- Dominica’s economic outlook is positive, underpinned by implementation of the country’s economic modernization and development agenda, though risks weigh on the downside.
- Fiscal and external imbalances are expected to narrow gradually, but more ambitious consolidation is needed to reduce debt vulnerabilities in line with the fiscal rule, strengthen disaster resilience, and reinforce the currency union.
- Structural reforms are critical to foster resilient and sustainable growth. Priorities include policies improving trade connectivity and addressing impediments to financial intermediation, labor market performance, innovation, and allocative efficiency.
USA / DOMINICA – On May 27, 2026, the executive board of the International Monetary Fund (IMF) concluded the Article IV consultation with Dominica. The authorities have consented to the publication of the staff report prepared for this consultation.
Dominica is sustaining an economic expansion. Real GDP growth accelerated to 4.5 percent in 2025 from 3.5 percent in 2024, supported by robust tourism now 36 percent above pre-pandemic levels and strategic infrastructure developments. Inflation continued to ease, averaging 2.3 percent in 2025, reflecting softening prices of imported goods.
Fiscal and external imbalances remain large. The current account deficit was elevated at 38 percent of GDP in 2025, primarily reflecting high construction-related imports tied to macro-critical infrastructure projects. The primary deficit widened to 4½ percent of GDP in FY2024/25, as strong execution of resilient roads and geothermal transmission line projects interrupted the steady fiscal adjustment of recent years. Public debt has declined sharply from its post-pandemic peak of 118 percent of GDP but remains high at 103 percent of GDP, well above the 60 percent regional benchmark.
The financial system remains stable and liquid. Banks are adequately capitalised, though sovereign and overseas exposures remain elevated alongside persistently high non-performing loan (NPL) ratios. Bank credit growth strengthened modestly to 1.6 percent in 2025. The credit union sector continues to expand—now accounting for 53 percent of total private sector credit—but faces challenges from high NPLs, limited provisioning buffers, and sector-wide capitalisation levels below regulatory requirements.
Dominica’s economic outlook remains positive but subject to elevated downside risks. Real GDP growth is projected to average 3.0 percent in the near term, supported by continued strategic investment in flagship infrastructure projects, before gradually slowing to around 2 percent as construction winds down. The current account deficit is expected to narrow to its norm by 2031, on the back of stronger tourism exports, lower investment-related imports, and reduced fuel import needs accompanying the transition to geothermal energy. Public debt is expected to decline steadily, supported by a gradually improving primary balance, but remains above the currency union’s prudential benchmark and is susceptible to shocks. Risks to the outlook are tilted to the downside, driven by spillovers from the war in the Middle East, heightened geopolitical and trade tensions, uncertainty surrounding Citizenship by Investment (CBI) inflows, and persistent natural disaster threats.
Executive directors agreed with the thrust of the staff appraisal. They welcomed Dominica’s economic expansion, supported by strategic infrastructure investment, while noting that fiscal and external imbalances remain elevated amid significant downside risks, including war-related spillovers, geopolitical and trade tensions, and natural disaster threats. Against this background, directors emphasised the importance of continued prudent policies and structural reforms to modernize the economy and boost diversified, climate resilient growth.
Directors concurred on the need for additional fiscal consolidation to reduce economic imbalances and risks, support compliance with the fiscal rule, and build buffers to confront natural disasters. They recommended boosting revenues by broadening the tax base, limiting exemptions, and improving expenditure efficiency to preserve macro critical investment. Directors also underscored the need to strengthen the efficiency and sustainability of the social protection framework, including by improving targeting and payments. They encouraged the authorities to advance a comprehensive strategy to clear domestic arrears.
Directors stressed the importance of addressing financial system vulnerabilities. For banks, priorities include stricter enforcement of provisioning and non-performing loan standards while closely monitoring sovereign and foreign investment exposures. For credit unions, completion of the ongoing regulatory modernisation involving enhanced risk based capital, provisioning, and loan classification frameworks, and strengthened supervisory enforcement tools will be important. Directors encouraged continued progress in strengthening the AML/CFT framework, and welcomed continuing efforts to enhance the citizenship by investment program, while noting scope for further improvements in data reporting and governance.
Directors emphasised the need for coordinated structural reforms to alleviate impediments to growth. In particular, they underscored the merits of improving trade integration and connectivity, advancing digital transformation, and strengthening vocational training to address skills gaps in line with market needs. They underscored that enhancing institutional capacity and data quality is critical to effective policy design and implementation, and urged the authorities to address persistent weaknesses in economic data compilation and public financial management systems. Directors encouraged the authorities to leverage IMF technical assistance to support their reform efforts.