Medina Still Likely to Win in the First Round
The Ministry of Finance still hasn’t published or reported data on the 2015 fiscal balance. Data is available to November, and is unreliable for forecasting the closure of the year. Still, we expect the NFPS fiscal deficit to come in slightly over its target under the Budget Law.
This year began almost without inflation, despite the increase in the VAT rate for basic foodstuffs, an immobile monetary policy, and tax collection performance that is of some concern. According to Central Bank figures, prices in January remained virtually unchanged from December. Inflation y/y was 2.53%, below the lower limit of the inflation target. For Q1 2016, accumulated inflation is expected to reach 0.7%, and 3.6% by the end of Q4. This is still within the target range.
Tax collection for January 2016 reached DOP 33.7billion, a 3.8% increase from January 2015. This is low, and should be worrisome. But it isn’t new. The trend has been observed over the past several months, and can be partly explained by the fall in oil and gold prices.
Economic growth for Q1 2016 will be about 5.5%. Although this is slightly above the potential growth rate, it will be barely adequate to absorb the annual net growth in the economically active population. We expect a slight decrease in unemployment in H1 and H2.
We expected the current account deficit to continue stable, due to lower growth in total imports, and to stable/moderate export performance. The CAD should stand at 2%-2.2% of GDP by yearend.
At the end of Q1, we expect a NFPS deficit equivalent to 0.9% of GDP, due to rising spending in the runup to national and local elections. This could accelerate in the first half of Q2, before the May elections.Once elections are over, the deficit growth is likely to slow. This will also drive total public debt of the NFPS from 36.7% to 37.9% of GDP by the end of 2016.
After a long and suspicious silence of nearly three quarters, in January two of the most reputable polling firms published results of their fieldwork, confirming what many suspected: support for President Danilo Medina had fallen, while the popularity of main opposition candidate Luis Abinader had increased.Though Medina’s lead shrank, it still looks insurmountable, and our base scenario continues to be a first-round victory for Medina. The risks of major fiscal or monetary imbalances, or of changes in the policy of managing public debt, have also decreased.
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