Økonomiske studier
Dominican Republic

Dominican Republic

Population 9,980 million
GDP 6733 US$
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Synthesis

major macro economic indicators

  2014  2015 2016(f) 2017 (f)
GDP growth (%) 7.6 7.0 6.6 5.3
Inflation (yearly average) (%) 3.0 0.8 2.3 4.0
Budget balance (% GDP) -3.0 -0.4 -3.7 -3.9
Current account balance (% GDP) -3.3 -1.9 -2.4 -2.7
Public debt (% GDP) 34.4 34.9 35.8 36.7

 

(e) Estimate (f) Forecast

STRENGTHS

  • Top tourist destination in the Caribbean
  • Remittances from the diaspora
  • Free Trade Agreement with the US (CAFTA-DR)
  • Free-trade zones (51% of exports)
  • Political stability

WEAKNESSES

  • Dependence on the US economic cycle
  • Dependence on price of gold
  • Inadequate power supply
  • Education and healthcare shortcomings
  • High levels of poverty and inequality
  • Drug-related crime
  • High levels of corruption

Risk assessment

A subdued growth

In 2016, growth, although having registered a decline, benefited from sustained activity in the United States, the country's largest trading partner. This downward trend is expected to continue in 2017. Agricultural output and exports are likely to be affected by bad weather conditions in late 2016. Private investment in real estate, financial services and manufacturing industry is expected to remain dynamic. A slowdown in public investment is to be expected, particularly in infrastructure: the financing of the construction project of two thermoelectric coal-fired power plants (about 3% of GDP) to address the inadequate electricity supply was the subject of a controversy, thus delaying the project. The construction of these power plants is expected to be completed in 2018. Despite substantial remittances from the diaspora in the United States, consumer spending is expected to decline. High levels of unemployment (around 14%) and poverty affecting more than half of the population (of which almost 40 percent below the poverty line) are the main hurdles. Due to the higher energy bill, inflationary pressures will emerge, but inflation is expected to remain in the lower range of the 3 - 5% target set by the central bank. Besides, the central bank raised its key rate in October 2016, in anticipation of the normalisation of FED's monetary policy.
At the same time, exports of manufacturing goods (particularly from the textile sector) produced in the free-trade zones are projected to rise, due an improvement in US activity. The tourism sector is expected to remain dynamic, because of sustained numbers of mainly American visitors (more than 50% of tourist visitors). The reopening of the Falcondo nickel mine, which will come into full capacity by 2017, is expected to provide a modest boost for the mining sector.

 

A widening of twin deficits

The fiscal consolidation policy initiated when President Medina came to power in 2012 went off course in 2016, because of election spending. In 2017, the public deficit worsened slightly, despite progress made on tax collection (fight against tax evasion, new rules on the taxation of dividends within the free-trade zone...) and the removal of subsidies in the transport sector. However, higher current and capital spending and the growing debt servicing burden will push up public spending levels. Moreover, the decline in the quantities imported under the Venezuelan PetroCaribe programme which supplies oil at preferential prices could also drive up government spending , especially as the energy reform bill aimed at reducing oil dependency by diversifying the sources of electricity generation seems be postponed.
With respect to foreign trade, the Dominican Republic, the number one tourist destination in the Caribbean, should still enjoy high numbers of tourists and fund remittances from about 2 million workers abroad (65% in the United States). However, manufacturing exports are expected to increase as a result of higher US growth, while income from gold exports is likely to hold up. Energy imports are, nonetheless, expected to become more costly because of the moderate recovery in oil prices. This poor trade balance performance will cause the current account balance to widen in 2017.

 

President Medina’s re-election, a guarantee for political stability

President Danilo Medina, leader of the Dominican liberation Party (PLD), was re-elected for a second term of four years in the 2016 presidential elections. Despite the opposition's objections to the ballot, he still enjoys significant popular support. In addition, the LDP continues to enjoy an absolute majority in both houses following the 2016 parliamentary elections. The traditional opposition party, the Dominican Revolutionary Party (PRD) as well as the Modern Revolutionary Party (PRM), gained a few seats in the Senate. However, the PRM is represented, for the first time since its creation (in August 2015), in the Chamber of Deputies, where it won many seats, at the expense of the PRD, hence modifying the composition of the landscape of the opposition.
In terms of foreign policy, relations with Haiti remain strained over immigration. The decision of the Dominican courts in 2013 to deny Dominican nationality to the descendants of migrants "in transit" born since 1929 and the response of the Haitian authorities in banning the import of certain products from the Dominican Republic continue to create friction between the two countries. These tensions are bound to grow in the future, as extreme weather conditions combined with political instability in Haiti in 2016 may increase the flow of Haitian migrants. The business climate is likely to continue to suffer from high levels of corruption, inadequate infrastructure (with the exception of telecommunications) and electricity supply problems, although some efforts have been made regarding these previous two points. The country is ranked 103rd in the 2017 Doing Business Index.
However, political stability and preferential access to the US market under the free-trade agreement (CAFTA) remain favorable for investment.

 

Last update: January 2017

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