a new international airport, geothermal energy investments, and a large housing DOMINICA Key conditions and program. CBI revenues have remained buoyant but tend to be volatile and depen- challenges dence thereon may increase financing risk. Dominica’s vulnerability to hurricanes and Table 1 2023 As a small island developing state (SIDS), climate change requires increasing focus Population, million 0.1 Dominica faces economic challenges and on resilience through fiscal buffers, cli- GDP, current US$ billion 0.7 climate vulnerability. Post-pandemic, eco- mate-resilient investment, as well as ex- GDP per capita, current US$ 8953.9 nomic growth has been largely supported pansion of public and private insurance a 91.9 School enrollment, primary (% gross) by infrastructure investments and a re- protection and social assistance within a a 73.0 bound in tourism. The country’s growth context of limited fiscal space. Life expectancy at birth, years Total GHG emissions (mtCO2e) 0.2 potential has declined over the past few Source: WDI, Macro Poverty Outlook, and official data. decades amid shrinking total factor pro- a/ Most recent WDI value (2022). ductivity and lower contribution from la- bor, stemming in part, from emigration of Recent developments skilled labor. Fiscal policy is constrained by the Fiscal Responsibility Law (FRL) of Growth maintained its momentum at 4.7 2021, which requires achieving a minimum percent in 2023, amid further improve- primary surplus of 2 percent of GDP by ments in tourism and investment in cli- A recovery in tourism infrastructure 2026 to reduce public debt below 60 per- mate-resilient infrastructure. Tourist ar- spending and easing inflation have sup- cent of GDP by 2035. Finally, as a pegged rivals surpassed pre-pandemic levels, dri- ported economic activity in Dominica exchange rate regime, Dominica lacks ef- ven by growth in cruise arrivals. Imple- in 2023, although high food prices con- fective monetary policy tools, therefore mentation of initiatives in agriculture are structural reforms are needed to ensure ef- expected to boost contribution from the tinue to disrupt livelihoods of vulnera- ficient financial intermediation. sector in 2024. After peaking at 7.8 per- ble populations. Completion of major Pandemic-related support, increased infra- cent in 2022, inflation eased to 3.5 percent ongoing infrastructure projects will structure spending, and fiscal measures to in 2023, driven in part by a reduction in boost growth. An uptick in public debt mitigate the impact of inflation on the energy costs. poorest led to high fiscal deficits and Inflation continues to affect households’ resulting from pandemic-related spend- pushed public debt over 100 percent of purchasing power and access to food, giv- ing has led authorities to implement GDP. Fiscal imbalances have only gradu- en Dominica’s dependence on imported fiscal rule-based austerity measures ally come down as recurrent expenditures food products. In April 2024, virtually all throughout the forecast horizon. Wors- are now returning to pre-pandemic levels. respondents to the Food Security and Further efforts will be needed to comply Livelihoods Survey reported an increase in ening external conditions and climate- with Dominica’s FRL. the prices of food, gas, and electricity in related events pose downside risks to The government is implementing a the three months prior to the survey. Food growth and debt sustainability. highly ambitious public investment insecurity persisted with 21 percent of re- pipeline, largely financed by citizenship spondents reporting that they had gone a by investment (CBI) revenues, including whole day without eating in the previous FIGURE 1 Dominica / Real GDP growth and sectoral FIGURE 2 Dominica / Public debt contributions to real GDP growth Percent, percentage points Percent of GDP 15 120 10 100 5 80 0 -5 60 -10 40 -15 Public bebt -20 20 Public external debt 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 Agriculture Industry Services 0 Net taxes Real GDP growth 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 Sources: Government of Dominica and World Bank staff calculations. Sources: Government of Dominica and World Bank staff calculations. Note: See Table 2. MPO 1 Oct 24 30 days and 42 percent reporting that they Caribbean Central Bank’s (ECCB’s) region- current spending is reduced and ra- were hungry but did not eat. al prudential requirements. tionalized, and fiscal rules metrics are The fiscal position has improved, register- adhered to; this includes primary bal- ing an estimated deficit of 4.0 percent in ances of 2.0 percent of GDP by 2026, FY23 compared to 7.6 percent in FY22. though further measures will be needed Lower capital spending offset the drop in Outlook to achieve this target. A combination revenue from CBI inflows. Public debt re- of sound fiscal policy and sustained mains high at 101.8 percent of GDP at the GDP growth is expected to be robust at 4.6 growth is expected to push public debt end of 2023, down from 105.7 in 2022. Ap- in 2024 and remain buoyant over the fore- levels below 60 percent of GDP by 2035, proximately 90 percent of Dominica’s ex- cast horizon driven primarily by tourism as mandated by Eastern Caribbean Cur- ternal debt is owed to multilateral and bi- and a robust public investment program fi- rency Union membership. lateral creditors on concessional terms. nanced by CBI revenues. Geothermal de- The CAD, financed in part by CBI inflows, The current account deficit (CAD) further velopments and a new international air- is expected to narrow to 20.9 percent of widened to 33.9 percent of GDP in 2023 port should boost potential growth. Infla- GDP in 2024 and continue closing there- as an increase in imports of goods, driven tion is expected to decline to 3 percent in after as tourism receipts increase and infra- by large infrastructure projects, more than 2024 and stabilize at 2 percent amid weak- structure-related imports decline. offset the increase in tourism receipts. Fi- er pressure from international prices. Solid The economic outlook is subject to con- nancing of the CAD continues to come pri- growth prospects and lower inflation siderable downside risks due to volatile marily from CBI revenues, grants, and for- should contribute to a reduction in poverty food and fuel prices, global geo-political eign direct investment inflows. Reserves, rates in the medium term. There is an ur- events, and volatile CBI revenues. Nat- as of 2023, are adequate at 5.0 months of gent need for updated poverty data, and ural disasters, climate change, tighter import coverage. other key indicators like labor market sta- global financial conditions, fiscal vulner- Financial sector stability risks are limited tistics, to monitor households’ wellbeing abilities, and public debt sustainability as banks are well capitalized, however, and inform the design of public policy. concerns pose additional risks. The fi- non-performing loans remain high, and The fiscal deficit is forecast to narrow nancial sector is vulnerable to risks from provisioning is below the Eastern as infrastructure spending winds down, the credit unions. TABLE 2 Dominica / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023 2024e 2025f 2026f Real GDP growth, at constant market prices 6.9 5.6 4.7 4.6 4.2 3.2 Real GDP growth, at constant factor prices 6.8 6.7 4.4 4.6 4.2 3.3 Agriculture 23.4 -0.7 -2.0 5.9 3.2 2.0 Industry 5.0 0.6 5.0 3.4 3.3 3.0 Services 4.5 9.4 5.3 4.6 4.5 3.5 Inflation (consumer price index) 1.5 7.8 3.5 3.0 2.0 2.0 Current account balance (% of GDP) -32.9 -26.7 -33.9 -20.9 -19.1 -17.8 a Fiscal balance (% of GDP) -8.6 -7.6 -4.0 -3.3 -2.0 -1.5 Revenues (% of GDP) 61.5 65.2 45.5 42.1 41.7 41.3 a Debt (% of GDP) 111.3 105.7 101.8 98.1 95.9 92.2 a Primary balance (% of GDP) -5.9 -4.6 0.4 -0.2 0.3 0.6 GHG emissions growth (mtCO2e) 3.1 3.0 2.8 2.7 2.6 2.4 Energy related GHG emissions (% of total) 75.6 75.8 76.1 76.3 76.5 76.7 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Fiscal balances are reported in fiscal years (July 1st -June 30th). MPO 2 Oct 24