Press Release No. 15/535

Press Release: IMF Staff Concludes the 2015 Article IV Mission to the Dominican Republic

November 23, 2015

A mission from the International Monetary Fund (IMF) headed by Aliona Cebotari visited Santo Domingo during November 10-20, 2015, to conduct Article IV discussions.¹ The mission met with government and Central Bank officials, representatives of civil society, and the private sector. It exchanged views on economic developments and outlook, as well as policy challenges going forward.

After the visit, Ms. Cebotari issued the following statement:

“The Dominican Republic remains among the most dynamic economies in the region, having benefitted from a strengthened policy framework and external tailwinds. Growth averaged 7 percent during 2014 and the first three quarters of 2015, the fiscal position improved, the external position strengthened, and inflation remains low. The current cyclical upturn provides a good opportunity to address remaining vulnerabilities, build buffers against risks, and strengthen the foundations for a sustainable and more inclusive growth in the future.

“The growth momentum for 2016 remains strong and the macroeconomic outlook is favorable. The economy is projected to expand at 6.5-7 percent in 2015, propelled largely by domestic demand as employment recovers and external tailwinds boost disposable income. Going forward, growth is expected to gradually converge to its potential of 4.5-5 percent. The external current account deficit is projected to narrow to a decade-low of about 2 percent of GDP in 2015, owing to a lower oil bill and a buoyant tourism sector. International reserves have gradually increased, and currently cover over three months of imports (excluding the free trade zones). The current account deficit and the real exchange rate are broadly in line with the economy’s fundamentals.

“The mission welcomed authorities’ continued commitment to fiscal discipline. In the absence of policy measures, the consolidated public sector deficits—which include the deficit of the electricity sector and the central bank—are projected at around 5 percent of GDP over the medium term. As a result, public debt would increase from below 50 percent of GDP estimated by staff for 2015 to around 54 percent of GDP by 2020. In this context and taking advantage of the favorable cyclical conditions, the government should accelerate the fiscal consolidation initiated in august 2012 to achieve a consolidated fiscal primary surplus sufficient to reverse the upward debt trajectory.

“The neutral stance of monetary policy is consistent with the central bank’s objective of price stability under its inflation targeting regime. While declining oil prices have contributed to a fall in inflation from about 3 to 1.2 percent over the past year, the emerging positive output gap and recent interest rate cuts are expected to return inflation within its target range of 4±1 percent in 2016. A tighter stance may be needed if signs of stronger-than-anticipated inflation pressures emerge.

“Continued strengthening of the institutional framework will help improve macroeconomic outcomes. The planned discussions of the fiscal pact among the social partners would provide an opportunity to institutionalize the commitment to consolidation and establish an anchor for fiscal policies. The risk profile of public debt would benefit from reduced reliance on foreign currency borrowing, which necessitates further development of the domestic bond market. This, in turn, requires stronger coordination between fiscal and monetary authorities on the term structure of issuances and a move towards a unified and more effective public debt management. The mission also supports the authorities’ intentions to strengthen the monetary policy framework by further developing the foreign exchange market to support a gradual move towards more exchange rate flexibility and build up resilience against external shocks by further reserve accumulation.

“The financial sector remains sound, with banks showing healthy capitalization, profitability, and asset quality. The mission welcomed progress made in strengthening bank supervision. At the same time, pockets of rapid credit growth warrant monitoring. The supervision of non-banks, which are not systemic but serve vulnerable groups, needs to be strengthened.

“Renewed structural reforms are needed to boost potential growth and advance social inclusion. The mission welcomed the comprehensive ongoing reforms in the education sector, as well as the focus on strengthening the social safety nets, and advancing financial inclusion and education. Addressing long-standing problems in the energy sector―including through improvements in distribution and a move towards cost recovery pricing― remains key to improving growth prospects. In addition, fostering a stronger investment climate should help narrow infrastructure gaps, while increased product market competition and labor market flexibility would strengthen the economy’s competitiveness.

“The mission wishes to express its deep gratitude to the government, the central bank, and other stakeholders for an engaging dialogue and warm hospitality.”

¹ The "Article IV" mission is the regular annual visit by an IMF team to member countries to hold discussions and gather information on economic policies.