The Dominican Republic is set to record one of the strongest rebound in the Caribbean, with early indications suggesting that the economy could grow as much as six per cent in 2021.
The rebound for 2021 of a six per cent growth is significant considering the expected six per cent contraction this year. The country’s Central Bank Governor, Héctor Valdez Albizu says the projected growth for 2021 should be above the country’s annual baseline potential.
Governor Valdez explains that the six per cent growth forecast is well above the International Monetary Fund’s (IMF) projection of four per cent for 2021. Addressing a virtual meeting of Central Bank Governors of Latin American countries on Tuesday, Valdez argued that the projected growth for 2021 is being driven by the country’s monetary stimulus of close to four per cent of Gross Domestic Product (GDP) for driving the recovery.
The meeting, which was also attended by the Central Bank Governors of El Salvador, Guatemala, Honduras, Costa Rica and Nicaragua heard their Dominican Republic counterpart detailing how the stimulus has helped the bank reduce the active interest rate of commercial banks.
Interest rate cut
The rates were cut by more than 300 basis points and boost private lending in local currency. A statement from the Dominican Republic Central Bank states that banking institutions in the country are now seeing loan growth in Dominican pesos at around 10 percent year-on-year.
This is the highest growth rate in the region. Governor Valdez had good news about his country’s free trade zones, which he disclosed that they are now operating at above 90 percent of capacity, thus providing additional support to the recovery effort. Pointing out that the expansive monetary measures along with the reactivation of public investment and gradual normalization of the tourism industry, the Dom Red Central Bank boss added that this would contribute to recovery in the coming quarters.
This, he mentioned has help put the economy back on the course of sustained GDP growth seen in recent decades. The Latin American Central Bank Governor hailed the better-than-expected remittances coming into the region this year, which they argued have provided a much-needed counterweight to the current crisis and drops in key activities like tourism.
In the case of Dominican Republic, Governor Valdez reported that during the first 10 months of the year remittance to the country reached US$6.64 billion. This represented an increase of 13 per dent over the same period in 2019.
Speaking specifically about the push by the IMF for broad expansions of public spending and fiscal stimulus to bring countries through the pandemic-related economic crisis, Governor Valdez echoed these sentiments as it regards the Dominican Republic.
He drew reference to a study prepared for the recent G20 meetings in which the IMF reported that If economies employ a certain strategy they would see improvement in their GDP performance.
According to the strategy, if countries with room to spend were to increase infrastructure investment spending by 0.5 per cent of GDP in 2021, raise it to one per cent of GDP in 2022 and keep it at that level until 2025, and economies with less fiscal space spend about one third of that amount over the same period, global output could increase by close to two percent by 2025.