The Dominican economy has changed from that of an exporter of foodstuffs to an exporter of services. The country’s growth has been driven by new sectors such as tourism, telecommunications and remittances.
In 2012, the Dominican economy underwent changes with regard to taxation after the application of a fiscal reform that includes an increase in central government revenues to alleviate the budget deficit. To increase government income, the National Development Strategy is to be followed, whose aims are: to reduce tax evasion, improve the quality, efficiency and transparency of public sector spending and to commit 4% of the GDP to pre-university education.
The objective of the fiscal reform is to generate a steady increase in tax income until it reaches between 2% and 2.5% of GDP compared to the figure for 2011 of 13.2% of GDP by means of a rise in the value-added tax (ITBIS in Spanish) from 16% to 18%; the application of a tax of 10% on dividend income, interest for individual taxpayers, elimination of the deduction for educational expenses; a tax on real estate of 1% per capita on properties assessed at more than RD$5 millon pesos; an increase in the tax on real estate transfers from 3% to 4.5%; an increase in the vehicle registration fee to 17% plus a surcharge for carbon dioxide emissions per kilometer; and finally, an increase in the special tax on alcoholic beverages from 7.5% to 15% over three years and on tobacco. On the other hand, government spending although higher in absolute terms—rising from RD$508,822.59 in 2012 to RD$530,846.35 in 2013—has fallen as a percentage of GDP from 22.1% to 21.3% between 2012 and 2013.
For the period of January-September, 2012, the free-trade zones in the Dominican Republic continue to recover, reporting exports for a total of US$3,791 millon, an increase of US$156 millones over 2011. Total imports also rose by 1.9% during this period. The value added from the free-trade zones rose by 1.5% despite a contraction in textile production of 2.6% annually, which was made up by growth of 4.9% registered in non-textile free-trade zones.
Given the lingering effects of the financial crisis in the United States, remittances dropped by 3.9% as a result of the high level of unemployment in European countries that are home to many Dominicans. Money transfers in the January-September, 2012, period fell by US$60.6 millones.
The tourism industry showed the most positive results in the services sector in the January-September, 2012, period, with income of US$3,521.3 millones, a rise of 5.6% with respect to the same period of the preceding year. Hotel, bar and restaurant activities increased by 2.5% as was reflected in the figures for the tourism sector. Total non-resident visitors and occupancy rates bested the 2011 figures by 5.7%, 7.3% and 2.1% respectively.
Value added in the telecommunications sector grew by 2.9% in the first nine months of 2012, which is explained by the increases registered in mobile telephone lines and in international calls. In the month of September, 325,524 additional net telephone lines had been added to those in existence a year earlier, an increase of 3.5%. Most of these new lines were in the mobile sector which accounted for 90% of the new installations, an increase of 3.7%.
On the other hand, land lines also increased by 1.4% in the same period. International call traffic rose by 11.9%.
A mission from the International Monetary Fund (IMF), headed by Przemek Gajdeczka, concluded its visit on November 16, 2012, under the consultion on Article IV, and declared the following:
During 2012, economic activity has been supported by expansive fiscal policies (increased government spending), which has had an impact on the external position of the country, while private sector activity has diminished.
The government’s budget deficit rose significantly in 2012, combined with a low level of revenues.
The financial sector is solid.
The mission supports the plan by government authorities to improve the business climate, promote competition and create better conditions for economic growth.
The exchange rate for 2012 settled at RD$39.30 with a variation of 3.1% and a nominal rise of RD$1.19. However, comparing the average rate of the month of September, 2012 with that of January of the same year, the increase was only 0.9%. Net International Reserves ended the period at US$3,002.4 millon, an increase of US$90.1 millon over September, 2011, or 3.1%.
Gross Domestic Product
During the January-September, 2012, period, the Dominican economy, measured as real GDP, grew 3.9%, reflecting the positive performance of almost all economic sectors included in the measure. Among the projections for the full year, growth of 4% is anticipated to reach a total of RD$401,090.8 millon of real GDP. Although the GDP growth uis expected to decline to 3%, the Dominican economy continues to show increasing dynamism.
Central Bank authorities were successful in maintaining inflation for 2012 at 3.91%, much below the goal set of 5.5%, which demonstrated the efficacy of monetary policy and the low implemented rates. All quintiles were affected by the rise in food prices caused fundamentally by their high importance among all population sectors. The report establishes that annual inflation of 3.91% is the result of increases in the categories of Food and Non-Alcoholic Beverages (6.34%), Transport (3.24%), Education (16.25%) and Restaurants and Hotels (3.88%).