Faculty members at the School of Economics of the Technological Institute of Santo Domingo (Intec) warned that if the current level of the national debt (calculated to be 37.7% of GDP) were to reach 40% of GDP, it would impact the interest rates as established on the sovereign bonds that the country has placed on the international markets. The report “Intec: Analysis of the Dominican Economy” was presented by Rafael Espinal, an economics professor at Intec and Franklin Vasquez, the dean of School of Economics and Business.
The public debt of the non-financial public sector has reached its highest level in four years. The report explains that last year the public debt grew by some US$2.5 billion a little less than 38% of the gross domestic product (GDP), and that it had a tendency to pass the 40% barrier considered to be the danger line for sustainability by international risk assessment agencies and organizations who periodically evaluate the economies of many countries including the Dominican Republic.
Last week, the Minister of Economy, Planning and Development Isidoro Santana, said that the issue of the public debt is a problem that worries government but that it is manageable. The head of the Ministry of Hacienda, Donald Guerrero explained that most of the public debt is tied to fixed rate financial instruments that guard the country against the impact of interest rate increases by the United States Federal Reserve.
On the other hand, the Intec economists warn the debt policy of debt of the Central Bank, is focused on managing the flow of dollars so that the monetary exchange rates are relatively stable. To accomplish this, the Central Bank issues securities valued at around RD$430 million. The report concludes that this leads to what essentially is a chronic and steadily increasing operational cost.
“The securities constitute an additional financial debt to the government’s public debt, which reaches 49% of GDP and creates a quasi-fiscal deficit for the government because of the cost brought about by the capital funding of the Central Bank,” the economists point out in the report.
The economists also noted that the recent years strong pace of economic expansion, together with stability in the recent first quarter growth, have resulted in a favorable external environment mostly because of the return to the growth cycle of the United States economy and low prices of imported raw materials.
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Diario Libre
25 May 2017
