Dominican Republic

Return to strong growth

In 2023, economic activity slowed as a result of the misalignment of private domestic demand, as well as less dynamic manufacturing exports and remittances (8.6% of GDP in 2022). In 2024, the lagged effect of monetary loosening (key rate lowered from 8.50% in May 2023 to 7% in November 2023) by the Central Bank of the Dominican Republic (CBRD), should boost growth. At the same time, the CBRD has introduced a liquidity facility equivalent to 2% of GDP to encourage local private credit. The steady deceleration in inflation since 2021, which is close to the CBRD's target of 4% ±1 pp, should encourage it to continue along this path. However, inflationary pressures will persist, due to volatile food prices and the gradual reduction in fuel and electricity subsidies. The possibility of a sharper-than-expected depreciation of the Dominican peso could also lead to higher import prices.

In addition, the US recovery, expected in the second half of the year, should boost the flow of remittances (84% from the US) and exports (56% to the US), notably gold (nearly a third of total goods exports), medical devices and tobacco. At the same time, the prospect of a likely reopening of borders with Haiti following the elections should enable exports to that country to resume (8% of the total before they were halted). Tourism is expected to grow much less than in 2023 but will continue to boost household incomes. Growth will also be underpinned by an acceleration in public investment. Given the electoral context, the 2023-2026 Public Investment Plan will result in its doubling to RD$201,720 million, including 44% for 2024, but would represent only 1.46% of GDP. The funds will be allocated mainly to transport, housing, community services, health, and education. Direct investment from Spain in tourism and energy, and from the US in high value-added production in free-trade zones, will remain buoyant. Growth will also be underpinned by an increase in employment, particularly overt, and productivity thanks to the development of tourism and free-trade zones.

Improved external position and public accounts

The current account deficit narrowed in 2023, mainly due to a lower import bill, particularly for hydrocarbons. Improved tourism receipts and growth in remittances (+3.4% compared with the January-November 2022 period) also helped reduce the deficit. In 2024, the consolidation of tourism (15% direct contribution to GDP in 2022), the slowdown in fuel imports, the acceleration in export growth (tied to the likely resumption of exports to Haiti in the second half of the year) and the stabilisation of remittances, will stabilise the current account deficit. FDI inflows and portfolio investments will continue to largely finance the deficit, bolstering foreign exchange reserves. The latter cover at least 5 months' imports of goods and services.

The public deficit as a percentage of GDP will remain unchanged in 2023 and will barely decrease in 2024. Given the electoral context, social spending, spending on public facilities and the police force, as well as the temporary maintenance of subsidies (1.9% of GDP in 2023), are likely to put the brakes on the anticipated post-election fiscal consolidation. More specifically, primary expenditure will focus on social transfers, notably via the Supérate programme (60% of subsidies in 2023). On the other hand, President Abinader's tax reform project, which is conditional on his re-election in 2024 and aimed at strengthening tax and customs collection, will boost public revenues from 2025 onwards. The gradual consolidation of public finances would also result from the phasing-out of fuel subsidies (6.5% of subsidies in 2023) and electricity subsidies (60%), and the reform of the electricity sector under the Electricity Pact. In June 2023, the Dominican Senate approved the Fiscal Responsibility Law, providing for primary expenditure growth not exceeding projected inflation by more than 3 percentage points, and public debt not exceeding 40% of GDP by 2035. The Chamber of Deputies (Lower House) is not expected to adopt the bill before the elections.

Although the weight of external public debt (over 40% of GDP in 2023) will continue to fall, dependence on external financing will be maintained. Most of the public debt (98% of its domestic share and 76% of its external share) is backed by bonds. Moreover, with 30% of its debt denominated in foreign currencies, the country remains exposed to foreign exchange risk. The issuance of sovereign bonds in Dominican pesos in 2023 has helped to mitigate this risk. The debt-to-GDP ratio should return to a downward trajectory, thanks to growth and the maintenance of the primary surplus.

Re-election seems assured, tensions with Haiti

President Luis Abinader, of the centrist Modern Revolutionary Party (PRM), has a majority in Congress, with 18 of the 32 seats in the Senate and 92 of the 190 seats in the Lower House. His victory in the 2020 Presidential elections (where he gained 52% of the vote) ended sixteen years of power for the center-left Dominican Liberation Party (PLD). The President has announced that he will seek a second term in office in the next general elections scheduled for May 2024. The October 2023 primary elections marked his very comfortable victory (90% of the vote). Furthermore, a November 2023 Gallup-RCC Media poll attests to the high popularity of his government, with an approval rating of 64% and 55% of voting intentions, ruling out the possibility of a run-off. Abinader's main opponents, Leonel Fernández (three-time president, for the leftist Popular Force party, FP, but former member of the PLD until 2019), and Abel Martínez (Dominican Liberation Party, PLD, center-left), will face an uphill battle given the president's popularity and the corruption scandals besetting their respective names and parties.

Luis Abinader's term in office has been marked by a stronger rule of law, the adoption of land development projects (1,127 between January and August 2023 alone) and improvements to social security schemes and the socio-economic conditions of Dominicans. Crime, fuelled by drug trafficking and marked by armed violence, money laundering, corruption, and power supply problems, nevertheless remain major challenges.

Luis Abinader has decided to make Haiti and the fight against illegal Haitian immigration two of his key election campaign issues. In September 2023, he decided to close the border to retaliate against the private construction of an irrigation canal on the Haitian side of a binational river. Mr. Abinader's tough decisions on Haiti and immigration drew international criticism and exacerbated the risk of economic sanctions. In the end, a partial reopening of the borders took place on 10 October 10 2023 with the aim of reactivating basic food and medicine exports to Haiti, while reinforcing the immigration blockade. The 2024 elections will probably mark the complete reopening of the borders, but probably not the end of the deportation of Haitian illegal immigrants.

Last updated: March 2024