Economic slowdown and tax tensions frame the 2026 budget debate
Economic conditions in the Dominican Republic softened further in September, with growth slowing across nearly all major sectors. The adverse effects of Hurricane Melissa, including disruptions to agricultural production and temporary business closures, helped drive food prices higher. Headline inflation climbed to 4.23% in October — the highest rate since October 2023 — though it remained within the Central Bank’s target range.
External accounts continue to cushion the weak domestic environment. Exports have grown steadily; tourism and remittances remain resilient; and international reserves rebounded sharply in October, after several months of decline. These factors have helped offset the weakness in domestic demand, and have improved the trade balance.
Monetary policy remained accommodative, with the Central Bank cutting its rate in line with global conditions. Financial system liquidity has expanded significantly, yet credit to the private sector has not accelerated at the same pace. While interest rates have fallen, the widening spread between lending and deposit rates suggests that banks remain cautious about expanding their credit portfolios.
The fiscal outlook is being shaped by both a gradual recovery in revenues and rising political pressures. The proposal to index personal income tax brackets, absent since 2017, has become a focal point in the debate over the 2026 proposed budget. Although public debt remains broadly stable, the government faces competing demands over how to address social pressures, while maintaining fiscal sustainability.
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