The IMF Executive Board Assessment commends the Dominican authorities for the decisive policy response to the Covid-19 pandemic health and economic crisis. In the 30 June 2021 assessment, IMF directors agree that the Dominican Republic is set for a strong economic recovery in 2021 underpinned by the policy response, the global rebound and the swift vaccination campaign. The IMF officials note that risks to the outlook are broadly balanced, mainly associated with the strength and speed of the global recovery. The local formula was a mix of increased social transfers and health spending, tax deferrals and targeted tax relief, monetary policy easing, liquidity support and prudent flexibility.
The IMF recommends a broadening of the tax base and revision of tax exemptions. It recommends the continued funding of critical social assistance and health spending through strict controls of non-priority expenditures and improved targeting of social and employment programs.
It backs government efforts to carry out reforms in the electricity sector to help create fiscal space to reduce debt sustainability risks while protecting investment and social spending. It also backs improvements in fiscal governance and transparency that are underway, including the enhancing of public financial management and the submitting of fiscal responsibility legislation.
Despite a contraction of the economy of 6.7 in 2020, the IMF says that significant recovery is expected starting in 2021 with risks broadly balanced. The recovery is aided by US spillovers and the swift vaccination campaign.
The IMF says that while the recovery of tourism activities is happening in a gradual manner, manufacturing exports, investment and consumption are supported by global growth, resilient FDI and buoyant remittances.
The IMF says the supply shocks that have spiked price increases are temporary and forecasts inflation will converge to the target over the policy horizon.
The IMF states: “While Covid has burdened public finances, a gradual return to pre-pandemic primary balances would secure a downward path in public debt. The current account would remain more than fully financed by FDI. Risks are broadly balanced, largely reflecting the Covid outbreak: while a longer-than-expected deployment of vaccines or a prolonged pandemic could deter growth, faster global containment may have positive spillovers. Other key risks include tighter global financial conditions and extreme weather events.”
The directors note that ensuring inclusive and sustainable growth will require making social programs more effective and focused on increasing labor market participation and education support, modernizing the labor code to allow for more flexible and formal work arrangements, narrowing labor market skills gaps, and addressing rural poverty and gender inequality. They also highlight the importance of enhancing competitiveness and reducing the regulatory burden. Directors stress that adapting to and mitigating climate change risks remains a priority.
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IMF
2 July 2021