## 1domea2025001-source-pdf ## Source details **Canonical URL:** [1domea2025001-source-pdf](https://www.imf.org/-/media/files/publications/cr/2025/english/1domea2025001-source-pdf.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2025/english/1domea2025001-source-pdf.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2025/english/1domea2025001-source-pdf.pdf.json) --- ### Macroprudential foreign currency measures - Context and objectives: - Adopted April (BCRD) amid rising foreign currency (FC) lending, growing share of unhedged loans, and larger net FC open position (NFCOP) by financial intermediaries since mid-2022. - Aim: reduce FC mismatch risks, strengthen operational behavior of FIs, enhance prudential risk management; not residency based and do not target capital flows. - Amendments to FX lending practices (first regulation): - Tightened definition of FC and non-FC generators. - Lending limits: - Lending limit to non-FC generators: raised from Max. 15% of FC funds (2004 regulation) to Max. 25% of deposits and FC financing (2025 regulation), with priority to FC generators. - Mortgage and consumer lending: - Mortgages and consumer lending: from "Allowed under certain conditions" (2004) to "Credit cards only. Others will be phased out." (2025). - Documentation and risk-weighting: - Documents required (remittances, financial statements, etc.) (2025) versus "Not specified" previously. - Risk weight schedule (2025): 8%, 30%, 60%, 150% depending on collateral (versus credit type specific previously). - Enforcement: - Penalties and provisioning requirements for exceeding limits. - More comprehensive due diligence: FIs must ensure non-FC generators are sufficiently solvent to service FC debts and absorb potential FC risk. - Amendments to NFCOP limits (second regulation): - Banks' NFC limit relative to paid-in-capital and legal reserves: - 2019: Long NFC position: 50%; Short NFC position: 40%. - 2025: Long NFC position: 25%; Short NFC position: 25%. - Daily average increase in NFC (lower over 5 consecutive days): - 2019: ≤ 25% of capital and reserves or ≤ US$10 million. - 2025: ≤ 25% of capital and reserves or ≤ US$5 million. - Implementation timetable: - Daily increase limits: April 1, 2025. - Long/Short position limits: Aug. 1, 2025. - Key quantitative elements: - Lending limit to non-FC generators: changed from 15% to 25%. - Risk weights: 8%, 30%, 60%, 150%. - NFCOP long/short limits: 25% of paid-in capital and legal reserves (both). - Daily increase cap: lowered from ≤ US$10 million to ≤ US$5 million (subject to the ≤ 25% condition). - Implementation dates: April 1, 2025; Aug. 1, 2025. - Expected effects and scope: - Reduce FC mismatch risks, curb increase in banks’ net FC positions, enhance FX market transparency and price formation. - Supervision: monthly monitoring, penalties and provisions for excess (2025 regulations). - Attribution: - *Source: National authorities.* ### Macroeconomic outlook and key projections (selected indicators) - Debt and sustainability: - Consolidated public sector (CPS) debt projected to gradually decline to around 52 percent of GDP by 2030 and assessed as sustainable (DSA Annex). - Current account and reserves: - CA deficit expected to remain at around 2½ percent of GDP by 2030. - Reserves projected to remain stable at around 115 percent of the ARA metric by 2030. - Growth and inflation (selected): - Real GDP (annual % change): 2019 4.9-7.9 14.0 5.2 2.2 5.0 3.0 4.5 5.0 5.0 5.0 5.0 - Consumer price inflation (e.o.p., percent): 2019 3.7 5.6 8.5 7.8 3.6 3.3 3.7 4.0 4.0 4.0 4.0 4.0 - Medium-term Macro Framework (select percent of GDP series): - Central government revenue: 14.4 14.2 15.5 15.3 15.8 16.4 16.0 15.5 15.5 15.5 15.5 15.5 - Central government expenditure: 17.8 22.2 18.4 18.5 19.1 19.5 19.4 18.7 18.4 18.1 17.8 17.4 - Central government balance1/: -3.5 -7.9 -2.9 -3.2 -3.3 -3.1 -3.4 -3.2 -3.0 -2.6 -2.3 -2.0 - Consolidated public sector overall balance: -3.3 -9.0 -3.7 -3.6 -4.1 -3.9 -4.5 -3.8 -3.5 -3.0 -2.6 -2.2 - Consolidated public sector debt: 53.1 71.4 61.8 58.8 59.7 58.1 59.2 58.2 56.6 55.1 53.3 51.5 - Balance of payments (selected US$ and percent of GDP): - Current account: -1.3 -1.7 -2.8 -5.8 -3.7 -3.3 -2.5 -2.5 -2.6 -2.6 -2.6 -2.5 - Gross international reserves (US$ million): 8,782 10,752 13,033 14,408 15,464 13,388 14,448 14,973 15,825 16,725 17,675 18,679 - Selected projections (exact reported values): - Real GDP (annual % change): 2024 5.0; 2025 3.0; 2026 4.5; 2027 5.0; 2028 5.0; 2029 5.0; 2030 5.0 - Nominal GDP (RD$ billion): 2024 7,403; 2025 7,977; 2026 8,701; 2027 9,495; 2028 10,368; 2029 11,315; 2030 12,349 - Consolidated public sector debt (percent of GDP): 2024 58.1; 2025 59.2; 2026 58.2; 2027 56.6; 2028 55.1; 2029 53.3; 2030 51.5 - Gross international reserves (millions of US dollars): 2024 13,388; 2025 14,448; 2026 14,973; 2027 15,825; 2028 16,725; 2029 17,675; 2030 18,679 ### Risks to the outlook - Downside risks: - Continued high uncertainty, tighter global financial conditions, commodity price volatility → higher precautionary savings, higher domestic rates, lower disposable incomes, pressure on fiscal and external accounts, reduced activity. - Vulnerability to natural disasters → macroeconomic costs from infrastructure and sectoral damages. - Further reform delays (including reducing electricity losses) could weaken external and fiscal positions. - Upside risks: - Trade diversion and greater FDI flows due to regionalization. - Faster-than-anticipated recovery in tourism from the U.S. - Fiscal reform strengthening revenue base, greater capital and social spending, faster recapitalization of the BCRD → reduce sovereign risk premia. - Structural reforms enhancing competitiveness → bolster long-term growth and debt sustainability. ### Policy discussions — monetary policy (near-term) - Objective: close output gap while safeguarding stability via: - Strengthening monetary policy transmission. - Steady implementation of the FRL; enhance transparency and efficiency of public spending and revenue administration. - Maintain strong financial supervision; enhance monetary-fiscal coordination. - Monetary stance: - Current stance broadly appropriate. - Staff estimates ex-ante real MPR ≈ 1.7 percent and within neutral range (1-2 percent). - Space for BCRD to remain data driven. - Recommended measures to strengthen transmission: i. Calibrate liquidity management; address excessive concentration of liquidity in largest banks; bolster interbank market functioning. ii. Advance strategy to gradually wind down exceptional liquidity measures. iii. Develop domestic interbank repo market; collect/share collateralized repo market data. iv. Revisit reserve requirements: lengthen reserve maintenance period and average reserves. v. Enhance monetary-fiscal coordination to deepen domestic capital markets (rollover/issuance of BCRD securities and central government debt). - Communication and FX: - Publish informative scenarios; increase Monetary Policy Report frequency from 2 to 4. - Maintain FX flexibility; focus interventions on smoothing excessive volatility. - Expand FX hedging mechanisms and reduce BCRD’s direct provision of FX hedges. - In heightened global uncertainty, steady build-up of buffers recommended. ### Policy discussions — fiscal policy and near-term budget - 2026 budget: - BCG deficit target for 2026: 3.2 percent of GDP; flat real primary spending growth (within FR limit). - Revenues: 15.5 percent of GDP (0.5pp lower than 2025). - Expenditures targeted to decline 0.7pp of GDP; social benefits 1.8 percent of GDP; subsidies decline about 0.3 percent of GDP; wage bill and capital spending each decline about 0.2 percent of GDP. - Electricity sector subsidies and investment: - Budget includes electricity sector subsidies under current transfers. - Declining electricity subsidies reflect lower generation prices from new gas and renewable supply and commitment to Electricity Pact (gradual tariff adjustment). - Capital spending around 2.5 percent of GDP would still fall short of estimated infrastructure needs to meet SDGs. - Fiscal space and contingency: - Some room to increase spending in case of shocks; escape clause under FRL for recession or natural disaster. - Attention to financing implications and reaching 40 percent debt anchor by 2035. - Authorities’ stance: - Committed to prudent fiscal policies anchored by FRL while scaling up public investment; combat tax evasion and increase spending efficiency. ### Electricity sector — achievements, weaknesses, and modeling results - Achievements (EP and sector metrics): - NCRE share: less than 5 percent in 2018 → around 12 percent in 2024; reached 18.1 percent (including hydro) end-2024; around 23 percent through July 2025. - Tariffs increased 25 percent between Oct 2021 and June 2022. - Power supply availability: from <90 percent in 2019 → >98 percent since 2020. - Integrated Loss Reduction Plan published August 2024; Open competitive bidding for NCREs effective Aug. 2025 (requires battery storage). - Ongoing weaknesses: - Tariff adjustments suspended in 2022; average tariffs ~30 percent below cost-recovery. - Distribution losses remain elevated; 2024 budgetary cost of sector: 1.4 percent of GDP. - Consumption subsidies for households consuming up to 700kWh per month account for about ½ of electricity subsidies; subsidized level (700kWh) higher than regional average (~200kWh). - Planned investments and impacts: - Investments in transmission/distribution (new transformers, smart meters) planned through 2027 with donor support. - A one-percentage-point reduction in transmission/distribution losses → 1.07 percent decrease in sector greenhouse gas emissions (estimate). - Macroeconomic modelling (staff findings, GMMET and scenarios): - Gradually adjusting electricity prices to full cost-recovery over five years → save on average 0.3 percent of GDP per year and up to 0.5 percent of GDP starting in 2030. - Upgrading transmission/distribution could: - Boost GDP level by 0.6 percent. - Reduce imports of volatile-priced fossil fuels and strengthen current account. - Removing subsidies (full phasing) results: - Residential electricity consumption ↓ ~10 percent; overall generation ↓ ~8 percent. - Consumer price level ↑ around 0.3 to 0.6 percent (if central bank does not react). - Adjustments save annually 0.5 percent of GDP over 20 years. - Use of subsidy savings: - If used to reduce labor income taxes: GDP ↑ ~0.4 percent; electricity fiscal expenditures reduced by 1 percent of GDP after 5 years. - If used for increased transfers: GDP falls ~0.5 percent below baseline after 10 years. - NCRE investment scenarios (quantified outcomes, Table 2 summary averages): - Permanent investment subsidy: GDP change 0.4; Net fiscal impact -0.13 percent of GDP; Fuel imports change -0.17 percent of GDP; Headline inflation -0.02 pp. - Temporary investment subsidy (50% 2025–2030): GDP change 0.1; Net fiscal impact -0.06 percent of GDP. - Transmission sector reform: GDP change 0.6; Net fiscal impact -0.2 percent of GDP. - Consumer subsidy reform (increased transfers): GDP change -0.3; Net fiscal impact 0.8 percent of GDP. - Consumer subsidy reform (lower labor tax): GDP change 0.4; Net fiscal impact 0.0 percent of GDP. - Policy implications: - Transmission investment and loss reduction support renewable integration, lower consumer costs, and boost GDP. - Phased removal of explicit/implicit subsidies frees fiscal resources (0.5 percent of GDP annually over 20 years) to finance investments. - Achieving PEN NCRE targets likely requires temporary additional support (e.g., 50 percent subsidy 2025–2030). ### Financial sector, supervision, and structural reforms - Financial sector status: - Top 5 banks account for nearly 80 percent of sector assets. - Financial system well-capitalized; stress tests indicate resilience. - NPLs ticks higher but remain well below 2020 levels; NPLs to total loans: 2024 1.4; 2025M6 1.8. - Regulatory capital to risk-weighted assets (percent): 2024 17.4; 2025M6 18.4. - Liquid funds to deposits: 2024 21.4; 2025M6 22.4. - Recent and planned financial reforms: - Enhanced consumer protection regulation adopted. - Strengthening FX macroprudential framework. - Mark-to-market accounting implementation effective January 2026. - Move toward Basel II/III standards; strengthen AML/CFT framework. - Macroprudential FX measures to limit banks’ net FX open position. - Interest rate passthrough (2012–2025 findings): - Long-run passthrough to deposit rates: 0.5–0.7 (not full). - Passthrough to lending rates: varies 0.4–0.7 in most cases; complete passthrough only for consumer loan rates in some specifications. - Deposit and lending rates adjust mostly within six months to policy-rate changes. - Key controls: reserve requirements, US three-month treasury, EMBI spreads, net FX purchases affect passthrough. - Financial inclusion and market development: - Credit to private sector-to-GDP ratio increased over 4 percentage points since 2021. - Adults with bank accounts increased 13 percentage points since 2021. - Ongoing MIPYME program, Digital Onboarding and Digital Signature could facilitate access for around 2.8 million Dominicans overseas. ### Debt consolidation, public debt structure, and DSA summary - Coverage and composition: - CPS perimeter includes GG, NFPS, central bank quasi-fiscal debt. - Most debt in foreign currency; largely held by external private creditors. - Residual maturity of central government bonds: about 10.3 years. - Baseline public debt path (percent of GDP): - 2024: 58.1; 2025: 59.2; 2026: 58.2; 2027: 56.6; 2028: 55.1; 2029: 53.4; 2030: 51.6 (extended to 2034: 46.4). - Gross financing needs (GFN) (percent of GDP): - 2024: 10.4; 2025: 8.9; 2026: 7.6; 2027: 6.9; 2028: 9.7; 2029: 8.3; 2030: 6.6 - Debt dynamics contributions and assumptions (selected): - Primary deficit (percent of GDP): 2024 -0.9; 2025 -0.5; 2026 -1.0; 2027 -1.2; 2028 -1.5; 2029 -1.8; 2030 -2.1 - Real interest rate and relative inflation (percent): 2024 3.2; 2025 3.1; 2026 2.7; 2027 2.4; 2028 2.8; 2029 2.8; 2030 2.9 - DSA assessment: - Overall assessment: "Moderate" risk of sovereign stress; debt assessed as "Sustainable". - Medium-term risks contained by moderate public debt and GFNs on a downward track. - Natural disasters are main risk; the FRL includes an escape clause for natural disasters requiring return to consolidation within 3 years. - Prob. of missed crisis (2025-2030) if stress not predicted: 18.2 pct; Prob. of false alarms: 38.6 pct. - Policy response: - Reduce currency and rollover risks by issuing more domestic currency bonds and deepen domestic bond market liquidity. - Continue gradual fiscal consolidation in line with FRL. ### Data, rebasing, and statistical improvements - National accounts rebased to 2018; methodological alignment with IMF 2017 Quarterly National Accounts Manual. - Key data sources: 2018 Household Expenditure and Income Survey; 2022 Population Census; MSME survey; administrative records; BCRD surveys. - Structural changes from rebasing (2007 base → 2018 base): - Services share increased by 5.6pp to 62.5 percent. - Agriculture: 6.5 → 4.6 (difference -1.9). - Industry: 28.6 → 25.5 (difference -3.1). - Largest production subsectors (2018 base shares): construction 11.6; commerce 10.9; local manufacturing 9.0; real estate 8.7; hospitality 8.0. - Recent macro data and near-term outlook: - IMAE cumulative growth Jan–Sep 2025: 2.2 percent. - Real GDP projected ~2.5 percent year-end 2025; 2026 expected 4.0–5.0 percent. - Headline inflation (y-o-y) Sept: 3.76 percent; BCRD target range: 4 percent ± 1pp. - BCRD MPR: reduced to 5.25% in October (two consecutive 25 bps cuts). - Planned mark-to-market/IFRS9 for banks effective January 2026. - Data gaps and SDDS progress: - Coverage improvements: GG operations broadened since end-2023; ongoing work to expand NFPS and publish NFPS statistics. - Timeliness issues: monthly trade data released quarterly; quarterly external sector accounts published four months after quarter end. - Authorities very close to completing SDDS subscription process (Annex X, STA collaboration). ### Structural reform agenda and priorities - Fiscal structural reforms: - Develop medium-term revenue strategy (MTRS); strengthen tax administration; improve management of fiscal incentives. - Continue PFM strengthening: climate tagging, procurement law (47-2025), long-term infrastructure planning. - Labor and competitiveness: - Labor code modernization under congressional review; objectives include reduce informality, expand labor participation (female), and update telework and dispute resolution rules. - Structural reforms projected to boost potential growth: IMF toolkits suggest closing gaps could raise annual growth by up to 0.8–1.0 percentage points depending on measures (domestic finance and credit market having largest impacts). - Climate, disaster risk, and financing: - Climate adaptation/mitigation investment needs: NDC adaptation up to US$8.7 billion by 2030 (0.6 percent of GDP annually); mitigation/energy modernization US$8.9 billion; total ~US$17.6 billion (annual avg 1.2 percent of GDP). - Private sector expected to account for up to 70 percent of total investment needs. - Recommendations: expand green bond market, Green Taxonomy (launched 2024), incorporate climate in PPPs, extend budget tagging to climate investments, improve disaster risk legal framework (update Law 147-02). - Electricity sector reform reiterated as critical to limit fiscal risks and support growth. _Italic: Source: 1domea2025001-source-pdf._ ### 2. Macroprudential Foreign Currency Measures __________________________________________________ 7 ### 2. Macroprudential Foreign Currency Measures ### Overview and context - Against a rising trend in foreign currency (FC) lending with a growing share of unhedged loans and larger net FC open position (NFCOP) by financial intermediaries (FI) since mid-2022, in April the Central Bank (BCRD) adopted changes to a set of foreign currency macroprudential regulations (FCMP). - The amended FCMP regulations seek to reduce FC mismatch risks by strengthening the operational behavior of FIs and are part of a broader reform agenda to strengthen the regulatory framework and enhance the soundness and stability of the financial system (e.g., operational risks, market risks, loan-to-value). - The amendments are not residency based, nor do they target the volume or the composition of capital flows. ### Amendments to FX lending practices (first regulation) - Tightens the definition of FC and non-FC generators. - Sets limits on FC lending. - Lending limit to non-FC generators: raised from Max. 15% of FC funds (2004 regulation) to Max. 25% of deposits and FC financing, with priority to FC generators (2025 regulation). - Curbs mortgage and consumer lending. - Mortgages and consumer lending: from "Allowed under certain conditions" (2004) to "Credit cards only. Others will be phased out." (2025). - Establishes documentation requirements. - Documents required (remittances, financial statements, etc.) (2025) versus "Not specified" previously. - Sets specific risk-weights by collateral and credit type. - Risk weight schedule (2025): 8%, 30%, 60%, 150% depending on collateral (versus credit type specific previously). - Sets penalties and provisioning requirements for exceeding the limits. - More comprehensive due diligence requires FIs to ensure non-FC generators are sufficiently solvent to service FC debts and absorb potential FC risk. ### Amendments to net foreign currency open position (second regulation) - Tightens the limits on FI’s NFCOP as a share of the paid-in capital and legal reserves and tightens the daily average increase in the NFCOP. - Limits comparison (2019 Regulation vs 2025 Regulations): - Banks' NFC limit relative to paid-in-capital and legal reserves: - 2019: Long NFC position: 50%; Short NFC position: 40%. - 2025: Long NFC position: 25%; Short NFC position: 25%. - Limits on daily average increase in NFC, whichever is lower over 5 consecutive days: - 2019: ≤ 25% of capital and reserves or ≤ US$10 million. - 2025: ≤ 25% of capital and reserves or ≤ US$5 million. - Implementation timetable provided in the regulations: - Daily increase limits: April 1, 2025. - Long/Short position limits: Aug. 1, 2025. ### Key quantitative and operational elements highlighted - Lending limit to non-FC generators changed from 15% to 25%. - Risk weights introduced: 8%, 30%, 60%, 150% depending on collateral. - NFCOP long/short limits tightened to 25% of paid-in capital and legal reserves for both long and short positions. - Daily increase cap lowered from ≤ US$10 million to ≤ US$5 million (subject to the ≤ 25% of capital and reserves condition). - Implementation dates: April 1, 2025 (daily limits); Aug. 1, 2025 (long/short limits). ### Expected effects and scope - Aim: reduce FC mismatch risks and strengthen prudential risk management of un-hedged FX borrowers and curb the increase in banks’ net foreign currency positions. - Expected to enhance transparency and price formation in the FX market. - Not aimed at restricting capital flows or targeting residency; focuses on operational behaviour of financial intermediaries. - Supervision and enforcement: monthly monitoring, penalties and provisions for excess (2025 regulations) versus standard revision previously. *Source: National authorities.* ### 2030. This is in line with the FRL and latest budget, which include slower employee ### 1domea2025001-source-pdf - 2030. This is in line with the FRL and latest budget, which include slower employee compensation and current transfers growth. ### Macroeconomic Outlook and Key Projections - Consolidated public sector (CPS) debt is projected to gradually decline to around 52 percent of GDP by 2030 and is assessed as sustainable (DSA Annex). - Current account: - The CA deficit is expected to remain at around 2½ percent of GDP driven by a lower energy bill (given increased renewable generation), stable terms-of-trade, and improvements in the primary income account supported by the expected fiscal consolidation. - Reserves are projected to remain stable at around 115 percent of the ARA metric by 2030. - Medium-Term Macroeconomic Framework (Selected indicators, in percent of GDP unless otherwise specified): - Growth and Prices - GDP growth (percent): 2019 4.9-7.9 14.0 5.2 2.2 5.0 3.0 4.5 4.9 5.0 5.0 5.0 - Consumer price inflation (e.o.p., percent): 2019 3.7 5.6 8.5 7.8 3.6 3.3 3.7 4.0 4.0 4.0 4.0 4.0 - Government Finances - Central government revenue: 14.4 14.2 15.5 15.3 15.8 16.4 16.0 15.5 15.5 15.5 15.5 15.5 - Central government expenditure: 17.8 22.2 18.4 18.5 19.1 19.5 19.4 18.7 18.4 18.1 17.8 17.4 - Central government balance1/: -3.5 -7.9 -2.9 -3.2 -3.3 -3.1 -3.4 -3.2 -3.0 -2.6 -2.3 -2.0 - Consolidated public sector overall balance: -3.3 -9.0 -3.7 -3.6 -4.1 -3.9 -4.5 -3.8 -3.5 -3.0 -2.6 -2.2 - Consolidated public sector debt: 53.1 71.4 61.8 58.8 59.7 58.1 59.2 58.2 56.6 55.1 53.3 51.5 - Balance of Payments - Current account: -1.3 -1.7 -2.8 -5.8 -3.7 -3.3 -2.5 -2.5 -2.6 -2.6 -2.6 -2.5 - Foreign direct investment: -3.4 -3.3 -3.4 -3.6 -3.6 -3.6 -3.5 -3.5 -3.5 -3.5 -3.5 -3.5 - Gross international reserves (US$ million): 8,782 10,752 13,033 14,408 15,464 13,388 14,448 14,973 15,825 16,725 17,675 18,679 - Sources: National authorities and IMF staff calculations. - Note: Central government balance refers to Budgetary Central Government (BCG). - Projection ### Risks to the Outlook - Risks are tilted to the downside stemming from a highly uncertain external environment; agile policy making remains essential (RAM, Annex II). - Downside risk channels: - Continued high uncertainty, tighter global financial conditions, and resumption of commodity price volatility could increase precautionary savings, increase domestic interest rates, lower disposable incomes, put pressure on fiscal and external accounts, and reduce domestic activity. - Vulnerability to natural disasters posing macroeconomic costs through damages to infrastructure and sectoral impacts. - Further reform delays (including reducing electricity losses) could weaken external and fiscal positions. - Upside risks: - Trade diversion and greater FDI flows as investors regionalize production. - Faster-than-anticipated recovery in tourism from the U.S. - A fiscal reform strengthening the revenue base and allowing for greater capital and social spending and faster recapitalization of the BCRD could reduce sovereign risk premia. - Structural reforms to enhance competitiveness could bolster long-term growth and strengthen debt sustainability. ### Authorities’ Views - Authorities agreed with staff’s assessment of recent developments, the outlook, and balance of risks. - Observations by authorities: - The DR has remained resilient but increased uncertainty and tighter financial conditions contributed to a growth slowdown through 2025H1. - Recent measures to bolster liquidity and increase public investment, with enhanced monetary-fiscal coordination, are expected to provide an impetus to growth. - Rare earth mining and semiconductors are promising sources of growth. - The DR is well-positioned to confront potential risks given strong fundamentals and available policy space. - Authorities concurred with staff on using the exchange rate as a shock absorber, expanding hedging instruments, continuing to rebuild external buffers, while calibrating reserves adequacy with sterilization costs and impact on the quasi-fiscal deficit. ### Policy Discussions — Near-term Monetary Policy - Objective: Close the output gap while safeguarding economic stability through: - Strengthening monetary policy transmission. - Steady implementation of the FRL, with enhanced transparency and efficiency of public spending and revenue administration. - Maintaining strong financial supervision. - Enhancing monetary-fiscal coordination. - Monetary stance: - The current monetary policy stance is broadly appropriate. - Staff estimates the ex-ante real MPR is about 1.7 percent and within the neutral rate range (1-2 percent). - Space exists for the BCRD to remain data driven; future decisions should be guided by new data impacts on inflation and the economic outlook. - Strengthening monetary policy transmission (recommended measures): i. Continue to calibrate liquidity management based on forecasts of relevant factors; address excessive concentration of liquidity in the largest banks; bolster interbank market functioning. ii. Advance a comprehensive and well-communicated strategy to gradually wind down existing exceptional liquidity measures, smoothing impact on system liquidity. iii. Continue to develop the domestic interbank repo market and consider systematically collecting and sharing data on the collateralized interbank repo market (volumes, rates, maturities). iv. Revisit the reserve requirements framework; options include lengthening the reserve maintenance period and averaging reserves to provide banks greater flexibility. v. Enhance monetary-fiscal coordination to deepen domestic capital markets, including on the rollover and issuance of new BCRD securities and central government debt. - Communication: - BCRD improvements in communication are welcome: publication of informative scenarios in the monetary policy report, plans to increase frequency of monetary policy reports from 2 to 4, and to expand data provision. - Participation in Fund-sponsored regional workshops on central bank communication is ongoing. - FX policy: - Maintain FX flexibility; allow exchange rate to act as shock absorber. - Focus FX interventions on smoothing excessive volatility. - Expand use of FX hedging mechanisms by ensuring enabling regulatory environment and reducing the BCRD’s role in provision of FX hedges. - In heightened global uncertainty, steady build-up of buffers is recommended to strengthen external stability. ### Policy Discussions — Fiscal Policy and Near-Term Budget - 2026 budget: - Adequately tightens the policy stance while prioritizing investment and social spending. - Following counter-cyclical spending increase in 2025, the BCG deficit target for 2026 is 3.2 percent of GDP, with flat real primary spending growth (well within the FR limit). - Revenues are conservative at 15.5 percent of GDP, 0.5pp lower than in 2025 given no additional one-off revenues. - Expenditures targeted to decline 0.7pp of GDP: - Social benefits remain at 1.8 percent of GDP. - Subsidies decline about 0.3 percent of GDP. - Wage bill and capital spending each decline about 0.2 percent of GDP. - Continuing consolidation in line with the budget’s medium-term fiscal framework (and FRL) supports fiscal sustainability. - Electricity sector subsidies: - The budget includes electricity sector subsidies under current transfers. - Declining electricity subsidies (as percent of GDP) reflect lower generation prices from new gas and renewable supply and a commitment to the Electricity Pact which supposes a gradual tariff adjustment (to bring in line with cost recovery) along with increased investments and enhanced management measures to reduce distribution losses (see ¶23-25). - Scaling up public investment: - Authorities plan to scale up public investment, but capital spending of around 2.5 percent of GDP would still fall short of estimated infrastructure needs to meet sustainable development goals14. - Past use of one-off revenues to finance investments highlights need to reduce inefficient spending (untargeted subsidies) and raise revenue more durably while abiding by the FRL. - Fiscal space and contingency: - In case of shocks, fiscal authorities have some room to increase spending; temporary stimulus measures could be deployed. - There is scope under the FRL to increase spending and an escape clause in case of a recession or natural disaster17. - Attention must be paid to financing implications and risks in reaching the 40 percent debt anchor by 2035. - Authorities’ fiscal stance: - Committed to prudent fiscal policies anchored by the fiscal rule while scaling up public investment. - Seeking fiscal space by combating tax evasion and increasing spending efficiency, including reducing untargeted subsidies. - Noted 0.5 p.p. of GDP increase in the deficit in 2025 remains in line with FRL limits. - Good access to external markets and contingent financing (World Bank and IDB) are available in case of shocks, including natural disasters. ### Implementing Structural Reforms to Strengthen Fundamentals - Fiscal structural reforms recommended to create fiscal space and preserve sustainability: - Develop a medium-term revenue strategy (MTRS) to unify comprehensive fiscal reform and build consensus on use of additional revenues for development spending. - Revenues: - Continue strengthening tax administration (Annex I) with potentially sizable gains from reducing compliance gaps18. - Improve cost-benefit analysis and administration of fiscal incentives to prevent further erosion of the tax base19. - Spending efficiency: - Public administration rationalization and elimination of non-productive spending is underway. - Efficiency gains expected from increased digitalization, interoperability, and enhanced data compilation21. - Public investment management being strengthened in line with best practices and IMF’s PIMA; longer-term strategic investment plans being developed22; climate tagging and resilience criteria incorporated (Annex IX). - Further gains possible from recently adopted procurement law and prudent use of PPPs (including concessions). - Risk management and transparency: - Fiscal risk assessments expanded to quantify risks from public enterprises, pensions, natural disasters, and climate change. - Recommend more structured and quantified monitoring of long-term contracts (specifically electricity sector power-purchase agreements) and establishing a contingency reserve within the budget. - Enhance transparency by integrating public trusts into fiscal reporting and budget documentation, publishing NFPS statistics, expanding debt coverage in line with IMF standards, and publishing reports to monitor the FR23. ### Electricity Sector (Selected Issues) - Electricity sector in budget and reform: - Budget includes electricity sector subsidies under current transfers. - Declining subsidies as percent of GDP reflect lower generation prices from new gas and renewable supply and commitment to the Electricity Pact, implying: - Gradual tariff adjustment to bring tariffs in line with cost recovery. - Increased investments and enhanced management measures to reduce distribution losses. - For electricity subsidies: - Consumption subsidies for households consuming up to 700kWh per month account for about ½ of electricity subsidies. - Technical and non-technical losses account for most of the rest. - The subsidized consumption level (700kWh) is higher than the region average (about 200kWh per month). - Policy suggestion: Lower the high level of subsidized electricity consumption and move away from price freezes while using more targeted transfers to the lower quintiles to help ensure subsidies can be contained. - Related fiscal and investment implications: - Strengthening the financial position of public electricity distribution companies would help contain subsidies. - Incorporating energy, and in particular electricity, infrastructure needs into the public infrastructure plan and making further prudent use of PPPs (including concessions) could enhance planning and investment outcomes. *International Monetary Fund — Dominican Republic staff report excerpts.* ### 23. The 2021 Electricity Pact (EP) has served as blueprint for notable reforms in the sector. ### The 2021 Electricity Pact (EP) has served as blueprint for notable reforms in the sector. ### Key achievements under the EP - Strengthened sector’s governance by separating regulation and operational functions. - Increased share of non-conventional renewable energy sources (NCREs) in the generation matrix from less than 5 percent in 2018 to around 12 percent in 2024. - Increased electricity tariffs by 25 percent between October 2021 and June 2022. - Increased power supply availability from less than 90 percent in 2019 to over 98 percent since 2020. - Published (August 2024) an integrated plan to reduce technical and non-technical losses. - Effective August 2025, open competitive bidding for new NCREs projects, which explicitly requires battery storage. ### Ongoing weaknesses and operational challenges - Electricity tariff adjustments were suspended in 2022, contributing to ongoing sector challenges. - Renewable energy generation progress: - Reached 18.1 percent (including hydro) at end-2024. - Around 23 percent through July 2025, slightly short of the authorities’ 25 percent target by 2025. - Distribution losses remain elevated, greatly exceeding the LAC region average; losses have risen since 2020 driven by the government’s decision to increase power availability even though the Electricity Pact envisaged a 16p.p. loss reduction by 2027. - Average tariffs remain around 30 percent below cost-recovery. - The budgetary cost of the sector was 1.4 percent of GDP in 2024. ### Planned investments and mitigation measures - Significant investments in transmission and distribution—including new transformers and additional deployment of smart meters—are planned through 2027 with financial support from bilateral and multilateral donors. - These investments could also help reduce greenhouse gas emissions: estimates show that a one-percentage-point reduction in electricity transmission and distribution losses is associated with a 1.07 percent decrease in sector greenhouse gas emissions. ### Macroeconomic analysis and projected benefits of reforms (Staff findings) - Gradually adjusting electricity prices to full cost-recovery over a five-year period, broadly in line with the original plan under the 2021 EP, could save the budget, on average, 0.3 percent of GDP per year and up to 0.5 percent of GDP starting in 2030. - Some savings could be used to increase transfers to vulnerable and low-income households. - Using savings to fund investments in the sector would help boost GDP growth, offsetting potential losses from higher electricity prices. - Upgrading transmission and distribution infrastructure could: - Boost GDP level by 0.6 percent. - Reduce imports of volatile priced fossil fuels. - Strengthen the current account balance (Annex VII). ### Authorities’ positions and planned actions - Authorities see strengthening public finances as a priority to meet development objectives while preserving sustainability; ongoing work includes tackling tax-fraud, enhanced digitalization and data analytics, and strengthened planning for public investment (including developing a long-term national infrastructure plan). - Authorities agree an eventual tax reform, in the context of a medium-term revenue strategy, is needed to reduce development gaps and further support central bank recapitalization, reduce the debt burden, and ensure fiscal sustainability. - Authorities remain committed to electricity sector reform, noting: - Priority for increased investment in the grid, upgrades to the billing system, and additional lower-cost generation to help reduce losses. - Planned discussion at the Economic and Social Council (CES) of resuming implementation of the Electricity Pact and the envisaged gradual tariff adjustments, accompanied by targeted social support programs for vulnerable parts of the population. ### Institutional timing and contextual notes - Tariff adjustments were suspended to help absorb the 2022 commodity shock, which pushed domestic inflation to nearly double digits in 2022. - The CES is planned to build consensus to restart tariff adjustments under the EP. - Planned competitive bidding for new NCREs projects becomes effective August 2025. *Source: IMF staff report excerpt on the Dominican Republic electricity sector reforms and related macroeconomic analysis.* ### 47. Strengthening monetary policy transmission will reinforce the effectiveness of the IT ### Strengthening monetary policy transmission will reinforce the effectiveness of the IT framework—a cornerstone of macro-financial stability—and support credit growth ### Monetary policy transmission and central bank actions - Strengthening monetary policy transmission will reinforce the effectiveness of the IT framework and support credit growth. - The BCRD should build on efforts to strengthen transmission by advancing a comprehensive and clearly communicated strategy to gradually wind down the existing exceptional liquidity measures in conjunction with the rollover of maturing BCRD securities and government debt issuance. - Further developing domestic financial markets would support policy transmission. - Continue to allow ER flexibility, keep interventions focused on smoothing large shocks, and further reserve accumulation to help bolster external stability. - Renewed discussions between the BCRD and government on a plan to recapitalize the central bank are welcome. ### Fiscal policy, public investment, and the Fiscal Responsibility Law (FRL) - The increase in public investment and on-going commitment to abide by the FRL is welcome but should be accompanied by fiscal reforms to create space for priority spending. - Planned gradual consolidation focused on enhancing tax administration (further tackling evasion) and reducing non-productive spending is appropriate and should include removing generalized subsidies. - Additional information on specific policies and a quantification of proposed measures as well as FR reports would increase the credibility of the consolidation plan and debt target. - If reductions in energy subsidies are delayed it could pose a risk to the authorities’ plans to create space for increasing investments in physical and human capital, which has so far relied on one -off revenues. - Strengthened elaboration and management of fiscal risks would support fiscal sustainability. - Developing a MTRS could help lay the groundwork and build consensus for a broader fiscal reform. ### Electricity sector reform and fiscal risk containment - Resuming the full implementation of the Electricity Pact is essential to limit fiscal risks and ensure the sector becomes an engine of growth. - Key measures: gradual adjustments to technical tariffs, better targeting of subsidies, and much-needed investments in the grid to strengthen the sector’s financial sustainability. - Improving the performance of the sector is critical to economic growth, especially for higher value-added manufacturing and services. ### Financial sector reform and supervision - Progress on financial sector reforms has been laudable; continuing to align the framework with international standards should persist. - Recent and planned measures: - Enhancements to consumer protection requirements. - Planned approval of updated operational risks framework. - Implementation of mark-to-market for banks effective January 2026. - Authorities’ plans to continue moving towards Basel II and III standards, develop the macroprudential policy toolkit, and strengthen the AML/CFT framework are welcome. ### Structural reforms for resilient growth and Meta2036 ambitions - Ambitious structural reforms are critical to deliver resilient growth and reach high-income status as envisioned in the Meta2036 plan. - Priority reforms: labor and social security reforms to reduce informality, bolster the social safety net, and support fiscal sustainability. - Over the medium-term: further improving governance, developing financial markets, and efficiently investing in infrastructure, education and health will be essential to meet the government’s goals. ### Disaster risk, climate resilience, and sectoral shortcomings - The DR's vulnerability to natural disasters calls for a comprehensive approach to mitigating risks and building resilience. - Key elements: enhancing the climate policy legal framework, improving disaster risk management, and deepening integration of climate considerations into fiscal policy. - The forthcoming NDC update could help align priorities across sectors. - Addressing longstanding shortcomings in the energy and water sectors and enhancing shock‑responsive social protection would help reduce fiscal pressures and bolster resilience. ### Data quality, coverage, and dissemination - Significant progress has been achieved strengthening data quality and timeliness; data quality is broadly adequate for surveillance. - Authorities successfully published rebased national accounts (Annex XI). - Ongoing efforts: broaden coverage of government finance statistics to the Non-Financial Public Sector and improve the timeliness and coverage of external sector statistics. - The authorities have finalized, in consultation with STA, all the technical and preparatory work for the Special Data Dissemination Standard (SDDS) subscription, with its completion expected in the near future (Annex X). *Source: IMF country report text (paragraphs 47–53).* ### 54. It is recommended that the next Article IV consultation take place on the standard ### 1domea2025001-source-pdf - 54. It is recommended that the next Article IV consultation take place on the standard ### Real sector developments - Growth in the Dominican Republic continues to outperform regional peers. - Growth has slowed in 2024H2 and 2025H1. - Contractions observed in construction and manufacturing, while services expansion continued at a more moderate pace. - Tourism growth slowed but still outperformed key peers. - Employment and participation are at historic highs. - Employment growth is described as relatively broad based. - Sources: National authorities and IMF staff calculations. ### Fiscal developments and outlook - The 2024 budgetary central government deficit declined, aided by one-offs receipts but also lower capital spending. - Energy subsidies increased in 2024 but are projected to decline with lower energy prices and distribution losses. - The 2024 public sector balance improved due in part to a lower central bank deficit. - The stock of BCRD securities decreased given lower rollovers/repurchases to increase banks’ liquidity, which helped reduce CPS debt in 2024. - Continuing gradual consolidation is expected to support the declining debt path and further domestic issuance reduce the FX/external debt risk. - Sources: National authorities and IMF staff calculations. ### Monetary policy and inflation developments - The BCRD began normalizing the MPR in May 2023. - Banks’ rates, after initially falling, increased in 2024, but have started to fall following BCRD liquidity measures. - Private sector credit growth rose in response to the BCRD’s liquidity measures in 2023-24, then slowed as financial conditions tightened, but has picked up recently. - Excess banks’ reserves at the BCRD in FX have increased. - Banks’ legal reserves for deposits denominated in national currency slightly exceed the required levels. - Headline and core inflation declined rapidly in 2023 and has since remained within the target range, with 24-month expectations firmly anchored. - Core inflation’s contribution has remained relatively stable. - Sources: National authorities and IMF staff calculations. ### Exchange rates, sovereign spreads, and reserves - FX sales by the BCRD dominated in 2024 but interventions have been limited since February 2025. - The DOP temporarily appreciated in April 2025 due to U.S. dollar weakness and FX macroprudential measures, but it resumed depreciating afterwards. - The BCRD has allowed greater exchange rate flexibility. - Sovereign spreads remain below Latin America and Emerging Market averages, but the difference has narrowed. - After falling in 2024, international reserves improved since early 2025 supported by the sovereign bond placement. - Reserves are above all traditional adequacy indicators benchmark, including the ARA metric. - Sources: National authorities, Bloomberg, and IMF staff calculations. ### External sector developments and outlook - Following the 2022 global price shock, the current account deficit continued narrowing due to favorable terms of trade and strong remittances and travel receipts. - The current account remains fully financed by FDI and supported by portfolio inflows associated with government securities. - Tourism, energy, commerce, and real estate attract the most FDI. - Remittances flows slowed from the peaks seen in 2020-21 but remain above pre-pandemic levels. - A lower energy bill has helped to compensate for the recent rise in consumption and capital imports. - Recent exports increase is driven by external demand, improved mining capacity, and record-high gold prices. - Sources: National authorities and IMF staff calculations. ### Financial sector developments - The financial sector remains dominated by Deposit Taking Institutions (DTIs), followed by securities intermediaries and cooperatives. - DTIs sector is dominated by Banks followed by credit unions. The top 5 banks account for nearly 80 percent of the sector’s assets. - The financial system is well-capitalized and around pre-pandemic levels with recent stress tests indicating resilience to a set of shocks. - The share of liquid assets to deposits and total assets have stabilized following a decline that started in 2022. - The BCRD’s recent FX macroprudential measures seek to limit the Banks’ net FX open position. - Total assets growth has slowed given recent credit trends. - Credit growth has decelerated amid constrained systemic liquidity and high interest rates. - Non-performing loans and stressed credit metrics have ticked higher but remain well below 2020 levels. - Bank provisions increased (after a steady decline in 2023-24) to address potential losses. - The share of FC loans has started to decline following recent measures to limit lending to non-FC generators. - There has been an increase in unhedged loans since 2022. - Total LTV increased slightly driven by an uptick in the consumer segment while the highly collateralized mortgage segment stabilized around 54 percent. - Sources: National authorities and IMF staff calculations. ### Key social and macro indicators (selected figures) - Population (millions, 2024): 10.8 - GDP per capita (2024, U.S. dollars): 11,542 - Quota: 477.4 millions SDRs - Poverty (2023, share of population): 23.0 - Extreme poverty (2023, share of population): 3.2 - Adult literacy rate (2022, percent): 95.5 - Main exports: tourism, gold, medical devices - Key export markets: U.S., Switzerland, Haiti ### Selected economic projections and historical series (exact reported values) - Real GDP (annual % change): 2020 -7.9; 2021 14.0; 2022 5.2; 2023 2.2; 2024 5.0; 2025 3.0; 2026 4.5; 2027 5.0; 2028 5.0; 2029 5.0; 2030 5.0 - Nominal GDP (RD$ billion): 2020 4,440; 2021 5,427; 2022 6,257; 2023 6,765; 2024 7,403; 2025 7,977; 2026 8,701; 2027 9,495; 2028 10,368; 2029 11,315; 2030 12,349 - Unemployment rate (percent, period average): 2020 5.8; 2021 7.4; 2022 5.3; 2023 5.3; 2024 5.1; 2025 5.3; 2026 5.3; 2027 5.2; 2028 5.2; 2029 5.1; 2030 5.0 - Consumer price inflation (end of period): 2020 5.6; 2021 8.5; 2022 7.8; 2023 3.6; 2024 3.3; 2025 3.7; 2026 4.0; 2027 4.0; 2028 4.0; 2029 4.0; 2030 4.0 - Consolidated public sector debt (percent of GDP): 2020 71.4; 2021 61.8; 2022 58.8; 2023 59.7; 2024 58.1; 2025 59.2; 2026 58.2; 2027 56.6; 2028 55.1; 2029 53.3; 2030 51.5 - Consolidated public sector overall balance (percent of GDP): 2020 -9.0; 2021 -3.7; 2022 -3.6; 2023 -4.1; 2024 -3.9; 2025 -4.5; 2026 -3.8; 2027 -3.5; 2028 -3.0; 2029 -2.6; 2030 -2.2 - Broad money (M3) annual change: 2020 21.2; 2021 13.4; 2022 6.3; 2023 14.4; 2024 11.3; 2025 10.3; 2026 9.5; 2027 9.2; 2028 9.2; 2029 9.2; 2030 9.2 - Credit to the private sector (annual change): 2020 5.3; 2021 11.6; 2022 16.6; 2023 19.7; 2024 13.5; 2025 12.3; 2026 12.6; 2027 10.9; 2028 10.9; 2029 10.9; 2030 10.9 - Current account (percent of GDP): 2020 -1.7; 2021 -2.8; 2022 -5.8; 2023 -3.7; 2024 -3.3; 2025 -2.5; 2026 -2.5; 2027 -2.6; 2028 -2.6; 2029 -2.6; 2030 -2.5 - Gross international reserves (millions of US dollars): 2020 10,752; 2021 13,033; 2022 14,408; 2023 15,464; 2024 13,388; 2025 14,448; 2026 14,973; 2027 15,825; 2028 16,725; 2029 17,675; 2030 18,679 - GIR in percent of ARA metric: 2020 124.5; 2021 140.7; 2022 146.2; 2023 137.6; 2024 114.4; 2025 114.2; 2026 111.7; 2027 111.8; 2028 112.3; 2029 113.6; 2030 114.9 - Total external debt (percent of GDP): 2020 56.6; 2021 47.8; 2022 39.9; 2023 43.2; 2024 43.7; 2025 45.7; 2026 45.2; 2027 44.2; 2028 43.1; 2029 41.5; 2030 40.0 - Foreign direct investment, net (percent of GDP, projection series): 2020 -3.3; 2021 -3.4; 2022 -3.6; 2023 -3.6; 2024 -3.6; 2025 -3.5; 2026 -3.5; 2027 -3.5; 2028 -3.5; 2029 -3.5; 2030 -3.5 ### Public sector account highlights (selected percentages of GDP) - Central Government revenue (percent of GDP): 2020 14.2; 2021 15.5; 2022 15.3; 2023 15.8; 2024 16.4; 2025 16.0; 2026 15.5; 2027 15.5; 2028 15.5; 2029 15.5; 2030 15.5 - Central Government expenditure (percent of GDP): 2020 22.2; 2021 18.4; 2022 18.5; 2023 19.1; 2024 19.5; 2025 19.4; 2026 18.7; 2027 18.4; 2028 18.1; 2029 17.8; 2030 17.4 - Central Government primary balance (percent of GDP): 2020 -4.7; 2021 0.2; 2022 -0.4; 2023 -0.1; 2024 0.3; 2025 0.2; 2026 0.4; 2027 0.7; 2028 1.0; 2029 1.2; 2030 1.5 - Consolidated public sector (CPS) cyclically-adjusted overall balance: 2020 -8.0; 2021 -3.4; 2022 -3.5; 2023 -3.8; 2024 -4.6; 2025 -4.3; 2026 -3.7; 2027 -3.6; 2028 -3.1; 2029 -2.6; 2030 -2.3 - CPS underlying (structural) overall balance: 2020 -9.9; 2021 -4.8; 2022 -3.7; 2023 -5.0; 2024 -3.9; 2025 -4.5; 2026 -3.8; 2027 -3.5; 2028 -3.0; 2029 -2.6; 2030 -2.2 ### Banking system summary (selected levels and ratios) - Net Foreign Assets (end-2024, billions of Dominican Pesos): reported series include values such as 564, 652, 682, 751, 675, 762, 798, 853, 910, 972, 1,037 across years. - Credit to the private sector (levels and percent of GDP): percent of GDP series—2020 29.2; 2021 26.7; 2022 27.0; 2023 29.9; 2024 31.0; 2025 32.3; 2026 33.3; 2027 33.9; 2028 34.4; 2029 34.9; 2030 35.5 - Net domestic assets of the banking system (percent change series): 2020 2.5; 2021 11.2; 2022 9.9; 2023 13.5; 2024 19.0; 2025 9.2; 2026 10.2; 2027 8.4; 2028 8.6; 2029 9.0; 2030 9.1 - Broad money (M3) annual change: see above series under key projections. ### Balance of payments (selected US$ levels and percent of GDP) - Current Account (millions of US dollars): 2020 -1,329; 2021 -2,685; 2022 -6,549; 2023 -4,418; 2024 -4,167; 2025 -3,235; 2026 -3,402; 2027 -3,797; 2028 -4,207; 2029 -4,380; 2030 -4,546 - Exports, f.o.b. (millions of US dollars): 2020 10,302; 2021 12,486; 2022 13,750; 2023 12,950; 2024 13,872; 2025 14,976; 2026 16,072; 2027 17,346; 2028 18,531; 2029 19,738; 2030 21,109 - Of which: Gold (millions of US dollars): 2020 1,676; 2021 1,610; 2022 1,329; 2023 1,148; 2024 1,500; 2025 2,111; 2026 2,578; 2027 2,925; 2028 3,017; 2029 3,108; 2030 3,291 - Imports, f.o.b. (millions of US dollars): 2020 17,105; 2021 24,282; 2022 30,913; 2023 28,813; 2024 29,808; 2025 30,570; 2026 31,839; 2027 33,944; 2028 36,065; 2029 38,388; 2030 40,835 - Workers' remittances (millions of US dollars): 2020 7,615; 2021 9,764; 2022 9,148; 2023 9,307; 2024 9,798; 2025 10,676; 2026 11,115; 2027 11,627; 2028 12,161; 2029 12,746; 2030 13,359 - Net International Reserves (millions of US dollars): 2020 10,752; 2021 13,033; 2022 14,404; 2023 15,458; 2024 13,382; 2025 14,443; 2026 14,968; 2027 15,820; 2028 16,720; 2029 17,670; 2030 18,674 ### Financial soundness indicators (selected end-of-year ratios) - Regulatory capital to risk-weighted assets (percent): 2013 16.7; 2014 16.1; 2015 16.0; 2016 17.2; 2017 18.3; 2018 17.1; 2019 16.6; 2020 21.0; 2021 19.1; 2022 16.7; 2023 16.1; 2024 17.4; 2025M6 18.4 - NPLs to total loans (percent): 2013 2.2; 2014 1.5; 2015 1.7; 2016 1.7; 2017 1.9; 2018 1.6; 2019 1.6; 2020 1.9; 2021 1.3; 2022 1.0; 2023 1.0; 2024 1.4; 2025M6 1.8 - Loan provisions to NPLs (percent): 2013 134.8; 2014 187.1; 2015 152.4; 2016 156.3; 2017 149.3; 2018 157.1; 2019 160.6; 2020 205.7; 2021 322.9; 2022 349.7; 2023 263.6; 2024 194.2; 2025M6 164.9 - Return on average assets (percent): 2013 1.9; 2014 1.9; 2015 1.9; 2016 1.8; 2017 1.6; 2018 2.0; 2019 1.9; 2020 1.6; 2021 2.0; 2022 2.2; 2023 2.5; 2024 2.3; 2025M6 2.2 - Liquid funds to deposits (percent): 2013 33.4; 2014 36.9; 2015 34.4; 2016 34.9; 2017 29.7; 2018 31.3; 2019 25.6; 2020 30.5; 2021 23.8; 2022 24.9; 2023 24.9; 2024 21.4; 2025M6 22.4 - Sources: National authorities. *Source: https://www.imf.org/-/media/files/publications/cr/2025/english/1domea2025001-source-pdf.pdf* ### Annex I. Implementation of Past Fund Advice ### Annex I. Implementation of Past Fund Advice ### Transversal / Cross Sector - Recommendation: Continue with electricity sector reforms under the Electricity Pact to reduce the electricity sector deficit. - Status: Ongoing. - Findings and actions: - Engagement between the government and the Economic and Social Council (CES) has restarted with a view to resume tariff adjustments under the Electricity Pact. - Integrated Loss Reduction Plan—to reduce losses by 11 percentage points by 2027 (from 38 percent in 2024)—is underway, but results are yet to be visible. - Investments of around US$650 million to upgrade distribution lines and transformers, install smart meters, and modernize the commercial and billing systems are underway. - Open competitive bidding for new solar and wind generation projects is in effect since August 2025. - A technical study to set the technical tariffs and adjustments to the reference tariffs is awaiting public consultation. - A study to update the power marginal cost is in progress. - A draft study to update the regulation related to the quality of the electricity transmission service is under review. - An Energy Harmonization Law is currently under discussion by Congress to strengthen sector regulation. - Recommendation: Continue improving targeted social transfers. - Status: Ongoing. - Findings: Authorities continue to work on strengthening the universal registry database (SIUBEN) to better target existing social programs to vulnerable households and population. - Recommendation: Continue enhancing efficiency and transitioning away from fossil fuels. - Status: Ongoing. - Findings and actions: - The share of non-conventional renewable sources (NCREs) increased to 11.9 percent of total generation in 2024. - Around 1,200 MW in new NCREs installed capacity is expected over the medium term. - Under new regulation, additional NCRE capacity over 20 MW must be accompanied by supplementary storage. - Investments to enhance efficiency in the electricity distribution grid and public lighting are underway supported by bilateral and multilaterals financing. ### Fiscal - Recommendation: Establish a fiscal responsibility framework to anchor medium-term policies. - Status: Completed / Ongoing. - Findings: - The Fiscal Responsibility Law (FRL) was approved by Congress in July 2024 and came into effect August 2024. - FRL includes a GG debt anchor/limit (40 percent by 2035) and primary spending limit (3 percent real growth) until the debt limit is reached (with debt-stabilizing primary balances thereafter). - Draft regulations to operationalize the FRL are pending. - Real primary spending growth in 2025 has been kept below the 3 percent limit. The proposed 2026 budget also maintains projected real primary spending below the 3 percent limit. - Recommendation: Continue with gradual fiscal consolidation to ensure debt sustainability, including rationalizing and enhancing the efficiency of spending. - Status: Ongoing. - Findings and actions: - The budgetary central government (BCG) deficit and the consolidated public sector debt were reduced to 3.1 percent of GDP and 58.1 percent of GDP, respectively, in 2024. - The 2025 fiscal deficit is expected to widen slightly in response to the fiscal stimulus, mostly for additional capital spending, but this spending remains within the FRL limit. - Rationalization of spending is proceeding via mergers of ministries and other entities, presidential decree to control non-essential spending, expansion of budgeting for results, and enhanced investment infrastructure planning and prioritization. - Authorities are working to improve targeted social subsidies (assistance). - Recommendation: Create policy space through revenue mobilization. - Status: Ongoing. - Findings and actions: - Tax administration reforms: implementation of the modernized customs law (168-21) and electronic-invoicing law (32-23); greater use of technology, digitalization, interoperability, and data analytics (e.g., Sistema Blue); a tax payer census; enhanced management and evaluation of compliance risk; expansion of Authorized Economic Operators (OEAs); enhanced cooperation. - Authorities are working on implementing IMF TA recommendations on VAT-gap and tax incentives administration. - A tax reform was submitted to Congress in October 2024 but lacked sufficient consensus and was withdrawn. - Authorities are considering requesting IMF TA on a medium-term revenue strategy. - Recommendation: Continue to enhance Public Financial Management (PFM). - Status: Ongoing. - Findings and actions: - With Fund and development partner TA, authorities are strengthening PFM through developing a long-term national infrastructure plan, incorporation of climate budget tagging and criteria, implementation of the new procurement law (47-2025), ongoing strengthening of government statistics and risk analysis, and a review of fiscal transparency best practices. ### Monetary and Financial - Recommendation: Continue building reserve buffers and allow greater exchange rate flexibility to play a shock absorbing role. - Status: Ongoing. - Findings: - Reserves fell to 114.4 percent of the ARA metric in 2024 driven by BCRD’s FXI to smooth exchange rate volatility. - BCRD has allowed greater exchange rate flexibility since late February, consistent with the inflation targeting framework, and has largely refrained from intervening in the FX market. - Recommendation: Further enhance the FX market transparency and performance through well-communicated intervention rules, deepening and expansion of hedging mechanism. - Status: Ongoing. - Findings: - BCRD allowed greater exchange rate flexibility, letting the exchange rate depreciate by 5 percent in 2024 and around 4 percent since end-2024. - Authorities amended the FX regulation to ensure FX transactions exceeding US$10,000 are captured through the FX platform. - While FX reserves are less affected by participation in the NDF, the BCRD remains the market-maker in the derivatives markets. - Recommendation: Continue improving Monetary Policy communication. - Status: Ongoing. - Findings and plans: - BCRD publishes informative risks scenarios in the Monetary Policy Report. - Plans to expand data provision and increase report frequency from semi-annual to quarterly in 2026 and include some guidance on policy response consistent with the inflation and economic outlook. - Plans to further strengthen communication strategy, including dedicated workshops by CAPTAC. - Recommendation: Continue implementing the Safeguard Assessment’s recommendations to enhance BCRD’s financial and institutional autonomy. - Status: Ongoing. - Findings: - An MCM-LEG mission provided options to ensure policy solvency. - Planned TA to help implement recommendations was postponed following withdrawal of the fiscal reform in October 2024. - Both the BCRD and Ministry of Finance consider recapitalization of the BCRD a priority and are expected to develop a comprehensive plan. - Recommendation: Continue with enhanced monitoring and supervision of the financial system; continue upgrading the regulatory and supervisory framework towards Basel II/III and IFRS standards; enhance the macroprudential toolkit; upgrade banking resolution and financial safety net. - Status: Ongoing. - Findings and actions: - Adoption of enhanced consumer protection regulation, strengthening foreign currency macroprudential framework, and approving gradual adoption of mark-to-market accounting. - Enhanced operational risks regulations expected to be approved before end-2025. - Formulating regulations to strengthen supervision (AML-CFT and IRFS implementation) at the IDECOOP with support from the SIB and UAF. - Improvements to the sanctioning regime. ### Structural Reforms - Recommendation: Continue strengthening business regulation and competitiveness. - Status: Ongoing. - Findings and actions: - Enhancements in trade facilitation: 24/7 customs services, cargo release in 24 hours, transport infrastructure, and improved logistics quality. - Implementation of the “Zero Bureaucracy” initiative to strengthen regulatory quality and streamline regulatory processes. - Recommendation: Continue strengthening governance and the rule of law. - Status: Ongoing. - Findings and actions: - Recent gains reflected in improved WGIs and other surveys. - Constitutional reform to increase independence and effectiveness of the Public Prosecutor (Attorney General). - Passage of a strengthened Procurement Law. - Implementation of ISO anti-bribery and compliance standards at Ministries; prosecution of high-level corruption cases; strengthened procurement practices increasing suppliers and competitiveness, and contributing to formalization of firms. - Recommendation: Continue with labor market reform. - Status: Ongoing. - Findings and actions: - Modernization of the 1992 Labor Code now under congressional review; reforms introduce provisions for teleworking, expedited dispute resolution through conciliation judges, and formalization of domestic work with defined working hours and leave entitlements. - Aims to reduce informality, supported by a planned expansion of labor inspections. - 2025 initiatives: RD Trabaja youth employment program, expanded STEM scholarships, targeted support for female entrepreneurs, procurement reforms favoring female-led SMEs, and continued rollout of the Extended School Day Program. - Recommendation: Continue with electricity sector reform (reiterated). - Status: Ongoing. - Findings: - Installed NCRE capacity doubled from 555 MW in 2020 to 1,122 MW in 2023 and expanded to around 1,400 MW in 2024 with NCRE share in electricity generation at 11.9 percent. - Efforts to reduce distribution company losses include purchases and beginning of installation of smart meters and open competitive bidding for public contracts for new generation and expansion projects. - Recommendation: Continue the development of the financial sector to foster financial inclusion. - Status: Ongoing. - Findings and actions: - Injection of liquidity by the BCRD resulted in an increase of over 4 percentage points in credit to the private sector-to-GDP ratio since 2021. - Percentage of adults with bank accounts increased 13 percentage points since 2021. - Ongoing MIPYME program to improve financial literacy and formalization, simplifying account opening requirements, and implementation of Digital Onboarding and Digital Signature which could facilitate access of around 2.8 million Dominicans overseas to domestic financial products and services. ### Key Statistics and Targets (preserved from the text) - Integrated Loss Reduction Plan target: reduce losses by 11 percentage points by 2027 (from 38 percent in 2024). - Investments: around US$650 million for distribution upgrades, smart meters, and commercial/billing modernization. - NCRE share of generation: 11.9 percent in 2024. - NCRE installed capacity expansion: around 1,200 MW expected over the medium term; installed capacity was 555 MW in 2020, 1,122 MW in 2023, and around 1,400 MW in 2024. - Fiscal Responsibility Law anchors: GG debt anchor/limit 40 percent by 2035; primary spending limit 3 percent real growth. - BCG deficit and consolidated public sector debt in 2024: 3.1 percent of GDP and 58.1 percent of GDP, respectively. - Reserves: fell to 114.4 percent of the ARA metric in 2024. - Exchange rate movements allowed by BCRD: depreciate by 5 percent in 2024 and around 4 percent since end-2024. - FX regulation capture threshold: FX transactions exceeding US$10,000. - Public debt indicators: GFNs below 10 percent of GDP; maturity of public debt around 10 years; foreign holdings of domestic government securities less than 6 percent of the total stock outstanding. - Banking sector exposure: domestic banks’ claim on the general government between the 50th and 75th percentile. - Financial inclusion metrics: credit to private sector-to-GDP ratio increased over 4 percentage points since 2021; adults with bank accounts increased 13 percentage points since 2021; potential access for around 2.8 million Dominicans overseas via Digital Onboarding/Digital Signature. ### Policy Recommendations (consolidated from status entries) - Allow the exchange rate to act as a shock absorber; maintain flexibility consistent with inflation targeting. - Increase efficiency of spending and reduce broad subsidies, using targeted social support instead. - Continue gradual fiscal consolidation in line with the FRL and operationalize FRL regulations. - Strengthen tax administration and consider IMF TA on medium-term revenue strategy. - Strengthen PFM, climate-budget tagging, procurement implementation, and long-term infrastructure planning. - Continue reserve accumulation strategy balancing buffer needs and holding costs. - Enhance FX market transparency, deepen hedging mechanisms, and publish well-communicated intervention rules. - Improve monetary policy communication and increase frequency of Monetary Policy Reports to quarterly in 2026. - Prioritize BCRD recapitalization planning and implement Safeguard Assessment recommendations. - Continue upgrading regulatory and supervisory frameworks toward Basel II/III and IFRS, expand macroprudential tools, and upgrade banking resolution frameworks. - Continue structural reforms: trade facilitation, “Zero Bureaucracy” initiative, governance and rule of law reforms, labor code modernization, and measures to foster financial inclusion. *Annex I. Implementation of Past Fund Advice — Source PDF: 1domea2025001-source-pdf* ### Annex V. ### Annex V. ### Migrant labor and structural reforms - "Meanwhile, the economic impact of reduced migrant labor force in DR is not yet clear." - Policy recommendations: - "Continue with structural reforms to increase labor force participation, female in particular, and enhance skills, wages and competitiveness." - "Enhance data on DR immigrants abroad and the analysis of the role of migrant labor and impact on GDP." ### Domestic risks and domestic reforms - Risk framing: - "Domestic Risks" - "Domestic reforms" - Relative likelihood: "Medium" - Expected impact: "High/Upside" - Policy rationale and recommendations: - "Timely, well-sequenced reforms, in particular a growth friendly fiscal reform could improve confidence, increase fiscal space and lower risk spreads, and boost potential output from higher public investment (see 2023 Art.IV, Annex VII, ¶9)." - "Further structural reforms, including to develop the financial market/deepen credit, liberalize the labor market, enhance governance, business regulation and education/skills, could also increase output (Annex IX)." - "Build consensus on a growth friendly fiscal reform." - "Develop a holistic strategy that targets the largest structural gaps with highest or quickest gains." - "Continue to communicate on the needs and gains for a gradual adjust ment to the tariffs (with support for the most vulnerable). Providing sufficient resources and powers to continue with distribution loss reduction plan. Enhance accountability by publishing audited statements." ### Specific domestic policy risk: Electricity Pact (2021) - Source of risk: "Delays in fully implementing the Electricity Pact (2021), including to reduce distribution losses and raise tariffs to cost-recovery levels would keep government spending more rigid and inefficient (with elevated broad subsidies), reducing fiscal space for needed investment." - Relative likelihood: "Medium" - Expected impact: "Medium/Downside" - Policy response: - "Provide sufficient resources and powers to continue with distribution loss reduction plan." - "Enhance accountability by publishing audited statements." ### Sectoral opportunities and policy responses - Expansion of the tourism sector - Relative likelihood: "Medium" - Expected impact: "Medium/Upside" - Observations: - "Investment in new areas (e.g., Pedernales; Punta Bergantin, in Puerto Plata, as an innovation hub), is ongoing. The impact on growth (value-added) is yet to be determined." - "Meanwhile, the tourism sector is also seeking to expand cultural and eco-tourism." - Policy response: - "Continue to support sustainable tourism development and supportive infrastructure." - "Ensure fiscal incentives have clear economic criteria and social returns." - "Enhance monitoring of environmental and PPP risks." - Development of Logistics Hub - Relative likelihood: "Medium" - Expected impact: "Medium/Upside" - Observations: - "Remaining room for investment—e.g., as witnessed by DP World announced investments." - "Heightened uncertainty reduce investment in the near-term." - Policy response: - "Continue to support reforms to improve business climate and to seek further trade deals." - "Ensure fiscal incentives have clear economic criteria and social returns." - Development of Nearshoring - Relative likelihood: "Medium/Low" - Expected impact: "Medium/Upside" - Observations: - "The DR may be an attractive location for near-shoring, including for manufacturing of semi-conductors, because of its strategic location, established FTZs, supportive legal and regulatory framework, and on-going active labor market programs to enhance worker skills." - "However, tariff uncertainty may delay investment." - Policy response: - "Continue to support reforms to improve business climate, skills and education outcomes, and financing." - "Seek further trade deals." ### Annex III. Public Debt Sustainability Analysis — summary (Figure 1) - Overall assessment: - Mechanical signal: omitted in text (ellipsis) - Final assessment: "Moderate" - Comment: "The overall risk of sovereign stress is assessed as moderate, in line with near - and medium-term signals as well as long -term vulnerabilities that may be contained by the debt-anchor." - Near term: - Note: "The near-term assessment is not applicable in cases where there is a disbursing IMF arrangement. In surveillance-only cases or in cases with precautionary IMF arrangements, the near-term assessment is performed but not published." - Medium term: - Mechanical signal: "Medium term Moderate Moderate" - Comment: "Medium-term risks are contained by moderate levels of public debt and gross financing needs (GFN) that are on a downward track. The projected path for debt and GFN is driven by a gradual fiscal consolidation (which is in line with the primary spending limit established in the permanent fiscal rule adopted in 2024) that helps offset real interest rates that are projected to stay higher for longer. Uncertainty around the path is moderate, with natural disaster being the main risk; however, the permanent fiscal rule has an escape clause in case of natural disasters but which still requires a return to the consolidation path (or debt limit) within 3 years. The risk of a banking crisis is low given it is well-capitalized." - Fanchart: "Moderate" - GFN: "Moderate" - Stress test: "Bank. Crisis, Nat. Disast." - Long term: - Mechanical signal: omitted (ellipsis) - Final assessment: "Moderate" - Comment: "The Dominican Republic is vulnerable to climate change, a key risk that could increase both debt and GFN but appears manageable." - Sustainability assessment: - "Not required for surveillance countries" - Result: "Sustainable" - Rationale: "This is expected to be supported by the authorities’ commitment to the new permanent fiscal rule, which includes a GG debt ceiling of 40 percent by 2035 (and debt-stabilizing primary balance thereafter). The BCRD quasi-fiscal debt is also on a gradual downward track, supported by on-going transfers from the government." - Debt stabilization in the baseline: "Yes" - DSA Summary Assessment commentary: - "The Dominican Republic has an overall moderate risk of sovereign stress and debt is assessed as sustainable. Medium-term risks are contained by moderate levels of public debt and gross financing needs (GFN) that are on a downward track. The projected path for debt and GFN is driven by a gradual fiscal consolidation (which is in line with the primary spending limit established in the permanent fiscal rule adopted in 2024) that helps offset real interest rates that are projected to stay higher for longer. Uncertainty around the path is moderate, with natural disasters being the main risk; the risk of a banking crisis is low given it is well-capitalized. Longer term risks are primarily related to climate change. The authorities are working to increase resilience. The permanent fiscal rule includes a GG debt ceiling of 40 percent." *Source: Fund staff.* ### 5. Debt consolidation across sectors: ### 5. Debt consolidation across sectors ### Debt coverage and disclosures - Perimeter: consolidated public sector (CPS), which includes general government (GG), the rest of the non-financial public sector (NFPS), and the central bank’s quasi-fiscal debt (mostly legacy of the 2003 banking crisis). - Included instruments and items: - NFPS securities and loans. - Public electricity distribution companies’ arrears over 45 days (when they’ve existed), currently not part of official statistics. - Central Bank (BCRD) securities debt (the counter-part for the BCRD’s quasi-fiscal debt), net of recapitalization bonds issued by the central government and held by the central bank. - Exclusions and non-consolidations: - Holdings by other sectors of government at end-2024 (RD$141,792 million mostly held by social security funds (RD$90,871 million)) are not consolidated in official debt statistics, nor in staff analysis. - Debt of public trusts and accounts payable (besides electricity sector arrears) are not included. - The debt of RD Vial (a public trust) is not included in official debt statistics according to its law; its outstanding debt as of end-2024 was around 1 percent of GDP and could be considered a contingency. - Authorities are receiving Fund technical assistance on public debt statistics to improve coverage, basis of recording, and valuation. - Most reported debt is that of the central government (CG), followed by BCRD debt; rest of NFPS securities and loan debt is minimal (and NFPS cannot issue debt beyond a fiscal year without authorization). _Source: IMF staff calculations._ ### Public debt structure indicators and exposures - Perimeter: consolidated public sector (CPS) including NFPS and central bank quasi-fiscal debt (securities). - Currency and creditor composition: - Most debt is in foreign currency. - Debt is largely held by external private creditors (foreign law, ex. Multilateral). - Multilaterals are present in external creditors but external private creditors dominate and are a key risk. - Maturity and issuance: - Central government issues long-term bonds; residual maturity about 10 years (residual maturity: 10.3 years). - Shorter-term bonds are issued by the central bank in domestic currency to absorb excess liquidity. - Policy response: - Authorities are working to reduce currency and rollover risks by issuing more domestic currency bonds (principally DOP-linked external bonds) and to make the domestic bond market more liquid. ### Baseline scenario (Percent of GDP unless indicated otherwise) - Actual and projected public debt (percent of GDP): - 2024: 58.1 - 2025: 59.2 - 2026: 58.2 - 2027: 56.6 - 2028: 55.1 - 2029: 53.4 - 2030: 51.6 - 2031: 49.6 - 2032: 48.1 - 2033: 47.3 - 2034: 46.4 - Change in public debt (percent of GDP): - Actual 2024: -1.7 - 2025: 1.1 - 2026: -1.0 - 2027: -1.6 - 2028: -1.5 - 2029: -1.8 - 2030: -1.8 - 2031: -2.0 - 2032: -1.4 - 2033: -0.8 - 2034: -0.9 - Contribution of identified flows (percent of GDP): - 2024: 0.4 - 2025: 0.4 - 2026: -0.9 - 2027: -1.5 - 2028: -1.4 - 2029: -1.7 - 2030: -1.8 - 2031: -2.0 - 2032: -1.4 - 2033: -0.8 - 2034: -0.9 - Primary deficit (percent of GDP): - 2024: -0.9 - 2025: -0.5 - 2026: -1.0 - 2027: -1.2 - 2028: -1.5 - 2029: -1.8 - 2030: -2.1 - 2031: -1.9 - 2032: -1.4 - 2033: -0.7 - 2034: -0.8 - Noninterest revenues (percent of GDP): 16.4 (2024) then 16.0, 15.5, 15.5, 15.5, 15.5, 15.5, 15.5, 15.5, 15.5, 15.5 (through 2034). - Noninterest expenditures (percent of GDP): 15.5 (2024) then 15.5, 14.5, 14.3, 13.9, 13.6, 13.4, 13.6, 14.1, 14.8, 14.7 (through 2034). - Automatic debt dynamics (percent of GDP): 1.7 (2024), 1.4 (2025), 0.1 (2026), -0.3 (2027), 0.1 (2028), 0.2 (2029), 0.3 (2030), -0.1 (2031), 0.0 (2032), -0.2 (2033), -0.1 (2034). - Real interest rate and relative inflation (percent): 3.2 (2024), 3.1 (2025), 2.7 (2026), 2.4 (2027), 2.8 (2028), 2.8 (2029), 2.9 (2030), 2.3 (2031), 2.3 (2032), 2.1 (2033), 2.1 (2034). - Real interest rate (percent): 2.6 (2024), 2.5 (2025), 2.1 (2026), 1.8 (2027), 2.3 (2028), 2.2 (2029), 2.3 (2030), 1.8 (2031), 1.9 (2032), 1.6 (2033), 1.6 (2034). - Relative inflation (percent): 0.5 (2024), 0.6 (2025), 0.6 (2026), 0.6 (2027), 0.5 (2028), 0.6 (2029), 0.5 (2030), 0.5 (2031), 0.5 (2032), 0.5 (2033), 0.5 (2034). - Real growth rate (percent): -2.8 (2024), -1.7 (2025), -2.6 (2026), -2.7 (2027), -2.7 (2028), -2.6 (2029), -2.5 (2030), -2.4 (2031), -2.4 (2032), -2.3 (2033), -2.2 (2034). - Other identified flows (percent of GDP): -0.4 (2024), -0.5 (2025), 0.0 (2026 onward). - Contingent liabilities (percent of GDP): 0.00 (all years). - Interest Revenues (percent of GDP): 0.00 (all years). - Other transactions (percent of GDP): -0.4 (2024), -0.5 (2025), 0.00 (2026 onward). - Contribution of residual (percent of GDP): -2.1 (2024), 0.6 (2025), -0.1 (2026), -0.1 (2027), 0.0 (2028), -0.1 (2029), -0.1 (2030), 0.0 (2031 onward). - Gross financing needs (GFN) (percent of GDP): - 2024: 10.4 - 2025: 8.9 - 2026: 7.6 - 2027: 6.9 - 2028: 9.7 - 2029: 8.3 - 2030: 6.6 - 2031: 8.9 - 2032: 8.4 - 2033: 7.9 - 2034: 9.4 - Of which: debt service (percent of GDP): 11.3 (2024), 9.4 (2025), 8.6 (2026), 8.1 (2027), 11.2 (2028), 10.1 (2029), 8.7 (2030), 10.8 (2031), 9.9 (2032), 8.6 (2033), 10.2 (2034). - Local currency GFN components (percent of GDP): 7.6 (2024), 6.6 (2025), 6.5 (2026), 5.1 (2027), 8.1 (2028), 6.3 (2029), 4.9 (2030), 8.0 (2031), 6.2 (2032), 5.6 (2033), 7.6 (2034). - Foreign currency GFN components (percent of GDP): 3.7 (2024), 2.8 (2025), 2.1 (2026), 3.1 (2027), 3.2 (2028), 3.8 (2029), 3.7 (2030), 2.8 (2031), 3.6 (2032), 2.9 (2033), 2.6 (2034). - Memo: - Real GDP growth (percent): 5.0 (2024), 3.0 (2025), 4.5 (2026), 4.9 (2027), 5.0 (2028), 5.0 (2029), 5.0 (2030), 5.0 (2031), 5.0 (2032), 5.0 (2033), 5.0 (2034). - Inflation (GDP deflator; percent): 4.3 (2024), 4.7 (2025), 4.3 (2026), 4.0 (2027 onward through 2034). - Nominal GDP growth (percent): 9.4 (2024), 7.8 (2025), 9.1 (2026), 9.1 (2027), 9.2 (2028), 9.1 (2029), 9.1 (2030), 9.1 (2031), 9.1 (2032), 9.1 (2033), 9.1 (2034). - Effective interest rate (percent): 9.1 (2024), 9.3 (2025), 8.1 (2026), 7.4 (2027), 8.4 (2028), 8.4 (2029), 8.7 (2030), 7.9 (2031), 8.1 (2032), 7.7 (2033), 7.8 (2034). - Commentary highlights: - CPS 2024 debt outcome slightly lower than projected in 2024 Article IV, driven by lower central bank quasi-fiscal debt reflecting monetary policy stance. - Other debt dynamics less favorable due to higher-than-expected real interest rate and more depreciated real exchange rate affecting CG external and foreign-currency debt. - Over medium-term and extended projection period, debt is expected to gradually decline given on-going fiscal consolidation (in line with the new permanent fiscal rule approved in 2024), albeit at a slightly slower pace because of lower growth in 2025-2026 and impact of past high interest rates. ### Medium-term risk assessment - Debt Fanchart Module: - Fanchart width (percent of GDP): 47.4 0.7 - Probability of debt non-stabilization (percent): 10.2 0.1 - Terminal debt-to-GDP x (percent): 28.6 0.6 - Debt fanchart index (DFI): 1.4 - Risk signal: Moderate (3/) - Gross Financing Needs (GFN) module: - Average baseline GFN (percent of GDP): 8.0 2.7 - Initial Banks' claims on the general government (pct bank assets): 14.0 4.5 - Change in banks' claims in stress (pct banks' assets): 14.0 4.7 - GFN financeability index (GFI): 11.9 - Risk signal: Moderate (4/) - Medium-term index: - Debt fanchart index: 1.4 - GFI financeability index: 11.9 - Medium-term index value (normalized): 0.3 - Risk signal: Moderate - Final assessment probabilities: - Prob. of missed crisis, 2025-2030, if stress not predicted: 18.2 pct. - Prob. of false alarms, 2025-2030, if stress predicted: 38.6 pct. - Commentary: - Debt Fanchart and GFN Modules point to moderate risk in baseline and likely adverse scenarios because initial debt levels are moderate and risks are moderate. - A natural disaster shock would raise debt but keep it below the 2020 peak; growth returning to trend would allow debt to return to a downward path below 80 percent. - GFN tool score moderate due to moderate average GFNs in the baseline and moderate levels of bank claims/dependence; shock scenario is strong because of dependence on external private creditors (assumes limited rollover by these creditors and need to rely on short-term bank financing). - In a natural disaster, GFN would rise in the shock year and then decline while remaining slightly above the baseline due to higher debt level. ### Realism of baseline assumptions - Central bank quasi-fiscal debt (proxied by central bank securities) often drives forecast errors to the level of debt and may continue to vary as BCRD securities change for monetary/liquidity policy purposes. - Bond yields expected to decline in line with global financial conditions; fiscal consolidation should allow some reduction in yields. - Fiscal consolidation is below the 75th percentile but supported by adoption of a fiscal rule law in 2024. - The gradual adjustment is not expected to unduly affect growth over the medium-term with the output gap closing. ### Long-term risk analysis and scenario testing - Long-term projections and scenarios: - In all scenarios (including medium-term extrapolation, historical 10-year average, and a custom scenario), GFN and debt ratio remain in moderate range or low. - A custom scenario between the DSPB and Historical 10-year average is considered most likely given that the general government fiscal rule debt anchor of 40 percent of GDP should be reached by 2035; after that a DSPB would be a key driver of debt and GFNs path. - Long-term scenario variables (custom scenario vs others): - Real GDP growth: 5.0% (2030 and 2034 averages and custom scenario). - Primary Balance-to-GDP ratio: 2.1% (2030), 1.1% (2034 to 2038 average), 0.0% (custom scenario). - Real depreciation: -2.1% (2030), -2.0% (2034 to 2038 average), -2.0% (custom). - Inflation (GDP deflator): 4.0% across scenarios. ### Climate change: adaptation scenarios - Under standardized and customized scenarios with resilient investment: - Debt is higher than baseline but remains on a downward path. - GFN remains in moderate/low range. ### Annex IV — External sector assessment (selected findings) - Overall assessment: Dominican Republic’s external position in 2024 remained broadly in line with the level implied by fundamentals and desirable policies. - 2024 current account (CA) developments: - CA deficit narrowed to 3.3 percent of GDP in 2024 from 3.7 percent in 2023. - Drivers: favorable terms of trade, pick-up in gold and free-trade zone exports, strong travel receipts and remittances; increase in primary income (interest payments and repatriation of profits) partially offset gains. - CA deficit fully financed by FDI. - International reserves: - Reserves remain adequate and greatly exceed traditional metrics, despite falling to 114.4 percent of the IMF’s ARA metric. - De facto exchange rate arrangement reclassified to “floating” in 2025 (from “crawl-like” in 2024). - NIIP (2024, percent of GDP): - NIIP: -59.6 - Gross Assets: 30.5 - Debt Assets: 0.2 - Gross Liabilities: 90.1 - Debt Liabilities: 36.8 - NIIP trajectory and assessment: - NIIP weakened slightly from -57½ percent of GDP in 2023 to -59½ percent of GDP in 2024 reflecting strong direct investment inflows (FDI). - NIIP has improved by 16 percentage points of GDP from its 2020 level, driven by moderation in FDI from very high levels and a relative decline in external debt liabilities. - External debt liabilities fell slightly reflecting lower government liabilities due to lower deficits and active debt management (extended maturity and better currency composition). - NIIP deemed sustainable and projected to improve over the medium-term, supported by steady decline in public external liabilities and expected improvement in current account. - Risks mitigated by the large share of FDI on liabilities side (55 percent). - Current account assessment: - Estimated cyclically adjusted CA balance is around -2.8 percent of GDP (after accounting for natural disasters and cyclical contributions). - 2024 EBA-lite Current Account model estimates a norm of around -3.7 percent of GDP; difference implies underlying CA gap of 0.9 percent of GDP. - Main drivers of policy gap: fiscal balance gap and health expenditure—relative to world averages, driven by fiscal consolidation. - Medium-term CA deficit projected to converge to around 2.5 percent of GDP. - Staff assessment: current account broadly in line with level implied by fundamentals and desirable policies. - Potential policy responses recommended: - Strengthen external buffers, including allowing the exchange rate to act as a shock absorber. - Continue gradual fiscal consolidation and progress in energy sector reforms to reduce risk premia and narrow the external current account deficit. - Accelerate implementation of authorities’ reform agenda to close gaps, unlock productivity gains, and boost growth potential. - Limit crowding out of private sector credit and deepen local capital markets; support labor market and governance reforms to support growth. *Source: IMF staff estimates and calculations.* ### 5.1 percent in 2024. This was largely driven by a 5 percent ### 5.1 percent in 2024. This was largely driven by a 5 percent ### Exchange rate developments and REER assessment - The Dominican Republic Peso depreciated 5 percent vis -à- vis the U.S. dollar in 2024 driven by record-low interest rate differentials vis-à-vis the U.S. Fed’s Fund rate and seasonal high demand for foreign exchange to rebuild inventories towards the end of the year. - The REER depreciated further by 3.5 percent over the first four months of 2025 mainly due to continued depreciation of the NEER. - EBA-Lite REER model estimate for the 2024 REER gap: -17.8 percent (undervaluation), driven by a large residual rather than deviations from desirable policies. - CA-model estimate (based on elasticity of -0.2 of the trade balance to the REER): REER undervaluation of -5.3 percent. - Staff assessment of the REER gap in 2024 (considering estimates and uncertainties): -5.3 percent. - Model and adjustment details (as reported): - CA-Actual -3.3 - Cyclical contributions (from model) (-)0.1 - Additional temporary/statistical factors (-) (not quantified in text) - Natural disasters and conflicts (-)-0.7 - Adjusted CA -2.8 - CA Norm (from model) -3.7 - Adjustments to the norm (+)0.0 - Adjusted CA Norm -3.7 - CA Gap 0.93.1 - o/w Relative policy gap 1.0 - Elasticity -0.2 - REER Gap (in percent) -5.3 -17.8 - Notes: - Estimates based on the EBA-lite 3.0 methodology. - Cyclically adjusted, including multilateral consistency adjustments. - Additional adjustment to account for the temporary impact of shock A (for eg. pandemic) on CA item B (for eg. tourism) ([x] percent of GDP). [y] percent of the shock to B (tourism) is d (in percent of GDP). ### Capital and financial accounts; FDI and financing of CA - Capital flows to the Dominican Republic are mainly private averaging 6 2½ percent in 2022-24. - The CA deficit in 2024 was fully financed by FDI (100 percent). - Sovereign issuance and debt management: - Dominican Republic issued about US$3 billion in international capital markets in 2024, including a debut green bond for US$750 million (6.6 percent coupon, 12-year maturity). - Government engaged in active debt management operations placing domestic currency sovereign bonds and performing buybacks in 2023-25 to reduce exchange rate and rollover risks. - Expectations: FDI and portfolio investments are expected to continue financing the CA deficit over the projection period. - Assessment: External sustainability buttressed by a solid financing structure— inflows dominated by FDI and long-term debt flows; outflows largely public debt amortization. Active debt management over the last five years strengthened the public sector external debt profile. ### FX intervention and reserves level - Gross international reserves (GIRs) stood at US$1 3.4 billion in 2024 equivalent to 114.4 percent of the IMF’s ARA metric for floating exchange rate regimes. - Reserves coverage assessments: - Covered 4¼ months of prospective imports of goods and services. - Equivalent to 10¾ percent of GDP. - Around 2.1 times short-term debt. - 37½ percent of broad money. - Reserves declined since end-2023 (137.6 percent of the ARA metric) driven by the Central Bank’s FXIs to smooth short-term exchange rate volatility. - Net FXI totaled US$2.6 billion in 2024. - Central Bank behavior in 2025: BCRD largely refrained from intervening in the spot FX market in 2025, allowing greater exchange rate flexibility. - Reserves movement in 2025: Reserves increased in the first half of 2025 driven by sovereign debt placement and robust exports and remittances flows but declined afterward reflecting the government’s drawdown of FX deposits to service its external debt. - Reserves stood at around 105 percent of the ARA metric for floating exchange rate regime as of end-September 2025. - Assessment: Level of reserves assessed as broadly adequate under traditional metrics. As of end-September, 2025, international reserves stood at 10 5 percent of the IMF’s ARA metric for floating exchange rate regime. Recommendation: Given heightened global uncertainty, a gradual accumulation of reserves would help to strengthen external stability. ### Annex V — Impact of Changing Trade and Immigration Policies: Trade Channel - The DR is highly connected to the U.S. through trade and remittances; DR could benefit from global changes in trade policies though indirect channels (e.g., tourist arrivals) could impact domestic economic activity. - Key facts on trade with the U.S.: - DR’s exports to the US accounted for 53.5 percent of the country’s total exports (S$13.9 billion) in 2024. - Exports led by Free Trade Zones (FTZ) with $8.4 billion, of which $6.1 billion (around 72.5 percent) went to the US market. - Of the remainder ($5.4 billion), less than 25 percent (around $1.3 billion) went to the U.S. - Direct impact of reciprocal tariff: - FTZ production requires significant imports of intermediate U.S. inputs equivalent to around US$3.1 billion, or 51 percent of FTZ’s exports to the US market. - Implies only $3 billion have zero U.S. content, limiting potential impact from additional tariff. - Staff estimate: DR’s total exports could be lower by 1.7 percent in real terms in 2025 relative to a baseline with no additional tariffs. - Impact could be smaller due to CAPDR free trade agreement exemptions and sharing of burden between US importers and DR exporters. - Comparative advantage and trade diversion: - New U.S. tariff on DR’s exports set at 10 percent gives DR a comparative advantage against competitors such as China, India, Vietnam, other Asian countries, and some CAPDR neighbors. - Proximity to U.S. markets and political/macro stability may allow DR to benefit from trade diversion. - Evidence: Announcement of some U.S. companies relocating part of production to the DR. - Staff estimate: Real exports could be boosted by 2.5 percent in real terms in 2026 with impact waning by 2027. - Structural reforms to amplify gains: - Improvements in education, infrastructure, governance, and the business environment could help DR realize a greater impact from changing trade policies and support nearshoring strategy including semi-conductor industry development and boost potential growth in line with Meta2036. ### Annex V — Impact of Changing Trade and Immigration Policies: Remittances Channel - Remittances stability: - Total remittances reached 8.6 percent of GDP in 2024, averaging 8.6 percent of GDP in 2022-2024. - Source composition: - U.S. accounted for close to 85 percent of total remittances received in 2024. - Other main sources include Spain and Italy. - Remittances to DR account for less than 20 percent of total remittances to CAPDR. - Projected path: - Prior to tighter U.S. immigration policies, staff projected remittances to decrease to around 8.5 percent of GDP over the medium-term. - Impact of decline in remittances on external sector stability expected to be limited as FDI flows projected to more than finance the current account deficit. - Deportation and legal status context: - About 1.3 million nationals from the Dominican Republic living in the U.S.; almost 85 percent under “Green Card” status and around 200,000 under irregular status. - Annual removals of Dominican Republic nationals averaged 2,900 individuals (about 2 percent of total deportations to CAPDR over 2022-2024). - Scenario estimates under tighter U.S. immigration policies: - Even under a severe scenario with returned nationals increasing fivefold (close to 16 thousand) relative to 2022-2024 average, remittances will gradually decline to around 8.2 percent of GDP under tighter U.S. immigration policies, slightly lower compared to 8.5 percent of GDP under the baseline scenario. ### Annex V — Impact of Changing Trade and Immigration Policies: Real Sector Channel and Downside Scenario - External risk impact on GDP (staff estimates): - Under a downside risks scenario (layers described in Scenario A in the October WEO: higher tariffs and supply-chain disruptions, higher inflation expectations, higher real rates and tighter global financial conditions, and lower demand for U.S. assets): - Could lower the level of DR’s GDP by as much as 1 of percentage points in 2026 and close to another 1 percentage point in 2027. - Component effects on level of real GDP (Cumulative Percentage Deviation from Baseline): - 2026 2027 2028 — Level of Real GDP -1.0 -1.9 -2.0 - - Higher tariffs with supply disruptions 0.4 -0.1 -0.6 - - Inflation expectations shock -0.6 -0.8 -0.7 - - Tighter global financial conditions -0.9 -1.2 -1.0 - - Lower demand for US assets 0.1 0.2 0.3 - Interpretation: - Tighter global financial conditions and a shock to inflation expectations have the larger negative effects on economic activity. - Tariff competitive gain could increase GDP by 0.4 percent relative to baseline in 2026. - Tighter global financial conditions in 2026-27 could lower GDP by 0.9 percentage points in 2026 with gradual dissipation in 2027. - Higher global inflation expectations could reduce GDP by 0.6 percentage points in 2026. - Policy implication: Agile policy response required in the event of external price shocks. ### Annex VI — Interest Rate Passthrough (2012-2025) - Previous work (2006-2015) found evidence of complete passthrough from monetary policy to retail rates with faster passthrough to lending rates than deposit rates and asymmetric adjustments to short-term rates. This annex updates to 2012-2025. - Key institutional and structural points: - Key benchmark rate introduced in 2013; monetary policy rate adopted from February 2013 and corridor bounded by one-day deposit and overnight lending facility; framework formalized in 2017. - Financial system: around 20 commercial banks; three commercial banks hold around 60 percent of total assets. - As of December 2024: - Total assets represent around 56.4 percent of GDP. - Loan portfolio represents 56.7 percent of all assets (around 32 percent of GDP). - Loan composition: commercial sector 53.9 percent, consumer sector 28.3 percent, mortgages 17.8 percent. - Profitability: ROE 26.3 percent. - Interest rate behavior: - 2012-19: monetary policy rate relatively stable between 4.25 and 6.25 percent. - Since the pandemic: interbank lending rate has exceeded upper bound of interest rate corridor with largest spreads peaking in July 2024 and subsequently in June 2025. - Passthrough analysis and results: - Time series cointegration and error correction approach (building on Grigoli and Mota 2015) used. - Long-run passthrough between monetary policy rate (mpr) and retail rates (i) complete when β1 = 1 in equation (1). - Controls included: reserve requirements (RR), net foreign exchange purchases (NFXIP), non-performing loans (NPLs), external factors (VIX, EMBI spreads), US short-term rates (iUS). - Long-run estimates for 2012M1-2025M9 (Table 1 summarized in text): - Passthrough to deposit rates: 0.5–0.7 (not full). - Passthrough to lending rates: varies between 0.4 to 0.7 in most cases; not full except for consumer loans interest rates where passthrough is complete. - Key control variable effects: - Reserve requirements, US short-term rates, and EMBI spreads have important roles. - NFXI and VIX not significant in regressions for deposit rates. - Reserve requirements, net FXI purchases, and US three-month treasuries significantly affect most lending rates. - NPLs, VIX, and EMBI matter in few cases. *International Monetary Fund — Dominican Republic: content unit extracted from PDF chapter/section provided.* ### 8. Compared to pre-pandemic estimates, passthrough has declined notably for both deposit ### Compared to pre-pandemic estimates, passthrough has declined notably for both deposit and lending rates ### Interest Rate Passthrough: evolution and findings - Post-pandemic deposit passthrough is weaker relative to pre-pandemic estimates; full passthrough was previously observed for most deposit rates. - For lending rates, passthrough was full during 2012–2020 for most rates, except three-month, six-month, commercial, and mortgage loans. - Recent estimates show narrower confidence intervals. - Figure methodology and sample: - The figure reports the long-run coefficient on the monetary policy rate from equation (1). - Estimates are computed recursively using an expanding window, starting with 2012M1–2017M1 and extending through 2025M9. ### Strong passthrough test and regression notes - Only estimates that are significant at the 10 percent or less are included in the regression. - Significance markers used: *** Significant at the 1 percent, ** significant at the 5 percent and * significant at the 10 percent. - Abbreviations preserved: Cons: consumer loans, com: commercial loans, Mort: mortgage loans. - Strong passthrough test: - The one-sided Wald p-value is reported for the null that the long-run policy-rate coefficient is at least 0.90. - Selected reported coefficients and statistics (as displayed in the source table): - Monetary Policy Rate: 0.66***; 0.56***; 0.51***; 0.67***NA0.42*** 0.75*** 0.63*** 0.99*** 0.51*** 0.55*** - Reserve Requirements: 0.39*** 0.43*** 0.34*** 0.37*** 0.88***0.69*** 0.87*** 0.80*** 0.45*** 0.84*** 0.28*** - EMBI: 0.00*** 0.00*** 0.00*** 0.00***0.00** - US 3M Treasury: 0.70*** 0.56*** 0.42*** 0.65*** 0.42*** 0.40***0.15**0.14* - NPLs: 0.44**0.43**0.63*** - VIX: 0.04*** - Net FX Purchases: -0.94*** -0.72** -0.87*** -0.66** - Constant: -3.93*** -3.87*** -2.62*** -3.97*** 0.14 -0.86 -2.74*** -0.396.5***-1.33* 2.42*** - Sample windows and statistics: - 2012M1-25M9 entries: 0.00 0.00 0.00 0.000.00 0.00 0.03 0.00 0.89 0.00 0.00 - 2012M1-20M3 entries: 0.82 0.64 0.12 0.360.00 0.05 0.25 0.09 0.89 0.03 0.00 - R2 (reported as R20.79 etc.): R20.79 0.74 0.75 0.820.53 0.63 0.66 0.73 0.70 0.69 0.69 ### Speed of adjustment (short-run dynamics) - On average, deposit and lending rates are fully adjusted within six months following changes to the monetary policy rate. - Equation (2) specification used to estimate speed of adjustment: - ∆i_t^i = α_0 + γ_0 ∆mpm_t + ∑_{i=1}^n γ_i ∆mpm_{t-i} + δ X_t + μ_1 u_{t-1} + ε_t - Where Δ denotes the first difference operator and u_{t-1} is the error correction term (residual from equation (1)). - Empirical result summary: - Lending rates adjust within six months. - Deposit rates take longer to adjust and may overshoot in the near term. - Figure 4 shows adjustment following a 1 percent monetary policy change (IMF staff estimates). ### Electricity Sector Reforms: context and macroeconomic implications - Electricity sector inefficiencies remain macro-critical for the Dominican Republic (DR): frequent blackouts, large distribution losses, and tariffs below cost-recovery. - Electricity Sector (ES) deficit averaged 1.5 percent of GDP in 2022-2024; tax revenues around 14 percent of GDP. - Distribution companies’ deficit (SOEDCs) totaled 1.3 percent of GDP in 2023: - Consumers subsidy from regulated prices: 0.7 percent of GDP - Non-technical losses from theft: 0.4 percent of GDP - Technical losses tied to old infrastructure: 0.1 percent of GDP - After accounting for fraud/theft, users effectively pay $0.14/kwh versus producers receiving $0.27/kwh. - Blackouts account for about 3 percent of household electricity use. - The 2021 Electricity Pact (EP) increased prices by 25 percent in late 2021 and early 2022; to be cost-reflective prices need to be adjusted by an average of around 30 percent. ### Energy supply, demand, and emissions - Energy demand: approximately 7.6 billion tons of equivalent petroleum (ktep) in 2023. - Growth: 3.2 percent per year in 2005-2023. - Demand by sector (2023): Transport 43.4 percent; Manufacturing 25 percent; total 68.5 percent from these two sectors. - Energy supply composition (2023): Fossil fuels, natural gas, and coal supplied 79¼ percent of energy in 2023 (down from 86.1 percent in 2005). - Renewables: increased from less than 14.0 percent in 2005 to 20¾ percent in 2023. - Power generation (2024): fuel-oils, natural gas, and coal accounted for 82 percent; NCREs contributed close to 12 percent of total electricity generated in 2024. - Greenhouse gas emissions: 2.7 MT per capita in 2023 (below world average 4.7 MT per capita and Latin America average 4.3 percent MT per capita); emissions have grown 2.9 percent annually since 1990. - Policy targets: - PEN targets: i) 25 percent from renewable sources (hydro and NCREs) by end-2025; ii) 31 percent of generation from NCREs by 2030. - Law 57-07 effectively provides a 35 percent subsidy to NCREs projects. - 2020 NDC: reduce CO2 and other greenhouse emissions by 27 percent relative to baseline by 2030 and achieve carbon neutrality by 2050. ### Investment needs and NCRE targets - Meeting PEN targets requires adding 8,150MW of NCREs generation by 2030. - Planned projects suggest NCREs generation will reach around 17 percent by end-2025 (about 23 percent including hydro), slightly short of the 25 percent target. - Around 200 MW from less efficient fossil fuels expected to be phased out in 2027. ### GMMET modelling framework and calibration - The Global Macroeconomic Model for the Energy Transition (GMMET) is used to evaluate policy options and quantify short- and medium-term macroeconomic impacts. - Model calibration draws on: - National accounts and Input-output tables - Trade data - Current and projected electricity capacity and generation matrix - Microdata on electricity generation (hourly participation by NCRE) - Electricity tariffs and subsidy policies - Other macro variables: exchange rate, fiscal accounts, prices, population ### Policy scenarios and key modelling results - Three sets of scenarios considered: a) Increase transmission investment and reduce technical losses. b) Reforms to electricity subsidies and price caps (remove price caps and corresponding subsidies). c) Policies to achieve DR’s NCRE goals in the PEN. - Increasing transmission investment and reducing technical losses: - Technical losses could be reduced by the equivalent of 3 percent of electricity use (from existing technical losses of 11 percent toward comparator average around 8 percent). - Government estimate: transmission and distribution investment equivalent to 1.7 percent of GDP required over 2023 to 2030. - Modeled via a government subsidy to transmission investment plus an exogenous productivity adjustment so 3 percent more electricity reaches users for each unit generated. - Investment series (million US$ and percent of GDP) from source table: - Investments (million US$): 258.6 176.8 113.1 145.2 169.7 219.0 494.1 369.4 258.9 244.0 229.1 214.2 2,198.4 - Investments (percent GDP): 0.3 0.2 0.1 0.1 0.1 0.2 0.4 0.3 0.2 0.2 0.1 0.1 1.5 - Macroeconomic impacts: - Reducing technical losses lowers generation required, reduces consumer electricity costs, crowds in broader investment (including renewable generation). - Headline inflation remains flat on average; core inflation rises slightly due to increased aggregate demand. - Output and investment expand; initial higher savings (reduced consumption) then private consumption increases over time as real incomes grow. - Results include capital deepening, increased efficiency, higher wages, and higher GDP. - Reforms to electricity subsidies and price caps: - Current effective prices: reference price $USD0.27/kWh; effective user price $USD0.14/kWh due to official and effective subsidies. - Unmet demand equivalent to 3 percent of use at capped prices. - Scenario assumptions: - Removal of explicit subsidies and price caps, phased in over 4 years in line with the Electricity Pact. - Government cracks down on electricity theft when subsidies are removed. - Two fiscal use cases for balancing the budget: (i) reduction in subsidies finances labor income tax reductions; (ii) lump sum transfers are increased. - Effective total subsidy shares: - Residential electricity subsidy: 49 percent - Non-tradables-producing firms subsidy: 25 percent - Modelling approach: - Subsidies and unmet demand modelled through subsidy rates and a supply constraint proxied by a 14 percent shadow price. - Removing subsidies and price caps moves equilibrium from points A and A* to point B (supply meets demand). ### Overall policy implications (from scenarios) - Investment in transmission and distribution to reduce technical losses supports renewable integration, lowers consumer electricity costs, and boosts GDP and investment. - Removing subsidies and price caps can restore supply adequacy and reduce fiscal burdens if accompanied by measures to curb theft and a credible phase-in strategy. - Achieving NCRE targets requires sustained investment and policies that complement transmission upgrades and fiscal reforms. _Italic: IMF staff calculations and source material from the referenced chapter and annex._ ### 16. Removing subsidies reduces electricity consumption ### 16. Removing subsidies reduces electricity consumption ### Key findings - Making end-consumers pay for electricity in full would reduce residential electricity consumption by around 10 percent and overall generation by around 8 percent. - The modeling assumes that both the explicit subsidy and the implicit subsidy associated with electricity theft are removed. - Removing subsidies would raise the consumer price level by around 0.3 to 0.6 percent, assuming the central bank does not react (i.e. it targets CPI ex-electricity prices). - The effective subsidy for residential electricity is 49 percent; removing just the explicit subsidy would raise the effective consumer price level by around ¾ of percentage point. - Adjustments to electricity subsidies (explicit and implicit) would save annually 0.5 percent of GDP over 20 years. ### Macroeconomic and fiscal impacts of subsidy removal (phasing and use of savings) - If revenue previously spent on subsidies is used to reduce labor income taxes: - GDP increases by around 0.4 percent. - Increased labor supply increases investment in other sectors despite overall investment falling. - Electricity fiscal sector expenditures are reduced by 1 percent of GDP after 5 years. - If savings are used for increased transfers to households: - GDP falls over time, 0.5 percent below baseline after 10 years, as lower real wages and increased transfers reduce labor supply. - Removing subsidies leads to lower fuel imports and thus lower import demand; exchange rate appreciates (size of appreciation varies with revenue recycling option). ### Impacts on prices and inflation - CPI impact in a particular year depends on the period over which the policy is phased. - The range of the inflation impacts (0.3 to 0.6 percent) comes largely from varying exchange rate movements under the two revenue recycling options; appreciation is smaller when revenue is used to reduce labor taxes due to increased export supply. ### Supporting NCRE investment — scenarios modeled (counterfactual starting in 2020) - Baseline scenario (current policies): - Existing policy support modeled as an effective 35 percent subsidy to NCREs investment starting in 2020. - Renewable investment subsidies increase electricity sector investment from around 0.8 percent of GDP to around 1.4 percent of GDP, driven mostly by renewables. - NCRE generation aligns with actuals for 2024—NCREs around 15½ percent in 2024. - Under current support, renewable generation rises only to 23 percent of generation by 2030 (i.e., unlikely to achieve PEN solar and wind targets). - Investment subsidy raises GDP by around 0.7 percent in the long run relative to the case where it had not been introduced. - Renewable investment subsidy cost rises to around 0.2 percent of GDP; net budget impact is broadly neutral in the long run and reaches a maximum of 0.1 percent of GDP in the medium term. - Scenario b) Temporary additional investment subsidy: - Effective renewable investment subsidy increased to 50 percent from 2025 to 2030 and calibrated to achieve the NCRE 2030 target. - Temporarily increasing the subsidy to 50 percent from 2025 to 2030 enables the 32 percent renewables target in 2030. - Temporary subsidy’s fiscal cost is transitory. - Scenario c) Permanent additional investment subsidy: - Investment subsidy permanently raised in 2025 to 50 percent. - Permanent subsidy leads to less near-term renewable generation (investors less incentivized to accelerate investment) and results in 28 percent renewables by 2030. - The permanent hike in investment subsidy lowers inflation by 0.02 percentage points on average over five years, driven by higher power supply and exchange rate appreciation. - Scenario d) Current NCREs subsidies removed in 2025: - Removing subsidies leads NCREs to drop to 12¼ (10) percent of total generation by 2030 (2035). ### Trade, investment, and distributional dynamics under renewable support - Investment imports increase in the nearer term because renewable investment inputs are largely imported; coal, oil and gas imports fall in the medium term. - Lower import demand in the long run causes exchange rate appreciation, reducing exports to rebalance trade. - Capital deepening and higher real wages increase household wealth and consumption. - The model assumes gas backs up intermittent solar and wind generation; falling battery prices could provide backup in the future. - Transmission investment increases in line with renewables’ requirements; investment in gas capacity increases for backup, while the share of gas generation declines as it provides less baseload. ### Quantified scenario outcomes (Table 2 summary — average annual impacts) - Permanent investment subsidy: - GDP change: 0.4 (Percent) - Net fiscal impact: -0.13 (Percent of GDP) - Imports change: 0.01 (Percent of GDP) - Fuel imports change: -0.17 (Percent of GDP) - Headline inflation: -0.02 (Percentage points) - Core inflation: -0.01 (Percentage points) - Temporary investment subsidy: - GDP change: 0.1 (Percent) - Net fiscal impact: -0.06 (Percent of GDP) - Imports change: -0.05 (Percent of GDP) - Fuel imports change: -0.10 (Percent of GDP) - Headline inflation: -0.01 (Percentage points) - Core inflation: 0.00 (Percentage points) - Transmission sector reform: - GDP change: 0.6 (Percent) - Net fiscal impact: -0.2 (Percent of GDP) - Imports change: 0.04 (Percent of GDP) - Fuel imports change: -0.06 (Percent of GDP) - Headline inflation: 0.00 (Percentage points) - Core inflation: 0.04 (Percentage points) - Consumer subsidy reform (increased transfers to households): - GDP change: -0.3 (Percent) - Net fiscal impact: 0.8 (Percent of GDP) - Imports change: -0.03 (Percent of GDP) - Fuel imports change: -0.14 (Percent of GDP) - Headline inflation: 0.07 (Percentage points) - Core inflation: -0.02 (Percentage points) - Consumer subsidy reform (lower labor tax): - GDP change: 0.4 (Percent) - Net fiscal impact: 0.0 (Percent of GDP) - Imports change: -0.10 (Percent of GDP) - Fuel imports change: -0.12 (Percent of GDP) - Headline inflation: 0.12 (Percentage points) - Core inflation: 0.02 (Percentage points) ### Policy implications and conclusions - Reforms to remove explicit and implicit electricity subsidies free fiscal resources (annually 0.5 percent of GDP over 20 years) that can finance investments and boost GDP, more than offsetting any short-run losses from electricity subsidy reform. - Increased renewable investment decreases reliance on imported fuels, enhancing energy security. - Meeting PEN targets likely requires additional temporary support (e.g., temporary subsidy to 50 percent from 2025 to 2030) to accelerate investment and reach 32 percent renewables by 2030. - Transmission sector reforms, improving distribution efficiency, reducing blackouts, and increasing renewable energy use will likely reduce electricity prices and yield positive downstream spillovers to other sectors. - Short-run increases in imports for renewable projects are offset over time by reductions in volatile fossil fuel imports, improving the trade balance and raising real wages. *Source: IMF staff estimates and calculations.* ### 5. To put DR’s reforms in a cross-country perspective, two structural indicators databases ### 5. To put DR’s reforms in a cross-country perspective, two structural indicators databases ### Databases and indicators used - Two structural indicators databases are used: - First database: data back to 1973; tracks labor and product market, trade, external finance and domestic finance reforms until 2014. - Second database: data from 2000-2020; tracks more recent progress, including business regulation. - Both databases include the same governance indicators (Box 2). - Governance indicator: average of Worldwide Governance Indicators (WGIs). ### Historical reform trajectory and sectoral outcomes - Following early reforms, by the mid-2000s most DR markets were more liberalized than the LAC average, while domestic finance lagged. - Product markets: major structural reforms across LAC by late 1990s; DR’s product market was somewhat more liberalized than the LAC average by the early 2000s. (Product market indicator uses electricity and telecommunications indicators.) - Labor markets: while labor markets in LAC became less liberalized in the 2000s, the DR remained at its early 1990s level; the DR labor market was perceived as somewhat less liberalized following the 1992 Labor code. - Trade openness: by the mid-2000s the DR had exceeded the LAC average in openness to trade following strong reductions in tariffs. - External finance openness: since 2008 (coinciding with CAFTA), DR’s openness to external finance strongly exceeded the LAC average; this is important for FDI. (CAFTA agreed in 2004 and in effect from 2007.) - Domestic finance: despite progressive liberalization in line with the LAC average since the early 1990s, by the late 1990s domestic finance had lagged. ### Recent progress (2000–2020) and remaining gaps - Most improvement recently has occurred in business regulation (BR), reversing an earlier declining trend; improvements align with the “Zero Bureaucracy” initiative and strengthening of ProCompetencia. - Labor market: the DR labor market gap remains around the early 2000 level and above Central America and Panama (CAP) peers. - Credit market: the DR’s credit market gap has widened, both relative to its own 2000 gap and relative to CAP; this partly reflects an increased share of the state-owned bank, which negatively impacts the indicator. - The EMDE Dashboard indicators underpin the recent assessments; governance is the average of WGIs. ### Quantified potential gains from closing policy gaps (IMF toolkits) - Structural Reforms Database dividend toolkit (based on 2019 WEO; uses data 1973-2014, 1991-2014 for product market): suggests annual growth could be boosted by 0.8 percent over the medium-term if gaps with the EM frontier were closed. Breakdown: - Domestic Finance — closing this gap may have the largest impact with 0.4 percentage points. - Labor Market — closing this gap could deliver 0.3 pp. - Trade and Product Markets — closing these gaps could add over 0.1 to annual growth (product market gains may be underestimated because indicators cover only telecommunications and electricity). - IMF Structural Reforms in EMDEs Dashboard – version 1.0 dividend toolkit (based on the 2024 SDN; uses data on SRs over the 2000-2020 period): points to an increase in annual growth of close to 1 percent over 5-years. Breakdown: - Credit — 0.7 increase in annual growth. - Labor Market — 0.13 percent in average annual growth. - External Sector (ES), Business Regulation (BR) and Governance (GV) — 0.13 percent in average annual growth (this toolkit classifies these as FGR). - Note: The gains differ across tools because each uses different indicators and time spans, resulting in different gaps versus the frontier. Both tools derive gains based on a country’s gap and estimated coefficients. ### Broader reform multipliers and export/productivity links - Reforms targeting human capital and productivity may have even greater multipliers not captured by these toolkits. - Past staff analysis indicates gains to exports—particularly expanding more complex and higher value-added exports—could come from improving education outcomes and governance. ### Box 1 — Main drivers of growth compared to regional peers (averages for 2000-19) - Real GDP and components, averages for 2000-19 (exact values): - DOM: Real GDP growth 5.0; Labor 1.3; Capital stock 2.8; Total factor productivity 0.9** - NTN: Real GDP growth 3.5; Labor 1.6; Capital stock 1.5; Total factor productivity 0.4 - LA7: Real GDP growth 2.5; Labor 0.9; Capital stock 1.5; Total factor productivity 0.1 - Emerging Asia: Real GDP growth 5.6; Labor 0.7; Capital stock 3.0; Total factor productivity 1.9 - Note: *TFP is 1.3 for 2005-2019 (excluding the 2003 crisis). ### Box 2 — Structural Reform Data and IMF Toolkits Methodology (high-level) - Structural Reforms Database indicators (1973 onward, sample of 90 economies) cover: (1) Domestic finance; (2) External finance; (3) Trade; (4) Product market (telecom and electricity); (5) Labor market; (6) Governance (average of WGIs). - Econometric analysis: aggregate cross-country analysis using the local projection method by Jordà (2005). Primary regression specification (Eq.1) uses country fixed effects, time fixed effects, change in structural regulation indicator, and controls including lags of dependent variable, past economic growth and past reforms. Equations estimated for horizons k = 0 to 6. Macroeconomic data sample: unbalanced 75 emerging and low-income countries from 1973 to 2014. Impulse response functions computed using estimated coefficients and robust standard errors clustered at the country level. - EMDEs Structural Reforms Dashboard, Dividend Toolkit (2024 SDN) indicators: (1) Credit market; (2) External sector; (3) Business Regulation; (4) Labor market; (5) Governance (WGIs with six subcomponents listed). ### Climate risks, macroeconomic costs, and resilience investment needs (Annex IX highlights) - Natural disaster exposure: hurricanes and tropical storms hit the DR every year on average but can occur as often as twice a year. IMF analysis shows storms and flood events cause a 0.2–0.5 percent decrease in quarterly GDP depending on period and event type. Hurricane Fiona (September 2022) direct fiscal impact estimated at 0.3 percent of GDP; damage included over 8,500 homes, displacement of over 43,000 people, severe disruptions to water supply for more than a million households, extensive infrastructure damage, and losses exceeding 30,000 hectares of cropland. - Climate trends and projections: since 1950 average annual temperature has increased by 0.73°C and is projected to rise by an additional 0.63–1.94°C by 2050. Total precipitation is expected to keep declining, with a rise in consecutive dry days. - Sectoral exposure: agriculture and tourism together account for about a quarter of GDP and labor force and close to a half of total export receipts; they are vulnerable to changing precipitation, rising temperatures, and heat stress that affect labor and agricultural productivity. Agriculture consumes 81 percent of water. - Macroeconomic cost projections and benefits of adaptation: Mohaddes and Raissi (2024) project that under an accelerated GHG emissions scenario, DR’s income losses could reach 6.2 percent of per capita GDP by 2050 if no global mitigation actions occur, up from a baseline scenario loss of 2.3 percent; timely adaptation could mitigate losses to 1.4 percent of per capita GDP by 2050. Dynamic stochastic general equilibrium modeling indicates investing in climate-resilient public infrastructure is cost-effective and leads to a long-term increase in GDP of 3.5 percent and net fiscal improvements of about 0.1 percent. - Investment needs (NDC and other estimates): - DR’s 2020 NDC estimates adaptation (building resilience to natural hazards and adaptation by 2030) could cost up to US$8.7 billion (annual average of 0.6 percent of GDP). - Climate change mitigation and energy sector modernization estimated at an additional US$8.9 billion, bringing total to approximately US$17.6 billion (annual average of 1.2 percent of GDP). - With the NDC update pending in 2025, preliminary estimates by the National Council for Climate Change and Clean Development Mechanism indicate these costs may more than double. - World Bank estimates (2022 present value) for investments to build resilience to tropical cyclones and sea-level rise and decarbonize power and transport: up to US$19.3 billion (2.5 percent of cumulative GDP) by 2030 and up to US$62.0 billion (3.8 percent of cumulative GDP) by mid-century; about half (1.6 percent of cumulative GDP) would be for resilience-enhancing investments. *Italic: Source — IMF staff summary of section "To put DR’s reforms in a cross-country perspective, two structural indicators databases" from the provided IMF PDF.* ### 6. The Dominican Republic has demonstrated a strong commitment and has made ### 6. The Dominican Republic has demonstrated a strong commitment and has made ### Climate policy progress and commitments - Party to the 1992 UN Framework Convention on Climate Change and the 2015 Paris Agreement. - Current Nationally Determined Contribution (NDC) of 2020 outlines a range of climate change adaptation and mitigation measures. - A new NDC 3.0. covering a wide spectrum of sectors with corresponding indicators is currently being prepared. - Climate policy actions are incorporated in the National Climate Change Adaptation Plan (PNACC) 2015–2030. - The NDC is aligned with: - National Climate Change Policy of 2015, - National Development Strategy (NDS) 2012–2030, - National Multi-Year Public Sector Plan (NPSP) 2021–2024. - National Council for Climate Change and Clean Development Mechanism (CNCCMDL), established in 2008, is formally tasked with "formulating, designing, and executing the public policies necessary for the prevention and mitigation of greenhouse gas emissions and adaptation to the adverse effects of climate change." - Scope of measures in NDC 2020: - 37 adaptation measures spanning water security, food security, health, resilient cities (infrastructures, human settlements), coastal-marine resources, tourism and ecosystems, biodiversity, and forests. - 56 mitigation-related measures covering energy, industry, agriculture, and forestry, as well as the waste sectors. ### Institutional governance gaps and coordination challenges - Existing institutional framework lacks effective governance, including inter-institutional coordination, accountability and compliance mechanisms, and a coherent long-term vision. - Problems identified: - Overlapping or unclear roles and responsibilities. - Gaps in requirements for long-term investment strategies and plans, compliance mechanisms, and accountability. - CNCCMDL is outside the hierarchical structure of the Cabinet of Ministers and depends on the delegated authority of the Office of the President; it lacks formal binding instruments to enforce its decisions. - Lack of clarity on future emissions reduction pathway and mismatches between different renewable energy targets. - CNCCMDL has shared functions and responsibilities with the Ministry of Environment; it has met only twice since its creation in 2008. ### Disaster risk management: legal framework, progress, and gaps - Key laws and policies: - Law 147-02 (2002 Risk Management Law) establishes the National System for Disaster Prevention, Mitigation, and Response (SN-PMRD). - General Law on the Environment and Natural Resources (Law 64-00) of 2000 includes disaster risk reduction elements. - Law 368-22 on Land Use Planning, Land Use, and Human Settlements (2022) establishes the National Territorial Information System and adopts construction codes to regulate construction in flood-prone areas. - Institutional and fiscal steps: - Ministry of Finance and Economy is developing a strategic financing framework for the management of fiscal risk associated with natural disasters to integrate risk management into public planning and budgeting. - Law 147-02 created a Mitigation and Prevention Fund, but it was not implemented or defined its sources of financing. - Remaining needs: - Update Law 147-02 to enhance inter-institutional cooperation, reduce duplications of functions, and ensure sufficient funding. - Enhance coordination between national, regional, provincial, and municipal authorities and Committees for Disaster Prevention, Mitigation, and Response. - Align risk management policies and plans across agencies and incorporate key legislative components coherently (e.g., Law 64-00 and Law 147-02). ### Social protection and climate vulnerability targeting - Incorporation of climate vulnerability into social protection: - Climate Shock Vulnerability Index (IVACC), supported by UNDP consultancy. - Basic Emergency File (FIBE) to prioritize and allocate the Emergency Bonus — a temporary transfer activated after weather-related emergencies. The Emergency Bonus is financed through budget reallocations enabled by Law 423-06. - FIBE protocol establishes steps and activation criteria for disaster response using structural damage, health effects, and income loss as key inputs. ### Financing climate needs and private sector mobilization - Public funding alone is insufficient given limited fiscal space. - Private sector estimated to account for up to 70 percent of total investment needs. - Progress in sustainable finance: - Establishment of the country’s green bond market and national sustainable finance framework in 2020. - Two private sector green bond issuances valued at 150 million USD: - EGE Haina valued at 100 million USD (2021). - Banco Popular Dominicano valued at 50 million USD (2023). - Launch of the Dominican Republic Green Taxonomy in 2024. - Recommendations and opportunities: - Reduce barriers to mobilization of private climate finance. - Expand corporate green bond market and implement Green Taxonomy to accelerate climate financing. - Incorporate climate considerations into the PPP framework to expand private participation in green projects. - Establish a climate change coordination mechanism for public investments within central government and with municipalities and public enterprises. - Extend budget tagging (currently identifies current spending) to climate-related investments. - Require climate impact assessment at appraisal stage and publish methodology to estimate maintenance needs from climate-induced damage to public infrastructure. - Improve methodologies to analyze public roads and bridges’ vulnerabilities to climate change and macroeconomic impacts of climate change. ### Energy sector issues and implications for climate objectives - Electricity distribution sector suffers significant losses—among the highest in the region—exceeding 50 percent in some parts of the country due to both technical and non-technical factors (technical distribution losses from lack of sufficient investment and higher temperatures; non-technical losses from widespread fraud and electricity theft). - These losses have averaged 1.3 percent of GDP in budget transfers in the last 3 years. - Reducing electricity (technical) losses by 1 p.p. will reduce emissions by 1.07 percent in the short run (upper bound). - Policy implications: - Efficiency improvements and sectoral modernization are necessary to achieve emissions reduction targets. - Gradual adjustment of electricity tariffs to cost-recovery levels, in line with the objectives of the Dominican Republic’s Electricity Pact. ### Water sector weaknesses and fiscal implications - Water supply and sanitation providers show low operational efficiency, fragmented regulatory framework, physical leakage, unauthorized consumption, and very low billing and collection rates. - Water tariffs do not cover costs and require continued funding from the central government, amounting to approximately 0.4 percent of GDP in 2023. - Implementation of National Hydrological Plan 2025 – 2045 is key to improve monitoring, measurement and sustainable use of water resources. - Ensuring financial health of the water sector is critical to long-term economic resilience and climate objectives. ### Data adequacy and statistical developments - National accounts rebased to 2018, publishing data in early 2025. - Coverage of government operations broadened to General Government (GG) since end-2023 and granularity improved with COFOG for GG. - Remaining data gaps: - Balance of Rest of the Non-Financial Public Sector estimated from financing; above-the-line operations not published for aggregate of non-financial corporations in line with GFSM2014. - Debt coverage of NFPS limited to debt securities and loans. - Coverage gaps in recording nonfinancial private sector transactions in the financial account of the BOP, particularly related to direct investment and private sector external debt transactions and positions that impact IIP statistics. - Timeliness issues: monthly external trade and quarterly external sector accounts data could be more timely (currently monthly trade data are released every three months as a whole quarter and quarterly data are published four months after the end of the quarter). - Financial Soundness Indicators: comprehensive coverage for banking system and individual banks reported monthly; FSIs on non-financial corporates and households not available; data on real estate markets lacking. - Authorities are working with STA on steps required to adhere to SDDS and have made significant progress up to 2025: Q1, very close to completing the subscription process. - Corrective action priority: formal commitment needed to improve timely publication of trade statistics (monthly) in addition to existing timely quarterly publications. *Source: 1domea2025001-source-pdf - 6. The Dominican Republic has demonstrated a strong commitment and has made (PDF).* ### Annex XI. Rebasing of National Accounts ### Annex XI. Rebasing of National Accounts ### Methodological improvements - The Central Bank of the Dominican Republic (BCRD) updated national accounts in line with the IMF’s 2017 Quarterly National Accounts Manual using more comprehensive and updated data sources and surveys. - Survey and data enhancements used: - 2018 National Household Expenditure and Income Survey - 2022 National Population and Housing Census - National Survey of Micro, Small, and Medium Enterprises - Administrative records of companies and public institutions (including the directory of companies, DINEM) - Financial statements, budget execution of the general government - BCRD data: Consumer Price Index Survey, Continuous National Labor Force Survey ENCFT, Tourist Expenditure and Motivation Survey, National Health Survey, External Sector Statistics - Coverage and disaggregation increases: - Productive sectors: from 35 (including coverage of 175 products) to 70 (182 products) - Methodological changes applied to the monthly economic activity indicator (IMAE). ### Key structural changes (expenditure and production shares) - Expenditure-side nominal shares (2007 base → 2018 base; difference): - Private Consumption: 70.9 → 69.0, difference -1.9 - Public Consumption: 9.2 → 10.1, difference 1.0 - Gross Capital Formation: 27.6 → 25.2, difference -2.4 - Gross Fixed Capital Formation: 27.0 → 24.8, difference -2.2 - Change in Inventories: 0.6 → 0.4, difference -0.2 - Exports: 26.8 → 24.0, difference -2.8 - Imports: 34.5 → 28.3, difference -6.1 - GDP: 100.0 → 100.0, difference 0.0 - Production-side nominal shares (2007 base → 2018 base; difference): - Agriculture: 6.5 → 4.6, difference -1.9 - Industry: 28.6 → 25.5, difference -3.1 - Mining: 2.0 → 1.8, difference -0.1 - Local Manufacturing: 12.2 → 9.0, difference -3.2 - Free Trade Zones: 4.0 → 3.1, difference -0.9 - Construction: 10.4 → 11.6, difference 1.2 - Services: 56.9 → 62.5, difference 5.6 - Utilities: 2.0 → 1.4, difference -0.6 - Commerce: 9.1 → 10.9, difference 1.8 - Hospitality: 8.0 → 8.0, difference 0.0 - Transport and Storage: 7.1 → 7.4, difference 0.3 - Communication: 2.1 → 1.4, difference -0.8 - Financial Services: 4.0 → 3.7, difference -0.2 - Real Estate: 7.7 → 8.7, difference 1.0 - Education: 3.2 → 5.0, difference 1.8 - Health: 2.3 → 2.9, difference 0.6 - Other Private Services: 8.0 → 8.5, difference 0.5 - Public Services: 3.5 → 4.6, difference 1.2 - Value Added: 92.0 → 92.6, difference 0.6 - Taxes and Subsidies: 8.0 → 7.4, difference -0.6 - GDP: 100.0 → 100.0, difference 0.0 - Largest production subsectors (2018 base shares): construction 11.6 percent, commerce 10.9 percent, local manufacturing 9 percent, real estate 8.7 percent, other services 8.5 percent, hospitality 8.0 percent — together ~57 percent of GDP. - Net effect: services share increased by 5.6pp (to 62.5 percent), agriculture decreased by 1.9pp (to 4.6 percent), industry decreased by 3.1pp (to 25.5 percent). ### Growth performance and expenditure contributions (real growth) - Average real GDP growth (2019-2023): - Rebasing to 2018 base: 3.7 percent - 2007 base: 3.6 percent - Narrative changes since rebasing: - Pandemic recession in 2020 sharper; recovery in 2021 and 2022 stronger; cyclical slowdown in 2023 slightly greater. - Drivers remain private consumption, investment, and exports; private consumption’s incidence increased, exports and investment contributions are lower; public consumption’s positive contribution partly offsets declines. - Real growth by expenditure category (selected annual rates, percent): - 2019 (2018 Base): Private Consumption 4.9; Public Consumption 7.6; Gross Capital Formation 5.5; Exports 1.8; Imports 3.3; GDP 4.9 - 2020 (2018 Base): Private Consumption -4.3; Public Consumption 9.9; Gross Capital Formation -8.3; Exports -28.5; Imports -10.6; GDP -7.9 - 2021 (2018 Base): Private Consumption 8.3; Public Consumption -2.4; Gross Capital Formation 24.3; Exports 35.3; Imports 21.3; GDP 14.0 - 2022 (2018 Base): Private Consumption 5.5; Public Consumption 8.5; Gross Capital Formation 5.1; Exports 13.1; Imports 14.0; GDP 5.2 - 2023 (2018 Base): Private Consumption 2.7; Public Consumption 2.4; Gross Capital Formation 2.0; Exports -1.6; Imports 0.1; GDP 2.2 - 2019 (2007 Base): Private Consumption 4.6; Public Consumption 6.3; Gross Capital Formation 8.1; Exports 1.5; Imports 5.8; GDP 5.1 - 2020 (2007 Base): Private Consumption -3.4; Public Consumption 4.9; Gross Capital Formation -12.1; Exports -30.3; Imports -14.5; GDP -6.7 - 2021 (2007 Base): Private Consumption 6.6; Public Consumption 0.1; Gross Capital Formation 22.1; Exports 36.2; Imports 25.7; GDP 12.3 - 2022 (2007 Base): Private Consumption 5.1; Public Consumption 3.9; Gross Capital Formation 4.0; Exports 13.7; Imports 14.4; GDP 4.9 - 2023 (2007 Base): Private Consumption 2.5; Public Consumption 2.3; Gross Capital Formation 2.0; Exports -0.5; Imports 0.4; GDP 2.4 ### Recent macroeconomic developments and near-term outlook (selected projections and indicators) - IMAE: cumulative growth of 2.2% in January-September 2025; deceleration in construction and manufacturing. - Real GDP growth: - Projected to reach around 2.5 percent at year-end 2025. - For 2026, expected to return to potential growth between 4.0 and 5.0 percent. - Inflation: - Headline inflation (y-o-y) reached 3.76 percent in September. - BCRD target range: 4 percent ± 1pp; inflation has remained within the target range since May 2023. - Core inflation reached 4.35 percent in September and has remained within the target range since late 2024. - Inflation expectations anchored around the center of the target range. - Monetary policy: - BCRD reduced its monetary policy rate (MPR) by 25 basis points for the second consecutive month, reaching 5.25% in October. - Monetary easing reflects slightly softer international financing conditions fostered by the Federal Reserve's recent cuts. - BCRD to wind down exceptional liquidity measures while ensuring adequate systemic liquidity; FX interventions focused on disorderly market conditions. - External sector: - Current account deficit expected to narrow to 2.5 percent of GDP in 2025, financed by FDI and portfolio inflows. - Robust remittances and travel receipts; favorable terms of trade. - Authorities engaged with the U.S. government regarding new tariffs on Dominican goods; nearshoring and FTZ shift to higher-tech products expected to support manufacturing. - Financial sector (as of end-September): - Return on equity (ROE): 21.7 percent - Return on assets (ROA): 2.6 percent - Non-performing loans rate: 1.9 percent - Planned regulatory and supervisory measures: implement mark-to-market/IFRS9 rules for banks in January 2026; strengthen consumer protection; introduce macroprudential measures; recapitalization of the BCRD identified as a priority. - Fiscal policy and public debt: - Fiscal stance anchored by the Fiscal Responsibility Law (FRL) and fiscal rule. - Deficit expected to reach 3.5 percent of GDP at year-end 2025, narrowing to 3.2 percent in 2026. - FRL restricts annual real primary spending growth to a maximum of 3 percent until general government debt anchor limit of 40 percent is achieved by at least the year 2035. - Authorities leveraging available fiscal space for counter-cyclical capital spending within FRL limits. - Collaboration with IMF technical assistance to design a mechanism to address quasi-fiscal debt and BCRD recapitalization. - Public debt described as sustainable and on a steady downward trajectory; near-term and medium-term risks mitigated by moderate public debt levels and declining gross financing needs. ### Policy implications and reforms highlighted - Monetary policy: data-dependent, forward-looking stance within an inflation-targeting regime; gradual policy easing consistent with inflation around target and easing global rates; maintain exchange rate flexibility and use FX intervention to smooth excessive volatility. - Fiscal policy: continue fiscal consolidation and compliance improvements; restrain current expenditure; pursue counter-cyclical capital spending within FRL limits to support activity while preserving sustainability. - Financial stability: continue strengthening regulation and supervision to align with Basel II and III standards; implement IFRS9, consumer protection, macroprudential tools, and cooperative sector oversight. - Structural reforms: - META RD 2036 aims to double GDP by 2036 through diversification, higher value-added activities, and inclusion. - Electricity sector reform to reduce losses, improve financial reliability, increase private participation, and shift toward renewable sources; integrate 420 MW Manzanillo Power Plant and 130 MW ENERGAS 4, as part of an additional 1,400 MW planned by 2028. - Progress toward OECD accession with Presidential Decree 408-25 to develop a Public Integrity System and coordinate accession initiatives. - Labor reform under discussion to modernize the 1992 Labor Code; Senate approved bill in October 2025 advancing to the House of Representatives; objectives include aligning with international standards, increasing labor flexibility, reducing informality, boosting women's participation, and updating regulations for remote work. - Climate resilience: priority on mitigation and adaptation, institutional and governance improvements for disaster risk management and social safety nets; need to close climate investment gap with significant private-sector contribution. *Source: Central Bank of the Dominican Republic (BCRD) and IMF staff calculations, Annex XI. Rebasing of National Accounts* --- _Source: https://www.imf.org/-/media/files/publications/cr/2025/english/1domea2025001-source-pdf.pdf_