The Economist Intelligence Unit, in an economic overview on the Dominican Republic following the successful restructuring of the sovereign bonds, says that the bottom line is that the risk of a liquidity crisis has been reduced and the way is clear for the government to normalize relations with other private external creditors and to seek additional rescheduling from the Paris Club. “The government of Leonel Fernandez is taking appropriate policy measures to put the economy on a path of sustainable growth,” according to a recent release from EIU. EIU writes that this should ensure the continued support of the IMF, which will provide an additional source of financing.
EIU concludes: “As the DR should now be able to meet its external financing needs in 2005-06, the Economist Intelligence Unit expects to upgrade both sovereign debt risk and overall country risk from D to C. However the ratings will remain at the low end of both risk categories and further improvements will be contingent on progress on structural fiscal reforms. The government will have to generate substantial primary fiscal surpluses in the medium and long term to meet the cost of servicing a public debt stock which has almost doubled as a percentage of GDP since 2002.”
The public sector debt rose from 29% of GDP at the end of 2002 to 52% of GDP at the end of 2004, primarily due to the government bailout of Baninter bank depositors, the economic downturn and the depreciation of the peso in the Mejia administration.