Estudios económicos
Dominican Republic

Dominican Republic

Population 9.9 million
GDP 6,481 US$
B
Country risk assessment
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Synthesis

major macro economic indicators

  2013 2014  2015(f) 2016(f)
GDP growth (%) 4.8 7.3 7.0 5.4
Inflation (yearly average) (%) 3.9 1.6 2.1 3.0
Budget balance (% GDP) -2.7 -2.6 -1.5 -2.5
Current account balance (% GDP) -4.1 -3.2 -0.7 -1.6
Public debt (% GDP) 34.6 34.9 33.2 34.6

 

(e) Estimate (f) Forecast

STRENGTHS

  • Top tourist destination in the Carribean
  • Transfers from the diaspora
  • Free-trade agreement with the United States (CAFTA-DR)
  • Free-trade areas (51% of exports)
  • Political stability

WEAKNESSES

  • Dependence on America economic cycle
  • Dependence on gold prices
  • Unreliable electricity supply
  • Educational and health deficiencies
  • High levels of poverty and inequality
  • Criminality associated with drug trafficking
  • High level of corruption

Risk assessment

Growth bolstered by US demand

In 2015, activity was underpinned by the increase in external demand from the United States and private consumption which has benefited from monetary policy easing. In 2016, growth is expected to decrease but still benefit from strong activity in the United States, the country’s largest trading partner. In particular, manufacturing exports (particularly the textile sector) produced in the free trade zones (close to 51% of export sales) and agricultural exports will benefit from this buoyancy. The tourism sector should also benefit from the increase in the number of mainly US visitors (more than half of the tourist visits in the country). Sales of ores, mainly gold, will probably slow down, however, affected by the persistent fall in commodity prices and the reduction in the production capacity of the Pueblo Viejo gold mine as a result of technical problems. Private investment in real estate, financial services and manufacturing industry is likely to remain vigorous. The government budget for 2016 nevertheless provides for a decline in public investment in infrastructure: the plan to build two coal-fired thermoelectric power plants (cost estimated at USD 1.9 billion, i.e. around 3% of GDP) in order to address the of shortfall in electrical energy will reportedly be postponed until 2017. Despite the increase in transfers from the diaspora in the United States, household consumption should remain limited. The high level of unemployment (around 14.6%) and the poverty that still affects more than half of the population (40% of which lives below the poverty threshold) are the main hurdles. The inflationary pressures should remain in the lower range of the 3-5% target set by the central bank, helped by the moderation of energy prices.

 

Towards an increase in the fiscal deficit and the current account balance

The fiscal consolidation policy initiated when president Medina came to power in 2012 will probably be eased somewhat in 2016. Despite the reduction in the budget earmarked for public works and the stability of priority spending (healthcare and education in particular), the fiscal deficit can be expected to grow because of the expected increase in short-term spending linked the preparation for the general elections in 2016, in which the current president is likely to run.

With regard to revenues, the expected growth in budget receipts (estimated at +7.7%) thanks to the increase in certain taxes (goods and services) is unlikely to cover spending growth more than partially. Moreover, a possible cancellation of the Venezuelan PetroCaribe programme which provides oil at preferential prices could also increase government spending (the subsidies to the energy sector are estimated at 1.8% of GDP in 2014), especially as the energy reform plan that aims to reduce the dependency on oil by diversifying the sources of electricity production seems to be postponed. The public debt should remain relatively stable, barring a major change in the oil trade agreements with Venezuela.

With respect to foreign trade, the Dominican Republic, the number one tourist destination in the Caribbean, will still benefit from the increase in the number of visits (close to 5.1 million visitors in 2014 for around 10 million inhabitants) and transfers of funds from around two million workers abroad (65% of whom live in the United States). Manufacturing exports should continue to benefit from the increase in US demand, while gold exports probably will slow down under the effect of the fall in production and the weakness of commodity prices. Energy imports should still benefit from the moderation of oil prices. The current-account deficit will be financed by multilateral loans as well as by FDI inflows.

 

President Medina and his party, the LDP, are considered the favourites ahead of the next elections in 2016

President Danilo Medina, head of the Dominican Liberation Party (PLD), continues to enjoy an absolute majority in the two chambers and significant popular support. He was therefore able pass an amendment to the 2010 constitution to enable him to run a second time in the presidential elections and general elections which will be held in May 2016, for which he is considered the favourite. The traditional opposition party, the Dominican Revolutionary Party (PRD) seems to be weakened by internal divisions whereas the Modern Revolutionary Party (PRM), a product of the PRD, is unlikely to win the next elections given president Medina’s high level of popularity (average approval rates of 80%, according to opinion polls). The PLD is likely to keep the majority of the seats in the congress.

In terms of foreign policy, the relations with Haiti remain tense over immigration. The decision by the Dominican courts in 2013 to deny Dominican nationality to the descendants of migrants "in transit" born since 1929 and the response from the Haitian authorities which banned imports of certain products from the Dominican Republic continue to create frictions between the two countries.

The business climate will probably still suffer from a high level of corruption, the shortfall in infrastructure (with the exception of telecommunications) and electricity supply problems. However, the political stability and the preferential access to the US market thanks to the free trade agreement (CAFTA) remains positive for investment.

 

Last update: January 2016

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