Dominican Republic Economic Report 2019

Key Data201620172018
GDP (USD billions)72.476.081.3
Per capita GDP (USD at PPP)15,24316,06317,320
Real Growth in GDP (%)
Inflation (CPI %)
Exchange Rate (USD – avg end period)46.7348.4650.21
Exchange Rate (CAD – avg end period)34.7736.4738.13
Current Account Balance (US$ M)-815-133-1,160
Current Account Balance (US$ M)-2.8-3.0-2.0
International reserves (US$M)6,1346,8737,718

Sources: EIU

Key Economic Trends

The Dominican Republic’s economy has maintained robust growth over the last 5 years, outperforming its Latin American and Caribbean peers in 2018 with GDP growth rate of 7%.  The DR’s GDP grew to US$81.3B in 2018, supported mainly by sectors like communications (12.3%), construction (12.2%), health sector (8.7%), commerce (8.3%), and Financial Services. (7.1%). Tourism, which is one of the pillars of the Dominican economy, continued to be a gem in 2018 with a record 7.22M visitors (representing a 5.8% increase over 2017). While these figures may not be growing fast enough for the government to reach its goal of 10M visitors by 2020, the sector has generated revenues of up to US$7.6B. While fresh foreign investment in tourism infrastructure keeps landing into the country, the latest investments in tourism infrastructure have been focused both on luxury hotels and resorts, as well as high-end residential projects.  The sector is expected to continue to be a strong contributor to the country’s economy but has suffered slowdowns in the first half of 2019. Mining sector activity in the country decreased by 1.3% in 2018 but  exports from Barrick Gold Corporation/Newmont’s the Pueblo Viejo mine continued to perform well reaching  US$1.3B, making the mining project one of the key contributors to public coffers.  Additionally, Barrick Gold’s announcement to invest US$1.2 B in an expansion of its current operation should have a positive impact on the future growth of the sector.  With close to 2 million Dominicans living abroad, remittances also represent a key source of revenues for the country, and a driver of economic growth.  In 2018 remittances increased 10% over 2017, reaching US$6.5B. This is equivalent to 8% of GDP.

The DR’s Consolidated Public Debt reached US$21.8B by the end of 2018, equivalent to 27% of GDP.  The increase in external debt was mainly due to sovereign bond issues which have become a regular source of financing for the country, both internationally and domestically. In 2018 alone, the DR issued and sold approximately US$4.1B in the international markets. Furthermore, by the first quarter of 2019, the Dominican Government had already issued 58% of the budgeted DOP internal debt (approx. US$845M), and in June 2019 the Government issued and placed an additional US$2.5B of Sovereign bonds in the international markets. Dominican bonds continue to have good demand in the international markets and have become the tool of preference of the DR Government for external indebtedness. In the last 6 years the DR Government has issued and placed US$13.8B in bonds.

Government revenues increased by 12.5% in 2018 when compared to 2017, and the 2019 Budget estimates another increase of 14.2%. The fiscal deficit ended at 2.5% of GDP in 2018, lower than the 3.4% of 2017. However, with Presidential elections looming in May 2020, it is expected that fiscal discipline will take a back seat in the first half of 2020.  

Per capita GDP (at PPP) has increased 30% in the last 5 years, ending 2018 at US$17,320. Private consumption grew 5.3% in 2018, keeping the growing trend of the last 3 years. Consumption patterns of Dominicans often contrast with the country’s low per capita GDP (especially in urban centers), with considerable amount of money being spent in non-essentials and mid-to-high socioeconomic sectors’ preference for imported goods.

There seems to be a general consensus among private and public sectors that the DR needs a comprehensive fiscal reform in order to increase revenues and reduce the fiscal deficit. Given the high informality ratio of small businesses and labour in the DR (estimated at 60%), increasing revenues through direct taxes (i.e. income tax) is a challenging task. Having done a partial fiscal reform in the early days of his first term (2013), President Medina’s administration has been reluctant to increase income or consumption taxes and will continue to be as the 2020 elections approach.  One of the top priorities of the Government has been the modernization of the Tax Agency (DGII) with the aim of improving tax collection and cracking down on evasion.

The energy subsidy, an enduring burden on the Government’s coffers has cost over US$750M a year over the last 5 years.  In the 2019 National Budget, the Government estimated a US$550M subsidy, a figure that many considered to be overly conservative.  It is expected that this subsidy will continue to be a burden for the near to mid-term. 

Economic Structure (2018)

GDP by sector:

Major Industries:

Major export destinations (2018):

  1. US 42%
  2. Canada 9.9%
  3. Haiti 9.5%
  4. India 6.8%

Key Exports:

Major import sources:

  1. US 42%
  2. China 14%
  3. Mexico 4.8%
  4. Brazil 3.7%

Economic Policies

The DR Government has expressed need to increase revenues in order to reduce the fiscal deficit, but is reluctant to discuss expense rationalization and optimization. According to the DR’s Central Bank, monetary fiscal policy was aligned with the national budget’s target for external debt, but was influenced by an increase in the price of oil as well as an inevitable hike in the energy subsidy.  As a result the government introduced a supplemental budget to adjust the external debt.  The approval of an expansionary budget for 2019 supported by external financing seems to suggest that the issue of fiscal deficit will not be addressed in the near term. Furthermore, with Presidential elections looming ahead in May 2020, an increase in expenditures is expected throughout 2019 and the first half of 2020.  

The 2019 National Budget amounted to DOP 921.8B (approximately US$18.4B), which is 12.9% higher than in 2018, and includes US$3.1B for debt amortization. Total expenses are projected to increase by 11% in 2019 over 2018. In 2018, 32% of total Government expenses were in payroll, a figure that experts say threatens the sustainability of this fiscal model.

As it has been the norm over the last years, the announcement of the 2019 Government Budget once again raised red flags with regards to the burden of debt and subsidies.

Foreign Direct Investment & Trade

The DR received US$2.5B of foreign investment in 2018 according to the Dominican Central Bank, a 31% decrease over 2017.

The stats from the Dominican Central Bank up until 2018 show Canada as the 2nd largest all-time foreign investor in the country with total cumulative investments of US$5.94 billion, closely following the US. Canadian investments are mostly concentrated in mining, financial services, manufacturing, tourism, renewable energy, and agriculture.

A large share of the Canadian investment can be attributed to a Barrick Gold Corp/ Newmont mining project, Pueblo Viejo, which is the single largest foreign investment in the Dominican Republic. Barrick Gold’s announcement in the first quarter of 2019 of a $1.2 B expansion to their current operation coupled with new investments in various sectors will contribute to keeping Canada at the top of the foreign investor list in the DR.

The DR exported US$10.9B worth of goods in 2018, up from US$10.1B in 2017. Gold exports reached US$1.36 B in 2018, maintaining its status as a key export. Imports also grew in 2018 to reach US$20.2B

Trade Agreements and Canadian trade with Dominican Republic

Membership in trade agreements and other multilateral agreements: The DR is signatory of DR-CAFTA, the Free Trade Agreement between the US, 4 Central American Countries and the Dominican Republic. DR-CAFTA entered into its 10th year, providing duty-free or preferential tariffs to many products from member countries. The Dominican Republic also has an Economic Partnership Agreement (EPA) with the EU since 2008. The EPA has created better market access conditions to the EU market for Dominican products.  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 was received with optimism by the business community, as China represents a large potential market for DR exports and tourism. China is the second source of DR imports with over US$2B a year, but Dominican exports to China are limited. Following the announcement, the Dominican Republic and China signed several bilateral agreements.

Main Canadian exports to the DR: Canada exported C$222.4 M of goods to the DR in 2018. The main exports from Canada were: wheat, smoked herring, steel, medicines, 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$1.06 B. This high value is attributable to the gold imported from Barrick Gold/Newmont’s project in the Dominican Republic, which totaled C$716 million. Other key imports were silver, medical supplies, electrical and electronic components, cocoa and textiles.

Canadian tourism to the DR kept its steady increase, reaching 892,000 Canadians visiting the country in 2018. Tourism generates large economic activity in the DR, which directly benefits local suppliers of several products and services. Canadian investment in the Tourism sector has been growing as well, with investments in resorts, tour operators, hotel supplying companies, and small restaurants.

Sources: Embassy of Canada in Dominican Republic, EIU, Strategis, Statistics Canada, Dominican Central Bank

Overall Business Environment

The Dominican Republic economy has 4 main pillars: tourism, free zone manufacturing, remittances, and mining, all of which are very dependent on the American economy, and to a lesser extent, on the European economy. The country’s economy has achieved steady growth in the last decade but studies suggest that this growth has not reached all socio-economic levels.

The DR is a net importer of finished goods of many kinds. Imports have increased considerably in the last 10 years, partly as a result of the DR-CAFTA. In the case of exports, the bulk of Dominican exports come out of the free zones and the mining sector, with agricultural products also being an important contributor.

Despite its macroeconomic achievements in the last years and progress made in some specific business sectors, 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 Pan-American Odebrecht corruption scandal has strong ramifications in the Dominican Republic where the Brazilian company developed several projects between 2012 and 2016. Confessions of the company in its home country revealed bribes for at least US$92M to DR Government officials, and hundreds of thousands of dollars in overvaluation of work performed. Prosecution of officials involved has been slow in the DR, and has contributed to a general distrust in Government procurement.   

Electricity supply has been a longstanding problem in the DR, and is still nowadays a key issue affecting business costs, competitiveness, and public security. Even though there has been considerable improvement in many regions of the country through infrastructure investments, costs are high and recurring blackouts continue to need to be counteracted with the use of emergency generators or investment in dedicated energy generation sources.    

Presidential Elections are to be held on May 16,2020.

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