Press Release No. 14/515

Press Release: IMF Staff Concludes Visit to the Dominican Republic

November 13, 2014

An IMF staff mission led by Mr. Przemek Gajdeczka visited Santo Domingo during November 3–12, 2014. The 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 Simón Lizardo, Minister of Economy Temístocles Montás, Minister of Education Carlos Amarante, and Central Bank Governor Héctor Valdez Albizu, as well as other senior government and central bank officials, and representatives of the private sector.

At the conclusion of the visit, Mr. Gajdeczka issued the following statement:

“The near-term outlook appears more favorable than envisaged at the time of the 2014 Article IV consultation. After 4.6 percent growth in 2013, real GDP growth accelerated to 7 percent (y/y) in the period January-September of 2014 driven by a pickup in tourism and construction, closing at around 6 percent by year´s end. As a result, unemployment has declined to 6 percent from 7 percent a year in October 2013. Inflation remains low (2.9 percent y/y in October), helped in part by a decline in tradable prices and slowing exchange rate depreciation. The external current account deficit is projected to remain broadly unchanged relative to 2013 (around 4 percent of GDP), but significantly lower from the 2010–12 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.

“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 percent of GDP. Quasi-fiscal losses of the central bank increased due to lower recapitalization transfers. In addition, continued losses in the electricity sector 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 percent of GDP by end-2014, which represents a cumulative increase of about 18 percentage points of GDP since 2008.

“For 2015, the mission projects real GDP growth of about 4.5 percent with inflation remaining around the mid-point of the central bank’s target range (3 to 5 percent). The external current account deficit is expected to contract further, to below 3 percent 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 percent and the non-performing loan ratio declined to 1.7 percent. The mission advises that the strong growth in bank credit to the private sector merits close monitoring.

“The mission expresses its gratitude to the government, the central bank and other stakeholders for their cooperation and frank discussions.”