Press Release No. 25/193

IMF Executive Board Concludes 2025 Article IV Consultation with Dominica

June 11, 2025

• Dominica’s economic outlook is positive, predicated on the implementation of the country’s economic modernization and development agenda, but risks weigh on the downside.
• Fiscal and external imbalances are expected to narrow gradually, but more ambitious consolidation is needed to bring debt below the prudential currency union benchmark, mitigate disaster risks, and support resilient growth.
• Structural reforms are critical to fostering resilient and sustainable growth. Priorities include policies to alleviate impediments to financial intermediation, labor market performance, and innovation and allocative efficiency.

Washington, DC: On June 10, 2025, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation[1] with Dominica and endorsed the staff appraisal without a meeting on a lapse-of-time basis. The authorities have consented to the publication of the Staff Report prepared for this consultation.[2]

Dominica’s economy has continued its expansion. Real GDP grew by 3.5 percent in 2024, supported by a recovery in tourism and targeted development investment to boost economic capacity and competitiveness. Inflation has eased from its 2023 peak of 7 percent, averaging 3.1 percent in 2024. Tourism arrivals have surpassed pre-pandemic levels by roughly 32 percent, but the composition has shifted towards cruise visitors over stayovers. The labor market recovery remains uneven, with formal employment lagging behind overall growth.

Fiscal and external imbalances have narrowed but remain large. The primary balance improved by 2¼ percentage points (ppts) to a deficit of 2 percent of GDP in FY2023/24, reflecting dclines in primary current spending that more than offset moderately lower revenues. Public debt has steadily declined from its pandemic peak but remains elevated at 100 percent of GDP. The current account deficit narrowed by 2 ppts to 32¼ percent of GDP in 2024, reflecting higher tourism receipts.

The financial system is liquid with a mixed credit picture and balance sheet fragilities that require monitoring. Bank credit has declined further since 2023 reflecting ongoing de-risking amid persistent balance sheet challenges, notably elevated non-performing loans (NPLs) and still fragile provisioning. Meanwhile, the credit union (CU) sector is expanding its lending portfolio rapidly, despite weak capitalization, high NPLs, and limited provisioning. Modernizing the supervisory framework governing these institutions is a priority to safeguard financial sector stability given their growing systemic importance.

Dominica’s economic outlook is positive, predicated on the implementation of the country’s economic modernization and development agenda. External imbalances are projected to narrow on the back of increased tourism, a normalization of investment-related imports, and reduced fuel imports with the rollout of geothermal energy. Meanwhile, public debt is set to decline gradually in coming years, supported by sustained prudent fiscal management, but remains above the prudential currency union debt benchmark and is susceptible to shocks.

Executive Board Assessment[3]

Dominica’s economic expansion is poised to continue, but risks to the outlook are elevated and tilted to the downside. Real GDP growth is projected to average 3½ percent over the next three years, underpinned by ongoing investment in flagship infrastructure projects to boost tourism capacity and transition to lower-cost geothermal energy. The heavy import-related content of these projects has eroded the external position—which is assessed to be substantially weaker than implied by medium-term fundamentals and desirable policy settings—but gradual improvements are expected as major capital outlays wind down and fiscal consolidation intensifies. Risks are elevated reflecting Dominica’s vulnerability to natural disaster shocks and amid the evolving trade policy and geopolitical environment.

More ambitious fiscal consolidation than what is envisaged under the authorities’ current policies is needed to reduce economic imbalances and mitigate disaster risks while helping to reinforce prospects for resilient growth. The overall risk of debt distress is high and as such, it is critical to rebuild fiscal buffers by achieving and maintaining a primary surplus of 3½ percent of GDP from 2026 onward to: (i) reduce public debt below 60 percent of GDP by 2035; and (ii) adequately capitalize the Vulnerability and Resilience Fund to mitigate disaster risks. The strategy should focus on broadening the revenue base, optimizing expenditures to preserve space for macrocritical investment, and enhancing the targeting and sustainability of social protection programs.

Reducing balance sheet vulnerabilities and strengthening regulatory oversight are critical. For banks, priorities include stricter enforcement of provisioning and NPL standards, managing loan loss allowances, and facilitating the disposal of impaired assets, while closely monitoring sovereign and foreign investment exposures. For credit unions, reforms to modernize the prevailing regulatory regime is essential by reinforcing the Financial Services Unit’s  operational independence, enhancing risk-based supervision, updating regulatory thresholds, strengthening provisioning and loan management frameworks, and bolstering enforcement tools.

Continued structural reforms are essential for fostering resilient and sustainable growth. Addressing structural challenges that hinder financial intermediation remains a priority. The upcoming launch of a regional credit bureau is welcome. Complementary reforms should aim at modernizing collateral, foreclosure, and bankruptcy frameworks. Eliminating gaps in education and training relative to economic needs is essential to improve labor market outcomes. A comprehensive approach is needed to foster innovation and allocative efficiency, including exploiting digitalization and streamlining administrative processes for tax compliance, business registration, and permitting.

Concerted efforts to bolster institutional frameworks to mitigate risks and support surveillance, economic planning, and policy execution should continue. Ongoing efforts to strengthen AML/CFT legislation and procedures in line with the CFATF recommendations should help protect correspondent banking relationships. Progress on regional coordination across Citizenship-by-Investment (CBI) programs to improve due diligence and transparency is welcome. Proactive engagement to address evolving concerns around Dominica’s CBI regime remains critical to safeguard this essential source of development financing. Finally, underdeveloped institutional frameworks and limited technical capacity—common among small developing states—complicate policy formulation, monitoring, and implementation. Alleviating these impediments is an important aspect of sustained engagement, where priorities include targeted measures to strengthen statistical capacity and improve public financial management across fiscal reporting, treasury operations, public investment management, and budget processes.

[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.

[2] Under the IMF's Articles of Agreement, publication of documents that pertain to member countries is voluntary and requires the member consent. The staff report will be shortly published on the www.imf.org/en/Countries/DMA page.

[3] The Executive Board takes decisions under its lapse-of-time procedure when the Board agrees that a proposal can be considered without convening formal discussions.