Over the past 25 years, the Dominican Republic (DR) has experienced a remarkable period of robust economic growth. The economy expanded by an average of 5.3 percent in 2000–19, driven primarily by capital accumulation and total factor productivity growth. The economy recovered strongly in 2021, with GDP rebounding by 12.3 percent, supported by a solid policy response to COVID-19, including fiscal, macroprudential and supervisory policies, and monetary easing. Tourism, remittances, foreign direct investment, mining revenues, free-trade zones, and telecommunications have helped make the DR the second fastest growing economy in LAC over the last decade, and as of 2019 the country was on track to realize its ambition of achieving high-income status by 2030.
The pandemic significantly impacted the DR’s economy, causing a sharp contraction in the second quarter of 2020 across critical sectors such as tourism, construction, and mining. The GDP contracted by 6.7% in 2020, although strongly recovered in 2021. The pandemic has put intense pressure on both fiscal revenues and expenditures, but a combination of economic recovery and improvements in the efficiency of public spending helped to return the fiscal deficit to a sustainable trajectory. Meanwhile, effective debt management and the development of local capital markets will become increasingly important to safeguard long-term debt sustainability and limit exposure to foreign-exchange risk.
Over the past decade, economic growth in the DR has substantially reduced poverty rates and supported the expansion of the middle class. However, disparities in access to economic opportunities and public services remain deep. Poverty rates are persistently high in rural areas, and women face disproportionate challenges nationwide.
The COVID-19 pandemic pushed the DR into its first recession in nearly 17 years and reversed the downward poverty observed since 2008. By the end of 2020, an estimated 191,273 jobs were lost since March of the same year. By 2021, labor markets were not fully recovered, employment was still 2 percent behind the pre-pandemic levels. A slightly improvement on employment levels was evidenced from 2020 to 2021 (3.8 percent), however the recovery has been driven by the creation of jobs in the informal sector, contrasting with 2.4 percent decrease of formal employment in the same period. Female employment remains as the most impacted, little progress has been seen in job creation for women compared to 2019.
Despite an increase in social expenditures to mitigate the impact of the pandemic crisis, official poverty estimates increased by 2.4 percentage points to 23.4 percent in 2020. The poverty rate kept its increasing trend during 2021, reaching 23.9 percent, representing over a 300 thousand people falling into poverty since the pandemic crisis began. This is explained by: (i) the informalization of the labor market, which is correlated with lower productivity and wages; (ii) higher inflation that has eroded household real income; and (iii) the downscaling of the emergency social assistance that was launched during the peak of the pandemic crisis. The impacts of the current war in Ukraine are still not accounted for. However, the war would produce disruption of global supply chains and a consequently price increase of key goods and services threating the slow post-pandemic recovery. Public investment and targeted policies to accelerate the recovery and mitigate the impacts inflationary pressure for the most vulnerable would be a key element for the poverty alleviation for the upcoming years.
While policymakers are focused on the urgent challenges posed by the pandemic, the DR remains at high risk from hurricanes, flooding, and other extreme weather events. Access to adequate water and sanitation services has improved since the early 2000s, but the DR’s exposure to climate change threatens these gains. Climate change mitigation and adaptation efforts must be complemented by improved management of natural resources, especially the coastal and marine assets on which so much of the DR’s economy depends.
As the pandemic recedes, investment in human capital will be vital to the DR’s continued growth and development. The 2020 Human Capital Index estimates that a child born in the DR today will be only half as productive over her lifetime as she would have been had she received a complete education and proper healthcare. The DR has made great strides in expanding access to education and healthcare, but the uneven quality of these services remains a major obstacle to broad-based economic growth and human capital development. To restart employment-intensive, pro-poor growth and enhance its economic competitiveness, the DR must strengthen productive linkages between domestic and exporting firms, reduce the administrative costs of the bureaucracy, improve the reliability of the electricity supply, and expand access to credit. How swiftly and effectively the government embraces these reforms will largely determine the pandemic’s long-term impact on poverty, employment, and economic growth.
Last Updated: Apr 13, 2022