Higher public investment and deficit driving 2025 growth
The Dominican economy grew by just 2.4% in H1 2025, half of its potential. To stimulate activity, the government approved a budget amendment that raises capital spending by 0.4% of GDP, increasing the overall deficit by the same amount. With the same objective, the Central Bank has continued the liquidity facility created in June 2025 for DOP81 billion ($1.3 billion).
Economic activity improved in July 2025 (2.9% y/y), but the January–July cumulative rate (2.5% y/y) remains weak. As of August 2025, the response of private sector credit and the borrowing rate to monetary stimulus has been modest. Meanwhile, the currency has shown high volatility: in August the end-of-period rate depreciated 3.57%, although by September 17th it had appreciated by 2.25%.
The good news is that y/y inflation in August 2025 remained within the target range (3.7%), and the external sector is performing strongly, driven by higher gold and cocoa prices, record remittances and a solid flow of FDI. The labor market is also showing positive results: in Q2 2025, expanded unemployment fell for the fifth consecutive quarter, open unemployment remained at relatively low levels and job creation was concentrated in the formal sector.
However, although higher public investment in 2025 will be financed with unused resources from previous years, the question remains about how it will be sustained from 2026 onward. In its recent Article IV review, the IMF emphasized that creating fiscal space for higher investment necessitates rationalizing public spending—particularly electricity subsidies—and increasing fiscal revenues.
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