An International Monetary Fund (IMF) mission led by Przemek Gajdeczka visited Santo Domingo during September 10 – 18, 2012, to review economic developments and lay the foundation for the upcoming Article IV consultation and Post-Program Monitoring. The mission met with President Danilo Medina, members of the Economic Cabinet, senior government officials, representatives of the private sector, and union leaders. At the conclusion of the visit, Mr. Gajdeczka issued the following statement.
“The mission reviewed recent economic developments and discussed the near-term outlook for the Dominican Republic. This year, the economy has slowed down and inflation declined, while the fiscal and external positions remain weak. Real GDP growth was 3.8 percent in the first half of 2012 supported by agriculture, commerce and tourism. Inflation declined rapidly as the price shocks observed in 2011 were not repeated. Annual inflation in August was 2.2 percent, below the target range of 5.5 percent +/- 1 percent specified under the central bank’s recently announced inflation-targeting regime.
“The fiscal position deteriorated in the first half of 2012. Revenues were boosted by one- off proceeds from the sale ofCerveceria Nacional Dominicana. Nevertheless, higher expenditure, including electricity subsidies, resulted in an overall deficit of the public sector of about 3.3 percent of GDP by June 2012 (compared to an annual target of about 2 percent of GDP in the original budget).
“Monetary policy has been eased in 2012 to support economic activity. The central bank lowered its overnight deposit rate during May-August by a total of 175 basis points (to 5 percent). The monetary aggregate M2 increased by 6 percent during December 2011- August 2012 while credit to the private sector in domestic currency declined slightly. At mid-September, gross international reserves stood at US$3.4 billion (about two months of imports), while the peso remained broadly stable in nominal terms since end-2011.
“The short-term macroeconomic outlook poses a challenge to the authorities, reflecting the need to strengthen the domestic macroeconomic framework, in particular to significantly tighten the fiscal position, and to cope with risks emanating from the global economy. Real GDP growth is expected to be around 4 percent in both 2012 and 2013, while inflation is projected to remain low.
“The mission held fruitful discussions with government and civil society representatives and wishes to express its gratitude for their excellent cooperation and frank discussions. The authorities expressed their interest in Fund support in designing economic policies. It was agreed to hold Article IV consultation and Post-Program Monitoring discussions before the end of 2012.”