Congress Likely to Rubber Stamp Unremarkable New Budget
Economic activity continues to grow at a healthy clip, rising an estimated 7.1% in Q3 and 6.7% y/y, with accumulated January to September growth at 6.4%.
Inflation in September reached 0.16%; accumulated inflation for the first nine months of the year stood at 1.33%; and y/y inflation was 0.39%. This latter rate is well below the 2.84% registered in September 2014.
Monetary aggregates are stable. The Central Bank has put aggregates on a stable nominal growth path, with the main policy tool open market operations. As of September 30th, the weighted average lending rate had declined by 62 points, while the deposit rate had fallen by 122 points. This means that the increase seen in August did not mark a trend, but was a temporary rise. The currency also maintained a slight upward trend in September, rising from DOP 45.15 per dollar on the first day of open market operations, to DOP 45.31 at the end of the month.This contrasts with the near-fixed performance in August, when the currency barely devalued.
The 2016 budget President Danilo Medina proposed to Congress is very similar to the 2015 approved budget, as if the president were purposely avoiding any change, or any increase to strengthen a particular policy. Creativity and innovation are glaringly absent. We expect Congress to approve this bill without significant changes.
Projected revenues are up 7.7% from 2015, while spending is expected to rise 6.9%. The target deficit was set at DOP 75.9 billion, or 2.3% of GDP, roughly flat on 2015. Financial sources are proposed to total $3.67 billion. This is only 1.3% less than projected for 2015. Financial applications are estimated at $2.062 billion, vs. 2.223 billion this year. In net terms, the debt for the NFPS will increase by $1.607 billion, bringing total debt to over $25.5 billion, equivalent to 37.4% of GDP. Primary spending is proposed to increase by just 2%, and as a percentage of GDP, would decline from 14.8% to 14.4%.
The Haitian ban on imports over the border is already in effect, and is expected to affect both Haiti and the Dominican Republic significantly. About $487 million per year in average exports (2012-2014) were subject to the ban. This is equivalent to 41.7% of all Dominican exports to Haiti; to 5.8% of total exports to all destinations; and to 13% of imports from Haiti.
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