Under Article IV of the International Monetary Fund’s (IMF) Articles of Agreement, an IMF staff team visits the country every year to collect economic and financial information, and discuss with officials the country’s economic development and policies. The report on the 2016 economic performance has now been issued and an abstract published online for the general public.
The abstract states that the country’s economic outlook is favorable. It states that the strong domestic demand has kept the Dominican economy outperforming most economies in the Americas. Growth has averaged 7% over the past three years, and GDP grew 6.6% with inflation at a low 1.75% in 2016, as the country benefited from low oil prices.
Nevertheless, the IMF states that growth is expected to slow towards the potential rate of around 5% from 2017 onward, while the recent rise in fuel prices should push inflation to target and widen the current account deficit moderately from 2017 onward.
Risks around this baseline outlook are balanced, says the IMF. It explains that key risks stem from the uncertainty surrounding the economic and policy outlook for the external trading partners, notably the US, the outlook for oil prices, higher than expected global interest rates, and the ensuing dollar appreciation.
The IMF says that public debt was at 49.7% of GDP by the end of 2016, with a consolidated public sector registering a deficit of 4.3% of GDP for the same year.
On the positive side, the IMF reported that the policy interest rate was increased from 5 to 5.5% to prevent potential overshooting of inflation, as commodity prices begin to unwind against a backdrop of a positive output gap and robust credit growth. Financial soundness indicators for the banking system remain strong, with healthy capitalization, low asset impairment and strong provisioning.
The IMF recommends containing the fiscal deficit this year and broadening the narrow tax base through renewed revenue administration reforms that would also simplify the tax system, and streamline tax exemptions and incentives. The IMF directors say there is room for improving the quality of spending, especially on untargeted energy subsidies, while protecting pro-poor and pro-growth spending.
Read more in Spanish:
http://www.imf.org/en/News/Articles/2017/03/27/pr1799-dominican-republic-imf-executive-board-concludes-2017-article-iv-consultation
28 March 2017
