A budget amendment bill will double the deficit

DOMINICAN REPUBLIC - In Brief 14 May 2020 by Pavel Isa

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The government is preparing to submit a bill to Congress aimed at amending the 2020 budget law. The Ministry of Finance announced that the bill will be submitted in the second half of May and that the new budget would increase the deficit target of from the equivalent of 2.2% of GDP to 4.5% of GDP. The size of the increase suggests two things. First, that the proposal is limited to a restructuring that would allow to cover: a) the increase in spending on health and social protection in the context of the health crisis, and b) the reduction in tax collections resulting from the partial economic paralysis . Second, that it is not considering a medium-term fiscal package to stimulate growth. The reason this appears to be that the term of government is slated to end on August 16 and that it is leaving the task to the new government. The expected increase in the fiscal gap is 2.3% of GDP. Presumably, the sources of the increase in financing are as follow: a) 0.30% of GDP from the contingency fund for occupational risks (assets of the General Government), b) 0.26% of GDP from a loan by the Central Bank (allowed by law under a state of emergency), c) 0.18% of GDP from a World Bank loan (pre-approved in 2017), d) 0.76% of GDP from an IMF loan through the through the Rapid Financing Instrument (RFI), and e) 0.87% of the GDP of financing provided by pension fund management organizations (AFPs by its Spanish acronym). This financing, announced just yesterday, involved an operation in which the AFPs liquidated Central Bank titles and bought titles from the Ministry of Finance. Therefore, it was a debt switch from the Financial Public Sector (FPS) to the Non-Financial Public Sector...