IMF Executive Board Concludes 2023 Article IV Consultation with Dominica
IMF News, July 5, 2023
Source details
- Canonical URL
- IMF Executive Board Concludes 2023 Article IV Consultation with Dominica
Other formats
Bibliographic details
- Published: July 5, 2023
Economic recovery and outlook
- Real GDP growth is estimated to have reached 6.9 percent in 2021 and 5.7 percent in 2022, driven by construction of climate-resilient infrastructure, a partial rebound in tourism, and a substantial rise in agricultural output.
- High global commodity prices and shipping costs pushed inflation up to an estimated 7.5 percent in 2022, despite mitigating fuel price policies.
- The current account deficit remained elevated, at 26 percent of GDP, due to unfavorable terms of trade, large imports of investment goods, and incomplete recovery in tourism receipts.
- The outlook is positive, predicated on a continued expansion in tourism and implementation of the country’s economic modernization and resilience building agenda.
- Transition to local geothermal energy production and construction of a new airport, planned for the coming years, are expected to sustain activity, reduce fossil fuel dependence, bolster resilience to external shocks, and improve international connectivity.
- The current account deficit is expected to narrow as tourism exports expand, commodity prices fall, and imports of fuel and investment goods soften, in line with fiscal consolidation.
- Public debt is set to decline gradually in coming years, supported by efforts to reduce current spending and strengthen tax collection.
- Downside risks include global economic uncertainty, climate change, and volatility of Citizenship-by-Investment (CBI) revenue.
Fiscal position and risks
- Fiscal space remains tight. High Citizenship-by-Investment (CBI) revenue, nearing a record 30 percent of GDP in recent years, has supported public investment and crisis response measures.
- The primary fiscal deficit expanded to 6.2 percent in FY21–22, with public debt reaching at 106 percent of GDP.
- To ensure convergence to the 60 percent public debt target by 2035, fiscal consolidation consistent with the national fiscal rule—raising the primary balance to 2 percent of GDP by 2026—is recommended.
- The plan should be underpinned by a sizeable improvement of non-CBI fiscal balances while protecting investment and other priority programs.
- Allocating a higher share of CBI revenue, including all unexpected windfalls, to disaster insurance and debt amortization is recommended to bolster financial resilience and strengthen debt sustainability.
Financial sector stability and constraints
- The financial sector remains stable. Tighter global financing conditions have not impacted bank deposit and lending rates given abundant liquidity and limited exposure to foreign capital markets.
- Banks have strengthened provisions in line with ECCB requirements and remain well capitalized. Recapitalization of credit unions is progressing.
- Credit to the private sector has underperformed relative to GDP growth, while bank exposure to the public sector has grown since the pandemic.
- Nonperforming loans (NPLs) remain elevated and the national insolvency law modernization is essential to facilitate resolution of NPLs.
- Upcoming ECCU regional credit bureau and the Eastern Caribbean partial credit guarantee scheme can facilitate credit access by streamlining lending processes and addressing collateral constraints for small businesses.
Policy recommendations — fiscal and tax measures
- Mobilize tax revenue by streamlining tax incentives, reviewing PIT allowances, and strengthening tax administration and compliance risk management.
- As international fuel prices moderate, reverse the reduction of VAT on electricity and revise motor vehicle licenses up to compensate losses from the foregone highway levy.
- Reduce the wage bill through civil service reform and streamline pension spending by reforms aimed at increasing the minimum retirement age.
- Strengthen the financial position of the publicly-owned water and sewage public company through higher tariffs that better reflect cost recovery.
- Continue to cut inefficient spending and prioritize the medium-term public investment plan toward projects with greatest productivity, such as the geothermal plant and new airport.
Social protection and inclusion
- Social protection systems need strengthening. Conventional income-based targeting is hampered by widespread informality and capacity constraints.
- Consider pursuing proxy-targeting and tailoring social assistance to vulnerable households in a more systematized way to streamline untargeted programs and deploy exceptional support swiftly and cost-effectively during large shocks.
- Completing the ongoing population census, which would form the basis for a comprehensive social registry, is paramount.
Financial supervision and resilience
- Modernize supervisory frameworks: bolster resources and capacity of the national supervisor, consider statutory independence from the Ministry of Finance, and modernize supervisory regulations to support risk-based supervision.
- Account for climate-related risks within supervisory frameworks to foster financial resilience to climate change.
- Prioritize recapitalization of systemic credit unions.
Structural reforms and resilience-building
- Continue efforts to modernize the economy and strengthen economic resilience via diversification and inclusiveness.
- Prioritize transition to geothermal energy to reduce carbon emissions, lessen external vulnerabilities, and increase competitiveness through lower energy costs.
- Timely completion of the new international airport will boost connectivity with large markets and enhance regional connectivity.
- Support the agricultural sector to broaden the export base and explore synergies with the tourism sector.
- Expand digitalization and professional training to support inclusive development and productivity gains.
Institutional and statistical reforms
- Continue progress in strengthening AML/CFT legislation and procedures, in line with the recommendations of the upcoming CFAFT mutual evaluation report, to protect the integrity of CBI programs and the stability of CBRs.
- Publish timely high-quality statistics to inform policy decisions and monitor compliance with fiscal rules.
- Implement the national fiscal rule by enhancing public financial management processes, including medium-term budgeting, fiscal reporting, treasury operations, and public investment management.
Key statistics and projections (selected, as reported)
- Real GDP growth: 3.5 (2018); 5.5 (2019); -16.6 (2020); 6.9 (2021); 5.7 (2022); 4.7 (2023); 4.6 (2024); 4.2 (2025); 2.9 (2026); 2.7 (2027); (2028 not reported).
- Nominal GDP growth: 6.4 (2018); 10.2 (2019); -17.5 (2020); 10.1 (2021); 13.6 (2022); 11.1 (2023); 7.1 (2024); 6.3 (2025); 4.9 (2026).
- Consumer prices, period average: 1.0 (2018); 1.5 (2019); -0.7 (2020); 1.6 (2021); 7.5 (2022); 6.2 (2023); 2.4 (2024); 2.0 (2025).
- Central government revenue: 44.7 (2018); 39.6 (2019); 58.9 (2020); 56.9 (2021); 42.7 (2022); 43.5 (2023); 41.8 (2024); 40.7 (2025); 40.5 (2026); 40.4 (2027); 40.3 (2028).
- Taxes: 27.7 (2018); 24.1 (2019); 23.3 (2020); 21.2 (2021); 20.1 (2022); 21.9 (2023); 22.2 (2024); 22.1 (2025).
- Non-tax revenue: 16.2 (2018); 13.5 (2019); 33.2 (2020); 30.3 (2021); 20.2 (2022); 19.2 (2023); 17.2 (2024).
- Expenditure: 62.9 (2018); 48.1 (2019); 66.6 (2020); 65.6 (2021); 46.7 (2022); 47.8 (2023); 45.0 (2024); 43.6 (2025); 42.9 (2026); 42.3 (2027); 42.1 (2028).
- Current primary expenditure: 36.3 (2018); 35.9 (2019); 36.5 (2020); 36.9 (2021); 30.4 (2022); 30.0 (2023); 29.1 (2024); 28.7 (2025).
- Interest payments: 2.5 (2018); 2.1 (2019); 3.6 (2020); 3.3 (2021); 3.2 (2022); 3.1 (2023).
- Capital expenditure: 24.7 (2018); 9.7 (2019); 28.0 (2020); 26.2 (2021); 12.8 (2022); 11.8 (2023); 11.3 (2024); 10.9 (2025); 10.4 (2026).
- Primary balance: -16.2 (2018); -6.0 (2019); -5.5 (2020); -6.2 (2021); -0.5 (2022); -0.1 (2023); 0.7 (2024); 1.3 (2025); 1.2 (2026).
- Primary balance, excluding CBI: -29.4 (2018); -18.1 (2019); -36.9 (2020); -34.9 (2021); -18.5 (2022); -17.1 (2023); -14.2 (2024); -13.3 (2025); -13.1 (2026); -12.8 (2027).
- Overall balance: -8.5 (2018); -7.7 (2019); -8.7 (2020); -4.0 (2021); -4.2 (2022); -3.2 (2023); -2.9 (2024); -2.4 (2025); -1.9 (2026); -1.1 (2027).
- Central government debt (incl. guaranteed): 85.6 (2018); 97.7 (2019); 112.5 (2020); 106.3 (2021); 97.6 (2022); 93.5 (2023); 91.0 (2024); 90.3 (2025); 90.1 (2026); 89.5 (2027); 89.0 (2028).
- External debt (gross): 102.1 (2018); 84.9 (2019); 102.6 (2020); 82.9 (2021); 77.9 (2022); 74.3 (2023); 72.3 (2024); 72.1 (2025); 72.7 (2026); 73.9 (2027); 75.0 (2028).
- Broad money (M2) annual percent change: 1.4 (2018); -6.3 (2019); -9.9 (2020); 1.8 (2021); 6.5 (2022).
- Real credit to the private sector (annual percent change): -5.3 (2018); -6.1 (2019); 0.4 (2020); 0.0 (2021); 0.8 (2022).
- Current account balance (percent of GDP): -43.7 (2018); -35.6 (2019); -35.4 (2020); -27.6 (2021); -26.2 (2022); -25.2 (2023); -17.7 (2024); -15.9 (2025); -14.3 (2026); -11.1 (2027).
- Exports of goods and services (percent of GDP): 28.2 (2018); 34.5 (2019); 18.9 (2020); 25.4 (2021); 31.2 (2022); 33.7 (2023); 33.9 (2024); 34.2 (2025); 35.3 (2026).
- Imports of goods and services (percent of GDP): 75.7 (2018); 69.7 (2019); 55.4 (2020); 56.8 (2021); 58.6 (2022); 54.8 (2023); 55.3 (2024); 54.0 (2025); 52.8 (2026); 52.3 (2027).
- Capital and financial account (percent of GDP): 38.7 (2018); 27.5 (2019); 26.3 (2020); 25.3 (2021); 17.8 (2022); 16.1 (2023); 14.4 (2024); 12.9 (2025); 11.2 (2026).
- FDI (percent of GDP): 14.1 (2018); 10.3 (2019); 4.3 (2020); 6.1 (2021); 6.6 (2022); 4.8 (2023); 4.5 (2024).
- Capital grants (percent of GDP): 26.5 (2018); 9.8 (2019); 24.4 (2020); 14.6 (2021); 11.6 (2022); 9.9 (2023); 7.7 (2024).
- External gross debt composition note: comprises public sector external debt, foreign liabilities of commercial banks, and other private debt (calendar year basis).
- Memorandum: Nominal GDP (EC$ millions): 1,498 (2018); 1,651 (2019); 1,361 (2020); 1,499 (2021); 1,703 (2022); 1,893 (2023); 2,027 (2024); 2,155 (2025); 2,261 (2026); 2,368 (2027); 2,479 (2028).
- Net imputed international reserves end-year (millions of U.S. dollars): 189.2 (2018); 166.2 (2019); 165.6 (2020); 165.2 (2021); 166.0 (2022); 172.4 (2023); 181.0 (2024); 191.7 (2025); 203.1 (2026); 214.8 (2027); 227.3 (2028).
- Months of imports of goods and services: 5.6 (2018); 5.3 (2019); 5.2 (2020).
- Holdings of SDRs (millions of SDRs): 9.6 (year not specified).
IMF Executive Board conclusion and staff appraisal endorsed on a lapse-of-time basis; Press Release No. 23/257.