WASHINGTON, CMC—The executive directors of the International Monetary Fund (IMF) say that while Dominica’s economy has recovered strongly following the coronavirus (COVID-19) pandemic shock, fiscal and external imbalances remain high, with risks including external shocks, natural disasters, and volatile Citizenship by Investment (CBI) revenues.
The executive board has just completed the 2024 Article IV Consultation with Dominica, and while it agrees that the economic outlook is positive, predicated on a continued recovery in tourism and the implementation of the country’s economic modernization and resilience-building agenda, the ongoing economic recovery offers an opportunity to rebuild buffers and advance reforms to modernize the economy and foster sustainable and resilient growth.
An IMF mission reported in May that real gross domestic product (GDP) grew by 5.6 percent in 2022 and an estimated 4.7 percent in 2023, returning to pre-pandemic output levels. It said these outturns reflect a rebound in tourism supported by public investment and buoyant CBI revenues. Inflation fell from its 2022 peak of 9¾ percent to 2¼ percent by the end of 2023, largely on account of softening world commodity prices.
The IMF said public debt has steadily declined from its pandemic peak but remains elevated above 100 percent of GDP and that the current account (CA) deficit had been narrowing since 2019 but widened to 33.7 percent of GDP in 2023, as higher imports for the construction of strategic infrastructure projects outweighed higher tourism receipts.
In their assessment of the economy, the IMF executive directors noted that a more ambitious fiscal consolidation would help Dominica meet the budgetary rule, self-insure against disaster risks, and reduce debt vulnerabilities.
They recommended broadening the non-CBI revenue base by streamlining tax incentives, reintroducing the value-added tax (VAT) applied to the electricity fuel surcharge, equalizing diesel and gasoline excise rates, and strengthening tax administration and compliance management.
The directors said removing the stamp duty on outbound money transfers would also be essential and that they saw scope to rationalize inefficient spending while prioritizing critical public investments with economic returns.
They encouraged tariff adjustments on vital public services to reduce the fiscal costs of state-owned enterprises, concurring that Dominica’s financing strategy should continue to prioritize non-debt-creating flows.
The IMF directors underscored the need to protect the most vulnerable by enhancing the efficiency and sustainability of the social protection framework, including by better targeting social assistance programs.
They said reforming the pension scheme to ensure its long-term sustainability amid rising demographic pressures would also be important, emphasizing the need to strengthen financial system oversight and reduce balance sheet vulnerabilities, particularly for credit unions.
The IMF said granting the Financial Services Unit statutory independence would help improve its effectiveness and support risk-based supervision of non-bank financial institutions. The directors underscored the importance of addressing structural impediments to financial intermediation and supported the authorities’ efforts.
They encouraged further strengthening of CBI program frameworks and addressing remaining AML/CFT deficiencies.
Under the CBI programme, Dominica gives citizenship to foreign investors in return for their significant contributions to the island’s socio-economic development.
Regarding Dominica’s modernization and climate adaptation agenda, including the Climate Resilience and Recovery Plan, the directors noted that the ongoing transition to renewables alongside reforms to improve the business environment and address labor market frictions would further enhance competitiveness and growth prospects.
They underscored the importance of improving statistical compilation, tax administration, and public financial management frameworks, including CBI reporting systems, to enhance policy management.
and then  say that while Dominica's economy has recovered){kind=link}