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Dominican Republic
Summary
Moody’s B1 / S&P B+ / Fitch B1
Economy: Agriculture 6%, Industry 32%, Services 62%
The Dominican Republic is a $66 billion economy that has grown at an average rate of 5.8% from
2005–2015, the second highest in Latin America after Panama. It is well diversified and major sources
of foreign currency entering the country are from manufacturing goods from Export Processing Zones,
tourism, and remittances from abroad, mainly the United States. The United States is a major trade
partner, and the country also has a very strong relationship with Venezuela, which supplies it with oil
through the PetroCaribe program. President Medina continues to implement his fiscal reform agenda and
is making many important progressive economic adjustments that have strengthened the macro stability
of the country. The relatively low level of reserves is also another concern as it limits the country’s ability to
defend its currency, although this is counterbalanced by the fact that the banking system is very healthy.
The main weakness of the Dominican Republic is the electricity sector, which needs to be upgraded
Economic Indicators
Population (Millions)
GDP per Capita (USD)
Nominal GDP (USD Billions)
2011
2012
2013
2014
2015E
9.6
9.7
9.8
9.9
10.0
2016F
10.1
6,086
6,252
6,264
6,482
6,664
6,923
58.3
60.5
61.3
64.1
66.6
69.9
Real GDP (%)
4.5
3.9
4.1
7.4
6.5
5.0
Year-end CPI (%)
7.8
3.9
3.9
1.6
2.5
3.8
Fiscal Balance (% of GDP)
-3.0
-6.6
-3.6
-3.0
-2.4
-2.3
Interest (% of Revenues)
15.7
17.4
15.9
16.7
26.8
5.8
FC Debt/Public Debt (%)
72.5
73.5
75.5
76.5
77.5
76.5
Government Debt (% of GDP)
28.2
31.6
37.8
37.2
35.9
36.7
219.5
232.2
260.0
246.8
203.0
251.4
Current Account (% of GDP)
-7.5
-6.6
-4.1
-3.2
-2.1
-2.0
FDI (% of GDP)
3.9
5.2
3.2
3.4
3.1
3.1
External Debt (% of GDP)
26.0
27.4
30.8
31.6
30.6
30.9
Foreign Reserves/External Debt (%)
27.1
21.5
24.9
24.0
24.3
23.4
Foreign Reserves (Mo. of imports)
3.4
2.9
4.1
4.4
4.2
4.0
Foreign Reserves (% of GDP)
7.0
5.9
7.7
7.6
7.4
7.2
Government Debt (% of Revenue)
As of December 2015
Forecasted or estimated results do not represent a promise or guarantee of future results and are subject
to change.
Source: IMF, Haver, Ministry of Finance, Central Bank and Lazard
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Rating History
Following is a history of the country’s foreign and local currency ratings by the major
agencies dating back to 2000 demonstrating the country’s largely stable fundamentals. We
have also included the spread history for the country’s hard currency external debt against
the JP Morgan Emerging Markets Bond Index – Global Diversified.
Rating History
Hard Currency
Local Currency
BB+
BBB+
BB
BBB
BBB+
BBB-
B
BB+
BCCC+
BB
CCC
BB-
2000
2007
Moody’s
2015
S&P
Fitch
CCC-
2000
2007
Moody’s
2015
S&P
Fitch
As of December 2015
Performance represents past performance. Past performance is not a reliable indicator of future results.
Source: Fitch, Moody’s, Standard and Poor’s, Bloomberg
Bond Spreads
2000
1600
1200
800
400
0
2007
2011
Dominican Republic
2015
EMBIGD
As of December 2015
Performance represents past performance. Past
performance is not a reliable indicator of future
results.
Source: JP Morgan
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Dominican Republic
Strengths
Well Diversified Economy
From an external view, the pillars of economic growth are tourism, the maquila sector, family
remittances, and more recently gold exports. Domestically, construction is also an important
driver. As such, the country is relatively well diversified and does not have a dependency on
any particular sector or industry. Manufacturing, including export processing zones (EPZs),
is the single largest category accounting for 25% of GDP, while in the service sector, which
accounts for slightly more than 60% of GDP, none of the subsectors have more than 10%
participation.2 While EPZs were traditionally a major source of exports, their significance
has been gradually diminishing as the proportion from EPZs has declined from 60% of all
exports in 2010 to 52% of all exports by 2014. This is due in part to the Barrick Pueblo Viejo
mine production since 2013 which generates gold exports that amount for more than $1 billion annually.3 The Dominican Republic is by far the top tourist destination in the Caribbean
and Central American region, and it has major facilities including six major airports, most
of which have direct flights from the United States. Finally, family remittances totaling $4.5
billion, equivalent to 7.0% of GDP in 2014, are another important source of growth.4 More
than one-tenth of the Dominican Republic population, equivalent to 1.4 million people, live
abroad, mainly in the United States. They tend to send the bulk of the family remittances.5
Both tourism and remittances performed quite well in 2015; tourist arrivals from January
through November 2015 were 4.4 million, up 8.1%6 from the same period 2014, while
remittances as of September 2015 were $3.7 billion, an increase of 7% compared to the 2014
level7 and are expected to reach $4.8 billion in 2015 and $5.3 billion in 2016.8
Key Partners
The Dominican Republic has succeeded in maintaining a good relationship with both the
United States and Venezuela. The Dominican Republic is a key ally of United States, which
helps to counterbalance the influence of Cuba in the region. This strong relationship is not
only reflected in the importance of trade but also in form of other treaties such as the free
trade agreement with the United States approved in 2005.9 The Dominican Republic has
traditionally strong economic ties with Venezuela, which provided subsidized oil through
the PetroCaribe initiative; from 2005 to 2014 the Dominican Republic was the largest
beneficiary of the program receiving 90 million barrels of oil out of 307 million total barrels supplied to 13 PetroCaribe member countries.10 The strong relationship also extends
politically; for instance, former President Leonel Fernandez was one of the few electoral
observers welcomed by the Venezuelan government for the December 2015 legislative elections.11 In addition, many wealthy Venezuelans are moving to the Dominican Republic and
making significant investments estimated at $2 billion in 2014 in the retail, banking, and
tourism sectors.12 One of the most high profile projects will be a new Four Seasons hotel
scheduled to open in 2016 by the influential Cisneros Group, whose chairman has adopted
the Dominican nationality.13 Haiti has also been an important trade partner recently as it
is the second largest export destination after the United States, with 2014 exports valued at
$1 billion,14 although a significant portion of it consists of intermediate textile products destined for Haiti’s export processing zones. In contrast to relations with the United States and
Venezuela, relations with Haiti tend to be more tense even as they develop economic ties.
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Dynamic Economy
The Dominican Republic is one of the fastest growing economies in the Central American
and Caribbean region. From 2005 to 2015 the economy has grown at an average rate of
5.8% per year, only below Panama’s 8.3%.15 In the first nine months of 2015 the economy
grew by 6.7% and is expected to grow to 6.5%–7% in 2015, above the estimated potential
rate of 5%,16 which is also the estimated growth for 2016. Economic performance has been
influenced by the performance of the United States, its main trade partner and largest source
of tourism. Therefore, gradual economic improvement in the United States is likely to have
a very positive impact on the three external pillars of the economy: tourism, maquila exports,
and family remittances.
Structural Reforms along with Better
Macroeconomic Stability
The country has undergone a series of structural reforms that is positive for the economy
over the longer term. On the fiscal side, President Medina has introduced changes to the tax
code and government spending which could eventually lead to a more sustainable economy.
Partially as a result of tax reforms (better collection, formalization of informal economy, etc.)
and other measures undertaken, the budget deficit is at a more sustainable level of -2.4% in
2015 and -2.3% for 2016.17 Another positive is that since 2012 the Central Bank has introduced an inflation targeting regime that has set a target of 4% ±1% in 2016. Inflation has
declined and is well contained, with November 2015 year-over-year inflation of only 1.5%,
even less than the lower inflation target range. While the recent decision to change the constitution to allow Mr. Medina to run for re-elections in 2016 highlights governance weakness,
he is expected to be re-elected. The positive implication in the short term is that electoral
spending will likely be more contained compared to a scenario where there is a strong
opponent, and more importantly, over the medium term it ensures current policy continuity
which has been a cornerstone of market optimism.
Better Liability Management
The January 2015 PetroCaribe debt buyback transaction with a nominal value of $4 billion
at a 52% discount resulting in a payment of $1.9 billion which was raised through sovereigns
was positive for the Dominican Republic. According to Ministry of Finance, this transaction
resulted in $500 million in savings in NPV as it reduced the annual debt servicing from $205
million to $120 million, while extending the average duration from 11.4 to 19.7 years. From
a debt-to-GDP perspective, it went from 37.2% as of December 2014 to 34% in January
2015, that is, the transaction reduced the debt-to-GDP by 3.2 percentage points of GDP.18
In addition, in September 2015 the government structured a transaction that helped substantially clear the more than $800 million in arrears the government had with the electric sector,
although this was ultimately mostly financed by state-owned Banco de Reservas.
Solid Banking System
The Dominican Republic’s banking system is relatively solid, and it is in a much better
position than during its financial crisis in 2003–2004. The banking system’s management is
more cautious while regulation and supervision is much better than in the past. The banking
system’s balance sheet is relatively solid. Deposits have steadily grown for the past couple of
years, and credit has also grown at a moderate pace. Reforms have also been implemented
strengthening the banking and financial sectors with better regulatory oversight, in part as
a response to the country’s banking crisis of 2003. The banking system is healthy, and the
consolidation of two of the largest banks (BHD and Leon) in December 2013 makes for a
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Dominican Republic
stronger banking sector although it has also resulted in a concentration of market power. As
of September 2015 the three largest banks accounted for 78% of banking assets.19 Equally
positive, interest rates have been decreasing and the level of non-performing loans is not a
cause of concern, as of October 2015 it was only 1.7%.20
Weaknesses
Electricity Sector Problems
For all the positive reforms that the country has undertaken, a major bottleneck and obstacle
for further economic growth is its historical electricity problem; the electricity sector is
the Dominican Republic‘s Achilles’ heel. For more than two decades, the government has
made many reforms and changes but has failed to solve the electricity sector problems. The
generation sector, which the private sector manages, is profitable and relatively well managed
despite the late payments of the distribution companies. However, the primary challenges
to the electricity sector are with the distribution and transmission, which are largely under
control of the public sector. Among the main problems with the distribution and transmission sectors are electricity sale prices below market levels; low billing collection rates; theft
due to unsecured access to equipment; inefficient operation; and very old or missing meters,
cables, transformers, and overhead lines. The government continues to make progress, such as
reducing the losses from around 40% to around 33%, but electricity losses remain one of the
highest in the world.21 The World Bank continues to provide support for the modernization
of the distribution grid in order to reduce electricity loss, and approved a $120 million loan
in December 2015.22 In addition to the obvious effect on GDP when the country goes on a
blackout, another vulnerability is that 40% of all thermoelectric plants, which supply 87%
of all energy, rely on imported oil although this has proven beneficial in the current context
of lower oil prices. Finally, the government is moving ahead with a $2 billion project for the
construction of two coal-powered thermo-electrical plants in Punta Catalina that will provide
720 MGW that was scheduled to be operational in 201723 but work has been delayed due to
financing constraints.24
Low Level of Reserves
The level of net reserves is relatively low at $4.8 billion as of November 2015, while gross
reserves stand at $4.9 billion25 (circa 7% GDP) although this is a substantial increase compared to its level of reserves in the early 2000’s when reserves were less than $600 million.
The major concern with having low level of reserves it leaves the Central Bank with financial
constraints to defend the Dominican peso or to support the banking system in the event of
a shock. If there were a shock, it could trigger macroeconomic imbalances that can in turn
impact private investors. For instance, low foreign exchange reserves greatly contributed to
the major economic and exchange rate crisis in 2003–2004.26 At that time, the country’s foreign exchange reserves were extremely low, giving no room for the Central Bank to adjust.
Oil Dependent
The Dominican Republic is an oil importer as it imports about 90%27 of the energy that it consumes and oil imports typically account for 6%–7% of GDP.28 Thus, the country is extremely
vulnerable to adverse movement in oil prices. In the last ten years, oil import expenditures have
quadrupled from $1.2 billion in 2001 to $4.3 billion in 2013 even though the actual volume of
imports has only marginally increased.29 On the positive side, the current environment of lower
oil prices has benefitted the country; in the first half of 2015 oil-related imports were only $1.4
billion compared to $2 billion in same period in 2014 and $2.2 billion in 201330
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Quality of Education
The quality of education in the Dominican Republic is among the lowest in the world, a
situation the government is trying to improve. An important step toward socio-economic
development was taken in 2012 when the government committed to allocate 4% of GDP
to the educational budget going forward,31 but the results of this initiative is still unclear.
According to a UNESCO survey, the Dominican Republic ranks 146 out of 148 countries in
terms of quality of education, is below the Latin American average,32 and ranks last in Latin
America in terms of literacy, math, and science.33
Rich History of Debt Restructuring and Defaults
A major drawback of the country is its historical tendency to default (defined in the broader
sense of not making payment on due date as opposed to stopping payments entirely) and/or
restructuring its debt.34 With official creditors, the country was behind on its payments from
1975–2008. With bank loans denominated in foreign currency, the country defaulted from
1982–1994. And with foreign currency bonds, the country defaulted in 2005, and has also
defaulted with local currency bonds for the period 1975–2001. While the amount of some of
the restructured debt is rather insignificant or it involves taking advantage of a 30 days grace
period, it also underscores the lack of willingness to make timely payments. 35
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Dominican Republic
Country Background
Size
48,670 KM2 (132th)
Capital
Santo Domingo
Population
10.5 Million
Religion
Catholic 95%
Median Age
27.4 Years
Literacy Rate
91.8%
Independence
February, 27 1844
Presidents
Danilo Medina (PLD)
Presidential Elections
2020
Economy
Agriculture 5.8%, Industry 32.2%, Service 61.9%
Labor Force
Agriculture 14.4%, Industry 20.8%, Service 64.7%
Merchandise Exports
Gold, Silver, Cocoa, Sugar, Coffee, Tobacco, Meats,
Consumer Goods
Export Partners
US 40.1%, Haiti 15.3%, Canada 14.5%
Currency
Dominican Peso (DOP)
As of December 2015
Source: CIA
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Country Timeline
Return to democracy
1966
Joaquin Balaguer, a Trujillo protege and former leader of the Reformist Party (later to become
the centre-right Christian Social Reform Party (PRSC)), is elected president.
1978
Silvestre Antonio Guzman (PRD) is elected president and proceeds to release some 200 political prisoners, ease media censorship and purge the armed forces of Balaguer supporters.
1979
Two hurricanes leave more than 200,0000 people homeless and cause damage worth 1 billion
dollars as the economy continues to deteriorate due to high fuel prices and low sugar prices.
1982
Another PRD candidate, Jorge Blanco, elected president.
Austerity, unrest
1985
IMF-prescribed austerity measures, including price rises for basic foods and petrol, lead to
widespread riots.
1986
Balaguer (PRSC) re-elected president.
1988
Jorge Blanco tried in absentia and found guilty of corruption during his presidential tenure.
1990
Balaguer re-elected, defeating Bosch by a small majority.
1994
Balaguer re-elected, but agrees to serve only a two-year term after being accused of fraud.
1996
Leonel Fernandez Reyna of the Dominican Liberation Party (PLD) elected president.
1998
Hurricane George causes widespread devastation.
2000
PRD returned to power with Hipolito Mejia as president.
2001
May—Appeals court quashes a conviction against former president, Salvador Jorge Blanco,
on charges of corruption.
2001
November—US jet bound for Santo Domingo crashes in New York killing all 255 people on
board. Three days of national mourning declared.
2002
July—Former president Joaquin Balaguer dies aged 95; thousands pay their last respects to a
man who dominated politics for more than 50 years.
2003
November—Deadly clashes between police and protesters during demonstrations against
high prices, power cuts. Two months later, demonstrations about economic policies leave at
least five dead.
Fernandez elected
2004
May—Former president Leonel Fernandez defeats incumbent Hipolito Mejia. Severe floods in
the south-west, and in parts of neighbouring Haiti, leave more than 2,000 dead or disappeared.
2005
September—Congress approves a proposed free trade agreement with the US and Central
American nations. The DR enters the accord in March 2007.
2008
May—President Leonel Fernandez is re-elected.
2010
May—Congressional elections. Governing Dominican Liberation Party (PLD) retains firm grip
on power.
2010
October—Dominican Republic tightens border restrictions to prevent cholera spreading from Haiti.
2012
May—Governing Dominican Liberation Party candidate Danilo Medina wins close presidential
election over former president Hipolito Mejia.
2012
October—Hurricane Sandy causes extensive damage.
2013
September—Dominican Republic's highest court rules that the children of undocumented
migrants are not eligible for Dominican nationality. Human rights groups warn that it could
leave tens of thousands of people of Haitian descent stateless.
2014
May—The Dominican parliament approves a bill to grant citizenship to Dominican-born children of immigrants.
Source: BBC
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Dominican Republic
Notes
1 As of December 2015.
2 As of December 2015, Source: Central Bank of the Dominican Republic.
3 As of December 2015, Source: Central Bank of the Dominican Republic.
4 As of December 2015, Source: Central Bank of the Dominican Republic.
5 ”Prospectus: Dominican Republic 7.45% Bonds due 2044,” Goldman Sachs, May 2014.
6 “Dominican Republic: Tourist arrivals rise 8.1%oya in Jan-Nov,” JP Morgan, December 15, 2015.
7 As of December 2015, Source: Central Bank of the Dominican Republic.
8 “Informe de Politica Monetaria,” November 2015, Central Bank Dominican Republic.
9 ”Prospectus: Dominican Republic 7.45% Bonds due 2044,” Goldman Sachs, May 2014.
10 “Evolution of the PetroCaribe Energy Cooperation Agreement,” SELA, June 2015 http://www.sela.org/
media/1950653/evolution-of-petrocaribe.pdf.
11 “Expresidente dominicano liderará misión de Unasur en Venezuela,” TelesureTV.net, November 16, 2015,
accessed on December 16, 2015, http://www.telesurtv.net/news/Expresidente-dominicano-liderara-mision-deUnasur-en-Venezuela-20151116-0048.html.
12 “Empresas venezolanas invierten 2.000 millones de dólares en Dominicana,” Noitmérica.com, December 17,
2015, accessed on December 21, 2015, http://www.notimerica.com/economia/noticia-empresas-venezolanasinvirtieron-2000-millones-dolares-rdominicana-2015-20151217131613.html.
13 “Magnate venezolano Gustavo Cisneros adquiere la nacionalidad dominicana,” AmericaEcnomia.com, March
17, 2014, accessed on December 16, 2015, http://americaeconomia.com/negocios-industrias/magnate-venezolano-gustavo-cisneros-adquiere-la-nacionalidad-dominicana.
14 As of December 2015, Source: Central Bank of the Dominican Republic.
15 “World Economic Outlook Database,” International Monetary Fund, October 2015, accessed on December 15,
2015, https://www.imf.org/external/pubs/ft/weo/2015/02/weodata/index.aspx.
16 Informe de Politica Monetaria, Central Bank Dominican Republic, November 2015.
17 Informe de Politica Monetaria, Central Bank Dominican Republic, November 2015.
18 Informe de Politica Monetaria, Central Bank Dominican Republic, May 2015, http://www.bancentral.gov.do/
publicaciones_economicas/infome_pm/Informepm2015-05.pdf.
19 As of December 2015, Source: Central Bank of the Dominican Republic.
20 As of December 2015, Source: Central Bank of the Dominican Republic.
21 “Prospectus: Dominican Republic 7.45% Bonds due 2044,” Goldman Sachs, May 2014.
22 “Dominican Republic- Distribution Grid Modernization and Loss Reduction Project,” World Bank, December 15,
2015, accessed December 16, 2015, http://www.worldbank.org/en/news/loans-credits/2015/12/15/dominicanrepublic-distribution-grid-modernization-loss-reduction-project.
23 “CDEEE avanza construcción central termoeléctrica 2 plantas a carbón en Punta Catalina,” Diario Digital
Domincano.com, accessed on November 18, 2014, http://diariodigitaldominicano.com/site/cdeee-avanzaconstruccion-central-termoelectrica-2-plantas-carbon-en-punta-catalina/.
24 Delgado, Esteban, “Las plantas a carbón están limitadas por la falta de recursos,” El Dinero, December 14,
2015, accessed on December 15, 2015, http://www.eldinero.com.do/18726/las-plantas-a-carbon-estan-limitadas-por-la-falta-de-recursos/.
25 As of December 2015, Source: Central Bank of the Dominican Republic.
26 As of November 2014, Source: Lazard estimates.
27 “Energy Imports, net (% of energy use),” World Bank, accessed on December 16, 2015, http://data.worldbank.
org/indicator/EG.IMP.CONS.ZS.
28 As of December 2015, Source: Central Bank of the Dominican Republic.
29 “Statistics, Foreign Sector,” Central Bank of Dominican Republic, accessed on October 3, 2014, http://www.
bancentral.gov.do/index.asp.
30 As of December 2015, Source: Central Bank of the Dominican Republic.
31 De Leon, Viviano, “Medina: la mejor inversión en el 2013 será en educación,” Listin Diario, December 27, 2012,
accessed on December 16, 2015, http://www.listindiario.com/la-republica/2012/12/26/259986/Danilo-Medinala-mejor-inversion-en-el-2013-se-hara-en-la-educacion.
32 De la Rosa, Adalberto, “República Dominicana ocupa el lugar 146 de 148 países con baja calidad de educación,”
Diario Libre, July 29, 2015, accessed on December 16, 2015, http://www.diariolibre.com/noticias/educacion/
republica-dominicana-ocupa-el-lugar-146-de-148-paises-con-baja-calidad-de-educacion-NG686708.
33 Sanchez Zinny, Gabriel, “Latin America’s wake-up call on global school tests,” BBC News, April 8, 2015,
accessed on December 13, 2015, http://www.bbc.com/news/business-32161854.
34 As of January 2014, Source: Bank of Canada Database of Sovereign Defaults.
35 “Dominican Republic Offering Memorandum,” April 2014.
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Important Information
Published on 13 January 2016.
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