Statement by an IMF Staff Mission to DominicaPress Release No. 12/307
September 7, 2012
An International Monetary Fund (IMF) mission led by Ms. Aliona Cebotari visited Dominica during August 13–23 for the 2012 Article IV consultation on economic developments and macroeconomic policies.1 The mission met with government and private sector representatives as part of this consultation.
The following statement was issued today by Ms. Cebotari:
“The authorities’ decisive actions to support the recovery through public investment have helped Dominica withstand a challenging economic environment. However, weak demand and an outbreak of banana leaf disease will continue to hold back the recovery. Growth is expected to remain subdued this year, accelerating gradually to around 2 percent over the medium term. Rising global food prices may contribute to a modest rise in inflation and weigh on the balance of payments in 2012, but pressures are expected to subside later next year.
“Against this background, the discussion between the authorities and the IMF staff focused on policies needed to maintain fiscal sustainability without derailing the economic recovery and on ways to safeguard the stability of the financial system.
“Subdued growth is putting increasing strains on the fiscal position and there is limited policy space to support activity. Ensuring fiscal sustainability going forward will require some retrenchment in the fiscal deficit, and the mission supports the authorities’ intent to return to their primary surplus target of 2.4 percent of GDP within the next three years and to target this balance over the cycle going forward. The required adjustment effort will allow debt to fall comfortably below 60 percent by 2020, as targeted by the government. Focusing the adjustment effort on streamlined current spending and tax base broadening, while preserving productive infrastructure and social spending, should help minimize the adverse impact of the adjustment on growth and employment. Stepping up reforms of the public financial management framework would also help maintain fiscal discipline and shore up the adjustment effort.
“Without monetary or fiscal policy room to support the recovery, the main policy focus should turn to engaging the private sector through structural reforms that would boost competitiveness and productivity, and improve the country’s long-term growth prospects. These reforms could entail measures that will minimize the costs of doing business, increase access to finance by setting up a credit information bureau and facilitating collateral recovery, and improve the quality of public expenditure.”
“The authorities and the mission also discussed policy actions and reforms to assure continued financial sector stability. These include active monitoring and vigorous action to address risks in the financial system, which may arise from exposure to the failed regional insurance companies, a weakening credit portfolio, and potential spillovers from regional financial markets. Additionally, efforts should be directed at strengthening the supervision and regulation of the financial system, including through a prompt corrective action framework and aligning the provisioning requirements with best international practice.”
“The IMF will continue to have a close dialogue with the authorities as they address these challenges. Upon its return to Washington, DC, the mission will prepare a report to the IMF’s Executive Board, which is tentatively scheduled to consider staff findings at end-October. The mission would like to express its gratitude to the authorities for their candid discussions, timely provision of information, and gracious hospitality. The mission also wishes to thank all other stakeholders for taking the time to meet with the mission to express their views.”
1 Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities.