Proposed 2023 budget maintains status quo; growth slowdown looms
The 2023 proposed budget incorporates a lower than expected deficit for 2022, but higher than in 2021. With an oil price forecast at $89/b for 2023, the government wants to play it safe, and not risk having to eliminate subsidies and adjust domestic energy prices. Subsidies for electricity and fuel, although lower than those estimated for 2022 (1.6% of GDP), will still remain high in 2023 (1.3% of GDP), and there is no clear indication of when they will be eliminated. Interest payments also increase in 2023 (3.3% of GDP), compared to 2022 (3%) and 2021 (2.9% of GDP).
Economic growth and inflation show improvement. In August, the interannual growth of the economic activity index was higher (5.4%) than in July (4.7%). In turn, y/y inflation in August was 8.8%, its lowest in the last seven months. In October, the Central Bank once again increased the monetary policy rate, which stood at 8.25% per year, by 0.25 bp from the previous month.
Although the economy accumulated a y/y growth of 5.5% in January-August 2022, our projection of GDP growth for 2022 is 4.2%, due to expected lower growth in Q4 2022, given the effects of the restrictive monetary policy and the consequences of the negative impact of Hurricane Fiona. Average inflation for 2022 is expected to be 8.7% in 2022, provided there are no major tensions in international markets. The average exchange rate for Q4 2022 remains at DOP 54.1 per dollar. The average for 2022 is DOP 54.9 per dollar, accumulating an appreciation of -4.0% compared to 2021. The current account deficit is expected to close at -4.8% of the GDP in 2022.
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