The Dominican Republic will undergo relative calm throughout the remainder of 2023, according to international ratings agency, Fitch Solutions.

This is primarily due to improving cost of living conditions in the Spanish-speaking Caribbean territory, which has been supported by popular fuel subsidies that have been kept in place and are expected to remain so, given the likely increase in international oil prices in second half of 2023.

In addition the government announced that tourism sector employees would receive a minimum wage hike starting on June 1, 2023, and a smaller hike in February 2024 based on the size of their employers.

Target-level consumer price inflation and below average unemployment continue to support households’ purchasing power. In June 2023, headline inflation fell to 4.0 per cent year-over-year, which is consistent with the Banco Central de la Republica Dominicana (BCRD)’s 4.0 per cent inflation target.

This will allow the BCRD to continue cutting its interest rates, which should help reduce borrowing costs for consumers and businesses. Lower costs for commercial expansion underpin Fitch’s expectations that unemployment is likely to remain below the pre-pandemic average (2015-2019) of 6.3 per cent, averaging 5.9 per cent in 2023 and ticking up only to 6.4 per cent in 2024.

This, is as a result of the economic headwinds precipitated by an expected US economic slowdown next year. Indeed, the unemployment rate in the first quarter of 2023 stood at 5.2 per cent, down from a peak of 8.0 per cent in first quarter of 2021.

Against this overall backdrop, Fitch has revised the Dominican Republic’s Short-Term Political Risk Index (STPRI) score from 75.2 out of 100 to 78.3. Minimum wage hikes, easing inflation, and relatively low unemployment have led to a rise in the ‘social stability’ component from 72.5 to 80.0, while the risk of broad-based public unrest remains low.

There was also a slight increase to the ‘policy continuity’ component from 85.0 to 90.0, given  President Luis Abinader’s very strong position just nine months ahead of the general election.