Population 10.237 million
GDP 59.133 US$ billion
@rating
country
Business climate
assessment
| 2010 | 2011 | 2012(e) | 2013(f) | |
|---|---|---|---|---|
|
GDP growth (%)
|
7.8 |
4.5 |
3.9 |
3.5 |
|
Inflation (yearly average) (%)
|
6.3 |
8.5 |
3.7 |
5.6 |
|
Budget balance (% GDP)*
|
-2.7 |
-2.6 |
-6.8 |
-3.6 |
|
Current account balance (% GDP)
|
-8.6 |
-8.1 |
-7.2 |
-5.7 |
|
Public debt (% GDP)**
|
37.5 |
38.6 |
39.8 |
40.6 |
|
(e) Estimate (f) Forecast |
||||
STRENGTHS
- Tourism: Top Caribbean destination
- Transfers from the diaspora (mainly from the USA)
- Free trade agreement with the USA (DR-CAFTA)
- PetroCaribe agreement with Venezuela helps alleviate the oil bill
- Limited public and external debt
- More than half of exports pass through free-trade areas
WEAKNESSES
- History of sovereign default
- Dependence on tourism, on emigrant workers remittances, Venezuelan aid and American economic conditions
- Weak fiscal resources
- Unreliable electricity supply
- Educational and health deficiencies favour poverty and inequality
- Criminality linked to drug trafficking
Risk assessment
Slightly slower growth but driven by exports
Growth will slow slightly in 2013. Private and public consumption, about 85% of GDP, will be less buoyant due to budget tightening, which will result in lower public spending and increased taxes. In this context of less vigorous domestic demand, imports will grow only slightly. On the other hand, export revenues are expected to grow noticeably with a further increase in nickel and gold deliveries as well as of goods needed for Haitian reconstruction. Free-trade activity, responsible for more than half of exports, particularly of textiles and clothing, is also expected to be positive. Tourism will benefit from the growth of several important markets – the USA (biggest market), Russia (growing strongly), Canada and Venezuela, making up for fewer European visitors.
Public finances still weak despite tax reform
The public deficit will be less than in 2012 because of the end of generous spending linked to the 2012 elections (particularly in terms of job creation and road-works) and tax increases. In November 2012, parliament approved a VAT increase from 16% to 18%, a 10% tax on dividends and interest, a reduction in exemptions for the free-trade areas as well as an increase in property and petrol taxes. In total the additional tax burden is expected to represent 2% of GDP. There will also be stronger action against tax fraud. However, even with these measures, public revenues will represent only 15% of GDP. The deficit reduction will not be enough to halt the growth of public debt, which needs to be watched in view of past sovereign default and because the external component of this debt is at 70%. Careful watching is all the more needed, since the counterparty to the subsidising of electricity prices, the national electricity distribution company, the CDEE, has large arrears with private electricity producers and the state-owned refining company, Refidomsa.
Less readily available deficit financing due to non-renewal of IMF agreement
Despite the expected growth of textile, nickel and gold exports and the stagnation of imports (particularly of oil), the trade deficit will remain significant. It is, however, partly offset by growing tourism revenues (6% of GDP) and remittances from Dominican emigrants in the USA, Spain and Puerto Rico, which are holding up well. The balance, i.e. the current account deficit is usually about 50% covered by FDIs, of which the country is an important beneficiary, 20% by the bond markets and 30% by bi-and multi-lateral aid (including PetroCaribe). However, the latter is partly in doubt due to the non-renewal of Stand-By Arrangement with the IMF, which ended in early 2012 due to the country’s failure to fulfil its commitment to increase electricity prices by 18% and, as a result, a fall in other multilateral funding. The authorities will have to find alternative sources to fund their social programmes and modernise their tax administration, which will be more costly. The Dominican peso is subject to controlled fluctuation. On average it depreciates by 3 to 4% a year, which, taking inflation into account, is equivalent to an appreciation. The country’s foreign exchange reserves are low and cover only 2 months of imports and the country would not be able to deal with a serious crisis like that of 2003, involving the rescue of the banks, a surge in inflation and a flight of capital.
Dominance of the Partido de la Liberacion Dominicana
Danilo Medina was elected president in May 2012, succeeding Leonel Fernandez, who had occupied the post since 2004. This is a third consecutive term for a member of the Liberacion Dominicana which has an absolute majority in both chambers. Continuity is aided by the presence of Margarita Cedaño, the wife of Fernández, as Vice-president and by the continuation in office of half of the political figures of the previous team. Against them, the opposition, represented by the Partido Revolucionario Dominicano seems divided and still marked by its disputed management of the 2003 crisis. Despite popular opposition, the party in power is expected to continue its reform of public finances, condition for a new agreement with the IMF, as well as its heavy involvement in Haiti’s reconstruction. Infrastructure development, fighting corruption and clientelism, increasing administrative efficiency and training the labour force are necessary to attract foreign investors.
