Dominican Republic: 2020 budget should shore up growth next year; fiscal concerns to linger
October 2, 2019
On 26 September, the government announced the 2020 budget, which should support the economy next year thanks to notable increases in current and capital expenditure. On the other hand, worries over public debt and fiscal sustainability are likely to remain.
Total spending is seen at DOP 997 billion next year, on double-digit rises in current and capital spending, more than offsetting lower spending in other areas such as debt repayment costs. Revenues are seen increasing to DOP 751 billion. The above-inflation spending hike should help buoy activity against an uncertain external backdrop, ebbing momentum in the U.S. and potential political uncertainty building up to the general elections in May 2020.
The government sees economic growth at 5.0% next year, and inflation of 4.0%, although both figures are higher than panelists’ projections. In particular, our panelists are less optimistic about the growth outlook, most likely owing to expectations that the U.S. economy will slow markedly in 2020; the U.S. is a key source of tourists, exports and remittances and a slowdown stateside would thus likely have a knock-on effect on the Dominican Republic.
The fiscal situation is likely to continue to present a real—albeit not pressing—risk going forward. In a recent staff visit, the IMF highlighted the need for fiscal adjustment to stem the rise in the public debt-to-GDP ratio, which continues to edge upwards despite recent above-potential growth. The Fund also urged the government to broaden the tax base, put the electricity sector on a sustainable footing and adopt a fiscal framework.
According to analysts at JPMorgan:
“The current administration should press in favor of a fiscal overhaul but the electoral process next year could delay it. We do not expect credit rating changes in the foreseeable future, with major credit rating agencies currently holding a “stable” outlook for the sovereign, on the back of strong growth and no immediate fiscal pressures.”
Author: Oliver Reynolds, Economist