IMF Executive Board Concludes the 2018 Article IV Consultation with Dominica
IMF News, September 5, 2018
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- Published: September 5, 2018
Background and Hurricane Maria impact
- On June 18, 2018, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Dominica.
- On September 18, 2017, category 5 Hurricane Maria hit Dominica while the country was still recovering from tropical storm Erika.
- Damage from Hurricane Maria was estimated at US$1.3 billion (226 percent of GDP).
- Most economic sectors sustained significant damage and losses, with public infrastructure carrying the brunt.
- The output collapse and reconstruction costs resulted in large fiscal and current account deficits.
- Fiscal performance deteriorated sharply due to the fall in tax revenue after the hurricane, partially offset by a surge in grants and buoyant Citizenship-by-Investment (CBI) sales revenues.
- With limited revenue, drawdown of large government deposits, grants, and an insurance payout helped meet financing needs.
- The hurricane exacerbated weaknesses in the financial sector, particularly of non-bank institutions, which face undercapitalization, low profitability and high non-performing loans.
- Credit to the private sector has been flat and inflation remains subdued.
Economic outlook and projections
- In 2018, output is projected to decline by 14 percent and to take about 5 years to recover to pre-hurricane levels.
- Signs of recovery, particularly in construction and the public sector, have started to emerge.
- Risks to the outlook include:
- the budget becoming financially constrained and unable to sustain adequate investment given high debt, limited buffers, weak revenue, and urgent reconstruction needs;
- financial instability stemming from undercapitalization of systemic financial institutions;
- recurrent natural disasters with low resilience;
- uncertainty regarding CBI and grant income;
- external competitiveness challenges.
Executive Board assessment and policy recommendations
- Directors commended the authorities’ response to the humanitarian crisis and devastation wrought by Hurricane Maria.
- Fiscal policy recommendations:
- Implement cost effective fiscal policies and reforms to support recovery while containing expansion of public debt.
- Contain current spending extraneous to recovery.
- Enhance the efficiency of capital investment while protecting critical social and recovery spending.
- Invest in resilient infrastructure given Dominica’s vulnerability to natural disasters, despite its higher cost.
- Create a savings fund for natural disasters.
- Once output recovers, pursue fiscal consolidation to sustain reconstruction while generating a primary surplus sufficient to set public debt on a downward trajectory.
- Financial sector recommendations:
- Strengthen financial sector regulation and supervision to address vulnerabilities exacerbated by Hurricane Maria.
- Take decisive action to reduce non-performing loans and capital shortfalls.
- Prepare adequately for possible liquidity pressures in line with recommendations of Fund’s technical assistance.
- Maintain a proactive stance to mitigate the risk of withdrawal of correspondent banking relationships, including continued strengthening of the AML/CFT framework.
- Phase out the off-shore bank sector and cease new license issuance (directors welcomed cessation of new license issuance).
- Growth and business environment recommendations:
- Increase private sector participation and improve the business environment.
- Identify and remove costs and barriers that affect investment and profitability.
- Ensure public sector compensation decisions consider their impact on private wages and competitiveness.
- Improve the business environment, including efforts to reduce the costs of dealing with the government.
- Enforce construction and zoning regulations strictly given vulnerability to natural disasters.
Key statistics and projections (Dominica: Selected Economic and Financial Indicators, 2012-23)
- Real GDP (percent):
- 2014: 4.2
- 2015: -3.7
- 2016: 2.6
- 2017: -4.7
- 2018: -14.1
- 2019: 9.4
- 2020: 6.8
- 2021: 3.6
- 2022: 2.3
- 2023: 1.5
- Nominal GDP (percent):
- 2014: 3.9
- 2015: 1.3
- 2016: 8.7
- 2017: -4.1
- 2018: -12.9
- 2019: 11.2
- 2020: 5.5
- 2021: 4.4
- 2022: 3.2
- Consumer prices, end of period:
- 2014: 0.5
- 2015: -0.5
- 2016: -0.2
- 2017: 1.4
- 2018: 1.8
- 2019: 2.0
- Central government balances (percent of GDP, fiscal years July–June):
- Revenue:
- 2014: 27.1
- 2015: 31.5
- 2016: 47.1
- 2017: 46.8
- 2018: 37.0
- 2019: 34.8
- 2020: 27.8
- 2021: 27.2
- 2022: 27.3
- Expenditure:
- 2014: 31.7
- 2015: 32.4
- 2016: 43.3
- 2017: 46.1
- 2018: 41.0
- 2019: 38.9
- 2020: 36.2
- 2021: 34.2
- 2022: 26.3
- 2023: 26.5
- Primary balance:
- 2014: -3.0
- 2015: 1.0
- 2016: 5.4
- 2017: -2.1
- 2018: -2.3
- 2019: -6.6
- 2020: -5.2
- 2021: 2.9
- Overall balance (incl. ND cost buffers):
- 2014: -4.6
- 2015: -0.9
- 2016: 3.8
- 2017: 0.7
- 2018: -5.5
- 2019: -5.6
- 2020: -9.9
- 2021: -8.5
- 2022: -0.7
- Central government debt (incl. guaranteed, percent of GDP):
- 2014: 78.7
- 2015: 75.3
- 2016: 71.7
- 2017: 82.7
- 2018: 87.7
- 2019: 83.3
- 2020: 86.1
- 2021: 87.8
- 2022: 87.1
- 2023: 85.2
- External:
- 2014: 61.0
- 2015: 58.1
- 2016: 54.7
- 2017: 66.0
- 2018: 71.1
- 2019: 68.1
- 2020: 72.8
- 2021: 75.8
- 2022: 75.7
- 2023: 74.7
- Domestic:
- 2014: 17.7
- 2015: 17.1
- 2016: 16.7
- 2017: 16.6
- 2018: 15.2
- 2019: 13.2
- 2020: 12.1
- 2021: 11.4
- 2022: 10.5
- Balance of payments:
- Current account balance, of which:
- 2014: -7.1
- 2015: -1.9
- 2016: 0.8
- 2017: -12.5
- 2018: -31.7
- 2019: -22.1
- 2020: -20.4
- 2021: -21.3
- 2022: -14.2
- 2023: -11.9
- Exports of goods and services (percent of GDP):
- 2014: 51.6
- 2015: 50.1
- 2016: 48.3
- 2017: 42.6
- 2018: 33.2
- 2019: 41.4
- 2020: 44.2
- 2021: 43.4
- 2022: 43.7
- Imports of goods and services 5/ (percent of GDP):
- 2014: 63.4
- 2015: 58.8
- 2016: 54.0
- 2017: 67.2
- 2018: 83.1
- 2019: 81.0
- 2020: 70.3
- 2021: 61.5
- 2022: 58.5
- External debt (gross) 6/ (percent of GDP):
- 2014: 83.7
- 2015: 86.5
- 2016: 77.9
- 2017: 88.8
- 2018: 99.6
- 2019: 95.6
- 2020: 99.7
- 2021: 101.9
- 2022: 102.2
- 2023: 101.0
- Net imputed international reserves:
- End-year (millions of U.S. dollars):
- 2014: 99.9
- 2015: 125.4
- 2016: 220.9
- 2017: 210.9
- 2018: 210.7
- 2019: 208.9
- 2020: 206.5
- 2021: 202.1
- 2022: 210.6
- 2023: 215.3
- Months of imports of goods and services:
- 2014: 4.8
- 2015: 8.4
- 2016: 6.3
- 2017: 5.7
- 2018: 5.6
- 2019: 6.4
- 2020: 6.6
- Saving-Investment Balance (percent of GDP):
- Saving:
- 2014: 7.6
- 2015: 14.3
- 2016: 20.0
- 2017: 10.8
- 2018: -6.3
- 2019: -1.0
- 2020: -2.2
- 2021: -6.7
- 2022: -5.0
- 2023: -6.0
- Investment:
- 2014: 14.8
- 2015: 16.2
- 2016: 19.2
- 2017: 23.3
- 2018: 25.4
- 2019: 21.1
- 2020: 18.2
- 2021: 14.6
- 2022: 9.2
- 2023: 5.9
IMF Executive Board Concludes the 2018 Article IV Consultation with Dominica, September 5, 2018.