Caribbean & Central America - June 2019

Prime Minister Roosevelt Skerrit and his ruling Dominica Labour Party (DLP) are due to meet the electorate in a general election by December. A continuing strong recovery from Hurricane Maria, with growth of 10% projected for this year, provides a solid base for his re-election bid.

The DLP has been continuously in power since 2000, and if it wins in December this would be its fifth consecutive victory, and the third under the leadership of Skerrit. Its high point was in the 2009 election when it secured 18 out of the 21 seats in the National Assembly. This dropped to 15 in 2014. Sharp reversals are always possible, however. In 1980 it dropped from holding 16 seats to holding none in a landslide victory for the-then main opposition Dominica Freedom Party (DFP). The DFP, for its part, although it dominated the 1980s by 2000 it had no seats left in parliament.

The main opposition to the DLP government is now the United Workers Party (UWP), a centrist party led by Lennox Linton which currently holds six of the 21 seats in the National Assembly. The party was formed in 1988 and entered parliament in 1990 with six seats. In 1995, it increased this to 11 seats and became the government, with a slim one-seat majority, under Prime Minister Edison James. It lost this majority in 2000.

One of the UWP’s eye-catching promises is to build a new international airport by 2024. In addition, when launching the party’s candidates for the 2019 election in late May, party president Isaac Baptiste said the party’s areas of focus for “immediate attention” were “governance and public service, finance, state security, agriculture, tourism, education, health, industry, economic infrastructure, housing and human settlements, and conservation”, which pretty much covers the front. The UWP president also promised to create 12,000 new jobs in Dominica by 2025.

One of the main problems for the UWP is that the economy is humming along as a result of reconstruction work following the September 2017 destruction wrought by Hurricane Maria. A ‘concluding statement’ by the International Monetary Fund (IMF) issued in May following an official visit to Dominica reported: “The economy is recovering strongly following the destruction…Output growth in 2019 is estimated at 10%, largely offsetting the cumulative decline of 10% since the hurricane.”

The main driving force behind the recovery has been construction, with large investments in infrastructure and public services “aimed at building resilience to natural disasters”. However, the IMF reports that tourism and agriculture, which it says are key for exports and employment, “remain significantly below potential in light of the significant loss of trees and equipment”. Output in these areas will not return to pre-hurricane levels until next year, however the planned increase in hotel capacity should give tourism a significant boost once reconstruction is completed.

But if strong growth is helping the government’s case in an election year, there are clear difficulties ahead. For instance, and not surprisingly, fiscal imbalance and debt are major concerns. As the IMF says, large-scale spending on reconstruction “has worsened the fiscal outlook”. In 2019/20, the fiscal deficit is projected to remain at 7% of GDP, better than the 11% recorded in 2018/19 but still too high.

One of the problems, warns the IMF, is that the “fiscal space for public investment” is likely to decline to 4% of GDP by 2023. This, the IMF continues, “is insufficient to sustain resilient infrastructure needs and is a large decline from the 15% of GDP annual investment average in the previous five years”.

The problem is compounded by the need to reach a public debt target of 60% of GDP by 2030. The IMF advises: “The government should prepare fiscal consolidation measures expeditiously, targeting savings of at least 6% of GDP to be adopted gradually over the medium term. Measures should be staggered over 5-6 years to smooth the likely negative impact on growth.”

The IMF is urging a rationalisation of tax incentives and “a review of public wage allowances and a containment of wage increases below inflation”. It also wants the government to accelerate pension reform by bringing forward the planned increase in the retirement age.

The IMF is also urging reforms to improve the performance of the private sector. It says: “The private sector needs to play a more prominent role to sustain growth in the long term. To increase employment, legal constraints on working hours should be removed and severance payments for redundancy should be reviewed.”