Growth slows but remains
a slight slow-down, growth prospects remain positive. We expect real GDP to
expand by +5% in 2015 and by +4.9% in 2016. The negative impact of plummeting
gold and silver prices on mining activity and poor performance of tobacco and
coffee exports will be somewhat offset by continued strong growth in the construction,
retail and services sectors. On the demand side, investment (notably in energy,
infrastructure and tourism sectors) and private consumption (supported by oil
prices) are expected to remain the main engines of growth. After the fall in
oil prices led inflation rates to drop (+0.8% on average in 2015 against +3% a
year ago), the Central Bank cut the key rate by 125bps since February to 5% in
June, and has maintained it at this level since then. Fiscal policy is expected
to remain broadly supportive this year in the run up to the general elections in
Steps in the right
the past years, macroeconomic fundamentals have been strengthened. President
Medina, in power since 2012, was praised for improving the business environment
and strengthening fiscal accounts. Unrelenting fiscal consolidation since 2012 has
reduced the fiscal deficit from -6.8% of GDP then to -0.6% in 2015 as fiscal
revenue rose on the back of a tax structure reform (that spreads its impact broadly
across income and indirect taxes) to outstrip the controlled spending increase.
Although the fiscal deficit is expected to widen somewhat this year ahead of
the general elections, it will remain at manageable levels (-2.6% of GDP).
Especially, the success in restructuring liabilities with Petrocaribe
contributed to limit public growth, which remains at manageable levels.
the implementation in 2012 an inflation-targeting regime followed by the
Central Bank has proved credible at anchoring inflation. The inflation target
currently stands at 4% +/-1pp.
vulnerability has also been reduced. The current account deficit narrowed in
2015 to -2.0% of GDP on the back of low oil prices and stronger remittances, FDI
and tourism revenues, notably from the US. Particularly, international reserves
have increased and cover now 3.7 months of imports (excluding free-trade
zones). Import cover has been above 3 months over the past 12 months, vs.
around 2 months in 2014 and 2013. The Dominican peso is under a controlled
float regime against the USD.
the strengthening of the business environment, key weaknesses remain in
insolvency resolution, corruption control, regulatory quality, and the rule of
law. Dealing with the electricity sector shortcomings is a major challenge: the
electricity system`s capacity is inadequate and power cuts are common while
electricity subsidies weigh heavily on the budget (about 10% of total current
expenditure). While initially expected to step down in May 2016, a
constitutional amendment in June will allow President Medina to seek