Caribbean & Central America - December 2023

The Dominican Republic has been one of the fastest-growing economies in the Caribbean for many years. Assessments by the International Monetary Fund (IMF) and other multilateral institutions remain strongly positive. But with elections due next year, border tensions with Haiti, and worries over long-term productivity, the risk of a 2024 slowdown cannot be entirely discounted.

In its World Economic Outlook (WEO) published in October, the IMF predicted Dominican Republic GDP growth of 3.0% this year, rising to 5.2% in 2024. An IMF mission to Santo Domingo in early November, led by Emilio Fernández-Corugedo, was upbeat. At a joint press conference with the central bank (BCRD) president Héctor Váldez Albizu, he said the economy remained resilient despite multiple external shocks. Váldez Albizu in turn highlighted a falling 12-month inflation rate (down to 4.35% in October from a peak of 9.64% in April 2022) and the gradual easing of monetary conditions with phased reductions in the benchmark interest rate (currently standing at 7.25%).

A reduction in bank reserve ratios and new rapid-disbursement credit lines to businesses and households had injected RD$154bn (around US$2.7bn) into the economy according to Váldez Albizu. Third quarter year-on-year GDP growth was 2.6%, and a higher 3.1% for the month of September, pointing to a stronger last quarter. The BCRD president also highlighted strong foreign currency inflows. This year’s tourism revenues are expected to hit US$10bn, with remittances from expatriate workers bringing in another US$10.2bn and foreign investment totalling US$4.3bn.

Yet there have also been somewhat more cautious voices to consider. In October the economy ministry had reduced its expectations for 2023 and is now predicting 2024 growth of 4.8% next year. A report on the Dominican Republic published in August by the World Bank titled ‘Rethinking productivity to Boost Growth Leaving No one Behind’ argues that the current economic model needs to be refreshed. It notes that in 2005-2019 the economy grew by an annual average of 5.8%, more than double the regional average (which was 2.6%). However, the factors driving this growth are said to be reaching their limit. Productivity growth has been low, held back by insufficient human capital to meet business needs, disasters related to climate change. and market distortions, such as an inefficient allocation of tax exemptions.

To re-invigorate growth the report suggests a wide range of reforms. They include strengthening human capital by updating skills for the labour market and improving access to training for women and rural residents. Key measures should also be taken, the report says, to promote competition, encourage innovation, improve the efficiency of tax collection and public spending, and build resilience to external shocks and climate events.

In the short term, border tensions with neighbouring Haiti could be negative for growth. In the face of increasing gang violence and a power vacuum in Haiti, the Dominican Republic has stepped up border security. In response to Haitian construction work on a canal accessing a northern border river, which Santo Domingo alleges is in violation of an existing treaty, President Luis Abinader shut down the border completely on 15 September, a measure that was partially relaxed in October although visa restrictions remain in place. There was then a confrontation in November with both countries accusing the other of committing border violations.

Trade with Haiti is significant. In 2021, for example, the Dominican Republic exported goods worth US$955m, or 8.1% of its total overseas shipments, to Haiti. Imports from Haiti were much less significant, worth US$4.3m or 0.01% of the total in that year.  It is clear that the prospect of further border tension could have disruptive effects on the Dominican Republic economy, and particularly so for Dominican farmers selling food and livestock products in border areas.

General elections due in May next year are also a source of some uncertainty for the local business community. President Abinader (Partido Revolucionario Moderno, PRM) is widely expected to be re-elected, with a poll in November by Markestrategia putting him in front of the race with 57.6% support, followed by Leonel Fernández (Fuerza del Pueblo, FP), a two-time former president (1996-2000 and 2004-2012) and by Abel Martínez (Partido de la Liberación Dominicana, PLD) lying in third place with 10.7% backing. The likelihood of another business-friendly government is relatively high, but it is not yet clear whether the balance of forces in the next legislature will be favourable for long-term, productivity-enhancing reforms. A November agreement by opposition parties to present some common candidate lists could herald stronger congressional opposition in future.

Informal trade with Haiti

In April 2021, the Dominican central bank (BCRD) published its first-ever report on informal border trade which showed that this totalled US$429.6m in 2017. Of the total, US$331.5m corresponded to Dominican exports – a figure which accounted for 7.5% of the Dominican Republic’s total exports in 2017. According to the same BCRD report, the Dominican Republic’s informal exports to Haiti totalled US$357.2m in 2018 and US$345.9m in 2019.