The increase of the Gross Domestic Product (GDP) would converge to its potential and the inflation would return to the target range for next year as the impact of global shocks is reduced, as stated by the Executive Board of the International Monetary Fund (IMF) presenting the conclusions of the Article IV consultation in the Dominican Republic.

The international organization reports that the convergence of inflation is taking longer than expected.

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“Headline inflation exceeds the target range mainly due to the high inflation in the united stateshigher world prices for energy and food, and disruptions in the supply chain,” says the IMF in its assessment of the country’s economic performance.

He adds that the external position was solid, with the current account financed by foreign direct investment (FDI) and a significant accumulation of international reserves.

The IMF assures that the economic outlook points to a continuous recovery, although world events pose risks. He argues that strong growth momentum and a well-sequenced policy response continue to help the Dominican Republic face a challenging global environment.

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“Amid subsiding global tailwinds, growth should converge to its longer-term trend. Supply shocks have pushed inflation higher than previously expected, but fiscal measures are mitigating the impact.

He argues that the normalization of monetary politics “should allow the convergence of inflation to the target in the policy horizon.”

risks of war
In terms of risks, war in Ukraine may have a larger-than-expected effect on global growth and inflation, The Executive Board of the IMF exposes in its report and points out that the pandemic, although well contained in the Dominican Republic, may degrade growth in other regions and that the tightening of monetary policy in the United States may have a greater impact than expected in capital flows.

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It points out that the risks are mainly associated with the war in Ukraine and the tightening of global financial conditions and that the main impact of the war is expected to come through the increase in the prices of raw materials.

Discipline
The IMF points out that the Dominican authorities have responded with temporary measures maintaining budgetary discipline through expense control and executing proactive debt management that reduced financial risks.

The Central Bank has initiated a normalization of monetary policy; absorbing liquidity and increasing the monetary policy rate.

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Inclusive growth.
The IMF notes that reforms to foster inclusive growth and better social outcomes remain critical.

Challenges include ongoing efforts to improve governance, ensure a stable, competitive, and sustainable energy supply, build resilience to climate change, and address other productivity bottlenecks.

Also, modernize the labor code, increase the years and quality of education and reduce skills gaps in labor markets.

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