The International Monetary Fund (IMF) highlighted Dominica’s continued economic expansion while warning about significant fiscal challenges and risks linked to the country’s high public debt, following its 2026 Article IV consultation mission.
The IMF team, led by Christopher Faircloth, visited Roseau from March 16 to 26 and concluded that the Caribbean nation’s economy remains on a solid growth path. Real GDP grew by 4.5% in 2025, driven largely by strong tourism performance—36% above pre-pandemic levels—and targeted infrastructure investments.
At the same time, inflation eased to an average of 2.3%, signaling relative price stability.
However, the IMF noted that the current account deficit remains elevated at 38% of GDP, mainly due to imports related to large-scale construction projects. Additionally, the primary fiscal deficit widened to 4.5% of GDP in FY2024/25, interrupting the fiscal consolidation trend observed in recent years.
High Debt and Downside Risks
Despite a sharp decline from its post-pandemic peak, Dominica’s public debt remains high at an estimated 103% of GDP, well above the regional benchmark of 60%.
The IMF projects that economic growth will moderate in the coming years, averaging 3% in 2026–2027 before gradually slowing to around 2%. Public debt is expected to decline to approximately 70% of GDP by 2035, though still above recommended thresholds.
The outlook remains subject to elevated downside risks, including geopolitical tensions, global conflicts, uncertainty surrounding Citizenship by Investment (CBI) inflows, and the country’s vulnerability to natural disasters.
Policy Recommendations: Fiscal Adjustment and Structural Reforms
In this context, the IMF recommended additional fiscal consolidation to reduce debt vulnerabilities and strengthen economic resilience. According to the report, Dominica should aim to achieve a primary surplus of at least 3.4% of GDP starting in FY2027/28.
To reach this goal, the IMF suggests a comprehensive strategy that includes:
- Reducing reliance on CBI revenues
- Strengthening VAT collection
- Introducing new fees, such as a solid waste charge
- Optimizing public spending and better targeting social programs
The report also calls for pension system reforms, including higher contribution rates, adjustments to replacement rates, and aligning the retirement age at 65.
Financial Sector and Credit Growth
The financial system remains stable and liquid, with banks adequately capitalized. However, the IMF flagged persistently high levels of non-performing loans and significant exposure to sovereign debt.
Meanwhile, the credit union sector continues to expand rapidly, now accounting for 53% of private sector credit, though it faces challenges related to capitalization and provisioning.
The IMF stressed the need to strengthen regulatory frameworks, improve asset quality management, and reduce credit market frictions to support more sustainable financial sector development.
Structural Challenges and Institutional Modernization
Finally, the IMF underscored the importance of advancing structural reforms to boost competitiveness and long-term growth. Key priorities include:
- Enhancing trade integration and connectivity
- Upgrading digital infrastructure
- Reforming education and workforce training systems
- Improving the business environment
The Fund also emphasized the need to strengthen public financial management systems and improve the quality of official statistics to support evidence-based policymaking.
The IMF concluded by reaffirming its commitment to supporting Dominica in strengthening institutional capacity and implementing policies that promote sustainable and inclusive growth.