Country Forecast Dominican Republic February 2013 Updater

Country Forecast Dominican Republic February 2013 Updater

Overview

The president, Danilo Medina of the Partido de la Liberación Dominicana (PLD), will enjoy a two-thirds majority in Congress until the 2016 elections. This will facilitate the passage of reforms and support governability. Policy will focus on shrinking the fiscal deficit, estimated at 5.5% of GDP in 2012. The Economist Intelligence Unit forecasts that it will be reduced in 2013 to 3.6% of GDP owing to tax increases and modest public spending cuts. After slowing to an estimated 3.8% in 2012, GDP growth will ease further in 2013, to 3%, as a consequence of fiscal adjustments and continuing weak external conditions. It will pick up in 2014, to 3.9%, and will be higher thereafter as global demand revives. Year-end inflation will rise to 6% in 2013, on the back of tax rises, before easing in 2014, but it will increase again from 2015 in response to higher oil prices. Currency depreciation will speed up slightly in 2013, with the peso weakening from Ps40.2:US$1 at end-2012 to Ps42.5:US$1 at end-2013, but the currency will be broadly stable in real terms thereafter. An increase in mineral exports and ongoing growth in tourism will narrow the current-account deficit to 5% of GDP in 2013 from an estimated 7.1% of GDP in 2012, but it will widen again from 2015 as global oil and commodity prices begin to rise.

Key changes from last month

Political outlook

Divisions within the opposition Partido Revolucionario Dominicano (PRD) have worsened, which will serve to further damage its credibility and prevent it from presenting a challenge to the government.

Economic policy outlook

With the government having secured legislative approval to issue US$1bn in global bonds and for a similar amount in new domestic lending, we now believe it might not seek a new IMF loan agreement in 2013.

Economic forecast

We have revised down slightly our forecast for the current-account deficit in 2013, to 5% of GDP, on the basis of expected growth in mineral exports and evidence of continued healthy growth in tourism revenue.

Do to the nature of this product there is no table of contents.