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Dominica Economy Recovering, But Risks Exists

photo of imf headquarters Thursday.07.AUG.2008

ROSEAU, Dominica, August 7, 2008 – The International Monetary Fund (IMF) has warned the Dominica government that despite a strong economic recovery from the damage caused by Hurricane Dean, the country’s high external current account deficit poses risks.

At the conclusion of its 2008 Article IV Consultation with Dominica, the Executive Board of the IMF pointed out that “Dominica’s economy has weathered well the effects of Hurricane Dean that struck the country in August last year, causing damage estimated at about 20 per cent of GDP…despite the weakening external environment and the negative effects of rising international commodity prices, given Dominica’s high dependence on imported food and fuel.”

However, the IMF Directors said that “the high external current account deficit poses risks that need to be carefully monitored and accompanied by efforts in the fiscal area”.

The IMF also advised that in the event of a deeper-than-expected global slowdown, the authorities could consider contingent measures, such as a more extended phasing-in of the planned income tax reform while maintaining the integrity of the VAT.

“This would facilitate a return to the medium-term primary surplus target, following a temporary easing of the fiscal stance to accommodate the current commodity price shocks. They also recommended modification of the tax incentive regime and broadening the income tax base to strengthen the tax system,” the IMF said.

According to the IMF, real output growth in Dominica slowed to 1.5 per cent in 2007, after reaching a decade high of four per cent in 2006.

“The economy is expected to grow by 2.5 per cent in 2008, supported by the recovery in agriculture and reconstruction efforts,” the IMF said.

Inflation accelerated to 5.5 per cent in 2007, mainly reflecting international energy and food price increases, and is projected to rise to about 6.5 per cent in 2008.

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