Caribbean & Central America - August 2023

In June, the International Monetary Fund (IMF) concluded an Article IV mission to Dominica highlighting a strong economic recovery but cautioning over the need for tighter fiscal management.

With a population of around 80,000 people, and an economy largely based on agriculture and tourism, the IMF says Dominica has been recovering strongly after the coronavirus (Covid-19) pandemic with GDP growth of 6.9% in 2021 and 5.7% in 2022. Further growth is expected based on construction of climate-resilient infrastructure, a pickup in tourism, and a rise in agricultural output. However, the mission says that “scarring effects” from the pandemic remain visible. High global commodity prices have pushed up inflation to 7.5% last year, while the current account deficit has ballooned to 26% of GDP. The primary fiscal deficit rose to 6.2% of GDP in the 2021-22 fiscal year. Public debt stands at 106% of GDP.

There was also some concern of potential overreliance on the Citizenship-by-Investment programme (CBI), which brought in government revenue equivalent to nearly 30% of GDP last year. This was highlighted later in July when the UK government announced it was suspending visa-free access for nationals of various countries including Dominica, amid concerns over CBI. Prime Minister Roosevelt Skerrit described the decision as “unfortunate” saying several changes had been made to the functioning of CBI to “strengthen the programme”.

Positives

The IMF mission to Dominica highlighted the positive contribution of various investment programmes, including the transition to geo-thermal energy, and the construction of a new airport which would sustain economic activity and reduce dependence of fossil fuels. The IMF Executive Board called for a “redoubling” of fiscal consolidation, targeting a primary budget surplus of 2% of GDP by 2026.