IMF Executive Board Concludes 2018 Article IV Consultation With Dominica
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In 2018, output is projected to decline by 14 percent 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. However, signs of recovery, particularly in construction and the public sector, have already started to emerge. The risks to the outlook include the budget becoming financially constrained and unable to sustain adequate investment given high debt, limited buffers, weak revenue, and urgent needs for reconstruction spending. Other risks include financial instability stemming from undercapitalization of systemic financial institutions, recurrent natural disasters with low resilience, uncertainty regarding CBI and grant income, and external competitiveness challenges.
Executive Board Assessment[2]
Directors commended the authorities' efforts in responding to the humanitarian crisis and significant devastation wrought by Hurricane Maria. Directors stressed the need to implement cost effective fiscal policies and reforms to support recovery while containing expansion of public debt. They recommended containing current spending extraneous to recovery, and enhancing the efficiency of capital investment while protecting critical social and recovery spending. Given
Directors highlighted the need for stronger financial sector regulation and supervision to address vulnerabilities exacerbated by Hurricane Maria. They stressed the importance of decisive action to reduce non-performing loans and capital shortfalls, as well as adequate preparedness for possible liquidity pressures in line with recommendations of Fund's technical assistance. Directors recommended maintaining a proactive stance to mitigate the risk of withdrawal of correspondent banking relationships including continued strengthening of the AML/CFT framework. They supported the phasing out of the off-shore bank sector and welcomed cessation of new license issuance.
Directors agreed that enhancing growth prospects requires higher private sector participation and improving the business environment. To this end, directors recommended identification and removal of costs and barriers that affect investment and profitability. They advocated that public sector compensation decisions consider their impact on private wages and competitiveness. Directors stressed the need to improve the business environment, including efforts to reduce the costs of dealing with the government. They urged strict enforcement of construction and zoning regulations given vulnerability to natural disasters.
Click here to view the table: https://www.imf.org/en/News/Articles/2018/09/05/pr18335-dominica-imf-executive-board-concludes-the-2018-article-iv-consultation
[1] Under Article IV of the
[2] 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.
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