Press Release No. 08/125

Press Release: Statement by an IMF Mission to Dominica

May 29, 2008

The following statement was issued today in Roseau by the IMF mission led by Mr. Wendell Samuel of the Western Hemisphere Department of the International Monetary Fund (IMF):

"An IMF mission visited Dominica during May 19-28 for the annual Article IV discussions on recent economic developments and macroeconomic policies. The mission met with the Honorable Prime Minister and Minister of Finance, Roosevelt Skerrit, and his Cabinet, Financial Secretary Rosamund Edwards, other senior government officials, and representatives of the private sector and labor unions. The mission thanks the authorities for the warm hospitality and close cooperation it received during its stay in Dominica.

"The Dominican economy is recovering well from the damage caused by Hurricane Dean. Real GDP grew by about 1½ percent in 2007 despite the effects of the hurricane and is running at a pace of 2½ -3 percent for this year. Inflation has risen to 5½ percent following the pass-through of higher food and fuel prices and the temporary food price hikes caused by the hurricane. The external current account deficit widened by 6 percent of GDP to 24 percent in 2007 due to higher food and fuel import bills, reconstruction related imports and a decline in exports.

"The government's program for 2008/09 appropriately seeks to maintain sound macroeconomic policies, places priority on social spending, and deepens structural reforms aimed at enhancing private-sector-led economic growth. The mission welcomed the Government's plans to maintain the primary fiscal surplus target of 3 percent of GDP to help reduce the still high public debt/GDP ratio. It encouraged the authorities to consider contingency measures to secure this target while carrying out the planned income tax reform, preserving ongoing infrastructure and social projects, and help cushion the effects of higher food and fuel prices on the most vulnerable sectors of the society.

"Looking ahead, the mission welcomed the government's priorities of boosting medium-term growth and reducing poverty through greater economic diversification, as outlined in the revised Growth and Social Protection Strategy (GSPS). It encouraged the authorities to persevere with the recent prudent fiscal policies, which have placed the public debt/GDP ratio on a firmly declining path, while strengthening responses to critical social and infrastructure needs. The mission supported plans to strengthen the regulatory and supervisory framework for nonbank financial institutions, particularly the passing of the Financial Services Unit (FSU) Act, and reducing the cost of doing business, including easing infrastructure constraints, and streamlining business procedures. This strategy should help enhance productivity and competitiveness, reduce vulnerabilities, and create new sources of growth based on private investment and exports.

"The authorities' sound macroeconomic program has helped the Dominica economy to weather the effects of the hurricane and a more difficult external environment. The Government's determination to continue implementing economic policies aimed at reducing the public debt ratio and creating buffers against external shocks and natural disasters is commendable. The IMF will maintain a close policy dialogue with the authorities as they continue to implement their reform agenda. Upon its return to Washington, the mission will prepare a report to the IMF's Executive Board as a basis for a Board discussion tentatively scheduled for July 2008."