Dominican Republic

The Dominican Republic has been Latin America’s fastest-growing economy, averaging a +5% growth rate since the 1970s. Although the country was affected by the pandemic, it has since made a full recovery, with +12.3% real GDP growth in 2021 and +4.9% in 2022, thanks to its predominant services sector and expansionary fiscal policies (public debt on GDP remains below the threshold of 60%). In 2023, the pace of growth slowed to +2.3%, affected by a global economic slowdown that took a toll on international demand and elevated interest rates, despite record-breaking tourism numbers.

In 2024, a slight increase in tourism, a more relaxed monetary policy and a normalizing external environment are expected to push growth slightly over +4%, balancing the predicted slowdown in the agriculture sector (an important employment sector) caused by El Niño-related droughts. The re-elected government is likely to introduce tax reforms, which would boost revenues and earn an investment rating, resulting in an average GDP growth of +4.5% between 2025 and 2028.

As over half of its energy supply comes from oil, the Dominican Republic is highly dependent on oil imports and exposed to oil-related inflation. The country experienced +8.8% y/y inflation in 2022, which dropped to around +4.8% in late 2023. Relatively stable input prices as well as the expected extension of existing fuel and electricity subsidies may slow down disinflationary pressures. The Central Bank of the Dominican Republic (BCRD) has shifted towards a more accommodative monetary stance, moving away from the tighter policies previously enacted. The benchmark interest rate was revised gradually from 8.50% to 7% between May and November 2023. It is projected that the policy rate will undergo a methodical decline to an estimated 6% by 2025. Accompanying these rate adjustments, the BCRD has also relaxed legal reserve requirements for banks and increased liquidity through open-market operations.

The Dominican Republic ranks 58th in the 2023 Index of Economic Freedom, obtaining its strongest scores in tax burden, government spending and business freedom. Government integrity scored badly as perceived corruption in the country is high, ranking 108th in the 2023 relative index. While government efforts to enhance the rule of law are likely to prevent large-scale disturbances, sporadic protests ignited by corruption scandals could still occur.
Further fueling public unease are persistent social issues, such as income inequalities, escalating crime and unreliable electricity supply. The border crisis with Haiti may also be a source of risks as thousands of Haitians are fleeing to the Dominican Republic to escape gang violence. As Abinader’s administration is prioritizing the fight against illegal immigration, he has sealed off the border, started deporting undocumented migrants and begun the construction of a separation wall. Abinader’s swift but brutal response to the crisis is strongly approved of within the country but has created some tensions with the Democratic administration in the US. The US remains the Dominican Republic’s main trade partner and largest source of foreign investment.

Political risks appear limited in the short term as President Abinader was re-elected in May 2024. His progressive-center party secured a supermajority in both the Senate and Chamber of Deputies, with 75% of seats, and Abinader himself enjoys one of the highest approval rates in the region. Such a majority is unprecedented in modern Dominican history. Abinader had previously advocated for constitutional reform that would ensure the attorney general's independence. However, opening the process of constitutional reform may lead to the temptation to push for more extensive changes, such as rules governing presidential re-election. Abinader has publicly stated that he will not seek changes to the current two-term limit, but some of his predecessors were already open to such an option.