IMF Executive Board Concludes 2021 Article IV Consultation with Dominica
IMF News, February 14, 2022
Source details
- Canonical URL
- IMF Executive Board Concludes 2021 Article IV Consultation with Dominica
Other formats
Bibliographic details
- Published: February 14, 2022
Economic impact of the COVID-19 pandemic
- GDP is estimated to have contracted by 11 percent in 2020 and is expected to recover modestly to 3.7 percent in 2021.
- Output decline driven by a sharp reduction in tourism and related sectors.
- Decline contained by strong growth in the construction sector stemming from the large public investment program through 2020-21, financed by exceptionally high revenue from the Citizenship by Investment (CBI) program.
Fiscal situation
- Sharp decline in tax revenue and increase in health spending and social transfers led to large fiscal deficits in 2020 and 2021.
- Public debt peaked at an estimated 106 percent of GDP in 2020.
- Current account deficit estimated around 30 percent of GDP in 2020-21, owing to loss of tourism exports and an increase in imports related to higher public investment and commodity prices—despite a decline in private demand for imports.
- Directors underscored importance of maintaining momentum on fiscal consolidation given the increase in public debt during the pandemic.
- Welcomed approval of the Fiscal Responsibility Act to support reduction of public debt and achievement of the regional debt target.
- Recommended creating space for investment focused on building resilience to natural disasters and prioritizing expenditure efficiency measures, including a civil service reform and better targeting of social transfers.
- Encouraged measures to improve tax administration and broaden the tax base.
- Stressed prudent use of Citizenship by Investment (CBI) revenue: encouraged saving part of CBI revenue for self-insurance against natural disasters and public debt reduction; securing additional insurance as part of a layered insurance framework recommended to cover losses from large and extreme disasters.
Financial sector
- Financial sector remained liquid and stable during the pandemic, but Non-Performing Loans (NPLs) remain above prudential benchmarks.
- Loan service moratoria authorized by banks and credit union regulators supported firms and households, containing deterioration in portfolio performance.
- Directors noted long-standing sectoral vulnerabilities, including high non-performing loans and capital adequacy gaps.
- Welcomed banks’ plans to strengthen capital buffers to meet increasing loan-loss provisioning requirements.
- For the non-bank sector, highlighted importance of addressing capital and liquidity requirements and strengthening supervision.
- Encouraged maintaining progress on strengthening the AML/CFT framework to minimize risk to correspondent banking relationships.
- Noted that weakness in the financial sector, particularly the credit unions, could amplify downside risks.
Outlook and risks
- Medium-term growth expected to recover underpinned by return of tourism, expanding hotel capacity, and high public investment in infrastructure resilient to natural disasters financed by CBI revenue.
- Risks skewed to the downside, including renewed worldwide and domestic Covid-19 contagion waves; CBI revenue and/or official financing below projected levels, which would slow public investment and economic activity.
- Weakness in the financial sector could amplify downside risks.
- Urged continued efforts to contain the pandemic and support recovery in the near term, including addressing vaccine hesitancy.
Executive Board assessment and structural reform priorities
- Executive Directors commended authorities for pandemic response to support households and businesses.
- Encouraged sustained reforms to ensure debt sustainability, strengthen the financial sector, and improve climate resilience.
- Encouraged implementation of structural reforms aimed at reducing informality and fostering inclusive, sustainable growth.
- Noted that progress on structural reforms that boost competitiveness and build resilience to natural disasters, along with fiscal consolidation, would help strengthen external sustainability.
Key statistics (Dominica: Selected Economic Indicators, 2018–22)
- Real GDP (annual percent change): 2018: 3.5; 2019: 7.5; 2020: -11.0; 2021 (Est.): 3.7; 2022 (Projected): 7.6.
- Nominal GDP (annual percent change): 2018: 4.6; 2019: 9.1; 2020: -11.6; 2021: 6.8; 2022: 10.3.
- Consumer prices, period average: 2018: 1.0; 2019: 1.5; 2020: -0.7; 2021: 3.0; 2022: 2.5.
- Central government revenue (percent of GDP): 2018: 44.2; 2019: 38.1; 2020: 55.5; 2021: 49.9; 2022: 46.5.
- Taxes (percent of GDP): 2018: 27.4; 2019: 23.2; 2020: 21.9; 2021: 21.3; 2022: 23.0.
- Non-tax revenue (percent of GDP): 2018: 16.0; 2019: 13.0; 2020: 31.3; 2021: 26.3; 2022: 21.2.
- Expenditure (percent of GDP): 2018: 62.1; 2019: 46.2; 2020: 62.7; 2021: 59.3; 2022: 48.4.
- Current primary expenditure (percent of GDP): 2018: 35.9; 2019: 34.5; 2020: 34.4; 2021: 32.4; 2022: 30.9.
- Interest payments (percent of GDP): 2018: 2.4; 2019: 2.0; 2020: 2.2.
- Capital expenditure (percent of GDP): 2018: 24.4; 2019: 9.3; 2020: 24.9; 2021: 15.4.
- Primary balance (percent of GDP): 2018: -16.0; 2019: -5.8; 2020: -5.2; 2021: -7.4; 2022: 0.3.
- Primary balance, excluding CBI (percent of GDP): 2018: -29.1; 2019: -17.5; 2020: -34.7; 2021: -31.9; 2022: -18.7.
- Overall balance (percent of GDP): 2018: -17.9; 2019: -8.2; 2020: -7.2; 2021: -1.8.
- Central government debt (incl. guaranteed, percent of GDP): 2018: 84.6; 2019: 94.2; 2020: 106.0; 2021: 100.9; 2022: 100.3.
- External debt (percent of GDP): 2018: 52.4; 2019: 54.7; 2020: 66.7; 2021: 64.2; 2022: 66.5.
- Domestic debt (percent of GDP): 2018: 32.2; 2019: 39.5; 2020: 39.3; 2021: 36.8; 2022: 33.8.
- Broad money (M2, annual percent change): 2018: 1.4; 2019: -6.3; 2020: -9.9; 2021: 1.6; 2022: 5.6.
- Real credit to the private sector (annual percent change): 2018: -5.3; 2019: -6.1; 2020: 0.4; 2021: -1.3.
- Current account balance (percent of GDP): 2018: -42.4; 2019: -37.9; 2020: -30.0; 2021: -31.4; 2022: -28.7.
- Exports of goods and services (percent of GDP): 2018: 27.7; 2019: 35.0; 2020: 20.2; 2021: 20.0; 2022: 20.0.
- Imports of goods and services (percent of GDP) 1/: 2018: 74.4; 2019: 78.0; 2020: 57.6; 2021: 52.8; 2022: 56.2.
- Capital and financial account balance (percent of GDP): 2018: 14.7; 2019: -9.5; 2020: 2.6; 2021: 10.6.
- FDI (percent of GDP): 2018: -13.6; 2019: -4.5; 2020: -6.7; 2021: -6.6.
- Capital grants (percent of GDP): 2018: 26.1; 2019: 12.3; 2020: 26.6; 2021: 16.1; 2022: 21.0.
- Other (incl. errors and omissions, percent of GDP): 2018: -15.7; 2019: -0.8; 2020: -6.8; 2021: -3.9.
- External debt (gross, percent of GDP): 2018: 100.4; 2019: 93.5; 2020: 106.1; 2021: 101.9; 2022: 100.8.
Press Release No. 22/35