Dominica: Staff Report for the 1999 Article IV Consultation
This report was prepared by a staff team of the International Monetary Fund following discussions with the officials of Dominica on economic developments and policies. The report was then considered by the IMF’s Executive Board in the context of the IMF’s periodic consultation with Dominica, as required under Article IV of the IMF Articles of Agreement. The views expressed in the staff report itself are those of the staff team and do not necessarily reflect the views of the Executive Board of the IMF or of the authorities of Dominica; a supplementary statement by IMF staff may also be included. The views of the Executive Board as expressed in the discussion of the Article IV consultation report and as summarized in a Public Information Notice (PIN) are also included. In addition, a statement by the member country authorities may be appended. Further background documentation prepared by IMF staff for the consultation may be published separately at a later date. The policy of publication of Article IV staff reports allows for the deletion of market sensitive information.
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Prepared by the Staff Representatives for the 1999 Consultation with Dominica
Approved by Claudio M. Loser and Carlos Muñiz
December 14, 1999
II. Background and Recent Developments
III. Policy Discussions
B. Fiscal Policy
C. Monetary and External Policies
D. Structural Policies
E. Poverty Alleviation and Environmental Protection
F. Other Issues
IV. The Medium Term
V. Staff Appraisal
1. Selected Economic and Financial Indicators
2. Consolidated Accounts of the Public Sector
3. Public and Publicly Guaranteed External Debt
4. Summary Balance of Payments
5. Summary Accounts of the Banking System
6. Medium-Term Scenarios
7. Cost and Funding Scenarios for Key Government Projects
8. Medium-Term Public and Publicly Guaranteed External Debt
9. Medium-Term Balance of Payments
1 Feasibility Study for a New Airport
2. Tax Reform
3. Stabex Grants and Conditionality
4. Regulation of Credit Unions
1. Selected Economic Indicators
2. Selected Small Countries: Taxes, Central Government Wage Bill and Population
3. Total Debt Stocks and External Debt Service
4. Exchange Rate Developments
I. Fund Relations
II. Statistical Issues
III. Tourist Arrivals in the Caribbean
IV. Relations with the World Bank Group
V. Financial Relations with the Caribbean Development Bank
The structure of the economy has continued to move away from agriculture as the sharp contraction of the key banana sector has persisted, with real GDP growth averaging about 214 percent in the 1990s. However, the growth of output was insufficient to reduce unemployment, which is believed to remain high. The resilience of economic activity in part reflects an expansion of utility services and the small manufacturing base, with the contribution of agriculture to GDP declining from 30 percent in the mid-1980s to 20 percent in 1998. Meanwhile, further tourism development faces the challenges of regional competition and inadequate infrastructure.
Despite a contraction in agriculture and construction, real GDP grew by 3½ percent in 1998, largely as a result of a recovery in manufacturing production along with the continued expansion of services. Inflation remains low.
The fiscal deficit remained broadly unchanged at 2½ percent of GDP in 1998/99, but is projected to widen substantially in 1999/2000 because of the planned implementation of a large public sector investment program To facilitate tourism growth and improve sports and recreation facilities in the country, the authorities plan to start construction of an airport and a stadium during the current fiscal year.
Even with the external assistance already pledged, building the airport and the stadium will require heavy borrowing in the near term, which would substantially increase debt service obligations in the period ahead, particularly if obtained on commercial terms. The authorities have already arranged the placement of US$70 million in bonds with two foreign banks, about half of which was disbursed in November 1999.
The mission advised the authorities to downsize their investment program and seek funding on better terms. It recommended foregoing the stadium and seeking the assistance of multilateral banks to find a more economical solution to the need to improve air access to the country. The authorities acknowledged that their plans are very ambitious, carry risks, and have potentially serious implications for the public finances, but they are determined to press ahead with a strategy of giving a big push to tourism in the face of the continuing decline of, and bleak outlook for, the banana sector. They hope the economy would eventually grow out of the increased debt burden.
The authorities were noncommittal about the mission’s recommendation to sell the controlling stake in the National Commercial Bank and remaining shares in the telephone company to help fund the investment program, but indicated that they would seek private sector participation in the airport project. They agreed on the need to maintain vigilance over the financial sector, including offshore activities.