Inflation now the main concern
Inflation ended 2021 at 8.5%, its second highest level since the banking crisis of 2003-2004, but below the 10.65% of 2008, when the price of WTI oil increased 37.7% to $99.56 a barrel. Episodes of high inflation in the DR are generally associated with sharp oil price increases, and 2021 was no exception, when oil prices rose by 72%. Concerned about rising inflationary expectations, the Central Bank adjusted the monetary policy rate for the third time since November 2021, and is executing a program to withdraw excess liquidity.
GDP closed 2021 with a growth of 12.3% compared to 2020, and 4.7% compared to 2019, and tourism activity started 2022 on the right foot, although the arrival of tourists in January was slightly below the 2016-2019 average value for that month. The fifth wave of COVID-19 generated by the Omicron variant has started to dissipate in the second half of January 2022.
With oil prices projected to rise, controlling inflationary pressures has taken on a political urgency, since it creates an environment conducive to social protests and generates a demand for energy subsidies that impacts fiscal accounts. According to Minister of Economy, Planning and Development Miguel Ceara, the government spent $244.7 million to subsidize fuel prices in 2021. And again in January 2022, $24 million was spent, although President Luis Abinader already indicated that the government could not continue providing this subsidy. This situation creates a less favorable environment to make any adjustments to the electricity rate as agreed in the Electric Pact, and puts pressure on the fiscal deficit.
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