On July 13, 2016, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation1 with Dominica.
The Dominican economy was hit hard by tropical storm Erika, with output estimated to have declined by 3.9 percent in 2015. While tourism activities have largely normalized following the resumption of full operations at the main airport, other sectors will likely need more time to be fully restored. 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. In addition, the protracted decline of banks’ credit to the private sector remains a drag on economic activity, underpinned by high non-performing loans. 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. This growth, however, is largely conditional on donor grants proceeding according to expectations. Afterwards, growth is projected to accelerate somewhat as the economy continues to recover towards potential, and to stabilize at 1.7 percent per year over the medium-term. The current account is projected to deteriorate on the back of the increase in reconstruction investment, and then to gradually improve as exports of agriculture, tourism and manufacturing activities recover. The imbalances are expected to be financed primarily with external capital grants and official concessional loans.
The fiscal outturn for FY 2015/16 is strong, estimated at a surplus of 0.8 percent of GDP. However, the underlying fiscal performance is somewhat weaker than the outturn suggests, as it was underpinned by the collection of tax arrears (in part transitory), higher ECP revenues (subject to uncertainty), and low capital expenditure. Going forward, fiscal policy should be calibrated to allow space for reconstruction expenditure within fiscally sustainable bounds, consistent with the regional debt target commitment.
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.
At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country’s authorities. An explanation of any qualifiers used in summing up can be found here: http://www.imf.org/external/np/sec/misc/qualifiers.htm.