Dominica was hit by a number of natural disasters during the summer and fall of 2011, with major flooding and landslides damaging infrastructure and housing. The cost of reconstruction and rehabilitation is expected to be high at 6 1/2 percent of gross domestic product (GDP) and will weaken Dominica’s balance of payments.
The RCF, which provides rapid financial assistance for low-income countries with an urgent balance of payments need, does not require any program-based conditionality or review. However, economic policies are expected to address the underlying balance of payments difficulties and support policy objectives including macroeconomic stability and poverty reduction. Financing under the RCF carries zero interest (until end 2013), has a grace period of 5½ years, and a final maturity of 10 years. The Fund reviews the level of interest rates for all concessional facilities every two years.
Following the executive board’s discussion of Dominica, Min Zhu, deputy managing director and acting chair, stated:
“Dominica suffered significant infrastructure damage following torrential rains, flooding and landslides in the second half of 2011. The recovery and rehabilitation costs will be high, putting pressures on the fiscal and balance of payments positions.
“Fiscal policies will partially accommodate the near-term increase in spending following the natural disasters, while underlying policies are being appropriately refocused towards medium-term consolidation objectives. The authorities are committed to returning to robust primary surpluses over the medium term to ensure downward debt dynamics, by tackling pressures on current spending and strengthening the revenue base and collection. A strengthened fiscal policy framework will support the adjustment effort.
“Structural reforms are key to supporting the fiscal effort, improving growth prospects, and increasing Dominica’s resilience to external shocks. Reforms to boost external competitiveness and enhance the business climate will be necessary to promote private sector activity. Stronger financial sector policies will help tackle vulnerabilities in the regional and domestic financial systems, both in terms of financial institution health and their supervisory and regulatory environment.”