June 23/2003: -An increase in the sales tax from 5 to 7.5 percent; reduction of the stabilization levy from 4 to 3 percent and reduction of the consumption tax from 25 to 20 percent are among measures that Prime Minister Pierre Charles will announce when he presents his "package of fiscal adjustment" this morning, an informed source has told the Sun.

    The Prime Minister will also announce a 5 percent cut in nominal salaries, a 10 percent cut in all allowances - - except entertainment which will be reduced by 50 percent - - to everybody paid from the government purse, including government- paid boards, but no cuts in the public service, the source said.

    "We are looking at things like attrition and a reduction in the number of temporary clerical and temporary unqualified teachers. We are looking at a reduction in overtime but no across the board cuts (in the public service), said the source, adding that government would continue to look at the public service with a view to right-sizing, with both the European Union (EU) and the United Kingdom's Department for International Development (DFID) agreeing to provide technical assistance in undertaking an audit of the public service.

    According to the source, the decision to reduce the consumption tax was "a very courageous move" but one that was necessary to send "the right signal" to the private sector that government wanted to do something to assist it.

    Another announcement that the Prime Minister is expected to make when he presents the EC$291.8 million dollar budget is the removal of duty-free concession on the importation of diesel to the Dominica Electricity Services (DOMLEC), along with a "generalized reduction" in discretionary or ad hoc concessions from which the government hopes to save EC$1.5 million, said the source.

    "We have done some analyses that show that they can absorb that without increasing (electricity) rates," stated the source in reference to the removal of the concessions to DOMLEC.

    The package of fiscal adjustment measures will involve both the expenditure and revenue sides and will realise about EC$60 million but there will still be "a very significant" financial gap up to the end of the calendar year of about the same amount, the source told the Sun.

    The money is difficult to raise because what the country is looking for is budgetary support and most of the donors do not provide that kind of assistance.

    However, the donor community and Dominica's Caribbean Community neighbours have found ways to help.

    The EU has found a way to provide about 3 million euros; the Caribbean Development Bank (CDB) will take a proposal to its board to make available to Dominica EC$3 million; the International Monetary Fund (IMF) is giving $1.5 million, and the World Bank is expected to approve some $3 million in October. In addition, the governments of Barbados and Trinidad and Tobago have agreed to role over the bonds that they issued to Dominica. In the case of Barbados it was EC$13.5 million and Trinidad EC$10 million, while The Bahamas is making available a one-year instrument of US$1.5 million.

    The fiscal adjustment programme was finalized after the government reached a renewed standby arrangement with the IMF late Thursday, suggesting that the international financial institution was satisfied that the financing was good and that the economy would not collapse.

    However, the source emphasized that the programme was a tough one.

    "The country is going to be under a very tight programme that will involve a lot more improved and controlled public financial management," said the source, who also predicted some economic contraction.

    "We will experience again some economic contraction but it's a price that we have to pay for the type of situation that we are in. (But) there is some light at the end of the tunnel.

    "We have the entire international community buying into the programme providing the monetary support to ensure the economy does not collapse. That will buy us some time for the government programme to set in," the source told the Sun.

    After that, the country would likely enter a new arrangement with the IMF which is more growth oriented and would provide more cash at better terms.

    This year's budget of EC$291.8 million has recurrent expenditure of ECS227.6 million and capital expenditure of EC$66.6 million, which equates to 10 percent of gross domestic product.