Economy of Dominica to stay above 4.5 percent in 2023/24, predicts IMF

The International Monetary Fund (IMF) announced that the economy of Dominica is expected to stay above 4.5 percent in 2023-24

Economy of Dominica to stay above 4.5 percent in 2023/24, predicts IMF
Economy of Dominica to stay above 4.5 percent in 2023/24, predicts IMF

Roseau, Dominica: The International Monetary Fund (IMF) announced that the economy of Dominica is expected to stay above 4.5 percent in 2023-24. The recovery of the tourism sector to pre-COVID levels and the implementation of public investment plans will be the prime reason for the growth.

Mission Concluding Statement from the 2023 Article IV consultation held in Dominica from March 20–31 said that they expect a positive economic outlook, return of the tourism sector to pre-covid levels, significant investment in the public plans, and prudent fiscal management. It added that the new international airport and geothermal power plant will be the additional parameters for the surge in tourism. 

Talking about inflation, the IMF report outlined that Dominica is expected to witness a decline in inflation to 6.3 percent in 2023. It predicted that there would be a continued fall in the inflation rate afterwards, along with international trends. It is also expected that there will be a gradual decline in the current account deficit over the medium term with the increase of tourism exports. 

The profit will be marked by the expansion of the hotel and air transport capacity, the normalization of commodity prices, and a steady decline in investment goods’ imports. IMF added that Public debt is expected to decline in coming years, albeit slowly, supported by a gradual consolidation of public finances.

The report said that the real GDP growth of Dominica is estimated to have reached 6.9 percent in 2021 and 5.7 percent in 2022, driven by the construction of climate-resilient infrastructure, a rebound in tourism since the full lifting of COVID-related restrictions in April 2022, and a substantial rise in agricultural output. 

Global commodity price pressures aggravated by Russia’s war in Ukraine, notably oil and food, in tandem with high shipping costs, pushed inflation up to an estimated 7.5 percent in 2022, despite mitigating price policies – fuel subsidies, custom fee waivers, and VAT cuts for electricity.

The external shocks cloud the outlook for trade, commodity prices and global demand, with significant spillovers to the Dominican economy. According to IMF, the intensification of natural disasters could lead to large output and capital losses, hindering fiscal sustainability and financial stability. Shortfalls in CBI inflows could hamper the implementation of infrastructure investment plans, climate resilience, economic activity, and fiscal position.

It said that given abundant liquidity, deposit and lending rates remain low and have fallen in some sectors, despite tighter global financing conditions and exit of non-indigenous banks in recent years.

“Banks have strengthened provisions in line with ECCB (Eastern Caribbean Central Bank) requirements and remain well capitalized, while the implementation of credit unions’ recapitalization plans is progressing. Meanwhile, credit to the private sector has underperformed relative to GDP growth, while bank exposure to the public sector grew since the pandemic.” According to the IMF, ambitious reforms will be necessary to underpin the growth-friendly fiscal consolidation.

Lauding the geothermal project, IMF added that the project will be helpful in the reduction of carbon emissions, lessen external vulnerabilities, and increase economic competitiveness over the medium term through lower energy costs.

The new international airport will significantly boost connectivity with large markets and should be accompanied by efforts to enhance regional connectivity. Initiatives to support the agricultural sector are welcome and should be furthered to broaden the export base and explore synergies with the growing tourism sector.