Dominican Republic: 2019 budget aims to continue putting the fiscal house in order
October 4, 2018
On 28 September, the government presented its 2019 budget to congress, and parliamentary approval should not be too difficult given the government’s absolute majority in both chambers. The budget aims to raise current and capital spending, boost tax revenue, and reduce the budget deficit. However, the government continues to take a gradualist approach to strengthening the fiscal position, in order to safeguard social spending and boost investment.
Total spending is set to rise around 13% from the 2018 budget to DOP 922 billion, with around two-thirds of the total to be dedicated to current spending. However, despite the increased budget allocation, capital spending will still be less than expenditure on debt interest payments—highlighting the importance of a tighter fiscal stance. In its press release, the government highlighted the focus on social expenditure, particularly health and education; however, social spending is set to increase year-on-year by markedly less in percentage terms than total spending.
At DOP 690 billion, revenues are forecast to rise around 14% over the 2018 budget figure. This will be partly underpinned by a drive to boost the efficiency of the internal tax and customs offices, which the government estimates could yield 0.4% of GDP in extra revenue.
With revenue forecast to increase at a slightly faster rate than spending, and the economy set to continue growing robustly, the government is targeting a 1.7% central government deficit for 2019, down from the 2.2% target for this year. In doing so, the administration hopes to rein in the rising public debt-to-GDP ratio. Improving the country’s fiscal health swiftly is key in view of the increasingly uncertain international economic panorama, with rising trade tensions and tighter global financial conditions which could hurt the Dominican Republic’s economy going forward.
Most of the economic assumptions underlying the 2019 budget appear realistic and are broadly in line with LatinFocus Consensus Forecast panelists’ estimates. However, the assumption of an average oil price of USD 63 per barrel appears low given the current market situation. If oil prices overshoot this prediction, this could complicate the government’s efforts to drive down the fiscal deficit.
Author: Oliver Reynolds, Economist