Dominican Republic Economic Assessment

Dominican Republic Economic Assessment

Economic Overview

The Dominican Republic is a lower-middle income economy, which is dependent on natural resources and the public sector. The economy had witnessed consistent growth rates averaging 7% during the period 1991-2000. After this period, the growth slowed down due to a global meltdown. In 2003, the economy was affected by a major banking crisis, resulting from business and political fraud. A recovery was seen with growth averaging above 7.5% for the period 2004-07. The contribution of services sector to GDP is the largest at 58.7%. In 2008, the economic growth decreased to around 5%. The economic growth further decreased to 3.5% in 2009.

Economic growth has remained relatively robust during 2001-08 (i.e., around 5.3%), except for the year 2003 and 2004, largely due to strong consumer spending. The growth rate fell from the 5.7% recorded in 2002 to -0.2% in 2003. It rose to 9.2% in 2005 and further to 10.7% in 2006. In 2008, the growth rate fell drastically to around 5.2% from 8.4% in 2007. The global economic crisis did not derail economic growth in Dominican Republic, however, the GDP growth rate came down to 3.5% in 2009. The country's economy showed a strong recovery by growing 7.5% during the first half of 2010, after having expanded at just 1.4% in January-June 2009. However, according to the IMF, the economy is expected to again post a healthy growth rate of 6% by the end of 2010.

The central government's fiscal deficit came to 1.2% of GDP in 2006. However, most of this deficit was offset by a surplus created in the non-financial public sector, which reduced the deficit to 0.9% of GDP. The Dominican government reduced its spending level to partially compensate the decline in fiscal revenues brought about by the deceleration in economic activity and the decline in external trade. In 2008, the deficit amounted to around $1.5 billion (around 2% of GDP). The fiscal deficit increased to 3.4% of GDP by the end of 2009. It is expected that the country will post a fiscal deficit of 3% of GDP by the end of 2010. In the near term, the recovery of the US economy will be crucial for the Caribbean country, as monetary authorities approach the limits on expansionary policies and fiscal spending remains constrained by weak tax revenues.

Although the global economic crisis did not affect the economy, it still brought down the economic growth rate to 3.5% in 2009. However, according to the IMF, the economy is expected to again post a healthy growth rate of 6% by the end of 2010. The services sector dominates the economy and contributes around 65.2% to the country's GDP. The major subsector of the services industry is tourism and other hospitality services. The delivery of healthcare services in the Dominican Republic is managed through the public healthcare system and the private healthcare system. A Social Insurance Scheme (SIS) is managed by the government through the Dominican Institute of Social Insurance, and ...