IMF Executive Board Concludes 2017 Article IV Consultation with the Dominican Republic
IMF News, March 27, 2017
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- Published: March 27, 2017
Economic performance and labor market
- Growth averaged 7 percent since 2014.
- Real GDP expanded by 6.6 percent in 2016.
- Growth drivers: domestic demand; consumption and investment eased in H2 2016 as financing conditions tightened.
- Labor markets and social indicators: steadily improving; real labor income has begun to catch up to strong productivity growth in the last two years after remaining stagnant for over a decade.
- Financial soundness: banking system shows healthy capitalization, low asset impairment and strong provisioning.
Inflation, external sector, and external buffers
- Headline and core inflation averaged 1¾ percent during 2016, below the central bank’s inflation target range of 4±1 percent for over two years.
- More recent pickup in inflation due to recovering food and fuel prices.
- Current account: deficit narrowed significantly to an estimated 1½ percent in 2016, reflecting lower oil prices and strong growth in tourism and remittances offsetting weak goods exports.
- Authorities committed to continue building reserves buffers and moving gradually toward greater exchange rate flexibility.
Fiscal and monetary policy stance
- Consolidated public sector registered a deficit of 4.3 percent of GDP in 2016.
- Public debt pushed to an estimated 49.7 percent of GDP by end-2016.
- Fiscal policy: tightened somewhat in 2016; fiscal position improved slightly due to revenue administration efforts, despite increasing spending pressures.
- Monetary policy: policy interest rate increased in November 2016 from 5 to 5½ percent after being on hold for over a year, to prevent potential overshooting of inflation amid a positive output gap and robust credit growth.
Outlook and risks
- Baseline outlook: growth expected to slow toward potential rate of around 5 percent from 2017 onward.
- Recent rise in fuel prices expected to push inflation to target and widen the current account deficit moderately from 2017 onward.
- Risks (noted as balanced around baseline): uncertainty in external trading partners (notably the U.S.), oil price outlook, higher-than-expected global interest rates, and dollar appreciation.
Executive Board assessment and policy recommendations
- Directors welcomed dynamic performance: sustained output and employment growth, low inflation, and stronger current account.
- Fiscal policy:
- Encouraged further efforts to consolidate the fiscal position, build larger buffers, and contain the fiscal deficit in 2017.
- Recommended moving to meaningfully improve the fiscal balance over the next few years.
- Welcomed revenue administration reforms to broaden a narrow tax base and encouraged more comprehensive reforms to sustainably broaden the base, simplify the tax system, and streamline tax exemptions and incentives.
- Saw scope for improving quality of spending, especially on untargeted energy subsidies, while protecting pro‑poor and pro‑growth spending.
- Recommended strengthening the medium‑term fiscal framework and considering a medium‑term fiscal anchor and simple credible rules to support implementation.
- Monetary and exchange-rate policy:
- Supported the current tightening bias of monetary policy.
- Encouraged a gradual transition to greater exchange rate flexibility, supported by foreign exchange market infrastructure, hedging instruments development, and reduction of public sector balance sheet mismatches.
- Financial sector and macro‑financial stability:
- Welcomed banking sector health and stability.
- Supported strengthening regulation and supervision of nonbanks, closing gaps in international transparency initiatives compliance, and enhancing the macro‑financial framework to identify and address emerging systemic risks.
- Structural reforms:
- Emphasized need for far‑reaching reforms to secure better long‑term growth and social outcomes.
- Endorsed focus on improving education quality and providing low‑income housing.
- Urged decisive action on electricity sector challenges (weak governance, poor infrastructure, below‑cost pricing).
- Supported efforts to improve business environment, strengthen institutions and governance, and support employment growth and social protection.
Dominican Republic: Selected Economic Indicators (percent change from previous period, unless otherwise indicated)
- Projections: columns are 2013, 2014, 2015, 2016, 2017, 2018 where provided.
- National production and Income
- Real GDP: 4.7, 7.6, 7.0, 6.6, 5.3, 5.0
- Net exports (contribution to growth): 3.3, 0.6, -2.7, 0.2, -0.6
- Total domestic demand: 1.8, 5.2, 8.5, 6.3, 6.4, 5.1
- Total consumption: 1.4, 3.9, 4.8
- Private final consumption: 2.3, 3.6
- Public consumption expenditure: -5.9, 6.8, 7.7
- Gross fixed domestic investment: 2.0, 14.8, 20.0, 12.7, 9.5, 3.5
- Private fixed investment: 17.0, 16.6, 17.4, 13.1, 6.0
- Public Fixed investment: -39.7, 6.7, 33.4, 11.1, 9.6, -7.9
- Nominal GDP: 8.7, 9.7, 8.0, 8.3, 9.4
- Employment and prices
- Unemployment rate: 5.9, 5.5, 5.7
- Consumer price inflation (end of period): 1.6, 1.7, 4.3, 4.0
- Consumer price inflation (period average): 3.0, 0.8, 4.2
- GDP deflator: 3.7, 1.9, 0.9
- Output gap (percent of potential GDP): -2.0, -0.3, 1.1
- REER: 97.0, 99.8, 97.3, …
- Exchange rate RD$/US$ (eop): 42.7, 44.3, 45.5, 46.7
- Exchange rate RD$/US$ (average): 41.7, 43.5, 45.0, 46.0
- Balance of Payments
- Current account balance (percent of GDP): -4.0, -3.3, -1.5, -2.5
- Export volume (goods): 11.2, 3.1
- Import volume (goods): 10.7, 8.6
- Net international investment position (percent of GDP): -59.3, -61.9, -60.6, -60.1, -58.6, -57.7
- Saving and investment (percent of GDP)
- Gross national saving: 19.6, 20.6, 21.4, 23.0, 23.7, 23.5
- Public: 0.1, 0.5, 0.0, -0.1, -0.2
- Private: 19.1, 20.5, 21.0, 23.8
- Gross domestic investment: 23.9, 24.5, 25.7, 25.9
- [Additional rows present in source with values: 3.8, 4.4, 4.6, 4.1 and 20.1, 21.3, 22.2, 22.4 — preserved here as listed in the source]
- Fiscal accounts (percent of GDP)
- Consolidated Public Sector Debt: 47.8, 47.2, 47.3, 49.7, 51.1, 52.3
- Consolidated Public Sector Overall Balance: -4.9, -4.4, -1.6, -4.3, -4.8
- Primary: -1.4, -0.7, 2.2, -0.5
- Interest payments: [value omitted in source table]
- Memorandum items:
- Nominal GDP RD$ (millions): 2,590,678; 2,841,203; 3,068,139; 3,322,409; 3,634,413; 3,977,400
- Nominal GDP US$ (billions): 62.1, 65.3, 68.2, 72.2, 76.9, 81.7
IMF Communications Department — Press Release No. 17/79 (March 27, 2017).