Download Dominican Republic January 2016

Dominican Republic
Prepared by: Trevis Gangaya
[email protected]
Last Updated: January 2016
COUNTRY
Real GDP growth (%) 2015
Next General Election
Exchange Rate
CREDIT RATING
S&P Foreign Currency
Fitch Foreign Currency
Moody's Foreign Currency
6.20%
2016
BB-(Stable)
B+ (Positive)
B1 (Stable)
Major Trade Partners
Major Exports (%)
GDP Composition
USA, Venezuela, China, Mexico
Textiles, Sugar , Gold, Cocoa
Agriculture:6%, Industry: 29.1%, Agriculture:6%
RECENT ECONOMIC DEVELOPMENTS
ECONOMIC OUTLOOK
Dominican Republic continues to demonstrate strong growth amongst the region given its reformed and strengthened policy
framework.The economy is estimated to have expanded 6.5% - 7% in 2015 driven by strong domestic demand. The services
sector drives growth in the Dominican Republic and accounted for 62.1% of GDP in 2014 and is forecasted to grow 5.1% in
2016. Within this sector, the hotel and bars sub-sector accounts for 7.5% of GDP and other services such as commerce
accounts for 9.5% of GDP. These sectors are expected to show strong growth in the future linked to the positive tourism outlook.
The construction sector (9% of GDP -2014) is also expected to show growth in the future associated with a boost in tourismrelated infrastructure such as hotels and airports.
Stable
INFLATION
Inflation saw a notable increase from 1.5% in November to 2.3% in December, representing the highest with the last year. The
increases were mainly due to higher prices for transportation and housing.Overall, inflation was estimated to have averaged
2.34% in 2015 below its target rate of 4% ± 1%. Transportation-related prices remained contained, given significantly lower costs
of fuel imports which offset an increase in food prices that was caused by drought conditions.Low oil prices will keep consumer
price inflation in the Dominican Republic subdued throughout 2016. Inflation is forecasted at 2.6% in 2.16.
Stable
FISCAL ACCOUNTS
The general government deficit continued its downward trend since 2012 and was estimated at 4% of GDP by S&P in 2015. Tax
reform, capital expenditure controls and low oil prices were the major drivers. Tax reforms such as a VAT increase from 16% to
18% (over a period of four years), higher corporate tax (26% to 29%), higher taxes on tobacco and alcohol and increased
royalties from the Barrick Gold mine have helped to increase revenue. Further tax reforms, a more efficient custom system and
the Fiscal Responsibility Law to lock in deficit reductions are expected after the 2016 elections. In January 2015, the Dominican
Republic used USD1.9 billion of a USD2.5 billion issuance to buy back USD4 billion of PetroCaribe outstanding debt, with a 52%
discount. This resulted in the net general government debt falling to 41.7% of GDP in 2015 from 44% of GDP in 2014.
Stable
POLITICAL
It is expected that most likely Dominican Republic's May 2016 general election will see the re-election of President Danilo
Medina, resulting in the continuation of investor-friendly policies. In June, the legislature amended the constitution to allow for
two consecutive presidential terms. A victory by Medina would secure the fourth consecutive presidential term by the ruling
Partido de la Liberación Dominicana (PLD), bolstering investor confidence in the regulatory environment for the mining sector,
which has become the fastest growing sector in the country in the last few years. While Medina had previously stated that he
would not support a re-election bill, since the passage of the constitutional amendment he has stated that he is considering
running for re-election in 2016.
Stable
CREDIT RATINGS
On May 20, 2015, Standard & Poor's Ratings Services raised its long-term sovereign credit ratings on the Dominican Republic to
'BB-' from 'B+'. The credit rating outlook remains at “stable”. The ratings upgrade was supported by an improved monetary policy
framework in the Dominican Republic. In 2012, the central bank became operationally independent and moved to an inflationtargeting regime, improving its policy track record. Currently, the Dominican Republic is rated by Moody’s at B1 (Stable) and by
Fitch at B+ (Stable).
Stable
OUTLOOK
Given an impressive track record of macroeconomic stability and sustained access to official lending and international capital markets, Dominican Republican's development has been
on the right track. These strengths are balanced against structural weaknesses in fiscal accounts such as a narrow revenue base and rigid budget expenditure, rising government debt
and external financing needs, and a weak external liquidity position. It is expected that growth for Dominican Republic will be above 5% in 2016, driven by strong performance in the
tourism and construction sectors. Tourism growth will drive the overall economy especially given a strengthening US economy. However, as with much of the Caribbean, the Dominican
Republic will remain highly exposed to potential economic slumps in advanced economies in the coming years, which would impact on tourist arrivals and economic growth.
Source: Standard and Poor's, Caribbean Tourism Organisation, IMF Economic Outlook October 2015
GDP (%) Growth Rate
2011
2012
2013
GDP Growth
2014
2015*
Total Investment of GDP
22
2016*
Budget Balance
Percentage (%)
Percentage (%)
8
6
4
2
0
‐2
‐4
‐6
‐8
Tourist Arrivals 2011‐2016
12.00%
21.5
10.00%
21
8.00%
6.00%
20.5
4.00%
20
2.00%
19.5
0.00%
19
‐2.00%
2011
2012
2013
2014
2015*
2016*
2011
2012
2013
2014
2015F
2016F
‐4.00%
DISCLAIMER
This report has been prepared by First Citizens Investment Services Limited, a subsidiary of First Citizens Bank Limited. It is provided for informational purposes only and without any
obligation, whether contractual or otherwise. All information contained herein has been obtained from sources that First Citizens Investment Services believes to be accurate and
reliable. All opinions and estimates constitute the author’s judgment as at the date of the report. First Citizens Investment Services does not warrant the accuracy, timeliness,
completeness of the information given or the assessments made. Opinions expressed may change without notice. This report does not constitute an offer or solicitation to buy or sell any
securities discussed herein. The securities discussed in this report may not be suitable to all investors, therefore Investors wishing to purchase any of the securities mentioned should
consult an investment adviser.
DISCLOSURE
We, First Citizens Investment Services Limited hereby state that (1) the views expressed in this Research report reflects our personal view about any or all of the subject securities or
issuers referred to in this Research report, (2) we are a beneficial owner of securities of the issuer (3) no part of our compensation was, is or will be directly or indirectly related to the
specific recommendations or views expressed in this Research report (4) we have acted as underwriter in the distribution of securities referred to in this Research report in the three
years immediately preceding and (5) we do have a direct or indirect financial or other interest in the subject securities or issuers referred to in this Research report.