Press Release: IMF Executive Board Completes Sixth Review of Dominica's PRGF Arrangement
July 31, 2006Press Release No. 06/169
The Executive Board of the International Monetary Fund (IMF) has completed the sixth review of Dominica's performance under its three-year Poverty Reduction and Growth Facility (PRGF) arrangement originally approved on December 29, 2003 (see Press Release No. 03/228) for an amount equivalent to SDR 7.68 million (about US$ 11.3 million). The Board also completed a financing assurances review, which is required in accordance with the IMF Guidelines on Conditionality to determine whether adequate safeguards remain in place for Dominica's further use of IMF resources and whether Dominica's adjustment efforts are undermined by developments in creditor-debtor relations.
Completion of the review enables the release of an amount equivalent to SDR 1.16 million (about US$ 1.7 million), which will bring total disbursements to SDR 6.5 million (about US$9.6 million).
Following the Executive Board's discussion of Dominica, on Wednesday, July 26, 2006, Mr. Agustín Carstens, Deputy Managing Director and Acting Chair, made the following statement:
"The Dominican authorities are to be commended for their efforts in achieving macroeconomic stability through sustained fiscal consolidation and a collaborative debt restructuring effort. Dominica's strong macroeconomic performance during 2005-06, which was supported by a solid fiscal policy performance, has set the stage for the moving forward with the implementation of robust structural reforms that will establish the foundations for sustained, strong growth and poverty reduction. The recently completed Growth and Social Protection Strategy (GSPS), which sets out the authorities' approach to poverty reduction, is a further welcome step in this direction.
"The strong stance of the recently approved budget for FY 2006/07, which incorporates a primary surplus target of 3 percent of GDP, has been set in line with the attainment of medium-term sustainability for public finances and debt. The budget also includes fiscal reforms aimed at reducing the government's wage bill and strengthening budget execution and financial management.
"The introduction of a value added tax (VAT) and an excise tax in March 2006 marked an important step for Dominica. Regrettably, subsequent amendments that provided incentives to selected sectors weakened a regime that was designed with few exemptions and a limited set of zero-rated supplies. In light of this, the authorities' commitment to ensure that the VAT regime remains nondistortionary is welcome. A planned comprehensive review of the VAT regime will contribute to setting the scope for future revenue reforms. The authorities' emphasis on establishing an administration regime that sustains a high level of compliance, supported by a good audit system, and timely refunds is commendable.
"While progress has been made in a number of structural areas, the pace of reform should be accelerated in line with the priorities set out in the GSPS, including amending the Electricity Supply Act and related legislation; eliminating the unfunded liability of the Dominica Social Security (DSS); and addressing the fragility of the AID Bank addressed. These structural reforms will play an important role in enhancing the economy's growth potential and alleviating existing vulnerabilities.
"The authorities' good-faith efforts to reach collaborative settlements with the remaining creditors in the debt restructuring process are commendable.
"Close interaction with donors in the period ahead will facilitate the provision of technical and financial assistance in important areas," Mr. Carstens said.