Dominican Republic: July general elections unlikely to lead to significant shift in economic policy
June 10, 2020
On 5 July the country will elect a new president and Parliament. Polls suggest both the opposition leader Luis Abinader, of the center-left Modern Revolutionary Party, and Gonzalo Castillo, from the incumbent center-left Dominican Liberation Party, have a realistic chance of winning. If no presidential candidate wins more than 50% in the first round, a run-off vote will be held on 26 July. Regardless of the victor, economic policy is unlikely to shift markedly and should remain broadly market-friendly. However, a likely more fractured Congress could make it difficult for the new government to enact its policy agenda.
Both candidates’ programs emphasize job creation; improving security; boosting social protection; and improving health and education. In the short term though, the new president’s attention will be occupied by the Covid-19 crisis, which will require ongoing support to affected sectors and preparations for a possible intensification of the outbreak as the economy reopens.
On the fiscal front, spending pressures will be elevated in the near term as the government tries to reactivate the economy, while revenues will be hit by the coronavirus-induced downturn. A combination of these two factors will see a notable widening of the fiscal deficit this year and could necessitate further external support—which has so far been forthcoming in the form of a USD 650 million loan from the IMF.
Upon announcing the approval of the loan, the Fund cautioned: “Once the pandemic recedes, it will be important to return to a gradual fiscal consolidation, including establishing a medium-term fiscal framework, to ensure that the public debt-to-GDP ratio remains sustainable and on a declining path.”
However, Fitch Ratings stated: “Prospects for renewed fiscal consolidation and policy reforms are uncertain […], depending on the extent to which the next president will need to balance interest groups in the likely more diversified congress.”
Author: Oliver Reynolds, Economist