The IMF’s Article IV Consultation to the Dominican Republic

The Dominican Republic has had much to champion in its local economy over the past decade. Since 2010 the nation has enjoyed immense economic growth. This era is one of rich potential being fulfilled, with exciting prospects for the country’s future. 

The IMF recently undertook an Article IV visit to the nation. Such a visit always provides new insight into the reasons behind an economy’s success, as well as its ongoing challenges. Let’s consider what the IMF had to say about the Dominican Republic.

The Dominican Republic at a Glance

The Dominican Republic economy grew at the remarkable rate of 7% from the start of 2018 to 2019. The country had already done well to average 5.1% between 2008 and 2018, with successive year-on-year growth, and is on track to fulfill a key national goal of becoming a high-income country by 2030. 

It’s little surprise that the IMF’s report on the Dominican Republic’s economy was overall a positive one. In particular, the IMF praised innovation and adaptation of technology within the financial sector. With the development of the foreign exchange derivatives markets, key factors in driving new confidence in the nation’s business community will be an electronic foreign exchange trading platform and plans to recapitalize the central bank.

Takeaways for the Wider Caribbean

As the IMF cited, work remains to be done in continuing the nation’s transition to international accounting and regulatory standards in the banking sector. Meanwhile, the efforts so far of the Dominican Republic government are a case study for other regional nations in market confidence and efficiency. Simply put, the Dominican Republic has made it easier to do business faster. Where it once took 45 days to register a company, now it requires only seven. Property titles are also issued at a much faster rate, creating fresh momentum in the nation’s real estate sector.

The government has created a Citizen Observatory for Public Procurement alongside dozens of other committees that oversee public contracts. As opposed to creating extra red tape, this has helped reinforce the economy, driving home the message that the business community is strong, secure and primed for future growth.

Special Word on Saint Lucia: Two Growing Caribbean Nations

The Dominican Republic and Saint Lucia have parallels when it comes to economic growth, with both seeking greater diversification of their economy in the years ahead. For Saint Lucia, the groundwork for this has involved financial reforms and the encouragement of new growth sectors alongside the established markets of tourism and finance. This push has been key to the nation’s strong growth in recent years, and the projection of a 3.32% rate of growth in 2019. Both nations still need to determine their future path around engaging more in the global economy. 

In recent decades, some nations have successfully reduced barriers to global growth and engaged in market liberalisation that has accelerated national growth. By contrast, other nations have been reluctant to do so, given long-standing ‘social contracts’ that provide for high wages among the employed, even if at the expense of overall economic growth.

Given the rapid rate of growth that the Dominican Republic has been experiencing, the policy levers it pulls at home could provide economic inspiration not only for Saint Lucia and other nations in the region, but countries far beyond the Caribbean.

Developing Policy to End Inequality 

There are nearly 200 countries in the world, and only 60 are classified as developed. The Dominican Republic has an opportunity to be a global leader in addressing an emerging issue; one where its status as a developing nation can be an asset.

A decade on from the post-GFC era, many developed economies are on the road to recovery and, by some indicators, have reached new heights. However, there has also been a marked growth in the global rich-poor gap, which today is at its highest since the turn of the 20th century. One might expect developed economies to be leaders in addressing the gap but even Denmark — which regularly ranks highly in global surveys as among the world’s most liveable and economically fair societies — has seen the gap between rich and poor grow by almost 20% between 2008 and 2018.

Developed nations could change course but, owing to an economic ethos of ‘if it ain’t broke, don’t fix it’, such changes are often more gradual, seeking to preserve steady (if modest) economic growth, over bold change. A different dynamic can apply with developing nations.

Uruguay and Namibia have been leading the charge in recent years by engaging in progressive taxation and social spending policies that have borne fruits in reducing inequality. Every nation is different, and their policies reflect it, but for the Dominican Republic’s government, addressing inequality effectively in the near term will provide an opportunity to stake a claim in the international community as a success story regionally and globally.

Caribbean Economic Growth

As the IMF detailed, the Dominican Republic will need to find a path to continue to consolidate its economic growth while securing more strongly the bridge between GDP growth and overall enhancement of citizens’ lives and opportunities. When future hurdles are identified ahead of time, the prospects of clearing them increase. If the Dominican Republic stays on track towards its goals, it will set a fine example of what Caribbean nations can achieve.