IMF Executive Board Concludes 2014 Article IV Consultation and Second Post-Program Monitoring Discussion with the Dominican Republic

Press Release No. 14/281
June 13, 2014

On May 28, 2014, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation1 and Second Post-Program Monitoring discussion with the Dominican Republic.

The Dominican Republic has experienced robust economic growth over the past several years. In 2013, real GDP increased by 4.1 percent driven by the mining, construction, agriculture, and tourism sectors. Activity slowed sharply early in the year, but then picked up supported by monetary policy easing and a normalization of fiscal policy. Headline inflation remained unchanged from 2012 at 3.9 percent (year-on-year) and was below the central bank’s target range (5 percent +/- 1 percent). Medium-term growth prospects are broadly favorable, though the balance of risks is to the downside.

The large increase in the fiscal deficit in 2012 was partially reversed in 2013. The deficit of the consolidated public sector declined by almost 3 percentage points of GDP, to 5 percent, owing to lower investment expenditure, the yield of the 2012 tax reform and the negotiation of new repayment terms with a private gold company. Despite this, the public debt-to-GDP ratio at
end-2013 was close to 48 percent, up from 35 percent in 2008. The government’s fiscal targets for 2014 envisage a further decline in the overall public sector deficit to 4.2 percent of GDP, but this may not be sufficient to place the public debt ratio on a downward trajectory.

Monetary policy was eased substantially in May 2013 to stimulate credit growth and support economic activity. However as pressures emerged in the foreign exchange market, the central bank increased the policy rate by 200 basis points in August; it has remained on hold since then. As of end-March 2014, credit growth remained buoyant, at 14 percent (y/y).

The external current account deficit declined from 6.8 percent of GDP in 2012 to 4.2 percent of GDP in 2013, owing to the coming on stream of gold exports, higher tourism receipts, and lower public investment. Net capital inflows remained large, reflecting both government borrowing and foreign direct investment. Gross international reserves closed the year at US$4.7 billion; as of May 23, 2014, they stood at almost US$5 billion.

At end-2013, the capital adequacy ratio of the banking system stood at over 14 percent, and nonperforming loans were less than 2 percent. However, the banking system’s exposure to the public sector increased to the equivalent of 5.5 percent of GDP by end-year. Government recapitalization transfers to the central bank were kept below the amounts envisaged in the 2007 law.

Executive Board Assessment2

Executive Directors observed that economic growth has been robust in recent years and commended the authorities on lowering inflation. They noted that the outlook remains favorable for growth and inflation, but saw downside risks stemming from uncertainties in the global economy and large domestic fiscal and external financing requirements. To reduce these vulnerabilities and enhance long-term economic growth, Directors recommended tightening the policy stance, building policy space, and speeding up progress in structural reforms.

Directors viewed favorably the recent steps toward fiscal consolidation, but agreed that additional measures may be needed to mitigate vulnerabilities stemming from large financing needs and put public debt on a more sustainable path. In particular, they recommended eliminating the deficit of the nonfinancial public sector over a period of three years, reducing tax exemptions, tightening public expenditure controls, and curbing transfers to the electricity sector.

Directors welcomed the authorities’ commitment to continue strengthening their inflation targeting framework. They encouraged the authorities to establish a mechanism for intervention in the foreign exchange market and to increase international reserves taking advantage of favorable balance of payments developments. Directors appreciated the authorities’ readiness to tighten monetary policy as needed to achieve their inflation and external objectives.

Directors underscored the importance for monetary policy credibility of central bank recapitalization, in line with the 2007 law. They welcomed the authorities’ intention to adopt governance reforms that would increase the independence of the state-owned commercial bank, strengthen its capitalization, and limit its exposure to the public sector.

Directors supported the authorities’ commitment to structural reforms. They agreed that labor market reform would help distribute the benefits of growth more broadly, and encouraged the authorities to foster competition and growth by reducing tax exemptions and removing distortions in the tax system. Directors welcomed the authorities’ plans to invest in electricity generation provided they do not undermine public finances. In addition, they saw room to encourage private investment in the electricity sector by reforming the regulatory framework and to enhance efficiency and reduce the budgetary cost of electricity transfers, especially by allowing tariffs to adjust in line with energy costs.

Dominican Republic: Selected Economic Indicators

Population (millions, 2013 estimate) 10.4

GDP per capita 2013 (U.S. dollars)


Quota (218.09 million SDRs / 0.09% of total)

Poverty (2012, share of population)


Main export products: tourism, textiles, gold

Extreme poverty (2012, share of population)


Key export markets: U.S. and Canada

Adult literacy rate (percent, 2007)




    Preliminary Projections


2010 2011 2012 2013 2014


(Annual percentage change, unless otherwise stated)

Real GDP

7.8 4.5 3.9 4.1 4.5

Nominal GDP (RD$ billion)

1,902 2,119 2,317 2,537 2,770

Nominal GDP (US$ billion)

51.6 55.6 59.0 60.8



Unemployment rate (in percent; period average)

5.0 5.8 6.5 7.0



Consumer price inflation (end of period)

6.2 7.8 3.9 3.9 4.5

Consumer price inflation (period average)

6.3 8.5 3.7 4.8 3.9

Exchange rate






Exchange rate (RD$/US$ - period average)

36.9 38.1 39.3 41.7

Exchange rate (RD$/US$ - end of period)

37.4 38.8 40.3 42.7

Government finances

(Percent of GDP)

Total revenues (including grants) 1/

13.6 13.5 14.0 14.7 15.2

Primary spending 1/

14.2 14.0 18.1 15.2 15.4

Of which: Transfers to electricity sector

1.2 1.2 1.5 1.4 1.6

Interest expenditure 1/

1.9 2.1 2.4 2.3 2.6

Quasi-fiscal balance of the central bank

-1.2 -1.3 -1.1 -1.4 -1.4

Consolidated public sector balance 2/

-4.1 -4.5 -7.9 -5.0 -4.2

Consolidated public sector debt 2/

38.9 40.2 43.5 47.6 49.5

Money and credit

(Annual percentage change)

Broad money (M3)

9.3 10.7 9.4 13.5 10.2

Credit to the private sector

20.7 13.2 5.5 15.0 8.6

Net domestic assets of the banking system

12.5 12.2 11.7 8.2 6.7

Balance of payments

(Percent of GDP)

Current account

-8.4 -7.9 -6.8 -4.2 -4.5

Underlying current account 3/

-8.4 -7.9 -7.0 -4.5 -4.8

Foreign direct investment

3.7 4.1 5.3 3.3 3.5

Merchandise trade balance

-16.9 -16.0 -14.7 -11.9 -12.4


13.1 15.3 15.4 15.9 16.2

Of which: gold

0.3 2.0 2.3


-30.0 -31.3 -30.1 -27.8 -28.6

Of which: oil and gas

-6.7 -8.4 -8.1 -7.2 -7.3

Services and transfers (net)

8.5 8.1 7.9 7.7 7.9

Gross official reserves (in millions of U.S. dollars)

3,765 4,098 3,559 4,701 4,925

GIR in months of imports (excl. maquila) 4/

2.7 2.9 2.6 3.3 3.2

Total external debt

33.3 34.0 34.9 38.1 39.6

Sources: Country authorities; World Bank; and IMF staff calculations and estimates.


1/ Central government.






2/ Total public sector including the central bank.






3/ Includes net gold exports, after subtracting capital outflows related to investment recovery by the gold company. Excludes imports related to construction of power plants in 2014.

4/ In relation to imports of goods and nonfactor services of the following year, excluding maquila.

1 Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.

2 At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here:


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