IMF Foresees Positive Economic Trajectory for Dominica with 4.5% Growth in 2024/25

Government of Dominica 15th March, 2024

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The International Monetary Fund (IMF) has predicted growth for Dominica at an average of 4½ percent during 2024-25.

In its Staff Concluding Statement from the 2024 Article IV Mission held in Dominica from March 5-14, the IMF attributed the projected growth to stayover tourism returning to pre-pandemic levels, agriculture expansion initiatives and advancements in priority infrastructure projects.

“The outlook remains positive, predicated on the full recovery of stayover arrivals, implementation of key investment plans, and prudent fiscal management.

“Inflation is projected to converge to 2 percent consistent with trading partner dynamics. The transition to geothermal production, the new airport and hotel projects to expand tourism capacity, and projects to bolster resilient infrastructure are expected to yield long-term growth dividends and reduce external imbalances,” the report stated.

The IMF said inflation fell from its 2022 peak of 9.7 percent to 2.3 percent at the end of 2023, largely due to softening global commodity prices; and that favourable terms of trade and strong service exports further reduced the current account deficit to 26.2 percent.

According to the IMF report, the current account deficit should gradually narrow over the medium term with the increase of tourism exports and a steady decline in the imports of investment goods and fuel. It said public debt is set to decline in coming years, albeit slowly, supported by a consolidation of public finances.

Among other findings, the IMF Mission noted that the economy has fully recovered to pre-pandemic levels and economic imbalances have gradually narrowed, the fiscal position has gradually improved but fiscal space remains tight with elevated public debt, and the financial system remains liquid despite slow credit growth.

It said real GDP grew by 5.6 percent in 2022 and 4.7 percent in 2023, returning to pre-pandemic output levels, underpinned by an ambitious public sector investment program (PSIP), strong agricultural activity, and a rebound in tourism despite airlift challenges.

The report further stated that a modest improvement in the primary balance was supported by record high Citizenship-by-Investment (CBI) revenues and reduced current expenditures.

The IMF acknowledged that risks stemming from an uncertain global environment, climate change, and volatile CBI flows weigh on the country’s growth prospects. It said external risks from geopolitical tensions or tighter global financial conditions cloud the outlook for trade, commodity prices, and global demand, with significant spillovers to Dominica’s economy.

An intensification of natural disasters due to climate change could lead to large output and capital losses, hindering fiscal sustainability and financial stability, according to the IMF.

Among its recommendations, the IMF proposed more ambitious fiscal consolidation to achieve objectives and self-insure against disaster risks; broadening of the revenue base; prioritizing investment with economic returns; and the implementation of a modern supervisory framework to underpin financial stability such as the granting of statutory independence to the Financial Services Unit (FSU) from the Ministry of Finance to further improve its effectiveness and support risk-based supervision.

The IMF commended the Government of Dominica for its efforts to decrease spending, citing the decline in the public wage bill. It recommended further civil service reform and efforts to reduce inefficient spending and make tariff adjustments on key public services—notably water and sewerage and medical service to strengthen the financial position of state-owned enterprises.