IMF says Do­minica’s re­cov­ery los­ing mo­men­tum

The Pak Banker - - Front Page -

WASH­ING­TON

To­day the Ex­ec­u­tive Board of the In­ter­na­tional Mone­tary Fund (IMF) con­cluded the Ar­ti­cle IV con­sul­ta­tion with Do­minica.

The eco­nomic re­cov­ery con­tin­ues, but is los­ing mo­men­tum. Over the past two years, Do­minica’s econ­omy grew at a tepid rate of about 1 per­cent, sup­ported by a no­table fis­cal stim­u­lus, and out­put re­cov­ered to its pre-cri­sis peak. The pace of ac­tiv­ity has been de­cel­er­at­ing so far this year with weak­en­ing ex­ter­nal and do­mes­tic de­mand, and staff fore­casts growth of about ½ per­cent of Gross Do­mes­tic Prod­uct (GDP) in 2012. Weak de­mand has kept price pres­sures sub­dued and, along with a re­cov­ery in ser­vice re­ceipts, con­trib­uted to a sig­nif­i­cant ad­just­ment in the ex­ter­nal cur­rent ac­count deficit. While ris­ing world food prices may con­trib­ute to a mod­est pickup in in­fla­tion and weigh on the bal­ance of pay­ments in 2012, pres­sures are expected to sub­side later next year. Down­side risks to the neart­erm out­look have in­ten­si­fied with height­ened global un­cer­tainty and the planned stop­page of flights from the only non-re­gional car­rier ser­vic­ing the is­land. Geo­ther­mal en­ergy de­vel­op­ment or the open­ing of new tourist fa­cil­i­ties could strengthen the long-term out­look.

Weak growth and the ear­lier fail­ure of re­gional in­sur­ance com­pa­nies have weak­ened the re­silience of the fi­nan­cial sec­tor in some ar­eas. While the sys­tem as a whole re­mains highly liq­uid, non­per­form­ing loans and exposures to the failed in­sur­ance com­pa­nies re­main a drag on fi­nan­cial sec­tor’s in­come and cap­i­tal­iza­tion, es­pe­cially in the large credit union sec­tor.

Mone­tary con­di­tions have not eased mean­ing­fully. With pol­icy and lend­ing rates sta­ble throughout the cri­sis?as mone­tary pol­icy in the Eastern Caribbean Cur­rency Union re­mains fully com­mit­ted to main­tain­ing the hard peg to the U.S. dol­lar?Do­minica has not ben­e­fited from the sig­nif­i­cantly eased U. S. mone­tary pol­icy rates. More­over, the real ef­fec­tive ex­change rate has de­pre­ci­ated only mod­er­ately, strength­en­ing re­cently with the ap­pre­ci­a­tion of the US dol­lar visà-vis ma­jor cur­ren­cies. Ex­pan­sion­ary fis­cal pol­icy has thus been the only tool to sup­port eco­nomic ac­tiv­ity, but strains on the fis­cal po­si­tion have been mount­ing with sub­dued growth and the need to re­spond to nat­u­ral dis­as­ters.

The over­all cen­tral gov­ern­ment deficit widened to about 4½ per­cent of GDP in fis­cal year 2011–12 and pushed debt to over 70 per­cent of GDP, al­most 7 per­cent­age points above pre-cri­sis lev­els.

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