The economist Ellen Perez Ducy argues that the current sluggishness in the Dominican economy, evidenced by slow growth in 2025 despite favorable external conditions, is primarily due to domestic factors, specifically an overemphasis on social and current expenditures (a policy of “induced demand or social predominance”) rather than strategic capital investments.
The bottom line is that the money is going to make interest payments on foreign borrowing by the government that has grown 40% in two years (2022-2024). Social benefits are up 30%, electricity subsidies are up 27% and the government payroll is up 22%.
The DR is expected to reach only 2% growth for 2025, despite the rebound to 5% of the economy in 2024.
Perez Ducy argues that any one of these increases could, by itself, explain the fiscal deficit. The created deficit prevents the execution of necessary capital investments, leading to the deterioration of essential services like electricity and transportation.
In the opinion piece in Diario Libre, the economist writes that this deceleration in 2025 is occurring despite several beneficial external factors, such as relatively low oil prices at US$66.4 per barrel, and increases in cash remittances. Record highs for gold, cacao and coffee exports have driven national exports. There has also been a 3% increase in tourist arrivals, mainly driven by Dominican expats. Moreso, there has been an increase in net external capital of US$600 million, a steep US$3.3 billion in new net borrowing, increasing internal reserves.
The current policy, termed a “demand-induced or social-predominance” strategy (where social spending equals a quarter of total expenditure), prioritizes current spending, even financing it with international funds.
Perez Ducy writes that this kind of strategy is only productive if it promotes supply without negatively affecting fiscal balance. This approach was attempted and failed with major inflationary effects in the 1980s, and it is now yielding disappointing results again.
Perez Ducy concludes that the strategy must be modified as soon as possible. This change should not come through a fiscal reform aimed at continuing demand subsidies. Instead, she says the government must acknowledge the time is right for a significant revision of public spending as a first step.
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Diario Libre
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Hoy
1 December 2025