The Dominican Republic (DR) is a middle-income country, with the largest economy of Central America and the Caribbean. The country has weathered the global economic crisis well and in 2010 experienced one of the highest growth rates in the region (7.8 percent). GDP growth slowed to a 4.5 percent rate in 2011, in the context of global economic slowdown. Solid growth performance can be attributed to inherent economic advantages including proximity to large markets (US).

But growth has not been always inclusive.  The country has been able to bring extreme poverty back to pre-2003 financial crisis levels, and inequality has been on decline; however, moderate poverty incidence is still larger than a decade ago.

The domestic economic and financial crisis of 2003 pushed 1.4 million people into poverty. Extreme poverty levels have been improving, from 16.5 percent in October 2004 to 9.3 percent in October 2011. Inequality has also decreased, as reflected by a decline in the GINI index from 0.52 in 2012 to 0.50 in 2011. Moderate poverty levels are nowadays (34.2 percent of total population) still above those of October 2002 (29.1 percent). 

Access to public social services remains a challenge for many Dominicans – especially poor households – and the quality of education and health is well below comparable countries in the region.  The DR has one of the lowest levels of public spending on education in the region (2.4% of GDP), and the lowest performance on standardized tests.     

Improved macro-economic management has achieved positive results in terms of public debt, international reserve ratios and inflation. Following a high of 47.4 percent in 2004 in the aftermath of the domestic financial and economic crisis consolidated public debt declined to 36.4 percent of GDP in April 2011. Thanks to an effective monetary policy, end of the year inflation declined from 28.7 percent in 2004 to single digits: 5.8 percent in 2009, 6.2 percent in 2010 and 7.8 percent in 2011.

A Stand-By Arrangement with the International Monetary Fund (IMF) - approved in November 2009- facilitated the implementation of a counter-cyclical fiscal policy. With the support of the IMF, in the second half of 2010 the DR started a process of fiscal consolidation. In July 2011, the DR completed the fifth and six reviews under the  Agreement, with total disbursements to date amounting US$ 1200 million. Higher than expected electricity sector deficit (US$ 900 million compared to a US$ 690 million target) coupled with weak revenue collection, resulted in the central government fiscal target being missed in December 2011 (a deficit of 2.6 percent of GDP compared to the programmed 1.6 percent). The Stand-by Agreement has expired, remaining the 7th and 8th reviews uncompleted and approximately US$ 534 million undisbursed.

Despite the overall resilient economic performance of the DR economy, some risks persist, as the DR remains vulnerable to external shocks. Economic growth is vulnerable to sustained high oil prices, a slower global recovery or an eventual exchange rate shock. The main transmission channels in an eventual global crisis would be external (due to dependency on imports and large current account deficit) and fiscal (weak revenue performance and large electricity sector burden). On the other hand, financial sector reforms introduced in the last decade, relatively low debt levels, sound monetary policy, exchange rate stability and solid growth performance in the past few years will help to mitigate risks during an eventual global crisis. 

The governance environment in the Dominican Republic is complex and remains a hurdle for achieving sustainable, equitable, and inclusive growth. In spite of important progress in recent years, the country continues to be characterized by a strong Presidential system and weak oversight institutions.  There is a need to strengthen media scrutiny and judiciary independence. And civil society has limited power to hold the Government accountable. Public institutions have limited capacity to increase public sector’s performance and offer better public services. This contributes to the public’s perception of high corruption and low trust in government. The implementation of a new legal framework has been slow and seems to depend specifically on the interest of the concerned ministry. The Government and the public are both eager to see tangible changes in public sector performance.

The current political context in the Dominican Republic is marked by stability. President Leonel Fernandez, who served from 1996-2000 and again from 2004-2008, was re-elected in May 2008 by a significant margin. The ruling party also expanded its Congressional majority in the May 2010 Congressional elections (holding 31 of 32 seats in the Senate and a simple majority in the lower chamber), setting the basis for continued policy reforms and initiatives, including a notable focus on strengthening social cohesion and transparency.  Presidential elections are scheduled for May 2012. 

External links:
Presidency of the Dominican Republic (in Spanish)
Doing Business 2012
Dominican Republic – CAFTA (in Wikipedia) 

The Dominican Republic Country Partnership Strategy 2010-2013 emphasizes protecting the poor while enhancing competitiveness and strengthening public institutions for performance accountability. Its four strategic objectives are: (i) strengthen social cohesion and improve access to and quality of social services, (ii) promote competitiveness in a sustainable and resilient economic environment, (iii) enhance quality of public expenditures and institutional development, and (iv) build capacity and constituencies for reform.

The strategy combines investment and policy-based lending with analytical work. In the first half of the current CPS, the Bank has provided record support to the Dominican Republic.  Since 2009, US$600.5 million have been approved. The current Bank portfolio consists of 7 investment operations with total commitments of US$266.9, and several Non-Lending Technical Assistance instruments (NLTA).

The CPS contains a robust framework for supporting the Government’s governance and public sector reform agenda with an array of interconnected instruments. Among these instruments, the programmatic development policy loan (DPL) on performance and accountability of social sectors includes a component to support a series of reforms to build a culture of results in public administration.

Also the Municipal Development Investment Loan includes institutional development activities to strengthen capacity of local governments; and the second Health Sector Reform Loan (PARSS II) includes a series of actions to support performance-based management within the health sector. Additionally, there are number of NLTA instruments, which will focus on underlying political economy and governance issues that prevent the country from addressing fundamental development challenges in key sectors that include education, health, and energy.

Engagement of the World Bank Group
The International Finance Corporation (IFC), a member of the World Bank Group, is the largest global development institution focused on the private sector. IFC's committed investment portfolio in the Dominican Republic is $232 million in 19 projects. IFC operates with an integrated approach providing investment products and advisory services in the Dominican Republic with a focus to invest in projects that help improve infrastructure, promote competitiveness and increase access to finance for small and medium enterprises to stimulate economic growth and job creation. IFC also supports climate change mitigation efforts and promotes the growth of energy efficiency solutions in the private sector. In addition, IFC has developed advisory services projects focused on access to finance and energy efficiency.
For more information please visit: www.ifc.org/lac

Since FY06, Multilateral Investment Guarantee Agency (MIGA), has been guaranteeing the Santo Domingo-Samaná toll road and exploring other projects in the transportation sector which have yet to materialize. MIGA currently supports the infrastructure sector in the country via nine guarantee contracts for a gross amount of $100 million.

External links:

See All Projects
Country Partnership Strategy with the Dominican Republic 2010-2013
Statement of Loans and Credits

RESULTS:

The focus of the Country Partnership Strategy (CPS) on providing quick disbursing funding to help maintain counter-cyclical Government spending has been critical in supporting the Government’s efforts to contain the economic and social repercussions of the global financial crisis. 

With Bank support through the PASS DPL series and the Social Protection SIL, the Government has advanced reforms to realize the full potential of the Solidaridad program to promote investment in health, nutrition and education by the poorest families.  In line with regional practices for Conditional Cash Transfer Programs, the DR Government has consolidated a redesigned Solidaridad as the primary axis of the Social Protection System in the country. The program has contributed to an increase in the percentage of extreme poverty households participating, from 51 percent in 2002 to 70 percent in November 2010.  A first verification in education reached 80 percent of Solidaridad beneficiary students to validate enrollment, and the verification of co-responsibilities for health covered 70 percent of beneficiaries.

The CPS has mainstreamed governance objectives, including: (i) improved budget management; (ii) progress toward performance-informed budgeting; and (iii) increased management capacity in poor municipalities, into the PASS DPL series (multiple reforms to build a culture of results in the public administration), the Municipal Development Project investment operation (institutional development activities to strengthen capacity of local governments), and the second Health Sector Reform Second Phase APL (PARSS2) supporting performance based management in the health sector.  Three knowledge services provide additional analytical support, including a Quality of Public Expenditures NLTA, the Programmatic Social Sector NLTA and an Institutional and Governance Review.

The Youth Development Project has surpassed the target of 25,000 at-risk youth trained, 45 percent of whom are women, by building their work experience and life skills. 

The Financial Sector Technical Assistance Project (closed in December 2011) has contributed to the complete reform and subsequent upgrade of the payment systems, and as a result the DR has been selected in 2010 as the “hub” for the Central American Payment Systems.

In response to increased demands from Government, civil society, and other international financial agencies, the CPS has supported strengthening the demand for good governance. The Anticorruption Participatory Initiative (IPAC), led by Government and the Bank, has mobilized 11 other international development agencies and local stakeholders to establish, monitor, and report on the implementation of a wide variety of anti-corruption initiatives.  Results so far include: (i) the publication of a web-based user-friendly tool that will provide public access to budget information fed by the Financial Management Information System (SIGEF); (ii) a web-based portal with monthly updates that inform citizens of the expected and actual electricity supply in each circuit; (iii) a new performance assessment framework for civil servants that will contribute to the professionalization of the public administration; and (iv) the enactment of a Presidential Decree for the implementation of the single treasury account.  IPACs organizing committee, consisting of Government, private sector, and civil society, recently agreed to continue beyond the mandate of the international community’s support for the implementation of the medium-term set of reforms currently under execution.

IFC's support to the compressed natural gas distributor Linea Clave, combined with a US$20 million Sustainable Energy credit line to Banco BHD, will help small industries in DR convert from heavy fuel oil to natural gas, generating both financial savings and carbon emissions reductions. With US$20 million support to the expansion of the Punta Cana airport and US$17.5 million support to the expansion of the Caucedo port, IFC has continued supporting major improvements to the country's competitiveness in the tourism and trade areas. In the telecommunications sector, IFC aims to promote increased competition with its support to the expansion of WIND Telecom (US$16 million subordinated debt plus US$12 million B-Loan).  Finally, IFC supported Banco León with a US$5 million trade finance credit line. 

CONTACTS:

Alejandra De La Paz
Tel. 809-566-6815, Ext. 256
Fax 809-566-7189
email: adelapaz@worldbank.org