Dominican Fiscal Deficit To Narrow In 2023, As Government Limits Expenditure Growth

• Fitch Solutions has revised its 2022 fiscal deficit forecast for the Dominican Republic to 3.4% of GDP, from 3.1% previously, as expenditures surprised to the upside in mid-2022. In response to inflationary pressures from the Russian invasion of Ukraine, the government increased public sector wages by 18.6% y-o-y and subsidies by 160.6% in the year through October – which represent 25.7% and 12.6% of current expenditures, respectively – while revenue growth has remained stable.
• In 2023, the fiscal deficit is expected to narrow to 3.2% of GDP, primarily due to subdued expenditures, which will fall from 19.6% of GDP in 2022 to 19.1% in 2023. Fitch expects that the government will prioritize fiscal consolidation in the year ahead, as a global rate-tightening cycle has raised the cost of borrowing.
• Current expenditure is expected to decline significantly from 17.7% of GDP in 2022 to 16.8% in 2023, as the government attempts to temper subsidies – particularly on fuels and transportation – and public sector wage spending. Despite the overall reduction in government spending in per cent of GDP terms, it will remain above 2021 levels, but much less than the pre-pandemic average.
• Government revenues will remain stable, falling only slightly from 15.9% of GDP in 2022 to 15.8% in 2023. Fitch expects that growth in 2023 will ease from 4.6% in 2022 to 4.2%, as softer goods and tourism demand from the US dampens DR export growth.
• Fitch forecast that the government debt burden will continue to grow from 47.5% of GDP in 2022 to 47.7% in 2023. Additionally, elevated global interest rates have raised borrowing costs, which will also pressure the Abinader administration to cut its debt load. Consequently, total government debt is expected to fall to 47.2% by 2026.

(Source: Fitch Solutions)