A mission from the International Monetary Fund (IMF) headed by Przemek Gajdeczka, which visited Santo Domingo from 3n12 November 2014, has concluded that the outlook for the end of the year is more favorable than expected.
But the mission observes the fiscal deficit by year’s end will be at 50% of GDP and recommends more taxes instead of more borrowing in order to maintain the present government level of spending. The PLD governments are known for their wasteful spending, according to the World Economic Forum Global Competitiveness ranking, and have been reticent to cut spending, preferring to increase taxation over the years.
The IMF mission observed that after registering a 4.6% growth rate in 2013, real GDP growth has accelerated to 7% in the January-September 2014 period driven by a pickup in tourism and construction, and would close at around 6% by year’s end. The IMF mission confirmed that unemployment had declined from 7% to 6% since October 2013 and that inflation remains low (2.9% in October), helped in part by a decline in tradable prices and slowing exchange rate depreciation.
The mission says that the external current account deficit is projected to remain broadly unchanged relative to 2013 (around 4% of GDP), but significantly lower from the 2010n12 levels. This improvement reflects the coming on stream of gold exports, favorable terms of trade, and strong remittances and tourism revenues. Gross international reserves stood at US$4.4 billion (about 2.9 months of imports) at end-October, an increase of US$1.1 billion since October 2012.
In its concluding remarks, the IMF mission stated:
“The mission supported the central government’s efforts to control its expenditure while increasing spending on education, which would help to meet the 2014 budget target of 2.8% of GDP.”
On the downside, though, the IMF mission observed that the Central Bank’s quasi-fiscal losses had increased due to lower recapitalization transfers. In addition, it remarked that the continued losses in the electricity sector have contributed to an increase in arrears to private generators.
“These factors would lead to an increase in the debt of the consolidated public sector to above 50% of GDP by end-2014, which represents a cumulative increase of about 18 percentage points of GDP since 2008,” states the IMF.
In its ending remarks, the IMF stated: “For 2015, the mission projects real GDP growth of about 4.5% with inflation remaining around the mid-point of the central bank’s target range (3 to 5%). The external current account deficit is expected to contract further, to below 3% of GDP mainly owing to the decline in oil prices. The mission agreed with the authorities’ objective to increase gross international reserves and maintain them at the equivalent of more than three months of imports in order to strengthen the economy’s resilience to external shocks.
“The mission recommends continuing with fiscal consolidation to strengthen debt sustainability and lower external borrowing requirements. In addition, it advises a change in the balance of the fiscal consolidation toward increasing revenues rather than reducing capital spending. The mission also reiterates the importance of resuming the central bank recapitalization in line with the 2007 law, which will help to strengthen the credibility of the monetary framework.
“Financial system indicators are broadly satisfactory. The average capital adequacy ratio of the banking system as of September 2014 was 15.4% and the non-performing loan ratio declined to 1.7%. The mission advises that the strong growth in bank credit to the private sector merits close monitoring.”
The IMF team assessed macroeconomic developments and discussed economic challenges, policy priorities and possible themes for the next Article IV Consultation mission, which is scheduled to take place in mid-2015. The mission met with Finance Minister Simon Lizardo, Economy Minister Temistocles Montas, Education Minister Carlos Amarante, and Central Bank Governor Hector Valdez Albizu, as well as other senior government and central bank officials, and private sector representatives.
http://www.imf.org/external/np/sec/pr/2014/pr14515.htm
http://www.diariolibre.com/economia/2014/11/14/i882111_deuda-rompe-techo-del-fmi-pide-ampliar-impuestos.html