By Mariana Sans and Pamela Madrid — IMF Western Hemisphere Department
As one of the fastest-growing and most dynamic economies in Latin America and the Caribbean, the Dominican Republic entered the COVID-19 crisis in a relatively strong position.
Despite the toll of the pandemic, smart policy making and continued access to markets allowed the country to implement a response plan that has put the Dominican Republic on a path to recovery.
Here are four questions and charts on the country’s crisis response and priorities:
The country’s response has adjusted to the needs created by the pandemic. Initially, with the economy in lockdown, the response prioritised health spending and broad transfers to low-income families and the unemployed, and targeted tax relief. The Central Bank reacted decisively through interest rate cuts and ample liquidity provision that supported credit and activity.
As the economy began to recover, policies became more targeted. Broad support programmes ended in April 2021, but temporary social programmes were gradually merged into a new social assistance program. Support to the unemployed focused on the most affected sectors, notably tourism.
To support a safe reopening, new health spending focused on the roll-out of vaccines. The Government has set a target of immunizing 7.8 million people—over 70 per cent of the population. Around 51 per cent of the target population has received two vaccine doses, as of July 25, 2021.
GDP contracted by 6.7 per cent in 2020, weighed down by the service sector, particularly tourism. However, the economy started recovering towards the end of the year and has been gaining momentum. Activity in most sectors was above pre-pandemic levels by early 2021, supported by strong foreign investment and a buoyant US economy.
Remittances have also grown, supporting consumption. Tourism reopened but its recovery is expected to be more gradual as it depends on the lifting of travel restrictions around the world. Total employment fell in 2020 but fully recovered in manufacturing by early 2021.
Over the past decade, the poverty rate halved thanks to strong growth and targeted policies. However, as in other countries, job losses, declining wages and school disruptions have thrown many people back into poverty.
Health care coverage was expanded, and various temporary support programmes were introduced, which prevented more people from dropping below the national poverty threshold. The Government also created Supérate, a centralised social assistance programme that aims to lift those receiving benefits out of poverty by facilitating their transition into the labour market and supporting them with a monthly transfer. A targeted employment support programme for tourism workers was also launched. The Government is working to improve the quality of education and reduce skill and gender gaps.
Going forward, good sequencing of actions will be important. In the short-term, initiatives that improve institutions, transparency, and governance — such as fiscal responsibility legislation and central bank recapitalisation — can further enhance the effectiveness of policies.
Once the recovery is well underway, reforms in the fiscal and electricity sectors will need to be prioritised. Compared with peers, the Dominican Republic’s tax collection is relatively low. The tax system can be simplified, the tax base broadened and exemptions streamlined.
Recent reforms to the electricity sector can also help to strengthen the country’s fiscal position, including through the transition from oil to cheaper energy sources, such as gas. The electricity sector will need to transition to a cost-recovery pricing tariff scheme and subsidies will have to be better targeted to ensure they go to vulnerable households only.