The Central Bank (BCRD) today justified the increase in the country’s national debt by stating that “it is not the first time that a crisis has caused an increase in the debt burden” and stressed that it is no coincidence that global rating agencies maintain creditworthiness of the country’s national debt.
In the open page entitled, “Pandemic, Economic Reactivation and Debt Sustainability”, analysts from the BCR International Section show the crisis experienced in Latin America in 1987, pushing consolidated public debt (CPD) to its historic maximum. of 83%. of gross domestic product (GDP), and what happened in the 1990s, when the Dominican financial crisis caused government debt to increase from 21.9% of GDP in 2002 to 46.9% of GDP in 2004.
They argue that the coronavirus crisis (COVID-19) has caused a -7.7% decline in economic activity, which, along with the fiscal measures taken to support businesses, households and workers, has triggered budgetary additions that could bring the level of Dominican debt to 68.1% of GDP by the end of 2020.
Economists argue in their analysis that this is why the rating agencies jointly point this out The Dominican Republic’s main economic challenge is the adoption of a tax reform, which they indicate would have a beneficial effect on creditworthiness and ensure debt sustainability.
They say that the tax pactconvened in October by President Luis Abinader and will be addressed in 2021, requires the sacrifice of all actors in society (citizens, businesses and government) and must take into account the balance between gradually returning to a path of fiscal sustainability and promoting recovery from the current economic and health crisis.
“The fiscal impulse requires higher income, financing and cost reductions this could be seen as unnecessary, especially when considering stabilizing the debt burden, ”they said in the statement.
They point out that in order to stabilize the debt-to-GDP ratio at around 70%, the government needs a consolidated primary balance of 1.8% of GDP in the long term, while the long-term debt burden must be on a downward trajectory at 60% of GDP this balance could be between 2.0% and 2.3% of GDP and To achieve a debt level of 50% of GDP over a 25-year period, comparable to that of before the pandemic crisis, a primary balance of 2.4% of GDP could be chosen.
They argue that regardless of the strategy and subsequent agreement reached with the tax pact, the government and the various actors in society They need to consider the balance between the structural reforms necessary for the sustainability of public finances and the need to continue to support businesses, households and workers.
After highlighting the economic indicators the country has achieved this year, BCRD economic analysts conclude that the government is aware of its fiscal and health realities and that it is “moving in the right direction”.
They point out that it should be remembered that now is the time to continue to support the economy, especially those hard hit sectors such as tourism, by providing the necessary liquidity and direct assistance to Dominican families through a fiscal policies that implement timely and effective social programs that encourage public investment in infrastructure projects that benefit the country in the medium and long term.