By Staff Writer
ROSEAU, Dominica, Mar 27, CMC – The International Monetary Fund (IMF) Friday said that Dominica’s economic growth accelerated to 4.5 per cent last year, supported by robust tourism and targeted development investments.
An IMF mission, headed by Christopher Faircloth, has ended a 10-day visit here, holding discussions on the 2026 Article IV consultation with local authorities.
“Dominica’s economic expansion continued,” he said, noting that real gross domestic product (GDP) growth accelerated to 4.5 per cent in 2025 from 3.5 per cent in 2024.
He said inflation continued to ease, averaging 2.3 per cent in 2025, and that the current account (CA) deficit remained elevated relative to its estimated norm at 38 per cent of GDP in 2025, primarily reflecting high construction-related imports.
Faircloth said 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 4.5 per cent of GDP in the financial year 2024/25.
“While public debt has declined sharply from its post-pandemic peak of 118 per cent 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 per cent in 2025. Banks are adequately capitalized, though sovereign and overseas exposures remain elevated alongside persistently high non-performing loan (NPL) ratios.”
Faircloth said that the credit union sector continues to expand, now accounting for 53 per cent 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.
The IMF official said that growth momentum is expected to ease over the medium term, with risks tilted to the downside. He said real GDP growth is projected to average three percent in 2026–27, supported by continued strategic investment in flagship infrastructure projects, before gradually slowing to around two 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 per cent of GDP this year to one per cent in the next fiscal year 2026/27, before gradually rising to two per cent by FY2030/31.”
Faircloth said that on this basis, public debt declines steadily to around 70 per cent 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.”
Faircloth said additional fiscal consolidation is needed to reduce debt vulnerabilities, reinforce the currency union, and strengthen disaster resilience.
He said the current fiscal path falls short of the minimum two percent primary surplus required from next fiscal year under Dominica’s Fiscal Rule, which must be maintained until the debt ratio falls below 60 per cent.
“At the same time, the multilayered Disaster Resilience Strategy calls for accumulating 12 per cent of GDP in contingent self-insurance against small but frequent disaster events,” he said, noting that IMF staff assesses that achieving these dual fiscal resilience objectives requires phasing in roughly EC$60 million (One EC dollar=US$0.37 cents) in total additional consolidation over the next two fiscal years to reach and sustain a 3.4 per cent of GDP primary surplus from financial year 2027/28.
“Roughly half of this adjustment (EC$25 million or 1.1 per cent of GDP) should be implemented next fiscal year to comply with the fiscal rule’s primary surplus floor. “
He said consolidation should focus on strengthening the non-Citizenship by Investment (CBI) programme fiscal balance while preserving space for critical social spending and growth-enhancing public investment.
Faircloth said that a stronger fiscal adjustment would help reduce debt and external imbalances and mitigate risks to the financial sector from its sovereign exposure.
He said that a multipronged strategy to broaden revenues and rationalise spending can reduce fiscal imbalances while safeguarding priority investments to support resilient and inclusive growth.
Faircloth said 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.
Under the CBI programme, foreign investors are granted citizenship of Dominica in response to making a substantial investment in the socio-economic development of the country.
Faircloth said that on the expenditure side, optimizing goods and services spending alongside improved targeting of large social programs can generate savings.
“This will require refocusing existing programmes toward higher-impact uses, including redesigning the National Employment Programme (NEP) into a skills-based, time-bound revolving training programme, and recalibrating the housing programme 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,” Faircloth added.
The IMF official said that addressing balance sheet vulnerabilities, modernizing regulatory frameworks, and easing longstanding structural constraints to support sustainable credit growth remain key priorities.
He said 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.
Faircloth said that 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.
He said 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.
Faircloth said that full participation in the Eastern Caribbean Central Bank’s (ECCB) 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,” Faircloth added.
CMC/ag/ir/2026