IMF gives DR good grades in annual review

The International Monetary Fund (IMF) visiting team to review Dominican economy performance released the 2023 report with expectations that the DR will grow 4% this year, down from 4.9% in 2022. The mission explains that tighter global financial conditions, lower global growth, and a timely and appropriate withdrawal of domestic policy accommodation have contributed to growth moderation in 2023 that supports inflation’s return to the target range.

The mission was in the country from 8 to 19 May 2023 to prepare the report. Emilio Fernández-Corugedo head the mission. The mission met with Central Bank Governor Héctor Valdez Albizu, Minister of Finance José Manuel Vicente Dubocq, other senior officials, and representatives of the civil society and the private sector.

The mission acknowledged that the Dominican Republic’s economy has been one of the most dynamic and resilient in the Western Hemisphere over the last two decades, displaying an impressive recovery from the pandemic, supported by the authorities’ sound policies.

For the near term, the IMF states that policy priorities should remain focused on ensuring macroeconomic and financial stability. In the medium term, further enhancements to policy frameworks, the business climate, governance, and social safety nets can foster more inclusive growth.

The IMF mission recommends that the country maintain public debt’s downward path while navigating growth moderation and safeguarding financial stability.

The statement indicates:
Policies that seek to bring inflation to target and maintain macroeconomic stability remain appropriate. With inflation projected to decline and inflation expectations anchored, monetary policy should remain data dependent and calibrated to ensure that inflation converges fully to its target over the policy horizon. Exchange rate flexibility and accumulation of reserves, which have reached historically high levels, can continue to play shock absorbing roles.

Fiscal policy should remain focused on placing debt on a firmly downward path. Fiscal consolidation, supported by the gradual withdrawal of untargeted support measures in response to adverse shocks and aided by well-targeted measures to support the most vulnerable, can complement the inflation reduction efforts and will be important to build fiscal buffers.

While the financial sector remains resilient, the current environment of tighter financial conditions requires continued close monitoring, including via continuation of data collection enhancements and macroprudential analysis of household and corporate balance sheets.

Over the medium term, actions should focus on further enhancements to policy frameworks, the business climate, and social safety nets to strengthen inclusive growth.

Among the recommendations are:
Monetary and exchange rate. Central Bank recapitalization will reinforce its autonomy, while a strategy to continue deepening the FX market and expand the use of hedging mechanisms will also enhance the inflation targeting framework.

Fiscal policy. Additional upgrades to the policy frameworks — including the introduction of a fiscal responsibility law, improvements to public financial management, infrastructure governance and tax administration — alongside efforts to durably increase revenues through broadening the tax base and reducing exemptions can also support fiscal sustainability.

Financial policy. Further progress is required to modernize the regulatory framework and expand the macroprudential toolkit. The Superintendency of Banks is already closely monitoring financial institutions’ ability to comply with international standards. Introducing a prudential regulatory framework for unregulated savings and loans cooperatives will also enhance financial stability.

Structural reforms. Strong efforts to improve public institutions, governance, and the business climate—at the heart of the authorities’ reform agenda—are essential to boost inclusive growth and resilience. The authorities should persevere with electricity sector reforms while ensuring appropriate support for the most vulnerable. Implementation of climate adaptation and mitigation policies under the Nationally Determined Contribution action plan should continue to curb vulnerabilities.

Read the entire summary of the report:
Diario Libre

23 May 2023