Dominica: Staff Concluding Statement of the 2025 Article IV Mission
IMF News, April 4, 2025
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- Published: April 4, 2025
Economic performance and inflation
- Real GDP grew by 3.5 percent in 2024, supported by a recovery in tourism and targeted development investment.
- Inflation averaged 3.1 percent in 2024, easing from the 2023 peak of 7 percent.
- Tourism arrivals surpassed pre-pandemic levels by roughly 32 percent, with a shift toward cruise visitors over stayovers.
- Labor market recovery remains uneven, with formal employment lagging overall growth.
- Current account (CA) deficit narrowed by 2 percentage points to 32¼ percent of GDP in 2024, reflecting higher tourism receipts.
Fiscal balances, public debt, and fiscal projections
- Primary deficit narrowed to 2 percent of GDP in FY2023/24 and is projected to move into a modest surplus of 0.1 percent of GDP in FY2024/25.
- Recent tax measures cited: higher excise duties on sugary drinks, alcohol, tobacco, and diesel.
- Capital expenditures expected to moderate due to slow implementation rates and capacity constraints.
- Public debt: peaked at 112½ percent of GDP in FY2020/21; remains around 100 percent of GDP and high relative to ECCU peers.
- Under current policies, primary balance projected to strengthen gradually to 2.0 percent of GDP by 2030.
- Public debt projected to decline to 69¾ percent of GDP by 2035 but remains at high risk of debt distress and above the prudential currency union debt benchmark.
- Estimated EC$75 million in cumulative fiscal consolidation measures needed over two years to sustain a 3½ percent of GDP primary surplus from FY2026/27.
- Policy targets recommended: maintain a primary surplus of at least 2 percent of GDP from 2026 onward; adequately capitalize the Vulnerability, Risk and Resilience Fund (VRF) to accumulate 12 percent of GDP at a rate of 1.5 percent per year.
Financial sector stability and vulnerabilities
- Financial system described as stable and liquid, with mixed credit trends and vulnerabilities.
- Bank credit has declined further since 2023 due to ongoing de-risking and balance sheet challenges.
- Despite adequate capitalization, bank sovereign and overseas exposures remain elevated.
- Non-performing loans (NPLs) have improved slowly, levels exceed prudential guidelines and provisioning remains fragile.
- Credit union (CU) sector expanding lending rapidly despite weak capitalization, high NPLs, and limited provisioning—aggregate breaches of supervisory thresholds.
- Credit unions now account for 53 percent of total private sector credit, increasing systemic importance and highlighting supervisory gaps.
- Recommendations for banks: stricter enforcement of provisioning and NPL standards, manage loan loss allowances, facilitate disposal of impaired assets, monitor sovereign and foreign investment exposures.
- Recommendations for credit unions and supervision: modernize regulatory framework and close arbitrage by end-2025; reinforce operational independence of the Financial Supervisory Unit (FSU); enhance risk-based supervision tools; update regulatory thresholds; strengthen provisioning and loan management frameworks; bolster enforcement tools.
- Additional financial stability measures: participate in ECCB regional initiative for minimum regulatory standards for non-bank financial institutions; ensure FSU resourcing for monitoring asset quality (especially restructured loans and forbearance); conduct regular audits and on-site examinations (especially larger CUs); strengthen governance via enhanced "fit and proper" criteria for board members.
Growth outlook and external sector projections
- Economy projected to grow by 4¼ percent in 2025, supported by strategic investment in flagship infrastructure and geothermal energy transition.
- Long-run growth expected to converge towards 2 percent as major capital projects wind down and fiscal consolidation intensifies.
- Current account balance projected to improve steadily to its norm by 2028 from increased tourism, normalization of investment imports, and reduced fuel imports with geothermal rollout.
- Risks to outlook described as elevated and tilted to the downside:
- External risks: escalating trade tensions, policy uncertainty, commodity price volatility, pressure on global interest rates leading to market losses on overseas investments and spillovers to domestic credit and FDI, extreme natural disaster shocks.
- Domestic risks: fiscal underperformance, rising arrears, shortfalls to expected CBI inflows, weak local financial system amplifying shocks.
- Upside risk: better than expected growth dividends from ongoing flagship projects.
Revenue mobilization and expenditure rationalization (policy recommendations)
- Revenue-side measures recommended:
- Rationalize tax incentives to curb leakage.
- Enhance VAT yields via a rate adjustment.
- Pursue levies on tourism and highways.
- Introduce a solid waste fee.
- Improve tax administration and compliance.
- Expenditure-side measures recommended:
- Exploit efficiencies in goods and services spending.
- Sustain restraint in wages.
- Reprioritize outlays: revamp National Employment Program (NEP) into a revolving skills training program; recalibrate housing program to target need with means-testing and cost recovery.
- Pursue tariff adjustments on key public services to reduce transfers and contingent liability risks.
- Emphasis: focus consolidation on improving non-CBI fiscal balances while safeguarding critical social and economic investment.
Social protection and pension reforms
- Social protection framework described as fragmented and mostly unconditional, with expenditures nearly twice that of peers with similar per capita GDP.
- Recommendations:
- Create a centralized beneficiary registry and information management system to reduce overlap, improve targeting, monitor support, identify gaps and duplication, and facilitate payments.
- Pension reforms: higher contribution rates, lower replacement rates, and establish a harmonized national retirement age of 65.
Structural reforms to support financial intermediation and productivity
- Structural barriers to financing: weak credit information, outdated collateral and foreclosure laws, inefficient bankruptcy procedures.
- Upcoming launch of a regional credit bureau expected to streamline lending and improve credit quality.
- Complementary reforms needed: modernize national collateral, foreclosure, and bankruptcy frameworks; streamline loan documentation processes.
- Broader structural priorities:
- Address education and training gaps to improve labor market outcomes.
- Ensure resilient infrastructure to protect physical capital from natural disasters.
- Advance geothermal power transition to reduce external vulnerabilities.
- Improve business environment: exploit digitalization, streamline regulatory and administrative processes for tax compliance, business registration, licensing, and permitting.
Institutional frameworks, AML/CFT, and statistical capacity
- Continue strengthening AML/CFT legislation and procedures in line with CFATF mutual evaluation to protect correspondent bank relationships.
- Enhance coordination across regional CBI programs to improve due diligence and transparency; maintain proactive engagement on CBI regime concerns.
- Identified weaknesses: statistical compilation, tax administration, public financial management (PFM) frameworks, including under-developed internal CBI reporting systems.
- Priorities for capacity development: strengthen statistical compilation, improve PFM processes across fiscal reporting, treasury operations, public investment management, and budget processes to enable full fiscal rule implementation.
- IMF readiness to build on ongoing capacity development programs with Dominica.
Key selected economic indicators (highlights from Table 1)
- Real GDP growth (annual): 2020 -16.6; 2021 6.9; 2022 5.6; 2023 4.7; 2024 3.5; 2025 4.2; 2026 3.3; 2027 2.9.
- Nominal GDP growth (annual): 2020 -17.5; 2021 10.1; 2022 9.3; 2023 7.7; 2024 6.7; 2025 7.2; 2026 5.7; 2027 4.9.
- Consumer prices, period average: 2020 -0.7; 2021 1.6; 2022 3.1; 2023 2.8; 2024 2.3; 2025 2.0.
- Central government revenue (percent of GDP): 2020 59.1; 2021 58.8; 2022 62.3; 2023 54.5; 2024 47.5; 2025 38.4; 2026 37.8.
- Taxes (percent of GDP): 2020 23.3; 2021 22.3; 2022 22.4; 2023 21.5; 2024 20.9; 2025 19.7; 2026 19.1.
- Non-tax revenue (percent of GDP): 2020 33.3; 2021 30.9; 2022 34.0; 2023 31.0; 2024 24.7; 2025 16.7.
- Expenditure (percent of GDP): 2020 66.6; 2021 67.0; 2022 69.5; 2023 63.6; 2024 57.4; 2025 50.2; 2026 40.6; 2027 39.4.
- Capital expenditure (percent of GDP): 2020 28.0; 2021 26.8; 2022 35.3; 2023 33.8; 2024 20.2; 2025 10.8; 2026 9.8.
- Primary balance (percent of GDP): 2020 -5.4; 2021 -5.6; 2022 -4.3; 2023 -2.0; 2024 0.1; 2025 0.4; 2026 0.7; 2027 1.0.
- Primary balance, excluding CBI (percent of GDP): 2020 -36.7; 2021 -34.8; 2022 -41.0; 2023 -35.0; 2024 -29.9; 2025 -23.3; 2026 -15.0; 2027 -14.7.
- Overall balance (percent of GDP): 2020 -7.5; 2021 -8.2; 2022 -7.2; 2023 -4.5; 2024 -2.9; 2025 -2.7; 2026 -2.2; 2027 -1.6.
- Central government debt (incl. guaranteed, percent of GDP): 2020 112.5; 2021 108.5; 2022 104.3; 2023 99.8; 2024 100.6; 2025 96.9; 2026 94.1; 2027 91.5.
- External debt (gross, percent): 2020 107.6; 2021 87.5; 2022 100.2; 2023 86.9; 2024 89.7; 2025 82.1; 2026 83.5; 2027 83.1.
- Broad money (M2, annual percent change): 2020 -9.9; 2021 1.9; 2022 -1.3; 2023 -0.4; 2024 6.2.
- Credit to the private sector (annual percent change): 2020 -0.3; 2021 2.7; 2022 -3.6; 2023 -1.5; 2024 1.2; 2025 3.7; 2026 5.0.
- Current account balance (percent of GDP): 2020 -37.0; 2021 -33.5; 2022 -27.0; 2023 -34.2; 2024 -32.2; 2025 -30.4; 2026 -23.1; 2027 -17.1.
- Exports of goods and services (percent of GDP): 2020 20.0; 2021 21.2; 2022 28.6; 2023 28.9; 2024 31.8; 2025 35.0; 2026 33.9; 2027 33.9.
- Imports of goods and services (percent of GDP): 2020 60.0; 2021 57.1; 2022 58.3; 2023 63.8; 2024 65.5; 2025 66.5; 2026 58.1; 2027 52.1.
- Capital and financial account (percent of GDP): 2020 36.2; 2021 29.1; 2022 33.5; 2023 23.6; 2024 17.6.
- Citizenship By Investment (CBI) inflows (percent of GDP, component of capital transfers): 2020 23.2; 2021 30.2; 2022 33.1; 2023 34.8; 2024 26.7; 2025 19.5; 2026 15.7.
- Net imputed international reserves, end-year (millions of U.S. dollars): 2020 165.6; 2021 165.2; 2022 182.3; 2023 164.2; 2024 168.3; 2025 179.8; 2026 192.2; 2027 203.9.
- Months of imports of goods and services (latest available): 6.6; 4.4; 4.3.
- Holdings of SDRs (millions of SDRs): 2020 0.2; 2021 11.1; 2022 9.6; 2023 8.0; 2024 7.9.
IMF staff concluding statement of the 2025 Article IV mission to Dominica (April 4, 2025).