Debt Repayment Fund (DRF)

The Debt Repayment Fund (DRF) is a critical fiscal anchor introduced as part of the 2025/2026 National Budget. Designed to strengthen Dominica’s financial sovereignty, the fund serves as a dedicated reserve to ensure the timely servicing of national debt and to aggressively reduce the country’s debt-to-GDP ratio, which currently hovers around 89%.

The establishment of the DRF, alongside the Vulnerability Risk and Resilience Fund (VRF) and a new Fiscal Responsibility Framework, represents a strategic shift toward long-term fiscal discipline.

Core Purpose and Objectives

The DRF was conceptualized to address the unique challenges of a small island state that is frequently forced to borrow for reconstruction following natural disasters. Its primary goals include:

• Meeting Obligations: Ensuring the government meets its EC$128 million annual debt service requirement (as per the current budget) without straining recurrent operational funds.
• Targeting the 60% Goal: Providing a reliable mechanism to help Dominica reach the Eastern Caribbean Central Bank (ECCB) regional target of a 60% debt-to-GDP ratio by 2035.
• Investor Confidence: Signaling to international creditors and multilateral agencies (like the World Bank and IMF) that Dominica is implementing a self-insurance model for its liabilities.

Funding and Strategic Mechanics

Currently, the fund is fueled by a combination of primary surpluses and strategic revenue allocations:

• Primary Surplus Allocation: The 2025/2026 budget is projected to generate a primary surplus of 1% of GDP, a portion of which is earmarked for the DRF.
• CBI Revenue Integration: As approximately 58% of national revenue currently stems from the Citizenship by Investment (CBI) Programme, the government has moved to decouple a percentage of these funds from day-to-day spending, instead directing them into the DRF to build long-term reserves.
• Macro-Fiscal Stability: By ring-fencing these funds, the government avoids the risk of liquidity crunches during years when debt maturities on the Regional Government Securities Market (RGSM) peak.

The Five Pillars of the DRF Strategy

1. Debt Maturity Management: The fund is used to specifically target peaks in the debt schedule, such as the maturing bonds expected in the 2026/27 and 2029/30 periods.
2. Reduction of Arrears: A priority of the fund is to eliminate any outstanding domestic arrears to suppliers and local contractors, thereby stimulating the local economy.
3. Interest Savings: By maintaining a healthy DRF, the government can sometimes “pre-pay” or refinance higher-interest loans with the reserve, reducing the overall interest burden on the taxpayer.
4. Resilience Synergies: The DRF works in tandem with the VRF; while the VRF covers the costs of a disaster, the DRF ensures that the debt incurred from past disasters continues to be managed even when revenue is down.
5. Transparency and Reporting: Currently, the fund is managed under a strict legislative framework that requires regular reporting to Parliament, ensuring public funds are used solely for their intended purpose.

True resilience is not just about building strong bridges, but about building a financial foundation that can survive the storms of global economics. The Debt Repayment Fund ensures that our nation’s future is not mortgaged, but secured.