The International Monetary Fund highlights that the Dominican economy was quick to rebound after the effects of the Hurricanes Irma and Maria in September 2017. The Dominican Republic reported moderate growth in 2017 with economic activity expanding by 4.6% compared to 7.1% on average during 2014-16. The IMF published the appraisal results following the conclusion of its April 2018 consultation.
The IMF notes that public debt has continued to increase and the interest burden continues to grow relative to a narrow revenue base that is making debt less affordable. Nevertheless, the IMF says that the economic outlook for the country remains positive. The IMF says that lower lending rates and stronger credit growth, combined with higher real wages and employment, are expected to continue to support domestic demand. Growth is expected to increase to 5.5% in 2018 and then to moderate to its medium-term potential rate of around 5%. Inflation is expected to remain within the Central Bank’s 4 +/- 1 percent target band, while the external current account deficit will gradually widen to its historical levels with higher oil prices and stronger domestic demand. The IMF identifies the main downside risks could be higher world oil prices, tighter-than-anticipated global financial conditions, and weaker-than projected external demand.
The IMF forecasts that more meaningful fiscal adjustment will be needed to rebuild the buffers and reverse the upward debt dynamic. The IMF says that the government’s fiscal management program would need to be particularly mindful of its impact on growth, poverty and inequality. The adjustment should focus on widening the tax base (including through streamlining of tax incentives and exemptions), simplifying the tax system, and rationalizing inefficient expenditures, while prioritizing fiscal space towards increasing public investment and social spending to protect the most vulnerable.
The IMF is also advising reforms be made to enhance transparency in the public procurement processes, strengthen public financial management practices and align public statistics with international norms to further contribute to increase policy transparency and predictability.
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IMF
24 April 2018
