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International Monetary Fund. Western Hemisphere Dept.
This paper analyzes Dominican Republic’s Request for Purchase Under the Rapid Financing Instrument (RFI). The RFI provides timely resources to the authorities which they intend to mobilize for essential coronavirus disease 2019 (COVID-19)-related health expenditure and support to the vulnerable population. The pandemic has significantly weakened the Dominican Republic’s macroeconomic outlook for 2020 and created financing needs that require additional support. The authorities are also seeking support from other multilateral institutions. Macroeconomic and financial policies have been accommodative in response to the pandemic. The temporary fiscal measures to accommodate higher public healthcare spending and targeted transfers to the most vulnerable are appropriate. The IMF emergency assistance under the RFI is expected to help provide the much-needed resources to address the urgent balance of payments needs and support essential COVID-19-related health expenditure. The support of other international financial institutions and development partners would be crucial to close the remaining financing gaps, ease the adjustment burden, and preserve the Dominican Republic’s dynamic economic growth.
International Monetary Fund. Western Hemisphere Dept.
This 2019 Article IV Consultation discusses that driven by popular frustration with high levels of corruption and inequality, Haiti has been experiencing a protracted political crisis and prolonged civil unrest. The baseline scenario assumes some stabilization in the political situation by early 2020 but no major political or economic reforms. This would allow growth to recover only gradually and in the absence of sustained implementation of good policies and structural reforms, potential growth would remain low at about 1.4 percent over the medium term. Downside risks, both domestic and external, remain elevated. A prolongation of political instability, extreme natural disaster, drop in remittances, and/or a contraction in exports because of trade tensions would worsen the outlook, particularly given the absence of buffers and fragile social conditions. The challenge is to stabilize the macroeconomic situation in an unstable political context. The IMF Staff encourages the authorities to continue their efforts to contain the fiscal deficit and its monetary financing by the central bank. Improving domestic revenue collection and redirecting current spending would help create space for much needed social and capital expenditures. Together with steps to strengthen the central bank’s autonomy and legal framework, this would help reduce fiscal dominance.
Mr. Mauricio Vargas and Daniela Hess
Using data from 1980-2017, this paper estimates a Global VAR (GVAR) model taylored for the Caribbean region which includes its major trading partners, representing altogether around 60 percent of the global economy. We provide stilyzed facts of the main interrelations between the Caribbean region and the rest of the world, and then we quantify the impact of external shocks on Caribbean countries through the application of two case studies: i) a change in the international price of oil, and ii) an increase in the U.S. GDP. We confirmed that Caribbean countries are highly exposed to external factors, and that a fall in oil prices and an increase in the U.S. GDP have a positive and large impact on most of them after controlling for financial variables, exchange rate fluctuations and overall price changes. The results from the model help to disentangle effects from various channels that interact at the same time, such as flows of tourists, trade of goods, and changes in economic conditions in the largest economies of the globe.
International Monetary Fund. Western Hemisphere Dept.
This 2019 Article IV Consultation with the Dominican Republic discusses that the economy rebounded to a record high growth of 7 percent in 2018, with the positive momentum carrying into early 2019. The strong economic and policy performance has strengthened resilience to downside risks, but vulnerabilities remain. The fiscal position is under moderate sustainability and affordability pressures; key structural bottlenecks have not been addressed; and social outcomes can be further strengthened. Upcoming elections in 2020 are likely to dominate the near-term policy landscape. The outlook is favorable, with growth moderating to potential, inflation picking up toward target with fading supply shocks, and the external position normalizing. Risks are moderate and balanced: on the upside, solid income and credit growth could sustain domestic demand, while on the downside external risks are building up. Tighter fiscal policies are warranted by demand, sustainability and affordability considerations. A frontloaded adjustment, anchored on widening the tax base and mindful of the distributional effects of the adjustment measures, would help reverse the upward debt dynamics.