IMF predicts growth for Dominican economy above 4.5 per cent
The IMF says the Dominican economy “is expanding strongly” but faces headwinds from global inflationary shocks.
“Severely affected by the pandemic, real GDP (gross domestic product) growth is estimated to have reached 6.9 percent in 2021 and 5.7 percent in 2022, driven by construction of climate-resilient infrastructure, a rebound in tourism since the full lifting of COVID-19-related restrictions in April 2022, and a substantial rise in agricultural output,” said Joana Pereira, who led an IMF delegation to the island on a two-week Article IV consultation.
She said global commodity price pressures, particularly oil and food, and high shipping costs drove inflation up to an estimated 7.5 percent in 2022, despite fuel subsidies, custom fees waivers, and electricity VAT cuts.
Pereira said the current account deficit, which has fallen substantially since Hurricane Maria and COVID shocks, remained elevated at 28% of GDP in 2022 due to unfavorable terms of trade, large imports of investment goods, and incomplete tourism recovery.
She said high Citizenship-by-Investment (CBI) revenue has supported public investment and crisis response, but fiscal space is tight.
“Despite record high CBI inflows, nearing 30% of GDP, the primary balance deteriorated to minus 6.2% in financial year 2021/22. The construction of resilient infrastructure—roads, housing, hospitals, and shelters—and a new airport kept public investment high, while economic measures in response to the pandemic and cost-of-living crisis increased current expenditures and weakened tax revenue.”
Pereira said a full tourism recovery, public investment plans, and prudent fiscal management will boost the economy. As tourism recovers and the new international airport and geothermal power plant are built, she expects growth to remain above 4.5 percent in 2023–2024.
In 2023, inflation is expected to drop to 6.3 percent and continue falling with international trends.
With increased tourism exports, hotel and air transport capacity, commodity price normalization, and a steady decline in investment goods imports, the current account deficit is expected to gradually narrow over the medium term. Slowly, public debt will decline, supported by financial consolidation.
Global economic uncertainty, climate change, and CBI revenue volatility pose downside risks, Pereira said.
She said geopolitical tensions or tighter global financial conditions cloud the outlook for trade, commodity prices, and global demand, with significant spillovers to the Dominican economy.
Public debt fell to 107 percent of GDP, but the IMF official said it remains above regional peers and limits fiscal space.
She said the financial sector has ample liquidity and improving capital buffers, but private sector credit is subdued.
Despite tighter global financing conditions and the exit of non-indigenous banks in recent years, deposit and lending rates remain low and have fallen in some sectors due to abundant liquidity.
“Banks have strengthened provisions in line with ECCB (Eastern Caribbean Central Bank) requirements and remain well capitalized, while credit union recapitalization plans are progressing. Since the pandemic, bank exposure to the public sector increased while private sector credit underperformed GDP growth.
Pereira said corresponding banking relationship (CBR) disruptions could hinder trade.
She added that a consolidation path in line with the national fiscal rule of raising the primary balance to two percent of GDP by 2026 is needed to reach the 60 percent public debt target by 2035.
“A significant improvement in non-CBI fiscal balances should underpin the plan while protecting investment and other priority programs. Stronger fiscal consolidation would aid external rebalancing and reduce financial system exposure to the public sector.
She said growth-friendly fiscal consolidation requires more ambitious reforms.
The IMF official said diversification and inclusiveness policies are needed to modernize and strengthen the economy.
The switch to geothermal energy will lower energy costs, reduce carbon emissions, and boost economic competitiveness.
“The new international airport will improve connectivity with large markets and should be accompanied by regional connectivity efforts. Supporting the agricultural sector is welcome and should be expanded to broaden exports and explore synergies with the growing tourism sector.”
