THE International Monetary Fund (IMF), which last week completed a visit to the Dominican Republic, is recommending that the country’s priorities in the short term should be focused on returning the inflation rate to the target range and maintain a downward trajectory in public debt, while supporting the vulnerable population against the impact of global shocks.

In a statement published on Monday, the mission reiterated its assessment that the local economy “has shown a vigorous recovery after the pandemic, despite global factors that have generated challenges in terms of inflation.”

“The Dominican Republic’s dynamic economy continued to show remarkable resilience to global shocks. This was supported by sound policies, monetary policy support, a nimble COVID vaccination campaign and a well-attuned reopening that allowed the economy to make the most of the global rebound last year. This resilience and strong signals of policy sustainability are placing the Dominican economy in a good position to face emerging global challenges going forward,” the IMF team said in the assessment published on its website on May 16, 2022.

Real gross domestic product (GDP) in the Dominican Republic increased by 12.3 per cent in 2021, amid broad sectoral growth—including a notable recovery in construction and tourism, with arrivals exceeding 2019 levels since last fall. The recovery has been so strong that by the end of 2021, output in the Hispaniolan nation was five per cent above pre-pandemic levels, pointing to a rally beyond a statistical rebound and consistent with strong employment growth.

However, the IMF said inflation convergence is taking longer than envisaged. At about nine per cent last March, it continued to exceed the target range due primarily to high inflation in the United States, higher global energy and food prices, and supply chain disruptions. The Central Bank of the Dominican Republic (BCRD) maintains an annual inflation target of three per cent to five per cent. To guide inflation back to its target range, the BCRD in February ordered a 50 basis point increase in the policy rate, bringing it to five per cent. The decision marks the third rate increase in a row for the BCRD, following a 50 basis point hike in November and a 100 basis point jump in December.

“The external position was robust, with the current account financed by FDI and a significant accumulation of reserves. The financial system remains resilient and continues to support the economy despite the unwinding of pandemic-related regulatory flexibility,” the IMF continued.

According to the fund, the outlook for the Dominican economy points to a continued recovery though global developments pose risks.

“GDP growth would converge to five per cent—around its potential—and inflation would return to the target range by next year as the impact of global shocks recedes, in the context of financial stability and a sound external position.”

As for risks, the war in Ukraine may have a stronger-than-expected effect on global growth and inflation it was noted.

The IMF outlined further that improvements in the business climate—such as the zero-bureaucracy initiative and the new customs law—can foster investment. Infrastructure and human capital investment, more flexible and formal labour markets, educational quality and labour market participation of women, and climate change policies can further unlock growth potential, it said about the medium term.