2021 exceeded expectations, but structural reforms loom

DOMINICAN REPUBLIC - Report 10 Jan 2022 by Magdalena Lizardo

Performance in 2021 exceeded expectations in terms of economic growth, the exchange rate and accumulation of international reserves. The same was not true, though, for inflation, which failed to stay within the target range, while the NFPS deficit ended at around 3% of GDP, similar to the level contemplated by the Public Budget Law (Law 237-20) approved at the end of 2020.

The robust expansion of private investment and exports drove GDP growth up to close to 12% in 2021, one of the highest rates in the LAC region. The average exchange rate depreciated by 1.1% in 2021 compared to 2020, and net international reserves, at $12.5 billion, remained on average 30% above what was foreseen in the 2021 monetary program. Inflation has been the discordant note, the DR being one of the economies with the highest inflation in the LAC region, along with Brazil and Uruguay. Inflation is estimated to have ended the year at above 8%.

In macroeconomic policies, 2021 closes with a change of direction in monetary policy, aimed at prioritizing inflation control through the reversal of the monetary expansion generated during the pandemic, and an increase in the policy rate. In fiscal matters, the discussion of the Fiscal Pact has been put on hold, without a defined date for resumption, as has the approach to structural problems, such as Central Bank recapitalization. However, the government so far is firm in moving forward with the implementation of electricity sector reform.

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