Dominica: Staff Concluding Statement of the 2026 Article IV Mission

Washington, DC: An International Monetary Fund (IMF) staff team, led by Mr. Christopher Faircloth, visited Roseau and held discussions on the 2026 Article IV consultation with Dominica’s authorities during March 16–26. At the end of the consultation, the mission issued the following statement, which summarizes its main conclusions and recommendations.

1. Dominica’s economic expansion continued. Real GDP growth accelerated to 4.5 percent in 2025 from 3.5 percent in 2024, supported by robust tourism (36 percent above pre-pandemic levels) and targeted development investments. Inflation continued to ease, averaging 2.3 percent in 2025. The current account (CA) deficit remained elevated relative to its estimated norm at 38 percent of GDP in 2025, primarily reflecting high construction-related imports. Strong execution of macro-critical projects— including resilient roads and geothermal transmission lines—interrupted the steady fiscal adjustment of recent years by contributing to a widening of the primary deficit to 4½ percent of GDP in FY2024/25. While public debt has declined sharply from its post-pandemic peak of 118 percent of GDP, it remains high at an estimated 103 percent of GDP this fiscal year and well above the 60 percent regional benchmark. The financial system remains stable and liquid, with bank credit growth strengthening modestly to 1.6 percent in 2025. Banks are adequately capitalized, though sovereign and overseas exposures remain elevated alongside persistently high non-performing loan (NPL) ratios. The credit union sector continues to expand—now accounting for 53 percent of total private sector credit—amid high NPLs, limited provisioning buffers, and sector-wide capitalization levels below regulatory requirements, albeit with considerable heterogeneity across institutions.
2. Growth momentum is expected to ease over the medium term, with risks tilted to the downside. Real GDP growth is projected to average 3.0 percent in 2026–27, supported by continued strategic investment in flagship infrastructure projects, before gradually slowing to around 2 percent as construction winds down. The CA deficit is expected to return to its norm by 2031, on the back of stronger tourism, a normalization of investment-related imports, and lower energy-related fuel import needs accompanying the transition to geothermal energy. Under current policies, the primary balance is projected to improve from an estimated surplus of 0.7 percent of GDP this year to 1.0 percent in the next fiscal year (FY2026/27), before gradually rising to 2 percent by FY2030/31 On this basis, public debt declines steadily to around 70 percent of GDP by 2035, remaining above the currency union’s prudential benchmark. Under this baseline, debt continues to be assessed as sustainable but at high risk of debt distress. Overall, risks to the outlook are elevated and tilted to the downside, driven by spillovers from the war in the Middle East, heightened geopolitical and trade tensions, uncertainty surrounding CBI inflows, and persistent natural disaster threats.
3. Additional fiscal consolidation is needed to reduce debt vulnerabilities, reinforce the currency union, and strengthen disaster resilience. The current fiscal path falls short of the minimum 2 percent primary surplus required from next fiscal year under Dominica’s Fiscal Rule, which must be maintained until the debt ratio falls below 60 percent. At the same time, the multilayered Disaster Resilience Strategy calls for accumulating 12 percent of GDP in contingent self-insurance against small but frequent disaster events. Staff assesses that achieving these dual fiscal resilience objectives requires phasing in roughly EC$60 million in total additional consolidation over the next two fiscal years to reach and sustain a 3.4 percent of GDP primary surplus from FY2027/28. Roughly half of this adjustment (EC$25 million or 1.1 percent of GDP) should be implemented next fiscal year to comply with the fiscal rule’s primary surplus floor. Consolidation should focus on strengthening the non-CBI fiscal balance while preserving space for critical social spending and growth-enhancing public investment. Stronger fiscal adjustment would help reduce debt and external imbalances and mitigate risks to the financial sector from its sovereign exposure.
4. A multipronged strategy to broaden revenues and rationalize spending can reduce fiscal imbalances while safeguarding priority investments to support resilient and inclusive growth. On the revenue side, reforms to reduce reliance on CBI revenues—including limiting discretionary import duty exemptions, enhancing VAT yields, introducing a solid waste fee, and strengthening tax administration and compliance—remain priorities. On the expenditure side, optimizing goods and services spending alongside improved targeting of large social programs can generate savings. This will require refocusing existing programs toward higher-impact uses, including redesigning the National Employment Program (NEP) into a skills-based, time-bound revolving training program, and recalibrating the housing program with clear eligibility criteria, means testing, and cost recovery mechanisms. Tariff adjustments for selected public services would reduce transfers and limit the build-up of contingent liabilities. Enhancing the targeting and efficiency of the social safety net—including through a centralized beneficiary registry and digital payment system—would strengthen sustainability and effectiveness while creating fiscal space. Pension reforms should also proceed to safeguard long-term system sustainability and mitigate fiscal risks, including by increasing contribution rates, reducing replacement rates, and aligning the retirement age at 65 for all employees.
5. Addressing balance sheet vulnerabilities, modernizing regulatory frameworks, and easing longstanding structural constraints to support sustainable credit growth remain key priorities. Safeguarding financial stability requires strict enforcement of provisioning and NPL standards, improved loan management and disposal of impaired assets, and close monitoring of sovereign and overseas exposures in banks. For credit unions, where regulatory and supervisory frameworks have not kept pace with sector growth, reforms should strengthen risk-based capital, provisioning, and loan classification frameworks, alongside enhanced enforcement powers, to ensure bank-comparable risk monitoring and mitigation in systemically important institutions. These regulatory enhancements should be complemented by the timely completion of the ongoing asset quality review of the credit union sector and Dominica’s Agriculture Industrial and Development Bank, to obtain a detailed picture of balance sheet resilience and elaborate corrective measures as needed. Full participation in the ECCB’s regional initiative on minimum regulatory standards for non-bank financial institutions would help further level the supervisory framework and reinforce financial stability. Subdued and uneven credit growth despite ample liquidity underscores the need to reduce persistent credit market frictions, including by strengthening credit information systems, streamlining loan documentation, modernizing collateral, foreclosure, and bankruptcy frameworks, facilitating resolution of long-dated NPLs, and expanding financial-literacy initiatives. In this context, full participation by banks and credit unions in the regional credit bureau, alongside enhanced coordination between the Eastern Caribbean Partial Credit Guarantee Corporation and national programs to expand small business access to finance, is encouraged.
6. A wide-ranging structural reform agenda is needed to strengthen economic resilience and ease impediments to growth potential. Improving trade integration and connectivity could diversify risks, lower costs, and broaden economic opportunities. Ongoing and planned infrastructure upgrades to expand air arrival and port capacity should ease connectivity constraints over the medium term. In the near term, improving institutional efficiency—domestically and regionally—is a priority, including through harmonized and streamlined customs procedures, a unified single-window platform, and mutual recognition agreements. In parallel, reforms should address well-known bottlenecks to innovation and skills development by strengthening digital infrastructure, modernizing education and vocational training systems to better align with labor market needs, improving the business environment through modern administrative and legal processes, and strengthening institutional frameworks to scale up productive and efficient capital investment. Reducing risks to development financing is critical, notably through the CBI program, where important measures have already been implemented to strengthen governance and due diligence. However, there is scope for further improvements to reinforce security protocols (such as through biometrics and enhanced residency requirements), address weaknesses in CBI data reporting, and strengthen accountability frameworks.
7. Institutional frameworks should be enhanced to better support policy formulation, monitoring, and implementation. Persistent weaknesses in public financial management systems risk compromising the operationalization of the fiscal rule and disaster self-insurance mechanisms, underscoring the need for more frequent fiscal disclosure and strengthened internal reporting frameworks, including structured data compilation protocols and modern data dissemination systems. The Fiscal Responsibility Committee mandated under the fiscal rule should be established in line with international best practice. Budget architecture should also be reconfigured to support implementation. In particular, fiscal policy should be (i) anchored in an articulated and credible medium-term fiscal framework consistent with fiscal resilience objectives and supported by clearly defined revenue and expenditure measures; and (ii) complemented by the introduction of a mid-year budget review to assess outturns against targets and identify corrective measures where needed. Long-standing weaknesses in statistical compilation—particularly in prices, national accounts, fiscal data, and external sector statistics—continue to constrain evidence-based policymaking. The IMF stands ready to support efforts to address identified institutional gaps and capacity constraints through targeted capacity development assistance.

The IMF team is grateful to the authorities and other local stakeholders for their

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