Estudos Econômicos
Dominican Republic

Dominican Republic

Population 10.3 million
GDP 8,341 US$
B
Country risk assessment
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Synthesis

major macro economic indicators

  2017 2018 2019 (e) 2020 (f)
GDP growth (%) 4.6 7.0 5.0 -1.0
Inflation (yearly average, %) 3.3 3.6 2.1 3.2
Budget balance (% GDP) -3.2 -2.7 -3.0 -3.2
Current account balance (% GDP) -0.2 -1.4 -1.5 -1.5
Public debt (% GDP) 40.9 41.7 42.4 42.6

(e): Estimate. (f): Forecast.

STRENGTHS

Leading Caribbean tourist destination

Remittances from its diaspora

Free-trade agreement with the United States (CAFTA-DR)

Free zones (57% of goods exports in 2018)

Institutional stability

WEAKNESSES

  • Dependence on US economy
  • Dependence on gold prices
  • Faulty electricity supply
  • High levels of poverty and inequality
  • Drug trafficking-related crime
  • Widespread corruption

Risk assessment

Economic growth dependent on the US economy

Post-Hurricane Maria reconstruction efforts boosted the economy in 2018, but growth slowed down in 2019 and should decline again in 2020 while remaining at a reasonable level. The slowdown of the US economy will hinder activity. Dominican exports (gold, tobacco, textiles, electronic and medical products) could thus be less buoyant, although the price of gold recovered in 2019. Nevertheless, tourism revenues and remittances from expatriates are expected to remain dynamic and sustain private consumption, which is the main driving force of growth (67% of GDP). FDI inflows into the country will continue, supported by the presence of free trade zones and the strength of the construction and tourism sectors. In addition, the central bank recently eased its monetary policy from the summer of 2019 onward, following the example of the US Federal Reserve in order to stimulate growth and bring inflation back into its target zone (3 to 5%). Indeed, inflation slowed down significantly in 2019 mainly because of the fall in the price of oil and agricultural products.

 

Stable twin deficits

The 2020 budget projects a slight deterioration of the public deficit. Expenditure will increase by about 10%, mainly due to the cost of organisation of the elections and social measures decided in April 2019 (increase in pensions, increase in the minimum wage in the public sector). The two largest expenditure items are health and education, while interest payments on debt represent 18% of the total. At the same time, the objective is to increase government revenues by 8% thanks to a more efficient tax and customs collection. Public debt (on an upward trend) is essentially external, denominated in dollars and contracted with private creditors.

Regarding external accounts, the current account deficit should be stable in 2020: the slight slowdown in exports will be offset by a concomitant fall in imports, partly due to the depreciation trend of the Dominican peso against the dollar. The goods balance will remain in a sharp deficit because of the country's dependence on finished products and energy. However, the balance of services will still be largely positive thanks to tourism, as will the income balance, driven by remittances from the Dominican diaspora (nearly 8% of GDP). The current account deficit will mainly be financed by FDI.

 

Uncertainties regarding the upcoming elections

The presidential and parliamentary elections will both take place in May 2020, while municipal elections are scheduled in February 2020. Since 2004, the political landscape has been dominated by the Partido de la Liberacion Dominicana (Liberal-Conservative) of outgoing President Danilo Medina, who holds a majority in both parliamentary chambers. Danilo Medina is ineligible as the number of consecutive terms is limited to two by the Constitution. Hence, his party had to choose a different candidate. The primaries elected Gonzalo Castillo, despite protests from former President Leonel Fernandez, also a candidate, who contested the regularity of the election and announced his intention to run for President anyway. The outcome of the election is thus uncertain, especially since the main opposition party, Partido Revolucionario Moderno (centre-left), appears to be in a position to contest the victory, thanks to its candidate Luis Abinader. Despite the President's popularity, popular protest remains indeed. Since 2017, Marcha Verde demonstrations have been organised, including one in August 2018 attended by nearly a million people, to denounce corruption and call for the conviction of 12 current or former political leaders accused of taking bribes from Odebrecht, a Brazilian company. The struggle against corruption will be one of the key issues of the presidential election. In addition, at the end of 2018, the country launched a new border security plan with Haiti to tackle arms and drug trafficking, as well as illegal immigration by Haitians who account for most of the country's immigrants.

Besides, the country broke off diplomatic relations with Taiwan in 2018. As a result, the Chinese Embassy opened in Santo Domingo and 18 enhanced cooperation agreements have been signed between the two countries. Chinese investment is expected to increase in the coming years mainly in the energy, construction and minerals sectors.

 

Last update: May 2020

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