Frnaco Uccelli of Bear Stearns is optimistic about the DR. “The Dominican economy managed to defy all expectations and expand by a better-than-expected 4%, leading the government to suggest that growth for the year should come in close to that level, rather than the original 2.5% level projected in mid-January. All in all, positive fiscal news and higher-than-expected growth for the first quarter (a sign of resilience, in our view), coupled with consistent evidence of solid monetary performance and a likely successful bond restructuring, bode well for the DR’s medium-term macroeconomic prospects. Accordingly, we are sticking to our outperform recommendation on the credit, which we have had since early November 2004.<\/p>\n
Uccelli reports that the RD$5.5 billion surplus (close to US$200 million) at the Non-Financial Public Sector (NFPS) level for the first quarter of the year is leading the Dominican government to revise its fiscal projections for 2005.<\/p>\n
Uccelli attributes the positive result to the Fernandez administration’s “unwavering commitment to maintain fiscal discipline and to comply with the terms of its current stand-by agreement with the IMF.” He says this was facilitated by a 16% increase in revenues and a 6% decrease in expenditures during the quarter compared with the same period of 2004.<\/p>\n
According to Uccelli, the first quarter’s strong fiscal out-performance has prompted the government to indicate that the country is on track to record a 0.9% of GDP NFPS surplus in 2005, compared with an original deficit target of a 0.7% of GDP. If accomplished, the 0.9% of GDP surplus would imply a rather significant 3.6% of GDP adjustment at the NFPS level from last year, when the country’s NFPS deficit was equivalent to 2.7% of GDP. Moreover, should the government’s 3.2% of GDP quasi-fiscal projection for this year be met, the improved NFPS results would help to reduce the consolidated public sector deficit for this year to 2.3% of GDP, from an original deficit target of 3.9% of GDP earlier in the year and from last year’s whopping 6.7% of GDP fiscal shortcoming.<\/p>\n
Uccelli expects the government to ease fiscal conditions during the remainder of the year particularly in the run-up to next May’s congressional election, thus he forecasts the NFPS accounts will more likely be balanced or register a smaller surplus. He also reports that that there is room for the Central Bank to deliver a better-than-expected quasi-fiscal deficit for this year. At the moment, the official quasi-fiscal deficit projection stands at 3.2% of GDP. However, on the back of sharply lower interest rates, he forecasts that the monetary authority may be able to outperform such target by some 0.2%-0.3% of GDP and close the year with a quasi-fiscal deficit in the 2.9%-3.0% of GDP range.<\/p>\n
“Should such positive results come to fruition, the country’s consolidated fiscal accounts could conceivably produce a deficit equivalent to only 2.5%-3.0% of GDP, a sizeable improvement on 2004’s result,” he comments.<\/p>\n","protected":false},"excerpt":{"rendered":"
Frnaco Uccelli of Bear Stearns is optimistic about the DR. “The Dominican economy managed to defy all expectations and expand by a better-than-expected 4%, leading the government to suggest that growth for the year should come in close to that level, rather than the original 2.5% level projected in mid-January. All in all, positive fiscal … <\/p>\n