Dominica: Staff Report for the 2016 Article IV Consultation—Informational Annex
Author:
International Monetary Fund. Western Hemisphere Dept.
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Publication Date:
20 Jul 2016
eISBN:
9781498377393
Language:
English
Keywords:
ISCR; CR; ECP revenue; financing constraint; authority; ECP; government finance data; assist authorities; Sta IIP mission; OECS government; Dominica disaster vulnerability; Auditing; Government finance statistics; Loans; Caribbean
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This 2016 Article IV Consultation highlights that the Dominican economy was hit hard by tropical storm Erika in 2015. Agricultural output and manufacturing declined sharply, as the storm affected crops and access to arable land, and prompted the closure of operations of the main industrial plant. Inflation has remained subdued, mainly as a result of falling fuel prices. Notwithstanding weak exports of agriculture and tourism, the 2015 current account deficit remained contained on the back of lower oil imports. Output growth is expected to remain subdued in 2016 at 1.3 percent as the economy slowly recovers from the storm and investment in reconstruction picks up.

Abstract

This 2016 Article IV Consultation highlights that the Dominican economy was hit hard by tropical storm Erika in 2015. Agricultural output and manufacturing declined sharply, as the storm affected crops and access to arable land, and prompted the closure of operations of the main industrial plant. Inflation has remained subdued, mainly as a result of falling fuel prices. Notwithstanding weak exports of agriculture and tourism, the 2015 current account deficit remained contained on the back of lower oil imports. Output growth is expected to remain subdued in 2016 at 1.3 percent as the economy slowly recovers from the storm and investment in reconstruction picks up.

Fund Relations

(As of March 31, 2016)

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1/ Emergency Assistance may include ENDA, EPCA, and RFI.

Latest Financial Arrangements:

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

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. Dominica maintains an exchange system free of restrictions on the making of payments and transfers for current international transactions.

Safeguards Assessment: Under the Fund’s safeguards policy, the Eastern Caribbean Central Bank (ECCB) is subject to a full safeguards assessment on a four-year cycle. An update assessment was completed in April 2016 and found that the ECCB has maintained generally strong controls over its key operations. External audit and financial reporting practices remain sound. The ECCB financial statements are compliant with International Financial Reporting Standards and are published on a timely basis. The internal audit function needs to be reformed to align it with leading international practices and oversight could be further strengthened by enhancing the financial expertise of the audit committee.

Article IV Consultation: The last Article IV consultation was concluded by the Executive Board on June 6, 2015; the relevant document is IMF Country Report no. 15/31. Dominica is on a 12-month cycle.

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/

1/The most recent assessment of Dominica’s AML/CFT regime has been conducted by the Caribbean Financial Action Task Force (CFATF) in 2008.

PFM Missions

  • June 2013 (CARTAC): Deliver workshop on cash flow forecasting and planning

  • November 2013 (CARTAC): Restructure cash flow unit and continue to build capacity and expertise in bank reconciliation

  • January 2014 (CARTAC): Investigate and resolve data integrity issues with Smart-Stream

  • January 2014 (CARTAC): Wrap up bank reconciliation and ascertain further needs

  • March 2014 (CARTAC): Work with M. Smith to review Dominica

  • March 2014 (CARTAC): Follow-up on earlier TA on bank account reconciliation

  • March 2014 (CARTAC): Introduce new Adviser

  • March 2014(CARTAC): Assist authorities to build capacity for new Procurement staff

  • April 2014 (CARTAC): Assist Dominica procurement in continuing to navigate and implement action plan

  • May 2014 (CARTAC): Finalize implementation of updated automated bank reconciliation software

  • July-August 2014 (CARTAC): Assist in closure of 2013/14 financial year and carry forward un-reconciled bank reconciliation discrepancies

  • September 2014 (CARTAC): Assist with planning of 2015/16 budget and develop draft budget call circulars

  • October 2014 (CARTAC): Examine and provide recommendations to strengthen oversight and monitoring of SOE’s

  • February 2015 (CARTAC): Undertake a gap analysis of the Internal Audit systems

  • March 2015 (CARTAC): Deliver presentations and hold discussions on redraft of PFM Legislation

  • March 2015 (CARTAC): Provide TA to Budget Department with the revised budget process and develop Cabinet Decision Table

  • March 2015 (CARTAC): Develop Concept Note for undertaking a PEFAQ in October 2015

Revenue Administration Missions

  • June 2013: Tax and Customs Administration

  • June 2013: Tax and Customs Administration

  • June 2013: To work on outline for Regional Audit Manual with STX Brian Dawe

  • August 2013: Assist Dominica Inland Revenue and Customs Department with their Risk Management program (Support to SEMCAR)

  • September 2013: Continue to assist with IRD reorganization and capacity building in audit

  • September 2013: Introductory Meetings with Senior IRD Officials; liaise with STX Dawe on IRD reorganization

  • September 2013: to introduce new LTX Adviser to Senior IRD officials; liaise with STX Dawe on IRD reorganization

  • October 2013: Liaise with STX Macleod on PAYE Administration support

  • October 2013: Deliver PAYE audit training; assist with development of Audit program and procedures circulars

  • November 2013: Work at home: Development of Audit Manual

  • November 2013: Co-facilitate regional seminar on Tax Arrears Collections and Enforcement

  • November 2013: Co-facilitate the Regional Collections Enforcement Seminar for Supervisors

  • November 2013: To continue to assist with IRD reorganization and capacity building in audit

  • November 2013: To assist in the development and upgrade of collections enforcement procedures

  • November 2013: Supporting the development of Valuation procedures and policy for the Customs Administration

  • January 2014: Help design the IRD Corporate Strategic Plan

  • March 2014: Post Clearance Audit Training and Support to the Customs Administration

  • April 2014: Extension of Tax Administration Adviser

  • September/October 2014: Review of Dominica Income Tax

  • January 2015: Building Capacity and Supporting the Establishment of the HQ Design Monitoring and Large and Medium Taxpayer Sections (LMTS)

  • April 2014: Project Management Support and Building Audit Capacity – IRD reorganization project

  • September 2014: To conduct Tax review

  • January 2015: DMS and Large and Medium Taxpayers compliance measurement

Financial Sector Supervision Missions

  • December 2013 (CARTAC): Insurance Supervision and Credit Union Supervision

  • January 2014: Follow-up mission—onsite review of offshore banks and continued training of Supervisors

  • April 2014 (CARTAC): Consolidated Supervision - Training

  • November 2014 (CARTAC): Risk Based Supervision and Consolidated Supervision

Economic and Financial Statistics

  • May 2013 (CARTAC): National Accounts – Quarterly

  • April 2014: Joint CARTAC/STA IIP Mission

  • February 2015 (CARTAC): Training for Survey Respondents (ECCU Countries)

Macroeconomics and Programming Analysis

  • November 2013 – Needs assessment of Macroeconomic Policy Unit; create a forward technical assistance work plan

  • January 2014: To assist authorities with their medium-term macroeconomic framework

  • November 2014 – Produce framework to update macroeconomic projections on a quarterly basis

  • February 2015: Technical assistance to train staff in macroeconomic and fiscal forecasting as well as to prepare for IMF Article IV visit

    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 2008 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.

Relations with the World Bank Group

(As at May 2016)

World Bank Group OECS Regional Partnership Strategy: On November 13, 2014, the Board of the Executive Directors of the World Bank Group has endorsed the new OECS Regional Partnership Strategy (RPS) which will cover the period FY15-19. The high-level objective of the new RPS is to contribute to lay the foundations for sustainable inclusive growth, in line with the OECS governments’ priorities. In order to achieve this goal, the program is planned to be organized around three main areas of engagement. Under the first one, the WBG is planning to support “competitiveness”. Growth and job creation in the private sector will be supported both horizontally - by improving the business environment- and vertically - by focusing on specific sectors with a high potential to generate inclusive sustainable growth (particularly tourism, agribusiness and their respective linkages). The second area of engagement is “public sector modernization”, with particular focus on public financial management (PFM) and institutional capacity, including for statistics and public private partnerships (PPPs), to better leverage private investment in infrastructure and service provision. The third area is “resilience”, with the objective to address both social vulnerabilities (in education, health and social protection), and exposure to natural disasters.

Constrained in general by the small size of investments in the OECS, the IFC and MIGA will contribute to the RPS objectives through selective investment support, depending on opportunities. The IFC will focus on crisis response; job creation and inclusive growth; innovation, competitiveness, and integration; and climate change. MIGA faces limited opportunities for engagement because of the small market size of the OECS countries.

The indicative IBRD lending program for the six OECS countries is expected to be around US$120 million, or up to a maximum of US$20 million for each OECS country for the period of the RPS (FY15-19), subject to country and program performance, IBRD’s lending capacity, and exposure management parameters. In addition to the IBRD envelope, four OECS countries (Dominica, Grenada, St. Lucia, and St. Vincent and the Grenadines) can also count on an IDA national allocation. The IDA17 (FY15-17) allocation for the OECS is equal to SDR61.3 million, an increase of around 22 percent over the IDA16 OECS allocation (SDR50.3 million). With regard specifically to Dominica, the IDA-17 indicative country allocation is equal to SDR14.1 million.

A. Projects

Dominica participates in only one active Bank-financed lending operation: the Regional Disaster Vulnerability Reduction Project, which was approved by the WB Board of Executive Directors on May 1, 2014 and declared effective on September 8, 2014. The total amount of this project is equal to USD 38 million (of which 17 million IDA credit; and USD 12 million Grant and USD 9 million concessional loan from the Strategic Climate Fund). The development objective of the project is to reduce vulnerability to natural hazards and climate change impacts in Dominica through: (i) investment in resilient infrastructure, and (ii) improved hazard data collection and monitoring systems. The project is complex, relatively large, and requires a lot of attention by the WB team to ensure timely implementation, due to the low capacity of the country and the weak familiarity with WB processes and procedures.

The Bank and IFC are also 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. Non-Lending Activities

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.

Comprehensive Debt Framework - At the request of the Heads of Government of CARICOM, the Bank put together a Comprehensive Debt Framework that proposes a strategy for addressing the high debt challenge faced in the OECS in a sustainable way. This Framework proposes a holistic approach around four interdependent pillars (Supporting private sector led growth, including private sector development and financial sector stability; Enhancing fiscal sustainability; Improving climate change resilience and Disaster Risk Management; and Debt resolution). The Framework has been rolled out in all the OECS, including Dominica. The Government expressed interest in principle, in continue to work with the World Bank and other development partners to develop policy measures that could help stimulate growth and reduce debt in the country.

The Caribbean Growth Forum (CGF)

The Caribbean Growth Forum (CGF) is a multi-stakeholder platform designed to identify, prioritize and implement a set of activities to improve the growth enabling environment in the Caribbean, while promoting participatory public policy making. It has so far engaged more than 2,500 representatives from business associations, civil society organizations, Government, private sector, media, indigenous groups, and international development agencies on themes such as Logistics and Connectivity; Investment Climate; and, Skills and Productivity.

Low growth, high unemployment, especially for youth and women, high debt ratios (eight of the top twelve most indebted countries in the world are in Caribbean), high incidence of crime, and, growing vulnerability to external shocks characterize the region. In the wake of the global financial crisis, the high debt/low growth challenge has become even more acute.

A number of Caribbean countries reached out to international donors to find an innovative approach to the growth challenge in the region. A suggestion was made to launch a genuinely participatory growth initiative. Following consultations and some preparatory work, the program started in mid-2012 with a regional launch event in Jamaica. The process is supported and facilitated by the World Bank, the Inter-American Development Bank, the Caribbean Development Bank, Compete Caribbean and the European Union.

Key Outcomes

Positive outcomes are tangible: twelve countries formally joined the process by establishing their national CGF chapter and have completed the first phase of national dialogue. This effort has led to the prioritization of concrete and actionable activities and draft action plans are now available, with details on each activity’ implementation plan (e.g., accountabilities, milestones, timeline, funding).

The results of each country’s dialogue were presented at two regional forum in The Bahamas in June 2013 and in St. Kitts and Nevis in 2014. This allowed national stakeholders from government, private sector and civil society to compare notes on each other’s’ priorities and exchange ideas on solutions to each identified challenges with technical specialists and peers. The next regional forum is expected to take part in St. Lucia in mid-June 2015.

Each government involved in the CGF also committed to follow-up on implementation of the reform agenda, to report back periodically on progress (every 4-5 months) and to enable independent monitoring of the reforms by private sector and civil society representatives.

Financial Relations

(In millions of U.S. Dollars)

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1/ 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)

(In millions of U.S. Dollars)

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Relations with the Caribbean Development Bank (CDB)

(As of May 4, 2016)

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 an economic stabilization loan during a crisis in 2003–2004. The Bank has also extensively utilized its Basic Needs Trust Fund for poverty reduction interventions in at-risk communities. 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. This is continuing with CDB support following Tropical Storm Erika.

Total loans and grants approved over the period 1970–2015 amounted to USD272 million, making Dominica the eighth largest beneficiary among the Bank’s 19 borrowing members. At April 2016, CDB’s loan exposure to Dominica was approximately USD90.5 million, which represented 5.6 percent of CDB’s total disbursed debt outstanding.

Resource flows from CDB to Dominica have fluctuated in the past ten years. Net resource flows were negative from 2006 through 2009, reflecting some caution on the part of the Dominica government to after a debt restructuring in 2004, particularly since efforts to maintain prudent fiscal policies and enhance debt sustainability had been facilitated by strong inflows of grant resources. Net resource flows were positive between 2010 and 2012, with disbursements reflecting the implementation of key interventions programmed in CDB’s Country Strategy Paper (CSP) for Dominica for the period 2010 to 20121. These included: a line of credit for productive sector development and an education enhancement project. Since 2013 resource flows have been negative, as projects neared completion. Other factors contributing to the negative outflow are also likely to have been the authorities’ concern about ensuring fiscal sustainability given the protracted effects of the financial crisis. With new post-Tropical Storm Erika loans agreed in 2015, the resource flow is likely to turn positive again from 2016.

Dominica: Loan Disbursement, Service and Resource Flow

(In millions of U.S. dollars)

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Statistical Issues

(As of May 15, 2016)

Data provision has shortcomings due to capacity constraints in the statistical agency, including weaknesses in coverage, accuracy, frequency, and timeliness of data. Although it is broadly adequate for surveillance, these limitations constrain economic analysis and policy formulation. Particularly, staff’s analysis would benefit from more timely and improved data pertaining to the fiscal accounts, labor, agriculture, and the balance of payments. Efforts to prepare national accounts at a quarterly frequency would also be welcome. The authorities could pursue such improvements in a more cost-effective manner by exploring proposals to centralize statistics collection at the regional level. Dominica participates in the General Data Dissemination System. However, the metadata were last updated in January 2006 for the national accounts and external sector statistics and December 2002 for the government finance statistics.

Real Sector

Nominal GDP data are compiled using the production and expenditure approaches on an annual basis. Real GDP data are compiled only using the production approach. Since 2011, real GDP estimates are compiled with 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 of June 2010. There is a program to develop export and import price indexes (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 sparse and there are no official data on producer prices. A census was conducted in 2011.

Government Finance

Statistical capacity problems affect the timely production of quality government finance statistics. Monthly data can be obtained, but they show some important shortcomings. In particular, fiscal data should be reconciled between the Inland Revenue Department, Customs, and the Treasury on a monthly basis. Efforts should also be directed towards reducing omissions and misclassifications in the data, which would help reduce the need for frequent revisions. Capital expenditure data would benefit from efforts to improve reporting and budgeting data for the public sector investment program (e.g., project implementation rates, current expended resources, projected resource usage, estimated completion dates, etc.), which are fragmented and subject to continuous revisions. Attention should also be directed towards improving statistics on the financial position of public institutions outside the central government. An 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 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.

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 published data on credit unions is a serious shortcoming as the sector is large in Dominica. In this respect, coordination between the ECCB and Dominica’s Financial Services Unit (which supervises financial corporations other than those licensed under the Banking Act) could help to resolve this issue.

External Sector and the Balance of Payments

Balance of payments data are compiled by the ECCB on an annual basis and published in the IFS through 2012. The Balance of Payments data are not produced according to the sixth edition of the Balance of Payments Manual. External sector statistics would benefit efforts to more accurately measure merchandise exports and resume publishing these series on a monthly basis. Improved statistics on remittances would also be welcome. Efforts could also be directed towards the compilation of the balance of payments on a quarterly basis and the compilation of the international investment position on an annual basis. To this end, an external statistics expert has been appointed by CARTAC to provide assistance to Dominica and the other ECCU members. The authorities have received technical assistance from the Fund and are laying the groundwork for preparing statistics on the international Investment Position.

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 the total debt stock. In addition, information on payments by creditor (actual and scheduled) should be available to the compilation agencies at lease 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 the commercial banks.

Dominica: Table of Common Indicators Required for Surveillance

(As of May 15, 2016)

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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.

Data is not available from the authorities.

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

1

The Bank intends to prepare a new CSP for Dominica in 2017.

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Cover IMF Staff Country Reports
Dominica: 2016 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Dominica
Author:
International Monetary Fund. Western Hemisphere Dept.
Volume/Issue:
Volume 2016: Issue 244
Publisher:
International Monetary Fund
ISBN:
9781498377393
ISSN:
1934-7685
Pages:
73
DOI:
https://doi.org/10.5089/9781498377393.002