WASHINGTON, USA – On September 10, the executive board of the International Monetary Fund (IMF) concluded the Article IV consultation with the Dominican Republic and considered and endorsed the staff appraisal without a meeting.
A track record of sound policies and institutional policy frameworks has helped the Dominican Republic achieve robust and resilient economic growth and low inflation over the last two decades. Effective policies contributed to a growth moderation that appropriately supported inflation’s rapid and sustained return to its target last year and then aided the recovery, while close monitoring of the financial sector supported macro-financial stability. Planned enhancements to policy frameworks and deepening structural reforms – in particular, comprehensive fiscal and electricity reforms – have the potential to further support stability, competitiveness, and inclusive growth.
Following a strong post-pandemic recovery, economic growth slowed to 2.4 percent in 2023 due to tighter global and domestic financial conditions, weak export demand, and transient domestic factors, largely climate-related. The growth slowdown, alongside lower commodity prices, drove inflation’s faster-than-expected convergence to its target range (4±1 percent). In response, the Central Bank of The Dominican Republic (BCRD) cautiously and appropriately reduced its key policy rate, allowing for greater exchange rate flexibility while increasing foreign exchange interventions to smooth daily exchange volatility. Fiscal policy was also prudently adjusted to support the economy. The current account deficit in 2023 narrowed markedly to 3.6 percent of GDP and was fully financed by foreign direct investment (FDI) flows. The financial sector weathered the period of tight monetary policy and slower growth and is adequately capitalized and profitable.
Supported by sound policies and macroeconomic fundamentals, the outlook is favorable despite elevated, mostly global, uncertainty. For 2024 and over the medium term, real GDP growth is projected around its long-term trend of 5 percent, with inflation around its 4 percent target. The current account deficit is projected to gradually narrow to less than 3 percent of GDP and continue being fully financed by FDI. Near-term risks to the outlook -including tighter global financial conditions, geopolitical tensions, and volatile commodity prices – have moderated since last year but remain elevated and tilted to the downside. Over the medium term risks are more balanced and include upside risks if key domestic reforms are implemented successfully.
