Powerful across-the-board growth

DOMINICAN REPUBLIC - Report 03 Jan 2019 by Pavel Isa and Fabricio Gomez

Real GDP growth for 2018 should come in at 7%, the Central Bank reported, after expansions of 6.8% in October, 7.2% in November and 7.1% (estimated) in December. Growth was strong across sectors, with communications, construction, free zones and heath particularly robust.

Accumulated inflation reached 1.39%, January to November; the Central Bank estimates that average inflation for the year will approach its 4% target.
Central Bank net international reserves were up by $377.8 million y/y in December, to $7.16 billion, though reserves had been declining all year, as the Bank responded to higher oil prices and rising imports. The average exchange rate was DOP 50.21 per dollar, with the devaluation rate stable.

The current account deficit is projected to close 2018 at 1.4% of GDP, 1.2 percentage points higher than in 2017. This will be the first surge in CAD since 2014, and reflects higher oil prices. Export revenues and rising remittances helped offset the import rise, while FDI of $2.5 billion, and foreign net financing to the government, comfortably covered the external gap. FX earnings were about $30 billion in 2018.

The Ministry of Finance recently published new fiscal statistics based on the methodology of the 2014 IMF’s Manual of Public Finance Statistics. The data contrasts remarkably with what was provided by fiscal authorities (DIGEPRES) in the past, and recognizes that between 2014 and 2017 spending and budget results were far greater than initially acknowledged. For 2017, the Ministry of Finance reported expenditures equivalent to 1.1 pp of GDP above what was reported by DIGEPRES, and a deficit of 3.6% of GDP, 1.3 pp larger than reported. The new data backs the skepticism over DIGEPRES figures but will also serve to provide greater confidence in the data from fiscal authorities.

Congress has approved the 2019 budget, with spending and net financing projected at DOP 75.5 billion ($1.45 billion), and a deficit of 1.7% of GDP. This is DOP 11.5 billion (0.5% of GDP) less than the programmed deficit for 2018 and below the DOP 125.9 billion (3.5% of GDP) of 2017. New data on spending and deficits for 2016 and 2017 set them at such high levels that it is reasonable to doubt the feasibility of meeting the set goals.

The Minister of Finance confirmed that the government will seek to sell up to 50% of its shares in the Punta Catalina Thermoelectric Power Plant. The project has been making a significant dent in public finances since at least 2015.

The key political parties settled on methods for choosing their candidates for the 2020 elections, with most opting for open and simultaneous primaries, though the PRM, the largest opposition party, will have a closed primary.

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