Dominica: Staff Report for the 2012 Article IV Consultation—Informational Annex
Author:
International Monetary Fund. Western Hemisphere Dept.
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Publication Date:
28 Jan 2013
eISBN:
9781616356385
Language:
English
Keywords:
ISCR; CR; deficit; IMF staff estimate; credit union; debt; financial system; money market; debt service; government finance data; bank group; finance data; Financial sector; Loans
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Dominica has faced two major challenges during the past two decades: weak competitiveness and low potential growth. In addition to these economic challenges, the country has been facing frequent natural disasters. Growth is expected to pick up gradually. The financial system is highly liquid but monetary conditions have not eased. The external position is improving on strong service receipts. Fiscal policy is reaching its limit in terms of its ability to support economic activity. The balance of risks to the fiscal outlook is broadly balanced.

Abstract

Dominica has faced two major challenges during the past two decades: weak competitiveness and low potential growth. In addition to these economic challenges, the country has been facing frequent natural disasters. Growth is expected to pick up gradually. The financial system is highly liquid but monetary conditions have not eased. The external position is improving on strong service receipts. Fiscal policy is reaching its limit in terms of its ability to support economic activity. The balance of risks to the fiscal outlook is broadly balanced.

Annex I. Dominica: Fund Relations

(As of August 31, 2012)

I. Membership Status Joined 12/12/78; Article VIII

II. General Resources Account

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III. SDR Department

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IV. Outstanding Purchases and Loans:

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Emergency Assistance may include ENDA, EPCA, and RFI.

V. Latest Financial Arrangements:

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VI. Projected Payments to the Fund on an Obligation Basis (SDR Million)1/:

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Based on existing use of resources and present holdings of SDRs.

VII. Exchange Rate Arrangement: Dominica is a member of the Eastern Caribbean Currency Union, which has a common central bank (the Eastern Caribbean Central Bank) and currency (the Eastern Caribbean dollar). Since July 1976, the Eastern Caribbean dollar has been pegged to the U.S. dollar at the rate of EC$2.70 per U.S. dollar. Dominica has accepted the obligations of Article VIII, Sections 2, 3 and 4, and maintains an exchange rate free of restrictions on the making of payments and transfers for current international transactions.

VIII. Safeguards Assessment: Under the Fund's safeguards assessment policy, the Eastern Caribbean Central Bank (ECCB), of which Dominica is a member, is subject to a full safeguards assessment under a four year cycle. The most recent assessment was completed in November 2011, and concluded that the ECCB continues to have appropriate control mechanisms in place. Its control systems are well developed and supported by robust external and internal audit mechanisms; the published financial statements are comprehensive; and safeguards exist to protect the autonomy of the ECCB. Some improvements in the legal framework and internal audit mechanism were recommended, including securing the hierarchy of the ECCB Act in case of conflicting national or supranational regulations and enhancing ECCB Board autonomy. The next assessment will take place in 2015.

IX. Article IV Consultation: The last Article IV consultation was concluded by the Executive Board on July 22, 2011 on a lapse of time basis; the relevant document is IMF Country Report No. 10/261. Dominica is on a 12-month cycle.

X. Technical Assistance: Dominica has received significant technical assistance from Caribbean Regional Technical Assistance Center (CARTAC) and the IMF. Technical assistance missions focused on tax reform, revenue administration, expenditure rationalization, financial sector, and Public Financial Management (PFM):1/

Tax Reforms and Revenue Administration

  • January/February 2009 (FAD): customs and tax administration reforms, including capacity building, organizational restructuring, and revenue authority options

  • September 2007 (FAD): tax policy aspects of the value-added (VAT) and excises, and other reform options

  • January 2007 (FAD-CARTAC): revenue administration and tax policy

  • 2005 (FAD): tax policy and administration

  • 1999 (FAD): VAT implementation

  • 1997 (FAD): urban property taxation

Expenditure Rationalization

  • January/February 2011 (FAD): regional project on public expenditure issues, including expenditure trends, policies, and expenditure rationalization options

  • 2010 (CARTAC): pension reforms

  • 2005 (FAD): social security and pension reform options

  • 2004 (FAD): fiscal responsibility laws

  • 1995 (FAD): expenditure control

PFM Reforms

  • July 2012 – reforming chart of accounts and continued development of bank reconciliation

  • January 2012 – building further depth and capacity in budget preparation and accountant general department

  • October 2011 – improve bank reconciliation processes

  • September 2011 – strengthening budget preparations, debt sustainability assessment and macro-economic projections

  • May 2011 – building capacity in the Accountant General department

  • 2010 (CARTAC): strengthening budget preparations

  • October 2009 (MCM): improving debt management capacity of the government

Financial Sector

  • 2010 (CARTAC): regional initiatives to strengthen regulation and supervision of non-bank financial institutions (NBFIs)

  • 2006 (MCM): drafting an action plan for AID Bank

2005 (MCM): strengthening the supervisory framework for Anti-Money Laundering/Countering Financing of Terrorism (AML/CFT) in the nonbank sector

National Accounts

  • December 2009 and August 2009 (CARTAC): National Income Accounts Statistics aimed at rebasing the GDP constant price estimates to 2006

Macroeconomic Programming and Analysis

  • In January 2011 and January 2012, CARTAC’s MAC Programme provided assistance to the Macro Policy Unit, Ministry of Finance, to strengthen and update the medium-term fiscal framework to feed into the budget preparation process.

FSAP: A joint IMF/World Bank team performed an assessment of the financial sector of the member states of the ECCU, in two missions—September 1–19 and October 20–31, 2003. The principal objective of the missions was to assist the authorities in assessing the development needs and opportunities for the financial sector and identifying potential vulnerabilities of financial institutions and markets to macroeconomic shocks, as well as the risks to macroeconomic stability from weaknesses and shortcomings in the financial sector. A detailed assessment of the AML/CFT regimes of Dominica was conducted in September 2003 by the Caribbean Financial Action Task Force (CFATF). The Financial System Stability Assessment (FSSA) was discussed by the Executive Board on May 5, 2004, and subsequently published on the IMF’s external website, including the Report on the Observance of Standards and Codes (ROSC) on Banking Supervision.

Annex II. Dominica: Relations with the World Bank Group

The World Bank Group’s Management presented to its Board the Organization of the Eastern Caribbean States (OECS) Regional Partnership Strategy (RPS) on June 8, 2010. The RPS covers the five year period July 2009—June 20141. In May 2012 a Progress Report on the OECS RPS has also been presented to the Board, which confirmed that the interventions proposed under the RPS remained valid and have targeted critical vulnerabilities that the countries face. These two papers set forth the terms of engagement of the International Bank for Reconstruction and Development (IBRD), the International Development Association (IDA) and the International Finance Corporation (IFC) with the countries of the Eastern Caribbean, sub-regional organizations and other development partners in pursuit of the following strategic objectives: (a) building resilience; and (b) enhancing competitiveness and stimulating growth over the medium term.

To help build resilience, the Bank Group supports interventions aimed at promoting fiscal and debt sustainability, protecting and improving human capital—particularly social safety nets, education and health—and strengthening climate resilience.

To help enhance competitiveness and stimulate sustainable growth, it focuses its support on two critical areas: strengthening the countries’ domestic financial sectors and improving access to quality services to create more competitive business environments. The Strategy is aimed at providing remedial measures to address the crippling effects of the global and regional crises, while supporting key policy reforms that establish a platform for growth in the medium term.

The planned program of support will entail new commitments totaling up to about US$120 million on IBRD terms for the six OECS countries over the RPS period (FY10–14) and up to US$73 million (SDR 48 million) of IDA financing2 for the four OECS “blend” countries3.

A. Projects

Dominica participates in one active regional Bank’s project (EGRIP). The OECS E-Government for Regional Integration Program (EGRIP) is a regional program (including Dominica, Grenada, St. Lucia and St. / Vincent and the Grenadines) which was approved by the Board in May 2008, including an US$2.3 million IDA Credit to Dominica. The program is designed to promote the efficiency, quality, and transparency of public services through the delivery of regionally integrated e-government applications that take advantage of economies of scale. The program is structured in phases. Phase 1 focuses on cross-sectoral e-government issues, as well as on specific applications in the public finance area (including Public Financial Management, tax, customs and procurement), and also includes an e-government pilot project in health (possibly together with preparatory and complementary activities in other social and productive sectors). Subsequent phases are expected to deepen the assistance provided under Phase 1, while expanding the program to cover other sectors, in particular education, agriculture, and tourism, among others. The project is expected to close in August 2013. As of today, the project has disbursed US$ 0.73 million, and the undisbursed balance is US$ 1.57 million.

In June 2012, a World Bank team visited Dominica to carry out an identification and preparation mission for a project currently in pipeline, a proposed Disaster Vulnerability Reduction Project, which would also benefit from the concessional resources of the Pilot Program for Climate Resilience (PPCR).

Under the climate change pillar of the RPS, the Bank and IFC are engaging with Dominica to provide advisory services for the exploitation of its geothermal resources. The objective is the identification of a coordinated set of activities where the World Bank Group could bring its global expertise in developing geothermal renewable resources that would complement the assistance being provided by other development partners, taking into account the Government’s priorities.

B. Economic and Sector Work

The Bank has completed a series of analytical products relating to public expenditure, fiscal and debt sustainability, growth and competitiveness, the financial sector, public sector management and social protection. The ongoing dissemination of these reports represents a key instrument for policy dialogue with the OECS governments, including Dominica.

The Bank’s program in Dominica is further supported by a comprehensive series of completed analytical and advisory activities, including the following: “Towards a New Agenda for Growth”—OECS growth and competitiveness study (2005); An OECS Skills Enhancement Policy Note (2006); a Caribbean Air Transport Report (2006); a regional study on Crime, Violence, and Development: Trends, Costs, and Policy Options in the Caribbean (2007); an OECS Private Sector Financing Study (2008); the OECS Tourism Backward Linkages Study (2008); the report titled “Caribbean—Accelerating Trade Integration: Policy Options for Sustained Growth, Job Creation and Poverty Reduction” (2009); a study on the Nurse Labor & Education Markets in the English-Speaking CARICOM: Issues and Options for Reform (2009); and Caribbean Regional Electricity Supply Options: Toward Greater Security, Renewable and Resilience (2011).

Financial Relations

(In millions of U.S. Dollars)

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Amounts may not add up to Original Principal due to changes in the SDR/US exchange rate since signing.

Disbursements and Debt Service (Fiscal Year)

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Annex III. Dominica: Relations with the Caribbean Development Bank (CDB)

(As of September 11, 2012)

The CDB has played a significant role in Dominica’s development process. Bank support has been provided through the provision of investment loans and technical assistance grants, as well as special economic stabilization loans during a crisis in 2003–2004. The Bank has also extensively utilized its Basic Needs Trust Fund for poverty reduction interventions. These resources have gone towards boosting the productive capacity of the economy, strengthening human resource development and, in particular, improving economic management systems, expanding agricultural output, improving critical economic infrastructure, upgrading ecotourism sites, promoting shelter development and supporting development in the territory reserved for Dominica’s indigenous people, the Kalinago. Disaster rehabilitation works have also been a frequent element of interventions.

Total loans and grants approved over the period 1970–2011 amounted to USD212 million, making Dominica the seventh largest beneficiary among the Bank’s 18 borrowing members. At end-2011, CDB’s loan exposure to Dominica was USD74.1 million, which represented 11.2percent of CDB’s total disbursed debt outstanding.

Following unusually high disbursements in 2003 and 2004, which represented CDB’s support to Dominica during the crisis period, lending to the country stagnated, with net resource flows turning negative from 2006 though 2008 (Table). This downtrend reflects some caution on the part of the Dominican government to borrow after a debt restructuring in 2004, particularly as efforts to maintain prudent fiscal policies and enhance debt sustainability have been facilitated by strong inflows of grant resources in recent years. However, positive net resource flows from CDB to Dominica have resumed since 2010, amid reduced grant inflows. Disbursements been high, mainly reflecting the implementation of key interventions programmed in CDB’s Country Strategy Paper for Dominica for the period 2010 to 2012, a line of credit for productive sector development and an education enhancement project.

Dominica: Loan Disbursement, Service and Resource Flow

(In millions of U.S. dollars)

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Annex IV. Dominica: Statistical Issues

Data provision has notable shortcomings due to capacity constraints, but is broadly adequate for surveillance. There are weaknesses in coverage, accuracy, frequency, and timeliness of data that continue to hamper more effective economic analysis and policy formulation. Priority should be given to compilation and dissemination of national accounts at a quarterly basis, and to tourism, agriculture and labor statistics. Despite progress, significant weaknesses remain in the compilation of fiscal accounts and the balance of payments. Dominica participates in the General Data Dissemination System. However the metadata for national accounts, external sector and government finance statistics have not been updated since December 2002.

A. Real Sector

Nominal GDP data are compiled using the production and the expenditure approaches only annually. Beginning 2011, estimates are compiled using 2006 as the new base year. GDP estimates are available about four months after the end of the year and are usually finalized with a two-year lag. CPI data are compiled on a monthly basis. The weights are based on the 2008/09 Household Income and Expenditure Survey (HIES) with a base period June 2010. There is a program to develop export and import price indices (XMPIs), but a shortage of staff working on price statistics limits developments in CPI methodology and the likelihood that XMPIs will be developed in the near future. Data on employment are limited and there are no official data on producer prices. A new census was conducted in 2011, but detailed results have not yet been finalized

B. Government Finance

Statistical capacity problems affect the timely production of quality government finance statistics. Monthly data can be obtained but they show some shortcomings. In particular, the data are subject to frequent revisions stemming in part from omissions and misclassifications. Capital expenditure data reported in the public sector investment program (PSIP) are not timely. Delays in the reporting the PSIP data stem from reporting delays from line ministries. Ongoing initiatives to strengthen expenditure management should help minimize the extent of this problem. A new automation technology, mandatory for all ministries and suppliers of goods and services, was installed in all line ministries in 2005 and is the basis for the reporting.

Although progress has been made in improving the measurement of the government debt, data show shortcomings and are not tracked continuously. Very limited financing data are available. The authorities do not provide consolidated nonfinancial public sector data. Data for the rest of the public sector—Dominica Social Security and the public enterprises—are obtained directly from each entity with frequent delays and omissions. No government finance data are reported to STA for publication in the International Financial Statistics (IFS) or the Government Finance Statistics (GFS) Yearbook.

C. Monetary Statistics

Monetary statistics are compiled and reported to the Fund by the ECCB on a monthly basis based on a standardized report adopted in 2006. The institutional coverage of monetary statistics needs to be improved by including the accounts of mortgage companies, building societies, credit unions, and insurance companies. The lack of data on credit unions is a serious shortcoming as the sector is large in Dominica. In this respect, close coordination between the ECCB and the single regulatory unit (which supervises financial corporations other than those licensed under the Banking Act) is crucial.

D. Balance of Payments

Balance of payments data are compiled by the ECCB on an annual basis. Although recent data comprise a more detailed breakdown of goods than in the past, in other areas they do not provide sufficient detail to enable publication of the full classification used in the fifth edition of the Balance of Payments Manual. Annual data up to 2011 are published in the IFS. In general, enhanced data resources and better compilation procedures are needed to improve the accuracy and timeliness of balance of payments statistics. Efforts should also be made to compile quarterly balance of payments statistics and the annual international investment position statement, which is currently unavailable owing to capacity constraints. However, the Fund’s Statistics Department is scheduled to provide assistance to Dominica and the ECCB to collect the necessary information to produce IIP data. To improve the quality of tourism data, the authorities are conducting a visitor expenditure survey on a half yearly basis. Starting 2013, they plan to conduct the survey on a quarterly basis to improve the availability of information in this area.

E. External Debt

The Ministry of Finance maintains a database on public and publicly-guaranteed external loans that provides detailed and reasonably current information on disbursements, debt service, and debt stocks, while the Treasury maintains the data on bonds placed abroad. Data from the two databases are not consolidated, requiring further adjustments to measure total debt stock. In addition, information on payments by creditor (actual and scheduled) should be available to the compilation agencies at least on a monthly basis, in order to produce timely debt stock data. Data on private external debt stocks are not available, other than from the monetary survey in the case of commercial banks

Dominica: Table of Common Indicators Required for Surveillance

(As of September 30, 2012)

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Dominica is a member of the Eastern Caribbean Currency Union, in which the common currency of all member states (E.C. dollar) is pegged to the U.S. dollar at US$1 = EC$2.70.

Includes reserve assets pledged or otherwise encumbered as well as net derivative positions.

Both market-based and officially determined, including discount rates, money market rates, rates on treasury bills, notes and bonds.

Foreign, domestic bank, and domestic nonbank financing.

The general government consists of the central government and state and local governments.

Currency and maturity composition are provided annually.

Daily (D), Weekly (W), Monthly (M), Quarterly (Q), Annually (A), Irregular (I); Not Available (NA); Not Applicable (n.a.).

1/

The most recent assessment of Dominica’s AML/CFT regime has been conducted by the Caribbean Financial Action Task Force (CFATF) in 2009.

1

While the OECS comprises six independent countries and three British Overseas Territories, this Strategy covers only the six independent countries, namely: Antigua and Barbuda; Dominica; Grenada; St. Kitts and Nevis; Saint Lucia; and St. Vincent and the Grenadines. Excepting St. Vincent and the Grenadines which did not join IFC, all are members of the World Bank Group.

2

About SDR$ 33 million, as of September 7, 2012, for the remaining IDA-16 period.

3

Dominica, Grenada, St. Lucia; and St. Vincent and the Grenadines are also eligible to IDA resources.

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Cover IMF Staff Country Reports
Dominica: 2012 Article IV Consultation
Author:
International Monetary Fund. Western Hemisphere Dept.
Volume/Issue:
Volume 2013: Issue 031
Publisher:
International Monetary Fund
ISBN:
9781616356385
ISSN:
1934-7685
Pages:
62
DOI:
https://doi.org/10.5089/9781616356385.002