The mission of International Monetary Fund (IMF), who recently visited the country, suggests applying short- and medium-term measures to ensure macroeconomic stability and fiscal sustainability, among which he emphasizes the introduction of a law regulating unregulated cooperatives.
as well as introduce a fiscal responsibility lawlower exemptions and increase the tax base.
The mission emphasizes the economics fundamentalswhich, he says, “has been one of the most resilient in the last two decades.”
The Dominican Republic has been one of the most dynamic and resilient in the Western Hemisphere for the past two decades, displaying an impressive pandemic recoverybacked by the sound policies of the authorities.
The tighter global financial conditions, the lower cglobal growthas well as a timely and appropriate withdrawal of domestic accommodative monetary policy, have contributed to the moderation of growth in 2023, which supports a return of inflation to the target range.
In the short term, policy priorities must remain focused on continuing to ensure the macroeconomic and financial stability. In the medium term, further improvements in policy frameworks, the business climate, governance and social safety nets may foster further growth.
IMF STATEMENT
A team from the International Monetary Fund (IMF), led by Mr. Emilio Fernandez Corugedovisited the Dominican Republic from May 8 to 19 to carry out the discussions of the 2023 Article IV Consultation.
At the end of the mission, Mr. Fernández Corugedo issued the following statement:
“The economy of the Dominican Republic has been one of the emore dynamic and resilient economies Western Hemisphere for the past two decades. The reforms and good monetary and fiscal policies have strengthened the macroeconomic frameworks—including the inflation targeting regime and the introduction of a medium-term fiscal framework—and the banking system, with the consequent macroeconomic stability attracting considerable flows of foreign direct investment , supporting growth of more than double per capita income and reducing poverty by half.
These factors have contributed to an impressive economic recovery from the pandemic, which has been supported by the sound policies from the authorities, as well as positive global contagion effects. The strong recovery began to moderate in late 2022 in response to tighter global financial conditions, lower global demand, and the adequate withdrawal of stimulus policies, which contributed to the convergence of inflation toward its target. The current account deficit widened in 2022 due to the decline in exports of goods, rising commodity prices and the continued recovery in domestic demand, and was financed mainly by FDI flows, with the country maintaining strong market access. Despite the recent tightening of domestic and international financial conditions, the financial sector appears adequately capitalized, liquid, and profitable.
“Backed by sound fundamentals and policies, the peconomic outlook is positive, although it is subject to great uncertainty, mainly global. After rebounding strongly, the post-pandemic recovery has moderated and growth is forecast to slow slightly from 4.9% in 2022 to around 4% in 2023, supporting a return of inflation to the central bank’s target . Growth is expected to return to trend around 2024 as global growth picks up.
It is projected that the current account deficit is reduced in the medium term driven by lower commodity prices and steady improvements in exports and tourism receipts in line with the global recovery. Global uncertainty about the outlook is high, and downside risks (including those from further tightening of global financial conditions and a more pronounced slowdown in global growth) dominate the near term.
“Near-term policy priorities must continue to ensure inflation returns to target, maintain the downward trajectory of public debt while navigating growth moderation, and safeguarding financial stability:
• Policies that seek to bring inflation to target and maintain macroeconomic stability remain appropriate. With inflation expected to decline and inflation expectations anchored, monetary policy needs to remain data driven and calibrated to ensure that inflation fully converges to its target over the policy horizon. Exchange rate flexibility and reserve accumulation, which have reached historically high levels, may continue to play a cushioning role.
• Fiscal policy must remain focused on placing debt on a firmly downward path. Fiscal consolidation, supported by the gradual withdrawal of untargeted support measures in response to adverse shocks and aided by well-targeted measures to support the most vulnerable, can complement inflation-reducing efforts and will be important in building buffers. prosecutors.
• While the financial sector remains resilient, the current environment of tighter financial conditions requires continued close monitoring, including through continued improvements in data collection and macroprudential analysis of household balance sheets and companies.
In the medium term, actions should focus on further improvements to policy frameworks, the business climate, and social safety nets to strengthen inclusive growth:
Exchange rate and money. The recapitalization of the central bank will reinforce its autonomy, while a strategy to continue deepening the foreign exchange market and expanding the use of hedging mechanisms will also improve the inflation targeting framework.
Fiscal policy
-Additional updates to policy frameworks, including the introduction of a fiscal responsibility law, improvements in public financial management, infrastructure governance, and tax administration, along with efforts to sustainably increase revenues by broadening the tax base and reducing exemptions, can also support fiscal sustainability.
financial policy
-More progress is required to modernize the regulatory framework and expand the set of macroprudential tools. The Superintendency of Banks is already closely monitoring the ability of financial institutions to meet international standards. The introduction of a prudential regulatory framework for unregulated credit unions will also improve financial stability.
structural reforms
Major efforts to improve public institutions, governance and the business climate, at the heart of the authorities’ reform agenda, are essential to boost inclusive growth and resilience. The authorities must persevere in the reformss of the electricity sector, while ensuring adequate support for the most vulnerable. The implementation of climate mitigation and adaptation policies under the Nationally Determined Contribution action plan must continue to curb vulnerabilities.
The mission met with the Governor of the Central Bank, Héctor Valdez Albizu, the Minister of Finance, José Manuel Vicente Dubocq, other senior officials and representatives of civil society and the private sector. The mission expresses its sincere appreciation to the authorities for their exceptional hospitality, full cooperation and open and frank dialogue.”