THE Dominican Republic is lauded as one of the fastest-growing and most dynamic economies in Latin America and the Caribbean. But the nation’s resilience was put to the test with the onset of the novel coronavirus pandemic.

In the first half of 2020, the Dominican Republic’s economy contracted by 8.5 per cent compared to the same period in 2019. This sharp contraction was unprecedented in the country’s recent economic history. But, by the end of 2021, domestic output was five per cent above pre-pandemic levels, consistent with strong employment growth. Real gross domestic product (GDP) increased by 12.3 per cent in 2021, amid broad sectoral growth — including a notable recovery in tourism, with arrivals exceeding 2019 levels since last fall.

So how did the Dominican Republic manage to bounce back so quickly?

The International Monetary Fund’s (IMF’s) latest Article IV consultation with the Dominican Republic outlines some of the decisive actions which caused the country to stay afloat on a robust path to recovery.

The IMF sums it up this way, “The Dominican Republic continued to show remarkable resilience to global shocks, 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.”

On the ground, the Dom Rep authorities recognised early that the COVID-19 downturn is worse than the economic contraction during the 2003 banking crisis (-1.3 per cent) and the economic contraction during the 2008 great recession (-2.4 per cent). The crisis peaked in April 2020 when comparing with the same period in 2019.

Information from the Dominican Treasury of Social Security (TSS) in 2020 showed that in April and May the number of active workers contributing to the Dominican Social Security System fell by 532,342 workers, representing a 23.7 per cent loss of formal employment.

And by the second quarter of 2020 the Ministry of Economy, Planning and Development was estimating that during the full lockdown, the general poverty rate was 27.4 per cent, an increase of six percentage points, when compare to the 21.4 per cent poverty rate in the first quarter.

These conditions formed the basis for the quick and decisive actions taken by the Government to protect the most vulnerable in the population while preventing wide-scale economic regression.

The Government assessed the situation very early and started to implement broad cash transfers to low-income families and the unemployed. The cash transfer programmes were called: (1) stay at home, (2) the employee solidarity assistance fund and (3) the independent worker assistance programme.

There was also targeted tax relief and health spending was prioritised.

On the monetary policy side, the central bank reacted promptly through interest rate cuts and ample liquidity provision that supported credit and activity. As the economy began to recover, policies became more targeted.

On the fiscal side, broad support programmes were rolled out. These programmes ended in April 2021, but temporary social programmes were gradually merged into a new social assistance programme.

Meanwhile, support to the unemployed focused on the most affected sectors, notably tourism. The hardest-hit sectors, in terms of a real value-added contraction, were hotels, bars, and restaurants (-42.6 per cent); construction (-23.2 per cent); mining (-16.3 per cent); other services (-11.7 per cent); transportation and storage (-11.0 per cent); free trade zones (-9.8 per cent), and local manufacturing (-7.8 per cent).

Additionally, to support a safe reopening, new health spending focused on the roll-out of vaccines. The Government set a target of immunizing 7.8 million people — over 70 per cent of the population. The latest data showed that around 51 per cent of the target population has received two vaccine doses.

Notably, despite the disbursement of cash to fund temporary measures, the Government has maintained budget discipline through expenditure control and executing proactive debt-management that reduced financing risks.

But the recovery has not been smooth sailing.

The IMF highlighted in the Article IV Consultation that inflation is taking longer than expected to get back into the target range of four per cent (plus or minus one percentage point).

According to the IMF staff, headline inflation continues to exceed the target range because of high inflation in the United States, higher global energy and food prices and supply chain disruptions.

The annual inflation rate in the Dominican Republic eased to 9.47 per cent in May of 2022, down slightly from a one-year high of 9.64 per cent in the previous month.

Notwithstanding, the IMF said Dominican Republic’s external position is broadly in line with fundamentals and desirable policies.

Exports and remittances grew robustly, while higher domestic demand and commodity prices increased the current account deficit — which nonetheless remained fully financed by resilient foreign direct investment (FDI).

The Dominican Republic is one of the main recipients of FDI in the Caribbean and Central America.

At the same time, the external position of the country is assessed as sustainable, with international reserves up strongly at US$14,455.4, improving reserve adequacy. The real exchange rate appreciated slightly in 2021 and remains broadly in line with fundamentals.

The IMF noted that risks are mainly associated with the war in Ukraine and the tightening of global financial conditions. The main impact from the war is expected to take place through higher commodity prices — direct trade and financial linkages are limited — while global financial conditions may have a stronger-than-expected impact on capital flows.