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IMF Country Report No. 18/265
Dominica
2018 Article IV Consultation—Press Release and Staff Report
August 2018
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 2018 Article IV consultation with Dominica, the following documents have been released and are included in this package:
A Press Release summarizing the views of the Executive Board as expressed during its June 18, 2018 consideration of the staff report that concluded the Article IV consultation with Dominica.
The Staff Report prepared by a staff team of the IMF for the Executive Board’s consideration on June 18, 2018 following discussions that ended on April 23, 2018 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 May 30, 2018.
An Informational Annex prepared by the IMF staff.
The IMF’s transparency policy allows for the deletion of market-sensitive information and premature disclosure of the authorities’ policy intentions in published staff reports and other documents.
Copies of this report are available to the public from
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© 2018 International Monetary Fund
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Dominica
Staff Report for the 2018 Article IV Consultation
May 30, 2018
Context. Category 5 Hurricane Maria hit Dominica on September 18, 2017 while it was still recovering from tropical storm Erika, which had damaged the island on August 27, 2015. While Erika had caused severe damage, estimated at 96 percent of GDP, Maria was Dominica’s worst natural disaster with damage estimated at US$1.3 billion (226 percent of GDP). Prior to the disaster, the government had been making progress on fiscal consolidation commitments associated with the October 28, 2015 disbursement under the Rapid Credit Facility (SDR 6.15 million), which had sought to generate primary surpluses adequate to reduce the debt to GDP ratio to 60 percent by 2030.
Outlook and risks. Output is projected to decline by 14 percent in 2018 and to take about 5 years to recover to pre-hurricane levels. The fall in output and government revenue, coupled with increased expenditure for rehabilitation and reconstruction, will lead to a substantial worsening of fiscal and external deficits. Given high debt, limited buffers, weak revenue, and urgent needs for reconstruction spending, the budget could become financially constrained and unable to sustain adequate investment. Other risks include financial instability from undercapitalization of systemic financial institutions, recurrent natural disasters with low resilience, uncertainty regarding citizenship-by-investment and grant income, and external competitiveness challenges.
Main Policy Recommendations. Cost-effective fiscal policies should support the recovery while containing expansion of public debt. A fiscal consolidation plan that is mindful of the recovery appears necessary. Stronger financial oversight and crisis management frameworks for non-bank institutions and decisive actions to resolve NPLs are key for financial stability and to support private sector recovery. A more prominent role for the private sector is crucial for recovery, which requires identification and removal of costs and barriers that affect investment and profitability.
Authorities Views. The authorities concurred with staff’s assessment and welcomed the policy recommendations. They confirmed their commitment to fiscal sustainability while addressing critical social needs and reconstruction spending, and concurred with the need for cost-effective and well targeted fiscal policies to leave room for investment. They agreed on identified risks to financial stability, and will work to enhance monitoring and strengthen capitalization, including with expert assistance. They emphasized building a state resilient to natural disasters as a priority, and are preparing a national development plan with assistance from development partners with this overarching objective.
Approved By
Robert Rennhack (WHD) and Ali Mansoor (SPR)
Discussions took place in Roseau during April 10–23, 2018. Staff representatives were Alejandro Guerson (head), Carolina Castellanos, Joshua Charap (all WHD), Alla Myrvoda (MCM), and Sandra Marcelino (FIN); Ann Marie Wickham (ECCU local economist) joined the beginning of the mission. They were assisted by, Wei Guo, Yuebo Li, and Sheng Tibung.
Contents
BACKGROUND
RECENT DEVELOPMENTS
OUTLOOK AND RISKS
POLICY DISCUSSIONS
A. Fiscal Policy
B. Financial Sector
C. Growth and Competitiveness
STATISTICS
STAFF APPRAISAL
BOX
Risk Assessment Matrix
FIGURES
1. Economic Performance
2. External Sector
3. Fiscal Sector
4. Monetary Sector
TABLES
1. Selected Economic Indicators
2. Balance of Payments
3a. The Statement of Operations of the Central Government (In millions of Eastern Caribbean dollars)
3b. The Statement of Operations of the Central Government (In percent of GDP)
4. Summary Accounts of the Banking System
ANNEXES
I. Debt Sustainability Analysis
II. External Sector Assessment
III. State-Owned Enterprises
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Dominica
Staff Report for the 2018 Article IV Consultation—Informational Annex
May 30, 2018
Prepared By
The Western Hemisphere Department
Contents
FUND RELATIONS
RELATIONS WITH OTHER INTERNATIONAL FINANCIAL INSTITUTIONS
STATISTICAL ISSUES
Front Matter Page
Press Release No. 18/335
FOR IMMEDIATE RELEASE
September 4, 2018
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