IMF Executive Board Concludes 2023 Article IV Consultation with the Dominican Republic
June 22, 2023
Washington, DC : The Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation [1] with the Dominican Republic.
The Dominican Republic’s economy has been one of the most dynamic and resilient in the Western Hemisphere over the last two decades, displaying an impressive recovery from the pandemic, supported by the authorities’ sound policies as well as positive global spillovers.
The strong recovery began moderating at the end of 2022 in response to tighter global financial conditions, lower global demand, and the appropriate and timely withdrawal of policy stimulus, contributing to inflation’s convergence to its target. Economic activity expanded by 4.9 percent in 2022, led by services and manufacturing, while construction activity eased in response to higher costs and tighter financial conditions, and mining declined due to temporary capacity constraints. Headline inflation has been rapidly returning to its target, falling from its April 2022 peak of 9.6 percent to 4.4 percent in May 2023. The current account deficit widened to 5.6 percent of GDP in 2022 due to softening goods exports, higher commodity prices and the continued domestic demand recovery, and was mostly financed by FDI flows. Despite the recent tightening of global and domestic financial conditions, the financial sector appears adequately capitalized, liquid, and profitable.
Supported by sound policies and fundamentals, the economic outlook is relatively positive, albeit subject to high uncertainty, mostly due to global risks. Real GDP growth is projected to decelerate slightly to around 4 percent in 2023 due to the lagged effects of financial tightening and lower global demand, thereby supporting inflation’s return to the central bank’s target, but is expected to return to its trend of around 5 percent in 2024 as global financial conditions ease somewhat and the world economy recovers. The external position is sustainable, and the current account deficit is projected to narrow over the medium term to 3.1 percent of GDP, driven by lower commodity prices and steady improvements in exports and tourist receipts in line with the global recovery. Downside risks, including from a further tightening of global financial conditions and sharper slowdown in global growth, dominate the short run but are more broadly balanced in the medium run.
Executive Board Assessment[2]
Executive Directors highlighted the Dominican Republic’s remarkable economic growth over the past two decades, which resulted in significant poverty reduction, and welcomed the authorities’ strong macroeconomic policies and sound policy framework, which enabled an impressive post‑pandemic recovery. Directors agreed that the economic outlook remains positive, although downside risks dominate in the near term. Against this backdrop, they recommended focusing near‑term policies on maintaining macroeconomic and financial stability, while pressing ahead with structural reforms to boost inclusive growth and resilience.
Directors welcomed the monetary policy response that has helped ease inflationary pressures and stressed that it should continue to be calibrated to ensure that inflation remains within the target range over the policy horizon and inflation expectations stay anchored. They emphasized the importance of strengthening central bank autonomy through its recapitalization and legislative reforms. Directors noted that greater exchange rate flexibility and deepening of the foreign exchange market will further enhance the monetary transmission mechanism and help the economy confront adverse shocks.
Directors commended the authorities’ continued efforts to bring a sound fiscal responsibility law to fruition, which, alongside further public financial management improvements, should contribute to more efficient and transparent use of public resources, help anchor fiscal policy, and enhance the fiscal framework. They agreed that fiscal policy should remain focused on placing debt on a firmly downward path. To further rebuild fiscal buffers and create space for much‑needed social and infrastructure spending, Directors recommended that fiscal consolidation be supported by tax reforms, further tax administration improvements, and expenditure rationalization—notably through implementing the Electricity Pact.
Directors welcomed that the financial sector remains resilient and called for its continued close monitoring given tighter financial conditions. To strengthen financial stability, Directors stressed the need to further modernize the regulatory framework by implementing best international standards for supervision and regulation and expanding the macroprudential toolkit. They also recommended further strengthening the AML/CFT framework and introducing a prudential regulatory framework for unregulated financial institutions.
Directors commended the authorities’ ambitious structural reform agenda, focused on boosting inclusive growth and resilience by improving public institutions, governance, education, and the business environment. They encouraged the authorities to persevere with electricity sector reforms to improve governance and efficiency and called for the implementation of climate adaptation and mitigation policies to further reduce economic and financial vulnerabilities. Directors welcomed the authorities’ continued interest in technical assistance by the Fund, including in a Public Investment Management Assessment and its climate module (C‑PIMA), and noted the authorities’ interest in the Resilience and Sustainability Facility in the future.
[1] Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.
[2] At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here: http://www.IMF.org/external/np/sec/misc/qualifiers.htm .
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Table 1. Dominican Republic: Selected Economic and Social Indicators |
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Population (millions, 2022) |
10.6 |
GDP per capita (2022, U.S. dollars) |
10,710.1 |
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|
Quota |
477.4 million SDRs / 0.10% of total |
Poverty (2021, share of population) |
23.2 |
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|
Main exports |
tourism, gold, tobacco |
Unemployment rate (2022, percent) |
5.3 |
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|
Key export markets |
U.S., Canada, Haiti |
Adult literacy rate (percent, 2021) |
95.2 |
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|
Projection |
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|
2019 |
2020 |
2021 |
2022 |
2023 |
2024 |
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|
Output |
(Annual percentage change, unless otherwise stated) |
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|
Real GDP |
5.1 |
-6.7 |
12.3 |
4.9 |
4.0 |
5.1 |
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|
Contributions to growth |
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|
Consumption |
3.7 |
-1.9 |
4.5 |
4.1 |
3.8 |
4.0 |
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|
Investment |
1.1 |
-4.4 |
8.0 |
2.4 |
0.9 |
2.0 |
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|
Net exports |
-1.4 |
-3.2 |
-0.1 |
-1.5 |
-0.9 |
0.1 |
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|
Nominal GDP (RD$ billion) |
4,562 |
4,457 |
5,393 |
6,261 |
6,821 |
7,433 |
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|
Nominal GDP (US$ billion) |
89.0 |
78.9 |
94.5 |
113.9 |
... |
... |
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|
Output gap (in percent of potential output) |
-0.6 |
-6.3 |
-1.9 |
-0.3 |
-0.4 |
-0.2 |
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Prices |
|
|
|
|
|
|
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|
Consumer price inflation (end of period) |
3.7 |
5.6 |
8.5 |
7.8 |
4.0 |
4.0 |
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Exchange Rate |
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|
Exchange rate (RD$/US$ - period average) 1/ |
51.2 |
56.5 |
57.1 |
55.0 |
... |
... |
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|
Exchange rate (RD$/US$ - eop) 1/ |
52.9 |
58.2 |
57.3 |
56.2 |
... |
... |
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|
Real effective exchange rate (eop, - depreciation) 1/ |
-3.2 |
-8.1 |
6.5 |
6.3 |
0.9 |
0.0 |
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|
Government Finances |
(In percent of GDP) |
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|
Consolidated public sector debt 2/ |
53.3 |
71.1 |
62.2 |
58.8 |
56.5 |
56.0 |
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|
Consolidated public sector overall balance 2/ |
-3.3 |
-9.0 |
-3.7 |
-3.6 |
-3.9 |
-3.7 |
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|
Consolidated public sector primary balance |
0.5 |
-4.3 |
0.6 |
0.2 |
0.5 |
0.7 |
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|
-2.3 |
-7.6 |
-2.5 |
-2.7 |
-2.9 |
-2.8 |
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|
-3.5 |
-7.9 |
-2.9 |
-3.2 |
-3.1 |
-2.8 |
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|
Revenues and grants |
14.4 |
14.2 |
15.6 |
15.3 |
14.8 |
14.9 |
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|
Primary spending |
15.1 |
18.9 |
15.4 |
15.7 |
14.7 |
14.5 |
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|
Interest expenditure |
2.7 |
3.2 |
3.1 |
2.8 |
3.1 |
3.2 |
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|
Rest of NFPS |
1.1 |
0.3 |
0.4 |
0.6 |
0.2 |
0.0 |
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Financial Sector |
(Annual percentage change; unless otherwise stated) |
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|
Broad money (M3) |
11.7 |
20.8 |
13.3 |
6.6 |
8.3 |
9.3 |
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Credit to the private sector |
11.8 |
5.3 |
11.6 |
16.6 |
10.0 |
12.2 |
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|
Net domestic assets of the banking system |
8.6 |
2.5 |
11.5 |
9.7 |
15.4 |
7.9 |
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|
Policy interest rate (in percent) 1/ |
4.5 |
3.0 |
3.5 |
8.5 |
… |
… |
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|
Average bank deposit rate (1-year; in percent) 1/ |
6.7 |
3.1 |
2.3 |
9.9 |
… |
… |
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|
Average bank lending rate (1-year; in percent) 1/ |
12.4 |
9.9 |
9.2 |
13.5 |
… |
… |
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|
(In percent of GDP) |
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|
Current account |
-1.3 |
-1.7 |
-2.8 |
-5.6 |
-3.9 |
-3.7 |
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|
Goods, net |
-10.2 |
-8.6 |
-12.5 |
-14.9 |
-14.0 |
-13.4 |
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|
Services, net |
5.7 |
1.8 |
3.9 |
5.0 |
5.8 |
6.0 |
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|
Income, net |
3.2 |
5.2 |
5.7 |
4.3 |
4.3 |
3.8 |
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|
Capital account |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
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|
Financial account 3/ |
3.6 |
5.3 |
5.7 |
6.6 |
4.8 |
4.3 |
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|
Foreign direct investment, net |
3.4 |
3.2 |
3.4 |
3.5 |
3.3 |
3.3 |
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|
Portfolio investment, net |
2.4 |
7.1 |
2.2 |
2.9 |
1.5 |
2.0 |
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|
Financial derivatives, net |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
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|
Other investment, net |
-2.3 |
-5.1 |
0.1 |
0.2 |
-0.1 |
-1.0 |
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|
Change in reserves (-increase) |
-1.3 |
-2.5 |
-2.4 |
-1.3 |
-0.8 |
-0.7 |
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|
GIR (in millions of US dollars) |
8,782 |
10,752 |
12,943 |
14,383 |
15,403 |
16,343 |
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|
Total external debt (in percent of GDP) |
41.9 |
56.3 |
48.6 |
40.5 |
39.6 |
38.7 |
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of which: Consolidated public sector |
27.3 |
40.3 |
35.6 |
33.2 |
31.7 |
31.4 |
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Sources: National authorities; World Bank; and IMF staff calculations. |
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1/ Latest available. |
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2/ The consolidated public sector includes the budgetary central government (CG); the rest of the Non-Financial Public Sector, i.e., extra-budgetary central government institutions (decentralized and autonomous institutions), social security funds, local governments, and non-financial public companies; and the quasi-fiscal central bank debt. |
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3/ Excluding reserves. |
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