Press Release No. 06/57

Press Release: Statement by IMF Staff Mission to Dominica

March 20, 2006

An International Monetary Fund (IMF) staff mission issued the following statement on March 17, 2006 in Roseau:

"An IMF mission headed by Mr. Patrick Njoroge visited Dominica between March 7-17, 2006 to conduct discussions for the sixth review of the program supported by the Poverty Reduction and Growth facility (PRGF) arrangement. The mission has received excellent cooperation from the government and benefited from constructive discussions with the Cabinet, the Coordinator of the Stabilization Programme, the Financial Secretary, other senior government officials, and representatives of the wider community. The discussions have focused on recent economic performance, fiscal policy, and the government's structural reform agenda.

"Macroeconomic performance in 2005 remained strong, despite some areas of modest weakness. Economic activity expanded robustly, with real GDP growing at about 3½ percent to yield the second straight year of higher-than-average growth. Available information indicates that the expansion was fueled by strong domestic demand; consumer imports, tax revenues, and credit all grew significantly. Financial services, retail trade and electricity production grew strongly but modest weakness in the export sectors emerged; tourist arrivals declined, as did both banana and non-banana agricultural exports, but the value of manufactured exports expanded. In this context, the mission noted that the growth should be more broad-based for its sustainability to be assured.

"Policy implementation has remained strong. All quantitative targets for December 2005 under the program were met. A strong fiscal performance has been sustained in FY 2005/06: Revenue collection has been strong in part due to transitory factors, and current expenditures were kept in check despite an acceleration of gratuities to retirees and higher than expected payments for utilities. Capital spending has been lower than expected in part due to delays in donors' disbursements of committed funds. The government has maintained its efforts to complete its debt restructuring program, and continued to engage the remaining creditors in good-faith negotiations. The mission underscored that the budget for the fiscal year 2006/07 needs to safeguard the benefits already achieved in the program.

"Progress continues to be made in structural reforms. Key reforms include strengthening public expenditure management, streamlining of the public sector, and implementation of a Value Added Tax (VAT). The ongoing work in other areas, particularly towards strengthening social security, and the financial sector, amending the Electricity Supply Act and the related legislation is welcome. Some delays in implementing a few measures, partly due to capacity constraints, suggest that the government needs to take the necessary steps to accelerate these reforms.

"The mission noted progress in the finalization of the Growth and Social Protection Strategy (GSPS), which will articulate the government's policies for the medium term. The GSPS reaffirms the government's commitment to reducing poverty, and presents a medium-term strategy for growth and poverty reduction. The strategy seeks to advance the private sector as the engine of economic growth, with the government playing a facilitating role. It also aims to better target the existing social programs so that the benefits from growth can reach the under-privileged in society.

"These discussions are taking place with a view to consideration by the IMF's Executive Board of the sixth review in the next few months. Completion of the review by the Board will make available the next disbursement to Dominica under the program of about SDR 1.2, million or US$1.7 million.

"The IMF mission wishes the government and the people of Dominica every success in their endeavor to strengthen economic growth, and reduce poverty and unemployment."