## _cr06290

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---

### Overview
- The Government of the Commonwealth of Dominica (GOCD) completed the medium-term Growth and Social Protection Strategy (GSPS) in April 2006.
- The GSPS expands on the I-PRSP (submitted November 2003) by extending discussion of poverty assessment, investment climate, macroeconomic framework, and public sector reform.
- Preparation: broad consultation beginning mid-2004 involving Cabinet, ministry officials, public sector bodies, NGOs, CBOs, the private sector, and donors (EU, UNDP, CDB, CIDA, IMF, World Bank).
- GSPS priorities: private sector-led growth, maintaining social and physical infrastructure, achieving a smaller, more efficient public sector; prioritizes measures to improve economic growth and job creation and to speed public investment execution.
- Purpose of JSAN: IMF and IDA staff analysis and advice to strengthen GSPS design and implementation as Dominica consolidates recovery from the 2001–2003 crisis and shifts from stabilization to growth-enhancing structural reforms.
- Document metadata: Approved by José Fajgenbaum and Matthew Fisher (IMF) and Pamela Cox (IDA) on June 16, 2006.

### Poverty assessment: key findings and data
- GSPS builds on a Country Poverty Assessment (CPA) prepared with CDB support; CPA included a Survey of Living Conditions, a Participatory Poverty Assessment, and an Institutional Analysis.
- CPA covers multiple poverty dimensions including geography, age, education, gender, and ethnicity (notably the indigenous Carib population).
- Data comparability issue: 2002 CPA data are not directly comparable with 1996 assessment due to methodological differences; staffs urge planning for regular poverty assessment using a common methodology and use of other sources (e.g., poverty maps from regular household surveys).
- Poverty levels (2002 CPA):
  - 29 percent of households were below the poverty line.
  - 39 percent of the population were below the poverty line.
  - 10 percent of households were indigent.
  - 15 percent of the population were indigent.
- Spatial and group concentration:
  - Three quarters of the poor live in rural areas.
  - Among the indigenous Carib population: 70 percent fall below the poverty line and almost half are indigent; most Caribs live in rural areas.
- Poverty correlates: poor households characterized by higher unemployment and lower levels of education; no strong correlation found between poverty and single parenthood, gender, or being elderly.
- GSPS diagnosis: poverty largely due to unemployment and underemployment arising from slow economic growth over the last decade.
- GSPS four pillars for poverty reduction:
  1. Promotion of economic growth and job creation (private sector-led).
  2. Human capital development (skills and health).
  3. Direct assistance to those in severe poverty.
  4. Addressing social problems that could cause future poverty.
- Specific Carib strategy objectives (target year 2010): bring income and poverty indicators for the Caribs in line with the national average via:
  - Implementing a comprehensive Carib Territory Community Development Program.
  - Integrating the Carib community into economic life, including access to financial services and microcredit.
  - Promoting the Carib village as an eco-tourism center.

### Priority areas for poverty reduction and growth — A. Creating an Enabling Environment for Economic Growth
- Staff view emphasis on economic growth and job creation as appropriate given poverty’s employment basis, but note need for deeper analysis of how growth will translate into poverty reduction and benefit the poorest.
- Human capital recommendations:
  - Sharpen focus on raising human resource capacity to address shortages of skilled medical staff.
  - Give higher priority to vocational and technical training relevant to private sector needs (critical for growth in sectors such as tourism).
  - Deeper discussion of links between social infrastructure and labor market rigidities (e.g., relatively high wages despite high unemployment).
- Investment climate and cost of doing business:
  - GOCD plans include streamlining procedures and a World Bank-assisted one-stop shop for new investors; staffs urge quick implementation to sustain recovery and attract Diaspora skills and capital.
  - Staffs recommend higher priority on labor cost issues and labor market reform (ease of hiring temporary/part-time workers, ease of workforce adjustment).
  - Emphasize cost and access to capital for local investors.
- Suggested financial sector reforms:
  - Improving procedures to realize collateral (already highlighted).
  - Raising accounting standards.
  - Supporting a region-wide credit bureau to improve borrower information.
- Public investment implementation:
  - Current implementation rates are low; staffs stress need to raise implementation rates and to identify how specific projects affect growth and poverty to prioritize projects.
- Regional integration: potential benefits from joint provision of government services to cut costs and increase efficiencies; implications for labor mobility (CSME) should be recognized for labor market reform and social safety nets.

### Priority areas for poverty reduction and growth — B. Social Safety Nets
- No formal unified targeted safety net program exists; multiple programs operate with weaknesses: lack of established policies/procedures, nontransparent targeting, weak monitoring and evaluation capacity, overlap and duplication.
- GSPS plans to strengthen capacity to deliver targeted safety nets; staffs welcome GOCD steps and the preparation of a technical assistance operation to be supported by the World Bank and the European Union.

### Priority areas for poverty reduction and growth — C. Macroeconomic Framework
- Macroeconomic framework targets:
  - Medium-term growth rate of 3 percent per year.
  - Gradual reduction of trade imbalances.
  - Central government primary surplus of 3 percent of GDP per year.
  - Prioritized and efficient public sector investment, public sector reform, and price stability.
- Staffs view targets as consistent with public debt sustainability (as previously assessed in the context of Dominica’s fifth review of the PRGF agreement).
- GSPS commitment: put social security on a sustainable footing to address unfunded liabilities of Dominica’s Social Security System—deemed essential for medium- to long-term fiscal sustainability.
- Staffs’ assessment:
  - The 3 percent growth target is higher than the 2 percent in the I-PRSP (December, 2003) but consistent with post-I-PRSP developments (debt restructuring and rebound in 2004 and 2005) and government investment/reform program.
  - Objectives on primary balance and public sector reform align with the central government’s recent strategy that yielded surpluses above the medium-term target and a reduction in relative government size.
- Staffs consider the macroeconomic framework achievable and key for GSPS success.

### Priority areas for poverty reduction and growth — D. Monitoring implementation
- GSPS monitoring approach focuses on a few key objectively verifiable indicators tracking macroeconomic growth, employment and poverty, education and social welfare, health and community development, infrastructure, and the environment; indicators conform to existing data sources and line ministry systems.
- Staffs recommend utilizing technical assistance from CARTAC, MECOVI and other sources to improve statistical capacity for monitoring.
- Institutional monitoring framework:
  - GOCD proposes to incorporate GSPS monitoring into the budget exercise, with a mid-term evaluation in 2007/08 and an end-of-period evaluation in 2009/10.
  - A Steering Committee is proposed including senior government officials, a private sector representative, and an NGO representative.
  - Staffs recommend including a member of the Carib community in the Steering Committee.

### Implementation risks
- Major risks identified:
  - Natural disasters.
  - Heavy reliance on tourism and bananas.
  - Vulnerability to high energy costs.
  - Potential loss of donor support (a large part of public investment program is externally grant-financed).
- GSPS recognizes these risks and outlines mitigation strategies.

### Geothermal energy, fiscal consolidation, and reconstruction needs (Section 2)
- Development of geothermal energy could help Dominica reduce dependency on oil and create a new exporting sector.
- Staffs consider that fiscal consolidation could help GOCD mitigate risks and provide fiscal space to respond to reconstruction needs.

### Banana sector: exposure to erosion of trade preferences (Section 2)
- Staffs recommend that GOCD assess the impact of a sudden and substantial reduction of trade preferences in the banana sector.
- Context and facts:
  - Erosion in trade preferences has been ongoing for more than a decade.
  - The banana sector now only represents around 2 percent of Dominica’s GDP (having declined by more than 10 percentage points during the past 15 years).
  - The banana sector is very labor intensive and its share in total employment is still substantially higher than its share in total output.
- Risk: a drop in trade preferences to the point of making the sector completely uncompetitive in international markets could create an unemployment problem of large magnitude and exacerbate the poverty situation.

### Conclusions and implementation challenges (Section 2)
- GSPS builds on Dominica’s efforts over the past three years to achieve sound public finances, stabilize the economy, and stimulate growth.
- Bank and Fund staffs consider GSPS emphasizes the structural reform agenda needed to consolidate recent gains.
- Key implementation challenges:
  - Limited implementation capacity characteristic of small, medium- and low-income countries.
  - Need for efficient execution and prioritization of projects, particularly to improve the investment climate and to maintain and expand physical infrastructure.
- Positive note: staffs are encouraged by Dominica’s close interaction with donors and the international community for technical assistance and expertise.

### Issues for discussion and staff recommendations to the GOCD (Section 2)
- Questions for Directors:
  - Do Directors support staffs’ view that the GSPS represents an effective strategy for growth and poverty reduction in Dominica?
  - Do Directors agree on staffs’ recommendations to GOCD regarding:
    - (i) the need to prioritize and efficiently implement the government’s investment program;
    - (ii) the need to broaden the discussion on the investment climate and the cost of doing business to include financial sector reform;
    - (iii) the importance of maintaining fiscal discipline not only to support macroeconomic stability but also to mitigate risks from potential shocks (e.g., natural disasters); and
    - (iv) the need to be more inclusive in the monitoring and evaluation of results of the implementation of the GSPS.

*Source: _cr06290 - Section 2*

### Section 1

### _cr06290 - Section 1

### Overview
- The Government of the Commonwealth of Dominica (GOCD) completed the medium-term Growth and Social Protection Strategy (GSPS) in April 2006.  
- The GSPS is more comprehensive than the I-PRSP (submitted November 2003), expanding discussion of poverty assessment, investment climate, macroeconomic framework, and public sector reform.  
- The GSPS was prepared through a broad consultation process beginning mid-2004, involving Cabinet, ministry officials, public sector bodies, NGOs, CBOs, the private sector, and bilateral and multilateral donors (EU, UNDP, CDB, CIDA, IMF, World Bank).  
- The GSPS emphasizes private sector-led growth, maintaining social and physical infrastructure, and achieving a smaller, more efficient public sector; it prioritizes measures to improve economic growth and job creation and to speed public investment execution.  
- This JSAN provides IMF and IDA staff analysis and advice to strengthen GSPS design and implementation, at a time when Dominica is consolidating recovery from the 2001–2003 crisis and shifting from stabilization to growth-enhancing structural reforms.  
- Document metadata: Approved by José Fajgenbaum and Matthew Fisher (IMF) and Pamela Cox (IDA) on June 16, 2006.

### Poverty assessment: key findings and data
- The GSPS builds on a Country Poverty Assessment (CPA) prepared with CDB support; the CPA included a Survey of Living Conditions, a Participatory Poverty Assessment, and an Institutional Analysis.  
- The CPA covers multiple poverty dimensions including geography, age, education, gender, and ethnicity (notably the indigenous Carib population).  
- Data comparability issue: 2002 CPA data are not directly comparable with 1996 assessment due to methodological differences; staff urge planning for regular poverty assessment using a common methodology and use of other sources (e.g., poverty maps from regular household surveys).  
- Poverty levels (2002 CPA):  
  - 29 percent of households were below the poverty line.  
  - 39 percent of the population were below the poverty line.  
  - 10 percent of households were indigent.  
  - 15 percent of the population were indigent.  
- Spatial and group concentration:  
  - Three quarters of the poor live in rural areas.  
  - Among the indigenous Carib population: 70 percent fall below the poverty line and almost half are indigent; most Caribs live in rural areas.  
- Poverty correlates: poor households characterized by higher unemployment and lower levels of education; no strong correlation found between poverty and single parenthood, gender, or being elderly.  
- GSPS diagnosis: poverty largely due to unemployment and underemployment arising from slow economic growth over the last decade.  
- GSPS four pillars for poverty reduction:  
  1. Promotion of economic growth and job creation (private sector-led).  
  2. Human capital development (skills and health).  
  3. Direct assistance to those in severe poverty.  
  4. Addressing social problems that could cause future poverty.  
- Specific Carib strategy objectives (target year 2010): bring income and poverty indicators for the Caribs in line with the national average via:  
  - Implementing a comprehensive Carib Territory Community Development Program.  
  - Integrating the Carib community into economic life, including access to financial services and microcredit.  
  - Promoting the Carib village as an eco-tourism center.

### Priority areas for poverty reduction and growth
A. Creating an Enabling Environment for Economic Growth
- Staff view emphasis on economic growth and job creation as appropriate given poverty’s employment basis, but note need for deeper analysis of how growth will translate into poverty reduction and benefit the poorest.  
- Human capital: existing health and education programs are important; staffs recommend deeper discussion of links between social infrastructure and labor market rigidities (e.g., relatively high wages despite high unemployment), and suggest:  
  - Sharpen focus on raising human resource capacity to address shortages of skilled medical staff.  
  - Give higher priority to vocational and technical training relevant to private sector needs (critical for growth in sectors such as tourism).  
- Investment climate: GOCD plans to improve investment climate and streamline procedures (including a World Bank-assisted one-stop shop for new investors); staffs urge quick implementation to sustain recovery and attract Diaspora skills and capital.  
- Cost of doing business: GSPS highlights transport and utilities; staffs recommend higher priority on labor cost issues and labor market reform (ease of hiring temporary/part-time workers, ease of workforce adjustment), and on cost and access to capital for local investors. Suggested financial sector reforms include:  
  - Improving procedures to realize collateral (already highlighted).  
  - Raising accounting standards.  
  - Supporting a region-wide credit bureau to improve borrower information.  
- Public investment implementation: current implementation rates are low; staffs stress need to raise implementation rates and to identify how specific projects affect growth and poverty to prioritize projects.  
- Regional integration: potential benefits from regional cooperation are high (joint provision of government services to cut costs and increase efficiencies); implications for labor mobility (CSME) should be recognized for labor market reform and social safety nets.

B. Social Safety Nets
- No formal unified targeted safety net program exists; multiple programs operate with weaknesses: lack of established policies/procedures, nontransparent targeting, weak monitoring and evaluation capacity, overlap and duplication.  
- GSPS plans to strengthen capacity to deliver targeted safety nets; staffs welcome GOCD steps and the preparation of a technical assistance operation to be supported by the World Bank and the European Union.

C. Macroeconomic Framework
- Macroeconomic framework targets:  
  - Medium-term growth rate of 3 percent per year.  
  - Gradual reduction of trade imbalances.  
  - Central government primary surplus of 3 percent of GDP per year.  
  - Prioritized and efficient public sector investment, public sector reform, and price stability.  
- Staffs view targets as consistent with public debt sustainability (as previously assessed in the context of Dominica’s fifth review of the PRGF agreement).  
- GSPS outlines commitment to put social security on a sustainable footing to address unfunded liabilities of Dominica’s Social Security System—deemed essential for medium- to long-term fiscal sustainability.  
- Staffs consider the macroeconomic framework achievable and key for GSPS success, noting:  
  - The 3 percent growth target is higher than the 2 percent in the I-PRSP (December, 2003) but consistent with post-I-PRSP developments (debt restructuring and rebound in 2004 and 2005) and government investment/reform program.  
  - Objectives on primary balance and public sector reform align with the central government’s recent strategy that yielded surpluses above the medium-term target and a reduction in relative government size.

D. Monitoring implementation
- GSPS monitoring approach focuses on a few key objectively verifiable indicators tracking macroeconomic growth, employment and poverty, education and social welfare, health and community development, infrastructure, and the environment; indicators conform to existing data sources and line ministry systems.  
- Staffs recommend utilizing technical assistance from CARTAC, MECOVI and other sources to improve statistical capacity for monitoring.  
- Institutional monitoring framework: GOCD proposes to incorporate GSPS monitoring into the budget exercise, with a mid-term evaluation in 2007/08 and an end-of-period evaluation in 2009/10; a Steering Committee is proposed including senior government officials, a private sector representative, and an NGO representative. Staffs recommend including a member of the Carib community in the Steering Committee.

### Implementation risks
- Dominica faces large risks, notably: natural disasters; heavy reliance on tourism and bananas; vulnerability to high energy costs; and potential loss of donor support (a large part of public investment program is externally grant-financed).  
- GSPS recognizes these risks and outlines mitigation strategies.

*International Monetary Fund and the International Development Association. Joint Staff Advisory Note on Dominica: Medium-Term Growth and Social Protection Strategy (GSPS). August 2006. IMF Country Report No. 06/290.*

### Section 2

### _cr06290 - Section 2

### Geothermal energy, fiscal consolidation, and reconstruction needs
- The development of geothermal energy could help Dominica not only reduce its dependency on oil but also create a new exporting sector.
- Staffs consider that the strategy of fiscal consolidation could also help the GOCD mitigate the risks as well as provide the fiscal space to respond to reconstruction needs.

### Banana sector: exposure to erosion of trade preferences
- Staffs recommend that the GOCD also assess the impact of a sudden and substantial reduction of trade preferences in the banana sector.
- Staffs recognize that the erosion in trade preferences has been ongoing for more than a decade and that the banana sector now only represents around 2 percent of Dominica’s GDP (having declined by more than 10 percentage points during the past 15 years).
- The banana sector is very labor intensive and its share in total employment is still substantially higher than its share in total output.
- A drop in trade preferences to the point of making the sector completely uncompetitive in international markets could create an unemployment problem of large magnitude and exacerbate the poverty situation.

### Conclusions and implementation challenges
- The GSPS builds on the efforts that Dominica has made in the past three years to achieve sound public finances, stabilize its economy, and stimulate growth.
- Bank and Fund staffs consider that the GSPS puts the right emphasis on the structural reform agenda that Dominica needs to undertake to consolidate the gains achieved over the past three years.
- Staffs consider that efficient implementation and monitoring of the GSPS will constitute important challenges for the GOCD, given the limited implementation capacity characteristic of small, medium- and low-income countries.
- Efficient execution and prioritization of projects will be essential for the success of the strategies outlined in the GSPS, particularly in the areas related to:
  - improving the investment climate; and
  - the maintenance and expansion of physical infrastructure.
- Staffs are encouraged by the close interaction that Dominica is maintaining with donors and the broader international community, in order to receive technical assistance and acquire technical expertise in important areas.

### Issues for discussion and staff recommendations to the GOCD
- Do Directors support the staffs view that the GSPS represents an effective strategy for growth and poverty reduction in Dominica?
- Do Directors agree on staffs’ recommendations to the Government of the Commonwealth of Dominica regarding:
  - (i) the need to prioritize and efficiently implement the government’s investment program;
  - (ii) the need to broaden the discussion on the investment climate and the cost of doing business to include financial sector reform;
  - (iii) the importance of maintaining fiscal discipline not only to support macroeconomic stability but also to mitigate risks from potential shocks (e.g., natural disasters); and
  - (iv) the need to be more inclusive in the monitoring and evaluation of results of the implementation of the GSPS.

*Source: _cr06290 - Section 2*

---


_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2006/_cr06290.pdf_