## 1domea2022001

## Source details

**Canonical URL:** [1domea2022001](https://www.imf.org/-/media/files/publications/cr/2022/english/1domea2022001.pdf)

## Other formats

- [Markdown version](/-/media/files/publications/cr/2022/english/1domea2022001.pdf.md)
- [Structured JSON version](/-/media/files/publications/cr/2022/english/1domea2022001.pdf.json)

---

### Strong recovery and near-term macro projections
- Recovery and output:
  - Real GDP increased by 12.3 percent in 2021.
  - By end-2021, GDP was 5 percent above pre-pandemic levels.
  - Tourism arrivals exceeded 2019 levels by 15 percent in the last quarter of 2021.
  - Real wages in 2021 recovered by 1½ percent from the 2020 fall of 13 percent.
- Inflation and external influences:
  - Inflation at end-2021: 8½ percent, above the target range; driven primarily by external factors (high US inflation, higher global fuel and food prices, COVID-related supply disruptions, recovery of US demand).
- Staff projection summary (selected indicators, in percent of GDP or percent unless specified):
  - GDP growth series (2018–2027): 7.0 / 5.0 / -6.7 / 12.3 / 5.0 / 5.0 / 5.0 / 5.0 / 5.0 / 5.0
  - Consumer price inflation (e.o.p.) series (2018–2027): 1.2 / 3.7 / 5.6 / 8.5 / 8.0 / 4.5 / 4.0 / 4.0 / 4.0 / 4.0
  - Consolidated public sector overall balance (2018–2027): -3.4 / -3.3 / -9.0 / -3.9 / -3.9 / -3.7 / -3.5 / -3.4 / -3.3 / -3.1
  - Consolidated public sector debt (2018–2027): 50.1 / 53.3 / 71.1 / 62.1 / 59.3 / 57.6 / 56.6 / 55.8 / 54.9 / 54.0
  - Current account (2018–2027): -1.5 / -1.3 / -1.7 / -2.8 / -3.4 / -2.4 / -2.2 / -2.2 / -2.2 / -2.2
  - Gross reserves (US$ million, 2018–2027): 7,627 / 8,781 / 10,752 / 12,289 / 13,602 / 15,215 / 16,380 / 17,563 / 18,831 / 20,190
- Outlook and policy implications:
  - Growth expected to decelerate to potential in 2022; maintaining potential growth at 5 percent in the medium-term requires continued investment, higher labor-force participation, and higher productivity.
  - Recovery reduced the public sector deficit by about 5 percent of GDP and public debt by 9 percent of GDP; 2022 budget mostly financed and refinancing risks curbed.

### Risks and scenario considerations
- Risk tenor:
  - Short-term risks tilted to the downside; medium-term risks more balanced.
- Global shocks and channels:
  - War in Ukraine: higher commodity prices → raise inflation, increase fiscal social support needs, require stronger monetary tightening, affect growth.
  - Global financial conditions: stronger tightening → curb capital flows, increase financing costs, pressure the currency, raise debt burdens for unhedged foreign-currency borrowing.
  - COVID-19: new variants could reduce global output and hurt the service-oriented domestic economy.
- Domestic dynamics:
  - Reforms and expanded investment could reduce risk premia and boost potential growth; unexpectedly high inflation or other shocks could hinder reform momentum.
- Scenario quantification (staff estimates):
  - Geopolitical shock could add 2 percentage points to headline inflation in 2022.

### Fiscal policy, 2021–22 stance and mitigation measures
- 2021 fiscal consolidation and one-offs:
  - Deficit reduced by about 5 percent of GDP in 2021.
  - One-offs and extraordinary revenues in 2021: advances (0.5 percent of GDP), collections from law 46-20 (0.5 percent of GDP), other extraordinary revenues (0.1 percent of GDP); fuel price smoothing required subsidies of 0.2 percent of GDP.
- 2022 budget and staff assessment:
  - Budget aims to continue expenditure rationalization while mitigating higher commodity prices; fiscal stance broadly neutral in 2022.
  - Staff view: 2022 budget is conservative on tax revenue; revenues from sales of minority stakes in energy generation assets are uncertain; overall 2022 deficit expected to remain in line with 2021.
  - Budget GDP assumption: Government assumes GDP is RD$5,837 bln; staff assumes GDP of RD$6,160 bln.
- Emergency fiscal measures to mitigate commodity-price shock, 2022 (Duration, Initial Cost (percent of GDP)):
  - Fuel / Transport: Freeze of basic fuel prices — 4 months — 0.3
  - Bonogas-Households — full-year — 0.1
  - Public transport drivers (INTRANT) — 4 months — 0.0
  - Food: Superete/Alimentate (cash-transfer) — full-year — 0.1
  - Other food support (in-kind) — full-year — 0.1
  - Subsidy for up to 10% of food imports — 6 months — 0.1
- 2021 (Actual) / 2022 (Budget) / IMF Proj. (selected lines, in percent of GDP):
  - Revenue: 15.6 / 14.8 / 14.4
  - Tax revenues: 14.3 / 13.0 / 13.4
  - Current Spending (Expenses): 17.1 / 16.1 / 15.9
  - Interest: 3.1 / 3.6 / 3.0
  - Subsidies: 1.4 / 1.0 / 1.9
  - Overall Balance: -2.9 / -3.0 / -3.0

### Monetary policy and inflation management
- Policy normalization:
  - Central bank began mopping up exceptional liquidity starting August 2021 and increased the reference rate by 350 bp since November 2021 (from 3 to 6½ percent).
  - Staff view: tightening appropriate; real policy rate remains negative so stance still supportive.
- Guidance:
  - Pace of tightening should be data dependent; objective to allow inflation convergence to the target range (4±1 percent) over the policy horizon.
  - Graduality supported by well-anchored two-year inflation expectations and subdued wage pressures.

### Electricity sector reforms and fiscal-equity calibration
- Fiscal drag and past transfers:
  - Electricity sector transfers about 1 percent of GDP annually over the last decade.
- Electricity Pact objectives and timeline:
  - Enhance governance, facilitate private investment, implement tariff and subsidy reforms.
  - First tariff increase in 10 years took place in November (year noted in source); quarterly adjustments continued in 2022.
  - Reforms intend to gradually reach cost-recovery levels by 2026 and increase targeted transfers through Bonoluz to mitigate poor households’ impact.
- Tariff adjustment formula (transition over 20 quarters) and example:
  - Tariff_t^j = Tariff_0^j + A1_t^j + A2_t with A1_t^j = (Reference Tariff_0 − Tariff_0^j) / 20 × t and A2_t = Reference Tariff_t − Reference Tariff_0.
  - Implementation discretion noted: example second quarter 2022 scheme implied increase of 27 percent for ≤300 kWh/month consumers; actual increase applied was 9 percent instead.
- Tariff levels for low-voltage residential customers as of 2022Q1 (RD$ / kWh):
  - Reference Tariffs 2022Q1: 12.46 (EDESUR), 13.09 (EDENORTE), 12.53 (EDESTE)
  - Tariff 2022Q1 by consumption range:
    - 0-200 kWh: EDESUR 5.55, EDENORTE 5.48, EDESTE 5.66
    - 201-300 kWh: EDESUR 7.88, EDENORTE 7.81, EDESTE 7.99
    - 301-700 kWh: EDESUR 11.46, EDENORTE 11.38, EDESTE 11.56
    - > 701 kWh: EDESUR 11.68, EDENORTE 11.60, EDESTE 11.79
- Bonoluz program (targeting and coverage):
  - Bonoluz cash transfer up to RD$444 per month historically; could be up to RD$574 by late 2021.
  - Active beneficiaries end-2021: 330 thousand households.
  - Government target: expand Bonoluz to 900 thousand by 2024 and 1 million households by 2026.
  - As part of Electricity Pact, subsidies to be received exclusively by households identified as poor/vulnerable via SIUBEN (Presidential Decree 651-21).

### Social protection and poverty mitigation
- Supérate program adjustments and 2022 measures:
  - Alimentate Program: coverage increase from 1.35 to 1.65 million households with monthly assistance RD$1,650 (up from 800 thousand households with RD$825).
  - Bonogas Program: coverage increase from 926 thousand to 1.399 million households; support increases from 228 to 470 pesos per month.
  - Other measures: increased distribution of food rations; 136,000 additional daily food rations via canteens; subsidized sale of the basic food basket at popular markets and supermarkets.
- Social outcomes:
  - Pandemic increased poverty though social assistance helped cushion the shock.
  - Supérate consolidated PROSOLI transfers (Presidential Decree 377-21, June 2021) to reduce poverty via capacity development and productive inclusion.
  - Despite expanded social programs, pandemic partially reversed poverty decline of 2014–19.

### Financial sector soundness and resolution
- Asset quality and restructuring:
  - 7.7 percent of the loan portfolio has been restructured, driven by hotels, restaurants, and transportation sectors.
  - Stressed delinquency measures include restructured loans and foreclosed/written-off loans in past 12 months.
- Key indicators (selected, end-2021):
  - Deposit-Taking Institutions (I.): NPLs to total loans 1.3; Loan provisions to NPLs 335.7
  - Commercial Banks (II.): NPLs to total loans 1.2; Loan provisions to NPLs 362.1
  - Capital adequacy declined from 22.4 percent in June 2021 to 19.0 percent by year-end—still higher than pre-pandemic level.
- Resolution and recapitalization:
  - Liquidation of a very small bank (0.13 percent of DTI assets) had no visible market effect.
  - 2022 budget includes provision for recapitalization transfers to the BCRD—0.6 percent of the GDP; recapitalization would not impact total public debt but would strengthen BCRD institutional independence.
- Macroprudential and supervisory priorities:
  - Implement enhancements to macroprudential toolkit, stress testing, and roadmap for Basel II/III and IFRS.
  - Improve data on private sector balance sheets and strengthen regulation/supervision of credit and savings cooperatives (about 3.5 percent of DTI assets).
  - Authorities exploring a Central Bank Digital Currency (CBDC); staff ready to provide capacity development support.

### External sector, reserves, and exchange-rate assessment
- External position:
  - NIIP improved to -65 percent of GDP in 2021 (ten percentage points higher than 2020).
  - External debt declined to 50 percent of GDP in 2021; projected reduction to 42 percent of GDP by 2027.
  - 2021 current account deficit: 2.8 percent of GDP.
  - Remittances: 10.3 percent of GDP in 2021.
- Reserves and adequacy:
  - Gross international reserves: US$13 billion by end-2021 (20 percent increase).
  - Reserves at 83 percent of the IMF’s recommended ARA metric (fixed exchange rate benchmark).
  - Coverage metrics (selected):
    - Months of imports: 4.5 (2021)
    - Months of imports (excl. free zones): 5.3 (2021)
    - Broad money coverage (percent): 32.8 (2021)
    - Short-term debt coverage (percent): 309.8 (2021)
    - Additional reserves needed to reach IMF reserve metric of 100: 2.5 (billion US$ in 2021)
  - FX interventions in 2021: overall net purchases amounted to US$1.8 billion; interventions mostly double-sided and sterilized.
- Real exchange rate:
  - REER revalued by 6 percent in 2021 (end-of-period) after significant peso depreciation in 2020.
  - REER undervaluation estimates: EBA Lite model −2 percent; REER regression −35 percent (low statistical confidence).
  - Staff assessment: real exchange rate gap in range 0 to 2 percent.
- Financing and flows:
  - 2021 financing: CA deficit fully covered by FDI at 3.3 percent of GDP.
  - Medium-term FDI expected around 3-4 percent of GDP.
  - Net portfolio inflows moderated to 2.7 percent of GDP in 2021 (from 7.1 percent in 2020).

### Debt management and public debt sustainability
- Proactive operations and 2022 placement:
  - Mid-February government placed US$3.6 billion in international markets: about US$2.2 billion to finance 2022 budget; remainder to retire debt due in 2023–24.
  - Previous 2020–21 operations reduced 2022–27 financing needs.
- Public debt profile (end-2021, NFPS characteristics):
  - Average maturity: 11.5 years.
  - Share short-term debt: 5.2 percent.
  - Share foreign-currency denominated debt: 76.1 percent.
  - Share floating rate debt: 12 percent.
  - Domestic debt: 31 percent of NFPS debt; average maturity 7.4 years; floating rates 1 percent; about 21 percent in foreign currency; 90 percent held by residents.
  - Share held by non-residents: 57 percent of consolidated debt.
- DSA baseline and projections (selected):
  - Consolidated public debt-to-GDP projected to decline to about 54 percent of GDP by 2027.
  - Baseline external debt (percent of GDP): 57.2 (2020), 49.9 (2021), 46.8 (2022), 42.2 (2027) (table shows series 2018–2027).
- Stress tests and scenarios:
  - Symmetric stochastic simulation: 100 percent probability debt remains below 70 percent of GDP over medium term.
  - Asymmetric (adverse, no positive primary balance shocks): 75 percent probability debt remains below 70 percent of GDP.
  - Combined shock result: debt could rise to maximum 72.3 percent of GDP; gross financing needs up to 12.2 percent of GDP.
  - Natural disaster (100-year) scenario assumptions and outcomes:
    - Economy-wide loss: 20 percent of GDP; share borne by government: 15 percent = 3 percent of GDP.
    - Real GDP growth: -0.9 percentage points first year; +0.3 percentage points rebound next year.
    - Inflation: +1 percentage point in year of shock.
    - Primary deficit: 2.3 percent of GDP in year of shock.
    - Effective interest rate: +50 bps year of shock.
    - Debt peaks at 62.5 percent of GDP; gross financing needs peak at 9.5 percent of GDP.
- Identified public debt indicators (selected projections and levels):
  - Nominal gross public debt (percent of GDP): 2020 46.0; 2021 71.1; 2022 62.1; 2023 59.3; 2024 57.6; 2025 56.6; 2026 55.8; 2027 54.9; 2028 54.0
  - Public gross financing needs (percent of GDP): 2020 7.6; 2021 11.2; 2022 6.8; 2023 5.9; 2024 6.2; 2025 6.0; 2026 6.7; 2027 8.4; 2028 7.7

### Structural reforms, governance, and competitiveness
- Reform emphases and commitments:
  - Stronger policy frameworks (including a fiscal responsibility law).
  - Better governance and transparency, including procurement law amendments and a transparency portal.
  - Sustainable electricity sector reforms (tariff adjustments to cost recovery and targeted transfers replacing consumption-based subsidies).
  - Enhanced business environment (Zero-Bureaucracy law, Ley 167–21) and trade facilitation (Ley 168-21 customs reform).
  - Strengthened social programs and financial inclusion measures.
- Tax policy and revenue mobilization:
  - Central government revenue series (2018–2027): 14.2 / 14.4 / 14.2 / 15.6 / 14.4 / 14.4 / 14.5 / 14.5 / 14.5 / 14.5 (percent of GDP)
  - Tax expenditures (2021, percent of GDP): ITBIS 2.41; Taxes on Income and Wealth 1.32; Excises 0.43; Customs and Use of G&S 0.27; Total 4.43
  - Potential scenario: exemptions reduced by 1 percent of GDP in 2024–25 could accelerate CPS debt decline and provide fiscal space.
  - Tax-administration reforms: customs law (2021), planned overhaul (Title I Tax Code), electronic invoicing, taxation of digital services, risk-based tax debt management.
- Competition, procurement, and trade facilitation:
  - Public procurement reform initiatives: decree No. 36-21, preventive/reactive alert system (SAPR), creation of a special fraud unit at the Comptroller General, transparency portal, legislative proposal to make procurement a public order law.
  - Competition authority (ProCompetencia): limited powers; plans to strengthen mandate and sanctioning capacity; public presentation planned August 2022.
  - Customs law Ley 168-21: advance rulings reduced to 30 days, 24-hour dispatch target, OEA status, non-invasive inspections.
- Institutional and legal improvements:
  - Plans to strengthen judiciary independence, procurement controls, competition policy, and anti-corruption measures.
  - Ongoing PFM enhancements, integration of SIGEF and SECP, multiannual spending commitments, and request for FAD TA and PIMA.

### Inflation drivers (Annex I analytical findings)
- Model and high-level result:
  - Semi-structural new-Keynesian model decomposed CPI into core, non-core food, and energy; external factors (exchange rate, foreign prices, foreign demand) were primary drivers of all components.
  - Oil prices and the wedge between policy rate and the Taylor-rule-implied rate notably impacted inflation, particularly in 2021.
- Component-specific drivers:
  - Core inflation: driven by exchange rate and foreign inflation, inertia and expectations; shocks to US inflation, US output gap, international oil prices, and policy-rate wedge contributed to elevated core inflation in 2021.
  - Non-core food inflation: main drivers exchange rate, world food prices, expectations, and one-off supply shocks (notably 2020Q3 storm: Green plantains +304 percent price increase contributing 11.4 percent to non-core food inflation; onions +122 percent contributing 2.5 percent; 2021Q3 swine flu: chicken +45 percent contributing 6.4 percent).
  - Energy inflation: primarily world oil price; domestic price-smoothing often offset world price volatility except in 2020Q1 and 2021Q4.
- Expectations:
  - Model-implied inflation expectations increased by end-2021 due to pickup in US inflation and output gap and moderate depreciation.

### Growth-at-Risk (GaR) and macrofinancial vulnerabilities
- Short-term GaR (four-quarters-ahead) results:
  - Median growth: 4.5 percent
  - Mean growth: 5.3 percent
  - Growth at Risk (5 percent probability): 2.6 percent (probability GDP growth ≤ 2.6 percent is 5 percent)
  - Probability of negative growth (0.5 percent): relatively low
- Medium-term GaR:
  - GaR (5 percent probability) falls from 2.6 percent (1 year ahead) to 0.98 percent (5 years ahead).
- Policy implications:
  - Domestic credit conditions and fiscal variables are especially relevant for downside growth risks; fine-tuning liquidity conditions and fiscal policy during recessions is important.

### Fund relations, data, and technical assistance priorities
- Fund positions and RFI:
  - Quota: 477.40 SDR Million (100.00 percent)
  - RFI Loan: 477.40 SDR Million (100.0 percent allocation)
  - Projected payments to Fund (SDR Million): Forthcoming 2022 Principal 119.35; 2023 Principal 238.70; 2024 Principal 119.35; Charges/Interest 2022 5.73; 2023 7.94; 2024 5.05; 2025 1.70; 2026 1.04
- Data and TA priorities:
  - Revenue and customs administration support, PFM strengthening, public investment management diagnostics, government finance statistics expansion, national accounts rebasing (to 2018) expected by first half of 2023, financial supervision (Basel II/III, IFRS 9) TA scheduled FY2023.
- Exchange rate arrangement and consultations:
  - De jure: “managed floating”; de facto: “other managed”.
  - Article IV consultation cycle: standard 12-month cycle; previous consultation discussions April 21–May 5, 2021; Executive Board concluded June 30, 2021.

### Staff appraisal and recommendations (headline)
- Main assessments:
  - Sound policies supported stability, market access, effective vaccination and reopening, limiting scarring and poverty increase.
  - Strong recovery allowed front-loaded fiscal consolidation and monetary normalization to address inflation.
  - External position broadly in line with fundamentals; CA deficit increased but fully financed by resilient FDI; reserves adequacy improved.
  - Financial system resilient, but would benefit from higher international supervisory standards, enhanced macroprudential toolkit, and strengthened oversight of cooperatives.
- Priority policy recommendations:
  - Continue gradual fiscal consolidation while protecting social spending and investment; improve targeting of commodity-price mitigation measures.
  - Implement Electricity Pact reforms to reach cost recovery by 2026 while expanding targeted transfers (Bonoluz/Supérate).
  - Preserve inflation-targeting credibility with data-dependent monetary tightening as needed.
  - Advance revenue mobilization and tax-administration reforms to broaden base and reduce exemptions (tax expenditures total 4.43 percent of GDP in 2021).
  - Strengthen medium-term fiscal framework (FRL) anchored on a 50 percent debt-to-GDP ratio and consider a multi-year expenditure ceiling as an operational rule.
  - Continue proactive debt management and reserve accumulation to mitigate external risks.
  - Sequence and implement institutional reforms (procurement, competition, customs, PFM, AML/CFT) to foster inclusive growth.
- Recommendation: next Article IV consultation on the standard 12-month cycle.

*Source: IMF staff report material (2022) — Dominican Republic, content unit 1domea2022001.*

### 2022. The staff team comprised Esteban Vesperoni (head), Pamela

### STRONG RECOVERY, POLICY ADJUSTMENTS AND ONGOING REFORMS

### Recent developments and recovery
- The economy rebounded strongly in 2021, aided by positive global spillovers and a well-phased reopening; by end-2021, GDP was 5 percent above pre-pandemic levels.
- Real GDP increased by 12.3 percent in 2021; tourism arrivals exceeded 2019 levels by 15 percent in the last quarter of 2021.
- Inflation at end-2021: 8½ percent, above the target range, driven primarily by external factors (high US inflation, higher global fuel and food prices, COVID-related supply disruptions, recovery of US demand).
- Real wages in 2021 recovered by 1½ percent from the 2020 fall of 13 percent.
- The current account (CA) deficit widened in 2021 as remittances, exports, and tourism recovery only partially offset higher imports and prices.
- Reserve position strengthened, reaching 83 percent of the ARA metric.
- Financial sector: capital and liquidity buffers remain sufficient despite elevated distressed loans (notably restructurings in the service sector); a recent liquidation of a very small bank had no visible market effect.

### Medium-term outlook and key macro projections
- Staff projection summary (Selected Indicators, In Percent of GDP, Unless Otherwise Specified — as presented):
  - Growth and Prices: 2018201920202021202220232024202520262027
    - GDP growth 7.05.1-6.712.35.05.05.05.05.05.0
    - Consumer price inflation (e.o.p.)1.23.75.68.58.04.54.04.04.04.0
  - Government Finances:
    - Central government revenue14.214.414.215.614.414.414.514.514.514.5
    - Central government expenditure16.416.622.118.517.417.217.217.117.017.0
    - Consolidated public sector overall balance-3.4-3.3-9.0-3.9-3.9-3.7-3.5-3.4-3.3-3.1
    - Consolidated public sector debt50.153.371.162.159.357.656.655.854.954.0
  - Balance of Payments:
    - Current account -1.5-1.3-1.7-2.8-3.4-2.4-2.2-2.2-2.2-2.2
    - Foreign direct investment -3.0-3.4-3.2-3.3-3.2-3.3-3.3-3.3-3.3-3.3
    - Gross reserves (US$million)7,6278,78110,75212,28913,60215,21516,38017,56318,83120,190
- Growth is expected to decelerate to potential in 2022; maintaining potential growth at 5 percent in the medium-term requires continued investment, higher labor-force participation, and higher productivity.
- The recovery reduced the public sector deficit by about 5 percent of GDP and public debt by 9 percent of GDP; the 2022 budget is mostly financed and refinancing risks have been curbed.

### Risks and scenario considerations
- Short-term risks tilted to the downside; medium-term risks more balanced.
- Global risks — war in Ukraine:
  - Higher commodity prices could raise inflation, increase fiscal social support needs, and require stronger monetary tightening, affecting growth.
- Global risks — global financial conditions:
  - Stronger-than-envisaged tightening could curb capital flows, increase financing costs, pressure the currency, and raise debt burdens for unhedged foreign-currency borrowing.
- COVID-19:
  - New variants could reduce global output and hurt the service-oriented domestic economy.
- Domestic risks:
  - Reforms and expanded investment could reduce risk premia and boost potential growth; unexpectedly high inflation or other shocks could hinder reform momentum.

### Fiscal policy, budgetary stance and mitigation measures
- 2021 frontloaded fiscal consolidation: redirected spending to reopening (notably vaccination) and mitigated rising commodity prices; deficit reduced by about 5 percent of GDP.
- One-offs and revenue measures in 2021: advances (0.5 percent of GDP), collections from law 46-20 (0.5 percent of GDP), other extraordinary revenues (0.1 percent of GDP); fuel price smoothing required subsidies of 0.2 percent of GDP.
- 2022 budget aims to continue expenditure rationalization while mitigating higher commodity prices; fiscal stance broadly neutral in 2022.
- Staff assessment: 2022 budget is conservative on tax revenue; revenues from sales of minority stakes in energy generation assets are uncertain; overall 2022 deficit expected to remain in line with 2021.
- Emergency fiscal measures to mitigate commodity-price shock, 2022 (Duration, Initial Cost (percent of GDP)):
  - Fuel / Transport: Freeze of basic fuel prices — 4 months — 0.3
  - Bonogas-Households — full-year — 0.1
  - Public transport drivers (INTRANT) — 4 months — 0.0
  - Food: Superete/Alimentate (cash-transfer) — full-year — 0.1
  - Other food support (in-kind) — full-year — 0.1
  - Subsidy for up to 10% of food imports — 6 months — 0.1
- 2022 Budget, Main Accounts (In percent of GDP; selected lines):
  - 2021 (Actual) / 2022 (Budget) / IMF Proj.
  - Revenue 15.6 / 14.8 / 14.4
  - Tax revenues 14.3 / 13.0 / 13.4
  - Other revenues 1.1 / 1.6 / 1.0
  - Current Spending (Expenses) 17.1 / 16.1 / 15.9
  - Compensation of employees 4.4 / 4.4 / 4.2
  - Goods and services 2.1 / 2.0 / 1.4
  - Interest 3.1 / 3.6 / 3.0
  - Subsidies 1.4 / 1.0 / 1.9
  - Grants 3.3 / 2.8 / 2.7
  - Social benefits 1.7 / 1.6 / 1.7
  - Net Acquisition of Nonfinancial Assets 1.5 / 1.6 / 1.5
  - Overall Balance -2.9 / -3.0 / -3.0
- The budget assumes GDP is RD$5,837 bln; staff assumes GDP of RD$6,160 bln.

### Monetary policy and inflation management
- The central bank started monetary policy normalization: mopping up exceptional liquidity starting August 2021 and increasing the reference rate by 350 bp since November 2021 (from 3 to 6½ percent).
- Staff view the tightening as appropriate; the real policy rate remains negative so the stance is still supportive.
- The pace of tightening should be data dependent and aim to allow inflation convergence to the target range (4±1 percent) over the policy horizon; graduality is supported by well-anchored two-year inflation expectations and subdued wage pressures.

### Policy discussions and reform agenda
- Policy discussions emphasized: (i) fiscal consolidation with social protection, (ii) securing inflation convergence amid external shocks, and (iii) quality and equitable consolidation to build consensus for reforms, maintain financial stability, and foster inclusive growth.
- Authorities’ reform commitments include:
  - Stronger policy frameworks (including a fiscal responsibility law).
  - Better governance and transparency.
  - A sustainable electricity sector (including gradual tariff adjustment toward cost recovery and replacing consumption-based subsidies with targeted transfers).
  - An enhanced business environment.
  - Stronger social programs.
- Reform sequencing and timely implementation highlighted as key to building consensus for revenue mobilization and financing development needs and buffers.

*Source: IMF staff report material (2022) for the Dominican Republic.*

### 16. The policy mix and shock mitigation measures are broadly appropriate, though more

### 16. The policy mix and shock mitigation measures are broadly appropriate, though more

### Policy assessment and near-term stance
- Further gradual fiscal consolidation—with continued reforms in the electricity sector and expenditure control—will allow a steady decline in the debt burden.
- Targeting of some measures to mitigate high commodity prices can be improved; nevertheless, these measures are assessed as broadly appropriate because they are temporary, managed within the budget envelope, and important to help maintain reform momentum.
- Contingency planning: even if shocks required some budget revisions, these would be contained and financing would not pose a major challenge.
- Monetary policy: depending on the impact of external developments on domestic inflation and given the importance of maintaining the credibility of the inflation targeting regime, the central bank may need to pursue higher-than-expected monetary tightening.

### Authorities’ views on macro policy
- The authorities are confident policies will continue to support growth and maintain internal and external balance.
- The central bank will conduct monetary policy to keep inflation expectations well-anchored and bring inflation back to the target range within the policy horizon.
- The fiscal stance will lead to a further—though more gradual—consolidation while providing support for the vulnerable; fiscal discipline is being strengthened by on-going and planned reforms.
- Confidence in economic policies is reflected in the continued strength of FDI and tourism and historically-high reserve buffers.

### Fiscal consolidation: electricity sector and public finances
- The electricity sector has been a drain on fiscal resources—with annual transfers of around 1 percent of GDP over the last decade.
- The Electricity Pact aims to enhance governance, facilitate private investment, and implement tariff and subsidy reforms; the first tariff increase in 10 years took place last November and quarterly adjustments continued in 2022.
- Reforms intend to gradually reach cost-recovery levels by 2026 while increasing targeted transfers through a social program (Bonoluz) to mitigate the impact on the poor.
- Staff assesses the Electricity Pact as implementing gradual tariff adjustments while strengthening the social safety net and eliminating consumption-based (poorly targeted) subsidies.

### Debt management and fiscal framework
- Pro-active debt management is lowering interest costs, extending debt maturity, and smoothing the amortization schedule.
- Plans to strengthen the Medium-Term Fiscal Framework—including through a Fiscal Responsibility Law (FRL)—are welcome. Staff considers such a framework could focus on:
  - (i) a medium-term fiscal anchor based on a debt-to-GDP ratio of 50 percent; and
  - (ii) an operational target (expenditure growth rule) calibrated to balance sustainability, stabilization, and simplicity.
- Continued enhancement of Public Financial Management (PFM) and transparency is critical: priorities include reducing administrative debt (accounts payable); integrating SIGEF Expenditure Module and SECP; strengthening fiscal risk management and MTFF content; and implementing multiannual spending commitments.
- The authorities requested further FAD TA, including on fiscal risks and a Public Investment Management Assessment (PIMA).

### Transparency, procurement, and COVID-spending audits
- Proposed amendments to the procurement law (in Congress) would strengthen powers to eliminate loopholes and modernize the system.
- Due diligence of suppliers was strengthened for COVID spending; a special fraud unit at the Comptroller General and a transparency portal were rolled out.
- External audit of COVID spending is not finished; the Chamber of Accounts has been collecting information and coordinating with other institutions. Authorities sought IMF staff guidance to complete COVID-spending audits in line with RFI commitments.

### Revenue mobilization and tax policy
- Ongoing tax administration reforms can help strengthen collections in the near-term; revenue mobilization reforms are needed to create policy space over the medium term.
- Tax collection is low compared to peers, reflecting a narrow base due to tax incentives and exemptions—over 4 percent of GDP—coupled with relatively low collection efficiency.
- Tax expenditures - 2021 (In percent of GDP):
  - Value Added Tax (ITBIS) 2.41
  - Taxes on Income and Wealth 1.32
  - Excises 0.43
  - Customs and Use of G&S 0.27
  - Total 4.43
- A more comprehensive tax reform could eliminate economically ineffective exemptions and rationalize the high-income threshold in the personal income tax.
- An alternative scenario: exemptions are reduced by 1 percent of GDP in 2024–25; the consolidated public sector (CPS) debt ratio could decline faster and provide additional fiscal space to protect investment and social spending.
- Improved tax administration measures: 2021 customs law; planned overhaul of tax procedures (Title I of the Tax Code, in Congress); implementation of electronic-invoicing and taxation of digital services; focus on recovery of filing and payment obligations, compliance control, risk-based strategy to manage tax debt, and strengthened audit and governance functions.

### Financial stability, banking sector, and macroprudential issues
- DTIs remained resilient despite expiration of flexibilization measures and gradual absorption of restructured loans; restructured loans increased, driven by hotel, restaurant and transportation sectors.
- Phase-in arrangements: authorities provided DTIs until December 2023 to phase-in any resulting regulatory provisioning shortfall.
- Provisioning coverage: compared to a stressed measure of asset quality, provisioning coverage is on its way to recover its pre-pandemic average.
- Capital adequacy declined from 22.4 percent in June 2021 to 19.0 percent by year-end—still higher than its pre-pandemic level.
- The dissolution of a small bank—0.13 percent of DTI assets—was handled under the resolution framework with no visible market impact; strengthening the bank resolution framework to align with best practice would be beneficial.
- Central bank recapitalization: the 2022 budget includes a provision for recapitalization transfers to the BCRD—0.6 percent of the GDP—but the BCRD balance sheet still requires further strengthening; recapitalization would not impact total public debt but would strengthen BCRD institutional independence.
- FX market and reserves:
  - FX intervention volumes in 2021 were about 55 percent lower than in 2020 and remained two-sided.
  - Increased use of NDFs and the FX platform improved efficiency and transparency; BCRD interventions with NDFs smooth reserve path.
  - Reserves at 83 percent of the ARA metric, indicating room for continued gradual reserve accumulation.
- Regulatory and supervisory reform priorities:
  - Implement enhancements to macroprudential toolkit, stress testing frameworks, and a roadmap for Basel II/III and IFRS (with CAPTAC support).
  - Improve data collection on private sector balance sheets to better assess debt service capacity.
  - Strengthen regulation and supervision of credit and savings cooperatives (about 3.5 percent of DTI assets).
  - Coordinate micro-prudential regulations across financial sectors.
  - Authorities are cautiously exploring a Central Bank Digital Currency (CBDC); staff stands ready to offer capacity development support.

### Institutional reforms and inclusive growth
- Rule of law and regulatory improvements aim to strengthen judiciary and prosecutor independence, simplify the regulatory framework, and reduce corruption risks.
- Key regulatory initiatives: new public procurement law; “Zero-Bureaucracy” plan; new customs law to modernize and expedite international trade procedures; enhanced tools for the pro-competition authority.
- Structural bottleneck priorities and ongoing initiatives:
  - Product-market and logistics reforms: 2021 customs law allows new technologies to facilitate operations; objective to become a regional logistics hub.
  - Labor and social security reforms: multisectoral dialogue for integrated reform launched in May 2021.
  - Electricity supply: distribution companies now fulfill close to 100 percent of demand; CNE finalizing medium-term energy demand projections.
  - Financial inclusion and payments: 2020 law on movable property guarantees increases MIPYMES access to credit; nearing completion of the National Plan for Financial Inclusion, including fintech hub development, e-money regulation, and enhanced consumer protection.
  - Skills gap: job fairs and repurposing high school curricula to technical education; further schooling and vocational training efforts are important going forward.

*Source: IMF staff analysis in the cited chapter.*

### 38. Improved social outcomes

### 38. Improved social outcomes

### Social assistance and poverty
- The pandemic increased poverty; social assistance helped cushion the shock.
- Government is improving targeting and increasing the number of households assisted under the main social program (Supérate), which provides support to enhance economic resilience and inclusion.
- Supérate consolidated programs transferred by Presidential Decree 377-21 in June 2021 from Progressing with Solidarity (PROSOLI) to Supérate, whose aim is to reduce poverty through capacity development, productive inclusion, and economic empowerment of vulnerable groups.
- Despite expanded social programs, the pandemic partially reversed the impressive decline in poverty in 2014-19.
- GDP at end-2021 was about 5 percent above pre-pandemic levels.

### Key targeted social protection measures in 2022 (Fiscal Policy)
- Superate's Alimentate Program
  - Objective: Aliviate impact of higher food prices
  - Measure: Coverage increase from 1.35 to 1.65 million households with monthly assistance of RD$1,650 (up from 800 thousand households with RD$825 in monthly assistance under the pre-COVID Comer es Primero).
- Superate's Bonogas Program
  - Objective: Aliviate impact of higher fuel prices
  - Measure: Coverage will increase from 926 thousand to 1.399 million households and support will increase from 228 to 470 pesos per month.
- Other Social Assistance (President's Social Plan; President's Social Policies Coordination Cabinet/ Economic Canteens (CEED); and National Institute for Price Stabilization (INESPRE))
  - Objective: Aliviate impact of higher food prices
  - Measures: Increases in distribution of food rations; increase in canteens, with 136,000 additional daily food rations; subsidized sale of the basic food basket at popular markets and supermarkets.

### Electricity subsidies, Bonoluz, and fiscal-equity considerations
- To mitigate impact of higher fuel and food prices, government is increasing targeted cash transfers; those for electricity—Bonoluz—are also being gradually increased to compensate for the structural adjustment to electricity tariffs (Annex VIII).
- These steps are important to make the needed fiscal consolidation and the electricity sector transformation equitable.
- Electricity sector reforms aim to support gradual elimination of untargeted electricity subsidies, improve efficiency of energy generation/distribution, and diversify the energy mix away from hydrocarbons (Annex VIII).
- The electricity sector deficit remained largely unchanged despite higher energy prices (see figures in source).

### Energy sector reforms and climate strategy
- Energy reforms support climate change adaptation and mitigation strategies.
- The Nationally Determined Contribution action plan (based on NDC-2020) continues to guide overall climate strategy for mitigation and adaptation.
- With support from the World Bank, authorities are evaluating disaster insurance coverage and a plan to reach carbon neutrality by 2050.
- Authorities are exploring reforms to the legal framework for public investment and risk management to incorporate climate change considerations.
- Authorities are working with multilaterals, foreign governments, and the private sector to develop a financing plan for climate-related investments.
- Authorities remain committed to goals in their 2020 NDC submission and are working towards their next submission in 2025.

### AML/CFT framework and the Mutual Evaluation
- Authorities are strengthening implementation of the AML/CFT framework and preparing for the planned Mutual Evaluation.
- The next evaluation is scheduled to start in the second half of 2023.
- Follow-up on recommendations of the 2018 Mutual Evaluation is coordinated nationally.
- With assistance from the World Bank, in 2021 authorities started a process to update the National Risk Assessment (NRA).
- The Superintendency of Banks:
  - Strengthened its internal sanctions process.
  - Enhanced its risk-based supervisory approach.
  - Increased supervisory resources to improve effectiveness of the AML/CFT framework.
- Regulatory actions taken:
  - Prohibited licensed financial institutions from interacting with informal exchange entities and their owners.
  - In process of further tightening ability of such entities to operate in the market.
- Ongoing needs:
  - Enhancements to supervision of designated nonfinancial businesses and professions (DNFBPs) are in progress.
  - Effective supervision and implementation of AML standards by credit and savings cooperatives requires further attention.
- The Mutual Evaluation will be conducted by the Financial Action Task Force of Latin America (GAFILAT).

### Authorities’ views and institutional reforms
- Authorities agreed on the need for multifaceted reforms to foster inclusive growth through better institutions, including:
  - Increasing political independence of key institutions.
  - Strengthening procurement controls, competition, and trade facilitation (some reforms require new laws).
  - National Competitiveness Strategy measures, including streamlining the regulatory framework (zero bureaucracy and new customs laws).
  - Infrastructure investment and better education outcomes.
  - Improving social programs to maintain positive social outcomes.
  - Finalizing a comprehensive financial inclusion strategy.
  - Following through on recommendations of the 2018 AML/CFT Mutual Evaluation, especially to strengthen supervision of DNFBPs and other relevant sectors.

### Staff appraisal: policy assessment and recommendations
- Economic resilience and policy response
  - Sound policies supported stability and market access, effective health campaign, and well-attuned re-opening, including to tourism, limiting scarring and the increase in poverty.
  - Strong, broad-based recovery with GDP at end-2021 about 5 percent above pre-pandemic levels allowed front-loaded fiscal consolidation and normalization of monetary policy to address inflationary pressures.
- Risks and policy stance
  - Growth should converge to its longer-term trend amid abating global tailwinds.
  - Supply shocks have driven inflation higher than previously projected; fiscal measures are easing the impact while monetary normalization should allow inflation convergence to the target over the policy horizon.
  - Main risks are associated with the war in Ukraine and tightening global financial conditions; higher commodity prices are the main channel for the war’s impact.
  - Front-loaded fiscal consolidation, timely debt issuance, and pro-active debt management help reduce vulnerabilities through lower near-term financing needs.
- External and fiscal positions
  - External position is broadly in line with fundamentals and desirable policies; current account deficit increased but remained fully financed by resilient FDI.
  - International reserves rose strongly, improving reserve adequacy.
  - Expenditure rationalization and tax administration efforts will help maintain gradual fiscal consolidation and put public debt on a stronger downward trajectory while protecting investment and social spending.
  - Use of temporary fiscal measures to contain commodity price shocks and continuation of electricity sector reforms and improved targeting of subsidies and social assistance are appropriate.
- Financial sector and supervision
  - Exit from pandemic financial regulatory response was appropriate; financial system proved resilient.
  - System would benefit from implementing higher international standards of supervision and regulation, enhancing macroprudential and crisis management toolkit, and strengthening regulatory framework for credit and savings cooperatives oversight.
- Structural reforms to boost inclusive growth
  - Well-sequenced reform implementation can strengthen medium-term policies and pave the way for fiscal responsibility legislation to better anchor medium-term policies.
  - Ongoing reforms in the electricity sector, enhanced policy frameworks, and an agreed roadmap for central bank recapitalization can create space for needed investment in infrastructure and human capital.
  - Reforms to foster inclusive growth and improved social outcomes remain critical, including:
    - Improving governance.
    - Securing stable, competitive, and sustainable energy supply.
    - Building climate change resilience.
    - Tackling productivity bottlenecks (e.g., modernizing the labor code, increasing years and quality of education, narrowing skills gaps).
    - Enhancing effectiveness of social programs.
    - Addressing regional and gender inequality to make growth more inclusive.
- Fund relations and debt sustainability
  - Dominican Republic has adequate capacity to repay the Fund; sound debt service track record and low risks from RFI exposure.
  - Debt Sustainability Analysis (DSA) shows debt to be sustainable.
  - Scheduled RFI repayments do not exceed 1.2 percent of exports or 2.1 percent of reserves.
  - Authorities have maintained the SDR allocation as international reserves.
- Recommendation
  - It is recommended that the next Article IV consultation takes place on the standard 12-month cycle.

*International Monetary Fund — Dominican Republic: 38. Improved social outcomes*

### 7.7 percent of the loan portfolio has been restructured,

### 1domea2022001 - 7.7 percent of the loan portfolio has been restructured,

### Asset quality and restructuring
- 7.7 percent of the loan portfolio has been restructured, driven by hotels, restaurants, and transportation sectors.
- Charts in the source indicate time coverage from Jan-20 to Jan-22 for loan portfolio and stressed delinquency measures (figures plotted by month).

### Provisioning coverage
- The provisioning coverage of distressed asset dropped during the pandemic but is slowly recovering to its historic average.
- Provisioning Level Stressed Delinquency Index (in Percentage) is shown against a Historic Average in the source charts.

### Stressed delinquency index and definitions
- The source notes: "NPLs only include loans past due, while the stressed delinquent loan index also includes restructured loans and loans foreclosed or written-off during the past 12 months, providing an alternative/complementary view on asset quality developments."
- Stressed Delinquency (%), NPLs (%) and the Stressed Delinquency Index are presented monthly (Jan-20 to Jan-22) in the source figures.

### Sectoral breakdown of restructured loans
- The source presents "Restructured Loans per Economic Sector (in millions of Dominican Pesos)" and an accompanying share series: Gross Credit / Restructured in % (RHS).
- The text highlights hotels, restaurants, and transportation as the main drivers of the 7.7 percent restructuring share.

### Key financial soundness indicators (selected, end of year)
- Deposit-Taking Institutions (I.)
  - NPLs to total loans (2021): 1.3
  - Loan provisions to NPLs (2021): 335.7
- Commercial Banks (II.)
  - NPLs to total loans (2021): 1.2
  - Loan provisions to NPLs (2021): 362.1
- Additional indicators shown in the source tables and charts include regulatory capital to risk-weighted assets, leverage ratios, liquid funds to deposits, and time series for Gross Loans Portfolio and Total Assets (Jan-20 to Jan-22).

*Sources: National authorities and IMF staff calculations.*

### Annex VIII).

### 1domea2022001 - Annex VIII)

### Continue reforms to foster inclusive growth and improve social outcomes
- Reforms focus on strengthening public institutions and governance to attract investments.
- Authorities are working to:
  - improve labor market and education outcomes;
  - increase financial inclusion;
  - strengthen social protection, including by consolidating key social programs.

### Annex I. Inflation Drivers — overview
- Purpose: assess drivers of inflation in the Dominican Republic during the Covid-19 pandemic using a small semi-structural model.
- Approach: analyze separately the drivers of three CPI components—core, non-core food, and energy—via equation and shock decompositions.
- Key high-level finding: External factors (exchange rate, foreign prices, foreign demand) were the primary factors driving all components of inflation.
- Additional contributors: oil prices and the wedge between the policy rate and the one implied by the assumed Taylor rule had an impact, particularly in 2021.
- Model-implied inflation expectations increased by end-2021, attributed to:
  - a pickup in US inflation and output gap;
  - a moderate depreciation.

### A. Analytical approach
- Model characteristics:
  - semi-structural new-Keynesian framework;
  - four main equations:
    1. aggregate demand equation (IS curve) relating domestic output gap to real interest rate, exchange rate, and foreign output gaps;
    2. aggregate supply equations (Phillips curves) relating core, non-core food, and energy inflation to output gap, real interest rate gap, exchange rate, international commodity prices and foreign inflation;
    3. uncovered interest parity condition for the exchange rate;
    4. monetary policy reaction function with elements of a standard Taylor rule and an objective to maintain some exchange rate stability.
- Decomposition types:
  - equation decompositions: contributions of contemporaneous endogenous variables;
  - shock decompositions: cumulative contributions from all past structural shocks to deviations from steady state.
- All variables defined in annualized quarter-on-quarter terms.

### B. Headline inflation — dynamics
- Early pandemic: headline CPI inflation was significantly below its "4 percent target" due to significant disinflation in energy-related goods and services.
- Second half of 2020: non-core food and energy inflation increased, driving headline inflation to consistently exceed the target.
- End-2020: decline in non-core non-energy inflation, then increase throughout 2021 before abating in the last quarter.
- Energy inflation: gradual decline through 2021, reemerged during last quarter.
- Core inflation: began to increase in second quarter of 2020 and remained elevated throughout 2021, even when food and energy inflation receded.

### C. Core inflation — drivers and dynamics
- Primary drivers:
  - exchange rate and foreign inflation;
  - inertia and model-implied short-term inflation expectations since fall of 2020.
- Mechanisms:
  - exchange rate depreciation in 2020 increased core inflation via a direct 'depreciation' component and indirectly through the 'real exchange rate gap' (imported input prices raising domestically produced core item prices).
- 2021 developments:
  - appreciations curbed exchange rate impact on core inflation in early-mid 2021; pattern reversed in last quarter as exchange rate depreciated.
  - inertia and short-term expectations picked up significantly since fall 2020 and remained elevated.
  - output gap contributed negatively to core inflation consistently.
  - large positive shocks to core inflation in 2021Q1 and 2021Q3 likely reflect higher container shipping costs (increased by a factor of seven since the beginning of 2020), concentrated in those two quarters.
- Shock decomposition insights:
  - shocks to the nominal exchange rate were the most important driver of core deviations from the target (positive in 2020, negative in 2021).
  - despite exchange rate appreciations in the first three quarters of 2021, core inflation remained elevated due to positive contributions from shocks to US inflation, the US output gap, and international oil prices.
  - the wedge between the monetary policy rate and the model’s implied Taylor rule rate had a positive contribution to core inflation since late 2020, similar in magnitude to the contribution from oil prices.
- Core inflation expectations:
  - driven similarly to core inflation, but with different dynamics and a large pick-up at end of sample.
  - early pandemic: expectations increased significantly due to exchange rate depreciation, largely offset by the negative output gap.
  - by 2021: exchange rate appreciation began to reduce expectations, but expectations remained elevated because of positive contributions from shocks to US inflation, US output gap, international oil prices, and the policy-rate wedge.
  - 2021Q4: expectations driven up by increases in contributions from foreign inflation and output gap, and a reduced negative contribution from the exchange rate reflecting its depreciation.

### D. Non-core food inflation — drivers and shocks
- Main drivers: exchange rate, world food prices, expectations, and one-off supply shocks.
- Spring 2020: exchange rate depreciation contributed positively, partially offset by negative shocks to domestic food prices.
- Late 2020 / early 2021: significant positive contributions from rising world food prices and additional moderate unexplained shocks; exchange rate appreciation provided relatively small negative contributions.
- Two significant one-off supply shocks during the pandemic:
  1. 2020Q3: a large storm caused flooding, restricting food supply.
     - Public transportation (a non-food item included in non-core food) experienced a significant price increase in that quarter, "contributing about 7 percent to non-core food inflation."
     - Green plantains: price increase of "304 percent", contributing "11.4 percent" to non-core food inflation (more than half of the shock).
     - Onions: price increase of "122 percent", contributing "2.5 percent" to non-core food inflation.
  2. 2021Q3: likely due to a swine flu epidemic requiring slaughter of pigs and shifting demand to chicken.
     - Chicken contributed "6.4 percent" to non-core food inflation (price increase of "45 percent") due to substitution away from pork.
- Subsequent dynamics:
  - 2020Q4: the 2020Q3 shock dissipated, with Green plantains experiencing deflation of "21 percent" (contributing "-1 percent" to non-core food inflation) and Onions deflation of "59 percent" (contributing "-1.4 percent").
  - By end-2021: non-core food inflation declined significantly and expectations were well-anchored.
- Shock decomposition:
  - exchange rate shocks were significantly positive early in the pandemic, turned negative by 2021, but lessened in the last quarter due to partial reversal of prior appreciation.
  - rising world prices had sizable positive impact in late 2020 and early 2021.
  - contributions from positive shocks to the US output gap and rising US CPI inflation were substantially weaker for non-core food than for core inflation.
  - wedge between the policy rate and the implied Taylor’s rule interest rate contributed positively to non-core food inflation, as with core inflation.

### E. Energy inflation — drivers and pass-through
- Primary driver: world oil price.
- Equation decomposition: large contributions from fluctuations in the world oil price, typically offset by shocks to oil inflation reflecting regulated domestic prices that smooth pass-through.
- Pandemic onset: initial fall in world oil prices was not reflected in domestic energy prices due to smoothing; subsequent reversal drove world prices up since fall of 2020.
- Exceptions: early 2020 and late 2021 when world oil price and shock to domestic energy inflation had contributions of the same sign.
- Shock decomposition: highlights importance of oil price shocks and stabilizing contributions from domestic price-smoothing, except in 2020Q1 and 2021Q4.

*Source: IMF staff calculations, from Annex I and accompanying text in Annex VIII).*

### Annex II. External Sector Assessment

### Annex II. External Sector Assessment

### Overall assessment
- The external position of the Dominican Republic as of end-2021 "continued broadly aligned with fundamentals and desirable policy settings."
- Risks to external stability are described as low because FDI inflows continue to fully finance the CA deficit and reserve adequacy improved substantially.
- Reserve adequacy metric: GIR reached 83 percent of the IMF’s recommended level for fixed exchange rate regimes (where it fell short of 100–150 percent).
- Exports and tourism have rebounded; remittances reached a historic high in 2021.

### Foreign assets and liabilities: position and trajectory
- NIIP improved to -65 percent of GDP in 2021, ten percentage points higher than in 2020.
- Gross Assets: 32 (percent of GDP, 2021); Debt Assets: 1; Gross Liabilities: 97; Debt Liabilities: 50; NIIP: -65 (2021, percent of GDP).
- Following the crisis-driven rise in external indebtedness, external debt declined to 50 percent of GDP in 2021.
- External debt dynamics project a reduction to 42 percent of GDP by 2027 supported by an expected return to potential growth.
- Public sector external debt accounted for about 80 percent of the total at end-2021; of that public external debt, 25 percent is official debt.
- Assessment: The current NIIP and its projected trend are assessed as sustainable.

### Current account
- 2021 current account (CA) deficit increased to 2.8 percent of GDP, still below the norm.
- Main drivers: higher imports reflecting demand recovery and higher commodity prices—especially oil; gold exports above pre-crisis levels; tourism inflows recovering; remittances at 10.3 percent of GDP in 2021.
- EBA Lite model estimated CA gap: 0.4 percent of GDP after adjustments.
  - COVID-related tourism adjustment: 1.16 percent of GDP (upward adjustment).
  - COVID-related remittances adjustment: -0.69 percent of GDP.
- Adjusted CA (from model table): -2.6 (percent of GDP).
- CA Norm (from model): -2.9 (percent of GDP); Adjusted CA Norm: -2.9 (percent of GDP).
- Assessment: 2021 external position aligned with fundamentals; under the External Stability approach the external position is considered sustainable. NIIP expected to converge to pre-crisis levels; current projections place NIIP at about 50 percent of GDP by 2027.

### Real exchange rate (REER)
- After a significant peso depreciation in 2020, the REER revalued by 6 percent in 2021 (end-of-period).
- REER undervaluation estimates:
  - EBA Lite model: undervaluation of 2 percent.
  - REER approach regression: undervaluation of 35 percent (results have low statistical confidence due to a large residual).
- Assessment: The real exchange rate gap is assessed to be in the range of 0 to 2 percent.
- Monetary authorities continued allowing the exchange rate to play a stabilizing role.

### Capital and financial accounts: flows and policy measures
- 2021 financing structure: CA deficit fully covered by FDI at 3.3 percent of GDP.
- Medium-term FDI inflows expected to remain around 3-4 percent of GDP.
- Net portfolio inflows moderated to 2.7 percent of GDP in 2021 (from 7.1 percent in 2020).
- Government financing: significant sovereign bond issuance in Q1 (year unspecified in excerpt) strengthened reserve buffers; 2022 government financing needs reported as met.
- Assessment: Composition of external capital and financial flows is adequate and contributes to structural sustainability. Active debt management and continued reserve buildup mitigate capital flow risks. Vigilance is warranted for balance sheet effects in the private sector under global risk aversion and tighter liquidity.

### FX interventions and reserves level
- Gross international reserves increased by 20 percent to US$13 billion by end-2021 (about 13 percent of GDP).
- Net international reserves (NIR) in table: 12.3 (in billions of U.S. dollars, 2021).
- Coverage metrics (selected, as reported):
  - Months of imports: 4.5 (2019), 4.2 (2020), 4.5 (2021), projected 4.8 (2027) — benchmark 3 months.
  - Months of imports (excl. free zones): 6.3 (2019), 5.1 (2020), 5.3 (2021), projected 5.8 (2027) — benchmark 3 months.
  - Broad money coverage (percent): 28.8 (2019), 30.2 (2020), 32.8 (2021), projected 32.8 (2027) — benchmark 20%.
  - Short-term debt coverage (percent): 233.9 (2019), 284.9 (2020), 309.8 (2021), projected 290.5 (2027) — benchmark 100%.
  - IMF reserve adequacy metric (percent of recommended): 72 (2019), 76 (2020), 83 (2021), projected 88 (2027) — benchmark 100–150%.
- External debt (billions of U.S. dollars): 37.3 (2019), 45.1 (2020), 47.2 (2021), projected 65.1 (2027).
- External debt, in percent of NIR: 424.6 (2019), 447.0 (2020), 384.3 (2021), projected 322.5 (2027).
- Additional reserves needed to reach IMF reserve metric of 100 (in billions of U.S. dollars): 3.4 (2019), 3.3 (2020), 2.5 (2021), projected 2.7 (2027).
- FX interventions in 2021: overall net purchases amounted to US$1.8 billion; interventions have been mostly double-sided and the central bank’s foreign currency purchases continued to be sterilized.
- Assessment: Reserve level improved markedly in 2021; room remains for continued gradual reserve accumulation. De facto exchange rate classified as other managed regime.

### External debt sustainability: stress-test findings
- External debt profile is described as resilient to several shocks under the DSA (market access).
- Highest impact on external debt ratio would come from an exchange rate shock (one-time real depreciation scenarios).
- Baseline external debt path (selected values from table):
  - Baseline External Debt (percent of GDP): 40.2 (2018), 41.9 (2019), 57.2 (2020), 49.9 (2021), 46.8 (2022), 46.8 (2023), 45.7 (2024), 44.0 (2025), 42.8 (2026), 42.2 (2027).
- Change in external debt (percent of GDP, selected): -1.7 (2018), 1.7 (2019), 15.3 (2020), -7.3 (2021), -3.1 (2022), 0.0 (2023), -1.1 (2024), -1.8 (2025), -1.2 (2026), -0.6 (2027).
- Identified external debt-creating flows and contributors are detailed in the DSA table (current account deficit excluding interest, net non-debt capital inflows, automatic debt dynamics, contributions from nominal interest rate, growth, price and exchange rate changes, and residuals).
- Gross External Financing Need (in billions of US dollars): 4.2 (2018), 3.5 (2019), 4.7 (2020), 6.4 (2021), 7.4 (2022), 6.4 (2023), 6.4 (2024), 6.4 (2025), 6.8 (2026), 7.0 (2027).
- Scenario with key variables at historical averages: external debt around mid-40s percent of GDP through projections (e.g., 46.8 in 2018, 47.3 in 2019, 47.3 in 2020, 46.5 in 2021).

### Implications of the War in Ukraine (Annex III material included)
- Main effect: the war will affect mainly inflation via higher international commodity prices (fuel and food); fiscal measures to contain the impact will affect fiscal accounts but are manageable.
- Direct trade linkages are limited:
  - Tourism: tourist arrivals from Russia and Ukraine accounted for almost 6 percent of total arrivals in 2021 (breakdown in figure: 4% Russia, 2% Ukraine).
  - Aggregate merchandise trade linkages: about 0.7 percent of total trade.
  - Concentration in certain imports: steel and iron accounted for about 10 percent of total steel and iron primary imports in 2020; fertilizer from Russia accounted for "about 7 of total imports of fertilizer" (text as provided).
  - Dominican companies are seeking alternative suppliers (e.g., Brazil and Mexico for steel and iron).
- Current account effect: CA deficit expected to widen due to higher import prices, notably fossil fuels.
- Inflation and growth:
  - Staff estimate the geopolitical shock could add 2 percentage points to headline inflation in 2022.
  - The shock is expected to reduce real incomes and dampen consumer demand in 2022, but growth carry-over from 2021 is strong and high-frequency data point to continued strong external demand (good export growth through February and tourist arrivals through March).
- Financing impact: impact on financing requirements is limited given frontloaded budget financing for 2022, proactive debt management policies, and limited financial linkages.

*Source: Annex II. External Sector Assessment; IMF staff calculations and national authorities.*

### 3. Proactive debt-management operations have extended maturities, reducing near-term

### 3. Proactive debt-management operations have extended maturities, reducing near-term

### Debt-management operations and financing implications
- In mid-February, the government placed US$3.6 billion in international markets.
  - About US$2.2 billion was to finance the 2022 budget.
  - The remainder to retire debt coming due in 2023–24, thus reducing near-term gross financing needs.
- Previous debt management operations undertaken in 2020–21 also reduced financing needs for the 2022–27 period.
- Sovereign spreads:
  - While sovereign spreads initially rose following the invasion on February 24, currently spreads are about 60 bp lower compared to pre-war levels.
- Private sector and financial sector implications:
  - Higher external and domestic interest rates—due both to the geopolitical shock and the normalization of monetary policy rates—will likely reduce borrowing.
  - This is not expected to have a major impact on financial sector soundness.

### Bond amortizations and staff calculations (figure annotations)
- Chart labels and captions indicate bond amortizations measured in RD$ bln with components:
  - Principal (post-DMO)
  - Principal bought back
- Additional annotated items on charts: Inflation (percent), Other, War in Ukraine, Electricity Tariffs (recalculation), January Projection.
- Source for charts: IMF staff calculations.

*Italic: Source: IMF staff calculations and national authorities (content from the provided IMF chapter).*

### Annex IV — Potential growth: overview and headline findings
- Pre-pandemic potential growth:
  - Average estimate across three approaches was around 5 percent.
  - Ranged approximately between 4 to 6 percent since 2010.
  - Peaked around 5.8 percent in 2016, then slowing to slightly above 5 percent by 2019.
- COVID-19 impacts:
  - Potential growth averaged across methodologies is estimated to have slowed to 3 percent in 2020.
  - The COVID shock produced the largest output gap in the last 20 years.
    - Tuned-MVF and spliced PFA estimate the 2020 gap between -8 and -10 percent.
    - Tuned-MVF indicates the gap remains substantial (around -4 percent of potential GDP) as of latest estimates.
- Recovery and outlook:
  - The output gap began to close much faster than in previous crises, supported by buoyant remittances, rebounding US growth and competitive positioning of the tourism sector supporting growth above 12 percent.
  - The gap is positioned to close by 2023 according to staff estimates.
  - To maintain a 5 percent potential growth rate will likely require ongoing investment, labor force participation growth, and higher productivity to offset demographic trends.

### Methodologies used to estimate potential output and output gaps
- Hodrick-Prescott filter (HPF) applied to the level of real GDP.
  - For annual output data, lambda was set at 6.25 following Ravn and Uhlig (2002).
- Multivariate filter (MVF) of real GDP, headline inflation and a broad unemployment rate.
  - Unobserved variables (potential, output gap and NAIRU) linked to observables via:
    - output evolution with steady-state growth and shocks to potential and the output gap;
    - a Phillips Curve linking inflation to the output gap and shocks;
    - unemployment evolution with steady-state NAIRU and shocks, with Okun’s Law relating unemployment gap to output gap.
  - Parameters and variances estimated using Bayesian (MLE) techniques; Kalman filter provides unobservable variable estimates.
  - Staff employed a “Tuned” MVF imposing judgement on the 2019 gap to mitigate end-point problems.
- Production function approach (PFA) using a Cobb-Douglas production function.
  - Potential output = weighted sum of potential (or trend) estimates of capital, employment and labor efficiency.
  - Labor share, α, is assumed to be 65 percent.
  - PFA employed a spliced procedure: potential GDP estimated over 1991–2019 to avoid COVID end-point bias, then extended from 2019 to 2021 using growth rates from a second estimate including staff medium-term forecasts.

### Detailed results and decomposition findings
- Drivers of pre-pandemic slowdown:
  - Potential growth slowed slightly before the pandemic due to a lower contribution from trend employment.
  - Lower employment contribution driven mostly by demographic factors, particularly slowing growth rate of the working age population (WAP) reflecting declining fertility.
  - Smaller gains in trend unemployment (NAIRU) also compressed trend employment.
  - Modest increases in capital contribution between 2017–19 helped keep overall potential near the 5 percent long-run average.
- COVID-era composition effects:
  - In 2020, potential growth was reduced by decelerations in:
    - trend labor efficiency,
    - trend employment contribution,
    - capital accumulation.
  - Strict lockdown impacts on employment and investment were relatively short duration and largely cyclical.
- Employment and demographic specifics:
  - Since 2000, the fertility rate has declined 18 percent.
  - Data on emigration is limited; staff observe a gradual downward trend in the share of the prime working age population (15-59 years old).
- Labor market and policy interventions:
  - The government expanded social assistance programs during lockdown, including “Quédate en casa” (“Stay at home”), providing more generous cash payments to poor and vulnerable households.
  - By mid-2021, the Dominican Republic had secured enough doses to vaccinate the entire population and achieved its objective of fully vaccinating 60 percent of the target population (18 years and over) by October 2021; the government did not renew emergency powers at that point.
- Outlook for closing gaps and returning to potential:
  - The output gap is expected to close in the near term as potential growth runs below its historical average while actual GDP growth remains solid.
  - To return to a potential growth rate close to 5 percent, the economy would need continued investment and labor efficiency growth given demographic headwinds (lower WAP growth).

### PFA technical notes and cyclical adjustments
- PFA specifics:
  - Cobb-Douglas form in log-linear notation: yp = α*ep + α*lp + (1-α)*k with α = 65 percent.
  - Potential labor input decomposed into WAP, LFPR, and employment rate (1 − UNR).
  - Potential WAP estimated as HPF trend of historical data plus five years of ONE forecasts.
  - Potential unemployment (NAIRU) estimated by MVF.
- Cyclical adjustments prior to filtering:
  - Labor efficiency: cyclically adjusted by regressing the efficiency gap on a lag and cyclical indicators; for the DR the real export gap was used as a cyclical indicator.
  - LFPR: gap between observed LFPR and HPF trend regressed on a lag and cyclical indicators (employment gap and real average wage gap used for the DR).
  - Coefficients converted to impulse responses and subtracted from actual series to yield cyclically adjusted series, then smoothed with HP filter.
- Capital stock data:
  - Source: Penn World tables 10.0 (PWT) using index of capital services applied to 2007 base year estimate of capital stock at historical prices.
  - Caveat: data limitations prohibit deduction of residential investment from PWT capital services estimates as done by the OECD.
  - Values for 2020-27 derived from IMF staff forecasts of real gross fixed capital formation with depreciation estimated by quadratic estimation.

*Italic: IMF staff calculations and analysis from Annex IV of the provided chapter.*

### Annex V. Public Debt Sustainability Assessment

### Annex V. Public Debt Sustainability Assessment

### A. Debt and Financing Profiles
- Debt definition:
  - Public debt = consolidated sum of the non-financial public sector (NFPS) and central bank (BCRD) debt, net of recapitalization bonds issued by the central government and held by the central bank.
  - Central bank debt included to capture debt issued as a consequence of the BCRD’s financial support to failed banks during the 2003 financial crisis; existing framework for recapitalization calls for government transfers to the BCRD to gradually reduce quasi-fiscal debt. Agreement on a new framework to gradually transfer quasi-fiscal debt from the BCRD balance sheet to the Treasury is pending.
  - Note: As the starting point for projections, the entire stock of central bank certificates as of end-2021 is included even though some were issued for monetary policy purposes.

- Debt baseline scenario:
  - Decline in debt in 2021 reflects an increase in the primary balance (close to pre-pandemic levels and above the historical average), automatic debt dynamics (strong rebound in economic growth, exchange rate appreciation, decline in the real interest rate), and draw-down of deposits following the 2020 pre-financing of the 2021 deficit.
  - Consolidated public debt-to-GDP ratio projected to decline to about 54 percent of GDP by 2027, almost back to pre-pandemic levels.
  - Reforms and economic growth support decline; subsidies decline about 0.5 percent of GDP between 2019–25.

- Sovereign yields and market access:
  - Credit spread of 396 basis points relative to U.S. Treasury Bonds (as of May 3, 2022).
  - Effective nominal interest rate projected to move in line with Libor rates.
  - Rating agency outlooks: Standard and Poor’s and Fitch upgraded the outlook to stable in December 2021; Moody’s maintained a stable outlook.
  - Government placed $3.6 billion in mid-February 2022—almost fully financing the 2022 deficit and refinancing existing debt.

- Gross financing needs and debt management:
  - Gross financing needs remain well below the early warning benchmark (15 percent) in the baseline.
  - June 2021 domestic debt management operation reduced amortizations by US$1.6 billion over 2021–25, reduced interest rates, extended maturities, and increased liquidity of domestic benchmark bonds.
  - February 2022 debt management operation retired the equivalent of $1.2 billion; reflected in projections.
  - Authorities seek additional operations to smooth financing needs and reduce interest expense.

- Public debt risk profile (NFPS debt characteristics as of end-2021):
  - Average maturity: 11.5 years (up from 7.4 years in 2013).
  - Share of short-term debt: 5.2 percent.
  - Share of foreign-currency denominated debt: 76.1 percent.
  - Share of floating rate debt: 12 percent (down from 20 percent in 2018).
  - Domestic debt (31 percent of NFPS debt): average maturity 7.4 years; floating rates 1 percent; about 21 percent in foreign currency; 90 percent held by residents.
  - Share of public debt held by non-residents: 57 percent of total consolidated debt (above upper benchmark 45 percent), but mitigated by longer maturity—14.3 years—and significant amount held by official creditors.

- Debt operations 2020-22 (selected figures from authorities and IMF staff calculations):
  - Dec-20 External: Amt. (in $, bln) 1.3; Chg. In Maturity (years, wt. avg.) 9.67; Chg. In Coupon (pp, wt. avg.) -1.60.
  - Jun-21 Domestic: Amt. (in $, bln) 1.6; Chg. In Maturity (years, wt. avg.) 5.49; Chg. In Coupon (pp, wt. avg.) -0.65.
  - Feb-22 External: Amt. (in $, bln) 0.8; Chg. In Maturity (years, wt. avg.) 6.90; Chg. In Coupon (pp, wt. avg.) -0.34.
  - Feb-22 Domestic: Amt. (in $, bln) 0.4; Chg. In Maturity (years, wt. avg.) n.a. 1/; Chg. In Coupon (pp, wt. avg.) n.a. 1/.
  - Footnote: 1/ No domestic bonds were issued at the time of the operation.

### B. Realism of Baseline Scenario
- Growth forecasts:
  - Staff’s growth forecasts tended to be lower than actual outcomes during 2012–20, with a median forecast error of 0.28 percentage points.
  - Forecast bias decreased prior to the pandemic, then increased somewhat in 2021 due to pandemic-related uncertainty.

- Inflation forecasts:
  - Inflation forecasts tended to be downward biased until 2016; bias declined significantly between 2016–19; bias increased in 2020 due to pandemic uncertainties.

- Fiscal adjustment:
  - Large, front-loaded fiscal adjustment in 2021–22 reflects normalization of revenues (and some one-offs), reduced extraordinary expenditures for health and social benefits as COVID recedes, and commitment to cut other spending.
  - In 2021, there were advance tax payments of about 0.5 percent of GDP.
  - Electricity sector reform (gradual increase in tariffs to cost-recovery levels) will increase the primary balance; spending on social protection expected to increase.
  - DSA template places the Dominican Republic at the 57th percentile rank in terms of the 3-year average level of cyclically adjusted primary balance (CAPB) during the forecast horizon and at the 13th percentile rank in terms of the 3-year fiscal adjustment.
  - From 2023 onward, the fiscal impulse is around zero, implying a broadly neutral fiscal stance.
  - Authorities committed to fiscal discipline and working towards establishing a fiscal responsibility law.

### C. Stochastic Simulations
- Fan charts:
  - Symmetric distribution scenario: 100 percent probability that debt will remain below 70 percent of GDP benchmark for emerging economies over the medium term.
  - Asymmetric (adverse) distribution scenario (assumes no positive shocks to the primary balance): debt remains below the 70 percent of GDP benchmark with a 75 percent probability.

### D. Baseline Scenario Assessment
- Overall assessment:
  - Public debt is sustainable and risks have decreased compared to the previous DSA due to a lower debt burden and gross financing needs.
  - Drivers of improvement: front-loaded fiscal consolidation, pro-active debt management, and strong economic growth.
  - Projected decline in public debt as fiscal position returns to pre-pandemic levels and electricity sector reforms continue.
  - Main risk: slower growth, though mitigated by moderate gross financing needs over the projection horizon.
  - Debt profile risk: high share of debt held by non-residents; mitigants include long-term nature and significant official creditor holdings.

### E. Stress Tests and Alternative Scenarios
- Individual shocks:
  - Debt-to-GDP ratio is not expected to breach the 70 percent benchmark under stress tests.
  - For all stress tests and alternative scenarios, gross-financing needs peak at around 10.2 percent in 2026—well-below the risk benchmark of 17 percent.

- Combined shock:
  - Combined shock (largest effect of individual shocks: real GDP growth, inflation, primary balance, exchange rate, and interest rate) results:
    - Debt would increase to a maximum of 72.3 percent of GDP.
    - Gross financing needs would increase to a maximum of 12.2 percent of GDP.

*Annex V. Public Debt Sustainability Assessment*

### 13.      Contingent liability shock. The financial sector contingent liability shock is not triggered

### 13.      Contingent liability shock. The financial sector contingent liability shock is not triggered

### Contingent liability decision
- The financial sector contingent liability shock is not triggered because:
  - The three-year cumulative increase of private credit relative to three-year average GDP is 7.2 percent (below threshold).
  - The loan-to-deposit ratio is 75.8 percent (below threshold).

### Natural disaster scenario (alternative shock assumed)
- Rationale:
  - Staff assumed a natural disaster shock given the country’s exposure to disaster risk.
- Scenario design:
  - Return period: 100-year.
  - Economy-wide loss: 20 percent of GDP.
  - Share borne by government: 15 percent of the economy-wide loss, equal to 3 percent of GDP.
- Macro-fiscal effects (year of shock and immediate aftermath):
  - Real GDP growth: adverse effect of -0.9 percentage points in the first year; rebound of +0.3 percentage points in the year following the disaster due to reconstruction activity.
  - Inflation: higher by 1 percentage point in the year of the shock (given constraints on output).
  - Primary deficit: 2.3 percent of GDP in the year of the shock.
  - Effective interest rate: increase of 50 bps in the year of the shock.
- Outcome under the natural disaster scenario:
  - Debt peaks at 62.5 percent of GDP.
  - Gross financing needs peak at 9.5 percent of GDP.

### Selected baseline and projection indicators (as reported)
- Nominal gross public debt (in percent of GDP):
  - 2020: 46.0
  - 2021: 71.1
  - 2022: 62.1
  - 2023: 59.3
  - 2024: 57.6
  - 2025: 56.6
  - 2026: 55.8
  - 2027: 54.9
  - 2028: 54.0
- Public gross financing needs (in percent of GDP):
  - 2020: 7.6
  - 2021: 11.2
  - 2022: 6.8
  - 2023: 5.9
  - 2024: 6.2
  - 2025: 6.0
  - 2026: 6.7
  - 2027: 8.4
  - 2028: 7.7
- Real GDP growth (in percent):
  - 2020: 5.3
  - 2021: -6.7
  - 2022: 12.3
  - 2023–2027: 5.0 (each year)
- Inflation (GDP deflator, in percent):
  - 2020: 4.2
  - 2021: 4.7
  - 2022: 8.0
  - 2023: 8.5
  - 2024: 5.8
  - 2025–2027: 4.4 / 4.0 / 4.0 (respectively)
- Effective interest rate (in percent):
  - 2020: 9.1
  - 2021: 8.6
  - 2022: 7.4
  - 2023: 7.7
  - 2024: 8.3
  - 2025: 8.6
  - 2026: 8.9
  - 2027: 9.1
  - 2028: 9.2

### Identified debt-creating flows (selected)
- Change in gross public sector debt (cumulative projection change): -8.1 (percent of GDP).
- Identified debt-creating flows (cumulative): -11.9 (percent of GDP).
- Primary deficit (annual):
  - 2020: 0.5
  - 2021: 4.3
  - 2022: -0.4
  - 2023–2027: ranges from -0.4 to -1.4 (see table for year-by-year).
- Automatic debt dynamics (contribution, selected years):
  - 2020: 0.7
  - 2021: 9.0
  - 2022: -8.7
  - 2023: -3.4

*Source: IMF staff; figures and scenario descriptions as reported in the provided chapter.*

### 2023. This leads to shortages of

### 1domea2022001 - 2023. This leads to shortages of

### Global Risks and Expected Impacts
- Extended supply chain disruptions
  - Relative Likelihood: High
  - Expected Impact: High/Downside
  - Effects: shortages of intermediate and final consumer goods, growth slowdowns, price surges, compounded by passthrough from currency depreciations in vulnerable countries.
  - Policy response: Stand ready to tighten monetary policy if needed; work with private sector to improve resilience of supply chains; ensure social support programs are sufficient to support those who may lose access to essential goods like food and medicine.
- Abrupt growth slowdown in China
  - Relative Likelihood: Medium
  - Expected Impact: Medium-Low/Downside
  - Effects: sharper-than-expected slowdown in property sector, more frequent Covid-19 outbreaks, inadequate policy responses → sharp slowdown of economic activity with spillovers via financial, trade, and commodity-price channels.
  - Country-specific note: China constitutes only 5 percent of DR’s exports by value; direct effect on DR would be moderate, but global growth slowdown could occur; reduction in global fossil fuel prices could attenuate negative effects on growth and external position.
  - Policy response: Continue structural reforms to strengthen external competitiveness and allow for greater exchange rate flexibility.
- Rising and volatile food and energy prices
  - Relative Likelihood: High
  - Expected Impact: Medium/Downside
  - Effects: higher commodity prices, in particular fuel, increase inflation, pressure external and fiscal positions (including due to price smoothing measures), risk stalling reform momentum; negative supply (higher production costs) and demand (lower real incomes) effects; higher gold prices would strengthen external position and real output (DR is a gold and nickel exporter).
  - Policy response: Continue to assess second-round effects on inflation and inflation expectations and adjust monetary policy stance if needed; stand ready to use fiscal space to mitigate social impact of commodity price shocks; continue to strengthen social programs for transfers for those most affected by reforms.
- Russia’s invasion of Ukraine → escalation of sanctions and disruptions
  - Relative Likelihood: High
  - Expected Impact: Medium/Downside
  - Effects: broadened sanctions including oil, gas, and food sectors; near-complete disconnection of Russia from global financial system and large parts of trading system; countersanctions and secondary sanctions → higher commodity prices, refugee migration, tighter financial conditions, adverse spillovers particularly affecting LICs and commodity-importing EMs; threat to global trade system and growth via confidence effects.
  - Policy response: Continue structural reforms to strengthen external competitiveness and allow for greater exchange rate flexibility.
- Global information infrastructure failure (cyber or physical)
  - Relative Likelihood: Medium
  - Expected Impact: Medium/Downside
  - Effects: breach of critical financial and commercial digital infrastructure and broader institutions can trigger systemic financial instability or widespread socio-economic disruptions and remote work interruptions.
  - Policy response: Improve legal, institutional, and strategic frameworks; devise a centralized plan and cross-sector common rules to combat cyberattacks.

### Domestic Risks and Opportunities
- Natural disasters related to climate change
  - Relative Likelihood: Medium
  - Expected Impact: Medium/Downside
  - Effects: higher frequency of disasters (hurricanes, earthquakes, floods, drought) cause severe economic damage, accelerate emigration, reduce global GDP if severe events hit large economies, cause supply-chain disruptions and inflationary pressures, raise commodity price levels and volatility.
  - Policy response: Accelerate implementation of the National Climate Action Plan; build structural and financial resilience, including through disaster insurance.
- Domestic reforms
  - Relative Likelihood: High
  - Expected Impact: High/Upside
  - Effects: timely reforms could improve confidence, increase near-term growth momentum, potential growth, and equity; ongoing fiscal reforms—PFM and MTFF (including a fiscal responsibility law (FRL))—could reduce the NFPS deficit, lower sovereign risk premium, increase fiscal space in the medium-term.
  - Policy response: Stand ready to adjust monetary, financial and fiscal policies as needed; build buffers more rapidly; emphasize consensus building and institutionalize reforms to guard against reform slippage.
- Expanded tourism sector
  - Relative Likelihood: Medium
  - Expected Impact: High/Upside
  - Effects: high investment expanding tourism sector capacity, infrastructure, and amenities (e.g., Pedernales projects; eco-tourism) and relatively rapid Covid-19 recovery could increase DR’s share of tourism and value-added in the medium-term.
  - Policy response: Continue to support sustainable infrastructure and private investment projects relating to the tourism industry.
- Development of Logistics Hub
  - Relative Likelihood: Low
  - Expected Impact: Medium/Upside
  - Effects: investments in logistical and transport capabilities may accelerate DR’s development as a regional logistics hub, attracting investment and increasing exports.
  - Policy response: Continue fiscal governance reforms to improve the business climate.

### Growth-at-Risk (GaR) — Key Findings and Projections
- Model and implementation
  - The GaR model follows Adrian et.al. (2016) using quantile regressions and includes macrofinancial and fiscal variables categorized into five macrofinancial partitions: domestic financial conditions, domestic leverage, external cost of borrowing, external liquidity, and external demand; plus two fiscal variables: primary balance and capital spending (both in percent of GDP).
  - Sample period: 1999–2021 (quarterly), covering the 2003 banking crisis, 2008 international financial crisis, and the covid pandemic.
- Short-term distributional results (four-quarters-ahead)
  - Distribution skew: right-skewed (expected outcomes predominantly positive).
  - Median: 4.5 percent
  - Mean: 5.3 percent
  - Probability of negative growth (0.5 percent): relatively low
  - Growth at Risk (5 percent probability): 2.6 percent (i.e., 5 percent probability that GDP growth is 2.6 percent or less).
- Role of partitions and policy implications
  - Domestic credit conditions: stronger correlation with growth in both top and bottom quantiles (i.e., relevant for booms and recessions).
  - Fiscal policy variables: more significant association with GDP growth in lower quantile outcomes (i.e., during recessions).
  - External cost of borrowing: linkage with growth stronger during cycle troughs when external financing costs are higher.
  - External demand: associated with top decile of growth outcomes (booms correlate with positive global cycles).
  - Policy implication: fine tuning liquidity conditions and fiscal policy during recessions is important.
- Medium-term projections and shock scenarios
  - Horizon skewness: extending to 3- and 5-year horizons shows similar dispersion but fatter left tail in the medium run (increased probability of low growth outcomes).
  - GaR evolution: GaR (5 percent probability) falls from 2.6 percent (1 year ahead) to 0.98 percent (5 years ahead).
  - Expected medium-term growth: mean and median growth around 5 percent in five years (i.e., around potential).
  - Simulated combined shock (one standard deviation each to fiscal and external conditions): shifts four-quarters-ahead density to the left with higher kurtosis; moves the range of expected growth outcomes about 3 percentage points lower than baseline; GaR would fall marginally — significant GDP growth slowdown but not devastating for the economy.

### Electricity Sector Reforms — Background, Problems, and Reform Agenda
- Background and fiscal drag
  - Issues: unreliable electricity supply, large losses, poorly targeted subsidies, below-cost tariffs, high share of unbilled energy, large transmission (technical) losses, high generation and operating costs, constrained investment for transmission capacity and service quality.
  - Fiscal impact: deficits generated by the public electricity sector have been between 1 and 2 percent of GDP over the past decade.
  - Recent developments: deficits have narrowed in recent years reflecting lower costs from changes in the generation matrix; deficit net of government transfers reached a balance in 2020 with improved arrears management.
  - Service provision decision: government decision to fulfill 98 percent of energy demand (versus 85 percent in previous years) explains why fiscal losses have not come down as much; closing the demand gap is viewed as positive for the real sector in terms of more reliable energy provision.
- The Electricity Pact (Pacto Eléctrico) — signed February 2021
  - Objectives and measures:
    - Reform institutional governance: clearer separation of policymaking, regulation, and operational functions; authorities are liquidating the state holding company (CDEEE) and transferring its assets to a public trust; policy making mandated to the Ministry of Energy and Mines; regulatory body (SIE) strengthened and actively involved in tariff changes.
    - Open distribution sector to private participation: use performance-based concession contracts with private sector to reduce technical and commercial losses.
    - Restore financial viability: distributors must develop plans to increase operating efficiency, reduce losses, and improve service quality with measurable targets monitored by regulator; on generation side, an escrow payment system for fuel subsidies to generators established to increase transparency and predictability.
    - Pricing system reforms: establish rates reflecting actual costs of service and simplify tariff structures; first tariff adjustment in a decade implemented in November 2021; adjustment plan envisages that by end-2026 consumption-based subsidies are removed and tariffs reflect cost of efficient service provision plus appropriate value added.
    - Rationalize consumption subsidies and target vulnerable households: Presidential Decree (651-21) states subsidies should be received exclusively by households in situations of poverty or vulnerability through the BONOLUZ Program.

*Source: IMF staff (Dominican Republic country report material).*

### 4. Electricity reform can also support sustainable growth that is more consistent with

### 4. Electricity reform can also support sustainable growth that is more consistent with 

### Climate-aligned electricity reform: objectives and key actions
- Objective: minimize cost of energy provision and further diversify the generation mix by investing in renewables and greater energy efficiency, given the Dominican economy reliance on imported fossil fuels for power generation.
- Priority of the Electricity Pact: ensure that the sector is adapted for climate change resilience and mitigation.
- Key actions:
  - (i) prioritizing generation from clean and renewable sources including solar photovoltaic, wind, and bioenergy to reduce emissions from the energy sector;
  - (ii) increasing the share of generation from lower-carbon fuels such as natural gas;
  - (iii) conducting strict oversight of operation of the Punta Catalina coal-fired generation plant to meet environmental requirements, including removing the coal ash it generates.

### Tariff Adjustment Formula (Box AVIII.1)
- Tariffs for all levels of consumption will be adjusted linearly from the corresponding base tariff (lower for lower levels of consumption) to the base reference tariff (same for all levels of consumption) over a period of 20 quarters.
  - Because base tariffs are lower for lower levels of consumption, but the reference tariffs are the same, tariffs for lower levels of consumption will increase by a larger amount each quarter (in absolute and in percentage terms).
- Any changes to the reference tariff will be passed one-for-one into each tariff when they occur. These will reflect:
  - input cost (which varies with the exchange rate and the international price of fuel),
  - cost of power generation (which depends on capital and technology investment in energy efficiency as well as changes in the energy mix, such as renewable energy),
  - cost of electricity distribution.
- Reference tariffs are set as a function of input costs of distribution, such as energy and commodity prices, and are set to a value consistent with appropriate profits for distributors (in particular, no need for subsidies) once the Electricity Pact goals for distribution technical and non-technical losses are met.
- Formal expression (letting j index monthly consumption levels and t index quarters from 0 to 20):
  - Tariff_t^j = Tariff_0^j + A1_t^j + A2_t
  - A1_t^j = (Reference Tariff_0 − Tariff_0^j) / 20 × t
  - A2_t = Reference Tariff_t − Reference Tariff_0
- Implementation note: Applied tariffs need not exactly coincide with transition tariffs defined by the formulae in times of high volatility of reference tariffs, based on the discretion of the Consejo de la Superintendencia de Electricidad. Example: in the second quarter of 2022, the scheme would have implied an increase in tariffs of 27 percent for those consuming no more than 300 kWh per month; their tariffs were increased by 9 percent instead. Other tariffs continued to follow the scheme.

- Tariff levels for low-voltage residential customers as of 2022Q1 (RD$ / kWh)
  - Reference Tariffs 2022Q1 (same across consumption ranges): 12.46 (EDESUR), 13.09 (EDENORTE), 12.53 (EDESTE)
  - Tariff 2022Q1 by consumption range and distributor:
    - 0-200 kWh: EDESUR 5.55, EDENORTE 5.48, EDESTE 5.66
    - 201-300 kWh: EDESUR 7.88, EDENORTE 7.81, EDESTE 7.99
    - 301-700 kWh: EDESUR 11.46, EDENORTE 11.38, EDESTE 11.56
    - > 701 kWh: EDESUR 11.68, EDENORTE 11.60, EDESTE 11.79
- Source: National Authorities’ data. EDESUR, EDENORTE and EDESTE are the three state-owned distributers (EDE).

### BONOLUZ Program (Box AVIII.2)
- Origin: Bonoluz was created in 2009 to transition from generalized subsidies, aimed at poor and lower middle-class households. In 2021 Bonoluz was included under the Supérate program (Presidential Decree 377-21).
- Eligibility and conditions:
  - Eligible beneficiaries are poor and vulnerable households as identified by the single beneficiary system (SIUBEN).
  - To join BONOLUZ, households are required to have a contract with an electricity company.
  - Beneficiaries are removed if they do not use their benefits, change address, or are discovered to be un-metered/stealing electricity.
- Benefits:
  - Bonoluz customers receive a cash transfer to pay their electricity bill for consumption up to 100 kWh/month. Until 2021, beneficiaries also received an additional subsidy as they were charged lower tariff rates.
  - The Bonoluz cash transfer of up to RD$444 ($9) per month represented 2 percent of monthly income for poor households on average in 2018 (World Bank). As of late 2021, the cash transfer could be up to RD$574 ($10).
- Coverage and expansion targets:
  - By end-2021, 330 thousand households were considered active and using their Bonoluz cards.
  - Government estimate: about 1 million poor households could be eligible for Bonoluz support.
  - As part of the Electricity Pact, the government intends to gradually expand Bonoluz to reach 900 thousand by 2024 and 1 million households by 2026.
- Implementation challenge: ensure that the beneficiaries list is updated in a timely manner. Decree 426-04 stipulates list updates every four years, although plans exist to update more frequently; Supérate benefits from a beneficiaries database updated quarterly.

### Strengthening the Medium-Term Fiscal Framework (Annex IX) — calibration and policy implications
- Core calibration conclusions:
  - (i) The medium-term fiscal framework should be anchored on a medium-term debt-to-GDP ratio of 50 percent.
  - (ii) Given the increasingly uncertain environment, it would be prudent to rebuild fiscal buffers towards the debt anchor.
  - (iii) A well calibrated multi-year expenditure ceiling rule (linked to the debt anchor) that can achieve both sustainability and stabilization goals could be a more practical and desirable operational rule for the Dominican Republic.
- Context and objectives:
  - The analyses calibrate macroeconomic and fiscal parameters to illustrate types of fiscal rules accounting for sustainability, stabilization, and simplicity features.
  - A fiscal responsibility law (FRL) would help anchor medium-term fiscal policies, potentially reduce financing costs, and further improve macroeconomic stability.
- Debt limit and current position:
  - Debt limit used in simulations: 70 percent of GDP (benchmark near the highest debt ratio recorded in 2020).
  - Gross public debt was 61 percent of GDP in 2021.
  - Under staff projections and calibrated uncertainty, there is a high probability of exceeding the 70 percent debt ratio over the medium term, with a probability of close to 30 percent in 2027.
- Safe debt anchor:
  - The safe debt anchor calibrated for the Dominican Republic is about 50 percent of GDP; a debt level of less than 50 percent of GDP would ensure (with 90 percent probability) that debt remains below the 70 percent debt limit under various shocks over the medium-term.
- Rebuilding fiscal buffers — required primary balance efforts:
  - Under baseline assumptions (constant effective interest rate of 4.5 percent and real growth of 5 percent), the average primary surplus required to reduce debt to 50 percent of GDP by 2030 would be 0.9 percent of GDP (average for 2015–19 was 0.7).
  - If the average real effective interest rate is set at 5 percent (parity of r and g), the primary surplus needed to reduce debt to 50 percent of GDP by 2030 would be 1.2 percent.
  - If (r − g) turns positive, the required primary surplus increases to 1.7 percent.
- Figure AIX.3 calibration results (Average Primary Surplus Needed to Reduce Debt to 50 Percent by 2030–35)
  - By 2030 (primary balance percent of GDP):
    - Negative r-g (4.5, 5.0): 1.0
    - Balanced r-g (5.0, 5.0): 1.3
    - Positive r-g (5.0, 4.0): 1.9
  - By 2035 (primary balance percent of GDP):
    - Negative r-g: 0.5
    - Balanced r-g: 0.8
    - Positive r-g: 1.3
- Operational rule guidance:
  - Choice of an operational rule to attain the safe debt target is country specific and should reflect social preferences.
  - Policymakers should balance the “trilemma” of sustainability, stabilization, and simplicity when selecting rules.
  - Evidence suggests post-GFC rule design has moved toward stabilization but at the cost of greater complexity (e.g., cyclically/structurally adjusted balance rules).

*Source: IMF staff calculations and National Authorities’ data (from the referenced IMF chapter).*

### 13. The most common form of fiscal rules has been a combination of a debt anchor

### 13. The most common form of fiscal rules has been a combination of a debt anchor together with operational limits on expenditures and/or budget balance

### Operational rule simulations and scenario assumptions
- Simulations assume adoption from 2023 and are calibrated to staff baseline projection of fiscal and macroeconomic variables for the Dominican Republic.
- Three operational rules simulated (debt paths shown from 2023 through to 2030):
  - Nominal expenditure rule in line with past revenue growth set at 11 percent (based on the average of 2017–19 growth rate of revenues).
  - Primary budget balance rule (BBR = 0).
  - Constant primary balance rule (CPB = 1).
- Simulation outcomes highlighted:
  - A constant primary balance of 1 percent would reduce debt to below 50 percent by 2030.
  - A budget balance rule would stabilize debt downwards around the current level.
- In boom-and-bust illustrative simulations (not staff projections during 2022–30):
  - A more prudent expenditure growth of 8 percent is imposed, which reduces the debt ratio closer to the 50 percent mark.
  - The simulated output gap is defined as 2 percentage points deviation from the potential of 5 percent.
  - The expenditure ceiling rule is identified as the only countercyclical rule in the simulated boom-and-bust cycles.
- Notes on balance-rule definitions:
  - A primary budget balance rule excludes interest payments and is thus more directly under the control of policymakers.
  - Given the relatively high interest bill in the Dominican Republic, an overall balance rule would be more effective in terms of sustainability but at the cost of stabilization because interest bills are often countercyclical.

### Key findings on rule effectiveness and properties
- The nominal expenditure ceiling appears to be the least effective operational rule to guide debt to a prudent level because:
  - A simple expenditure ceiling does not necessarily correct tendencies toward excessive deficits (e.g., large tax cuts or systematic overprediction of revenues).
  - It is not linked directly to the debt sustainability objective.
- Expenditure rules can have strong countercyclical features and, when calibrated, can guide debt toward the anchor.
  - In boom-and-bust simulations, the expenditure ceiling with 8 percent growth performed better at reducing debt toward 50 percent than the nominal-expenditure (11 percent) scenario.
- The charted table of cumulative procyclical impulses shows:
  - The expenditure ceiling exhibits countercyclical behavior (improves primary balance in bad times and allows deterioration in good times to a lesser extent), whereas other rules are more procyclical.

### Design features and policy recommendations for expenditure rules
- Reasons a binding upper limit on expenditure growth is appealing:
  - (i) Directly addresses distortions leading to excessive spending and can curb the tendency to increase public spending during good times.
  - (ii) Does not automatically lead to a procyclical fiscal stance because revenue stabilizers remain free to operate (revenues often fluctuate more than expenditures over the economic cycle).
  - (iii) Easy to explain to the public and market participants and relatively easy to monitor when set over several years (relative to a realistic MTFF) with a review embedded in the electoral cycle.
  - (iv) Escape clauses can be specified and activated only for events beyond the government’s control, such as severe recessions, natural disasters, or pandemics.
- Institutional complements:
  - An independent fiscal council can be tasked with monitoring fiscal performance and compliance with the rule.
- Specific design options to increase prudence and flexibility:
  - Allow expenditure to grow above the limit if higher spending is matched by increases in discretionary revenues to encourage tax reform and revenue mobilization—caveat: this flexibility could complicate enforcement and limit the rule’s ability to anchor expectations on debt sustainability.
  - Include an error correction mechanism to accommodate periods with high debt while protecting growth-enhancing capital investment from bearing the brunt of adjustment.

### Conclusion and priority actions
- A multi-year expenditure ceiling rule (linked to the debt anchor) could be a more practical and desirable option for the Dominican Republic.
- To be effective and credible, implementation would require:
  - Strengthening medium-term fiscal management.
  - Reduction of budget rigidities (e.g., spending on electricity subsidies and revenue earmarking).
  - Rebuilding fiscal buffers in the transition period (ideally towards the debt anchor).

*Source: IMF staff calculations and analysis as presented in the IMF chapter on operational fiscal-rule simulations for the Dominican Republic.*

### 9. Public procurement. The Mechanism for Follow-Up on the Implementation of the Inter-

### 9. Public procurement. The Mechanism for Follow-Up on the Implementation of the Inter-

### Findings from MESICIC 2017 on Procurement Law (340-06)
- Identified issues in Procurement Law (340-06):
  - It is not a “public order” law, resulting in a dispersion of regulations among agencies and making conflict of interest different from one entity to another.
  - Lack of sufficient operational autonomy of the General Directorate of Public Procurement (DGCP).
  - Lack of transparency on the performance of government contracts for procurement of goods and services, as information was not widely available or published.
- This is being discussed in the CES—see 9• Reforma y Modernización de la Administración Pública - ces.gob.do

### Recent initiatives to improve public procurement
- Modernization phase enabled real-time public access to information throughout the procurement cycle.
- Under President Abinader’s administration, developments included:
  - Issuance of decree No. 434-20, which makes the public–private partnership (PPP) law (47-20) fully operational by widening the scope of the regulations.
  - Issuance of decree No. 36-21, which calls for the creation of a government procurement compliance program that uses International Organization for Standardization (IOS) standards and includes anti-bribery provisions.
  - Issuance of new policies by the DGCP for different stages of the procurement process, including use of digital forms in tender documentation and principles that contracting agencies must follow in the preparation of submissions following requests for proposals.
  - Issuance of guidelines on the selection of experts participating in the evaluation process.
  - Removal from the supplier list of companies linked to legislatures and other elected officials.
  - DGCP will draft regulations to the contracting units of the different government agencies and create a National Committee of Public Compliance Officers.
  - Creation of a special fraud unit at the Comptroller General and a new monitoring system and a transparency portal, providing information on transaction amounts, status of contracts, individual suppliers and contract details.
  - In April 2021, authorities presented a legislative proposal to strengthen public procurement by making it a public order law; enactment would modernize the procurement systems, eliminate loopholes that gave place to corruption and fraud, and expand access to public procurement by SMEs.
- In particular, in 2021 DGCP launched the first stage of the Preventive and Reactive Alert System (SAPR), which allows identifying which institutions have incurred in violations of the public procurement law.

### Trade and Competition Policies — Regulating markets (overview)
- Regulatory framework should promote entrepreneurship and competition rather than rent-seeking and corruption.
- An onerous business regulatory environment inhibits investment and privileges established and large firms over entrants and small firms.
- Reliance on discretion rather than rules-based procedures increases scope for bribery and corruption, hindering competition and entrepreneurship.

### Trade facilitation — recent measures and effects
- Comprehensive new customs law (Ley 168-21) replaced Ley 3489 and modernizes and expedites customs procedures, reducing discretion and increasing transparency.
- Key provisions of Ley 168-21:
  - Advance rulings: reduction in time to receive advance rulings from 150 days to 30 days (or 45 days in exceptional cases).
  - Authorized Economic Operator status (Operador Económico Autorizado, or OEA): qualifying agents will obtain OEA certification, reducing scrutiny and processing times.
  - 24-hour dispatch: reduction in time to dispatch containers from nearly 7 days to 24 hours.
  - Non-invasive inspections: customs authority granted the authority to perform non-invasive (X-ray) inspections, expediting routine inspections.
  - Reduced discretion: law formally and clearly stipulates customs procedures, reducing opportunities for corruption and increasing transparency.

### Business climate — reforms to reduce bureaucracy
- The Zero-Bureaucracy law (Ley 167–21) aims at modernizing and simplifying bureaucratic procedures, improving government procedures and imposing requirements on how new regulations are crafted and evaluated (public consultation and both ex ante and ex post impact assessments).
- The Ministry of Public Administration is drafting regulations; Zero-Bureaucracy specifies that 150 procedures in 41 public institutions are to be reformed.
- Reforms center on creation of single windows (ventanillas) with stated goals:
  - Business Formalization Window (Ventanilla de Formalización de Empresas): reduce time to formalize a business to 24 hours by consolidating paperwork and processing in parallel.
  - Construction Permits Window (Ventanilla Única de Construcción): reduce time for approval of construction projects to 60 days (120 days) for simple (complex) projects.
  - Health Code Permits Window (Ventanilla Única de Servicios del MSP): reduce time to obtain health code permits from 6 months to 14 days, involving revision and modification of regulations on cosmetics, personal hygiene products, and food and beverages.
  - Foreign Investment Window (Ventanilla Única de Inversión): facilitate and expedite procedures required of foreign investors through centralization, simplification, increased automation and interoperability.

### Competition policy
- The Dominican Republic needs to improve competition in product markets.
- ProCompetencia, established by the 2008 Competition Law (Ley General de Defensa de la Competencia, Ley 42-08), was not enabled until 2017.

*Source: 9. Public procurement. The Mechanism for Follow-Up on the Implementation of the Inter- (content unit 1domea2022001).*

### 18. Further steps could be instrumental to improve competition policies. While

### 18. Further steps could be instrumental to improve competition policies. While ProCompetencia’s powers remain limited—it lacks legal authority to block mergers or break up companies

### Competition policy findings and planned actions
- ProCompetencia’s powers remain limited: it lacks legal authority to block mergers or break up companies and there are limits on the sanctions it can impose, which do not scale with the revenues of the sanctioned firm.
- An executive decree from July 2020 enhanced the agency by specifying more clearly the way in which Ley 42-08 should be applied.
- Going forward, ProCompetencia is working towards strengthening their mandate to allow for larger and more preemptive sanctions, such as for anti-competitive mergers and acquisitions.
- The improvements resulting from these reforms will be studied and presented to the public in August 2022.
- Exception: in certain industries where the relevant regulator has been endowed with such powers—such as telecommunications, financial services, and hospitals—Ley 42-08 states that ProCompetencia will work in tandem with said regulators.

### Implications for competition enforcement
- Need for legal authority to block mergers or break up companies to address anti-competitive consolidation.
- Requirement to design sanctioning powers that scale with firm revenues to ensure deterrence.
- Coordination mechanisms with sectoral regulators where those regulators have enforcement powers (telecommunications, financial services, hospitals).

### Policy recommendations implied by the text
- Strengthen ProCompetencia’s mandate to include authority to block anti-competitive mergers and acquisitions.
- Enable sanctioning frameworks that scale with the revenues of sanctioned firms.
- Ensure clear procedures and public reporting on reforms (noting the planned August 2022 public presentation).

---

### Fund relations and financial arrangements (as of April 30, 2022)
- Quota: 477.40 SDR Million (100.00 percent Quota)
- Fund holdings of currency (Exchange Rate): 890.17 SDR Million (186.46 percent)
- Reserve Tranche Position: 64.63 SDR Million (13.54 percent)
- Net cumulative allocation (SDR Department): 666.39 SDR Million (100.00 percent)
- Holdings (SDR Department): 458.14 SDR Million (68.75 percent)
- RFI Loan: 477.40 SDR Million (100.0 percent allocation)
- Latest financial arrangements (Stand-By and RFI) and amounts approved/drawn:
  - Stand-By November 9, 2009 – March 8, 2012: Amount Approved 1,094.50 SDR Million; Amount Drawn 766.15 SDR Million
  - Stand-By January 31, 2005 – January 30, 2008: Amount Approved 437.80 SDR Million; Amount Drawn 437.80 SDR Million
  - Stand-By August 29, 2003 – January 31, 2005: Amount Approved 437.80 SDR Million; Amount Drawn 131.34 SDR Million
  - RFI April 29, 2020 (Date Drawn May 01, 2020): Amount Approved 477.40 SDR Million; Amount Drawn 477.40 SDR Million
- Projected Payments to Fund (SDR Million; based on existing use of resources and present holdings of SDRs):
  - Forthcoming 2022 Principal: 119.35 SDR Million
  - 2023 Principal: 238.70 SDR Million
  - 2024 Principal: 119.35 SDR Million
  - Charges/Interest: 2022 5.73 SDR Million; 2023 7.94 SDR Million; 2024 5.05 SDR Million; 2025 1.70 SDR Million; 2026 1.04 SDR Million
  - Total: 2022 5.73 SDR Million; 2023 127.29 SDR Million; 2024 243.75 SDR Million; 2025 121.05 SDR Million; 2026 1.04 SDR Million

### Exchange rate arrangement and consultations
- Currency: Dominican peso.
- De jure exchange rate arrangement: “managed floating”.
- De facto exchange rate arrangement: “other managed”.
- Article IV Consultation: previous discussions took place April 21-May 5, 2021; concluded by the Executive Board on June 30, 2021; the Dominican Republic is on the standard 12-month consultation cycle.
- FSAP Participation: An FSAP update was completed in February 2009; corresponding report issued in November 2009.

### Technical assistance (TA) priorities
- Revenue and Customs Administration:
  - Support to internal tax administration (DGII) on measuring reform impact on tax compliance and developing a post-COVID-19 action plan.
  - CAPTAC-DR assistance to customs administration (DGA) to align its strategic plan with governmental priorities, strengthen governance, and support strategic initiative to facilitate trade by clearing goods within 24 hours (D24H).
- Public Financial Management (PFM):
  - Strengthen cash programming model and active cash management to speed up payments.
  - HQ-led PFM diagnostic mission assessed capacity to implement a medium-term fiscal framework to support planned fiscal rule legislation (FRL).
  - Planned missions to support drafting of the FRL, fiscal risks analysis, and assessment of public investment management systems.
- Government Finance Statistics:
  - Publication of monthly budgetary central government data aligned with latest international standards.
  - Ongoing TA on expansion of coverage and timeliness of general government data and improvement of public sector debt data.
- Real Sector Statistics:
  - National accounts rebasing to 2018 in progress; Household Income and Expenditure Survey conducted during 2018/19; rebasing expected to be completed by the first half of 2023.
- Financial Sector Supervision and Regulation:
  - Roadmap for implementation of Basel II/III framework developed; follow-up TA on operation, market and liquidity risk frameworks and on IFRS 9 scheduled for fiscal year 2023.

### Statistical issues — data adequacy and dissemination (As of May 20, 2022)
- General assessment: Data provision has some shortcomings but is broadly adequate for surveillance.
- National Accounts:
  - Compiled by BCRD using SNA 2008 concepts; monthly IMAE published, chain-linked volume index with 2007 reference year.
- Price Statistics:
  - CPI compiled by BCRD; CPI basket weight reference period October 2019 to September 2020.
  - Producer Price Index for manufacturing compiled by National Statistical Office with weights from national accounts (base year 2007) and reference period December 2013.
- Government Finance Statistics:
  - Central government consolidated data available; Rest of Non-Financial Public Sector balance estimated only from financing side due to incomplete coverage of local governments and some non-central government entities.
  - Transitioned to GFSM 2014 framework; implementing IPSAS and results-based program budgeting.
- Monetary and Financial Statistics:
  - BCRD compiles monetary statistics and reports monthly to IMF Statistics Department using standardized report forms.
  - BCRD disseminates harmonized monetary statistics and Financial Access Survey indicators.
- Financial sector surveillance:
  - Participant in IMF’s Financial Soundness Indicators (FSIs) database, reporting FSIs monthly from 2008; comprehensive for banking system and individual banks.
  - FSIs on non-financial corporates and households are not available; data on real estate markets is lacking.
- External sector statistics:
  - BOP and IIP compiled on a BPM6 basis; coverage gaps in recording nonfinancial private sector transactions in the financial account, particularly direct investment and private sector external debt.
  - Does not participate in CPIS and CDIS.
- Data dissemination standards:
  - Implemented the e-GDDS in 2019; publishes core economic data aligned with Table of Common Indicators Required for surveillance via National Summary Data Page with timeliness and periodicity in line with or exceeding e-GDDS recommendations.

### Key data reporting dates and frequencies (as of May 20, 2022)
- Exchange Rates: Date of latest Observation 5/20/2022; Date Received 5/23/2022; Frequency of Data D; Frequency of Reporting D; Frequency of Publication D
- International Reserve Assets and Reserve Liabilities of the Monetary Authorities: Date of latest Observation 5/20/2022; Date Received 5/23/2022; Frequency D/D/D
- Reserve/Base Money: 5/20/2022; 5/23/2022; D/D/D
- Broad Money: 5/20/2022; 5/23/2022; D/D/D
- Central Bank Balance Sheet: 4/2022; 5/2022; M/M/M
- Consolidated Balance Sheet of the Banking System: 4/2022; 5/2022; M/M/M
- Interest Rates: 5/20/2022; 5/23/2022; D/D/D
- Consumer Price Index: 4/2022; 5/2022; M/M/M
- Revenue, Expenditure, Balance and Composition of Financing – General Government: 3/2022; 5/2022; M/M/M
- Revenue, Expenditure, Balance and Composition of Financing – Central Government: 3/2022; 5/2022; M/M/M
- Stocks of Central Government and Central Government-Guaranteed Debt: Q4/2021; 2/2022; Q/Q/Q
- External Current Account Balance: Q4/2021; 4/2022; Q/Q/Q
- Exports and Imports of Goods and Services: 12/2021; 4/2022; M/M/M
- GDP/GNP: Q4/2021; 4/2022; Q/Q/Q
- Gross External Debt: 12/2021; 4/2022; Q/Q/Q
- International Investment Position: 12/2021; 4/2022; Q/Q/Q

*Prepared By Western Hemisphere Department (in consultation with other departments) — DOMINICAN REPUBLIC STAFF REPORT FOR THE 2022 ARTICLE IV CONSULTATION—INFORMATIONAL ANNEX*

---


_Source: https://www.imf.org/-/media/files/publications/cr/2022/english/1domea2022001.pdf_