Over the last two decades, the Dominican Republic have been standing out as one of the fastest economies in the Americas - with an average real GDP growth rate of 5.4% between 1992 and 2014. The DR remains the most rapid economy in the region in 2014 and 2015, with a real GDP growth at 7 percent. Recent growth has been driven by construction, manufacturing and tourism. On the demand side, private consumption has recently been strong, as a result of low inflation (under 1% on average in 2015), job creation, as well as high level of remittances.
Despite its strong growth and macroeconomic stability, the country has not witnessed significant welfare improvements, until very recently. Poverty soared from 32 percent in 2000 to almost 50 percent in 2004 following the 2003 financial and economic crisis, before gradually declining to 41 percent in 2013 and falling sharply in the last two years towards rates prevailing in 2000.
According to the World Bank Group’s Doing Business 2016, the Dominican Republic continues to be among the top 15 economies on the ease of doing business index in LAC. In recent decades, the country has also transformed its economic base and has diversified its exports. Improvements to the business climate have facilitated international trade and boosted export growth. However, further reforms are needed to maintain the country’s competitiveness in the region and beyond.
Challenges for inclusive growth
President Danilo Medina and the Dominican Liberation Party won a second election victory in May 2016 after a constitutional reform in 2015 that allowed him to run for a second term in office. The new government took office in August 2016 and will have opportunities to:
Improve the investment climate to boost job creation: Traditional job-intensive sectors such as manufacturing have grown at a slower pace in recent years than, for example, telecommunications and mining, which tend to generate fewer jobs. Since 2000, a large share of the jobs created has been in low-skilled and lower productivity industries in the informal sector. As a result of the 2003 crisis, real wages declined by 27 percent compared to 2000 and they have not recovered, even as labor productivity has risen significantly in the leading growth sectors. Improving competitiveness and the investment climate, ensuring stronger backward linkages from tourism and export processing zones to domestic manufacturing and agriculture, strengthening the quality of education and implementing job training policies, could help create more and better jobs.
Promote equitable, efficient, transparent and sustainable fiscal policy: Important steps have been taken to strengthen fiscal transparency and debt management since 2013. The ratio of tax revenue over GDP (under 14%, on average, for the least 4 years) is one of the lowest in the LAC region, and the tax system relies heavily on indirect taxes, which tend to be less progressive. On the expenditure side, key challenges include ensuring adequate financing for basic public services such as water and sanitation, quality education and health. Reorienting budget allocations towards achieving quality results and strengthening public financial management systems, remain core priorities for an efficient and transparent fiscal policy.
Improve public service delivery to reach people living in poverty: The DR has taken important measures in recent years to expand the coverage of social safety nets, improve targeting and condition transfers and enhance education and health. Coverage has also expanded significantly in terms of key services such as the National Health Service and essential medicines. A particularly important effort has been the assignment of a budget equivalent to 4 percent of GDP to pre-tertiary education (up from 2.3 percent in 2012) that has allowed the construction of thousands of classrooms to reduce overcrowding and allow for fuller schooldays and therefore more learning.
At the same time, access to basic public services remains unequal and is of generally low quality, particularly for people living in poverty. Better program targeting, monitoring and evaluation, and capacity building, along with incentives such as results-based financing, could help improve service delivery.
Last Updated: Sep 16, 2016