Budget amendment bill more than double the government deficit

DOMINICAN REPUBLIC - In Brief 19 Jun 2020 by Pavel Isa

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As announced several weeks ago, President Medina sent a bill to Congress that amends the 2020 budget law. The new budget: a) reduces revenues estimates by 10.3% or 0.7% of GDP. The reduction is less than expected because it includes extraordinary revenues not considered in the previous budget for the equivalent of 0.63% of GDP; b) increases the expenditures of the Central Government by 7.3%. Public spending increases by 5.3% or 2.1% of GDP due to health expenditures to face COVID-19 and social protection to cushion the negative impact on income of the working population of social distancing measures. Debt payments increase by 20.3% or 0.8% of GDP. This is in part the result of the larger than expected depreciation of the DOP; c) redirects expenditures equivalent to 0.39% of GDP to finance health and social protection; d) increases the expected deficit of the Central Government from 2.2% to 5.0% of GDP; e) increase the gross financing needs by DOP 151 bn or USD 2.6 bn (from 5.0% to 8.6% of GDP). Our estimates indicate that, so far this year, the government has already contracted financing for USD 4.6 bn (5.6% of GDP), so it will need to contract new debt for USD 2.4 bn or 3.0% of GDP. In the new budget, 90% of the new financing will be external. f) reduces transfers for the recapitalization of the Central Bank from 0.6% to 0.26% of GDP; and g) in response to the revenue deterioration of the state-owned electricity distribution companies, the debt ceiling of these with commercial banks increases from 0.41% to 0.65% of GDP. However, we anticipate a greater than estimated deficit and that the new government will be forced to reformulate the 2020 budget again with a higher ...