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ROSEAU, Dominica, Feb 12, CMC – A senior official of the International Monetary Fund (IMF) says while Citizenship by Investment Programmes (CBI) have been an important source of foreign investment and fiscal revenues, for countries like Dominica, some international countries are concerned about erosion of their tax revenue base through evasion, and also about the misutilization of citizenship programmes.
“There are now several projects in Dominica in the tourism sector, some at an advanced stage that will generate income and jobs in the economy because of CBI. However, some countries are concerned about erosion of their tax revenue base through evasion, and also about the misutilization of citizenship programmes,” said the IMF Deputy Managing Director, Tao Zhang,
He told the Caribbean Media Corporation (CMC) that the concern is not about legitimate citizenship by investment programmes that are fully transparent and designed to minimize these risks.
“The government of Dominica has been cooperative, responding in a timely fashion to recommendations that help address possible loopholes in international taxation,” he added.
Dominica is among several Caribbean countries that have initiated CBI programmes under which foreign investors are granted citizenship in return for making a significant contribution to the socio-economic development of the country.
Zhang, who is due in Grenada on Tuesday, and in its 2018 Article IV Consultation Report, the Washington-based financial institution pointed to the fact that Hurricane Maria in 2017 exacerbated weaknesses in Dominica’s financial sector, particularly of non-bank institutions, which face undercapitalization, low profitability and high nonperforming loans.
Asked what steps should be taken to address these short comings, Zhang said that recent natural disasters have weakened the financial system, as expected after such extreme circumstances.
“However, the system has remained stable, and financial institutions have acted to address loan regularization and capitalization. The Eastern Caribbean Asset Management Corporation, which became operational in 2018, is an important instrument to strengthen banks’ balance sheets.
“The credit unions sector is working on regional harmonization of regulation and supervision in line with international standards, which is important to strengthen the resilience of the sector and to protect its key role in terms of financial inclusion.”
The report also pointed out that credit to the private sector has been flat and inflation remains subdued and the IMF official told CMC that price stability is key for investment and employment, mainly in terms of providing a predictable planning horizon.
“This speaks to the credibility of a strong institution such as the Eastern Caribbean Central Bank (ECCB). However, the long-standing stagnation in credit to the private sector means the banking sector has been unable to support the economic recovery. This is a reason why addressing financial weaknesses is important.”
Dominica’s output is expected to decline by 14 per cent and it is expected to take another five years to bounce back to pre-hurricane levels.
Zhang said owing to banking sector weaknesses, a major challenge is for the financial sector to provide sufficient support to the recovery.
“So we are placing emphasis on improving banks’ balance sheets. We welcome efforts made by banks to regularize their loan portfolios, and to seek capital injections and to consolidate with leadership from the ECCB. “
The IMF official is making his first official visit to Dominica and said he was “astounded by the natural beauty of the island and impressed with the speed of recovery after Hurricane Maria, having seen the images in the aftermath of the storm.
“The economy is recovering faster than we expected. We are happy to see normalization of daily activities, with significant government investments. Based on my discussions, I am also confident that large private investment, which is important for future development in the tourism and energy sectors, including geothermal electricity, are on track for completion in the near term.
“This clearly demonstrates the resilience and determination of the Dominican people. But the road ahead will remain challenging given the enormity of the task ahead. “
Zhang said that the contribution of the private sector is key for the development of Dominica in the long term.
“The authorities agree. But this means that the public sector must continue playing an important role in creating a favorable business environment.
This includes improving efficiency and reducing costs of dealing with government, such as to pay taxes. It also includes investments in health and education to enhance labour productivity and to close the skill-mismatch gaps of the labor force.
“Labour market regulations could also be modernized to facilitate labor mobility across sectors, especially given the seasonal nature of demand in key sectors such as tourism and agriculture. We should not forget that modernization of foreclosure and insolvency laws could pave the road for the financial sector to contribute to growth with more dynamic and productive lending,” Zhang told CMC.