Dominican Republic economic report 2023
Background
The Dominican Republic's (DR) economy has been one of the fastest growing in Latin America and the Caribbean since 2010. In 2022 its GDP grew 5.1% and reached US$108.7B, its highest ever, supported mainly by sectors like construction (15.8%), commerce (11.2%), manufacturing (11%), and hospitality (6.1%).
The DR economy has almost recovered fully from the pandemic slowdown, with economic activity back to pre-pandemic levels for over a year now. But it has come with a high price due to the many subsidies that the DR government implemented during the pandemic. The subsidies and other government programs from 2020-2022 were mostly funded by loans from external and internal sources, making the consolidated public debt of the country increase more than 20%, from US$54.5B in 2020 to US$64.7B in March 2022 (58.6% of GDP).
For 2023, the DR has its largest national budget ever (approx. US$26.4B), a reflection of the deficit fiscal policy that has been in place so far in this millennium (except in 2007). While the government estimates of 10% incremental revenue in 2023 vs 2022, expenses are also estimated to increase 7.2%. The budget includes US$6.6B of loans to execute and/or finalize high-priority public investments (Line 2-C of the Metro, the Montegrande water dam, the Santiago monorail system, water infrastructure projects, etc).
Government subsidies will, once again, be an important burden with US$1.2B for the electric system, and US$351.4M to subsidize fuel prices. Being a pre-electoral year, it is expected that public spending will increase considerably this year and in the first half of 2024, to support the re-election efforts of President Abinader.
Family remittances, a key source of revenue to the economy, suffered a moderate decrease in 2022 for the first time in over a decade, but still reached a whopping US$9.85B (10.5% of GDP). On the other hand, Foreign Direct Investment (FDI) into the country increased 25% in 2022, reaching US$4.0B. Main recipient sectors of FDI were tourism (US$1.1B), energy (US$753M), commerce/industry (US$599M), and real estate (US$483M).
| Key data | 2020 | 2021 | 2022 |
|---|---|---|---|
| GDP (USD billions) | 78.8 | 94.2 | 108.7 |
| Per capita GDP (USD at PPP) | 17,080 | 19,826 | 21,995 |
| Real Growth in GDP (%) | -6.7 | 12.3 | 5.1 |
| Inflation (CPI %) | 5.6 | 8.5 | 7.8 |
| Exchange Rate (USD – avg end period) | 58.32 | 57.2 | 55.7 |
| Exchange Rate (CAD – avg end period) | 42.16 | 45.4 | 42.1 |
| Current Account Balance (US$ M) | -1,337 | -2,689 | -4,842 |
| Fiscal Balance/GDP (%) | -7.9 | -2.7 | -3.3 |
| International reserves (US$M) | 10,845 | 13,124 | 13,324 |
Sources: DR Central Bank; EIU
An election year looming
In 2024, heavy spending is expected due to a large national budget and additional international loans. However, as commonly seen in election years, a considerable fiscal deficit may result by the end of the year. To reduce the volatility risk of the public debt in foreign currency, the government has been repurchasing external debt by issuing peso-denominated bonds.
Thus, the government will focus on funding projects that can be completed or almost completed before next year's elections, potentially impacting early-stage projects.
A much-needed tax reform to broaden the tax base to raise revenue has been set aside due to political challenges and the lack of public support. The Central Bank's policy rate, which experienced a great increase from 3% in 2021 to 8.5% in 2023, is expected to remain stable in 2023, and may potentially decrease in 2024.
Despite initial economic challenges posed by the COVID-19 pandemic, the Abinader administration has presented an ambitious program of infrastructure and development projects, primarily funded through loans and public-private partnerships.
This program is strongly focused on water, energy, transportation, and tourism. In September 2020, President Abinader made operational the General Directorate of Public Private Partnerships (DGAPP), created under the PPP Law approved earlier that year. The government aims to develop many important projects under the PPP format through the DGAPP.
Energy: Under the Abinader administration, the energy sector is undergoing a comprehensive reform. This reform involves eliminating the former government energy holding, CDEEE, and integrating many government agencies under the Ministry of Energy and Mines. The reform aims to create efficiencies, cost reductions, and increase transparency in the sector.
The government continues to promote private investments in both renewable energy and natural gas generation, attracting interest from companies based in Canada, US, EU, Asia, and dozens of projects in the pipeline. However, transmission capacity is almost maxed out, posing challenges for new renewable projects. Furthermore, the price offered by the Government in new Power Purchase Agreements (PPAs) is significantly lower than the current rate.
Water: Since taking office in August 2020, President Abinader has prioritized water issues. In June 2021, he presented the National Commitment for the Water Act (2021 -2036) to the Social and Economic Council (CES).
This ambitious 15-year program, worth US$8.5 Bn, would address water supply, water treatment, and resource protection. It includes the construction of 17 water dams, of which 8 are scheduled for the current term (2020-2024). However, this program still requires various levels of approvals. Canadian companies interested in water-related projects in the DR should continue to monitor developments.
Foreign direct investment and trade
The DR received US$4.0B of foreign investment in 2022, according to the Dominican Central Bank, which represents a 25% increase over the amount received in 2019.
Statistics from the Dominican Central Bank for the 2010-2022 period show Canada as the 2nd largest all-time foreign investor in the country with total cumulative investments of over US$6B, closely following the US. Canadian investments are concentrated in mining, financial services, manufacturing, tourism, renewable energy, and agriculture.
Despite progress made in previous years, the DR remains a challenging market for first-time foreign investors. Inordinate delays stemming from bureaucratic red tape and a high degree of bureaucratic discretion are factors that need to be considered carefully by investors.
Business legislation has progressed in the Dominican Republic, with significant improvements in taxation, labour, customs procedures, banking supervision, among others. However, improvements remain to be seen in the systematic application of rule of law and reduction in the discretionarily applied to decisions affecting private businesses.
It is recommended that Canadian companies wishing to enter the Dominican Republic market seek legal advice before entering into a formal agreement with a local counterpart, be it private or public.
The DR exported US$13.8B worth of goods in 2022, up from US$12.5B in 2021. Gold exports by Barrick Gold reached US$1.3B in 2022, maintaining its status as a key export. DR imports also increased in 2022 (26%), ending the year at US$30.7B.
Main Canadian exports to the DR: Canada exported C$355.8M of goods to the DR in 2022, a 24% increase over 2021. The main exports from Canada were: wheat, smoked herring, machinery parts, and paper. With regards to services, Canada has a strong presence in the financial sector, as well as in tourism, and consulting services.
Main Canadian imports from the DR: Canada imports from the Dominican Republic were C$334.6M in 2022. Main imports were medical supplies, electrical and electronic components, and tobacco products.
Trade agreements and Canadian commercial activity with the Dominican Republic
Membership in trade agreements and other multilateral agreements
The DR is a signatory of DR-CAFTA, the Free Trade Agreement (FTA) between the US, 4 Central American Countries and the Dominican Republic which has been in force for 12 years. The Dominican Republic has also had an Economic Partnership Agreement (EPA) with the EU since 2008. Canada does not have a FTA with the DR, creating competitiveness issues for Canadian exporters subject to hefty tariffs in some areas.
The Dominican Republic is a member of many multilateral institutions including: WTO, WCO, ACS, ECLAC, G-77, IADB, IMF, OAS, UN, and the Central American Common Market, among others. Furthermore, the DR has bilateral air agreements with over 70 countries worldwide.
On April 30, 2018 the DR announced the establishment of diplomatic relations with China, while breaking up a longstanding and very cooperative relation with Taiwan. The announcement has had limited impact in bilateral trade between the 2 countries.
China is the second largest source of DR imports, but Dominican exports to China are limited. Following the announcement, the DR and China signed several non-binding bilateral agreements, but their continuity has been limited due to the change of Government in 2020.
Canadian tourism to the DR had been increasing steadily up until 2019, reaching 892,000 Canadians tourists, then dropped to 337,000 in 2020 due to the COVID-19 pandemic. Overall, tourism generates a large amount of economic activity in the DR and Canadian investments in the Tourism sector have been growing as well.
Sources: Embassy of Canada in Dominican Republic, EIU, Strategis, Statistics Canada, Dominican Central Bank
