Over the past 25 years, the Dominican Republic (DR) has experienced a remarkable period of robust economic growth. The economy continued its rapid expansion in the years leading up to the COVID-19 pandemic, and between 2015 and 2019 the DR’s annual GDP growth rate averaged 6.1%. Tourism, remittances, foreign direct investment, mining revenues, free-trade zones, and telecommunications have helped make the DR one of the fastest-growing economies in the Latin America and the Caribbean (LAC) region, and as of 2019 the country was on track to realize its ambition of achieving high-income status by 2030.
However, the global shock triggered by the COVID-19 pandemic has 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. GDP contracted by 6.7% in 2020 and is projected to grow by 5.5 percent in 2021but remain below its potential in 2021 and 2022. The pandemic has put intense pressure on both fiscal revenues and expenditures, but in 2021 a combination of economic recovery and improvements in the efficiency of public spending are projected to help 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. Despite an increase in social expenditures to mitigate the impact of the pandemic crisis, official estimates are that poverty increased by 2.4 percentage points to 23.4 percent in 2020, which represents over a quarter million people (270,000) falling into poverty. Public investment and targeted policies to accelerate the recovery of the industrial and agricultural sectors will be vital to foster renewed growth and reverse the increase in the poverty rate.
The COVID-19 pandemic has pushed the DR into its first recession in nearly 17 years. As of the last quarter of 2020, an estimated 191,273 jobs have been lost since March, with especially negative implications for poor households, women and informal workers. Labor participation recovered to 61.1 percent in Q4 2020 from 56.6 percent in Q2 but remains below the 65.4 percent of Q4 2019. The informal sector recovered faster than formal employment and accounted for 51.3 percent of total employment in Q4 2020 compared to 48.4 percent a year earlier. Structural reform necessary to accelerate formalization includes leveling the competitive playing field for new entrants, small firms, and local suppliers, and updating business regulations.
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: Jun 10, 2021