New government outlines its agenda, as COVID-19 intensifies
The health crisis and economic recovery are President-elect Luis Abinader’s most urgent challenges. The pandemic has intensified over the past two weeks, reaching 66,182 cases and 1,123 deaths, while in the country’s two largest cities, the capacity of the health system is near collapse.
GDP growth projections for 2020 have been revised substantially downward, from close to 0% to -5.3%, which makes the outlook gloomier in terms of unemployment, and tax collection the government needs to address the crisis.
Abinader, who takes office August 16th, announced some of the members of his new cabinet, in such key areas as the economy, health, education and political coordination. The incoming administration expects to introduce a budget modification, given the reduction in revenues, and the need to maintain emergency aid programs and to revive the economy. Public institutions will also be restructured, to eliminate duplication of functions, and waste of resources. How ambitious this restructuring could be is the first trial by fire for the new administration, and may be considered too lukewarm for those who supported it in the campaign, or too aggressive for others, if it involves massive dismissals of state workers -- all amid deepening unemployment.
The Monetary Board has announced a DOP 60 billion expansion of liquidity facilities for companies and households, in order to support economic reactivation.
Monthly inflation in June 2020 was 1.7%, the largest monthly increase since June 2009, when it was 2.2%. Accumulated inflation for January-June 2020 was 0.44%, and y/y inflation reached 2.9% in June.Although inflation has not been an issue, it is necessary to keep a close eye on the situation, since core inflation is increasing (3.5% y/y), and has reached its highest level since 2014.
Monetary aggregates and credit grew considerably in June, from June 2019. The y/y growth rates of the broad monetary base and money in circulation (M1) exceeded 25% both in May and June 2020, and those rates are the highest in the last 10 years.
The central government showed a fiscal deficit of DOP 166.7 billion in H1, greater than the deficit target established in the original 2020 budget law for the whole year. Congress on June 21st approved the budget amendment that increased the fiscal balance target from an original deficit of 2.2% of GDP to 5%. Although the H1 fiscal balance represented 50% of the deficit target of the budget amendment, the probability of a larger deficit is high.
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