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Ms. Kimberly Beaton, Mr. Roberto Garcia-Saltos, and Mr. Lorenzo U Figliuoli

Abstract

Abstract: Accelerating economic growth in Central America, Panama and the Dominican Republic (CAPDR) remains an elusive task. While the region performed relatively well in the post-global financial crisis period, over the last five years obstacles to growth have become more evident and new challenges have emerged. In response, the region has strengthened macro-financial frameworks but more progress will be required to pave the way to sustained growth and prosperity. This book considers the structural factors underlying the region’s growth outlook and assesses its macroeconomic and financial challenges to help shape the policy agenda going forward. The book first identifies the structural determinants of growth in the region related to: capital formation; employment; demographic factors, including immigration; productivity; and violence. It then highlights the importance of creating fiscal space through the design and implementation of fiscal rules and mechanisms to increase accountability (better quality of public spending, adequate policies to reduce income inequality and sustainable retirement plans). Finally, it presents recent evidence on the importance of a supportive financial sector for growth (including through financial inclusion and development).

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.