Primary navigation:

QFINANCE Quick Links
QFINANCE Topics
QFINANCE Reference
Add the QFINANCE search widget to your website

Home > Country Profiles > Dominica

Country Profiles

Economy and Trade

Located about halfway between Puerto Rico and Trinidad and Tobago, Dominica was the last of the Caribbean islands to be colonized by Europeans. France ceded possession to Great Britain in 1763, which made the island a colony in 1805. In 1980, two years after independence, Dominica’s fortunes improved when a corrupt and tyrannical administration was replaced by that of Mary Eugenia Charles, the first female prime minister in the Caribbean, who remained in office for 15 years. Some 3,000 Carib Indians still living on Dominica are the only pre-Columbian population remaining in the eastern Caribbean.

The Dominican economy depends on agriculture, primarily bananas, and remains highly vulnerable to climatic conditions and international economic developments. Tourism has increased as the government seeks to promote Dominica as an ecotourism destination. The government has developed a new tourism development plan, with assistance from the European Union, but the impact of this will largely have to await the ending of the current global slowdown.

Back to top

Economic Policy over 12 Months

Hurricane Dean struck the island in August 2007 causing damage equivalent to 20% of GDP. Before this happened, the economy was rallying well, following a comprehensive restructuring of the economy, which began in 2003. This restructuring included the elimination of price controls, privatization of the state banana company, and tax increases, all of which were designed to address a severe economic crisis in 2001–2002, and which the government put in place as part of an agreement with the International Monetary Fund (IMF). The restructuring worked, and the island nation enjoyed real growth in subsequent years, with growth in 2006 reaching a two-decade high. This helped Dominica to lower its debt burden, which nevertheless remains at about 100% of GDP.

In order to diversify the island’s production base, the government is attempting to develop an offshore financial sector, and has signed an agreement with the European Union to develop geothermal energy resources.

In a report on the region in March 2009, the IMF estimated that real growth had decelerated to about 2.5% in 2008, reflecting sluggish activity in tourism and construction. Inflation accelerated during the first three quarters of 2008, but eased toward end-2008 with the retreat of world commodity prices, and slowing economic activity.

Limited fiscal consolidation achieved in 2007—reflecting higher tax revenues, and lower capital expenditure—is estimated to have unwound in 2008, due to a decline in revenues and an increase in current expenditure, with public debt standing at about 93% of regional GDP at year-end.

Real GDP right across the Eastern Caribbean region is expected to contract by about 1% in 2009, with risks tilted to the downside. According to the IMF, Dominica will have to manage risks arising from the global financial crisis and economic downturn carefully, while continuing to address fundamental issues, particularly fiscal and debt sustainability. Sharp falls of capital flows to the region (particularly foreign direct investment) will further dampen economic activity, the IMF warned.

Dominica shares the Eastern Caribbean Currency Union’s (ECCU) high vulnerability to shocks, exacerbated by its elevated public debt level, all of which highlights the importance of further enhancing crisis preparedness. Additional and sustained efforts to push through structural reforms, such as tax reform, improving the business climate, and deepening regional integration, are key to enhancing competitiveness and underpinning the currency union.

Back to top

Economic Performance over 12 Months

Agriculture dominates Dominica’s economy, and nearly one-third of the labor force works in agriculture. This sector, however, is highly vulnerable to weather conditions, and to external events affecting commodity prices. In response to reduced EU banana trade preferences, the government has diversified the agricultural sector by introducing coffee, patchouli, aloe vera, cut flowers, and exotic fruits such as mangoes, guavas, and papayas. Dominica has also had some success in increasing its manufactured exports, primarily soap.

Dominica is mostly volcanic and has few beaches; therefore, tourism has developed more slowly than on neighboring islands. Nevertheless, the island’s high, rugged mountains, rainforests, freshwater lakes, hot springs, waterfalls, and diving spots make it an attractive ecotourism destination. Cruise ship stopovers have increased, following the development of modern docking and waterfront facilities in the capital.

The IMF warned that recent shocks to the banking system across the Eastern Caribbean, including the saga of CL Financial Holdings in Trinidad and Tobago, and the Stanford Group in Antigua and Barbuda, underline the urgency of bringing the non-bank financial sector (including offshore financial institutions) under effective regulation. With Dominica engaged in trying to grow its offshore services, this will prove a challenge, as it will not be possible to add to the island’s attractiveness as an offshore location by offering “light touch” regulation and privacy.

At the same time, 2008 saw the introduction of some major risks to the stability of the private banking system across the region, as a period of rapid private credit expansion has left the banks with deteriorating loan-books in an economic downturn. “The significance of foreign financial institutions in the ECCU also calls for strengthened cross-border regulatory cooperation and information sharing, which the Eastern Caribbean Central Bank has been pursuing,” the IMF says.

“With very high public debt levels, there is little, if any, room for countercyclical fiscal policy in the ECCU. Minimizing fiscal slippages would require following through on revenue reforms (including the introduction and successful implementation of value-added taxes), containing expenditures, and enhancing efficiency (particularly public investment and civil service wage bills), and strengthening debt management. Within this framework, a well-targeted social safety net is crucial for mitigating the disproportionate impact of economic hardships on the poor,” the IMF says. The region’s central bank is trying to get all the island economies in the region to achieve a public-debt-to-GDP target of 60% by 2020, and Dominica still has a long way to go on that front.

After reaching a decade-high 4% growth in 2006, real output growth slowed to an average of 2% during 2007–2008, following the passage of two successive hurricanes. Fiscal performance has remained strong, posting primary surpluses averaging above 4% of GDP since 2004, despite the effects of hurricanes, and food and fuel price shocks. Looking ahead, the main challenge is to maintain this creditable fiscal performance in a hostile global environment, by prioritizing capital spending, and broadening the tax base. The Dominica administration is committed to a primary fiscal surplus target of 3% of GDP over the medium term, while reforming income taxes and strengthening safety nets to protect the most vulnerable.

Back to top

Support for Inward Investment and Imports

The Invest Dominica Authority provides a one-stop shop service to investors, to guide them through the various stages of investing in the country. Dominica offers free movement of capital, dividends, and profits, and an offshore legislative infrastructure. There is a range of fiscal incentives. Contact Invest Dominica for further details.

Back to top

Tax Exemptions

There are various tax exemptions, including a tax holiday of up to 20 years for approved hotel and resort developments, and exemption of import duties on building materials, furniture, and fittings. The Ministry of Finance is responsible for all international business companies.

Back to top

Statistics

GDP growth: 2.5% (2008, IMF)

GDP per capita: US$9,500

CPI: 2.4% (2006, US State Dept.)

Key interest rate: 9.17%

Exchange rate versus dollar: East Caribbean dollars to US dollar—2.7

Unemployment: 13.1% (2005, US State Dept.)

FDI: N/A

Current account deficit: −US$72 million

Population: 72,514

Source: CIA World Factbook except where stated

Back to top

Further reading on Dominica

Websites:

Back to top

Share this page

  • Facebook
  • Twitter
  • LinkedIn
  • Bookmark and Share