Country Report Dominican Republic February 2013

Country Report Dominican Republic February 2013

Outlook for 2013-17

• The president, Danilo Medina of the Partido de la Liberación Dominicana, will enjoy a two-thirds majority in Congress until the 2016 elections. Despite unpopular fiscal reforms, his popularity will remain high in the short term.
• Given plans to sell US$1bn in bonds abroad, the government appears less likely to seek an IMF loan accord in 2013. However, the Economist Intelligence Unit does not rule out an agreement thereafter if fiscal accounts stay weak.
• Revenue-raising measures and spending restraint will reduce the fiscal deficit from an estimated 5.5% in GDP in 2012 to a forecast 3.6% of GDP in 2013 and to below 2% by 2017, but lax budget management carries a high risk of slippage.
• Subdued growth in the US and the euro zone, along with fiscal adjustment at home, will hold back Dominican growth. We expect expansion of 3% in 2013 and an average of 4.4% in 2014-17-far below the 5.9% average of 2007-11.
• Tax rises will put upward pressure on prices in 2013, pushing year-end inflation to 6%. After easing in 2014, inflation will increase again gradually as oil and other commodity prices begin to increase.
• We expect a slightly quicker pace of currency depreciation in 2013, although the peso will remain broadly stable in real terms in 2014-17.
• The current-account deficit is forecast to narrow to 5% of GDP in 2013 from an estimated 7.1% in 2012, owing to growing mineral exports and tourism receipts. It will shrink further in 2014 before rising again in 2015-17.

Review

• A January poll showed Mr Medina with a high approval rating of 82%. The vice-president, Margarita Cedeño, secured a favourable rating of 75%. This was despite the fact that 76% of respondents opposed recent tax hikes.
• The opposition Partido Revolucionario Dominicano continued to struggle with internal divisions, resulting in the expulsion of some leaders, legal battles and a gun fight in January between rival factions.
• The government secured legislative approval for the placement of US$1bn in sovereign bonds and the raising of a similar amount in domestic loans to cover the fiscal deficit and other financing needs in 2013.
• Central government debt rose in 2012 to 33% of GDP as of November. This compares with 28.7% at end-2010 and 29.3% at end-2011, according to the Dirección General de Presupuesto (Digepres, the general budget office).
• Monthly inflation in December was 0.6%, according to the Banco Central de la República Dominicana (BCRD, the Central Bank), which brought year-end inflation in 2012 to 3.9%-well below the official target.

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