Statement by IMF Staff at the Conclusion of the 2007 Article IV Consultation Discussions with DominicaPress Release No. 07/92
May 9, 2007
Mr. Goohoon Kwon, chief of the International Monetary Fund's (IMF) mission to Dominica, issued the following statement today in Roseau:
"An IMF staff mission from the Western Hemisphere Department visited Dominica during April 26-May 8 to conduct the 2007 Article IV Consultation discussions. The discussions covered recent developments and current economic policies, as well as the medium-term economic outlook. The mission received excellent cooperation from the government and benefited from a constructive exchange of views with Prime Minister the Honorable Roosevelt Skerrit, the Cabinet, and senior government officials, as well as representatives of the private sector and labor unions.
"Dominica's economic performance has been strong and its short-term outlook is largely positive. The economy grew by an estimated 4 percent last year, the strongest in nearly two decades, while inflation was below 2 percent. The growth momentum is expected to slow somewhat over the short term, partly due to the closure of a large manufacturing company, but it is projected to continue above-trend, supported by tourism and construction. The public debt ratio has continued to decline, reflecting the country's fiscal effort and the economic expansion. Bank credit to the private sector has expanded apace in part as fiscal consolidation frees up resources, while prudential indicators have largely improved. The external current account continues to show a double-digit deficit, reflecting buoyant private demand. Grants have surged, projected to reach a record high of over 14 percent of GDP this fiscal year, helping the government to undertake crucial investment projects.
"Discussions centered on fiscal and financial sector policies and structural reforms that are crucial for sustaining macroeconomic stability and fostering continued strong growth while reducing poverty. The mission discussed with the authorities challenges on the fiscal front, in particular the prospects for aid and its management as well as tax and expenditure policies. The mission welcomed the authorities' intention to target a primary surplus of 3 percent of GDP under their Growth and Social Protection Strategy. Given upcoming wage increases, fiscal flexibility is constrained for the next year and hence a delicate balance needs to be struck between tax reductions or exemptions, on the one hand, and investment spending on the other. As regards the financial sector, the recent pace of credit expansion, while anticipated from the successful fiscal consolidation, may require further enhanced supervision, including on-site inspection. In addition, further progress is needed in establishing a regulatory and supervisory system over nonbank financial intermediaries. The mission also discussed key areas that could help reduce costs of doing business, including reforms of public entities, utilities, the judiciary, and customs.
"The IMF mission thanks the government and the people of Dominica for their warm hospitality, and wishes them every success in their ongoing efforts to sustain economic growth and reduce poverty."