Subject: IMF Report on DA
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From: RPereira@...
Date sent: Fri, 11 May 2001 13:58:26 -0400

The International Monetary Fund
Statement on Dominica, March 2001


"The fiscal situation has deteriorated in recent years ....
central-government saving turned negative
in FY 1999/2000 (as current revenue stagnated and current expenditure
increased) .... spending
pressures are coming from the wage bill, purchase of goods and
services,
and debt service
obligations. The rising overall deficit of the government has been
financed by increasing recourse
to the banking system and external commercial borrowing as well as
substantial
accumulation of domestic arrears, particularly to the social security
system. At the same time,
the increasing level of government indebtedness to the largest
commercial
bank (N.C.B) is a
cause for concern ..... the current level of fiscal deficit .... is
threatening the government's ability to .....
meet its spending commitments to wage earners and pensioners ....
require
an increase of at least
30 percent in the retail price of fuel ... immediately. It is
recognised
that a one-time large
adjustment in domestic fuel prices could cause social dislocation.
Therefore, the mission recommends
an immediate increase of 15 percent, with a further 15 percent
increase
to
be followed in context of
FY 2001/02 budget .... (in addition) the increase in sales tax from
3
to
5
percent which has hitherto
not been applied to petroleum products, be applied to these products
as
soon as possible.
.... revenue performance in Dominica remains hindered by the
extensive
array of tax concessions
.... some granted on an ad-hoc basis ... The mission recommends that,
effective immediately, no
new discretionary tax concessions be granted .... the authorities
should
address the
administrative impediments to the adoption of the value-added tax
(VAT)
in
line with the
recommendations of the IMF technical assistance, so that the VAT
could
be
introduced in FY
2002/03 .... the authorities should also proceed with their intended
reform of the property taxes by
replacing the existing area-based regime with a site value-based
system.
Also introduction of a
minimum corporate income tax ....
The need to control public expenditure, particularly the growth of
the
wage bill and unproductive
capital spending .... we would suggest a number of control measures
....
'
Restraint on public sector
wage adjustments .... ' a civil service reform program .... with the
aim
of reducing the size of the
government employment (through early retirement and attrition) and
improving efficiency in the
provision of government services ' The continued accumulation of
arrears
to the social security
system (DSS) which now amount to EC$30 million .... threaten the
liquidity
and the solvency of
the system and the workers' retirement benefits. ' The quality and
focus
of public investment
expenditure should be improved .... external financing at
concessional
terms should be included in
the Public Sector Investment Program .... It is essential that the
airport
project not involve any
government liability or guarantees .... Also given the lack of
external
concessional financing for the
planned sports stadiums .... to postpone the construction of Windsor
Park
.... and to abandon
their plans for construction of more stadiums .... ' The mission is
concerned that the
government-owned NCB which has 40 percent of banking system deposits
is
extending large
amount of credit to the government, in violation of the existing
prudential norms on lending to a
single borrower. To secure the NCB's soundness, the government should
refrain from further
borrowing from the NCB, and begin to gradually lower its indebtedness
....
The decision to hand
over the supervision of offshore banks to the ECCB is welcome ....
significant challenges remain ....
to raise production efficiency and labour productivity .... in an
increasingly competitive international
market .... help shift displaced farmers into nontraditional areas of
agriculture .... The mission urges
the authorities to consider the privatization of the two state-owned
banks
(NCB and AIDB) and
abolishing the Dominica Export Import Agency's (DEXIA) monopoly on
the
importation of sugar
and bulk rice .... any proceeds that may be obtained from the
privatization of public assets be placed
in a special fund, with the yield from its investments (rather than
the
proceeds themselves) used for
budgetary support .... review the effectiveness of the programs that
are
being implemented for
reducing poverty and improving education and health to ensure that
the
objectives of the programs
will be achieved."