Fiscal Reform: A Path to Enhanced Investment and Economic Growth for the Dominican Republic?

By Guzmán Ariza, Attorneys at Law

According to a recent article by Emilio Fernandez-Corugedo, Deputy Division Chief, Pamela Madrid, Senior Economist, and Frank Fuentes, Advisor, at the International Monetary Fund (IMF), undertaking crucial fiscal reforms could significantly benefit the Dominican Republic's economy. The IMF experts suggest that if the country implements key reforms, it could see its GDP increase by approximately 2% within 10 years and up to 5% within 30 years.

The article states that a comprehensive fiscal reform is essential to boost economic growth sustainably. Such a reform should focus on broadening the tax base, removing exemptions, and tackling tax evasion. Additionally, improving spending efficiency, including cutting subsidies to the electricity sector and untargeted transfers, is "imperative". 

"These measures would not only create additional economic buffers but also provide the necessary space for development spending, particularly in areas like disaster-resilient infrastructure. To mitigate the impact of these reforms on the most vulnerable populations, well-targeted measures through existing social programs should be employed," the experts conclude.

The IMF article highlights that adjustments to taxation and other policies could help the Dominican Republic realize its full economic potential. Achieving an investment-grade rating for its sovereign bonds would further accelerate progress by reducing interest rates, enhancing capital flows, and expanding the investor base. This, in turn, would lower private sector financing costs and amplify the economy's growth potential.

Moreover, the additional public resources generated from these reforms could be allocated to increasing public investment in infrastructure, which is crucial for mitigating the economic impacts of climate events—a significant concern for the country. The Dominican Republic’s track record of sound policies and robust institutional frameworks has already supported resilient economic growth and low inflation over the past two decades. Enhanced fiscal reforms could build on this foundation, propelling the nation toward even greater economic stability and prosperity.