IMF 2015 wrap-up report
A statement from the International Monetary Fund (IMF) mission headed by Aliona Cebotari, which visited the country from 10-20 November 2015, observes that the DR “remains among the most dynamic economies in the region, having benefited from a strengthened policy framework and external tailwinds.”
The IMF is advising the government to increase taxes to achieve the surplus needed to reduce its dependence on foreign public debt.
The IMF highlights that growth has averaged 7% during 2014 and the first three quarters of 2015. The country has low inflation, an improved fiscal position and has strengthened its external position.
The IMF says that the current cyclical upturn provides a good opportunity to address remaining vulnerabilities, build buffers against risks, and strengthen the foundations for a sustainable and more inclusive growth in the future.
“The growth momentum for 2016 remains strong and the macroeconomic outlook is favorable. The economy is projected to expand at 6.5-7% in 2015, propelled largely by domestic demand as employment recovers and external tailwinds boost disposable income. Going forward, growth is expected to gradually converge to its potential of 4.5-5%.
“The external current account deficit is projected to narrow to a decade-low of about 2% of GDP in 2015, owing to a lower oil bill and a buoyant tourism sector. International reserves have gradually increased, and currently cover over three months of imports (excluding the free trade zones). The current account deficit and the real exchange rate are broadly in line with the economy’s fundamentals.
The mission welcomed authorities’ continued commitment to fiscal discipline. It states that in the absence of policy measures, the consolidated public sector deficitsowhich include the deficit of the electricity sector and the Central Bankoare projected at around 5% of GDP over the medium term.
As a result, public debt would increase from below 50% of GDP estimated by staff for 2015 to around 54% of GDP by 2020, says the IMF.
“The neutral stance of monetary policy is consistent with the Central Bank’s objective of price stability under its inflation targeting regime,” says the report. It also mentions that while declining oil prices have contributed to a fall in inflation from about 3 to 1.2% over the past year, the emerging positive output gap and recent interest rate cuts are expected to return inflation within its target range of 4.1% in 2016. Likewise, it suggests that a tighter stance may be needed if signs of stronger-than-anticipated inflation pressures emerge.
IMF recommends continued strengthening of the institutional framework to help improve macroeconomic outcomes. It states: “The planned discussions of the fiscal pact among the social partners would provide an opportunity to institutionalize the commitment to consolidation and establish an anchor for fiscal policies. The risk profile of public debt would benefit from reduced reliance on foreign currency borrowing, which necessitates further development of the domestic bond market. This, in turn, requires stronger coordination between fiscal and monetary authorities on the term structure of issuances and a move towards a unified and more effective public debt management.
The mission also supports the authorities’ intentions to strengthen the monetary policy framework by further developing the foreign exchange market to support a gradual move towards more exchange rate flexibility and build up resilience against external shocks by further reserve accumulation.”
“The financial sector remains sound, with banks showing healthy capitalization, profitability, and asset quality.
The mission welcomes progress made in strengthening bank supervision. At the same time, pockets of rapid credit growth warrant monitoring. The supervision of non-banks, which are not systemic but serve vulnerable groups, needs to be strengthened.
“Renewed structural reforms are needed to boost potential growth and advance social inclusion. The mission welcomed the comprehensive ongoing reforms in the education sector, as well as the focus on strengthening the social safety nets, and advancing financial inclusion and education.
The mission called for “addressing long-standing problems in the energy sector – including through improvements in distribution and a move towards cost recovery pricing – remains key to improving growth prospects.”
In addition, it recommends fostering a stronger investment climate that should help narrow infrastructure gaps, while increased product market competition and labor market flexibility would strengthen the economy’s competitiveness.
Source: DR1, IMF.org
Nov 24, 2015
Category: DR News |