The Dominican Republic has been one of the fastest growing economies in Latin America and the Caribbean in the last decade. Real GDP grew by 4.9 percent in 2022, driven by services. The hotels, bars, and restaurants sector grew by 24 percent for the same period, supported by an active government vaccination campaign, and a recovery in global tourism. Expansionary fiscal policy also contributed to growth.
While GDP has fully recovered from the pandemic, the fiscal position has weakened. Public debt remains above pre-pandemic levels and the interest bill has already absorbed three percent of GDP in 2022. Reduced fiscal space has reinforced the declining trend in public investment (from 3.9 to 2.8 percent of GDP between 2005 and 2021).
Growth has led to an increase in the middle class and a reduction in poverty. But it also brought more populations to the cities. In the last 15 years, more Dominicans moved to the cities. The urban population increased by 50%, and the country went from being an agricultural society to one dominated by large metropolitan areas.
Growth sectors have also failed to support creation of quality jobs, and improvement is needed for access to quality basic goods and services –in education, health, water, and electricity– that help expand economic opportunities, increase economic mobility and protect the poor and vulnerable population.
Rising inflation rates are affecting the livelihood of the population, primarily of the more vulnerable. End of year inflation reached 7.8 percent y/y in 2022, driven by the impact of disruptions in international supply chains and increasing commodity prices for food and transport.
In 2022, employment grew by 2 percent and informality decreased by 1.9 percent points compared to 2021. The upper middle income poverty rate (US$6.85 in 2017 PPP per day) is expected to continue declining in 2023 at 21.6 percent.
Unjustified gender gaps in wages, occupational segmentation by gender into less productive and more poorly paid activities, shorter working lives, and higher unemployment and unpaid roles, all combine to contribute to the higher incidence of poverty among women of all age groups in the Dominican Republic as compared to men. In addition, adolescent pregnancy, at 93 births per 1,000 women ages 15-19 in 2018, remains exceptionally high by global standards – and well above the LAC average of 62.1.
The Dominican Republic’s economic growth is expected to slow down from 4.9 percent to 4.4 percent in 2023 due to tighter financial conditions, continued fiscal consolidation, and the global economic slowdown. However, structural reforms in energy, water, and public-private partnerships, as well as efforts to improve human capital and attract foreign direct investment, are expected to sustain growth potential in the medium term. As a result, growth is projected to accelerate to 5 percent after 2023.
Sustainable agriculture can also strengthen growth, by modernizing jobs and greening products. Reforms and innovation are also expected to strengthen green growth and promote inclusion. These assumptions would lay the foundations for the DR to cross the per-capita gross national income threshold for high-income countries by around 2035 (the threshold was US$12,695 in 2020 vs a US$7,260 per capita income in the DR).
The macroeconomic scenario faces both demand and supply risks. The economy main risks come primarily from Russia's invasion of Ukraine which main effect has been higher prices for goods and services (DR is a net importer of oil, natural gas, soybeans, sorghum, wheat, and corn), potentially affecting the poorest households.
The normalization of monetary policy in the United States can lead to tighter financial conditions. Increasing fuel prices could widen the fiscal balances and put additional risks on the energy reform. Likewise, climate change has intensified the exposure to natural disasters, which, given the country’s low degree of financial protection against these risks, could substantially increase contingent fiscal liabilities.
Fostering long-term growth will require structural reforms in support of increased productivity that would allow the country to take advantage of nearshoring opportunities and continue to diversify into non-textile activities. This should include higher investment in innovation, fomenting economic clusters and improved public services, particularly in education, while reducing informality.
Last Updated: Apr 05, 2023