Dominica
Use of Fund Resources: Request for Emergency Assistance: Staff Report; and Press Release on the Executive Board Discussion
Author:
International Monetary Fund
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Publication Date:
01 Apr 2008
eISBN:
9781451810981
Language:
English
Keywords:
ISCR; CR; financing reconstruction expenditure; emergency assistance from the IMF; net; financing; U.S. dollar; debt service; GDP growth; GDP ratio; og GDP; net nondebt
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Dominica was struck by Hurricane Dean during August 16–17, 2007. A recent earthquake also underscores the vulnerability of the economy to natural disasters. Output growth slowed during the first half of 2007 as tourist arrivals stagnated across the region. Inflation was 3½ percent in July, reflecting higher energy and imported food prices. Structural reforms have continued after the expiration of the poverty reduction growth facility (PRGF) arrangement. The fiscal impact of the hurricane would be largely on the expenditure side.

Abstract

Dominica was struck by Hurricane Dean during August 16–17, 2007. A recent earthquake also underscores the vulnerability of the economy to natural disasters. Output growth slowed during the first half of 2007 as tourist arrivals stagnated across the region. Inflation was 3½ percent in July, reflecting higher energy and imported food prices. Structural reforms have continued after the expiration of the poverty reduction growth facility (PRGF) arrangement. The fiscal impact of the hurricane would be largely on the expenditure side.

I. Background

1. Dominica was struck by Hurricane Dean during August 16–17, 2007. Torrential rain resulted in landslides, causing human casualties and severe damage to the island’s roads. The agricultural sector particularly bananas took the brunt of the damage, while commercial and residential buildings and other key physical infrastructure were also affected. The important tourism sector however was largely unscathed. The overall damage is estimated at about US$60 million, nearly 20 percent of GDP, including loss of export earnings of some US$9 million, 3 percent of GDP.1

2. The government has moved quickly to provide immediate relief to those affected by the natural disaster, and undertake repair and reconstruction work. Many donors have responded to help meet these priorities. The CARICOM Petroleum Facility funded by Trinidad and Tobago has already provided an emergency grant of US$7½ million (2½ percent of GDP). Other external donors (including South Korea and the Caribbean Development Bank) have also provided small disaster relief grants. Notwithstanding this generous support, given the size of structural damage, the reconstruction process will require a considerable amount of time and resources, and is likely to be limited by implementation capacity.

3. A recent earthquake also underscores the vulnerability of the economy to natural disasters. An earthquake (7.4 on the Richter scale) which shook the Eastern Caribbean on November 29 triggered a payout to Dominica of about US$½ million under the Caribbean Catastrophe Risk Insurance Facility, although damage was minimal.

4. In the attached letter dated January 17, 2008, the authorities have requested a purchase equivalent to 25 percent of quota (SDR 2.05 million) under the Fund’s policy on emergency assistance for natural disaster. In the letter, the Prime Minister informed the Fund of the effects of the hurricane—including on the balance of payments—and set out the authorities’ policy response to the natural disaster, and their macroeconomic priorities for the period ahead. In line with Fund policy on emergency assistance for PRGF-eligible countries, the authorities have requested the provision of subsidies to reduce the rate of charge down to ½ percent per annum on these resources, subject to the availability of subsidy resources. The purchase will help meet the immediate foreign exchange needs stemming from the disaster, thereby maintaining confidence in the external position.

II. Economic Performance Prior to The Hurricane

5. The economy had slowed somewhat before the hurricane following a period of strong growth. Real output grew by 4 percent in 2006, the strongest in nearly two decades, under a successfully concluded PRGF-supported program (Table 1). Output growth slowed during the first half of 2007 as tourist arrivals stagnated across the region. Inflation was 3½ percent in July reflecting higher energy and imported food prices.

Table 1.

Dominica: Selected Economic and Social Indicators

article image
Sources: Dominica authorities; ECCB; and Fund staff estimates and projections.

IMF Country Report No. 07/1, Seventh PRGF Review (November 2006).

Percentage changes relative to the stock of M2 at the beginning of the period.

Including errors and omissions.

Figures shown for a given calendar year relate to the fiscal year (July–June) beginning on July 1 of that year.

Does not include grants that were received but not spent, in line with IMF Country Report No. 05/384.

For 2005, it includes the reallocation of part of an external bond (around 4 percent of GDP) from external to domestic.

In percent of exports of goods and nonfactor services. Data are on prerestructuring terms up to 2005, and on postrestructuring terms for creditors participating in the debt restructuring and on prerestructuring terms for nonparticipating creditors.

Transactions with the IMF are included as transactions of the monetary authorities.

6. The public finances improved markedly under the PRGF-supported program (2003–06). The primary surplus rose to 6¾ percent of GDP in FY 2006/07 compared with -1½ percent of GDP in FY 2002/03 (Table 2). Revenues were boosted by a new VAT and excise duty regime introduced in March 2006. Accordingly the public debt declined to around 100 percent of GDP at the end of the fiscal year.2 The 2007/08 budget passed in July outlined a multiyear reform of the personal income tax that is consistent with a primary surplus of about 3 percent of GDP. The reform could result in revenue losses of 1 percent of GDP annually over the short term, and possibly rising to about 2 percent of GDP per year over the medium term.

Table 2.

Dominica: Summary Accounts of the Central Government 1/

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Sources: Ministry of Finance; and Fund staff estimates and projections.

Fiscal years beginning July 1.

IM F Country Report No. 07/1, Seventh Review Under the Three-Year Arrangement Under the Poverty Reduction and Growth Facility and Financing Assurances Review (November 2006).

Does not include grants that were received but not spent, in line with IMF Country Report No. 05/384.

2005/06 includes a reclassification of EC$2.3 million (0.3 percent of GDP) to other expenditure, reflecting a transfer of teachers from the government payroll to that of the State College.

Difference between identified financing and overall above-the-line balance .

7. The external current account deficit widened during the first half of the year due to a surge in import of construction material, a higher oil bill, and regionally weak performance in the tourism sector. Non-oil imports of goods, in particular construction materials, were well above the 2006 levels, while the value of oil imports expanded reflecting higher international oil prices. Export performance has also been weak, owing to the waning banana sector. The external deficit has been almost fully financed by large capital grants and foreign direct investment in recent years (Table 3).

Table 3.

Dominica: Balance of Payments

(In millions of U.S. dollars)

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Sources: Dominica authorities; ECCB; and Fund staff estimates and projections.

IMF Country Report No. 07/1, Seventh Review Under the Three-Year Arrangement Under the Poverty Reduction and Growth Facility and Financing Assurances Review (November 2006).

Projections based on WEO’s baseline oil prices projections of February 2007.

Data are on prerestructuring terms up to 2005, and on postrestructuring terms for creditors participating in the debt restructuring and on prerestructuring terms for nonparticipating creditors.

Refers to financing associated with Dominica’s debt restructuring.

As a percent of exports of goods and services. For 2005 it includes the reallocation of part of an external bond (around 4 percent of GDP) from external to domestic.

8. The performance of commercial banks has been solid, but little is known about the loosely regulated credit unions. Banks are liquid and adequately capitalized, with deposits showing solid growth and credit risks are generally well managed (Tables 4 and 5). Net foreign assets of the banking system rose by EC$110 million to EC$500 million through July 2007 in the face of strong deposit growth and a deceleration in the expansion of private sector credit. The credit union sector in Dominica is larger than in the rest of the ECCU, with total assets of EC$367 million (45 percent of GDP). While creditable efforts have been made to improve oversight of credit unions, their accounts are not routinely inspected by any government agency.

Table 4.

Dominica: Summary Accounts of the Banking System

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Sources: ECCB; and Fund staff estimates and projections.

Program figures as shown in the Seventh Review Under the Three-Year Arrangement Under the Poverty Reduction and Growth Facility and Financing Assurances Review (November 2006). Transactions with the IMF are included as transacations with the monetary authorities.

Includes interbank float.

Including deposits denominated in U.S. dollars.

Percentage changes relative to broad money at the beginning of the period.

Commercial banks; end-of-period rates for local currency, percent per annum.

Table 5.

Dominica: Financial and External Vulnerability Indicators

(In percent of GDP, unless otherwise indicated)

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Sources: ECCB; and Fund staff estimates and projections.

Data refer to September 2007.

Treasury bill rate adjusted by end-of-period inflation.

Includes errors and omissions.

Imputed reserves at the ECCB until 2001. From 2002, transactions with the IMF are included as transactions of the monetary authorities.

Debt at remaining maturity (measured as public sector external amortization due the next year).

9. Structural reforms have continued after the expiration of the PRGF arrangement. With the support of World Bank, the authorities are creating dedicated agencies for the promotion of tourism and investment. Steps have been taken to establish an independent regulatory commission to address the inefficiencies of the energy sector. Land registry services have been strengthened, and foreclosure arrangements are being streamlined.

III. Economic Impact of the Hurricane

10. Preliminary estimates suggest that GDP growth fell to around 1 percent in 2007. Damage to agriculture, particularly bananas, was severe, accounting for the bulk of the slowdown, with negative spillovers to other sectors. The economy is nonetheless expected to rebound next year and regain pre-hurricane trend growth of about 3 percent as timely recovery efforts, especially for agriculture and key infrastructure, bear fruit.

11. The fiscal impact of the hurricane would be largely on the expenditure side. Revenue performance has been unexpectedly strong, as the surge in imports due in part to reconstruction has kept tax revenue on target. The additional spending needed for the rehabilitation of infrastructure (roads, bridges, and seawalls) and to provide assistance to those who suffered abrupt loss of earnings is estimated at 2½ percent pf GDP.3 This is after expected reallocation of expenditure already in the FY 2007/08 budget.4

Dominica: Key Fiscal Indicators, FY 2007/08

In percent of GDP

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Source: Ministry of Finance and Fund staff estimates and projections.

Adjusted for FY 2006/07 outturn and implementation capacity.

12. The balance of payments impact of the hurricane damage will be significant, in both 2007 and 2008. The external current account deficit will likely widen considerably as agricultural exports plunge and rehabilitation imports surge. Exports are estimated to have declined by 8 percent (y/y) in 2007 and projected to fall by a further 18 percent in 2008. Meanwhile, imports are estimated to have risen by 9 percent in 2007, and are projected to grow by 6 percent in 2008. The deterioration in the current account was accentuated by the closure of a major toothpaste factory in the last quarter of 2007, and rising petroleum and imported food prices. Overall, the current account deficit is expected to widen by almost 4 percent of GDP in 2007 (relative to 2006) to 23 percent of GDP, rising by another 3½ percent of GDP in 2008. Accordingly, the net foreign assets of the banking system (a better measure of the balance of payments impact) are projected to decline by around 8 percent of GDP from the July 2007 level.5

Dominica: Key External Sector Indicators

In Percent of GDP

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Sources: ECCB; and Fund staff estimates and projections.

13. The banking system appears to be well-positioned to weather the effects of the hurricane (paragraph 8). However, credit unions with customer bases concentrated in banana-producing areas could see an increase in past due loans.

IV. The Policy Response

14. The authorities are implementing a two-pronged strategy for dealing with the crisis. First, the immediate priorities to repair critical infrastructure and to provide hurricane relief are being addressed with the assistance from donors. Second, the government, with the help of donor countries and multilateral agencies, will shortly develop a comprehensive home-grown program aimed at reactivating the economy and addressing the large social needs, drawing extensively on the existing Growth and Social Protection Strategy (GSPS) of the government. The government is still considering a PRGF-supported program to help consolidate achievements under the 2003–06 arrangement.

15. The authorities have reaffirmed their commitment to pursue prudent fiscal policy. As detailed in the attached letter, the government intends to maintain the budgeted primary balance surplus of 3 percent of GDP in FY 2007/08 and keep it at that level over the medium term (Table 6). Additional hurricane-related spending would be financed by external grants.6 As a result of the hurricane, the public debt/GDP ratio will temporarily decline more slowly (vis-à-vis pre-hurricane projections) because of lower GDP growth (Figure 1 and Table 7a). Nevertheless, public debt will continue to decline as: (i) the primary surplus target is maintained; (ii) a large share of reconstruction expenses will be financed through grants; and (iii) the impact of the hurricane on output is expected to be short-lived.

Table 6.

Dominica: Medium-Term Macroeconomic Framework

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Sources: Dominica authorities; ECCB; and Fund staff estimates and projections.

Program figures as shown in the Seventh Review Under the Three-Year Arrangement Under the Poverty Reduction and Growth Facility and Financing Assurances Review (November 2006).

Calculated using the external current account including net external capital transfers.

Calculated on a fiscal year basis, with the figure shown relating to the fiscal year beginning in July.

Does not include grants that were received but not spent, in line with IMF Country Report No. 05/384.

For 2005, it includes the reallocation of part of an external bond (around 4 percent of GDP) from external to domestic.

Figure 1.
Figure 1.

Dominica: Public Debt Trajectories

Citation: IMF Staff Country Reports 2008, 118; 10.5089/9781451810981.002.A001

Source: Fund staff estimates.
Table 7a.

Dominica: Public Sector Debt Sustainability Framework, Baseline Scenario, 2004-27

(In percent of GDP, unless otherwise indicated)

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Sources: Country authorities; and Fund staff estimates and projections.

Nonfinancial Public Sector (includes debt with Dominica’s Social Security System). Projections are net of accumulation of assets.

Refers to external debt. Assumes that nonpartcipating creditors receive the intermediate bond. Excludes external interest arrears. Arrears with participating creditors have been settled as part of the debt restructuring. Arrears with nonparticipating creditors are either in dispute or expected to be settled when an agreement is reached. Undisputed interest arrears are approximately 0.4 percent of GDP

For 2005, it includes the reallocation of part of an external bond (around 4 percent of GDP) from external to domestic.

Fiscal year aggregates are averaged to estimate calendar year figures.

Gross financing need is defined as the primary deficit plus debt service plus the stock of short-term debt at the end of the last period.

Revenues including grants.

Debt service is defined as the sum of interest and amortization of medium- and long-term debt.

Historical averages and standard deviations are generally derived over the past 10 years, subject to data availability.

16. The authorities remain committed to the income tax reform announced in the budget, and to continue efforts to complete the debt restructuring. However, they will keep open the option to vary the implementation schedule for tax reform to protect revenue targets. The government will also closely monitor revenue developments and would strongly resist pressures, arising from inflationary concerns, to dilute the integrity of the newly-introduced VAT. In addition, the government will stay current in all debt-service payments to creditors and will continue to make good-faith efforts toward completing the collaborative debt restructuring agreements with holdouts as proposed by the Government of Dominica in 2004 and deal with related arrears (although the Fund’s policy on lending into arrears does not apply to ENDA).

17. The government will continue to press ahead with structural reforms aimed at fostering economic growth and lowering poverty. As soon as the immediate priorities have been addressed, the government is determined to refocus its attention to developing a reform agenda, drawing on the existing GSPS. The main priorities for reform will remain (i) maintaining prudent fiscal policies; (ii) enhancing the investment climate for private sector development; (iii) and strengthening oversight of, and resilience in, the financial sector. In particular, the authorities plan to introduce a Financial Services Act early in 2008, establishing a regulatory and supervisory framework for the nonbank financial sector. This would improve the monitoring of the activities of the nonbank sector, and help reduce financial sector risks.

V. Access and Capacity to Repay

18. The authorities have requested a purchase for an amount equivalent to SDR 2.05 million (25 percent of quota) under the Fund’s policy of ENDA along with a subsidy on the rate of charge on this purchase. The purchase—which represents approximately 1 percent of Dominica’s 2007 GDP—would help meet the immediate foreign exchange needs stemming from the disaster, thereby avoiding a decline in Dominica’s external reserves.

19. It is expected that Dominica will be able to discharge its obligations with the Fund in a timely manner. Dominica’s public sector and external debt was on a declining trajectory before Hurricane Dean struck the island.7 This declining debt path was the result of sound fiscal policy—underpinned by a targeted primary balance of 3 percent of GDP; an economic recovery; and the improved terms achieved through the collaborative debt restructuring initiated in 2004. The effects of Hurricane Dean will cause only a temporary departure from the pre-hurricane path (see paragraph 15).

20. Although Dominica’s public and external debt are expected to continue on a declining path, debt-related risks—which were already high—have increased as a consequence of the hurricane. An important source of vulnerability is the bunching of payments projected for the period 2009 and 2012, which will become more burdensome because of the repurchases for the ENDA falling due in 2011 and 2012 (Figure 1, Tables 7b, 7c, 7d and 8). Nonetheless, staff judges that the risks are mitigated by Dominica’s proven commitment to fiscal prudence and the government’s target of a 3 percent primary surplus.

Figure 1.
Figure 1.

Dominica: Indicators of Public and Publicly Guaranteed External Debt Under Alternative Scenarios, 2007–27

Citation: IMF Staff Country Reports 2008, 118; 10.5089/9781451810981.002.A001

Source: Fund staff projections simulations.
Table 7b.

Dominica: Sensitivity Analysis for Key Indicators of Public Debt 2007–27

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Sources: Country authorities; and Fund staff estimates and projections.

Assumes that real GDP growth is at baseline minus one standard deviation divided by the square root of 20 (i.e., the length of the projection period).

Revenues are defined inclusive of grants.

Table 7c.

Dominica: External Debt Sustainability Framework, Baseline Scenario, 2004–27 1/

(In percent of GDP, unless otherwise indicated)

article image
Source: Fund staff simulations.

Only includes public sector external debt.

Derived as [r - g - r(1+g)]/(1+g+r+gr) times previous period debt ratio, with r = nominal interest rate; g = real GDP growth rate, and r = growth rate of GDP deflator in U.S. dollar terms.

Includes exceptional financing (i.e., changes in arrears and debt relief); changes in gross foreign assets; and valuation adjustments. For projections also includes contribution from price and exchange rate changes.

In 2005, it includes the reallocation of part of an external bond (around 4 percent of GDP) from external to domestic. It also includes a negative FDI flow reflecting extraordinary dividends paid by a foreign company (5 percent og GDP), which were made out of an account in a foreign bank.

Assumes that NPV of private sector debt is equivalent to its face value.

Current-year interest payments divided by previous period debt stock.

Historical averages and standard deviations are generally derived over the past 10 years, subject to data availability.

Defined as grants, concessional loans, and debt relief.

Grant-equivalent financing includes grants provided directly to the government and through new borrowing (difference between the face value and the NPV of new debt).

Table 7d.

Dominica: Sensitivity Analyses for Key Indicators of Public and Publicly Guaranteed External Debt, 2007–27

(In percent)

article image
Source: Fund staff projections and simulations.

Variables include real GDP growth, growth of GDP deflator (in U.S. dollar terms), noninterest current account in percent of GDP, and nondebt creating flows.

Assumes that the interest rate on new borrowing is by 2 percentage points higher than in the baseline., while grace and maturity periods are the same as in the baseline.

Exports values are assumed to remain permanently at the lower level, but the current account as a share of GDP is assumed to return to its baseline level after the shock (implicitly assuming an offsetting adjustment in import levels).

Includes official and private transfers and FDI.

Depreciation is defined as percentage decline in dollar/local currency rate, such that it never exceeds 100 percent.

Table 8.

Dominica: Indicators of Capacity to Repay the Fund, 2004–12

(Under obligation schedule)

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Sources: Dominica authorities; Eastern Caribbean Central Bank (ECCB); and Fund staff estimates and projections.

Including assumed future disbursements of SDR 2.05 million under ENDA. No subsidization of ENDA purchase is incorporated in projections.

Including IMF repurchases in total debt service.

Net international reserves of the monetary authorities; net imputed reserves of the ECCB and transactions with the Fund.

VI. Staff Appraisal

21. The impact of the hurricane on the Dominica economy has been severe. Staff estimates that the economy slowed in 2007 due primarily to extensive damage to agriculture. While the medium-term outlook remains positive, it will take considerable efforts and resources to put the economy back to the above-trend growth of 3 percent. Investment needs have also increased due to the damage to public infrastructure, further reducing room for maneuver.

22. The policies outlined in the letter of intent will maintain the momentum of reform efforts to attain macroeconomic stability and foster private sector-led growth. The reconstruction effort is being addressed primarily through external grants and the reallocation of public investment, in view of the large public debt. The staff supports the strategy to keep the primary surplus target of 3 percent of GDP. Staff also concurs with the authorities’ view that the pursuit of sound macroeconomic policies and structural reforms offer the best prospect for sustainable growth over the medium term.

23. The staff supports the authorities’ intention to maintain the integrity and stability of the newly-introduced VAT and the strategy for implementing the personal tax cuts. The VAT, which was introduced in March 2006, is consistent with international practices and has become a strong and stable source of revenue. Given the still fragile fiscal situation and large expenditure needs, the planned income tax cuts need to be undertaken gradually and consistent with the primary surplus target.

24. Staff supports the authorities’ request for a purchase under the Fund’s policy on emergency assistance for natural disasters. The authorities’ requested purchase in the amount of 25 percent of quota which is the access limit, except in exceptional circumstances. Staff supports the authorities’ request on the basis of the severe damage to the economy and associated large balance of payment needs, the authorities’ past track record in meeting policy commitments under the recently expired PRGF arrangement, and the soundness of policies outlined in the letter. The large public debt and an inherent vulnerability of the small-island economy pose some risks to the Fund’s resources. Nonetheless, these risks are mitigated considerably by the authorities’ resolve to sustain fiscal consolidation and foster private sector-led growth, the expectation of continued support from the international community, and their commitment to work closely with the Fund in developing their reform strategy.

ATTACHMENT I

January 17, 2008

Mr. Dominique Strauss-Kahn

Managing Director

International Monetary Fund

700 19th Street, N.W.

Washington, D.C. 20431

Dear Mr. Strauss-Kahn,

Dominica has been badly affected by Hurricane Dean, which passed the region over the period of August 16–17, 2007. The high levels of precipitation have resulted in landslides, causing human causalities and severe damage to the island’s roads. High winds and flash flooding have damaged the agricultural sector (banana, in particular), commercial and residential buildings and other key physical infrastructure while, fortunately, the important tourism sector has been largely unaffected. The initial estimate of the overall damage is about EC$162 million, nearly 20 percent of GDP, including earnings forgone in the agriculture sector of some EC$46 million, 5 percent of GDP. Our preliminary estimates suggest that the economy could stall or contract somewhat this year, after three consecutive years of strong above-trend growth under a reform program supported by a recently expired PRGF Arrangement of the IMF. The external current account deficit will likely widen considerably as agricultural exports plunge and rehabilitation imports surge.

Efforts are already underway to provide immediate relief to those affected by the natural disaster, and undertake repair and reconstruction work. While many donors, in particular the Government of Trinidad and Tobago through the CARICOM Petroleum Fund and the Government of the Bolivarian Republic of Venezuela, have responded immediately to help meet these priorities, the process will require a considerable amount of time and resources. Accordingly, the Government of Dominica requests a purchase equivalent to SDR 2.05 million (25 percent of quota) under the Fund’s policy on Emergency Assistance for Natural Disaster and further requests a subsidy on the rate of charge on such purchase. The purchase will help meet the immediate foreign exchange needs stemming from the disaster, thereby easing pressure on our external reserves and maintaining confidence in the external position.

The government’s overall strategy for dealing with the crisis is two-pronged. First, the immediate priorities being undertaken—with the assistance of donors—are to repair critical infrastructure (roads, bridges, and seawalls) and to provide assistance to those who suffered abrupt losses in earnings. Second, the government, with the help of donor countries and multilateral agencies, will shortly develop a comprehensive home-grown program aimed at reactivating the economy and addressing the large social needs, drawing extensively on the existing Growth and Social Protection Strategy (GSPS) of the government that was developed alongside the PRGF-supported program.

In the short run, some emergency measures have been introduced to ease the economic burden stemming from the crisis. In the fiscal area, the government has redirected expenditure to emergency needs, including repairing and rebuilding critical infrastructure and humanitarian assistance for the displaced and other severely affected groups. It is government’s intention to limit the total net increase in spending compared with the FY 2007/08 budget to EC$20 million or 2½ percent of GDP in order to adhere to the primary surplus target of 3 percent of GDP.

As regards fiscal revenues, the government will closely monitor the revenue developments and ensure maintaining the integrity of the newly introduced VAT. In any case, the increased spending will be financed primarily by external grants and where necessary, with concessional or near-concessional loans, but without any external commercial borrowing, in order to ensure debt sustainability over the long term. All cash disbursements received from donors will be channeled through the consolidated fund to ensure adequate accounting and use of these resources. The government will stay current in all debt-service payments to creditors and will continue to make good-faith efforts toward collaborative debt restructuring agreements with remaining holdout creditors as proposed by the Government of Dominica in 2004.

The government attaches great importance to implementing its agenda of structural reforms aimed at faster economic growth and lower poverty. As soon as the immediate priorities have been addressed, the government is determined to refocus its attention on developing the policies and reforms that could be supported in the context of a new PRGF arrangement. The government believes that the existing GSPS is a good starting point and that a home-grown reform program, supported by the IMF, could play a key role in achieving our policy objectives. The main priorities for reform will remain (i) maintaining prudent fiscal policies to reduce Dominica’s still high public debt; (ii) enhancing the investment climate for private sector development; (iii) and strengthening oversight of, and resilience in, the financial sector.

It is hoped that the international financial community will support generously our efforts to repair and rehabilitate our severely damaged economy and the country’s social structure. We look forward to an early approval by the Fund of the emergency assistance, and to accelerated and increased financial and technical assistance from other donors, in particular the EU, the World Bank, and governments.

The government will continue to cooperate with the Fund in an effort to strengthen Dominica’s balance of payments situation and maintain economic stabilization. The government does not intend to impose or intensify restrictions on the making of payments and transfers for current international transactions, introduce multiple currency practices, impose or intensify import restrictions for balance of payments purposes, or conclude bilateral payments agreements that are inconsistent with Article VIII.

Sincerely yours,

/s/

HON. ROOSEVELT SKERRIT PRIME MINISTER AND MINISTER FOR FINANCE AND PLANNING

1

ECLAC/UNDP, Commonwealth of Dominica: Socio-Economic Assessment of the Damage and Loss Caused by Hurricane Dean, December 3, 2007.

2

The fiscal year runs from July to June.

3

The FY 2007/2008 budget passed after the 2007 Article IV consultations already incorporated higher expenditure financed mainly by external grants from Venezuela (2½ percent of GDP) and China (½ percent of GDP).

4

The final figure is not yet available as some of the reallocation of expenditure would require the concurrence of the donors.

5

Given the reserve-pooling arrangement in the Eastern Caribbean Currency Union (ECCU), changes in the level of official reserve are not a good measure of the balance of payments impact of the hurricane. The immediate balance of payments needs would not cause a serious depletion in official reserves but would be reflected in changes in the net foreign assets of the banking system.

6

All cash disbursements received from donors will be channeled through the consolidated fund to ensure adequate accounting and use of these resources.

7

Dominica—Staff Report for the 2007 Article IV Consultation, IMF Country Report No. 07/322.

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Cover IMF Staff Country Reports
Dominica: Use of Fund Resources: Request for Emergency Assistance: Staff Report; and Press Release on the Executive Board Discussion
Author:
International Monetary Fund
Volume/Issue:
Volume 2008: Issue 118
Publisher:
International Monetary Fund
ISBN:
9781451810981
ISSN:
1934-7685
Pages:
30
DOI:
https://doi.org/10.5089/9781451810981.002
  • Figure 1.
    View in gallery
    Figure 1.

    Dominica: Public Debt Trajectories

  • Figure 1.
    View in gallery
    Figure 1.

    Dominica: Indicators of Public and Publicly Guaranteed External Debt Under Alternative Scenarios, 2007–27

Figure 1.

Dominica: Public Debt Trajectories
Figure 1.

Dominica: Indicators of Public and Publicly Guaranteed External Debt Under Alternative Scenarios, 2007–27