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Economic of the country activity has decelerated

Santo Domingo.– The Executive Board of the International Monetary Fund (IMF) concluded the 2012 Article IV consultation with the Dominican Republic. Over the past two years, economic activity has decelerated and macroeconomic imbalances have increased.

Economic growth declined from 7.8 percent in 2010 to 4.5 percent in 2011 and to a projected 4 percent in 2012. A large increase in government spending in 2012 was partly offset by declining private sector demand.

As the impact of earlier world price shocks dissipated, headline inflation declined below 3 percent, well below the central bank’s target range of 4.5-6.5 percent. The large fiscal expansion combined with the easing of monetary policy, and limited exchange rate flexibility increased public sector debt, kept the external current account deficit high, and fueled losses in international reserves.

The fiscal deficit in 2012 rose to an estimated 8.5 percent of GDP. This reflected a combination of weak revenue performance (excluding temporary factors), and an increase of about 40 percent in primary expenditure. As fiscal deficits widened, the stock of public debt reached nearly 45 percent of GDP, compared with 35 percent of GDP in 2007-08.

Monetary policy was eased. In December 2011 the central bank formally adopted an inflation-targeting framework and set a target for inflation of 5½ percent (+/- 1 percent) for 2012 and 4 percent by 2015. As inflation eased during the year, the central bank lowered its overnight deposit rate during May-August by a total of 175 basis points (to 5 percent). Following the easing of monetary conditions, private sector credit growth picked up in recent months.

The external position weakened. The external current account deficit in 2012 was about 7 percent of GDP, somewhat lower than in 2011, but still above the 1994-2011 average of about 3 percent of GDP. However, net capital inflows were also lower than in 2011 and gross international reserves declined to about US$3.6 billion (about two months of imports), about US$500 million lower than at end-2011.

According to official data, the financial sector is well capitalized. At end-October, average capital adequacy ratios of commercial banks were 15 percent of assets, although non-performing loan ratios rose to 3½ percent. The share of claims on the government in the asset portfolio of some banks increased significantly. The government is planning to develop special financing facilities to support small- and medium-size enterprises and microfinance. The recapitalization of the central bank continues broadly as envisaged.

Source: Dominican Today

Category: DR News |

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Last updated March 29, 2017 at 11:04 PM
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