Growth impacted by the US slowdown
The Dominican economy rebounded in 2024, supported by record tourist arrivals (+12% on 2023), strong private investment and an increase in pre-election public spending. The recovery in domestic consumption was aided by monetary easing and a rise in remittances (+6.2% between December 2023 and December 2024). In 2025, a slight slowdown will not dent robust growth, which will continue to be driven by household consumption (65% of GDP in 2023) and encouraged by the ongoing monetary easing. On that score, against a backdrop of inflation close to the lower end of its target range (4±1%) and in order to preserve the Dominican peso's (DOP) peg to the dollar (DOP1 = USD0.016), the Central Bank (CBDR) is set to continue lowering its policy rate. After holding it at 7% since November 2023, the CBDR gradually began cutting it from the end of August 2024 to 5.75% in January 2025. However, the US economic slowdown could moderate the flow of tourists (47% of non-resident tourists in 2023) and remittances (80% from the US). If the Trump administration makes good its promise to deport illegal migrants (estimated at 17% of the 1.3 million Dominicans living in the US), consumption could be further impacted.
Investment in tourism, infrastructure and energy will also support activity. Free trade zones will remain attractive to foreign investors, particularly from Spain and the US, thanks to their tax advantages, dedicated infrastructure and competitive labour costs. Public consumption, impacted by fiscal austerity, will slow after the 2024 electoral cycle.
Exports will be held back by weaker tourism and more sluggish growth in the US (the No. 1 trading partner), while the border with Haiti (third-largest client) will remain partially closed. Furthermore, the new US administration could exert pressure on the issue of migration to push for a renegotiated CAFTA-DR regional free-trade agreement. However, the US enjoys a trade surplus with the Dominican Republic and the free trade zones remain attractive.
Continued fiscal consolidation despite failed tax reform
In 2024, the public deficit rose slightly again on back of increased spending related to the electoral cycle and the crisis in Haiti. The trend should be reversed in 2025. In July 2024, Congress approved the Fiscal Responsibility Law (FRL), imposing a real spending growth ceiling of 3% and anchoring public debt at 40% of GDP by 2035. After the tax reform was abandoned in October 2024, the Senate approved the 2025 budget in December 2024, thereby complying with the FRL. The authorities are concentrating the budgetary adjustment on capital expenditure (-12.5% versus 2024), but projects will continue (Santiago monorail, Santo Domingo metro line 2C, etc.). Budget priorities include education and health (44.5% of total spending) and public works. Security spending linked to the crisis in Haiti is expected to increase. At the same time, the government is planning a gradual reduction in fuel and electricity subsidies. On the revenue side, although tax reform has not been completed, President Abinader is expected to focus on combating tax evasion, which touches on 47% of VAT and 63% of income tax. The 2025 budget could be revised during the year. But ditching the tax reform, which would have raised the spending ceiling by generating more revenue, has crimped budget headroom.
The external share of public debt remains high (56% in 2024). In June 2024, the government issued USD 3 billion in external debt, including USD 750 million via an inaugural green bond. The share of debt denominated in foreign currencies has been gradually reduced (from 75% in 2019 to 67% in September 2024) thanks to an increase in local peso-denominated bond issues on international markets. In the domestic market, issuance increased, reaching 100 billion pesos in 2024, up from 90 billion in 2023.
In 2024, the current account deficit narrowed moderately thanks to robust exports from the free trade zones, a booming tourism sector and a reduction in the energy bill. Financed by FDI (3.5% of GDP), it should hold steady in 2025. Moderation in the energy bill will offset the pressure on import prices. However, the US slowdown is likely to impact tourist flows and exports (60% to the US in 2023) of medical and electronic devices, tobacco, minerals and textiles. Remittances are likely to come under added pressure from the US’ economic slowdown and the tightening of its migration policy. In addition, the partial closure of the border with Haiti (7.2% of total exports in 2023) will weigh heavily. Last, the exchange rate came under pressure in 2024, prompting the CBDR to intervene on the foreign exchange market to prevent further depreciation (3.9% over 2024). International reserves, which stand at a satisfactory level (equivalent to 3.5 months of imports of goods and services) consequently fell from USD 15.3 billion to USD 13.4 billion between July and December 2024, despite the June 2024 bond issue.
Tougher stance on Haiti after Abinader's re-election
Luis Abinader of the centrist Modern Revolutionary Party (MRP) was re-elected in May 2024 with 57% of the vote. His victory spelled dominance in both houses of parliament (MRP won 29 seats out of 32 in the Senate and 147 out of 190 in the Lower House). In February's local elections, the MRP won 134 of the 158 municipalities. On the strength of its majorities, the government has pushed through a number of reforms, including the budget rule and a constitutional reform that has limited presidents to two terms of office, increased the independence of prosecutors and reduced the number of MPs. A reform bill to modernise the Labour Code (dating from 1992) was presented to Congress in October 2024. It aims to improve working conditions and strengthens the protection of national workers, but leaves unchanged the redundancy pay system, which is considered rigid and costly for companies. In October 2024, the Abinader administration was forced to ditch its tax reform, one of the priorities of its second term. The reform was intended to generate additional revenue amounting to 1.5% of GDP by broadening the tax base, reducing exemptions, increasing VAT on certain basic products and reducing certain public expenditure items. Although the bill was already softened, it sparked strong resistance from the public and civil organisations. At the same time, crime, which is fuelled by drug trafficking, and faulty electrical infrastructure remain challenges. Despite efforts to strengthen governance and combat corruption, these issues also weigh heavily on the political agenda.
Relations with Haiti will remain crucial. Since 2021, Haiti has been plunged into a security and economic crisis, which is fuelling mass immigration. The border has been partially closed since October 2023 due to a dispute over a canal built by Haiti to exploit a bi-national waterway. The Dominican government began building a border wall and carried out mass deportation campaigns. In 2024, the authorities deported more than 276,000 Haitians (251,011 in 2023 or 5,000 per week). The policy was tightened in October 2024, with a target of 10,000 weekly deportations. Its approach to migration is likely to continue, but at the same time the UN mission to quell gang violence in Haiti, initiated in June 2024 and led by the Kenyan police, lacks funding and staff. Last, relations with the US, the country's leading trading partner and a major source of FDI, will remain a strategic priority, particularly under the CAFTA-DR agreement, which could be impacted by Donald Trump's protectionist stance.