Via IMF (Den Internationale Valutafond)

On June 5,2019, the Executive Board of the
International Monetary Fund (IMF) concluded the Article IV consultation


with the Dominican Republic.

The economy rebounded to a record high growth of 7 percent in 2018,
with the positive momentum carrying into early 2019. The return to
above potential growth in 2018 reflected a strong private investment
and consumption response to a timely monetary impulse after the
slowdown in 2017, favorable external conditions and a continued
strengthening of labor markets. The very strong economic performance
over the past several years, aided by the authorities’ policies, led to
substantial reduction in poverty, inequality and continued income
convergence to advanced economy levels. The acceleration in activity
has not put pressures on either internal or external balances:
inflation remained subdued and the external position strong. This
allowed monetary and fiscal policies to switch to neutral-to-tightening
gear in 2018, guiding activity towards potential levels.

The outlook is favorable, with moderate and balanced risks to growth.
Growth is expected to moderate to around 5½ percent in 2019 and 5
percent over the medium-term, both within the estimated potential
range. The moderation will be driven by a slowdown in credit expansion,
a less supportive external environment, and higher oil prices.
Inflation is expected to rise gradually to the central bank’s target
range of 4±1 percent with the pickup in food and oil prices. The
external position is projected to remain broadly consistent with
fundamentals and more than adequately financed by FDI. Main downside
risks to the outlook are weaker-than-expected external demand and
higher energy prices. On the upside, the domestic demand momentum in
the near term could be stronger than anticipated, reflecting the solid
income growth.

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Executive Board Assessment


Executive Directors commended the authorities for the strong economic
performance, including dynamic growth, low inflation, stable external
position, and improved social outcomes. Directors noted that while the
outlook remains favorable, it is subject to risks. They encouraged the
authorities to take advantage of the current favorable environment to
further increase the economy’s resilience to shocks by building fiscal
and reserve buffers, while strengthening long‑term growth and social
outcomes through reforms to address structural bottlenecks.

Directors welcomed the authorities’ commitment to improve the fiscal
position, including through ambitious tax administration reforms to
curb evasion, mobilize revenues, and improve governance. Nonetheless,
given that public debt is trending up despite strong growth, Directors
called for further efforts to improve debt sustainability. They
underscored the need for a front‑loaded fiscal adjustment aimed at
widening the tax base and curtailing the electricity sector’s drag on
the budget, while safeguarding fiscal space for growth‑enhancing public
investment and social spending. Directors also supported adoption of a
medium‑term fiscal framework, with a clear policy anchor and fiscal
responsibility elements, to ensure policy credibility and limit fiscal

Given subdued inflation, Directors supported maintaining the current
neutral monetary policy stance, while remaining data dependent should
pressures emerge. They welcomed the continued efforts to strengthen the
monetary policy framework, highlighting the dividend from anchoring
inflation expectations, and supported plans to recapitalize the central
bank and introduce the foreign exchange trading platform to increase
transparency and efficiency of foreign exchange markets and policies.
In light of the favorable external position, Directors encouraged the
continued accumulation of international reserves.

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Directors welcomed financial system stability and wide–ranging reforms
to further enhance financial resilience. They supported the ongoing
modernization of the institutional framework for systemic risk
oversight, strengthening of banking regulation and supervision, and
cybersecurity reforms. They encouraged the authorities to take further
action, including to strengthen the supervisory oversight of non‑bank
financial institutions. Directors welcomed recent progress in updating
the AML/CFT legal framework and encouraged the authorities to enhance
the effectiveness of the regime.

Directors emphasized the importance of continued structural reforms to
address impediments to higher productivity, income convergence, and
social inclusion. Building on recent gains, they encouraged further
measures to improve the business environment, remove trade and
investment barriers, and continue reforms to education, health, and the
pension system. Directors reiterated the need to decisively address the
long–standing structural weaknesses that continue to weigh on potential
growth, particularly losses in the electricity sector and
inefficiencies in the product and labor markets. They also noted the
need to broaden and strengthen the social security system, which will
require additional fiscal space.