DR Central Bank: Year could end with 5-6% GDP growth

Less tax revenues and more social spending during the Covid-19 pandemic have led to an increase in borrowing and consequentially in the national debt. The consolidated public debt closed in 2020 at about US$53 billion. Yet, the Dominican Republic’s Central Bank is bullish, their Dominican economy is gradually yet firmly recovering.

The Central Bank released on 4 March the report “Public Debt and Financial marks in Times of the Pandemic.” The report concludes that as the foreign exchange generating sectors are reactivated, there will be a gradual reduction of the debt.

Consolidated public debt closed 2020 at about US$53 billion. If nominal GDP in dollars had simply maintained its 2019 level, some US$89 billion, instead of falling to some US$79 billion as estimated in 2020, the consolidated public debt, would have stood at around 59.5% of GDP, some 10 percentage points lower than the figure recorded last year of 69.2% of GDP,” indicates the Central Bank in the report.

The Central Bank explains that after the economy reached its lowest point with a fall in real GDP of almost 30.0% year-on-year in April 2020, the Dominican economy has recovered gradually to end the year at just -1.0% in December 2020.

The good news is that the first quarter of 2021 is presenting positive growth, with the expectations now that the year could close with GDP growth of around 5.5% to 6.0%.

The good news is that remittances and foreign direct investment offset the collapse of the tourism sector revenues. The Central Bank reports explains: “It is important to highlight that, despite the magnitude of the external shock caused by the pandemic, the country was able to close 2020 with a current account deficit of only 1.8% of GDP. In that sense, the impact of the health crisis on the tourism sector was largely offset by a substantial increase in remittances (US$8.22 billion and 16% growth in 2020) and a considerable amount of foreign direct investment, higher than the historical average of this variable, reaching US$2.55 billion, a figure that covers almost twice the current account deficit.”

The Central Bank is bullish on the Dominican Republic. The monetary authorities forecast the gradual recovery process will continue now within the framework of the vaccination campaign. Another plus is the structural reforms such as the electricity and fiscal pats that will accelerate growth even more. The Central Bank expects conditions to be created that revert the negatives produced by the additional borrowing. The Central Bank says the new conditions will drive new investment projects and consumer spending in an environment of stability and improvements in social indicators.

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