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© 2008 International Monetary Fund
September 2008
IMF Country Report No.08/310
Dominica: 2008 Article IV Consultation—Staff Report; Staff Supplement; Staff Statement, and Public Information Notice on the Executive Board Discussion.
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. In the context of the 2008 Article IV consultation with Dominica, the following documents have been released and are included in this package:
The staff report for the 2008 Article IV consultation, prepared by a staff team of the IMF, following discussions that ended on May 28, 2008, with the officials of Dominica on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on July 11, 2008. The views expressed in the staff report are those of the staff team and do not necessarily reflect the views of the Executive Board of the IMF.
A staff supplement on the joint IMF/World bank debt sustainability analysis.
A staff statement of July 30, 2008 updating information on recent developments.
A Public Information Notice (PIN) summarizing the views of the Executive Board as expressed during its July 30, 2008 discussion of the staff report that concluded the Article IV consultation.
The policy of publication of staff reports and other documents allows for the deletion of market–sensitive information.
Copies of this report are available to the public from
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Price: $18.00 a copy
International Monetary Fund
Washington, D.C.
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INTERNATIONAL MONETARY FUND
DOMINICA
Staff Report for the 2008 Article IV Consultation
Prepared by the Staff Representatives for the 2008 Consultation with Dominica
Approved by Guy Meredith and Anthony Boote
July 11, 2008
Executive Summary
Background. The Dominican economy improved markedly under the PRGF–supported program that ended in 2006. Dominica was struck by Hurricane Dean in August 2007 resulting in damage of nearly 20 percent of GDP, reduced economic activity, higher inflation, and a weaker external current account. The Executive Board approved a request for ENDA on February 4, 2008 for 25 percent of quota.
External competitiveness. The real effective exchange rate is broadly in line with macroeconomic fundamentals The recent rise in the external current account deficit mainly reflects the effects of the hurricane and higher commodity prices, and is almost fully financed by nondebt–creating flows.
Key policy issues. The key policy challenges facing the authorities are to restore growth in a less favorable global environment, possibly including lower tourist arrivals; consolidate fiscal stability given the high public debt and reduce vulnerabilities. While macroeconomic policy has been well oriented, it is important to maintain the reform momentum.
Fiscal policy is appropriately focused on reducing high public debt. The authorities may need to consider delaying implementation of planned income tax reform while maintaining the integrity of the VAT, to return to the primary surplus target following a temporary easing of the fiscal stance in FY 2008/09 to accommodate the current commodity price shocks.
Further diversification of the economy, including the development of the tourist industry, would be key to enhancing growth prospects. Plans for developing the tourist sector, including improving air access and roads to tourist attractions, are well advanced and should be financed with a view maintaining the sustainability of public debt.
Structural reforms are key to improving competitiveness and reducing vulnerabilities. The authorities rightly emphasize improving the business climate, strengthening regulation and supervision of the financial sector, and improving disaster preparedness.
Fund Relations. Dominica has accepted the obligations of Article VIII, Sections 2, 3 and 4 and maintains an exchange rate system free of restrictions on the making of payments and transfers for current international transactions. The last Article IV consultation was concluded on July 2, 2007. The staff report and summing up of the Executive Directors’ discussions and policy recommendations are available at: http://www.imf.org/external/pubs/cat/longres.cfm?sk=21345.0.
Contents
Executive Summary
I. Introduction
II. Background
III. Policy Discussions
A. Outlook and Risks
B. Fiscal Policy
C. Enhancing Competitiveness and Reducing Vulnerabilities
IV. Staff Appraisal
Boxes
1. Emergency Natural Disaster Assistance
2. Income Tax Reform
3. Assessment of External Stability
4. Inflation Developments and Policy Response
5. Sources of Grants
Figures
1. Selected Indicators
2. Fiscal Developments, 2003–07
3. External Competitiveness Indicators
4. Financial Sector Developments
Tables
1. Selected Economic Indicators
2. Summary Accounts of the Central Government
3. Balance of Payments
4. Summary Accounts of the Banking System
5. Financial and External Vulnerability Indicators
6. Medium–Term Macroeconomic Framework
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INTERNATIONAL MONETARY FUND
DOMINICA
Staff Report for the 2008 Article IV Consultation—Informational Annex
Prepared by the Western Hemisphere Department
July 11, 2008
Contents
Appendices
I. Fund Relations
II. World Bank Relations
III. Relations with the Caribbean Development Bank (CDB)
IV. Statistical Issues
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INTERNATIONAL MONETARY FUND
DOMINICA
Debt Sustainability Analysis
Prepared by the Staff of the International Monetary Fund
In consultation with World Bank Staff
July 11, 2008
The analysis shows that despite the adverse impact of Hurricane Dean in August 2007, Dominica has steadily improved its debt sustainability outlook due to the authorities’ firm commitment to sound fiscal policies. Nevertheless, the outlook still presents large risks related to a possible further weakening of global economic outlook, the dependence on aid flows to finance capital expenditure, and vulnerability to natural disasters.
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July 30, 2008
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Public Information Notice (PIN) No. 08/101
FOR IMMEDIATE RELEASE
August 6, 2008
International Monetary Fund
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Washington, D. C. 20431 USA
Washington, D.C. 20431 • Telephone 202-623-7100 • Fax 202-623-6772 • www.imf.org
