility for low-income countries. PRGF-supported programs are based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners and articulated in a Poverty Reduction Strategy Paper (PRSP). This is intended to ensure that PRGF-supported programs are consistent with a comprehensive framework to foster growth and reduce poverty. PRGF loans carry an annual interest rate of 0.5 percent and are repayable over 10 years with a 5 ½-year grace period on principal payments.
In commenting on the Executive Board's decision, Agustín Carstens, Deputy Managing Director, and Acting Chair said:
"The Dominican authorities' implementation of the economic program, supported first by an extended Stand-by Arrangement and currently by the Poverty Reduction and Growth Facility, has been strong. On the macroeconomic front, inflation remains low and there are indications of an early recovery of economic activity. The authorities need to persevere with fiscal consolidation, implementation of the comprehensive reform agenda, and efforts to restructure the external debt in order to bring Dominica back to a sustainable growth path.
"The authorities are strengthening their fiscal consolidation efforts. The fiscal targets of the program have been observed with wide margins, although this outturn reflects special budgetary developments that are not expected to be sustained. The authorities are preparing a budget for FY 2004/05 that will include front-loaded measures to improve the fiscal balance, and they are committed to continued fiscal adjustment over the medium term. Attainment of fiscal sustainability will also require vigorous implementation of fiscal reforms, including downsizing the civil service, rationalizing the pension system, streamlining tax exemptions, introducing the value added tax, implementing the Fiscal Responsibility Law, and improving the budgetary framework. The authorities plan to undertake a comprehensive review of tax exemptions by end-June 2004.
"Dominica's economic growth prospects are likely to depend mostly on investment and export growth. Thus the authorities are placing considerable emphasis on structural reforms to improve the investment climate, enhance competitiveness, deregulate the economy, and strengthen the financial sector. As the reform agenda is demanding and capacity constraints faced by the authorities are pressing, Dominica will continue to rely substantially on timely and coordinated technical assistance. It will also be essential that the reforms be properly prioritized and sequenced.
"The authorities have entered into good faith negotiations with Dominica's external creditors, based on international best practices. With the help of their debt advisors, they are putting together a comprehensive debt restructuring proposal as a first step toward achieving debt sustainability. The negotiations with creditors are expected to be concluded shortly. A rigorous debt management policy is needed to prevent the re-emergence of debt sustainability problems.
"The structural reform agenda will be implemented in tandem with the authorities' poverty reduction strategy, as articulated in their Interim Poverty Reduction Strategy Paper, with a view to preserving essential social spending and reducing unemployment-related poverty. Progress has been made toward preparation of a full Poverty Reduction Strategy Paper, which is expected to be finalized by end-2004," Mr. Carstens said.