ROSEAU, Dominica, CMC—An Worldwide Financial Fund (IMF) delegation has ended a 10-day go to to Dominica, indicating that the island’s economic system grew by 3.5 p.c final yr and is anticipated to develop by greater than 4 p.c this yr.
The delegation, headed by Christopher Faircloth, stated that the actual gross home progress (GDP) was supported by a restoration in tourism and focused growth funding to spice up financial capability and competitiveness.
It stated inflation has eased from its 2023 peak of seven p.c, averaging 3.1 p.c in 2024, and that tourism arrivals have surpassed pre-pandemic ranges by roughly 32 p.c, even because the composition has shifted in the direction of cruise guests over stayovers.
The IMF delegation, which ended its go to on Thursday, stated that the present account (CA) deficit narrowed by two share factors to 32¼ p.c of GDP in 2024, reflecting larger tourism receipts.
“The labor market restoration stays uneven, nevertheless, with formal employment lagging behind general progress,” Faircloth stated.
He stated fiscal imbalances have narrowed, however public debt stays excessive and above pre-pandemic ranges. The first deficit narrowed to 2 p.c of GDP within the monetary yr 2023/24 and is projected to maneuver right into a modest surplus of 0.1 p.c of GDP within the monetary yr 2024/25.
“This enchancment displays the affect of latest tax measures, together with larger excise duties on sugary drinks, alcohol, tobacco, and diesel, and anticipated moderation in capital expenditures primarily associated to gradual implementation charges and capability constraints.
“Whereas public debt has fallen lately after peaking at 112.5 p.c of GDP within the monetary yr 2020/21 following successive pure catastrophe occasions and the pandemic shock, it stays excessive relative to its ECCU (Japanese Caribbean Foreign money Union) friends at round one hundred pc of GDP,” Faircloth added.
He stated Dominica’s monetary system is steady and liquid, with a combined credit score image and vulnerabilities that require cautious monitoring. Financial institution credit score has declined since 2023, reflecting ongoing de-risking amid persistent stability sheet challenges.
“Regardless of ample capitalization, financial institution sovereign and abroad exposures stay elevated, whereas enhancements in non-performing loans (NPLs) have been gradual, with ranges exceeding prudential tips and nonetheless fragile provisioning.
“In the meantime, the credit score union (CU) sector is increasing its lending portfolio quickly, regardless of weak capitalization, excessive NPLs, and restricted provisioning—all of which breach supervisory thresholds in combination.”
Faircloth stated the rising systemic significance of CUs, which now account for 53 p.c of whole non-public sector credit score, highlights the necessity to shut supervisory gaps by modernizing regulatory frameworks to raised safeguard monetary sector stability.
The IMF delegation chief stated Dominica’s economic system is anticipated to proceed increasing, underpinned by ongoing growth funding.
“The economic system is projected to develop by 4.25 p.c in 2025, supported by ongoing strategic funding in flagship infrastructure tasks to spice up capability in tourism and transition to lower-cost geothermal vitality.
“Development is anticipated to converge in the direction of two p.c over the long run, as main capital tasks wind down and monetary consolidation intensifies. The CA stability is projected to enhance steadily to its norm by 2028 because of elevated tourism, a normalization of funding imports, and lowered gas imports with the rollout of geothermal vitality.”
Faircloth stated the first stability is projected to progressively strengthen to 2 p.c of GDP by 2030, primarily based on present insurance policies and as capital expenditures recede amid declining Citizenship by Funding (CBI) inflows, falling in need of fiscal rule obligations.
Beneath the CBI program, Dominica provides citizenship to international traders in return for substantial funding within the island’s socio-economic growth.
Faircloth stated public debt is projected to say no to 69¾ p.c of GDP by 2035 but stays at excessive danger of debt misery and above the prudential foreign money union debt benchmark.
He stated dangers to the outlook are elevated and tilted to the draw back.
Escalating commerce tensions, coverage uncertainty, and commodity value volatility pose exterior dangers to tourism, commerce, and international direct funding (FDI). Strain on world rates of interest might result in market losses on abroad investments, with spillovers to home credit score and FDI.
“Excessive pure catastrophe shocks pose further dangers to progress. Domestically, fiscal underperformance, rising arrears, and shortfalls to anticipated CBI inflows might weaken financial exercise, jeopardize flagship tasks, exacerbate imbalances, and doubtlessly set off debt misery.
“Weak spot within the native monetary system might amplify these shocks. On the similar time, higher than anticipated progress dividends from ongoing flagship tasks pose an upside danger to the long-term outlook,” stated Faircloth.
He stated extra bold fiscal consolidation is required to cut back financial imbalances and debt vulnerabilities, mitigate catastrophe dangers, and assist reinforce prospects for resilient progress.
The IMF official stated the financial enlargement presents a chance to rebuild important fiscal buffers. These embody reaching fiscal rule targets by sustaining a major surplus of a minimum of two p.c of GDP from 2026 onward to cut back public debt under 60 p.c of GDP by 2035 and adequately capitalizing the Vulnerability, Danger, and Resilience Fund (VRF) to assist insure towards pure catastrophe shocks.
“Reaching these targets would require figuring out an estimated EC$75 million (One EC greenback=US$0.37 cents) in cumulative fiscal consolidation measures over two years to maintain 35 p.c of GDP major surplus from the monetary yr 2026/27.
“The consolidation technique ought to enhance non-CBI fiscal balances whereas safeguarding important social and financial funding to guard progress and essentially the most susceptible.
“Stronger fiscal consolidation would assist scale back debt vulnerabilities and the monetary sector’s publicity to the general public sector, and facilitate exterior rebalancing, thereby lowering exterior vulnerabilities.”
Faircloth really helpful a multipronged technique to broaden revenues and rationalize expenditures, preserving very important social and financial investments for resilient progress.
He stated income mobilization ought to construct on latest initiatives to cut back the reliance on CBI inflows, together with by rationalizing tax incentives to curb leakage, enhancing VAT yields through a fee adjustment, pursuing levies on tourism and highways, introducing a stable waste charge, and enhancing tax administration and compliance.
On the expenditure aspect, he stated, exploiting additional efficiencies in items and companies spending whereas sustaining restraint in wages are priorities.
Reprioritization of expenditure outlays can be important, together with revamping the Nationwide Employment Program (NEP) right into a revolving expertise coaching program to alleviate expertise gaps throughout the economic system and recalibrating the housing program to supply assist on a need-basis by way of means-testing and price restoration mechanisms.
“Moreover, tariff changes on key public companies needs to be pursued, thus lowering authorities transfers and contingent legal responsibility dangers,” Faircloth stated.
