IMF Executive Board Concludes 2019 Article IV Consultation with the Dominican Republic
IMF News, June 11, 2019
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- Published: June 11, 2019
Economic performance in 2018–early 2019
- The economy rebounded to a record high growth of 7 percent in 2018.
- Growth rebound reflected:
- strong private investment and consumption response to a timely monetary impulse after the slowdown in 2017,
- favorable external conditions,
- continued strengthening of labor markets.
- Strong economic performance contributed to substantial reduction in poverty and inequality and continued income convergence to advanced economy levels.
- Acceleration in activity did not put pressures on internal or external balances:
- inflation remained subdued,
- the external position remained strong.
- Monetary and fiscal policies moved to neutral-to-tightening stance in 2018 to guide activity toward potential levels.
Outlook and risks
- Growth projections:
- Growth is expected to moderate to around 5½ percent in 2019.
- Growth is expected to be 5 percent over the medium-term.
- Both projections are within the estimated potential range.
- Drivers of moderation:
- slowdown in credit expansion,
- a less supportive external environment,
- higher oil prices.
- Inflation outlook:
- Inflation is expected to rise gradually to the central bank’s target range of 4±1 percent with the pickup in food and oil prices.
- External position:
- Projected to remain broadly consistent with fundamentals and more than adequately financed by FDI.
- Main risks:
- Downside: weaker-than-expected external demand and higher energy prices.
- Upside: domestic demand momentum in the near term could be stronger than anticipated, reflecting solid income growth.
Executive Board assessment and priorities
- Directors commended authorities for:
- dynamic growth,
- low inflation,
- stable external position,
- improved social outcomes.
- Directors noted the favorable outlook is subject to risks and encouraged using the favorable environment to build resilience by:
- building fiscal and reserve buffers,
- strengthening long‑term growth and social outcomes through reforms addressing structural bottlenecks.
- Fiscal policy and debt sustainability:
- Welcomed authorities’ commitment to improve the fiscal position, including ambitious tax administration reforms to curb evasion, mobilize revenues, and improve governance.
- Noted public debt is trending up despite strong growth; called for further efforts to improve debt sustainability.
- Underscored need for a front‑loaded fiscal adjustment aimed at widening the tax base and curtailing the electricity sector’s drag on the budget, while safeguarding fiscal space for growth‑enhancing public investment and social spending.
- Supported adoption of a medium‑term fiscal framework with a clear policy anchor and fiscal responsibility elements to ensure policy credibility and limit fiscal risks.
- Monetary policy and reserves:
- Given subdued inflation, supported maintaining the current neutral monetary policy stance, while remaining data dependent should pressures emerge.
- Welcomed continued efforts to strengthen the monetary policy framework, including plans to recapitalize the central bank and introduce the foreign exchange trading platform to increase transparency and efficiency.
- Encouraged continued accumulation of international reserves in light of the favorable external position.
- Financial sector and supervision:
- Welcomed financial system stability and wide‑ranging reforms to enhance financial resilience.
- Supported modernization of institutional framework for systemic risk oversight, strengthening of banking regulation and supervision, and cybersecurity reforms.
- Encouraged further action to strengthen supervisory oversight of non‑bank financial institutions.
- Welcomed recent progress in updating the AML/CFT legal framework and encouraged enhancing the effectiveness of the regime.
- Structural reforms:
- Emphasized continued structural reforms to address impediments to higher productivity, income convergence, and social inclusion.
- Encouraged measures to improve the business environment, remove trade and investment barriers, and continue reforms to education, health, and the pension system.
- Reiterated need to decisively address long‑standing structural weaknesses weighing on potential growth, particularly losses in the electricity sector and inefficiencies in the product and labor markets.
- Noted the need to broaden and strengthen the social security system, which will require additional fiscal space.
Key statistics (Selected Economic Indicators)
- Output (Annual percentage change, unless otherwise stated)
- Real GDP: 2016: 6.6; 2017: 4.6; 2018: 7.0; 2019: 5.5; 2020: 5.2
- Contributions to growth:
- Consumption: 2016: 3.8; 2017: 3.6; 2018: 4.0; 2019: 3.9; 2020: (not listed)
- Investment: 2016: -0.6; 2017: 3.7; 2018: 1.3; 2019: (not listed)
- Net exports: 2016: 0.2; 2017: 2.0; 2018: -0.7; 2019: -1.1; 2020: -0.4
- Output gap (in percent of potential output): 2016: 1.0; 2017: -0.3; 2018: 0.9; 2019: 0.8; 2020: 0.6
- Unemployment and Prices (In percent)
- Unemployment rate (period average): 2016: 7.1; 2017: 5.7
- Consumer price inflation (end of period): 2016: 1.7; 2017: 4.2; 2018: 1.2
- Consumer price inflation (period average): 2016: 1.6; 2017: 3.3; 2018: 2.1; 2019: 4.1
- Consolidated public sector 1/ (In percent of GDP)
- Debt: 2016: 48.7; 2017: 51.5; 2018: 53.1; 2019: 54.3; 2020: 54.9
- Primary balance: 2016: 0.1; 2017: 0.0; 2018: (not listed)
- Overall balance: 2016: -4.2; 2017: -4.5; 2018: -3.8; 2019: -4.6
- Central government balance: 2016: -3.2; 2017: -3.4; 2018: -2.4; 2019: -3.3
- Revenues and grants: 2016: 14.5; 2017: 14.7; 2018: 14.9; 2019: 15.0; 2020: 15.1
- Primary spending: 2016: 15.5; 2017: 14.6; 2018: 15.3; 2019: 15.2
- Interest expenditure: 2016: 2.6; 2017: 2.7; 2018: 3.1
- Central bank quasi-fiscal balance: 2016: -1.3; 2017: -1.2
- Rest of NFPS: 2016: 0.3
- Financial sector
- Broad money (M3): 2016: 9.8; 2017: 11.2; 2018: 7.6; 2019: 10.9
- Credit to the private sector: 2016: 12.1; 2017: 10.1; 2018: 11.1; 2019: 8.2
- Policy interest rate 2/: 2016: 5.3; 2017: …
- Balance of payments
- Current account, of which: 2016: -0.2; 2017: -1.4; 2018: -1.5; 2019: -1.7
- Trade balance: 2016: -3.6; 2017: -2.7; 2018: -4.0
- Financial account, of which: 2016: -2.2; 2017: -1.8; 2018: -2.3
- Foreign direct investment, net: 2016: -4.7; 2017: -3.1
- NIR (in millions of U.S. dollars): 2016: 6,047; 2017: 6,780; 2018: 7,627; 2019: 8,016; 2020: 8,622
- NIR in months of imports: 2016: 3.4
- Total external debt (in percent of GDP): 2016: 40.7; 2017: 43.2; 2018: 41.5; 2019: 41.6; 2020: 40.1
- of which: Public sector: 2016: 26.9; 2017: 29.2; 2018: 28.7; 2019: 29.5
Source: IMF Executive Board Concludes 2019 Article IV Consultation with the Dominican Republic (Press Release No. 19/209), June 11, 2019.
